Willa McManmon Steven W. Berglund - Chief Executive Officer, President and Director Julie A.

Shepard - Interim Chief Financial Officer, Principal Accounting Officer and Vice President of Finance

Michael E. Cox - Piper Jaffray Companies, Research Division Richard Valera - Needham & Company, LLC, Research Division Jonathan Ho - William Blair & Company L.L.C., Research Division Andrea James - Dougherty & Company LLC, Research Division Eli S.

Lustgarten - Longbow Research LLC Andrew Spinola - Wells Fargo Securities, LLC, Research Division Ian Ing - Lazard Capital Markets LLC, Research Division

Thank you. Good afternoon.

Today, we will refer to non-GAAP measures, which are reconciled to GAAP measures in our earnings press release and web tables, which are available on our website at www.trimble.com. We'll also make forward-looking statements, including our expectations for second half 2013 financial results.

We wish to caution you that these statements are predictions and that actual events may differ materially. The periodic reports that we file from time to time with the Securities and Exchange Commission, including the company's Form 10-K and 10-Q, discuss important factors that could cause the actual results to differ materially from those contained in our forward-looking comments.

A replay of this call is available by phone and on our website. Dial-in information is contained in our earnings press release.

With that, I'll turn the call over to Steve.

Good afternoon. The issues that impacted us in the first quarter remained with us in the second quarter.

These revolved around inconsistent market conditions in multiple regions, deferrals of investment due to continuing economic uncertainty, harsh weather and confusion around government funding sources. Revenue growth of 11.3% to $576 million was consistent with our expectations, and a non-GAAP operating margin of 20.9% continued our bottom line progression.

The second quarter provided additional evidence of the ongoing development of the Trimble financial model. The non-GAAP gross margin exceeded 56% for the first time since we started reporting non-GAAP gross margin in 2006, which reflects the increasing value of content being provided by bundles of hardware, software and services.

The deferred revenue balance also established a new threshold exceeding $200 million for the first time, driven by greater recurring revenue and more enterprise sales. The non-GAAP operating expense level was at 35.4% of revenue, with the increase entirely due to the impact of recent acquisitions.

As we discussed in prior calls, the opportunity for us is to bank the higher gross margins and to work expenses as a percentage of revenue down to historical levels, providing operating margin lift. We expect to achieve this leverage without reducing the current relative R&D spending level, which was slightly over 13% of revenue in the second quarter.

The regional results for the quarter reflected the uncertainty we are experiencing in the market, particularly in Europe and Asia-Pacific. European sales were up strong double digits year-to-year in spite of the still dismal state of the economy.

This was virtually all organic growth and reflected comparatively strong agriculture sales, increasing penetration of a difficult construction market with technology and expansion in the mobile space. We do not believe the underlying economy provided any lift and won't for at least for the remainder of the year.

Asia-Pacific, which has been a robust market for us, fell 4% year-to-year, with the majority of the drop occurring in Australia, which is in recession, with particularly severe ramifications for construction. E&C segment revenue grew at 10% year-over-year.

Although this remains short of the segment's potential, it is nonetheless meaningful because it was generated in spite of market headwinds, which centered on government funding, unusually poor weather and in different market conditions in a number of regions. The message from the worldwide E&C market remains mixed.

On the one hand, the distribution channel was able to identify a significant pipeline and is often quite positive about prospects. On the other hand, the backlog of signature-ready projects awaiting approval is high against historical standards and reflects uncertainty in the desire to defer investment decisions while awaiting greater clarity.

Construction in general provided most of the E&C revenue lift and appears to be firming up despite some regional issues. Heavy civil grew in North America and Europe and declined year-to-year in Asia-Pacific, primarily as a result of the serious economic slowdown in Australia.

Australia is a disproportionate factor for heavy civil as it was an early adopter market and has become the second largest national market for us for construction machine control after the U.S. The implicit good news in for instance that it reflects the market potential for the rest of the world, as the rest of the world catches up to Australian adoption rate.

In addition to Australia, both Germany and Canada, which tend to be major contributors to the heavy civil business, are struggling to maintain traditional growth rates. We currently expect heavy civil to step-up to a higher growth rate in the second half the year from the first half, although the market remains difficult to forecast with precision.

Building construction is currently growing faster than heavy civil, partly as a result of a slowly improving commercial and residential market in the U.S., partly as a result of the increasing general adoption of BIM or BIM-enabled tools and partly through early traction from the synergistic portfolio of capabilities Trimble has assembled around the constructible model. The current state of the building construction market is hardly robust and does not compare to the market in 2007 and early 2008.

