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Accounting Policies | 12 Months Ended
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Jan. 03, 2020
Accounting Policies [Abstract] |
Accounting Policies | ACCOUNTING POLICIES Use of Estimates The preparation of financial statements in accordance with U.S. generally accepted accounting principles ("GAAP") requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are used for revenue recognition including determining the nature and timing of satisfaction of performance obligations and determining standalone selling price of performance obligations, allowances for doubtful accounts, sales returns reserve, allowances for inventory valuation, warranty costs, goodwill impairment, intangibles impairment, purchased intangibles, useful lives for tangible and intangible assets, stock-based compensation, and income taxes among others. Management bases its estimates on historical experience and various other assumptions believed to be reasonable. Actual results and outcomes may differ from management's estimates and assumptions. Basis of Presentation The Company has a 52-53 week fiscal year, ending on the Friday nearest to December 31. Fiscal 2019 is a 53-week year and ended on January 3, 2020, and 2018 and 2017 were 52-week years, ended on December 28, 2018 and December 29, 2017, respectively. Unless otherwise stated, all dates refer to the Company’s fiscal year. These Consolidated Financial Statements include the results of the Company and its consolidated subsidiaries. Inter-company accounts and transactions have been eliminated. Noncontrolling interests represent the noncontrolling stockholders’ proportionate share of the net assets and results of operations of the Company’s consolidated subsidiaries. The Company has presented revenue and cost of sales separately for products, service, and subscriptions. Product revenue includes hardware, software licenses, parts and accessories; service revenue includes maintenance and support for hardware and software products, training, and professional services; subscription revenue includes software as a service ("SaaS"), data, and hosting services. Reportable Segments The Company reports its financial performance, including revenue and operating income, based on four reportable segments: Buildings and Infrastructure, Geospatial, Resources and Utilities, and Transportation. The Company's Chief Executive Officer (chief operating decision maker) views and evaluates operations based on the results of the Company’s reportable operating segments under its management reporting system. These results are not necessarily in conformance with U.S. GAAP. Revenue Recognition Significant Judgments Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration that the Company expects to receive in exchange for those products or services. Revenue is recognized net of allowance for returns and any taxes collected from customers. The Company enters into contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted for as separate performance obligations; however, determining whether products or services are considered distinct performance obligations that should be accounted for separately versus together may sometimes require significant judgment. Judgment is required to determine stand-alone selling price ("SSP") for each distinct performance obligation. The Company uses a range of amounts to estimate SSP when products and services are sold separately and determines whether there is a discount to be allocated based on the relative SSP of the various products and services. In instances where SSP is not directly observable, the Company determines SSP using information that may include market conditions and other observable inputs. Nature of Goods and Services The Company generates revenue primarily from products, services, and subscriptions; each of which is a distinct performance obligation. Product revenue includes hardware and software. Services, including software maintenance, extended warranty, and subscriptions, are performance obligations generally recognized over time. Descriptions are as follows: Product Revenue for hardware is recognized when the control of the product transfers to the customer, which is generally when the product is shipped. The Company recognizes shipping fees reimbursed by the customer as revenue and the cost for shipping as an expense in Cost of sales when control over products has transferred to the customer. Revenue for perpetual and term software licenses is recognized upon delivery and commencement of license term. In general, the Company’s contracts do not provide for customer specific acceptances. A small amount of revenue is derived from the licensing of software to OEM customers. Royalty revenue is recognized as and when the sales or usage occurs, which generally is at the time the OEM ships products incorporating the Company’s software. Services Professional services include installation, training, configuration, project management, system integrations, customization, data migration/conversion, and other implementation services. The majority of professional services are not complex, can be provided by other vendors, and are readily available and billed on a time-and-material basis. Revenue for distinct professional services is recognized over time, based on work performed. In some contracts, products and professional services may be combined into a single performance obligation. This generally arises when products or subscriptions are sold with significant