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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 report generally discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this report 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 December 31, 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” of this report.

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 and 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”) of $1,603.7 million, which represents growth of 14% year-over-year at the end of 2022. ARR organic growth was 16%. This shift towards recurring revenue has positively impacted our revenue mix and growth over time and is leading to improved visibility in our businesses. 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.

Throughout this “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, we refer to organic revenue growth, which is a non-GAAP measure. For a full definition of ARR, organic ARR, and organic revenue growth as used in this discussion and analysis, refer to the “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” found later in this Item 7.

Impact of Recent Events on Our Business

Macroeconomic conditions, including geopolitical tensions, such as the ongoing military conflict between Russia and Ukraine and related sanctions, exchange rate and interest rate volatility, and inflationary pressures, will continue to evolve globally. In the second half of 2022, our organic hardware sales growth and bookings moderated from slowing demand in some of our end markets served by our dealer channels and also from dealer inventories moving towards lower levels due to improved product lead times and macroeconomic concerns. The greatest impact was a decline in Europe where the impacts of foreign currency exchange rates, the ongoing military conflict in Ukraine, and energy inflation were the greatest.

Supply Chain

Over the past year, we experienced inflationary cost increases for certain components of our hardware products due to supply chain disruptions resulting from parts and labor shortages and an increase in worldwide demand for components. In response, we increased customer pricing to offset inflationary pressures. In the second half of 2022, these cost pressures lessened as component supply became more readily available. We expect these cost pressures will continue to diminish over time as supply chain conditions continue to normalize. Additionally, over the past year, due to extended component lead times, we made binding commitments over a longer horizon for certain components. This has impacted our working capital in the short term; however, we expect supply dynamics and customer demand to normalize over time.

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Foreign Currency Fluctuations

We generate over half of our revenue from sales to customers outside of the U.S. In 2022, due to the strengthening of the U.S. dollar, year-over-year unfavorable foreign currency impacts on revenue and operating income were $114.1 million or 4% and $26.0 million or 5%.

Interest Rates Fluctuations

The global inflation rate has risen sharply, and interest rates are rising in an effort to curb inflation. In addition to the negative impact macroeconomic conditions have had on our sales, we may experience higher borrowing costs on existing variable rate debt and future debt issuances, including financing related to the pending acquisition of Transporeon.

Ongoing Military Conflict in Ukraine

We are monitoring and responding to effects of the ongoing military conflict in Ukraine. In the first quarter of 2022, we stopped selling to Russia and Belarus customers and wrote off uncollected customer receivables and inventory located in these countries, which was not material to our consolidated financial statements. Total revenue associated with Russia and Belarus customers, either sold directly or indirectly through resellers or OEMs, was less than 2% of our total Company revenue for 2021. We are focused on providing products and support to non-sanctioned Ukrainian customers and contributing to relief efforts.

Acquisitions and Divestitures

We acquire businesses that align with our long-term growth strategies including our strategic product roadmap and, conversely, we divest certain business that no longer fit those strategies.

In December 2022, we signed a definitive agreement to acquire Transporeon in an all-cash transaction valued at approximately €1.88 billion or $2.0 billion. Transporeon, a Germany-based company, is a leading cloud-based transportation management software platform that connects key stakeholders across the industry lifecycle to positively impact the optimization of global supply chains, in alignment with our Connect and Scale strategy. We believe the acquisition will advance our sustainability strategy by reducing under-utilized carrier capacity and “empty miles” and increase our international footprint and long-term Transportation opportunities. The acquisition will be funded through a combination of cash on hand and debt. We expect this acquisition to close in the first half of 2023, subject to customary closing conditions including the receipt of merger control clearances in Austria, Germany, and Poland. Transporeon will be reported in our Transportation segment.

In 2022, we acquired two businesses, with total purchase consideration of $379.5 million. In the aggregate, the acquired businesses contributed less than 1% of our total revenue during 2022.

In 2022, we divested six businesses with total proceeds of $226.3 million. For 2021, the revenue and operating income for these divested businesses were approximately $201.7 million and $33.0 million.

For additional discussion of acquisitions and divestitures, refer to Note 3 “Acquisitions and Divestitures” of this report.

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 “Description of Business and Accounting Policies” of this report.

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 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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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

For business combinations, we allocate the purchase consideration to the assets acquired, liabilities assumed, and any noncontrolling interest based on their fair values at the acquisition date. When determining the fair values, 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. Any purchase consideration in excess of the fair values of the net assets acquired is recorded as goodwill.

