filings.toolsItem 8. Financial Statements and Supplementary Data
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Item 8. Financial Statements and Supplementary Data
CONSOLIDATED BALANCE SHEETS
| At the End of Fiscal Year | 2019 | 2018 | |||||
| (In millions, except par values) | |||||||
| ASSETS | |||||||
| Current assets*:* | |||||||
| Cash and cash equivalents | $ | 189.2 | $ | 172.5 | |||
| Accounts receivable, net | 608.2 | 512.6 | |||||
| Inventories | 312.1 | 298.0 | |||||
| Other current assets | 102.3 | 106.0 | |||||
| Total current assets | 1,211.8 | 1,089.1 | |||||
| Property and equipment, net | 241.4 | 212.9 | |||||
| Operating lease right-of-use assets | 140.3 | — | |||||
| Goodwill | 3,680.6 | 3,540.0 | |||||
| Other purchased intangible assets, net | 678.7 | 744.3 | |||||
| Deferred income tax assets | 475.5 | 12.2 | |||||
| Other non-current assets | 212.4 | 177.9 | |||||
| Total assets | $ | 6,640.7 | $ | 5,776.4 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Short-term debt | $ | 219.0 | $ | 256.2 | |||
| Accounts payable | 159.3 | 147.6 | |||||
| Accrued compensation and benefits | 123.5 | 169.2 | |||||
| Deferred revenue | 490.4 | 348.4 | |||||
| Other current liabilities | 198.1 | 133.8 | |||||
| Total current liabilities | 1,190.3 | 1,055.2 | |||||
| Long-term debt | 1,624.2 | 1,712.3 | |||||
| Deferred revenue, non-current | 51.5 | 38.8 | |||||
| Deferred income tax liabilities | 318.2 | 73.8 | |||||
| Income taxes payable | 69.1 | 71.3 | |||||
| Operating lease liabilities | 114.1 | — | |||||
| Other non-current liabilities | 152.9 | 150.2 | |||||
| Total liabilities | 3,520.3 | 3,101.6 | |||||
| Commitments and contingencies (Note 9) | |||||||
| Stockholders’ equity: | |||||||
| Preferred stock, $0.001 par value; 3.0 shares authorized; none issued and outstanding | — | — | |||||
| Common stock, $0.001 par value; 360.0 shares authorized; 249.9 and 250.9 shares issued and outstanding at the end of fiscal 2019 and 2018, respectively | 0.2 | 0.3 | |||||
| Additional paid-in-capital | 1,692.8 | 1,591.9 | |||||
| Retained earnings | 1,602.8 | 1,268.3 | |||||
| Accumulated other comprehensive loss | (176.8 | ) | (186.1 | ) | |||
| Total Trimble Inc. stockholders’ equity | 3,119.0 | 2,674.4 | |||||
| Noncontrolling interests | 1.4 | 0.4 | |||||
| Total stockholders' equity | 3,120.4 | 2,674.8 | |||||
| Total liabilities and stockholders’ equity | $ | 6,640.7 | $ | 5,776.4 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions, except per share data) | |||||||||||
| Revenue: | |||||||||||
| Product | $ | 1,934.8 | $ | 1,999.9 | $ | 1,763.8 | |||||
| Service | 686.2 | 588.7 | 475.4 | ||||||||
| Subscription | 643.3 | 519.8 | 407.3 | ||||||||
| Total revenue | 3,264.3 | 3,108.4 | 2,646.5 | ||||||||
| Cost of sales: | |||||||||||
| Product | 939.4 | 938.9 | 875.6 | ||||||||
| Service | 253.9 | 247.3 | 194.4 | ||||||||
| Subscription | 196.0 | 138.0 | 113.1 | ||||||||
| Amortization of purchased intangible assets | 94.1 | 103.2 | 85.8 | ||||||||
| Total cost of sales | 1,483.4 | 1,427.4 | 1,268.9 | ||||||||
| Gross margin | 1,780.9 | 1,681.0 | 1,377.6 | ||||||||
| Operating expense: | |||||||||||
| Research and development | 469.7 | 446.1 | 370.2 | ||||||||
| Sales and marketing | 504.2 | 479.8 | 400.1 | ||||||||
| General and administrative | 330.6 | 349.8 | 301.7 | ||||||||
| Restructuring charges | 26.8 | 8.2 | 6.9 | ||||||||
| Amortization of purchased intangible assets | 73.7 | 76.4 | 63.0 | ||||||||
| Total operating expense | 1,405.0 | 1,360.3 | 1,141.9 | ||||||||
| Operating income | 375.9 | 320.7 | 235.7 | ||||||||
| Non-operating income (expense), net: | |||||||||||
| Interest expense, net | (82.4 | ) | (73.2 | ) | (25.2 | ) | |||||
| Income from equity method investments, net | 35.8 | 28.7 | 29.5 | ||||||||
| Other income, net | 15.5 | 1.8 | 8.2 | ||||||||
| Total non-operating income (expense), net | (31.1 | ) | (42.7 | ) | 12.5 | ||||||
| Income before taxes | 344.8 | 278.0 | 248.2 | ||||||||
| Income tax provision (benefit) | (169.7 | ) | (5.3 | ) | 129.7 | ||||||
| Net income | 514.5 | 283.3 | 118.5 | ||||||||
| Net gain attributable to noncontrolling interests | 0.2 | 0.5 | 0.1 | ||||||||
| Net income attributable to Trimble Inc. | $ | 514.3 | $ | 282.8 | $ | 118.4 | |||||
| Basic earnings per share | $ | 2.05 | $ | 1.13 | $ | 0.47 | |||||
| Shares used in calculating basic earnings per share | 250.8 | 250.0 | 252.1 | ||||||||
| Diluted earnings per share | $ | 2.03 | $ | 1.12 | $ | 0.46 | |||||
| Shares used in calculating diluted earnings per share | 252.9 | 253.4 | 256.7 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Net income | $ | 514.5 | $ | 283.3 | $ | 118.5 | |||||
| Foreign currency translation adjustments, net of tax $0.1 in 2019 and 2018, respectively and $3.7 in 2017 | 10.3 | (55.6 | ) | 90.9 | |||||||
| Net unrealized gain (loss), net of tax | (1.0 | ) | 0.9 | (0.5 | ) | ||||||
| Comprehensive income | 523.8 | 228.6 | 208.9 | ||||||||
| Comprehensive income attributable to noncontrolling interests | 0.2 | 0.5 | 0.1 | ||||||||
| Comprehensive income attributable to Trimble Inc. | $ | 523.6 | $ | 228.1 | $ | 208.8 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
| Common stock | Retained Earnings | Accumulated Other Comprehensive Loss | Total Stockholders’ Equity | Noncontrolling Interest | Total | |||||||||||||||||||||||||
| Shares | Amount | Additional Paid-In Capital | ||||||||||||||||||||||||||||
| (In millions) | ||||||||||||||||||||||||||||||
| Balance at the end of fiscal 2016 | 251.3 | $ | 0.3 | $ | 1,348.3 | $ | 1,228.5 | $ | (221.8 | ) | $ | 2,355.3 | $ | (0.1 | ) | $ | 2,355.2 | |||||||||||||
| Net income | — | — | — | 118.4 | — | 118.4 | 0.1 | 118.5 | ||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 90.4 | 90.4 | — | 90.4 | ||||||||||||||||||||||
| Comprehensive income | 208.8 | 208.9 | ||||||||||||||||||||||||||||
| Issuance of common stock under employee plans, net of tax withholdings | 5.0 | — | 90.0 | (16.7 | ) | — | 73.3 | — | 73.3 | |||||||||||||||||||||
| Stock repurchases | (7.4 | ) | (0.1 | ) | (42.2 | ) | (246.0 | ) | — | (288.3 | ) | — | (288.3 | ) | ||||||||||||||||
| Stock-based compensation | — | — | 65.0 | — | — | 65.0 | — | 65.0 | ||||||||||||||||||||||
| Tax benefit from stock option exercises | — | — | — | 0.4 | — | 0.4 | — | 0.4 | ||||||||||||||||||||||
| Balance at the end of fiscal 2017 | 248.9 | $ | 0.2 | $ | 1,461.1 | $ | 1,084.6 | $ | (131.4 | ) | $ | 2,414.5 | $ | — | $ | 2,414.5 | ||||||||||||||
| Net income | — | — | — | 282.8 | — | 282.8 | 0.5 | 283.3 | ||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | (54.7 | ) | (54.7 | ) | — | (54.7 | ) | |||||||||||||||||||
| Comprehensive income | 228.1 | 228.6 | ||||||||||||||||||||||||||||
| Issuance of common stock under employee plans, net of tax withholdings | 4.4 | 0.1 | 67.5 | (27.4 | ) | — | 40.2 | — | 40.2 | |||||||||||||||||||||
| Stock repurchases | (2.4 | ) | — | (14.7 | ) | (75.3 | ) | — | (90.0 | ) | — | (90.0 | ) | |||||||||||||||||
| Stock-based compensation | — | — | 78.0 | — | — | 78.0 | — | 78.0 | ||||||||||||||||||||||
| Noncontrolling interest investments | — | — | — | — | — | — | (0.1 | ) | (0.1 | ) | ||||||||||||||||||||
| Tax benefit on new accounting guidance adoption | 3.6 | 3.6 | 3.6 | |||||||||||||||||||||||||||
| Balance at the end of fiscal 2018 | 250.9 | $ | 0.3 | $ | 1,591.9 | $ | 1,268.3 | $ | (186.1 | ) | $ | 2,674.4 | $ | 0.4 | $ | 2,674.8 | ||||||||||||||
| Net income | 514.3 | 514.3 | 0.2 | 514.5 | ||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | 9.3 | 9.3 | — | 9.3 | ||||||||||||||||||||||
| Comprehensive income | 523.6 | 523.8 | ||||||||||||||||||||||||||||
| Issuance of common stock under employee plans, net of tax withholdings | 3.7 | — | 59.8 | (30.7 | ) | — | 29.1 | — | 29.1 | |||||||||||||||||||||
| Stock repurchases | (4.7 | ) | (0.1 | ) | (30.6 | ) | (149.1 | ) | — | (179.8 | ) | — | (179.8 | ) | ||||||||||||||||
| Stock-based compensation | — | — | 72.5 | — | — | 72.5 | — | 72.5 | ||||||||||||||||||||||
| Noncontrolling interest investments | — | — | (0.8 | ) | — | — | (0.8 | ) | 0.8 | — | ||||||||||||||||||||
| Balance at the end of fiscal 2019 | 249.9 | $ | 0.2 | $ | 1,692.8 | $ | 1,602.8 | $ | (176.8 | ) | $ | 3,119.0 | $ | 1.4 | $ | 3,120.4 |
See accompanying Notes to the Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Cash flows from operating activities | |||||||||||
| Net income | $ | 514.5 | $ | 283.3 | $ | 118.5 | |||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation expense | 39.4 | 35.6 | 34.6 | ||||||||
| Amortization expense | 167.8 | 179.6 | 148.8 | ||||||||
| Deferred income taxes | (220.2 | ) | (47.6 | ) | (16.1 | ) | |||||
| Stock-based compensation | 75.0 | 76.9 | 64.8 | ||||||||
| Income (loss) from equity method investments, net of dividends | (7.8 | ) | 1.9 | (11.4 | ) | ||||||
| Other, net | 5.5 | 21.3 | 5.5 | ||||||||
| (Increase) decrease in assets: | |||||||||||
| Accounts receivable, net | (96.0 | ) | (51.0 | ) | (42.7 | ) | |||||
| Inventories | (21.3 | ) | (45.0 | ) | (37.3 | ) | |||||
| Other current and non-current assets | 11.0 | (17.6 | ) | (15.6 | ) | ||||||
| Increase (decrease) in liabilities: | |||||||||||
| Accounts payable | 14.5 | (2.0 | ) | 25.7 | |||||||
| Accrued compensation and benefits | (46.4 | ) | 18.6 | 34.0 | |||||||
| Deferred revenue | 148.2 | 76.3 | 19.3 | ||||||||
| Other current and non-current liabilities | 0.8 | (43.6 | ) | 101.6 | |||||||
| Net cash provided by operating activities | 585.0 | 486.7 | 429.7 | ||||||||
| Cash flow from investing activities: | |||||||||||
| Acquisitions of businesses, net of cash acquired | (220.8 | ) | (1,763.5 | ) | (280.2 | ) | |||||
| Acquisitions of property and equipment | (69.0 | ) | (67.6 | ) | (43.7 | ) | |||||
| Purchases of short-term investments | — | (24.0 | ) | (288.0 | ) | ||||||
| Proceeds from maturities of short-term investments | — | 6.2 | 122.1 | ||||||||
| Proceeds from sales of short-term investments | — | 196.8 | 97.7 | ||||||||
| Other, net | 14.5 | 2.5 | 20.9 | ||||||||
| Net cash used in investing activities | (275.3 | ) | (1,649.6 | ) | (371.2 | ) | |||||
| Cash flows from financing activities: | |||||||||||
| Issuance of common stock, net of tax withholdings | 29.1 | 40.2 | 73.8 | ||||||||
| Repurchase of common stock | (179.8 | ) | (93.0 | ) | (285.3 | ) | |||||
| Proceeds from debt and revolving credit lines | 1,195.4 | 2,976.4 | 786.0 | ||||||||
| Payments on debt and revolving credit lines | (1,322.9 | ) | (1,925.1 | ) | (495.4 | ) | |||||
| Other, net | (14.4 | ) | (9.1 | ) | (12.6 | ) | |||||
| Net cash provided by (used in) financing activities | (292.6 | ) | 989.4 | 66.5 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | (0.4 | ) | (12.5 | ) | 17.4 | ||||||
| Net increase (decrease) in cash and cash equivalents | 16.7 | (186.0 | ) | 142.4 | |||||||
| Cash and cash equivalents - beginning of fiscal year | 172.5 | 358.5 | 216.1 | ||||||||
| Cash and cash equivalents - end of fiscal year | $ | 189.2 | $ | 172.5 | $ | 358.5 |
See accompanying Notes to the Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: DESCRIPTION OF BUSINESS
Trimble began operations in 1978 and was originally incorporated in California as Trimble Navigation Limited in 1981. On October 1, 2016, Trimble Navigation Limited changed its name to Trimble Inc. ("Trimble" or the "Company") and changed its state of incorporation from the State of California to the State of Delaware.
