8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 OR 15(d)

of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 6, 2014

Trimble Navigation Limited

(Exact name of registrant as specified in its charter)

California	001-14845	94-2802192
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer I.D. No.)

935 Stewart Drive, Sunnyvale, California, 94085

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (408) 481-8000

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On May 6, 2014, Trimble Navigation Limited (the “Company”) issued a press release reporting its financial results for the quarter ended April 4, 2014. A copy of the press release is furnished as Exhibit 99.1 and is incorporated herein by this reference.

The information in this Current Report on Form 8-K, including the exhibit, is furnished pursuant to Item 2.02 and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (“Exchange Act”), or otherwise subject to the liabilities of that section. The information in this Current Report on Form 8-K shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, whether made before or after the date of this Current Report, regardless of any general incorporation language in such filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits.

Exhibit No.	Description
99.1	Press Release dated May 6, 2014 relating to the Company’s financial results for the quarter ended April 4, 2014.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	TRIMBLE NAVIGATION LIMITED
	a California corporation
Dated: May 6, 2014	By:	/s/ François Delépine
	François Delépine
	Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description
99.1	Press Release dated May 6, 2014 relating to the Company’s financial results for the quarter ended April 4, 2014.

EX-99.1

Exhibit 99.1

Trimble Reports First Quarter 2014 Results

First Quarter 2014 Revenue $604.7 Million, Up 9 Percent; GAAP Operating Margin 12.5 Percent; Non-GAAP Operating Margin 21.2 Percent; GAAP Diluted Earnings Per Share $0.26; Non-GAAP Diluted Earnings Per Share $0.39

SUNNYVALE, Calif., May 6, 2014 – Trimble (NASDAQ: TRMB) today announced financial results for the first quarter of 2014.

First Quarter 2014 Financial Highlights

• First quarter 2014 revenue of $604.7 million was up 9 percent as compared to the first quarter of 2013. Engineering and Construction revenue was $309.3 million, up 16 percent, with growth across all major product categories. Field Solutions revenue was $138.2 million, down 6 percent due primarily to weaker than expected sales of agriculture products, partially offset by an increase in Geographic Information System (GIS) sales. Mobile Solutions revenue was $118.6 million, up 8 percent due primarily to double-digit growth in sales of transportation and logistics solutions. Advanced Devices revenue was $38.7 million, up 22 percent. Revenue in all major regions grew despite a year-over-year drop in Russia.

• GAAP operating income was $75.7 million, up 34 percent as compared to the first quarter of 2013. GAAP operating margin was 12.5 percent of revenue as compared to 10.2 percent of revenue in the first quarter of 2013. Non-GAAP operating income of $128.2 million was up 16 percent as compared to the first quarter of 2013. Non-GAAP operating margin was 21.2 percent of revenue as compared to 19.8 percent of revenue in the first quarter of 2013, driven primarily by growth in non-GAAP gross margin to 57.7 percent of revenue. GAAP gross margin was 54.1 percent of revenue.

• GAAP net income was $68.6 million, up 38 percent as compared to the first quarter of 2013. Diluted GAAP earnings per share were $0.26 as compared to diluted GAAP earnings per share of $0.19 in the first quarter of 2013. First quarter GAAP results include a $15.1 million gain associated with a partial equity sale of a joint venture, which is excluded from non-GAAP results. Non-GAAP net income of $102.6 million was up 5 percent as compared to the first quarter of 2013. Diluted non-GAAP earnings per share were $0.39 as compared to diluted non-GAAP earnings per share of $0.38 in the first quarter of 2013. The GAAP tax rate was 23 percent. Excluding the impact of the equity sale gain, the non-GAAP tax rate was 20 percent.

• Operating cash flow was $83.4 million as compared to $37.4 million in the first quarter of 2013. First quarter 2013 operating cash flow was unusually low due to the timing of working capital requirements.

Forward Looking Guidance

For the second quarter of 2014 Trimble expects revenue to be between $605 million and $630 million with GAAP earnings per share of $0.22 to $0.26 and non-GAAP earnings per share of $0.38 to $0.42. Non-GAAP guidance excludes the amortization of intangibles of $37 million related to previous

acquisitions, anticipated acquisition costs of $4 million and the anticipated impact of stock-based compensation expense of $11 million. Both GAAP and non-GAAP earnings per share assume a 20 to 22 percent tax rate and approximately 265 million shares outstanding.

