UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
T ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
Commission File Number: 0-18645
TRIMBLE NAVIGATION LIMITED
(Exact name of Registrant as specified in its charter)
| California | 94-2802192 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
| 935 Stewart Drive, Sunnyvale, CA | 94085 | |||
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (408) 481-8000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Name of each exchange on which stock registered | ||
| Common Stock | NASDAQ Global Select Market | ||
| Preferred Share Purchase Rights | NASDAQ Global Select Market | ||
| (Title of Class) | |||
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes x No ¨
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Yes ¨ No x
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.T¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
| Large Accelerated Filer | x | Accelerated Filer | ¨ | |||
| Non-accelerated Filer | Smaller Reporting Company | ¨ | ||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of June 29, 2007,July 2, 2010, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $3.9$3.4 billion based on the closing price as reported on the NASDAQ Global Select Market.
Indicate the number of share outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class | Outstanding at February | 24, 2011 | ||
| Common stock, no par value |
DOCUMENTS INCORPORATED BY REFERENCE
Certain parts of Trimble Navigation Limited'sLimited’s Proxy Statement relating to the annual meeting of stockholders to be held on May 22, 20083, 2011 (the "Proxy Statement"“Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are subject to the "safe harbor"“safe harbor” created by those sections. The forward-looking statements regarding future events and the future results of Trimble Navigation Limited (“Trimble” or “The“the Company” or “We”“we” or “Our”“our” or “Us”“us”) are based on current expectations, estimates, forecasts, and projections about the industries in which Trimble operates and the beliefs and assumptions of the management of Trimble. Discussions containing such forward-looking statements may be found in "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations."” In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "could," "predicts," "potential," "continue," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates,"“may,” “will,” “should,” “could,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions. These forward-looking statements involve certain risks and uncertainties that could cause actual results, levels of activity, performance, achievements, and events to differ materially from those implied by such forward-looking statements, but are not limited to those discussed in this Report under the section entitled “ Risk Factors” and elsewhere, and in other reports Trimble files with the Securities and Exchange Commission (“SEC”), specifically the most recent reports on Form 8-K and Form 10-Q, each as it may be amended from time to time. These forward-looking statements are made as of the date of this Annual Report on Form 10-K. We reserve the right to update these statements for any reason, including the occurrence of material events. The risks and uncertainties under the caption "Risks“Risks and Uncertainties"Uncertainties” contained herein, among other things, should be considered in evaluating our prospects and future financial performance. We have attempted to identify forward-looking statements in this report by placing an asterisk (*) before paragraphs containing such material.
2010 FORM 10-K ANNUAL REPORT
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Trimble, EZ-Guide, EZ-Boom, Proliance, UtilityCenter, TrimWeb, TrimView, GEOManager, Taskforce, Juno, GeoExplorer, AgGPS, Spectra Precision, Autopilot, Fieldport, Copernicus, TrimTrac, EZ-Steer, PocketCitation, Trimble Outdoors, and Force, among others are trademarks of Trimble Navigation Limited and its subsidiaries. All other trademarks are the property of their respective owners.
Trimble Navigation Limited, a California corporation (“Trimble” or “the Company” or “we” or “our” or “us”), provides advanced positioning product solutions, typically to commercial and government users. The principal application areas include surveying, agriculture, construction, asset management, mapping and mobile resource management. Our products provide benefits that can include lower operational costs, higher productivity, improved quality, and improved quality.compliance. Product examples include agricultural and construction equipment, guidance systems, surveying instruments, systems that track fleets of vehicles, and data collection systems that enable the management of large amounts of geo-referenced information.information, and information asset management systems for construction and agricultural markets. In addition, we also manufacture components for in-vehicle navigation and telematics systems, and timing modules used in the synchronization of wireless networks.
Our products often combine knowledge of location or position with a wireless link to provide a solution for a specific application. Position is provided through a number of technologies including the Global Positioning System, (GPS)or GPS, other Global Navigation Satellite Systems, or GNSS and their augmentation systems, and systems that use laser or optical technologies to establish position. Wireless communication techniques include both public networks, such as cellular, and private networks, such as business band radio. OurSome of our products are augmented by our software; this includes embedded firmware that enables the positioning solution and application software that allows the customer to make use of the positioning information.
We design and market our own products. Our manufacturing strategy includes a combination of in-house assembly and third party subcontractors. Our global operations include major development, manufacturing, or logistics operations in the United States, Sweden, Germany, New Zealand, France, Canada, the United Kingdom, the Netherlands, China, and India. Products are sold through dealers, representatives, joint ventures, and other channels throughout the world. These channels are supported by our sales offices located in more than 1825 countries.
We began operations in 1978 and incorporated in California in 1981. Our common stock has been publicly traded on NASDAQ since 1990 under the symbol TRMB.
Technology Overview
A significant portion of our revenue is derived from applying Global Navigation Satellite System, (GNSS)or GNSS, technology to terrestrial applications. The GNSS includes the GPS network of 24 orbiting U.S. basedGlobal Positioning System, or GPS, radio navigation satellites and associated ground control that is funded and maintained by the U. S.U.S. Government and is available worldwide free of charge,direct user fees, and the Russian GLONASS radio navigation satellite based system. Both Europethe European Community and China have announced plans to establish future operational satelliteradio navigation basedsatellite systems. GNSS positioning is based on a technique that precisely measures distances from four or more satellites. The satellites continuously transmit precisely timed radio signals using extremely accurate atomic clocks. A GNSS receiver measures distances from the satellites in view by determining the travel time of a signal from the satellite to the receiver, and then uses those distances to compute its position. Under normal circumstances, a stand-alone GNSS receiver is able to calculate its position at any point on earth, in the earth'searth’s atmosphere, or in lower earth orbit, to approximately 10 meters, 24 hours a day. Much better accuracies are possible through a technique called “differential GNSS.” In addition to providing position, GNSS provides extremely accurate time measurement.
GNSS accuracy is dependent upon the locations of the receiver and the number of GNSS satellites that are above the horizon at any given time. Reception of GNSS signals requires line-of-sight visibility between the satellites and the receiver, which can be blocked by buildings, hills, and dense foliage. The receiver must have a line of sight to at least four satellites to determine its latitude, longitude, attitude (angular orientation), and time. The accuracy of GNSS may also be limited by distortion of GNSS signals from ionospheric and other atmospheric conditions.
Our GNSS products are based on proprietary receiver technology. Over time, the advances in positioning, wireless communications, and information technologies have enabled us to add more capability to our products and thereby deliver more value to our users. GPS is being modernized and GLONASS modernization is planned. For example, the developments in wireless technology and deployments of next generation wireless
networks have enabled less expensive wireless communications. These developments provide the efficient transfer of position data to locations away from the positioning field device, allowing the data to be accessed by more users, thereby increasing productivity. This allows us to integrate visualization and design software into some of our systems, as well as offersoffer positioning services, all of which make our customers more efficient at what they do.
Our laser and optical products either measure distances and angles to provide a position in three dimensional space or they provideare used as highly accurate laser references from which a position can be established. The key elementelements of these products isare typically a laser, which is generally a commercially available laser diode, and a complex mechanical assembly. These elements are augmented by software algorithms.
Our software products deliver solutions to our customers to optimize their business processes and workflows to improve productivity. Our software products range from field service and location oriented solutions on handheld and other small footprint devices, to scaleable server based solutions that integrate field data with enterprise back office applications. These software solutions are built on configurable and enterprise grade scalable platforms that can be tailored to the workflows that our customers follow to implement their customized business processes. They also integrate various field devices and data collection points to provide a connected view of various field assets and activities. Our core software solutions are included as embedded firmware. We also complement our core offerings with other elective software that are delivered as either licensed software or in a hosted environment using Software as a Service, or SaaS model. Our mobile resource management suite of products is a subscription based SaaS offering. Our software products, whether they run on a device, on a backend server behind the firewall or in our hosting center, allow our customers to derive the best results out of our GNSS, laser, optical and handheld products.
Business Strategy
Our business strategy is developed around an analysis of several key elements:
Attractive markets – We focus on underserved markets that offer potential for revenue growth, profitability, and market leadership. |
Innovative solutions that provide significant benefits to our customers– We seek to apply our technology to applications in which position data is important and where we can create unique value by enabling enhanced productivity in the field or field to back office. We look for opportunities in which the rate of technological change is high and which have a requirement for the integration of multiple technologies into a solution. |
Distribution channels to best access our markets– We select distribution channels that best serve the needs of individual markets. These channels can include independent dealers, direct sales, joint ventures, OEM sales, and distribution alliances with key partners. We view international expansion as an important element of our strategy and |
Business Segments and Markets
We are organized into four reporting segments encompassing our various applications and product lines: Engineering and Construction, Field Solutions, Mobile Solutions and Advanced Devices. Our segments are distinguished by the markets they serve. Each segment consists of businesses which are responsible for product development, marketing, sales, strategy, and financial performance. The presentation of prior period’s segment operating results has been conformed to our current segment presentation.
Engineering and Construction
Products in the Engineering and Construction segment improve productivity and accuracy throughout the entire construction process including the initial survey, planning, design, site preparation, and building phases. Our products are intended to both improve the productivity of each phase, as well as facilitate the entire process by improving information flow from one phase to the next.
Our Engineering and Construction product solutions typically include multiple technologies. The elementsintegrate a wide range of thesepositioning technologies including GPS/GNSS, laser, optical, 3D scanning, and inertial technologies with application software, wireless communications and services to provide complete solutions. Our integrated solutions may incorporate GPS, optical, laser, radio, or cellular communications.
segment and then ensuring there is software and hardware integration between each segment of the customer benefits provided by our products is our GPSworkflow, such as the building of a water supply and robotic optical surveying instruments which enable the surveyortreatment plant for a village. The work requires mapping and evaluation of water resources, engineering and design, construction and life cycle management. The Connected Site plays an important role at each and every stage. It ensures fast, accurate exchange of data and information among field and office teams, contractors, and management. Because of its inherent flexibility and ability to perform operations in the field faster, more reliably than conventional surveying instruments andevolve with a smaller crew. Similarly, our construction machine guidanceproject, the Connected Site can deliver significant contributions to the sustainable infrastructure development.
To introduce products allow the operator to achieve the desired landform while eliminating stakeoutin this segment, we have formed a joint venture with Caterpillar, called VirtualSite Solutions, or VSS. VSS develops software for fleet management and reducing rework. These steps in the construction process can be readily linked together with data collection modules to minimize the time and effort required to maintain data accuracy throughout the entire construction process.
We sell and distribute our products in thisthe Engineering and Construction segment primarily through a global network of independent dealers that are supported by Trimble personnel. This channel is supplemented by relationships that create additional channel breadth including our joint ventures with Caterpillar and Nikon, andas well as private branding arrangements with other companies.
We also design and market handheld data collectors and data collection software for field use by surveyors, contractors, and other professionals. These products are sold directly through dealers and other survey manufacturers.
In addition, we design and market aerial and land mobile mapping data collection systems and office software for use by mapping companies, surveyors and other professionals.
Competitors in this segment are typically companies that provide optical, laser, or GPSGNSS positioning products. Our principal competitors are Topcon Corporation, and Leica Geosystems, which was purchased by Hexagon.Inc. Price points in this segment range from less than $1,000 for certain laser systems to approximately $100,000 for a high-precision, three-dimensional, machine control system.
Representative products sold in this segment include:
Trimble S6S8 Total Station - The– Our S8 Total Station is our most advanced optical instrument designed to deliver unsurpassed performance for both typical surveying and specialized engineering applications such as monitoring and tunneling. It features Trimble S6FineLock™ technology, a smart tracker sensor with a narrow field of view that enables the Trimble S8 total station to detect a target without interference from surrounding prisms. Our S8 combined with our 4D Control software creates a powerful solution for real-time and post-processed monitoring of permanent structures such as dams, short-term construction activities, and side slopes in mines.
Trimble R8 GNSS System – Our R8 GNSS System is a technologicallymulti-channel, multi-frequency, multi-constellation GNSS receiver, antenna, and data-link radio combined in one compact unit. It features Trimble R-Track™ technology, powered by the most advanced optical surveying system. Its advanced servo motors make the S6 total station fast, silent, and precise, allowing surveyors to measure points and collect dataRTK engine in the field efficientlyindustry, supporting all GPS signals, including GPS Modernization (L2C signal and productively. The S6 total station offers unique newL5 signals) as well as GLONASS and the Galileo test signals GIOVE-A and GIOVE-B. This enhanced survey system also features capabilities to customize, remotely configure, and connect to Trimble technologies that enable cable-free operation, longer battery life,R8 GNSS base and rover receivers from the office, saving additional trips to the field. Our R8 GNSS combines advanced receiver technology and a proven system design to provide maximum accuracy assurance, among many other features. Its detachable Trimble CU controller is utilized to effectively collect, display, and manage field data.productivity for a variety of surveying applications.
Trimble VX Spatial Station – TrimbleOur VX™ Spatial Station is an advanced positioningspatial imaging system that combines optical, 3D scanning, and video capabilities—Trimble VISION™ technology—imaging capabilities to measure objects in 3D to produce 2D and 3D data setsdeliverables for spatial imaging projects. The Trimble VX Spatial StationIt enables users to blend extremely accurate ground-based information with airborne data to provide comprehensive datasets for use in the geospatial information industry.
Trimble Access Software– Our Trimble Access software is a powerful field and office surveying solution that expedites data collection, processing, analysis and project information delivery through streamlined workflows and Internet-enabled collaboration and control amongst project team members. With Trimble Access software, surveyors have access to powerful yet familiar tools for typical work such as topographic surveys, staking, or control as well as various streamlined workflows for specialized applications, such as road surveying, tunneling, monitoring, and mining. These specialized applications are designed to simplify a specific type of construction professionalsproject for reduced learning curves and supervisors during site preparation, layout and grade checking by simplifying workflows, eliminating unnecessary steps, and providing intelligent data management betweenimproved efficiencies in the field. Our Trimble Access software brings the field and office teams closer together by enabling data sharing and collaboration in a secure environment – surveys can be completed faster with less time spent traveling back and forth to the office, creating time savings by providing data updates to all members of the team.office.
GCS Family of Grade Control Systems – Grade control systems meet construction contractors'contractors’ needs with productivity-enhancing solutions for earthmoving, site prep, and roadwork. The TrimbleOur GCS family provides upgrade options that deliver earthmoving contractors the flexibility to select a system that meets their daily needs today, and later add on to meet their changing needs. For example, a single control system such as the GCS300 can provide for low-cost point of entry into grade control, and over time can be upgraded to the GCS400 dual sensor system or to the full 3D GCS900 Grade Control System.grade control system.
Trimble Layout Solutions – Trimble Layout solutions such as Trimble MEP and LM80 meet the needs of general, concrete, mechanical, electrical, and plumbing contractors. For example, using the Trimble MEP layout solution, mechanical, electrical and plumbing contractors can increase productivity significantly. Trimble MEP, the layout solution utilizes the Trimble RTS Series Robotic Total Station, a Trimble Nomad computer, and our layout solutions provide precise location of pipe, duct, and cable tray hangers. Our acquisition of Quickpen added a line of estimating, CAD, fabrication, and tool & equipment management solutions, such as AutoBid®, DuctDesigner 3D®, PipeDesigner 3D®, and Vulcan software, which are designed to make building contractors more efficient and productive.
Spectra Precision Laser Portable Tools – Our Spectra Precision® Laser portfoliofamily includes a broad range of laser based tools for the interior, drywall and ceilings, HVAC, and mechanical contractor. Designed to replace traditional methods of measurement and leveling for a wide range of interior construction applications, our laser tools are easy to learn and use. Our Spectra Precision Laser product portfolio includes rotating lasers for horizontal leveling and vertical alignment, as well as laser pointers and a laser based distance measuring devices.device. They are available through independent and national construction supply houses both in the U.S. and in Europe.
Proliance Software - Proliance® Software – Proliance® software allows infrastructure-intensive organizations to optimize the Plan-Build-Operate project lifecycle for complex capital projects, construction and real estate programs, and extensive facility portfolios. TheOur Proliance Softwaresoftware was designed for large building owner/operators, real estate developers, and engineering-driven organizations managing $250 million or more annually in new project construction or facility renovations.
GeoSpatial Solutions – Our GeoSpatial Solutions family enables mobile mapping companies to capture georeferenced data, extract features and attributes, and analyze conditions and change, thereby generating information to better manage assets and operations. Aerial and land mobile mapping systems incorporating imaging and laser scanning, combined with powerful GIS, photogrammetry and feature extraction software, generate high accuracy as-built drawings for the transportation, utilities, energy transmission, and distribution industries.
Trimble Construction Manager Software – Trimble Construction Manager software enables the management of construction assets from one centralized software interface. The software works with one of several hardware locator devices to help track and manage the use of assets on and off site, leading to improved equipment productivity, fuel consumption, and maintenance monitoring. VirtualSite Solutions, a joint venture between Caterpillar and Trimble, was formed in October 2008 to develop the next generation of software for fleet management and connected worksite solutions to be sold through the SITECH dealer distribution channel.
Field Solutions
Our Field Solutions segment addresses the agriculture and geographic information system (GIS) markets.
Our agriculture products consist of guidance and positioning systems, automated application systems, and information management solutions. We provide manual and automated navigation guidance for tractors and other farm equipment used in spraying, planting, cultivation, and harvesting applications. The benefits to the farmer include faster machine operation, higher yields, and lower consumption of chemicals than conventional equipment. We also provide positioning solutions for leveling agricultural fields in irrigation applications and aligning drainage systems to better manage water flow in fields.
applications of pesticide and seeding. Our information management products offer solutions for data management, field to office data transfer, and record keeping.
We use multiple distribution channels to access the agricultural market, including independent dealers and partners such as CNH Global.Global, a significant portion of our sales came through CNH Global and dealer networks. Competitors in this market are either vertically integrated implement companies such as John Deere, or agricultural instrumentation suppliers such as Raven, Hemisphere GPS, and Novariant.
Our GIS product line is centered on handheld data collectors that gather information in the field to be incorporated into GIS databases. Typically this information includes features, attributes, and positions of fixed infrastructure and natural resource assets. An example would be a utility company performing a survey of its transmission poles including the age and condition of each telephone pole. Our handheld unit enables this data to be collected and automatically stored while confirming the location of the asset. The data can then be downloaded intoBy utilizing a GIS database. This stored data could later be used to navigate back to any individual asset or item for maintenance or data update. Our mobile GIS initiative goes one step further by allowingcombination of wireless technologies this information tocan be communicated from the field worker to the back-office GIS database through the combination of wireless technologies, as well as givingand also gives the field worker the ability to download information from the database. This capability provides significant advantages to users including improved productivity, accuracy, and access to the information in the field.
Distribution for GIS products is primarily through a network of independent dealers and business partners, supported by Trimble personnel. Primary markets for our GIS products and solutions include both governmental and commercial users. Users are most often municipal governments and natural resource agencies. Commercial users include utility companies. Competitors in this market are typically survey instrument companies utilizing GPS technology such as Topcon and Thales.
Approximate product price points in this segment range from $3,000$1,000 for a GIS handheld unit to $35,000 for a fully automated, farm equipment control system.
Representative products sold withinin this segment include:
AgGPS EZ-Guide 500CFX-750 – A lightbarOur CFX-750™ product is our newest touchscreen display offering affordable guidance, system with a color LCDsteering, and precision agriculture capabilities. The CFX-750 display data logging functions and multiple accuracy options. Lightbar systems provideprovides GPS-based guidancefunctionality for vehicle operators to steer tractors, sprayers, fertilizer applicators, air seeders, and large tillage tools that require consistent pass-to-pass accuracy to help save fuel, increase efficiency, and reduce input costs for agricultural operations.
AgGPS EZ-Boom 2010 - The AgGPS® EZ-Boom® 2010 automatedField-IQ™ system – Our Field-IQ system is a section control and variable rate application control system is designed to help growers cut input coststhat prevents seed and reduce operator fatigue by providing precise automatic controlfertilizer overlap, controls the rate of field spraying applications. It works with the Trimble material applications, and monitors seed delivery and fertilizer blockage.
AgGPS EZ-Guide® Plus lightbar guidance system, AgGPS EZ-Steer® assisted steering system, or the AgGPS Autopilot™ automated steering system.
AgGPS EZ-Steer System – A value addedOur value-added assisted steering system, that when combined with the EZ-Guide Plus system,any of our guidance display systems, automatically steers agricultural vehicles along a path within 20 centimeters or less. This system installs in less than thirty minutes and is designed to reduce gaps and overlaps in spraying, fertilizing, and other field applications, as well as reduce operator fatigue.
Trimble Connected Farm– Our end-to-end solution combines in-cab precision control, field record-keeping, and seamless field to office information management.
GreenSeeker and WeedSeeker Sensors – Our crop sensing technology reduces farmers’ costs and environmental impact by controlling the application of nitrogen, herbicide, and other crop inputs for optimum plant growth.
Juno Series – Our Juno family includes compact and cost-effective GPS handhelds designed to equip an entire workforce for data collection and fieldwork. The handhelds have a high-sensitivity GPS receiver, Bluetooth and Wireless LAN technology, a built-in 3 Megapixel digital camera, a MicroSD/SDHC storage slot, and an optional 3.5G broadband cellular modem for wireless data communications.
GeoExplorer 20052008 Series – CombinesOur GeoExplorer® family combines a GPS receiver in a rugged handheld unit running industry standard Microsoft Windows Mobile version 5.0,6.0, making it easy to collect and maintain data about objects in the field. The GeoExplorer® series features three models ranging in accuracy from subfoota decimeter to 1-3 meters, thereby allowing the user to select the system most appropriate for their data collection and maintenance needs.
Fieldport Software – FocusesOur Fieldport software focuses on automating field service processes and operational efficiency and profitability for water and wastewater utility customers. Sales and distribution of Fieldport
®UtilityCenter Software – Our UtilityCenter software solutions are direct to the customer. A Fieldport software installation involvesis a degree of integration and professional services.
® software solutions are direct to the customer. UtilityCenter software installation involves a degree of integration and professional services.
Our Mobile Solutions segment addresses gaps in technology for vehicles and mobile workers by providingprovides both hardware and software applications for managing mobile work, mobile workers, and mobile assets. The software is provided in both a client server model or web-based. Our software is provided through our hosted platform for a monthly subscription service fee or as a perpetual license with annual maintenance and support fees.
Our vehicle solutions typically include an onboard proprietary hardware device consisting of a GPS receiver, business logic, sensor interface, and a wireless modem. Our solution usually includes the communication service from/to the vehicle to our data center and access over the internet to the application software.
Our mobile worker solutions include a rugged handset device and software designed to automate service technician work in the field at the point of customer contact. The mobile worker handset solutions also synchronize to a client server at the back office for integration with other mission-critical business applications.
Our scheduling and dispatch solution is an enterprise software program to optimize scheduling and routing of field service technicians. For dynamic capacity management, our capacity planner, capacity controller, and intelligent appointer modules round out this innovative service delivery automation technology.
One element of our market strategy targets opportunities in specific vertical markets where we believe we can provide a unique value to the end-user by tailoring our solutions for a particular industry. Sample markets include Ready Mix Concrete, Direct Store Deliverytelecommunications, utilities field service, construction supply, direct store delivery, forestry, and Public Safety. Ourpublic safety. For example, our construction supply ready mix concrete solution combines a suite of sensors with our in-vehicle wireless platform providing fleets with updated vehicle status that requires no driver interaction – referred to as “auto-status.”
We also sell our vehicle solutions using a horizontal market strategy that focuses on providing turnkey solutions to a broad range of service fleets that span a large number of market segments. Here, we leverage our capabilities without the same level of customization. These solutions are sold to the general service fleets as well as transportation and distribution fleets both on a direct basis and through dealer channels.
Our enterprise strategy focuses on sales to large enterprise accounts with more than 1,000 vehicles or routes. Here, in addition to a Trimble-hosted solution, we can also integrate our service directly into the customer’s IT infrastructure, giving them improved control of their information. In this market, we sell directly to end-users. Sales cycles tend to be long due to field trials followed by an extensive decision-making process.
Approximate prices for hardware fall in the range of $400 to $3,000, while thewith additional monthly subscription service fees range from approximately $25 to approximately $55, depending on the customer service level.
Representative products sold in this segment include:
Fleet Productivity - – Our fleet productivity solution offerings are comprised of the TrimWeb™, GeoManager™, and TrimView™TrimView™ mobile platforms. The TrimWeb and GeoManager systemsGeoManager™ system provides different levels of service that run from snapshots of fleet activity to real-time fleet dispatch capability via access to the web-based platform through a secure internet connection. The TrimWeb and GeoManager systems includesystem includes truck communication service and computer backbone support of the service. The TrimView system is sold to fleets where system integration into back office applications is required for more robust information flow.
Consumer Packaged Goods, (CPG)- or CPG – This software solution operates in the Microsoft CE/Pocket or WinMobile PC environment and addresses the pre-sales, delivery, route sales, and full service vending functions performed by mobile workers. Customers within the CPG market purchase a combination of both license software and handheld PCs. The software handles all communications from/to the mobile computer as well as from/to the host and any other ERP or decision support systems.
Field Service - – Our handset-based mobile solution enables technicians to maintain and repair residential and commercial appliances, office equipment, medical equipment, refrigeration equipment, fountain, and manufacturing equipment, and manage a variety of service functions including wireless dispatching of service
calls, real-time messaging, spare parts management, and work order and workflow management. Trimble Field Service customers have benefited from increased service calls per day, an increase in first call resolution, and reduction in administrative workload to name a few results.
Taskforce – The Taskforce®Taskforce™ software solution provides scheduling and dispatch solutions for field service technicians by synchronizing the right human and physical resources required to optimize a field service resource network. The system manages significant numbers of dynamic scheduling resources in an unpredictable field service environment to increase productivity, field force utilization, and control-to-field employee ratios.
Blue Ox – Forestry Fleet Management – The Blue Ox system optimizes the first quarter of 2006, we began reporting a new segment called Advanced Devices that combines our previously reported Component Technologies and Portfolio segments. This was done in recognition ofefficiency with which wood is transported from the small size of each of the businesses comprising the new segment, relativeforest to the total company. mills. It utilizes real time information that is input into a Trimble rugged handheld PC in the woods to communicate with Trimble tablet PCs in each truck to identify available loads of wood. From this information, the system then selects the most optimal delivery pattern, and routes the trucks appropriately. In sum, a landowner is able to move more wood with fewer trucks, all the while providing valuable operating information through a full suite of reports. This solution creates an immediate savings for the landowner.
Cengea Solutions – Cengea provides spatially-enabled land and supply chain management software solutions to improve business processes across the forestry, agriculture and environment/natural resources industries. The forestry solutions modules include land records and valuation analysis, harvesting schedules and resource allocation, silviculture management, wood flow management, contract management and settlement, scaling and test, and yard inventory management. Cengea’s agriculture solutions include supply chain traceability, agronomic input management, field services management, soil and plant test management, contract and settlement processes, delivery scheduling, scaling, fulfillment and inventory management, and ad-hoc analysis. The environment/natural resources solutions support management of soil and water conservation, water rights and licensing, and biodiversity information.
Advanced Devices
Advanced Devices includes the product lines from our Component Technologies, Applanix, Trimble Outdoors, and Military and Advanced Systems, (MAS)or MAS), and ThingMagic businesses. It is helpful to recognize that withWith the exception of Trimble Outdoors and Applanix these businesses share several common characteristics: they are hardware centric, generally rely onmarket to original equipment manufacturers, or OEM, distribution,system integrators or service providers, and have products that can be utilized in a number of different end-user markets.
Within Component Technologies, we provide GPS-based componentssupply GPS modules, licensing and complementary technologies, and GPS-integrated sub-system solutions for applications that require embeddedrequiring precise position, time or time to market such as thefrequency. Component Technologies serves a broad range of vertical markets including telecommunications, automotive electronics, and automotive industries where we supply modules, boards, custom integrated circuits, or single application IP licenses to the customer according to the needs of the application.commercial electronics. Sales are made directly to original equipment manufacturers (OEMs)OEMs, system integrators, value-added resellers, and system integratorsservice providers who incorporate our componentcomponents into a sub-system or a complete system-level product. solution.
Component Technologies has developed GPS technologies which it is makingmakes available for license. These technologies can run on certain digital signal processors, (DSP)or DSP, or microprocessors, removing the need for dedicated GPS baseband signal processor chips. We have a cooperative licensing deal with Nokia for Trimble'sour Global Navigation Satellite System, (GNSS)or GNSS, patents related to designated wireless products and services involving location technologies, such as GPS, assisted GPS, or Galileo. TheWe also have a licensing agreement is exclusivewith Marvell Semiconductors for our full GPS Digital Signal Processor software as well as tools for development support and testing.
Our MAS business supplies GPS receivers and embedded modules that use the military’s GPS advanced capabilities. The modules are principally used in aircraft navigation and timing applications. Military products are sold directly to Nokiaeither the U.S. Government or defense contractors. Sales are also made to authorized foreign end users. Competitors in this market include Rockwell Collins, L3, and Raytheon.
Our Trimble Outdoors business utilizes GPS-enabled cell phones to provide information for outdoor recreational activities. Some of the recreational activities include hiking, biking, backpacking, boating, and water sports. Consumers purchase the Trimble Outdoors product through our wireless consumer productoperator partners which include Sprint-Nextel, SouthernLINC Wireless, and service domain and includes sublicensing rights. In return, Trimble receives a non-exclusive license to Nokia’s location-based patents for use in Trimble's commercial products and services.
Our Applanix business is a leading provider of advanced products and enabling solutions that maximize productivity through mobile mapping and positioning to professional markets worldwide. Applanix develops, manufactures, sells, and supports high-value, precision products that combine GPS with inertial sensors for accurate measurement of position and attitude, flight management systems, and scalable mobile mapping solutions used in airborne, land, and marine applications. Sales are made by our direct sales force to end users, systems integrators, and OEMs, and through regional agents. Competitors include Leica, IGI, and Novatel.
Our MASThingMagic business supplies GPS receiversis a leading provider of Ultra High Frequency (UHF) Radio Frequency Identification (RFID) reader engines, development platforms and design services. ThingMagic embedded modules that use the military’s GPS advanced capabilities. The modules are principally used in aircraft navigation and timing applications. Military products are sold directly to either the U.S. Government or defense contractors. Sales are also made to authorized foreign end users. Competitors in this market include Rockwell Collins, L3, and Raytheon.
Representative products sold byin this segment include:
Copernicus GPS Receiver Modules–The CopernicusLassen®, Copernicus® , Condor® TMReceiver, and PandaTM is a families of GPS modules are full-function GPS receivermodules in a surface mount package the sizevariety of a postage stamp.form factors, some smaller than your fingertip.
Thunderbolt GPS functionality with global systemDisciplined Clock– Our Thunderbolt® clock is a fifth-generation product from our GPS Timing and Synchronization division, which outputs precision time and frequency. It also serves as the architectural basis for mobile communications (GSM) wireless communications. In 2006, we addedGPS disciplined clocks sold to the TrimTrac locator full quad-band GSMmanufacturers of CDMA, WiMax and general packet radio service (GPRS) support along with several important application level features. The device is suitable for high volume personal vehicle and commercial asset management applications that demand a low-cost locator.LTE infrastructure.
Applanix POS/AV System - An – Our integrated GPS/inertial system for airborne surveying that measures aircraft position to an accuracy of a few centimeters and aircraft attitude (angular orientation) to an accuracy of 30 arc seconds or better. This system is typically interfaced to large format cameras and scanning lasers for producing geo-referenced topographic maps of the terrain.
Applanix DSS Digital Sensor System - A– Our digital airborne imaging solution that produces high-resolution orthophoto map products. Certified by the USGS, the system consists of a mapping grade digital camera that is tightly integrated with a GNSS/Inertial system, flight management system, (FMS)or FMS, and processing software for automatic geo-referencing of each pixel. TheOur DSS can be used stand-alone or integrated with other airborne mapping sensors such as LiDAR. Thesensors. Our DSS has been used by organizations worldwide in a variety of marketsmarket segments that include ortho mapping, utility and transportation corridor mapping, and rapid response applications.
Force 524D Module - A – This dual frequency, embedded GPS module that is used in a variety of military airborne applications.
Trimble Outdoors Service - Trip – Our trip planning and navigation software that works with GPS-enabled cell phones and conventional GPS receivers. This software enables consumers to research specific trips on-line as part of trip pre-planning. In addition, users are able to share outdoor and off-road experiences on-line with their friends and family.
Trimble Indoor Mobile Mapping Solution – Our Indoor Mobile Mapping Solution, or IMMS, is the optimal fusion of technologies for capturing spatial data of indoor and other GNSS-denied areas. It produces both LiDAR and spherical video and enables the creation of accurate, real-life representations (maps, models) of interior spaces with all of their contents. The maps IMMS creates are “geo-located”, meaning that the real world positions of each area of a facility, and all of the objects inside it, are known. Because IMMS is a mobile solution, it offers tremendous speed and productivity, even for very large and complex spaces.
ThingMagic RFID Readers – Our RFID readers include the Mercury® family of embedded reader modules for the integration of RFID into OEM products including printers, handheld scanners and other stationary and
mobile devices. Our broad portfolio of fixed/finished RFID readers are used to develop asset tracking, personnel identification, secure access and other solutions that accelerate productivity and address customer needs for manageability, scalability, security, low total cost of ownership, and enterprise network integration.
Acquisitions and Joint Ventures
Our growth strategy is centered on developing and marketing innovative and complete value-added solutions to our existing customers, while also marketing them to new customers and geographic regions. In some cases, this has led to partnering with or acquiring companies that bring technologies, products or distribution capabilities that will allow us to establish a market beach head,beachhead, penetrate a market more effectively, or develop solutions more quickly than if we had done so solely through internal development. Since 1999, this has led us to form threeThe following companies and joint ventures were acquired or formed during fiscal 2010 and acquire twenty seven companies through fiscal 2007. Most of these acquisitions have been small, both in dollar terms and in number of people added to the Trimble employee base. No assurance can be given that our previous or future acquisitions will be successful or will not materially adversely affect our financial condition or operating results. We acquired the following companies or assetsare combined in the last twelve months:
Tata AutoComp Mobility Telematics Limited
On December 19, 2007,14, 2010, we acquired Tata AutoComp Mobility Telematics Limited, or TMT, a wholly-owned subsidiary of Tata AutoComp Systems Limited of Pune, India. TMT is a leading provider of telematics solutions and mobile resource management services in India. TMT’s performance is reported under our Mobile Solutions business segment.
ThingMagic, Inc.
On October 22, 2010, we acquired privately-held HHK Datentechnik GmbHThingMagic, Inc. of Braunschweig, Germany,Cambridge, Massachusetts. ThingMagic is a providerleading developer of customized officeradio frequency identification technology and field software solutionsoffers advanced development services to facilitate the integration of this technology into a wide range of applications. ThingMagic’s performance is reported under our Advanced Devices business segment.
Novariant
On October 8, 2010, we acquired the Terralite assets from Novariant to expand our portfolio of positioning solutions. The Terralite XPS technology is a scalable infrastructure that generates signals for the cadastral survey market in Germany. HHK’sreal-time positioning to augment existing GPS coverage. The Terralite assets’ performance is reported under our Engineering and Construction business segment.
Intelligent Construction Tools, LLC.
On November 8, 2007,September 29, 2010, we and the Hilti Group formed a joint venture, Intelligent Construction Tools, LLC. The joint venture, 50 percent owned by us and 50 percent owned by Hilti, will focus on leveraging technologies from both companies to develop measuring solutions for the building construction trades.
Cengea
On September 10, 2010, we acquired the UtilityCenter assets from privately-held UAI,Cengea Solutions Inc. of Huntsville, Alabama. UAI, based in British Columbia, Canada. Cengea is a leading provider of Geographic Information System (GIS)-based workflow automationspatially-enabled business operations and outagesupply chain management solutionssoftware for electricthe forestry, agriculture and gas utilities. UtilityCenter’snatural resource industries. Cengea’s performance is reported under our FieldMobile Solutions business segment.
Accubid Systems
On September 19, 2007,August 12, 2010, we acquired Ingenieurbüro Breining GmbHthe assets of Kirchheim, Germany,privately-held Accubid Systems, based in Ontario, Canada. Accubid is a leading provider of customized field data collectionestimating, project management and officeservice management software solutionsand services for the survey market in Germany. Ingenieurbüro Breining’selectrical and mechanical contractors. Accubid’s performance is reported under our Engineering and Construction business segment.
Punch Telematix NV
On February 16, 2007,July 7, 2010, we acquired publicly-held @Road, Inc.control of Fremont, California. @Road, Inc. isPunch Telematix NV. Punch was a global providerpublic company based in Belgium and engaged in the development and marketing of solutions designed to automate thetransport management of mobile resources and to optimize the service delivery process for customers across a variety of industries. @Roadsolutions. Punch’s performance is reported withinunder our Mobile Solutions business segment. It significantly increases our presence in the mobile resource management, or MRM, market which
Zhongtie Trimble believes is a large and fast growing market.
On June 28, 2010, we and the China Railway Eryuan Engineering Group Co. Ltd. (CREEC) formed a joint venture, Zhongtie Trimble Digital Engineering and Construction Limited Company (ZTD). We and CREEC both maintain a 50 percent ownership of ZTD. ZTD will leverage Trimble’s commercial positioning, communications and software technologies, as well as CREEC’s expertise in rail design and construction, to develop and provide digital railway solutions that address the design, construction and maintenance for the Chinese railway industry.
Definiens
On June 10, 2010, we acquired Definiens’ Earth Sciences business assets and licenses of its software technology platform. Definiens is a Germany-based company specializing in image analysis solutions. Definiens’ performance is reported under our Engineering and Construction business segment.
Rusnavgeoset Limited Liability Company
On May 14, 2010, we and Russian Space Systems formed a joint venture, Rusnavgeoset Limited Liability Company. We and Russian Space Systems both maintain a 50 percent ownership of Rusnavgeoset. Rusnavgeoset will be responsible for selling commercial GNSS geodetic network infrastructure systems localized for Russia and the Commonwealth of Independent States.
LET Systems
On March 4, 2010, we acquired privately-held LET Systems based in Cork, Ireland. LET Systems is an internationally recognized leader in incident and outage management system solutions for utilities. LET Systems’ performance is reported under our Field Solutions business segment.
Pondera Engineers
On January 27, 2010, we acquired the assets of privately-held Pondera Engineers LLC based in Post Falls, Idaho. Pondera is an engineering and development company offering services and software tools for siting, designing, optimizing, and maintaining high-voltage power transmission and distribution lines. Pondera’s performance is reported under our Field Solutions business segment.
Patents, Licenses and Intellectual Property
We seek to establish and maintain our proprietary rights in our technology and products through the use of patents, copyrights, trademarks, and trade secret laws. We have a program to file applications for and obtain patents, copyrights, and trademarks in the United States and in selected foreign countries where we believe filing for such protection is appropriate. We hold approximately 791850 U.S. issued and enforceable patents and approximately 119225 non-U.S. patents, the majority of which cover GPS technology and other applications such as optical and laser technology.
There are approximately 233 trademarks registered to Trimble and its subsidiaries including "Trimble," "AgGPS," “Spectra Precision,” and "GeoExplorer," among others that are registered in the United States and other countries. Additional trademarks are pending registration.
We tailor the distribution channel to the needs of our products and regional markets through a number of sales channel solutions around the world. We sell our products worldwide primarily through dealers, distributors, and authorized representatives, occasionally granting exclusive rights to market certain products within specific countries. This channel is supported and supplemented (where third party distribution is not available) by our regional sales offices throughout the world. We also utilize distribution alliances, OEM relationships, and joint ventures with other companies as a means to serve selected markets.
During fiscal 2007,2010, sales to customers in the United States represented 46%, Europe represented 22%, Asia Pacific represented 18%, and other regions represented 14% of our total revenue. During fiscal 2009, sales to customers in the United States represented 50%, Europe represented 27%23%, Asia Pacific represented 12%, and other regions represented 11% of our total revenues. During fiscal 2006, sales to customers in the United States represented 54%, Europe represented 25%, Asia Pacific represented 12%, and other regions represented 9% of our total revenues. During fiscal 2005, sales to customers in the United States represented 54%, Europe represented 25%, Asia Pacific represented 11%17%, and other regions represented 10% of our total revenues.
Warranty
The warranty periods for our products are generally between 90 days and three years. Selected military programs may require extended warranty periods up to 5.5 years and certain Nikon products have a five-year warranty period. We support our GPS products through a circuit board replacement program from locations in the United Kingdom, Germany, Japan, and the United States. The repair and calibration of our non-GPS products are available from company-owned or authorized facilities. We reimburse dealers and distributors for all authorized warranty repairs they perform.
