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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the consolidated financial statements and the related notes. The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and those listed under “Risks Factors.” This section of this Annual Report on Form 10-K generally discusses 2021 and 2020 items and year-to-year comparisons between 2021 and 2020. Discussions of 2019 items and year-to-year comparisons between 2020 and 2019 that are not included in this Annual Report on Form 10-K can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K, for the year ended January 1, 2021.

EXECUTIVE LEVEL OVERVIEW

We are 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 architecture, building construction, civil engineering, geospatial, survey and mapping, agriculture, natural resources, utilities, transportation, and government. Our representative customers include construction owners, contractors, engineering and construction firms, surveying companies, farmers and agricultural companies, energy and utility companies, trucking companies, and state, federal, and municipal governments. Further information on our business is presented in Part I, Item 1, “Business”.

Our growth strategy is centered on multiple elements:

•Executing on our Connect and Scale strategy;

•Increasing focus on software and services;

•Focus on attractive markets with significant growth and profitability potential;

•Domain knowledge and technological innovation that benefit a diverse customer base;

•Geographic expansion with localization strategy;

•Optimized go-to-market strategies to best access our markets;

•Strategic acquisitions;

•Venture fund investments; and

•Sustainability.

Our focus on these growth drivers has led over time to growth in revenue and profitability and an increasingly diversified business model. We continue to experience a shift toward a more significant mix of recurring revenue contracts, as demonstrated by our success in driving annualized recurring revenue (“ARR”) growth of 9% year-over-year at the end of 2021. Excluding the impact of foreign currency and acquisitions and divestitures, ARR organic growth was 12%. This shift has positively impacted our revenue mix and growth over time and is leading to improved visibility in our businesses. Our software, recurring revenue, and services represented 55% of total revenue for 2021. As our solutions have expanded, our go-to-market model has also evolved with a balanced mix between direct, distribution, and OEM customers as well as an increasing number of enterprise level customer relationships. Additionally, in August 2021, we announced a newly formed strategic venture fund. Through this fund, we expect to invest up to $200 million in early- to growth-stage companies that can accelerate innovation and effectively bring new solutions to our customers and industry.

For a full definition of ARR as used in this discussion and analysis, refer to the “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” later in this item 7.

Impact of COVID-19 and supply chain constraints on our business

COVID-19 and variant impacts, especially related to global supply chain disruptions and parts and labor shortages, and increased worldwide demand for certain components, continued to impact our business and operations. We are experiencing extended delivery times for certain components of our hardware products and increased freight costs. As a result, we are making binding commitments with longer lead times and procuring components at higher prices, which may impact our flexibility to adapt to changing market conditions and product demand. Currently, we expect these challenging supply chain conditions to persist in the near term. Therefore, we will continue to experience delays in shipping our products and increased costs, which may reduce our revenue and gross margin and continue to increase our backlog. Our 2021 results of operations reflect significant revenue improvement as the overall impact of COVID-19 was less pronounced. As a result of COVID-19, the year-to-year comparison of 2020 to 2021 reflects significant distortions in growth rates as our business rebounded in 2021.

See “1A. Risk Factors” for further discussion of the possible impact of the COVID-19 pandemic and its resulting effects on our business.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) requires us to make judgments, assumptions, and estimates that affect the reported amounts of assets, liabilities, revenue, costs of sales, operating expenses, and related disclosures. We consider the accounting polices described below to be our critical accounting policies. These critical accounting policies are impacted significantly by judgments, assumptions, and estimates used in the preparation of the consolidated financial statements, and actual results could differ materially from the amounts reported based on these policies. Our accounting policies are more fully described in Note 1 of this Annual Report on Form 10-K.

Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration that we expect to receive in exchange for those products or services. Revenue is recognized net of allowance for returns and any taxes collected from customers. We enter 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. We use a range of amounts to estimate SSP when products and services are sold separately and determine 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, we determine SSP using information that may include market conditions and other observable inputs.

Income Taxes

We are a U.S. based multinational company operating in multiple U.S. and foreign jurisdictions. Judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. We consider 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 our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision.

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 we believe it is more likely than not such assets will not be realized.

We are subject to the periodic examination of our domestic and foreign tax returns by the IRS, state, local, and foreign tax authorities who may challenge our tax positions. We regularly assess the likelihood of adverse outcomes from these examinations in determining the adequacy of our provision for income taxes.

Business Combinations and Valuation of Goodwill and Purchased Intangible Assets

We account for business combinations using the acquisition method of accounting whereby certain identifiable assets and liabilities of the acquired business and any noncontrolling interest in the acquiree are recorded at their estimated fair values as of the acquisition date. Any purchase consideration in excess of the estimated fair values of the net assets acquired is recorded as goodwill. Acquisition-related expenses and related restructuring costs are expensed as incurred.

When determining the fair values of certain assets acquired, liabilities assumed, and noncontrolling interests in the acquiree, we make significant estimates and assumptions, especially concerning intangible assets. Critical estimates when 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.

We evaluate goodwill on an annual basis or more frequently if indicators of potential impairment exist. We utilize either a qualitative or quantitative approach to assess the likelihood of impairment on the first day of the fourth quarter. When performing the qualitative approach, we consider macroeconomic conditions, industry and market considerations, overall financial performance, and other relevant events and factors that may impact the reporting units. When performing the quantitative approach, we compare the reporting unit’s carrying amount, including goodwill, to the reporting unit's fair value. The estimation of a reporting unit's fair value involves using estimates and assumptions, including expected future operating performance using risk-adjusted discount rates. If the reporting unit's carrying amount exceeds its fair value, an impairment loss is recognized.

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Intangible assets acquired individually, with a group of other assets, or in a business combination are recorded at fair value. Our intangible assets are amortized over the period of estimated benefit using the straight-line method over the estimated useful life, which ranges from three to ten years and has a weighted-average useful life of approximately seven years. We write off fully amortized intangible assets when those assets are no longer used.

We review intangible assets 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 on assumptions about expected future operating performance.

RESULTS OF OPERATIONS

Overview

The following table shows revenue by category, gross margin and gross margin as a percentage of revenue, operating income and operating income as a percentage of revenue, diluted earnings per share, and annualized recurring revenue compared for the periods indicated:

(In millions)

Revenue:

Gross margin as a % of revenue 55.6 % 55.8 %

Operating income as a % of revenue 15.3 % 13.3 %

Non-GAAP operating income as a % of Non-GAAP revenue (1) 23.4 % 22.8 %

Non-GAAP diluted earnings per share (1) $ 2.66 $ 2.23 $ 0.43 19 %

(1) Refer to “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” of this Annual Report on Form 10-K for definitions.

Basis of Presentation

We use a 52–53 week fiscal year ending on the Friday nearest to December 31, which for 2021 was December 31, 2021. Both 2021 and 2020 were 52–week years.