“We did not meet our original expectations in the quarter,” said Steven W. Berglund, Trimble’s president and chief executive officer. “The shortfall to expectation was focused in the North American agriculture business, which was adversely affected by a number of factors including weather conditions. The rest of the company demonstrated double-digit revenue growth and a significant increase in profitability. In particular, we are seeing an improving environment in construction. In the short term, we anticipate some volatility in agriculture, but the long-term growth prospects are unchanged and we remain optimistic about the second half of the year.”

Investor Conference Call / Webcast Details

Trimble will hold a conference call on May 6, 2014 at 1:30 p.m. PT to review its first quarter 2014 results. It will be broadcast live on the Web at http://investor.trimble.com. Investors without Internet access may dial into the call at (800) 528-9198 (U.S.) or (702) 928-6633 (international). The pass code is 6694146. The replay will also be available on the Web at the address above.

Use of Non-GAAP Financial Information

To help our investors understand our past financial performance and our future results, as well as our performance relative to competitors, we supplement the financial results that we provide in accordance with generally accepted accounting principles, or GAAP, with non-GAAP financial measures. These non-GAAP measures can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. Our management regularly uses our supplemental non-GAAP financial measures internally to understand, manage and evaluate our business, and to make operating decisions. These non-GAAP measures are among the primary factors management uses in planning for and forecasting future periods. We believe that these non-GAAP financial measures reflect an additional way of viewing aspects of our operations that, when viewed with our GAAP results, provide a more complete understanding of factors and trends affecting our business. Further, we believe some of our investors track our “core operating performance” as a means of evaluating our performance in the ordinary, ongoing, and customary course of our operations. Core operating performance excludes items that are non-cash, not expected to recur or not reflective of ongoing financial results. Management also believes that looking at our core operating performance provides a supplemental way to provide consistency in period to period comparisons.

The specific non-GAAP measures, which we use along with a reconciliation to the nearest comparable GAAP measures and the explanation for why these non-GAAP measures provide useful information to investors regarding our financial condition and results of operations and why management chose to exclude selected items can be found at the end of this release. The method we use to produce non-GAAP results is not computed according to GAAP and may differ from the methods used by other companies. Our non-GAAP results are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Investors are encouraged to review the reconciliation of our non-GAAP financial measures to the comparable GAAP results, which is attached to this earnings release. Additional financial information about our use of non-GAAP results can be found on the investor relations page of our Web site at http://investor.trimble.com.

About Trimble

Trimble applies technology to make field and mobile workers in businesses and government significantly more productive. Solutions are focused on applications requiring position or location—including surveying, construction, agriculture, fleet and asset management, public safety and mapping. In addition to utilizing positioning technologies, such as GPS, lasers and optics, Trimble solutions may include software content specific to the needs of the user. Wireless technologies are utilized to deliver the solution to the user and to ensure a tight coupling of the field and the back office. Founded in 1978, Trimble is headquartered in Sunnyvale, Calif.

For more information visit: www.trimble.com.

Safe Harbor

Certain statements made in this press release are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are made pursuant to the safe harbor provisions of the Securities Litigation Reform Act of 1995. These statements include expectations for future financial market and economic conditions, the impact of acquisitions, the ability to deliver revenue, earnings per share and other financial projections that Trimble has guided for the second quarter and full year 2014, the expected tax rate, the anticipated impact of stock-based compensation expense, the amortization of intangibles related to previous acquisitions and the anticipated number of shares outstanding and interest costs. These forward-looking statements are subject to change, and actual results may materially differ from those set forth in this press release due to certain risks and uncertainties. The Company’s results may be adversely affected if the Company is unable to market, manufacture and ship new products, obtain new customers, or integrate new acquisitions. The Company’s results would also be negatively impacted by weakening in the macro environment. Any failure to achieve predicted results could negatively impact the Company’s revenues, cash flow from operations, and other financial results. The Company’s financial results will also depend on a number of other factors and risks detailed from time to time in reports filed with the SEC, including its quarterly reports on Form 10-Q and its annual report on Form 10- K, such as changes in economic conditions, critical part supply chain shortages, possible write-offs of goodwill, and regulatory proceedings affecting GPS. Undue reliance should not be placed on any forward-looking statement contained herein, especially in light of greater uncertainty than normal in the economy in general. These statements reflect the Company’s position as of the date of this release. The Company expressly disclaims any undertaking to release publicly any updates or revisions to any statements to reflect any change in the Company’s expectations or any change of events, conditions, or circumstances on which any such statement is based.