While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, our warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.
Seasonality of Business
*
Our individual segmentBacklog
In most of our markets, the time between order placement and shipment is short. Orders are generally placed by customers on an as-needed basis. In general, customers may cancel or reschedule orders without penalty. For these reasons, we do not believe that orders are an accurate measure of backlog and, therefore, we believe that backlog is not a meaningful indicator of future revenuesrevenue or material to understanding our business.
Manufacturing
Manufacturing of many of our GPSGNSS products is subcontracted to Flextronics International Limited.Limited in Mexico. We utilize Flextronics for allmost of Survey, Field Solutions, and Mobile Solutions products. We also utilize Benchmark Electronics Inc. in China and Mexico for our Component Technologies products and for somemany of our Construction and Survey, Field Solutions, and handheld products. We also utilize Flextronics for our high-end GPS products and new product introduction services. Flextronics is responsible for substantially allsignificant material procurement, assembly, and testing. We continue to manage product design through pilot production for the subcontracted products, and we are directly involved in qualifying suppliers and key components used in all our products. Our current contract with Flextronics continues in effect until either party gives the other ninety days written notice.
We manufacture GPS, laser, and optics-based products at our plants in Dayton, Ohio; Danderyd, Sweden; Jena and Kaiserslautern, Germany; and Shanghai, China. Some of these products or portions of these products are also subcontracted to third parties for assembly.
Our design and manufacturing sites in Dayton, Ohio; Sunnyvale, California; Danderyd, Sweden; JenaKaiserslautern, Germany; and Kaiserslautern, GermanyShanghai, China are registered to ISO9001:2000, covering the design, production, distribution, and servicing of all our products.
Research and Development
We believe that our competitive position is maintained through the development and introduction of new products that incorporate improved features, better performance, smaller size and weight, lower cost, or some combination of these factors. We invest substantially in the development of new products. We also make significant investment in the positioning, communication, and information technologies that underlie our products and will likely provide competitive advantages.
Our research and development expenditures, net of reimbursed amounts were $131.5$150.1 million for fiscal 2007, $103.82010, $136.6 million for fiscal 2006,2009, and $84.3$148.3 million for fiscal 2005.
* We expect to continue investing in research and development with the goal of maintaining or improving our competitive position, as well as the goal of entering new markets.
Employees
As of December 28, 2007,31, 2010, we employed 3,6064,166 employees, including 36%20% in manufacturing, 28%29% in engineering, 24%38% in sales and marketing, and 12%13% in general and administrative positions. Approximately 43%47% of employees are in locations outside the United States.
Our employees are not represented by unions except for those in Sweden. Some employees in Germany are represented by works councils. We also employ temporary and contract personnel that are not included in the above headcount numbers. We have not experienced work stoppages or similar labor actions.
Available Information
The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports are available free of charge on the Company’s web site throughwww.trimble.com/investors.html, as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Information contained on our web site is not part of this annual report on Form 10-K.
In addition, you may request a copy of these filings (excluding exhibits) at no cost by writing or telephoning us at our principal executive offices at the following address or telephone number:
Trimble Navigation Limited
935 Stewart Drive, Sunnyvale, CA 94085
Attention: Investor Relations Telephone: 408-481-8000
The names, ages, and positions of the Company'sCompany’s executive officers as of February 21, 20082011 are as follows:
Name | Age | Position | ||||
Steven W. Berglund | 59 | President and Chief Executive Officer | ||||
Rajat Bahri | 46 | Chief Financial Officer | ||||
Bryn A. Fosburgh | 48 | Vice President | ||||
Christopher W. Gibson | 50 | Vice President | ||||
Mark A. Harrington | 55 | Vice President | ||||
Jürgen D. Kliem | 53 | Vice President | ||||
James A. Kirkland | 51 | Vice President and General Counsel | ||||
Julie Shepard | 53 | Vice President, Finance | ||||
Dennis L. Workman | 66 | Vice President and Chief Technical Officer | ||||
Steven W. Berglund – Steven Berglund has served as president and chief executive officer of Trimble since March 1999. Prior to joining Trimble, Mr. Berglund was president of Spectra Precision, a group within Spectra Physics AB, and a pioneer in the development of laser systems. He spent 14 years at Spectra Physics inAB. Mr. Berglund’s business experience includes a variety of senior leadership positions. In the early 1980s, Mr. Berglund spent a number of yearspositions with Spectra Physics, manufacturing and planning roles at Varian Associates, in Palo Alto, where he held a variety of planning and manufacturing roles. Mr. Berglund began his career as a process engineer at Eastman Kodak in Rochester, New York.Kodak. He attended the University of Oslo and the University of Minnesota where he received a B.S. in chemical engineering. He laterMr. Berglund received his M.B.A. from the University of Rochester. In December 2007, Mr. Berglund was elected to the board of directors of Verigy Ltd. a semiconductor test equipment manufacturer.
Rajat Bahri – Rajat Bahri joined Trimble as chief financial officer in January 2005. Prior to joining Trimble, Mr. Bahri served for more thanBahri’s business experience includes 15 years in various capacities within the financial organization of several subsidiaries of Kraft Foods, Inc. and General Foods Corporation. Most recently, he servedCorporation, including service as the chief financial officer for Kraft Canada, Inc. From June 2000 to June 2001 he served as, chief financial officer of Kraft Pizza Company. From 1997 to 2000, Mr. Bahri was Operations ControllerCompany, and operations controller for Kraft Jacobs Suchard Europe. Mr. Bahri holdsreceived a Bachelor of Commerce from the University of Delhi in 1985 and an M.B.A. from Duke University in 1987. In 2005, he was elected to the board of STEC, Inc., a memory storage manufacturer.
Rick BeyerBryn A. Fosburgh– Rick Beyer joined Trimble in March 2004Mr. Fosburgh currently serves as vice president for Trimble’s heavy and highway construction business, Caterpillar-related joint ventures and the majority of Trimblethe Mobile Solutions and in May 2006,segment. From 2009 to 2010, Mr. Beyer was appointed aFosburgh served as vice president of Trimble. In October 2007 his role was expanded to includefor Trimble’s Construction Division, with responsibility for a number of Trimble’s mobile solutions business divisions. Priorcorporate functions and geographical regions. From 2007 to joining Trimble, Mr. Beyer held senior executive positions within the wireless mobile solutions industry since 1987. Part of the original senior executive team that launched Qualcomm's OmniTRAC's mobile satellite communication solution, Mr. Beyer also held the positions of general manager at Rockwell Collins, on-board computing division, from 1994 to 1995; executive vice president of Norcom Networks from 1995 to 1999; president of Husky Technologies, now part of Itronix, from 1999 to 2000; and CEO of TracerNet, which was acquired by Trimble, from 2002 to 2004. Mr. Beyer holds a B.A. from Olivet College and was Chairman of the Board at the college from 2000 to 2003. He was elected Trustee Emeritus in 2007. Rick also served as a member of the Council of Board Chairs for the Association of Governing Boards for Colleges and Universities from 2002 to 2005.
Mark A. Harrington – Mark Harrington has served as thea vice president of Trimble since 2004, and currently serves as vice president for Trimble’s Agriculture and Mapping and Geographical Information System Divisions, with responsibility for a number ofseveral corporate functions and geographical regions. From 2007 to 2009, Mr. Harrington served as vice president for Trimble’s Survey and Mapping and Geographical Information Systems divisions, and from 2004 to 2007, he served as vice president of strategy and business development. Prior to joining Trimble, Mr. Harrington served as vice president of finance at Finisar Corporation, and chief financial officer for Cielo Communications, Inc., a photonics components manufacturer, from February 1998 to September 2002, and Vixel Corporation, a photonics manufacturer, from April 2003 to December 2003. His experience also includes 11 years at Spectra-Physics where he served in a variety of roles including vice president of finance for Spectra-Physics Lasers, Inc. and vice president of finance for Spectra-Physics Analytical, Inc. Mr. Harrington began his career at Varian Associates, Inc. where he held a variety of management and individual positions in finance, operations and IT. Mr. Harrington received his B.S. in Business Administration from the University of Nebraska-Lincoln.
Irwin L. KwatekJürgen D. Kliem– Irwin Kwatek hasJürgen Kliem was appointed vice president of strategy and business development in October 2008. From 2002 to 2008, Mr. Kliem served as general manager of Trimble’s Survey Division, and prior to that, Mr. Kliem was responsible for Trimble’s Engineering and Construction Division in Europe. Mr. Kliem held various leadership roles Spectra Precision, which was acquired by Trimble, and at Geotronics, a company acquired by Spectra Precision. Before joining Geotronics, Mr. Kliem worked in a privately-held surveying firm addressing cadastral, construction, plant and engineering projects. Mr. Kliem received a Diplom Ingenieur degree from the University of Essen, Germany in 1982.
James A. Kirkland– James A. Kirkland joined Trimble as vice president and general counsel of Trimble since November 2000.in July 2008. Prior to joining Trimble, Mr. Kwatek washe worked for SpinVox Ltd. from October 2007 to January 2008 as Senior Vice President, Corporate Development. From October 2003 to September 2007, he served as general counsel and executive vice president, strategic development at Covad Communications. Mr. Kirkland also served as senior vice president of spectrum development and general counsel of Tickets.com, a ticketing service provider, from May 1999 to November 2000. Prior to Tickets.com,at Clearwire Technologies, Inc. Mr. Kirkland began his career in 1984 as an associate at Mintz Levin and in 1992 he was engaged in the private practice of law for more than six years. During his career, he has served as vice president and general counselpromoted to several publicly held high-tech companies including Emulex Corporation, Western Digital Corporation and General Automation, Inc.partner. Mr. KwatekKirkland received his B.B.A.BA from Adelphi CollegeGeorgetown University in Garden City, New YorkWashington, D.C. in 1981 and an M.B.A. from the University of Michigan in Ann Arbor. He received his J.D. from Fordham UniversityHarvard Law School in New York City in 1968.1984.
Julie Shepard– Julie Shepard joined Trimble in December of 2006 as vice president of finance, and was appointed principal accounting officer in May 2007. Ms. Shepard brings with her over 20 years of experience in a broad range of finance roles. She is responsible for Trimble's worldwide finance operations including financial planning, accounting, and external reporting. Prior to joining Trimble, Ms. Shepard served as vice president of finance and corporate controller at Quantum Corporation, from 2005 to 2006, and prior to that, from 2004 to 2005, as an independent consultant to Quantum Corporation. She wasMs. Shepard brings with her over 20 years of experience in a broad range of finance roles, including vice president of finance at Nishan Systems from 2000 to 2003.Systems. Ms. Shepard began her career at Price Waterhouse and is a Certified Public Accountant. She received a B.S in Accounting from California State University where she majored in Accounting.University.
Dennis L. Workman– Dennis Workman has served as vice president of various business divisions, currently including advanced devices and ApplanixTrimble since September 1999. HeMr. Workman was appointedappoint as Trimble’s chief technical officer in March 2006. From 1998 to 1999,2006, and also has responsibility for the Advanced Devices division. Since joining Trimble in 1995, Mr. Workman washas held a variety of management roles, including senior director and chief technical officer of the newly formed Mobile and Timing Technologies business group, also serving as general manager of Trimble'sTrimble’s Automotive and Timing group. In 1997, he wasgroup, director of engineering for Software & Component Technologies. Mr. Workman joined Trimble in 1995 asTechnologies, and director of the newly created Timing vertical market. Prior to Trimble, Mr. Workman held various senior-level technical positions at Datum Inc. During his nine year tenure at Datum, he held the position of CTO., including chief technical officer. Mr. Workman received a B.S. in mathematics and physics from St. Mary’s College in 1967 and an M.S. in electrical engineering from the Massachusetts Institute of Technology in 1969.1967.
RISKS AND UNCERTAINTIES
You should carefully consider the following risk factors, in addition to the other information contained in this Form 10-K and in any other documents to which we refer you in this Form 10-K, before purchasing our securities. The risks and uncertainties described below are not the only ones we face.
Our Inability to Accurately Predict Orders and Shipments May Subject Our Results of Operations to Significant Fluctuations From Quarter to Quarter
We have not been able in the past to consistently predict when our customers will place orders and request shipments so that we cannot always accurately plan our manufacturing requirements. As a result, if orders and shipments differ from what we predict, we may incur additional expensesexpense and build excess inventory, which may require additional reserves and allowances. Accordingly, we have limited visibility into future changes in demand and our results of operations may be subject to significant fluctuations from quarter to quarter.
Due in part to the buying patterns of our customers, a significant portion of our quarterly revenuesrevenue occurs from orders received and immediately shipped to customers in the last few weeks and days of each quarter, although our operating expenses tendexpense tends to remain fairly predictable. Engineering and constructionConstruction purchases tend to occur in early spring, and governmental agencies tend to utilize funds available at the end of the government’s fiscal year for additional purchases at the end of our third fiscal quarter in September of each year. Concentrations of orders sometimes also occur at the end of our other two fiscal quarters. Additionally, a majority of our sales force earns commissions on a quarterly basis which may cause concentrations of orders at the end of any fiscal quarter. It could harm our operating results if for any reason expected sales are deferred, orders are not received, or shipments are delayed a few days at the end of a quarter.
In addition, our operations and performance depend on worldwide economic conditions and their impact on levels of business spending. In the recent past, uncertainties in the financial and credit markets have caused our customers to postpone purchases, and negative economic conditions may reduce future sales of, or demand for, our products and services. In addition, negative economic conditions may depress the tax revenues of federal, state and local government entities, which are significant purchasers of our products. With the exception primarily of our Mobile Solutions and Advanced Devices segments, our products are generally sold through a dealer channel, and our dealers depend on the availability of credit to finance purchases of our products for their inventory.
Customer collections are our primary source of cash. While we believe we have a strong customer base and have experienced strong collections in the past, negative economic conditions may result in increased collection times or greater write-offs, which could have a material adverse effect on our cash flow. Any write-off of goodwill could also negatively impact our financial results. These and other economic factors could have a material adverse effect on demand for our products and services and on our financial condition and operating results.
We Are Dependent on a Specific Manufacturer and Assembler for Many of Our Products and on Other Manufacturers, and Specific Suppliers of Critical Parts for Our Products
We are substantially dependent upon Flextronics International Limited as our preferred manufacturing partner for many of our GPS products. Under the agreement, we provide to Flextronics a twelve-month product forecast and place purchase orders with Flextronics at least thirty calendar days in advance of the scheduled delivery of products to our customers, depending on production lead time. Although purchase orders placed with Flextronics are cancelable, the terms of the agreement would require us to purchase from Flextronics all inventory not returnable or usable by other Flextronics customers. Accordingly, if we inaccurately forecast demand for our products, we may be unable to obtain adequate manufacturing capacity from Flextronics to meet customers’ delivery requirements or we may accumulate excess inventories, if such inventories are not usable by other Flextronics customers. Our current contract with Flextronics continues in effect until either party gives the other ninety days written notice.
We rely on specific suppliers for a number of our critical components and on other contract manufacturers for the manufacture, test and assembly of certain products and components. We have experienced shortages of components in the past. Our current reliance on specific or a limited group of suppliers and contract manufacturers involves several risks, including a potential inability to obtain an adequate supply of required components, and reduced control over pricing.pricing and delivery schedules, discontinuation of certain components, and economic conditions which may adversely impact the viability of our suppliers and contract manufacturers. This situation may be exacerbated during any period of economic recovery or a competitive environment. Any inability to obtain adequate deliveries or any other circumstance that would require us to seek alternative sources of supply or to manufacture, assemble and test such components internally could significantly delay our ability to ship our products, which could damage relationships with current and prospective customers and could harm our reputation and brand as well as our operating results.
Our Annual and Quarterly Performance May Fluctuate Which Could Negatively Impact Our Operations and Our Stock Price
Our operating results have fluctuated and can be expected to continue to fluctuate in the future on a quarterly and annual basis as a result of a number of factors, many of which are beyond our control. Results in any period could be affected by:
changes in market demand,
competitive market conditions,
fluctuations in foreign currency exchange rates,
the cost and availability of components,
the mix of our customer base and sales channels,
the mix of products sold,
pricing of products,
our ability to expand our sales and marketing organization effectively,
our ability to attract and retain key technical and managerial employees, and
general global economic conditions.
In addition, demand for our products in any quarter or year may vary due to the seasonal buying patterns of our customers in the agricultural and engineering and construction industries. The price of our common stock could decline substantially in the event such fluctuations result in our financial performance being below the expectations of public market analysts and investors, which are based primarily on historical models that are not necessarily accurate representations of the future.
Our future revenue stream depends to a large degree on our ability to bring new products to market on a timely basis. We must continue to make significant investments in research and development in order to continue to develop new products, enhance existing products, and achieve market acceptance of such products. We may incur problems in the future in innovating and introducing new products. Our development stage products may not be successfully completed or, if developed, may not achieve significant customer acceptance. If we were unable to successfully define, develop and introduce competitive new products, and enhance existing products, our future results of operations would be adversely affected. Development and manufacturing schedules for technology products are difficult to predict, and we might not achieve timely initial customer shipments of new products. The timely availability of these products in volume and their acceptance by customers are important to our future success. If we are unable to introduce new products, if other companies develop similar technology products, or if we do not develop compelling new products, theour number of customers may not grow as anticipated, or may decline, which could harm our operating results.
We Are Dependent on Proprietary Technology, which Could Result in Litigation that Could Divert Significant Valuable Resources and Impair Our Liquidity
Our future success and competitive position is dependent upon our proprietary technology, and we rely on patent, trade secret, trademark, and copyright law to protect our intellectual property. The patents owned or licensed by us may be invalidated, circumvented, and challenged. The rights granted under these patents may not provide competitive advantages to us. Any of our pending or future patent applications may not be issued within the scope of the claims sought by us, if at all.
Despite our efforts to protect our intellectual property rights, unauthorized parties may attempt to copy or otherwise obtain our software or develop software with the same functionality or to obtain and use information that we regard as proprietary. Others may develop technologies that are similar or superior to our technology, duplicate our technology or design around the patents owned by us. In addition, effective copyright, patent, and trade secret protection may be unavailable, limited or not applied for in certain countries. The steps taken by us to protect our technology might not prevent the misappropriation of such technology.
The value of our products relies substantially on our technical innovation in fields in which there are many current patent filings. We recognize that as new patents are issued or are brought to our attention by the holders of such patents, it may be necessary for us to withdraw products from the market, take a license from such patent holders, or redesign our products. We do not believe any of our products currently infringe patents or other proprietary rights of third parties, but we cannot be certain they do not do so. In addition, the legal costs and engineering time required to safeguard intellectual property or to defend against litigation could become a significant expense of operations. Any such litigation could require us to incur substantial costs and divert
significant valuable resources, including the efforts of our technical and management personnel, which may impairharm our liquidity.
Investing in and Integrating New Acquisitions Could be Costly and May Place a Significant Strain on Our Management Systems and Resources
We have recently acquired a number of companies, including @Road, and intend to continue to acquire other companies. Acquisitions of companies entail numerous risks, including:
potential inability to successfully integrate acquired operations and products or to realize cost savings or other anticipated benefits from integration,
loss |
the difficulty of assimilating geographically dispersed operations and personnel of the acquired companies,
the potential disruption of our ongoing business,
unanticipated expense related to acquisitions; including significant transactions costs which under the current accounting rules, are required to be expensed rather than capitalized,
the correct assessment of the relative percentages of in-process research and development expense that can be immediately written off as compared to the amount which must be amortized over the appropriate life of the asset,
the impairment of relationships with employees and customers of either an acquired company or our own business, and
the potential unknown liabilities associated with acquired business.
As a result of such acquisitions, we have significant assets that include goodwill and other purchased intangibles. The testing of thesethis goodwill and intangibles for impairment under established accounting guidelines for impairment requires significant use of judgment and assumptions. Changes in business conditions could require adjustments to the valuation of these assets. In addition, losses incurred by a company in which we have an investment may have a direct impact on our financial statements or could result in our having to write-down the value of such investment. Any such problems in integration or adjustments to the value of the assets acquired could harm our growth strategy, and could be costly and place a significant strain on our management systems and resources.
Our Products May Contain Undetected Errors, Product Defects or Defects,Software Errors, which Could Result in Damage to Our Reputation, Lost Revenues,Revenue, Diverted Development Resources and Increased Service Costs, Warranty Claims, and Litigation
We warrant that our products will be free of defect for various periods of time, depending on the product. In addition, certain of our contracts include epidemic failure clauses. If invoked, these clauses may entitle the customer to return or obtain credits for products and inventory, or to cancel outstanding purchase orders even if the products themselves are not defective.
We must develop our products quickly to keep pace with the rapidly changing market, and we have a history of frequently introducing new products. Products and services as sophisticated as ours could contain undetected errors or defects, especially when first introduced or when new models or versions are released. In general, our products may not be free from errors or defects after commercial shipments have begun, which could result in damage to our reputation, lost revenues,revenue, diverted development resources, increased customer service and support costs, and warranty claims, and litigation.
We Are Dependent on the Availability of Allocated Bands within the Radio Frequency Spectrum
Our GNSS technology is dependent on the use of satellite signals from space and on terrestrial communication bands. International allocations of radio frequency are made by the International Telecommunications Union (ITU), a specialized technical agency of the United Nations. These allocations are further governed by radio regulations that have treaty status and which may be subject to modification every two to three years by the World Radio Communication Conference. Each country also has regulatory authority on how each band is used.
Any ITU or local reallocation of radio frequency bands, including frequency band segmentation orand sharing of spectrum, or other modifications of the permitted uses of relevant frequency bands, may materially and adversely affect the utility and reliability of our products. products and have significant negative impacts on our customers. For example, the FCC is currently considering a proposal by a private party, Lightsquared, to repurpose spectrum adjacent to the GPS bands for terrestrial broadband wireless operations in metropolitan
areas throughout the United States. If the FCC were to permit implementation of Lightsquared’s proposal as is, terrestrial broadband wireless operations would create harmful interference to GPS receivers within range of such operations.
Many of our products use other radio frequency bands, together with the GNSS signal, to provide enhanced GNSS capabilities, such as real-time kinematickinematics precision. The continuing availability of these non-GNSS radio frequencies is essential to provide enhanced GNSS products to our precision survey, agriculture, and construction machine controls markets. In addition, emissions from other services and equipment operating in adjacent frequency bands or in-band may impair the utility and reliability of our products. Any regulatory changes in spectrum allocation or in allowable operating conditions could have a material adverse effect on our business, results of operations, and financial condition.
We have certain products, such as GPS RTK systems, and surveying and mapping systems that use integrated radio communication technology requiring access to available radio frequencies allocated to local government. Some bands are experiencing congestion. In the US,U.S., the FCC announced that it will require migration of radio technology from wideband to narrowband operations in these bands. The rules require, by 2013, either migration of users to narrowband channels or utilization by 2011. Inusers of technology that achieves equivalent efficiency to narrowband channels. Congestion in the meantime, congestionchannels could cause FCC coordinators to restrict or refuse licenses. An inability to obtain access to these radio frequencies by end users could have a material adverse effect on our business, results of operations, and financial condition.
Many of Our Products Rely on GNSS technology, the GPS, and other Satellite Systems, Which May Become Inoperable and Result in Lost Revenue
GNSS technology, GPS satellites and their ground support systems are complex electronic systems subject to electronic and mechanical failures and possible sabotage. TheMany of the GPS satellites currently in orbit were originally designed to have lives of 7.5 years and are subject to damage by the hostile space environment in which they operate. However, of the current deployment of 30 satellites in place, some have already been in operation for more than 12 years. To repair damaged or malfunctioning satellites is currently not economically feasible. If a significant number of satellites were to become inoperable, there could be a substantial delay before they are replaced with new satellites. A reduction in the number of operating satellites may impair the current utility of the GPS system and the growth of current and additional market opportunities.
As the only complete GNSS currently in operation, we are dependent on continued operation of GPS. GPS is operated by the U. S. Government, which is committed to maintenance and improvement of GPS; however if the policy were to change, and GPS were no longer supported by the U. S. Government, or if user fees were imposed, it could have a material adverse effect on our business, results of operations, and financial condition.
Many of our products also use signals from systems that augment GPS, such as the Wide Area Augmentation System (WAAS) and National Differential GPS System (NDGPS).System. Many of these augmentation systems are operated by the federal government and rely on continued funding and maintenance of these systems. In addition, some of our products also use satellite signals from the Russian GlonassGLONASS System. Any curtailment of the operating capability of these systems could result in decreased user capability thereby impacting our markets.
The European governments havecommunity has begun development of an independent radio navigation satellite navigation system, known as Galileo. We have access to the preliminary signal design, which is subject to change.change and which requires a commercial license from Galileo authorities. Although an operational Galileo system is several years away, if we are unable to develop a timely commercial product, or obtain a timely commercial license, it could result in lost revenue which could harm our results of operations and financial condition.
Our Business is Subject to Disruptions and Uncertainties Caused by War, Terrorism, or Terrorism
Acts of war, or acts of terrorism, or other circumstances of civil unrest, especially any directed at the GPS signals, could have a material adverse impact on our business, operating results, and financial condition. The threat of terrorism and war and heightened security and military response to this threat, or any future acts of terrorism, may invoke a redeployment of the satellites used in GPS or interruptions of the system. Civil unrest or other political activities may impact regional economies through work stoppages and limitations on foreign business transactions. To the extent that such interruptions result in delays or cancellations of orders, or the manufacture or shipment of our products, it could have a material adverse effect on our business, results of operations, and financial condition.
We Are Exposed to Fluctuations in Currency Exchange Rates and Although We Hedge Against These Risks, Our Attempts to Hedge Could be Unsuccessful and Expose Us to Losses
A significant portion of our business is conducted outside the U.S., and as such, we face exposure to movements in non-U.S. currency exchange rates. These exposures may change over time as business practices evolve and could have a material adverse impact on our financial results and cash flows. Fluctuation in currency impacts our operating results.
Currently, we hedge only those currency exposures associated with certain assets and liabilities denominated in non-functional currencies. The hedging activities undertaken by us are intended to offset the impact of currency fluctuations on certain non-functional currency assets and liabilities. Our attempts to hedge against these risks could be unsuccessful and expose us to losses.
Our Debt Could Adversely Affect Our Cash Flow and Prevent Us from Fulfilling Our Financial Obligations
We have an existing $200 million unsecured revolving credit agreement, under which we have an ability to borrow an aggregate availabilityamount of up to $300 million. Our debtAs of December 31, 2010, $151.0 million was outstanding under this line of credit. Debt incurred under this agreement could have important consequences, such as:
requiring us to dedicate a portion of our cash flow from operations and other capital resources to debt service, thereby reducing our ability to fund working capital, capital expenditures, and other cash requirements,
increasing our vulnerability to adverse economic and industry conditions,
limiting our flexibility in planning for, or reacting to, changes and opportunities in, our industry, which may place us at a competitive disadvantage, and
limiting our ability to incur additional debt on acceptable terms, if at all.
Additionally, if we were to default under our amended credit agreement and were unable to obtain a waiver for such a default, interest on the obligations would accrue at an increased rate and the lenders could accelerate our obligations under the amended credit agreement, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default. Additionally, our subsidiaries that have guaranteed the amended credit agreement could be required to pay the full amount of our obligations under the amended credit agreement. Any such action on the part of the lenders against us could harm our financial condition.
We believe that in certain business opportunities our success will depend on our ability to form and maintain alliances with industry participants, such as Caterpillar, Nikon, and CNH Global. Our failure to form and maintain such alliances, or the pre-emption of such alliances by actions of competitors or us, will adversely affect our ability to penetrate emerging markets. We also utilize dealer networks, including those affiliated with some of our strategic allies such as Caterpillar and CNH Global, to market, sell and service some of our products. Disruption of dealer coverage within a specific geographic market could cause difficulties in marketing, selling or servicing our products and have an adverse effect on our business, operating results or financial condition. Moreover, dealers who carry products that compete with our products may focus their inventory purchases and sales efforts on goods provided by competitors due to industry demand or profitability. Such inventory adjustments and sourcing decisions can adversely impact our sales, financial condition and results of operations. If we experience problems from current or future alliances or our dealer network, it could harm our operating results and we may not be able to realize value from any such strategic alliances.
We Face Competition in Our Markets Which Could Decrease Our RevenuesRevenue and Growth Rates or Impair Our Operating Results and Financial Condition
Our markets are highly competitive and we expect that both direct and indirect competition will increase in the future. Our overall competitive position depends on a number of factors including the price, quality and performance of our products, the level of customer service, the development of new technology and our ability to participate in emerging markets. Within each of our markets, we encounter direct competition from other GPS, software, optical and laser suppliers and competition may intensify from various larger U.S. and non-U.S. competitors and new market entrants, particularly from emerging markets such as China and India. The competition in the future may, in some cases, result in price reductions, reduced margins or loss of market share, any of which could decrease our revenuesrevenue and growth rates or impair our operating results and financial condition. We believe that our ability to compete successfully in the future against existing and additional competitors will depend largely on our ability to execute our strategy to provide systems and products with significantly differentiated features compared to currently available products. We may not be able to implement this strategy successfully, and our products may not be competitive with other technologies or products that may
be developed by our competitors, many of whom have significantly greater financial, technical, manufacturing, marketing, sales, and other resources than we do.
Some of Our Software Relies On Third Party Technologies, including Open Source Software, and, If We Are Unable to Use or Integrate These Technologies, or If Our Software Becomes Incompatible with These Technologies ,Our Product and Services Development May be Delayed or Our Software May Fail.
We rely on software that we license from third parties, including software that is integrated with internally developed software and used in our products to perform key functions. These third party software licenses may not continue to be available to us on commercially reasonable terms, or at all, and the software may not be appropriately supported, maintained or enhanced by the licensors, resulting in development delays or software failure. Some of these software licenses are subject to annual renewals at the discretion of the licensors. In many cases, if we were to breach a provision of these license agreements, the licensor could terminate the agreement without penalty. We license technologies and patents underlying some of our software from third parties, and the loss of these licenses could have a material adverse effect on our business.
We also incorporate open source software into our products. Although we monitor our use of open source closely, the terms of many open source licenses have not been interpreted by U.S. courts, and there is a risk that such licenses could be construed in a manner that could impose unanticipated conditions or restrictions on our ability to market or sell our products or to develop new products. In such event, we could be required to seek licenses from third-parties in order to continue offering our products, to disclose and offer royalty-free licenses in connection with our own source code, to re-engineer our products or to discontinue the sale of our products in the event re-engineering cannot be accomplished on a timely basis, any of which could adversely affect our business.
Additionally, errors, viruses or bugs may also be present in software that we license from third parties and incorporate into our products or in third party software that our customers use in conjunction with our software. In addition, our customers’ proprietary software and network firewall protections may corrupt data from our products and create difficulties in implementing our solutions. Changes to third party software that our customers use in conjunction with our software could also render our applications inoperable. The loss of licenses to, or inability to support, maintain and enhance, any such software or any defects in, or compatibility issues with, any third party software could result in increased costs, or in delays or reductions in software releases or updates until such issues have been resolved, could have a material adverse effect on our business, financial condition, results of operations, cash flows and future prospects.
We Are Subject to the Impact of Governmental and Other Similar Certifications and Failure to Obtain the Requisite Certifications Could Harm Our Operating Results
We market certain products that are subject to governmental and similar certifications before they can be sold. For example, CE certification for radiated emissions is required for most GPS receiver and data communications products sold in the European Union.community. An inability to obtain such certifications in a timely manner could have an adverse effect on our operating results. Also, some of our products that use integrated radio communication technology require product type certification and some products require an end user to obtain licensing from the FCC for frequency-band usage. These are secondary licenses that are subject to certain restrictions. An inability or delay in obtaining such certifications or changes to the rules by the FCC could adversely affect our ability to bring our products to market which could harm our customer relationships and therefore, our operating results. Any failure to obtain the requisite certifications could also harm our operating results.
The Volatility of Our Stock Price Could Adversely Affect YourAn Investment in Our Common Stock
The market price of our common stock has been, and may continue to be, highly volatile. During fiscal 2007,2010, our stock price ranged from $25.47$22.85 to $57.41, on a post-split basis.$42.19. We believe that a variety of factors could cause the price of our common stock to fluctuate, perhaps substantially, including:
announcements and rumors of developments related to our business or the industry in which we compete,
quarterly fluctuations in our actual or anticipated operating results and order levels,
general conditions in the worldwide economy,
acquisition announcements,
new products or product enhancements by us or our competitors,
developments in patents or other intellectual property rights and litigation,
developments in our relationships with our customers and suppliers, and
any significant acts of terrorism.
In addition, in recent years the stock market in general and the markets for shares of "high-tech"“high-tech” companies in particular, have experienced extreme price fluctuations which have often been unrelated to the operating performance of affected companies. Any such fluctuations in the future could adversely affect the market price of our common stock, and the market price of our common stock may decline.
Changes in Our Charter DocumentsEffective Tax Rate May Reduce Our Net Income in Future Periods
A number of factors may increase our future effective tax rates, including:
the jurisdictions in which profits are determined to be earned and Under California Law Could Prevent or Delay a Changetaxed,
the resolution of Control, which Could Reduceissues arising from tax audits with various tax authorities,
changes in the Market Price of Our Common Stock
increases in expense not deductible for tax purposes, including transaction costs and impairments of incorporation, as amendedgoodwill in connection with acquisitions,
changes in available tax credits,
changes in share-based compensation,
changes in tax laws or the interpretation of such tax laws, and restated,changes in generally accepted accounting principles,
the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes, and
challenges to the transfer pricing policies related to our bylaws, as amendedglobal supply chain management structure.
We are currently in various stages of multiple year examinations by federal, state, and restated,foreign taxing authorities, including an audit of our 2008 through 2009 tax years by the U.S. Internal Revenue Service, or IRS. Among other things, the IRS is examining our intercompany transfer pricing. Our effective tax rate is based on the geographic mix of earnings, statutory rates, intercompany transfer pricing, and enacted tax rules. If the California General Corporation LawIRS or the taxing authorities of any other jurisdiction were to successfully challenge a material tax position, we could become subject to higher taxes and our earnings would be adversely affected. In addition, proposals for changes in U.S. tax laws that may be deemed to have an anti-takeover effect and could discourage a third party from acquiring,considered or make it more difficult for a third party to acquire, control of us without approval of our board of directors. These provisions could also limit the price that certain investors might be willing to payadopted in the future for shares of our common stock. Certaincould subject the Company to higher taxes or result in changes to tax law provisions allow the board of directors to authorize the issuance of preferred stock with rights superior to those of the common stock.
None
The following table sets forth the significant real property that we own or lease as of February 21, 2008:
| Location | Segment(s) served | Size in Sq. Feet | Commitment | |||||
Sunnyvale, California | All | 160,000 | Leased, expiring in 2017 3 buildings | |||||
Huber Heights (Dayton), Ohio | Engineering & Construction Field Solutions | 207,200 64,000 | Owned, no encumbrances Leased, expiring in | |||||
Westminster, Colorado | Engineering & Construction Field Solutions | 97,000 | Leased, expiring in 2013 | |||||
Corvallis, Oregon | Engineering & Construction | 20,000 13,000 | Owned, no encumbrances Leased, expiring in | |||||
Richmond Hill, Canada | Advanced Devices | 50,200 | Leased, expiring in | |||||
Danderyd, Sweden | Engineering & Construction | 93,900 | Leased, expiring in | |||||
Christchurch, New Zealand | Engineering & Construction Mobile Solutions Field Solutions | 65,000 | Leased, expiring in 2016 2 buildings | |||||
Milpitas, California | Mobile Solutions | 53,000 | Leased, expiring in 1 buildings | |||||
Chennai, India | Engineering & Construction Mobile Solutions | 37,910 | Leased, expiring in | |||||
In addition, we lease a number of smaller offices around the world primarily for sales, manufacturing and manufacturingother functions. For financial information regarding obligations under leases, see Note 10 of the Notes to the Consolidated Financial Statements.
* We believe that our facilities are adequate to support current and near-term operations.
From time to time, the Company iswe are involved in litigation arising out of the ordinary course of itsour business. There are no known claimsmaterial pending legal proceedings, other than ordinary routine litigation incidental to the business, to which we or pending litigation expected to haveany of our subsidiaries is a material adverse effect onparty or of which any of our business, results of operations, and financial condition.
No matters were submitted to a vote of security holders during the fourth quarter of 2007.
| Market for |
Our common stock is traded on the NASDAQ National Market under the symbol "TRMB."“TRMB.” The table below sets forth, during the periods indicated, the high and low per share sale prices for our common stock as reported on the NASDAQ National Market.
| 2007 | 2006 | |||||||||||||||
| Sales Price | Sales Price | |||||||||||||||
| Quarter Ended | High | Low | High | Low | ||||||||||||
| First quarter | $ | 57.41 | $ | 25.47 | $ | 22.53 | $ | 17.51 | ||||||||
| Second quarter | 32.65 | 26.83 | 24.26 | 19.68 | ||||||||||||
| Third quarter | 41.33 | 32.24 | 25.55 | 21.29 | ||||||||||||
| Fourth quarter | 43.15 | 30.40 | 26.18 | 22.10 | ||||||||||||
| 2010 | 2009 | |||||||||||||||
| Sales Price | Sales Price | |||||||||||||||
Quarter Ended | High | Low | High | Low | ||||||||||||
First quarter | $ | 29.22 | $ | 22.85 | $ | 22.92 | $ | 12.09 | ||||||||
Second quarter | 33.56 | 26.73 | 22.79 | 15.30 | ||||||||||||
Third quarter | 35.53 | 27.41 | 25.71 | 17.97 | ||||||||||||
Fourth quarter | 42.19 | 33.95 | 25.85 | 20.97 | ||||||||||||
Stock Repurchase Program
In January 23, 2008, the Company announced that itsour board of directors has authorized a stock repurchase program, foror 2008 Stock Repurchase Program, authorizing us to repurchase up to $250 million effective February 1,of Trimble’s common stock under this program. We repurchased approximately 4,243,000 shares of common stock in open market purchases at an average price of $29.67 per share, for a total of $125.9 million in 2008. No shares of common stock were repurchased in 2009. We repurchased approximately 2,576,000 shares of common stock in open market purchases at an average price of $28.67 per share, for a total of $73.8 million in 2010. Since January 2008, we have repurchased approximately 6,819,000 shares of common stock in open market purchases at an average price of $29.29 per share, for a total of $199.7 million. The purchase price was reflected as a decrease to common stock based on the average stated value per share with the remainder to retained earnings. 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 December 31, 2010, the 2008 Stock Repurchase Program had remaining authorized funds of $50.3 million. The timing and actual number of future shares repurchased will depend on a variety of factors including price, regulatory requirements, capital availability, and other market conditions. The program does not require the purchase of any minimum number of shares and may be suspended or discontinued at any time without public notice.
As of February 21, 2008,24, 2011, there were approximately 986888 holders of record of our common stock.