Nonetheless, the building and construction market provides us with a workable platform and the potential for continued growth for the remainder of the year and stronger growth in 2014 when more of the effect of our strategy will be seen in operating results. The survey instruments business recovered somewhat from first quarter performance levels, but continues to struggle against our historical standard of growth.

North America provided some growth, but was limited by direct and indirect sequester-related constraints in federal, state and local spending. Europe was comparatively flat, but remains a challenging survey market with a general reluctance to invest in the private sector and an austerity-driven inability to spend in the public sector.

The Chinese market, which has been a driver of strong growth for survey instruments over the last 10 years, is encountering a significant slowdown of government payments, which is limiting the ability to process new orders. Last quarter, we expected that some of these issues, particularly the U.S.

sequester and Chinese payment issues, to be resolved relatively quickly with some potential of increased growth in the second half. This does not appear to be happening, and our revised expectations that survey will now be relatively flat in the second half and to be a relative drag on the E&C segment.

The combined picture for heavy civil, building construction and survey leads us to expect E&C to generate better results in the second half of the year than the first, although not as strong as we anticipated earlier in the year because of the uncertainties of the survey instruments business. Second quarter results for the Field Solutions segment were disappointing, with a revenue decline of 6% year-to-year.

Although Agriculture declined slightly year-to-year, the majority of the segment's revenue decline came from GIS, which continued to be impacted by the pullback of government funding sources. We saw significant GIS declines in the U.S., China and Europe.

The impact of the U.S. sequester had both direct and indirect impacts.

The slowness in payment by the Chinese government had a chilling effect similar to the one we are experiencing in survey and the effects of European government austerity are impacting relevant new GIS investment. The Agriculture revenue story vary geographically.

North American revenue declined year-to-year, while revenue from other geographies grew, with Europe growing in strong double digits. We believe both the North American and European markets were heavily impacted by market distortions caused by unusual weather conditions, which delayed and compressed the planting season to a very short period.

In addition, we had some U.S. sales deferred out of the second quarter as farmers anticipated new product releases which will occur later in the year.

The U.S. farm market is currently unsettled, and we are assuming this will continue into the second half.

As a result, we have scaled back our original expectations for Agriculture for the second half of the year while awaiting further clarity in the U.S. Our expectations for the rest of the world remain optimistic, and the blended view is that Agriculture will grow in the upper-single digits in the second half.

Mobile Solutions revenue was up 42% for the total year and the non-GAAP operating margins improved to 14.2%. While year-to-year comparisons are influenced by acquisition effects, the underlying trend line for the segment remains positive, particularly in the transportation and logistics market.

This market is in many ways analogous to the construction market. Both are highly competitive traditional industries in which the participants are under severe margin pressure with the additional burden of growing regulation in trucking.

In both cases, the adoption of technology is seen as a primary mechanism for improving productivity, eliminating waste, ensuring regulatory compliance and achieving competitive differentiation. We have built the capability to be a central source for providing this leverage to the transportation enterprise.

The Advanced Devices segment, again, provided relatively strong performance, with 10% year-to-year revenue growth and strong operating margins. This increase was due primarily to increased sales of RFID and military components and subsystems.

Last quarter, we believe we retained a window to achieve the second half expectations we had established at the beginning of the year. In the third quarter guidance, we are tuning this expectation down to a more conservative level.

The primary reasons for doing these are the GIS market difficulties, the current market ambivalence we are seeing in survey instruments, the uncertainties in the U.S. agricultural market, and the relatively recent challenges in the Australian and Chinese markets.

On a concluding note, our CFO search has been underway for a number of weeks. We have a search firm engaged, which is conducting a nationwide search and some initial interviews with candidates have been held.

Early evidence suggest a positive outcome. In the meantime, Julie Shepard is acting as our Interim CFO.

She has been Vice President of Finance and Chief Accounting Officer since 2006. Let me turn the call over to her.

Great. Thanks, Steve.

Good afternoon, everyone. As a reminder, I will be covering non-GAAP numbers today.

The GAAP numbers, as well as the reconciliation from GAAP to non-GAAP are detailed in our earnings press release. Because the financial data by segment is available in the earnings press release, I will be covering other relevant data and giving guidance for the third quarter of 2013.

Overall, revenue was $576.3 million, up 11%. By geography in the second quarter, 56% of revenue came from North America; 23% from Europe; 14% from Asia-Pacific; and 7% from rest of the world.