We evaluate goodwill on an annual basis in our fourth quarter or more frequently if indicators of potential impairment exist. To determine whether goodwill is impaired, we first assess qualitative factors. Qualitative factors include but are not limited to macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, or other relevant company-specific events. If it is determined more likely than not that the fair value of a goodwill reporting unit is less than its carrying amount, we perform a quantitative analysis. Alternatively, we may bypass the qualitative assessment and perform a quantitative impairment test.

When performing a 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.

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.

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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 57.3 % 55.6 %

Operating income as a % of revenue 13.9 % 15.3 %

Diluted earnings per share $ 1.80 $ 1.94 $ (0.14) (7) %

Non-GAAP operating income as a % of Non-GAAP revenue (1) 22.9 % 23.4 %

Non-GAAP diluted earnings per share (1) $ 2.64 $ 2.66 $ (0.02) (1) %

(1) Refer to “Supplemental Disclosure of Non-GAAP Financial Measures and Annualized Recurring Revenue” of this report for definitions.

Basis of Presentation

We use a 52–53 week fiscal year ending on the Friday nearest to December 31, which for 2022 was December 30, 2022. Both 2022 and 2021 were 52–week years.

Year 2022 Compared with Year 2021

Revenue

Change versus 2021 % Change

Change in total revenue — %

Acquisitions 1 %

Divestitures (4) %

Foreign currency exchange (4) %

Organic revenue growth - total revenue 7 %

Although organic revenue increased for fiscal 2022, it decelerated in the second half of the year due to slowing demand in some of our end markets and reductions in dealer inventory levels as a result of improved product lead times and macroeconomic concerns. Additionally, Geospatial had unusually strong hardware sales in the previous year. Throughout the year, software and subscription sales were strong in buildings businesses in Buildings and Infrastructure, and to a lesser extent, positioning services in Resources and Utilities and Transportation enterprise business, as evidenced by organic ARR growth of 16%.

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Change versus 2021 % Change

Change in product revenue (4) %

Acquisitions — %

Divestitures (5) %

Foreign currency exchange (3) %

Organic revenue growth - product revenue 4 %

Change in service revenue (1) %

Acquisitions 4 %

Divestitures (1) %

Foreign currency exchange (4) %

Organic revenue growth - service revenue — %

Change in subscription revenue 16 %

Acquisitions 1 %

Divestitures (2) %

Foreign currency exchange (2) %

Organic revenue growth - subscription revenue 19 %

Organic product revenue increased due to term license software growth throughout the year, as well as stronger hardware and related software sales in the first half of the year. In the second half of the year, slowing demand for our hardware and related software products impacted sales in Buildings and Infrastructure, Geospatial, and Resources and Utilities. Organic service revenue was relatively flat. Organic subscription revenue increased primarily due to strong growth in Buildings and Infrastructure and, to a lesser extent, in Resources and Utilities, Transportation, and Geospatial.

During 2022, sales to customers in North America represented 53%; Europe represented 28%; Asia Pacific represented 11%; and the rest of world represented 8% of our total revenue.

No single customer accounted for 10% or more of our total revenue or accounts receivable in 2022 and 2021.

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 organic revenue growth in Buildings and Infrastructure and Resources and Utilities, partially offset by divestitures and unfavorable foreign currency. Gross margin as a percentage of total revenue increased due to an increased mix of software and subscription sales, price increases, and to a lesser extent, divestitures of lower margin hardware centric businesses.

Operating Income

Operating income decreased primarily due to divestitures and unfavorable foreign currency, partially offset by organic revenue and gross margin expansion. Additionally, operating expense increased due to investments related to our Connect and Scale strategy and increased sales and marketing costs primarily related to trade shows and increased travel. Other contributors to increased operating expense included restructuring costs, charitable donations, and higher acquisition and divestiture transaction costs partially offset by a reduction in incentive compensation.

Operating income as a percentage of revenue decreased primarily due to increased operating expense, partially offset by increased gross margin as a percentage of revenue.

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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 % 14.7 %

Percentage of revenue 15.1 % 13.9 %

Percentage of revenue 11.5 % 10.1 %

R&D expense increased primarily due to slightly higher compensation expense and the impact of acquisitions, partially offset by favorable foreign currency and divestitures. We believe that the development and introduction of new solutions are critical to our future success, and we expect to continue the active development of new products.

S&M expense increased primarily due to higher compensation expense, including commissions, higher marketing costs including trade shows, higher travel expenses, and the impact of acquisitions. These increases were partially offset by favorable foreign currency and divestitures.

