intermec201010k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K
   
ý
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
 
OR
 
o
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: 001-13279
Intermec Logo
  
Intermec, Inc.
(Exact name of registrant as specified in its charter)

Delaware
 
95-4647021
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)
     
6001 36th Avenue West, Everett, WA
 
98203-1264
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: (425) 348-2600

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
New York Stock Exchange
     
Securities registered pursuant to Section 12(g) of the Act: None
 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  
 
Yes ý
No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
 
Yes o
No ý

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 ý
No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    
  
Yes ý
No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. 
   
      ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer ý
     
Accelerated filer            o
         
Non-accelerated filer   o
     
Smaller reporting company filer o
(Do not check if a smaller reporting company)
       
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
Yes o
No ý

As of June 25, 2010, there was 61,795,398 common shares outstanding held by non-affiliates of the registrant, and the aggregate market value of the common shares was approximately $662.4 million, based on the closing sale price as reported on the New York Stock Exchange.
 
On February 11, 2011, there were 60,241,666 shares of the registrant's Common Stock outstanding, exclusive of treasury shares.
 

 

DOCUMENTS INCORPORATED BY REFERENCE

Certain information required to be reported in Part III of this Annual report on Form 10-K is herein incorporated by reference from the registrant’s definitive proxy statement to be filed with the Securities and Exchange Commission with respect to the registrant’s Annual Meeting of Shareholders scheduled to be held on May 25, 2011.

 
 
 
 
 
 
 


INTERMEC, INC.
TABLE OF CONTENTS TO ANNUAL REPORT
ON FORM 10-K
 
   
Page
Number
 
PART I.
     
       
   
         
     
           
   
 
           
   
 
           
   
 
           
Item 4.       11  
           
PART II.
         
           
   
 
           
   
 
           
     
           
   
 
           
   
 
           
   
 
           
   
 
           
   
 
           
PART III.
       
           
   
 
           
   
 
           
   
 
           
   
 
           
   
 
           
PART IV.
         
           
   
 
           
     
 

 
 
 
 
 
 
 
PART I

FORWARD-LOOKING STATEMENTS AND RISK FACTORS; SAFE HARBOR 
 
Statements made in this filing and any related statements that express Intermec’s or our management’s intentions, hopes, indications, beliefs, expectations, guidance, estimates, forecasts or predictions of the future constitute forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, and relate to matters that are not historical facts. They include, without limitation, statements about our view of general economic and market conditions, our revenue, expense, earnings or financial outlook for the current or any future period, our ability to develop, produce, market or sell our products, either directly or through third parties, to reduce or control expenses, to improve efficiency, to realign resources, or to continue operational improvement and year-over-year or sequential growth, and about the applicability of accounting policies used in our financial reporting. They also include, without limitation, statements about the consummation of the pending acquisition of Vocollect by Intermec, future financial and operating results of the combined company and benefits of the pending acquisition. When used in this document and in documents it refers to, the words “anticipate,” “believe,” “will,” “intend,” “project” and “expect” and similar expressions as they relate to us or our management are intended to identify such forward-looking statements. These statements represent beliefs and expectations only as of the date they were made. We may elect to update forward-looking statements but we expressly disclaim any obligation to do so, even if our beliefs and expectations change.
 
Actual results may differ from those expressed or implied in our forward-looking statements. Such forward-looking statements involve and are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those discussed in a forward-looking statement. These include, but are not limited to, risks and uncertainties described more fully in our reports filed or to be filed with the Securities and Exchange Commission including, but not limited to, our annual reports on Form 10-K and quarterly reports on Form 10-Q, which are available on our website at www.intermec.com.
 
You are encouraged to review the Risk Factors portion of Item 1A of Part I of this filing which discusses the risk factors associated with our business.
 

ITEM 1.             BUSINESS 

General

Intermec, Inc. (“Intermec”, “us”, “we”, “our”) is a Delaware corporation, headquartered in Everett, Washington. Our major offices and repair facilities are in the states of Washington, Iowa, Ohio and North Carolina, and in more than 20 countries internationally, including the United Kingdom, the European Union, Canada, Mexico, Brazil, and Singapore.
 
Since January 2006, our current automated identification and data collection (“AIDC”) business has been our sole line of business. In recent years, we have invested in programs to streamline our sales systems, supply chain and business processes, to develop products and services that offer solutions for our customers’ business needs, and to implement a new global enterprise resource planning (ERP) system.

We became an independent public company in late October 31, 1997 with two principal lines of business: our current AIDC business, and unrelated industrial automation businesses that produced manufacturing products and services.  In 2005, we divested our industrial automation businesses, and they are classified as discontinued operations for accounting purposes in our consolidated financial statements and related notes.
 
Continuing Operations

We design, develop, integrate, and sell wired and wireless AIDC products and related services. Our products are designed for rugged environments and to maintain connectivity, preserve computing capability and retain data despite harsh conditions and heavy use. We generate our revenues primarily through the sale of products and post-warranty equipment service and repair contracts.
  
Products and Services

Our reportable segments are comprised of product and services. Our products include mobile computers, barcode scanners, printers, label media, radio frequency identification (“RFID”) products and related software. We provide and sell several types of services, which are explained and defined more fully in the Services discussion, below: Repair Services; Advanced Services; Education Services; Support Services; and Managed Services. See Note N of the Notes to the Consolidated Financial Statements for financial information by reportable segment and by geographical region.

  
 
1
 
 
ITEM 1. 
BUSINESS (continued)

Products
 
Our Products revenue consists primarily of mobile computers and bar code scanners, as explained and defined below.

  
Mobile Computers: Our mobile computer product line includes handheld computers and forklift-mounted computers that support local-area, wide-area and Internet-enabled voice and data communications, enterprise-class software applications and data storage capabilities. These devices often include barcode scanning, GPS and RFID features.
 
  
Printers and Label Media: We sell fixed, desktop and portable barcode and RFID printers ranging from low-cost, light-duty models to higher-cost, heavy-duty models. Our specialty printers provide custom capabilities, including a global language enabler and high resolution printing that produces sharp typefaces and precise graphics even on ultra-small labels of the type used in the electronics industry.  Our label media product line includes pressure-sensitive bar code labels, thermal transfer ribbons, RFID smart labels as well as custom-designed labels for specialized environments or applications.

   
Bar Code Scanners: Our bar code scanning portfolio includes fixed, handheld and forklift-mounted laser scanners and linear and area imagers. These devices can collect and wirelessly decode bar codes and transmit the resulting data to enterprise resource management systems.

   
RFID Products: We sell fixed, handheld and forklift-mounted RFID readers, high value rigid RFID tags and high value inserts for RFID tags. Our RFID product line is focused on passive UHF technology and complies with the EPCglobal Generation 2 UHF standard and similar standards around the world.

Services

Our Services revenue consists primarily of Repair Services, as explained and defined below. All of our services offerings are sold separately, and we sometimes sell services in combination with products.
 
  
Our Repair Services programs provide customers with post-warranty repair or replacement of defective or damaged devices or device components and provide spare devices that customers can use while defective or damaged devices are being repaired.  These repair programs cover Intermec’s mobile computers, scanners and printers and selected non-Intermec products. The programs are available on an annual pre-paid basis for one, three or five years depending on product type and manufacturer. We offer “next business day” and “second business day” onsite repair options as well as “two business day” and “five business day” depot repair options.
 
   
Our Advanced Services consist of wireless site surveys and assessments; project management, testing, storage and staging of our products; truck and forklift installations; activation of our cellular products; loading of custom or specialized software onto our products; and software consulting services.
 
   
Our Education Services include the development and delivery of training programs and materials to help end users become proficient in the use of our products and adapt to the new business processes supported by our products. Our training materials and programs can be delivered at the customer’s site or on-line.

   
Our Support Services unit consists of factory-trained specialists who can address problems with our hardware or software or with the networks or systems that incorporate our products. These technical support services are delivered on-line or by telephone.

   
Our Managed Services offering was introduced in 2010 and includes asset management and real time tracking of mobile and network devices; evaluation of the health, utilization and security of devices, networks and data; and device and network diagnostics and configuration. We provide these services by wirelessly accessing the customer’s devices and networks while they are in operation and using the resulting data to manage the devices for the customer or by making it possible for the customer to do so through an Internet portal. These services are typically priced on a “per device, per month” basis.
  
Product Manufacture and Supply Chain

We use contract manufacturers to make the products we sell and to provide spare parts for those products. The services provided by our contract manufacturers include material and component procurement as well as manufacturing, testing, packaging and shipment of finished goods. We also use third-party contractors to design certain products, parts and components. Our contract manufacturers generally purchase and own the inventories of raw materials, components, work-in-process and finished goods until our products are shipped to the customer.
 
 
 
2
 
 
 
ITEM 1. 
BUSINESS (continued)
  
In December 2008, we entered into a Manufacturing Services Framework Agreement (the “Agreement”) with Venture Corporation Limited and its affiliates (collectively, “Venture”).  That year, we relocated the final assembly of our then-existing product lines from our Everett, Washington headquarters to Venture. When we entered into the Agreement with Venture, Venture became the exclusive manufacturer for substantially all of the products we offered for sale at that time. However, we now decide on a case-by-case basis whether to use Venture or some other contract manufacturer. The Agreement does not require us to purchase minimum quantities of our products from Venture.
 
Venture and the other contract manufacturers we use are headquartered in and have manufacturing locations throughout Asia.
 
In addition to the use of contract manufacturers and suppliers, we also use U.S. and non-U.S. third party service providers, including transportation and logistics firms as part of our customer delivery supply chain. We may, in the future, take advantage of similar opportunities to use service providers to streamline our business and to enhance our flexibility and responsiveness to global markets. 
 
Business Strategy

We and our third party value-added distributors, resellers, and independent software and service vendors (our “channel partners”) provide rugged mobile business solutions that help our customers gain more insight into and exert more control over their businesses and, in the process, help to lower their costs, increase their revenues and improve customer satisfaction and loyalty.

These solutions are delivered to customers in a wide range of industries all over the world. The following market segments are primary areas of focus for us because we believe they each have a favorable combination of growth and profit potential, scale economics and differentiation opportunities:

   
Warehouses and Distribution Centers. Workers in warehouses and distribution centers perform a variety of tasks, including: receiving and putting away goods, picking, packing, loading and transferring goods, checking inventory and performing cycle counts. Our solutions help to simplify and speed up these processes and improve the accuracy of the results by automating data capture and wirelessly confirming, synchronizing and updating data between mobile devices, warehouse management systems and other enterprise resource planning systems.

   
Direct Store Delivery (“DSD”). DSD is the delivery of consumer goods from a supplier or a distributor directly to a retail store, bypassing a warehouse. DSD activities typically include physical delivery and return of merchandise as well as store-level forecasting, ordering, pricing, promotion, invoicing, shelf merchandising and inventory management.  With our solutions, customers can electronically manage DSD activities while they are in progress in the field. This makes it possible for our customers to increase revenues and cut costs with just-in-time inventory replenishment, on-the-fly price updates, confirmations and similar business process tools.

   
Field Service. Many companies perform in-field maintenance, repair and refurbishment services for their own products or products manufactured by others. By using our business solutions to electronically manage these activities while they are occurring, our customers can ensure that the work is done correctly the first time and is documented and invoiced in a rapid and accurate fashion. This increases revenue, speeds up revenue recognition and cash collection and decreases the cost of field service operations.

   
Postal and Courier Express Parcel. Private and public postal and courier express parcel (“CEP”) firms have many employees picking up, sorting, transporting and delivering mail and packages. With our business solutions, critical information and capabilities can be provided to and received from the field. These include, for example, address confirmation or correction, dynamic rate and pricing information, dynamic routing and navigation systems, pickup and delivery confirmation, package location and field-triggered billing and payment processes. These capabilities can help our postal and CEP customers to increase their revenues, speed up revenue recognition and cash collection and decrease costs.

Markets and Customers

Since AIDC products and services can be used to streamline the operations of any company of any size or type, the AIDC market is large and customers can be found in a wide range of industries, including consumer goods, healthcare, industrial goods, postal and CEP, retail, and transportation and logistics. Market growth is driven by our customers’ need for technologies and solutions that help to: increase revenue; accelerate revenue recognition; reduce capital expenditures, operating expenses and working capital requirements; conserve cash; and improve productivity, quality, customer service and support. Our customers include commercial businesses as well as government agencies.  Most of our U.S. federal government sales are to agencies within the Department of Defense, but we also sell to civilian agencies of the U.S. federal government.

We cover the AIDC market through our own direct sales force and an indirect channel that consists of value-added distributors, resellers, and independent software and service vendors. Our indirect sales channel accounts for approximately 75% of our global hardware sales. Our direct and indirect sales channels reach customers in the Americas, Europe, the Middle East, and Africa and in selected Asia Pacific countries, including Australia and China.