Trimble is a leading provider of technology solutions that enable professionals and field mobile workers to improve or transform their work processes. Our comprehensive work process solutions are used across a range of industries including agriculture, architecture, civil engineering, survey and land administration, construction, geospatial, government, natural resources, transportation, and utilities. Representative Trimble customers include engineering and construction firms, contractors, owners, surveying companies, farmers and agricultural companies, trucking companies, energy, utility companies, and state, federal, and municipal governments.
Trimble focuses in transforming the way the world works by delivering products and services that connect the physical and digital worlds. Core technologies used in positioning, modeling, connectivity, and data analytics enable customers to improve productivity, quality, safety, and sustainability. Products are sold based on return on investment and provide benefits such as lower operational costs, higher productivity, improved quality, enhanced safety and regulatory compliance, and reduced environmental impact. Representative products include equipment that automates and enables increased precision within large industrial equipment such as tractors and bulldozers; integrated systems that track fleets of vehicles and workers and provide real-time information and analytics to the back-office; data collection systems that enable the management of large amounts of geo-referenced information; software solutions that connect all aspects of a construction site or a farm; and building information modeling ("BIM") software that is used throughout the design, build, and operation of buildings.
NOTE 2: ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for revenue recognition including determining the nature and timing of satisfaction of performance obligations and determining standalone selling price of performance obligations, allowances for doubtful accounts, sales returns reserve, allowances for inventory valuation, warranty costs, goodwill impairment, intangibles impairment, purchased intangibles, useful lives for tangible and intangible assets, stock-based compensation, and income taxes among others. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Actual results and outcomes may differ from management's estimates and assumptions.
Basis of Presentation
The Company has a 52-53 week fiscal year, ending on the Friday nearest to December 31. Fiscal 2019 is a 53-week year and ended on January 3, 2020, and 2018 and 2017 were 52-week years, ended on December 28, 2018 and December 29, 2017, respectively. Unless otherwise stated, all dates refer to the Company’s fiscal year.
These Consolidated Financial Statements include the results of the Company and its consolidated subsidiaries. Inter-company accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling stockholders’ proportionate share of the net assets and results of operations of the Company’s consolidated subsidiaries.
The Company has presented revenue and cost of sales separately for products, service, and subscriptions. Product revenue includes hardware, software licenses, parts and accessories; service revenue includes maintenance and support for hardware and software products, training, and professional services; subscription revenue includes software as a service ("SaaS"), data, and hosting services.
Reportable Segments
The Company reports its financial performance, including revenue and operating income, based on four reportable segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation.
The Company's Chief Executive Officer (chief operating decision maker) views and evaluates operations based on the results of the Company’s reportable operating segments under its management reporting system. These results are not necessarily in conformance with U.S. GAAP.
Revenue Recognition
Significant Judgments
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services. Revenue is recognized net of allowance for returns and any taxes collected from customers. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations; however, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment.
Judgment is required to determine stand-alone selling price ("SSP") for each distinct performance obligation. The Company uses a range of amounts to estimate SSP when products and services are sold separately and determines whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, the Company determines SSP using information that may include market conditions and other observable inputs.
Nature of Goods and Services
The Company generates revenue primarily from products, services, and subscriptions; each of which is a distinct performance obligation. Product revenue includes hardware and software. Services, including software maintenance, extended warranty, and subscriptions, are performance obligations generally recognized over time. Descriptions are as follows:
Product
Revenue for hardware is recognized when the control of the product transfers to the customer, which is generally when the product is shipped. The Company recognizes shipping fees reimbursed by the customer as revenue and the cost for shipping as an expense in Cost of sales when control over products has transferred to the customer.
Revenue for perpetual and term software licenses is recognized upon delivery and commencement of license term. In general, the Company’s contracts do not provide for customer specific acceptances.
A small amount of revenue is derived from the licensing of software to OEM customers. Royalty revenue is recognized as and when the sales or usage occurs, which generally is at the time the OEM ships products incorporating the Company’s software.
Services
Professional services include installation, training, configuration, project management, system integrations, customization, data migration/conversion, and other implementation services. The majority of professional services are not complex, can be provided by other vendors, and are readily available and billed on a time-and-material basis. Revenue for distinct professional services is recognized over time, based on work performed.
In some contracts, products and professional services may be combined into a single performance obligation. This generally arises when products or subscriptions are sold with significant customization, modification, or integration services. Revenue for the combined performance is recognized over time as the work progresses because of the continuous transfer of control to the customer.
Software maintenance entitles the customer to receive software product upgrades and enhancements on a when and if available basis and technical support. Software maintenance is recognized on a straight-line basis commencing upon product delivery over the post contract support term, which ranges from one to three years, with one year term being most common.
Extended warranty entitles the customer to receive replacement parts and repair services. Extended warranty is separately priced and is recognized on a straight-line basis over the extended service period, which begins after the standard warranty period, ranging from one to two years depending on the product line.
Subscription
The Company’s software as a service ("SaaS") performance obligations may be sold with devices used to collect, generate, and transmit data. SaaS is distinct from the related devices. In addition, the Company may host the software that the customer has separately licensed. Hosting services are distinct from the underlying software.
Subscription terms generally range from month-to-month to five years. Subscription revenue is recognized monthly over the service duration, commencing from activation.
Deferred Costs to Obtain Customer Contracts
The Company's incremental cost of obtaining contracts, which consists of sales commissions related to customer contracts that include maintenance or subscription revenue, are deferred if the contractual term is greater than a year or if renewals are expected, and the renewal commission is not commensurate with the initial commission. These commission costs are deferred and amortized over a benefit period, either the contract term or the shorter of customer or product life, which is generally between three to seven years. The Company has elected the practical expedient to exclude contracts with an amortization period of a year or less from this deferral requirement.
Remaining Performance Obligations
Remaining performance obligations represent contracted revenue for which goods or services have not been delivered. The contracted revenue, which will be recognized in future periods, includes both invoiced amounts in deferred revenue as well as amounts that are not yet invoiced.
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, net of tax, recorded in Accumulated other comprehensive loss within the stockholders’ equity section of the Consolidated Balance Sheets. Income and expense accounts are translated at average monthly exchange rates during the year.
Derivative Financial Instruments
The Company enters into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on cash and certain trade and inter-company receivables and payables, primarily denominated in Euro, British pound, New Zealand dollars, Australian dollars, Brazil real, and Canadian dollars. These contracts reduce the exposure to fluctuations in foreign currency 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 two months in original maturity. The Company occasionally enters into foreign currency forward contracts to hedge the purchase price of some of our larger business acquisitions. The Company does not enter into foreign currency forward contracts for trading purposes. As of the fiscal years ended 2019 and 2018, there were no derivative financial instruments outstanding that were accounted for as hedges.
Concentrations of Risk
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 conditions and limits the amount of credit extended, when deemed necessary, but generally does not require collateral.
In addition, the Company relies on a limited number of suppliers for a number of its critical components.
Accounts Receivable, Net
Accounts receivable, net, includes billed and unbilled amounts due from customers. Unbilled receivables include revenue recognized that exceeds the amount billed to the customer, provided the billing is not contingent upon future performance, and the Company has the unconditional right to future payment with only the passage of time required. Both billed and unbilled amounts due are stated at their net estimated realizable value. The unbilled receivables were $129.5 million and $22.3 million at the end of fiscal 2019 and 2018, respectively.
The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. Each reporting period, the Company evaluates the 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. The allowance for doubtful accounts was $5.9 million and $4.6 million at the end of the fiscal 2019 and 2018, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value. Adjustments are also made to reduce the cost of inventory for estimated excess or obsolete balances. Factors influencing these adjustments include declines in demand that impact inventory purchasing forecasts, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues. If the Company's estimates used to reserve for excess and obsolete inventory differ from what it expected, the Company may be required to recognize additional reserves, which would negatively impact its gross margin.
