TRIMBLE NAVIGATION LTD /CA/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 2, 2004

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________to______________

Commission File Number: 0-18645

TRIMBLE NAVIGATION LIMITED
(Exact name of Registrant as specified in its charter)

California 94-2802192
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

749 North Mary Avenue, Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (408) 481-8000

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

Common Stock
Preferred Share Purchase Rights
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [ ]

The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based upon the last sale price of the Common Stock reported on the
Nasdaq National Market on July 3, 2003 was approximately $795 million.

There were 50,537,119 shares of the registrant's Common Stock issued and
outstanding as of March 11, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of Trimble Navigation Limited's Proxy Statement relating to the
annual meeting of stockholders to be held on May 19, 2004 (the "Proxy
Statement") are incorporated by reference into Part III of this Annual Report on
Form 10-K.

SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are subject to the "safe harbor" created
by those sections. The forward-looking statements regarding future events and
the future results of Trimble Navigation Limited ("Trimble" or " The Company" or
"We" or "Our" or "Us") are based on current expectations, estimates, forecasts,
and projections about the industries in which Trimble operates and the beliefs
and assumptions of the management of Trimble. Discussions containing such
forward-looking statements may be found in "Management's Discussion and Analysis
of Financial Condition and Results of Operations." In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "should," "could," "predicts," "potential," "continue," "expects,"
"anticipates," "future," "intends," "plans," "believes," "estimates," and
similar expressions. These forward-looking statements involve certain risks and
uncertainties that could cause actual results, levels of activity, performance,
achievements and events to differ materially from those implied by such
forward-looking statements, but are not limited to those discussed in this
Report under the section entitled "Other Risk Factors" and elsewhere, and in
other reports Trimble files with the Securities and Exchange Commission ("SEC"),
specifically the most recent reports on Form 8-K and Form 10-Q, each as it may
be amended from time to time. These forward-looking statements are made as of
the date of this Annual Report on Form 10-K. We reserve the right to update
these statements for any reason, including the occurrence of material events.
The risks and uncertainties under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Risks and
Uncertainties" contained herein, among other things, should be considered in
evaluating our prospects and future financial performance. We have attempted to
identify forward-looking statements in this report by placing an asterisk (*)
before paragraphs containing such material.

TRIMBLE NAVIGATION LIMITED

2003 FORM 10-K ANNUAL REPORT

TABLE OF CONTENTS

PART I
Item 1 Business...........................................................5
Item 2 Properties........................................................17
Item 3 Legal Proceedings.................................................17
Item 4 Submission of Matters to a Vote of Security Holders...............17

PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters...............................................18
Item 6 Selected Financial Data...........................................19
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................20
Item 7A Quantitative and Qualitative Disclosures about Market Risk........42
Item 8 Financial Statements and Supplementary Data.......................45
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................76
Item 9A Controls and Procedures...........................................76

PART III
Item 10 Directors and Executive Officers of the Registrant................76
Item 11 Executive Compensation............................................76
Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters........................77
Item 13 Certain Relationships and Related Transactions....................77
Item 14 Principal Accountant Fees and Services............................77

PART IV
Item 15 Exhibits, Financial Statement Schedules and Reports on
Form 8-K.......................................................77-89

TRADEMARKS

Trimble, the globe and triangle logo, EZ-Guide, Telvisant, Lassen, SiteVision,
GeoExplorer, AgGPS, Thunderbolt, FirstGPS, and CrossCheck are trademarks of
Trimble Navigation Limited registered in the United States Patent and Trademark
Office and other countries. Force, Galaxy, Placer, TrimTrac and Trimble Toolbox
are trademarks of Trimble Navigation Limited. All other trademarks are the
property of their respective owners.

PART I

Item 1 Business Overview

Trimble Navigation Limited, a California corporation ("Trimble" or "the Company"
or "we" or "our" or "us"), provides advanced positioning product solutions to
commercial and government users in a large number of markets. These markets
include surveying, construction, agriculture, urban and resource management,
military, transportation, and telecommunications. Our products typically provide
benefits that can include cost savings, improved quality, or higher
productivity. Examples of our products include earthmoving equipment guidance
systems, surveying instruments, fleet management systems, components for in
vehicle navigation and telematics systems, farm equipment guidance systems,
field data collection handhelds, and timing modules used in the synchronization
of wireless networks.

Our products typically integrate positioning, communication, and information
technologies. Positioning technologies used include the Global Positioning
System (GPS), laser, optical, and inertial, while communication techniques
include both public networks, such as cellular, and private networks such as
business band radio. A significant amount of the differentiation in the products
is provided through software; both firmware that enables the positioning
solution and applications software that allows the customer to make use of the
positioning information.

We design and market our own products. Our manufacturing strategy includes a
combination of in house assembly and fabrication as well as subcontracting those
functions to third parties. We conduct our business globally with major
development, manufacturing or logistics operations in the United States, Sweden,
Germany, New Zealand, and the Netherlands. Products are sold through dealers,
representatives, joint ventures, and other channels throughout the world. These
channels are supported by our sales offices located in more than 20 countries.

We began operations in 1978 and incorporated in California in 1981. Our common
stock has been publicly traded on Nasdaq since 1990 under the symbol TRMB.

Technology Overview

A majority of our revenues is derived from applying GPS to terrestrial
applications. GPS is a system of 24 orbiting satellites and associated ground
control that is funded and maintained by the U. S. Government and is available
worldwide free of charge. GPS positioning is based on a technique that precisely
measures distances from four or more satellites. The satellites continuously
transmit precisely timed radio signals using extremely accurate atomic clocks. A
GPS receiver measures distances from the satellites in view by determining the
travel time of a signal from the satellite to the receiver, and then uses those
distances to compute its position. Under normal circumstances, a stand-alone GPS
receiver is able to calculate its position at any point on earth, in the earth's
atmosphere, or in lower earth orbit, to approximately 10 meters, 24 hours a day.
Much better accuracies are possible through a technique called "differential
GPS." In addition, GPS provides extremely accurate time measurement.

GPS accuracy is dependent upon the locations of the receiver and the number of
GPS satellites that are above the horizon at any given time. Reception of GPS
signals requires line-of-sight visibility between the satellites and the
receiver, which can be blocked by buildings, hills, and dense foliage. The
receiver must have a line of sight to at least four satellites to determine its
latitude, longitude, attitude (angular orientation), and time. The accuracy of
GPS may also be limited by distortion of GPS signals from ionospheric and other
atmospheric conditions.

Our GPS products are based on proprietary receiver technology. The convergence
of positioning, wireless, and information technologies enables significant new
value to be added to positioning systems, thereby creating a more robust
solution for the user. In addition, recent developments in wireless technology
and deployments of next generation wireless networks have enabled less expensive
wireless communications. These developments allow for the efficient transfer of
position data to locations away from the positioning field device, allowing the
data to be accessed by more users and thereby increasing productivity.

Our laser and optical products measure distances and angles accurately using
light. We generally use commercially available laser diodes to create light
beams for distance measurement. In addition, our proprietary precision mechanics

and software algorithms in these products combine to give robust, accurate
distance and angle measurements for a variety of agricultural, surveying, and
construction applications.

Business Strategy

Our business strategy leverages our expertise in positioning to provide
solutions for our customers, built around several key elements:

o Attractive markets - We focus on markets that offer potential for revenue
growth, profitability, and market leadership.

o Innovative solutions that provide significant benefits to our customers - We
seek to apply our technology to applications for which position data has a high
value. We anticipate that further advances in positioning, wireless, and
information technologies will enable new classes of solutions to emerge that
will create new opportunities.

o Distribution channels to best access our markets - We utilize a range of
distribution channels to best serve the needs of individual markets. These
channels can include independent dealers, direct sales, OEM sales, and
distribution alliances with key partners. In addition, we will continue to
extend our international distribution.

Business Segments and Markets

We are organized into four main operating segments encompassing our various
applications and product lines: Engineering and Construction, Field Solutions,
Component Technologies, and Mobile Solutions. We also operate in smaller
business areas, primarily focused on military and inertial integration
technologies, which aggregate into the Portfolio Technologies segment. Our
segments are distinguished by the markets they serve. Each segment consists of
businesses which are responsible for product development, marketing, sales,
strategy, and financial performance, and is headed by a general manager.

Segment Realignment

In the first fiscal quarter of 2003, we realigned two of our reportable
segments. The Tripod Data Systems (TDS) business is now included in the
Engineering and Construction segment. Previously it was included in the
Portfolio Technologies segment. All comparable information for earlier periods
has been restated to conform to the new basis.

Engineering and Construction

Products in the Engineering and Construction segment improve productivity and
accuracy throughout the entire construction process including the initial
survey, planning, design, earthmoving, and building phases. The product emphasis
is aimed at making each individual task more efficient, as well as speeding up
the entire process by improving information flow from one step to the next.

We typically combine a number of technologies into product solutions. The
elements of these solutions may incorporate GPS, optical, laser, radio or
cellular communications, and software.

An example of the customer benefits provided by our product is our GPS and
robotic optical surveying instruments which enable the surveyor to perform
operations in the field faster, more reliably and with a smaller crew.
Similarly, our construction machine guidance products allow the operator to
achieve the desired landform by eliminating stakeout and reducing rework. In
turn, these steps in the construction process can be readily linked together
with data collection modules and software to minimize the time and effort
required to maintain data accuracy throughout the entire construction process.

We sell and distribute our products from this segment through a global network
of independent dealers that are supported by our sales force. This channel is
supplemented by relationships that create additional channel breadth including
our joint ventures with Caterpillar, Nikon, and private branding arrangements
with other companies.

We also design and market handheld data collectors and data collection software
for field use by surveyors, contractors, and other professionals. These products
are sold directly, through dealers, and other survey manufacturers. Competitors
in this portion of the business are small and geographically diverse.