Dividend Policy
We have not declared or paid any cash dividends on our common stock during any period for which financial information is provided in this Annual Report on Form 10-K. At this time, we intend to retain future earnings, if any, to fund the development and growth of our business and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
Under the existing terms of our credit facility, we are allowed to pay dividends and repurchase shares of our common stock without limitation so long as no default or unmatured default then existed, the leverage ratio for the two most recently completed periods was less than 2.00:1.00 and after giving pro forma effect to such dividend or share repurchase, the leverage ratio will be less than 2.00:1.00. Should the leverage ratio be equal to or greater than 2.00:1.00 without exceeding a leverage ratio of 3.00:1.00, we can pay dividends and repurchase
shares of our common stock in any twelve (12) month period, in an aggregate amount equal to fifty percent (50%) of net income (plus, to the extent deducted in determining net income for such period, non-cash expenses in respect of stock options) for the previous twelve month period. Also, we are allowed to spendtwelve-month period, plus an additional $50 million over the term of the credit facility subject to pay dividends and repurchase shares if we are inpro forma compliance with our fixed charge coverage ratio.
| Selected Financial Data |
The following selected consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes appearing elsewhere in this annual report. Historical results are not necessarily indicative of future results. In particular, because the results of operations and financial condition related to our acquisitions are included in our Consolidated Statements of Income and Consolidated Balance Sheets data commencing on those respective acquisition dates, comparisons of our results of operations and financial condition for periods prior to and subsequent to those acquisitions are not indicative of future results. In February 2007 we acquired @Road, Inc. which significantly impacted the trends shown below. Please refer to Note 4 to the Consolidated Financial Statements for more information.
| December 28, | December 29, | December 30, | December 31, | January 2, | ||||||||||||||||
| As of And For the Fiscal Years Ended | 2007 | 2006 | 2005 | 2004 | 2004 | |||||||||||||||
| (Dollar in thousands, except per share data) | ||||||||||||||||||||
| Revenue | $ | 1,222,270 | $ | 940,150 | $ | 774,913 | $ | 668,808 | $ | 540,903 | ||||||||||
| Gross margin | $ | 612,905 | $ | 461,081 | $ | 389,805 | $ | 324,810 | $ | 268,030 | ||||||||||
| Gross margin percentage | 50.1 | % | 49.0 | % | 50.3 | % | 48.6 | % | 49.6 | % | ||||||||||
| Income from continuing operations | $ | 117,374 | $ | 103,658 | $ | 84,855 | $ | 67,680 | $ | 38,485 | ||||||||||
| Net income | $ | 117,374 | $ | 103,658 | $ | 84,855 | $ | 67,680 | $ | 38,485 | ||||||||||
| Per common share (1): | ||||||||||||||||||||
| Net income (1) | ||||||||||||||||||||
| - Basic | $ | 0.98 | $ | 0.94 | $ | 0.80 | $ | 0.66 | $ | 0.41 | ||||||||||
| - Diluted | $ | 0.94 | $ | 0.89 | $ | 0.75 | $ | 0.62 | $ | 0.38 | ||||||||||
| Shares used in calculating basic earnings per share (1) | 119,280 | 110,044 | 106,432 | 102,326 | 95,010 | |||||||||||||||
| Shares used in calculating diluted earnings per share (1) | 124,410 | 116,072 | 113,638 | 109,896 | 100,024 | |||||||||||||||
| Cash dividends per share | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| Total assets | $ | 1,539,359 | $ | 983,477 | $ | 749,265 | $ | 657,975 | $ | 553,083 | ||||||||||
| Non-current portion of long term debt and other non-current liabilities | $ | 116,692 | $ | 28,000 | $ | 19,474 | $ | 38,226 | $ | 85,880 | ||||||||||
As of And For the Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | December 28, 2007 | December 29, 2006 | |||||||||||||||
| (Dollar in thousands, except per share data) | ||||||||||||||||||||
Revenue | $ | 1,293,937 | $ | 1,126,259 | $ | 1,329,234 | $ | 1,222,270 | $ | 940,150 | ||||||||||
Gross margin | $ | 645,501 | $ | 549,868 | $ | 649,136 | $ | 612,905 | $ | 461,081 | ||||||||||
Gross margin percentage | 49.9 | % | 48.8 | % | 48.8 | % | 50.1 | % | 49.0 | % | ||||||||||
Net income attributable to Trimble Navigation Ltd. | $ | 103,660 | $ | 63,446 | $ | 141,472 | $ | 117,374 | $ | 103,658 | ||||||||||
Net income | $ | 103,613 | $ | 63,963 | $ | 140,973 | $ | 117,374 | $ | 103,658 | ||||||||||
Per common share (1): | ||||||||||||||||||||
Net income (1) | ||||||||||||||||||||
- Basic | $ | 0.86 | $ | 0.53 | $ | 1.17 | $ | 0.98 | $ | 0.94 | ||||||||||
- Diluted | $ | 0.84 | $ | 0.52 | $ | 1.14 | $ | 0.94 | $ | 0.89 | ||||||||||
Shares used in calculating basic earnings per share (1) | 120,352 | 119,814 | 120,714 | 119,280 | 110,044 | |||||||||||||||
Shares used in calculating diluted earnings per share (1) | 123,798 | 122,208 | 124,235 | 124,410 | 116,072 | |||||||||||||||
Total assets | $ | 1,866,892 | $ | 1,753,277 | $ | 1,635,016 | $ | 1,539,359 | $ | 983,477 | ||||||||||
Non-current portion of long term debt and other non-current liabilities | $ | 194,003 | $ | 211,021 | $ | 213,017 | $ | 116,692 | $ | 28,000 | ||||||||||
| (1) | 2-for-1 Stock Split - On January 17, 2007, Trimble’s board of directors approved a 2-for-1 split of all outstanding shares of the Company’s Common Stock, payable February 22, 2007 to stockholders of record on February 8, 2007. All shares and per share information presented has been adjusted to reflect the stock split on a retroactive basis for all periods presented. |
The following discussion should be read in conjunction with the consolidated financial statements and the related notes. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those listed under "Risks“Risks Factors."
EXECUTIVE LEVEL OVERVIEW
Trimble’s focus is on combining positioning technology with wireless communication and application capabilities to create system-level solutions that enhance productivity and accuracy for our customers. The majority of our markets are end-user markets, including engineering and construction firms, governmental organizations, public safety workers, farmers, and companies who must manage fleets of mobile workers and assets. In our Advanced Devices segment, weWe also provide components to original equipment manufacturers to incorporate into their products. In the end user markets, we provide a system that includes a hardware platform that may contain software and customer support. Some examples of our solutions include products that automate and simplify the process of surveying land, products that automate the utilization of equipment such as tractors and bulldozers, products that enable a company to manage its mobile workforce and assets, and products that allow municipalities to manage their fixed assets.
Solutions targeted at the end-user make up a significant majority of our revenue. To create compelling products, we must attain an understanding of the end users’ needs and work flow, and how location-based technology can enable that end user to work faster, more efficiently, and more accurately. We use this knowledge to create highly innovative products that change the way work is done by the end-user. With the exception of our Mobile Solutions and Advanced Devices segments, our products are generally sold through a dealer channel, and it is crucial that we maintain a proficient, global, third-party distribution channel.
We continued to execute our strategy with a series of actions that can be summarized in fourthree categories.
Reinforcing our position in existing markets
*We believe that ourthese markets continue to be underpenetrated and provide us with additional, substantial potential for substituting our technology for traditional methods. In 2007, we continuedWe are continuing to develop new products and to strengthen our distribution channels in order to expand our market opportunity. A numbermarket. In our Engineering and Construction segment, we introduced new and enhanced systems for our Optical Total Station portfolio that provide better accuracy and improve surveyor productivity. We also introduced the new Trimble Tunnel Construction solution which streamlines the precision construction of road and railway tunnels. We released the new products such asgeneration of GPS Pathfinder®ProXRT receiver which provides decimeter accuracy and includes support for OmniSTAR, GLONASS, and Galileo with Trimble 360 receiver technology. We further expanded our network of SITECH Technology Dealers during the AgGPS EZ-Guide 500 system, Juno™ST handheld computer, Spectra Precision GL412year by adding more than thirty new SITECH dealerships. These dealers represent Trimble and 422 grade lasers, and Trimble CCS900 Compaction Control System, strengthened our competitive position and created new valueCaterpillar machine control systems for the user.contractor’s entire fleet of heavy equipment regardless of machine brand.
In our Field Solutions segment, the Agriculture division introduced additional capabilities for the Field-IQ crop input control system that allows operators to control the application rate of seed, liquid or granular materials, saving costs by preventing seed and fertilizer overlap. We also introduced the CFX-750 display, our newest touch screen display which offers affordable guidance, steering, and precision agriculture functionality and is compatible with the Field-IQ system. In the water management sector, we introduced EZ-Surface for farm surface and sub-surface drainage applications that will allow farmers and drainage contractors to analyze fields surveyed by viewing 3D models, as well as EZ-Sync, which will allow farmers and drainage contractors to wirelessly deliver completed drainage designs to the FmX displays via Trimble’s Connected Farm solutions.
In our Mobile Solutions segment, we introduced the SiteFID™ integrated gas monitoring solution for the environmental services market which provides consultants and landfill operators with an end-to-end solution. We also introduced the addition of the Trimble DriverSafety solution to our mobile resource management portfolio. The launch of this global safety initiative help fleets become safer, more productive and more fuel efficient by providing real-time feedback of unsafe maneuvers to drivers and a comprehensive picture for safety managers and fleet operation teams to accurately measure and mitigate fleet safety risks.
In our Advanced Devices segment, we introduced the new version of our post-processing software for mobile mapping and positioning, which is designed to enhance the productivity of mobile mapping and features an all-new inertially-aided precise point positioning engine and enhanced smoothing algorithm. We also introduced the Condor family of GPS modules which feature major advancements in signal tracking for applications working in poor signal environments.
Extending our position in new and existing markets through new product categories
* We are utilizing the strength of the Trimble brand in our markets to expand our revenuesrevenue by bringing new products to new and existing users. In fiscal 2007, we introducedour Engineering and Construction segment, our acquisition of Definiens’ Earth Sciences eCognition Software Assets expanded our GeoSpatial portfolio. Furthermore, the Trimble VX Spatial Stationacquisition of the Terralite XPS assets from Novariant expands our technology suite and improves the productivity of surface mining and other high-value site operations challenged by limited or no GPS coverage. The acquisition of Accubid broadens our industry leading “BIM to field” solutions for mechanical, electrical and plumbing contractors to automate project estimating and management, modeling, detailing, layout and construction. In our Mobile Solutions segment, our acquisition of Punch Telematix enables us to grow our European business by offering a suitefull solution set to both light commercial vehicle and heavy goods vehicle markets across Europe. In addition, our acquisition of interactive product training modulesTata AutoComp Mobility Telematics Limited allows us to further expand our broad range of telematics and other mobile resource management solutions for the engineeringIndian market. During the year, we also acquired Cengea Solutions which is a provider of spatially-enabled business operations and construction industry.
Bringing existing technology to new markets
* We continue to reinforce our position in existing markets and position ourselves in newer markets that will serve as important sources of future growth. Our efforts are focused in Asia Pacific, includingAfrica, China, India, the Middle-East and Russia. During the year, we formed a joint venture in Russia with Russian Space Systems which will be responsible for selling commercial GNSS geodetic network infrastructure systems localized for Russia and Europe, including Eastern Europe, all reflected improving financial results, with the promiseCommonwealth of moreIndependent States, or CIS. In addition, we continue our expansion of SITECH dealerships. During 2010, new SITECH locations were established in China, India, Brazil, Mexico, Russia, Indonesia, the future.
Our accounting policies are more fully described in Note 2 of the Notes to the Consolidated Financial Statements. The preparation of financial statements and related disclosures in conformity with accounting principlesU.S. generally accepted in the United Statesaccounting principles requires us to make judgments, assumptions, and estimates that affect the amounts reported in the Consolidated Financial Statements and accompanying Notes to the Consolidated Financial Statements. We consider the accounting polices described below to be our critical accounting polices.policies. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the Consolidated Financial Statements, and actual results could differ materially from the amounts reported based on these policies.
Revenue Recognition
We elected to early adopt new revenue accounting guidance related to arrangements with multiple deliverables at the beginning of our first quarter of fiscal 2010 on a prospective basis for applicable transactions originating or materially modified after January 1, 2010.
We recognize product revenue when persuasive evidence of an arrangement exists, shipment has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product is specified by the customer or is uncertain, revenue is deferred until all acceptance criteria have been met.
Contracts and/or customer purchase orders are used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. We assess whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. We assess collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analysis,analyses, as well as the customer’s payment history.
Revenue for orders is generally not recognized until the product is shipped and title has transferred to the buyer. We bear all costs and risks of loss or damage to the goods up to that point. Our shipment terms for U.S. orders and international orders fulfilled from our European distribution center typically provide that title passes to the buyer upon delivery of the goods to the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, we may choose within the place or range stipulated where the carrier will take the goods into carrier’s charge. Other shipment terms may provide that title passes to the buyer upon delivery of the goods to the buyer. Shipping and handling costs are included in the costCost of goods sold.
Revenue from sales to distributors and resellers is recognized upon shipment, assuming all other criteria for revenue recognition have been met. Distributors and resellers do not typically have a right of return.
Revenue from purchased extended warranty and post contract support (PCS) agreements is deferred and recognized ratably over the term of the warranty/warranty or support period.
We present revenue net of sales taxes and any similar assessments.
Our software arrangements generally consist of a perpetual license fee and PCS. We generally have established vendor-specific objective evidence (VSOE) of fair value for our PCS contracts based on the renewal rates.rate. The remaining value of the software arrangement is allocated to the license fee using the residual method. License revenue is primarily recognized when the software has been delivered and therefair value has been established for all remaining undelivered elements.
Our multiple deliverable product offerings include hardware with embedded firmware, extended warranty and PCS services, which are no remaining obligations. Revenue from PCS is recognized ratably overconsidered separate units of accounting. For certain of our products, software and non-software components function together to deliver the termtangible product’s essential functionality.
Some of the PCS agreement.
In evaluating the revenue recognition for agreements which contain multiple deliverable arrangements, under the new accounting guidance, we determined that in certain instances we were not able to establish VSOE for some or all deliverables in an arrangement as we infrequently sold each element on a standalone basis, did not price products within a narrow range, or had a limited sales history. When VSOE cannot be established, we attempt to establish the selling price of each element based on relevant third-party evidence (TPE). TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, our go-to-market strategy differs from that of competitors, and offerings may contain a significant level of proprietary technology, customization or differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, we are unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, we typically are not able to establish the selling price of an element based on TPE.
When we are unable to establish selling price using VSOE or TPE, we use our best estimate of selling price (BESP) in our allocation of arrangement consideration. The objective of BESP is to determine the price at which we would transact a sale if any. For upfront fees relatingthe product or service were sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. We determine BESP for a product or service by considering multiple factors including, but not limited to, propriety hardware wherepricing practices, market conditions, competitive landscape, internal costs, geographies and gross margin. The determination of BESP is made through consultation with and formal approval by our management, taking into consideration our go-to-market strategy.
Total revenue as reported and pro forma total revenues that would have been reported for the firmware is more than incidentalfiscal year ended December 31, 2010, if the transactions entered into after January 1, 2010 were subject to previous accounting guidance, are shown in the following table:
| (Dollars in thousands) | As Reported | Pro Forma | ||||||
Total revenue for the fiscal year ended December 31, 2010 | $ | 1,293,937 | $ | 1,285,866 | ||||
The impact of the revised accounting guidance to total revenue during the fiscal year ended December 31, 2010 was attributable to the functionalityreallocation of discounts to revenue deliverables, the recognition of hardware in accordancerevenue
associated with SOP No. 97-2, “Software Revenue Recognition,” we defer the upfront fees at installation and recognize themsubscription contracts upon delivery, which was previously recognized ratably over the minimum service contract period, generally oneand the ability to five years. Product costs are also deferred and amortized over such period.
Allowance for Doubtful Accounts and Sales Returns
Our accounts receivable balance, net of allowance for doubtful accounts and sales returns reserve, was $239.9$222.8 million as of December 28, 2007,31, 2010, as compared with $177.1$202.3 million as of December 29, 2006.January 1, 2010. The allowance for doubtful accounts was $5.2$3.4 million and $4.1$3.9 million as of December 28, 200731, 2010 and December 29, 2006,January 1, 2010, respectively. We evaluate theongoing collectibility of our trade accounts receivable based on a number of factors such as age of the accounts receivable balances, credit quality, historical experience, and current economic conditions that may affect a customer’s ability to pay. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, a specific allowance for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.
A reserve for sales returns is established based on historical trends in product return rates experienced in the ordinary course of business. The reserve for sales returns as of December 28, 200731, 2010 and December 29, 2006 were $1.7January 1, 2010 was $1.6 million and $859,000,$1.7 million, respectively, for estimated future returns that were recorded as a reduction of our accounts receivable and revenue. If the actual future returns were to deviate from the historical data on which the reserve had been established, our revenue could be adversely affected.
Inventory Valuation
Our inventories, net balance was $143.0$192.9 million as of December 28, 200731, 2010 as compared with $112.6$144.0 million as of December 29, 2006.January 1, 2010. Our inventory allowances as of December 28, 200731, 2010 were $29.6$31.8 million, as compared with $28.6$28.1 million as of December 29, 2006.January 1, 2010. Our inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence, or impaired balances. Factors influencing these adjustments include decline in demand, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues. If actual factors are less favorable than those projected by us, additional inventory write-downs may be required.
Income Taxes
Income taxes are accounted for under the liability method whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not such assets will not be realized.
Relative to uncertain tax positions, we only recognize the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
Our valuation allowance is primarily attributable to primarily, acquisition related Net Operating Lossacquired net operating losses and Researchresearch and Development Creditdevelopment credit carryforwards. Management believes that it is more likely than not that we will not realize these deferred tax assets, and, accordingly, a valuation allowance has been provided for such amounts. WhenBeginning in 2009, we adopted the tax attributes are utilized and therevised accounting guidance for business combinations, under which such valuation allowance is released,adjustments associated with an acquisition closing after January 3, 2009 (and after the benefit of the release of the valuation allowance will be accounted for as a credit to goodwill rather than as a reduction of themeasurement period) are recorded through income tax provisionexpense. Prior to January 3, 2009, these adjustments were required to be recognized by adjusting the purchase price related to the acquisition.
.
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. IntangibleBeginning in fiscal 2009, our identifiable intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by managementnow include in-process research and development based on the revised accounting guidance for business combinations. Intangible assets acquired individually, with a group of other assets, or in a business combination, are recorded at fair value of assets received.value. Identifiable intangible assets are comprised of distribution channels and distribution rights, patents, licenses, technology, acquired backlog, trademarks, and trademarks.in-process research and development. Identifiable intangible assets are being amortized over the period of estimated benefit using the straight-line method, reflecting the pattern of economic benefits associated with these assets, and have estimated
useful lives ranging from one to ten years with a weighted average useful life of 6.26.4 years. Goodwill is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.
We evaluate goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The annual goodwill impairment testing is performed in the fourth fiscal quarter of each year. Goodwill is reviewed for impairment utilizing a two-step process. First, impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a discounted cash flow approach. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to measure the amount of impairment loss, if any. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss. Our evaluation resulted in no impairmentAs of goodwill.
Depreciation and amortization of the intangible assets and other long-lived assets is provided using the straight-line method over their estimated useful lives, reflecting the pattern of economic benefits associated with these assets. Changes in circumstances such as technological advances, changes to our business model, or changes in the capital strategy could result in the actual useful lives of intangible assets or other long-lived assets differing from initial estimates. In those cases where we determine that the useful life of an asset should be revised, the net book value in excess of the estimated residual value will be expensed and the residual value is depreciated over its revised remaining useful life. These assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable based on their future cash flows. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash flows. The assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value. No indicators of impairment have been identified.
Warranty Costs
The liability for product warranties was $10.8$12.9 million as of December 28, 2007,31, 2010, as compared with $8.6$14.7 million as of December 29, 2006.January 1, 2010. We accrue for warranty costs as part of cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on our behalf. Our expected future cost is primarily estimated based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. The products sold are generally covered by a warranty for periods ranging from 90 days to three years, and in some instances, up to 5.5 years.
While we engage in extensive product quality programs and processes, including actively monitoring and evaluating the quality of our component suppliers, our warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from our estimates, revisions to the estimated warranty accrual and related costs may be required.
Stock-Based Compensation
We recognize compensation expense for all share-based payment awards made to our employees and directors including stock option and rights to purchase shares under stock participation plans, based on estimated fair values. We adopted SFAS 123(R) using the modified prospective application method, under which prior periods are not revised for comparative purposes. Prior to fiscal 2006, we applied Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and the disclosure provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). As a result, the Company’s financial statements for fiscal 2006 include stock-based compensation expenses that are not comparable to financial statements prior to fiscal 2006.
The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rates, and expected dividends. In addition, the binomial model incorporates actual option-pricing behavior and changes in volatility over the option’s contractual term.
Beginning in fiscal 2006, our expected stock price volatility for stock purchase rights ishas been based on implied volatilities of traded options on our stock and our expected stock price volatility for stock options is based on a combination of our historical stock price volatility for the period commensurate with the expected life of the stock option and the implied volatility of traded options. The use of implied volatilities was based upon the availability of actively traded options on our stock with terms similar to our awards and also upon our assessment that implied volatility is more representative of future stock price trends than historical volatility. However, because the expected life of our stock options is greater than the terms of our traded options, we used a combination of our historical stock price volatility commensurate with the expected life of our stock options and implied volatility of traded options. Prior to fiscal 2006, we used our historical stock price volatility in accordance with SFAS 123 for purposes of our pro-forma information.
We estimated the expected life of the awards based on an analysis of our historical experience of employee exercise and post-vesting termination behavior considered in relation to the contractual life of the options and purchase rights. The risk-free interest rate assumption is based upon observed interest rates appropriate for the expected term of the awards.
We do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. Accordingly, our expected dividend yield is zero.
Because stock-based compensation expense recognized in the Consolidated Statement of OperationsIncome for fiscal 20072010, 2009 and 20062008 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R)The stock-based compensation guidance requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based on historical experience.
If factors change and we employ different assumptions into determine the applicationfair value of SFAS 123(R)our share-based payment awards granted in future periods, the compensation expense that we record under SFAS 123(R)it may differ significantly from what we have recorded in the current period. In addition, valuation models, including the Black-Scholes and binomial models, may not provide reliable measures of the fair values of our stock-based compensation. Consequently, there is a risk that our estimates of the fair values of our stock-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination, or forfeiture of those stock-based payments in the future. Certain stock-based payments, such as employee stock options, may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, valuevalues may be realized from these instruments that are significantly higher than the fair values originally estimated on the grant date and reported in our financial statements.
See Note 2 and Note 14 to the Consolidated Financial Statements for additional information.
Overview
The following table is a summary of revenue, gross margin and operating income for the periods indicated and should be read in conjunction with the narrative descriptions below.
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (Dollars in thousands) | ||||||||||||
| Total consolidated revenue | $ | 1,222,270 | $ | 940,150 | $ | 774,913 | ||||||
| Gross Margin | $ | 612,905 | $ | 461,081 | $ | 389,805 | ||||||
| Gross Margin % | 50.1 | % | 49.0 | % | 50.3 | % | ||||||
| Total consolidated operating income | $ | 178,267 | $ | 135,366 | $ | 124,944 | ||||||
| Operating Income % | 14.6 | % | 14.4 | % | 16.1 | % | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (Dollars in thousands) | ||||||||||||
Total consolidated revenue | $ | 1,293,937 | $ | 1,126,259 | $ | 1,329,234 | ||||||
Gross margin | $ | 645,501 | $ | 549,868 | $ | 649,136 | ||||||
Gross margin % | 49.9 | % | 48.8 | % | 48.8 | % | ||||||
Total consolidated operating income | $ | 127,602 | $ | 85,820 | $ | 185,460 | ||||||
Operating income % | 9.9 | % | 7.6 | % | 14.0 | % | ||||||
Basis of Presentation
We have a 52-53 week fiscal year, ending on the Friday nearest to December 31, which for fiscal 20072010 was December 28, 2007.31, 2010. Fiscal 2007, 20062010 and 2005Fiscal 2009 were allboth 52-week years.
Revenue
In fiscal 2007,2010, total revenue increased by $282.1$167.7 million, or 30%15%, to $1,222.3 million$1.29 billion from $940.2 million$1.13 billion in fiscal 2006.2009. The increase in fiscal 20072010 was primarily due to stronger performances across all our operatingin the Engineering and
Construction and Field Solutions segments. Engineering and Construction revenue increased $106.2$140.5 million, or 17%;24%, Field Solutions increased $61.4$26.4 million, or 44%;9%, Advanced Devices increased $1.4 million, or 1%, slightly offset by a decrease in Mobile Solutions increased $96.8of $0.6 million, or 159%;less than 1%, ,as compared to fiscal 2009. In fiscal 2010, the revenue growth in Engineering and Construction reflected a return to growth across the U.S. and rest of the world markets, and a strong agricultural environment.
In fiscal 2009, total revenue decreased by $203.0 million, or 15%, to $1.13 billion from $1.33 billion in fiscal 2008. The decrease in fiscal 2009 was primarily due to slower sales in the Engineering and Construction segment. Engineering and Construction revenue decreased $163.1 million, or 22%, Field Solutions decreased $9.0 million, or 3%, Mobile Solutions decreased $12.2 million, or 7%, and Advanced Devices increased $17.7decreased $18.7 million, or 17%16%, as compared to the corresponding period in fiscal 2006. Revenue growth within these segments was primarily driven by new products, a robust agricultural environment, strong international growth, as well as the impact of acquisitions of $97.8 million, partially offset by regional pockets of softness in the U.S. markets.
* During the 2010 fiscal year, sales to customers in the United States represented 46%, 9%Europe represented 22%, 93%Asia Pacific represented 18%, and 13% respectively, as compared to fiscal 2005. Revenue growth within these segments was driven by new product introductions, increased penetrationother regions represented 14% of existing markets, and geographical expansion. Mobile Solutions growth in particular benefited from the prior year acquisitions. Overall, 2006 acquisitions impactedour total company revenue growth by approximately 2%.
* No single customer accounted for 10% or more of our total revenuesrevenue in fiscal 2007, 2006,2010, 2009 and 2005.2008. It is possible, however, that in future periods the failure of one or more large customers to purchase products in quantities anticipated by us may adversely affect the results of operations.
Gross Margin
Our gross margin varies due to a number of factors including product mix, pricing, distribution channel used, effects of production volumes, new product start-up costs, and foreign currency translations.
In fiscal 2007,2010, our gross margin increased by $151.8$95.6 million as compared to fiscal 20062009 primarily due to higher revenue, higher margin products, including software and subscription revenue, and improved manufacturing utilization, partially offset by an increase of $14.5 million in amortization of purchased intangibles primarily due to the acquisition of @Road.revenue. Gross margin as a percentage of total revenue was 50.1%49.9% in fiscal 20072010 and 49.0%48.8% in fiscal 2006.2009. The increase in the gross margin percentage was driven primarily by a 2 percentage point increase due to higher margin products including softwareimproved product mix in Engineering and subscription revenue,Construction and Field Solutions, partially offset by the loss of a decrease of 1 percentage point due to increased amortization of purchased intangibles.
In fiscal 2006,2009, our gross margin increaseddecreased by $71.3$99.3 million as compared to fiscal 20052008 primarily due to higher revenue and the success of higher margin products, including survey and machine control products and higher subscription revenues. The increase was partially offset by decreases due to the impact of the reclassification of the Caterpillar Trimble Control Technologies (CTCT) transactions of $18.1 million previously recorded in non-operating expenses, amortization of software-related purchased intangibles of $5.2 million, and stock-based compensation expense of $1.2 million that were not included in gross margin during the same period in fiscal 2005.lower revenue. Gross margin as a percentage of total revenuesrevenue was 49.0%48.8% both in fiscal 20062009 and 50.3% in fiscal 2005.2008. The decreaseconsistency in the gross margin percentage was driven primarily by a decrease of 3 percentage points due to the CTCT impact, amortization of purchased intangiblesmanufacturing cost reductions in Engineering and stock-based compensation,Construction and improved product mix in Field Solutions, offset by an increaselower revenue as a percentage of 2 percentage points due to higher margin products and subscription revenues.
* Because of potential product mix changes within and among the industry markets, market pressures on unit selling prices, fluctuations in unit manufacturing costs, including increases in component prices and other factors, current level gross margin cannot be assured.
Operating Income
Operating income increased by $42.9$41.8 million for fiscal 20072010 as compared to fiscal 2006.2009. Operating income as a percentage of total revenue for fiscal 20072010 was 14.6%9.9% as compared to 14.4%7.6% for fiscal 2006 due to2009. The increase in operating income was primarily driven by higher revenue and associated gross margin,margin. The increase in operating income percentage was primarily due to improved operating expense leverage, primarily in Engineering and softwareConstruction, and subscription revenue, partially offset by additional amortization of purchased intangibles.
Operating income increaseddecreased by $10.4$99.6 million for fiscal 20062009 as compared to fiscal 2005 due to higher revenues and the success of higher margin products, offset by decreases due to the impact of the reclassification of the CTCT transactions previously recorded in non-operating expenses, and stock-based compensation expense that was not included in the operating income during fiscal 2005.
To achieve distribution, marketing, production, and technology advantages in our targeted markets, we manage our operations in the following four segments: Engineering and Construction, Field Solutions, Mobile Solutions,
and Advanced Devices. Operating income (loss) equals net revenue less cost of sales and operating expenses,expense, excluding general corporate expenses,expense, amortization of purchased intangibles, in-process researchintangible assets, amortization of inventory step-up, non-recurring acquisition costs, and development expenses, restructuring charges, non-operating income (expense), and income taxes.
The following table is a breakdown of revenue and operating income by segment for the periods indicated and should be read in conjunction with the narrative descriptions below.
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (Dollars in thousands) | ||||||||||||
| Engineering and Construction | ||||||||||||
| Revenue | $ | 743,291 | $ | 637,118 | $ | 524,461 | ||||||
| Segment revenue as a percent of total revenue | 61 | % | 68 | % | 68 | % | ||||||
| Operating income | $ | 174,177 | $ | 136,157 | $ | 117,993 | ||||||
| Operating income as a percent of segment revenue | 23.4 | % | 21.4 | % | 22.5 | % | ||||||
| Field Solutions | ||||||||||||
| Revenue | $ | 200,614 | $ | 139,230 | $ | 127,843 | ||||||
| Segment revenue as a percent of total revenue | 16 | % | 15 | % | 16 | % | ||||||
| Operating income | $ | 60,933 | $ | 37,377 | $ | 32,527 | ||||||
| Operating income as a percent of segment revenue | 30.4 | % | 26.8 | % | 25.4 | % | ||||||
| Mobile Solutions | ||||||||||||
| Revenue | $ | 157,673 | $ | 60,854 | $ | 31,481 | ||||||
| Revenue as a percent of total consolidated revenue | 13 | % | 6 | % | 4 | % | ||||||
| Operating income (loss) | $ | 12,517 | $ | 2,550 | $ | (3,072 | ) | |||||
| Operating income (loss) as a percent of segment revenue | 7.9 | % | 4.2 | % | (9.8 | %) | ||||||
| Advanced Devices | ||||||||||||
| Revenue | $ | 120,692 | $ | 102,948 | $ | 91,128 | ||||||
| Segment revenue as a percent of total revenue | 10 | % | 11 | % | 12 | % | ||||||
| Operating income | $ | 17,276 | $ | 10,084 | $ | 13,212 | ||||||
| Operating income as a percent of segment revenue | 14.3 | % | 9.8 | % | 14.5 | % | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (Dollars in thousands) | ||||||||||||
Engineering and Construction | ||||||||||||
Revenue | $ | 719,053 | $ | 578,579 | $ | 741,668 | ||||||
Segment revenue as a percent of total revenue | 55 | % | 51 | % | 56 | % | ||||||
Operating income | $ | 110,965 | $ | 58,282 | $ | 126,014 | ||||||
Operating income as a percent of segment revenue | 15 | % | 10 | % | 17 | % | ||||||
Field Solutions | ||||||||||||
Revenue | $ | 318,137 | $ | 291,752 | $ | 300,708 | ||||||
Segment revenue as a percent of total revenue | 25 | % | 26 | % | 22 | % | ||||||
Operating income | $ | 116,373 | $ | 104,498 | $ | 109,489 | ||||||
Operating income as a percent of segment revenue | 37 | % | 36 | % | 36 | % | ||||||
Mobile Solutions | ||||||||||||
Revenue | $ | 154,254 | $ | 154,881 | $ | 167,113 | ||||||
Segment revenue as a percent of total revenue | 12 | % | 14 | % | 13 | % | ||||||
Operating income | $ | 1,873 | $ | 14,341 | $ | 11,328 | ||||||
Operating income as a percent of segment revenue | 1 | % | 9 | % | 7 | % | ||||||
Advanced Devices | ||||||||||||
Revenue | $ | 102,493 | $ | 101,047 | $ | 119,745 | ||||||
Segment revenue as a percent of total revenue | 8 | % | 9 | % | 9 | % | ||||||
Operating income | $ | 18,325 | $ | 17,227 | $ | 24,445 | ||||||
Operating income as a percent of segment revenue | 18 | % | 17 | % | 20 | % | ||||||
Unallocated corporate expense includes general corporate expense, amortization of inventory step-up, and non-recurring acquisition costs. A reconciliation of our consolidated segment operating income to consolidated income before income taxes follows:
| Fiscal Years Ended | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||
| (In thousands) | ||||||||||||
| Consolidated segment operating income | $ | 264,903 | $ | 186,168 | $ | 160,660 | ||||||
| Unallocated corporate expense | (42,914 | ) | (35,798 | ) | (27,483 | ) | ||||||
| Restructuring charges | (3,025 | ) | -- | (278 | ) | |||||||
| Amortization of purchased intangible assets | (38,585 | ) | (13,074 | ) | (6,855 | ) | ||||||
| In-process research and development | (2,112 | ) | (1,930 | ) | (1,100 | ) | ||||||
| Consolidated operating income | 178,267 | 135,366 | 124,944 | |||||||||
| Non-operating income (expense), net | 5,489 | 12,726 | (156 | ) | ||||||||
| Consolidated income before income taxes | $ | 183,756 | $ | 148,092 | $ | 124,788 | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (in thousands) | ||||||||||||
Consolidated segment operating income | $ | 247,536 | $ | 194,348 | $ | 271,276 | ||||||
Unallocated corporate expense | (60,260 | ) | (45,102 | ) | (36,284 | ) | ||||||
Restructuring charges | (2,035 | ) | (10,754 | ) | (4,641 | ) | ||||||
Amortization of purchased intangible assets | (57,639 | ) | (52,672 | ) | (44,891 | ) | ||||||
Consolidated operating income | 127,602 | 85,820 | 185,460 | |||||||||
Non-operating income, net | 13,485 | 1,801 | 5,983 | |||||||||
Consolidated income before taxes | $ | 141,087 | $ | 87,621 | $ | 191,443 | ||||||
Engineering and Construction revenuesrevenue increased by $106.2$140.5 million, or 17%24%, while segment operating income increased by $38.0$52.7 million, or 28%90.4%, for fiscal 20072010 as compared to fiscal 2006.2009. The revenue increase reflected a return to growth was driven by all business units within the segment, strong international markets, acquisitions made during the last twelve months and foreign exchange gains. Segment operating income increased as a result of higher revenue and increased sales of higher margin products including software revenue and operating expense control.
Engineering and Construction revenue decreased by $163.1 million, or 22%, while segment operating income decreased by $67.7 million, or 53.7%, for fiscal 2009 as compared to fiscal 2008. The revenue decrease was primarily due to recessionary conditions in the U.S. and European markets. Operating income decreased as a result of lower revenue, partially offset by a reduction in operating expense resulting from our restructuring activities and overall expense control.
Field Solutions
Field Solutions revenuesrevenue increased by approximately $11.4$26.4 million, or 9%, while segment operating income increased by $4.9$11.9 million, or 15%11.4%, for fiscal year 20062010 as compared to fiscal 2005. Revenue increased2009. The increase in revenue was driven primarily due to growth in our GIS business. In GIS, growth was due toby new products and a continuing shift to a higher value, differentiated distribution channel.increased farmer demand for agricultural products. Operating income increased primarily due to increasedhigher revenue in our agricultural business.
Field Solutions revenue decreased by approximately $9.0 million, or 3%, while segment operating income decreased by $5.0 million, or 4.6%, for fiscal year 2009 as compared to fiscal 2008. The decrease in revenue was driven primarily by slower sales of agriculture products, both in the U.S. and internationally. Operating income decreased primarily due to lower revenue.
Mobile Solutions
Mobile Solutions revenue decreased by $0.6 million, or less than 1%, while segment operating income decreased by $12.5 million, or 86.9%, for fiscal 2010 as compared to fiscal 2009. Revenue was slightly down primarily due to the loss of a large customer in the second quarter of 2010, partially offset by revenue from acquisitions. Operating income decline was primarily due to the inclusionloss of stock-based compensation that wasa large, high margin customer and higher operating expense associated with acquisitions not present in fiscal 2005.
Mobile Solutions revenues increasedrevenue decreased by $96.8$12.2 million, or 159%7%, while segment operating income increased by $10.0$3.0 million, or 391%26.6%, for fiscal 20072009 as compared to fiscal 2006.2008. Revenue grewwas down primarily due to increaseddecrease in ready mix hardware and subscription revenue due primarily toas well as the @Road acquisition.impact in the prior year of the recognition of large non-recurring items. Operating income increased primarily due to higher subscriptiongross margin improvement and a reduction in operating expenses.
Advanced Devices
Advanced Devices revenue and associated gross margin.
Advanced Devices revenue decreased by $18.7 million, or 16%, and segment operating income decreased by $7.2 million, or 29.5%, for fiscal 2009 as compared to fiscal 2008. The decrease in revenue was primarily driven by stronger performance in ourslower sales of Component Technologies timing and embedded product revenue.products. Operating income increased due to strong timing and embedded product revenue, licensing revenue associated with a Nokia intellectual property agreement signed in the third quarter of 2006, and strong operating expense control.
The following table shows research and development (“R&D”), sales and marketing, and general and administrative (“G&A”) expenses in absolute dollars and as a percentage of total revenuesrevenue for the fiscal years ended 2007, 2006,2010, 2009 and 20052008 and should be read in conjunction with the narrative descriptions of those operating expenses below.
| Fiscal Years Ended | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||
| Research and development | $ | 131,468 | 11 | % | $ | 103,840 | 11 | % | $ | 84,276 | 11 | % | ||||||||||||
| Sales and marketing | 186,495 | 15 | % | 143,623 | 15 | % | 120,215 | 15 | % | |||||||||||||||
| General and administrative | 92,572 | 8 | % | 68,416 | 7 | % | 52,137 | 7 | % | |||||||||||||||
| 410,535 | 34 | % | 315,879 | 34 | % | $ | 256,628 | 33 | % | |||||||||||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (Dollars in thousands) | ||||||||||||
Research and development | $ | 150,089 | $ | 136,639 | $ | 148,265 | ||||||
Percentage of revenue | 11 | % | 12 | % | 11 | % | ||||||
Sales and marketing | 215,127 | 189,859 | 196,290 | |||||||||
Percentage of revenue | 17 | % | 17 | % | 15 | % | ||||||
General and administrative | 118,352 | 100,830 | 94,023 | |||||||||
Percentage of revenue | 9 | % | 9 | % | 7 | % | ||||||
Total | $ | 483,568 | $ | 427,328 | $ | 438,578 | ||||||
Percentage of revenue | 37 | % | 38 | % | 33 | % | ||||||
Overall, R&D, sales and marketing, and G&A expenses increased by approximately $94.7$56.2 million in fiscal 20072010 compared to fiscal 2006.
Research and development expensesexpense increased by $27.6$13.5 million in fiscal 20072010, as compared to fiscal 20062009, primarily due to the inclusionimpact of expensesnew R&D expense as a result of $16.8 million from acquisitions, not applicable in the prior year, a $9.7 millionan increase in compensation related expenses,expense, an increase in R&D materials, and an increase due to foreign currency exchange rates. All of our R&D costs have been expensed as incurred. Overall research and development spending was approximately 11% of revenue in fiscal 2010 and 12% in fiscal 2009.
Research and development expense decreased by $11.6 million in fiscal 2009, as compared to fiscal 2008, primarily due to the impact of a decrease in compensation related expense, a decrease in R&D materials and a $3.2 million increasedecrease due to foreign currency exchange rates, partially offset by decreased consulting fees. Costnew R&D expense as a result of software developed for external sale subsequent to reaching technical feasibility were not considered material and were expensed as incurred.
* We believe that the development and introduction of revenues. Wenew products are critical to our future success and we expect to continue to devote resources to theactive development of new products and the enhancement of existing products. We believe that research and development is critical to our strategic product development objectives and that to leverage our leading technology and to meet the changing requirements of our customers, we will need to fund investments in several development projects in parallel.
Sales and marketing expensesexpense increased by $42.9$25.3 million in fiscal 20072010 as compared to fiscal 2006.2009. The increase was primarily due to the inclusionnew sales and marketing expenses as a result of expenses of $20.7 million from acquisitions, not applicable in the prior period, a $9.9 millionan increase in compensation-related expenses, a $4.3 millioncompensation related expense, an increase in trade shows and marketing literature expense, and an increase due to foreign currency exchange rates and a $3.4 million increase in marketing expenses.rates. Spending overall remained relatively constant at approximately 15%17% of revenues.
Sales and marketing expenses increasedexpense decreased by $23.4$6.4 million in fiscal 20062009 as compared to fiscal 2005.2008. The increasedecrease was primarily due to the inclusiona decrease in travel and trade show expense, and a decrease due to foreign currency exchange rates, partially offset by new sales and marketing expenses as a result of expenses of $7.5 million from acquisitions not applicable in the prior period, an $8.0 million increase in compensation-related expenses, a $2.8 million in stock-based compensation expense not presentyear. Spending overall was approximately 17% of revenue in fiscal 2005, and a $1.9 million increase2009 compared to 15% in customer trade show expenses due to increased size and attendance at the shows.
* We intend to continue to focus and expand our sales and marketing efforts across all the geographies and markets we serve in order to increase market awareness of our products and to better support our existing customers worldwide. Our future growth will depend in part on the timely development and continued viability of the markets in which we currently compete as well as our ability to continue to identify and exploitdevelop new markets for our products.