Company non-GAAP gross margin was 56.2%, up 1.8 points over the prior year, primarily due to product mix, including higher margin software and subscription revenue. In the second quarter, non-GAAP operating expense was $203.8 million or 35.4% of revenue, up as compared to $176.4 million or 34.1% in the second quarter of 2012 primarily due to acquisitions.

Second quarter non-GAAP operating income was $120.3 million or 20.9% of revenue as compared to $105.2 million or 20.3% of revenue in the second quarter of 2012. Excluding acquisitions, non-GAAP operating margin was 21.5%.

Foreign currency fluctuations had minimal impact on the quarter. Revenue was favorably impacted by approximately $1.5 million and non-GAAP operating income was favorably impacted by less than $300,000.

Non-GAAP nonoperating income was $3.3 million, down as compared to $3.8 million in the second quarter of 2012, with the biggest delta due to higher interest expense associated with our debt increase. The tax rate for the second quarter of 2013 was 20% as compared to 16% in the corresponding period in 2012, primarily due to a discrete item related to an acquisition, as well as some differences in the geographical mix of pretax income.

Non-GAAP net income of $98.6 million was up 7% as compared to the second quarter of 2012. Diluted non-GAAP earnings per share was $0.38 compared with diluted non-GAAP earnings per share of $0.36 in the second quarter of 2012.

We finished the quarter with $129.1 million in cash and $899.2 million in debt on a multiple of 2.0x trailing 12-month adjusted EBITDA. Cash flow from operations was $134.7 million and on a year-to-date basis has self-corrected as the first quarter was unusually low due to higher working capital associated with sales linearity.

Accounts receivable was $356.3 million and days sales outstanding was 56 days as compared to 64 days in the first quarter of 2013 due to better linearity, and was consistent with 56 days in the second quarter of 2012. Inventory in the second quarter of 2013 was $258.7 million compared to $260.6 million in the first quarter of 2013.

Turning now to our guidance. For the third quarter of 2013, we expect revenue to be between $555 million and $565 million, with GAAP earnings per share of $0.18 to $0.20 and non-GAAP earnings per share of $0.36 to $0.38.

Non-GAAP guidance excludes the amortization of intangibles of $42 million related to previous acquisitions, anticipated acquisition cost of $4.5 million and the anticipated impact of stock-based compensation expense of $9.3 million. Both GAAP and non-GAAP earnings per share assume a 16% to 18% tax rate and 261 million shares outstanding.

With that, we will take your questions.

My first question is on the double-digit revenue growth expectation for the back half the year. You called out a number of areas of potential weakness as reflected in your guidance.

But I was hoping you could maybe give a little more detail as to where you see the acceleration in growth? I think you called out building construction as one.

But if you could maybe just shed a little more light there, that would be great.

Sure. Yes, I think, the word acceleration maybe requires a fair amount of context definition relative either prior -- to prior year or to kind of what we've seen thus far.

But where we see the relative -- some relative, let's call it momentum second half compared to first half would be within the E&C segment, both heavy civil and building construction, I think, both are -- have some difficult markets out there starting with Australia and then into Europe. But in general, I think that we have a sense that the -- those 2 will be stronger in the second half than in the first half.

A general view with a fair number of moving parts associated with both. I think survey, in terms of dialing back expectations a bit in the -- for the second half compared to earlier expectations, survey is not rebounding as quickly as we had expected last quarter.

I think -- the sequester effects in the U.S. are not getting resolved as quickly as we anticipated.

And it now seems as though the reset in terms of getting back a little bit more certainty will take place at the beginning of the federal fiscal year, which would be October 1. And the flow-through effect on survey, direct effects and more to the point, I think, the indirect effects of sequester in the U.S.

is still impacting survey sales. And then, I think, in general, the -- Europe is a difficult market for survey.

So overall, we see E&C kind of reflecting second half momentum relative to first half. But I think, again, it requires a story.

Field Solutions, I think GIS is just simply going to have a difficult year. GIS of all our businesses is most exposed to government spending.

And I think the government spending around the world at this point in time is creating difficulty. So I think GIS is simply going to have a difficult year.

But then in Agriculture, which first quarter we had a number of effects, weather being a primary one. Those effects continued in the second quarter.

But in general, I think our outlook is stronger for Ag in the second half versus the first half. So net-net, we expect, let's call it, greater momentum in the second half for Field Solutions than we did in the first half.