Property and Equipment, Net
Property and equipment, net is stated at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the shorter of the estimated useful lives or the lease terms when applicable. Useful lives generally range from four to six years for machinery and equipment, five to ten years for furniture and fixtures, two to five years for computer equipment and software, thirty-nine years for buildings, and the life of the lease for leasehold improvements. The Company capitalizes eligible costs to acquire or develop certain 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 generally from two 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 $39.4 million in fiscal 2019, $35.6 million in fiscal 2018 and $34.6 million in fiscal 2017.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases with lease terms greater than one year are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in our Consolidated Balance Sheets.
ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Present value is determined by using the Company's incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset includes adjustments made for uneven rents and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Lease agreements that include both lease and non-lease components are accounted for as part of the overall lease arrangement.
Business Combinations
The Company allocates the fair value of purchase consideration to the assets acquired, liabilities assumed, and non-controlling interests in the acquiree based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed, and non-controlling interests in the acquiree is recorded as goodwill.
When determining the fair values of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include expected future cash flows based on consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.
Goodwill and Purchased Intangible Assets
Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets acquired individually, with a group of other assets, or in a business combination are recorded at fair value. Identifiable intangible assets are comprised of technology, patents, licenses, customer contracts, acquired backlog, trademarks, and in-process research and development. Identifiable intangible assets are amortized over the period of estimated benefit using the straight-line method and have estimated useful lives ranging from three years to ten years with a weighted average useful life of 6.6 years. Goodwill is not subject to amortization, but is subject to, at a minimum, an annual assessment for impairment.
Impairment of Goodwill, Intangible Assets, and Other Long-Lived Assets
The Company evaluates goodwill on an annual basis or more frequently if indicators of potential impairment exist. The annual goodwill impairment test is performed at the reporting unit level in the fourth fiscal quarter of each year. We utilize either a qualitative assessment or a quantitative test to assess the likelihood of an impairment. In performing the qualitative assessment, we consider macroeconomic conditions, industry and market considerations, overall financial performance, and other relevant events and factors that may impact the reporting units. When the Company performs a quantitative test, the estimation of the fair value of a reporting unit involves the use of certain estimates and assumptions including expected future operating performance using risk-adjusted discount rates.
Identifiable intangible assets are amortized over their estimated useful lives on a straight-line basis. Changes in circumstances such as technological advances, changes to business models, or changes in the capital strategy could result in a revised useful life. If the useful life of an asset is revised, the net book value of the estimated residual value is amortized over its revised remaining useful life. Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable based on their future cash flows. The estimated future cash flows are primarily based upon assumptions about expected future operating performance.
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. When products sold include warranty provisions, they are covered by a warranty for periods ranging from one year to two years.
Accrued warranty expenses of $16.3 million and $15.3 million is included in Other current liabilities in the Consolidated Balance Sheets at the end of fiscal 2019 and 2018.
Guarantees, Including Indirect Guarantees of Indebtedness of Others
In the normal course of business to facilitate sales of our products, the Company indemnifies other parties, including customers, lessors, and parties to other transactions with us with respect to certain matters. The Company may agree 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 connection with divesting some of the Company's businesses or assets, the Company may also indemnify purchasers for certain matters in the normal course of business, such as breaches of representations, covenants, or
excluded liabilities. In addition, the Company entered into indemnification agreements with our 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 at the end of fiscal 2019 and 2018.
Advertising and Promotional Costs
The Company expenses all advertising and promotional costs as incurred. Advertising and promotional expense was approximately $42.7 million, $42.7 million, and $37.2 million, in fiscal 2019, 2018, and 2017, respectively.
Research and Development Costs
Research and development costs are charged to expense as incurred. Costs of software developed for external sale subsequent to reaching technical feasibility were not significant and were expensed as incurred. The Company received third-party funding of approximately $16.5 million, $19.5 million, and $18.1 million in fiscal 2019, 2018, and 2017, respectively. The Company offsets research and development expense with any unconditional third-party funding earned and retains the rights to any technology developed under such arrangements.
Stock-Based Compensation
Stock-based compensation expense recognized in the Consolidated Statements of Income is based on the grant date fair value of the stock-based awards, net of estimated forfeitures. The Company attributes the fair value of stock options and restricted stock units ("RSUs") to expense using the straight-line method. The fair value for RSUs with service conditions and performance-based conditions is measured at the grant date using the fair value of Trimble’s common stock. Total expense for performance-based RSUs is based upon the probable expected achievement of the underlying performance goals as adjusted in future periods for changes in expectations and actual achievement. The fair value for market-based RSUs is measured at the grant date using a Monte Carlo model. The grant date fair value for stock options and rights to purchase shares under the Company's Employee Stock Purchase Plan ("ESPP") is estimated using the Black-Scholes option pricing model. The Company estimates forfeitures at the date of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical and current information to estimate forfeitures.
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. The Company’s valuation allowance is primarily attributable to foreign net operating losses and state research and development credit carryforwards. Management believes that it is more likely than not that the Company will not realize certain of these deferred tax assets, and, accordingly, a valuation allowance has been provided for such amounts. Valuation allowance adjustments associated with an acquisition after the measurement period are recorded through income tax expense.
Relative to uncertain tax positions, the Company only recognizes a 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 percent likelihood of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately forecast actual tax audit outcomes. Determining whether an uncertain tax position is effectively settled requires judgment. Changes in recognition or measurement of the Company's uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense.
The Company is subject to income taxes in the U.S. and numerous other countries and is subject to routine corporate income tax audits in many of these jurisdictions. The Company generally believes that positions taken on its tax returns are more likely than not to be sustained upon audit, but tax authorities in some circumstance have, and may in the future, successfully challenge these positions. Accordingly, the Company’s income tax provision includes amounts intended to satisfy assessments that may result from these challenges. Determining the income tax provision for these potential assessments and recording the related effects requires management judgments and estimates. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in the Company’s income tax provision and, therefore, could have a material impact on its income tax provision, net income, and cash flows. The Company’s accrual for uncertain tax positions includes uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions, and related interest.
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 potentially dilutive securities. The dilutive effects of outstanding stock options, restricted stock units, and shares to be purchased under the Company’s employee stock purchase plan are included in diluted earnings per share unless they are anti-dilutive.
Recent Accounting Pronouncements
Fiscal 2019 Adoption
Leases
In February 2016, the FASB issued a new lease standard that requires a lessee to recognize lease assets and lease liabilities on the balance sheet for most leases and provide enhanced disclosures. The Company adopted the new standard at the beginning of fiscal year 2019 by applying a modified retrospective method without restating comparative periods. Upon adoption, certain practical expedients were used to carry forward existing leases as previously defined and classified. Leases containing both lease and non-lease components are accounted for as part of the overall lease arrangement.
Operating leases with lease terms greater than one year are included in ROU assets, Other current liabilities, and Operating lease liabilities on the Company's Consolidated Balance Sheets. Those ROU assets and liabilities are recognized at the present value of lease payments over the lease terms by utilizing the Company’s incremental borrowing rate.
The standard had a material impact on the Company’s Consolidated Balance Sheets but did not have an impact on its Consolidated Income Statements or Statement of Cash Flows. The most significant impact was the recognition of $123.5 million ROU assets and $126.1 million lease liabilities for its operating leases at the adoption date.
Fiscal 2020 Adoption
Financial Instruments - Credit Losses
In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented based on the net amount expected to be collected, not based on incurred losses. Furthermore, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The new standard is applied on a modified-retrospective basis and is effective for the Company beginning in fiscal 2020. The Company currently anticipates that the adoption will not have a material impact on its Consolidated Financial Statements.
Intangibles - Goodwill and Other
In January 2017, the FASB issued new guidance that simplifies the accounting for goodwill impairment by requiring impairment charges to be based on the first step in the current two-step impairment test. The impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is applied on a prospective basis and is effective for the Company beginning in fiscal 2020. The Company currently anticipates that the adoption will not have a material impact on its Consolidated Financial Statements.
Intangibles - Internal-Use Software
In August 2018, the FASB issued new guidance that clarifies the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software.
The Company is required to adopt the guidance in the first quarter of fiscal year 2020 on a prospective basis for all implementation costs incurred after the date of adoption. The Company currently anticipates that the adoption will not have a material impact on its Consolidated Financial Statements.
Future Adoption
Income Taxes - Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued amendments to the accounting for Income Taxes to reduce complexity by removing certain exceptions and implementing targeted simplifications. The new standard is effective for the Company beginning in fiscal 2021. Early adoption is permitted. The Company is currently evaluating the effect of the amendments on its Consolidated Financial Statements.
NOTE 3: EARNINGS PER SHARE
Basic earnings per share is computed by dividing Net income attributable to Trimble Inc.by the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing Net income attributable to Trimble Inc. by the weighted-average number of shares of common stock outstanding during the period increased to include the number of additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, restricted stock units, contingently issuable shares, and shares to be purchased under the Company’s employee stock purchase plan.
The following table shows the computation of basic and diluted earnings per share:
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions, except per share data) | |||||||||||
| Numerator: | |||||||||||
| Net income attributable to Trimble Inc. | $ | 514.3 | $ | 282.8 | $ | 118.4 | |||||
| Denominator: | |||||||||||
| Weighted average number of common shares used in basic earnings per share | 250.8 | 250.0 | 252.1 | ||||||||
| Effect of dilutive securities | 2.1 | 3.4 | 4.6 | ||||||||
| Weighted average number of common shares and dilutive potential common shares used in diluted earnings per share | 252.9 | 253.4 | 256.7 | ||||||||
| Basic earnings per share | $ | 2.05 | $ | 1.13 | $ | 0.47 | |||||
| Diluted earnings per share | $ | 2.03 | $ | 1.12 | $ | 0.46 |
For fiscal 2019, 2018, and 2017, the Company excluded an insignificant number of shares from the calculation of diluted earnings per share because their effect would have been antidilutive.
NOTE 4: BUSINESS COMBINATIONS
During fiscal 2019, 2018, and 2017, the Company acquired multiple businesses, all with cash consideration. The Consolidated Statements of Income include the operating results of the businesses from the dates of acquisition.
During fiscal 2019, the Company acquired four businesses, with total purchase consideration of $247.0 million. The acquisitions were not significant individually or in the aggregate. The largest acquisition was Azteca Systems LLC (dba "Cityworks"), a privately-held company that provides enterprise asset management (EAM) software for utilities and local government, based in Sandy, Utah. In the aggregate, the businesses acquired during fiscal 2019 collectively contributed less than 1% percent to the Company's total revenue during fiscal 2019.
During fiscal 2018, the Company acquired six businesses, with total purchase consideration of $1.8 billion, including the acquisitions of Waterfall Holdings, Inc., the holding company of Viewpoint, Inc. (“Viewpoint”), and e-Builder, Inc. ("e-Builder") having cash transactions valued at $1,212.1 million and $485.5 million, respectively. In the aggregate, the businesses acquired during fiscal 2018 contributed approximately 5% percent to the Company's total revenue during fiscal 2018.