In 2010, 2009 and 2008, one firm, ScanSource, Inc. and its affiliated companies (“ScanSource”) accounted for more than 10% of our revenues. ScanSource is a distributor of our products, not an end user. Total sales to ScanSource were $156.8 million, $123.0 million, and $113.8 million for the years ended December 31, 2010, 2009 and 2008, respectively. Because there are a number of distribution firms that compete with ScanSource and are qualified, ready, willing and able to distribute our products, we do not believe that Intermec is substantially dependent on our relationship with ScanSource.

 
 
3
 
 
ITEM 1. 
BUSINESS (continued)
 
Competition

The AIDC market is fragmented, highly competitive and rapidly changing. Independent market surveys suggest that we are one of the larger participants measured by revenues or units and the only firm with a full line of AIDC products. With respect to mobile computers and barcode scanners, Motorola Solutions, Inc., Honeywell Corporation, Psion Teklogix and the LXE division of EMS Technologies are major competitors. With respect to printers, Zebra Technologies Corporation is our major competitor. In the label media area, we compete with a number of large and small producers, including Avery Dennison Corporation and Brady Corporation.

Together with our channel partners, we compete primarily on the basis of our insight into the processes, workflows and systems of the customers in our areas of focus; our ability to develop the best solutions for those types of customers; and the innovative technology and expertise we use to deliver those solutions. Our support services, product functionality and performance, ruggedness and overall product quality are also important elements of our competitive position.
 
Research and Development

We engage in research and development on an ongoing basis to develop new products and services and to enhance our existing products and services. Our research and development expenditures, net of credits, amounted to $67.3 million, $59.6 million and $67.9 million, all of which we sponsored in the years ended December 31, 2010, 2009 and 2008, respectively.
  
Intellectual Property

We strive to protect our investment in technology and to secure competitive advantage by obtaining intellectual property (“IP”) protection. We have approximately 600 patents (covering a variety of technologies, such as, wireless communication, networking, Internet access, imaging and similar technologies) and a number of trademarks, copyrights and trade secrets. When appropriate, we have obtained licenses to use IP controlled by other organizations. As we expand our product offerings, we try to obtain patents and other intellectual property rights related to such offerings and, when appropriate, seek licenses to use intellectual property owned by third parties.

To distinguish our products and services from those of our competitors, we have obtained certain trademarks and trade names, and as we expand our product and service offerings, we try to obtain trademarks and trade names to cover those new offerings. We protect certain details of our processes, products and strategies as trade secrets by restricting access to that information. We have ongoing programs designed to maintain the confidentiality of such information.

We license our IP to generate revenue or to facilitate our effort to market and sell our products and services. We try to protect our investment in technology, generate revenue and secure competitive advantage by enforcing our IP rights. The nature, timing and geographic location of these efforts depends, in part, on the types of legal protection given to different types of IP rights in various countries.
 
Seasonality and Backlog

Our quarterly results reflect seasonality in the sale of our products and services, since our revenues are typically highest in the fourth fiscal quarter and the lowest in the first fiscal quarter. See “Quarterly Financial Information” on page 61 of this Form 10-K for quarterly revenues and expenses.

Sales backlog from continuing operations was $59.7 million, $44.2 million and $80.9 million at December 31, 2010, 2009 and 2008, respectively. Our business typically operates without a significant backlog of firm orders, and we do not consider backlog to be a significant indicator of future sales.

Employees

At December 31, 2010, we had 1,745 full-time employees, of which 1,730 were engaged in our wholly-owned subsidiary, Intermec Technologies Corporation, and 15 were engaged in our holding company, Intermec, Inc. Approximately 62% of our full-time employees are in the United States, approximately 18% are in Europe, the Middle East and Africa (“EMEA”), and the remaining 20% are employed throughout the rest of the world, including the Asia Pacific region, Latin America, Canada and Mexico.
 
Environmental and Regulatory Matters
 
Our products are subject to regulation in each country or jurisdiction where we sell or intend to sell our products.  Individual countries often require products or product families to be certified as compliant with local technical requirements.  Changes in regulations, new products and changes in existing products may require us to obtain new certifications for our products.

We sell full featured products providing wired and wireless access to enable enterprise access to data at its point of origin. Radio emissions, used in wireless communications, are the subject of governmental regulation in all countries in which we currently conduct or expect to conduct business. In North America, both the Canadian and U.S. governments publish radio emission regulations and changes thereto after public hearings. In other countries, regulatory changes can be introduced with little or no grace period for implementation. Furthermore, there is wide variability among the regulations of various countries. Future regulatory changes in North America, China and other jurisdictions are possible. Regulatory changes may provide opportunities but may also adversely affect our ability to sell our wireless products in a given country or adversely affect our cost of supplying wireless products in a given country.

 
 
4
 
 
 ITEM 1. 
BUSINESS (continued)
 
Some of our products are subject to various federal, state, local and international laws governing chemical substances in electronic products or governing energy efficiency. We take into account the requirements of these laws and regulations in the design of our products.

In 2010, compliance with federal, state and local laws regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, did not have a material effect on our financial results or competitive position.
 
Executive Officers of the Registrant

Our executive officers are elected each year by the Board of Directors at its first meeting following the Annual Meeting of Shareholders, to serve during the ensuing year and until their respective successors are elected and qualified or until their earlier resignation or removal. Newly-hired executive officers are elected at the time of their employment to serve until the next Board of Directors meeting first following an Annual Meeting of Stockholders and until their successors are elected and qualified or until their earlier resignation or removal. There are no family relationships between any of our executive officers and any director or other executive officer. The following information indicates the positions and ages of our executive officers on February 18, 2011, and their business experience during the prior five years.

Name
 
    Age
 
Position with Company and Principal Business Affiliations During Past Five Years
         
Patrick J. Byrne
   
50
 
Chief Executive Officer and President, and member of the Board of Directors since July 2007. Prior to joining Intermec, Mr. Byrne served as a Senior Vice President of Agilent Technologies Inc., a bio-analytical and electronic measurement company, and President of its Electronic Measurement Group from February 2005 to March 2007. Prior to assuming that position, Mr. Byrne served as Vice President and General Manager for Agilent’s Electronic Products and Solutions Group's Wireless Business Unit from September 2001 to February 2005.
           
Robert J. Driessnack
   
52
 
Senior Vice President and Chief Financial Officer since January 19, 2009.  Prior to his appointment as our Chief Financial Officer, Mr. Driessnack served as Vice President and Controller of HNI Corporation, a manufacturer and distributor of office furniture and hearth products, from 2004 until joining Intermec.  
           
Janis L. Harwell
   
56
 
Senior Vice President and General Counsel since September 2004 and Corporate Secretary since January 2006. In February 2009, Ms. Harwell also was appointed Senior Vice President Corporate Strategy.
           
Dennis A. Faerber
   
58
 
Senior Vice President, Global Supply Chain Operations and Global Services, of Intermec Technologies Corporation, since February 2008 for Global Supply Chain Operations, and since February 2009 for Global Services. Prior to joining Intermec, Mr. Faerber was employed by Applied Materials, Inc. from January 2007 through January 2008 as Corporate Vice President (Global Supply Chains) and by KLA-Tencor Corporation from March 2004 through January 2007 as Group Vice President and Chief Quality Officer.
           
James P. McDonnell
   
56
 
Senior Vice President, Global Sales of Intermec Technologies Corporation, since January 2010.  Prior to joining Intermec, Mr. McDonnell was Vice President of Global Sales-Enterprise Storage and Servers Group at Hewlett-Packard from 2007 to January 2010.  Prior to assuming that position, Mr. McDonnell was Senior Vice President, Solutions Partners Organization for Hewlett-Packard, from 2004 to 2007.
           
Earl R. Thompson
   
49
 
Senior Vice President, Mobile Solutions Business Unit since October 2008.  Mr. Thompson previously served as Vice President and General Manager of our Printer/Media Business from April 2008 to October 2008.  Prior to joining Intermec, Mr. Thompson was Vice President and General Manager, Wireless Division of Agilent Technologies, Inc. from 2004 to 2007.  

Available Information 

Information on our company may be found at the Internet website www.intermec.com. Our annual reports on Form 10-K and our other electronic filings with the Securities and Exchange Commission (“SEC”) are available in PDF format through our Investor Relations website at http://www.intermec.com/about_us/investor_relations/index.aspx.  Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, definitive proxy statements, and amendments to those reports (if any) are also available on the SEC website at www.sec.gov. The contents of these websites are not incorporated by reference into this report or in any other report or document we file. Our references to the addresses of these websites are intended to be inactive textual references only.

Shareholders may request a free copy of the annual reports on Form 10-K and quarterly reports on Form 10-Q from:

Intermec, Inc.
Attention: Investor Relations
6001 36th Avenue West
Everett, WA 98203-1264
 
 
 
5
 
 
 
RISK FACTORS 

You are encouraged to review the discussion of Forward Looking Statements and Risk Factors appearing in this report at Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation.”

In addition to the other information set forth in this report, you should carefully consider the following factors, which could materially affect our business, financial condition, operating results, earnings or stock price, in various ways. The risks described in this report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

  
The AIDC industry is characterized by rapid technological change, and our success depends upon the frequent enhancement of existing products and timely introduction of new products that meet our customers’ needs. Customer requirements for AIDC products are rapidly evolving and technological changes in our industry occur rapidly. To keep up with new customer requirements and distinguish Intermec from our competitors, we must frequently introduce new products and enhancements of existing products. Enhancing existing products and developing new products is a complex and uncertain process. It often requires significant investments in research and development (“R&D”). We may not have adequate resources to invest in R&D that will keep pace with technological changes in our industry. Even if we made adequate investments in R&D, they may not result in products attractive or acceptable to our customers. Furthermore, we may not be able to launch new or improved products before our competition launches comparable products. Any of these factors could cause our business or financial results to suffer.

  
Introduction of new products could render our existing products obsolete, which could have an adverse effect on our financial results. Rapid technological change, whether through our own or our competitors’ introduction of new products or technologies, could render our products obsolete. This may reduce sales volumes, or it may result in substantial excess or obsolete inventories, or both. In such event, we might have to sell all or a portion of the excess or obsolete inventory at a substantial discount to the planned resale price or the cost of making or acquiring that inventory and write off the difference. If we are unable to anticipate the obsolescence of our products or do not mitigate the risk of product obsolescence, our financial results could be materially and adversely affected.

  
Some of our competitors are substantially larger and more profitable than we are, which may give them a competitive advantage. We operate in a highly competitive industry.  Recent consolidation in the AIDC industry has resulted in larger and potentially stronger competitors, and we expect competition to continue to intensify. Some of these competitors have substantially more revenue or profit than we do. This may allow them to invest more in R&D, sales and marketing, and customer support than we can or to achieve more efficient economies of scale in manufacturing and distribution. It may also allow them to acquire or make complementary products that alone or in combination with other AIDC products could afford them a competitive advantage. These advantages may enable our larger competitors to weather market downturns longer or adapt more quickly to emerging technology developments, market trends or price declines than we can. Those competitors may also be able to precipitate such market changes by introducing new technologies, reducing their prices or otherwise changing their activities. This competition may also require us to reduce our prices, thereby lowering our margins. There is no assurance that our strategies to counteract our competitors’ advantages will successfully offset all or a portion of this scale imbalance. Our efforts to counteract this scale imbalance may result in the reduction of revenue or an increase in costs, which could materially and adversely affect our earnings. In addition, if we are unable to offset all or a significant portion of this imbalance, our earnings may be materially and adversely affected.

  
Further consolidation of the AIDC industry through business combination, strategic alliances and similar transactions could intensify competition and create other risks for our business. Our industry could experience a new series of acquisitions, joint ventures, strategic alliances or private equity transactions. These events could alter the structure of the AIDC industry and intensify competition within our industry by expanding the presence of companies that have greater business and financial resources than the firms they acquired or by increasing the market share of some companies in our industry. Such increased competition could have material adverse impacts to our market share, revenues, revenue growth and results of operations. There is no assurance that any of the strategies that we employ to respond to the structural changes and related increased competition will be successful.

  
As part of our growth strategy, we may acquire or make investments in other businesses, patents, technologies, products or services, and our failure to do so successfully may adversely affect our competitive position or financial results. We have made and expect to continue to make acquisitions or investments to expand our suite of products and services. Our growth could be hampered if we are unable to identify suitable acquisitions and investments or agree on the terms of any such acquisition or investment. We may not be able to consummate any such transaction if we lack sufficient resources to finance the transaction on our own and cannot obtain financing at a reasonable cost.  If we are not able to complete such acquisitions and successfully integrate them, or to complete investments and successfully realize the intended benefits of them, our competitive position may suffer, which could have adverse impacts on our revenues, revenue growth and results of operations.
 