Competitors in this segment are typically companies that provide optical, laser,
or GPS positioning products. Our principal competitors are Topcon Corporation
and Leica Geosystems. Price points in this segment range from less than $1,000
for certain laser systems to approximately $125,000 for a high precision,
three-dimensional, machine control system.

Representative products sold in this segment include:

5800 RTK Rover - This is an integrated unit that allows the surveyor to make
centimeter-level measurements or do construction stakeout with only one person.
Wireless technology eliminates cables that could otherwise snag on foliage and
structures. The rover weighs 3.5kg for an entire system on a pole including
batteries.

5600 Total Station - This optical total station series provides a choice of
increasing levels of automation that allow the surveyor to choose a system that
will best suit his work. Depending on the job, these configurations enable
one-person stakeout and survey. The included Attachable Control Unit (ACU) also
works with the 5800 RTK Rover providing complete measurement compatibility
regardless of the technology used.

SiteVision(R) GPS System - SiteVision GPS is a machine-mounted, positioning
system that guides the operator by comparing the actual position of the blade
with the digitized design that resides in a computer on the machine. The use of
this system enables faster machine speed, eliminates the need for placing
stakes, and lowers the number of passes needed to get the desired grade.
Applications include road construction and site preparation.

Spectra Precision(R) Laser GL 700 Series - This laser product provides grade
control capability for heavy equipment on a construction site. The level surface
of the laser light can be precisely controlled, and machines with a laser
receiver can be controlled to establish a precise and uniform grade over the
desired area. Applications include trenching, pipe laying, machine control
grading, and road construction applications.

TDS Ranger(TM) Series - The TDS Ranger device is a handheld data collector
supporting Microsoft's Windows CE operating system. Running TDS survey software,
this unit can control and collect data from all major brands of optical and GPS
surveying instruments. The operator can also run his or her own application
programs for the Microsoft Windows CE operating system on the platform.

Field Solutions

Our Field Solutions segment addresses the agriculture and geographic information
system (GIS) markets.

Our agriculture products consist of manual and automated navigation guidance for
tractors and other farm equipment used in spraying, planting, cultivation, and
harvesting applications. The benefits to the farmer include faster machine
operation, higher yields, and lower consumption of chemicals. We also provide
positioning solutions for leveling agricultural fields in irrigation
applications and aligning drainage systems to better manage water flow in
fields.

Our distribution to the agricultural market is through multiple channels.
Revenue is generated through independent dealers and through partners such as
CNH Global. Competitors in this market are either vertically integrated
implement companies such as John Deere, or agricultural instrumentation
suppliers such as Raven, RHS, CSI Wireless, Beeline and Integrinautics.

Our GIS product line is centered on handheld data collectors that gather
information in the field to be incorporated into GIS databases. Typically this
information includes features, attributes, and positions of fixed infrastructure
and natural resource assets. An example would be that of a utility company
performing a survey of its transmission poles including the age and condition of
each telephone pole. Our handheld unit enables this data to be collected and
automatically stored while confirming the location of the asset. The data can

then be downloaded into a GIS database. This stored data could later be used to
navigate back to any individual asset or item for maintenance or data update.
Our mobile GIS initiative goes one step further by allowing this information to
be communicated from the field worker to the back-office GIS database through
the combination of wireless technologies (Bluetooth and cellular), as well as
giving the field worker the ability to download information from the database
using these same wireless technologies. This capability provides significant
advantages to users including improved productivity, accuracy and access to the
information in the field.

Distribution for GIS products is primarily through a network of independent
dealers and business partners, supported by our sales force. Primary markets for
our GIS products and solutions include government, defense and homeland
security, utility and communications and natural resources management.
Competitors in this market are typically either survey instrument companies
having GPS technology and/or consumer GPS companies. Two examples are Leica
Geosystems and Thales Navigation.

Approximate price points in this segment range from $3,000 for a GIS handheld
unit to $35,000 for a fully automated, farm equipment control system.

Representative products sold within this segment include:

GeoExplorer(R) CE Series - Combines a GPS receiver in a rugged handheld unit
running Microsoft's Windows CE operating system that makes it easy to collect
and maintain data about objects in the field.

AgGPS(R) Autopilot System - A GPS-enabled, agricultural navigation system that
connects to a tractor's steering system and automatically steers the tractor
along a precise path to within three centimeters or less. This enables both
higher machine productivity and more precise application of seed and chemicals,
thereby reducing costs to the farmer.

AgGPS(R) EZ-Guide(R) System - A GPS-enabled, manual guidance system that
provides the tractor operator with steering visual corrections required to stay
on course to within 25 centimeters. This system reduces the overlap or gap in
spraying, fertilizing, and other field applications.

Component Technologies

Our Component Technologies segment provides GPS-based components for
applications that require embedded position or time. Our largest markets are in
the telecommunications and automotive industries where we supply modules,
boards, custom integrated circuits and software, or single application IP
licenses to the customer according to the needs of the application. Sales are
made directly to original equipment manufacturers (OEMs) and system integrators
who incorporate our component into a sub-system or a complete system-level
product.

In the telecommunications infrastructure market, we provide timing modules that
keep wireless networks synchronized and on frequency. For example, CDMA cellular
telephone networks require a high level of both short-term and long-term
frequency stability for proper operation (synchronization of information/voice
flow to avoid dropped calls). Our timing modules meet these needs at a much
lower cost than the atomic standards or other specially prepared components that
would otherwise be required. Customers include wireless infrastructure companies
such as Nortel, Samsung, Nokia, UTStarcom, and Andrew.

In the automotive and embedded market, we provide a GPS component that is
embedded into in-vehicle navigation (IVN) systems. Our focus on high
reliability, continuous improvement, and low cost has earned us supplier awards
and continuing business in this market. Customers include IVN system
manufacturers and integrators such as Siemens VDO Automotive AG, Hyundai
Automotive Company, Robert Bosch GmbH, and Ixfin Magneti Marelli Sistemi
Electronici S.P.A .

* The declining size and power requirements for GPS components, coupled with
improving capabilities allow GPS to potentially be used in a new class of
applications such as position-aware cellular telephones or other wireless
handheld devices. We expect our strength in GPS technology will expand our
participation in this market.

* Component Technologies continues to explore other positioning solutions in
addition to GPS. An example of such a solution is the television triangulation
technology developed by Rosum. With Rosum, we intend to develop a family of
devices which will greatly extend the ability to locate both people and assets
in environments that would be difficult or impossible for GPS only solutions.

The major competitor in the telecommunication infrastructure market is
Symmetricom. Competitors in the automotive and embedded markets are typically
component companies with GPS capability, including Japan Radio Corporation,
Motorola, and SiRF.

Representative products sold by this segment include:

Thunderbolt(R) GPS Disciplined Clock - The Thunderbolt clock is used as a time
source for the synchronization of wireless networks. By combining a GPS receiver
with a high-quality quartz oscillator, the Thunderbolt achieves the performance
of an atomic standard with higher reliability and lower price.

FirstGPS(R) Technology - We license our FirstGPS technology, which is a
host-based, GPS system available as two integrated circuits and associated
software. The software runs on a customer's existing microprocessor system
complementing the work done by the integrated circuit to generate position,
velocity, and time. This low-power technology is particularly suitable for
small, mobile, battery-operated applications.

Lassen(R) SQ Module - The Lassen SQ module adds complete GPS functionality to a
mobile product in a postage stamp-sized footprint with ultra-low power
consumption, consuming less than 100mW at 3.3V. This module is designed for
portable handheld, battery-powered applications such as cell phones, pagers,
PDAs, digital cameras, and many others.

TrimTrac(TM) Locator - Our new TrimTrac product is a complete end user device
that combines GPS functionality with tri-band global system for mobile
communications (GSM) wireless communications. It is intended for high volume
personal vehicle and commercial asset management applications that demand a
low-cost locator device.

Mobile Solutions

Our Mobile Solutions segment addresses the market for fleet management services
by providing a Trimble-hosted platform solution that bundles both the hardware
and software needed to run the application. The software solution is typically
provided to the user through Internet-enabled access to our hosted platform for
a monthly service fee. This bundled solution enables the fleet owner to
dispatch, track, and monitor the conditions of vehicles in the fleet on a
real-time basis. A vehicle-mounted unit consists of a single module including a
GPS receiver, sensor interface, and a cellular modem. Our solution includes the
communication service from the vehicle to our data center and access over the
Internet to the application software, relieving the user of the need to maintain
extensive computer operations.

We market our fleet management services in three primary areas, leveraging the
core platform. Our vertical market strategy targets opportunities in specific
vertical markets where we believe we can provide a unique value to the end user
by customizing the hardware and software solution for a particular industry. For
example, the first vertical we are addressing is ready mix concrete. Here, we
combine a suite of sensors into a solution that can automatically determine the
status of a vehicle without driver intervention. Our agreement with McNeilus, a
major manufacturer of trucks for the ready mix concrete and waste management
industries, facilitates the delivery of a complete management solution to ready
mix concrete fleet operators and refuse haulers. McNeilus' sales force markets
our solution as a retrofit for trucks already in the field, or as a
factory-installed option. We plan on leveraging our technology, partners and
customers into other verticals, such as other construction material delivery
vehicles and waste management trucks, where a customized solution can provide
similar benefits as in ready mix.

We also have a horizontal market strategy that focuses on providing turnkey
solutions to a broad range of service fleets and mobile workers that span over
90 distinct markets. Here, we leverage the same general applications that are
used in our vertical markets, however, the same level of customization, such as
additional sensors, is typically not required. These products are distributed
through individual dealers and dealer service providers, as well as after-market
automotive electronics suppliers.