Year 2021 Compared with Year 2020

Revenue

Despite supply constraints and increases in our backlog, revenue increased due to strong demand for our hardware and related software, as compared with reduced demand due to the impacts of COVID-19 lockdowns in the prior year, and strong recovery in 2021 in markets across major regions. Growth in subscription sales in many of our software businesses continued to remain strong. Price increases, which went into effect in the second half of the year, and reduced discounting had a slighter impact on revenue growth for the year.

Product revenue increased due to strong hardware and related software sales in Geospatial, Resources and Utilities, and Buildings and Infrastructure. To a lesser extent, Transportation sales also contributed to growth. Service revenue was relatively flat, and subscription revenue increased primarily due to strong growth in Buildings and Infrastructure, and to a lesser extent, Resources and Utilities and Geospatial, slightly offset by a decrease in Transportation.

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During 2021, sales to customers in North America represented 51%; Europe represented 31%; Asia Pacific represented 12%; and the rest of world represented 6% of our total revenue.

No single customer accounted for 10% or more of our total revenue in 2021 and 2020. No single customer accounted for 10% or more of our accounts receivable at the end of 2021 and 2020.

Gross Margin

Gross margins varied due to several factors including product mix, customer pricing, distribution channel, and product costs.

Gross margin increased primarily due to strong revenue growth. Gross margin as a percentage of total revenue shows a slight decrease mainly due to increased mix of hardware sales and increased supply chain costs, offset by price increases and reduced discounting as well as lower intangibles amortization.

Operating Income

Operating income and operating income as a percentage of total revenue increased primarily due to strong revenue growth in Buildings and Infrastructure, Geospatial, and Resources and Utilities, partially offset by a decrease in Transportation, as well as relative operating expense containment in all segments.

Research and Development, Sales and Marketing, and General and Administrative Expenses

The following table shows research and development (“R&D”), sales and marketing (“S&M”), and general and administrative (“G&A”) expense along with these expenses as a percentage of revenue for the periods indicated:

(In millions)

Percentage of revenue 14.7 % 15.1 %

Percentage of revenue 13.9 % 14.8 %

Percentage of revenue 10.1 % 9.6 %

As a result of COVID-19 impacts, the year-to-year comparison of 2020 to 2021 reflects distortions in expense growth rates as our expenses normalized in 2021, with the biggest impact due to higher incentive compensation, including bonuses and stock-based compensation, particularly in G&A.

R&D expense increased primarily due to higher compensation expense, including incentive compensation.

We believe that the development and introduction of new products are critical to our future success, and we expect to continue active development of new products.

S&M expense increased primarily due to higher compensation expense, including incentive compensation and commissions.

G&A expense increased primarily due to higher compensation expense, including incentive compensation, and to a lesser extent, higher consulting and legal fees.

Amortization of Purchased Intangible Assets

The following table shows amortization of purchased intangible assets for the periods indicated:

(In millions)

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In 2021, total amortization of purchased intangibles decreased primarily due to the expiration of prior year acquisitions' amortization.

Non-Operating Income (Expense), Net

The following table shows non-operating expense, net for the periods indicated:

(In millions)

Income from equity method investments, net 37.7 39.4 (1.7) (4) %

Total non-operating income (expense), net $ 13.6 $ (24.8) $ 38.4 (155) %

In 2021, non-operating income increased primarily due to recognition of gains from the sale of businesses included in Other income, net, and to a lesser extent, lower interest costs associated with a decrease in our outstanding debt.

Income Tax Provision

In December 2021, due to a change in the Netherlands tax law, the statutory tax rate was further increased from 25.0% to 25.8% effective January 1, 2022.As a result, we recorded a one-time tax benefit of $14.4 million in 2021 due to the revaluation of the Netherlands deferred tax assets.

Previously in December 2020, also as a result of a Netherlands tax law change that increased Netherlands statutory tax rate from 21.7% to 25.0%, effective January 1, 2021, we recorded a one-time tax benefit of $64.0 million in 2020 due to the revaluation of the Netherlands deferred tax assets.

Our effective income tax rates for 2021 and 2020 were 14.2% and 1.1%, respectively.The effective income tax rate in 2021 increased compared to 2020 primarily due to the smaller one-time tax benefit recorded in 2021 relating to the revaluation of the Netherlands deferred tax assets mentioned above.

Results by Segment

We report our financial performance, including revenue and operating income, based on four reportable segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation.

Our Chief Executive Officer and Chief Operating Decision Maker views and evaluates operations based on the results of our reportable operating segments under our management reporting system. These results are not necessarily in conformance with U.S. GAAP. For additional discussion of our segments, refer to Note 5 of this Annual Report on Form 10-K.

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The following table shows a breakdown of revenue and operating income by segment for the periods indicated:

(In millions)

Buildings and Infrastructure

Segment revenue as a percent of total revenue 39 % 39 %

Segment operating income as a percent of segment revenue 28.9 % 27.5 %

Geospatial

Segment revenue as a percent of total revenue 23 % 21 %

Segment operating income as a percent of segment revenue 29.4 % 28.3 %

Resources and Utilities

Segment revenue as a percent of total revenue 21 % 20 %

Segment operating income as a percent of segment revenue 34.2 % 35.1 %

Transportation

Segment revenue as a percent of total revenue 17 % 20 %

Segment operating income $ 43.4 $ 50.1 $ (6.7) (13) %

Segment operating income as a percent of segment revenue 6.8 % 7.8 %

The following table shows a reconciliation of our consolidated segment operating income to our consolidated income before income taxes for the periods indicated:

(In millions)

Consolidated segment operating income $ 963.2 $ 793.6

Unallocated general corporate expenses (106.2) (74.0)

Purchase accounting adjustments (134.5) (156.6)

Acquisition / divestiture items (21.8) (21.4)

Stock-based compensation / deferred compensation (128.6) (90.4)

Restructuring and other costs (11.1) (31.4)

Consolidated operating income 561.0 419.8

Total non-operating income (expense), net 13.6 (24.8)

Consolidated income before taxes $ 574.6 $ 395.0

Buildings and Infrastructure

Revenue increased primarily due to strong demand for our civil construction hardware and related software and from strong recovery in markets across major regions, including strong residential construction and infrastructure spend. Additionally, higher subscription revenue in our software businesses benefited from the continued cumulative effect of conversions from perpetual licenses to subscription offerings for existing and new customers, as well as improvements in our customer churn rate.

Segment operating income and operating income as a percentage of revenue increased primarily due to higher revenue, consistent gross margin, and operating cost containment. Increased supply chain costs for hardware products were wholly mitigated by reduced discounting and customer price increases.

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Geospatial

Revenue increased primarily due to strong demand for geospatial survey products, with strong recovery in markets across major regions, including strong residential construction, infrastructure, and utilities spend. Competitive products, including the R12i, helped win business.

Segment operating income and operating income as a percentage of revenue increased primarily due to higher revenue and operating cost containment, partially offset by lower gross margin. Gross margin was down primarily due to product mix and increased supply chain costs for hardware products, partially offset by reduced discounting and customer price increases.