●  
In addition to the customary risks of business combinations, our pending acquisition of Vocollect, Inc. presents specific risks for our business. There are numerous factors that may affect the success of our acquisition of Vocollect, some of which are outlined in the next Risk Factor. In addition, the success of that acquisition will depend on our ability to leverage the Vocollect products to enable us to expand our position in the warehouse market and our ability to successfully integrate and market the Vocollect products. If we are unable to achieve those goals, we may not realize all of the benefits anticipated or intended from the Vocollect acquisition.

 
6
 
 

ITEM 1A.
RISK FACTORS (Continued)
 
   
Our acquisition of Vocollect and other business combinations and acquisition transactions may not succeed in generating the intended benefits and, may, therefore, adversely affect shareholder value or our financial results. Integration of new businesses or technologies into our business may have any of the following adverse effects:

  
We may have difficulty transitioning customers and other business relationships to Intermec.
●  
We may have problems unifying management following a transaction.
  
We may lose key employees from our existing or acquired businesses.
  
We may experience intensified competition from other companies seeking to expand sales and market share during the integration period.
  
Our management’s attention may be diverted to the assimilation of the technology and personnel of acquired businesses or new product or service lines.
  
We may experience difficulties in coordinating geographically disparate organizations and corporate cultures and integrating management personnel with different business backgrounds.

The inability of our management to successfully integrate acquired businesses, and any related diversion of management’s attention, could have a material adverse effect on our business, operating results and financial condition.

  
Business combinations and other acquisition transactions may have a direct adverse effect on our financial condition, results of operations or liquidity, or on our stock price. In order to complete such transactions, we may have to use cash, issue new equity securities with dilutive effects on existing stockholders, take on new debt, assume contingent liabilities or amortize assets or expenses in a manner that might have a material adverse effect on our balance sheet, results of operations or liquidity. We are required to record certain acquisition-related costs and other items as current period expenses, which would have the effect of reducing our reported earnings in the period in which an acquisition is consummated. We are also required to record post-closing goodwill or other long-lived asset impairment charges in the period in which they occur, which could result in a significant charge to our earnings in that period. These and other potential negative effects of an acquisition transaction could prevent us from realizing the benefits of such transactions and have a material adverse impact on our stock price, revenues, revenue growth, balance sheet, results of operations and liquidity. 
 
  
Our business may be adversely affected if we do not continue to improve our business processes and systems and transform our supply chain or if those efforts have unintended results. In order to increase sales and profits, we must continue to expand our operations into new product and geographic markets and deepen our penetration of the markets we currently serve, and do so in ways that are cost effective and efficient from an operational and a tax perspective. To achieve our objectives, we are continuing to streamline our sales systems, supply chain and business processes and to implement a new global enterprise resource planning (ERP) system. We have also established an international headquarters in Singapore. These restructurings are large, complex undertakings and may result in unanticipated costs, liabilities and operational disruptions, or tax or other financial consequences. They might not proceed as planned, could result in unintended consequences or might not accomplish the intended goals, any of which could have a material adverse impact on our sales, profits, results of operations and earnings.   
 
  
Macroeconomic conditions beyond our control could lead to decreases in demand for our products, reduced profitability or deterioration in the quality of our accounts receivable. Domestic and international economic, political and social conditions are uncertain due to a variety of factors, including:

                global, regional and national economic downturns;
                the availability and cost of credit;
                volatility in stock and credit markets;
                energy costs;
                fluctuations in currency exchange rates;
                the risk of global conflict;
                the risk of terrorism, political turmoil, or war in a given country or region; and
                public health issues.
 
 
 Our business depends on our customers’ demand for our products and services, the general economic health of current and prospective customers, and their desire or ability to make investments in technology. A deterioration of global, regional or local political, economic or social conditions could affect potential customers in ways that reduce demand for our products and disrupt our manufacturing and sales plans and efforts. These global, regional or local conditions may also cause governments to change their spending priorities, which may delay, reduce or eliminate funding for our products and services.  Acts of terrorism, wars, public health issues and increased energy costs could disrupt commerce in ways that could impair our supply chain and our ability to get products to our customers and increase our manufacturing and delivery costs. Changes in foreign currency exchange rates may negatively impact reported revenue and expenses. In addition, our sales are typically made on unsecured credit terms that are generally consistent with the prevailing business practices in the country in which the customer is located. A deterioration of political, economic or social conditions in a given country or region could reduce or eliminate our ability to collect accounts receivable in that country or region. In any of these events, our results of operations could be materially and adversely affected.

 
 
7
 
 
 ITEM 1A.
RISK FACTORS 

 
We face risks as a global company that could adversely affect our revenues, gross profit margins and results of operations. Due to the global nature of our business, we face risks that companies operating in a single country or region do not have.  U.S. and foreign government restrictions on the export or import of technology could prevent us from selling some or all of our products in one or more countries. Our sales could also be materially and adversely affected by burdensome laws, regulations, security requirements, tariffs, quotas, taxes, trade barriers or capital flow restrictions imposed by the U.S. or foreign governments. In addition, political and economic instability in a particular country or region could reduce demand for our products or impair or eliminate our ability to sell or deliver those products to customers in those countries or put our assets at risk. Any of the foregoing factors could adversely affect our ability to continue or expand sales of our products in any market, and disruptions of our sales could materially and adversely impact our revenues, revenue growth, gross profit margins and results of operations.
 
 
A significant percentage of our products and their components are designed, manufactured, produced, delivered, serviced or supported in countries outside of the U.S. From time to time, we contract with companies outside of the U.S. to perform one or more of these activities, or portions of these activities. For operational, legal or other reasons, we may have to change the mix of domestic and international operations or move outsourced activities from one overseas vendor to another. In addition, U.S. or foreign government actions or economic or political instability and potentially weaker foreign IP protections may disrupt or require changes in our international operations or international outsourcing arrangements. The process of implementing such changes and dealing with such disruptions is complex and can be expensive. There is no assurance that we will be able to accomplish these tasks in an efficient or cost-effective manner, if at all. If we encounter difficulties in making such transitions, our revenues, gross profit margins and results of operations could be materially and adversely affected.

 
We are also subject to risks that our employees, contractors, representatives or agents could conduct our operations outside the U.S. in ways that violate the U.S. Foreign Corrupt Practices Act or other similar anti-bribery laws. Although we have policies and procedures to comply with those laws, our employees, contractors, representatives and agents may take actions that violate our policies. Any such violations could have a negative impact on our business. Moreover, third-party sales representatives or other agents that help sell our products or provide other services may violate our anti-bribery policies and procedures, because it may be more difficult for us to oversee their conduct.
 
 
Growth of and changes in our revenues and profits depend on the customer, product and geographic mix of our sales.  Fluctuations in our sales mix could have an adverse impact on or increase the volatility of our revenues, gross margins and profits. Sales of our products to large enterprises tend to have lower prices and gross margins than sales to smaller firms. In addition, our gross margins vary depending on the product or service and the geographic region in which sales are made. Growth in our revenues and gross margins therefore depends on the customer, product and geographic mix of our sales. Our introduction of lower-priced products may also affect our ability to sell high-end products, even if those products have advanced features. In addition, our distributors, dealers and resellers can have a significant impact on the mix of our products and services. If we are unable to execute a sales strategy that results in a favorable sales mix, our revenues, gross margins and earnings may decline. Further, changes in the mix of our sales from quarter-to-quarter or year-to-year may make our revenues, gross margins and earnings more volatile and difficult to predict.

 
Our reliance on third-party distributors could adversely affect our business and operating results. In addition to offering our products to certain customers and resellers directly, we rely to a significant and increasing degree on third-party distributors and to sell our products to end-users. In 2009 and 2010, one distributor, ScanSource, Inc., accounted for more than 10% of our sales, and it or other distributors may account for a substantial portion of our sales in the future. Changes in markets, customers or products, or negative developments in general economic and financial conditions and the availability of credit, may adversely affect the ability of these distributors to bring our products to market at the right time and in the right locations. In addition, our competitors’ strategic relationships with or acquisitions of these distributors could disrupt our relationships with them. Any such disruption in the distribution of our products could impair or delay sales of our products to end users and increase our costs of distribution, which could adversely affect our sales or income.

●  
We rely on third-party contractors to design many of our products and their components and to manufacture substantially all of our current products. Any failure or inability of those third-party contractors to provide high-quality design and manufacturing services could adversely affect our business. In relying on third-party contractors to assemble substantially all of our products, we do not have direct physical control over the manufacturing process and operations. This might adversely affect our ability to control the quality of our products and the timeliness of their delivery to our customers. Either of those potential consequences could adversely affect our customer relationships and our revenues. Furthermore, access to our intellectual property by contract manufacturers could possibly increase the risk of infringement or misappropriation of our assets.

We also use third-party contractors to design certain products, parts and components.  If we are unable to engage design contractors that satisfy our requirements, or if such contractors fail to design products, parts and components to our specifications on time and at reasonable prices, our ability to enhance our existing products and to introduce new products would be impaired, and our business would suffer.
 
 
8
 

ITEM 1A.
RISK FACTORS (Continued)

●  
Use of third-party suppliers and service providers could adversely affect our product quality, delivery schedules or customer satisfaction, any of which could have an adverse effect on our financial results. Third-party suppliers that we approve will be providing the components that our contract manufacturers will use in the final assembly of our products. Some of these components may be available only from a single source or limited sources, and if they become unavailable for any reason, we or our contract manufacturers may be unable to obtain alternative sources of supply on a timely basis. We also outsource a number of services to third-party service providers, including transportation and logistics, management of spare parts and warranty service. Our products and services may be adversely affected by the quality control of these third-party suppliers and service providers, or by their inability to ship product, manage our product inventory, meet delivery deadlines or otherwise satisfy our customers’ needs. Failure of these third-party suppliers and service providers in any of these respects may negatively affect our revenue and customer relationships. Furthermore, these suppliers and service providers may have access to our IP, which may increase the risk of infringement or misappropriation.
 
●  
Our inability to successfully defend or enforce our intellectual property rights could adversely affect the growth of our business and results of operations. To protect our IP portfolio, we may be required to initiate patent infringement lawsuits. IP infringement lawsuits are complex proceedings, and the results are very difficult to predict. There is no assurance that we will prevail in all or any of these cases or that we will achieve the desired outcome in terms of injunctive relief or damages or that the other parties will be able to pay the damages awarded. Adverse results in such lawsuits could give competitors the legal right to compete with us and with our licensees using technology that is similar to or the same as ours. Adverse outcomes in IP lawsuits could also reduce our royalty revenues. In some periods, IP litigation recoveries and expenses could result in large fluctuations from prior periods, increase the volatility of our financial results or have a material adverse impact on our operating profits, results of operations or earnings. 

Since our business strategy includes global expansion, we are operating in developing countries where the institutional structures for creating and enforcing IP rights are very new or non-existent and where government agencies, courts and market participants have little experience with IP rights. There is no assurance that we will be able to protect our technology in such countries, because we may not be able to enforce IP rights in those jurisdictions and alternative methods of protecting our IP rights may not be effective. Our inability to prevent competitors in these developing markets from misappropriating our technology could materially and adversely affect our sales, revenues and results of operations.

  
Our inability to successfully defend ourselves from the intellectual property infringement claims of others could have an adverse affect on the growth of our business and results of operations. Our competitors, our potential competitors and other companies may have IP rights covering products and services similar to those we market and sell. These firms may try to use their IP rights to prevent us from selling some of our products, to collect royalties from us, or to deter us from enforcing our IP rights against them. Those efforts may include infringement lawsuits against us or our customers. These lawsuits are complex proceedings with uncertain outcomes. There is no assurance that we or our customers will prevail in any IP lawsuits initiated by third parties. If the results of such litigation are adverse to us or our customers, we could be enjoined from selling and our customers could be enjoined from using our products or services and ordered to pay for past damages. We might also be required to pay future royalties or be forced to incur the cost of designing around the third party’s IP. In some periods, IP litigation expenses could result in large fluctuations from prior periods. Any of these events could increase the volatility of our financial results or have a material adverse effect on our sales, revenues, operating profits, results of operations or earnings per share.

  
Our failure to expand our IP portfolio could adversely affect the growth of our business and results of operations. Expansion of our IP portfolio is one of the available methods of growing our revenues and our profits. This involves a complex and costly set of activities with uncertain outcomes. Our ability to obtain patents and other IP can be adversely affected by insufficient inventiveness of our employees, by changes in IP laws, treaties, and regulations, and by judicial and administrative interpretations of those laws treaties and regulations. Our ability to expand our IP portfolio could also be adversely affected by the lack of valuable IP for sale or license at affordable prices. There is no assurance that we will be able to obtain valuable IP in the jurisdictions where we and our competitors operate or that we will be able to use or license that IP or that we will be able to generate meaningful royalty revenue or profits from our IP.