Our enterprise strategy focuses on sales to large, enterprise accounts. Here, in
addition to a Trimble-hosted solution, we can also integrate our software
directly into the customer's IT infrastructure, giving them control of the
information. In this market we sell directly to end users and sales cycles tend
to be long due to field trials followed by an extensive decision-making process.

Approximate prices for the hardware fall in the range of $300 to $3,000, while
the monthly software service fees range from approximately $20 to approximately
$55, depending on the customer service level. Competition comes largely from
service-oriented businesses such as @Road and software companies such as Command
Alkon.

Representative products sold by this division include:

Telvisant(R) System - Our fleet management service offering, Telvisant provides
different levels of service that run from snapshots of fleet activity to
real-time fleet dispatch capability. Telvisant includes truck communication
service and computer backbone support of the software. Variations of Telvisant
are tailored for specific industry applications.

CrossCheck(R) Module - This hardware, mounted on the vehicle, provides location
and information through its built-in cellular interface. This module also
includes GPS positioning, sensor interfaces for vehicle conditions, and built-in
intelligence for distributed decision-making.

Portfolio Technologies

Our Portfolio Technologies segment includes various operations that aggregate to
less than 10 percent of our total revenue. The products in this segment are
navigation modules and embedded sensors that are used in avionics, flight, and
military applications. The two operations in this segment are Applanix, and
Military and Advanced Systems (MAS).

Applanix develops, manufactures, sells and supports high-value, precision
products that combine GPS with inertial sensors for accurate measurement of the
position and attitude of moving vehicles. Sales are made directly by our sales
force to the end users or to systems integrators. Competitors include IGI in the
airborne survey market, and iXsea and VT TSS in the marine survey market.

Our MAS business supplies GPS modules that use the military's GPS advanced
capabilities. The modules are used for guiding aircraft. Military products are
sold directly by our sales force to either the US Government or a contractor.
Sales are also made to non-US governments, with the sales of the encrypted
components taking place through the US Government. Competitors in this market
include Rockwell, L3, Raytheon, and Thales.

Representative products sold by this segment include:

Applanix POS/AV - An integrated GPS/inertial system for airborne surveying that
measures aircraft position to an accuracy of a few centimeters and aircraft
attitude (angular orientation) to an accuracy of 30 arc seconds or better. This
system is typically interfaced to large format cameras and scanning lasers for
producing geo-referenced topographic maps of the terrain.

Force 5(TM) Module - A dual frequency, embedded GPS module that is used in a
variety of military airborne applications.

Acquisitions and Joint Ventures

Our growth strategy is centered around developing and marketing innovative and
complete value-added solutions to our existing customers, while also marketing
them to new customers and geographic regions. To do this, we believe it is
essential to continually enhance our market position, which has led to
partnering with or acquiring companies that bring technologies, products or
distribution capabilities that will allow us to enter or penetrate a market
quicker than if we had done so solely through internal development. Over the

past five years, this has led us to form two joint ventures and acquire six
companies. No assurance can be given that our previous or future acquisitions
will be successful or will not materially adversely affect our financial
condition or operating results.

Applanix Corporation

* On July 7, 2003, we acquired privately held Applanix Corporation, a Canadian
developer of systems that integrate inertial navigation system and GPS
technologies. We expect the Applanix acquisition to extend our technology
portfolio and enable increased robustness and capabilities in our future
positioning products. Applanix's performance is reported under our Portfolio
Technologies segment.

MENSI S.A.

* On December 9, 2003, we acquired privately held MENSI S.A., a French developer
of terrestrial 3D laser scanning technology. We expect the MENSI acquisition to
enhance our technology portfolio and expand our product offerings. MENSI's
performance is reported under our Engineering and Construction segment.

TracerNET Corporation

* On March 5, 2004, we acquired privately held TracerNET Corporation of
Virginia, a provider of wireless fleet management solutions. We expect the
TracerNET acquisition to offer more diverse and complete fleet management
solutions. TracerNET's performance will be reported under our Mobile Solutions
segment.

Nikon-Trimble Co., Ltd.

On March 28, 2003, Trimble and Nikon Corporation entered into an agreement to
form a joint venture in Japan, Nikon-Trimble Co., Ltd., which would assume the
operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of Nikon
Corporation and Trimble Japan KK, our Japanese subsidiary. Nikon-Trimble began
operations in July of 2003.

Nikon-Trimble is 50% owned by us and 50% owned by Nikon, with equal voting
rights. It is focusing on the design and manufacture of surveying instruments
including mechanical total stations and related products. In Japan, this joint
venture distributes Nikon's survey products as well as our survey, agriculture,
construction and GIS products. Outside of Japan, we are the exclusive
distributor of Nikon survey and construction products.

* We expect the joint venture to enhance our market position in survey
instruments through geographic expansion and market penetration. The Nikon
instruments will broaden our survey and construction product portfolio and
enable us to better access emerging markets such as Russian, Chinese, and Indian
markets. It will also provide us with the ability to sell our GPS and robotic
technology to existing Nikon customers. Additionally, Nikon-Trimble is expected
to improve our market position in Japan.

Caterpillar Trimble Control Technologies, LLC

On April 1, 2002, we established and began operations of a joint venture with
Caterpillar called Caterpillar Trimble Control Technologies, LLC, in which each
company has a 50% ownership stake and have equal voting rights. This joint
venture is developing new generations of machine control products for the
construction and mining markets for installation in the factory or as a dealer
option.

* Today, we sell construction machine control products to contractors through
our dealer channel, for installation on bulldozers, motorgraders, and excavators
that are already in the field (the "after-market"). However, both companies
believe the adoption of the technology will spur future demand for machine
control products that can be integrated into the design of new Caterpillar
machines, while also available for "after-market" installation.

Patents, Licenses and Intellectual Property

We hold approximately 600 US patents and 108 non-US patents, the majority of
which cover GPS technology and applications, and over 94 of which cover optical
and laser technology and applications.

We prefer to own the intellectual property used in our products, either directly
or though subsidiaries. From time to time we license technology from third
parties.

There are approximately 60 trademarks registered to Trimble including "Trimble,"
the globe and triangle logo, "AgGPS," "GeoExplorer," and "Telvisant," among
others that are registered to Trimble Navigation Limited in the United States
and other countries. Additional trademarks are pending registration.

Sales and Marketing

We currently have regional sales offices throughout North America and Europe.
Offices serving the rest of the world include Australia, China, Korea, New
Zealand, Singapore, and United Arab Emirates. We tailor the distribution channel
to the needs of our products and regional markets. Therefore, we have a number
of forms of sales channel solutions around the world.

North America

We sell our products in the United States and Canada primarily through dealers,
distributors, and authorized representatives. This channel is supplemented and
supported by our employees who provide additional sales support. In some cases,
where third party distribution is not available, we utilize a direct sales
force. We also utilize distribution alliances and OEM relationships with other
companies as a means to serve selected markets.

International

We market to end users through an extensive world wide network of dealers and
distributors. Distributors carry one or more product lines and are generally
assigned a territory. We occasionally grant exclusive rights to market certain
products within specified countries. See Note 3 of the Notes to the Consolidated
Financial Statements for financial information regarding joint ventures

Sales to unaffiliated customers outside the United States comprised
approximately 51% in 2003, 49% in 2002, and 50% in 2001. During the 2003 fiscal
year, North and South America represented 56%, Europe, the Middle East and
Africa represented 31%, and Asia represented 13% of our total revenues.

Support and Warranty

The warranty periods for our products are generally between one and three years
from date of shipment. Selected military programs may require extended warranty
periods up to 5.5 years, certain TDS products have a 90-day warranty period, and
certain Nikon products have a five-year warranty period. We support our GPS
products through a circuit board replacement program from locations in the
United Kingdom, Germany, Japan, and the United States. The repair and
calibration of our non-GPS products are available from company-owned or
authorized facilities. We reimburse dealers and distributors for all authorized
warranty repairs they perform.

While we engage in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of component suppliers, our
warranty obligation is affected by product failure rates, material usage, and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage, or service delivery costs differ from the
estimates, revisions to the estimated warranty accrual and related costs may be
required.

Seasonality of Business

* Our revenues are affected by seasonal buying patterns in some of our
businesses. Over half of our total revenue comes from our Engineering and
Construction business, which has the biggest seasonal impact on our total
revenue. This business, and therefore our total revenue, is seasonally strongest
during the second quarter due to the start of the construction buying season in
the northern hemisphere in spring. Typically, we expect the first and fourth
quarters to be the seasonal lows due to the lack of construction during the

winter months. If other factors such as economic conditions or underlying growth
in the business are removed, the historical variability in our total quarterly
revenue from seasonality has generally been less than 10 percent.

Backlog

In most of our markets, the time between order placement and shipment is short.
Therefore, we believe that backlog is not a reliable indicator of present or
future business conditions.

Manufacturing

Manufacturing of our GPS products is subcontracted to Solectron Corporation. We
completed the move of all Component Technologies products to Solectron in China
in the first quarter of 2003. During 2003 we started utilizing Solectron in
Mexico for some of our handheld products. We continue to utilize Solectron
California for our high-end GPS products and new product introduction services.
Solectron is responsible for substantially all material procurement, assembly,
and testing. We continue to manage product design up through pilot production
for the subcontracted products, and we are directly involved in qualifying
suppliers and key components used in all our products. Our current contract with
Solectron continues in effect until either party gives the other ninety days
written notice.

We manufacture laser and optics-based products at our plants in Dayton, Ohio;
Danderyd, Sweden; and Jena and Kaiserslautern, Germany. Some of these products
or portions of these products are also subcontracted to third parties for
assembly.

All of our manufacturing sites are registered to ISO9001:2000, covering the
design, production, distribution, and servicing of all our products. The
Component Technologies segment is registered to QS9000 for its automotive
products. QS9000 is the automotive version of ISO9000 covering specific
requirements for the market.