During fiscal 2017, the Company acquired ten businesses, with total purchase consideration of $331.2 million. The largest acquisition was Müller-Elektronik, a privately held German company specializing in implement control and precision farming solutions. In the aggregate, the businesses acquired during fiscal 2017 contributed less than 2% percent to the Company's total revenue during fiscal 2017.
The Company determined the total consideration paid for each of its acquisitions as well as the fair value of the assets acquired and liabilities assumed as of the date of each acquisition. The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill. The fair value of intangible assets acquired is generally determined based on a discounted cash flow analysis. For the acquisitions in fiscal 2019, the preliminary fair values of net tangible assets and intangible assets acquired were based on preliminary valuations and estimates, and assumptions are subject to change within the measurement period (up to one year from the acquisition date).
Acquisition costs of $20.5 million, $38.9 million, and $7.4 million in fiscal 2019, 2018, and 2017, respectively, were expensed as incurred and are included in General and administrative expenses in the Consolidated Statements of Income.
The following table summarizes the Company’s business combinations completed during fiscal 2019, 2018, and 2017:
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Fair value of total purchase consideration | $ | 247.0 | $ | 1,782.9 | $ | 331.2 | |||||
| Less fair value of net assets acquired: | |||||||||||
| Net tangible assets acquired | 6.7 | 5.0 | 29.7 | ||||||||
| Identified intangible assets | 104.6 | 568.3 | 166.7 | ||||||||
| Deferred taxes | (3.4 | ) | (89.2 | ) | (5.8 | ) | |||||
| Goodwill | $ | 139.1 | $ | 1,298.8 | $ | 140.6 |
Intangible Assets
The following table presents details of the Company’s total intangible assets:
| At the End of Fiscal 2019 | At the End of Fiscal 2018 | |||||||||||||||||||||||
| (In millions) | Weighted-Average Useful Lives (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||
| Developed product technology | 6 | $ | 1,266.7 | $ | (923.4 | ) | $ | 343.3 | $ | 1,220.3 | $ | (825.3 | ) | $ | 395.0 | |||||||||
| Trade names and trademarks | 5 | 74.8 | (59.8 | ) | 15.0 | 72.9 | (53.3 | ) | 19.6 | |||||||||||||||
| Customer relationships | 8 | 769.8 | (465.6 | ) | 304.2 | 715.1 | (406.5 | ) | 308.6 | |||||||||||||||
| Distribution rights and other intellectual properties | 6 | 79.7 | (63.5 | ) | 16.2 | 84.4 | (63.3 | ) | 21.1 | |||||||||||||||
| $ | 2,191.0 | $ | (1,512.3 | ) | $ | 678.7 | $ | 2,092.7 | $ | (1,348.4 | ) | $ | 744.3 |
The estimated future amortization expense of intangible assets at the end of fiscal 2019 is as follows (in millions):
| 2020 | $ | 152.7 | |
| 2021 | 131.6 | ||
| 2022 | 112.4 | ||
| 2023 | 98.8 | ||
| 2024 | 73.1 | ||
| Thereafter | 110.1 | ||
| Total | $ | 678.7 |
Goodwill
The changes in the carrying amount of goodwill by segment for fiscal 2019 are as follows:
| (In millions) | Buildings and Infrastructure | Geospatial | Resources and Utilities | Transportation | Total | ||||||||||||||
| At the end of fiscal 2018 | $ | 1,970.2 | $ | 403.1 | $ | 305.7 | $ | 861.0 | $ | 3,540.0 | |||||||||
| Additions due to acquisitions | 0.3 | — | 138.8 | — | 139.1 | ||||||||||||||
| Purchase price and foreign currency translation adjustments | 2.5 | (1.6 | ) | 0.9 | (0.3 | ) | 1.5 | ||||||||||||
| At the end of fiscal 2019 | $ | 1,973.0 | $ | 401.5 | $ | 445.4 | $ | 860.7 | $ | 3,680.6 |
Viewpoint and e-Builder acquisitions
On February 2, 2018, the Company completed the acquisition of e-Builder in an all-cash transaction valued at $485.5 million. e-Builder is a SaaS-based construction program management solution for capital program owners and program management firms that provides an integrated project delivery solution for owners, program managers, and contractors across the design, construct, and operate life cycle.
On July 2, 2018, the Company acquired all of the outstanding shares of Viewpoint, in an all-cash transaction valued at $1,212.1 million. Viewpoint is a provider of construction management software, which integrates a contractor’s financial and resource management to their project operations in the field. The integration across the office, team, and field workflows enable contractors to employ Viewpoint to effectively manage and gain visibility over data and workflows that span the construction life cycle from pre-production planning, to product operations and supply chain management, through project hand over and asset operation and maintenance.
Viewpoint and e-Builder’s results of operations since their respective acquisition dates have been included in the Company’s Consolidated Statements of Income since their respective acquisitions dates. Both Viewpoint and e-Builder's performance are reported under the Buildings and Infrastructure segment.
The two acquisitions were funded through the use of approximately $211.2 million of the Company’s existing cash, with the remainder funded through the issuance of senior notes and the Company’s 2018 Credit Facility.
The following table summarizes the consideration transferred to acquire Viewpoint and e-Builder, the assets acquired, and liabilities assumed, and the estimated useful lives of the identifiable intangible assets as of the date of the acquisition:
| Viewpoint | e-Builder | |||||||||||
| (In millions) | ||||||||||||
| Total purchase consideration | $ | 1,212.1 | $ | 485.5 | ||||||||
| Net tangible assets (liabilities) acquired | (0.6 | ) | 2.0 | |||||||||
| Intangible assets acquired: | Estimated Useful Life | Estimated Useful Life | ||||||||||
| Developed product technology | 225.4 | 6 years | 60.5 | 7 years | ||||||||
| In-Process Research & Development | 12.9 | n/a | — | |||||||||
| Order backlog | — | 1.7 | 6 months | |||||||||
| Customer relationships | 158.6 | 10 years | 42.4 | 10 years | ||||||||
| Trade name | 8.9 | 5 years | 4.8 | 7 years | ||||||||
| Favorable Lease | 4.3 | 4 - 9 years | — | |||||||||
| Subtotal | 410.1 | 109.4 | ||||||||||
| Deferred tax liability | (61.2 | ) | (18.2 | ) | ||||||||
| Less fair value of all assets/liabilities acquired | 348.3 | 93.2 | ||||||||||
| Goodwill | $ | 863.8 | $ | 392.3 | ||||||||
Goodwill consisted of highly skilled and valuable assembled workforce, a proven ability to generate new products and services to drive future revenue, and a premium paid by the Company for synergies unique to its business. The Company recorded $863.8 million and $392.3 million of goodwill from Viewpoint and e-Builder acquisitions, respectively.
NOTE 5: CERTAIN BALANCE SHEET COMPONENTS
The following tables provide details of selected balance sheet items:
| At the End of Fiscal Year | 2019 | 2018 | |||||
| (In millions) | |||||||
| Inventories: | |||||||
| Raw materials | $ | 95.8 | $ | 96.2 | |||
| Work-in-process | 13.2 | 12.6 | |||||
| Finished goods | 203.1 | 189.2 | |||||
| Total inventories | $ | 312.1 | $ | 298.0 |
Finished goods includes $5.6 million at the end of fiscal year 2019 and $7.3 million at the end of fiscal year 2018 for costs of sales that have been deferred in connection with deferred revenue arrangements.
| At the End of Fiscal Year | 2019 | 2018 | |||||
| (In millions) | |||||||
| Property and equipment, net: | |||||||
| Machinery and equipment | $ | 165.3 | $ | 134.2 | |||
| Software and licenses | 143.0 | 135.9 | |||||
| Buildings | 115.3 | 106.5 | |||||
| Leasehold improvements | 49.9 | 40.7 | |||||
| Construction in progress | 38.3 | 16.4 | |||||
| Furniture and fixtures | 35.7 | 31.4 | |||||
| Land | 10.1 | 9.9 | |||||
| 557.6 | 475.0 | ||||||
| Less: accumulated depreciation | (316.2 | ) | (262.1 | ) | |||
| Total property and equipment, net | $ | 241.4 | $ | 212.9 |
| At the End of Fiscal Year | 2019 | 2018 | |||||
| (In millions) | |||||||
| Other non-current liabilities: | |||||||
| Unrecognized tax benefits | $ | 66.4 | $ | 65.8 | |||
| Deferred compensation | 36.2 | 28.5 | |||||
| Pension | 20.2 | 19.2 | |||||
| Other | 30.1 | 36.7 | |||||
| Total other non-current liabilities | $ | 152.9 | $ | 150.2 |
NOTE 6: REPORTING SEGMENT AND GEOGRAPHIC INFORMATION
The Company's operating segments were determined based on how the Company's chief operating decision maker views and evaluates operations. Various factors, including market separation and customer specific applications, go-to market channels, and products and services, were considered in determining these operating segments. Segment operating results are regularly reviewed by the chief operating decision maker to make decisions about resources to be allocated to each segment and to assess performance. In each of its segments, the Company sells many individual products. For this reason, it is impracticable to segregate and identify revenue for each of the individual products or group of products.
The Company’s reportable segments are described below:
| • | Buildings and Infrastructure: This segment primarily serves customers working in architecture, engineering, construction, and operations and maintenance. |
| • | Geospatial: This segment primarily serves customers working in surveying, engineering, government, and land management. |
| • | Resources and Utilities: This segment primarily serves customers working in agriculture, forestry, and utilities. |
| • | Transportation: This segment primarily serves customers working in long haul trucking, field service management, rail, and military aviation. |
The following Reporting Segment tables reflect the results of the Company’s reportable operating segments under its management reporting system. These results are not necessarily in conformity with U.S. GAAP. This is consistent with the way the chief operating decision maker evaluates each of the segment's performance and allocates resources.
