Trimble
Annual Report 2007

Plain-text annual report

2007 ANN UAL RE P ORT FINANCIAL HIGHLIGHTS Revenue in $ millions 1400 1200 1000 800 600 400 200 0 250 200 150 100 50 0 200 160 120 80 40 0 03 04 05 06 07 EBITDA in $ millions 03 04 05 06 07 Cash Flow from Operations in $ millions 03 04 05 06 07 ONE BILLION DOLLARS IN REVENUE MARKETS SERVED PRODUCT EXAMPLES REPRESENTATIVE CUSTOMER Engineering and Construction 61% of total revenue Survey Integrated surveying solutions: GNSS/GPS systems Robotic, servo and mechanical total stations Digital levels and theodolites Spatial imaging: 3D laser scanners Spatial stations Enabling products: Data collectors/field computers Field and office application software Construction Machine guidance systems Laser and optical positioning and alignment tools Field and office application software Infrastructure GPS reference networks and software Field Solutions 16% of total revenue Agriculture Manual and automated steering systems for farm vehicles and implements Flow controls and boom switching for chemical application Grade control systems for irrigation and drainage Mobile Solutions 13% of total revenue Mapping and GIS Handheld GPS field data collectors Field and office application software Fleet Management GPS-enabled mobile devices and software Security GPS-enabled mobile devices Mobile Worker Productivity Tools GPS-enabled mobile devices and software Advanced Devices 10% of total revenue Embedded GPS Products Chipsets and boards Embedded silicon and firmware Timing CDMA and WiMax base station clocks Time and frequency boards and instruments Integrated Products TrimTrac® Locator Applanix Integrated inertial/GPS positioning and orientation systems Defense GPS receivers for aircraft Military time and frequency boards Trimble Outdoors™ Service Mapping software on GPS-enabled mobile phones Web-based mapping application Surveyors Civil engineers Construction contractors Transportation agencies Utility companies Plant engineers Earthmoving contractors General construction contractors Utility contractors Wall and ceiling contractors Transportation agencies Government and scientific agencies General construction contractors Surveyors Farmers Agricultural contractors Utility companies Natural resource agencies Government agencies Local fleet operators Municipal fleet operators Commercial vehicles Construction supply Direct store delivery Public safety Electronics OEMs Portable appliance manufacturers Wireless infrastructure providers Wireless location solution providers Automatic vehicle location Asset tracking/logistics management Land, marine and aerial surveying and mapping contractors U.S. Department of Defense Allied defense ministries Defense contractors Outdoor enthusiasts L O N D O N TO OUR SHAREHOLDERS: WE ENTER OUR 30TH YEAR AS A COMPANY FACING AN ECONOMIC PICTURE THAT IS MORE UNCERTAIN THAN WE HAVE SEEN IN THE LAST FIVE YEARS. WE ALSO ENTER 2008 AS A STRONG PERFORMING COMPANY WHICH CONTINUES TO ESTABLISH NEW MILESTONES OF SUCCESS AND IS WELL POSITIONED IN MARKETS WITH SIGNIFICANT OPPORTUNITIES. WE BELIEVE WE REMAIN ON TRACK TO DELIVER SIGNIFICANT SHAREHOLDER VALUE OVER THE NEXT FIVE YEARS. OUR TWO PRIMARY GOALS THAT WE BELIEVE ARE THE FOUNDATIONS OF CREATING LONG-TERM SHAREHOLDER VALUE REMAIN UNCHANGED—TO ACHIEVE COMPELLING LEADERSHIP IN OUR TARGETED MARKETS WHILE DELIVERING FINANCIAL PERFORMANCE WELL WITHIN THE TOP QUARTILE OF THE UNIVERSE OF COMPARABLE COMPANIES. TRIMBLE ADDS VALUE THROUGH AN IMPROVED WORKFLOW OUR FUNDAMENTAL CORPORATE MISSION IS TO TRANSFORM THE WAY WORK IS DONE THROUGH THE INNOVATIVE APPLICATION OF TECHNOLOGY. THIS TRANSFORMATION IN THE WORKPLACE ENABLES BREAKTHROUGHS IN OUR USERS’ ECONOMICS THROUGH IMPROVED PRODUCTIVITY, ENHANCED QUALITY, LOWER INPUT COSTS, AND REDUCED REWORK. THE KEY ELEMENTS OF OUR MULTI-YEAR STRATEGY CONTINUE TO REMAIN RELEVANT AS WE ENTER 2008 AND REMAIN CENTERED AROUND DELIVERING ON THE LARGE THEMES OF CONNECTING THE CONSTRUCTION SITE, PRECISION AGRICULTURE, AND MOBILE RESOURCE MANAGEMENT (MRM). WE ARE ALSO EXPLORING NEW ADJACENT MARKET SECTORS WHERE WE CAN BRING SIGNIFICANT VALUE TO EXISTING AND NEW USERS IN THE FUTURE. O M A H A the farmer that place greater emphasis on increased productivity, and international growth. We continue to extend our product range beyond GPS guidance solutions to include other categories of agricultural