G&A expense increased primarily due to investments related to our Connect and Scale strategy, charitable donations to the Trimble Foundation, and acquisition and divestiture transaction costs. These increases were partially offset by a reduction in incentive compensation, favorable foreign currency, and divestitures.

Amortization of Purchased Intangible Assets

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

(In millions)

In 2022, total amortization of purchased intangibles decreased primarily due to the expiration of prior years’ acquisition amortization.

Non-Operating Income, Net

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

(In millions)

Income from equity method investments, net 31.1 37.7 (6.6) (18) %

In 2022, non-operating income increased primarily due to higher gains from divestitures, partially offset by lower joint-venture profitability, higher interest expense due to Bridge Facility fees, and fluctuations in deferred compensation plan assets included in Other expense, net.

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Income Tax Provision

Our effective income tax rates for 2022 and 2021 were 21.0% and 14.2%.The effective income tax rate in 2022 increased compared to 2021 primarily due to a one-time tax benefit recorded in 2021 related to the revaluation of the Netherlands deferred tax assets mentioned below and lower stock-based compensation deductions during 2022.

In December 2021, due to a change in the Netherlands tax law, the statutory tax rate was 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.

On August 16, 2022, the U.S. federal government enacted the Inflation Reduction Act (“IRA”) of 2022. The IRA includes a 15% corporate alternative minimum tax effective in 2024 for certain large corporations, a 1% excise tax on net share repurchases after December 31, 2022, and several tax incentives to promote clean energy. We do not expect the provisions of the IRA to have a material impact on our financial results.

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 6 “Reporting Segment and Geographic Information” of this report.

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 40.6 % 38.9 %

Segment operating income as a percent of segment revenue 27.2 % 28.9 %

Geospatial

Segment revenue as a percent of total revenue 20.6 % 22.6 %

Segment operating income as a percent of segment revenue 29.3 % 29.4 %

Resources and Utilities

Segment revenue as a percent of total revenue 22.4 % 21.1 %

Segment operating income as a percent of segment revenue 33.9 % 34.2 %

Transportation

Segment revenue as a percent of total revenue 16.4 % 17.4 %

Segment operating income as a percent of segment revenue 9.7 % 6.8 %

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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 $ 964.8 $ 963.2

Unallocated general corporate expenses (123.3) (106.2)

Purchase accounting adjustments (131.6) (134.5)

Acquisition / divestiture items (32.8) (21.8)

Stock-based compensation / deferred compensation (112.0) (128.6)

Restructuring and other costs (54.2) (11.1)

Consolidated operating income 510.9 561.0

Total non-operating income, net 58.2 13.6

Consolidated income before taxes $ 569.1 $ 574.6

Buildings and Infrastructure

Change versus 2021 % Change

Change in revenue - Buildings and Infrastructure 5 %

Acquisitions 2 %

Divestitures (5) %

Foreign currency exchange (3) %

Organic revenue growth 11 %

Organic revenue increased due to demand for our subscription and term license software recurring offerings. The increases resulted from higher sales to new and existing customers, as well as conversions from perpetual software to recurring offerings. Civil construction hardware and related software license revenue increased due to relative strength in the North American construction market in the first half of 2022, partially offset by weaker hardware sales, particularly in Europe, in the second half of the year.

Despite revenue and gross margin expansion, operating income decreased primarily due to higher operating expense, unfavorable foreign currency, and divestitures. Operating expense increased due to investments in our Connect and Scale strategy as well as higher marketing and travel costs. Operating income as a percentage of revenue decreased primarily due to higher operating expense, partially offset by gross margin expansion due to product mix.

Geospatial

Change versus 2021 % Change

Change in revenue - Geospatial (9) %

Acquisitions — %

Divestitures (5) %

Foreign currency exchange (3) %

Organic revenue growth (1) %

Organic revenue decreased slightly due to unusually strong hardware sales in the prior year and the softening of hardware sales in the second half of 2022, partially offset by higher software and subscription sales.

Operating incomedecreased primarily due to divestitures and reduced revenue, partially offset by better gross margin due to product mix. Operating income as a percentage of revenue was relatively flat.

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Resources and Utilities

Change versus 2021 % Change

Change in revenue - Resources and Utilities 7 %

Acquisitions — %

Divestitures (1) %

Foreign currency exchange (4) %

Organic revenue growth 12 %

Organic revenue increased due to relative strength in agriculture, particularly in the OEM channel, as well as price increases, partially offset by weaker agriculture sales in the reseller channel, particularly Europe, in the second half of the year. To a lesser extent, revenue was favorably impacted by higher subscription revenue in positioning services.