| Reporting Segments | |||||||||||||||||||
| Buildings and Infrastructure | Geospatial | Resources and Utilities | Transportation | Total | |||||||||||||||
| (In millions) | |||||||||||||||||||
| Fiscal 2019 | |||||||||||||||||||
| Revenue | $ | 1,254.2 | $ | 649.4 | $ | 568.4 | $ | 792.3 | $ | 3,264.3 | |||||||||
| Acquired deferred revenue adjustment | 4.0 | — | 3.0 | — | 7.0 | ||||||||||||||
| Segment revenue | $ | 1,258.2 | $ | 649.4 | $ | 571.4 | $ | 792.3 | $ | 3,271.3 | |||||||||
| Operating income | $ | 322.1 | $ | 132.2 | $ | 166.2 | $ | 125.9 | $ | 746.4 | |||||||||
| Acquired deferred revenue adjustment | 4.0 | — | 3.0 | — | 7.0 | ||||||||||||||
| Amortization of acquired capitalized commissions | (6.2 | ) | — | (0.1 | ) | — | (6.3 | ) | |||||||||||
| Segment operating income | $ | 319.9 | $ | 132.2 | $ | 169.1 | $ | 125.9 | $ | 747.1 | |||||||||
| Depreciation expense | $ | 8.1 | $ | 6.3 | $ | 4.4 | $ | 4.4 | $ | 23.2 | |||||||||
| Fiscal 2018 | |||||||||||||||||||
| Revenue | $ | 1,065.5 | $ | 723.1 | $ | 567.1 | $ | 752.7 | $ | 3,108.4 | |||||||||
| Acquired deferred revenue adjustment | 22.2 | — | 1.0 | 0.4 | 23.6 | ||||||||||||||
| Segment revenue | $ | 1,087.7 | $ | 723.1 | $ | 568.1 | $ | 753.1 | $ | 3,132.0 | |||||||||
| Operating income | $ | 239.0 | $ | 166.4 | $ | 167.4 | $ | 142.9 | $ | 715.7 | |||||||||
| Acquired deferred revenue adjustment | 22.2 | — | 1.0 | 0.4 | 23.6 | ||||||||||||||
| Amortization of acquired capitalized commissions | (4.5 | ) | — | (0.2 | ) | — | (4.7 | ) | |||||||||||
| Segment operating income | $ | 256.7 | $ | 166.4 | $ | 168.2 | $ | 143.3 | $ | 734.6 | |||||||||
| Depreciation expense | $ | 6.4 | $ | 6.0 | $ | 4.2 | $ | 4.5 | $ | 21.1 | |||||||||
| Fiscal 2017 | |||||||||||||||||||
| Revenue | $ | 829.4 | $ | 658.5 | $ | 481.0 | $ | 677.6 | $ | 2,646.5 | |||||||||
| Acquired deferred revenue adjustment | 1.1 | — | 1.0 | 0.7 | 2.8 | ||||||||||||||
| Segment revenue | $ | 830.5 | $ | 658.5 | $ | 482.0 | $ | 678.3 | $ | 2,649.3 | |||||||||
| Operating income | $ | 176.0 | $ | 129.4 | $ | 137.0 | $ | 114.4 | $ | 556.8 | |||||||||
| Acquired deferred revenue adjustment | 1.1 | — | 1.0 | 0.7 | 2.8 | ||||||||||||||
| Amortization of acquired capitalized commissions | (0.9 | ) | — | (0.1 | ) | (0.3 | ) | (1.3 | ) | ||||||||||
| Segment operating income | $ | 176.2 | $ | 129.4 | $ | 137.9 | $ | 114.8 | $ | 558.3 | |||||||||
| Depreciation expense | $ | 6.2 | $ | 5.4 | $ | 3.2 | $ | 5.2 | $ | 20.0 |
| Reporting Segments | |||||||||||||||||||
| Buildings and Infrastructure | Geospatial | Resources and Utilities | Transportation | Total | |||||||||||||||
| (In millions) | |||||||||||||||||||
| As of Fiscal Year End 2019 | |||||||||||||||||||
| Accounts receivable, net | $ | 232.0 | $ | 115.5 | $ | 93.3 | $ | 167.4 | $ | 608.2 | |||||||||
| Inventories | 67.1 | 125.0 | 45.5 | 74.5 | 312.1 | ||||||||||||||
| Goodwill | 1,973.0 | 401.5 | 445.4 | 860.7 | 3,680.6 | ||||||||||||||
| As of Fiscal Year End 2018 | |||||||||||||||||||
| Accounts receivable, net | $ | 177.5 | $ | 118.7 | $ | 83.8 | $ | 132.6 | $ | 512.6 | |||||||||
| Inventories | 70.3 | 133.5 | 46.2 | 48.0 | 298.0 | ||||||||||||||
| Goodwill | $ | 1,970.2 | $ | 403.1 | $ | 305.7 | $ | 861.0 | 3,540.0 | ||||||||||
| As of Fiscal Year End 2017 | |||||||||||||||||||
| Accounts receivable, net | $ | 120.1 | $ | 121.5 | $ | 78.5 | $ | 107.6 | $ | 427.7 | |||||||||
| Inventories | 62.1 | 110.3 | 46.0 | 46.2 | 264.6 | ||||||||||||||
| Goodwill | 706.8 | 415.3 | 314.5 | 850.5 | 2,287.1 |
A reconciliation of the Company’s consolidated segment operating income to consolidated income before income taxes is as follows:
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Consolidated segment operating income | $ | 747.1 | $ | 734.6 | $ | 558.3 | |||||
| Unallocated corporate expense (1) | (79.3 | ) | (90.7 | ) | (86.8 | ) | |||||
| Acquired deferred revenue adjustment | (7.0 | ) | (23.6 | ) | (2.8 | ) | |||||
| Restructuring charges | (27.9 | ) | (8.7 | ) | (10.5 | ) | |||||
| Amortization of purchased intangible assets | (167.8 | ) | (179.6 | ) | (148.8 | ) | |||||
| Stock-based compensation | (75.0 | ) | (76.9 | ) | (64.8 | ) | |||||
| Amortization of acquisition-related inventory step-up | — | (0.2 | ) | (2.8 | ) | ||||||
| Acquisition and divestiture items | (20.5 | ) | (38.9 | ) | (7.4 | ) | |||||
| Amortization of acquired capitalized commissions | 6.3 | 4.7 | 1.3 | ||||||||
| Consolidated operating income | 375.9 | 320.7 | 235.7 | ||||||||
| Non-operating income (expense), net: | (31.1 | ) | (42.7 | ) | 12.5 | ||||||
| Consolidated income before taxes | $ | 344.8 | $ | 278.0 | $ | 248.2 |
(1) Unallocated corporate expense includes general corporate expense.
On a total Company basis, the disaggregation of revenue by geography is summarized in the tables below. Revenue is defined as revenue from external customers attributed to countries based on the location of the customer and excludes the effects of certain acquired deferred revenue that was written down to fair value in purchase accounting, consistent with the Reporting Segment tables above.
| Reporting Segments | |||||||||||||||||||
| Buildings and Infrastructure | Geospatial | Resources and Utilities | Transportation | Total | |||||||||||||||
| (In millions) | |||||||||||||||||||
| Fiscal 2019 | |||||||||||||||||||
| North America | $ | 722.7 | $ | 263.0 | $ | 173.3 | $ | 636.3 | $ | 1,795.3 | |||||||||
| Europe | 338.7 | 217.5 | 273.6 | 90.4 | 920.2 | ||||||||||||||
| Asia Pacific | 165.3 | 122.7 | 47.4 | 39.7 | 375.1 | ||||||||||||||
| Rest of World | 31.5 | 46.2 | 77.1 | 25.9 | 180.7 | ||||||||||||||
| Total segment revenue | $ | 1,258.2 | $ | 649.4 | $ | 571.4 | $ | 792.3 | $ | 3,271.3 | |||||||||
| Fiscal 2018 | |||||||||||||||||||
| North America | $ | 595.0 | $ | 290.6 | $ | 175.0 | $ | 609.4 | $ | 1,670.0 | |||||||||
| Europe | 312.1 | 211.2 | 260.0 | 90.2 | 873.5 | ||||||||||||||
| Asia Pacific | 152.7 | 171.7 | 46.4 | 47.5 | 418.3 | ||||||||||||||
| Rest of World | 27.9 | 49.6 | 86.7 | 6.0 | 170.2 | ||||||||||||||
| Total segment revenue | $ | 1,087.7 | $ | 723.1 | $ | 568.1 | $ | 753.1 | $ | 3,132.0 | |||||||||
| Fiscal 2017 | |||||||||||||||||||
| North America | $ | 428.5 | $ | 257.5 | $ | 163.7 | $ | 562.9 | $ | 1,412.6 | |||||||||
| Europe | 237.9 | 187.1 | 189.5 | 72.7 | 687.2 | ||||||||||||||
| Asia Pacific | 127.2 | 162.5 | 52.6 | 37.7 | 380.0 | ||||||||||||||
| Rest of World | 36.9 | 51.4 | 76.2 | 5.0 | 169.5 | ||||||||||||||
| Total segment revenue | $ | 830.5 | $ | 658.5 | $ | 482.0 | $ | 678.3 | $ | 2,649.3 |
No single customer or country other than the United States accounted for 10% or more of Trimble’s total revenue in fiscal years 2019, 2018 and 2017. No single customer accounted for 10% or more of Trimble's accounts receivable as of fiscal years ended 2019 and 2018.
Property and equipment, net by geographic area was as follows:
| At the End of Fiscal Year | 2019 | 2018 | |||||
| (In millions) | |||||||
| Property and equipment, net: | |||||||
| United States | $ | 192.7 | $ | 170.1 | |||
| Europe | 38.6 | 34.2 | |||||
| Asia Pacific and Rest of World | 10.1 | 8.6 | |||||
| Total property and equipment, net | $ | 241.4 | $ | 212.9 |
NOTE 7: DEBT
Debt consisted of the following:
| At the End of Fiscal Year | Effective interest rate | |||||||||||
| (In millions, except percentages) | Date of Issuance | for fiscal 2019 | 2019 | 2018 | ||||||||
| Senior Notes: | ||||||||||||
| 2023 Senior Notes, 4.15%, due June 2023 | June 2018 | 4.36% | $ | 300.0 | $ | 300.0 | ||||||
| 2028 Senior Notes, 4.90%, due June 2028 | June 2018 | 5.04% | 600.0 | 600.0 | ||||||||
| 2024 Senior Notes, 4.75%, due December 2024 | November 2014 | 4.95% | 400.0 | 400.0 | ||||||||
| Credit Facilities: | ||||||||||||
| 2018 Credit Facility, floating rate: | ||||||||||||
| Term Loan, due May 2021 | May 2018 | 3.25% | 225.0 | 425.0 | ||||||||
| Revolving Credit Facility, due May 2023 | May 2018 | 3.47% | 110.0 | — | ||||||||
| Uncommitted facilities, floating rate | 1.54% | 218.7 | 255.9 | |||||||||
| Promissory notes and other debt | 0.3 | 1.0 | ||||||||||
| Unamortized discount and issuance costs | (10.8 | ) | (13.4 | ) | ||||||||
| Total debt | 1,843.2 | 1,968.5 | ||||||||||
| Less: Short-term debt | 219.0 | 256.2 | ||||||||||
| Long-term debt | $ | 1,624.2 | $ | 1,712.3 |
Each of the Company's debt agreements requires it to maintain compliance with certain debt covenants, all of which the Company was in compliance with at the end of fiscal 2019.
Debt Maturities:
At the end of fiscal 2019, the Company's debt maturities based on outstanding principal were as follows (in millions):
| Year Payable | |||
| 2020 | $ | 219.0 | |
| 2021 | 225.0 | ||
| 2022 | — | ||
| 2023 | 410.0 | ||
| 2024 | 400.0 | ||
| Thereafter | 600.0 | ||
| Total | $ | 1,854.0 |
Senior Notes:
All series of Senior Notes in the above table bear interest that is payable semi-annually in June and December of each year. For the 2023 and 2028 Senior Notes, the interest rate is subject to adjustment from time to time if Moody’s or S&P (or, if applicable, a substitute rating agency) downgrades (or subsequently upgrades) its rating assigned to the notes.