customization, modification, or integration services. Revenue for the combined performance is recognized over time as the work progresses because of the continuous transfer of control to the customer. Software maintenance entitles the customer to receive software product upgrades and enhancements on a when and if available basis and technical support. Software maintenance is recognized on a straight-line basis commencing upon product delivery over the post contract support term, which ranges from one to three years, with one year term being most common. Extended warranty entitles the customer to receive replacement parts and repair services. Extended warranty is separately priced and is recognized on a straight-line basis over the extended service period, which begins after the standard warranty period, ranging from one to two years depending on the product line. Subscription The Company’s software as a service ("SaaS") performance obligations may be sold with devices used to collect, generate, and transmit data. SaaS is distinct from the related devices. In addition, the Company may host the software that the customer has separately licensed. Hosting services are distinct from the underlying software. Subscription terms generally range from month-to-month to five years. Subscription revenue is recognized monthly over the service duration, commencing from activation. Deferred Costs to Obtain Customer Contracts The Company's incremental cost of obtaining contracts, which consists of sales commissions related to customer contracts that include maintenance or subscription revenue, are deferred if the contractual term is greater than a year or if renewals are expected, and the renewal commission is not commensurate with the initial commission. These commission costs are deferred and amortized over a benefit period, either the contract term or the shorter of customer or product life, which is generally between three to seven years. The Company has elected the practical expedient to exclude contracts with an amortization period of a year or less from this deferral requirement. Remaining Performance Obligations Remaining performance obligations represent contracted revenue for which goods or services have not been delivered. The contracted revenue, which will be recognized in future periods, includes both invoiced amounts in deferred revenue as well as amounts that are not yet invoiced. Foreign Currency Translation Assets and liabilities of non-U.S. subsidiaries that operate in local currencies are translated to U.S. dollars at exchange rates in effect at the balance sheet date, with the resulting translation adjustments, net of tax, recorded in Accumulated other comprehensive loss within the stockholders’ equity section of the Consolidated Balance Sheets. Income and expense accounts are translated at average monthly exchange rates during the year. Derivative Financial Instruments The Company enters into foreign exchange forward contracts to minimize the short-term impact of foreign currency fluctuations on cash and certain trade and inter-company receivables and payables, primarily denominated in Euro, British pound, New Zealand dollars, Australian dollars, Brazil real, and Canadian dollars. These contracts reduce the exposure to fluctuations in foreign currency exchange rate movements, as the gains and losses associated with foreign currency balances are generally offset with the gains and losses on the forward contracts. These instruments are marked-to-market through earnings every period and generally range from one to two months in original maturity. The Company occasionally enters into foreign currency forward contracts to hedge the purchase price of some of our larger business acquisitions. The Company does not enter into foreign currency forward contracts for trading purposes. As of the fiscal years ended 2019 and 2018, there were no derivative financial instruments outstanding that were accounted for as hedges. Concentrations of Risk Cash and cash equivalents are maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit and therefore bear minimal credit risk. The Company is also exposed to credit risk in the Company’s trade receivables, which are derived from sales to end-user customers in diversified industries as well as various resellers. The Company performs ongoing credit evaluations of its customers’ financial conditions and limits the amount of credit extended, when deemed necessary, but generally does not require collateral. In addition, the Company relies on a limited number of suppliers for a number of its critical components. Accounts Receivable, Net Accounts receivable, net, includes billed and unbilled amounts due from customers. Unbilled receivables include revenue recognized that exceeds the amount billed to the customer, provided the billing is not contingent upon future performance, and the Company has the unconditional right to future payment with only the passage of time required. Both billed and unbilled amounts due are stated at their net estimated realizable value. The unbilled receivables were $129.5 million and $22.3 million at the end of fiscal 2019 and 2018, respectively. The Company maintains an allowance for doubtful accounts to provide for the estimated amount of receivables that will not be collected. Each reporting period, the Company evaluates the collectibility of its trade accounts receivable based on a number of factors such as age of the accounts receivable balances, credit quality, historical experience, and current economic conditions