Operating income increased primarily due to organic revenue expansion, partially offset by unfavorable foreign currency, and higher operating expenses due to investments in our Connect and Scale strategy. Operating income as a percentage of revenue was relatively flat.

Transportation

Change versus 2021 % Change

Change in revenue - Transportation (5) %

Acquisitions — %

Divestitures (3) %

Foreign currency exchange (1) %

Organic revenue growth (1) %

Organic revenue decreased primarily driven by lower mobility hardware sales to North American customers. Enterprise subscription revenue continued to experience growth as the business transitions from a perpetual software license model.

Operating income and operating income as a percentage of revenue increased primarily due to targeted cost reductions and gross margin expansion due to product mix, partially offset by divestitures and reduced revenue. We continue to maintain focus on new product introductions and transitions to recurring revenue.

LIQUIDITY AND CAPITAL RESOURCES

At the End of Year 2022 2021 Dollar Change % Change

(In millions)

As a percentage of total assets 3.7 % 4.6 %

(In millions)

Net increase in cash and cash equivalents $ (54.7) $ 88.0

Operating Activities

The decrease in cash provided by operating activities was primarily driven by lower net income after adjusting for non-cash items and divestiture gains, higher bonus and cash tax payments, higher accounts receivable, higher inventory purchases, and lower accounts payable associated with the timing of inventory payments. The decreases were partially offset by an increase in deferred revenue.

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Investing Activities

The increase in cash used in investing activities was primarily due to higher payments related to businesses acquired in 2022, partially offset by higher proceeds from divestitures.

Financing Activities

The decrease in cash used in financing activities was primarily driven by higher proceeds of revolving credit facilities, which was used in part to fund the B2W acquisition, partially offset by an increase in common stock repurchases.

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, and debt service. In March 2022, we entered into a five-year, unsecured revolving loan facility for borrowings up to $1.25 billion, which replaced the 2018 Credit Facility. The 2022 Credit Facility contains an option to increase the borrowings up to $1.75 billion with lender approval. At the end of 2022, $225.0 million was outstanding under the 2022 Credit Facility.

In December 2022, in connection with our pending acquisition of Transporeon, we arranged to incur substantial new debt obligations, which will be drawn prior to the acquisition closing date. These arrangements include:

•a term loan credit agreement providing for an unsecured delayed draw term loan facility in the aggregate principal amount of $1.0 billion, comprised of commitments for a 3-year tranche in the amount of $500.0 million and a 5-year tranche in the amount of $500.0 million, and

•an amendment to our 2022 Credit Facility that made $600.0 million of the existing commitments under the Credit Facility available for the pending acquisition of Transporeon and increased our maximum permitted leverage ratio following the closing of the acquisition.

Prior to arranging the above two transactions, we had entered into a 364-day bridge facility commitment letter (the “Bridge Facility”) that provided for up to €1.88 billion of commitments for term loans to fund our acquisition of Transporeon. The Bridge Facility was reduced to €500 million by the term loan credit agreement and the amended 2022 Credit Facility.

We anticipate refinancing some or all of our outstanding indebtedness and debt commitments at or prior to their maturities, which could involve us accessing the capital markets.

A provision enacted in the Tax Cuts and Jobs Act of 2017 related to the capitalization of research and development costs for tax purposes became effective on January 1, 2022. In 2022, we paid $88.0 million with respect to this tax provision. Additionally, if this provision is not deferred or repealed in 2023, we expect that cash tax payments in 2023 will be slightly lower than 2022.

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 2022, we had fixed lease payment obligations of $171.6 million, with $48.7 million payable within the next 12 months. Refer to Note 8 “Leases” of this report for additional information regarding our leases.

Tax Payable

At the end of 2022, we had income taxes payable of $64.6 million, with $23.7 million payable within the next 12 months. The amount payable within the next 12 months includes $13.6 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 $75.5 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. Refer to Note 12 “Income Taxes” of this report 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. At the end of 2022, we had operating purchase obligations and commitments of $858.8 million, with $326.2 million payable within the next 12 months. Refer to Note 9 “Commitments and Contingencies” of this report 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.

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Debt

At the end of 2022, we had outstanding floating and fixed-rate senior notes with varying maturities for an aggregate principal amount of approximately $1.5 billion. Future interest payments total $260.5 million, with $67.3 million payable within the next 12 months.