FTRMB

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share data)

(Unaudited)

	First Quarter of
	2014			2013
Revenues:
Product	$	442,569		$	412,787
Service		93,319			81,596
Subscription		68,833			61,728
Total revenues		604,721			556,111
Cost of sales:
Product		203,752			198,701
Service		34,179			30,843
Subscription		19,010			19,972
Amortization of purchased intangible assets		20,888			19,681
Total cost of sales		277,829			269,197
Gross margin		326,892			286,914
Gross margin (%)		54.1	%		51.6	%
Operating expenses
Research and development		76,376			73,608
Sales and marketing		97,354			83,623
General and administrative		57,433			51,970
Restructuring		337			1,605
Amortization of purchased intangible assets		19,681			19,651
Total operating expenses		251,181			230,457
Operating income		75,711			56,457
Non-operating income (loss), net
Interest expense, net		(3,683	)		(5,071	)
Foreign currency transaction loss, net		(155	)		(1,569	)
Income from equity method investments, net		3,463			4,257
Other income, net		13,139			295
Total non-operating income (loss), net		12,764			(2,088	)
Income before taxes		88,475			54,369
Income tax provision		20,350			5,437
Net income		68,125			48,932
Less: Net loss attributable to noncontrolling interests		(499	)		(876	)
Net income attributable to Trimble Navigation Ltd.	$	68,624		$	49,808
Earnings per share attributable to Trimble Navigation Ltd.
Basic	$	0.26		$	0.20
Diluted	$	0.26		$	0.19
Shares used in calculating earnings per share:
Basic		259,789			255,181
Diluted		264,784			260,299

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

As of	First Quarter of 2014		Fiscal Year End 2013
Assets
Current assets:
Cash and cash equivalents	$	165,226	$	147,227
Accounts receivables, net		397,740		337,932
Other receivables		21,505		23,143
Inventories, net		266,700		254,311
Deferred income taxes		40,186		38,597
Other current assets		39,514		35,807
Total current assets		930,871		837,017
Property and equipment, net		149,609		142,975
Goodwill		1,990,457		1,989,470
Other purchased intangible assets, net		583,075		619,399
Other non-current assets		123,571		111,979
Total assets	$	3,777,583	$	3,700,840
Liabilities
Current liabilities:
Current portion of long-term debt	$	52,054	$	106,402
Accounts payable		120,148		112,522
Accrued compensation and benefits		83,011		95,866
Deferred revenue		207,497		159,295
Accrued warranty expense		18,136		17,781
Other accrued liabilities		82,126		85,124
Total current liabilities		562,972		576,990
Non-current portion of long-term debt		612,598		652,056
Non-current deferred revenue		23,127		20,431
Deferred income taxes		138,962		136,399
Other non-current liabilities		86,373		80,982
Total liabilities		1,424,032		1,466,858
Commitments and contingencies
Equity
Shareholders’ equity:
Common stock		1,159,907		1,106,017
Retained earnings		1,150,304		1,081,695
Accumulated other comprehensive income		31,802		33,194
Total Trimble Navigation Ltd. shareholders’ equity		2,342,013		2,220,906
Noncontrolling interests		11,538		13,076
Total equity		2,353,551		2,233,982
Total liabilities and equity	$	3,777,583	$	3,700,840