  
Estimating our income tax rate is complex and subject to uncertainty. The computation of income tax expense (benefit) is complex because it is based on the laws of numerous taxing jurisdictions and requires significant judgment on the application of complicated rules governing accounting for tax provisions under accounting principles generally accepted in the United States.  Income tax expense (benefit) for interim quarters is based on a forecast of our global tax rate for the year, which includes forward looking financial projections. Such financial projections are based on numerous assumptions, including the expectations of profit and loss by jurisdiction. It is difficult to accurately forecast various items that make up the projections, and such items may be treated as discrete accounting. Examples of items that could cause variability in our income tax rate include our mix of income by jurisdiction, tax deductions for stock option expense, the application of transfer pricing rules, tax audits and changes to our valuation allowance for deferred tax assets. Future events, such as changes in our business and the tax law in the jurisdictions where we do business, could also affect our rate. For these reasons, our global tax rate may be materially different than our estimate. 

  
If we do not generate sufficient future taxable income, we may be required to recognize additional deferred tax asset valuation allowances. The value of our deferred tax assets depends, in part, on our ability to use them to offset taxable income in future years. If we are unable to generate sufficient future taxable income in the U.S. and certain other jurisdictions, or if there are significant changes in tax laws or the tax rates or the period within which the underlying temporary differences become taxable or deductible, we could be required to increase our valuation allowance against our deferred tax assets.  Such an increase would result in an increase in our effective tax rate and have a negative impact on our operating results. If our estimated future taxable income is increased, the valuation allowances for deferred tax assets may be reduced.  These changes may also contribute to the volatility of our financial results.
 
 
 
9
 

ITEM 1A.
RISK FACTORS (Continued)

● 
If we do not comply with agreements that we have made in certain jurisdictions, we may lose favorable tax treatment that results from those agreements. In some jurisdictions in which we operate, favorable tax rates and other tax benefits are subject to our compliance with agreements that we have with relevant governmental agencies. If we are unable to satisfy the requirements of those agreements, our tax rate in that jurisdiction might increase or we might lose certain tax benefits, which could have a material adverse effect on our effective tax rate or our financial results.
 
We may have additional tax liabilities. Our tax expense may be impacted if our intercompany transactions, which are required to be computed on an arm’s-length basis, are challenged and successfully disputed by the tax authorities.  In determining the adequacy of income taxes, we assess the likelihood of adverse outcomes resulting from the Internal Revenue Service (IRS) and other tax authorities’ examinations. The IRS and tax authorities in countries where we do business regularly examine our tax returns. The ultimate outcome of these examinations cannot be predicted with certainty. Should the IRS or other tax authorities assess additional taxes as a result of examinations, we may be required to record charges to operations that could have a material impact on the results of operations, financial position, or cash flows.
 
  
Fluctuations in currency exchange rates may adversely impact our cash flows and earnings. Due to our global operations, our cash flows, revenue and earnings are exposed to currency exchange rate fluctuations. Our international sales are quoted, billed and collected in the customer’s local currency in EMEA and in U.S. dollars elsewhere. Our product costs are largely denominated in U.S. dollars. Therefore, our product margins are exposed to changes in foreign exchange rates.  Foreign exchange rate fluctuations may also affect the cost of goods and services that we purchase and personnel that we employ outside of the United States. When appropriate, we may attempt to limit our exposure to exchange rate changes by entering into short-term currency exchange contracts. There is no assurance that we will hedge or will be able to hedge such foreign currency exchange risk or that our hedges will be successful.

Our currency exchange gains or losses (net of hedges) may materially and adversely impact our cash flows and earnings.  Additionally, adverse movements in currency exchange rates could result in increases in our cost of goods sold or reduction in growth in international orders, materially impacting our cash flows and earnings.

●  
Global regulation and regulatory compliance, including environmental, technological and standards setting regulations, may limit our sales or increase our costs, which could adversely impact our revenues and results of operations. We are subject to domestic and international technical and environmental standards and regulations that govern or influence the design, components or operation of our products. Such standards and regulations may also require us to pay for specified collection, recycling, treatment and disposal of past and future covered products. Our ability to sell AIDC products in a given country and the gross margins on products sold in a given country could be affected by such regulations. We are also subject to self-imposed standards setting activities sponsored by organizations such as ISO, AIM, IEEE and EPCglobal that provide our customers with the ability to seamlessly use our products with products from other AIDC vendors, which our customers demand. Changes in standards and regulations may be introduced at any time and with little or no time to bring products into compliance with the revised technical standard or regulation. Standards and regulations may:

  
prevent us from selling one or more of our products in a particular country or region;
  
increase our cost of supplying our products by requiring us to redesign existing products or to use more expensive designs or components;
  
require us to obtain services or create infrastructure in a particular country to address collection, recycling and similar obligations; or
  
require us to license our patents on a royalty free basis and prevent us from seeking damages and injunctive relief for patent infringements.

In these cases, we may experience unexpected disruptions in our ability to supply customers with our products or may have to incur unexpected costs to bring our products into compliance.  Due to these uncertainties and compliance burdens, our customers may postpone or cancel purchases of our products.  As a result, global regulation and compliance could have a material adverse effect on our revenues, gross profit margins and results of operations and increase the volatility of our financial results.

  
Our business may be adversely affected if we are unable to attract and retain skilled managers and employees. Competition for skilled employees is high in our industry, and we must remain competitive in terms of compensation and other employee benefits to retain key employees. If we are unsuccessful in hiring and retaining skilled managers and employees, we will be unable to maintain and expand our business.
 
 
 
10
 
 
UNRESOLVED STAFF COMMENTS
 
Not Applicable.

 
PROPERTIES
 
Our executive offices are located at 6001 36th Avenue West, Everett, Washington. Our continuing operations have an aggregate floor area of approximately 785,921 square feet, of which 548,154 square feet, or 70% are located in the United States, and 237,767 square feet, or 30%, are located outside the United States, primarily in Mexico, the Netherlands, Spain, Canada, France and Singapore.
 
Approximately 92,000 square feet, or 12%, of our principal plant, office and commercial floor area associated with continuing operations, is owned by us, and the balance is held under lease.
 
The U.S. offices associated with our continuing operations are located in the following states (in square feet):
 
Washington
   
217,876
 
Iowa
     184,927  
Ohio
   
97,483
 
Other states
   
47,868
 
Total
   
548,154
 
 
The above-mentioned facilities are in satisfactory condition and suitable for the particular purposes for which they were acquired, constructed or leased and are adequate for present operations.
 
The foregoing information excludes the following properties:

●  
Approximately 94,000 square feet held under lease, previously used for manufacturing in Everett, WA.
  
Plants or offices that, when added to all other of our plants and offices in the same city, have a total floor area of less than 10,000 square feet.
●  
Facilities held under lease that we are subleasing to third parties, comprising approximately 213,000 square feet in Michigan, New Mexico and Ontario, Canada.
  
Properties we own that are not used for operations and are classified as other assets as of December 31, 2010, including 228,000 square feet located in Illinois.
  
Approximately 312,000 square feet held under lease, previously used in a discontinued business located in Michigan.
 
 
LEGAL PROCEEDINGS
 
We currently, and from time to time, are involved in claims, lawsuits and other proceedings, including, but not limited to, IP, commercial, and employment matters, which arise in the ordinary course of business. We do not expect the ultimate resolution of currently pending matters to be material in relation to our business, financial condition, and results of operations or liquidity.

We capitalize external legal costs incurred in the defense of our patents where we believe that there is an evident increase in the value of the patent and that the successful outcome of the legal action is probable. During the course of any legal action, the court where the case is pending makes decisions and issues rulings of various kinds, which may be favorable or unfavorable. We monitor developments in the legal action, the legal costs incurred and the anticipated outcome of the legal action, and assess the likelihood of a successful outcome based on the entire action.  If changes in the anticipated outcome occur that reduce the likelihood of a successful outcome of the entire action to less than probable, the capitalized costs would be charged to expense in the period in which the change is determined. Refer to Capitalized Legal Patent Costs in Significant Accounting Policies in Note A of the Notes to Consolidated Financial Statements.
 
 
REMOVED AND RESERVED
 
 
 
11
 
 
 
PART II

MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
The high and low sales prices of our common stock, by quarter, in the years ended December 31, 2010 and 2009, are as follows:
 
 
Year Ended December 31,
 
 
2010
 
2009
 
 
High
 
Low
 
High
 
Low
 
First Quarter
 
$
15.60
   
$
12.67
   
$
14.50
   
$
8.68
 
Second Quarter
   
14.49
     
10.14
     
12.80
     
9.98
 
Third Quarter
   
12.13
     
9.51
     
15.64
     
12.02
 
Fourth Quarter
   
13.08
     
11.17
     
15.16
     
10.36
 
  
Our common stock is traded on the New York Stock Exchange under the symbol IN. As of February 15, 2011, there were approximately 9,420 holders of record and 16,642 beneficial owners of our common stock. No cash dividends were paid during 2010 or 2009.
 
No shares of common stock were repurchased in the fourth quarter of 2010.

Stock Performance Graph
 
Set forth below is a line graph comparing the percentage change in the cumulative total shareholder return on our common stock for the five-year period ended December 31, 2010, with the cumulative total return for the same period of the Standard & Poor’s Midcap 400 Index and the Standard & Poor’s 1500 Electronic Equipment and Instruments index. The graph assumes an investment of $100 at the beginning of the period in our common stock, in the S&P Midcap 400 Index and in the companies included in the Standard & Poor’s 1500 Electronic Equipment and Instruments index. Total shareholder return was calculated on the basis that in each case all dividends were reinvested. The stock price performance shown in the graph is not necessarily indicative of future price performance.
 
     
12/05
     
12/06
     
12/07
     
12/08
     
12/09
     
12/10
 
Intermec, Inc
   
100.00
     
71.80
     
60.09
     
39.29
     
38.05
        37.46  
S&P Midcap 400
   
100.00
     
110.32
     
119.12
     
75.96
     
104.36
        132.16  
S&P 1500 Electronic Equipment & Instruments
   
100.00
     
113.20
     
143.62
     
97.34
     
112.44
        129.13  
 
 
 
 
12
 
 
SELECTED FINANCIAL DATA
 
Intermec, Inc.
(In millions, except for per share data)

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
   
2007
   
2006
 
Operating Results:
                             
Revenues
 
$
679.1
   
$
658.2
   
$
890.9
   
$
849.2
   
$
850.0
 
                                         
Operating profit (loss) from continuing operations (a)
 
$
0.3
   
$
(19.4
)
 
$
47.0
   
$
37.4
   
$
36.7
 
                                         
(Loss) earnings from continuing operations
   
(5.3
)
   
(10.8
)
   
35.7
     
24.4
     
35.0
 
Loss from discontinued operations
   
-
     
(1.0
)
   
-
     
(1.3
)
   
(3.0
)
Net (loss) earnings
 
$
(5.3
)
 
$
(11.8
)
 
$
35.7
   
$
23.1
   
$
32.0
 
                                         
Basic (loss) earnings per share:
                                       
  Continuing operations
 
$
(0.09
)
 
$
(0.17
)
 
$
0.58
   
$
0.40
   
$
0.56
 
  Discontinued operations
   
-
     
(0.02
)
   
-
     
(0.02
)
   
(0.05
)
  Net (loss) earnings per share
 
$
(0.09
)
 
$
(0.19
)
 
$
0.58
   
$
0.38
   
$
0.51
 
                                         
Diluted (loss) earnings per share:
                                       
  Continuing operations
 
$
(0.09
)
 
$
(0.17
)
 
$
0.58
   
$
0.40
   
$
0.55
 
  Discontinued operations
   
-
     
(0.02
)
   
-
     
(0.02
)
   
(0.05
)
  Net (loss) earnings per share
 
$
(0.09
)
 
$
(0.19
)
 
$
0.58
   
$
0.38
   
$
0.50
 
                                         
(In thousands)
                                       
Shares used for basic (loss) earnings per share
   
61,364
     
61,644
     
61,183
     
60,359
     
62,535
 
Shares used for diluted (loss) earnings per share
   
61,364
     
61,644
     
61,658
     
61,163
     
63,830
 
                                         
Financial Position (at end of year):
                                       
Total assets
 
$
749.3
   
$
771.8
   
$
789.9
   
$
900.6
   
$
810.3
 
Working capital
 
$
331.5
   
$
352.3
   
$
371.4
   
$
323.5
   
$
350.2
 
Current ratio
   
3.2
     
3.2
     
3.1
     
2.0
     
3.0
 

(a)  
Includes restructuring charges of $2.8 million in 2010, $20.6 million in 2009, $5.7 million in 2008 and $11.6 million in 2006. Also includes pre-tax gains on IP settlements of $16.5 million in 2006.
 
 
 
13
 

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 notes thereto that are incorporated by reference from Item 8 of this annual report on Form 10-K.
 
Overview
 
Intermec is a global business that designs, develops, integrates, sells and resells wired and wireless automated identification and data collection (“AIDC”) products and related services. Our products include mobile computers, barcode scanners, printers, label media, radio frequency identification (“RFID”) products and related software. We also offer a variety of services related to our product offerings.  Our Advanced Services include system design, deployment and activation.  We offer product and technology training as part of our Education Services. Managed Services comprise remote device, network and asset management.  Our Repair Services cover on-site and depot equipment repair and our Support Services include on-line and telephone technical support. Most of our revenue is currently generated through sales of mobile computers, barcode scanners, printers and Repair Services.