During 2022, we had $224.6 million of proceeds from debt, net of the payments. Refer to Note 7 “Debt” of this report 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. Because of the additional outstanding indebtedness we have and expect to incur in connection with the pending Transporeon acquisition, we have temporarily discontinued share repurchases. Refer to Note 14 “Common Stock Repurchase” of this report 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 “Description of Business and Accounting Policies” of this report.

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

To supplement our consolidated financial information, we include non-GAAP financial measures, which are not meant to be considered in isolation or as a substitute for comparable GAAP. We believe non-GAAP financial measures provide useful information to investors and others in understanding our “core operating performance”, which excludes the (i) effect of non-cash items and certain variable charges not expected to recur; and (ii) transactions that are 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.

Organic revenue growth is a non-GAAP measure that refers to revenue excluding the impacts of (i) foreign currency translation, and (ii) acquisitions and divestitures. We believe organic revenue growth provides useful information in evaluating the results of our business because it excludes items that are not indicative of ongoing performance or impact comparability with the prior year. We provide a reconciliation tables showing the change in revenue growth to organic revenue growth in the “Results of Operations” section found earlier in this Item 7.

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 taking our non-GAAP recurring revenue for the current quarter and adding the portion of the contract value of all of our term licenses attributable to the current quarter, and dividing that sum by the number of days in the quarter and then multiplying that quotient by 365. Organic ARR refers to annualized recurring revenue excluding the impacts of (i) foreign currency translation, and (ii) acquisitions and divestitures. ARR and organic ARR should be viewed independently of revenue and deferred revenue as they are performance measures and are 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

GROSS MARGIN:

Purchase accounting adjustments (A) 85.0 88.0 96.6

Acquisition / divestiture items (B) 0.2 — 1.7

Stock-based compensation / deferred compensation (C) 12.1 9.8 7.2

Restructuring and other costs (D) 1.7 0.2 1.2

OPERATING EXPENSES:

Purchase accounting adjustments (A) (46.6) (46.5) (60.0)

Acquisition / divestiture items (B) (32.6) (21.8) (19.7)

Stock-based compensation / deferred compensation (C) (99.9) (118.8) (83.2)

Restructuring and other costs (D) (52.5) (10.9) (30.2)

OPERATING INCOME:

Acquisition / divestiture items (B) 32.8 21.8 21.4

Stock-based compensation / deferred compensation (C) 112.0 128.6 90.4

Restructuring and other costs (D) 54.2 11.1 31.4

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NON-OPERATING INCOME (EXPENSE), NET:

GAAP non-operating income (expense), net: $ 58.2 $ 13.6 $ (24.8)

Acquisition / divestiture items (B) (107.5) (42.1) (12.2)

Deferred compensation (C) 8.5 (6.1) (7.5)

Restructuring and other costs (D) 6.0 — —

Non-GAAP non-operating expense, net: $ (34.8) $ (34.6) $ (44.5)

INCOME TAX PROVISION (BENEFIT):

Non-GAAP items tax effected (E) 49.9 41.4 48.5

Difference in GAAP and Non-GAAP tax rate (F) (22.9) 7.5 (4.9)

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

NET INCOME:

GAAP net income attributable to Trimble Inc.: $ 449.7 $ 492.7 $ 389.9

Acquisition / divestiture items (B) (74.7) (20.3) 9.2

Stock-based compensation / deferred compensation (C) 120.5 122.5 82.9

Restructuring and other costs (D) 60.2 11.1 31.4

Non-GAAP tax adjustments (E) - (G) (27.0) (63.3) (107.6)

Non-GAAP net income attributable to Trimble Inc.: $ 660.3 $ 677.2 $ 562.4

DILUTED NET INCOME PER SHARE:

Purchase accounting adjustments (A) 0.53 0.53 0.62

Acquisition / divestiture items (B) (0.30) (0.08) 0.04

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

Restructuring and other costs (D) 0.24 0.04 0.12

Non-GAAP tax adjustments (E) - (G) (0.11) (0.25) (0.43)

ADJUSTED EBITDA:

OPERATING INCOME:

GAAP net income attributable to Trimble Inc.: $ 449.7 $ 492.7 $ 389.9

Acquisition / divestiture items (B) 32.8 21.8 21.4

Stock-based compensation / deferred compensation (C) 112.0 128.6 90.4

Restructuring and other costs (D) 54.2 11.1 31.4

Depreciation expense and cloud computing amortization 44.7 42.2 39.7

Income from equity method investments, net 31.1 37.7 39.4

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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 for acquisitions occurring prior to 2021. 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, deferred compensation, and restructuring and other costs. 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 define 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, cloud computing amortization, 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

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potential differences caused by variations unrelated to operating performance, such as capital structures (interest expense), income taxes, depreciation, and amortization of purchased intangibles and cloud computing costs.