Senior Notes are unsecured and rank equally in right of payment with all of the Company's other senior unsecured indebtedness. The Company may redeem the notes of each series of Senior Notes at its option in whole or in part at any time. Such indenture also contains covenants limiting the Company’s ability to create certain liens, enter into sale and lease-back transactions, and consolidate or merge with or into, or convey, transfer, or lease all or substantially all of the Company’s properties and assets, each subject to certain exceptions.
2018 Credit Facility:
The Credit Facility in the above table provides for unsecured credit facilities in the aggregate principal amount of $1.75 billion, which is comprised of $1.25 billion revolving credit facility maturing May 2023 and $500.0 million delayed draw term loan facility that matures on the third anniversary of the funding date. The Company may request an additional loan facility up to $500.0 million prior to the maturity of the Credit Facility and subject to approval.
The Company may borrow funds under the 2018 Credit Facility in U.S. Dollars in the case of the Term Loan and U.S. Dollars, Euros, or in certain other agreed currencies in the case of the Revolving Credit Facility. Borrowings will bear interest, at the Company’s option, at either: (a) the alternate base rate, which is defined as a fluctuating rate per annum equal to the greatest of (i) the prime rate then in effect, (ii) the federal funds rate then in effect, plus 0.50% per annum, or (iii) an adjusted LIBOR rate determined on the basis of a one-month interest period, plus 1.00%, in each case, plus a margin of between 0.00% and 0.875%; (b) an adjusted LIBOR rate (based on one, two, three or six-month interest periods), plus a margin of between 1.00% and 1.875%; or (c) an adjusted EURIBOR rate (based on one, two, three or six-month interest periods), plus a margin of between 1.00% and 1.875%. The applicable margin in each case is determined based on either the Company’s credit rating at such time or the Company’s leverage ratio as of its most recently ended fiscal quarter, whichever results in more favorable pricing to the Company. Interest is payable quarterly in arrears with respect to borrowings bearing interest at the alternate base rate, or on the last day of an interest period, but at least every three months, with respect to borrowings bearing interest at LIBOR rate or EURIBOR rate.
The 2018 Credit Facility also contains customary affirmative and negative covenants including, among other requirements, negative covenants that restrict the Company’s and its subsidiaries’ ability to create liens and enter into sale and leaseback transactions and that restrict its subsidiaries’ ability to incur indebtedness. Further, the 2018 Credit Facility contains financial covenants that require the Company to maintain a minimum interest coverage of not less than 3.50:1.00 and a current maximum leverage ratio of not greater than 3.75:1.00.
Uncommitted Facilities:
The Company has two $75.0 million and one €100.0 million revolving credit facilities, which are uncommitted (the "Uncommitted Facilities") at the end of fiscal 2019. Generally, these uncommitted facilities may be redeemed upon demand. Uncommitted facilities are classified as short-term debt in the Consolidated Balance Sheet. The weighted average interest rate was 1.54% and 2.16% at the end of fiscal 2019 and 2018, respectively.
Promissory Notes and Other Debt
At the end of fiscal 2019 the Company had promissory notes and other notes payable totaling approximately $0.3 million classified as short-term in the Consolidated Balance Sheet. At the end of fiscal 2018, the Company had promissory notes and other payables totaling $1.0 million, of which $0.3 million was classified as short-term in the Consolidated Balance Sheet.
NOTE 8: LEASES
The Company has operating leases primarily for certain of its major facilities, including corporate offices, research and development facilities, and manufacturing facilities. The remaining lease terms range from 1 to 10 years, and certain leases include options to extend the lease for up to 9 years. The Company considers options to extend the lease in determining the lease term.
Operating lease expense consisted of:
| At the End of Fiscal Year | 2019 | ||
| (In millions) | |||
| Operating lease expense | $ | 38.3 | |
| Short-term lease expense and other | 18.4 | ||
| Total lease expense | $ | 56.7 |
Supplemental cash flow information related to leases was as follows:
| At the End of Fiscal Year | 2019 | ||
| (In millions) | |||
| Cash paid for liabilities included in the measurement of lease liabilities: | |||
| Operating cash flows from operating leases (1) | $ | 37.9 | |
| Right-of-use assets obtained in exchange for Operating lease liabilities: | $ | 53.2 |
| (1) | Excludes cash payments for short-term leases, which are not capitalized. |
Supplemental balance sheet information related to leases was as follows:
| At the End of Fiscal Year | 2019 | ||
| (In millions) | |||
| Operating lease right-of-use assets | $ | 140.3 | |
| Other current liabilities | $ | 28.9 | |
| Operating lease liabilities | 114.1 | ||
| Total operating lease liabilities | $ | 143.0 | |
| Weighted-average discount rate | 4.23 | % | |
| Weighted-average remaining lease term | 6 years |
At the end of fiscal year 2019, the Company's maturities of lease liabilities were as follows (in millions):
| Year Payable | |||
| 2020 | $ | 34.0 | |
| 2021 | 32.2 | ||
| 2022 | 25.8 | ||
| 2023 | 20.3 | ||
| 2024 | 15.0 | ||
| Thereafter | 33.5 | ||
| Total lease payments | $ | 160.8 | |
| Less imputed interest | 17.8 | ||
| Total | $ | 143.0 |
The Company signed operating leases for real estate of approximately $39.4 million that have not yet commenced at the end of fiscal 2019, and as such, have not been recognized on the Company’s Consolidated Balance Sheets. These operating leases are expected to commence in 2020 and 2021 with lease terms ranging from 1 to 13 years.
NOTE 9: COMMITMENTS AND CONTINGENCIES
At the end of fiscal 2019, the Company had unconditional purchase obligations of approximately $324.7 million. These unconditional purchase obligations primarily represent open non-cancelable purchase orders for material purchases with the Company’s vendors.
Litigation
From time to time, the Company is involved in litigation arising out of the ordinary course of its business. There are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Company or any of its subsidiaries is a party or of which any of the Company's or its subsidiaries' property is subject.
NOTE 10: FAIR VALUE MEASUREMENTS
The Company determines fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Hierarchical levels 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.
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.
| At the End of Fiscal Year | 2019 | 2018 | |||||||||||||||||||||||||||||
| (In millions) | Level I | Level II | Level III | Total | Level I | Level II | Level III | Total | |||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||
| Deferred compensation plan assets (1) | $ | 36.2 | $ | — | $ | — | $ | 36.2 | $ | 28.5 | $ | — | $ | — | $ | 28.5 | |||||||||||||||
| Derivative assets (2) | — | 0.3 | — | 0.3 | — | 0.4 | — | 0.4 | |||||||||||||||||||||||
| Total assets measured at fair value | $ | 36.2 | $ | 0.3 | $ | — | $ | 36.5 | $ | 28.5 | $ | 0.4 | $ | — | $ | 28.9 | |||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||
| Deferred compensation plan liabilities (1) | $ | 36.2 | $ | — | $ | — | $ | 36.2 | $ | 28.5 | $ | — | $ | — | $ | 28.5 | |||||||||||||||
| Derivative liabilities (2) | — | 1.0 | — | 1.0 | — | — | — | — | |||||||||||||||||||||||
| Contingent consideration liabilities (3) | — | — | 19.9 | 19.9 | — | — | 5.6 | 5.6 | |||||||||||||||||||||||
| Total liabilities measured at fair value | $ | 36.2 | $ | 1.0 | $ | 19.9 | $ | 57.1 | $ | 28.5 | $ | — | $ | 5.6 | $ | 34.1 |
| (1) | The Company maintains a self-directed, non-qualified deferred compensation plan for certain executives and other highly compensated employees. The plan assets and liabilities are invested in actively traded mutual funds and individual stocks valued using observable quoted prices in active markets. Deferred compensation plan assets and liabilities are included in Other non-current assets and Other non-current liabilities, respectively, on the Company's Consolidated Balance Sheets. |
| (2) | Derivative assets and liabilities primarily represent forward currency exchange contracts. The Company typically enters into these contracts to minimize the short-term impact of foreign currency exchange rates on certain trade and inter-company receivables and payables. Derivative assets and liabilities are included in Other current assets and Other current liabilities on the Company's Consolidated Balance Sheets. |
| (3) | Contingent consideration liabilities represent arrangements to pay the former owners of certain companies that Trimble acquired. The undiscounted maximum payment under the arrangements is $33.7 million at the end of fiscal 2019. The fair values are estimated using scenario-based methods or option pricing methods based upon estimated future revenue, gross margin, or other milestones. At the end of fiscal 2019, the Company had $13.7 million included in Other current liabilities and $6.2 million included in Other non-current liabilities on the Company's Consolidated Balance Sheets. |
Additional Fair Value Information
The total estimated fair value of all outstanding financial instruments that are not recorded at fair value on a recurring basis (debt) was approximately $1.9 billion and $2.0 billion at the end of fiscal year 2019 and 2018, respectively, consistent with the carrying values.
The fair value of the Senior Notes was determined based on observable market prices in less active markets and is categorized accordingly as Level II in the fair value hierarchy. The fair value of the bank borrowings and promissory notes has been calculated using an estimate of the interest rate the Company would have had to pay on the issuance of notes with a similar maturity and by discounting the cash flows at that rate and is categorized as Level II in the fair value hierarchy. The fair values do not give an indication of the amount that the Company would currently have to pay to extinguish any of this debt.
NOTE 11. DEFERRED COSTS TO OBTAIN CUSTOMER CONTRACTS
Deferred cost to obtain customer contracts of $45.4 million and $41.3 million is included in Other non-current assets in the Consolidated Balance Sheets at the end of fiscal 2019 and 2018, respectively.
Amortization expense related to deferred costs to obtain customer contracts, for fiscal 2019, 2018, and 2017, was $22.3 million, $23.6 million, and $21.3 million, respectively. This expense was included in Sales and marketing expenses in the Company’s Consolidated Statements of Income. There were no impairment losses related to the deferred commissions for the periods presented.
NOTE 12. DEFERRED REVENUE AND REMAINING PERFORMANCE OBLIGATIONS
Deferred Revenue
Changes in the Company’s deferred revenue during fiscal 2019 and 2018 are as follows:
| Fiscal Years | 2019 | 2018 | |||||
| (In millions) | |||||||
| Beginning balance of the period | $ | 387.2 | $ | 276.6 | |||
| Revenue recognized | (341.3 | ) | (226.9 | ) | |||
| Acquired deferred revenue | 6.1 | 50.3 | |||||
| Net deferred revenue activity | 489.9 | 287.2 | |||||
| Ending balance of the period | $ | 541.9 | $ | 387.2 |
Remaining Performance Obligations
As of the end of fiscal 2019, approximately $1.2 billion of revenue is expected to be recognized from remaining performance obligations for which goods or services have not been delivered, primarily hardware, subscription, software maintenance, and professional services contracts. The Company expects to recognize revenue of approximately 71% and 17% on these remaining performance obligations over the next 12 and 24 months, respectively, with the remainder recognized thereafter.