Our strategy is to provide rugged mobile business solutions that help our customers increase revenues, lower costs and improve customer satisfaction and loyalty. As part of that strategy, we seek to strengthen our position as “the Solutions Company” in the AIDC industry through vertical market expertise, a solutions orientation and customer and partner intimacy. We also seek to grow our business by targeting the most attractive vertical markets, increasing our marketing activities, expanding our channel, adding software and managed services to our offerings and introducing innovative new products.

We are primarily focused especially on the following vertical market segments: warehouse and distribution centers; direct store delivery (“DSD”); field service; and postal and courier express parcel. We are targeting these markets because we believe each has a favorable combination of growth and profit potential, scale economics and differentiation opportunities. These market segments are expected to generate a significant portion of future estimated total sales of AIDC products and represent attractive estimated compound annual growth rates.

In 2010, our revenues outside of North America improved considerably as compared with 2009. This was primarily due to a modest recovery in the global economy, an increase in the number of our channel partners and an improvement in revenue per channel partner. North America remained challenging in 2010 as growth in commercial revenues was more than offset by a decline in revenues from agencies of the U.S. federal government. We expect U.S. federal government revenue to improve in 2011 but we do not expect a return to the 2009 level. We anticipate continued growth in 2011 in international revenue and in North America commercial revenue and believe these revenues will more than offset any continued weakness in U.S. federal government sales.

In 2010, revenue in our Product segment, including Systems and Solutions, Printer and Media, grew as compared with 2009. The results for our Product segment reflect the regional factors described in the preceding paragraph. Service sales appear to be recovering from the economic downturn with a time lag behind product sales which is typical of the Service segment of our business. We anticipate continued growth in each of our segments in 2011.

Gross margins improved in 2010 as compared with 2009 due to favorable product and geographic mix. We expect continued improvement in gross margins in 2011 because we believe that a combination of favorable mix and higher product volumes will more than offset any competitive pricing pressure and unfavorable currency translation.

In 2010, our research and development (“R&D”) expense (net of R&D tax credits) was 9.9% of gross revenue as compared with 9.0% of gross revenue in 2009. This reflects the continued importance of new releases in our major product lines as well as an increase in the pace of innovation required in the mobile computing part of our business. We expect similar levels of R&D investment in 2011 so that we can launch the products in our pipeline and develop new ones.

In 2010, our selling, general and administrative (“SG&A”) expense was 28.1% of gross revenue as compared with 28.5% of gross revenue in 2009. We expect a modest increase in the sales and marketing portion of SG&A expense in 2011 to support the launch of our new products and to increase the number of our channel partners and the amount of revenue per channel partner.

Looking ahead, we plan to remain focused on the execution of our strategy to be the leader in rugged mobile business solutions in the AIDC industry. This will primarily involve organic activities such as increased marketing and sales efforts, channel partner expansion and the introduction of new and innovative hardware, software and services. As we have in the past, we also intend to pursue mergers, acquisitions or joint ventures when we believe they are appropriate methods of executing our strategy. In recent years, we have invested in programs that would benefit future periods, such as streamlining our product manufacturing and supply chain operations, expanding and refining our sales channel, implementing a new global enterprise resource planning (ERP) system and developing products and services that will effectively support our strategy. We have also significantly reduced our operating cost structure. We believe these initiatives have positioned us to take advantage of improving economic conditions and other opportunities.
  
 
 
14
 
 
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Overview (continued)

In January, 2011, we announced our plan to acquire Vocollect, Inc., a maker of voice recognition software and hardware for warehouses, distribution centers and other deployment environments. Refer to Subsequent Events in Note M of the Notes to the Consolidated Financial Statements.

This acquisition is expected to give us the opportunity to more rapidly advance our solutions strategy and grow revenue and profits by adding innovative products and services and by bringing new partners into our channel. We intend to secure these benefits with a methodical approach to the integration of Vocollect, in which differences in business models and channel strategies are recognized and addressed in an appropriate manner.

We plan to continue to improve operational efficiency and reduce our costs. One of these activities is the continued transfer of foreign sales operations to our Singapore subsidiary. As part of that transfer, we plan to further simplify our system for delivering products to customers.

Results of Operations
 
The following discussion compares our historical results of operations for the years ended December 31, 2010, 2009 and 2008. The results of operations and percentage of revenues were as follows (in millions, except for per share data):
 
   
Year Ended December 31,
 
   
2010
 
2009
 
2008
 
   
Amounts
   
Percent of Revenues
   
Amounts
   
Percent of Revenues
   
Amounts
   
Percent of Revenues
 
Revenues
 
$
679.1
         
$
658.2
         
$
890.9
       
Costs and expenses:
                                         
  Cost of revenues
   
417.8
     
61.5
%
   
409.6
     
62.2
%
   
536.1
     
60.2
%
  Research and development
   
67.3
     
9.9
%
   
59.6
     
9.1
%
   
67.9
     
7.6
%
  Selling, general and administrative
   
191.0
     
28.1
%
   
187.8
     
28.5
%
   
232.3
     
26.2
%
  Gain on intellectual property sales
   
(3.1
)
   
(0.4
%)
   
-
     
-
     
-
     
-
 
  Restructuring charges
   
2.8
     
0.4
%
   
20.6
     
3.1
%
   
5.7
     
0.7
%
  Impairment of facility
   
3.0
     
0.4
   
-
     
-
     
0.8
     
-
 
  Flood related charge
   
-
     
-
     
-
     
-
     
1.1
     
0.1
%
    Total costs and expenses
   
678.8
     
99.9
%
   
677.6
     
102.9
%
   
843.9
     
94.7
%
                                                 
Operating profit (loss) from continuing operations
   
0.3
     
0.1
%
   
(19.4
)
   
(2.9
%)
   
47.0
     
5.3
%
Interest, net
   
(0.1
)
   
0.0
%
   
0.3
     
0.0
%
   
2.3
     
0.3
%
Earnings (loss) from continuing operations before income taxes
   
0.2
     
0.1
%
   
(19.1
)
   
(2.9
%)
   
49.3
     
5.5
%
  Income tax expense (benefit)
   
5.5
     
0.8
%
   
(8.3
)
   
(1.3
%)
   
13.6
     
1.5
%
(Loss) earnings from continuing operations, net of tax
   
(5.3
)
   
(0.7
%)
   
(10.8
)
   
(1.6
%)
   
35.7
     
4.0
%
Loss from discontinued operations, net of tax
   
-
     
-
     
(1.0
)
   
(0.2
%)
   
-
     
-
 
Net (loss) earnings
 
$
(5.3
)
   
(0.7
%)
   
(11.8
)
   
(1.8
%)
 
$
35.7
     
4.0
%
                                                 
Basic (loss) earnings per share:
                                               
  Continuing operations
 
$
(0.09
)
         
$
(0.17
)
         
$
0.58
         
  Discontinued operations
   
-
             
(0.02
)
           
-
         
  Net (loss) earnings per share
 
$
(0.09
)
         
$
(0.19
)
         
$
0.58
         
                                                 
Diluted (loss) earnings per share:
                                               
  Continuing operations
 
$
(0.09
)
         
$
(0.17
)
         
$
0.58
         
  Discontinued operations
   
-
             
(0.02
)
           
-
         
  Net (loss) earnings per share
 
$
(0.09
)
         
$
(0.19
)
         
$
0.58
         
 
 
 
15
 
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Revenues
 
Revenues by category and as a percentage of total revenues from continuing operations for the years ended December 31, 2010, 2009 and 2008, as well as the year-over-year product and service revenue changes were as follows (in millions):
 
   
Year Ended December 31,
 
   
2010
   
2009
 
2008
 
   
Amount
   
Percent of Revenues
   
Amount
 
Percent of Revenues
   
Amount
   
Percent of Revenues
 
Revenues by category:
                                 
 Systems and solutions
 
$
379.2
     
55.8
%
 
$
368.2
 
55.9
%
 
$
542.1
     
60.8
%
 Printer and media
   
163.6
     
24.1
%
   
151.4
 
23.0
%
   
196.3
     
22.0
%
   Total product
   
542.8
     
79.9
%
   
519.6
 
78.9
%
   
738.4
     
82.8
%
 Service
   
136.3
     
20.1
%
   
138.6
 
21.1
%
   
152.5
     
17.2
%
   Total revenues
 
$
679.1
     
100.0
%
 
$
658.2
 
100.0
%
 
$
890.9
     
100.0
%
                                             
                     
2010 v. 2009
     
2009 v. 2008
 
Change in revenues by category:
                 
Amount
 
Percent
   
Amount
   
Percent
 
 Systems and solutions
                 
$
11.0
 
3.0
%
 
$
(173.9
)
   
(32.1
%)
 Printer and media
                   
12.2
 
8.1
%
   
(44.9
)
   
(22.9
%)
   Total product
                   
23.2
 
4.5
%
   
(218.8
)
   
(29.6
%)
 Service
                   
(2.3
)
(1.7
%)
   
(13.9
)
   
(9.1
%)
  Total revenues
                 
$
20.9
 
3.2
%
 
$
(232.7
)
   
(26.1
%)

Revenues by geographic region and as a percentage of related revenues from continuing operations for the years ended December 31, 2010, 2009 and 2008, as well as the year-over-year geographic region revenue changes were as follows (in millions):

   
Year Ended December 31,
 
   
2010
2009
2008
 
   
Amount
 
Percent of Revenues
 
Amount
   
Percent of Revenues
 
Amount
Percent of Revenues
 
Revenues by geographic region:
                       
 North America
 
$
344.1
 
50.7
%
$
373.2
     
56.7
%
$
492.8
 
55.3
%
 Europe, Middle East and Africa (EMEA)
   
213.0
 
31.3
%
 
186.8
     
28.4
%
 
290.4
 
32.6
%
 All others
   
122.0
 
18.0
%
 
98.2
     
14.9
%
 
107.7
 
12.1
%
  Total revenues
 
$
679.1
 
100.0
%
$
658.2
     
100.0
%
$
890.9
 
100.0
%
                                     
             
2010 v. 2009
 
2009 v. 2008
 
Change in revenues by geographic region:
           
Amount
   
Percent
 
Amount
   
Percent
 
 North America
           
$
(29.1
)
   
(7.8
%)
$
(119.6
)
   
(24.3
%)
 Europe, Middle East and Africa (EMEA)
             
26.2
     
14.0
%
 
(103.6
)
   
(35.7
%)
 All others
             
23.8
     
24.2
%
 
(9.5
)
   
(8.8
%)
   Total revenues
           
$
20.9
     
3.2
%
$
(232.7
)
   
(26.1
%)
 
 
 
16
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)


Product revenues of $542.8 million for the year ended December 31, 2010, increased $23.2 million, or 4.5%, compared to 2009. The growth in our 2010 product revenues was due to a $12.2 million, or 8.1%, increase in printer and media products and $11.0 million, or 3.0%, increase in systems and solutions products. The increase in printer and media products revenues was primarily driven by an increase in our sales to distribution channel partners, and the increase in systems and solutions products revenues was primarily related to increased product volumes.

Service revenues of $136.3 million for the year ended December 31, 2010, were down $2.3 million, or 1.7%, compared to 2009. The decrease in service revenues was primarily driven by the decline in U.S. federal government business.

Geographically, revenues in North America for the year ended December 31, 2010, decreased by $29.1 million, or 7.8%, while revenues in Europe, the Middle East and Africa (“EMEA”) and the Rest of the World (“ROW”) increased by $26.2 million, or 14.0%, and $23.8 million, or 24.2%, respectively, compared to 2009. The reduction in North America revenues in 2010 was attributable to the decline in U.S. federal government business, which was partially offset by an increase in sales revenues to commercial customers. The increase in EMEA revenues in 2010 was primarily related to growth in our overall business, partially offset by the changes in foreign currency conversion rates that unfavorably impacted EMEA revenues by $8.9 million, or 4.8 percentage points, as compared to the foreign currency exchange rates used in 2009. Across all regions, the unfavorable impact of foreign currency rates as compared to the foreign currency exchange rates used in 2009 was $2.3 million, or 0.9 percentage points.

Revenues in 2009 declined relative to 2008 across all of our product lines and geographic regions, primarily driven by reduced product volumes due to the global economic downturn. The unfavorable impact of foreign currency exchange rates on total revenues was $18.3 million in 2009, or 2 percentage points, as compared to 2008.