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 and going forward, 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, excludes unusual one-time acquisition/divestiture charges, including foreign currency exchange rate gains/losses related to an acquisition, divestiture gains/losses, and strategic investment impairments. 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 costs comprised of termination benefits related to reductions in employee headcount and closure or exit of facilities, executive severance agreements, costs incurred in exiting business activities in Russia and Belarus, other business exit costs, Bridge Facility fees, as well as a $20 million commitment to donate to the Trimble Foundation to be paid over four quarters.

(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 Disclosures 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, including the 2022 Credit Facility, 2022 Term Loan Credit Agreement, and the Bridge Facility. We also have four unsecured, uncommitted, revolving credit facilities that are callable by the bank at any time. We may borrow funds under the 2022 Credit Facility and uncommitted facilities in U.S. Dollars, Euros, or in certain other agreed currencies as described in Note 7 “Debt” of this report.

At the end of 2022, we had two $75.0 million, one €100.0 million, and one £55.0 million revolving credit facilities, which are uncommitted. At the end of 2022, $225.0 million was outstanding under the 2022 Credit Facility.

We expect to issue fixed-rate debt in the first half of 2023 as part of the pending acquisition of Transporeon and to refinance existing debt. To minimize interest rate fluctuations, in December 2022, we entered into a contract to offset the changes in the price of U.S. Treasury Notes with an original maturity of 10 years for the period commencing on the contract date and ending May 31, 2023 (“Treasury Rate Lock”). The Treasury Rate Lock is marked-to-market each period through other comprehensive income until the debt is issued, and the effective interest rate method is applied. The nominal amount is $400 million, and the fair value at the end of 2022 is $7.2 million.

While not predictive, a hypothetical 50 basis point increase or decrease in the 10-year U.S. Treasury rate as of December 30, 2022 would change the fair value of the Treasury Rate Lock by $16.5 million.

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 2022, revenue and operating income were unfavorably impacted by foreign currency exchange rates by $114.1 million and $26.0 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, Brazilian 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. Additionally, in December 2022, we entered into a foreign currency exchange rate contract to minimize foreign currency fluctuations on the €1.88 billion or $2.0 billion pending acquisition of Transporeon.

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Our foreign currency contracts are marked-to-market through earnings every period and generally range in maturity from one to two months, or from four to six months for acquisitions. We do not enter into foreign currency contracts for trading purposes. Foreign currency contracts outstanding at the end of 2022 and 2021 are summarized as follows:

NominalAmount FairValue NominalAmount FairValue

(In millions)

Forward contracts:

While not predictive, a hypothetical 5% decrease in the Euro as of December 30, 2022 would change the fair value of the foreign currency exchange contract related to the pending acquisition of Transporeon by $68 million.

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TRIMBLE INC.

INDEX TO FINANCIAL STATEMENTS

Consolidated Balance Sheets 52

Consolidated Statements of Income 53

Consolidated Statements of Comprehensive Income 54

Consolidated Statements of Stockholders’ Equity 55

Consolidated Statements of Cash Flows 56

Notes to Consolidated Financial Statements 57

Reports of Independent Registered Public Accounting Firm (PCAOB ID: 42) 77

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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 $ 271.0 $ 325.7

Operating lease right-of-use assets 121.2 141.0

Other purchased intangible assets, net 498.1 506.6

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Short-term debt $ 300.0 $ —

Accrued compensation and benefits 159.4 231.0

Deferred revenue, non-current 98.5 83.0

Deferred income tax liabilities 157.8 263.1

Other non-current liabilities 134.4 151.1

Commitments and contingencies (Note 9)

Stockholders’ equity:

Accumulated other comprehensive loss (234.9) (161.7)

Total liabilities and stockholders’ equity $ 7,269.0 $ 7,099.6

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 85.0 87.7 92.3

Operating expense:

Amortization of purchased intangible assets 46.6 50.9 65.5

Non-operating income (expense), net:

Income from equity method investments, net 31.1 37.7 39.4

Other income (expense), net (0.8) (0.1) 0.3

Total non-operating income (expense), net 58.2 13.6 (24.8)