Research and Development

We believe that our competitive position is maintained through the development
and introduction of new products that incorporate improved features, better
performance, smaller size and weight, lower cost, or some combination of these
factors. We invest substantially in the development of new products. We also
make significant investment in the positioning, communication, and information
technologies that underlie our products and will likely provide competitive
advantages.

Our research and development expenditures, net of reimbursed amounts were $67.6
million for fiscal 2003, $61.2 million for fiscal 2002, and $62.9 million for
fiscal 2001.

* We expect to continue investing in research and development with the goal of
maintaining or improving our competitive position, as well as the goal of
entering new markets and satisfying new needs for positioning related solutions.
There can be no assurance that we will succeed in doing so.

Employees

As of January 2, 2004, we employed approximately 2,150 employees, including 30%
in sales and marketing, 29% in manufacturing, 28% in engineering, and 13% in
general and administrative positions. Approximately 45% of employees are in
locations outside the United States.

Our employees are not represented by unions except for those in Sweden and some
in Germany. We also employ temporary and contract personnel that are not
included in the above headcount numbers. We have not experienced work stoppages
or similar labor actions.

Available Information

The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, and all amendments to those reports are available
free of charge on the Company's website through www.trimble.com/investors.html,

as soon as reasonably practicable after such material is electronically filed
with or furnished to the Securities and Exchange Commission. Information
contained on our website is not part of this annual report on Form 10-K.

In addition, you may request a copy of these filings (excluding exhibits) at no
cost by writing or telephoning us at our principal executive offices at the
following address or telephone number:

Trimble Navigation Limited
749 North Mary Avenue, Sunnyvale, CA 94085
Attention: Investor Relations
Telephone: 408-481-8000

Executive Officers

The names, ages, and positions of the Company's executive officers as of March
1, 2004 are as follows:

Name Age Position
- ---------------------------------------------------------------------------
Steven W. Berglund 52 President and Chief Executive Officer
Mary Ellen P. Genovese 44 Chief Financial Officer
William C. Burgess 57 Vice President, Human Resources
Joseph F. Denniston, Jr. 43 Vice President, Operations
Bryn A. Fosburgh 41 Vice President and General Manager,
Geomatics and Engineering
Mark A. Harrington 48 Vice President of Strategy
and Business Development
John E. Huey 54 Treasurer
Irwin L. Kwatek 64 Vice President and General Counsel
Michael W. Lesyna 43 Vice President and General Manager,
Mobile Solutions
Bruce E. Peetz 52 Vice President, Advanced Technology and Systems
Christopher J. Shephard 41 Vice President and General Manager,
Construction Instruments
Anup V. Singh 33 Corporate Controller
Alan R. Townsend 55 Vice President and General Manager,
Field Solutions
Dennis L. Workman 58 Vice President and General Manager,
Component Technologies

Steven W. Berglund - Steven Berglund joined Trimble as president and chief
executive officer in March 1999. Prior to joining Trimble, Mr. Berglund was
president of Spectra Precision, a group within Spectra Physics AB, and a pioneer
in the development of laser systems. He spent 14 years at Spectra Physics in a
variety of senior leadership positions. In the early 1980s, Mr. Berglund spent a
number of years at Varian Associates in Palo Alto, where he held a variety of
planning and manufacturing roles. Mr. Berglund began his career as a process
engineer at Eastman Kodak in Rochester, New York. He attended the University of
Oslo and the University of Minnesota where he received a B.S. in chemical
engineering in 1974. He later received his M.B.A. from the University of
Rochester in New York in 1977.

Mary Ellen Genovese - Mary Ellen Genovese, chief financial officer, has been
responsible for the overall financial activities of Trimble since September
2000. Ms. Genovese was vice president of finance and corporate controller from
1997 to September 2000. From 1994 to 1997, Ms. Genovese served as business unit
controller for Software and Component Technologies, and Tracking and
Communications. She joined Trimble as controller of manufacturing operations in
December 1992. Prior to joining Trimble, Ms. Genovese was chief financial
officer for Minton Co., a distributing company to the commercial building
market, from 1991 to 1992. Prior to 1991, she worked for 10 years with General
Signal Corp. in several management positions. Ms. Genovese is a certified public
accountant and received her B.S. in accounting from Fairfield University in
Connecticut in 1981.

William C. Burgess - William Burgess joined Trimble in August of 2000 as vice
president of Human Resources. Prior to joining Trimble, Mr. Burgess was vice
president of Human Resources and Management Information Systems for Sonoma West
Holdings, Inc. From 1993 to 1997, he served as vice president of Human Resources
for Optical Coating Laboratory, from 1990 to 1993, he established and managed

the human resources function at Teknekron Communications Systems, and from 1985
to 1990 he was vice president of Human Resources for a $25 billion,
35,000-employee segment of Asea Brown Boveri (ABB), a global technology company.
Mr. Burgess received a B.S. from the University of Nebraska and an M.S. in
organizational development from Pepperdine University.

Joseph F. Denniston, Jr. - Joseph Denniston joined Trimble as vice president of
operations in April 2001, responsible for worldwide manufacturing, distribution
and logistics. Prior to Trimble, Mr. Denniston worked for 3Com Corporation.
During his 14-year tenure, he served as vice president of supply chain
management for the Americas and held several positions in test engineering,
manufacturing engineering and operations. Previously at Sentry Schlumberger for
seven years, he held several positions including production engineering,
production management and test engineering over six years. Mr. Denniston
received a B.S. in electrical engineering technology from the Missouri Institute
of Technology in 1981 and an M.S. in computer science engineering from Santa
Clara University in 1990.

Bryn A. Fosburgh - Bryn Fosburgh was appointed vice president and general
manager of the Geomatics and Engineering business in July 2002, with
responsibility for all the division-level activities associated with survey,
construction, and infrastructure solutions. From October 1999 to July 2002, Mr.
Fosburgh served as division vice president of survey and infrastructure. In
1997, Mr. Fosburgh was appointed director of development for the Company's land
survey business unit where he oversaw the development of field and office
software that enabled the interoperability of Trimble survey products. Mr.
Fosburgh joined Trimble in 1994 as technical service manager for surveying,
mining, and construction. Prior to Trimble, Mr. Fosburgh was a civil engineer
with the Wisconsin Department of Transportation where he was responsible for
coordinating the planning, data acquisition, and data analysis for statewide GPS
surveying projects in support of transportation improvement projects. He has
also held various engineering, research and operational positions for the US
Army Corps of Engineers and Defense Mapping Agency. Mr. Fosburgh received a B.S.
in geology from the University of Wisconsin in Green Bay in 1985 and an M.S. in
civil engineering from Purdue University in 1989.

Mark A. Harrington - Mark Harrington joined Trimble in January 2004 as vice
president of strategy and business development. Prior to joining Trimble, Mr.
Harrington served as vice president of finance at Finisar Corporation and chief
financial officer for both Cielo Communications, Inc. and Vixel Corporation. His
experience also includes 11 years at Spectra-Physics where he served in a
variety of roles including vice president of finance for Spectra-Physics Lasers,
Inc. and vice president of finance for Spectra-Physics Analytical, Inc. Mr.
Harrington began his career at Varian Associates, Inc. where he held a variety
of management and individual positions in finance, operations and IT. Mr.
Harrington received his B.S. in Business Administration from the University of
Nebraska-Lincoln.

John E. Huey - John Huey joined Trimble in 1993 as director corporate credit and
collections, and was promoted to assistant treasurer in 1995 and treasurer in
1996. Past experience includes two years with ENTEX Information Services, five
years with National Refractories and Minerals Corporation (formerly Kaiser
Refractories), and thirteen years with Kaiser Aluminum and Chemical Sales, Inc.
He has held positions in credit management, market research, inventory control,
sales, and as an assistant controller. Mr. Huey received his B.A. degree in
Business Administration in 1971 from Thiel College in Greenville, Pennsylvania
and an MBA in 1972 from West Virginia University in Morgantown, West Virginia.

Irwin L. Kwatek - Irwin Kwatek has served as vice president and general counsel
of Trimble since November 2000. Prior to joining Trimble, Mr. Kwatek was vice
president and general counsel of Tickets.com, a ticketing service provider, from
May 1999 to November 2000. Prior to Tickets.com, he was engaged in the private
practice of law for more than six years. During his career, he has served as
vice president and general counsel to several publicly held high-tech companies
including Emulex Corporation, Western Digital Corporation and General
Automation, Inc. Mr. Kwatek received his B.B.A. from Adelphi College in Garden
City, New York and an M.B.A. from the University of Michigan in Ann Arbor. He
received his J.D. from Fordham University in New York City in 1968.

Michael W. Lesyna - Michael Lesyna has been vice president and general manager
of the Mobile Solutions segment since September 2000. Prior to Trimble, Mr.
Lesyna spent six years at Booz Allen & Hamilton where he most recently served as
a principal in the operations management group. Prior to Booz Allen & Hamilton,
Mr. Lesyna held a variety of engineering positions at Allied Signal Aerospace.
Mr. Lesyna received his M.B.A., as well as an M.S. and B.S. in mechanical
engineering from Stanford University.

Bruce E. Peetz - Bruce Peetz has served as vice president of Advanced Technology
and Systems since 1998 and has been with Trimble for 15 years. From 1996 to
1998, Mr. Peetz served as general manager of the Survey Business. Prior to
joining Trimble, Mr. Peetz was a research and development manager at
Hewlett-Packard for 10 years. Mr. Peetz received his B.S. in electrical
engineering from Massachusetts Institute of Technology in Cambridge,
Massachusetts in 1973.