General and administrative expensesexpense increased by $24.2$17.5 million in fiscal 20072010 compared to fiscal 20062009. The increase was primarily due to the inclusionadditional G&A expenses as a result of expenses of $10.0 million from acquisitions, not applicable in the prior year, a $4.8 millionan increase in compensation-relatedcompensation related expense including stock compensation expense, and an increase due to foreign currency exchange rates. Spending overall remained relatively constant at approximately 9% of revenue in both fiscal 2010 and 2009.
General and administrative expense increased by $6.8 million in fiscal 2009 compared to fiscal 2008 primarily due to additional G&A expenses as a result of acquisitions, increased deferred compensation plan liabilities, and a $5.4 million increase in tax and legal fees.stock compensation expense, partially offset by foreign exchange rates. Spending overall was at approximately 8%9% of revenues.
Restructuring Charges
Restructuring expense for the three years ended December 31, 2010 was as follows:
| December 31, 2010 | January 1, 2010 | January 2, 2009 | ||||||||||
| (in thousands) | ||||||||||||
Severance and benefits | $ | 2,035 | $ | 10,754 | $ | 4,641 | ||||||
During fiscal 2010, restructuring accrualexpense of $1.3$2.0 million as of December 28, 2007. In conjunction withwas related to decisions to streamline processes and reduce the acquisition of @Road, we accrued $3.6 million for severance and benefits. These restructuring costs were recorded in accordance with EITF 95-3 as partcost structure of the purchase price with no impactCompany. Of the total restructuring expense, $1.6 million is presented as a separate line within Operating expense and $0.4 million is included within Cost of sales on our Consolidated Statements of Income. Expense related to the decisions made through the fourth quarter of fiscal 2010 was fully accrued as of December 31, 2010.
During fiscal 2007 we paid $2.32009, restructuring expense of $10.8 million against thiswas related to decisions to streamline processes and reduce the cost structure of the Company. Of the total restructuring accrual. expense, $6.4 million is presented as a separate line within Operating expense and $4.4 million was included within Cost of sales on our Consolidated Statements of Income.
During fiscal 2008, restructuring expense of $4.6 million was related to decisions to streamline processes and reduce the cost structure of the Company. Of the total restructuring expense, $2.7 million is presented as a separate line within Operating expense on our Consolidated Statements of Income, and $1.9 million was included within Cost of sales.
Restructuring liability
The remainingfollowing table summarizes the restructuring activity for 2009 and 2010 (in thousands):
Balance as of January 2, 2009 | $ | 1,917 | ||
Acquisition related | — | |||
Charges | 10,754 | |||
Payments | (10,279 | ) | ||
Adjustment | 236 | |||
Balance as of January 1, 2010 | $ | 2,628 | ||
Acquisition related | — | |||
Charges | 2,035 | |||
Payments | (2,866 | ) | ||
Adjustment | (170 | ) | ||
Balance as of December 31, 2010 | $ | 1,627 | ||
As of December 31, 2010, the $1.6 million restructuring accrual consists of $1.3 millionseverance and benefits. It is included in Other current liabilities and is expected to be settled by the first half of fiscal 2008.
Amortization of Purchased and Other Intangible Assets
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (in thousands) | ||||||||||||
| Cost of sales | $ | 19,778 | $ | 5,353 | $ | 165 | ||||||
| Operating expenses | 18,966 | 7,906 | 6,855 | |||||||||
| Total | $ | 38,744 | $ | 13,259 | $ | 7,020 | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (in thousands) | ||||||||||||
Cost of sales | $ | 24,900 | $ | 22,337 | $ | 22,690 | ||||||
Operating expenses | 32,739 | 30,335 | 22,376 | |||||||||
Total | $ | 57,639 | $ | 52,672 | $ | 45,066 | ||||||
Total amortization expense of purchased and other intangible assets was $38.7$57.6 million in fiscal 2007,2010, of which $19.8$24.9 million was recorded in costCost of sales and $19.0$32.7 million was recorded in operating expenses.Operating expense. Total amortization expense of purchased and other intangibles represented 3.2%4.5% of revenue in fiscal 2007,2010, an increase of $25.5$5.0 million from fiscal 20062009 when it represented 1.4%4.7% of revenue. The increase was primarily due to the acquisition of certain technology and patent intangibles as a result of acquisitions made in fiscal 2007, primarily @Road and to a lesser extent,2010, as well as fiscal 20062009 acquisition intangibles that included a full year impact of amortization expense in fiscal 2007, but only partial year2010.
Total amortization expense of purchased and other intangible assets was $52.7 million in fiscal 2006 due to the timing2009, of the acquisitions.
The following table shows non-operating income, (expense)net for the periods indicated and should be read in conjunction with the narrative descriptions of those expenses below:
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (in thousands) | ||||||||||||
| Interest income | $ | 3,502 | $ | 3,799 | $ | 836 | ||||||
| Interest expense | (6,602 | ) | (558 | ) | (2,331 | ) | ||||||
| Foreign exchange gain (loss) | (1,351 | ) | 1,719 | 1,022 | ||||||||
| Income (expenses) for joint ventures, net | 8,377 | 6,989 | (291 | ) | ||||||||
| Other income, net | 1,563 | 777 | 608 | |||||||||
| Total non-operating income (expense) | $ | 5,489 | $ | 12,726 | $ | (156 | ) | |||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (in thousands) | ||||||||||||
Interest income | $ | 1,083 | $ | 783 | $ | 2,044 | ||||||
Interest expense | (1,752 | ) | (1,812 | ) | (2,760 | ) | ||||||
Foreign currency transaction gain (loss), net | (836 | ) | 463 | 1,509 | ||||||||
Income from equity method investments, net | 11,795 | 729 | 8,208 | |||||||||
Other income (expense), net | 3,195 | 1,638 | (3,018 | ) | ||||||||
Total non-operating income, net | $ | 13,485 | $ | 1,801 | $ | 5,983 | ||||||
Total non-operating income, (expense) decreasednet increased by $7.2$11.7 million during fiscal 20072010 compared with fiscal 2006. Of this decrease, $6.0 million2009. The increase was due to higher interest expense due to an increase in debt associated with the @Road acquisition, $3.1 million was due to a change in foreign currency transactions due to fluctuations in the U.S. to Canadian and Euro currencies, and these decreases were partially offset by increased profits from our CTCT joint venture.
Total non-operating income, net decreased by $4.2 million during fiscal 2009 compared with fiscal 2008. The decrease was due to lower income from joint ventures and a change in foreign exchange gains (losses), partially offset by changes in our deferred gain on the CTCT joint venture of $9.3 millioncompensation gains (losses) included in fiscal 2005.
Income Tax Provision
Our effective income tax rate for fiscal years 2007, 20062010, 2009 and 20052008 was 36%27%, 30%27% and 32%26% respectively. The 2007 rate was greater than the U.S. federal statutory rate of 35% due to impacts resulting from SFAS No. 123(R), “Share-Based Payment.” The 2006 rate was less than the US federal statutory rate primarily due to operations in foreign jurisdictions subject to an effective tax rate lower than the U.S. and the Extraterritorial Income Exclusion (ETI) deduction. The 2005 income tax2010 rate was less than the U.S. federal statutory rate of 35% primarily due to the benefit from the repatriationgeographical mix of undistributed foreign subsidiary earnings providedour pre-tax income and valuation allowance release, offset by the American Jobs Creation Actnet impact of 2004.
In May 2010, the IRS closed its examination of our income tax returns for the fiscal years 2005 through 2007. As part of the audit, the IRS examined and adjusted the valuation and payment arrangement for the 2006 non-exclusive license of specified Trimble intellectual property rights to a foreign-based Trimble subsidiary. The consideration for this license was to be paid over time and was established based on our estimate of the ongoing royalties that would have been received in a similar license arrangement to an unrelated third-party licensee. Pursuant to the audit settlement, we agreed to revise the valuation and to accelerate the payments under the existing royalty arrangement resulting in a net impact of $27.5 million in the second quarter of 2010, net of a release of liabilities for unrecognized tax benefits. The resolution of the 2005 through 2007 audit resulted in a tax assessment to us of $42.5 million and interest of $7.2 million for a total of $49.7 million that we paid on July 15, 2010. Additionally, as a result of the settlement, we incurred state income taxes and interest of approximately $2.5 million.
Litigation Matters
* From time to time, we are involved in litigation arising out of the ordinary course of our business. There are no known claims or pending litigation that are expected to have a material effect on our overall financial position, results of operations, or liquidity.
OFF-BALANCE SHEET ARRANGEMENTS
Other than lease commitments incurred in the normal course of business (see Contractual ObligationObligations table below), we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. We do not have any majority-owned subsidiaries that are not included in the consolidated financial statements. Additionally, we do not have any interest in, or relationship with, any special purpose entities.
In the normal course of business to facilitate sales of its products, we indemnify other parties, including customers, lessors, and parties to other transactions with the Company,us, with respect to certain matters. We have agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, we have entered into indemnification agreements with itsour officers and directors, and the Company’sour bylaws contain similar indemnification obligations to our agents.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by us under these agreements were not material and no liabilities have been recorded for these obligations on the Consolidated Balance Sheets as of December 28, 200731, 2010 and December 29, 2006.
LIQUIDITY AND CAPITAL RESOURCES
As of and for the Fiscal Year Ended | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||
| (dollars in thousands) | ||||||||||||
| Cash and cash equivalents | $ | 103,202 | $ | 129,621 | $ | 73,853 | ||||||
| As a percentage of total assets | 6.7 | % | 13.2 | % | 9.9 | % | ||||||
| Total debt | $ | 60,690 | $ | 481 | $ | 649 | ||||||
| Cash provided by operating activities | $ | 186,985 | $ | 135,843 | $ | 92,365 | ||||||
| Cash used in investing activities | $ | (311,392 | ) | $ | (114,188 | ) | $ | (74,403 | ) | |||
| Cash provided by (used in) financing activities | $ | 103,816 | $ | 34,162 | $ | (13,402 | ) | |||||
| Effect of exchange rate changes on cash and cash equivalents | $ | (5,828 | ) | $ | (49 | ) | $ | (2,579 | ) | |||
| Net increase (decrease) in cash and cash equivalents | $ | (26,419 | ) | $ | 55,768 | $ | 1,981 | |||||
As of and for the Fiscal Year Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (Dollars in thousands) | ||||||||||||
Cash and cash equivalents | $ | 220,788 | $ | 273,848 | $ | 142,531 | ||||||
As a percentage of total assets | 11.8 | % | 15.6 | % | 9.0 | % | ||||||
Total debt | $ | 153,153 | $ | 151,483 | $ | 151,588 | ||||||
Cash provided by operating activities | $ | 124,030 | $ | 194,631 | $ | 176,074 | ||||||
Cash used in investing activities | $ | (156,374 | ) | $ | (83,926 | ) | $ | (126,696 | ) | |||
Cash provided by (used in) financing activities | $ | (20,164 | ) | $ | 16,125 | $ | (6,441 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | $ | (552 | ) | $ | 4,487 | $ | (3,608 | ) | ||||
Net increase (decrease) in cash and cash equivalents | $ | (53,060 | ) | $ | 131,317 | $ | 39,329 | |||||
Cash and Cash Equivalents
As of December 28, 2007,31, 2010, cash and cash equivalents totaled $103.2$220.8 million compared to $129.6$273.8 million at December 29, 2006.January 2, 2009. We had debt of $60.7$153.2 million at December 28, 200731, 2010 compared to $481,000$151.5 million at December 29, 2006.
* Our ability to continue to generate cash from operations will depend in large part on profitability, the rate of collections of accounts receivable, our inventory turns, and our ability to manage other areas of working capital.
* We believe that our cash and cash equivalents, together with our revolving credit facilitiescash flow from operations will be sufficient to meet our anticipated operating cash needs and stock purchases under the stock repurchase program for at least the next twelve months.
* We anticipate that planned capital expenditures primarily for computer equipment, software, manufacturing tools and test equipment, and leasehold improvements associated with business expansion, will constitute a partial use of our cash resources. Decisions related to how much cash is used for investing are influenced by the expected amount of cash to be provided by operations.
Operating Activities
Cash provided by operating activities was $187.0$124.0 million for fiscal 2007,2010, as compared to $135.8$194.6 million for fiscal 2006. This increase2009. The decrease of $51.1$70.6 million was primarily driven by an increase in inventory spending, a $49.7 million payment associated with an IRS settlement, partially offset by an increase in net income before non-cash depreciation and amortization, accounts payable, and increases in deferred revenueaccrued compensation and income taxes payable. This was, partially offset by an increase in accounts receivable due to increased revenue.
Cash provided by operating activities was $135.8$194.6 million for fiscal 2006,2009, as compared to $92.4$176.1 million for fiscal 2005. This2008. The increase of $43.4$18.6 million was primarily drivendue to a decrease in inventories and an increase in accounts payable, accrued compensation and benefits, and deferred revenue, partially offset by an increasea decrease in net income before stock-based compensation expensenon-cash depreciation and associated excess tax benefits, with the remainder due to working capital improvementsamortization and an increase in inventories and account receivables.
Investing Activities
Cash used in investing activities was $311.4$156.4 million for fiscal 2007,2010, as compared to $114.2$83.9 million for fiscal 2006.2009. The increase was primarily attributabledue to higher cash used for the @Road acquisition.
Cash used in investing activities was $114.2$83.9 million infor fiscal 2006,2009, as compared to $74.4$126.7 million infor fiscal 2005.2008. The $39.8 million increase in spendingdecrease was primarily due to an increase of $48.5 million inless cash used for acquisitions in fiscal 2009.
Financing Activities
Cash used by financing activities was $20.2 million for fiscal 2010, as compared to cash provided of $16.1 million during fiscal 2009. The decrease of $36.3 million was primarily due to the stock repurchases in the first nine months of fiscal 2010, partially offset by a decreasecommon stock issued upon the exercise of $6.9 million in capital equipment spending.
Cash provided by financing activities was $103.8$16.1 million for fiscal 2007,2009, as compared to $34.2 million for fiscal 2006, primarily related to outstanding debt that was incurred for the @Road acquisition.
Accounts Receivable and Inventory Metrics
As of | December 28, 2007 | December 29, 2006 | ||||||
| Accounts receivable days sales outstanding | 70 | 69 | ||||||
| Inventory turns per year | 4.3 | 4.1 | ||||||
As of | December 31, 2010 | January 1, 2010 | ||||||
Accounts receivable days sales outstanding | 63 | 66 | ||||||
Inventory turns per year | 3.8 | 3.4 | ||||||
Accounts receivable days of sales outstanding were relatively flatdown slightly at 7063 days as of December 28, 2007,31, 2010, as compared to 6966 days as of December 30, 2006 with a slight increase due to a larger percentage of international business in the fourth quarter of fiscal 2007.January 1, 2010. Our accounts receivable days of sales outstanding are calculated based on ending accounts receivable, net, divided by revenue for the fourth fiscal quarter, times a quarterly average of 91 days. Our inventory turns were at 4.33.8 for fiscal 20072010 as compared to 4.13.4 for fiscal 2006 due to operational efficiencies.2009. Our inventory turnover is based on the total cost of sales for the fiscal period over the average inventory for the corresponding fiscal period.
Debt
At the end of fiscal 2007,2010 and fiscal 2009, our total debt was comprised primarily of our term loan related to the acquisition of @Roadrevolving credit line in the amount of $151.0 million. As of December 31, 2010 and January 1, 2010, we had notes payable totaling approximately $60.7$1.9 million and $0.5 million, respectively. Our outstanding notes payable as comparedof December 31, 2010 consisted primarily of notes payable to noncontrolling interest holders of one of our consolidated subsidiaries. The notes bear interest at 6% and have undefined payment terms, but are callable with approximately $481,000 at the enda six month notification. Our outstanding notes payable balance as of fiscal 2006.
On July 28, 2005, we entered into a $200 million unsecured revolving credit agreement (the 2005 Credit Facility) with a syndicate of 10 banks with The Bank of Nova Scotia as the administrative agent. The funds available under the 2005 Credit Facility may be used for our general corporate purposes and up to $25 million of the 2005 Credit Facility may be used for letters of credit. We incurred a commitment fee when the 2005 Credit Facility was not used. The commitment fee is not material to our results during all periods presented.
We may borrow funds under the 2007 Credit Facility in U.S. Dollars or in certain other currencies, and borrowings will bear interest, at the Company'sour option, at either: (i) a base rate, based on the administrative agent'sagent’s prime rate, plus a margin of between 0% and 0.125%, depending on the Company'sour leverage ratio as of itsour most recently ended fiscal quarter, or (ii) a reserve-adjusted rate based on the London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR), Stockholm Interbank Offered Rate (STIBOR) (STIBOR), or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.625% and 1.125%, depending on the Company'sour leverage ratio as of the most recently ended fiscal quarter. The Company'sOur obligations under the 2007 Credit Facility are guaranteed by certain of the Company'sour domestic subsidiaries.
The 2007 Credit Facility contains customary affirmative, negative and financial covenants including, among other requirements, negative covenants that restrict the Company'sour ability to dispose of assets, create liens, incur indebtedness, repurchase stock, pay dividends, make acquisitions, make investments, enter into mergers and consolidations and make capital expenditures, within certain limitations, and financial covenants that require the maintenance of leverage and fixed charge coverage ratios. The 2007 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments, and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate the Company'sour obligations under the 2007 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default. As of December 28, 200731, 2010 we were in compliance with all financial debt covenants.
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations at December 28, 2007:
| Payments Due By Period | ||||||||||||||||||||
| Less than | 2-3 | 4-5 | More than | |||||||||||||||||
| Total | 1 year | Years | years | 5 years | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Total debt including interest (1) | $ | 70,220 | $ | 3,203 | $ | 20,749 | $ | 46,268 | $ | - | ||||||||||
| Operating leases | 53,991 | 16,592 | 23,314 | 12,653 | 1,432 | |||||||||||||||
| Other purchase obligations and commitments | 60,570 | 41,924 | 14,494 | 4,084 | 68 | |||||||||||||||
| Total | $ | 184,781 | $ | 61,719 | $ | 58,557 | $ | 63,005 | $ | 1,500 | ||||||||||
| Payments Due By Period | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
Total debt including interest (1) | $ | 155,853 | $ | 2,011 | $ | 153,842 | $ | — | $ | — | ||||||||||
Operating leases | 63,115 | 18,815 | 23,837 | 13,761 | 6,702 | |||||||||||||||
Other purchase obligations and commitments | 69,728 | 60,377 | 9,271 | 80 | — | |||||||||||||||
Total | $ | 288,696 | $ | 81,203 | $ | 186,950 | $ | 13,841 | $ | 6,702 | ||||||||||
| (1) | We may borrow funds under the 2007 Credit Facility in U.S. Dollars or in certain other currencies, and will bear interest as described under Note 9 of Notes to the Consolidated Financial Statements. Our obligations under the 2007 Credit Facility are guaranteed by certain of our domestic subsidiaries. We estimate the interest to be 0.9 % per annum, based upon a historical average. |
Total debt consists of term loansa revolving credit line of $60.0$151.0 million under our credit facilities and government loans$1.9 million consisted primarily of $0.7 millionnotes payable to foreignnoncontrolling interest holders of one of our consolidated subsidiaries. (See Note 9 of the Notes to the Consolidated Financial Statements for further financial information regarding long-term debt)
Other purchase obligations and commitments represent open non-cancelable purchase orders for material purchases with our vendors. Purchase obligations exclude agreements that are cancelable without penalty. Our pension obligation, which is not included in the table above, is included in “Other current liabilities” and “Other non-current liabilities” on our Consolidated Balance Sheets. Additionally, as of December 28, 2007,31, 2010, we had acquisition earn-outs of $7.6$4.1 million and holdbacks of $10.3$4.2 million recorded in “Other current liabilities” and “Other non-current liabilities.” The maximum remaining payments, which are not included in the table above, including the $7.6$4.1 million and $10.3$4.2 million recorded, will not exceed $71.5$25.8 million. The remaining earn-outs and holdbacks are payable through 2010.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS
The impact of recent accounting pronouncements is disclosed in Note 2 of the Notes to Consolidated Financial Statements.
TableRECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
The following presentation includes non-GAAP measures. 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 following table are non-GAAP gross margin, non-GAAP operating expenses, non-GAAP operating income, non-GAAP non-operating income, net, non-GAAP income tax provision (benefit), non-GAAP net income, non-GAAP diluted net income per share and operating leverage, and non-GAAP segment operating income before corporate allocations. 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 Content
GROSS MARGIN: GAAP gross margin: Restructuring Amortization of purchased intangibles Stock-based compensation Amortization of acquisition-related inventory step-up Non-GAAP gross margin: OPERATING EXPENSES: GAAP operating expenses: Restructuring Amortization of purchased intangibles Stock-based compensation Non-recurring acquisition costs Non-GAAP operating expenses: OPERATING INCOME: GAAP operating income: Restructuring Amortization of purchased intangibles Stock-based compensation Amortization of acquisition-related inventory step-up Non-recurring acquisition costs Non-GAAP operating income: NON-OPERATING INCOME, NET: GAAP non-operating income, net: Non-recurring acquisition (gains) costs Non-GAAP non-operating income, net: INCOME TAX PROVISION (BENEFIT): GAAP income tax provision (benefit): IRS settlement Valuation allowance release Non-GAAP items tax effected Non-GAAP income tax provision (benefit): NET INCOME: GAAP net income attributable to Trimble Navigation Ltd. Restructuring Amortization of purchased intangibles Stock-based compensation Amortization of acquisition-related inventory step-up Non-recurring acquisition costs Non-GAAP tax adjustments Non-GAAP tax rate impact on noncontrolling interest Non-GAAP net income attributable to Trimble Navigation Ltd. DILUTED NET INCOME PER SHARE: GAAP diluted net income per share attributable to Trimble Navigation Ltd. Restructuring Amortization of purchased intangibles Stock-based compensation Amortization of acquisition-related inventory step-up Non-recurring acquisition costs Non-GAAP tax adjustments Non-GAAP tax rate impact on noncontrolling interest Non-GAAP diluted net income per share attributable to Trimble Navigation Ltd. OPERATING LEVERAGE: Increase in non-GAAP operating income Increase in revenue Operating leverage (increase in non-GAAP operating income as a % of increase in revenue) Fiscal Years Ended (In thousands, except per share data) December 31, 2010 January 1, 2010 January 2, 2009 Dollar
Amount % of
Revenue Dollar
Amount % of
Revenue Dollar
Amount % of
Revenue $ 645,501 49.9 % $ 549,868 48.8 % $ 649,136 48.8 % (A) 443 0.0 % 4,369 0.4 % 1,919 0.1 % (B) 24,900 1.9 % 22,201 2.0 % 22,515 1.7 % (C) 1,816 0.1 % 1,854 0.2 % 1,920 0.2 % (D) 728 0.1 % 470 0.0 % 1,414 0.1 % $ 673,388 52.0 % $ 578,762 51.4 % $ 676,904 50.9 % $ 517,899 40.0 % $ 464,048 41.2 % $ 463,676 34.9 % (A) (1,592 ) -0.1 % (6,385 ) -0.6 % (2,722 ) -0.2 % (B) (32,739 ) -2.5 % (30,335 ) -2.7 % (22,376 ) -1.7 % (C) (21,309 ) -1.7 % (16,805 ) -1.5 % (14,246 ) -1.1 % (E) (6,537 ) -0.5 % (3,822 ) -0.3 % — 0.0 % $ 455,722 35.2 % $ 406,701 36.1 % $ 424,332 31.9 % $ 127,602 9.9 % $ 85,820 7.6 % $ 185,460 14.0 % (A) 2,035 0.2 % 10,754 1.0 % 4,641 0.3 % (B) 57,639 4.4 % 52,536 4.7 % 44,891 3.4 % (C) 23,125 1.8 % 18,659 1.7 % 16,166 1.2 % (D) 728 0.0 % 470 0.0 % 1,414 0.1 % (E) 6,537 0.5 % 3,822 0.3 % — 0.0 % $ 217,666 16.8 % $ 172,061 15.3 % $ 252,572 19.0 % $ 13,485 $ 1,801 $ 5,983 (E) (3,177 ) — — $ 10,308 $ 1,801 $ 5,983 GAAP and
Non-GAAP
Tax Rate % (F) GAAP and
Non-GAAP
Tax Rate % (F) GAAP and
Non-GAAP
Tax Rate % (F) $ 37,474 27 % $ 23,658 27 % $ 50,470 26 % (G ) (27,540 ) — — (H ) 7,628 — — (I ) 10,935 23,196 17,649 $ 28,497 13 % $ 46,854 27 % $ 68,119 26 % $ 103,660 $ 63,446 $ 141,472 (A ) 2,035 10,754 4,641 (B ) 57,639 52,536 44,891 (C ) 23,125 18,659 16,166 (D ) 728 470 1,414 (E ) 3,360 3,822 — (G), (H), (I) 8,977 (23,196 ) (17,649 ) (J ) 9 — — $ 199,533 $ 126,491 $ 190,935 $ 0.84 $ 0.52 $ 1.14 (A ) 0.02 0.09 0.04 (B ) 0.46 0.43 0.36 (C ) 0.19 0.15 0.13 (D ) — 0.01 0.01 (E ) 0.03 0.03 — (G), (H), (I) 0.07 (0.19 ) (0.14 ) (J ) — — — $ 1.61 $ 1.04 $ 1.54 $ 45,605 $ (80,511 ) $ 15,567 $ 167,678 $ (202,975 ) $ 106,964 27.2 % N/A 14.6 %
SEGMENT OPERATING INCOME: Engineering and Construction GAAP operating income before corporate allocations: Stock-based compensation Non-GAAP operating income before corporate allocations: Field Solutions GAAP operating income before corporate allocations: Stock-based compensation Non-GAAP operating income before corporate allocations: Mobile Solutions GAAP operating income (loss) before corporate allocations: Stock-based compensation Non-GAAP operating income before corporate allocations: Advanced Devices GAAP operating income before corporate allocations: Stock-based compensation Non-GAAP operating income before corporate allocations: Fiscal Years Ended (In thousands) December 31, 2010 January 1, 2010 January 2, 2009 % of
Segment
Revenue % of
Segment
Revenue % of
Segment
Revenue $ 110,965 15.4 % $ 58,282 10.1 % $ 126,014 17.0 % K ) 7,886 1.1 % 6,312 1.1 % 4,726 0.6 % $ 118,851 16.5 % $ 64,594 11.2 % $ 130,740 17.6 % $ 116,373 36.6 % $ 104,498 35.8 % $ 109,489 36.4 % K ) 1,978 0.6 % 1,086 0.4 % 821 0.3 % $ 118,351 37.2 % $ 105,584 36.2 % $ 110,310 36.7 % $ 1,873 1.2 % $ 14,341 9.3 % $ 11,328 6.8 % K ) 3,444 2.2 % 4,216 2.7 % 4,749 2.8 % $ 5,317 3.4 % $ 18,557 12.0 % $ 16,077 9.6 % $ 18,325 17.9 % $ 17,227 17.0 % $ 24,445 20.4 % K ) 1,934 1.9 % 1,595 1.6 % 1,378 1.2 % $ 20,259 19.8 % $ 18,822 18.6 % $ 25,823 21.6 %
A. | Restructuring. 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 are not indicative of our core operating performance. |
| B. | Amortization of purchased intangibles. Included in our GAAP presentation of cost of sales and operating expenses, amortization of purchased intangibles recorded arises from prior acquisitions and are non-cash in nature. We exclude these expenses from our non-GAAP measures because we believe they are not indicative of our core operating performance. |
| 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 fiscal years ended December 31, 2010, January 1, 2010, and January 2, 2009 stock-based compensation was allocated as follows: |
| Fiscal Years Ended | ||||||||||||
| (in thousands) | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
Cost of sales | $ | 1,816 | $ | 1,854 | $ | 1,920 | ||||||
Research and development | 3,991 | 3,476 | 3,489 | |||||||||
Sales and Marketing | 5,611 | 4,446 | 3,993 | |||||||||
General and administrative | 11,707 | 8,883 | 6,764 | |||||||||
| $ | 23,125 | $ | 18,659 | $ | 16,166 | |||||||
| 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 we do not believe it is indicative of our core operating performance. |
| E. | Non-recurring acquisition costs. Included in our GAAP presentation of operating expenses and non-operating income, net, non-recurring acquisition costs consist of external and incremental costs resulting directly from merger and acquisition activities such as legal, due diligence and integration costs. Also included are unusual acquisition related items such as a gain on bargain purchase (resulting from the fair value of identifiable net assets acquired exceeding the consideration transferred), adjustments to the fair value of earnout liabilities and payments made or received to settle earnout and holdback disputes. We exclude these items because they are non-recurring and unique to specific acquisitions and are not indicative of our core operating performance. |
| F. | 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. |
| G. | IRS settlement. This amount represents a net charge of $27.5 million in the second quarter of 2010 resulting from the IRS audit settlement. We excluded this because it is not indicative of our core operating performance. |
| H. | Valuation allowance release. This amount represents a benefit of $7.6 million in the fourth quarter of 2010 resulting from a valuation allowance release. We excluded this because it is not indicative of our core operating performance. |
| I. | 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. |
| J. | Non-GAAP tax rate impact on noncontrolling interests.This amount adjusts the provision for income taxes included in noncontrolling interest to reflect the non-GAAP tax rate. |
| K. | 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. 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 $7.9 million, $5.5 million, and $4.5 million for the fiscal years ended December 31, 2010, January 1, 2010, and January 2, 2009, respectively. |
Non-GAAP Operating Income
Non-GAAP operating income increased by $45.6 million for fiscal 2010 as compared to fiscal 2009, and decreased by $80.5 million for fiscal 2009 as compared to fiscal 2008. Non-GAAP operating income as a percentage of total revenue was 16.8%, 15.3%, and 19.0% for fiscal years 2010, 2009, and 2008, respectively.
The increase in operating income and operating income percentage during fiscal 2010 was primarily driven by higher revenue and associated operating leverage in the Engineering and Construction and Field Solutions, partially offset by Mobile Solutions. The decrease in operating income and operating income percentage during fiscal 2009 compared to fiscal 2008 was primarily attributable to a decrease in Engineering and Construction revenue and operating leverage.
| Item 7A. | Quantitative and Qualitative Disclosure about Market Risk |
We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We use certain derivative financial instruments to manage these risks. We do not use derivative financial instruments for speculative purposes. All financial instruments are used in accordance with policies approved by our board of directors.
Market Interest Rate Risk
Our cash equivalents and short-term investments consisted primarily of money market funds, treasury bills, commercial paper (FDIC insured), interest and certificate ofnon-interest bearing bank deposits as well as bank time deposits for fiscal 2007 and 2006.2008. The main objective of these instruments was safety of principal and liquidity while maximizing return, without significantly increasing risk.
* Due to the short-term nature of our cash equivalents, and short-term investments, we do not anticipate any material effect on our portfolio due to fluctuations in interest rates.
We are exposed to market risk due to the possibility of changing interest rates under our senior secured credit facilities. Our credit facilities arefacility is comprised of an unsecured revolving credit agreement with a maturity date of February 2012, and a five-year term loan which will mature concurrently with the revolving credit line.2012. We may borrow funds under the revolving credit agreement in U.S. Dollars or in certain other currencies and borrowings will bear interest at our option, at either: (i) a base rate, based onas described under Note 9 of Notes to the administrative agent's prime rate, plus a margin of between 0% and 0.125%, depending on our leverage ratio as of its most recently ended fiscal quarter, or (ii) a reserve-adjusted rate based on the London Interbank Offered Rate (“LIBOR”), Euro Interbank Offered Rate (“EURIBOR”), Stockholm Interbank Offered Rate (“STIBOR”), or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.625% and 1.125%, depending on our leverage ratio as of the most recently ended fiscal quarter.
As of December 28, 2007,31, 2010, we did not havehad an outstanding balance on the revolving credit lines and the worldwide outstanding principal balance on the term loan was $60.0line of $151.0 million. A hypothetical 10% increase in the three-month LIBOR rates could result in approximately $0.3 million$46,000 annual increase in interest expense on the existing principal balances.
* The hypothetical changes and assumptions made above will be different from what actually occurs in the future. Furthermore, the computations do not anticipate actions that may be taken by our management should the hypothetical market changes actually occur over time. As a result, actual earnings effects in the future will differ from those quantified above.
Foreign Currency Exchange Rate Risk
We enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on cash, certain trade and inter-company receivables and payables, primarily denominated in Australian, Canadian Japanese,and New Zealand Dollars, Japanese Yen, Indian Rupee, South African andRand, Swedish currencies, theKrona, Euro, and the British pound. These contracts reduce the exposure to fluctuations in exchange rate movements as the gains and losses associated with foreign currency balances are generally offset with the gains and losses on the forward contracts. These instruments are marked to market through earnings every period and generally range from one to three months in original maturity. We do not enter into foreign exchange forward contracts for trading purposes.
Foreign exchange forward contracts outstanding as of December 28, 200731, 2010 and December 29, 2006January 1, 2010 are summarized as follows (in thousands):
| December 28, 2007 | December 29, 2006 | |||||||||||||||
| Nominal Amount | Fair Value | Nominal Amount | Fair Value | |||||||||||||
| Forward contracts: | ||||||||||||||||
| Purchased | $ | (34,865 | ) | $ | 325 | $ | (21,442 | ) | $ | 201 | ||||||
| Sold | $ | 34,946 | $ | (782 | ) | $ | 38,579 | $ | (358 | ) | ||||||
| December 31, 2010 | January 1, 2010 | |||||||||||||||
| Nominal Amount | Fair Value | Nominal Amount | Fair Value | |||||||||||||
Forward contracts: | ||||||||||||||||
Purchased | $ | (30,106 | ) | $ | 93 | $ | (20,444 | ) | $ | 153 | ||||||
Sold | $ | 18,834 | $ | 174 | $ | 27,589 | $ | 389 | ||||||||
* We do not anticipate any material adverse effect on our consolidated financial position utilizing our current hedging strategy.
INDEX TO FINANCIAL STATEMENTS
| December 28, | December 29, | |||||||
| 2007 | 2006 | |||||||
| (in thousands) | ||||||||
| ASSETS | ||||||||
Current assets: | ||||||||
| Cash and cash equivalents | $ | 103,202 | $ | 129,621 | ||||
| Accounts receivable, less allowance for doubtful accounts of $5,221 and $4,063, and sales return reserve of $1,683 and $859 at December 28, 2007 and December 29, 2006, respectively | 239,884 | 177,054 | ||||||
| Other receivables | 10,201 | 6,014 | ||||||
| Inventories, net | 143,018 | 112,552 | ||||||
| Deferred income taxes | 44,333 | 25,905 | ||||||
| Other current assets | 15,661 | 13,026 | ||||||
| Total current assets | 556,299 | 464,172 | ||||||
| Property and equipment, net | 51,444 | 47,998 | ||||||
| Goodwill | 675,850 | 374,510 | ||||||
| Other purchased intangible assets, net | 197,777 | 67,172 | ||||||
| Other non-current assets | 57,989 | 29,625 | ||||||
| Total assets | $ | 1,539,359 | $ | 983,477 | ||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | 126 | $ | -- | ||||
| Accounts payable | 67,589 | 49,194 | ||||||
| Accrued compensation and benefits | 55,133 | 47,006 | ||||||
| Income taxes payable | 14,802 | 23,814 | ||||||
| Deferred revenue | 49,416 | 28,060 | ||||||
| Accrued warranty expense | 10,806 | 8,607 | ||||||
| Deferred income taxes | 4,129 | 4,525 | ||||||
| Other accrued liabilities | 47,851 | 24,973 | ||||||
| Total current liabilities | 249,852 | 186,179 | ||||||
| Non-current portion of long-term debt | 60,564 | 481 | ||||||
| Non-current deferred revenue | 15,872 | -- | ||||||
| Deferred income tax | 47,917 | 21,633 | ||||||
| Other non-current liabilities | 56,128 | 27,519 | ||||||
| Total liabilities | 430,333 | 235,812 | ||||||
| Commitments and contingencies | ||||||||
| Shareholders' equity: | ||||||||
| Preferred stock no par value; 3,000 shares authorized; none outstanding | -- | -- | ||||||
| Common stock, no par value; 180,000 shares authorized; 121,596 and 111,718 shares issued and outstanding at December 28, 2007 and December 29, 2006, respectively | 660,749 | 435,371 | ||||||
| Retained earnings | 388,557 | 271,183 | ||||||
| Accumulated other comprehensive income | 59,720 | 41,111 | ||||||
| Total shareholders' equity | 1,109,026 | 747,665 | ||||||
| Total liabilities and shareholders' equity | $ | 1,539,359 | $ | 983,477 | ||||
| December 31, 2010 | January 1, 2010 | |||||||
| (In thousands) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 220,788 | $ | 273,848 | ||||
Accounts receivable, less allowance for doubtful accounts of $3,442 and $3,875, and sales return reserve of $1,632 and $1,743 at December 31, 2010 and January 1, 2010, respectively | 222,820 | 202,293 | ||||||
Other receivables | 21,069 | 11,856 | ||||||
Inventories, net | 192,852 | 144,012 | ||||||
Deferred income taxes | 36,924 | 39,686 | ||||||
Other current assets | 19,917 | 18,383 | ||||||
Total current assets | 714,370 | 690,078 | ||||||
Property and equipment, net | 50,692 | 44,635 | ||||||
Goodwill | 828,737 | 764,193 | ||||||
Other purchased intangible assets, net | 204,948 | 202,782 | ||||||
Other non-current assets | 68,145 | 51,589 | ||||||
Total assets | $ | 1,866,892 | $ | 1,753,277 | ||||
LIABILITIES | ||||||||
Current liabilities: | ||||||||
Current portion of long-term debt | $ | 1,993 | $ | 445 | ||||
Accounts payable | 72,349 | 53,775 | ||||||
Accrued compensation and benefits | 60,976 | 43,272 | ||||||
Deferred revenue | 73,888 | 68,968 | ||||||
Accrued warranty expense | 12,868 | 14,744 | ||||||
Other current liabilities | 29,741 | 42,041 | ||||||
Total current liabilities | 251,815 | 223,245 | ||||||
Non-current portion of long-term debt | 151,160 | 151,038 | ||||||
Non-current deferred revenue | 10,777 | 15,599 | ||||||
Deferred income taxes | 24,598 | 38,857 | ||||||
Other non-current liabilities | 42,843 | 59,983 | ||||||
Total liabilities | 481,193 | 488,722 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Preferred stock no par value; 3,000 shares authorized; none outstanding Common stock, no par value; 180,000 shares authorized; 120,939 and 120,450 shares issued and outstanding at December 31, 2010 and January 1, 2010, respectively | 781,779 | 720,248 | ||||||
Retained earnings | 536,350 | 491,367 | ||||||
Accumulated other comprehensive income | 48,027 | 48,297 | ||||||
Total Trimble Navigation Ltd. shareholders’ equity | 1,366,156 | 1,259,912 | ||||||
Noncontrolling interests | 19,543 | 4,643 | ||||||
Total equity | 1,385,699 | 1,264,555 | ||||||
Total liabilities and shareholders’ equity | $ | 1,866,892 | $ | 1,753,277 | ||||
See accompanying Notes to the Consolidated Financial Statements.