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	First Quarter of
	2014			2013
Cash flow from operating activities:
Net Income	$	68,125		$	48,932
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense		7,520			6,193
Amortization expense		40,569			39,332
Provision for doubtful accounts		516			65
Deferred income taxes		(1,454	)		(11,809	)
Stock-based compensation		10,112			8,818
Income from equity method investments		(3,463	)		(4,257	)
Gain on an equity sale		(15,091	)		—
Excess tax benefit for stock-based compensation		(10,211	)		(4,784	)
Provision for excess and obsolete inventories		1,089			584
Other non-cash items		(728	)		104
Add decrease (increase) in assets:
Accounts receivables		(61,875	)		(61,956	)
Other receivables		(1,661	)		5,027
Inventories		(13,395	)		(20,218	)
Other current and non-current assets		(2,224	)		(10,867	)
Add increase (decrease) in liabilities:
Accounts payable		10,487			(6,081	)
Accrued compensation and benefits		(11,503	)		(12,037	)
Deferred revenue		47,077			51,964
Accrued warranty expense		382			439
Other liabilities		19,123			7,939
Net cash provided by operating activities		83,395			37,388
Cash flow from investing activities:
Acquisitions of businesses, net of cash acquired		(10,961	)		(65,192	)
Acquisitions of property and equipment		(13,574	)		(14,927	)
Dividends received from equity method investments		12,443			1,284
Other		(2,050	)		2,430
Net cash used in investing activities		(14,142	)		(76,405	)
Cash flow from financing activities:
Issuance of common stock, net of tax withholdings		32,465			14,437
Excess tax benefit for stock-based compensation		10,211			4,784
Proceeds from debt and revolving credit lines		17,000			113,000
Payments on debt and revolving credit lines		(110,805	)		(103,981	)
Net cash provided by (used in) financing activities		(51,129	)		28,240
Effect of exchange rate changes on cash and cash equivalents		(125	)		(3,442	)
Net increase (decrease) in cash and cash equivalents		17,999			(14,219	)
Cash and cash equivalents—beginning of period		147,227			157,771
Cash and cash equivalents—end of period	$	165,226		$	143,552

REPORTING SEGMENTS

(Dollars in thousands)

(Unaudited)

	Reporting Segments
	Engineering and Construction			Field Solutions			Mobile Solutions			Advanced Devices
FIRST QUARTER OF FISCAL 2014 :
Revenues	$	309,276		$	138,165		$	118,628		$	38,652
Operating income before corporate allocations:	$	57,515		$	52,937		$	16,170		$	11,676
Operating margin (% of segment external net revenues)		18.6	%		38.3	%		13.6	%		30.2	%
FIRST QUARTER OF FISCAL 2013 :
Revenues	$	266,871		$	147,481		$	110,164		$	31,595
Operating income before corporate allocations:	$	42,973		$	59,526		$	11,573		$	6,485
Operating margin (% of segment external net revenues)		16.1	%		40.4	%		10.5	%		20.5	%

GAAP TO NON-GAAP RECONCILIATION

(Dollars in thousands, except per share data)

(Unaudited)