The decrease in product revenues from 2008 to 2009 consisted of a decrease in system and solutions revenues of $173.9 million and a decrease in printer and media revenues of $44.9 million. The decline in system and solutions revenues from 2008 to 2009 was primarily attributable to reduced product sales in North American market of $82.5 million, or 47.4%, and in the EMEA of $75.0 million, or 43.1%, as customers cut back on capital spending. Sales for printer and media products followed a similar trend in 2009, with North American market accounting for $22.6 million, or 50.3%, and EMEA accounting for $21.3 million, or 47.4%, of the total decrease in printer and media revenues as compared with 2008.

The decrease in service revenues from 2008 and 2009 was primarily from North American and EMEA, which corresponded to lower product volumes in these markets in 2009 as compared with 2008.

Geographically, in 2009 as compared with 2008, product and service revenues decreased in all regions, with the largest declines in North American and EMEA. The changes in foreign currency conversion rates unfavorably impacted EMEA revenue by $16.1 million in 2009, or 6 percentage points, as compared to 2008. Additionally, 2008 revenues in EMEA included a European enterprise postal deployment, which was not repeated in 2009 and accounted for 6 percentage points of the decline in the EMEA region from 2008 to 2009. The lower product revenues in Latin America accounted for approximately 68% of total revenue decrease in the ROW.
 
 
 
17
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Gross Profit
 
Gross profit and gross margin by revenue category for the years ended December 31, 2010, 2009 and 2008, were as follows (in millions):

   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
   
Gross Profit
   
Gross Margin
   
Gross Profit
   
Gross Margin
   
Gross Profit
   
Gross Margin
 
Product
 
$
204.6
     
37.7
%
 
$
188.5
     
36.3
%
 
$
290.2
     
39.3
%
Service
   
56.7
     
41.6
%
   
60.1
     
43.3
%
   
64.6
     
42.4
%
 Total gross profit and gross margin
 
$
261.3
     
38.5
%
 
$
248.6
     
37.8
%
 
$
354.8
     
39.8
%

Total gross profit for the year ended December 31, 2010, increased $12.7 million and the total gross margin increased by 70 basis points compared to 2009. The increase in total gross profit was due to a $16.1 million, or 140 basis points, increase in gross profit for the product segment, partially offset by a $3.4 million, or 170 basis points, decrease in gross profit for the service segment. The increase in 2010 product gross profit and gross margin was primarily due to increased volume of product sales and more favorable product and geographic related mix.

The decrease in service gross profit and gross margin for the year ended December 31, 2010 was mainly attributable to the decline in U.S. federal government business.

The total gross profit in 2009 decreased by $106.2 million and the total gross margin decreased by 200 basis points compared to 2008. The decrease in total gross margin in 2009 was due to a decrease in product gross margin, partially offset by an increase in service gross margin. The decrease in total gross profit was primarily due to a $101.7 million decrease in product gross profit, which was driven by reduced product volumes, less favorable product and geographic related mix, the unfavorable impact of currency translation and competitive pricing. The decrease in product gross margin in 2009 was primarily attributable to reduced product volumes, less favorable product and geographic related mix, the unfavorable impact of currency translation and competitive pricing.

The increase in service gross margin in 2009 was mainly attributable to reduced service costs from the North America service depot consolidation program implemented in the third quarter of 2008, and ongoing cost management.

Research and Development Expense, Net (In millions) 
 
   
Year Ended December 31,
 
   
2010
   
2009
 
2008
 
   
Amount
   
Change from prior year
 
Amount
   
Change from prior year
 
Amount
 
Research and development expense, net
 
$
67.3
   
$
7.7
   
$
59.6
   
$
(8.3
)
 
$
67.9
 

Research and development (“R&D”) expense increased $7.7 million, or 12.9%, for the year ended December 31, 2010, compared to 2009. This increase in R&D expense was due to increased R&D investment for new product development and release. Included in 2010 R&D expense were $0.4 million in credits from U.S. and foreign governments relating to reimbursement of certain R&D expenses.

R&D expense decreased $8.3 million, or 12.2%, in 2009 compared to 2008. The decrease in R&D expense was primarily driven by various cost reduction programs we implemented in 2009 in response to the global economic downturn, including labor-related savings of $6.1 million. Additionally, included in 2009 R&D expense were $2.6 million in credits from U.S. and foreign governments relating to reimbursement of certain R&D expenses. R&D expense accounted for 9.1% of revenues in 2009, compared to 7.6% and 8.1% of revenues in 2008 and 2007, respectively. R&D expense decreased in absolute dollars in 2009, while R&D expense as a percentage of total revenues increased in 2009, reflecting our continued focus on product development and product releases.
 
 
 
18
 
 

 ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Selling, General and Administrative Expense (In millions) 
 
   
Year Ended December 31,
 
   
2010
 
2009
 
2008
 
   
Amount
   
Change from prior year
 
Amount
   
Change from prior year
 
Amount
 
Selling, general and administrative expense
 
$
191.0
   
$
3.1
   
$
187.9
   
$
(44.3
)
 
$
232.2
 

Selling, general and administrative (“SG&A”) expense increased $3.1 million, or 1.6%, for the year ended December 31, 2010 compared to 2009. The increase was primarily attributable to higher investment in our sales organization.

The decrease in SG&A expense of $44.3 million, or 19.1%, in 2009 compared to 2008 reflected various cost reduction programs we implemented in 2009 in response to the global economic downturn. Labor-related savings was approximately $29.3 million, which accounted for 66% of the total decrease in SG&A expense in 2009. Foreign exchange fluctuations in 2009 had a favorable impact on our SG&A expense by $2.3 million as compared to 2008. Substantially all of the remaining decrease in SG&A was attributable to a reduction in indirect and discretionary spending.

Gain on Intellectual Property Sales

We recorded a $3.1 million gain on intellectual property sales, net of commissions, as a result of sales of certain patents to unrelated parties for the year ended December 31, 2010.
 
2009 and 2010 Restructuring Charges:

In January and April 2009, we committed to business restructuring plans intended to reorganize our sales function and reduce our work force. The total pre-tax restructuring costs for these plans were $23.4 million, including employee termination costs of $20.3 million, and other transitional costs of $3.1 million. We recorded $20.6 and $2.8 million of the restructuring charges in 2009 and 2010, respectively. As of December 31, 2010, all restructuring related charges have been recorded, and substantially all of the severance-related and periodic transitional costs were cash expenditures.

2008 Restructuring Charges:

In July 2008, we committed to a business restructuring plan intended to reduce our cost structure and streamline operations, which included the relocation of product final assembly to a contract manufacturer in Asia, the consolidation of North American service depot locations and the transfer of on-site repair in North America to a third party service provider. All severance and other periodic transitional costs were cash expenditures. All restructuring costs related to this action were accrued in 2008. The total restructuring charges incurred for the 2008 restructuring plan were $5.7 million.

We believe these restructuring actions were appropriate strategically and were prudent in light of the generally weakened global economy and uncertain market conditions.
 
Impairment of Facility

We recorded a $3.0 million impairment charge for the year ended December 31, 2010, as a result of a write-down of a real estate asset prior to its sale in the fourth quarter of 2010.
 
 
 
19
 
 
 
 ITEM 7.             MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)

Interest, net (In millions) 
 
   
Year Ended December 31,
 
   
2010
 
2009
 
2008
 
   
Amount
   
Change from prior year
 
Amount
   
Change from prior year
 
Amount
 
Interest, net
 
$
(0.1
)
 
$
(0.4
)
 
$
0.3
   
$
(2.0
)
 
$
2.3
 

Net interest expense of $0.1 million for the year ended December 31, 2010 unfavorably impacted pre-tax earnings by $0.4 million compared to net interest income of $0.3 million in 2009.  While the company has no external debt it incurs interest expense on cash advances against the value of certain corporate owned life insurance policies. In 2010 this interest expense was slightly greater than interest income earned on cash and investments due to lower average interest rates.

The decrease of net interest income of $2.0 million in 2009 compared to 2008 was primarily due to lower average interest rates in 2009. Interest rates were low during global recession as governments reduced borrowing rates to promote the resumption of sustainable economic growth and to preserve price stability.
  
Income Tax Expense (Benefit) (In millions)

   
Year Ended December 31,
 
   
2010
 
2009
 
2008
 
   
Amount
   
Change from prior year
 
Amount
   
Change from prior year
 
Amount
 
Income taxes expense (benefit)
 
$
5.5
   
$
13.8
   
$
(8.3
)
 
$
(21.9
)
 
$
13.6
 
 
With our 2010 income from continuing operations before tax at a near breakeven level for the year, our tax provision is presented in dollar terms rather than in percentage terms.
 
As part of our supply chain restructuring in 2009, we licensed non-U.S. intellectual property exploitation rights from our domestic corporations to a wholly owned non-U.S. subsidiary in Singapore. In 2010, we recorded non-cash tax expense of approximately $4.0 million to establish a Singapore headquarters for our supply chain operations and foreign sales activities. This is a recurring item regardless of the amount of income from operations, and is approximately $4.0 million tax expense annually. Our 2010 state tax expense was favorably impacted by $0.9 million from elections made in 2010 when filing the 2009 tax returns and from other related adjustments. The remaining 2010 tax expense primarily results from income in several foreign jurisdictions and losses in Singapore for which a valuation allowance has been provided.
 
The tax benefit for the year ended December 31, 2009, reflects an effective tax rate for continuing operations of (43.2%), compared to a U.S. statutory rate of 35%. In the fourth quarter of 2009, Intermec recognized a US tax settlement benefit of approximately $1.0 million which favorably impacted our rate for the quarter and the year. The effective tax rate for the year was favorably impacted by research tax credit benefits, tax settlements and lower foreign tax rates, which were partially offset by nondeductible incentive stock based compensation. 
 
The tax expense for the year ended December 31, 2008, reflects an effective tax rate for continuing operations of 27.6%, compared to a U.S. statutory rate of 35%. In the fourth quarter of 2008, the provision for income taxes included a favorable adjustment of $4.0 million as a result of our new manufacturing structure and future foreign income expectations. During the year, we also recorded benefits for 2008 research credits and provisions for state taxes and nondeductible incentive stock based compensation.
 
In the normal course of our business, we seek lawful, tax efficient means of managing our income tax expense. Please refer to Note J to our consolidated financial statements.
 
Foreign Currency Transactions and Effect of Foreign Exchange Rates
 
We are subject to the effects of currency fluctuations due to the global nature of our operations. Currency exposures are hedged as part of our global risk management program, which is designed to minimize short-term exposure to foreign currency fluctuations. Movements in foreign exchange rates, net of hedging activities, resulted in net foreign currency transaction losses of $0.9 million, $2.2 million, and $2.6 million for the years ended December 31, 2010, 2009 and 2008, respectively.
 
For fiscal year 2010, our operations derived approximately 47.6% of revenues from non-U.S. customers. At December 31, 2010, long-lived assets attributable to countries outside of the U.S. comprised 11% of total long-lived assets. The largest components of these assets are attributable to Mexico, where we maintain product repair facilities, followed by Singapore.
 
 
 
20
 
 
 
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Liquidity and Capital Resources
 
Our principal sources of liquidity are our cash, cash equivalents and short-term investments, as well as the cash flow that we generate from our operations.
 
Cash Flow Summary

The following discussion reflects the effects of the immaterial restatement presented in Note A of the Notes to the Consolidated Financial Statements. Our cash flows are summarized in the following table (in thousands):
 
   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
Net cash provided by operating activities of continuing operations
 
$
21,790
   
$
23,996
   
$
61,803
 
Net cash provided by (used in) investing activities of continuing operations
   
18,218
     
(49,765
)
   
16,449
 
Net cash (used in) provided by financing activities of continuing operations
   
(18,240
)
   
2,150
     
(91,966
)

At December 31, 2010, cash, cash equivalents and short-term investments totaled $228.3 million, a decrease of $9.9 million compared to the December 31, 2009, balance of $238.2 million. Our short-term investments consist primarily of low risk securities, primarily consisting of time deposits. We invest in these short-term securities mainly to facilitate liquidity and for capital preservation. Due to the nature of these instruments, we consider it reasonable to expect that their fair market values will not be significantly impacted by a change in interest rates, and that they can be liquidated for cash upon demand.
 
Cash provided by operating activities consisted of net (loss) earnings adjusted for non-cash items and the effect of changes in working capital and other activities. Cash provided by operating activities from continuing operations in for the year ended December, 31, 2010, was $21.8 million and consisted of net loss of $5.3 million, adjustments for non-cash items of $18.0 million and cash provided by working capital and other activities of $9.1 million. Operating activities in 2010 provided lower cash flows compared to 2009, primarily due to an increase in accounts receivable as a result of higher revenue. In 2009, the $24.0 million of cash provided by operating activities was primarily due to cash provided by working capital and other activities of $25.8 million mainly due to volume driven decreases in accounts receivable and our efforts in inventory reduction, partially offset by cash payments for restructuring activities. In 2008, the $61.8 million of cash provided by operating activities of continuing operations was primarily due to net earnings of $35.7 million and a decrease in accounts receivable, partially offset by a decrease in accounts payable and accrued expenses.
 