I think the Mobile Solutions segment, a number of acquisition effects in there, but I would say is -- second half will look much like the first half with some secular trends in there. In Advanced Devices, not a major, major, major mover here, but again, I think Advanced Devices will be a steady Eddie in the second half.

So again, we're backing off a bit from the kind of the early in the year expectations for the second half, but still looking for double-digit third quarter and also anticipating more or less the same in the fourth quarter. So the second half should look somewhat similar to the first half, but maybe with some upside potential.

Okay. The acceleration comment was pertaining more to the -- on the organic growth side since you had more of that in the first half.

Yes. Okay.

Yes, and I'd say what I said would -- it relates to organic growth as well.

Sure. And then one just quick follow-up question on the Ag side.

You called out some revenue being held up in anticipation of some new products. Can you speak to those introductions?

Yes. Well, I don't want to kind of compound the problem by preannouncing product.

But there was some -- we shared some pre-disclosure information with distribution partners, and it to some extent leaked out into the marketplace, which -- hard to quantify, but there were some movement from second quarter into the second half of the year as people waited on new products. So beyond that, I can't be much more specific other than say that, obviously, there will be some new product introductions in the second half of the year in Ag.

I wanted to follow-up on the Ag growth question. Just wanted to be clear on what you were thinking about the product sales that were deferred due to the delayed planting season.

Do you still think you're going to kind of get some catch-up sales in the second half, or do we think something else is going on there?

No, I think -- first of all, this is such a seasonal business just looking at it sequentially probably doesn't lead to necessarily robust conclusions. So I think what we're expecting is, on the year-to-year basis, that will return to a more consistent pattern where third quarter this year compared to third quarter last year will start to look -- the growth will be there more to historical patterns.

I think the relative distortion occurred in the first half, but I don't think there will be any -- I don't think -- we're not counting on what's called a whole lot of movement from the first half into second half. I think it'll just revert to more historical patterns.

The summer and the fall purchasing patterns will stay at the summer and fall purchasing patterns. And then hopefully, to a more normal weather pattern next -- early next year will revert to a traditional spring pattern.

But I don't think we're anticipating spring buying kind of move into the summer and the fall. We just expect kind of a normal -- more normal seasonal pattern.

That's what we're looking.

Looking bigger picture at Ag, what's your kind of conviction level that what's happening is in fact kind of temporary seasonal and maybe macro sort of cyclical pressures on that business, as oppose to penetration or secular issues? So I guess, particularly in North America where most of the trouble seems to be.

Sure. I think our forecasts all along have assumed that there are some secular trends that are taking place.

And are in a sense are about to begin, if you will. So I think that in terms of relative penetration, yes, the U.S.

is becoming a more penetrated market at least for certain product categories. That's been built into our expectations and to our longer-range forecast.

So I think we're expecting that. At the same time is the avenues to growth for us going forward are more information products and there is getting to be more and more to say about that.

It's also about looking to specialty crops such as sugar and other crops that are not particularly penetrated. So all along, I think if you go back and listen to what we've said for the last couple of years, yes, there's a secular trend of kind of traditional row crops becoming increasingly penetrated, but the growth pattern is also -- for us is going to be specialty crops, new information products.

And then I think over the next few years is, let's call it, a relative conversion of our -- an intensification of the information management aspects as Agriculture turns into more and more of using the cliché of our times, more of a big data sort of problem. So I think we see a number of secular trends going on.

Yes, they're at work, but I would say is the significant majority of kind of the year-to-year effect for us in the first half of the year was circumstantial, not structural and not kind of secular, although it's working in the background.

So I'm sure you're loath to make sort of long-term predictions at this point, but would it be fair to say that absent these fairly numerous sort of specific macro headwinds, which you've called out, which most of which seem to be at least somewhat temporary or cyclical in nature, that you still think you've got a double-digit kind of organic growth business here over, whatever you want to call it, the medium term?

Yes. So again, I think at the moment, it's easier to make the 3-year call than it is the 3-month call given kind of all the interdependencies and all the differing market conditions around the world at this point.

But I would say, yes, the 3-year view is what we -- with the kind of puts and takes within the portfolio, I would say is the longer view, the 3-year view or the 1-year to 3-year view is that, with what is going and the underlying market potential and through a process of continual redefinition, creating more -- larger market to penetrate, I would say, yes, we're still rock solid on the idea that we're an organic double-digit growth company.

Got it. And just one more for me.