Net income attributable to noncontrolling interests — 0.1 0.7

Net income attributable to Trimble Inc. $ 449.7 $ 492.7 $ 389.9

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)

Other comprehensive income (loss), net of tax

Foreign currency translation adjustments (81.6) (64.0) 77.1

Net change related to derivatives and other 8.4 0.8 1.2

Comprehensive income attributable to noncontrolling interests — 0.1 0.7

Comprehensive income attributable to Trimble Inc. $ 376.5 $ 429.5 $ 468.2

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 — — — — 78.3 78.3 — 78.3

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

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

Other comprehensive income — — — — (63.2) (63.2) — (63.2)

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

Other comprehensive loss — — — — (73.2) (73.2) — (73.2)

See accompanying Notes to the Consolidated Financial Statements.

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CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

Cash flows from operating activities

(Increase) decrease in assets:

Accounts receivable, net (55.4) (9.0) (14.0)

Other current and non-current assets (46.3) (30.2) 2.5

Increase (decrease) in liabilities:

Accrued compensation and benefits (54.2) 54.1 34.9

Other current and non-current liabilities (67.8) (22.9) (44.8)

Cash flow from investing activities:

Acquisitions of businesses, net of cash acquired (373.5) (236.1) (201.9)

Purchases of property and equipment (43.2) (46.1) (56.8)

Net cash used in investing activities (226.3) (203.5) (231.8)

Cash flows from financing activities:

Issuance of common stock, net of tax withholdings (13.6) (15.1) 10.0

Payments on debt and revolving credit lines (590.2) (449.9) (1,486.0)

Net cash used in financing activities (199.0) (447.7) (400.3)

Effect of exchange rate changes on cash and cash equivalents (20.6) (11.3) 8.6

Net (decrease) increase in cash and cash equivalents (54.7) 88.0 48.5

Cash and cash equivalents - beginning of year 325.7 237.7 189.2

Cash and cash equivalents - end of year $ 271.0 $ 325.7 $ 237.7

Supplemental cash flow disclosure:

Cash paid for income taxes, net $ 197.3 $ 98.3 $ 59.0

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 2022, 2021, and 2020 were all 52-week years ending on December 30, 2022, December 31, 2021, and January 1, 2021. 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 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.

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 $33.6 million and $39.5 million at the end of 2022 and 2021.

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 2022 and 2021, our allowance for credit losses was $5.9 million and $7.0 million. The provision for credit losses for the years ended 2022, 2021, and 2020 were $7.7 million, $2.6 million, and $7.1 million.

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.

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At the end of 2022 and 2021, deferred costs to obtain customer contracts were $74.7 million and $59.7 million. These costs are included in Other non-current assets in the Consolidated Balance Sheets.

Amortization expense related to deferred costs to obtain customer contracts was $32.0 million, $25.9 million, and $22.8 million, for 2022, 2021, and 2020. 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 lifecycle 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

We allocate the fair value of purchase consideration to the assets acquired, liabilities assumed, and any noncontrolling interest based on their fair values at the acquisition date. When determining the fair values, 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. Any purchase consideration in excess of the fair values of the net assets acquired is recorded as goodwill.

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.

Acquisition costs are expensed as incurred.

Goodwill

We evaluate goodwill on an annual basis or more frequently if indicators of potential impairment exist. To determine whether goodwill is impaired, we first assess qualitative factors. Qualitative factors include but are not limited to macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, or other relevant company-specific events. If it is determined more likely than not that the fair value of a goodwill reporting unit is less than its carrying amount, we perform a quantitative analysis. Alternatively, we may bypass the qualitative assessment and perform a quantitative impairment test.

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Intangible Assets

Intangible assets acquired 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 $11.7 millionand $17.1 million are included in Other current liabilities in the Consolidated Balance Sheets at the end of 2022 and 2021.

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.

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 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.

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.

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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 2022 and 2021.

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. We occasionally enter into foreign currency contracts to minimize the impact of foreign currency fluctuations on the purchase price of pending acquisitions, including the fourth quarter of 2022 foreign currency contract for the €1.88 billion or $2.0 billion pending acquisition of Transporeon. The above-mentioned foreign currency contracts are marked-to-market through earnings every reporting period and generally range in maturity from one to two months, or from four to six months for contracts related to acquisitions. We do not enter into foreign currency forward contracts for trading purposes.