NOTE 13: INCOME TAXES
Income before taxes and the provision (benefit) for taxes consisted of the following:
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Income before taxes: | |||||||||||
| United States | $ | 43.0 | $ | 25.4 | $ | 33.2 | |||||
| Foreign | 301.8 | 252.6 | 215.0 | ||||||||
| Total | $ | 344.8 | $ | 278.0 | $ | 248.2 |
| Provision (benefit) for taxes: | |||||||||||
| U.S. Federal: | |||||||||||
| Current | $ | (3.8 | ) | $ | (19.7 | ) | $ | 98.6 | |||
| Deferred | 252.3 | (25.8 | ) | (6.1 | ) | ||||||
| 248.5 | (45.5 | ) | 92.5 | ||||||||
| U.S. State: | |||||||||||
| Current | 5.1 | 5.0 | 4.5 | ||||||||
| Deferred | (0.7 | ) | (3.6 | ) | (1.0 | ) | |||||
| 4.4 | 1.4 | 3.5 | |||||||||
| Foreign: | |||||||||||
| Current | 49.2 | 57.0 | 42.7 | ||||||||
| Deferred | (471.8 | ) | (18.2 | ) | (9.0 | ) | |||||
| (422.6 | ) | 38.8 | 33.7 | ||||||||
| Income tax provision (benefit) | $ | (169.7 | ) | $ | (5.3 | ) | $ | 129.7 | |||
| Effective tax rate | (49 | )% | (2 | )% | 52 | % |
The difference between the tax provision (benefit) at the statutory federal income tax rate and the tax provision (benefit) as a percentage of income before taxes ("effective tax rate") was as follows:
| Fiscal Years | 2019 | 2018 | 2017 | |||||
| Statutory federal income tax rate | 21 | % | 21 | % | 35 | % | ||
| Increase (reduction) in tax rate resulting from: | ||||||||
| Foreign income taxed at different rates | (7 | )% | (7 | )% | (15 | )% | ||
| U.S. State income taxes | 2 | % | 1 | % | 1 | % | ||
| U.S. Federal research and development credits | (3 | )% | (4 | )% | (3 | )% | ||
| Stock-based compensation | 1 | % | 1 | % | 2 | % | ||
| Excess tax benefit related to stock-based compensation | (2 | )% | (3 | )% | (4 | )% | ||
| Effect of U.S. tax law change | — | % | (8 | )% | 33 | % | ||
| Other US taxes on foreign operations | 1 | % | 2 | % | — | % | ||
| Tax reserve releases | (5 | )% | (9 | )% | — | % | ||
| Intercompany transfer of intellectual property | (60 | )% | — | % | — | % | ||
| Other | 3 | % | 4 | % | 3 | % | ||
| Effective tax rate | (49 | )% | (2 | )% | 52 | % |
Tax Cuts and Jobs Act (the "Tax Act") reduced the U.S. federal tax rate from 35% to 21%, imposed a one-time transition tax on accumulated foreign earnings, and created new taxes on certain foreign-sourced earnings referred to as Global Intangible Low-Taxed Income ("GILTI"). As a result, the Company recorded a provisional net income tax expense of $80.2 million in fiscal 2017. In fiscal 2018, the Company completed the accounting for the tax effects of the Tax Act and made immaterial adjustments to the provisional amounts recorded previously. Additionally, in fiscal 2018, the Company finalized its accounting policy election to record GILTI deferred taxes and recorded a $15.1 million one-time tax benefit.
To align with its international business operations, in the fourth quarter of 2019, the Company completed a non-U.S. intercompany transfer of its intellectual property to a subsidiary in the Netherlands. The transaction resulted in deferred tax assets in the Netherlands and GILTI deferred tax liabilities in the U.S., recorded at the applicable statutory tax rates, resulting in a one-time income tax benefit of approximately $206.3 million.
The effective income tax rates in fiscal 2019 decreased compared to 2018 primarily due to the one-time tax benefit from the non-U.S. intercompany transfer of intellectual property.
The effective income tax rates in fiscal 2018 decreased compared to 2017 primarily due to the one-time impacts from the Tax Act, benefits from reserve releases due to the expiration of the U.S. federal statute of limitations for certain tax years, and a one-time benefit from deferred taxes in relation to GILTI.
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. The significant components of the Company’s deferred tax assets and liabilities are as follows:
| At the End of Fiscal Year | 2019 | 2018 | |||||
| (In millions) | |||||||
| Deferred tax liabilities: | |||||||
| Purchased intangibles | $ | 158.7 | $ | 177.1 | |||
| Global intangible low-taxed income | 233.7 | — | |||||
| Operating lease right-of-use assets | 35.3 | — | |||||
| Other | 12.8 | 13.8 | |||||
| Total deferred tax liabilities | 440.5 | 190.9 | |||||
| Deferred tax assets: | |||||||
| Expenses not currently deductible | 28.0 | 33.4 | |||||
| Depreciation and amortization | 471.5 | 7.3 | |||||
| U.S. tax credit carryforwards | 34.2 | 30.3 | |||||
| U.S. net operating loss carryforwards | 9.8 | 20.8 | |||||
| Foreign net operating loss carryforwards | 16.2 | 16.9 | |||||
| Stock-based compensation | 13.3 | 20.3 | |||||
| Global intangible low-taxed income | — | 13.4 | |||||
| Operating lease liabilities | 36.0 | — | |||||
| Other | 14.1 | 14.7 | |||||
| Total deferred tax assets | 623.1 | 157.1 | |||||
| Valuation allowance | (25.3 | ) | (27.8 | ) | |||
| Total deferred tax assets | 597.8 | 129.3 | |||||
| Total net deferred tax assets | $ | 157.3 | $ | (61.6 | ) | ||
| Reported as: | |||||||
| Non-current deferred income tax assets | $ | 475.5 | $ | 12.2 | |||
| Non-current deferred income tax liabilities | (318.2 | ) | (73.8 | ) | |||
| Net deferred tax assets (liabilities) | $ | 157.3 | $ | (61.6 | ) |
At the end of fiscal 2019, the Company has U.S. federal and foreign net operating loss carryforwards, or NOLs, of approximately $21.5 million and $81.0 million, respectively. The U.S. federal NOLs will begin to expire in 2026. There is, generally, no expiration for the foreign NOLs. Utilization of the Company’s U.S. federal and state NOLs is subject to annual limitations in accordance with the applicable tax code. The Company has determined that it is more likely than not that the Company will not realize a portion of the foreign NOLs and, accordingly, a valuation allowance has been established for such amount.
The Company has U.S. federal and California research and development credit carryforwards of approximately $11.1 million and $33.0 million, respectively. The U.S. federal tax credit carryforwards will expire beginning 2031. The California research tax credits have an indefinite carryforward period. The Company believes that it is more likely than not that the Company will not realize a portion of the California research and development credit carryforwards and, accordingly, a valuation allowance has been established for such amount.
As a result of the Tax Act, the Company can repatriate foreign earnings back to the U.S. when needed with minimal U.S. income tax consequences, other than the transition tax and GILTI tax. The Company reinvested a large portion of its undistributed foreign earnings in acquisitions and other investments and intends to bring back a portion of foreign cash which was subject to the transition tax and GILTI. During fiscal 2019, the Company repatriated $239.4 million of its foreign earnings to the U.S.
The total amount of the unrecognized tax benefits at the end of fiscal 2019 was $71.6 million. A reconciliation of gross unrecognized tax benefit is as follows:
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Beginning balance | $ | 69.1 | $ | 82.4 | $ | 72.9 | |||||
| Increase (decrease) related to prior years' tax positions | 3.8 | 4.5 | (0.6 | ) | |||||||
| Increase related to current year tax positions | 12.6 | 10.0 | 12.1 | ||||||||
| Lapse of statute of limitations | (8.2 | ) | (18.9 | ) | (1.6 | ) | |||||
| Settlement with taxing authorities | (5.7 | ) | (8.9 | ) | (0.4 | ) | |||||
| Ending balance | $ | 71.6 | $ | 69.1 | $ | 82.4 |
The Company's total unrecognized tax benefits that, if recognized, would affect its effective tax rate were $59.5 million and $60.5 million at the end of fiscal 2019 and 2018, respectively.
The Company and its subsidiaries are subject to U.S. federal, state, and foreign income taxes. The Company's tax years are substantially closed for all U.S. federal and state income taxes for audit purposes through 2014. Non-U.S. income tax matters have been concluded for years through 2007. The Company is currently in various stages of multiple year examinations state, and foreign (multiple jurisdictions) taxing authorities. While the Company generally believes it is more likely than not that its tax positions will be sustained, it is reasonably possible that future obligations related to these matters could arise. The Company believes that its reserves are adequate to cover any potential assessments that may result from the examinations and negotiations.
In the first quarter of fiscal 2018, the Company had received a formal Notice of Deficiency from the Internal Revenue Service for fiscal year 2011, assessing tax and penalties totaling $51.2 million. In the third quarter of fiscal 2019, the Company received a decision from U.S. Tax Court resulting in no change to its federal income tax liability for fiscal 2011. There are no federal income tax returns currently under examination.
Although timing of the resolution and/or closure of audits is not certain, the Company does not believe that its gross unrecognized tax benefits would materially change in the next twelve months.
The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company’s liability for unrecognized tax benefits including interest and penalties was recorded in Other non-current liabilities in the accompanying Consolidated Balance Sheets. At the end of fiscal 2019 and 2018, the Company had accrued $11.5 million and $11.0 million, respectively, for payment of interest and penalties.
NOTE 14: ACCUMULATED OTHER COMPREHENSIVE LOSS
The components of accumulated other comprehensive loss, net of related tax were as follows:
| At the End of Fiscal Year | 2019 | 2018 | |||||
| (In millions) | |||||||
| Accumulated foreign currency translation adjustments | $ | (173.1 | ) | $ | (183.4 | ) | |
| Net unrealized actuarial losses | (3.7 | ) | (2.7 | ) | |||
| Total accumulated other comprehensive loss | $ | (176.8 | ) | $ | (186.1 | ) |
NOTE 15: EMPLOYEE STOCK BENEFIT PLANS
2002 Stock Plan
Trimble’s 2002 Stock Plan provides for the granting of incentive and non-statutory stock options and RSUs for up to 74.6 million shares. At the end of fiscal 2019, the remaining number of shares available for grant under the 2002 stock plan was 8.1 million.
Stock-Based Compensation Expense
The following table summarizes the components of stock-based compensation expense recognized in the Company’s Consolidated Statements of Income for the periods indicated:
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Restricted stock units | $ | 67.3 | $ | 68.9 | $ | 53.3 | |||||
| Stock options | 0.6 | 1.5 | 5.7 | ||||||||
| ESPP | 7.1 | 6.5 | 5.8 | ||||||||
| Total stock-based compensation expense | $ | 75.0 | $ | 76.9 | $ | 64.8 |
At the end of fiscal 2019, total unamortized stock-based compensation expense was $174.4 million, with a weighted-average recognition period of 2.4 years.
Restricted Stock Units
The Company grants RSUs containing only service conditions as well as performance stock units ("PSUs") containing a combination of service, performance, and/or market conditions. RSUs containing only service conditions vest ratably over a three to four year service period. PSUs are granted to executive officers and other senior employees and vest after a two to three year service period.