| December 28 | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (in thousands, except per share amounts) | ||||||||||||
Revenue (1) | $ | 1,222,270 | $ | 940,150 | $ | 774,913 | ||||||
Cost of sales (1) | 609,365 | 479,069 | 385,108 | |||||||||
| Gross margin | 612,905 | 461,081 | 389,805 | |||||||||
| Operating expenses | ||||||||||||
| Research and development | 131,468 | 103,840 | 84,276 | |||||||||
| Sales and marketing | 186,495 | 143,623 | 120,215 | |||||||||
| General and administrative | 92,572 | 68,416 | 52,137 | |||||||||
| Restructuring charges | 3,025 | -- | 278 | |||||||||
| Amortization of purchased intangible assets | 18,966 | 7,906 | 6,855 | |||||||||
| In-process research and development | 2,112 | 1,930 | 1,100 | |||||||||
| Total operating expenses | 434,638 | 325,715 | 264,861 | |||||||||
| Operating income | 178,267 | 135,366 | 124,944 | |||||||||
| Non-operating income (expense) | ||||||||||||
| Interest income | 3,502 | 3,799 | 836 | |||||||||
| Interest expense | (6,602 | ) | (558 | ) | (2,331 | ) | ||||||
| Foreign currency transaction gain (loss), net | (1,351 | ) | 1,719 | 1,022 | ||||||||
| Income (expenses) for joint ventures, net | 8,377 | 6,989 | (291 | ) | ||||||||
| Other income | 1,563 | 777 | 608 | |||||||||
| Total non-operating income (expense) | 5,489 | 12,726 | (156 | ) | ||||||||
| Income before taxes | 183,756 | 148,092 | 124,788 | |||||||||
| Income tax provision | 66,382 | 44,434 | 39,933 | |||||||||
| Net income | $ | 117,374 | $ | 103,658 | $ | 84,855 | ||||||
| Basic earnings per share | $ | 0.98 | $ | 0.94 | $ | 0.80 | ||||||
| Shares used in calculating basic earnings per share | 119,280 | 110,044 | 106,432 | |||||||||
| Diluted earnings per share | $ | 0.94 | $ | 0.89 | $ | 0.75 | ||||||
| Shares used in calculating diluted earnings per share | 124,410 | 116,072 | 113,638 | |||||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (In thousands, except per share data) | ||||||||||||
Revenue (1) | $ | 1,293,937 | $ | 1,126,259 | $ | 1,329,234 | ||||||
Cost of sales (1) | 648,436 | 576,391 | 680,098 | |||||||||
Gross margin | 645,501 | 549,868 | 649,136 | |||||||||
Operating expense | ||||||||||||
Research and development | 150,089 | 136,639 | 148,265 | |||||||||
Sales and marketing | 215,127 | 189,859 | 196,290 | |||||||||
General and administrative | 118,352 | 100,830 | 94,023 | |||||||||
Restructuring charges | 1,592 | 6,385 | 2,722 | |||||||||
Amortization of purchased intangible assets | 32,739 | 30,335 | 22,376 | |||||||||
Total operating expense | 517,899 | 464,048 | 463,676 | |||||||||
Operating income | 127,602 | 85,820 | 185,460 | |||||||||
Non-operating income, net | ||||||||||||
Interest income | 1,083 | 783 | 2,044 | |||||||||
Interest expense | (1,752 | ) | (1,812 | ) | (2,760 | ) | ||||||
Foreign currency transaction gain (loss), net | (836 | ) | 463 | 1,509 | ||||||||
Income from equity method investments, net | 11,795 | 729 | 8,208 | |||||||||
Other income (expense), net | 3,195 | 1,638 | (3,018 | ) | ||||||||
Total non-operating income, net | 13,485 | 1,801 | 5,983 | |||||||||
Income before taxes | 141,087 | 87,621 | 191,443 | |||||||||
Income tax provision | 37,474 | 23,658 | 50,470 | |||||||||
Net income | 103,613 | 63,963 | 140,973 | |||||||||
Less: Net income (expense) attributable to noncontrolling interests | (47 | ) | 517 | (499 | ) | |||||||
Net income attributable to Trimble Navigation Ltd. | $ | 103,660 | $ | 63,446 | $ | 141,472 | ||||||
Basic earnings per share | $ | 0.86 | $ | 0.53 | $ | 1.17 | ||||||
Shares used in calculating basic earnings per share | 120,352 | 119,814 | 120,714 | |||||||||
Diluted earnings per share | $ | 0.84 | $ | 0.52 | $ | 1.14 | ||||||
Shares used in calculating diluted earnings per share | 123,798 | 122,208 | 124,235 | |||||||||
| (1) | Sales to Caterpillar Trimble Control Technologies Joint Venture (CTCT) and Nikon-Trimble Joint Venture (Nikon-Trimble) were $21.7 million, $16.0 million and $27.0 million in fiscal 2010, 2009 and 2008, respectively, with associated cost of sales of $14.7 million, $10.4 million and $21.5 million for fiscal 2010, 2009 and 2008, respectively. In addition, cost of sales associated with CTCT net inventory purchases was $27.5 million, $19.1 million and $21.4 million in fiscal 2010, 2009 and 2008, respectively. See Note 5 to these Consolidated Financial Statements regarding joint ventures for further discussion. |
See accompanying Notes to the Consolidated Financial Statements.
| Accumulative | ||||||||||||||||||||
| Other | Total | |||||||||||||||||||
| Common stock | Retained | Comprehensive | Shareholders' | |||||||||||||||||
| Shares | Amount | Earnings | Income/(Loss) | Equity | ||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Balance at December 31, 2004 | 104,426 | $ | 345,127 | $ | 82,670 | $ | 44,364 | $ | 472,161 | |||||||||||
| Components of comprehensive income: | ||||||||||||||||||||
| Net income | 84,855 | 84,855 | ||||||||||||||||||
| Loss on interest rate swap | (106 | ) | (106 | ) | ||||||||||||||||
| Unrealized loss on investments | (34 | ) | (34 | ) | ||||||||||||||||
| Foreign currency translation adjustments, net of tax | (24,690 | ) | (24,690 | ) | ||||||||||||||||
| Total comprehensive income | 60,025 | |||||||||||||||||||
| Issuance of common stock in connection with acquisitions and joint venture, net | 20 | - | ||||||||||||||||||
| Issuance of common stock under employee plans and exercise of warrants | 3,374 | 24,582 | 24,582 | |||||||||||||||||
| Tax benefit from stock option exercises | 14,487 | 14,487 | ||||||||||||||||||
| Balance at December 30, 2005 | 107,820 | $ | 384,196 | $ | 167,525 | $ | 19,534 | $ | 571,255 | |||||||||||
| Components of comprehensive income: | ||||||||||||||||||||
| Net income | 103,658 | 103,658 | ||||||||||||||||||
| Unrealized gain on investments | 4 | 4 | ||||||||||||||||||
| Foreign currency translation adjustments, net of tax | 21,709 | 21,709 | ||||||||||||||||||
| Total comprehensive income | 125,371 | |||||||||||||||||||
| Adjustment to initially apply FASB Statement No. 158, net of tax | (136 | ) | (136 | ) | ||||||||||||||||
| Issuance of common stock in connection with acquisitions, net | 52 | - | ||||||||||||||||||
| Issuance of common stock under employee plans and exercise of warrants | 3,846 | 26,781 | 26,781 | |||||||||||||||||
| Stock based compensation | 12,705 | 12,705 | ||||||||||||||||||
| Tax benefit from stock option exercises | 11,689 | 11,689 | ||||||||||||||||||
| Balance at December 29, 2006 | 111,718 | $ | 435,371 | $ | 271,183 | $ | 41,111 | $ | 747,665 | |||||||||||
| Components of comprehensive income: | ||||||||||||||||||||
| Net income | 117,374 | 117,374 | ||||||||||||||||||
| Unrealized loss on investments | (33 | ) | (33 | ) | ||||||||||||||||
| Foreign currency translation adjustments, net of tax | 18,655 | 18,655 | ||||||||||||||||||
| Unrecognized actuarial loss | (13 | ) | (13 | ) | ||||||||||||||||
| Total comprehensive income | 135,983 | |||||||||||||||||||
| Issuance of common stock in connection with acquisitions, net | 5,876 | 163,678 | 163,678 | |||||||||||||||||
| Issuance of common stock under employee plans and exercise of warrants | 4,002 | 31,913 | 31,913 | |||||||||||||||||
| Stock based compensation | 15,099 | 15,099 | ||||||||||||||||||
| Tax benefit from stock option exercises | 14,637 | 14,637 | ||||||||||||||||||
| Minority interest | 51 | 51 | ||||||||||||||||||
| Balance at December 28, 2007 | 121,596 | $ | 660,749 | $ | 388,557 | $ | 59,720 | $ | 1,109,026 | |||||||||||
| Retained Earnings | Accumulated Other Comprehensive Income/(Loss) | Total Shareholders’ Equity | Noncontrolling Interest | Total | ||||||||||||||||||||||||
| Common stock | ||||||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||
Balance at December 28, 2007 | 121,596 | $ | 660,749 | $ | 388,557 | $ | 59,720 | $ | 1,109,026 | $ | — | $ | 1,109,026 | |||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||||||||
Net income | 141,472 | 141,472 | (499 | ) | 140,973 | |||||||||||||||||||||||
Unrealized loss on investments | (392 | ) | (392 | ) | (392 | ) | ||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | (31,722 | ) | (31,722 | ) | (31,722 | ) | ||||||||||||||||||||||
Unrecognized actuarial gain | 43 | 43 | 43 | |||||||||||||||||||||||||
Total comprehensive income | 109,401 | (499 | ) | 108,902 | ||||||||||||||||||||||||
Issuance of common stock under employee plans and exercise of warrants | 1,698 | 22,804 | 22,804 | 22,804 | ||||||||||||||||||||||||
Stock repurchase | (4,243 | ) | (23,780 | ) | (102,108 | ) | (125,888 | ) | (125,888 | ) | ||||||||||||||||||
Stock based compensation | 16,293 | 16,293 | 16,293 | |||||||||||||||||||||||||
Noncontrolling interest investments | — | 4,154 | 4,154 | |||||||||||||||||||||||||
Tax benefit from stock option exercises | 8,765 | 8,765 | 8,765 | |||||||||||||||||||||||||
Balance at January 2, 2009 | 119,051 | $ | 684,831 | $ | 427,921 | $ | 27,649 | $ | 1,140,401 | $ | 3,655 | $ | 1,144,056 | |||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||||||||
Net income | 63,446 | 63,446 | 517 | 63,963 | ||||||||||||||||||||||||
Unrealized gain on investments | 392 | 392 | 392 | |||||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | 20,583 | 20,583 | 20,583 | |||||||||||||||||||||||||
Unrecognized actuarial loss | (327 | ) | (327 | ) | (327 | ) | ||||||||||||||||||||||
Total comprehensive income | 84,094 | 517 | 84,611 | |||||||||||||||||||||||||
Issuance of common stock under employee plans and exercise of warrants | 1,399 | 14,855 | 14,855 | 14,855 | ||||||||||||||||||||||||
Stock based compensation | 18,862 | 18,862 | 18,862 | |||||||||||||||||||||||||
Noncontrolling interest investments | — | 471 | 471 | |||||||||||||||||||||||||
Tax benefit from stock option exercises | 1,700 | 1,700 | 1,700 | |||||||||||||||||||||||||
Balance at January 1, 2010 | 120,450 | $ | 720,248 | $ | 491,367 | $ | 48,297 | $ | 1,259,912 | $ | 4,643 | $ | 1,264,555 | |||||||||||||||
Components of comprehensive income: | ||||||||||||||||||||||||||||
Net income | 103,660 | 103,660 | (47 | ) | 103,613 | |||||||||||||||||||||||
Foreign currency translation adjustments, net of tax | 354 | 354 | 354 | |||||||||||||||||||||||||
Unrecognized actuarial loss | (624 | ) | (624 | ) | (624 | ) | ||||||||||||||||||||||
Total comprehensive income | 103,390 | (47 | ) | 103,343 | ||||||||||||||||||||||||
Issuance of common stock under employee plans and exercise of warrants, net | 3,065 | 45,182 | (634 | ) | 44,548 | 44,548 | ||||||||||||||||||||||
Stock repurchase | (2,576 | ) | (15,808 | ) | (58,043 | ) | (73,851 | ) | (73,851 | ) | ||||||||||||||||||
Stock based compensation | 23,403 | 23,403 | 23,403 | |||||||||||||||||||||||||
Noncontrolling interest investments | 429 | 429 | 14,947 | 15,376 | ||||||||||||||||||||||||
Tax benefit from stock option exercises | 8,325 | 8,325 | 8,325 | |||||||||||||||||||||||||
Balance at December 31, 2010 | 120,939 | $ | 781,779 | $ | 536,350 | $ | 48,027 | $ | 1,366,156 | $ | 19,543 | $ | 1,385,699 | |||||||||||||||
See accompanying Notes to the Consolidated Financial Statements.
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (In thousands) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 117,374 | $ | 103,658 | $ | 84,855 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation | 17,212 | 13,523 | 10,671 | |||||||||
| Amortization | 38,744 | 13,259 | 7,020 | |||||||||
| Provision for doubtful accounts | 1,410 | 163 | (502 | ) | ||||||||
| Amortization of debt issuance cost | 218 | 180 | 1,270 | |||||||||
| Deferred income taxes | 6,368 | 10,368 | 14,242 | |||||||||
| Non-cash restructuring expense | 1,725 | -- | -- | |||||||||
| Stock-based compensation | 15,016 | 12,571 | -- | |||||||||
| In-process research and development | 2,112 | 1,930 | 1,100 | |||||||||
| Equity (gain) loss from joint ventures | (8,377 | ) | (6,989 | ) | 291 | |||||||
| Excess tax benefit for stock-based compensation | (12,409 | ) | (8,761 | ) | -- | |||||||
| Provision for excess and obsolete inventories | 4,352 | 7,376 | 5,443 | |||||||||
| Other | 651 | 720 | (1,272 | ) | ||||||||
| Add decrease (increase) in assets: | ||||||||||||
| Accounts receivable | (35,696 | ) | (12,185 | ) | (19,018 | ) | ||||||
| Other receivables | 4,825 | (51 | ) | (2,108 | ) | |||||||
| Inventories | (18,678 | ) | (7,588 | ) | (23,200 | ) | ||||||
| Other current and non-current assets | 7,650 | (18,936 | ) | (2,294 | ) | |||||||
| Add increase (decrease) in liabilities: | ||||||||||||
| Accounts payable | (3,521 | ) | (4,487 | ) | 1,078 | |||||||
| Accrued compensation and benefits | 1,691 | 7,807 | 3,408 | |||||||||
| Accrued liabilities | (4,635 | ) | 9,790 | 6,101 | ||||||||
| Deferred gain on joint venture | -- | -- | (9,180 | ) | ||||||||
| Deferred revenues | 32,400 | 3,263 | 2,406 | |||||||||
| Income taxes payable | 18,553 | 10,232 | 12,054 | |||||||||
| Net cash provided by operating activities | 186,985 | 135,843 | 92,365 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisition of property and equipment | (13,187 | ) | (16,529 | ) | (23,436 | ) | ||||||
| Acquisitions of businesses, net of cash acquired | (295,848 | ) | (99,887 | ) | (51,379 | ) | ||||||
| Purchase of debt and equity securities | (5,576 | ) | -- | -- | ||||||||
| Proceeds from dividends | 2,888 | 2,244 | 515 | |||||||||
| Other | 331 | (16 | ) | (103 | ) | |||||||
| Net cash used in investing activities | (311,392 | ) | (114,188 | ) | (74,403 | ) | ||||||
| Cash flows from financing activities: | ||||||||||||
| Issuance of common stock and warrants | 31,864 | 26,566 | 24,463 | |||||||||
| Excess tax benefit for stock-based compensation | 12,409 | 8,761 | -- | |||||||||
| Proceeds from long-term debt and revolving credit lines | 250,000 | -- | 6,000 | |||||||||
| Payments on long-term debt and revolving credit lines | (190,457 | ) | -- | (44,250 | ) | |||||||
| Other | -- | (1,165 | ) | 385 | ||||||||
| Net cash provided by (used in) financing activities | 103,816 | 34,162 | (13,402 | ) | ||||||||
| Effect of exchange rate changes on cash and cash equivalents | (5,828 | ) | (49 | ) | (2,579 | ) | ||||||
| Net increase in cash and cash equivalents | (26,419 | ) | 55,768 | 1,981 | ||||||||
| Cash and cash equivalents, beginning of fiscal year | 129,621 | 73,853 | 71,872 | |||||||||
| Cash and cash equivalents, end of fiscal year | $ | 103,202 | $ | 129,621 | $ | 73,853 | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (In thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 103,613 | $ | 63,963 | $ | 140,973 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation expense | 18,198 | 18,795 | 19,047 | |||||||||
Amortization expense | 57,639 | 52,672 | 45,066 | |||||||||
Provision for doubtful accounts | 2,320 | 4,139 | 2,709 | |||||||||
Deferred income taxes | (14,918 | ) | (7,473 | ) | (17,356 | ) | ||||||
Stock-based compensation | 23,125 | 18,659 | 16,166 | |||||||||
Income from equity method investments | (11,795 | ) | (429 | ) | (7,981 | ) | ||||||
Excess tax benefit for stock-based compensation | (9,639 | ) | (1,453 | ) | (5,970 | ) | ||||||
Provision for excess and obsolete inventories | 4,752 | 3,530 | 4,426 | |||||||||
Other non-cash items | (4,610 | ) | (2,810 | ) | 320 | |||||||
Add decrease (increase) in assets: | ||||||||||||
Accounts receivable | (7,376 | ) | (3,935 | ) | 33,414 | |||||||
Other receivables | 2,518 | 3,516 | (7,422 | ) | ||||||||
Inventories | (45,549 | ) | 13,292 | (16,461 | ) | |||||||
Other current and non-current assets | 2,257 | (620 | ) | 779 | ||||||||
Add increase (decrease) in liabilities: | ||||||||||||
Accounts payable | 13,577 | 2,631 | (20,898 | ) | ||||||||
Accrued compensation and benefits | 15,928 | 245 | (12,487 | ) | ||||||||
Accrued liabilities | (24,833 | ) | 4,433 | 3,069 | ||||||||
Deferred revenue | (1,177 | ) | 25,476 | (1,320 | ) | |||||||
Net cash provided by operating activities | 124,030 | 194,631 | 176,074 | |||||||||
Cash flows from investing activities: | ||||||||||||
Acquisitions of businesses, net of cash acquired | (136,419 | ) | (52,018 | ) | (115,137 | ) | ||||||
Acquisitions of property and equipment | (23,133 | ) | (12,706 | ) | (16,196 | ) | ||||||
Acquisitions of intangible assets | (2,063 | ) | (26,839 | ) | — | |||||||
Purchases of equity method investments | (8,192 | ) | (750 | ) | — | |||||||
Proceeds received from noncontrolling interest holder | 7,470 | — | 4,200 | |||||||||
Net (purchases) maturities of short term investments | — | 5,000 | (5,000 | ) | ||||||||
Dividends received | 5,858 | 2,896 | 10,648 | |||||||||
Other | 105 | 491 | (5,211 | ) | ||||||||
Net cash used in investing activities | (156,374 | ) | (83,926 | ) | (126,696 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Issuance of common stock, net | 44,549 | 14,855 | 22,802 | |||||||||
Repurchase and retirement of common stock | (73,853 | ) | — | (125,888 | ) | |||||||
Proceeds from long-term debt and revolving credit lines | — | — | 151,000 | |||||||||
Excess tax benefit for stock-based compensation | 9,639 | 1,453 | 5,970 | |||||||||
Payments on long-term debt and revolving credit lines | (499 | ) | (183 | ) | (60,314 | ) | ||||||
Other | — | — | (11 | ) | ||||||||
Net cash provided by (used in) financing activities | (20,164 | ) | 16,125 | (6,441 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | (552 | ) | 4,487 | (3,608 | ) | |||||||
Net increase (decrease) in cash and cash equivalents | (53,060 | ) | 131,317 | 39,329 | ||||||||
Cash and cash equivalents, beginning of fiscal year | 273,848 | 142,531 | 103,202 | |||||||||
Cash and cash equivalents, end of fiscal year | $ | 220,788 | $ | 273,848 | $ | 142,531 | ||||||
See accompanying Notes to the Consolidated Financial Statements.
NOTE 1: DESCRIPTION OF BUSINESS
Trimble Navigation Limited (Trimble or the Company) began operations in 1978 and incorporated in California in 1981. The Company provides positioning product solutions, most typically to commercial and government users. The principal applications served include surveying, construction, agriculture, urban and resource management, military, transportation and telecommunications. The Company’s products typically provide its customers benefits that can include lower operational costs, higher productivity, and improved quality. Examples of products include systems that guide agricultural and construction equipment, surveying instruments, systems that track fleets of vehicles, and data collection systems that enable the management of large amounts of geo-referenced information. In addition, the Company also manufactures components for in-vehicle navigation and telematics systems, and timing modules used in the synchronization of wireless networks.
NOTE 2: ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with accounting principlesU.S. generally accepted in the U.S.accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for allowances for doubtful accounts, sales returns reserve, allowances for inventory valuation, warranty costs, investments, goodwill impairments, stock-based compensation, and income taxes among others. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Although these estimates are based on management’s best knowledge of current events and actions that may impact the company in the future, actual results may differ materially from management’s estimates.
Basis of Presentation
The Company has a 52-53 week fiscal year, ending on the Friday nearest to December 31. Fiscal 2007, fiscal 2006,2010 and fiscal 20052009 were allboth 52-week years, and ended on December 28, 2007, December 29, 200631, 2010 and December 30, 2005,January 1, 2010, respectively. Fiscal 2008 was a 53-week year and ended on January 2, 2009. Unless otherwise stated, all dates refer to the Company’s fiscal year.
These Consolidated Financial Statements include the results of the Company and its majority-ownedconsolidated subsidiaries. Inter-company accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling shareholders’ proportionate share of the net assets and results of operations of the Company’s consolidated subsidiaries.
The Company has evaluated all subsequent events through the date that these financial statements have been filed with the Securities and Exchange Commission (“SEC”). No material subsequent events have occurred since December 31, 2010 that required recognition or disclosure in these financial statements.
Certain segment disclosuresamounts from prior yearsperiods have been reclassified to conform to the current yearperiod presentation.
Foreign Currency Translation
Assets and liabilities of non-U.S. subsidiaries that operate in local currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive income, net of tax in accumulated other comprehensive income within the shareholders’ equity section of the consolidated balance sheets.Consolidated Balance Sheets. Income and expense accounts are translated at average exchange rates during the year.
Cash and Cash Equivalents
Cash and cash equivalents include all cash and highly liquid investments with insignificant interest rate risk and maturities of three months or less at the date of purchase. The carrying amount of cash and cash equivalents approximates fair value because of the short maturity of those instruments.
Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and therefore bear minimal credit risk.
The Company is also exposed to credit risk in the Company’s trade receivables, which are derived from sales to end user customers in diversified industries as well as various resellers. The Company performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed necessary but generally does not require collateral.
With the selection of Flextronics Corporation International (formerly Solectron Corporation) in August 1999 as an exclusive manufacturing partner for many of its GPS products, the Company became dependent upon a sole supplier for the manufacture of many of its products. In addition, the Company relies on sole suppliers for a number of its critical components.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.
The Company evaluates the ongoing collectibility of its trade accounts receivable based on a number of factors such as age of the accounts receivable balances, credit quality, historical experience, and current economic conditions that may affect a customer’s ability to pay. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations to the Company, a specific allowance for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount that the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.
Inventories
Inventories are stated at the lower of standard cost (which approximates actual cost on a first-in, first-out basis) or market. Adjustments to reduce the cost of inventory to its net realizable value, if required, are made for estimated excess, obsolescence or impaired balances. Factors influencing these adjustments include declines in demand, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration and quality issues. If actual factors are less favorable than those projected by us, additional inventory write-downs may be required.
Goodwill and Purchased Intangible Assets
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. IntangibleFor acquisitions completed, beginning in fiscal 2009, identifiable intangible assets resulting from the acquisitions of entities accounted for using the purchase method of accounting are estimated by managementnow include in-process research and development based on the revised accounting guidance on business combinations. Intangible assets acquired individually, with a group of other assets, or in a business combination are recorded at fair value of assets received.value. Identifiable intangible assets are comprised of distribution channels and distribution rights, patents, licenses, technology, acquired backlog, trademarks and trademarks.in-process research and development. Identifiable intangible assets are being amortized over the period of estimated benefit using the straight-line method, reflecting the pattern of economic benefits associated with these assets, and have estimated useful lives ranging from one to ten years with a weighted average useful life of 6.26.4 years. Goodwill is not subject to amortization, but is subject to at least an annual assessment for impairment, applying a fair-value based test.
The Company evaluates goodwill, at a minimum, on an annual basis and whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. The Company performs its annual goodwill impairment testing in the fourth fiscal quarter of each year. Goodwill is reviewed for impairment utilizing a two-step process. First, impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a discounted cash flow approach. If the carrying amount of the reporting unit exceeds its fair value, a second step is performed to measure the amount of impairment loss, if any. In step two, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.
2010, for each reporting unit, the Company’s estimated fair values exceeded the carry values by substantial margins.
Depreciation and amortization of the Company’s intangible assets and other long-lived assets is provided using the straight-line method over their estimated useful lives, reflecting the pattern of economic benefits associated with these assets. Changes in circumstances such as technological advances, changes to the Company’s business model, or changes in the capital strategy could result in the actual useful lives differing from initial estimates. In those cases where the Company determines that the useful life of an asset should be revised, the Company will depreciate the net book value in excess of the estimated residual value over its revised remaining useful life. These assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash flows. The assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value.
Revenue Recognition
The Company elected to early adopt new revenue accounting guidance related to arrangements with multiple deliverables at the beginning of its first quarter of fiscal 2010 on a prospective basis for applicable transactions originating or materially modified after January 1, 2010.
The Company recognizes product revenue when persuasive evidence of an arrangement exists, shipment has occurred, the fee is fixed or determinable, and collectibility is reasonably assured. In instances where final acceptance of the product is specified by the customer or is uncertain, revenue is deferred until all acceptance criteria have been met.
Contracts and/or customer purchase orders are used to determine the existence of an arrangement. Shipping documents and customer acceptance, when applicable, are used to verify delivery. The Company assesses whether the fee is fixed or determinable based on the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. The Company assesses collectibility based primarily on the creditworthiness of the customer as determined by credit checks and analyses, as well as the customer’s payment history.
Revenue for orders is generally not recognized until the product is shipped and title has transferred to the buyer. The Company bears all costs and risks of loss or damage to the goods up to that point. The Company’s shipment terms for U.S. orders and international orders fulfilled from the Company’s European distribution center typically provide that title passes to the buyer upon delivery of the goods to the carrier named by the buyer at the named place or point. If no precise point is indicated by the buyer, the Company may choose within the place or range stipulated where the carrier will take the goods into carrier’s charge. Other shipment terms may provide that title passes to the buyer upon delivery of the goods to the buyer. Shipping and handling costs are included in the costCost of goods sold.
Revenue to distributors and resellers is recognized upon shipment, assuming all other criteria for revenue recognition have been met. Distributors and resellers do not typically have a right of return.
Revenue from purchased extended warranty and post contract support (PCS) agreements is deferred and recognized ratably over the term of the warranty/warranty or support period.
The Company presents revenue net of sales taxes and any similar assessments.
The Company’s software arrangements generally consist of a perpetual license fee and PCS. The Company generally has established vendor-specific objective evidence (VSOE) of fair value for the Company’s PCS contracts based on the renewal rate. The remaining value of the software arrangement is allocated to the license fee using the residual method. License revenue is primarily recognized when the software has been delivered and therefair value has been established for all remaining undelivered elements.
The Company’s multiple deliverable product offerings include hardware with embedded firmware, extended warranty and PCS services, which are no remaining obligations. Revenue from PCS is recognized ratably over the termconsidered separate units of accounting. For certain of the PCS agreement.
Some of AICPA Statement of Position 97-2 to Arrangements That Include the Right to Use Software Stored on Another Entity’s Hardware” forCompany’s subscription product offerings include hardware, subscription services and extended warranty. Under the Company’s hosted arrangements, which the customer typically does not have the contractual right to take possession of the software at any time during the hosting period without incurring a significant penalty and it is not feasible for the customer to run the software either on its own hardware or on a third-party’s hardware. Subscription revenueUpfront fees related to the Company’s hosted arrangements is recognized ratably over the contract period. Upfront fees for the Company’s hosted solution primarilysolutions typically consist of amounts for the in-vehicle enabling hardware device and peripherals,peripherals.
In evaluating the revenue recognition for agreements which contain multiple deliverable arrangements, under the new accounting guidance, the Company determined that in certain instances the Company was not able to establish VSOE for some or all deliverables in an arrangement as the Company infrequently sold each element on a standalone basis, did not price products within a narrow range, or had a limited sales history. When VSOE cannot be established, the Company attempts to establish the selling price of each element based on relevant third-party evidence (TPE). TPE is determined based on competitor prices for similar deliverables when sold separately. Generally, the Company’s go-to-market strategy differs from that of competitors, and offerings may contain a significant level of proprietary technology, customization or differentiation such that the comparable pricing of products with similar functionality cannot be obtained. Furthermore, the Company is unable to reliably determine what similar competitor products’ selling prices are on a stand-alone basis. Therefore, the Company typically is not able to establish the selling price of an element based on TPE.
When the Company is unable to establish selling price using VSOE or TPE, the Company uses its best estimate of selling price (BESP) in the Company’s allocation of arrangement consideration. The objective of BESP is to determine the price at which the Company would transact a sale if any. For upfront fees relatingthe product or service were sold on a stand-alone basis. BESP is generally used for offerings that are not typically sold on a stand-alone basis or for new or highly customized offerings. The Company determines BESP for a product or service by considering multiple factors including, but not limited to, propriety hardware wherepricing practices, market conditions, competitive landscape, internal costs, geographies and gross margin. The determination of BESP is made through consultation with and formal approval by the firmware is more than incidentalCompany’s management, taking into consideration the Company’s go-to-market strategy.
Total revenue as reported and pro forma total revenues that would have been reported for the fiscal year ended December 31, 2010, if the transactions entered into after January 1, 2010 were subject to previous accounting guidance, are shown in the following table:
| (Dollars in thousands) | As Reported | Pro Forma | ||||||
Total revenue for the fiscal year ended December 31, 2010 | $ | 1,293,937 | $ | 1,285,866 | ||||
The impact of the revised accounting guidance to total revenue during the fiscal year ended December 31, 2010 was attributable to the functionalityreallocation of discounts to revenue deliverables, the recognition of hardware in accordancerevenue associated with SOP No. 97-2, the Company defers the upfront fees at installation and recognizes themsubscription contracts, which was previously recognized ratably over the minimum service contract period, generally oneand the ability to five years. Product costs are also deferred and amortized over such period.
Warranty
The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on the Company’s behalf. The Company’s expected future cost is primarily estimated based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. The products sold are generally covered by a warranty for periods ranging from 90 days to three years, and in some instances up to 5.5 years.
While the Company engages in extensive product quality programs and processes, including actively monitoring and evaluating the quality of component suppliers, its warranty obligation is affected by product failure rates, material usage, and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage, or service delivery costs differ from the estimates, revisions to the estimated warranty accrual and related costs may be required.
Changes in the Company’s product warranty liability during the 12 monthsfiscal years ended December 28, 200731, 2010 and December 29, 2006,January 1, 2010, are as follows:
| December 28, | December 29, | |||||||
| Fiscal Years Ended | 2007 | 2006 | ||||||
| (In thousands) | ||||||||
| Beginning balance | $ | 8,607 | $ | 7,466 | ||||
| Accruals for warranties issued | 15,950 | 7,549 | ||||||
| Changes in estimates | -- | -- | ||||||
| Warranty settlements (in cash or in kind) | (13,751 | ) | (6,408 | ) | ||||
| Ending Balance | $ | 10,806 | $ | 8,607 | ||||
Fiscal Years Ended Beginning balance Accruals for warranties issued Changes in estimates Warranty settlements (in cash or in kind) Ending Balance December 31,
2010 January 1,
2010 (in thousands) $ 14,744 $ 13,332 16,303 20,530 (2,401 ) 3,292 (15,778 ) (22,410 ) $ 12,868 $ 14,744 ��
Guarantees, Including Indirect Guarantees of Indebtedness of Others
In the normal course of business to facilitate sales of its products, the Company indemnifies other parties, including customers, lessors, and parties to other transactions with the Company, with respect to certain matters. The Company has agreed to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents.
It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements were not material and no liabilities have been recorded for these obligations on the Consolidated Balance Sheets as of December 28, 200731, 2010 and December 29, 2006.
Advertising Costs
The Company expenses all advertising costs as incurred. Advertising expenses wereexpense was approximately $21.2$21.3 million, $16.1$20.4 million, and $14.8$22.6 million, in fiscal 2007, 2006,2010, 2009 and 2005,2008, respectively.
Research and Development Costs
Research and development costs are charged to expense as incurred. Cost of software developed for external sale subsequent to reaching technical feasibility were not considered materialsignificant and were expensed as incurred. The Company received third party funding of approximately $8.5$11.7 million, $7.8$12.5 million, and $9.0$9.2 million in fiscal 2007, 2006,2010, 2009 and 2005,2008, respectively. The Company offsets research and development expensesexpense with any third party funding received. The Company retains the rights to any technology developed under such arrangements.
Stock-Based Compensation
The following table summarizes stock-based compensation expense, net of tax, related to employee stock-based compensation included in the Consolidated Statements of Income in accordance with SFAS 123(R) for the year ended December 28, 2007.
| Year Ended | December 28, | December 29, | December 30, | |||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (in thousands) | ||||||||||||
| Cost of sales | $ | 1,733 | $ | 1,173 | $ | - | ||||||
| Research & development | 3,573 | 2,554 | - | |||||||||
| Sales & marketing | 3,891 | 2,815 | - | |||||||||
| General & administrative | 5,819 | 6,029 | - | |||||||||
| Stock-based compensation expense included in operating expenses | 13,283 | 11,398 | - | |||||||||
| Total stock-based compensation | 15,016 | 12,571 | - | |||||||||
Tax benefit (1) | (1,446 | ) | (1,185 | ) | - | |||||||
| Total stock-based compensation, net of tax | $ | 13,570 | $ | 11,386 | $ | - | ||||||
| Effect of FAS 123(R) on basic earnings per share | $ | 0.11 | $ | 0.10 | $ | - | ||||||
| Effect of FAS 123(R) on diluted earnings per share | $ | 0.11 | $ | 0.10 | $ | - | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (in thousands) | ||||||||||||
Cost of sales | $ | 1,816 | $ | 1,854 | $ | 1,920 | ||||||
Research and development | 3,991 | 3,476 | 3,489 | |||||||||
Sales and marketing | 5,611 | 4,446 | 3,993 | |||||||||
General and administrative | 11,707 | 8,883 | 6,764 | |||||||||
Total operating expenses | 21,309 | 16,805 | 14,246 | |||||||||
Total stock-based compensation expense | 23,125 | 18,659 | 16,166 | |||||||||
Tax benefit (1) | (4,959 | ) | (3,376 | ) | (2,636 | ) | ||||||
Total stock-based compensation expense, net of tax | $ | 18,166 | $ | 15,283 | $ | 13,530 | ||||||
| (1) | Tax benefit related to U.S. incentive and non-qualified stock options, employee stock purchase plan (ESPP) and restricted stock units, applying a Federal statutory and State (Federal effected) tax rate for the year ended December 31, 2010, January 1, 2010 and January 2, 2009. |
(1) Tax benefit related to U.S. non-qualified options and restricted stock units, applying a Federal statutory and State (Federal effected) tax rate for the year ended December 28, 2007 and December 29, 2006.Options
| Fiscal Years Ended | December 30, | |||
| 2005 | ||||
| (in thousands, except per share amounts) | ||||
| Net income – as reported | $ | 84,855 | ||
Stock-based compensation expense, net of tax (1) | 11,149 | |||
| Net income – pro-forma | $ | 73,706 | ||
| Basic earnings per share – as reported | $ | 0.80 | ||
| Basic earnings per share – pro-forma | $ | 0.69 | ||
| Diluted earnings per share – as reported | $ | 0.75 | ||
| Diluted earnings per share – pro-forma | $ | 0.65 | ||
Stock option expense recognized duringin the periodConsolidated 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. Stockperiod and is net of estimated forfeitures. For fiscal 2010, 2009 and 2008 stock option expense recognized in the Company’s Consolidated Statement of Income for the year ended December 28, 2007 included compensationincludes expense for stock options granted prior to, but not yet vested as of December 29, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123 and compensation expense30, 2005, as well as for the stock options granted subsequent to December 29,beginning in fiscal 2006. In fiscal 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). In conjunction with the adoption of SFAS 123(R),the FASB’s revised accounting guidance on stock compensation, the Company changed its method of attributing the value of stock optionoptions to expense from the accelerated multiple-option approach to the straight-line single option method. Compensation expense for all stock options granted on or prior to December 29, 2006 will continue to be30, 2005 was recognized using the accelerated multiple-option approach while compensation expense for all stock options granted subsequent to December 29, 2006 will be30, 2005 is recognized using the straight-line single-option method. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the Company’s pro-forma information required under SFAS 123 for the periods prior to fiscal 2006, the Company accounted for forfeitures as they occurred.
For options granted prior to October 1, 2005, the fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model. For stock options granted on or after October 1, 2005, the fair value of each award is estimated on the date of grant using a binomial valuation model. Similar to the Black-Scholes 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.
Under the binomial and Black-Scholes models,model, the weighted average grant-date fair value of stock options granted during fiscal years 2007, 20062010, 2009 and 2005 were $12.37, $8.042008 was $11.85, $7.92 and $7.27,$8.80, respectively. The value of each option grant is estimated on the date of grant using the binomial model forFor options granted during and afterfor the fourth quarter of fiscal 2005, and the Black-Scholes option pricing model for options granted during and prior to the third quarter of fiscal 2005, withthree years ending December 31, 2010, the following assumptions:
| December 28, 2007 | December 29, 2006 | December 30, 2005 | ||||||||||
| Expected dividend yield | - | - | - | |||||||||
| Expected stock price volatility | 37 | % | 42 | % | 47 | % | ||||||
| Risk free interest rate | 4.2 | % | 4.8 | % | 4.3 | % | ||||||
| Expected life of options after vesting | 1.3 years | 1.3 years | 1.7 years | |||||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||
Expected dividend yield | — | — | — | |||
Expected stock price volatility | 43% | 45% | 45% | |||
Risk free interest rate | 1.39% | 2.01% | 2.50% | |||
Expected life of options after vesting | 1.3 years | 1.3 years | 1.3 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. The Company used implied and historical volatility as the combination was more representative of future stock price trends than historical volatility alone.
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 term of the option.
Expected Life Of Option – The Company’s expected term represents the period that the Company’s stock options are expected to be outstanding and was 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.
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 was determined using the fair value of Trimble’s common stock on the date of grant, and thatthe expense is recognized on a straight-line basis over the vesting period. Restricted stock units typically vest at the end of three years.
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 was estimated at the date of grant using the Black-Scholes option-pricing model. The estimated weighted average value of rights granted under the Employee Stock Purchase Plan during fiscal years 2007, 20062010, 2009 and 20052008 were $7.54, $5.16$6.94, $5.28 and $4.94,$8.30, respectively. The fair value of rights granted during 2007, 2006,2010, 2009 and 20052008 was estimated at the date of grant using the following weighted-average assumptions:
| Fiscal years ended | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||
| Expected dividend yield | - | - | - | |||||||||
| Expected stock price volatility | 36.5 | % | 35.5 | % | 47 | % | ||||||
| Risk free interest rate | 4.9 | % | 4.8 | % | 3.5 | % | ||||||
| Expected life of purchase | 0.5 years | 0.6years | 0.5 years | |||||||||
Fiscal Years Ended Expected dividend yield Expected stock price volatility Risk free interest rate Expected life of purchase December 31,
2010 January 1,
2010 January 2,
2009 — — — 35.5% 53.1% 44.0% 0.20% 0.90% 2.70% 0.5 years 0.5 years 0.5 years
Expected Stock Price Volatility – The Company’s computation of expected volatility is based on implied volatilities from traded options on the Company’s stock. The Company used implied volatility because it is representative of future stock price trends during the purchase period.
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 term of the purchase period.
Expected Life Of Purchase – The Company’s expected life of the purchase is based on the term of the offering period of the purchase plan.
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation of property and equipment owned is computed using the straight-line method over the shorter of the estimated useful lives or the lease terms.terms when applicable. Useful lives include a range from two to six years for machinery and equipment, five years for furniture and fixtures, two to five years for computer equipment and software, 40 years for buildings, and the life of the lease for leasehold improvements. The Company capitalizes eligible costs to acquire or develop internal-use software that are incurred subsequent to the preliminary project stage. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated useful lives of the assets, which range from three to five years. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Depreciation expense was $17.2$18.2 million in fiscal 2007, $13.52010, $18.8 million in fiscal 20062009 and $10.7$19.0 million in fiscal 2005.
Derivative Financial Instruments
The Company enters into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on cash, certain trade and inter-company receivables and payables, primarily denominated in Australian, Canadian Japanese,and New Zealand Dollars, Japanese Yen, South African andRand, Swedish currencies, theKrona, Euro, and the British pound. These contracts reduce the exposure to fluctuations in exchange rate movements as the gains and losses associated with foreign currency balances are generally offset with the gains and losses on the forward contracts. These instruments are marked to market through earnings every period and generally range from one to three months in original maturity. We do not enter into foreign exchange forward contracts for trading purposes.
Income Taxes
Income taxes are accounted for under the liability method whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not such assets will not be realized.