productivity such as automated spray rate control, asset management, and record keeping solutions. The Mobile Solutions segment continued to be the most dynamic segment within Trimble with revenue growth of 159 percent and non-GAAP operating margins which improved from 5.4 percent of revenue to 11.1 percent. The greatest factor in the revenue growth was the acquisition of @Road which was completed in February 2007. The transition process has gone well as the two companies developed a common strategy and aligned practices, and as @Road’s financial performance rapidly converges on the Trimble average operating margin. Our basic premise is that we are on the threshold of providing the same level of management control to mobile workers and assets that has been available for managing “inside” workers for decades. We are focused on significantly improving the productivity of commercial vehicles carrying valuable loads and mobile workers performing complex tasks. The Advanced Devices segment grew 17 percent for the year with non-GAAP operating margins of 15.4 percent of revenues. The market for embedded products was generally stronger, Applanix revenue was strong, and our Military and Advanced Systems business, although small, had a good year. With revenue of over $1.2 billion, Trimble entered the billion-dollar class for the first time in 2007 with both the opportunities and challenges that come with size. Our increased size indisputably enables significant increased access to resources and the ability to contemplate commitments that have never before been available to us. However, with size also comes the potential for organizational inertia with the symptoms of complacency, excessive organizational processes, wandering focus, and unclear accountability. Our pre-eminent task in the coming years is to resist the tendency to “act big” and to remain focused on those characteristics that continue to create value for our customers and shareholders— and to provide expanded opportunities for our employees. Total revenue for 2007 grew by 30 percent with non-GAAP operating income growth of 45 percent. Our baseline operating leverage, which is key to continued margin expansion, was 26.3 percent for the entire year, in spite of the effect of the @Road acquisition which pulled down both operating margin as a percentage of sales and operating leverage. Non-GAAP EPS were up 17 percent. They did not grow as rapidly as operating income because of the dilutive effect of using shares for part of the purchase price for @Road and a higher tax rate. Engineering and Construction segment revenue growth was 17 percent for the year with non-GAAP operating margins of 23.9 percent of revenues. Although slower conditions were evident throughout the year in the U.S., international growth was substantial and enabled strong growth for the segment. We continue to develop our Connected Site™ strategy for construction with product extensions, user education and a series of fill-in acquisitions. Field Solutions segment revenue grew by 44 percent in the year with non-GAAP operating margins of 30.8 percent of revenue. The primary driver of the significant revenue growth was agriculture which produced strong revenues based on a generally robust farm economy, greater market acceptance of our technology, higher costs to WE MAKE GROWTH POSSIBLE BY CONNECTING WORKSITES AND MOBILE WORKERS ACROSS THE GLOBE pipelines, and railways in emerging economies presents a significant opportunity for us to sell surveying and construction solutions in those regions. Higher fuel and fertilizer costs, combined with increasing environmental regulation, make our agricultural solutions even more imperative to the farmer. Higher fuel prices, higher labor costs, increasing traffic congestion, and higher expectations for supply chain performance make our mobile resource management solutions more attractive to companies that manage mobile workers and assets. Since much of this opportunity will occur outside of our traditional geographic comfort zone of North America and Western Europe, our ability to effectively expand internationally will be a key determinant of our future success. In the last several years, we have taken a number of concrete steps to establish the necessary international footprint. Examples of actions taken in 2007 in pursuit of this objective include a corporate