Anup V. Singh - Anup Singh has served as corporate controller since joining
Trimble in December 2001. Prior to joining Trimble, Mr. Singh was with
Excite@Home from July 1999 to December 2001. During his tenure at Excite@Home,
he held the positions of senior director of Corporate Financial Planning and
Analysis, and international controller. Before Excite@Home, Mr. Singh also
worked for 3Com Corporation from December 1997 to July 1999, and Ernst & Young
LLP in San Jose, California and London, England. Mr. Singh received his B.A. in
1991 and M.A. in 1995 in economics and management science from Cambridge
University in England. He is also a chartered accountant and was admitted as a
member of the Institute of Chartered Accountants in England and Wales in 1994.

Christopher J. Shephard - Chris Shephard was appointed vice president and
general manager of the Construction Instruments business area in July 2002 after
serving as division vice president of operations for Engineering and
Construction since Trimble's acquisition of Spectra Precision Group in July
2000. Prior to Trimble, Mr. Shephard served from 1998 to 2000 as Spectra
Precision's chief financial officer. Mr. Shephard also worked for more than
eight years at Booz Allen & Hamilton. Prior to Booz Allen & Hamilton, Mr.
Shephard spent three years at Copeland Corporation, a division of Emerson, in
their management-training program. Mr. Shephard received a B.A. in business
studies from Manchester Polytechnic in England in 1985 and an M.M. from the J.L.
Kellogg Graduate School of Management at Northwestern University, Evanston,
Illinois in 1990.

Alan R. Townsend - Alan Townsend has served as vice president and general
manager of the Field Solutions business area since November 2001. He also serves
as the managing director of Trimble Navigation New Zealand Ltd. for which he has
overall site responsibility. From 1995 to 2001, Mr. Townsend was general manager
of Mapping and GIS. Mr. Townsend joined Trimble in 1991 as the manager of
Trimble Navigation New Zealand Ltd. Prior to Trimble, Mr. Townsend held a
variety of technical and senior management roles within the Datacom Group of
companies in New Zealand including managing director of Datacom Software
Research Ltd. from 1986 to 1991. In addition, Mr. Townsend is a director of IT
Capital Ltd., a venture capital company based in Auckland, New Zealand. He is
also a fellow of the New Zealand Institute of Management and a past president of
the New Zealand Software Exporters Association. Mr. Townsend received a B.S.c in
economics from the University of Canterbury in 1970.

Dennis L. Workman - Dennis Workman has served as vice president and general
manager of Trimble's Component Technologies segment since September 1999. From
1998 to 1999, Mr. Workman was senior director and chief technical officer of the
newly formed Mobile and Timing Technologies (MTT) business group, also serving
as general manager of Trimble's Automotive and Timing group. In 1997, he was
director of engineering for Software & Component Technologies. Mr. Workman
joined Trimble in 1995 as director of the newly created Timing vertical market.
Prior to Trimble, Mr. Workman held various senior-level technical positions at
Datum Inc. During his nine year tenure at Datum, he held the position of CTO.
Mr. Workman received a B.S. in mathematics and physics from St. Mary's College
in 1967 and an M.S. in electrical engineering from the Massachusetts Institute
of Technology in 1969.

Item 2 Properties

The following table sets forth the significant real property that we own or
lease:

In addition, we lease a number of smaller offices around the world primarily for
sales functions. For financial information regarding obligations under leases,
see Note 10 of the Notes to the Consolidated Financial Statements.

* We believe that our facilities are adequate to support current and near-term
operations.

Item 3 Legal Proceedings

* We are from time to time a party to disputes or litigation incidental to our
business. We believe that our ultimate liability as a result of such disputes,
if any, would not be material to our overall financial position, results of
operations, or liquidity.

Item 4 Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the fourth
quarter of 2003.

PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

On January 22, 2004, our Board of Directors approved a 3-for-2 split of all
outstanding shares of our common stock, payable March 4, 2004 to stockholders of
record on February 17, 2004. All shares and per share information presented has
been adjusted to reflect the stock split on a retroactive basis for all periods
presented.

Our common stock is traded on the Nasdaq National Market under the symbol
"TRMB." The table below sets forth, during the periods indicated, the high and
low per share bid prices for our common stock as reported on the Nasdaq National
Market.

2003 2002
Sales Price Sales Price
Quarter Ended High Low High Low
------------- ---- --- ---- ---
First quarter $14.17 $8.68 $11.43 $7.84
Second quarter 18.50 12.43 12.33 9.98
Third quarter 19.57 14.97 10.00 6.85
Fourth quarter 25.60 13.49 9.65 5.35

As of January 2, 2004, there were approximately 1,055 holders of record of our
common stock.

We made the following sales of unregistered securities during the year ended
January 2, 2004.

Our merger agreement with LeveLite provides for us to make earn-out payments not
to exceed an aggregate $3.9 million (in common stock and cash payment) based on
certain future revenues and payments received. Upon a hearing before the
California Department of Corporations in which the terms and conditions of the
offer to the LeveLite shareholders were approved, the shares of Common Stock to
be issued in the transaction were exempt from registration by reason of
qualification under Section 3(a)(10) of the Securities Act of 1933, as amended.

We made the following earn-outs in common stock during fiscal 2003:

Date of Number of
issuance shares issued Price
-------- ------------- -----
January 22, 2003 35,994 $ 9.35
April 23, 2003 26,549 13.86
July 29, 2003 20,679 16.52
October 27, 2003 19,842 15.25

On June 30, 2003, we issued 349,251 shares of common stock to Nikon-Trimble Co.
Ltd. We issued these shares as a contribution to capital in the formation of
Nikon-Trimble Co. Ltd. as a joint venture with Nikon Corporation. The shares
were valued at $16.95 per share and were exempt from registration under Section
4(2) of the Securities Act of 1933, as amended, based on the nature of the
purchaser and the nature of the arms-length negotiated transaction.

Dividend Policy

We have not declared or paid any cash dividends on our common stock during any
period for which financial information is provided in this Annual Report on Form
10-K. At this time, we intend to retain future earnings, if any, to fund the
development and growth of our business and do not anticipate paying any cash
dividends on our common stock in the foreseeable future.

We are allowed to pay dividends and repurchase shares of our common stock up to
25% of net income in the previous fiscal year, under the existing terms of our
credit facilities.

Equity Compensation Plan Information

The following table sets forth, as of January 2, 2004, the total number of
securities outstanding under our stock option plans, the weighted average
exercise price of such options, and the number of options available for grant
under such plans.

Item 6. Selected Financial Data

The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes
appearing elsewhere in this annual report. Historical results are not
necessarily indicative of future results. In particular, because the results of
operations and financial condition related to our acquisitions are included in
our Consolidated Statement of Operations and Consolidated Balance Sheets data
commencing on those respective acquisition dates, comparisons of our results of
operations and financial condition for periods prior to and subsequent to those
acquisitions are not indicative of future results.

We have significant intangible assets on our Consolidated Balance Sheets that
include goodwill and other purchased intangibles related to acquisitions. At the
beginning of fiscal 2002, we adopted Statement of Financial Accounting Standards
No. 141 ("SFAS 141"), Business Combinations, and No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). Application of the non-amortization provisions
of SFAS 142 significantly reduced amortization expense of purchased intangibles
and goodwill to approximately $8.3 million for the fiscal year 2002 from $29.4
million in fiscal year 2001.

(1) Earnings per share and shares used in calculating earnings per share have
been restated to reflect a three-for-two stock split in February 2004.

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 and Uncertainties."

EXECUTIVE LEVEL OVERVIEW

We are a global provider of complete, integrated solutions that provide a
seamless flow of position information both in the field and between the field
and back office. To do this, we utilize advanced positioning technologies
(including GPS, optical, inertial and laser technologies) combined with wireless
communications and applications software, to get data points with accuracies
down to several millimeters. This can increase productivity through time and
cost savings, as the need for labor is reduced, rework from mistakes is less
frequent, and the time to complete a job is shortened.

Our solutions businesses, Engineering and Construction, Field Solutions, and
Mobile Solutions make up over 80% of our revenue. We believe our strength in
these businesses stems from our ability to bring innovative products or
solutions to the market, as well as effectively train and manage a global,
third-party distribution channel that is proficient in selling technology
solutions into markets that have historically utilized manual and low-tech
processes.

In 2003 we extended our market and product capabilities through internal
development, acquisitions, and alliances. In July, we established a joint
venture with Nikon Corporation, which will extend our presence in the global
construction positioning market. Our acquisitions of Applanix in July and MENSI
in December added important new technologies which will enable us to develop new
applications or broaden current application solutions. We also announced an
alliance with CNH Global, which will significantly extend our distribution reach
for our Autopilot agricultural product line.

Our other strategic business, Component Technologies, is different from the
"solution businesses", as it seeks to either provide GPS technology directly to
third parties, such as OEM's and system integrators, or to integrate GPS into
other technologies, such as wireless. These products allow for higher
functionality and therefore, a higher average selling price for our offerings.
Through greater integration we see potential future growth opportunities. For
example, our recently announced TrimTrac product integrates GPS and GSM cellular
technologies into a fully functional location device. It establishes a new asset
tracking or security capability at an aggressive price point and opens up a new
class of customers and applications which were previously not available to us.

In 2003 we positioned ourselves in newer markets that will serve as important
sources of future growth. Our efforts in China, India, Russia, Korea and Eastern
Europe all reflected improving financial results, with the promise of more in
the future.