Relative to uncertain tax positions, the Company only recognizes the tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company adoptedtax benefits recognized in the provisionsfinancial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of FASB Interpretation No. 48, “Accounting for Uncertaintybeing realized upon ultimate settlement. The Company’s practice is to recognize interest and/or penalties related to income tax matters in Income Taxes” (FIN 48), on December 30, 2006.income tax expense. See Note 12 to the Consolidated Financial Statements for additional information.
The Company’s valuation allowance is primarily attributable to acquired net operating losses and research and development credit carryforwards. Management believes that it is more likely than not that we will not realize these deferred tax assets, and, accordingly, a valuation allowance has been provided for such amounts. Beginning in 2009, the Company adopted the revised accounting guidance for business combinations, under
which such valuation allowance adjustments associated with an acquisition closing after January 3, 2009 (and after the measurement period) are recorded through income tax expense. Prior to January 3, 2009, these adjustments were required to be recognized by adjusting the purchase price related to the acquisition.
Computation of Earnings Per Share
The number of shares used in the calculation of basic earnings per share represents the weighted average common shares outstanding during the period and excludes any dilutive effects of options, non-vested restricted stock units and restricted stock awards, warrants, and convertible securities. The dilutive effects of options, non-vested restricted stock units and restricted stock awards, warrants, and convertible securities are included in diluted earnings per share.
Recent Accounting Pronouncements
In September 2006,January 2010, the FASB issued SFAS No. 158, "Employers'guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This guidance, which is now codified under the Fair Value Measurements and Disclosures Topic of the FASB Accounting Standards Codification, requires new disclosures on the transfers of assets and liabilities between Level I (quoted prices in active market for Defined Benefit Pensionidentical assets or liabilities) and Other Postretirement Plans, an amendmentLevel II (significant other observable inputs) of FASB Statements No. 87, 88, 106,the fair value measurement hierarchy, including the reasons and 132(R)." SFAS 158the timing of the transfers. Additionally, the guidance requires companies to recognizea roll forward of activities on purchases, sales, issuances, and settlements of the over-funded or under-funded status of a defined benefit post-retirement plan as an asset or liability in its balance sheet, recognize as a component of accumulated other comprehensive income, net of tax, amounts accumulatedassets and liabilities measured using significant unobservable inputs (Level III fair value measurements). The guidance became effective for the Company with the reporting period beginning January 2, 2010, except for the disclosure on the roll forward activities for Level III fair value measurements, which will become effective for the Company at the datebeginning of adoption due to delayed recognition of actuarial gains and losses, prior service costs and credits, and transition assets and obligations, and providefiscal 2011. Other than requiring additional disclosures, effective for fiscal years ending after December 15, 2006. On December 29, 2006, the Company adopted the recognition and disclosure provisionsadoption of SFAS 158. The effect of adopting these provisions of SFAS 158 on the Company’s financial condition at December 29, 2006 and December 28, 2007 has been included in the accompanying consolidated financial statements. These provisions of SFAS 158this new guidance did not have an effecta material impact on the Company’s consolidated financial condition at December 30, 2005. See Note 15 to the Notes to Consolidated Financial Statements for additional information.
In September 2006,June 2009, the FASB issued SFAS 157, “Fair Value Measurements.” SFAS 157 establishesaccounting guidance which changes the consolidation guidance applicable to a framework for measuringvariable interest entity (VIE). The guidance, now codified under the fair valueConsolidation Topic of assetsthe FASB Accounting Standards Codification, also amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and liabilities.is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis includes, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity’s economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This frameworkguidance also requires continuous reassessments of whether an enterprise is intended to provide increased consistencythe primary beneficiary of a VIE. Previously, GAAP required reconsideration of whether an enterprise was the primary beneficiary of a VIE only when specific events had occurred. The Company adopted this guidance in how fair value determinations are made under various existing accounting standards which permit, or in some cases require, estimates of fair market value. SFAS 157 is effective for the Company beginning in its first quarter of fiscal 2008, although earlier adoption is encouraged.2010. The Company does not expect the adoption of SFAS 157 tothe guidance did not have a material impact on itsthe Company’s financial position, results of operations or cash flows.
In February 2007,October 2009, the FASB issued SFAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment which eliminates the residual method of FASB Statement No. 115.” SFAS 159 allowsallocation for multiple-deliverable revenue arrangements and requires that arrangement consideration be allocated at the inception of an entityarrangement to all deliverables using the irrevocable option to elect fair value forrelative selling price method. In addition, the initialguidance updated whether multiple deliverables exist and subsequent measurement for certain financial assets and liabilities underhow the deliverables in an instrument-by-instrument election. Subsequent measurements for the financial assets and liabilities an entity elects to fair value willarrangement should be recognized in earnings. SFAS 159separated. The amendment also establishes additional disclosure requirements. Ifa selling price hierarchy for determining the Company electedselling price of a deliverable, which includes: (1) vendor specific objective evidence (VSOE) if available; (2) third-party evidence (TPE) if VSOE evidence is not available; and (3) estimated selling (ESP) price if neither VSOE nor TPE is available. In addition, the FASB modified the accounting for revenue arrangements that include both tangible products and software elements, such that tangible products containing both software and non-software components that function together to adopt SFAS 159, it would bedeliver the tangible product’s essential functionality are no longer within the scope of software revenue guidance. Both amendments are effective for therevenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company beginningearly adopted this guidance in itsthe first quarter of fiscal 2008, with early adoption permitted provided that the Company also adopted SFAS 157. The Company does not expect the adoption of SFAS 159 to have2010 on a material impact on its financial position, results of operations or cash flows.
NOTE 3: EARNINGS PER SHARE
The following data showshows the amounts used in computing earnings per share and the effect on the weighted-average number of shares of potentially dilutive common stock.
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (In thousands, except per share data) | ||||||||||||
| Numerator: | ||||||||||||
| Income available to common shareholders: | ||||||||||||
| Used in basic and diluted earnings per share | $ | 117,374 | $ | 103,658 | $ | 84,855 | ||||||
| Denominator: | ||||||||||||
| Weighted average number of common shares used in basic earnings per share | 119,280 | 110,044 | 106,432 | |||||||||
| Effect of dilutive securities (using treasury stock method): | ||||||||||||
| Common stock options and restricted stock units | 4,907 | 5,134 | 5,900 | |||||||||
| Common stock warrants | 223 | 894 | 1,306 | |||||||||
| Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share | 124,410 | 116,072 | 113,638 | |||||||||
| Basic earnings per share | $ | 0.98 | $ | 0.94 | $ | 0.80 | ||||||
| Diluted earnings per share | $ | 0.94 | $ | 0.89 | $ | 0.75 | ||||||
NOTE 4: BUSINESS COMBINATIONS
| Cash consideration | $ | 327,370 | ||
| Common stock consideration | 161,947 | |||
| Merger costs * | 5,712 | |||
| Total Purchase price | $ | 495,029 |
| Value to be allocated to assets, based upon merger consideration | $ | 495,029 | ||
| Less: value of @Road’s assets acquired: | ||||
| Net tangible assets acquired | 137,665 | |||
| Amortizable intangibles assets: | ||||
| Developed product technology | 66,600 | |||
| Customer relationships | 75,300 | |||
| Trademarks and trade names | 5,200 | |||
| Subtotal | 147,100 | |||
| In-process research and development | 2,100 | |||
| Deferred tax liability | (56,854 | ) | ||
| Goodwill | $ | 265,018 |
| As of | ||||
| February 16, | ||||
| (in thousands) | 2007 | |||
| Cash and cash equivalents | $ | 74,729 | ||
| Accounts receivable, net | 14,255 | |||
| Other receivables | 8,774 | |||
| Inventory | 15,272 | |||
| Other current assets | 11,725 | |||
| Property and equipment, net | 5,854 | |||
| Deferred tax asset | 42,471 | |||
| Other non-current assets | 7,935 | |||
| Total assets acquired | $ | 181,015 | ||
| Accounts payable | 19,285 | |||
| Deferred revenue | 7,365 | |||
| Other accrued liabilities | 16,700 | |||
| Total liabilities assumed | $ | 43,350 | ||
| Total net assets acquired | $ | 137,665 | ||
| Fiscal Year Ended | ||||||||
| December 28, | December 29, | |||||||
| 2007 (a) | 2006 (b) | |||||||
| (in thousands, except per share data) | ||||||||
| Pro-forma revenue | $ | 1,239,319 | $ | 1,017,852 | ||||
| Pro-forma net income | 114,835 | 69,959 | ||||||
| Pro-forma basic net income per share | $ | 0.96 | $ | 0.60 | ||||
| Pro-forma diluted net income per share | $ | 0.92 | $ | 0.57 | ||||
The following is a summary of other acquisitionsbusiness combinations made by the Company during fiscal 2007, 20062010, 2009 and 2005 all of which were accounted for as purchases:
Acquisition | Primary Service or Product | Operating Segment | Acquisition Date | |||
| TMT | Mobile Solutions | December 14, 2010 | ||||
| ThingMagic, Inc. | Radio frequency identification (RFID) technology and offers advanced development services | Advanced Devices | October 22, 2010 | |||
| Novariant | A scalable infrastructure generates signals for | Engineering & Construction | ||||
| Mobile Solutions | September 10, 2010 | |||||
| Accubid Systems | Estimating, project management and service management software and services for electrical and mechanical contractors | Engineering & Construction | August 12, 2010 | |||
| Punch Telematix NV | Development and marketing of transport management solutions | Mobile Solutions | July 7, 2010 | |||
| Definiens | Image analysis solutions | Engineering & Construction | June 10, 2010 | |||
| LET Systems | Incident and outage management system solutions for utilities | Field Solutions | ||||
| Field Solutions | ||||||
| Field Solutions | July 16, 2009 | |||||
| Accutest | Vehicle diagnostics and telematics technologies for the automotive industry | Mobile Solutions | June 5, 2009 | |||
| NTech | Crop-sensing technology controlling the application of nitrogen, herbicide and other crop inputs | Field Solutions | June 4, 2009 | |||
| Quickpen | Building Information Modeling software | Engineering & Construction | ||||
| Field Solutions | December 3, 2008 | |||||
| FastMap and GeoSite | Field-based software suite for GIS and software solution for land surveyors and construction professionals | Field Solutions and Engineering & Construction | November 28, 2008 | |||
| Callidus Precision Systems Assets | 3D | Engineering & Construction | November 28, 2008 | |||
| Toposys | Aerial data collection systems comprised of LiDAR and metric cameras | Engineering & Construction | November 13, 2008 | |||
| TruCount | Air and electric clutches that automate individual planter row shut-off | Field Solutions | October 30, 2008 | |||
| RolleiMetric | Metric camera systems for aerial imaging and terrestrial close range photogrammetry | Engineering & Construction | October | |||
| Engineering & Construction | ||||||
| Engineering & Construction | January | |||||
| Crain Enterprises | Accessories for the geomatics, surveying, mapping, and construction industries | Engineering & Construction | January 8, 2008 | |||
The Consolidated Financial Statements include the operating results of each of these businesses from the date of acquisition. Pro-forma results of operations have not been presented because the effects of each of these acquisitions were not material individually or in the aggregate to the Company’s results.
The total purchase consideration for each of the above acquisitions was allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. The fair value of intangible assets acquired is generally determined based on a discounted cash flow analysis performed by third-party experts.analysis. Acquisition costs directly related to the acquisitions were capitalized.
During fiscal 2009 the projects associated withCompany adopted the revised accounting guidance on business combinations, which requires in-process research and development (IPR&D) efforts had not yet reached technological feasibility andacquired to be capitalized as an intangible asset until the research and development in process had no alternative future uses. Accordingly,project is complete, at which point the value assignedasset is amortized over its estimated useful life. Prior to thesefiscal 2009, IPR&D amountswas expensed. There were charged to expense on the respective acquisition date of each of the acquired companies. The Company recorded IPR&D expense of $1.9$1.1 million and $1.1$0.5 million relating to acquisitions madeIPR&D capitalized in fiscal 20062010 and 2005,2009, respectively. The IPR&D of $2.1 million recorded during fiscal 2007 related entirely to the acquisition of @Road.
The following table summarizes the Company’s business combinations completed during fiscal years 2007, 20062010, 2009 and 2005 other than @Road2008 (in thousands):
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| Purchase price | $ | 49,311 | $ | 114,442 | $ | 63,830 | ||||||
| Acquisition costs | 956 | 2,650 | 466 | |||||||||
| Total purchase price | $ | 50,267 | $ | 117,092 | $ | 64,296 | ||||||
| Purchase price allocation: | ||||||||||||
| Fair value of net assets acquired | $ | 9,504 | $ | 7,960 | $ | 9,797 | ||||||
| Identified intangible assets | 19,937 | 51,613 | 21,171 | |||||||||
| In-Process Research & Development | -- | 1,930 | 1,100 | |||||||||
| Deferred tax liability | (2,763 | ) | (14,723 | ) | (8,560 | ) | ||||||
| Goodwill | 23,589 | 70,312 | 40,788 | |||||||||
| Total | $ | 50,267 | $ | 117,092 | $ | 64,296 | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
Purchase price | $ | 133,415 | $ | 41,639 | $ | 99,948 | ||||||
Acquisition costs* | — | — | 2,623 | |||||||||
Total purchase price | $ | 133,415 | $ | 41,639 | $ | 102,571 | ||||||
Purchase price allocation: | ||||||||||||
Fair value of net assets acquired | $ | 26,385 | $ | 1,187 | $ | 7,238 | ||||||
Identified intangible assets | 57,802 | 21,475 | 50,242 | |||||||||
Deferred taxes | (7,877 | ) | (7,766 | ) | (3,426 | ) | ||||||
Goodwill | 65,741 | 26,743 | 48,517 | |||||||||
Noncontrolling interests | (7,804 | ) | — | — | ||||||||
Bargain purchase | (832 | ) | — | — | ||||||||
Total | $ | 133,415 | $ | 41,639 | $ | 102,571 | ||||||
| * | Acquisition costs consist of legal, advisory, and accounting fees as well as $0.4 million of restructuring related liabilities in fiscal 2008. Such costs were expensed during fiscal 2010 and 2009 in accordance with the revised accounting guidance on business combinations. |
All of the above business combinations were acquired with cash consideration. None of the amounts assigned to goodwill above are expected to be deductible for tax purposes.
Certain acquisitions include additional earn-out cash payments based on future revenue or gross margin derived from existing products. Theseproducts and other product milestones. In accordance with the revised accounting guidance on business combinations, any earn-outs associated with business combinations completed after January 2, 2009 are included in the initial purchase price at fair value and must be remeasured to fair value at each balance sheet date with subsequent changes recorded to earnings. Prior to 2009, these earn-out payments arewere considered additional purchase price consideration. Earn-out cash payments madeconsideration when, and if, any contingencies, such as the achievement of certain earnings targets, were resolved. Earn-outs paid for fiscal 2007, fiscal 2006 and fiscal 2005 were $11.8 million, $4.5 million and $1.6 million respectively. Earn-outspre-2009 acquisitions and changes in purchase price allocation estimates were recorded as purchase price adjustments and goodwill adjustments. Earn-out cash payments made for these pre-2009 acquisitions were $0.4 million, $8.5 million and $7.2 million in fiscal 2010, fiscal 2009 and fiscal 2008, respectively. Acquisitions made by the Company have additional potential earn-out cash payments in excess of that recorded on the Company’s Consolidated Balance Sheet not to exceed approximately $53.6of $25.8 million.
Intangible Assets
The following tables present details of the Company’s total intangible assets:
| December 28, 2007 | ||||||||||||
| Gross | ||||||||||||
| Carrying | Accumulated | Net Carrying | ||||||||||
| (in thousands) | Amount | Amortization | Amount | |||||||||
| Developed product technology | $ | 157,394 | $ | (58,273 | ) | $ | 99,121 | |||||
| Trade names and trademarks | 19,192 | (12,490 | ) | 6,702 | ||||||||
| Customer relationships and other intellectual properties | 124,281 | (32,327 | ) | 91,954 | ||||||||
| $ | 300,867 | $ | (103,090 | ) | $ | 197,777 | ||||||
| December 29, 2006 | ||||||||||||
| Gross | ||||||||||||
| Carrying | Accumulated | Net Carrying | ||||||||||
| (in thousands) | Amount | Amortization | Amount | |||||||||
| Developed product technology | $ | 92,430 | $ | (38,604 | ) | $ | 53,826 | |||||
| Trade names and trademarks | 11,845 | (10,687 | ) | 1,158 | ||||||||
| Customer relationships and other intellectual properties | 25,845 | (13,657 | ) | 12,188 | ||||||||
| $ | 130,120 | $ | (62,948 | ) | $ | 67,172 | ||||||
Developed product technology Trade names and trademarks Customer relationships Distribution rights and other intellectual properties December 31, 2010 (in thousands) Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount $ 247,575 $ (148,171 ) $ 99,404 22,136 (16,449 ) 5,687 143,125 (68,104 ) 75,021 50,207 (25,371 ) 24,836 $ 463,043 $ (258,095 ) $ 204,948
| January 1, 2010 | ||||||||||||
| (in thousands) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||
Developed product technology | $ | 213,696 | $ | (114,870 | ) | $ | 98,826 | |||||
Trade names and trademarks | 20,861 | (14,891 | ) | 5,970 | ||||||||
Customer relationships | 120,990 | (48,885 | ) | 72,105 | ||||||||
Distribution rights and other intellectual properties | 46,702 | (20,821 | ) | 25,881 | ||||||||
| $ | 402,249 | $ | (199,467 | ) | $ | 202,782 | ||||||
The weighted-average amortization period is six years for developed product technology, eight years for trade names and trademarks, and seven years for customer relationships, and seven years for distribution rights and other intellectual properties.
The following table presents details of the amortization expense of purchased and other intangible assets as reported in the Consolidated Statements of Income:
| Fiscal Years Ended | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||
| (In thousands) | ||||||||||||
| Reported as: | ||||||||||||
| Cost of sales | $ | 19,778 | $ | 5,353 | $ | 165 | ||||||
| Operating expenses | 18,966 | 7,906 | 6,855 | |||||||||
| Total | $ | 38,744 | $ | 13,259 | $ | 7,020 | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (in thousands) | ||||||||||||
Reported as: | ||||||||||||
Cost of sales | $ | 24,900 | $ | 22,337 | �� | $ | 22,690 | |||||
Operating expenses | 32,739 | 30,335 | 22,376 | |||||||||
Total | $ | 57,639 | $ | 52,672 | $ | 45,066 | ||||||
The estimated future amortization expense of intangible assets as of December 28, 2007,31, 2010, is as follows (in thousands):
| Amortization Expense | ||||
| 2008 | $ | 42,071 | ||
| 2009 | 38,489 | |||
| 2010 | 36,242 | |||
| 2011 | 31,380 | |||
| 2012 | 23,067 | |||
| Thereafter | 26,528 | |||
| Total | $ | 197,777 | ||
2011 | $ | 58,803 | ||
2012 | 50,999 | |||
2013 | 45,451 | |||
2014 | 23,509 | |||
2015 | 14,537 | |||
Thereafter | 11,649 | |||
Total | $ | 204,948 | ||
Goodwill
The changes in the carrying amount of goodwill for fiscal 20072010 are as follows (in thousands):
Engineering and Construction | Field Solutions | Mobile Solutions | Advanced Devices | Total | ||||||||||||||||
| Balance as of December 29, 2006 | $ | 296,597 | $ | 1,517 | $ | 63,430 | $ | 12,966 | $ | 374,510 | ||||||||||
| Additions due to acquisitions | 19,921 | 3,668 | 265,018 | -- | 288,607 | |||||||||||||||
| Purchase price adjustments | (5,630 | ) | 39 | 7,784 | -- | 2,193 | ||||||||||||||
| Foreign currency translation adjustments | 6,998 | -- | 1,429 | 2,113 | 10,540 | |||||||||||||||
| Balance as of December 28, 2007 | $ | 317,886 | $ | 5,224 | $ | 337,661 | $ | 15,079 | $ | 675,850 | ||||||||||
| Engineering and Construction | Field Solutions | Mobile Solutions | Advanced Devices | Total | ||||||||||||||||
Balance as of January 1, 2010 | $ | 389,702 | $ | 26,776 | $ | 333,265 | $ | 14,450 | $ | 764,193 | ||||||||||
Additions due to acquisitions | 41,803 | 2,755 | 14,775 | 6,960 | 66,293 | |||||||||||||||
Purchase price adjustments | 377 | (3,337 | ) | — | — | (2,960 | ) | |||||||||||||
Foreign currency translation adjustments | 482 | 17 | 126 | 586 | 1,211 | |||||||||||||||
Balance as of December 31, 2010 | $ | 432,364 | $ | 26,211 | $ | 348,166 | $ | 21,996 | $ | 828,737 | ||||||||||
Caterpillar Trimble Control Technologies Joint Venture
On April 1, 2002, Caterpillar Trimble Control Technologies LLC (CTCT), a joint venture formed by the Company and Caterpillar, began operations. CTCT develops advanced electronic guidance and control products for earth moving machines in the construction and mining industries. The joint venture is 50% owned by the Company and 50% owned by Caterpillar, with equal voting rights. The joint venture is accounted for under the equity method of accounting. Under the equity method, the Company’s share of profits and losses are included in Income from joint venturesequity method investments, net in the Non-operating income, net section of the Consolidated Statements of Income. The Company recorded a profitincome of $7.8$7.6 million, $3.0 million, and $5.7 million and a loss of $0.2$8.0 million as its proportionate share of CTCT net income (loss) in fiscal 2007, 20062010, 2009 and 2005,2008, respectively. During fiscal 2007, 20062010, 2009 and 2005,2008, dividends received from CTCT amounted to $2.3$5.8 million, $2.0$2.9 million, and $0$10.5 million, and were recorded against Other non-current assets on the Consolidated Balance Sheets. The carrying amount of the investment in CTCT was $9.6$8.9 million at December 28, 200731, 2010 and $4.1$7.1 million at December 29, 2006,January 1, 2010, and is included in Other non-current assets on the Consolidated Balance Sheets.
The Company acts as a contract manufacturer for CTCT. Products are manufactured based on orders received from CTCT and are sold at direct cost, plus a mark-up for the Company’s overhead costs to CTCT. CTCT then resells products at cost plus a mark-up in consideration for CTCT’s research and development efforts to both Caterpillar and to the Company for sales through their respective distribution channels. Generally, the Company sells products through its after-market dealer channel, and Caterpillar sells products for factory and dealer installation. CTCT does not have net inventory on its balance sheet in that the resale of products to Caterpillar and the Company occuroccurs simultaneously when the products are purchased from the Company. In fiscal 20072010, 2009 and 2006,2008, the Company recorded $11.5$3.8 million, $2.2 million, and $8.4$11.7 million of revenue, respectively, and $10.3$3.7 million, $2.1 million, and $7.3$10.5 million of cost of sales, respectively, for the manufacturing of products sold by the Company to CTCT and then sold through the Caterpillar distribution channel. In addition, in fiscal 20072010, 2009 and 2006,2008, the Company recorded $25.1$27.5 million, $19.1 million, and $19.5$21.4 million in net cost of sales for the manufacturing of products sold by the Company to CTCT and then repurchased by the Company upon sale through the Company’s distribution channel. Prior to the first fiscal quarter of 2006, these transactions were included in income (expense) for joint ventures, net in the non-operating income (expense) section of the Consolidated Statements of Income. The change in presentation resulted from the Company’s assessment of CTCT’s advancement and ability to function as a stand-alone company. The amount recognized for the manufacturing of products sold to CTCT was $7.8 million is fiscal 2005 and the related cost was $6.8 million. As mentioned above, both amounts were included in income (expense) from joint ventures, net in non-operating income (expense). Also in fiscal 2005, $13.2 million was recorded as net cost of sales for the manufacturing of products sold by the Company to CTCT and then repurchased by the Company upon sale through the Company’s distribution channel.
In addition, the Company received reimbursement of employee-related costs from CTCT for company employees of the Company dedicated to CTCT or performance of work for CTCT totaling $13.7$11.7 million, $13.5$10.4 million and $9.7$13.6 million forin fiscal 2007, 20062010, 2009 and 2005,2008, respectively. The reimbursements were offset against operating expenses.
At December 28, 200731, 2010 and December 29, 2006,January 1, 2010, the Company had amounts due to and from CTCT. Receivables and payables to CTCT are settled individually with terms comparable to other non-related parties. The amounts due to and from CTCT are presented on a gross basis in the Consolidated Balance Sheets. At December 28, 200731, 2010 and December 29, 2006,January 1, 2010, the receivables from CTCT were $5.6$4.4 million and $4.7$3.5 million, respectively, and are included within Accounts receivable, net, on the Consolidated Balance Sheets. As of the same dates, the payables due to CTCT were $5.2$5.7 million and $4.4 million, respectively, and are included within Accounts payable on the Consolidated Balance Sheets.
Nikon-Trimble Joint Venture
On March 28, 2003, Nikon-Trimble Co., Ltd (Nikon-Trimble), a joint venture, was formed by the Company and Nikon Corporation. The joint venture began operations in July 2003 and is 50% owned by the Company and 50% owned by Nikon, with equal voting rights. It focuses on the design and manufacture of surveying instruments including mechanical total stations and related products.
The joint venture is accounted for under the equity method of accounting. Under the equity method, the Company’s share of profits and losses are included in Income from joint ventures in the Non-operating income (expense) section of the Consolidated Statements of Income. In fiscal 2007, 20062010, 2009 and 2005,2008, the Company recorded a profitincome (loss) of $0.6$4.1 million, a profit of $1.3 million$(2.5 million), and a loss of $36,000,$23,000, respectively, as its proportionate share of Nikon-Trimble net income (loss). During fiscal 2007, 20062010 and 2005,2009, there were no dividends received from Nikon-Trimble. During fiscal 2008, dividends received from Nikon-Trimble, amounted to $0.6 million, $0.3 million and $0.5$0.2 million and were recorded against Other non-current assets on the Consolidated Balance Sheets. The carrying amount of the investment in Nikon-Trimble was approximately $13.4$15.0 million at December 28, 200731, 2010 and $14.0$11.4 million at December 29, 2006,January 1, 2010, and is included in Other non-current assets on the Consolidated Balance Sheets.
Nikon-Trimble is the distributor in Japan for Nikon and the Company’s products. The Company is the exclusive distributor outside of Japan for Nikon branded survey products. For products sold by the Company to Nikon-Trimble, revenue is recognized by the Company on a sell-through basis from Nikon-Trimble to the end customer. Profits from these inter-company sales are eliminated.
The terms and conditions of the sales of products from the Company to Nikon-Trimble are comparable with those of the standard distribution agreements which the Company maintains with its dealer channel and margins earned are similar to those from third party dealers. Similarly, the purchases of product by the Company from Nikon-Trimble are made on terms comparable with the arrangements which Nikon maintained with its international distribution channel prior to the formation of the joint venture with the Company. TheIn fiscal 2010, 2009 and 2008, the Company recorded $12.6$17.9 million, $13.9$13.8 million, and $9.1$15.3 million of revenue, respectively, and $6.7$11.0 million, $6.6$8.3 million, and $4.0$11.0 million of cost of sales, respectively, for the manufacturing of products sold by the Company to Nikon-Trimble.
At December 28, 200731, 2010 and December 29, 2006,January 1, 2010, the Company had amounts due to and from Nikon-Trimble. Receivables and payables to Nikon-Trimble are settled individually with terms comparable to other non-related parties. The amounts due to and from Nikon-Trimble are presented on a gross basis in the Consolidated Balance Sheets. At December 28, 200731, 2010 and December 29, 2006,January 1, 2010, the amounts due from Nikon-Trimble were $3.3$3.5 million and $1.5$4.7 million, respectively, and are included within Accounts receivable, net on the Consolidated Balance Sheets. As of the same dates, the amounts due to Nikon-Trimble were $5.7$7.0 million and $1.1$4.5 million, respectively, and are included within Accounts payable on the Consolidated Balance Sheets.
NOTE 6: CERTAIN BALANCE SHEET COMPONENTS
The following tables provide details of selected balance sheet items (in thousands):
| December 28, | December 29, | |||||||
| As of | 2007 | 2006 | ||||||
| Inventories: | ||||||||
| Raw materials | $ | 63,465 | $ | 66,853 | ||||
| Work-in-process | 9,267 | 6,181 | ||||||
| Finished goods | 70,286 | 39,518 | ||||||
| Total | $ | 143,018 | $ | 112,552 | ||||
As of | December 31, 2010 | January 1, 2010 | ||||||
| (in thousands) | ||||||||
Inventories: | ||||||||
Raw materials | $ | 79,057 | $ | 51,489 | ||||
Work-in-process | 5,672 | 4,869 | ||||||
Finished goods | 108,123 | 87,654 | ||||||
Total inventories, net | $ | 192,852 | $ | 144,012 | ||||
Deferred costscost of revenuesales are included within finished goods and were $11.0$14.0 million at December 28, 200731, 2010 and $2.9$16.8 million at December 29, 2006, of which $8.3 million and none, respectively, are related to products that include services and will be recognized ratably over the term of the subscription period.
| Property and equipment, net: | ||||||||
| Machinery and equipment | $ | 79,956 | $ | 79,238 | ||||
| Furniture and fixtures | 10,974 | 12,399 | ||||||
| Leasehold improvements | 15,391 | 13,124 | ||||||
| Buildings | 6,527 | 5,689 | ||||||
| Land | 1,384 | 1,231 | ||||||
| 114,232 | 111,681 | |||||||
| Less accumulated depreciation | (62,788 | ) | (63,683 | ) | ||||
| Total | $ | 51,444 | $ | 47,998 | ||||
| Other Non-Current Liabilities: | ||||||||
| Deferred compensation | $ | 8,646 | $ | 5,887 | ||||
| Pension | 6,646 | 6,616 | ||||||
| Deferred rent | 5,215 | 5,327 | ||||||
| Unrecognized tax benefits | 25,774 | - | ||||||
| Other non-current liabilities | 9,847 | 9,689 | ||||||
| Total | $ | 56,128 | $ | 27,519 | ||||
As of | December 31, 2010 | January 1, 2010 | ||||||
| (in thousands) | ||||||||
Property and equipment, net: | ||||||||
Machinery and equipment | $ | 113,748 | $ | 97,134 | ||||
Furniture and fixtures | 14,124 | 13,116 | ||||||
Leasehold improvements | 19,987 | 17,226 | ||||||
Buildings | 8,701 | 6,530 | ||||||
Land | 1,544 | 1,385 | ||||||
| 158,104 | 135,391 | |||||||
Less accumulated depreciation | (107,412 | ) | (90,756 | ) | ||||
Total | $ | 50,692 | $ | 44,635 | ||||
Other non-current liabilities: | ||||||||
Deferred compensation | $ | 9,736 | $ | 8,264 | ||||
Pension | 6,568 | 5,915 | ||||||
Deferred rent | 5,715 | 3,181 | ||||||
Unrecognized tax benefits | 17,830 | 36,968 | ||||||
Other non-current liabilities | 2,994 | 5,655 | ||||||
Total | $ | 42,843 | $ | 59,983 | ||||
As of December 28, 2007,31, 2010, the Company has $25.8$17.8 million of unrecognized tax benefits included in Other non-current liabilities that, if recognized, would favorably impact the effective income tax rate in future periods and interest and/or penalties related to income tax matters. As of December 29, 2006 these balances were includedmatters in Income taxes payable on the Consolidated Balance Sheets. As of December 28, 2007, this liability is classified in Other non-current liabilities in the Consolidated Balance Sheets.
NOTE 7: REPORTING SEGMENT AND GEOGRAPHIC INFORMATION
Trimble is a designer and distributor of positioning products and applications enabled by GPS, optical, laser, and wireless communications technology. The Company provides products for diverse applications in its targeted markets.
To achieve distribution, marketing, production, and technology advantages, the Company manages its operations in the following four segments:
Engineering and Construction – Consists of products currently used by survey and construction professionals in the field for positioning, data collection, field computing, data management, and machine guidance and control. The applications served include surveying, road, runway, construction, site preparation, and building construction.
Field Solutions – Consists of products that provide solutions in a variety of agriculture and geographic information systems (GIS) applications. In agriculture, these include precise land leveling and machine guidance systems. In GIS, they include handheld devices and software that enable the collection of data on assets for a variety of governmental and private entities.
Mobile Solutions – Consists of products that enable end users to monitor and manage their mobile assets by communicating location and activity-relevant information from the field to the office. Trimble offers a range of products that address a number of sectors of this market including truck fleets, security, and public safety vehicles.
Advanced Devices – The various operations that comprise this segment were aggregated on the basis that no single operation accounted for more than 10% of Trimble’s total revenue, operating income and assets. This segment is comprised of the Component Technologies, Military and Advanced Systems, Applanix, and Trimble Outdoors businesses.
Trimble evaluates each of its segment'ssegment’s performance and allocates resources based on segment operating income from operations before income taxes, and some corporate allocations. Trimble and each of its segments employ consistent accounting policies.
The following table presents revenues,revenue, operating income, (loss), and identifiable assets for the four segments. Operating income (loss) is net revenue less operating expenses,expense, excluding general corporate expenses,expense, amortization in-process researchof purchased intangible assets, amortization of acquisition-related inventory step-up, non-recurring acquisition costs and development expenses, restructuring charges, non-operating income (expense), and income taxes.charges. The identifiable assets that Trimble'sTrimble’s Chief Operating Decision Maker, its Chief Executive Officer, views by segment are accounts receivable, inventories, and inventory.
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (in thousands) | ||||||||||||
| Engineering & Construction | ||||||||||||
| Revenue | $ | 743,291 | $ | 637,118 | $ | 524,461 | ||||||
| Operating income | 174,177 | 136,157 | 117,993 | |||||||||
| Accounts receivable | 165,183 | 132,613 | 112,157 | |||||||||
| Inventories | 89,780 | 82,827 | 80,590 | |||||||||
| Goodwill | 317,886 | 296,597 | 229,176 | |||||||||
| Field Solutions | ||||||||||||
| Revenue | $ | 200,614 | $ | 139,230 | $ | 127,843 | ||||||
| Operating income | 60,933 | 37,377 | 32,527 | |||||||||
| Accounts receivable | 38,225 | 21,016 | 21,823 | |||||||||
| Inventories | 15,745 | 10,946 | 11,790 | |||||||||
| Goodwill | 5,224 | 1,517 | - | |||||||||
| Mobile Solutions | ||||||||||||
| Revenue | $ | 157,673 | $ | 60,854 | $ | 31,481 | ||||||
| Operating income (loss) | 12,517 | 2,550 | (3,072 | ) | ||||||||
| Accounts receivable | 27,978 | 15,630 | 10,789 | |||||||||
| Inventories | 18,781 | 1,666 | 1,983 | |||||||||
| Goodwill | 337,661 | 63,430 | 44,118 | |||||||||
| Advanced Devices | ||||||||||||
| Revenue | $ | 120,692 | $ | 102,948 | $ | 91,128 | ||||||
| Operating income | 17,276 | 10,084 | 13,212 | |||||||||
| Accounts receivable | 19,190 | 16,474 | 14,033 | |||||||||
| Inventories | 18,712 | 17,113 | 13,488 | |||||||||
| Goodwill | 15,079 | 12,966 | 12,852 | |||||||||
| Total | ||||||||||||
| Revenue | $ | 1,222,270 | $ | 940,150 | $ | 774,913 | ||||||
| Operating income | 264,903 | 186,168 | 160,660 | |||||||||
Accounts receivable (1) | 250,576 | 185,733 | 158,802 | |||||||||
| Inventories | 143,018 | 112,552 | 107,851 | |||||||||
| Goodwill | 675,850 | 374,510 | 286,146 | |||||||||
Fiscal Years Ended | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||
| (in thousands) | ||||||||||||
| Consolidated segment operating income | $ | 264,903 | $ | 186,168 | $ | 160,660 | ||||||
| Unallocated corporate expense | (42,914 | ) | (35,798 | ) | (27,483 | ) | ||||||
| Restructuring charges | (3,025 | ) | -- | (278 | ) | |||||||
| Amortization of purchased intangible assets | (38,585 | ) | (13,074 | ) | (6,855 | ) | ||||||
| In-process research and development | (2,112 | ) | (1,930 | ) | (1,100 | ) | ||||||
| Consolidated operating income | 178,267 | 135,366 | 124,944 | |||||||||
| Non-operating expense, net | 5,489 | 12,726 | (156 | ) | ||||||||
| Consolidated income before income taxes | $ | 183,756 | $ | 148,092 | $ | 124,788 | ||||||
| December 28, | December 29, | |||||||
| As of | 2007 | 2006 | ||||||
| (in thousands) | ||||||||
| Assets: | ||||||||
| Accounts receivable total for reportable segments | $ | 250,576 | $ | 185,733 | ||||
Unallocated (1) | (10,692 | ) | (8,679 | ) | ||||
| Accounts receivable, net | $ | 239,884 | $ | 177,054 | ||||
| December 28, | December 29, | December 30, | ||||||||||
| 2007 | 2006 | 2005 | ||||||||||
| (In thousands) | ||||||||||||
| Engineering and Construction | $ | 751,569 | $ | 641,352 | $ | 529,034 | ||||||
| Field Solutions | 200,614 | 139,230 | 127,843 | |||||||||
| Mobile Solutions | 157,673 | 60,854 | 31,481 | |||||||||
| Advanced Devices | 120,431 | 102,873 | 91,182 | |||||||||
| Total Gross Consolidated Revenue | 1,230,287 | 944,309 | 779,540 | |||||||||
| Eliminations | (8,017 | ) | (4,159 | ) | (4,627 | ) | ||||||
| Total External Consolidated Revenue | $ | 1,222,270 | $ | 940,150 | $ | 774,913 | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (in thousands) | ||||||||||||
Consolidated segment operating income | $ | 247,536 | $ | 194,348 | $ | 271,276 | ||||||
Unallocated corporate expense | (60,260 | ) | (45,102 | ) | (36,284 | ) | ||||||
Restructuring charges | (2,035 | ) | (10,754 | ) | (4,641 | ) | ||||||
Amortization of purchased intangible assets | (57,639 | ) | (52,672 | ) | (44,891 | ) | ||||||
Consolidated operating income | 127,602 | 85,820 | 185,460 | |||||||||
Non-operating income, net | 13,485 | 1,801 | 5,983 | |||||||||
Consolidated income before taxes | $ | 141,087 | $ | 87,621 | $ | 191,443 | ||||||
The geographic distribution of Trimble’s revenuesrevenue and identifiablelong-lived assets is summarized in the tables below. Other foreign countriesnon-US geographies include Canada, and countries in South and Central America, the Middle East, and Africa. Revenue is defined as revenuesrevenue from external customers. Identifiable assets indicated in the table below exclude inter-company receivables, investments in subsidiaries, goodwill, and intangibles assets.
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (in thousands) | ||||||||||||
| Revenue (1): | ||||||||||||
| United States | $ | 608,137 | $ | 511,030 | $ | 415,443 | ||||||
| Europe | 325,888 | 231,428 | 191,734 | |||||||||
| Asia Pacific | 146,545 | 112,465 | 88,315 | |||||||||
| Other Non-US Countries | 141,700 | 85,227 | 79,421 | |||||||||
| Total Consolidated Revenue | $ | 1,222,270 | $ | 940,150 | $ | 774,913 | ||||||
Fiscal Years Ended Revenue (1): United States Europe Asia Pacific Other non-US countries Total consolidated revenue December 31,
2010 January 1,
2010 January 2,
2009 (in thousands) $ 595,563 $ 561,082 $ 646,734 286,705 261,966 333,436 227,478 186,588 182,952 184,191 116,623 166,112 $ 1,293,937 $ 1,126,259 $ 1,329,234
| (1) | Revenue attributed to countries based on the location of the customer. |
No single customer or country other than the United States accounted for 10% or more of Trimble'sTrimble’s total revenuesrevenue in fiscal years 2007, 2006,2010, 2009, and 2005.
| December 28, | December 29, | |||||||
| As of | 2007 | 2006 | ||||||
| (in thousands) | ||||||||
| Identifiable assets: | ||||||||
| United States | $ | 381,755 | $ | 347,474 | ||||
| Europe | 217,422 | 143,038 | ||||||
| Asia Pacific and Other Non-US Countries | 36,167 | 30,190 | ||||||
| Total Identifiable Assets | $ | 635,344 | $ | 520,702 | ||||
Long-lived assets indicated in the table below exclude deferred tax assets, inter-company receivables, investments in subsidiaries, goodwill, and intangibles assets.