Investing activities for the year ended December 31, 2010, provided $18.2 million of cash primarily due to sales of investments of $36.7 million, partially offset by capital expenditure of $14.3 million. In 2009, investing activities of continuing operations used $49.8 million of cash primarily due to our purchase of short-term investments of $35.8 million and capital expenditures of $11.0 million. In 2008, investing activities provided $16.4 million of cash primarily due to sale of investments of $28.5 million and sale of property, plant and equipment of $5.5 million. 
 
Financing activities for the year ended December 31, 2010, used cash of $18.2 million primarily related to the repurchase of our common stock of $20.0 million. Financing activities in 2009 provided cash of $2.2 million, related primarily to the issuance of stock under our Employee Stock Purchase Plan and exercised stock options. Financing activities in 2008 used $92.0 million of cash, primarily for the $100.0 million debt repayment in March of 2008.

Capital Resources

Our principal capital resources include cash, cash equivalents and short-term investments. In addition, we have an unsecured Revolving Credit Facility (the “Revolving Facility”) with a maximum amount available under the Revolving Facility of $50.0 million at December 31, 2010. Net of outstanding letters of credit and limitations on availability, we had borrowing capacity at December 31, 2010, of $48.5 million under the Revolving Facility. As of December 31, 2010, we had no borrowings under the Revolving Facility, and were in compliance with the financial covenants of the Revolving Facility. The Revolving Facility matures in October 2012.
 
 
 
21
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Liquidity and Capital Resources (continued)
 
As discussed in Note M of the Notes to the Consolidated Financial Statements, on January 15, 2011, we entered into an Agreement and Plan of Merger with Vocollect (the “Merger Agreement”) pursuant to which we will acquire all of the outstanding shares of capital stock of Vocollect, in connection with which we entered into a revision of the Revolving Facility that would enable us to convert our existing $50 million, five-year unsecured revolving credit facility into a $100 million, three-year, secured revolving credit facility (the “New Facility”). The New Facility will be used to finance a portion of the Merger, to finance our working capital requirements, for letters of credit, and for general corporate purposes. The New Facility will become effective on the date of the closing of the Merger, provided that the closing date occurs on or before April 15, 2011. If the closing date does not occur prior to the April 15, 2011, the New Facility will become null and void and the existing Revolving Facility will remain in full force and effect until it matures in October 2012.

The key terms of the Revolving Facility and the New Facility are as follows:
 
   
Revolving Facility
     
New Facility
 
 
Loans will bear interest at a variable rate equal to (at our option) (i) LIBOR plus the applicable margin, which ranges from 0.60% to 1.00%, or (ii) the Bank’s prime rate, less the applicable margin, which ranges from 0.25% to 1.00%.  If an event of default occurs and is continuing, then the interest rate on all obligations under the Revolving Facility may be increased by 2.0% above the otherwise applicable rate, and the Bank may declare any outstanding obligations under the Revolving Facility to be immediately due and payable.
 
   
 
Loans will bear interest at a variable rate equal to either (i) LIBOR plus the applicable margin, which ranges from 1.25% to 1.75%, or if LIBOR is not available, (ii) the base rate less the applicable margin, which ranges from 0.25% to 0.75%. The base rate is equal to the higher of (a) the Bank’s prime rate, or (b) the federal funds effective rate plus 150 basis points.
 
 
A fee ranging from 0.60% to 1.00% on the maximum amount available to be drawn under each letter of credit that is issued and outstanding under the Revolving Facility. The fee on the unused portion of the Revolving Facility ranges from 0.125% to 0.20%.
 
   
 
A fee ranging from 1.25% to 1.75% on the maximum amount available to be drawn under each letter of credit that is issued and outstanding under the New Facility. The fee on the unused portion of the New Facility ranges from 0.15% to 0.25%.
 
 
Certain of our domestic subsidiaries have guaranteed the Revolving Facility.
   
 
If an event of default occurs, the Bank may accelerate payment amounts due under the New Facility at its option, the Bank’s obligation to extend further credit will cease and the Bank may exercise its right with respect to (i) assets of certain domestic subsidiaries, (ii) the pledges of equity in certain of our domestic and foreign subsidiaries, and (iii) the guaranties of payment obligations from certain of our domestic subsidiaries.
 
 
 
The Revolving Facility contains various restrictions and covenants, including restrictions on our ability and the ability of our subsidiaries to consolidate or merge, make acquisitions, create liens, incur additional indebtedness or dispose of assets.
 
   
 
The New Facility contains various restrictions and covenants, including restrictions on our ability and the ability of our subsidiaries to consolidate or merge, make acquisitions, create liens, incur additional indebtedness or dispose of assets.
 
 
Financial covenants include a Maximum Leverage test and a Minimum Tangible Net Worth test, each as defined in the Revolving Facility. The minimum tangible net worth required is $406.8 million and the maximum funded debt to EBITDA allowed is 2.50:1.
 
   
 
Financial covenants related to our tangible net worth, annual net income after taxes, quarterly adjusted net income before taxes and asset coverage ratio, each as defined in the New Facility, will be set when the New Facility becomes effective on the date of closing.

We believe that cash, cash equivalents, and short-term investments combined with projected cash flows from operations and funds available from the revolving and new credit facility noted above will provide adequate funding for the pending acquisition of Vocollect, and to meet our expected working capital, capital expenditure, and pension contribution requirements for the next twelve months. From time to time, we may look for potential acquisition targets for growth opportunities within our market, or to expand into new markets, which we believe can be funded with a combination of cash on hand, projected cash flows from operations and additional financing.
 
 
 
22
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Liquidity and Capital Resources (continued)

The business restructuring plan that we committed to in April 2009 reduced our workforce and resulted in the curtailment of pension benefits to the terminated employees who were participants in our U.S. pension plans. Additionally, on December 31, 2009, we announced the decision to amend our pension plans and freeze the remainder of our U.S. pension plans effective February 28, 2010. These actions are expected to substantially reduce our future pension benefits cost. We are required to make minimum funding for these plans under the Employee Retirement Income Security Act of 1974 (“ERISA”) or other rules governing funding of pension plans. We may also make discretionary contributions to fund these plans in future years. We anticipate contributing approximately $6.3 million to our pension plans in 2011.

During the year ended December 31, 2010, we entered into share repurchase agreements with a broker under Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, to facilitate the repurchase of up to an aggregate total of $20 million of our outstanding common stock, pursuant to our previously announced share repurchase authorization by our Board of Directors. We repurchased 1,835,865 shares of our outstanding common stock at an average price of $10.89 per share under these share repurchase agreements.
 
We may continue to engage in future share repurchases up to our remaining board authorization of $55 million. The number of shares and the timing of any share repurchases will depend on factors such as the stock price, economic and market conditions, regulatory restrictions, and the attractiveness of other capital deployment opportunities.   

Depending on our assessment of the economic environment from time-to-time, we may decide to hold more cash than may be required to fund our future investment in working capital, capital expenditures and research and development and to implement changes in our cost structure. Projected cash flows from operations are largely based on our revenue estimates, cost estimates, and the related timing of cash receipts and cash disbursements. If actual performance differs from estimated performance, cash flows from operations could be positively or negatively impacted.
 
Contractual Obligations
 
The following table summarizes our significant contractual commitments for continuing operations as of December 31, 2010 (in millions). The table does not include amounts recorded on our consolidated balance sheet as current liabilities.
 
   
Payments Due by Period
 
   
Total
   
Less than 1 Year
   
1 - 3 Years
   
3 - 5 Years
   
After 5 Years
 
Operating leases
 
$
29.5
   
$
8.4
   
$
12.4
   
$
6.5
   
$
2.2
 
Purchase commitments
   
  14.4
     
  4.1
     
  10.3
     
-
     
-
 
Pension and other postretirement cash funding requirements
   
5.1
     
0.3
     
4.8
     
-
     
-
 
  Total contractual obligations
 
$
  49.0
   
$
  12.8
   
$
 27.5
   
$
  6.5
   
$
  2.2
 
 
Operating leases are discussed in Note F of the Notes to the Consolidated Financial Statements. Pension and other postretirement plans are discussed in Note K of the Notes to the Consolidated Financial Statements.
 
Purchase orders or contracts for the purchase of finished goods or raw materials or other goods and services are not included in the table above. We are not able to determine the aggregate amount of such purchase orders that represent contractual obligations, as purchase orders may represent authorizations to purchase rather than binding agreements. Our purchase orders are based on current manufacturing needs and are fulfilled by vendors within short time horizons.

We have requirements to provide minimum funding for our pension and other postretirement benefits plans under ERISA regulations. We may make future discretionary contributions to the extent such contributions are actuarially determined to be required in order to adequately fund the plans, and to match a portion of the employees’ contribution. See Note K of the Notes to the Consolidated Financial Statements for details.

Our liability for unrecognized tax benefits of $24.2 million at December 31, 2010, has been omitted from the table above, because we cannot determine with certainty when this liability will be settled. We expect to fund these contractual obligations with our existing cash, cash equivalents, short-term investments and cash flows from operations.
 
 
 
23
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Off-Balance Sheet Arrangements
 
We are a party to certain off-balance sheet arrangements including certain indemnification and reimbursement agreements. For discussion of these arrangements, see Note L to our consolidated financial statements.

Critical Accounting Policies and Estimates
 
We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
Revenue Recognition. We record revenue, net of excise and sales taxes, when it is realized, or realizable, and earned. We consider these criteria met when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the sales price is fixed or determinable and collectability is reasonably assured. Royalty revenue is recorded when earned, the amount due is fixed or determinable and collectability is reasonably assured.
 
For product sales, revenue is recognized when the customer has assumed risk of loss of the goods sold and all performance obligations are complete. These sales may contain discounts, price exception, return provision or other customer incentives. We reduce revenue by providing allowances for estimated customer returns, price exception and other incentives that occur under sales programs established by us directly or with our distributors and resellers. The sales allowances are based on management’s best estimate of the amount of allowances that the customer will ultimately receive and on our historical experience taking into account the type of products sold and type of customers involved. We accrue the estimated cost of basic product warranties at the time we recognize revenue based on historical experience. In addition to basic product warranties, we frequently offer extended warranties, including renewal, to our customers in the form of product maintenance services. Our product and maintenance services are typically separately priced. We defer the stated amount of the separately priced product maintenance services contracts and recognize the deferred revenue as services are rendered, generally straight-line over the contract term.
 
We infrequently enter into multiple-element arrangements with our customers, and these sales may include deliverables such as hardware, software, professional consulting services and maintenance support services. For arrangements involving multiple deliverables, where deliverables include software and non-software products and services, we apply the provisions of multiple elements accounting to separate the deliverables and allocate the total arrangement consideration. Each unit of accounting is then accounted for under the applicable revenue recognition guidance.
 
We sell products with embedded software to our customers. The embedded software is not sold separately, it is not a significant focus of the marketing effort and we do not provide post-contract customer support specific to the software or incur significant costs related to creating software products. Additionally, the functionality that the software provides is marketed as part of the overall product. The software embedded in the product is incidental to the equipment as a whole such that software revenue recognition is not generally applicable. In certain infrequent situations where our solutions contain software that is more than incidental to the hardware and services, revenue related to the software and software-related elements is recognized in accordance with software revenue recognition accounting.
 
Our customers infrequently request that delivery and passage of title and risk of loss occur on a bill and hold basis. For these transactions, we recognize revenue in accordance with guidance specific to bill and hold transactions.
 
Inventory Obsolescence. The valuation of inventory requires us to estimate obsolete or excess inventory as well as inventory that is not of saleable quality. The determination of obsolete or excess inventory requires us to estimate the future demand for our products and market conditions. If future demand and market conditions are less favorable than our assumptions, or there are technology or design changes, additional inventory write-downs could be required, which would negatively impact our gross margin. Likewise, favorable future demand and market conditions, and/or technology or design changes, could positively impact future operating results if previously written-down inventory is sold. Management continues to evaluate market and technology conditions and design changes to ensure that our reserves are adequate.  
 
Income Taxes. We account for income taxes using the asset and liability approach, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. This method also requires the recognition of future tax benefits, such as net operating loss carry forwards and other tax credits. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse.
 
 
 
24
 
 
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Critical Accounting Policies and Estimates (Continued)
 
Valuation allowances are provided to reduce deferred tax assets to an amount that is more likely than not to be realized. As of December 31, 2010, we had net deferred tax assets of $239.9 million, which include $35.7 million of general business credit carry-forwards and $52.0 million of foreign tax credit carry-forwards with expiration dates ranging from 2011 through 2030. The remainder of our deferred tax assets consist of tax timing items including postretirement obligations, deferred revenue and capitalized R&D. Our valuation allowance against these tax assets is less than $3 million. In analyzing utilization of our  deferred tax assets, we consider future market growth, forecasted earnings, future taxable income, and the mix of earnings in the jurisdictions in which we operate and prudent, feasible and permissible tax planning strategies. If we were to determine that we would not be able to realize a portion of our net deferred tax asset in the future for which there is currently no valuation allowance, an adjustment to the valuation allowance would be charged to earnings in the period such determination was made. Conversely, if we were to make a determination that it is more likely than not that the deferred tax assets, for which there is currently a valuation allowance would be realized, the related valuation allowance would be reduced and a benefit to earnings would be recorded.
 