With our improving profitability, we now have the opportunity to re-emphasize
revenue growth. We expect this growth to come from the continuation of several
trends that we saw in 2003. These trends include further penetrating existing
markets with current and new products, continued geographic expansion into
emerging markets such as Russia, China, India, Korea and Eastern Europe, taking
advantage of market consolidation, improving competitive position due to
offering complete solutions with a proficient dealer channel, and entering new
markets with new products such as our TrimTrac (tm) locator and Recon products,
fleet management services, and our inertial/GPS positioning and orientation
systems acquired as part of Applanix.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our accounting policies are more fully described in Note 1 of the Notes to the
Consolidated Financial Statements. The preparation of financial statements and
related disclosures in conformity with accounting principles generally accepted
in the United States requires us to make judgments, assumptions, and estimates
that affect the amounts reported in the Consolidated Financial Statements and
accompanying Notes to the Consolidated Financial Statements. We consider the
accounting polices described below to be our critical accounting polices. 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.

Revenue Recognition

We recognize product revenue when persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable, and collectibility is
reasonably assured. In instances where final acceptance of the product is
specified by the customer or is uncertain, revenue is deferred until all
acceptance criteria have been met. Our total deferred revenue was $7.7 million
and $6.0 million as of January 2, 2004 and January 3, 2003, respectively.
Revenue is reduced by a sales return reserve as described under "Allowance for
Doubtful Accounts and Sales Returns."

Revenue from purchased extended warranty and support agreements is deferred and
recognized ratably over the term of the warranty/support period. Substantially
all technology licenses and research revenue have consisted of initial license
fees and royalties, which were recognized when earned, provided we had no
remaining obligations.

Contracts and customer purchase orders are generally used to determine the
existence of an arrangement. Shipping documents and customer acceptance, when
applicable, are used to verify delivery. We assess whether the fee is fixed or
determinable based on the payment terms associated with the transaction and
whether the sales price is subject to refund or adjustment. We assess
collectibility based primarily on the creditworthiness of the customer as
determined by credit checks and analysis, as well as the customer's payment
history.

Our shipment terms for US orders, and international orders fulfilled from our
European distribution center are typically FCA (Free Carrier) shipping point,
except certain sales to US government agencies which are shipped FOB
destination. FCA shipping point means that we fulfill the obligation to deliver
when the goods are handed over, cleared for export, and into the charge of the
carrier named by the buyer at the named place or point. If no precise point is
indicated by the buyer, we may choose within the place or range stipulated where
the carrier will take the goods into carrier's charge.

Other international orders are shipped FOB destination, which means these
international orders are not recognized as revenue until the product is
delivered and title has transferred to the buyer or FCA shipping point. FOB
destination means that we bear all costs and risks of loss or damage to the
goods up to that point. .

Revenue to distributors and resellers is recognized upon delivery, assuming all
other criteria for revenue recognition have been met. Distributors and resellers
do not have a right of return.

When a sale involves multiple elements, the entire fee from the arrangement is
allocated to each respective element based on its relative fair value and
recognized when revenue recognition criteria for each element are met. The
amount of product revenue allocated to an individual element is limited to the
lesser of its relative fair value or the amount not contingent on our delivery
of other elements under the arrangement, regardless of the probability of our
performance.

Our software arrangements generally consist of a license fee and post-contract
customer support (PCS). We have established vendor-specific objective evidence
(VSOE) of fair value for our PCS contracts based on the renewal rate. The
remaining value of the software arrangement is allocated to the license fee
using the residual method, and revenue is primarily recognized when the software
has been delivered and there are no remaining obligations. Revenue from PCS is
recognized ratably over the term of the PCS agreement.

Allowance for Doubtful Accounts and Sales Returns

Our accounts receivable balance, net of allowance for doubtful accounts, was
$96.2 million as of January 2, 2004, compared with $77.6 million as of January
3, 2003. The allowance for doubtful accounts as of January 2, 2004 was $10.0
million, compared with $9.9 million as of January 3, 2003. We evaluate the
collectibility of our trade accounts receivable based on a number of factors. In
circumstances where we are aware of a specific customer's inability to meet its
financial obligations to us, a specific allowance for bad debts is estimated and
recorded which reduces the recognized receivable to the estimated amount we
believe will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on
our recent past loss history and an overall assessment of past due trade
accounts receivable amounts outstanding.

A reserve for sales returns is established based on historical trends in product
return rates experienced in the ordinary course of business. The reserve for
sales returns as of January 2, 2004 and January 3, 2003 included $3.3 million
and $2.7 million, respectively, for estimated future returns that were recorded
as a reduction of our accounts receivable and revenue. If the actual future
returns were to deviate from the historical data on which the reserve had been
established, our revenue could be adversely affected.

Inventory Valuation

Our inventory balance was $70.8 million as of January 2, 2004, compared with
$61.1 million as of January 3, 2003. Our inventory allowances as of January 2,
2004 were $25.9 million, compared with $25.2 million as of January 3, 2003. Our
inventory is recorded at the lower of cost or market. We use a standard cost
accounting system to value inventory and these standards are reviewed a minimum
of once a year and multiple times a year in our most active manufacturing
plants. We adjust the inventory value for estimated excess and obsolete

inventory based on our assessment of future demand and market conditions. If
actual future demand or market conditions are less favorable than those
projected by us, additional inventory write-downs may be required.

Income Taxes

Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and deferred liabilities are
recognized for taxable temporary differences. Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation allowance when it is
determined to be more likely than not that some portion or all of the deferred
tax assets will not be realized. In evaluating the need for a valuation
allowance, we consider future taxable income, resolution of tax uncertainties
and prudent and feasible tax planning strategies. In fiscal year 2003, we have
recorded a deferred tax asset of $7.6 million that is more likely than not to be
realized. We need to generate $20.0 million of future US income to realize the
deferred tax asset.

If we determine that we would not be able to realize all or part of our deferred
tax assets in the future, an adjustment to the carrying value of the deferred
tax assets would be charged to income in the period in which such determination
is made.

Our effective income tax rates from continuing operations for fiscal years 2003,
2002 and 2001 were (8%), 25% and (9%), respectively. The 2002 and 2001 income
tax rates differ from the US federal statutory rate of 35%, due primarily to
non-US taxes and the inability to realize the benefit of net operating losses.
The 2003 income tax rate is less than the US federal statutory rate, due
primarily to the realization of benefits from net operating losses and other
previously reserved deferred tax assets.

Goodwill Impairment

Goodwill as of January 2, 2004 was $241.4 million, compared with $205.9 million
as of January 3, 2003. We perform goodwill impairment tests on an annual basis
for each reporting unit. Based on impairment tests performed, there was no
impairment of our goodwill in fiscal 2003 and 2002.

For goodwill, the annual impairment evaluation includes a comparison of the
carrying value of the reporting unit (including goodwill) to that reporting
unit's fair value. If the reporting unit's estimated fair value exceeds the
reporting unit's carrying value, no impairment of goodwill exists. If the fair
value of the reporting unit does not exceed the unit's carrying value, then an
additional analysis is performed to allocate the fair value of the reporting
unit to all of the assets and liabilities of that unit as if that unit had been
acquired in a business combination and the fair value of the unit was the
purchase price. If the excess of the fair value of the reporting unit over the
fair value of the identifiable assets and liabilities is less than the carrying
value of the unit's goodwill, an impairment charge is recorded for the
difference.

We cannot predict the occurrence of certain future events that might adversely
affect the reported value of goodwill. Such events include, but are not limited
to, strategic decisions made in response to economic and competitive conditions,
the impact of the economic environment on our customer base, or a material
negative change in our relationships with significant customers.

Accounting for the Long-Lived Assets Including Intangibles Subject to
Amortization

Depreciation and amortization of our long-lived assets is provided using
straight-line methods over their estimated useful lives. Changes in
circumstances such as the passage of new laws or changes in regulations,
technological advances, changes to our business model, or changes in the capital
strategy could result in the actual useful lives differing from initial
estimates. In those cases where we determine that the useful life of a
long-lived asset should be revised, we will depreciate the net book value in
excess of the estimated residual value over its revised remaining useful life.
Factors such as changes in the planned use of equipment, customer attrition,
contractual amendments, or mandated regulatory requirements could result in
shortened useful lives.

Long-lived assets and asset groups are evaluated for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets may
not be recoverable. The estimated future cash flows are based upon, among other

things, assumptions about expected future operating performance and may differ
from actual cash flows. Long-lived assets evaluated for impairment are grouped
with other assets to the lowest level for which identifiable cash flows are
largely independent of the cash flows of other groups of assets and liabilities.
If the sum of the projected undiscounted cash flows (excluding interest) is less
than the carrying value of the assets, the assets will be written down to the
estimated fair value in the period in which the determination is made.

Warranty Costs

The liability for product warranties was $5.1 million as of January 2, 2004,
compared with $6.4 million as of January 3, 2003. (See Note 1 of the Notes to
the Consolidated Financial Statements for further information regarding our
warranty liability.) The warranty periods for our products are generally between
one and three years from date of shipment. Selected military programs may
require extended warranty periods up to 5.5 years, certain TDS products have a
five year or 90-day warranty period, and certain Nikon products have a five year
warranty period. We accrue for warranty costs as part of our cost of sales based
on associated material costs and technical support labor costs. Material 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.

While we engage in extensive product quality programs and processes, including
actively monitoring and evaluating the quality of our component suppliers, our
warranty obligation is affected by product failure rates, material usage, and
service delivery costs incurred in correcting a product failure. Should actual
product failure rates, material usage, or service delivery costs differ from our
estimates, revisions to the estimated warranty accrual and related costs may be
required.

Stock Compensation

We apply Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and related interpretations in accounting for our
stock option plans and stock purchase plan. Accordingly, we do not recognize
compensation cost for stock options granted at a price equal to fair market
value. Note 13 of the Notes to the Consolidated Financial Statements describes
the plans we operate, and Note 1 of the Notes to the Consolidated Financial
Statements contains a summary of the pro forma effects to reported net income
(loss) and earnings (loss) per share for fiscal 2003, 2002, and 2001 as if we
had elected to recognize compensation cost based on the fair value of the
options granted at grant date.