Your 3Q guidance, the EPS guidance seems to imply either a sequential increase in gross margin or a decent sort of absolute dollar decrease in OpEx. I guess, any color there at all?

And should we assume lower OpEx levels then going forward from there? Any help on the OpEx line?

Well, I think in the second quarter, you did have some trade show activity. In the third quarter, you're going to have the lack of the trade show activity.

You're also going to see the summer effects lower -- as vacations kick in, those will not be hitting the P&L. They'll be working off of the balance sheet.

And so I think that the third quarter is generally a low-expense period. As far as gross margin, I think it gets into the kind of the esoterics of product mix as much as anything else, so I don't necessarily want to get overly specific on gross margin.

But I think that you will see a general seasonal effect on operating expenses in the third quarter.

Just wanted to get a little bit of additional color in terms of the size of the GIS business and maybe what your thoughts are in terms of that business coming back? I mean, it feels like we might not see that until the fourth quarter.

But could you see projects get canceled or is this a situation where we are seeing delays? Just want to understand that a little bit better.

Yes, so first of all, the -- we are not wanting to breakout the internals to a segment. GIS is the minority partner to Ag in that segment.

I think -- okay, first of all, I think the -- one of the aspects of this current environment, we can see quite a bit of pipeline. We can see a lot of projects out there.

We can see a desire to fund. Again a desire to move ahead.

The funding is simply when -- is not being produced on a timely basis. So again, if you want the pipeline, we're simply not seeing the funding come through for that.

So I think that's the government effect, government funding effect. In the U.S., it's yes, sequester, but then I think that a lot of the funding takes place at the state or local level, and the state and local authorities are not sure about their federal funding.

And so therefore, there tends to be a little bit of a gridlock affect. So I think that it could come back in the fourth quarter or subsequent to October 1 new fiscal year in the U.S., greater certainty and the rest.

China, we're still viewing as something of a short-term issue just from the standpoint that money is not flowing from the central government in China, whether that's related to the liquidity issues or whether that is related to something else, is not totally clear. The effect is that new projects are not necessarily getting funded until the old projects are being paid for.

And so, I think, there are a lot of different circumstances around the world. At the same time if you look at GIS, you step back from GIS and look at it against the secular sort of background, there are things occurring in GIS.

I think over the years, we have been talking about them, not necessarily every quarter, but we've been talking about them. So I think that we are heavy on the data collection side, we have traditionally built handhelds with some significant software content on the handheld.

So in this day and age of the more muscular handset, there's been the issue that we recognized years ago in terms of, okay, whether being a specialty handset -- handheld provider, how viable that is in the long term? And I think we're becoming -- we've been recognizing that and been doing a couple of things, while still building handheld data collection devices.

We have been verticalizing the business. So over the last few years, you've heard us talk more and more about things like electrical utilities, natural resources, water management.

And all of those are in some sense spinoffs of this GIS business that we're verticalizing and adding more software content and in some sense becoming more hardware agnostic. So I think that over time, the GIS business is going to morph into something that is much more software-centric and less hardware-centric.

That is occurring, and so I think there are some secular trends there that we're seeing that we're including in the forecast. I think the current problem is just more -- is less of that occurring, that's occurring in background.

But I think the current issue with GIS is simply a matter of lack of funding sources from -- or lack of reliable funding sources from government.

Got it. Got it.

And just in terms of the building information modeling market, just wanted to get a sense from you, have we seen sort of further progression in terms of the adoption? I mean, there's a lot of surveys out there that talk about how it's being pretty broadly utilized at this point.

And just maybe how -- an update on how that business has done?

Yes, so I think we're -- from our standpoint, it's still relatively early days in kind of the BIM world. Adoption is increasing at a rapid rate.

And we're seeing strong growth in somewhat non-traditional markets. Places like India are actually quite strong markets for BIM in a sense.

I suppose jumping generations of technology and kind of going to state-of-the-art technology in one jump in places like India. But -- so I think there's a background here of greater adoption kind of greater engagement, and I think a recognition by C-level suites in the construction industry that it's no longer a nice to have, it's no longer a discretionary sort of expenditure.

I think as the technology is becoming more and more of a survival issue for most contractors, so I think the adoption level is increasing. I think where we as a company are quite encouraged is the pieces we put together over the last few years, which is more kind of a BIM 5D world, which is the 3 dimensions that you can -- X, Y and Z in the model, plus schedule, plus cost management.

And putting -- we've put together the elements of this. Over the next 2, 3 years we're going to build a stronger platform around building the entire product suite around, let's call it, the constructible model becoming more and more relevant to the contractor.