		First Quarter of
		2014						2013
		Dollar Amount			% of Revenue			Dollar Amount			% of Revenue
GROSS MARGIN:
GAAP gross margin:		$	326,892			54.1	%	$	286,914			51.6	%
Restructuring	( A )		47			0.0	%		55			0.0	%
Amortization of purchased intangible assets	( B )		20,888			3.5	%		19,681			3.6	%
Stock-based compensation	( C )		747			0.1	%		600			0.1	%
Amortization of acquisition-related inventory step-up	( D )		51			0.0	%		603			0.1	%
Non-GAAP gross margin:		$	348,625			57.7	%	$	307,853			55.4	%
OPERATING EXPENSES:
GAAP operating expenses:		$	251,181			41.5	%	$	230,457			41.4	%
Restructuring	( A )		(337	)		-0.1	%		(1,605	)		-0.3	%
Amortization of purchased intangible assets	( B )		(19,681	)		-3.3	%		(19,651	)		-3.5	%
Stock-based compensation	( C )		(9,365	)		-1.5	%		(8,218	)		-1.5	%
Acquisition / divestiture items	( E )		(1,396	)		-0.2	%		(3,418	)		-0.6	%
Non-GAAP operating expenses:		$	220,402			36.4	%	$	197,565			35.5	%
OPERATING INCOME:
GAAP operating income:		$	75,711			12.5	%	$	56,457			10.2	%
Restructuring	( A )		384			0.1	%		1,660			0.3	%
Amortization of purchased intangible assets	( B )		40,569			6.7	%		39,332			7.0	%
Stock-based compensation	( C )		10,112			1.7	%		8,818			1.6	%
Amortization of acquisition-related inventory step-up	( D )		51			0.0	%		603			0.1	%
Acquisition / divestiture items	( E )		1,396			0.2	%		3,418			0.6	%
Non-GAAP operating income:		$	128,223			21.2	%	$	110,288			19.8	%
NON-OPERATING INCOME (LOSS), NET:
GAAP non-operating income (loss), net:		$	12,764					$	(2,088	)
Acquisition / divestiture items	( E )		1,693						(401	)
Gain on an equity sale	( F )		(15,091	)					—
Non-GAAP non-operating loss, net:		$	(634	)				$	(2,489	)
					GAAP and Non-GAAP Tax Rate % (I)						GAAP and Non-GAAP Tax Rate % (I)
INCOME TAX PROVISION:
GAAP income tax provision:		$	20,350			23	%	$	5,437			10	%
Non-GAAP items tax effected	( G )		11,004						5,343
Tax on gain on an equity sale	( H )		(5,836	)					—
Non-GAAP income tax provision:		$	25,518			20	%	$	10,780			10	%
NET INCOME:
GAAP net income attributable to Trimble Navigation Ltd.		$	68,624					$	49,808
Restructuring	( A )		384						1,660
Amortization of purchased intangible assets	( B )		40,569						39,332
Stock-based compensation	( C )		10,112						8,818
Amortization of acquisition-related inventory step-up	( D )		51						603
Acquisition / divestiture items	( E )		3,089						3,017
Gain on an equity sale	( F )		(15,091	)					—
Non-GAAP tax adjustments	( G ),( H )		(5,168	)					(5,343	)
Non-GAAP net income attributable to Trimble Navigation Ltd.		$	102,570					$	97,895
DILUTED NET INCOME PER SHARE:
GAAP diluted net income per share attributable to Trimble Navigation Ltd.		$	0.26					$	0.19
Restructuring	( A )		—						0.01
Amortization of purchased intangible assets	( B )		0.16						0.15
Stock-based compensation	( C )		0.04						0.04
Amortization of acquisition-related inventory step-up	( D )		—						—
Acquisition / divestiture items	( E )		0.01						0.01
Gain on an equity sale	( F )		(0.06	)					—
Non-GAAP tax adjustments	( G ),( H )		(0.02	)					(0.02	)
Non-GAAP diluted net income per share attributable to Trimble Navigation Ltd.		$	0.39					$	0.38
OPERATING LEVERAGE:
Increase in non-GAAP operating income		$	17,935					$	8,554
Increase in revenue		$	48,610					$	53,844
Operating leverage (increase in non-GAAP operating income as a % of increase in revenue)			36.9	%					15.9	%

GAAP TO NON-GAAP RECONCILIATION (CONTINUED)

(Dollars in thousands, except per share data)

(Unaudited)

			First Quarter of
			2014					2013
					% of Segment					% of Segment
SEGMENT OPERATING INCOME:					Revenue					Revenue
Engineering and Construction
GAAP operating income before corporate allocations:			$	57,515		18.6	%	$	42,973		16.1	%
Stock-based compensation	(J	)		3,591		1.2	%		2,862		1.1	%
Non-GAAP operating income before corporate allocations:			$	61,106		19.8	%	$	45,835		17.2	%
Field Solutions
GAAP operating income before corporate allocations:			$	52,937		38.3	%	$	59,526		40.4	%
Stock-based compensation	(J	)		770		0.6	%		717		0.4	%
Non-GAAP operating income before corporate allocations:			$	53,707		38.9	%	$	60,243		40.8	%
Mobile Solutions
GAAP operating income before corporate allocations:			$	16,170		13.6	%	$	11,573		10.5	%
Stock-based compensation	(J	)		1,178		1.0	%		912		0.8	%
Non-GAAP operating income before corporate allocations:			$	17,348		14.6	%	$	12,485		11.3	%
Advanced Devices
GAAP operating income before corporate allocations:			$	11,676		30.2	%	$	6,485		20.5	%
Stock-based compensation	(J	)		496		1.3	%		849		2.7	%
Non-GAAP operating income before corporate allocations:			$	12,172		31.5	%	$	7,334		23.2	%

FOOTNOTES TO GAAP TO NON-GAAP RECONCILIATION

(Unaudited)

Our non-GAAP measures are not meant to be considered in isolation or as a substitute for comparable GAAP measures. The non-GAAP financial measures included in the previous table as well as detailed explanations to the adjustments to comparable GAAP measures, are set forth below:

Non-GAAP gross margin

We believe our investors benefit by understanding our non-GAAP gross margin as a way of understanding how product mix, pricing decisions and manufacturing costs influence our business. Non-GAAP gross margin excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation and amortization of acquisition-related inventory step-up from GAAP gross margin. We believe that these exclusions offer investors additional information that may be useful to view trends in our gross margin performance.