Resources and Utilities

Revenue increased primarily due to continued agriculture business strength in the reseller and OEM channels in markets across major regions. Strong market fundamentals, including favorable commodity prices, continued to fuel growth.

Segment operating income increased primarily due to higher revenue and operating expense containment. Gross margin was down due to product mix and higher supply chain costs for hardware products, partially offset by reduced discounting and customer price increases. Operating income as a percentage of revenue was down due to lower gross margin.

Transportation

Revenue decreased slightly due to the impact of a divestiture, largely offset by continued growth in enterprise software sales. Enterprise revenue continued to experience subscription revenue growth as the business transitions from a perpetual software license model. Mobility sales were down due to reduced subscriber counts, partially offset by higher hardware shipments for the year.

Segment operating income and operating income as a percentage of revenue decreased slightly, primarily due to the revenue decline and a slight increase in operating expense.

LIQUIDITY AND CAPITAL RESOURCES

At the End of Year 2021 2020 Dollar Change % Change

(In millions)

As a percentage of total assets 4.6 % 3.5 %

(In millions)

Net increase in cash and cash equivalents $ 88.0 $ 48.5

Operating Activities

The increase in cash provided by operating activities was primarily driven by higher net income adjusted for non-cash items, and higher account payables, partially offset by higher inventory purchases.

Investing Activities

The decrease in cash used in investing activities was primarily due to higher net proceeds from the sale of businesses and sale of property and equipment during 2021, partially offset by slightly higher acquisition spending in 2021. The current year included the AgileAssets acquisition compared to the prior year, which included the Kuebix acquisition.

Financing Activities

The increase in cash used in financing activities was primarily driven by an increase in repurchases of common stock, partially offset by a decrease in debt repayments, net of debt proceeds.

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Cash and Cash Equivalents

We believe that our cash and cash equivalents and borrowings, along with cash provided by operations will be sufficient in the foreseeable future to meet our anticipated operating cash needs, expenditures related to our Connect and Scale strategy, debt service, and any stock repurchases under the stock repurchase program. For debt refinancing, we anticipate we will have readily accessible capital markets in order to secure appropriate funding.

Our material cash requirements include the following contractual and other obligations and cash needs:

Leases

We have operating leases primarily for certain of our major facilities including corporate offices, research and development facilities, and manufacturing facilities. Operating leases represent undiscounted lease payments and include short-term leases. At the end of 2021, we had fixed lease payment obligations of $190.7 million, with $50.5 million payable within the next 12 months. Refer to Note 7 of this Annual Report on Form 10-K for additional information regarding our leases.

Tax Payable

At the end of 2021, we had income taxes payable of $101.6 million, with $47.1 million payable within the next 12 months. The amount payable within the next 12 months includes $6.7 million representing a one-time transition tax liability as a result of the 2017 Tax Cuts and Jobs Act (the “Tax Act”).

In addition, we have unrecognized tax benefits of $63.3 million included in Other non-current liabilities, including interest and penalties. At this time, we cannot make a reasonably reliable estimate of the period of cash settlement with tax authorities regarding this liability, and therefore, such amounts are not included in the contractual obligations table above. Refer to Note 11 of this Annual Report on Form 10-K for additional information regarding our taxes.

Other Purchase Obligations and Commitments

Purchase obligations and commitments primarily relate to investments in our platform associated with our Connect and Scale strategy and non-cancellable inventory commitments, which increased due to the extension of lead times and the growth of our hardware business. At the end of 2021, we had operating purchase obligations and commitments of $710.8 million, with $446.6 million payable within the next 12 months. Refer to Note 8 of this Annual Report on Form 10-K for additional information regarding our purchase obligations and commitments. Other than the items discussed above, we do not have any off-balance sheet financing arrangements or liabilities.

Debt

At the end of 2021, we had outstanding floating and fixed-rate senior notes with varying maturities for an aggregate principal amount of approximately $1.3 billion. Future interest payments total $264.2 million, with $60.8 million payable within the next 12 months.

During 2021, we repaid $251.0 million of debt, including the full repayment of our term loan, net of borrowings. Refer to Note 6 of this Annual Report on Form 10-K for additional information regarding our debt.

Stock Repurchase Program

We have a 2021 Stock Repurchase Program authorized by our Board of Directors, that allows us to repurchase shares from time to time, subject to business and market conditions and other investment opportunities, through open market transactions, privately-negotiated transactions, accelerated stock repurchase plans, or by other means for up to $750 million. The 2021 Stock Repurchase Program does not obligate us to acquire any specific number of shares. Refer to Note 13 of this Annual Report on Form 10-K for additional information regarding our 2021 Stock Repurchase Program.

EFFECT OF NEW ACCOUNTING PRONOUNCEMENTS

The impact of recent accounting pronouncements is disclosed in Note 1 of this Annual Report on Form 10-K.

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SUPPLEMENTAL DISCLOSURE OF NON-GAAP FINANCIAL MEASURES AND ANNUALIZED RECURRING REVENUE

To supplement our consolidated financial information, we included non-GAAP financial measures, which are not meant to be considered in isolation or as a substitute for comparable GAAP because we believe non-GAAP financial measures provide useful information to investors and others in understanding our “core operating performance”, which excludes the effect of non-cash items and certain variable charges not expected to recur, not meaningful in comparison to our past operating performance or not reflective of ongoing financial results. Lastly, we believe that our core operating performance offers a supplemental measure for period-to-period comparisons and can be used to evaluate our historical and prospective financial performance, as well as our performance relative to competitors. In addition to providing non-GAAP financial measures, we disclose Annualized Recurring Revenue (“ARR”) to give the investors supplementary indicators of the value of our current recurring revenue contracts.

ARR represents the estimated annualized value of recurring revenue, including subscription, maintenance and support revenue, and term license contracts for the quarter. ARR is calculated by adding the portion of the contract value of all of our term licenses attributable to the current quarter to our non-GAAP recurring revenue for the current quarter and dividing that sum by the number of days in the quarter and then multiplying that quotient by 365. ARR should be viewed independently of revenue and deferred revenue as it is a performance measure and is not intended to be combined with or to replace either of those items.