And we're quite encouraged by, let's call it, relatively early, but relatively strong response from the marketplace in terms of kind of grasping the totality and starting to talk in terms of the wider suite of capabilities, not just the kind of the three-dimensional aspect, which is pretty obvious and pretty intuitive. But I they think the more advanced contractors are seeing the potential of the entire technology suite, not just one element of it.

So I think we are seen traction. The market isn't necessarily cooperating all that well.

It's hard point anywhere in the world at this point in time where you could call the commercial and residential construction market robust. But it is got good enough to give us a platform to work from.

Can we unpack Mobile Solutions a little bit? It seems -- you've had 8 quarters of good sequential improvements.

And it seems like you're continuously adding new enterprise suites. So I guess my question's twofold.

First, do you have a sense of your penetration among large enterprise suites? And then second, you've got a competitor that's focusing on using smartphone apps for fleet management.

I was wondering if you see that as a threat to your business, I guess, which is more hardware focused?

Yes. So starting with the smartphone.

I mean, I think the market does segment in terms of different solution sets for different needs or different sets of perceived needs. So I think there -- certain elements of the market are certainly appropriate for a smartphone application, and we may end up participating in that segment.

But I think where we're -- our relative point of focus, our relative emphasis is on becoming more and more relevant to the enterprise. So I think if you look at the needs of truckers today is, or transportation companies in general and logistics providers today, they're being -- they've got a heavy compliance requirement in terms of maintaining driver's logs and the like.

That they are governmental regulations requiring them to be more and more certain about the status of vehicle, but also the status of the driver. And so I think there's a whole, whole, whole realm of requirements there that, okay, may or may not be satisfied by a smartphone application.

But then you look to the deeper needs of the industry. And one of the constraints of the industry is actually of truck -- availability of drivers themselves.

It's not a lifestyle that people are committing to for a lifetime. And so I think if you talk to trucking companies, they are very much -- they would very much view the constraint as being -- one of their constraints as being the availability of drivers.

And then that leads into, okay, how do you schedule your trucks? Are there innovative things you can do to schedule routes, schedule drivers against those routes in order to take some of the stress off the drivers and maybe allow them to maintain a more coherent lifestyle.

So I think there are a lot of intricacies in the industry that have to be solved. I think that the combination of people in that, TMW and now ALK, were able to engage the enterprise more completely.

So I would say, I won't dismiss the smartphone application, that's appropriate for a number of applications. But I would say in terms of attempting to solve the larger enterprise problem for these transportation companies, I think it requires a lot more than simply a smartphone app.

Now as far as penetration -- well, first of all, that will vary around the world, but then I think that -- yes, most trucking fleets have, let's call it, a dot on a map solution at this point in time. So if you simply talk about penetration of having some kind of hardware on the truck that determines location and maybe elements of status.

The market is relatively penetrated in that sense. But if you go -- if you talk in terms of the wider definition of adding value that includes both location, but also status and context, the market still has a lot of penetration potential available.

And I would not describe it as being a market that is close to penetration once you adopt that definition.

Just one more on Ag. I appreciate that.

Some of the -- I was wondering if you could capture some of the as yet untapped opportunity in Ag? Like are you thinking about livestock solutions and herd management at all?

I don't know if I've ever heard Trimble talk about that. And then also could you talk if you're seeing any meaningful contribution yet from sugar crops?

Yes. Not to in any way sound kind of dismissive, but I guess we'll talk about herd management when we actually have a product to talk about.

So are we considering things like herd management? The answer would be yes.

I think what we're working to is a, it's called a prioritization of need. And I would say in terms of looking at market potential, I think this idea that every square meter under cultivation in the world has a rich information ecosystem attached to it that can be exploited.

I think that to us would be the larger priority at the moment, and less so tracking cows or tracking livestock. Sorry, Andrea, what was your second -- what was your other question?

Sugar.

Oh, sugar.

You guys announced a partnership with U.S. Sugar a while ago.

I was wondering if you're seeing it...

Yes, yes, I mean, I don't want to discuss U.S. Sugar's business or actually what we're doing in other places such as Brazil.

That starts to get to be a little proprietary. Let's just say is -- what -- both U.S.

Sugar, which is public, and then the ones that are not public. I think those tend to be, let's call it, the kind of more of the Connected Farm variety.

If you look at you at U.S. Sugar and their operations as both -- yes, they grow hundreds of thousands of acres of sugarcane, but they also have a processing plant in effect.