As of | December 31, 2010 | January 1, 2010 | ||||||
| (in thousands) | ||||||||
Long-lived assets: | ||||||||
United States | $ | 52,115 | $ | 52,048 | ||||
Europe | 19,012 | 13,482 | ||||||
Asia Pacific and other non-US countries | 8,148 | 5,505 | ||||||
Total long-lived assets | $ | 79,275 | $ | 71,035 | ||||
NOTE 8: RESTRUCTURING CHARGES
Restructuring expense
Restructuring expense for the three years ended December 31, 2010 was as follows:
| December 31, 2010 | January 1, 2010 | January 2, 2009 | ||||||||||
| (in thousands) | ||||||||||||
Severance and benefits | $ | 2,035 | $ | 10,754 | $ | 4,641 | ||||||
During fiscal 2010, restructuring expense of $2.0 million was related to decisions to streamline processes and reduce the cost structure of the Company. Of the total restructuring expense, $1.6 million is presented as a separate line within Operating expense and $0.4 million is included within Cost of sales on the Company’s Consolidated Balance SheetStatements of Income. Expense related to the decisions made through the fourth quarter of fiscal 2010 is a restructuring accrual of $1.3 millionall accrued as of December 28, 2007. In conjunction with31, 2010.
During fiscal 2009, restructuring expense of $10.8 million was related to decisions to streamline processes and reduce the Company’s acquisition of @Road, it accrued $3.6 million for severance and benefits. These restructuring costs were recorded in accordance with EITF 95-3 as partcost structure of the purchase price with no impactCompany. Of the total restructuring expense, $6.4 million is presented as a separate line within Operating expense and $4.4 million is included within Cost of sales on the Company’s Consolidated StatementStatements of Income.
During fiscal 20072008, restructuring expense of $4.6 million was related to decisions to streamline processes and reduce the Company paid $2.3cost structure of the Company. Of the total restructuring expense, $2.7 million against thisis presented as a separate line within Operating expense on the Company’s Consolidated Statements of Income, and $1.9 million is included within Cost of sales.
Restructuring liability
The following table summarizes the restructuring accrual. The remainingactivity for 2009 and 2010 (in thousands):
Balance as of January 2, 2009 Acquisition related Charges Payments Adjustment Balance as of January 1, 2010 Acquisition related Charges Payments Adjustment Balance as of December 31, 2010 $ 1,917 — 10,754 (10,279 ) 236 $ 2,628 — 2,035 (2,866 ) (170 ) $ 1,627
As of December 31, 2010, the $1.6 million restructuring accrual consists of $1.3 millionseverance and benefits. It is included in Other current liabilities and is expected to be settled by the first half of fiscal 2008.
NOTE 9: LONG-TERM DEBT
Long-term debt consisted of the following:
| December 28, | December 29, | |||||||
| As of | 2007 | 2006 | ||||||
| (In thousands) | ||||||||
| Credit Facilities: | ||||||||
| Term loan | $ | 60,000 | $ | - | ||||
| Revolving credit facility | - | - | ||||||
| Promissory notes and other | 690 | 481 | ||||||
| 60,690 | 481 | |||||||
| Less current portion of long-term debt | 126 | - | ||||||
| Non-current portion | $ | 60,564 | $ | 481 | ||||
| 2012 and | ||||||||||||||||||||||||||||
| Total | 2008 | 2009 | 2010 | 2011 | 2012 | Beyond | ||||||||||||||||||||||
| (in thousands) | ||||||||||||||||||||||||||||
| Term Loan and other | 70,220 | 3,203 | 3,448 | 17,301 | 21,268 | 25,000 | - | |||||||||||||||||||||
| Total contractual cash obligations | $ | 70,220 | $ | 3,203 | $ | 3,448 | $ | 17,301 | $ | 21,268 | $ | 25,000 | $ | - | ||||||||||||||
As of | December 31, 2010 | January 1, 2010 | ||||||
| (in thousands) | ||||||||
Revolving credit facility | $ | 151,000 | $ | 151,000 | ||||
Notes payable and other | 2,153 | 483 | ||||||
Total debt | 153,153 | 151,483 | ||||||
Less current portion of long-term debt | 1,993 | 445 | ||||||
Non-current portion | $ | 151,160 | $ | 151,038 | ||||
On July 28, 2005, the Company entered into a $200 million unsecured revolving credit agreement (the 2005 Credit Facility) with a syndicate of 10 banks with The Bank of Nova Scotia as the administrative agent. The funds available under the 2005 Credit Facility may be used for our general corporate purposes and up to $25 million of the 2005 Credit Facility may be used for letters of credit. The Company incurred a commitment fee when the 2005 Credit Facility was not used. The commitment fee is not material to the Company’s results during all periods presented.
As of December 28, 2007,31, 2010, the Company did not havehad an outstanding balance on the revolving credit line and had $60.0 million of outstanding term loan. The Company was in compliance with all financial debt covenants.
The Company may borrow funds under the 2007 Credit Facility in U.S. Dollars or in certain other currencies, and borrowings will bear interest, at the Company'sCompany’s option, at either: (i) a base rate, based on the administrative agent'sagent’s prime rate, plus a margin of between 0% and 0.125%, depending on the Company'sCompany’s leverage ratio as of its most recently ended fiscal quarter, or (ii) a reserve-adjusted rate based on the London Interbank Offered Rate (LIBOR), Euro Interbank Offered Rate (EURIBOR), Stockholm Interbank Offered Rate (STIBOR) (STIBOR), or other agreed-upon rate, depending on the currency borrowed, plus a margin of between 0.625% and 1.125%, depending on the Company'sCompany’s leverage ratio as of the most recently ended fiscal quarter. The Company'sCompany’s obligations under the 2007 Credit Facility are guaranteed by certain of the Company'sCompany’s domestic subsidiaries.
The 2007 Credit Facility contains customary affirmative, negative, and financial covenants including, among other requirements, negative covenants that restrict the Company'sCompany’s ability to dispose of assets, create liens, incur
indebtedness, repurchase stock, pay dividends, make acquisitions, make investments, enter into mergers and consolidations, and make capital expenditures, within certain limitations, and financial covenants that require the maintenance of leverage and fixed charge coverage ratios. The 2007 Credit Facility contains events of default that include, among others, non-payment of principal, interest or fees, breach of covenants, inaccuracy of representations and warranties, cross defaults to certain other indebtedness, bankruptcy and insolvency events, material judgments, and events constituting a change of control. Upon the occurrence and during the continuance of an event of default, interest on the obligations will accrue at an increased rate and the lenders may accelerate the Company'sCompany’s obligations under the 2007 Credit Facility, however that acceleration will be automatic in the case of bankruptcy and insolvency events of default.
Notes Payable
As of December 31, 2010 and January 1, 2010, the Company had other notes payable totaling approximately $690,000 consisting$1.9 million and $0.5 million, respectively. The outstanding notes payable as of December 31, 2010 consisted primarily of notes payable to noncontrolling interest holders of one of the Company’s consolidated subsidiaries. The notes bear interest at 6% and have undefined payment terms, but are callable with a six month notification. The outstanding notes payable balance as of January 1, 2010 consisted primarily of government loans to foreign subsidiaries and loans assumed from acquisitions.
NOTE 10: COMMITMENTS AND CONTINGENCIES
Operating Leases
The lease agreement has a five year term, commencing February 1, 2005 and ending May 16, 2010.
Future minimum payments required under non-cancelable operating leases are as follows:
Operating Lease Payments | ||||
| (In thousands) | ||||
| 2008 | $ | 16,592 | ||
| 2009 | 13,234 | |||
| 2010 | 10,080 | |||
| 2011 | 6,912 | |||
| 2012 | 5,741 | |||
| Thereafter | 1,432 | |||
| Total | $ | 53,991 | ||
2011 | $ | 18,815 | ||
2012 | 14,119 | |||
2013 | 9,718 | |||
2014 | 7,751 | |||
2015 | 6,010 | |||
Thereafter | 6,702 | |||
Total | $ | 63,115 | ||
Net rent expense under operating leases was $14.2$19.2 million in fiscal 2007, $10.52010, $18.0 million in fiscal 2006,2009, and $12.6$16.2 million in fiscal 2005.2008. Sublease income was $39,000, $44,000,$49,000, $38,000 and $39,000$49,000 for fiscal 2007, 2006,2010, 2009 and 2005,2008, respectively.
Additionally, as of December 28, 2007,31, 2010, the Company had acquisition earn-outs of $7.6$4.1 million and holdbacks of $10.3$4.2 million recorded in “Other current liabilities” and “Other non-current liabilities.” The maximum remaining payments, including the $7.6$4.1 million and $10.3$4.2 million recorded, will not exceed $71.5$25.8 million. The remaining payments are based upon targets achieved or events occurring over time that would result in amounts paid that may be lower than the maximum remaining payments. The remaining earn-outs and holdbacks are payable through 2010.
At December 28, 2007,31, 2010, the companyCompany had unconditional purchase obligations of approximately $60.6$69.7 million. These unconditional purchase obligations primarily represent open non-cancelable purchase orders for material purchases withourwith our vendors. Purchase obligations exclude agreements that are cancelable without penalty. These unconditional purchase obligations are related primarily to inventory and other items.
NOTE 11: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimatedguidance on fair valuesvalue measurements and disclosures defines fair value, establishes a framework for measuring fair value, and requires enhanced disclosures about assets and liabilities measured at fair value. Fair value is defined as the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation
techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.
Assets and liabilities recorded at fair value on a recurring basis in the Consolidated Balance Sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by the guidance on fair value measurements are directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, and are as follows:
Level I – Observable inputs such as unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level II – Inputs (other than quoted prices included in Level I) are either directly or indirectly observable for the asset or liability. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level III – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.
Fair Value on a Recurring Basis
Assets and liabilities measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations.
| Fair Values as of December 31, 2010 | ||||||||||||||||
| (in thousands) | Level I | Level II | Level III | Total | ||||||||||||
Assets | ||||||||||||||||
Money market funds(1) | $ | 102,835 | $ | — | $ | — | $ | 102,835 | ||||||||
Deferred compensation plan assets (2) | 9,423 | — | — | 9,423 | ||||||||||||
Derivative assets (3) | — | 407 | — | 407 | ||||||||||||
Total | $ | 112,258 | $ | 407 | $ | — | $ | 112,665 | ||||||||
Liabilities | ||||||||||||||||
Deferred compensation plan liabilities (2) | $ | — | $ | 9,736 | $ | — | $ | 9,736 | ||||||||
Derivative liabilities (3) | — | 140 | — | 140 | ||||||||||||
Contingent consideration liability (4) | — | — | 3,719 | 3,719 | ||||||||||||
Total | $ | — | $ | 9,876 | $ | 3,719 | $ | 13,595 | ||||||||
| (1) | These investments are highly liquid investments such as money market funds. The fair values are determined using observable quoted prices in active markets. Money market funds are included in Cash and cash equivalents on the Company’s Consolidated Balance Sheets. In prior year filings, the table above incorrectly excluded certain Level I money market funds. These funds however, were correctly included in Cash and cash equivalents on the Company’s Consolidated Balance Sheets. |
| (2) | The Company maintains a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees. As of December 31, 2010 the plan assets are invested in a money market fund and valued using observable quoted prices in active markets. The deferred compensation plan liabilities included in Level II are valued using quoted prices for similar assets or liabilities in active markets. Deferred compensation plan assets and liabilities are included in Other non-current assets and Other non-current liabilities on the Company’s Consolidated Balance Sheets. |
| (3) | Derivative assets and liabilities included in Level II primarily represent forward currency exchange contracts. The Company enters into these contracts to minimize the short-term impact of foreign currency fluctuations on certain trade and inter-company receivables and payables. The derivatives are not designated as hedging instruments. The fair values are determined using inputs based on observable quoted prices. Derivative assets and liabilities are included in Other current assets and Other current liabilities, respectively, on the Company’s Consolidated Balance Sheets. |
| (4) | The Company has six contingent consideration arrangements that require it to pay the former owners of certain companies it acquired during fiscal 2009 and fiscal 2010. The undiscounted maximum payment under all six arrangements is $11.5 million, based on future revenues or gross margins through January 2013. The Company estimated the fair value of these liabilities using the expected cash flow approach with inputs being probability-weighted revenue or gross margin projections, as the case may be, and discount rates ranging from 0.00% to 0.61%. Of the total contingent consideration liability, $1.7 million |
and $2.0 million were included in Other current liabilities and Other non-current liabilities, respectively, on the Company’s Consolidated Balance Sheets. |
The table below sets forth a summary of changes in the fair value of the Level III contingent consideration liability for the twelve months ended December 31, 2010.
As of | Level III liabilities December 31, 2010 | |||
| (in thousands) | ||||
Balance as of January 1, 2010 | $ | 2,200 | ||
Acquisitions | 3,864 | |||
Realized gains | (2,345 | ) | ||
Balance as of December 31, 2010 | $ | 3,719 | ||
Realized gains were reported in Other income (expense), net on the Consolidated Statements of Income.
Additional Fair Value Information
The following table provides additional fair value information relating to the Company’s financial instruments outstanding are as follows:
Carrying Amount | Fair Value | Carrying Amount | Fair Values | |||||||||||||
| December 28, 2007 | December 29, 2006 | �� | ||||||||||||||
| As of | ||||||||||||||||
| (In thousands) | ||||||||||||||||
| Assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 103,202 | $ | 103,202 | $ | 129,621 | $ | 129,621 | ||||||||
| Forward foreign currency exchange contracts | - | - | - | - | ||||||||||||
| Accounts receivable, net | 239,884 | 239,884 | 177,054 | 177,054 | ||||||||||||
| Liabilities: | ||||||||||||||||
| Credit facility | $ | 60,000 | $ | 49,000 | $ | - | $ | - | ||||||||
| Forward foreign currency exchange contracts | 178 | 457 | 70 | 157 | ||||||||||||
| Promissory note and other | 690 | 630 | 481 | 406 | ||||||||||||
| Accounts payable | 67,589 | 67,589 | 49,194 | 49,194 | ||||||||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
As of | December 31, 2010 | January 1, 2010 | ||||||||||||||
| (in thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Cash and cash equivalents | $ | 220,788 | $ | 220,788 | $ | 273,848 | $ | 273,848 | ||||||||
Forward foreign currency exchange contracts | 407 | 407 | 594 | 594 | ||||||||||||
Liabilities: | ||||||||||||||||
Credit facility | $ | 151,000 | $ | 148,367 | $ | 151,000 | $ | 147,144 | ||||||||
Forward foreign currency exchange contracts | 140 | 140 | 52 | 52 | ||||||||||||
Notes payable and other | 2,153 | 2,133 | 483 | 479 | ||||||||||||
The fair value of the bank borrowings and promissory notes havepayable has been estimatedcalculated using an estimate of the interest rate Trimblethe Company would have had to pay on the issuance of notes with a similar maturity and discounting the cash flows at that rate. The fair values do not give an indication of the amount that Trimble would currently have to pay to extinguish any of this debt.
The components of income before income taxes are as follows:
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (In thousands) | ||||||||||||
| United States | $ | 126,768 | $ | 123,800 | $ | 99,500 | ||||||
| Foreign | 57,362 | 24,300 | 25,300 | |||||||||
| Total | $ | 184,130 | $ | 148,100 | $ | 124,800 | ||||||
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (In thousands) | ||||||||||||
| US Federal: | ||||||||||||
| Current | $ | 48,833 | $ | 47,795 | $ | 36,493 | ||||||
| Deferred | (1,658 | ) | (2,972 | ) | (1,534 | ) | ||||||
| 47,175 | 44,823 | 34,959 | ||||||||||
| US State: | ||||||||||||
| Current | 6,374 | 2,967 | 3,500 | |||||||||
| Deferred | (3,669 | ) | (2,168 | ) | (2,348 | ) | ||||||
| 2,705 | 799 | 1,152 | ||||||||||
| Foreign: | ||||||||||||
| Current | 10,403 | (1,493 | ) | 3,102 | ||||||||
| Deferred | 6,098 | 305 | 720 | |||||||||
| 16,501 | (1,188 | ) | 3,822 | |||||||||
| Income tax provision | $ | 66,381 | $ | 44,434 | $ | 39,933 | ||||||
Fiscal Years Ended United States Foreign Total US Federal: Current Deferred US State: Current Deferred Foreign: Current Deferred Income tax provision December 31,
2010 January 1,
2010 January 2,
2009 (in thousands) $ 137,426 $ 46,928 $ 89,177 3,661 40,693 102,266 $ 141,087 $ 87,621 $ 191,443 $ 40,926 $ 25,357 $ 42,453 (3,795 ) (6,465 ) (7,024 ) 37,131 18,892 35,429 2,496 3,709 5,165 505 (3,459 ) (2,271 ) 3,001 250 2,894 9,939 3,638 13,976 (12,597 ) 878 (1,829 ) (2,658 ) 4,516 12,147 $ 37,474 $ 23,658 $ 50,470
The income tax provision differs from the amount computed by applying the statutory US federal income tax rate to income before taxes. The sources and tax effects of the differences are as follows:
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (In thousands) | ||||||||||||
| Expected tax from continuing operations at 35% in all years | $ | 64,446 | $ | 51,832 | $ | 43,677 | ||||||
| US State income taxes | 1,654 | (110 | ) | 749 | ||||||||
| Export sales incentives | (365 | ) | (4,138 | ) | (2,316 | ) | ||||||
| Foreign related | (711 | ) | (7,682 | ) | 3,684 | |||||||
| US Federal and California research and development credits | (2,206 | ) | (662 | ) | (895 | ) | ||||||
| In process research & development | 630 | 1,046 | -- | |||||||||
| Stock option compensation | 3,889 | 3,626 | -- | |||||||||
| Benefit from repatriation legislation | -- | (1,050 | ) | (6,445 | ) | |||||||
| Other | (956 | ) | 1,572 | 1,479 | ||||||||
| Income tax provision | $ | 66,381 | $ | 44,434 | $ | 39,933 | ||||||
| Effective tax rate | 36 | % | 30 | % | 32 | % | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | January 2, 2009 | |||||||||
| (in thousands) | ||||||||||||
Expected tax from continuing operations at 35% in all years | $ | 49,381 | $ | 30,667 | $ | 67,187 | ||||||
US State income taxes | 2,028 | 1,247 | 3,339 | |||||||||
Foreign tax rate differential | (34,138 | ) | (7,943 | ) | (23,553 | ) | ||||||
US Federal and California research and development credits | (3,523 | ) | (4,204 | ) | (3,651 | ) | ||||||
Stock option compensation | 3,546 | 3,061 | 3,550 | |||||||||
Settlement with tax authorities | 27,540 | — | — | |||||||||
Release of valuation allowance | (7,628 | ) | — | — | ||||||||
Other | 268 | 830 | 3,598 | |||||||||
Income tax provision | $ | 37,474 | $ | 23,658 | $ | 50,470 | ||||||
Effective tax rate | 27 | % | 27 | % | 26 | % | ||||||
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred taxes consisttax assets and liabilities are as follows:
As of Deferred tax liabilities: Purchased intangibles Depreciation and amortization Other Total deferred tax liabilities Deferred tax assets: Inventory valuation differences Expenses not currently deductible US Federal credit carryforwards Deferred revenue US State credit carryforwards Warranty US Federal net operating loss carryforward Foreign net operating loss carryforward Net foreign tax credits on undistributed foreign earnings Accruals not currently deductible Total deferred tax assets Valuation allowance Total deferred tax assets Total net deferred tax assets December 31,
2010 January 1,
2010 (in thousands) $ 49,021 $ 57,176 30,603 28,144 309 275 79,933 85,595 8,622 8,290 15,863 9,665 2,314 2,314 3,197 2,769 14,895 15,482 2,421 2,571 12,404 10,506 17,437 18,378 12,804 14,746 24,220 28,681 114,177 113,402 (21,432 ) (27,011 ) 92,745 86,391 $ 12,812 $ 796
As of December 31, 2010, the following:
| December 28, | December 29, | |||||||
| As of | 2007 | 2006 | ||||||
| (In thousands) | ||||||||
| Deferred tax liabilities: | ||||||||
| Purchased intangibles | $ | 68,561 | $ | 25,263 | ||||
| Depreciation and amortization | 26,720 | 21,283 | ||||||
| Other | 183 | 175 | ||||||
| Total deferred tax liabilities | 95,464 | 46,721 | ||||||
| Deferred tax assets: | ||||||||
| Inventory valuation differences | 7,359 | 9,469 | ||||||
| Expenses not currently deductible | 10,044 | 8,546 | ||||||
| US Federal credit carryforwards | 2,313 | -0- | ||||||
| Deferred revenue | 8,000 | 1,298 | ||||||
| US State credit carryforwards | 10,011 | 8,869 | ||||||
| Warranty | 2,177 | 2,738 | ||||||
| US Federal net operating loss carryforward | 24,765 | 2,055 | ||||||
| Net foreign tax credits on undistributed foreign earnings | 12,857 | 9,344 | ||||||
| Accruals not currently deductible | 17,104 | 8,803 | ||||||
| Total deferred tax assets | 94,630 | 51,121 | ||||||
| Valuation allowance | (6,471 | ) | (4,254 | ) | ||||
| Total deferred tax assets | 88,159 | 46,867 | ||||||
| Total net deferred tax assets(Liabilities) | $ | (7,305 | ) | $ | 146 | |||
The Company has federal research and development credit carryforwards of $2.0 million (expiring in years 2011 through 2024) and stateCalifornia research and development credit carryforwards of approximately $15.5$14.4 million that can be carried over indefinitely.
The company’sCompany’s valuation allowance is primarily attributable to primarily, acquisition related Net Operating Loss and Research and Development Creditforeign net operating loss carryforwards. Management believesThe Company has determined that it is more likely than not that the Company will not realize these deferred tax assets and, accordingly, a valuation allowance has been established for such amounts. WhenDuring 2010, the tax attributes are utilized and theCompany released $7.6 million of its valuation allowance against foreign net operating losses.
The Company’s policy with respect to its undistributed foreign subsidiaries’ earnings is released, the benefitto consider some of the release of the valuation allowance willthose earnings to be accountedindefinitely reinvested and, accordingly, no related provision for as a credit to goodwill rather than as a reduction of the income tax provision.
A reconciliation of the change in the UTB balanceunrecognized tax benefits (“UTB”) from December 29, 2006 to December 28, 2007 to December 31, 2010 is as follows:
| Federal, State and Foreign Tax | Accrued Interest and Penalties | Gross Unrecognized Income Tax Benefits | Deferred Federal and State Income Tax Benefits | Net Unrecognized Income Tax Benefits | ||||||||||||||||
| (Dollar in thousands) | ||||||||||||||||||||
| Balance at December 29, 2006 | $ | 21,500 | $ | 2,200 | $ | 23,700 | $ | - | $ | 23,700 | ||||||||||
| Additions for tax positions related to the current year | 2,800 | 1,000 | 3,800 | - | 3,800 | |||||||||||||||
| Additions for tax positions related to prior years | 800 | 800 | - | 800 | ||||||||||||||||
| Other reductions for tax positions related to prior years | (400 | ) | (100 | ) | (500 | ) | - | (500 | ) | |||||||||||
| Foreign exchange | 600 | 600 | - | 600 | ||||||||||||||||
| Balance at December 28, 2007 | $ | 25,300 | $ | 3,100 | $ | 28,400 | $ | - | $ | 28,400 | ||||||||||
| Total UTBs that, if recognized, would impact the effective tax rate as of December 28, 2007 | $ | 25,300 | $ | 3,100 | $ | 28,400 | $ | - | $ | 28,400 | ||||||||||
(in thousands) Balance at December 28, 2007 Additions for tax positions related to the current year Additions for tax positions related to prior year Other reductions for tax positions related to prior years Foreign exchange Balance at January 2, 2009 Total UTBs that, if recognized, would impact the effective tax rate as of January 2, 2009 Additions for tax positions related to the current year Additions for tax positions related to prior year Other reductions for tax positions related to prior years Foreign exchange Balance at January 1, 2010 Total UTBs that, if recognized, would impact the effective tax rate as of January 1, 2010 Additions for tax positions related to the current year Additions for tax positions related to prior years Other reductions for tax positions related to prior years Foreign exchange Balance at December 31, 2010 Total UTBs that, if recognized, would impact the effective tax rate as of December 31, 2010 Federal,
State and
Foreign
Tax Accrued
Interest
and
Penalties Unrecognized
Income Tax
Benefits $ 28,328 $ 3,100 $ 31,428 5,300 1,320 6,620 3,800 — 3,800 (900 ) (20 ) (920 ) (600 ) — (600 ) $ 35,928 $ 4,400 $ 40,328 $ 35,928 $ 4,400 $ 40,328 3,495 871 4,366 699 41 740 (2,464 ) (277 ) (2,741 ) 604 — 604 $ 38,262 $ 5,035 43,297 $ 38,262 $ 5,035 $ 43,297 4,091 1,372 5,463 4,600 — 4,600 (21,453 ) (3,767 ) (25,220 ) (27 ) — (27 ) $ 25,473 $ 2,640 28,113 $ 25,473 $ 2,640 28,113
The Company and its subsidiaries are subject to U.S. federal, state, and foreign income taxes. The Company has substantially concluded all U.S. federal and state income tax matters for years through 1992. ForeignNon-U.S. income tax matters have been concluded for years through 2000. The Company does not anticipate significant impact tois currently in various stages of multiple year examinations by federal, state, and foreign (including France and Germany) taxing authorities. Although the UTB balance with respect to current tax examinations. Furthermore, although timing of the resolution and/or closure on audits is highly uncertain, the companyCompany does not believe it is reasonably possible that the unrecognized tax benefits would materially change in the next 12twelve months.
In May 2010, the IRS closed its examination of our income tax returns for the years 2005 through 2007. As part of the audit, IRS examined and adjusted the valuation and payment arrangement for the 2006 non-exclusive license of specified Trimble intellectual property rights to a foreign-based Trimble subsidiary. The consideration for this license was to be paid over time and was established based on the Company’s estimate of the ongoing royalties that would have been received in a similar license arrangement to an unrelated third-party licensee. Pursuant to the audit settlement, Trimble agreed to revise the valuation and to accelerate the payments under the existing royalty arrangement resulting in a net impact of $27.5 million in the second quarter of 2010, net of a release of liabilities for unrecognized tax benefits. The resolution of the 2005 through 2007 audit resulted in a tax assessment to the Company of $42.5 million and interest of $7.2 million for a total of $49.7 million that the Company paid on July 15, 2010. Additionally, as a result of the settlement, the Company incurred state income taxes and interest of approximately $2.5 million.
The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company’s liability includes interest and penalties at December 28, 200731, 2010, January 1, 2010, and January 2, 2009 of $3.1$2.6 million, $5.0 million, and $4.4 million, respectively, which iswere recorded in Other non- currentnon-current liabilities in the accompanying Consolidated Balance Sheets. Current year interest and penalties reflected in income is $0.9 million.
NOTE 13: COMPREHENSIVE INCOME
The components of comprehensive income and related tax effects are as follows:
Fiscal Years Ended | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||
| (in thousands) | ||||||||||||
| Net income | $ | 117,374 | $ | 103,658 | $ | 84,855 | ||||||
| Foreign currency translation adjustments, net of tax of $(636) in 2007 and $(108) in 2006 | 18,655 | 21,709 | (24,690 | ) | ||||||||
| Net gain (loss) on hedging transactions | - | - | (106 | ) | ||||||||
| Net unrealized actuarial losses | (13 | ) | - | - | ||||||||
| Net unrealized gain (loss) on investments | (33 | ) | 4 | (34 | ) | |||||||
| Total comprehensive income | $ | 135,983 | $ | 125,371 | $ | 60,025 | ||||||
Fiscal Years Ended (in thousands) Net income Foreign currency translation adjustments, net of tax of $(223) in 2010, $(2,551) in 2009, and $4,849 in 2008 Net unrealized gain (loss) on investments/actuarial gain (loss) Comprehensive income Less: Net income (loss) attributable to the noncontrolling interests Comprehensive income attributable to Trimble Navigation Ltd. December 31,
2010 January 1,
2010 January 2,
2009 $ 103,613 $ 63,963 $ 140,973 354 20,583 (31,722 ) (624 ) 65 (349 ) 103,343 84,611 108,902 (47 ) 517 (499 ) $ 103,390 $ 84,094 $ 109,401
The components of accumulated other comprehensive income, net of related tax were as follows:
| December 28, | December 29, | |||||||
| Fiscal Years Ended | 2007 | 2006 | ||||||
| (in thousands) | ||||||||
| Accumulated foreign currency translation adjustments | $ | 59,869 | $ | 41,214 | ||||
| Net unrealized actuarial losses | (149 | ) | (136 | ) | ||||
| Accumulated net unrealized gain on foreign currency | -- | 33 | ||||||
| Total accumulated other comprehensive income | $ | 59,720 | $ | 41,111 | ||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | ||||||
(in thousands) | ||||||||
Accumulated foreign currency translation adjustments | $ | 49,084 | $ | 48,730 | ||||
Net unrealized actuarial losses | (1,057 | ) | (433 | ) | ||||
Total accumulated other comprehensive income | $ | 48,027 | $ | 48,297 | ||||
NOTE 14: EMPLOYEE STOCK BENEFIT PLANS
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase Plan (“Purchase Plan”) under which an aggregate of 11,550,00015,550,000 shares of Common Stock have been reserved for sale to eligible employees as approved by the shareholders to date. The plan permits full-time employees to purchase Common Stock through payroll deductions at 85% of the lower of the fair market value of the Common Stock at the beginning or at the end of each offering period, which is generally six months. The amended Purchase Plan terminates on September 8, 2008.30, 2018. In fiscal 20072010, 2009 and 2006,2008, the shares issued under the Purchase Plan were 430,068450,774, 763,597, and 195,398437,833 shares, respectively. Compensation expense recognized during fiscal 20072010, 2009 and 20062008 related to shares granted under the Employee Stock Purchase Plan was $2.6$2.9 million, $3.4 million, and $1.8$3.4 million, respectively. At December 28, 2007,31, 2010, the number of shares reserved for future purchases by eligible employees was 1,010,206.
Restricted Stock Award
Trimble did not grant any restricted stock awards in fiscal 20072010, fiscal 2009, or fiscal 2006.2008. During the second quarter of fiscal 2005,2006, the Company granted 40,000 shares of restricted common stock. The award vests 20% on June 30, 2005 and an additional 20% each June 30 thereafter. There was no compensation expense recorded for fiscal 2010. The Company recorded compensation expense in the Consolidated Statements of Income of $191,000, $191,000$92,000 and $120,000$155,000 for fiscal 2007, 20062009 and 2005,2008, respectively.
2002 Stock Plan
In 2002, Trimble’s board of directors adopted the 2002 Stock Plan (“2002 Plan”). The 2002 Plan, approved by the shareholders, provides for the granting of incentive and non-statutory stock options and stock awards for up to 12,000,00020,000,000 shares plus any shares currently reserved but un-issuedunissued to employees, consultants, and directors of Trimble. Incentive stock options may be granted at exercise prices that are not less than 100% of the fair market value of Common Stock on the date of grant. Employee stock options granted under the 2002 Plan generally have 84-120 month terms, and vest at a rate of 20% at the first anniversary of grant and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of the grant. In certain instances, grants vest at a rate of 40% at the second anniversary of grant and monthly thereafter at an annual rate of 20% with full vesting occurring at the fifth anniversary of the grant. Non-employee director stock options granted under the 2002 Plan generally have 84-120 month terms, and vest at a rate of 1/12th per month, with full vesting occurring one year from the date of grant. The Company issues new shares for option exercises. The majority of the restricted share units granted under this plan vest 100% after three years. As of December 28, 2007,31, 2010, options to purchase 7,498,1239,712,427 shares were outstanding, 62,9721,201,573 restricted stock units were unvested, and 3,833,3975,098,979 shares were available for future grant under the 2002 Plan.
@Road Plan
In connection with the acquisition of @Road in February 2007, the Company assumed all of the outstanding stock options of @Road’s 2000 Stock Option Plan (“@Road Plan”) as well as the plan itself. The @Road Plan provides for the granting of incentive and non-statutory stock options. Incentive stock options may be granted
at exercise prices that are not less than 100% of the fair market value of Common Stock on the date of grant. Employee stock options granted under the @Road Plan generally have 120-month terms, and vest at a rate of 20% at the first anniversary of grant and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of the grant. The Company issues new shares for option exercises. As of December 28, 200731, 2010, options to purchase 891,333310,349 shares were outstanding under the @Road Plan. Shares under this plan are no longer available for grant due to the Mergermerger of @Road into Trimble.
1993 Stock Option Plan
In 1992, Trimble'sTrimble’s board of directors adopted the 1993 Stock Option Plan (“1993 Plan”). The 1993 Plan, as amended to date and approved by shareholders, provided for the granting of incentive and non-statutory stock options for up to 19,125,000 shares of Common Stock to employees, consultants, and directors of Trimble. Incentive stock options may be granted at exercise prices that are not less than 100% of the fair market value of Common Stock on the date of grant. Employee stock options granted under the 1993 Plan have 120-month terms, and vest at a rate of 20% at the first anniversary of grant, and monthly thereafter at an annual rate of 20%, with full vesting occurring at the fifth anniversary of grant. The Company issues new shares for option exercises. As of December 28, 200731, 2010, options to purchase 1,518,022230,803 shares were outstanding and no shares were available for future grant.
In 1992, Trimble'sTrimble’s board of directors approved the 1992 Management DiscountEmployee Stock OptionBonus Plan ("Discount Plan"(“Bonus Plan”). As of December 28, 2007,31, 2010, there were no options outstanding to purchase shares and 6,3433,998 shares were available for future grant under the 1992 Management DiscountEmployee Stock OptionBonus Plan.
1990 Director Stock Option Plan
In December 1990, Trimble adopted a Director Stock Option Plan under which an aggregate of 1,140,000 shares of Common Stock have been reserved for issuance to non-employee directors as approved by the shareholders to date. At December 28, 2007,31, 2010, options to purchase 215,00060,000 shares were outstanding, and no shares were available for future grants under the Director Stock Option Plan.
Options Outstanding and Exercisable
Exercise prices for options outstanding as of December 28, 2007,31, 2010, ranged from $2.67$3.35 to $40.59.$40.76. In view of the wide range of exercise prices, Trimble considers it appropriate to provide the following additional information with respect to options outstanding at December 28, 2007:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||
| Weighted- | Weighted- | Weighted- | ||||||||||||||||||||
| Average | Average | Average | ||||||||||||||||||||
| Number | Exercise Price | Remaining | Number | Exercise Price | ||||||||||||||||||
| Range | Outstanding | per Share | Contractual Life (Years) | Exercisable | per Share | |||||||||||||||||
| (In thousands, except for per share data) | ||||||||||||||||||||||
| $ | 2.67 – $5.11 | 1,080 | $ | 4.58 | 3.44 | 1,080 | $ | 4.58 | ||||||||||||||
| $ | 5.15 – $8.02 | 1,030 | 6.04 | 3.00 | 1,026 | 6.04 | ||||||||||||||||
| $ | 8.50 | 1,232 | 8.50 | 5.41 | 1,008 | 8.50 | ||||||||||||||||
| $ | 8.77 – $14.44 | 870 | 12.25 | 4.79 | 672 | 12.42 | ||||||||||||||||
| $ | 14.53 | 1,048 | 14.53 | 6.54 | 571 | 14.53 | ||||||||||||||||
| $ | 14.56 – $16.72 | 689 | 15.98 | 7.31 | 367 | 15.96 | ||||||||||||||||
| $ | 17.00 | 1,046 | 17.00 | 7.81 | 362 | 17.00 | ||||||||||||||||
| $ | 17.05 – $23.36 | 659 | 19.81 | 7.57 | 301 | 19.68 | ||||||||||||||||
| $ | 23.44 | 1,278 | 23.44 | 5.81 | 153 | 23.44 | ||||||||||||||||
| $ | 23.55 – $40.59 | 1,191 | 34.80 | 6.74 | 36 | 27.02 | ||||||||||||||||
| Total | 10,123 | $ | 15.88 | 5.74 | 5,576 | $ | 10.55 | |||||||||||||||
| Weighted- | ||||||||||||||||
| Weighted- | Average | Aggregate | ||||||||||||||
| Number | Average | Remaining | Intrinsic | |||||||||||||
| Of Shares | Exercise Price | Contractual Term | Value | |||||||||||||
| (in thousands) | per Share | (in years) | (in thousands) | |||||||||||||
| Options outstanding | 10,123 | $ | 15.88 | 5.74 | $ | 156,330 | ||||||||||
| Options outstanding and expected to vest | 9,507 | 15.41 | 5.68 | 150,788 | ||||||||||||
| Options exercisable | 5,576 | 10.55 | 4.95 | 112,283 | ||||||||||||
| Options Outstanding | Options Exercisable | |||||||||||||||||||
Range | Number Outstanding | Weighted- Average Exercise Price per Share | Weighted- Average Remaining Contractual Life (in years) | Number Exercisable | Weighted- Average Exercise Price per Share | |||||||||||||||
(in thousands, except for per share data) | ||||||||||||||||||||
$3.35 – $8.50 | 1,345 | $ | 7.17 | 1.95 | 1,345 | $ | 7.17 | |||||||||||||
$8.77 – $16.24 | 1,139 | 14.37 | 3.81 | 1,133 | 14.36 | |||||||||||||||
$16.42– $19.78 | 921 | 17.46 | 4.94 | 917 | 17.46 | |||||||||||||||
$19.96 | 1,048 | 19.96 | 4.78 | 392 | 19.96 | |||||||||||||||
$20.01 – $21.68 | 1,557 | 20.94 | 5.79 | 118 | 20.52 | |||||||||||||||
$21.72 – $24.36 | 1,039 | 23.37 | 3.06 | 832 | 23.35 | |||||||||||||||
$25.20– $30.80 | 1,611 | 29.39 | 5.35 | 507 | 28.14 | |||||||||||||||
$31.06– $36.20 | 1,070 | 36.03 | 6.61 | 89 | 35.20 | |||||||||||||||
$40.33– $40.59 | 570 | 40.59 | 3.67 | 367 | 40.59 | |||||||||||||||
$40.76 | 14 | 40.76 | 6.95 | — | — | |||||||||||||||
Total | 10,314 | $ | 22.25 | 4.52 | 5,700 | $ | 18.23 | |||||||||||||
Options outstanding Options outstanding and expected to vest Options exercisable Number Of
Shares
(in thousands) Weighted-
Average
Exercise
Price per
Share Weighted-
Average
Remaining
Contractual
Term
(in years ) Aggregate
Intrinsic
Value
(in thousands) 10,314 $ 22.25 4.52 $ 182,734 9,983 22.04 4.47 178,965 5,700 18.23 3.65 123,936
Options outstanding and expected to vest are adjusted for expected forfeitures. The aggregate intrinsic value is the total pretax intrinsic value based on the Company’s closing stock price of $30.69$39.93 as of December 28, 2007,31, 2010, which would have been received by the option holders had all option holders exercised their options as of that date.
As of December 28, 2007,31, 2010, the total unamortized stock option expense is $29.6$38.0 million with a weighted-average recognition period of 2.73.5 years.
Option Activity
Activity during fiscal 2007, 2006, and 2005,2010, under the combined plans was as follows:
| December 28, 2007 | December 29, 2006 | December 30, 2005 | ||||||||||||||||||||||
| Fiscal Years Ended | Options | Weighted average exercise price | Options | Weighted average exercise price | Options | Weighted average exercise price | ||||||||||||||||||
| (In thousands, except for per share data) | ||||||||||||||||||||||||
| Outstanding at beginning of year | 11,308 | $ | 12.04 | 12,828 | $ | 9.35 | 13,442 | $ | 8.05 | |||||||||||||||
| Granted | 1,134 | 27.37 | 1,744 | 22.94 | 1,748 | 17.05 | ||||||||||||||||||
| Assumed from @Road | 795 | 27.82 | -- | -- | ||||||||||||||||||||
| Exercised | (2,769 | ) | 8.05 | (3,082 | ) | 6.95 | (2,120 | ) | 7.37 | |||||||||||||||
| Cancelled | (345 | ) | 18.08 | (182 | ) | 12.99 | (242 | ) | 10.20 | |||||||||||||||
| Outstanding at end of year | 10,123 | 15.88 | 11,308 | 12.04 | 12,828 | 9.35 | ||||||||||||||||||
| Available for grant | 3,840 | 4,460 | 3,026 | |||||||||||||||||||||
| Options | Weighted average exercise price | |||||||
(in thousands, except for per share data) | ||||||||
Outstanding at beginning of year | 11,293 | $ | 18.64 | |||||
Granted | 1,846 | 33.49 | ||||||
Exercised | (2,523 | ) | 14.01 | |||||
Cancelled | (302 | ) | 24.97 | |||||
Outstanding at end of year | 10,314 | $ | 22.25 | |||||
Available for grant | 5,102 | |||||||
The total intrinsic value of options exercised during fiscal 2007, 20062010, 2009 and 20052008 was $68.4$47.5 million, $48.8$7.8 million, and $23.1$28.3 million, respectively. Compensation expense recognized during fiscal 20072010, 2009 and 20062008 related to stock options was $12.3$13.3 million, $11.7 million, and $10.7$11.8 million, respectively.