that may affect a customer’s ability to pay. The allowance for doubtful accounts was $5.9 million and $4.6 million at the end of the fiscal 2019 and 2018, respectively. Inventories Inventories are stated at the lower of cost or net realizable value. Adjustments are also made to reduce the cost of inventory for estimated excess or obsolete balances. Factors influencing these adjustments include declines in demand that impact inventory purchasing forecasts, technological changes, product life cycle and development plans, component cost trends, product pricing, physical deterioration, and quality issues. If the Company's estimates used to reserve for excess and obsolete inventory differ from what it expected, the Company may be required to recognize additional reserves, which would negatively impact its gross margin. Property and Equipment, Net Property and equipment, net is stated at cost less accumulated depreciation. Depreciation of property and equipment is computed using the straight-line method over the shorter of the estimated useful lives or the lease terms when applicable. Useful lives generally range from four to six years for machinery and equipment, five to ten years for furniture and fixtures, two to five years for computer equipment and software, thirty-nine years for buildings, and the life of the lease for leasehold improvements. The Company capitalizes eligible costs to acquire or develop certain internal use software that are incurred subsequent to the preliminary project stage. Capitalized costs related to internal-use software are amortized using the straight-line method over the estimated useful lives of the assets, which range generally from two to five years. The costs of repairs and maintenance are expensed when incurred, while expenditures for refurbishments and improvements that significantly add to the productive capacity or extend the useful life of an asset are capitalized. Depreciation expense was $39.4 million in fiscal 2019, $35.6 million in fiscal 2018 and $34.6 million in fiscal 2017. Leases The Company determines if an arrangement is a lease at inception. Operating leases with lease terms greater than one year are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in our Consolidated Balance Sheets. ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Present value is determined by using the Company's incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments at commencement date. The operating lease ROU asset includes adjustments made for uneven rents and lease incentives. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Lease agreements that include both lease and non-lease components are accounted for as part of the overall lease arrangement. Business Combinations The Company allocates the fair value of purchase consideration to the assets acquired, liabilities assumed, and non-controlling interests in the acquiree based on their fair values at the acquisition date. The excess of the fair value of purchase consideration over the fair value of these assets acquired, liabilities assumed, and non-controlling interests in the acquiree is recorded as goodwill. When determining the fair values of assets acquired, liabilities assumed, and non-controlling interests in the acquiree, management makes significant estimates and assumptions, especially with respect to intangible assets. Critical estimates in valuing intangible assets include expected future cash flows based on consideration of future growth rates and margins, customer attrition rates, future changes in technology and brand awareness, loyalty and position, and discount rates. Fair value estimates are based on the assumptions management believes a market participant would use in pricing the asset or liability. Amounts recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available. Goodwill and Purchased Intangible Assets Goodwill represents the excess of the purchase consideration over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. Intangible assets acquired individually, with a group of other assets, or in a business combination are recorded at fair value. Identifiable intangible assets are comprised of technology, patents, licenses, customer contracts, acquired backlog, trademarks, and in-process research and development. Identifiable intangible assets are amortized over the period of estimated benefit using the straight-line method and have estimated useful lives ranging from three years to ten years with a weighted average useful life of 6.6 years. Goodwill is not subject to amortization, but is subject to, at a minimum, an annual assessment for impairment. Impairment of Goodwill, Intangible Assets, and Other Long-Lived Assets The Company evaluates goodwill on an annual basis or more frequently if indicators of potential impairment exist. The annual goodwill impairment test is performed at the reporting unit level in the fourth fiscal quarter of each year. We utilize either a qualitative assessment or a quantitative test to assess the likelihood of an impairment. In performing the qualitative assessment, we consider macroeconomic conditions, industry and market considerations, overall financial performance, and other relevant events and factors that may impact the reporting units. When the Company performs a quantitative test, the estimation of the fair value of a reporting unit involves the use of certain estimates and assumptions including expected future operating performance using risk-adjusted discount rates. Identifiable intangible assets are