The non-GAAP financial measures, definitions, and explanations to the adjustments to comparable GAAP measures are included below:

Years

REVENUE:

Purchase accounting adjustments (A) 0.3 4.3 7.0

GROSS MARGIN:

Purchase accounting adjustments (A) 88.0 96.6 101.1

Acquisition / divestiture items (B) — 1.7 —

Stock-based compensation / deferred compensation (C) 9.8 7.2 5.9

Restructuring and other costs (D) 0.2 1.2 1.1

OPERATING EXPENSES:

Purchase accounting adjustments (A) (46.5) (60.0) (67.4)

Acquisition / divestiture items (B) (21.8) (19.7) (20.5)

Stock-based compensation / deferred compensation (C) (118.8) (83.2) (75.3)

Restructuring and other costs (D) (10.9) (30.2) (26.8)

OPERATING INCOME:

Acquisition / divestiture items (B) 21.8 21.4 20.5

Stock-based compensation / deferred compensation (C) 128.6 90.4 81.2

Restructuring and other costs (D) 11.1 31.4 27.9

NON-OPERATING INCOME (EXPENSE), NET:

GAAP non-operating income (expense), net: $ 13.6 $ (24.8) $ (31.1)

Acquisition / divestiture items (B) (42.1) (12.2) (12.1)

Deferred compensation (C) (6.1) (7.5) (6.3)

Non-GAAP non-operating expense, net: $ (34.6) $ (44.5) $ (49.5)

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INCOME TAX PROVISION (BENEFIT):

Non-GAAP items tax effected (E) 41.4 48.5 29.6

Difference in GAAP and Non-GAAP tax rate (F) 7.5 (4.9) 55.6

IP restructuring and tax law change impacts (G) 14.4 64.0 206.3

NET INCOME:

GAAP net income attributable to Trimble Inc.: $ 492.7 $ 389.9 $ 514.3

Acquisition / divestiture items (B) (20.3) 9.2 8.4

Stock-based compensation / deferred compensation (C) 122.5 82.9 74.9

Restructuring and other costs (D) 11.1 31.4 27.9

Non-GAAP tax adjustments (E) - (G) (63.3) (107.6) (291.5)

Non-GAAP net income attributable to Trimble Inc.: $ 677.2 $ 562.4 $ 502.5

DILUTED NET INCOME PER SHARE:

Purchase accounting adjustments (A) 0.53 0.62 0.67

Acquisition / divestiture items (B) (0.08) 0.04 0.03

Stock-based compensation / deferred compensation (C) 0.48 0.33 0.30

Restructuring and other costs (D) 0.04 0.12 0.11

Non-GAAP tax adjustments (E) - (G) (0.25) (0.43) (1.15)

ADJUSTED EBITDA:

OPERATING INCOME:

GAAP net income attributable to Trimble Inc.: $ 492.7 $ 389.9 $ 514.3

Acquisition / divestiture items (B) 21.8 21.4 20.5

Stock-based compensation / deferred compensation (C) 128.6 90.4 81.2

Restructuring and other costs (D) 11.1 31.4 27.9

Income from equity method investments, net 37.7 39.4 35.8

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Non-GAAP Definitions

Non-GAAP revenue

We define Non-GAAP revenue as GAAP revenue, excluding the effects of purchase accounting adjustments. We believe this measure helps investors understand the performance of our business including acquisitions, as non-GAAP revenue excludes the effects of certain acquired deferred revenue that was written down to fair value in purchase accounting. Management believes that excluding fair value purchase accounting adjustments more closely correlates with the ordinary and ongoing course of the acquired company’s operations and facilitates analysis of revenue growth and trends.

Non-GAAP gross margin

We define Non-GAAP gross margin as GAAP gross margin, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring and other costs.We believe our investors benefit by understanding our non-GAAP gross margin as a way of understanding how product mix, pricing decisions, and manufacturing costs influence our business.

Non-GAAP operating expenses

We define Non-GAAP operating expenses as GAAP operating expenses, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring and other costs.

We believe this measure is important to investors evaluating our non-GAAP spending in relation to revenue.

Non-GAAP operating income

We define Non-GAAP operating income as GAAP operating income, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, deferred compensation, and restructuring, and other costs.We believe our investors benefit by understanding our non-GAAP operating income trends, which are driven by revenue, gross margin, and spending.

Non-GAAP non-operating expense, net

We define Non-GAAP non-operating expenses, net as GAAP non-operating expenses, net, excluding acquisition/divestiture items and deferred compensation.We believe this measure helps investors evaluate our non-operating expense trends.

Non-GAAP income tax provision

We define Non-GAAP income tax provision as GAAP income tax provision, excluding charges and benefits such as net deferred tax impacts resulting from the non-U.S. intercompany transfer of intellectual property, tax law changes, and significant one-time reserve releases upon the statute of limitations expirations. We believe this measure helps investors because it provides for consistent treatment of excluded items in our non-GAAP presentation and a difference in the GAAP and non-GAAP tax rates.

Non-GAAP net income

We define Non-GAAP net income as GAAP net income, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, restructuring and other costs, and non-GAAP tax adjustments.This measure provides a supplemental view of net income trends, which are driven by non-GAAP income before taxes and our non-GAAP tax rate.

Non-GAAP diluted net income per share

We defined Non-GAAP diluted net income per share as GAAP diluted net income per share, excluding the effects of purchase accounting adjustments, acquisition/divestiture items, stock-based compensation, restructuring and other costs, and non-GAAP tax adjustments.We believe our investors benefit by understanding our non-GAAP operating performance as reflected in a per share calculation as a way of measuring non-GAAP operating performance by ownership in the company.

Adjusted EBITDA

We define Adjusted EBITDA as non-GAAP operating income plus depreciation expense and income from equity method investments, net.Other companies may define Adjusted EBITDA differently.Adjusted EBITDA is not intended to purport to be an alternative to net income or operating income as a measure of operating performance or cash flow from operating activities as a measure of liquidity. Adjusted EBITDA is a performance measure that we believe offers a useful view of the overall operations of our business because it facilitates operating performance comparisons by removing potential differences

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caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, depreciation and amortization expenses.

Explanations of Non-GAAP adjustments

(A)Purchase accounting adjustments. Purchase accounting adjustments consist of the following:

(i)Acquired deferred revenue adjustment. We adopted ASU 2021-08 in the fourth quarter of 2021 for all acquisitions occurring in 2021, which requires the application of ASC 606, Revenue from Contracts with Customers, to recognize and measure contract assets and contract liabilities on the acquisition date. For acquisitions occurring prior to 2021, non-GAAP revenue excludes the adjustment to our revenue as a result of measuring the contract liability at fair value on the acquisition date.

(ii)Amortization of acquired capitalized commissions. Purchase accounting generally requires entities to eliminate capitalized sales commissions balances as of the acquisition date. Non-GAAP operating expenses exclude the adjustments that eliminate the capitalized sales commissions. For acquisitions occurring prior to 2021, non-GAAP operating expenses exclude the adjustment of acquired capitalized commissions amortization.

(iii)Amortization of purchased intangible assets. Non-GAAP gross margin and operating expenses exclude the amortization of purchased intangible assets, which primarily represents technology and/or customer relationships already developed.

(B)Acquisition / divestiture items. Non-GAAP gross margin and operating expenses exclude acquisition costs consisting of external and incremental costs resulting directly from merger and acquisition and strategic investment activities such as legal, due diligence, integration, and other closing costs, including the acceleration of acquisition stock options and adjustments to the fair value of earn-out liabilities.Non- GAAP non-operating expense, net, exclude unusual one-time acquisition/divestiture charges and/or divestiture gains/losses. The costs that have been excluded from the non-GAAP measures are costs specific to particular acquisitions. As a result, these are one-time costs that vary significantly in amount and timing and are not indicative of our core operating performance.