reorganization to create a stronger internal international voice, the opening of a Chinese factory, the establishment of a Chinese software development center, the introduction of our MRM product line internationally, the addition of 200 Indian employees (through the @Road acquisition) to create a develop- ment and support platform, and a number of small strategic international acquisitions to provide software localization capabilities. GROWTH ENABLERS Since 1999 we have grown revenue at an average rate of 21 percent per year. This has, in turn, driven a significantly higher rate of growth of non-GAAP operating income of 39 percent per year. Although there are many elements that have contributed to this success, a number remain central to the Trimble story and the potential for continued growth. First, our markets remain substantially unpenetrated. We define penetration as the percentage of users actually using our technology against the total number of users that could potentially benefit from the use of the technology. Most Trimble businesses have penetration levels of 5 to 35 percent. The practical inference is that it will be a number of years before phrases such as “product replacement cycle” or “market saturation” enter the Trimble vocabulary (if ever). Another practical outcome is that we view our growth rate to be more a function of how quickly and how well we achieve market penetration rather than a concept of GDP-driven market growth. A second factor enabling our growth is the effect of larger trends which generally favor Trimble. For example, the construction of roads, runways, B E I J I N G A third factor enabling continued Trimble growth comes from the steady evolution of technology. That evolution continually provides new capabilities that can be used to establish new user applications. For example, new wireless standards, faster processors, new materials technologies, high-speed networks, and larger memory storage have all contributed to the creation of products and solutions in the last five years and will continue to do so. We are continuously evaluating new technologies that have the potential to create either new classes of products and solutions that do not currently exist or to significantly extend the capabilities of current product categories. A fourth factor in Trimble’s growth strategy has been the targeted and selective use of acquisitions as a mechanism to increase shareholder value. Over the last eight years we have acquired over 30, mostly small, businesses. Our criteria for these acquisitions have been to create or expand market beachheads or to fill in technology or product gaps. While acquisitions are not central to our core strategy, they have been, and are likely to continue to be, a significant augmentation of our strategy as we push the boundaries. The beneficial outcome is that virtually all of these acquisitions have flourished under Trimble ownership as they obtain access to increased distribution, sources of new technology, and capital adequate to meet their needs. While our identity remains emphatically that of an operating company, acquisitions will play an important role in implementing our strategy. Perhaps the most significant element that enables Trimble’s growth is the aggressive application of the concept of “adjacency” which continually flexes the boundaries of what we define as our markets. Adjacencies in the Trimble context take two forms. The first relates to our existing customers, who already recognize the value of Trimble’s solutions and whose requirements are already well known to Trimble. In essence, the question we ask ourselves is, “what can we invent for our existing customers that will solve real problems for them?” This leverages our brand, our channel, and our domain knowledge. The second category of adjacency occurs when we recognize that we can modify existing product platforms to project our capabilities into new market segments. Here, our role is to be a disrupter relative to existing work methods. WE ARE RELENTLESS IN OUR PURSUIT OF BEING THE SOLUTION PROVIDER TRIMBLE DIFFERENTIATORS Identifying opportunities in the market place is only the precondition to success. Success will be determined by creating differentiation that matters to the customer and enables us to win competitively. There are no easy formulas for achieving this level of competitive