We conduct business in various countries throughout the world and are subject to tax in numerous jurisdictions. As a result of our business activities, we file a significant number of tax returns that are subject to audit by various tax authorities. Tax audits are often complex and may require several years to resolve. We also recognize the largest amount of benefits from uncertain tax positions that are greater than 50% determined by cumulative probability of being realized upon ultimate settlement with the tax authority. Such amounts are based on management’s judgment and best estimate as to the ultimate outcome of tax audits. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are made or resolved or when statutes of limitation on potential assessments expire. As a result, our effective tax rate may fluctuate significantly on a quarterly and annual basis.

Pension and Other Postretirement Benefits. We have qualified and nonqualified pension plans that cover some of our employees. Some of these pension plans were partially frozen in June 2006. Additionally, on December 30, 2009, we made the decision to fully freeze our U.S. qualified pension plan, effective February 28, 2010. Our U.S. nonqualified plans were fully frozen effective December 31, 2009. Annual employer contributions are made to the extent such contributions are actuarially determined to be required in order to adequately fund the plans, and to match a portion of the employees’ contribution. Retiree benefits are based on the amount of participant contributions over the term of the participant’s employment.
 
We perform an annual measurement of our projected obligations and plan assets or when major events occur requiring remeasurement. These measurements require several assumptions, the most important of which are the discount rate, the expected long-term rate of return on plan assets, and health care cost projections. These assumptions could vary materially from actual results due to economic events or different rates of retirement, mortality or withdrawal, positively or negatively affecting our future annual expense and projected benefit obligation.

The rate used to discount future cash flows of benefit obligations back to the measurement date, reflects the market rate for high-quality fixed-income debt instruments. The weighted average discount rates for our domestic and foreign plans as of December 31, 2010, were 5.43% and 5.13% respectively, compared to 6.04% and 5.32% as of December 31, 2009. The decrease in the discount rate used for domestic plans reflects lower interest rates in the current market. A one-half percentage point decrease in our discount rate on pension cost would result in an increase in benefit obligation of $14.9 million. The expected return on plan assets is based on the market-related value of assets. For the market-related value of assets, a calculated basis is used to reflect a smoothed actuarial value of assets, equal to a moving average of market values in which investment income is recognized over a five-year period for U.S. plans and a three-year period for non-U.S. plans. To determine the expected long-term rate of return, we use historic market trends combined with current market conditions. The weighted average expected long-term rate of return for our domestic and foreign plans was 8.20% and 5.41%, respectively. A one-half percentage point decrease in the expected long-term rate of return would result in an increase in our net periodic pension cost of $0.7 million.
 
Actuarial assumptions used to measure the accumulated benefit obligation for other postretirement benefits include a discount rate of 5.00% and 5.50% at December 31, 2010, and 2009, respectively. The effect on our postretirement benefit cost of one-half percentage point decrease in the discount rate would be immaterial. The assumed health care cost trend rate for fiscal year 2010 was 9.00% and is projected to decrease over eighteen years to 4.50%, where it is expected to remain thereafter. The effect of a one-percentage-point increase or decrease in the assumed health care cost trend rate on the service cost and interest cost components of the net periodic postretirement benefit cost is not material. A one-percentage-point increase or decrease in the assumed health care cost trend rate on the postretirement benefit obligation would result in an increase or decrease of approximately $0.1 million.

The difference between actual amounts and estimates based on actuarial assumptions is recognized in other comprehensive income (loss) in the period in which they occur. See Note K of the Notes to the Consolidated Financial Statements for details.

 
 
25
 

ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
 
Recent Accounting Pronouncements Not Yet Adopted
 
In October 2009, the Financial Accounting Standards Board (“FASB”) updated its guidance on software revenue recognition rules. According to this update, tangible products containing software components and non-software components that function together to deliver the tangible product’s essential functionality, are no longer within the scope of the software revenue guidance. This update requires that hardware components of a tangible product containing software components always be excluded from the software revenue guidance. This update provides additional guidance on how to determine which software, if any, relating to the tangible product should be excluded from the scope of the software revenue guidance. This update will be effective prospectively for revenue arrangements entered into or materially modified on or after January 1, 2011. We are still assessing the potential impact of adopting this guidance. Historically software has been incidental to our hardware, and we would not expect the adoption on our similar historical arrangements to have a material impact on our financial statements.

In October 2009, the FASB updated its guidance on revenue arrangements with multiple deliverables. It alters the criteria for separating consideration in multiple-deliverable arrangements. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific objective evidence nor third-party evidence is available. This update also replaces the term fair value in the revenue allocation guidance with selling price to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a market participant. It also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method. This update will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning January 1, 2011. We are still assessing the potential impact of adopting this guidance. We have historically not had significant multiple deliverable arrangements, and we would not expect the adoption on our similar historical arrangements to have a material impact on our financial statements. 
 
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Currency Exchange Rates: Due to our global operations, our cash flow and earnings are exposed to risk based on movements in foreign exchange rates. We conduct business in approximately 103 countries and generally invoice customers in their local currency, resulting in a foreign currency denominated revenue transaction and accounts receivable balance. Our subsidiaries also purchase certain raw materials and other items in local currencies.

Our treasury policies allow us to offset the risks associated with the effects of certain foreign currency exposures through the purchase of foreign exchange forward contracts. Our policy prohibits speculation in financial instruments for profit on the exchange rate price fluctuation. We enter into foreign exchange forward contracts primarily to hedge the impact of fluctuations of foreign exchange arising from intercompany transactions, specifically for inventory purchases made by our subsidiaries that are denominated in U.S. dollars. Our foreign exchange forward contracts are not designated as hedging instruments for accounting purposes. Accordingly, we record these contracts at fair value on the consolidated balance sheets, with changes in fair value recognized in earnings in the period of change. These contracts do not contain any credit-risk-related contingent features. We attempt to manage the counterparty risk associated with these foreign exchange forward contracts by limiting transactions to counterparties with which we have an established banking relationship. In addition, these contracts generally settle in approximately 30 days.

We performed a sensitivity analysis assuming a hypothetical 10 percent movement in currency exchange rates applied to the exposure described above. As of December 31, 2010, the analysis indicated that if our hedges of exchange exposure were not in place, such market movements would have an impact of approximately $16.5 million on our results of operations. The actual gains or losses in the future may differ significantly from that analysis, if changes in the timing and amount of currency exchange rate movements and our hedging activities are different from 2010.
 
During the year ended December 31, 2010, $386.3 million, or 56.9%, of our sales were denominated in U.S. dollars, $139.6 million, or 20.6%, denominated in Euros, $54.9 million, or 8.0%, denominated in British pounds, and $98.3 million, or 14.5% denominated in other foreign currencies. Fluctuations in foreign currency translation rates negatively impacted our sales by approximately $2.3 million in 2010, in comparison to 2009.
 
 
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

   
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26
 
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
 
ITEM 9A.                      CONTROLS AND PROCEDURES
 
Under the supervision and with the participation of management, including the Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(e) as of the end of the period covered by this Annual Report on Form 10-K. Based on that evaluation, management, including the CEO and CFO, concluded that our disclosure controls and procedures as defined in Rule 13a-15(e) were effective as of December 31, 2010. There were no changes in our internal control over financial reporting during our fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
Management’s Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Management assessed our internal control over financial reporting as of December 31, 2010, the end of our fiscal year. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of elements such as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment.
 
Based on our assessment, management has concluded that our internal control over financial reporting was effective as of the end of the fiscal year to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. The effectiveness of the Company's internal control over financial reporting as of December 31, 2010, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears in Item 8.
 
Management’s Certifications
 
The certifications of the Chief Executive Officer and Chief Financial Officer required by the Sarbanes-Oxley Act have been included as Exhibits 31 and 32 in the Form 10-K. 

/s/ Patrick J. Byrne
Patrick J. Byrne
Chief Executive Officer
 
/s/ Robert J. Driessnack
Robert J. Driessnack
Senior Vice President and
Chief Financial Officer
 
Report of the Independent Registered Public Accounting Firm
 
The operating effectiveness of our internal control over financial reporting as of December 31, 2010, has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which is on page 31 of this annual report on Form 10-K.
 
 
OTHER INFORMATION
 
None.
 
 
27
 
 
 
PART III
 
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
 
We have adopted a code of business conduct and ethics for all directors, officers and employees, known as the Standards of Conduct. The Standards of Conduct are available on our website under Investor Information at http://www.intermec.com. We intend to disclose on our website any amendment to, or waiver of, the Standards of Conduct related to our senior officers. Shareholders may request a free copy of the Standards of Conduct from:
 
Intermec, Inc.
Attention: Investor Relations
6001 36th Avenue West
Everett, WA 98203-1264

We are permitted to incorporate by reference into this report certain information that will be contained in our definitive proxy statement relating to the Annual Meeting of Shareholders to be held on May 25, 2011 (the “2011 Proxy Statement”). Information to be included in Part III, Item 10, will be included in our 2011 Proxy Statement, and is incorporated herein by this reference. Certain information regarding our executive officers is set forth under the caption “Executive Officers of the Registrant” in Part I of this report.
 
 
EXECUTIVE COMPENSATION.
 
Information to be included in Part III, Item 11, will be included in our 2011 Proxy Statement, and is incorporated herein by this reference.
 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.
 
Information to be included in Part III, Item 12, will be included in our 2011 Proxy Statement, and is incorporated herein by this reference.
 
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 
Information to be included in Part III, Item 13, will be included in our 2011 Proxy Statement, and is incorporated herein by this reference.
 
 
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
Information to be included in Part III, Item 14, will be included in our 2011 Proxy Statement, and is incorporated herein by this reference.

 
 
28
 

 
PART IV
 
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 
 (b)           Index to Exhibits at page 63 of this annual report on Form 10-K. 

 
 
 
 
29
 
 
 
 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 

   
Intermec, Inc.
   
/s/ Robert J. Driessnack
   
Robert J. Driessnack
   
Senior Vice President and Chief Financial Officer
   
February 18, 2011
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
 
/s/ Patrick J. Byrne
Director, President and
February 18, 2011
Patrick J. Byrne
Chief Executive Officer
 
     
/s/ Allen J. Lauer
Director and Chairman of the Board
February 18, 2011
Allen J. Lauer
   
     
/s/ Eric J. Draut
Director
February 18, 2011
Eric J. Draut
   
     
/s/ Gregory K. Hinckley
Director
February 18, 2011
Gregory K. Hinckley
   
     
/s/ Lydia H. Kennard
Director
February 18, 2011
Lydia H. Kennard
   
     
/s/ Stephen P. Reynolds
Director
February 18, 2011
Stephen P. Reynolds
   
     
/s/ Steven B. Sample
Director
February 18, 2011
Steven B. Sample
   
     
/s/ Oren G. Shaffer
Director
February 18, 2011
Oren G. Shaffer
   
     
/s/ Larry D. Yost
Director
February 18, 2011
Larry D. Yost
   
     
/s/ Robert J. Driessnack
Senior Vice President and Chief Financial Officer
February 18, 2011
Robert J. Driessnack
(Principal Financial Officer and Principal Accounting Officer)
 
     

 
 
30
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Shareholders of
Intermec, Inc.
Everett, Washington
 
We have audited the accompanying consolidated balance sheets of Intermec, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009, and the related consolidated statements of operations, changes in shareholders’ equity, and of cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 8. We also have audited the Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for these financial statements and the financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule and an opinion on the Company’s internal control over financial reporting based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
  
A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
 
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Intermec, Inc. and subsidiaries as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
 
 
/s/ Deloitte & Touche LLP
 
Seattle, Washington
February 18, 2011
 

 
31
 
 
 
INTERMEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except for per share data)
 
   
Year Ended December 31,
 
   
2010
   
2009
   
2008
 
Revenues:
                 
  Product
 
$
542,783
   
$
519,603
   
$
738,426
 
  Service
   
136,328
     
138,602
     
152,457
 
    Total revenues
   
679,111
     
658,205
     
890,883
 
                         
Costs and expenses:
                       
  Cost of product revenues
   
338,220
     
331,128
     
448,216
 
  Cost of service revenues
   
79,619
     
78,519
     
87,881
 
  Research and development, net of credits of $400, $2,600, and $1,800
   
67,271
     
59,566
     
67,899
 
  Selling, general and administrative
   
191,070
     
187,867
     
232,181
 
  Gain on intellectual property sales
   
(3,148
)
   
-
     
-
 
  Restructuring charges
   
2,780
     
20,577
     
5,748
 
  Impairment of facility
   
3,008
     
-
     
802
 
  Flood related charge