Non-GAAP operating expenses

We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue. Non-GAAP operating expenses exclude restructuring costs, amortization of purchased intangible assets, stock-based compensation, and acquisition/divestiture costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs from GAAP operating expenses. We believe that these exclusions offer investors supplemental information to facilitate comparison of our operating expenses to our prior results.

Non-GAAP operating income

We believe our investors benefit by understanding our non-GAAP operating income trends which are driven by revenue, gross margin, and spending. Non-GAAP operating income excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, and acquisition/divestiture costs associated with external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs. We believe that these exclusions offer an alternative means for our investors to evaluate current operating performance compared to results of other periods.

Non-GAAP non-operating income (loss), net

We believe this measure helps investors evaluate our non-operating income (loss) trends. Non-GAAP non-operating loss, net excludes acquisition and divestiture gains/losses associated with unusual acquisition related items such as adjustments to the fair value of earn-out liabilities and gains or losses related to the acquisition or sale of certain businesses and investments, and a gain on an equity sale. These gains/losses are specific to particular acquisitions and divestitures and vary significantly in amount and timing. We believe that these exclusions provide investors with a supplemental view of our ongoing financial results.

Non-GAAP income tax provision

Non-GAAP items tax effected adjusts the provision for income taxes to reflect the effect of certain non-GAAP items on non-GAAP net income. We believe this information is useful to investors because it provides for consistent treatment of the excluded items in our non-GAAP presentation.

Non-GAAP net income

This measure provides a supplemental view of net income trends which are driven by non-GAAP income before taxes and our non-GAAP tax rate. Non-GAAP net income excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a gain on an equity sale and non-GAAP tax adjustments from GAAP net income. We believe our investors benefit from understanding these exclusions and from an alternative view of our net income performance as compared to our past net income performance.

Non-GAAP diluted net income per share

We believe our investors benefit by understanding our non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the company. Non-GAAP diluted net income per share excludes restructuring costs, amortization of purchased intangible assets, stock-based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a gain on an equity sale and non-GAAP tax adjustments from GAAP diluted net income per share. We believe that these exclusions offer investors a useful view of our diluted net income per share as compared to our past diluted net income per share.

Non-GAAP operating leverage

We believe this information is beneficial to investors as a measure of how much incremental revenue contributed to our operating income. Non-GAAP operating leverage is the increase in non-GAAP operating income as a percentage of the increase in revenue. We believe that this information offers investors supplemental information to evaluate our current performance and to compare to our past non-GAAP operating leverage.

Non-GAAP segment operating income

Non-GAAP segment operating income excludes stock-based compensation from GAAP segment operating income. We believe this information is useful to investors because some may exclude stock-based compensation as an alternative view when assessing trends in the operating income of our segments.

These non-GAAP measures can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. We believe some of our investors track our “core operating performance” as a means of evaluating our performance in the ordinary, ongoing, and customary course of our operations. Core operating performance excludes items that are non-cash, not expected to recur or not reflective of ongoing financial results. Management also believes that looking at our core operating performance provides a supplemental way to provide consistency in period to period comparisons. Accordingly, management excludes from non-GAAP those items relating to restructuring, amortization of purchased intangible assets, stock based compensation, amortization of acquisition-related inventory step-up, acquisition and divestiture costs, a gain on an equity sale, and non-GAAP tax adjustments. For detailed explanations of the adjustments made to comparable GAAP measures, see items (A)-( J ) below.

( A ) Restructuring costs. Included in our GAAP presentation of cost of sales and operating expenses, restructuring costs recorded are primarily for employee compensation resulting from reductions in employee headcount in connection with our company restructurings. We exclude restructuring costs from our non-GAAP measures because we believe they do not reflect expected future operating expenses, they are not indicative of our core operating performance, and they are not meaningful in comparisons to our past operating performance. We have incurred restructuring expense in each of the last three years however the amount incurred can vary significantly based on whether a restructuring has occurred in the period and the timing of headcount reductions.