(C)Stock-based compensation / deferred compensation. Non-GAAP gross margin and operating expenses exclude stock-based compensation and income or expense associated with movement in our non-qualified deferred compensation plan liabilities.Changes in non-qualified deferred compensation plan assets, included in non-operating expense, net, offset the income or expense in the plan liabilities.

(D)Restructuring and other costs. Non- GAAP gross margin and operating expenses exclude restructuring and other exit costs comprised of termination benefits related to reductions in employee headcount, including executive severance agreements, the closure or exit of facilities, and cancellation of certain contracts.In addition, other costs include COVID-19 expenses incurred as a direct impact from the COVID-19 virus pandemic, such as cancellation fees of trade shows due to public safety issues, additional charges for disinfecting facilities, and personal protective equipment.

(E)Non-GAAP items tax effected. This amount adjusts the provision for income taxes to reflect the effect of the non-GAAP items (A) - (D) on non-GAAP net income. This amount excludes the GAAP tax rate impact resulting from the non-U.S. intercompany transfer of intellectual property, which is separately disclosed in item (G).

(F)Difference in GAAP and Non-GAAP tax rate. This amount represents the difference between the GAAP and non-GAAP tax rates applied to the non-GAAP operating income plus the non-GAAP non-operating expense, net. The GAAP tax rate used for this calculation excludes the net deferred tax impacts resulting from the non-U.S. intercompany transfer of intellectual property, which is separately disclosed in item (G). The non-GAAP tax rate excludes charges and benefits such as net deferred tax impacts resulting from a non-U.S. intercompany transfer of intellectual property and significant one-time reserve releases upon statute of limitations expirations.

(G)IP restructuring and tax law change impacts.These amounts represent net deferred tax impacts resulting from a non-U.S. intercompany transfer of intellectual property, consistent with tax law changes, including tax rates changes, and our international business operations.

(H)GAAP and non-GAAP tax rate percentages. These percentages are defined as GAAP income tax provision as a percentage of GAAP income before taxes and non-GAAP income tax provision as a percentage of non-GAAP income before taxes.

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Item 7A. Quantitative and Qualitative Disclosure about Market Risk

We are exposed to market risk related to changes in interest rates and foreign currency exchange rates. We use certain derivative financial instruments to manage these risks. We do not use derivative financial instruments for speculative purposes. All financial instruments are used in accordance with policies approved by our board of directors.

Market Interest Rate Risk

Our cash equivalents consisted primarily of interest and non-interest bearing bank deposits as well as bank time deposits. The main objective of these instruments is safety of principal and liquidity while maximizing return, without significantly increasing risk.

Due to the nature of our cash equivalents that they are readily convertible to cash, we do not anticipate any material effect on our portfolio due to fluctuations in interest rates.

We are exposed to market risk due to the possibility of changing interest rates under our credit facilities. Our 2018 Credit Facility includes a five-year revolving loan facility with a maturity date of May 2023. We also have four unsecured, uncommitted, revolving credit facilities that are callable by the bank at any time. We may borrow funds under the 2018 Credit Facility in U.S. Dollars, Euros, or in certain other agreed currencies as described in Note 6 of this Annual Report on Form 10‐K.

At the end of 2021, we had one £55.0 million, two $75.0 million, and one €100.0 million revolving credit facilities, which are uncommitted. At the end of 2021, we do not have any outstanding balance on our revolving credit facilities.

Foreign Currency Exchange Rate Risk

We operate in international markets, which expose us to market risk associated with foreign currency exchange rate fluctuations between the U.S. Dollar and various foreign currencies, the most significant of which is the Euro. In addition, volatile market conditions arising from the COVID-19 pandemic could result in changes in exchange rates.

Historically, the majority of our revenue contracts are denominated in U.S. Dollars, with the most significant exception being Europe, where we invoice primarily in Euro. Additionally, a portion of our expenses, primarily the cost to manufacture, cost of personnel to deliver technical support on our products and professional services, sales and sales support, and research and development, are denominated in foreign currencies, primarily the Euro.

Revenue resulting from selling in local currencies and costs incurred in local currencies are exposed to foreign currency exchange rate fluctuations, which can affect our operating income. As exchange rates vary, operating income may differ from expectations. In 2021, revenue and operating income were favorably impacted by foreign currency exchange rates by $43.8 million and $4.3 million.

We enter into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on cash, debt, and certain trade and intercompany receivables and payables, primarily denominated in Euro, New Zealand Dollars, Canadian Dollars, British Pound, and Brazilian Real. 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 maturity. We do not enter into foreign currency forward contracts for trading purposes. We occasionally enter into foreign currency forward contracts to hedge the purchase price of some of our larger business acquisitions. Foreign currency forward contracts outstanding at the end of 2021 and 2020 are summarized as follows:

NominalAmount FairValue NominalAmount FairValue

(In millions)

Forward contracts:

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TRIMBLE INC.

INDEX TO FINANCIAL STATEMENTS

Consolidated Balance Sheets 46

Consolidated Statements of Income 47

Consolidated Statements of Comprehensive Income 48

Consolidated Statements of Stockholders’ Equity 49

Consolidated Statements of Cash Flows 50

Notes to Consolidated Financial Statements 51

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42) 71

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Item 8. Financial Statements and Supplementary Data

CONSOLIDATED BALANCE SHEETS

(In millions, except par values)

ASSETS

Current assets:

Cash and cash equivalents $ 325.7 $ 237.7

Operating lease right-of-use assets 141.0 128.9

Other purchased intangible assets, net 506.6 580.1

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term debt $ — $ 255.8

Accrued compensation and benefits 231.0 166.8

Deferred revenue, non-current 83.0 53.3

Deferred income tax liabilities 263.1 300.3

Other non-current liabilities 151.1 150.6

Commitments and contingencies (Note 8)

Stockholders’ equity:

Accumulated other comprehensive loss (161.7) (98.5)

Total Trimble Inc. stockholders’ equity 3,944.7 3,596.9

Noncontrolling interests — 1.7

Total liabilities and stockholders’ equity $ 7,099.6 $ 6,876.9

See accompanying Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

Revenue:

Cost of sales:

Amortization of purchased intangible assets 87.7 92.3 94.1

Operating expense:

Amortization of purchased intangible assets 50.9 65.5 73.7

Non-operating expense, net:

Income from equity method investments, net 37.7 39.4 35.8

Total non-operating income (expense), net 13.6 (24.8) (31.1)

Income tax provision (benefit) 81.8 4.4 (169.7)

Net gain attributable to noncontrolling interests 0.1 0.7 0.2

Net income attributable to Trimble Inc. $ 492.7 $ 389.9 $ 514.3

Earnings per share attributable to Trimble Inc.:

Shares used in calculating earnings per share:

See accompanying Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

Net unrealized gain (loss), net of tax 0.8 1.2 (1.0)

Comprehensive income attributable to noncontrolling interests 0.1 0.7 0.2

Comprehensive income attributable to Trimble Inc. $ 429.5 $ 468.2 $ 523.6

See accompanying Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Shares Amount Additional Paid-In Capital