In the fourth quarter of 2022, in conjunction with the pending acquisition of Transporeon, we entered into a contract to offset the changes in the price of U.S. Treasury Notes with an original maturity of 10 years (“Treasury Rate Lock”). The purpose of the Treasury Rate Lock is to minimize the impact of interest rate fluctuations on new fixed-rate debt expected to be issued in connection with this acquisition. This derivative contract is accounted for as a cash flow hedge and is marked-to-market each period with gains or losses recorded through other comprehensive income. Upon issuance of the debt, the derivative is settled, and the other comprehensive income is amortized as interest expense over the 10-year debt term by use of the effective interest rate method. At the end of 2021, there were no derivatives outstanding that were accounted for as hedges.

Recently issued Accounting Pronouncements not yet Adopted

There are no recently issued accounting pronouncements applicable or material to us not yet adopted.

Recent Adopted Accounting Pronouncements

There are no recently adopted accounting pronouncements.

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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. $ 449.7 $ 492.7 $ 389.9

Denominator:

Effect of dilutive securities 1.6 2.9 1.8

Diluted earnings per share $ 1.80 $ 1.94 $ 1.55

Antidilutive weighted-average shares (1) 1.3 0.1 0.5

(1) Antidilutive stock-based awards are excluded from the calculation of diluted shares and diluted earnings per share because their impact would increase diluted earnings per share.

NOTE 3: ACQUISITIONS AND DIVESTITURES

Acquisitions

In December 2022, we entered into a definitive agreement to acquire Transporeon in an all-cash transaction valued at approximately €1.88 billion or $2.0 billion. Transporeon, a Germany-based company, is a leading cloud-based transportation management software platform that connects key stakeholders across the industry lifecycle to positively impact the optimization of global supply chains, in alignment with our Connect and Scale strategy. We believe the acquisition will advance our sustainability strategy by reducing under-utilized carrier capacity and “empty miles” and increase our international footprint and long-term Transportation opportunities. The acquisition will be funded through a combination of cash on hand and new debt. We expect this acquisition to close in the first half of 2023, subject to customary closing conditions including regulatory approvals in certain international countries. Following the closing, we intend to integrate Transporeon into our Transportation segment for financial reporting purposes.

In 2022, we acquired two businesses, with total purchase consideration of $379.5 million. The largest acquisition was Bid2Win Software, LLC, a leading provider of estimating and operations solutions for the heavy civil construction industry. In the aggregate, the businesses acquired contributed less than 1% of our total revenue during 2022. The Condensed Consolidated Statements of Income include the operating results of the acquired businesses from the date of acquisitions.

During 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 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. In the aggregate, the businesses acquired contributed less than 1% of our total revenue during 2020.

Acquisition costs of$20.4 million, $13.6 million, and $20.3 million in 2022, 2021, and 2020, 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 $ 379.5 $ 237.5 $ 205.1

Less fair value of net assets acquired:

Net tangible assets acquired (9.2) (5.2) (1.6)

Deferred taxes (0.8) — 0.7

Divestitures

In 2022, we divested six businesses with total proceeds of $226.3 million. The largest divestiture was the sale of Time and Frequency, LOADRITE, Spectra Precision Tools, and SECO accessories businesses to Precisional LLC, an affiliate of The Jordan Company (“TJC”), for $205.1 million in cash, which included a working capital adjustment.

In 2021 and 2020, divestitures were not material to the financial statements.

NOTE 4: INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

The following table presents a summary of our intangible assets:

As of the end of 2022 and 2021, $79.9 million and $160.1 million of fully amortized intangible assets were written off.

The estimated future amortization expense of intangible assets at the end of 2022 was as follows:

(In millions)

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Goodwill

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

(In millions)

Decrease from divestitures (23.9) (6.9) — (6.9) (37.7)

NOTE 5: CERTAIN BALANCE SHEET COMPONENTS

The components of inventory, net were as follows:

(In millions)

Inventories:

Finished goods includes $16.9 million and $13.7 million at the end of 2022 and 2021 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 $ 244.4 $ 238.8

Construction in progress 10.1 20.7

Less: accumulated depreciation (359.5) (363.0)

Total property and equipment, net $ 219.0 $ 233.2

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

(In millions)

Accumulated foreign currency translation adjustments $ (241.6) $ (160.0)

Gain on cash flow hedge 5.4 —

TRMB US Equity

TRMB · 10-K · period ended 2022-12-30

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

TRMB US Equity☆

TRMB · 10-K · period ended 2022-12-30

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

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

TRMB US Equity