( B ) Amortization of purchased intangible assets. Included in our GAAP presentation of gross margin and operating expenses is amortization of purchased intangible assets. US GAAP accounting requires that intangible assets are recorded at fair value and amortized over their useful lives. Consequently, the timing and size of our acquisitions will cause our operating results to vary from period to period, making a comparison to past performance difficult for investors. This accounting treatment may cause differences when comparing our results to companies that grow internally because the fair value assigned to the intangible assets acquired through acquisition may significantly exceed the equivalent expenses that a company may incur for similar efforts when performed internally. Furthermore, the useful life that we expense our intangible assets over may be substantially different from the time period that an internal growth company incurs and recognizes such expenses. We believe that by excluding the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed, it provides an alternative way for investors to compare our operations pre-acquisition to those post-acquisitions and to those of our competitors that have pursued internal growth strategies. However, we note that companies that grow internally will incur costs to develop intangible assets that will be expensed in the period incurred, which may make a direct comparison more difficult.

( C ) Stock-based compensation. Included in our GAAP presentation of cost of sales and operating expenses, stock-based compensation consists of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. We exclude stock-based compensation expense from our non-GAAP measures because some investors may view it as not reflective of our core operating performance as it is a non-cash expense. For the first quarter of fiscal 2014 and 2013, stock-based compensation was allocated as follows:

	First Quarter of
(Dollars in thousands)	2014		2013
Cost of sales	$	747	$	600
Research and development		1,477		1,147
Sales and Marketing		1,862		1,764
General and administrative		6,026		5,307
	$	10,112	$	8,818

( D ) Amortization of acquisition-related inventory step-up. The purchase accounting entries associated with our business acquisitions require us to record inventory at its fair value, which is sometimes greater than the previous book value of the inventory. Included in our GAAP presentation of cost of sales, the increase in inventory value is amortized to cost of sales over the period that the related product is sold. We exclude inventory step-up amortization from our non-GAAP measures because it is a non-cash expense that we do not believe is indicative of our ongoing operating results. We further believe that excluding this item from our non-GAAP results is useful to investors in that it allows for period-over-period comparability.

( E ) Acquisition / divestiture items. Included in our GAAP presentation of operating expenses, acquisition costs consist of external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence, and integration costs. Included in our GAAP presentation of non-operating income (loss), net, acquisition / divestiture items includes unusual acquisition, investment, or divestiture gains/losses such as adjustments to the fair value of earn-out liabilities, and gains/losses on acquisitions or divestitures of certain businesses and investments. Although we do numerous acquisitions, the costs that have been excluded from the non-GAAP measures are costs specific to particular acquisitions. These are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.

( F ) Gain on an equity sale. Included in our GAAP presentation of non-operating income, net this amount represents a gain on a partial equity sale of Virtual Site Solutions. We excluded the gain from our non-GAAP measures. We believe that investors benefit from excluding this item from our non-GAAP measures because it facilitates an evaluation of our non-operating income (loss) trends.

( G ) Non-GAAP items tax effected. This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items ( A )-( E ) on non-GAAP net income. We believe this information is useful to investors because it provides for consistent treatment of the excluded items in this non-GAAP presentation.

( H ) Tax on gain on an equity sale. This amount represents the tax effect of a gain on a partial equity sale of Virtual Site Solutions. We excluded this item as it represents the tax effect of a non-recurring gain. We believe that investors benefit from excluding this item from our non-GAAP income tax provision because it facilitates a comparison of the non-GAAP tax rate in the current period to the non-GAAP tax rates in prior periods.

( I ) GAAP and non-GAAP tax rate %. These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes. We believe that investors benefit from a presentation of non-GAAP tax rate percentage as a way of facilitating a comparison to non-GAAP tax rates in prior periods.

( J ) Stock-based compensation. The amounts consist of expenses for employee stock options and awards and purchase rights under our employee stock purchase plan. As referred to above we exclude stock-based compensation here because investors may view it as not reflective of our core operating performance as it is a non-cash expense. However, management does include stock-based compensation for budgeting and incentive plans as well as for reviewing internal financial reporting. We discuss our operating results by segment with and without stock-based compensation expense, as we believe it is useful to investors. Stock-based compensation not allocated to the reportable segments was approximately $4.1 million and $3.5 million for the first quarter of fiscal 2014 and 2013, respectively.