They have a railroad. They have a lot of vehicles.

They have a lot of workers that they'd like to keep track of. And so here is a case that we find very attractive because Trimble as an enterprise, not just the straight agricultural elements of instrumentation put on a tractor, but in terms of the larger enterprise, Trimble has a lot to say to somebody like U.S.

Sugar in terms of vehicle tracking or employee tracking or even potentially helping manage their railroad operations. So I think the potential for an account like that or other accounts is really what -- where we're driving as a company is to operate more at an enterprise level, more as a complete solutions provider.

So I would say is -- I would characterize the relationship with sugar in general and U.S. Sugar specifically as progressing, still under development in some cases.

But I think the key thing here is, it really is an enterprise-level engagement, not simply a product sale.

Seems a bit different for you guys, like that seems to be sort of maybe where things might go in the future in terms of some of these whole enterprise-to-enterprise solutions, just interesting.

Yes. And I think that actually is a key point in terms of looking to the future is -- and the unfortunate factor is a lot of the business we're doing, we can't press release.

But there is a lot of what's called enterprise-to-enterprise engagement going on, where we're providing something more than just product. We're providing product.

We're providing the software that integrates with the enterprise solution, whatever that may be. And increasingly, there's an element of professional services involved in what we're doing.

So I think that represents a major fact for Trimble going forward is stepping up and becoming more of an enterprise-level solution, not in an ERP sense, but in terms of providing more than just product to some of these larger enterprises.

Just a quick clarification in Ag, basically -- I understand the 3-year growth scenario, but you were expecting the second half of the year Ag growth to offset the weakness in GIS to give you positive top line growth maybe in the mid-single digits next couple of quarters, is that a fair statement?

Well, I don't think we're not providing guidance for the segment, but we're talking about the company, and we expect Ag -- what we are saying is that Ag will grow in the second half relative -- which is contrast a bit to the first half, but not necessarily saying anything at the segment level in total.

Okay. And how big is the survey part of E&C the part that you'll regain.

I mean, how much of that did you represent?

Again, we don't breakout the internals to the segments. But I would say, survey is now, again, a minority of the total, but still a substantial part of the segment.

And that business has to grow double-digit in order for the corporation to grow double-digit effectively in the second half, is that's a fair statement of what you expect? And can you maintain the profitability in the E&C business that we saw?

It was very strong in the second quarter. I assume you're expecting it to stay the same if not improve?

Yes. So I'd say the model, we're quite content with how the model, financial model of the company is playing out.

So yes, we've been under some revenue pressure, but pretty much across the board, margins are holding up or actually margins are improving in some cases. So I wouldn't want to necessarily, again, provide guidance segment-by-segment, but I would say there is no reason to expect that kind of seasonally adjusted the E&C margins are going to be under any particular pressure for the rest of the year.

But again, I think there are sometimes seasonal issues. But year-over-year, I would still say that there's no reason to expect any major degradation really for E&C or Field Solutions or for that matter, Mobile Solutions.

So I think we're -- from a profitability standpoint, I don't think that we're under any particular pressures at this point.

Steve, I was wondering if you could elaborate on your comments about the Chinese government payments. Is this something where they're not funding existing projects or is it, money is not flowing to new projects?

And is this -- was this pervasive throughout Q2? Just anything.

Do you expect China to continue to slow in Q3? What's happening in that market?

Well, I think to some extent, it's hard to be categorical as to exactly what's happening. I mean, we talked about China a bit for the first quarter results indicating what appear to be a bit of a hiatus.

And with the new government, part -- one of the explanations I'm sure buried in all this is that the new government has not made its priorities absolutely clear. And so the bureaucracy has not yet kind of reacted to a new set of priorities because they're not yet fully clear.

So that's part of it. But I think that -- and what we're seeing in a number of different cases is that for work already completed, is the -- the Chinese government is kind of slow on paying its bills at this point in time.

And as a result, that's keeping kind of new projects from kind of being put out there and being funded simply because the old projects are not necessarily getting cleared at this point in time. So the presumption is that, that is a short-term phenomenon.

I think it's generally being seen by a lot of different companies working in China at this point in time. It's just the slowness of payment by the national government.

And so I think that there's a knock-on effect from that, and I think we're seeing that. So I think the key element here is simply the Chinese government paying its bills.

Got it. And just to clarify, this is their being slow to pay your customers, correct?

You don't have any receivables that are aging because of this lack of payment?

