SHAREHOLDERS' EQUITY

9 Months Ended

Oct. 03, 2014

SHAREHOLDERS' EQUITY

SHAREHOLDERS’ EQUITY

Stock Repurchase Activities

In August 2014, the Company’s Board of Directors approved a stock repurchase program (“2014 Stock Repurchase Program”), authorizing the Company to repurchase up to $300.0 million of Trimble’s common stock, replacing a stock repurchase program which has been in place since 2011 and had $52.3 million remaining unused. During the first three quarters of fiscal 2014, under the provisions of both the 2014 and 2011 Stock Repurchase Programs, the Company repurchased approximately 2,083,000 shares of common stock in open market purchases, all of which were made in the third quarter, at an average price of $31.20 per share, for a total of $65.0 million. No shares of common stock were repurchased during the third and first three quarters of fiscal 2013. The purchase price was reflected as a decrease to common stock based on the average book value per share for all outstanding shares calculated for each individual repurchase transaction. The excess of the purchase price over this average for each repurchase was charged to retained earnings. As a result, retained earnings was reduced by $55.5 million in the third quarter and the first three quarters of fiscal 2014. Common stock repurchases under the program were recorded based upon the trade date for accounting purposes. All common shares repurchased under this program have been retired. As of the third quarter of fiscal 2014, the 2014 Stock Repurchase Program had remaining authorized funds of $282.8 million. Under the share repurchase program, the Company may repurchase shares from time to time in open market transactions, privately negotiated transactions, accelerated share buyback programs, tender offers, or by other means. The timing and amount of repurchase transactions will be determined by the Company’s management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice.

Stock-Based Compensation Expense

The Company accounts for its employee stock options, restricted stock units and employee stock purchase plan (ESPP) under the fair value method, which requires stock-based compensation to be estimated using the fair value on the date of grant using an option-pricing model. The value of the portion of the award that is expected to vest is recognized as expense over the related employees’ requisite service periods in the Company’s Condensed Consolidated Statements of Income.

The following table summarizes stock-based compensation expense related to employee stock-based compensation (for all plans) included in the unaudited Condensed Consolidated Statements of Income for the third quarter and the first three quarters of fiscal 2014 and 2013.

	Third Quarter of				First Three Quarters of
	2014		2013		2014		2013
(Dollars in thousands)
Cost of sales	$	776	$	609	$	2,286	$	1,816
Research and development	1,600		1,265		4,815		3,644
Sales and marketing	2,062		1,816		6,022		5,341
General and administrative	6,600		5,215		19,002		15,357
Total operating expenses	10,262		8,296		29,839		24,342
Total stock-based compensation expense	$	11,038	$	8,905	$	32,125	$	26,158

Fair value of Trimble Options

Stock option expense recognized in the unaudited Condensed Consolidated Statements of Income is based on the fair value of the portion of share-based payment awards that is expected to vest during the period and is net of estimated forfeitures. The Company’s compensation expense for stock options is recognized on a straight-line basis over the vesting period, typically four to five years. The fair values for stock options are estimated on the date of grant using the binomial valuation model. The binomial model takes into account variables such as volatility, dividend yield rate and risk free interest rate. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term. For options granted during the third quarter and the first three quarters of fiscal 2014 and 2013, the following weighted average assumptions were used:

	Third Quarter of		First Three Quarters of
	2014	2013	2014	2013
Expected dividend yield	—	—	—	—
Expected stock price volatility	35.4%	34.7%	35.4%	34.8%
Risk free interest rate	0.9%	0.5%	1.2%	0.5%
Expected life of options	3.9 years	3.8 years	4.0 years	4.0 years

Expected Dividend Yield – The dividend yield assumption is based on the Company’s history and expectation of dividend payouts.

Expected Stock Price Volatility – The Company’s computation of expected volatility is based on a combination of implied volatilities from traded options on the Company’s stock and historical volatility, commensurate with the expected life of the stock options.

Expected Risk Free Interest Rate – The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the expected life of the stock options.

Expected Life Of Options – The Company’s expected life represents the period that the Company’s stock options are expected to be outstanding and is determined based on historical experience of similar stock options with consideration to the contractual terms of the stock options, vesting schedules and expectations of future employee behavior.

Fair value of Restricted Stock Units

Restricted stock units are converted into shares of Trimble common stock upon vesting on a one-for-one basis. Vesting of restricted stock units is subject to the employee’s continuing service to the Company. The compensation expense related to these awards is determined using the fair value of Trimble’s common stock on the date of grant, and the expense is recognized on a straight-line basis over the vesting period. Restricted stock units typically vest at the end of three years.

Fair value of Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan, rights to purchase shares are generally granted during the second and fourth quarter of each year. The fair value of rights granted under the Employee Stock Purchase Plan is estimated at the date of grant using the Black-Scholes option-pricing model.