(In millions)

Other comprehensive income — — — — 9.3 9.3 — 9.3

Stock-based compensation — — 72.5 — — 72.5 — 72.5

Noncontrolling interest investments — — (0.8) — — (0.8) 0.8 —

Other comprehensive income — — — — 78.3 78.3 — 78.3

Stock-based compensation — — 81.3 — — 81.3 — 81.3

Noncontrolling interest investments — — — — — — (0.4) (0.4)

Other comprehensive loss — — — — (63.2) (63.2) — (63.2)

Noncontrolling interest investments — — 0.6 — — 0.6 (1.8) (1.2)

See accompanying Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Cash flows from operating activities

Divestitures (gain) loss, net (43.9) (12.2) (12.4)

(Increase) decrease in assets:

Accounts receivable, net (9.0) (14.0) (96.0)

Other current and non-current assets (30.2) 2.5 11.0

Increase (decrease) in liabilities:

Accrued compensation and benefits 54.1 34.9 (46.4)

Other current and non-current liabilities (22.9) (44.8) 0.8

Cash flow from investing activities:

Acquisitions of businesses, net of cash acquired (236.1) (201.9) (220.8)

Purchases of property and equipment (46.1) (56.8) (69.0)

Net proceeds from sale of businesses 67.3 27.5 0.5

Net proceeds from sale of property and equipment 20.8 0.4 0.4

Net cash used in investing activities (203.5) (231.8) (275.3)

Cash flows from financing activities:

Issuance of common stock, net of tax withholdings (15.1) 10.0 29.1

Payments on debt and revolving credit lines (449.9) (1,486.0) (1,322.9)

Net cash used in financing activities (447.7) (400.3) (292.6)

Effect of exchange rate changes on cash and cash equivalents (11.3) 8.6 (0.4)

Net increase in cash and cash equivalents 88.0 48.5 16.7

Cash and cash equivalents - beginning of year 237.7 189.2 172.5

Cash and cash equivalents - end of year $ 325.7 $ 237.7 $ 189.2

Supplemental cash flow disclosure:

Cash paid for income taxes, net $ 98.3 $ 59.0 $ 63.1

See accompanying Notes to the Consolidated Financial Statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES

Trimble Inc., (“we” or “our” or “us”) is incorporated in the State of Delaware since October 2016.

We are a leading provider of technology solutions that enable professionals and field mobile workers to improve or transform their work processes. We focus on transforming the way the world works by delivering products and services that connect the physical and digital worlds. We generate revenue primarily through the sale of our hardware, software, maintenance and support, professional services, and subscriptions.

Basis of Presentation

These Consolidated Financial Statements include our results of our consolidated subsidiaries. Intercompany accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling stockholders’ proportionate share of the net assets and results of operations of our consolidated subsidiaries.

We use a 52–53 week fiscal year ending on the Friday nearest to December 31. Fiscal 2021 and 2020 were both 52-week years ending on December 31, 2021 and January 1, 2021, respectively. Fiscal 2019 was a 53-week year ended on January 3, 2020. Unless otherwise stated, all dates refer to our fiscal year and fiscal periods.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates and assumptions are used for revenue recognition, including determining the nature and timing of satisfaction of performance obligations and determining standalone selling price (“SSP”) of performance obligations, provision for credit losses, sales returns reserve, inventory valuation, warranty costs, investments, acquired intangibles, goodwill and intangible asset impairment analysis, other long-lived asset impairment analysis, stock-based compensation, and income taxes. We base our estimates on historical experience and various other assumptions we believe to be reasonable. Actual results that we experience may differ materially from our estimates.

Reportable Segments

We report our financial performance, including revenue and operating income, based on four reportable segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation.

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 we expect to receive in exchange for those products or services. Revenue is recognized net of allowance for returns and any taxes collected from customers. We enter into contracts that may 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 SSP for each distinct performance obligation. We use a range of amounts to estimate SSP when products and services are sold separately and determine 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, we determine SSP using information that may include market conditions and other observable inputs.

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Nature of Goods and Services

We generate revenue primarily from products, services, and subscriptions; each of which is a distinct performance obligation. Descriptions are as follows:

Product

Product revenue includes hardware and software licenses.

Hardware is recognized when the control of the product transfers to the customer, which is generally when the product is shipped. We recognize shipping fees reimbursed by customers as revenue and the cost for shipping as an expense in Cost of sales when control over products has transferred to the customer.

Software including perpetual and term licenses is recognized upon delivery and commencement of license term. In general, our contracts do not provide for customer specific acceptances.

Service

Service revenue includes hardware and software maintenance and support and professional services.

Hardware maintenance and support, commonly called 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.

Software maintenance and support 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 being most common.

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 performanceis recognized over time as the work progresses because of the continuous transfer of control to the customer.

Subscription

Subscription revenue includes software as a service (“SaaS”), data, and hosting services.

SaaS may be sold with devices used to collect, generate, and transmit data. SaaS is distinct from the related devices. In addition, we 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 one to three years. Subscription revenue is recognized monthly over the subscription term, commencing from activation.

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 we have 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 $39.5 million and $138.7 million at the end of 2021 and 2020.

We maintain an allowance for credit losses to provide for the estimated amount of receivables that will not be collected. Each reporting period, we evaluate the collectability of our trade accounts receivable based on a number of factors such as age of the accounts receivable balances, credit quality, historical experience, and current and future economic conditions that may affect a customer’s ability to pay. At the end of 2021 and 2020, our allowance for credit losses was $7.0 million. The provision for credit losses for the years ended 2021, 2020 and 2019 were $2.6 million, $7.1 million, and $6.5 million.

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Deferred Costs to Obtain Customer Contracts

Sales commissions incurred in obtaining 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 the estimated benefit period, which is either the contract term or the shorter of customer life or product life that ranges from three to seven years. Contracts with an amortization period of a year or less from this deferral requirement are expensed as incurred.

At the end of 2021 and 2020, deferred costs to obtain customer contracts were $59.7 million and $51.3 million. These costs are included in Other non-current assets in the Consolidated Balance Sheets. There was no impairment loss in relation to the costs capitalized for the periods presented.

Amortization expense related to deferred costs to obtain customer contracts was $25.9 million, $22.8 million, and $22.3 million, for 2021, 2020, and 2019. This expense is included in Sales and marketing expense in our Consolidated Statements of Income.

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 our estimate used to reserve for excess and obsolete inventory differs from what is expected, we may be required to recognize additional reserves, which would negatively impact our gross margin.

Property and Equipment, Net

Property and equipment are depreciated 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. We capitalize eligible costs to acquire or develop certain internal-use software and amortize those assets using the straight-line method over the estimated useful lives of the assets, which range from two to five years.