For PSUs granted prior to 2019, the number of shares received at vesting will range from 0% to 200% of the target grant amount based on either (1) market conditions or (2) performance conditions. Market conditions consider the achievement of the Company’s relative total stockholder return ("TSR") of its common stock as compared to the TSR of the constituents of the S&P 500 over the vesting period. Performance conditions consider the achievement of the Company's financial results over the vesting period.
PSUs granted during fiscal 2019 contain both performance and market conditions, and the number of shares received at vesting will range from 0% to 250% of the target grant amount.
| 2019 Restricted Stock Units Outstanding | ||||||
| Number of Units (1) | Weighted Average Grant-Date Fair Value | |||||
| (In millions, except for per share data) | ||||||
| Outstanding at the beginning of year | 4.9 | $ | 35.94 | |||
| Granted (2) | 3.7 | $ | 41.38 | |||
| Shares vested, net | (2.4 | ) | $ | 31.41 | ||
| Canceled and forfeited | (0.5 | ) | $ | 38.61 | ||
| Outstanding at the end of year | 5.7 | $ | 39.62 |
(1) Includes 1.9 million PSUs granted, 1.3 million PSUs vested, and 2.0 million PSUs outstanding at the end of the year.
(2) Includes 0.6 million PSUs related to performance adjustments above target levels at the vesting date.
The weighted-average grant date fair value of all RSUs granted during fiscal years 2019, 2018, and 2017 was $41.38, $37.43, and $40.19 per share, respectively. The fair value of all RSUs vested during fiscal years 2019, 2018, and 2017 was $75.7 million, $73.9 million, and $40.4 million, respectively.
Stock options
Employee stock options vest over three years with annual or monthly vesting and expire seven to ten years from the date of grant. The following table summarizes information about stock options outstanding at the end of fiscal 2019:
| Number Of Shares (in millions) | Weighted- Average Exercise Price per Share | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value (in millions) | |||||||||
| Outstanding at the beginning of year | 2.4 | $ | 28.26 | |||||||||
| Options granted | 0.1 | 40.57 | ||||||||||
| Options exercised | (1.4 | ) | 27.75 | |||||||||
| Cancelled and forfeited | — | 23.53 | ||||||||||
| Outstanding at the end of year | 1.1 | 29.96 | 2.0 | $ | 12.0 | |||||||
| Options exercisable | 0.9 | $ | 28.61 | 1.2 | $ | 11.4 |
The total intrinsic value of options exercised during fiscal years 2019, 2018, and 2017 was $16.4 million, $30.0 million, and $41.1 million, respectively.
The weighted-average grant date fair value per share of stock options granted during fiscal years 2019 and 2018 was $12.92, and $10.62, respectively. The fair value of all stock options vested during fiscal years 2019, 2018, and 2017 was $0.2 million, $1.9 million, and $6.5 million, respectively.
Employee Stock Purchase Plan
The Company has an ESPP under which the stockholders have approved an aggregate of 39.0 million shares of Common Stock for issuance to eligible employees. The plan permits eligible 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. Rights to purchase shares are granted during the first and third quarter of each fiscal year. The ESPP terminates on March 15, 2027. In fiscal 2019, 2018, and 2017, 0.8 million shares were issued, in each fiscal year respectively, representing $25.7 million, $24.0 million, and $20.4 million in cash received for the issuance of stock under the Purchase Plan. At the end of fiscal 2019, the number of shares reserved for future purchases was 7.4 million.
NOTE 16: COMMON STOCK REPURCHASE
In November 2014, the Company's Board of Directors approved a stock repurchase program ("2014 Stock Repurchase Program"), authorizing the Company to repurchase up to $300.0 million of Trimble’s common stock. In August 2015, the Company’s Board of Directors approved a stock repurchase program ("2015 Stock Repurchase Program"), authorizing the Company to repurchase up to $400.0 million of Trimble’s common stock, replacing the 2014 Stock Repurchase Program. In November 2017, the Company’s Board of Directors approved a stock repurchase program ("2017 Stock Repurchase Program"), authorizing the Company to repurchase up to $600.0 million of Trimble’s common stock. The stock repurchase authorization does not have an expiration date and replaces the 2015 Stock Repurchase Program, which was completed.
Under the stock repurchase program, the Company may repurchase shares from time to time in open market transactions, privately negotiated transactions, accelerated share buyback programs, tender offers, or by other means. The timing and amount of repurchase transactions will be determined by the Company’s management based on its evaluation of market conditions, share price, legal requirements and other factors. The program may be suspended, modified or discontinued at any time without prior notice. At the end of fiscal 2019, the 2017 Stock Repurchase Program had remaining authorized funds of $172.4 million.
During fiscal 2019, the Company repurchased approximately 4.7 million shares of common stock in open market purchases, at an average price of $38.51 per share, for a total of $179.8 million under the 2017 Stock Repurchase Program.
During fiscal 2018, the Company repurchased approximately 2.4 million shares of common stock in open market purchases, at an average price of $37.23 per share, for a total of $90.0 million under the 2017 Stock Repurchase Program.
During fiscal 2017, the Company repurchased approximately 7.4 million shares of common stock in open market purchases, at an average price of $39.18 per share, for a total of $288.3 million under the 2017 and 2015 Stock Repurchase Programs.
Stock repurchases are reflected as a decrease to common stock based on par value and additional-paid-capital, based on the average book value per share for all outstanding shares calculated at the time of each individual repurchase transaction. The excess of the purchase price over this average for each repurchase was charged to retained earnings. As a result of the 2019 repurchases, retained
earnings was reduced by $149.1 million in fiscal 2019. Common stock repurchases under the program were recorded based upon the trade date for accounting purposes.
NOTE 17: STATEMENT OF CASH FLOW DATA
| Fiscal Years | 2019 | 2018 | 2017 | ||||||||
| (In millions) | |||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Interest paid | $ | 79.2 | $ | 69.3 | $ | 28.4 | |||||
| Income taxes paid | $ | 63.1 | $ | 62.3 | $ | 46.6 |
NOTE 18: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Trimble has a 52-53 week fiscal year, ending on the Friday nearest to December 31. Fiscal 2019 was a 53-week year and 2018 was a 52-week year. Therefore, the fourth quarter of fiscal 2019 included the 53rd week.
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| Fiscal Period | 2019 | 2019 | 2019 | 2019 | |||||||||||
| (In millions, except per share data) | |||||||||||||||
| Revenue | $ | 801.6 | $ | 854.8 | $ | 783.9 | $ | 824.0 | |||||||
| Gross margin | 438.3 | 460.6 | 422.0 | 460.0 | |||||||||||
| Net income attributable to Trimble Inc. | 62.3 | 94.6 | 78.1 | 279.3 | |||||||||||
| Basic net income per share | 0.25 | 0.38 | 0.31 | 1.12 | |||||||||||
| Diluted net income per share | 0.25 | 0.37 | 0.31 | 1.11 |
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| Fiscal Period | 2018 | 2018 | 2018 | 2018 | |||||||||||
| (In millions, except per share data) | |||||||||||||||
| Revenue | $ | 742.2 | $ | 785.5 | $ | 795.2 | $ | 785.5 | |||||||
| Gross margin | 396.2 | 422.7 | 426.9 | 435.2 | |||||||||||
| Net income attributable to Trimble Inc. | 58.5 | 64.1 | 73.7 | 86.5 | |||||||||||
| Basic net income per share | 0.24 | 0.26 | 0.29 | 0.34 | |||||||||||
| Diluted net income per share | 0.23 | 0.25 | 0.29 | 0.34 |
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Trimble Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Trimble Inc. (the Company) as of January 3, 2020 and December 28, 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended January 3, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 3, 2020 and December 28, 2018, and the results of its operations and its cash flows for each of the three years in the period ended January 3, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 3, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
| Revenue Recognition - Identification of Performance Obligations | |
| Description of the Matter | As described in Note 2 to the consolidated financial statements, the Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations. In some contracts, products and professional services may be combined into a single performance obligation when products or subscriptions are sold with significant customization, modification, or integration services. Determining whether products or services are considered distinct performance obligations that should be recognized separately or combined into a single performance obligation may sometimes require significant judgment. Auditing the Company's determination of distinct performance obligations was complex due to the effort involved in assessing whether the various product and service offerings promised within each contract are separate performance obligations or should be combined into a single performance obligation. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company's internal controls over the evaluation of the relevant terms of its contracts, and the appropriate identification of distinct performance obligations. This included testing relevant controls over the information systems that are important to the initiation, recording, and billing of revenue transactions. Our audit procedures included evaluating management’s revenue recognition policy which included the application of management’s judgment in the identification of performance obligations. Among other procedures to evaluate management’s identification and determination of the distinct performance obligations, we read executed contracts for a sample of sales transactions to understand the terms in the customer agreement and evaluated the appropriateness of management’s application of the Company’s accounting policy. We evaluated the accuracy of the Company’s contract summary documentation, specifically related to the identification and determination of distinct performance obligations, and the related revenue recognition. Finally, we assessed the appropriateness of the related disclosures in the consolidated financial statements. |
| Income Taxes - Intra-Entity Transfer of Intellectual Property | |
| Description of the Matter | As described in Note 13 to the consolidated financial statements, the Company completed a non-U.S. intercompany transfer of intellectual property during fiscal 2019 to a subsidiary in the Netherlands. The transaction resulted in deferred tax assets and deferred tax liabilities recorded at the applicable statutory tax rates, resulting in a one-time income tax benefit of $206.3 million. Auditing the Company’s accounting for the intercompany transfer was complex due to the effort and auditor judgment related to management’s identification, interpretation, and application of tax laws in jurisdictions impacted by the transaction. |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s internal controls over its accounting for the transaction. This included testing controls over the identification, interpretation, and application of tax laws, management’s review of the analyses provided by third-party advisors, and review of the underlying data used to record the one-time income tax benefit. Among other procedures to evaluate management’s accounting for the transaction, we tested the Company’s compliance with intercompany agreements executed as part of the transaction. We also evaluated management’s identification, interpretation, and application of tax laws and evaluated third-party advice obtained by the Company. We tested the completeness and accuracy of the data used to calculate and record the one-time income tax benefit with the assistance of our valuation specialists and tax professionals. Finally, we assessed the appropriateness of the related disclosures in the consolidated financial statements. |
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 1986.
San Jose, California
February 28, 2020
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Trimble Inc.
Opinion on Internal Control over Financial Reporting
We have audited Trimble Inc.’s internal control over financial reporting as of January 3, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Trimble Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 3, 2020, based on the COSO criteria.
As indicated in the accompanying Management's Report on Internal Control over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of all current year acquisitions, which are included in the 2019 consolidated financial statements of the Company and constituted less than 1% of tangible assets and net assets as of January 3, 2020, and less than 1% of revenue and net income for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of all current year acquisitions.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 3, 2020 and December 28, 2018, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended January 3, 2020, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated February 28, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’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's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control over Financial Reporting
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.
/s/ Ernst & Young LLP
San Jose, California
February 28, 2020
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