amortized over their estimated useful lives on a straight-line basis. Changes in circumstances such as technological advances, changes to business models, or changes in the capital strategy could result in a revised useful life. If the useful life of an asset is revised, the net book value of the estimated residual value is amortized over its revised remaining useful life. Intangible assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of those assets may not be recoverable based on their future cash flows. The estimated future cash flows are primarily based upon assumptions about expected future operating performance. Warranty The Company accrues for warranty costs as part of its cost of sales based on associated material product costs, technical support labor costs, and costs incurred by third parties performing work on the Company’s behalf. The Company’s expected future cost is primarily estimated based upon historical trends in the volume of product returns within the warranty period and the cost to repair or replace the equipment. When products sold include warranty provisions, they are covered by a warranty for periods ranging from one year to two years. Accrued warranty expenses of $16.3 million and $15.3 million is included in Other current liabilities in the Consolidated Balance Sheets at the end of fiscal 2019 and 2018. Guarantees, Including Indirect Guarantees of Indebtedness of Others In the normal course of business to facilitate sales of our products, the Company indemnifies other parties, including customers, lessors, and parties to other transactions with us with respect to certain matters. The Company may agree to hold the other party harmless against losses arising from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In connection with divesting some of the Company's businesses or assets, the Company may also indemnify purchasers for certain matters in the normal course of business, such as breaches of representations, covenants, or excluded liabilities. In addition, the Company entered into indemnification agreements with our officers and directors, and the Company’s bylaws contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential amount under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these agreements were not material, and no liabilities have been recorded for these obligations on the Consolidated Balance Sheets at the end of fiscal 2019 and 2018. Advertising and Promotional Costs The Company expenses all advertising and promotional costs as incurred. Advertising and promotional expense was approximately $42.7 million, $42.7 million, and $37.2 million, in fiscal 2019, 2018, and 2017, respectively. Research and Development Costs Research and development costs are charged to expense as incurred. Costs of software developed for external sale subsequent to reaching technical feasibility were not significant and were expensed as incurred. The Company received third-party funding of approximately $16.5 million, $19.5 million, and $18.1 million in fiscal 2019, 2018, and 2017, respectively. The Company offsets research and development expense with any unconditional third-party funding earned and retains the rights to any technology developed under such arrangements. Stock-Based Compensation Stock-based compensation expense recognized in the Consolidated Statements of Income is based on the grant date fair value of the stock-based awards, net of estimated forfeitures. The Company attributes the fair value of stock options and restricted stock units ("RSUs") to expense using the straight-line method. The fair value for RSUs with service conditions and performance-based conditions is measured at the grant date using the fair value of Trimble’s common stock. Total expense for performance-based RSUs is based upon the probable expected achievement of the underlying performance goals as adjusted in future periods for changes in expectations and actual achievement. The fair value for market-based RSUs is measured at the grant date using a Monte Carlo model. The grant date fair value for stock options and rights to purchase shares under the Company's Employee Stock Purchase Plan ("ESPP") is estimated using the Black-Scholes option pricing model. The Company estimates forfeitures at the date of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical and current information to estimate forfeitures. Income Taxes Income taxes are accounted for under the liability method, whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not such assets will not be realized. The Company’s valuation allowance is primarily attributable to foreign net operating losses and state research and development credit carryforwards. Management believes that it is more likely than not that the Company will not realize certain of these deferred tax assets, and, accordingly, a valuation allowance has been provided for such amounts. Valuation allowance adjustments associated with an acquisition after the measurement period are recorded through income tax expense. Relative to uncertain tax positions, the Company only recognizes a tax benefit if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. The Company considers many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately forecast actual tax audit outcomes. Determining whether an uncertain tax position is effectively settled requires judgment. Changes in recognition or measurement of the Company's uncertain tax positions would result in the recognition of a tax benefit or an additional charge to the tax provision. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company is subject to income taxes in the U.S. and numerous other countries and is subject to routine corporate income tax audits in many of these jurisdictions. The Company generally believes that positions taken on its tax returns are more likely than not to be sustained upon audit, but tax authorities in some circumstance have, and may in the future, successfully challenge these positions. Accordingly, the Company’s income tax provision includes amounts intended to satisfy assessments that may result from these challenges. Determining the income tax provision for these potential assessments and recording the related effects requires management judgments and estimates. The amounts ultimately paid on resolution of an audit could be materially different from the amounts previously included in the Company’s income tax provision and, therefore, could have a material impact on its income tax provision, net income, and cash flows. The Company’s accrual for uncertain tax positions includes uncertainties concerning the tax treatment of our international operations, including the allocation of income among different jurisdictions, intercompany transactions, and related interest. Computation of Earnings Per Share The number of shares used in the calculation of basic earnings per share represents the weighted average common shares outstanding during the period and excludes any potentially dilutive securities. The dilutive effects of outstanding stock options, restricted stock units, and shares to be purchased under the Company’s employee stock purchase plan are included in diluted earnings per share unless they are anti-dilutive. Recent Accounting Pronouncements Fiscal 2019 Adoption Leases In February 2016, the FASB issued a new lease standard that requires a lessee to recognize lease assets and lease liabilities on the balance sheet for most leases and provide enhanced disclosures. The Company adopted the new standard at the beginning of fiscal year 2019 by applying a modified retrospective method without restating comparative periods. Upon adoption, certain practical expedients were used to carry forward existing leases as previously defined and classified. Leases containing both lease and non-lease components are accounted for as part of the overall lease arrangement. Operating leases with lease terms greater than one year are included in ROU assets, Other current liabilities, and Operating lease liabilities on the Company's Consolidated Balance Sheets. Those ROU assets and liabilities are recognized at the present value of lease payments over the lease terms by utilizing the Company’s incremental borrowing rate. The standard had a material impact on the Company’s Consolidated Balance Sheets but did not have an impact on its Consolidated Income Statements or Statement of Cash Flows. The most significant impact was the recognition of $123.5 million ROU assets and $126.1 million lease liabilities for its operating leases at the adoption date. Fiscal 2020 Adoption Financial Instruments - Credit Losses In June 2016, the FASB issued new guidance that requires credit losses on financial assets measured at amortized cost basis to be presented based on the net amount expected to be collected, not based on incurred losses. Furthermore, credit losses on available-for-sale debt securities should be recorded through an allowance for credit losses limited to the amount by which fair value is below amortized cost. The new standard is applied on a modified-retrospective basis and is effective for the Company beginning in fiscal 2020. The Company currently anticipates that the adoption will not have a material impact on its Consolidated Financial Statements. Intangibles - Goodwill and Other In January 2017, the FASB issued new guidance that simplifies the accounting for goodwill impairment by requiring impairment charges to be based on the first step in the current two-step impairment test. The impairment test is performed by comparing the fair value of a reporting unit with its carrying amount, and an impairment charge would be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new standard is applied on a prospective basis and is effective for the Company beginning in fiscal 2020. The Company currently anticipates that the adoption will not have a material impact on its Consolidated Financial Statements. Intangibles - Internal-Use Software In August 2018, the FASB issued new guidance that clarifies the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. This guidance aligns the accounting for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the accounting for implementation costs incurred to develop or obtain internal-use software. The Company is required to adopt the guidance in the first quarter of fiscal year 2020 on a prospective basis for all implementation costs incurred after the date of adoption. The Company currently anticipates that the adoption will not have a material impact on its Consolidated Financial Statements. Future Adoption Income Taxes - Simplifying the Accounting for Income Taxes In December 2019, the FASB issued amendments to the accounting for Income Taxes to reduce complexity by removing certain exceptions and implementing targeted simplifications. The new standard is effective for the Company beginning in fiscal 2021. Early adoption is permitted. The Company is currently evaluating the effect of the amendments on its Consolidated Financial Statements.

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