Leases

We determine 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, in both Other current liabilities, 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 our incremental borrowing rate based on the estimated rate of interest for collateralized borrowings over a similar term of the lease payments at commencement date. The operating lease ROU asset includes adjustments made for uneven rents, lease incentives, and lease impairments. 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

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Goodwill

We evaluate goodwill on an annual basis or more frequently if indicators of potential impairment exist. We utilize either a qualitative or quantitative approach to assess the likelihood of impairment as of the first day of the fourth quarter. When performing the qualitative approach, we consider macroeconomic conditions, industry and market considerations, overall financial performance, and other relevant events and factors that may impact the reporting units. When performing the quantitative approach, we compare the reporting unit’s carrying amount, including goodwill, to the reporting unit's fair value. The estimation of a reporting unit's fair value involves using estimates and assumptions including expected future operating performance using risk-adjusted discount rates. Actual future results may differ from those estimates. If the carrying amount of the reporting unit exceeds its fair value, an impairment loss is recognized.

Intangible Assets

Intangible assets acquired individually, with a group of other assets, or in a business combination are recorded at fair value. Our intangible assets are amortized over the period of estimated benefit using the straight-line method over their estimated useful lives, which range from three years to ten years and have a weighted-average useful life of approximately seven years. We write off fully amortized intangible assets when those assets are no longer used.

We review intangible assets 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

We accrue for warranty costs as part of our cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on our behalf. Our expected future cost is primarily estimated based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. 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 $17.1 million and $13.8 million are included in Other current liabilities in the Consolidated Balance Sheets at the end of 2021 and 2020.

Foreign Currency Translation

Assets and liabilities recorded in foreign currency are translated to U.S. dollars at the exchange rates on the balance sheet date. Revenue and expense are translated at average monthly exchange rates during the year. Translation adjustments resulting from this process are recorded to other comprehensive income.

Stock-Based Compensation

Stock-based compensation expense is based on the measurement date fair value of the awards, net of expected forfeitures. Expense is generally recognized on a straight-line basis over the requisite service period of the stock awards. The estimate of the forfeiture rate is based on historical experience.

Advertising and Promotional Costs

Advertising and promotional costs are expensed as incurred. Advertising and promotional expense was approximately $31.6 million, $28.6 million, and $42.7 million, in 2021, 2020, and 2019.

Research and Development Costs

Research and development costs are expensed as incurred. Development costs for software to be sold subsequent to reaching technical feasibility were not significant and were expensed as incurred. We received third party funding of approximately$12.6 million, $16.3 million, and $16.5 million in 2021, 2020, and 2019. We offset research and development expense with any unconditional third party funding earned and retain the rights to any technology developed under such arrangements.

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. Our valuation allowance is primarily attributable to foreign net operating losses and state research and development credit carryforwards.

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Relative to uncertain tax positions, we only recognize 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. We consider 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. Changes in recognition or measurement of our uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.

We are subject to income taxes in the U.S. and numerous other countries and are subject to routine corporate income tax audits in many of these jurisdictions. We generally believe that positions taken on our 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, our income tax provision includes amounts intended to satisfy assessments that may result from these challenges. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in our income tax provision and, therefore, could have a material impact on our income tax provision, net income, and cash flows.

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.

We are also exposed to credit risk in our trade receivables, which are derived from sales to end-user customers in diversified industries as well as various resellers. We perform ongoing credit evaluations of our customers’ financial conditions and limit the amount of credit extended, when deemed necessary, but generally do not require collateral.

In addition, we rely on a limited number of suppliers for a number of our critical components.

Guarantees, Including Indirect Guarantees of Indebtedness of Others

In the normal course of business to facilitate sales of our products, we indemnify other parties, including customers, lessors, and parties to other transactions with us with respect to certain matters. We 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 our businesses or assets, we may also indemnify purchasers for certain matters in the normal course of business, such as breaches of representations, covenants, or excluded liabilities. In addition, we entered into indemnification agreements with our officers and directors, and our bylaws contain similar indemnification obligations to our agents.

It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made under these agreements were not material, and no liabilities have been recorded for these obligations in the Consolidated Balance Sheets at the end of 2021 and 2020.

Derivative Financial Instruments

We enter into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on cash and certain trade and intercompany receivables and payables, primarily denominated in New Zealand Dollars, Brazil Real, Canadian Dollars, Norwegian Krone, and Euro. 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 reporting period and generally range from one to two months in original maturity. We occasionally enter into foreign currency forward contracts to hedge the purchase price of some of our larger business acquisitions. We do not enter into foreign currency forward contracts for trading purposes. As of the years ended 2021 and 2020, there were no derivative financial instruments outstanding that were accounted for as hedges.

Recent Accounting Pronouncements

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. We adopted the new standard on a prospective basis at the beginning of 2021. The adoption did not have a material impact on our Consolidated Financial Statements.

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Business Combinations—Accounting for Contract Assets and Contract Liabilities from Contracts with Customers

In October 2021, the FASB issued amendments to improve, simplify, and provide consistency for recognition and measurement of acquired contract assets and contract liabilities from revenue contracts in a business combination. The amendments require that an acquirer recognize and measure contract assets and contract liabilities under Topic 606, Revenue from Contracts with Customers, as if it had originated the contracts. The amendments also allow for election of certain practical expedients, which are applied on an acquisition-by-acquisition basis. The new accounting amendments are effective for the Company beginning in 2023 with prospective application. Early adoption is permitted, including in any interim period, and if elected, the amendments are applied retrospectively for any acquisitions that occurred in the year of interim adoption.

We early adopted the guidance in the fourth quarter of 2021 retrospectively to all business combinations completed since the beginning of 2021. The adoption did not have a material impact on our Consolidated Financial Statements.

NOTE 2: EARNINGS PER SHARE

Basic earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period. Diluted earnings per share is computed based on the weighted-average number of shares of common stock outstanding during the period plus additional shares of common stock that would have been outstanding if potentially dilutive securities had been issued. Potentially dilutive common shares include outstanding stock options, RSUs, contingently issuable shares, and shares to be purchased under our ESPP.

The following table shows the computation of basic and diluted earnings per share:

(In millions, except per share data)

Numerator:

Net income attributable to Trimble Inc. $ 492.7 $ 389.9 $ 514.3

Denominator:

Effect of dilutive securities 2.9 1.8 2.1

Diluted earnings per share $ 1.94 $ 1.55 $ 2.03

Anti-dilutive stock-based awards excluded from the calculations of diluted EPS were immaterial during the periods presented.

NOTE 3: BUSINESS COMBINATION, INTANGIBLE ASSETS, AND GOODWILL

On December 13, 2021, we acquired AgileAssets, with total purchase consideration of $237.5 million. AgileAssets is a provider of SaaS solutions for transportation asset lifecycle management. The financial results have been included in our consolidated financial statements since the date of the acquisition. The acquisition contributed less than 1% of our total revenue during 2021.

During 2020, we acquired three businesses, with total purchase consideration of $205.1 million. The acquisitions were not significant individually or in the aggregate. The largest acquisition was Kuebix, a transportation management system provider. In the aggregate, the businesses acquired contributed less than 1% of our total revenue during 2020.