Restricted Stock Unit Activity
Activity during fiscal 20072010 was as follows:
| Restricted Stock Units | Weighted Average Grant-Date Fair Value | |||||||
| (In thousands, except for per share data) | ||||||||
| Nonvested at beginning of year | -- | |||||||
| Granted | 63 | $ | 40.55 | |||||
| Vested | (-- | ) | ||||||
| Cancelled | (-- | ) | ||||||
| Nonvested at end of year | 63 | $ | 40.55 | |||||
| Restricted Stock Units | Weighted Average Grant- Date Fair Value | |||||||
(in thousands, except for per share data) | ||||||||
Unvested at beginning of year | 890 | $ | 22.29 | |||||
Granted | 474 | 32.94 | ||||||
Vested | (68 | ) | 35.39 | |||||
Cancelled | (94 | ) | 22.59 | |||||
Unvested at end of year | 1,202 | $ | 25.73 | |||||
Compensation expense recognized during fiscal 20072010, 2009 and 2008 related to restricted stock units was $65,000.$6.9 million, $3.5 million, and $1.0 million, respectively. As of December 28, 2007,31, 2010, there was $2.0$18.3 million of total unamortized restricted stock unit compensation expense related to nonvestedunvested restricted stock units, with a weighted-average recognition period of 2.81.77 years.
On April 12, 2002, the Company issued to Spectra-Physics Holdings USA, Inc., a warrant to purchase up to 1,128,700 shares of Trimble’s Common Stock over a fixed period of time. Initially, Spectra-Physics’ warrant entitled it to purchase 600,000 shares of Common Stock over a five-year period at an exercise price of $5.04 per share. On a quarterly basis beginning July 14, 2002, Spectra-Physics’ warrant became exercisable for an additional 750 shares of Common Stock for every $1 million of principal and interest outstanding to Spectra-Physics until the obligation was paid off in full. These shares are purchasable at a price equal to the average of Trimble’s closing price for the five days immediately proceeding the last trading day of each quarter. On July 14, 2002 an additional 52,092 shares became exercisable at an exercise price of $4.82 per share. On October 14, 2002 an additional 53,472 shares became exercisable at an exercise price of $3.06. On January 14, 2003, an additional 54,852 shares became exercisable at an exercise price of $4.52. On April 14, 2003, an additional 28,623 shares became exercisable at an exercise price of $6.69. The approximate fair value of the warrants of $2.4 million was determined using the Black-Scholes pricing model with the following assumptions: contractual life of 5-year period, risk-free interest rate of 4%; volatility of 65%; and no dividends during the contractual term. The additional shares are exercisable over a 5-year period. No additional shares will be issuable under the warrant as the underlying obligation has been paid off in full. During fiscal 2007 there were 760,416 shares exercised related to the warrants. For fiscal 2006 and 2005, no shares were exercised. As of December 28, 2007, there are 28,623 shares outstanding and exercisable under the warrants.
401(k) Plan
Under the Company’s 401(k) Plan, U.S. employee participants (including employees of certain subsidiaries) may direct the investment of contributions to their accounts among certain mutual funds and the Trimble Navigation Limited Common Stock Fund. The Trimble Fund sold 92,960 net 47,552 shares of Common Stock for an
aggregate of $1.8$3.0 million in fiscal 2007.2010. The Company, at its discretion, matches individual employee 401(k) Plan contributions at a rate of fifty cents of every dollar that the employee contributes to the 401(k) Plan up to 5% of the employee’s annual salary to an annual maximum of $2,500. The Company’s matching contributions to the 401(k) Plan were $3.1$3.2 million in fiscal 2007, 2.52010, $3.2 million in fiscal 2006,2009 and $2.2$3.3 million in fiscal 2005.
Defined Contribution Pension Plans
Certain of the Company’s European subsidiaries participate in state sponsored pension plans. Contributions are based on specified percentages of employee salaries. For these plans, the Company contributed and charged to expense approximately $0.8 million for fiscal 2007, $0.7 million for fiscal 2006 and $0.6 million for fiscal 2005.
Defined Benefit Pension Plan
The Company provides defined benefit pension plans in Sweden Germany, and the Netherlands.Germany. The largest of these plans is provided by the Swedish subsidiary which has an unfunded defined benefit pension plan that covered substantially all of its full-time employees through 1993. Benefits are based on a percentage of eligible earnings. The employee must have had a projected period of pensionable service of at least 30 years as of 1993. If the period was shorter, the pension benefits were reduced accordingly. Active employees do not accrue any future benefits; therefore, there is no service cost and the liability will only increase for interest cost.
The Company adopted the recognition and disclosure provisions of SFAS 158. SFAS 158 required the Company to recognizerecognizes the funded status (i.e., the difference between the fair value of plan assets and the projected benefit obligations) of its pension plan in the Consolidated Balance Sheet with a corresponding adjustment to accumulated other comprehensive income, net of tax. The adjustment to accumulated other comprehensive income at adoption representsand that the net unrecognized actuarial losses and unrecognized transition obligation remaining fromchanges in the initial adoption of SFAS 87, all of which were previously netted against the plan’s funded status in the Company’s Consolidated Balance Sheets pursuant to the provisions of Statement 87. These amounts will be subsequently recognized as net periodic pension cost pursuant to the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in subsequent periods and are not recognized as net periodic pension cost in the same periods will be recognized a component of other comprehensive income. Those amounts will be subsequently recognized as a component of net periodic pension cost on the same basis as the amounts recognized in accumulated other comprehensive income at adoption of SFAS 158. The adoption of SFAS 158 had no effect on the Company’s consolidated statement of income for the year ended December 28, 2007, or for any prior period presented, and it will not effect the Company’s operating results in future periods.
The pension related balances on the Company’s Consolidated balance sheetBalance Sheet at December 28, 200731, 2010 and December 29, 2006January 1, 2010 are presented in the following table.
| December 28, 2007 | December 29, 2006 | |||||||
| (in thousands) | ||||||||
| Intangible asset (pension) | $ | - | $ | - | ||||
| Current accrued pension liability | 276 | 218 | ||||||
| Non-current accrued pension liability | 6,646 | 6,616 | ||||||
| Unrecognized actuarial loss | (149 | ) | (136 | ) | ||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | ||||||
(in thousands) | ||||||||
Current accrued pension liability | $ | 413 | $ | 382 | ||||
Non-current accrued pension liability | 6,568 | 5,915 | ||||||
Unrecognized actuarial loss | (1,057 | ) | (433 | ) | ||||
The changes in the benefit obligations and plan assets of the significant non-U.S. defined benefit pension plans for fiscal 20072010 and 20062009 were as follows:
| Fiscal Years Ended | December 28, 2007 | December 29, 2006 | ||||||
| (in thousands) | ||||||||
| Change in benefit obligation: | ||||||||
| Benefit obligation at beginning of year | $ | 9,398 | $ | 6,929 | ||||
| Adjustment to include benefit obligation for the Netherlands subsidiary | 336 | 1,412 | ||||||
| Benefit obligation at beginning of year (restated) | 9,734 | 8,341 | ||||||
| Service cost | 411 | 323 | ||||||
| Interest cost | 460 | 396 | ||||||
| Benefits paid | (359 | ) | (311 | ) | ||||
| Foreign exchange impact | 173 | 1,253 | ||||||
| Actuarial (gains) losses | (188 | ) | (268 | ) | ||||
| Benefit obligation at end of year | 10,231 | 9,734 | ||||||
| Change in plan assets: | ||||||||
| Fair value of plan assets at beginning of year | 2,913 | 980 | ||||||
| Adjustment to include fair value of plan assets for the Netherlands subsidiary | (13 | ) | 1,242 | |||||
| Fair value of plan assets at beginning of year (restated) | 2,900 | 2,222 | ||||||
| Actual return on plan assets | (92 | ) | 106 | |||||
| Employer contribution | 355 | 455 | ||||||
| Plan participants’ contributions | - | - | ||||||
| Benefits paid | (123 | ) | (311 | ) | ||||
| Foreign exchange impact | 269 | 428 | ||||||
| Fair value of plan assets at end of year | 3,309 | 2,900 | ||||||
| Benefit obligation in excess of plan assets at end of year | $ | 6,922 | $ | 6,834 | ||||
| Current portion (included in accrued compensation and benefits) | 276 | 218 | ||||||
| Non-current portion (included in other non-current liabilities) | 6,646 | 6,616 | ||||||
Fiscal Years Ended | December 31, 2010 | January 1, 2010 | ||||||
(in thousands) | ||||||||
Change in benefit obligation: | ||||||||
Benefit obligation at beginning of year | $ | 7,709 | $ | 6,939 | ||||
Service cost | 27 | 31 | ||||||
Interest cost | 307 | 326 | ||||||
Benefits paid | (486 | ) | (404 | ) | ||||
Foreign exchange impact | 186 | 463 | ||||||
Actuarial losses | 562 | 354 | ||||||
Benefit obligation at end of year | 8,305 | 7,709 | ||||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | 1,412 | 1,360 | ||||||
Actual return on plan assets | 24 | 28 | ||||||
Employer contribution | 493 | 408 | ||||||
Plan participants’ contributions | — | — | ||||||
Benefits paid | (487 | ) | (403 | ) | ||||
Foreign exchange impact | (118 | ) | 19 | |||||
Fair value of plan assets at end of year | 1,324 | 1,412 | ||||||
Benefit obligation in excess of plan assets at end of year | $ | 6,981 | $ | 6,297 | ||||
Current portion (included in accrued compensation and benefits) | 413 | 382 | ||||||
Non-current portion (included in other non-current liabilities) | 6,568 | 5,915 | ||||||
The under-funded status of the plan of $6.9$7.0 million at December 28, 200731, 2010 is recognized in the accompanying consolidated balance sheetsConsolidated Balance Sheets as a short-term and a long-term accrued pension liability. No plan assets are expected to be returned to Trimble during the fiscal year-ended December 28, 2007.
Net periodic benefit cost in fiscal 20052010 was not material.
Actuarial assumptions used to determine the net periodic pension costs for the year ended December 28, 2007fiscal 2010 were as follows:
Swedish Subsidiary | German Subsidiaries | Netherlands Subsidiary | ||||||||||
| Discount rate | 4.5 | % | 5.6 | % | 5.3 | % | ||||||
| Rate of compensation increase | 2.0 | % | 2.0 | % | 2.0 | % | ||||||
| Measurement Date | 12/28/07 | 12/28/07 | 12/28/07 | |||||||||
| Swedish Subsidiary | German Subsidiaries | |||||||
Discount rate | 3.5 | % | 4.8 | % | ||||
Rate of compensation increase | 2.0 | % | 2.0 | % | ||||
Measurement date | 12/31/2010 | 12/31/2010 | ||||||
The Company’s accumulated benefits obligation was approximately $9.7$8.3 million and $7.5$7.7 million for fiscal 20072010 and fiscal 2006,2009, respectively.
The following table provides additional fair value information relating to the Company’s plan assets:
| Fair Values as of December 31, 2010 | ||||||||||||||||
| (in thousands) | Level I | Level II | Level III | Total | ||||||||||||
Asset Category | ||||||||||||||||
Local government bonds | $ | — | $ | 1,153 | $ | — | $ | 1,153 | ||||||||
Equity securities | — | 132 | — | 132 | ||||||||||||
Real estate | — | — | 26 | 26 | ||||||||||||
Other | — | — | 13 | 13 | ||||||||||||
Total | $ | — | $ | 1,285 | $ | 39 | $ | 1,324 | ||||||||
The Company’s plan assets are primarily located in ourthe Company’s German subsidiaries and the Netherlands subsidiary.subsidiaries. For German subsidiaries, for fiscal 2005,2010, the asset allocation of ourthe total plan assets was approximately as follows: 89%87% local government bonds, 7%2% real estate, 10% equity securities and 4% equity securities.1% in other investment. Long-term asset allocation and expected return on assets assumptions are derived from detailed annual studies conducted by Trimble’sthe Company’s asset management group and actuaries. Trimble’sThe Company’s asset management group limits allocation to equity securities and real estate to a maximum of 10% and 25%, respectively, with the remaining assets to be allocated to local government bonds. For the Netherlands subsidiary, 100% of the assets are invested in an insurance contract. While the asset allocation give appropriate consideration to recent performance and historical returns, the strategy is focused primarily on conservative and sustainable long-term returns. Based on historical returns, Trimblethe Company expects future return on assets to be approximately 4%.
The table below sets forth a summary of changes in the fair value of the Level III plan assets for the twelve months ended December 31, 2010.
As of | Level III plan assets December 31, 2010 | |||
(in thousands) | ||||
Balance as of January 1, 2010 | $ | 42 | ||
Realized and unrealized loss | (3 | ) | ||
Balance as of December 31, 2010 | $ | 39 | ||
The Company expects to contribute approximately $576,000$0.5 million to plan assets in fiscal year ended 2008.
The following benefit payments, which reflect estimated future employee service, as appropriate, are expected to be paid:
| Expected Benefit Payments | |||
| (In thousands) | |||
| 2008 | $612 | ||
| 2009 | $442 | ||
| 2010 | $542 | ||
| 2011 | $568 | ||
| 2012 | $576 | ||
| Thereafter | $5,609 | ||
| Total | $8,349 |
2011 | $ | 473 | ||
2012 | 472 | |||
2013 | 503 | |||
2014 | 502 | |||
2015 | 505 | |||
Next five fiscal years | 2,565 | |||
Total | $ | 5,020 | ||
NOTE 16: STATEMENT OF CASH FLOW DATA
| December 28, | December 29, | December 30, | ||||||||||
| Fiscal Years Ended | 2007 | 2006 | 2005 | |||||||||
| (in thousands) | ||||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Interest paid | $ | 6,250 | $ | 8 | $ | 1,081 | ||||||
| Income taxes paid | $ | 35,170 | $ | 36,000 | $ | 8,938 | ||||||
| Significant non-cash investing activities: | ||||||||||||
| Issuance of shares to acquire @Road | $ | 161,947 | - | $ | - | |||||||
| Issuance of shares related to acquisition related earn-out payments | $ | - | $ | - | $ | - | ||||||
Fiscal Years Ended (in thousands) Supplemental disclosure of cash flow information: Interest paid Income taxes paid December 31,
2010 January 1,
2010 January 2,
2009 $ 1,752 $ 1,812 $ 2,451 $ 63,937 $ 26,703 $ 73,756
From time to time, the Company is involved in litigation arising out of the ordinary course of its business. There are no known claims or pending litigation expected to have a material effect on the Company’s overall financial position, results of operations, or liquidity.
NOTE 18: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
| March 30, | June 29, | September 28, | December 28, | |||||||||||||
| Fiscal period ended | 2007 | 2007 | 2007 | 2007 | ||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Revenue | $ | 285,732 | $ | 327,732 | $ | 296,023 | $ | 312,783 | ||||||||
| Gross margin | 143,130 | 167,169 | 146,940 | 155,666 | ||||||||||||
| Net income | 28,683 | 35,026 | 27,374 | 26,291 | ||||||||||||
| Basic net income per share | 0.25 | 0.29 | 0.23 | 0.22 | ||||||||||||
| Diluted net income per share | 0.24 | 0.28 | 0.22 | 0.21 | ||||||||||||
| March 31, | June 30, | September 29, | December 29, | |||||||||||||
| Fiscal period ended | 2006 | 2006 | 2006 | 2006 | ||||||||||||
| (in thousands, except per share data) | ||||||||||||||||
| Revenue | $ | 225,854 | $ | 245,326 | $ | 234,851 | $ | 234,119 | ||||||||
| Gross margin | 107,463 | 121,656 | 116,191 | 115,771 | ||||||||||||
| Net income | 25,828 | 28,503 | 25,342 | 23,985 | ||||||||||||
| Basic net income per share | 0.24 | 0.26 | 0.23 | 0.22 | ||||||||||||
| Diluted net income per share | 0.23 | 0.25 | 0.22 | 0.20 | ||||||||||||
Trimble has a 52-53 week fiscal year, ending on the Friday nearest to December 31. As a result of the extra week, year-over-year results aremay not exactlybe comparable. Thus, due to the inherent nature of adopting a 52-53 week fiscal year, the Company, analysts, shareholders, investors, and others will have to make appropriate adjustments to any analysis performed when comparing our activities and results. Fiscal 20072010 and 20062009 were both were 52-week years.
Fiscal period ended | April 2, 2010 | July 2, 2010 | October 1, 2010 | December 31, 2010 | ||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Revenue | $ | 319,015 | $ | 333,363 | $ | 318,210 | $ | 323,349 | ||||||||
Gross margin | 158,997 | 163,426 | 159,748 | 163,330 | ||||||||||||
Net income attributable to Trimble Navigation Ltd. | 27,898 | 6,353 | 32,845 | 36,564 | ||||||||||||
Basic net income per share | 0.23 | 0.05 | 0.27 | 0.30 | ||||||||||||
Diluted net income per share | 0.23 | 0.05 | 0.27 | 0.29 | ||||||||||||
Fiscal period ended | April 3, 2009 | July 3, 2009 | October 2, 2009 | January 1, 2010 | ||||||||||||
(in thousands, except per share data) | ||||||||||||||||
Revenue | $ | 288,954 | $ | 290,063 | $ | 269,713 | $ | 277,529 | ||||||||
Gross margin | 143,958 | 142,800 | 132,458 | 130,652 | ||||||||||||
Net income attributable to Trimble Navigation Ltd. | 17,465 | 20,857 | 15,577 | 9,547 | ||||||||||||
Basic net income per share | 0.15 | 0.17 | 0.13 | 0.08 | ||||||||||||
Diluted net income per share | 0.14 | 0.17 | 0.13 | 0.08 | ||||||||||||
The boardBoard of directorsDirectors and Shareholders of Trimble Navigation Limited
We have audited the accompanying consolidated balance sheets of Trimble Navigation Limited as of December 28, 200731, 2010 and December 29, 2006,January 1, 2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 28, 2007.31, 2010. Our audits also included the financial statement schedule listed in the index at Item 15 (a) Schedule II. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trimble Navigation Limited at December 28, 200731, 2010 and December 29, 2006,January 1, 2010, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 28, 2007,31, 2010, in conformity with U.SU.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, on January 2, 2010, the Company prospectively adopted the new accounting standards related to revenue recognition for arrangements with multiple deliverables and arrangements that include software elements, effective January 2, 2010 and changed its method of accounting for stock-based compensation as of December 31, 2005,noncontrolling interests and its method of accounting for uncertain tax positions as of December 30, 2006.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Trimble Navigation Limited’s internal control over financial reporting as of December 28, 2007,31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2008,28, 2011, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 22, 2008
The boardBoard of directorsDirectors and Shareholders of Trimble Navigation Limited
We have audited Trimble Navigation Limited'sLimited’s internal control over financial reporting as of December 28, 2007,31, 2010, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Trimble Navigation Limited’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management'sManagement’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the company’sCompany’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Trimble Navigation Limited maintained, in all material respects, effective internal control over financial reporting as of December 28, 2007,31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Trimble Navigation Limited as of December 28, 200731, 2010 and December 29, 2006,January 1, 2010, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended December 28, 200731, 2010 and our report dated February 22, 200828, 2011 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
San Jose, California
February 22, 2008
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
None
(a) Evaluation of Disclosure Controls and Procedures
The management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective.
Inherent Limitations on Effectiveness of Controls
The company’sCompany’s management, including the CEO and CFO, does not expect that our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b) Management’s Report on Internal Control over Financial Reporting
The company’sCompany’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
The company’sCompany’s management, including the CEO and CFO, conducted an evaluation of the effectiveness of its internal control over financial reporting based on the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the results of this evaluation, the company’sCompany’s management concluded that its internal control over financial reporting was effective as of December 28, 2007.
The effectiveness of our internal control over financial reporting as of December 28, 200731, 2010 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is included elsewhere herein.
Changes in Internal Control over Financial Reporting
During the quarter ended December 28, 2007,31, 2010, there were no changes in the company’sCompany’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the company’sCompany’s internal control over financial reporting.
None.
The information required by this item, insofar as it relates to Trimble’s directors, will be contained under the captions “Election of Directors” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement and is incorporated herein by reference. The information required by this item relating to executive officers is set forth above in Item 1 Business Overview under the caption “Executive Officers.”
The information required by this item in so farinsofar as it relates to the nominating and audit committees will be contained in the Proxy Statement under the caption “Board Meetings and Committees.”
Code of Ethics
The Company’s Business Ethics and Conduct Policy applies to, among others, to the Company’s Chief Executive Officer, Chief Financial Officer, Vice President of Finance, Corporate Controller, and other finance organization employees. The Business Ethics and Conduct Policy is available on the Company’s website at www.trimble.com under the heading “Corporate Governance and Policies” on the Investor Information page of our website. A copy will be provided, without charge, to any shareholder who requests one by written request addressed to General Counsel, Trimble Navigation Limited, 935 Stewart Drive, Sunnyvale, CA 94085.
If any substantive amendments to the Business Ethics and Conduct Policy are made or any waivers are granted, including any implicit waiver, from a provision of the Business Ethics and Conduct Policy, to its Chief Executive Officer, Chief Financial Officer, Vice President of Finance, or Corporate Controller, the Company will disclose the nature of such amendment or waiver on the Company’s website at www.trimble.com or in a report on Form 8-K.
The information required by this item will be contained in the Proxy Statement under the caption “Executive Compensation” and is incorporated herein by reference.
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
The information required by this item will be contained in the Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and is incorporated herein by reference.
The information required by this item will be contained in the Proxy Statement under the caption “Certain Relationships and Related Transactions, and Director Independence” and is incorporated herein by reference.
The information required by this item will be contained in the Proxy Statement under the caption “Principal Accounting Fees and Services” and is incorporated herein by reference.
(a) (1) Financial Statements
The following consolidated financial statements required by this item are included in Part II Item 8 hereof under the caption “Financial Statements and Supplementary Data.”
Page in this Annual Report on Form 10-K | ||||
Consolidated Balance Sheets at December | ||||
| 48 | ||||
Consolidated Statements of Income for the fiscal years ended December | ||||
| 49 | ||||
Consolidated Statement of Shareholders’ Equity for the fiscal years ended December | ||||
| 50 | ||||
Consolidated Statements of Cash Flows for the fiscal years ended December | ||||
| 51 | ||||
| 52 | ||||
| 82 | ||||
(2)Financial Statement Schedules
The following financial statement schedule is filed as part of this report:
Page in this Annual Report | ||||
Schedule II – Valuation and Qualifying Accounts | S-1 | |||
All other schedules have been omitted as they are either not required or not applicable, or the required information is included in the consolidated financial statements or the notes thereto.
(b) Exhibits
Exhibit Number | |||
| 3.1 | Restated Articles of Incorporation of the Company filed June 25, 1986. | ||
| 3.2 | Certificate of Amendment of Articles of Incorporation of the Company filed October 6, 1988. | ||
| 3.3 | Certificate of Amendment of Articles of Incorporation of the Company filed July 18, 1990. | ||
| 3.4 | Certificate of Determination of the Company filed February 19, 1999. | ||
| 3.5 | Certificate of Amendment of Articles of Incorporation of the Company filed May 29, 2003. | ||
| 3.6 | Certificate of Amendment of Articles of Incorporation of the Company filed March 4, 2004. | ||
| 3.7 | Certificate of Amendment of Articles of Incorporation of the Company filed February 21, 2007. | ||
| 3.8 | Bylaws of the Company (amended and restated through July 20, 2006). | ||
| 4.1 | Specimen copy of certificate for shares of Common Stock of the Company. (1) | ||
| 10.1+ | Form of Indemnification Agreement between the Company and its officers and directors. | |
| 10.2+ | 1990 Director Stock Option Plan, as amended, and form of Outside Director Non-statutory Stock Option Agreement. (3) | |
| 10.3+ | 1992 Management Discount Stock Option and form of Non-statutory Stock Option Agreement. (2) | |
| 10.4+ | 1993 Stock Option Plan, as amended October 24, 2003. | |
| 10.5+ | Trimble Navigation | |
| 10.6+ | Employment Agreement between the Company and Steven W. Berglund dated March 17, 1999. | |
| 10.7+ | Trimble Navigation Limited Deferred Compensation Plan effective December 30, 2004, as amended and | |
| restated October | |||
| 10.8+ | Trimble Navigation Limited Australian Addendum to the | ||
| 10.9+ | Trimble Navigation Limited Amended and Restated 2002 Stock Plan, | ||
| 10.10 | Amended and Restated Credit Agreement dated February 16, 2007 (amending and restating the Credit Agreement dated as of July 28, 2005) among Trimble Navigation Limited, the Subsidiary Borrowers, The Bank of Nova Scotia (Administrative Agent, Issuing Bank and Swing Line Bank), Citibank N.A. and BMO Capital Markets (Co-Syndication Agents), Bank of America, N.A. and Wells Fargo Bank N.A. (Co-Documentation Agents), The Bank of Nova Scotia and BNY Capital Markets, Inc. (Joint Lead Arrangers), and The Bank of Nova Scotia (Sole Book Runner). | ||
| 10.11+ | Employment Agreement between the Company and Rajat Bahri dated December 6, 2004. | ||
| 10.12+ | Board of Directors Compensation Policy effective | ||
| 10.13+ | |||
| 10.14+ | |||
| 10.15+ | |||
| Lease dated May 11, 2005 between CarrAmerica Realty Operating Partnership, L.P. and the Company. | |||
| @Road, Inc. 2000 Stock Option Plan, as amended May 16, 2000. (21) | |||
| 10.18 | Amendment No. 1 to the Amended and Restated Credit Agreement. (26) | ||
| 10.19+ | Trimble Navigation Limited Annual Management Incentive Plan Description. (18) | ||
| 10.20+ | Australian Addendum to the Trimble Navigation Limited Amended and Restated 2002 Stock Plan. (30) | ||
| 10.21 ** | Master Manufacturing Services Agreement by and between the Company and Flextronics Corporation (formerly Solectron Corporation) dated March 12, 2004, as amended January 19, 2005, October 25, 2005 and June 20, 2007. (24) | ||
| 10.22 ** | Consigned Excess Inventory Addendum to the Master Manufacturing Services Agreement by and between the Company and Flextronics Corporation (formerly Solectron Corporation) dated July 6, 2009. (25) | ||
| 10.23 | First Amendment to Lease between Carr NP Properties, LLC and the Company. (31) | ||
| 10.24 | Letter of assignment between the Company and Christopher Gibson dated June 11, 2008. (31) | ||
| 10.25 | Amendment to the letter of assignment between the Company and Christopher Gibson dated December 20, 2009. (31) | ||
| 21.1 | Subsidiaries of the Company. | ||
| 23.1 | Consent of | ||
| 24.1 | Power of Attorney included on signature page herein. | ||
| 31.1 | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32.2 | Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 101.INS | XBRL Instance Document. (32) | ||
| 101.SCH | |||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. (32) | ||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. (32) | ||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. (32) | ||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. (32) | ||
| (1) | Incorporated by reference to exhibit number 4.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-35333), which became effective July 19, 1990. |
| (2) | Incorporated by reference exhibit number 10.46 to the Company’s Registration Statement on Form S-1 (File No. 33-45990), which was filed February 25, 1992. |
| (3) | Incorporated by reference to exhibit number 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993. |
| (4) | ||
| Incorporated by reference to exhibit number 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (5) | Incorporated by reference to exhibit number 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (6) | Incorporated by reference to exhibit number 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (7) | Incorporated by reference to exhibit number 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (8) | Incorporated by reference to exhibit number 10.67 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (9) | Incorporated by reference to exhibit number 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2007. |
| (10) | Incorporated by reference to exhibit number 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2003. |
| (11) | Incorporated by reference to exhibit number |
| (12) | Incorporated by reference to exhibit number 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended |
| (13) | Incorporated by reference to exhibit number 3.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2003. |
| (14) | Incorporated by reference to exhibit number 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2006. |
| (15) | Incorporated by reference to exhibit number 3.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2004. |
| (16) | Incorporated by reference to exhibit number 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (17) | Incorporated by reference to exhibit number 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 30, 2005. |
| (18) | Incorporated by reference to exhibit number |
| (19) | Incorporated by reference to exhibit number 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 30, 2005. |
| (20) | Incorporated by reference to exhibit number 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2007. |
| (21) | Incorporated by reference to exhibit number 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 29, 2006. |
| Incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2009. |
| (23) | Incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2010. |
| (24) | Incorporated by reference to exhibit number 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2009. |
| (25) | Incorporated by reference to exhibit number 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended |
| (26) | Incorporated by reference to exhibit |
| Incorporated by reference to exhibit number 10.13 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2009. |
| (28) | Incorporated by reference to exhibit number 10.14 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2009. |
| (29) | Incorporated by reference to exhibit number 10.15 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2009. |
| (30) | Incorporated by reference to exhibit number 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2009. |
| (31) | Filed herewith. |
| (32) | Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. |
| + | Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10K. |
| ** | Portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2. |
EXHIBIT LIST
Exhibit Number | |||
| 3.1 | Restated Articles of Incorporation of the Company filed June 25, 1986. | ||
| 3.2 | Certificate of Amendment of Articles of Incorporation of the Company filed October 6, 1988. | ||
| 3.3 | Certificate of Amendment of Articles of Incorporation of the Company filed July 18, 1990. | ||
| 3.4 | Certificate of Determination of the Company filed February 19, 1999. | ||
| 3.5 | Certificate of Amendment of Articles of Incorporation of the Company filed May 29, 2003. | ||
| 3.6 | Certificate of Amendment of Articles of Incorporation of the Company filed March 4, 2004. | ||
| 3.7 | Certificate of Amendment of Articles of Incorporation of the Company filed February 21, 2007. | ||
| 3.8 | Bylaws of the Company (amended and restated through July 20, 2006). | ||
| 4.1 | Specimen copy of certificate for shares of Common Stock of the Company. (1) | ||
| 10.1+ | Form of Indemnification Agreement between the Company and its officers and directors. | ||
| 10. 2+ | 1990 Director Stock Option Plan, as amended, and form of Outside Director Non-statutory Stock Option Agreement. (3) | ||
| 10.3+ | 1992 Management Discount Stock Option and form of Non-statutory Stock Option Agreement. (2) | ||
| 10.4+ | 1993 Stock Option Plan, as amended October 24, 2003. | ||
| 10.5+ | Trimble Navigation | ||
| 10.6+ | Employment Agreement between the Company and Steven W. Berglund dated March 17, 1999. | ||
| 10.7+ | Trimble Navigation Limited Deferred Compensation Plan effective December 30, 2004, as amended and restated October | ||
| 10.8+ | |||
| Trimble Navigation Limited Australian Addendum to the Amended and Restated Employee Stock Purchase Plan. (11) | |||
| 10.9+ | Trimble Navigation Limited Amended and Restated 2002 Stock Plan, | ||
| 10.10 | Amended and Restated Credit Agreement dated February 16, 2007 (amending and restating the Credit Agreement dated as of July 28, 2005) among Trimble Navigation Limited, the Subsidiary Borrowers, The Bank of Nova Scotia (Administrative Agent, Issuing Bank and Swing Line Bank), Citibank N.A. and BMO Capital Markets (Co-Syndication Agents), Bank of America, N.A. and Wells Fargo Bank N.A. (Co-Documentation Agents), The Bank of Nova Scotia and BNY Capital Markets, Inc. (Joint Lead Arrangers), and The Bank of Nova Scotia (Sole Book Runner). | ||
| 10.11+ | Employment Agreement between the Company and Rajat Bahri dated December 6, 2004. | ||
| 10.12+ | Board of Directors Compensation Policy effective | ||
| 10.13+ | |||
| 10.14+ | |||
| 10.15+ | |||
| Lease dated May 11, 2005 between CarrAmerica Realty Operating Partnership, L.P. and the Company. | |||
| @Road, Inc. 2000 Stock Option Plan, as amended May 16, 2000. (21) | |||
| 10.18 | Amendment No. 1 to the Amended and Restated Credit Agreement. (26) | ||
| 10.19+ | Trimble Navigation Limited Annual Management Incentive Plan Description. (18) | ||
| 10.20+ | Australian Addendum to the Trimble Navigation Limited Amended and Restated 2002 Stock Plan. (30) | ||
| 10.21 ** | Master Manufacturing Services Agreement by and between the Company and Flextronics Corporation (formerly Solectron Corporation) dated March 12, 2004, as amended January 19, 2005, October 25, 2005 and June 20, 2007. (24) | ||
| 10.22 ** | Consigned Excess Inventory Addendum to the Master Manufacturing Services Agreement by and between the Company and Flextronics Corporation (formerly Solectron Corporation) dated July 6, 2009. (25) | ||
| 10.23 | First Amendment to Lease between Carr NP Properties, LLC and the Company. (31) | ||
| 10.24 | Letter of assignment between the Company and Christopher Gibson dated June 11, 2008. (31) | ||
| 10.25 | Amendment to the letter of assignment between the Company and Christopher Gibson dated December 20, 2009. (31) | ||
| 21.1 | Subsidiaries of the Company. | ||
| 23.1 | Consent of | ||
| 24.1 | Power of Attorney included on signature page herein. | ||
| 31.1 | Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 32.2 | Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
| 101.INS | ||
| 101.SCH | XBRL Taxonomy Extension Schema Document. (32) | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. (32) | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. (32) | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document. (32) | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. (32) | |
| (1) | Incorporated by reference to exhibit number 4.1 to the Company’s Registration Statement on Form S-1, as amended (File No. 33-35333), which became effective July 19, 1990. |
| (2) | Incorporated by reference exhibit number 10.46 to the Company’s Registration Statement on Form S-1 (File No. 33-45990), which was filed February 25, 1992. |
| (3) | Incorporated by reference to exhibit number 10.32 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 1993. |
| (4) | ||
| Incorporated by reference to exhibit number 3.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (5) | Incorporated by reference to exhibit number 3.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (6) | Incorporated by reference to exhibit number 3.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (7) | Incorporated by reference to exhibit number 3.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (8) | Incorporated by reference to exhibit number 10.67 to the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999. |
| (9) | Incorporated by reference to exhibit number 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 28, 2007. |
| (10) | Incorporated by reference to exhibit number 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended October 3, 2003. |
| (11) | Incorporated by reference to exhibit number |
| (12) | Incorporated by reference to exhibit number 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended |
| (13) | Incorporated by reference to exhibit number 3.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 4, 2003. |
| (14) | Incorporated by reference to exhibit number 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 29, 2006. |
| (15) | Incorporated by reference to exhibit number 3.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2004. |
| (16) | Incorporated by reference to exhibit number 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2004. |
| (17) | Incorporated by reference to exhibit number 10.1 to the Company’s Annual Report on Form 10-K for the year ended December 30, 2005. |
| (18) | Incorporated by reference to exhibit number |
| (19) | Incorporated by reference to exhibit number 10.17 to the Company’s Annual Report on Form 10-K for the year ended December 30, 2005. |
| (20) | Incorporated by reference to exhibit number 3.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2007. |
| (21) | Incorporated by reference to exhibit number 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 29, 2006. |
| Incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2009. |
| (23) | Incorporated by reference to exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 2, 2010. |
| (24) | Incorporated by reference to exhibit number 10.6 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2009. |
| (25) | Incorporated by reference to exhibit number 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended |
| (26) | Incorporated by reference to exhibit |
| Incorporated by reference to exhibit number 10.13 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2009. |
| (28) | Incorporated by reference to exhibit number 10.14 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2009. |
| (29) | Incorporated by reference to exhibit number 10.15 to the Company’s Annual Report on Form 10-K for the year ended January 2, 2009. |
| (30) | Incorporated by reference to exhibit number 10.7 to the Company’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2009. |
| (31) | Filed herewith. |
| (32) | Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements. Users of this data are advised that, pursuant to Rule 406T, these interactive data files are deemed not filed and otherwise are not subject to liability. |
| + | Indicates management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10K. |
| ** | Portions of this document have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment under Rule 24b-2. |
Table of ContentSIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
TRIMBLE NAVIGATION LIMITED
| By: | /s/ Steven W. Berglund | |
| Steven W. Berglund, | ||
| President and Chief Executive Officer | ||
February 22, 2008
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Steven W. Berglund as his attorney-in-fact, with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorney-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature | Capacity in which Signed | ||||
/s/ Steven W. Berglund | President, Chief Executive Officer, Director | February | |||
| Steven W. Berglund | |||||
/s/ Rajat Bahri | Chief Financial Officer and Assistant | February 25, | |||
| Rajat Bahri | Secretary (Principal Financial Officer) | ||||
/s/ Julie Shepard | Vice President of Finance and | February 25, | |||
| Julie Shepard | Principal Accounting Officer | ||||
| Director | |||||
| John B. Goodrich | |||||
/s/ William Hart | Director | February | |||
| William Hart | |||||
/s/ Merit E. Janow | Director | February 24, 2011 | |||
| Merit E. Janow | |||||
/s/ Ulf J. Johansson | Director | February | |||
| Ulf J. Johansson | |||||
/s/ Bradford W. Parkinson | Director | February | |||
| Bradford W. Parkinson | |||||
/s/ Mark S. Peek | Director | February 25, 2011 | ||
| Mark S. Peek | ||||
/s/ Nickolas W. Vande Steeg | Director | February 25, | ||
| Nickolas W. Vande Steeg | ||||
SCHEDULE II
TRIMBLE NAVIGATION LIMITED
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
Allowance for doubtful accounts: | December 28, 2007 | December 29, 2006 | December 30, 2005 | |||||||||
| Balance at beginning of period | $ | 4,063 | $ | 5,230 | $ | 8,952 | ||||||
| Acquired allowance | 1,812 | 494 | 237 | |||||||||
| Bad debt expense | 1,303 | 163 | (502 | ) | ||||||||
| Write-offs, net of recoveries | (1,957 | ) | (1,824 | ) | (3,457 | ) | ||||||
| Balance at end of period | $ | 5,221 | $ | 4,063 | $ | 5,230 | ||||||
| Inventory allowance: | ||||||||||||
| Balance at beginning of period | $ | 28,582 | $ | 23,238 | $ | 26,217 | ||||||
| Acquired allowance | 560 | 1 | 357 | |||||||||
| Additions to allowance | 4,524 | 7,061 | 5,612 | |||||||||
| Write-offs, net of recoveries | (4,040 | ) | (1,718 | ) | (8,948 | ) | ||||||
| Balance at end of period | $ | 29,626 | $ | 28,582 | $ | 23,238 | ||||||
| Sales return reserve: | ||||||||||||
| Balance at beginning of period | $ | 859 | $ | 1,500 | $ | 2,210 | ||||||
| Acquired allowance | 295 | 55 | 21 | |||||||||
| Additions (Reductions) to allowance | 465 | (586 | ) | (383 | ) | |||||||
| Write-offs, net of recoveries | 64 | (110 | ) | (348 | ) | |||||||
| Balance at end of period | $ | 1,683 | $ | 859 | $ | 1,500 | ||||||
| December 31, 2010 | January 1, 2010 | January 2, 2009 | ||||||||||
Allowance for doubtful accounts: | ||||||||||||
Balance at beginning of period | $ | 3,875 | $ | 5,999 | $ | 5,221 | ||||||
Acquired allowance | 1,380 | 114 | 131 | |||||||||
Bad debt expense | 2,292 | 4,070 | 2,667 | |||||||||
Write-offs, net of recoveries | (4,105 | ) | (6,308 | ) | (2,020 | ) | ||||||
Balance at end of period | $ | 3,442 | $ | 3,875 | $ | 5,999 | ||||||
Inventory allowance: | ||||||||||||
Balance at beginning of period | $ | 28,113 | $ | 29,757 | $ | 29,626 | ||||||
Acquired allowance | 1,729 | 464 | 1,720 | |||||||||
Additions to allowance | 4,752 | 3,302 | 4,892 | |||||||||
Write-offs, net of recoveries | (2,829 | ) | (5,410 | ) | (6,481 | ) | ||||||
Balance at end of period | $ | 31,765 | $ | 28,113 | $ | 29,757 | ||||||
Sales return reserve: | ||||||||||||
Balance at beginning of period | $ | 1,743 | $ | 1,819 | $ | 1,684 | ||||||
Acquired allowance | 50 | — | — | |||||||||
Additions (Reductions) to allowance | (98 | ) | (61 | ) | 162 | |||||||
Write-offs, net of recoveries | (63 | ) | (15 | ) | (27 | ) | ||||||
Balance at end of period | $ | 1,632 | $ | 1,743 | $ | 1,819 | ||||||