Not to any historically -- not deviating anywhere from the historical, so there's -- the Chinese government is good for the fund, it's more of a timing issue. And -- but at the same time, we would be reluctant to kind of put new money after old.

So there is a dynamic at work there. But there is not an accounts receivable issue.

And I think this is just a timing issue. But it's affected us in the first quarter, it's affected us in the second quarter.

Got it. And just last one, last one for me.

I think you mentioned that there's some strength in Ag in Europe and just as I'm trying to think about Ag across all of the markets. Maybe you put a little color around why you're seeing strength in that market when some of the others are weak?

Yes. So I think Europe -- first of all, Europe was not as strong as we actually expected in the second quarter because the weather didn't cooperate in Europe.

At least earlier in the quarter, there was heavy flooding and farmers were kept out of the fields in Europe as they were in the U.S. early in the quarter.

But I think Europe, over the last 6 or 7 years, Europe has been a strong secular growth player for us and has been a producer of significant growth with the Eastern Europe, where the farms tend to be larger being a still attractive largely unpenetrated market for us. So I would say what we saw in Europe in the second quarter is actually pretty consistent with history.

And Ag at least thus far through the European economic troubles, has not seem to have been affected by the larger macroeconomics in Europe. So I would say the second quarter is in line with, let's call it, a multiple year history in Europe and really doesn't stand out that much, as I think the one that stands out is more of the U.S.

in the second quarter, not Europe. And again for some specific reasons.

First question on gross margins. You were 80 basis points higher, so pretty nice.

But service plus subscription only went up slightly. So is that largely driven by mix within each category and are these sort of sustainable trends going forward?

Yes, so I think it's probably a kind of a danger with Trimble is to try to over intellectualize the aggregate gross margin for us as a company, because it largely is a product mix, business line mix sort of issue we have. From business-to-business, we have widely divergent gross margins.

So the gross margin for the company tends to be more of arithmetic thing than necessarily a definitive answer. So I think the gross margin is indicative of what's going on in terms of higher and higher values, so I think it has meaning in that context.

In any given quarter, to a degree of accuracy, it's probably not a definitive indicator of anything other than the business mix that's going on. So I would actually not put a whole lot of emphasis on the internals in the gross margin.

For example, is that there's software in the product category. There's software in the subscription category.

And as a result, I think the internal dynamics here will get a little confusing. But I would say, directionally, gross margin is going up for the company representing the greater value.

And I think the internals are not necessarily significant in their own right.

Okay, and my next question is your total government exposure, do you have a sense if that's over 10%. In the past you have given $50 million to $55 million just for the federal spending but, of course, there's state and municipal which use GIS solutions, as well as the China and Europe government exposure?

Yes, so I would say, well, 10% of the company would be something over $200 million at this point in time. We don't break it down.

We don't pursue that number with any degree of rigor across the world. But if you took a fair piece of the survey business, if you took a more significant piece of the GIS business and threw in some of the heavy civil business which is infrastructure related.

Yes, I think you start to -- in terms of direct, indirect and some of the indirect maybe 3 orders of magnitude away from the federal government, but ultimately a national government, whether here or elsewhere might be a big funder of it. So I would think, in a very rough sense, you could start to come up with a number that says direct funding, indirect funding or third order funding for the company.

It might start to push a number that starts getting close to 10% of total revenue. Although, I couldn't be very specific about it simply because we don't track it at that level.

Okay. And then last question, you talked about some region-specific headwinds that seem to have an endpoint, whether it's U.S.

sequester or China payment issues. For the Australia recession, is that largely related to resource extraction for the Asia market or is that more of a near-term headwind with the elections coming and some political uncertainty there?

I think a little bit of both. Certainly, Australia was a counter example to the rest of the world kind of in the 2008, 2009 timeframe where because of the extraction and that they we're able to kind of draft on Chinese economic growth there.

So I think the extraction industries are there at the center, somewhere. But I think the relative hope or the relative possibility here later in the year is, I think, that with an election coming up, I think the potential new government, I think, has been more explicit about plans to invest in public infrastructure.

So I think there -- with a possible change in government coming in Australia, I think towards the latter part of the year, now this would not probably affect us in 2013, it might in 2014. I think there is some sense as there might be a greater tendency to build public-financed infrastructure in Australia regardless of what's happening in the mining industry.

And so I think that there is some sense is that our fortunes could potentially improve with a change of government in Australia, but we'll just have to wait and see.

Thank you.