During 2019, we 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 Cityworks, a company that provides enterprise asset management (EAM) software for utilities and local government. In the aggregate, the businesses acquired contributed less than 1% of our total revenue during 2019.

For the AgileAssets acquisition in 2021, the preliminary allocation of purchase price was based upon preliminary fair value estimates and analyses, including preliminary work performed by third-party valuation specialists, which could change within the measurement period as valuations are finalized. The primary areas that remain preliminary relate to the fair values of intangible assets acquired and certain tangible assets and liabilities acquired. We expect to finalize the valuation as soon as practicable, but no later than one year from the acquisition date.

Acquisition costs of$13.6 million, $20.3 million, and $20.2 million in 2021, 2020, and 2019, were expensed as incurred and are included in Cost of sales and General and administrative expenses in our Consolidated Statements of Income.

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The following table summarizes the business combinations completed during the periods indicated:

(In millions)

Fair value of total purchase consideration $ 237.5 $ 205.1 $ 247.0

Less fair value of net assets acquired:

Net tangible assets acquired (5.2) (1.6) 6.7

Deferred taxes — 0.7 (3.4)

Intangible Assets

The following table presents a summary of our intangible assets:

As of the end of 2021 and 2020, $160.1 million and $338.3 million of fully amortized intangible assets were written off.

The estimated future amortization expense of intangible assets at the end of 2021 was as follows:

(In million)

Goodwill

The changes in the carrying amount of goodwill by segment were as follows:

Additions due to acquisition 175.5 — — — 175.5

Decrease from the sale of businesses (14.7) — (3.3) — (18.0)

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NOTE 4: CERTAIN BALANCE SHEET COMPONENTS

The components of inventory, net were as follows:

(In millions)

Inventories:

Finished goods includes $13.7 million and $11.7 million at the end of 2021 and 2020 for costs of sales that have been deferred in connection with deferred revenue arrangements.

The components of property and equipment, net were as follows:

(In millions)

Property and equipment, net:

Land, building, furniture, and leasehold improvements $ 238.8 $ 253.3

Construction in progress 20.7 17.2

Less: accumulated depreciation (363.0) (346.3)

Total property and equipment, net $ 233.2 $ 251.8

The components of accumulated other comprehensive loss, net of related tax were as follows:

(In millions)

Accumulated foreign currency translation adjustments $ (160.0) $ (96.0)

Net unrealized actuarial losses (1.7) (2.5)

Total accumulated other comprehensive loss $ (161.7) $ (98.5)

NOTE 5: REPORTING SEGMENT AND GEOGRAPHIC INFORMATION

We determined our operating segments based on how our Chief Operating Decision Maker (“CODM”) 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. Our CODM regularly reviews our segment operating results to make decisions about resources to be allocated to each segment and assess performance. In each of our segments, we sell many individual products. For this reason, it is impracticable to segregate and identify revenue for each of the individual products or group of products we sell.

Our 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, and government.

•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 and freight shipper markets.

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The following Reporting Segment tables reflect the results of our reportable operating segments under our management reporting system. These results are not necessarily in conformity with U.S. GAAP. This is consistent with the way the CODM evaluates each of the segment's performance and allocates resources.

Reporting Segments

(In millions)

Purchase accounting adjustments(1) 0.2 — — 0.1 0.3

Purchase accounting adjustments(2) (3.9) — — (0.2) (4.1)

Purchase accounting adjustments(1) 0.3 — 2.7 1.3 4.3

Purchase accounting adjustments(2) (4.9) — 2.6 1.1 (1.2)

Purchase accounting adjustments(1) 4.0 — 3.0 — 7.0

Purchase accounting adjustments(2) (2.2) — 2.9 — 0.7

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Reporting Segments

(In millions)

A reconciliation of our consolidated segment operating income to consolidated income before income taxes was as follows:

(In millions)

Consolidated segment operating income $ 963.2 $ 793.6 $ 747.1

Unallocated general corporate expenses (106.2) (74.0) (73.1)

Acquisition / divestiture items (21.8) (21.4) (20.5)

Stock-based compensation / deferred compensation (128.6) (90.4) (81.2)

Restructuring and other costs (11.1) (31.4) (27.9)

Total non-operating income (expense), net 13.6 (24.8) (31.1)

(1) Purchase accounting adjustments include acquired deferred revenue adjustments, amortization of acquired capitalized commissions, and amortization of purchased intangible assets.

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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

(In millions)

Total revenue in the United States as included in the Consolidated Statements of Income was $1,687.4 million, $1,502.3 million, and $1,641.0 million in 2021, 2020, and 2019. No single customer or country other than the United States accounted for 10% or more of our total revenue in 2021, 2020, and 2019. No single customer accounted for 10% or more of our accounts receivable at the end of 2021 and 2020.

Property and equipment, net by geographic area were as follows:

(In millions)

Property and equipment, net:

Asia Pacific and Rest of World 17.1 10.5

Total property and equipment, net $ 233.2 $ 251.8

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NOTE 6: DEBT

Debt consisted of the following:

At the End of Year Effective interest rate

(In millions, except percentages) Date of Issuance for 2021 2021 2020

Senior Notes:

Credit Facilities:

Uncommitted facilities, floating rate — 255.8

Promissory notes and other debt — 0.1

Unamortized discount and issuance costs (6.8) (8.7)

Less: Short-term debt — 255.8

Each of our debt agreements requires us to maintain compliance with certain debt covenants, all of which we complied with at the end of 2021.

Debt Maturities

At the end of 2021, our debt maturities based on outstanding principal were as follows:

(In million)

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 our other senior unsecured indebtedness. We may redeem the notes of each series of senior notes at our option in whole or in part at any time. Such indenture also contains covenants limiting our 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 our properties and assets, each subject to certain exceptions.

2018 Credit Facility

At the end of 2021, we had access to a $1.25 billion unsecured revolving credit facility maturing in May 2023, which may be used for working capital and general corporate purposes, including permitted acquisitions. As part of the credit facility, we may request an additional term loan facility up to $500.0 million prior to the maturity of the credit facility and subject to approval.

Uncommitted Facilities

At the end of 2021, we had one £55.0 million, two $75.0 million, and one €100.0 million revolving credit facilities, which are uncommitted (the “Uncommitted Facilities”). Generally, these uncommitted facilities may be redeemed upon demand. Borrowings under uncommitted facilities are classified as short-term debt in our Consolidated Balance Sheet.

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NOTE 7: LEASES

We have operating leases primarily for certain of our major facilities, including corporate offices, research and development facilities, and manufacturing facilities. Lease terms range from 1 to 13 years, and certain leases include options to extend the lease for up to 9 years. We consider options to extend the lease in determining the lease term.

Operating lease expense consisted of:

(In millions)

Operating lease expense $ 35.5 $ 38.1

Short-term lease expense and other 17.8 15.7

TRMB US Equity

TRMB · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Item 8. Financial Statements and Supplementary Data

TRMB US Equity☆

TRMB · 10-K · period ended 2021-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

Item 8. Financial Statements and Supplementary Data

TRMB US Equity