Investment in Joint Ventures

We have adopted the equity method of accounting for our investments in the
Caterpillar and Nikon joint ventures. This requires that we record our share of
the joint ventures' profits or losses in a given fiscal period. See Note 3 of
the Notes to the Consolidated Financial Statements for joint venture accounting.

Upon the formation of our Caterpillar joint venture in April 2002, we received a
cash distribution of $11.0 million. We have elected to treat the cash
distribution as a deferred gain, being amortized to the extent that losses are
attributable from the Caterpillar joint venture under the equity method
described above. When and if the joint venture is profitable on a sustainable
basis and future operating losses are not anticipated, then we will recognize as
a gain, the portion of the $11.0 million, which is unamortized. To the extent
that it is possible that we will have any future-funding obligation relating to
the Caterpillar joint venture, then the relevant amount of the $11.0 million
will be deferred until such time that the funding obligation no longer exists.
As of January 2, 2004, the balance of the unamortized deferred gain was $9.8
million.

RECENT BUSINESS DEVELOPMENTS

Nikon-Trimble Joint Venture

On March 28, 2003, Trimble and Nikon Corporation entered into an agreement to
form a joint venture in Japan, Nikon-Trimble Co., Ltd. ("Nikon-Trimble"), which
would assume the operations of Nikon Geotecs Co., Ltd., a Japanese subsidiary of
Nikon Corporation and Trimble Japan KK, our Japanese subsidiary. Nikon-Trimble
began operations in July of 2003.

Under the terms of the Nikon-Trimble agreement, Nikon contributed (Y)1.2 billion
(approximately US$10 million on June 30, 2003) in cash, while we contributed
(Y)500 million (approximately US$4.1 million as of June 30, 2003) in cash and
(Y)700 million of our common stock or 349,251 shares valued at approximately
US$5.9 million on June 30, 2003. Nikon-Trimble purchased certain tangible and
intangible assets from Nikon Geotecs Co., Ltd., and Trimble Japan KK.

Nikon-Trimble is 50% owned by us and 50% owned by Nikon, with equal voting
rights for both. Nikon-Trimble focuses on the design and manufacture of
surveying instruments including mechanical total stations and related products.
In Japan, this joint venture will distribute Nikon's survey products as well as
our GPS survey products and other Engineering and Construction products,
including robotic total stations. Outside Japan, we will be the exclusive
distributor of Nikon survey and construction products.

* We expect the joint venture to enhance our market position in survey
instruments through geographic expansion and market penetration. Nikon's line of
instruments will broaden our survey and construction product portfolio and
enable us to better access emerging markets. It will also provide us with the
ability to sell our GPS and robotic technology to existing Nikon customers.
Additionally, we expect to improve our market position in Japan because of the
Nikon-Trimble distribution network.

Acquisitions

Applanix Corporation

* On July 7, 2003, we acquired privately held Applanix Corporation, a Canadian
developer of systems that integrate inertial navigation system and GPS
technologies. We expect the Applanix acquisition to extend our technology
portfolio and enable increased robustness and capabilities in our future
positioning products. Applanix's performance is reported under our Portfolio
Technologies segment.

MENSI S.A.

* On December 9, 2003, we acquired privately held MENSI S.A., a French developer
of terrestrial 3D laser scanning technology. We expect the MENSI acquisition to
enhance our technology portfolio and expand our product offerings. MENSI's
performance is reported under our Engineering and Construction segment.

The combined purchase price of Applanix and MENSI was approximately $25 million.

TracerNET Corporation

* On March 5, 2004, we acquired privately held TracerNET Corporation of
Virginia, a provider of wireless fleet management solutions. We expect the
TracerNET acquisition to offer more diverse and complete fleet management
solutions. TracerNET's performance will be reported under our Mobile Solutions
segment.

RESULTS OF OPERATIONS

The following table shows revenue and operating income by segment for the
periods indicated and should be read in conjunction with the narrative
descriptions below. Operating income by segment excludes unallocated corporate
expenses which are comprised primarily of general and administrative costs,
amortization of purchased intangibles as well as other items not controlled by
the business segment. Segment operating income for fiscal 2002 and fiscal 2001
have been restated to reflect the allocations of certain corporate expenses so
as to be comparable with the allocation methodology in fiscal 2003.

At the beginning of fiscal 2003, we realigned two of our reportable segments.
The following table shows restated revenue and operating income by segment to
reflect this realignment. The Tripod Data Systems business is now included in
the Engineering and Construction segment and was previously included in the
Portfolio Technologies segment.

A reconciliation of our consolidated segment operating income (loss) to
consolidated income before income taxes follows:

Basis of Presentation

We have a 52-53 week fiscal year, ending on the Friday nearest to December 31,
which for fiscal 2003 was January 2, 2004. Fiscal 2003 was a 52-week year and
fiscal 2002 a 53-week year. As a result of the extra week in fiscal 2002,
year-over-year results are not exactly comparable. Thus, due to the inherent
nature of adopting a 52-53 week fiscal year, the Company, analysts,
shareholders, investors, and others will have to make appropriate adjustments to
any analysis performed when comparing our activities and results in fiscal years
that contain 53 weeks to those that contain the standard 52 weeks. Fiscal year
2001 comprised 52 weeks.

Impact of Weaker US Dollar on Operating Income in Fiscal 2003

The depreciation of the US dollar versus major European currencies positively
impacted revenues by approximately $15.3 million in fiscal 2003 compared with
fiscal 2002. As a result of our significant manufacturing, distribution,
research and development, and selling expenses incurred outside of the US, the
weaker US dollar negatively impacted our operating income by approximately $5.9
million in fiscal 2003.

Revenue

In fiscal 2003, total revenue increased by $74.3 million or 15.9% to $540.9
million from $466.6 million in fiscal 2002. The increase in fiscal 2003 was
primarily due to stronger performances in all of our operating segments driven
by the new product offerings, increased acceptance of our products in the
markets we serve, expanded distribution and selective acquisitions, as well the
positive impact of the weaker US dollar on revenues generated in foreign
currencies, primarily the Euro. Total revenue in fiscal 2002 decreased by $8.7
million or 1.8% to $466.6 million from $475.3 million in fiscal 2001, primarily
due to the reduction of revenue in Mobile Solutions and Portfolio Technologies
segments.

International Revenues

* Total revenue outside the United States comprised approximately 51% in 2003,
49% in 2002, and 50% in 2001. During the 2003 fiscal year, North and South
America represented 56%, Europe, the Middle East and Africa represented 31%, and
Asia represented 13% of total revenues. In fiscal 2003, the United States
comprised approximately 49% of total revenues. We anticipate that sales to
international customers will continue to account for a significant portion of
our revenue. For this reason, we are subject to the risks inherent in these
foreign sales, including unexpected changes in regulatory requirements, exchange
rates, governmental approval, tariffs, or other barriers. Even though the US
Government announced on March 29, 1996, that it supports and maintains the GPS
system, and on May 1, 2000, stated that it has no intent to restore Selective
Availability, a method of degrading GPS accuracy, there may be reluctance in
certain non-US markets to purchase such products given the control of GPS by the
US Government. Our results of operations could be adversely affected if we were
unable to continue to generate significant sales in locations outside the US.

* No single customer accounted for 10% or more of our total revenues in fiscal
2003, 2002, and 2001. It is possible, however, that in future periods the
failure of one or more large customers to purchase products in quantities
anticipated by us may adversely affect the results of operations.

Gross Margin

Our gross margin varies due to a number of factors including product mix,
international sales mix, customer type, the effects of production volumes and
fixed manufacturing costs on unit product costs, new product start-up costs, and
foreign currency translations. Gross margin as a percentage of total revenues
was 49.6 % in fiscal 2003 and 50.2% in fiscal 2002. The slight decrease in gross
margin percentage for fiscal 2003, compared with fiscal 2002, was due primarily
to the introduction of the Nikon products in the third quarter which generated a
lower consolidated gross margin of approximately 0.8%. This was partially offset
by stronger sales of TDS, GIS, wireless infrastructure, survey products as well
as our ongoing focus on product cost reductions. Shipping and handling costs are
included in cost of goods sold.

Gross margin as a percentage of total revenues was 50.2% in fiscal 2002 and
49.9% in fiscal 2001. The slight increase in gross margin percentage for fiscal
2002, compared with fiscal 2001, was due in part to approximately $3.3 million
of additional charges associated with the write down of obsolete inventory in
fiscal 2001 related to the rationalization and simplification of product lines
and inventories in excess of our forecasted 12-month demand.

* Because of potential product mix changes within and among the industry
markets, market pressures on unit selling prices, fluctuations in unit
manufacturing costs, including increases in component prices and other factors,
current level gross margins cannot be assured. In addition, should the global
economic conditions deteriorate, gross margin could be further adversely
impacted.

Engineering and Construction

Engineering and Construction revenues increased by $47.4 million or 14.8% while
segment operating income increased by $7.2 million or 13.5% for fiscal 2003 as
compared to fiscal 2002. Approximately half of the revenue increase was driven
by new product introductions and our increased marketing efforts. The remaining
increase was split evenly between geographic expansion, especially in Asia and
Russia, and the impact of the weaker US dollar. Segment operating income
increased due to higher revenues that were partially offset by increased
operating expenses outside the United States (largely driven by the weaker US
dollar), increased research and development spending on certain programs as we
continue to invest in developing next generation technology and lower margins
earned on the sale of Nikon products. Overall, segment operating income remained
consistent at 17% of revenues.