differentiation— instead it is a matter of blending multiple characteristics that create unique value. The ultimate foundation for creating this unique differen- tiation is the Trimble organization. The quality, capability, and behavior of our organization create the ability to undertake missions that may not be available to our competitors. Our choice to pioneer new markets and to define ourselves as being in the “solutions” business and not just a “product” company imposes significant complexities, ambiguities, and challenges on Trimble employees. In a sense, the harder the task the better– the superior organization will have the compelling advantage. The demands we place on the organization by accepting this pioneering mission are significant– requiring a balance of entrepreneurship, deep market insight, drive, and adaptability. I am often in the enviable position of being amazed by the people within Trimble. The pursuit of the ideal of being a provider of solutions is a driving cultural force within Trimble–which means resisting the temptation of taking the easy path of focusing exclusively on product. This self-definition creates a significant differentiator in the market place as we work to build long-term relationships and focus on the total continuum of customer requirements–not just the more readily defined needs of the physical product. The practical requirement associated with this self-definition is that we need to emphasize the less tangible elements of the business–support, applications software, service, documentation, and training–as part of the total needs of the user. At the center of Trimble’s past, and future, success is an intimate knowledge of the user require- ments that can be translated into practical and successful outcomes for the user. Innovation remains at the core of Trimble’s identity, as it has from the beginning. Our R&D expenditures of $131.5 million in 2007 were at 10.8 percent of revenue which is consistent with our historical and targeted business model. We maintain our spending at this relative level to continue to push the frontiers of what is possible and to use product innovation as a competitive driver. Examples of this innovation in 2007 included the AgGPS® EZ-Guide® 500 Lightbar Guidance System, Trimble® LM80 Layout Manager, Trimble VX™ Spatial Station, GCS900 Grade Control System, Trimble S8 Total Station, and the new MRM V4 platform. We are not content with simply innovating technically, but believe innovation needs to be a factor in all areas of the company. S U N N Y V A L E Strong products and technologies are necessary to our success but require a highly proficient distribution channel to achieve ultimate success. Our channel needs to be capable of concept selling. In many cases it is not selling a product in competition to other products with the same general capabilities but is selling an alternative way of performing work. The channel needs to be able to work off a relatively blank sheet of paper and convince the user of the merits of substituting technology for traditional methods. Beyond that, the channel must deliver on the promises which involves intimate product knowledge, education, service, and extensive domain knowledge that enable the product capabilities to be mapped onto the specific needs of the application. CHALLENGES & OUTLOOK Although there are many environmental and competitive challenges we expect to face as a company, I regard our pre-eminent challenge as being that of achieving a robust balance between the advantages of billion-dollar scale and a culture of achievement that has a sharp entrepreneurial edge. We believe we have a firm grasp of what we need to do to secure our future which is a combination of strategic intent and relentless execution. In the end, all considerations are secondary to that of an organization that is continually elevating itself. Our more than 3,600 global employees have both the capabilities and commitment to continue to create a unique company. They are key and truly appreciated. STEVEN W. BERGLUND President and Chief Executive Officer PERFORMANCE GRAPH THE FOLLOWING GRAPH SHOWS A FIVE-YEAR COMPARISON OF THE CUMULATIVE TOTAL RETURN FOR THE COMPANY’S COMMON STOCK, THE NASDAQ COMPOSITE INDEX (U.S.), AND THE STANDARD & POOR’S INFORMATION TECHNOLOGY SECTOR INDEX. THE GRAPH ASSUMES THAT THE VALUE OF THE INVESTMENT IN THE COMPANY’S COMMON STOCK AND IN EACH OF THE INDEXES (INCLUDING REINVESTMENT OF DIVIDENDS) WAS $100 ON 12/31/2002 AND TRACKS IT THROUGH 12/31/2007. COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN* Among Trimble Navigation Limited, The NASDAQ Composite Index and The S&P Information Technology Sector Index $800 KEY 700 600 500 400 300 200 100 12/02 Trimble Navigation Limited NASDAQ Composite S&P Information Technology 12/03 12/04 12/05 12/06 12/07 FISCAL YEAR ENDING DECEMBER 31. * The data in the above graph is presented on a calendar year basis through December 31, 2007 which is the most currently available data from the indicated sources. The Company adopted a 52–53 week fiscal year effective upon the end of fiscal year 1997 and the actual date of the Company’s 2007 fiscal year end was December 28, 2007. Any variations due to any differences between the actual date of a particular fiscal year end and the calendar year end for such year are not expected to be material. The information shown assumes an investment of $100 on December 31, 2002 in the Company’s Common Stock, the Nasdaq Composite Index (U.S.), and the Standard & Poor’s Information Technology Sector Index including reinvestment of dividends. Total returns assume the reinvestment of dividends for the indexes. The Company has never paid dividends on its Common Stock and has no present plans to do so. Copyright © 2008, Standard & Poor’s, a division of The McGraw-Hill Companies, Inc. All rights reserved. The stock price performance included in this graph is not necessarily indicative of future stock price performance. FORM 10-K FORM 10-K TRIMBLE NAVIGATION LIMITED TRIMBLE NAVIGATION LIMITED EXECUTIVE MANAGEMENT BOARD OF DIRECTORS SHAREHOLDER INFORMATION Steven W. Berglund* President and Chief Executive Officer Rajat Bahri* Chief Financial Officer Richard A. Beyer* Vice President Bryn Fosburgh* Vice President Mark A. Harrington* Vice President Dennis L. Workman* Vice President Ann Ciganer Vice President Strategic Policy Joseph F. Denniston, Jr. Vice President Operations Irwin L. Kwatek Vice President and General Counsel Bruce E. Peetz Vice President Advanced Technology and Systems John E. Huey Treasurer Julie Shepard Vice President of Finance *Member of the Executive Committee Ulf J. Johansson, Ph.D Chairman Business Consultant and Director, Telefon AB LM Ericsson Nickolas W. Vande Steeg Vice Chairman Venture Capital Investor and Business Consultant Director, Wabtec Corporation Steven W. Berglund President and Chief Executive Officer John B. Goodrich Secretary Chief Executive Officer MaxSP Corporation William Hart Venture Capital Investor and Business Consultant Merit E. Janow Professor, International Economic Law and International Affairs Columbia University Bradford W. Parkinson, Ph.D Professor (Emeritus) Department of Aeronautics and Astronautics Stanford University Corporate Headquarters Trimble Navigation Limited 935 Stewart Drive Sunnyvale, California 94085 Phone: (408) 481-8000 www.trimble.com Independent Auditors Ernst & Young LLP Palo Alto, California Transfer Agent & Registrar American Stock Transfer & Trust Company 59 Maiden Lane Plaza Level New York, New York 10038 (800) 937-5449 Investor Relations Contact (408) 481-7838 investor_relations@trimble.com Additional Information The Company’s annual report on Form 10-K, as filed with the Securities Exchange Commission accompanies this annual report to shareholders and is also available on the Investor Relations section of the Company’s website at: www.trimble.com Trimble Investor Information Traded: The NASDAQ Stock Exchange Symbol: TRMB ©2008, Trimble Navigation Limited. All rights reserved. Trimble, the Globe and Triangle logo, AgGPS, EZ-Guide and TrimTrac are registered trademarks of Trimble Navigation Limited. Connected Site, Trimble Outdoors and VX are trademarks of Trimble Navigation Limited. P/N: 022540-031 CORPORATE HEADQUARTERS Trimble Navigation Limited 935 Stewart Drive Sunnyvale, California 94085 (408) 481-8000 www.trimble.com Trimble Long Beach 5001 Airport Plaza Drive, Suite 210 Long Beach, California 90815 Trimble Salem 35 Congress Street Salem, Massachusetts 01970 UNITED STATES OPERATIONS INTERNATIONAL OPERATIONS Trimble GeoNav An der Feldmark 16 D-31515 Wunstorf Germany Meridian Project Systems, Inc. 221 West Esplanade 3rd Floor, Suite 300 B.C. Rail Centre, North Vancouver British Columbia V6E 3V7 Canada Quantm, Ltd. Level 4, 333 Flinders Lane Melbourne VIC 3000 Australia Visual Statement, Inc. 1055 Dunsmuir Street, Suite 2300 P.O. Box 49122 Four Bental Centre, Vancouver British Columbia V7X 7J1 Canada Geo-3D, Inc. 9655 Ignace St., Suite L Brossard, QC J4Y 2P3 Canada INTERNATIONAL SALES CENTERS Europe European Regional Fulfillment Center Meerheide 45 5521DZ Eersel Netherlands Trimble TerraSat Haringstrasse 19 D-85635 Höhenkirchen- Siegertsbrunn Germany Trimble Jena Carl-Zeiss Promenade 10 D-07740 Jena Germany Trimble Kaiserslautern Am Sportplatz 5 D-67661 Kaiserslautern Germany HHK Datentechnik GmbH Hamburger Str. 277 38114 Braunschweig Germany Trimble Benelux Meerheide 45 5521DZ Eersel Netherlands Ingenieurbüro Breining GmbH Krumme Straße 6 D 73230 Kirchheim u.T.-Jesingen Germany Trimble France 32, rue de la Fontaine du Vaisseau 94120 Fontenay-sous-Bois France Trimble New Zealand 11 Birmingham Drive P.O. Box 8729 Riccarton, Christchurch New Zealand Trimble Sweden Box 64, Rinkebyvägen 17 182 11, Danderyd Sweden Trimble Germany Am Prime Parc 11 65479 Raunheim Germany Trimble Italy Cento Torri Bianche Palazzo Larice, 3 20059 Vimercate (MI) Italy @Road Divison 242-244 Beecroft Road, Suite 102 Eppings, NSW Australia Trimble Russia 23, 1st Tverskaya-Yamskaya Moscow, 125047 Russia @Road Division 901 (A1) & 902 (A2), Tidel Park No. 4 Canal Bank Road Taramani, Chennai 600 113 India @Road Division North Felaw Maltings Ipswich IP2 8HE United Kingdom Applanix Corporation 85 Leek Crescent Richmond Hill, Ontario L4B 3B3 Canada Inpho GmbH Smaragdweg 1 70174 Stuttgart Germany Trimble Spain Via de las Dos Castillas No. 33 Atica, Edificio 6 Despacho B-2 28224 Pozuelo de Alarcon Madrid Spain Trimble Nordic Box 64, Rinkebyvägen 17 182 11, Danderyd Sweden Trimble UK Trimble House Meridian Office Park Osborn Way, Hook Hampshire RG27 9HX United Kingdom INTERNATIONAL SALES CENTERS Middle East Trimble Dubai LOB 14 Office 322 P.O. Box 17760 Jebel Ali Free Zone, Dubai United Arab Emirates INTERNATIONAL SALES CENTERS Asia and Pacific Rim Trimble Australia Level 1/120 Wickham Street Fortitude Valley QLD 4006 Australia Trimble China Beijing Representative Office Room 2602-07, Tengda Plaza No. 168 Xiwai Street Haidian District Beijing 100044 China 311 Fute (M) Road, 1-3/F Wai Gaoqiao Free Trade Zone Pudong, Shanghai 200131 China Trimble India SF – 04, JMD Regent Plaza M.G. Road Gurgaon 122001 New Delhi India Trimble Korea 10F, Dongsung Bldg., 158-24 Samsung-Dong Gangnam-Gu, Seoul 135-090 Korea Trimble Singapore 80 Marine Parade Road 22-06, Parkway Parade Singapore 449269 Trimble Thailand 19th Floor Olympia Thai Tower 444 Ratchadapisek Road Samsennok, Huay Kwang Bangkok 10310 Thailand INTERNATIONAL SALES CENTERS The Americas Trimble Canada 208 Evans Avenue, #104 & 204 Toronto, Ontario M8Z 1J7 Canada JOINT VENTURES Caterpillar Trimble Control Technologies LLC 5475 Kellenburger Road Dayton, Ohio 45424 Nikon-Trimble Co., Ltd. Technoport Mitsuiseimei Building 16-2, Minamikamata 2-chome Ota-ku Tokyo 144-0035 Japan www.trimble.com Americas Regional Fulfillment Center 5475 Kellenburger Road Dayton, Ohio 45424 Trimble Tempe 7850 South Hardy Drive, Suite 122 Tempe, Arizona 85284 Trimble Rockies 10355 Westmoor Drive Westmoor Technology Park Building 4 Westminster, Colorado 80021 Trimble Dayton 5475 Kellenburger Road Dayton, Ohio 45424 Trimble Chantilly 3650 Concorde Parkway, Suite 150 Chantilly, Virginia 20151 @Road Division 47071 Bayside Parkway Fremont, California 94538 Advanced Public Safety, Inc. 500 Fairway Drive, Suite 204 Deerfield Beach, Florida 33441 Apache Technologies, Inc. 8261 State Route 235 Huber Heights Dayton, Ohio 45424 Eleven Technology, Inc. 119 Mount Auburn Street, 4th Floor One Mifflin Place Cambridge, Massachusetts 02138 Meridian Project Systems, Inc. 1720 Prairie City Road Folsom, California 95630 MobileTech Solutions, Inc. 6700 Pinecrest Plano, Texas 75224 Pacific Crest Corporation 990 Richard Avenue, Suite 110 Santa Clara, California 95050 Tripod Data Systems, Inc. 345 SW Avery Avenue Corvallis, Oregon 97333 XYZ Solutions, Inc. 2500 Northwinds Parkway Suite 625 Northwinds Business Center Alpharetta, Georgia 30004 Crain Enterprises, Inc. 100 Ohio Avenue Mound City, Illinois 62963 Trimble Huntsville 4955 Corporate Drive Huntsville, Alabama 35806 

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