Engineering and Construction revenues increased by $1.8 million or 0.6% during
fiscal 2002 as compared to fiscal 2001 primarily due to the LeveLite acquisition
which added $3.6 million of revenues, and strong performance by our machine
control product offering as we continue to penetrate the after-market for
machine guidance on earthmoving equipment. Increased revenues were partially
offset by a reduction in revenues in several product areas due to continued
difficult global economic conditions. Segment operating income increased by $3.6
million or 7.2% in fiscal 2002 over fiscal 2001 primarily due to a reduction of
$4.2 million of operating expenses due to the transfer of employee-related
expenses to Caterpillar Trimble Control Technologies. Higher revenues and lower
operating expenses were partially offset by a reduction in gross margin as a
result of product sales mix during fiscal 2002.

Field Solutions

Field Solutions revenues increased by approximately $12.6 million or 18.8% while
segment operating income increased by $4.8 million or 49.9% for fiscal year 2003
as compared to fiscal 2002. Revenues were up year over year due to continued
strong sales of the GeoExplorer(R) CE series handhelds released at the end of
fiscal 2002, and due to the expansion of our automatic guidance products onto
new agricultural vehicles.

Segment operating income increased in 2003 from the fiscal year 2002 primarily
due to higher revenues. This increase was partially offset by fractionally lower
gross margins and more investment in research and development and sales
functions. This enabled the segment operating income to increase from 14% to 18%
of revenues.

Field Solutions experienced a revenue decline in fiscal 2002 of $1.3 million or
1.8% compared with fiscal 2001 primarily due to the decline in the United States
federal, state, and local government spending and a delay in the release of the
new GeoExplorer(R) CE Series due to component supply issues. This decrease was
partially offset by the increased demand for both the manual and auto guidance
product lines. Segment operating income decreased by $1.7 million or 14.7% in
fiscal 2002 over fiscal 2001 primarily due to the decrease in government
spending described above and lower gross margin due to product sales mix, which
was more weighted toward the relatively lower margin agricultural business area.

Mobile Solutions

Mobile Solutions revenues increased by $4.5 million or 53% in fiscal 2003 over
fiscal 2002 due primarily to an increase in our CrossCheck product sales and
higher fleet management services revenues as a result of an expanded customer
base. Segment operating loss decreased by $5.6 million or 46.4% in fiscal 2003
over fiscal 2002 due to increased revenues and lower operating expenses.
Operating expenses decreased by approximately $3.0 million primarily due to a
reduction in outside services and our personnel related to the completion of our
Telvisant system.

Mobile Solutions revenues decreased by $5.3 million or 38.5% in fiscal 2002 over
fiscal 2001 primarily due to the reduction of approximately $3.0 million in our
satellite communications business as a result of our decision to discontinue the
Galaxy(TM) Inmarsat-C product line in early 2001, a slow down in system
integration projects due to reduced spending at municipalities, and reduced
sales of wireless products of $0.9 million due to a transition from a sensor
provider to a fully integrated service provider. Sales of some product lines
were down as a result of the economic slow down and the shift of technology from
analog to digital.

Segment operating loss increased by $2.0 million or 20.5% in fiscal 2002 over
fiscal 2001 primarily due to the lower revenues as described above, and
increased costs incurred in the development and marketing of a service platform
to enable a range of asset management solutions.

Component Technologies

Component Technologies revenues increased by $4.4 million or 7.4%, while segment
operating income increased by $5.9 million or 55.2% for the fiscal year 2003 as
compared to fiscal 2002. The increase in revenues was primarily due to increased
demand from our existing wireless infrastructure customers. Segment operating
income increased from 18% to 26% of revenues. The increase was primarily due to
a reduction in costs of goods sold due to the transfer of the manufacturing of
our products to China, reduced costs of raw materials, increased revenues and
higher margins aided by favorable product mix.

Component Technologies revenues increased by $1.7 million or 2.9% in fiscal 2002
over fiscal 2001 due primarily to a timing products increase of $4.6 million in
fiscal 2002 over fiscal 2001 due to significant demand during the second half of
fiscal 2002 from new and existing wireless infrastructure customers. IVN revenue
decreased $1.0 million in fiscal 2002 over fiscal 2001 as average selling prices
declined by more than 9%, and license revenue decreased $1.7 million in fiscal
2002 over fiscal 2001 due to an expired license contract. Component Technologies
operating income increased by $0.3 million or 3% in fiscal 2002 over fiscal 2001
as a result of higher gross margins resulting from higher revenues and favorable
product mix, partially offset by higher operating expenses, primarily in
research and development and marketing.

Portfolio Technologies

Portfolio Technologies revenues increased by $5.3 million or 46.2% for the
fiscal year 2003 as compared to fiscal 2002. The increase in revenues was mostly
driven by the inclusion of revenue from Applanix acquired in 2003, while offset
by lower revenue of military-related products. Segment operating income
decreased by $2.2 million or 402.7% for fiscal 2003 as compared to fiscal 2002
due to weaker operating results from military products.

Portfolio Technologies revenues decreased by $5.6 million or 32.6% in fiscal
2002 over fiscal 2001 primarily due to lost revenues of $4.4 million as a result
of the sale of our air transport product line to Honeywell in fiscal 2001.
Portfolio Technologies operating income decreased by $0.2 million or 24.5% in
fiscal 2002 over fiscal 2001 due to the lower revenues which was offset by cost
reduction initiatives.

Operating Expenses

The following table shows operating expenses for the periods indicated and
should be read in conjunction with the narrative descriptions of those operating
expenses below:

Research and Development

Research and development expenses increased by $6.4 million to $67.6 million in
fiscal 2003 over fiscal 2002 due to continued investment in next generation
technology primarily in the Engineering and Construction segment, the weakness
of the US dollar versus major European and New Zealand currencies, and also the
inclusion of the research and development expenses from Applanix after the
acquisition in July 2003. Overall spending remained relatively constant at
approximately 13% of revenues. All of our research and development costs have
been expensed as incurred.

Research and development spending decreased by $1.6 million during fiscal 2002
as compared to fiscal 2001 and represented 13% of revenue, consistent with 13%
in fiscal 2001, primarily due to the transfer of employee-related expenses to
our Caterpillar joint venture of approximately $2.8 million, partially offset by
an increase in engineering expenses associated with the introduction of new
products.

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

Sales and Marketing

Sales and marketing expenses increased by $8.5 million to $97.9 million in
fiscal 2003 over fiscal 2002 primarily due to higher revenue, increased sales
efforts mostly in emerging geographic areas such as China and Russia, the impact
of the weaker US dollar in Europe, and the inclusion of Applanix sales and
marketing expenses not applicable in the prior fiscal year. As a percentage of
revenue, sales and marketing expenses decreased from 19% to 18%.

Sales and marketing expenses decreased by $14.4 million in fiscal 2002 and
represented 19% of revenue, compared with 22% in fiscal 2001. During fiscal
2001, we sold off many of our direct sales offices which decreased sales and
marketing expenses by approximately $7.0 million for fiscal 2002, and we
decreased overall compensation, travel, advertising, promotional, and trade show
expenses by approximately $7.4 million for fiscal 2002 compared to the
corresponding period in fiscal 2001.

* Our future growth will depend in part on the timely development and continued
viability of the markets in which we currently compete as well as our ability to
continue to identify and exploit new markets for our products.

General and Administrative

General and administrative expenses in fiscal 2003 decreased by $1.4 million to
$39.3 million and represented 7.3% of revenues compared with 8.7% in fiscal
2002. In fiscal 2002, we experienced higher bad debt expenses, primarily due to

the bankruptcy of a large Japanese distributor. In addition, in fiscal 2003 we
incurred $3.0 million less in information systems expenses. These reductions
were offset in fiscal 2003 by lower sublease income received, expenses from
Applanix after the acquisition in July 2003, and higher compensation costs.

General and administrative expenses increased by $3.2 million in fiscal 2002
representing 9% of revenue, compared with 8% in fiscal 2001 primarily due to an
increase in bad debt provisions related to customers in an uncertain economic
environment and bad debt expenses for accounts written off during the year due
to customer defaults.

Restructuring Charges

Restructuring charges of $2.0 million were recorded in fiscal 2003, $1.1 million
in fiscal 2002, and $3.6 million in fiscal 2001, all of which related to
severance costs, except for $0.3 in 2003 which related to lease costs of our
Japanese office closure due to the Nikon joint venture. As a result of the
restructuring activities, our headcount decreased by 77, 49, and 207 in fiscal
2003, 2002, and 2001, respectively. As of January 2, 2004, the restructuring
accrual balance was approximately $0.4 million which will be paid over the
remaining term of the lease through 2006.

Amortization of Goodwill, Purchased and Other Intangible Assets

January 2, January 3, December 28,
Fiscal Years Ended 2004 2003 2001
- ------------------ ---- ---- ----
(in thousands)
Amortization of goodwill and purchased
intangibles(1) $ 7,312 $ 8,300 $ 29,389
Amortization of other intangible assets 604 868 917
--- --- ---
Total amortization of goodwill, purchased,
and other intangible assets $ 7,916 $ 9,168 $ 30,306
========= ======== ========

(1) Amortization of goodwill in 2001 only.

Amortization expense of purchased and other intangibles decreased in fiscal 2003
by approximately $1.3 million representing 1.5% of revenue, compared with 2% in
fiscal 2002. The decrease was due to certain Spectra intangibles being fully
amortized during fiscal 2003.

Amortization expense of goodwill, purchased, and other intangibles decreased in
fiscal 2002 by approximately $21.1 million representing 2% of revenue, compared
with 6% in fiscal 2001. The decrease was primarily due to the adoption of FAS
142 in fiscal 2002 that does not require the amortization of goodwill and
intangible assets with indefinite lives.

Non-operating Expense, Net

The following table shows non-operating expense, net for the periods indicated
and should be read in conjunction with the narrative descriptions of those
expenses below: