UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM 10-K/A


(Amendment
No. 1)





(Mark
      One)x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For
      the fiscal year ended December 31, 2007ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934


Commission
file number 001-13279




Intermec, Inc.


(Exact
name of registrant as specified in its charter)


Delaware
            
            95-4647021(State
      or other jurisdiction of
            
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)6001
      36th Avenue West
            
            98203-1264Everett,
      Washington
            
            (Zip
      Code)www.intermec.com(Address
      of principal executive offices)


Registrant’s
telephone number, including area code: (425) 265-2400


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


Title
      of each class
            
            Name
      of each exchange on which registeredCommon
      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 x    No
o




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




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




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




Indicate
by check mark whether the registrant is 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.  (Check
One):


Large
      Accelerated Filer x
            
            
            
            Accelerated
      Filer oNon-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 Exchange Act). Yes o   No
x




As of
July 1, 2007, which was the last business day of the registrant’s most recent
second fiscal quarter, the aggregate market value of the registrant’s common
stock held by non-affiliates of the registrant was approximately $1.5 billion,
based on the closing sale price as reported on the New York Stock
Exchange.




On
February 21, 2008, there were 60,934,808 shares of 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 23, 2008.









Amendment
No. 1 to the Annual Report on Form 10-K


For
the Year Ended December 31, 2007


EXPLANATORY
NOTE
  Intermec,
Inc.  is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”)
to its Annual Report on Form 10-K for the fiscal year ended December 31, 2007
(the “2007 10-K”), which was originally filed on March 3, 2008 (the “Original
Filing”), to revise the date of and correct certain other typographical errors
within the Report of Independent Registered Public Accounting Firm (the
“Report”) included on pages 49 and 50 of the Original Filing.
  While the
changes effected by this Amendment are solely to amend the Report as described
above, we have set forth in this Amendment the complete text of Item 8 of the
2007 10-K, an updated Consent of Independent Registered Public Accounting Firm
and updated officer certifications, as required by Rule 12b-15 under the
Securities Exchange Act of 1934.
  By this
Amendment we have not amended, except as described above, or updated any
information contained in the Original Filing, and this Amendment should be read
in conjunction with our filings made with the United States Securities and
Exchange Commission subsequent to the Original Filing.


2


ITEM 8.
              FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATA
 
 PageManagement's
      Report on Internal Control over Financial
      Reporting
              
              
              4Management's
      Certifications
              
              
              5Report of
      Independent Registered Public Accounting
    Firm
              
              
              6Consolidated
      Statements of Operations for the years ended December 31, 2007, 2006 and
      2005
              
              
              8Consolidated
      Balance Sheets as of December 31, 2007 and
      2006
              
              
              9Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2006
      (restated) and 2005 (restated)
              
              
              10Consolidated
      Statements of Changes in Shareholders' Investment for the years ended
      December 31, 2007, 2006 and 2005
              
              
              11Notes to
      Consolidated Financial Statements
              
              
              12Quarterly
      Financial Information (unaudited)
              
              
              44
  3
  Intermec, Inc.
 Management’sReport 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, 2007,
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, 2007 has been audited by Deloitte & Touche, LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.
  4
 
 Management’sCertifications
  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. In addition, in 2007, the Chief Executive Officer provided
to the New York Stock Exchange the annual CEO certification regarding our
compliance with the New York Stock Exchange’s corporate governance listing
standards.
  /s/
      Patrick J. ByrnePatrick
      J. ByrneChief
      Executive Officer/s/
      Lanny H. MichaelLanny
      H. MichaelSenior
      Vice President andChief
      Financial Officer
  5
  REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
   To the
Board of Directors and Shareholders of
 Intermec,
Inc.
 Everett,
WA
 
 We have
audited the accompanying consolidated balance sheets of Intermec, Inc. and
subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related
consolidated statements of operations, changes in shareholders’ investment, and
cash flows for each of the three years in the period ended December 31, 2007.
Our audits also included the financial statement schedule listed in the Index at
Item 15.  We also have audited the Company's internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  The Company's management is responsible for these
financial statements and 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 the financial statements and
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, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2007, 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, 2007, based on the criteria established
in Internal Control —
Integrated Frameworkissued by the Committee of Sponsoring Organizations
of the Treadway Commission.
  6
  As
discussed in Note A to the financial statements, effective January 1, 2007, the
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes.”Also, effective January 1, 2006, the Company adopted the
provisions of FASB Statement No. 123(R), “Share-Based Payment.”Effective December 31, 2006, the Company adopted certain provisions
of Statement of Financial Accounting Standard No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements
No. 87, 88, 106 and 132(R).”
  As
discussed in Note A to the financial statements, the consolidated statements of
cash flows for the years ended December 31, 2006 and 2005 have been
restated.
     Seattle,
WA
 March 2,
2008
 7
  INTERMEC, INC.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 (thousands
of dollars, except per share amounts)
 
 Year
      Ended December 31,2007
              
              2006
              
              2005Revenues:Product
              
              $
              692,050
              
              $
              692,417
              
              $
              720,959Service
              
              
              157,170
              
              
              157,552
              
              
              154,523Total
      revenues
              
              
              849,220
              
              
              849,969
              
              
              875,482Costs
      and expenses:Cost
      of product revenues
              
              
              432,166
              
              
              429,691
              
              
              420,707Cost
      of service revenues
              
              
              90,188
              
              
              88,238
              
              
              91,899Research
      and development
              
              
              65,610
              
              
              72,356
              
              
              66,506Selling,
      general and administrative
              
              
              223,838
              
              
              227,908
              
              
              237,819Gains
      on intellectual property settlements
              
              
              -
              
              
              (16,538
              )
              
              -Restructuring
      charge
              
              
              -
              
              
              11,583
              
              
              -Total
      costs and expenses
              
              
              811,802
              
              
              813,238
              
              
              816,931Operating
      profit from continuing operations
              
              
              37,418
              
              
              36,731
              
              
              58,551Gain
      on sale of investments
              
              
              -
              
              
              2,305
              
              
              -Interest
      income
              
              
              10,706
              
              
              15,898
              
              
              7,016Interest
      expense
              
              
              (8,946
              )
              
              (9,360
              )
              
              (11,042
              )Earnings
      from continuing operations before income taxes
              
              
              39,178
              
              
              45,574
              
              
              54,525Provision
      for income taxes
              
              
              14,843
              
              
              10,575
              
              
              13,880Earnings
      from continuing operations
              
              
              24,335
              
              
              34,999
              
              
              40,645Earnings
      (loss) from discontinued operations, net of tax
              
              
              (1,283
              )
              
              (2,999
              )
              
              21,147Net
      earnings
              
              $
              23,052
              
              $
              32,000
              
              $
              61,792Basic
      earnings (loss) per shareContinuing
      operations
              
              $
              0.40
              
              $
              0.56
              
              $
              0.66Discontinued
      operations
              
              
              (0.02
              )
              
              (0.05
              )
              
              0.34Net
      earnings per share
              
              $
              0.38
              
              $
              0.51
              
              $
              1.00Diluted
      earnings (loss) per shareContinuing
      operations
              
              $
              0.40
              
              $
              0.55
              
              $
              0.64Discontinued
      operations
              
              
              (0.02
              )
              
              (0.05
              )
              
              0.34Net
      earnings per share
              
              $
              0.38
              
              $
              0.50
              
              $
              0.98Shares
      used in computing basic earnings (loss) per share
              
              
              60,359
              
              
              62,535
              
              
              61,785Shares
      used in computing diluted earnings (loss) per share
              
              
              61,163
              
              
              63,830
              
              
              63,350
   See
accompanying notes to consolidated financial statements.
 8
  INTERMEC, INC.
 CONSOLIDATED
BALANCE SHEETS
 (thousands
of dollars)
  December
      31,2007
              
              2006ASSETSCurrent
      assets:Cash
      and cash equivalents
              
              $
              237,247
              
              $
              155,027Short-term
      investments
              
              
              28,230
              
              
              29,510Accounts
      receivable, net
              
              
              191,487
              
              
              158,369Inventories
              
              
              113,145
              
              
              119,027Net
      current deferred tax assets
              
              
              61,532
              
              
              49,623Other
      current assets
              
              
              14,690
              
              
              28,913Total
      current assets
              
              
              646,331
              
              
              540,469Property,
      plant and equipment, net
              
              
              47,732
              
              
              43,453Intangibles,
      net
              
              
              4,138
              
              
              3,978Net
      deferred tax assets
              
              
              150,154
              
              
              190,683Other
      assets
              
              
              52,280
              
              
              31,757Total
      assets
              
              $
              900,635
              
              $
              810,340LIABILITIES
      AND SHAREHOLDERS’ INVESTMENTCurrent
      liabilities:Accounts
      payable and accrued expenses
              
              $
              141,667
              
              $
              113,207Payroll
      and related expenses
              
              
              32,170
              
              
              32,008Deferred
      revenue
              
              
              49,020
              
              
              45,021Current
      debt
              
              
              100,000
              
              
              -Total
      current liabilities
              
              
              322,857
              
              
              190,236Long-term
      deferred revenue
              
              
              20,109
              
              
              17,318Long-term
      debt
              
              
              -
              
              
              100,000Other
      long-term liabilities
              
              
              73,558
              
              
              85,184Shareholders’
      investment:Common
      stock (250,000 shares authorized, 61,192 and 60,318 shares issued and
      outstanding)
              
              
              612
              
              
              598Additional
      paid-in capital
              
              
              679,241
              
              
              657,468Accumulated
      deficit
              
              
              (196,795
              )
              
              (212,903
              )Accumulated
      other comprehensive income (loss)
              
              
              1,053
              
              
              (27,561
              )Total
      shareholders’ investment
              
              
              484,111
              
              
              417,602Total
      liabilities and shareholders’ investment
              
              $
              900,635
              
              $
              810,340
   See
accompanying notes to consolidated financial statements.
 9
  INTERMEC, INC.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 (thousands
of dollars)
  Year
      Ended December 31,2007
              
              2006
                (Restated,
      see Note A)
              
              2005
                  (Restated,
      see Note A)Cash
      and cash equivalents at beginning of year
              
              $
              155,027
              
              $
              256,782
              
              $
              217,899Cash
      flows from operating activities:Net
      earnings
              
              
              23,052
              
              
              32,000
              
              
              61,792Net
      (earnings) loss from discontinued operations
              
              
              1,283
              
              
              2,999
              
              
              (21,147
              )Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
              
              
              13,314
              
              
              10,939
              
              
              9,865Gain on
      sale of investments
              
              
              -
              
              
              (2,305
              )
              
              -Change
      in prepaid pension costs, net
              
              
              (5,290
              )
              
              17,178
              
              
              11,525Deferred
      taxes
              
              
              7,643
              
              
              12,412
              
              
              11,155Stock-based
      compensation and other
              
              
              9,037
              
              
              5,892
              
              
              1,975Excess
      tax benefits from stock-based payment arrangements
              
              
              (2,050
              )
              
              (4,733
              )
              
              -Changes
      in operating assets and liabilities:Accounts
      receivable
              
              
              (25,204
              )
              
              28,269
              
              
              (33,560
              )Inventories
              
              
              8,060
              
              
              (35,477
              )
              
              (2,344
              )Other
      current assets
              
              
              (1,662
              )
              
              5,577
              
              
              (1,906
              )Accounts
      payable and accrued expenses
              
              
              35,805
              
              
              (49,965
              )
              
              9,482Payroll
      and related expenses
              
              
              (815
              )
              
              179
              
              
              (636
              )Other
      long-term liabilities
              
              
              (1,467
              )
              
              1,548
              
              
              15,257Other
      operating activities
              
              
              (5,081
              )
              
              (4,296
              )
              
              914Net
      cash provided by operating activities of
      continuing operations
              
              
              56,625
              
              
              20,217
              
              
              62,372Cash
      flows from investing activities of continuing
      operations:Capital
      expenditures
              
              
              (15,779
              )
              
              (22,365
              )
              
              (10,136
              )Purchases
      of investments
              
              
              -
              
              
              (31,450
              )
              
              -Sale
      of investments
              
              
              2,002
              
              
              4,873
              
              
              -Restricted
      cash
              
              
              -
              
              
              -
              
              
              50,000Patent
      legal fees
              
              
              (2,398
              )
              
              (705
              )
              
              -Sale
      of property, plant and equipment
              
              
              -
              
              
              -
              
              
              10,987Other
      investing activities
              
              
              (1,253
              )
              
              653
              
              
              729Net
      cash provided by (used in) investing activities ofcontinuing
      operations
              
              
              (17,428
              )
              
              (48,994
              )
              
              51,580Cash
      flows from financing activities of continuing
      operations:Repayment
      of long-term obligations
              
              
              -
              
              
              -
              
              
              (108,500
              )Excess
      tax benefits from stock-based payment arrangements
              
              
              2,050
              
              
              4,733
              
              
              -Stock
      options exercised
              
              
              8,434
              
              
              8,073
              
              
              18,014Stock
      repurchase
              
              
              -
              
              
              (99,948
              )
              
              -Other
      financing activities
              
              
              2,269
              
              
              2,780
              
              
              2,148Net
      cash provided by (used in) financing activities of continuing
      operations
              
              
              12,753
              
              
              (84,362
              )
              
              (88,338
              )Net
      cash provided by (used in) continuing operations
              
              
              51,950
              
              
              (113,139
              )
              
              25,614Net
      cash used in operating activities of discontinued
      operations
              
              
              -
              
              
              -
              
              
              (52,558
              )Net
      cash provided by investing activities ofdiscontinued
      operations
              
              
              20,178
              
              
              5,710
              
              
              70,416Effect
      of exchange rate changes on cash and cash
equivalents
              
              
              10,092
              
              
              5,674
              
              
              (4,589
              )Resulting
      increase (decrease) in cash and cash equivalents
              
              
              82,220
              
              
              (101,755
              )
              
              38,883Cash
      and cash equivalents at end of period
              
              $
              237,247
              
              $
              155,027
              
              $
              256,782Supplemental
      informationCash
      payments:Interest
      on debt
              
              $
              (7,000
              )
              $
              (7,243
              )
              $
              (11,498
              )Income
      taxes
              
              
              (5,943
              )
              
              (5,361
              )
              
              (6,199
              )
  See
accompanying notes to consolidated financial statements.
 10
 
 INTERMEC, INC.
 CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT
 (thousands
of dollars)
  Common
      Stock
              
              Additional
      Paid-in Capital
              
              Accumulated
      Deficit
              
              Accumulated
      Other Comprehensive Income (Loss)
              
              TotalBalance,
      January 1, 2005
              
              $
              611
              
              $
              703,416
              
              $
              (306,695
              )
              $
              13,902
              
              $
              411,234Comprehensive
      income:Net
      earnings
              
              
              
              
              
              
              
              
              61,792
              
              
              
              
              
              61,792Currency translation adjustment
      and other, net
              
              
              
              
              
              
              
              
              
              
              
              (26,464
              )
              
              (26,464
              )Minimum pension liability
      adjustment, net
              
              
              
              
              
              
              
              
              
              
              
              (3,583
              )
              
              (3,583
              )Comprehensive
      loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              31,745Stock-based
      activity
              
              
              16
              
              
              32,808
              
              
              
              
              
              
              
              
              32,824Balance,
      December 31, 2005
              
              
              627
              
              
              736,224
              
              
              (244,903
              )
              
              (16,145
              )
              
              475,803Comprehensive
      income:Net
      earnings
              
              
              
              
              
              
              
              
              32,000
              
              
              
              
              
              32,000Currency translation adjustment
      and other, net
              
              
              
              
              
              
              
              
              
              
              
              6,351
              
              
              6,351Unrealized
      gain on securities, net
              
              
              
              
              
              
              
              
              
              
              
              49
              
              
              49Minimum pension liability
      adjustment, net
              
              
              
              
              
              
              
              
              
              
              
              (328
              )
              
              (328
              )Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              38,072SFAS
      158 transition amount, net
              
              
              
              
              
              
              
              
              
              
              
              (17,488
              )
              
              (17,488
              )Repurchase
      of common stock
              
              
              (38
              )
              
              (99,910
              )
              
              
              
              
              
              
              
              (99,948
              )Stock-based
      activity
              
              
              9
              
              
              21,154
              
              
              
              
              
              
              
              
              21,163Balance,
      December 31, 2006
              
              
              598
              
              
              657,468
              
              
              (212,903
              )
              
              (27,561
              )
              
              417,602Comprehensive
      income:Net
      earnings
              
              
              
              
              
              
              
              
              23,052
              
              
              
              
              
              23,052Currency translation adjustment
      and other, net
              
              
              
              
              
              
              
              
              
              
              
              5,851
              
              
              5,851SFAS
      158, net of tax of $4.3 million
              
              
              
              
              
              
              
              
              
              
              
              22,668
              
              
              22,668Unrealized gain on securities,
      net
              
              
              
              
              
              
              
              
              
              
              
              95
              
              
              95Comprehensive
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              51,666FIN
      48 adoption
              
              
              
              
              
              
              
              
              (6,944
              )
              
              
              
              
              (6,944
              )Stock-based
      activity
              
              
              14
              
              
              21,773
              
              
              
              
              
              
              
              
              21,787Balance,
      December 31, 2007
              
              $
              612
              
              $
              679,241
              
              $
              (196,795
              )
              $
              1,053
              
              $
              484,111
   See
accompanying notes to consolidated financial statements.
 11
  INTERMEC, INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
A: Significant Accounting Policies
  Nature of
Operations.  Intermec, Inc. (“Intermec”, “us”, “we”,
“our”), formerly UNOVA, Inc., provides global supply chain solutions and design,
development, manufactures and integrates wired and wireless automated data
collection, mobile computing systems, bar code printers, label media and
Intermec RFID (radio frequency identification). Our products and services are
used by customers in many industries to improve productivity, quality and
responsiveness of business operations, from supply chain management and
enterprise resource planning to field sales and service. Our products and
services are sold globally to a diverse set of customers in markets and
applications such as manufacturing, warehousing, direct store delivery, retail,
consumer goods, field services, government, security, healthcare, transportation
and logistics.
  In 2005,
we divested our Industrial Automation Systems (“IAS”) businesses, which
comprised the Cincinnati Lamb and Landis Grinding Systems divisions. The IAS
businesses are classified as discontinued operations for accounting purposes in
our consolidated financial statements and related notes.
  Restatement:  Cash flows from operating activities in the
consolidated statements of cash flows for the years ended December 31, 2006 and
2005 have been restated from amounts previously reported to properly separate
the effects of exchange rate changes on cash, which were previously reflected in
certain line items of the consolidated statements of cash flows for those years.
The impact of this restatement was to increase (decrease) the reported cash
flows from operating activities for 2006 and 2005 by approximately ($5.7)
million and $4.6 million, respectively, and to reflect the effect of foreign
exchange rates on cash as a reconciling item after cash provided by (used in)
operating, investing and financing activities, before the total change in cash
and cash equivalents, as an increase (decrease) in cash of $5.7 million and
($4.6) million for the years ended December 31, 2006 and 2005, respectively.
There was no change in cash and cash equivalents from amounts previously
reported at the end of those periods.
 The
results of this restatement on the recorded amounts and a disclosure within the
2006 and 2005 consolidated statements of cash flows are as follow (thousands of
dollars):
  For
      the year ended December 31, 2006
                
                For
      the year ended December 31, 2005As
      previously reported
                
                As
      restated
                
                As
      previously reported
                
                As
      restatedAdjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
                
                $
                9,942
                
                $
                10,939
                
                $
                9,865
                
                $
                9,865Change
      in prepaid pension costs, net
                
                
                17,182
                
                
                17,178
                
                
                11,525
                
                
                11,525Deferred
      taxes
                
                
                13,063
                
                
                12,412
                
                
                11,615
                
                
                11,155Accounts
      receivable
                
                
                22,616
                
                
                28,269
                
                
                (33,561
                )
                
                (33,560
                )Inventories
                
                
                (36,939
                )
                
                (35,477
                )
                
                (2,344
                )
                
                (2,344
                )Other
      current assets
                
                
                5,271
                
                
                5,577
                
                
                (1,906
                )
                
                (1,906
                )Accounts
      payable and accruedexpenses
                
                
                (46,438
                )
                
                (49,965
                )
                
                9,134
                
                
                9,482Payroll
      and related expenses
                
                
                1,200
                
                
                179
                
                
                (636
                )
                
                (636
                )Other
      long-term liabilities
                
                
                1,757
                
                
                1,548
                
                
                15,111
                
                
                15,257Other
      operating activities
                
                
                4,384
                
                
                (4,296
                )
                
                (3,640
                )
                
                914Net
      cash provided by operating activities of continuing
      operations
                
                
                25,891
                
                
                20,217
                
                
                57,783
                
                
                62,372Net
      cash provided by (used in) continuing operations
                
                
                (107,465
                )
                
                (113,139
                )
                
                21,025
                
                
                25,614Effect
      of exchange rate changes on cash and cash
equivalents
                
                
                -
                
                
                5,674
                
                
                -
                
                
                (4,589
                )Supplemental
      InformationEffect
      of exchange rates on cash and cash equivalents
                
                
                1,659
                
                
                -
                
                
                (7,928
                )
                
                -
 
 12
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Note
A: Significant Accounting Policies (Continued)
 Principles of
Consolidation.  The consolidated financial statements include
the accounts of Intermec, Inc., our wholly owned subsidiaries and companies
in which we have a controlling interest. Investments in companies over which we
have influence, but not a controlling interest, are accounted for using the
equity method. Equity investments of less than 20% ownership in other companies
are carried at cost. All significant intercompany transactions and balances have
been eliminated in consolidation. We have no unconsolidated
subsidiaries.
  Use of Estimates in the Preparation
of Financial Statements.  The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for each reported period. Actual
results could differ from those estimates. Significant estimates and assumptions
were used to determine the provisions for uncollectible accounts receivable,
allowance for sales returns, excess and obsolete inventory, tax valuation
allowances, tax contingency accruals, recoverability of other intangible assets,
warranty costs, pension and post retirement obligations, and stock-based
compensation.
  Revenue
Recognition.  Revenues are generally recognized when products
are shipped or services are rendered, the title and risk of loss has passed to
the customer, the sales price is fixed or determinable and collectibility is
reasonably assured. Royalty revenue is recorded when the revenue is earned and
reported, the amount due is fixed or determinable and collectibility is
reasonably assured. Service and maintenance revenue is recognized as services
are rendered, generally over the contract term, and collectibility is reasonably
assured. When a sale involves multiple elements, such as sales of products that
include services, the entire revenue from the arrangement is allocated to each
respective element based on its relative fair value and is recognized when the
revenue recognition criteria for each element are met. Fair value for each
element is established based on the sales price charged when the same element is
sold separately. We reduce revenue for estimated customer returns, price
protection, rebates and other offerings that occur under sales programs
established by us directly or with our distributors and resellers. We accrue the
estimated cost of post-sale obligations, including basic product warranties,
based on historical experience at the time we recognize revenue.
  We
typically do not sell our software products without the related hardware. Our
typical products require no significant production, modification or
customization of the software or hardware after they are shipped. For software
sales, and hardware sales where the software is more than incidental, revenue is
recognized upon shipment, delivery, installation or customer acceptance of the
product, as defined in the customer contract.
  Under our
Rapid Start RFID intellectual property (“RFID IP”) licensing program, we license
rights to use portions of our IP portfolio, including certain patents essential
to and/or useful in the manufacture and sale of certain RFID products and
systems. As a result of our RFID IP licensing program, which ended on
August 31, 2005, we have expanded our revenue recognition policy to include
the license fees from this program. Licensees participating in the Rapid Start
program typically paid a nonrefundable up-front fee and agreed to pay ongoing
royalties based on their sales of products incorporating or using our licensed
RFID IP. Under the terms of such Rapid Start RFID license agreements, the
licensees receive the right to certain future divisions, continuations and
continuations-in-part of the licensed RFID patents. Non-refundable up-front fees
and license transfer fees related to our Rapid Start RFID IP licensing program
are recorded as deferred revenue and recognized over five years, representing
the estimated future period we expect to receive patents on certain divisions,
continuations and/or continuations-in-part for the licensed RFID patents and our
estimate of the average technology lifecycle for the automated identification
data capture (“AIDC”) industry. We earn royalties on licensed RFID products sold
by its licensees’ at the time that the licensees’ sales occur. Our licensees
report and pay royalties owed for sales made in any given quarter after the
conclusion of that quarter. We
recognize such royalty revenue in the period earned and reported from
licensees.
   13
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
A: Significant Accounting Policies (Continued)
  Stock-Based
Compensation.As of December 31, 2006, we had four
stock-based compensation plans available for future grants. Prior to January 1,
2006, these plans were accounted for under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related Interpretations. During the first quarter of 2006, we began
expensing stock options as required under SFAS No. 123(R), “Share-Based
Payments.”
  Cash
Equivalents.We consider highly liquid investments purchased
within three months of their date of maturity to be cash
equivalents.
  Short-term
Investments.All short-term investments are classified as
“available-for-sale” under SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities.  Unrealized gains and losses, net of
tax, related to available-for-sale securities are included in accumulated other
comprehensive loss within shareholders’ investment. We evaluate the carrying
value of our investments in marketable equity securities considered
available-for-sale as required under the provisions of
SFAS No. 115.
  Accounts
Receivable.We provide an allowance for doubtful accounts
equal to the estimated uncollectible accounts receivable. That estimate is based
on historical collection experience, the aging of the accounts receivable,
current international, political, economic and market conditions, and a review
of the current status of specific customer’s trade accounts receivable. Our
allowance for doubtful accounts and sales returns was $12,854 and $7,796 at
December 31, 207 and 2006, respectively.
  Inventories.  Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method. Inventoried costs include material, labor and
manufacturing overhead. General and administrative costs are expensed as
incurred. We write down estimated obsolete or unsalable inventory based on
assumptions about future demand for our products and market
conditions.
  Property, Plant and
Equipment.  Property, plant and equipment are stated at cost,
net of accumulated depreciation. Depreciation, computed generally by the
straight-line method, is provided over the estimated useful lives of the related
assets.
 Pension and Other Postretirement
Benefits.We have retirement plans which cover most of our
employees. Some of these plans were frozen June 2006. Annual employer
contributions are made to the extent such contributions are actuarially
determined 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.
  Assumptions
used in determining projected benefit obligations and the fair values of plan
assets for our pension plans and other postretirement benefits are evaluated at
least annually by management. Changes in assumptions are based on relevant data,
such as the rate of increase in compensation levels and the expected long-term
rate of return on plan assets. Critical assumptions such as the discount rate
used to measure the benefit obligations, the expected long-term rate of return
on plan assets and health care cost projections are evaluated and updated
annually. Note K to the consolidated financial statements includes disclosure of
these assumptions for our domestic and foreign plans. We believe the assumptions
are appropriate. However, these assumptions could vary materially from actual
results due to economic events or different rates of retirement, mortality or
withdrawal, positively or negatively impacting future results of
operations.
  Effective
December 31, 2006, we adopted SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106 and 132(R) (SFAS No. 158), which requires that the
consolidated statements of financial position reflect the funded status of the
pension and postretirement plans (See Note K, Pension and Other Postretirement
Benefit Plans). In future reporting periods, the difference between actual
amounts and estimates based on actuarial assumptions will be recognized in other
comprehensive income (loss) in the period in which they occur.
  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. Valuation allowances are provided to reduce
deferred tax assets to an amount that is more likely than not to be realized. We
evaluate the likelihood of realizing our deferred tax assets by estimating
sources of future taxable income and the impact of tax planning strategies. Our
deferred tax assets include future tax benefits of discontinued operations that
remain with us. Effective
January 1, 2007 we began recording benefits from uncertain tax positions in
accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes.”  Accordingly, we recognize the largest amount of
benefit greater than 50% determined by cumulative probability of being realized
upon ultimate settlement with the tax authority.
  14
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
A: Significant Accounting Policies (Continued)
  Concentrations of Credit
Risk.  Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. We place our cash and cash equivalents with
high-credit-quality institutions. Concentrations of credit risk with respect to
trade receivables are limited because a large number of geographically diverse
customers make up our customer base, thus spreading the credit risk. We evaluate
the creditworthiness of our customers and maintain an allowance for anticipated
losses. For 2007 and 2006, one customer accounted for more than 10% of our
revenues. Total
sales to this customer were 13% and 12% for the years ended December 31,
2007 and 2006, respectively. No single customer accounted for more than
10% of our revenues in 2005.
  Currencies.  Our
consolidated financial statements are presented in U.S. dollars. The financial
statements of our operations outside the U.S., whose functional currencies are
not the U.S. dollar, are translated into U.S. dollars at the exchange rates in
effect at the balance sheet dates for assets and liabilities and at average
rates for the period for revenues and expenses. The unrealized translation gains
and losses on our net investment in these operations, including long-term
intercompany advances considered part of the net investment, are accumulated as
a component of other comprehensive income (loss). Currency transaction gains and
losses are recorded in the consolidated statements of operations. Operating
results include net currency transaction gains (losses) of $(1.5) million,
$(1.3) million, $0.7 million December 31, 2007, 2006 and 2005.
 Derivative
Instruments and Hedging Activities.Due to our global operations, our cash
flows and earnings are exposed to foreign exchange rate risk. Our use of
derivatives is limited to foreign currency exchange contracts entered into to
limit this exposure to foreign currency exchange rate fluctuations. We enter
into these contracts with major financial institutions to minimize our risk of
foreign exchange loss. Our policies do not permit active trading of or
speculation in derivative financial instruments. Our policy is to hedge major
foreign currency cash flow exposures through foreign exchange forward contracts
at amounts up to 100% of such cash flows. The translation gains and losses on
the effective portion of the hedging instruments that qualify for hedge
accounting are recorded in OCI; other translation gains and losses are recorded
in net earnings (loss). The fair values of derivative instruments are recorded
on the consolidated balance sheets. The difference between the net fair values
of foreign exchange contracts and the underlying foreign currency based assets
and liabilities as of December 31, 2007 and 2006 was not
material.
  Intangibles.  Intangible
assets with finite useful lives are amortized generally on a straight-line basis
over the periods benefited. All of our finite-lived intangible assets pertain to
our patent portfolio and have estimated useful lives of 18 years. See Note E for
additional information.
  The
carrying values of intangible assets with definite useful lives are tested for
impairment annually or when events or circumstances indicate the carrying value
of an asset may not be recoverable. If the carrying value of an intangible asset
exceeds its fair value, an impairment loss is recognized. Fair value is
estimated based on discounted expected future cash flows.
  Other
assets.  Other assets consist primarily of pension assets in
excess of pension liabilities and certain idle facilities. Assets held for sale
totaling $8.7 million and previously reported as such at December 31, 2006, have
been reclassified to other assets to conform with the 2007
presentation.
  Warranty
Costs.  Provisions for estimated expenses related to product
warranties are made at the time products are sold. These estimates are
established using historical information on the nature, frequency, and average
cost of warranty claims. Management actively studies trends of warranty claims
and takes action to improve product quality and minimize warranty
claims.
  Impairment of Long-Lived
Assets.  We assess the recoverability of long-lived assets when
events or circumstances indicate that the carrying amount of an asset may not be
fully recoverable. If undiscounted expected cash flows to be generated by a
long-lived asset or asset group are less than its carrying amount, we record an
impairment to write down the long-lived asset or asset group to its estimated
fair value. Fair value is estimated based on discounted expected future cash
flows.
  Discontinued
Operations.Divested businesses are classified in the
consolidated financial statements as discontinued operations. For businesses
classified as discontinued operations, the balance sheet amounts and income
statement results and cash flows are reclassified from their historical
presentation to assets and liabilities of discontinued operations on the
consolidated balance sheets, to loss from discontinued operations in the
consolidated statements of operations, and to cash flows from discontinued
operations on the consolidated statements of cash flows for all periods
presented. Additionally, segment information does not include the results of
businesses classified as discontinued operations.
 
 Restructuring
Charge.We record restructuring charges when a liability is
incurred for costs associated with an exit or disposal activity at fair value,
in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (“SFAS 146”).
  15
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
A: Significant Accounting Policies (Continued)
  Environmental
Costs.  A liability for environmental costs is recorded when we
determine our responsibility for remedial efforts and such amounts are
reasonably estimable. Environmental costs were not material for all years
presented.
  Contingencies.  We
assess our exposure to loss contingencies, including environmental, legal and
income tax matters, and provide for an exposure if it is judged to be probable
and estimable. If the actual loss from a loss contingency differs from
management’s estimates, results of operations could be adjusted upward or
downward.
 Research and
Development.  Research and development (“R&D”) costs are
expensed as incurred. Total expenditures of continuing operations on research
and development activities amounted to $65.6 million, $72.4 million and $66.5
million for the years ended December 31, 2007, 2006 and 2005, respectively.
These expenditures were for Company-sponsored R&D and were primarily for
labor, materials and other administrative costs. We incurred no costs associated
with R&D sponsored by customers or other external parties.
  Advertising.Advertising
costs are expensed as incurred. Advertising expenses for the years ended
December 31, 2007, 2006 and 2005 were $1.0 million, $1.3 million and $1.7
million, respectively.
  New Accounting
Pronouncements.  In February 2007, the FASB issued SFAS No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115,” which will become effective in 2008. SFAS No. 159
permits entities to measure eligible financial assets, financial liabilities and
firm commitments at fair value, on an instrument-by-instrument basis, that are
otherwise not permitted to be accounted for at fair value under other generally
accepted accounting principles. The fair value measurement election is
irrevocable and subsequent changes in fair value must be recorded in earnings.
We will adopt this Statement in fiscal year 2008 and will
determine whether we will elect the fair value option for any of our
eligible financial instruments and other items. We do not expect this statement
will have a significant impact on our consolidated financial
statements.
 
 In
September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements.”
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. While the statement is effective in the first fiscal
quarter of 2008, the FASB provided a one year deferral for the implementation
with respect to other nonfinancial assets and liabilities. We believe that
the adoption of SFAS No. 157 will not have a material effect on our
results of operations, cash flows or financial position.
 In
September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined
Pension and Other Postretirement Plans—an amendment of FASB Statements
No. 87, 88, 106 and 132(R)”. The statement has new provisions
regarding the measurement date as well as certain disclosure requirements.
Effective December 31, 2008, SFAS No. 158 will require us to measure
plan assets and benefit obligations at fiscal year end. We currently perform
this measurement at September 30 of each year. In addition, beginning in
fourth quarter of 2007, this Standard required that we eliminate the use of a
three-month lag period when recognizing the impact of curtailments or
settlements and instead, recognize these amounts in the period in which they
occur. The provisions of SFAS No. 158 do not permit retrospective
application. We expect to incur between $0.5 million and $1.0 million as an
adjustment to retained earnings upon adoption of the remainder of this
statement.
 
 In
September 2006, the EITF issued EITF 06-4, “Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements”
(“EITF 06-04”), which will become effective in 2008. The Task Force concluded
that an employer should recognize a liability for future benefits in accordance
with SFAS No. 106, “Employers'
Accounting for Postretirement Benefits Other Than Pensions” or Opinion
12, “Classification and
Disclosure of Allowances Disclosure of Depreciable Assets and Depreciation
Deferred Compensation Contracts Capital Changes Convertible Debt and Debt Issued
with Stock Warrants Amortization of Debt Discount and Expense or Premium”
based on the substantive agreement with the employee. We do not expect the
adoption of EITF 06-4 to result in a change to our accounting policy or
have an effect on our consolidated financial statements.
  In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which
was effective for all business acquisitions with an acquisition date on or after
January 1, 2009. This statement generally requires an acquirer to recognize the
assets acquired, the liabilities assumed, contingent purchase consideration, and
any noncontrolling interest in the acquiree, at fair value on the date of
acquisition. SFAS No. 141R also requires an acquirer to expense most transaction
and restructuring costs as incurred, and not include such items in the cost of
the acquired entity. We are currently evaluating the impact of the adoption of
SFAS No. 141R on our consolidated financial statements.
 16
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
B: Cash and Cash Equivalents, Short-term Investments and Long-term
Debt
  Cash and
cash equivalents amounted to $237.2 and $155.0 million at December 31, 2007
and 2006, respectively, and consisted mainly of bank deposits and money market
funds. Cash and cash equivalents at December 31, 2007 and 2006, include
$1.4 million and $1.2 million, respectively, of bank deposits required to be
maintained in support of letters of credit. Letters of credit are purchased
guarantees to ensure our contract performance to third parties in accordance
with specified terms and conditions. We have
two money market funds totaling 25.6% and 22.7%, respectively, of cash and cash
equivalents at December 31, 2007.
  Short-term
investments totaled $28.2 million at December 31, 2007 and primarily consisted
of variable rate demand notes totaling
$27.8 million. Fair value approximates carrying value for short-term
investments. 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.
  Long-term
debt comprises the following (thousands of dollars):
  Current
      Portion of Long-term Debt
              
              Non-Current
      Portion of Long-term DebtDecember
      31,
              
              December
      31,2007
              
              2006
              
              2007
              
              2006Debentures,
      with interest at 7.00%, due March 2008
              
              $
              100,000
              
              $
              -
              
              $
              -
              
              $
              100,000Long-term
      obligations
              
              $
              100,000
              
              $
              -
              
              $
              -
              
              $
              100,000
 
 On
September 27, 2007 we closed on a new unsecured Revolving Credit Facility (the
“Revolving Facility”) with a maximum amount available under the Revolving
Facility of $50.0 million. Net of outstanding letters of credit and limitations
on availability, we had borrowing capacity at December 31, 2007, of $47.6
million under the Revolving Facility. We made no borrowings under the Revolving
Facility as of December 31, 2007. As of December 31, 2007, we were in
compliance with the financial covenants of the Revolving Facility. The Revolving
Facility matures in October 2012.
 
 The key
terms of the Revolving Facility are as follows:
 
 ·
              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.
  ·
              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 will be required.  The fee on the unused portion
      of the Revolving Facility ranges from 0.125% to
  0.20%.
  ·
              Certain
      of our domestic subsidiaries have guaranteed the Revolving
      Facility.
  ·
              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.
  ·
              Financial
      covenants include a Maximum Leverage test and a Minimum Tangible Net Worth
      test, each as defined in the Revolving
Facility.
  In
March 1998, we sold $200.0 million principal amount of senior unsecured
debt in an underwritten offering. The debt comprised $100.0 million of 6.875%
seven-year notes and $100.0 million of 7.00% ten-year notes. In March 2005,
we retired the $100.0 million of seven-year notes. Interest payments on the
ten-year notes are due semi-annually in March and September. Including
underwriting fees, discounts and other issuance costs, the effective interest
rates on the ten-year notes is 7.175%. The ten-year notes will mature in March
2008.
  17
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
B: Cash and Cash Equivalents, Short-term Investments and Long-term Debt
(Continued)
  At
December 31, 2007 and 2006, our fixed rate debentures had carrying and
estimated fair market values of $100.0 million, based on market trade values. At
December 31, 2007 and 2006, we had no variable rate borrowings. Fair values of
our accounts receivable and accounts payable approximate their carrying values
due to their short-term nature.
  We also
have letter-of-credit reimbursement agreements totaling $3.9 million at
December 31, 2007, compared to $7.4 million at December 31, 2006. As
of December 31, 2007, $3.8 million of the agreements related to performance
on contracts with current customers and vendors, $0.1 million of the agreements
related to customer contracts assumed by the purchaser of the Cincinnati Lamb
operations that were sold and $0.2 million of the agreements related to customer
contracts assumed by the purchaser of the Landis operations that were sold. We
are indemnified by the purchaser of the Cincinnati Lamb operation on the $0.1
million of letter-of-credit agreements related to Cincinnati Lamb. We are also
indemnified by the purchaser of the Landis operations on the $0.2 million of
letter-of-credit agreement to Landis. No liability is recorded as the risk of
non-performance is remote.
  Note
C: Inventories
  Inventories
comprise the following (thousands of dollars):
  December
      31,2007
              
              2006Raw
      materials
              
              $
              65,257
              
              $
              69,769Work
      in process
              
              
              1,318
              
              
              450Finished
      goods
              
              
              46,569
              
              
              48,808Inventories
              
              $
              113,145
              
              $
              119,027
   Note
D: Property, Plant and Equipment, Net, and Commitments
  Property,
plant and equipment, net, comprise the following (thousands of
dollars):
  December
      31,2007
              
              2006Property,
      plant and equipment, at costLand
              
              $
              6,080
              
              $
              5,960Buildings
      and improvements
              
              
              8,508
              
              
              7,619Machinery
      and equipment
              
              
              139,040
              
              
              130,625Total
      property, plant and equipment, at cost
              
              
              153,628
              
              
              144,204Less:
      accumulated depreciation
              
              
              (105,896
              )
              
              (100,751
              )Property, plant and equipment,
      net
              
              $
              47,732
              
              $
              43,453
 
 Included
in machinery and equipment above, as of December 31, 2007 and 2006, is the
capitalization of imputed interest of $0.6 million and $0.3 million,
respectively, related to improvements to our Enterprise Resource Planning
(“ERP”) system.
 
 Depreciation
expense from continuing operations was $12.6 million, $10.5 million and $9.5
million for the years ended December 31, 2007, 2006 and 2005,
respectively.
  The
ranges of estimated useful lives of the major classes of assets
are:
  Buildings
              
              
              21-30
      yearsBuilding
      improvements
              
              
              2-10
      yearsMachinery
      and equipment
              
              
              2-10
      years
  18
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
D: Property, Plant and Equipment, Net, and Commitments (Continued)
  As of
December 31, 2007 and 2006, we deferred $3.2 million and $3.7 million,
respectively, of gains related to sale-leaseback transactions. These deferred
gains are being amortized over the terms of the related leases. Minimum rental
commitments under non-cancellable operating leases were as follows at
December 31, 2007 (thousands of dollars):
  2008
              
              $
              11,5492009
              
              
              9,5192010
              
              
              8,4672011
              
              
              6,8562012
              
              
              6,149Thereafter
              
              
              14,052Total
              
              $
              56,592
  Rental
expense for operating leases of continuing operations, including amounts for
short-term leases with nominal, if any, future rental commitments, was $9.1
million, $11.0 million and $12.8 million, for the years ended December 31,
2007, 2006 and 2005, respectively.
  Aggregate
future minimum rental income to be received under non-cancelable subleases is
$2.3 million at December 31, 2007.
  Note
E: Intangibles, Net
  For the
year ended December 31, 2007, intangibles, net comprised a $4.1 million patent
portfolio. The components of intangibles, net, including the gross carrying
amount and accumulated amortization of our amortizable intangibles, are as
follows (thousands of dollars):
  December
      31,2007
              
              2006Amortizable
      intangibles:Gross
      carrying amount
              
              $
              11,329
              
              $
              10,769Accumulated
      amortization
              
              
              (7,191
              )
              
              (6,791
              )Intangibles,
      net
              
              $
              4,138
              
              $
              3,978
 
 Included
in intangible assets above, as of December 31, 2007, is approximately $0.2
million related to capitalized legal costs incurred in successfully defending
our patents.
  Amortization
expense on intangible assets was $0.7 million, $0.4 million and $0.4 million,
for the years ended December 31, 2007, 2006 and 2005,
respectively.
  19
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
E: Intangibles, Net (Continued)
  Estimated
amortization expense for the succeeding five fiscal years is as follows
(thousands of dollars):
  Year
      Ending December 31,2008
              
              $
              9142009
              
              
              9142010
              
              
              6272011
              
              
              3982012
              
              
              398
 
 Note
F: Shareholders’ Investment
  Stock
Awards
  We
adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS
123(R)”), using the modified prospective transition method beginning
January 1, 2006. SFAS 123(R) eliminates the ability to account for
share-based compensation transactions, as we formerly did, using the intrinsic
value method as prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to
Employees, and generally requires that such transactions be accounted for
using a fair-value-based method and recognized as expenses in our consolidated
statements of operations over the requisite service period.
  For
stock-based awards granted after January 1, 2006, we have recognized
compensation expense based on the estimated grant date fair value method using
the Black-Scholes valuation model. For these awards, we have recognized
compensation expense using a straight-line amortization method. Because
SFAS 123(R) requires that stock-based compensation expense be based on
awards that are ultimately expected to vest, stock-based compensation has been
reduced for estimated forfeitures. When estimating forfeitures, we consider
voluntary termination behaviors as well as trends of actual option forfeitures.
The impact on our results of operations of recording stock-based compensation
for the years ended December 31 (in thousands):
  2007
              
              
              2006Cost
      of revenues
              
              $
              507
              
              $
              275Selling,
      general and administrative
              
              
              8,464
              
              
              4,487$
              8,971
              
              $
              4,762
  20
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
F: Shareholders’ Investment (Continued)
  Prior to
adopting SFAS 123(R), we presented all tax benefits resulting from the
exercise of stock options as operating cash flows in the Statement of Cash
Flows. SFAS 123(R) requires cash flows resulting from excess tax benefits
to be classified as a part of cash flows from financing activities. Excess tax
benefits are realized tax benefits from tax deductions for exercised options in
excess of the deferred tax asset attributable to stock compensation costs for
such options. As a result of adopting SFAS 123(R), $2.1 million and
$4.7 million for the years ended December 31, 2007 and 2006, respectively, of
excess tax benefits have been classified as a source of cash from financing
activities. Cash received from option exercises under all share-based payment
arrangements for the years ended December 31, 2007, 2006 and 2005 was $8.4
million, $8.1 million and $18.0 million, respectively. The total income tax
benefit recognized in the statement of operations for stock-based compensation
costs was $3.4 million and $1.7 million for the years ended December 31,
2007 and 2006, respectively. We calculated the fair value of each option award
on the date of grant using the Black-Scholes option pricing model. The following
assumptions were used for each respective period:
  2007
              
              2006
              
              2005Risk-free
      interest rate
              
              
              4.72
              %
              
              4.82
              %
              
              3.84
              %Expected
      option life
              
              
              4.9
      years
              
              
              4.8
      years
              
              
              5
      yearsExpected
      stock price volatility
              
              
              38.35
              %
              
              40.15
              %
              
              53.29
              %Expected
      dividend yield
              
              
              0.00
              %
              
              0.00
              %
              
              0.00
              %
 
 Our
computation of expected volatility for 2007 and 2006 is based on a combination
of historical and market-based implied volatility from traded options on a group
of peer stocks. Prior to 2006, our computation of expected volatility was based
on historical volatility. Our computation of expected life in 2007 and 2006 was
determined based on historical experience of similar awards, giving
consideration to the contractual terms of the stock-based awards, vesting
schedules and expectations of future employee behavior. The interest rate for
periods within the contractual life of the award is based on the
U.S. Treasury yield curve in effect at the time of grant.
  The fair
value of the options granted based on the above assumptions is $9.87, $12.80 and
$10.75 for the years ended December 31, 2007, 2006 and 2005, respectively. All
grants of our options under all plans must be approved or authorized by the
Compensation Committee of the Board of Directors, which consists entirely of
outside directors.
  21
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Investment (Continued)
 
 The
following tables summarize the pro forma effect of stock-based compensation as
if the fair value method of accounting for stock compensation had been applied
in periods prior to January 1, 2006 (in thousands, except earnings per
share):
  Continuing
      operations:
              
              
              
              2005Net
      earnings from continuing operationsas
      reported
              
              
              
              
              $
              40,645Add
      stock compensation expense recorded under theintrinsic value
      method, net of tax
              
              
              
              
              
              1,427Less
      pro forma stock compensation expense computed under thefair value
      method, net of tax
              
              
              
              
              
              (3,970
              )Pro
      forma net earnings
              
              
              
              
              $
              38,102Basic
      pro forma earnings per share
              
              
              
              
              $
              0.62Diluted
      pro forma earnings per share
              
              
              
              
              $
              0.60
 
 Discontinued
      operations:
              
              
              
              
              
              2005Net
      earnings from discontinued operations as
    reported
              
              
              
              
              $
              21,147Add
      stock compensation expense recorded under theintrinsic value method, net of
      tax
              
              
              
              
              
              1,734Less
      pro forma stock compensation expense computed under thefair value
      method, net of tax
              
              
              
              
              
              (1,623
              )Pro
      forma net earnings
              
              
              
              
              $
              21,258Basic
      pro forma earnings per share
              
              
              
              
              $
              0.34Diluted
      pro forma earnings per share
              
              
              
              
              $
              0.33
  Our 2001,
1999 and 1997 Stock Incentive Plans and our 2004 Omnibus Incentive Compensation
Plan (the “Stock Incentive Plans,” collectively) provide for the grant of
incentive awards to officers and other key employees. The numbers of shares
authorized for grant under the 2004, 2001 and 1999 Plans are 3,000,000,
1,000,000, and 4,500,000, respectively. No additional shares are authorized for
grant under the 1997 Plan, which was frozen subsequent to the approval of the
1999 Stock Incentive Plan. As of December 31, 2007, there were 161,700 options
outstanding that were granted under the 1997 Plan before it was
frozen.
  22
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Investment (Continued)
  Incentive
awards may be granted in the form of stock options with or without related stock
appreciation rights, restricted stock, restricted stock units and performance
units. Under the Stock Incentive Plans, stock options may not be granted at an
exercise price less than the market value of our common stock on the date of
grant. The Stock Incentive Plans’ options generally vest in equal increments
over five years and expire in ten years.
  The 2002
Director Stock Option and Fee Plan (“2002 DSOP”) and the 1997 Director Stock
Option Plan (“1997 DSOP”, collectively “DSOPs”) provide for the grant of stock
options to our non-employee directors. The numbers of shares authorized for
grant under the 2002 DSOP is 745,000. No additional shares are authorized under
the 1997 DSOP. Subsequent to the grant of 255,000 options under the 1997 DSOP,
it was frozen upon the approval of the 2002 DSOP. Under the 2002 DSOP, stock
options are granted annually at an exercise price equal to the fair market value
of our common stock on the date of grant. The number of options granted annually
to each director is fixed by the Director Plan. Prior to 2006, such options
became fully exercisable on the first anniversary of their date of grant.
Pursuant to an amendment, the grant made to the directors in January, 2006,
vested immediately. Therefore, the corresponding expense was recorded in the
quarter ended April 2, 2006. Starting in January 2007, the options granted to
our director vest over four quarters.
  As of
December 31, 2007, there were 2.3 million shares available for grant under
our Stock Incentive Plans and DSOPs. The following table summarizes changes in
options outstanding and exercisable under our stock award plans:
  Outstanding
              
              ExercisableNumber
      of Shares
              
              Weighted-Average
      Exercise Price Per Share
              
              Number
      of Shares
              
              Weighted-Average
      Exercise Price Per ShareJanuary
      1, 2005
              
              
              4,415,266
              
              $
              11.70
              
              
              2,876,822
              
              $
              12.37Granted
              
              
              685,151
              
              
              20.91Exercised
              
              
              (1,525,145
              )
              
              12.27Canceled
              
              
              (356,346
              )
              
              11.37December
      31, 2005
              
              
              3,218,926
              
              
              13.35
              
              
              1,902,288
              
              
              11.66Granted
              
              
              604,250
              
              
              28.26Exercised
              
              
              (706,252
              )
              
              11.43Forfeited
              
              
              (158,951
              )
              
              21.27Canceled
              
              
              (7,000
              )
              
              14.71December
      31, 2006
              
              
              2,950,973
              
              
              16.43
              
              
              1,732,881
              
              
              13.77Granted
              
              
              974,364
              
              
              24.33Exercised
              
              
              (662,935
              )
              
              12.72Forfeited
              
              
              (293,206
              )
              
              21.98Canceled
              
              
              (21,740
              )
              
              17.72December
      31, 2007
              
              
              2,947,456
              
              $
              19.31
              
              
              1,668,742
              
              $
              16.03
 
 23
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Investment (Continued)
 
 As of
December 31, 2007, there was $10.7 million of total unrecognized
compensation cost related to non-vested options. That cost is expected to be
recognized over a weighted average period of 3 years and 7
months.
  Number
      of Shares
              
              
              Weighted
      Average Exercise Price
              
              
              Weighted
      Average Remaining Contractual Term (In Years)
              
              
              Aggregate
      Intrinsic Value (In millions)Vested
              
              
              1,135,591
              
              $
              14.14
              
              
              4.94
      years
              
              $
              8.2Expected
      to vest
              
              
              971,690
              
              $
              23.45
              
              
              8.69
      years
              
              $
              0.6Total
              
              
              2,107,281
              
              $
              18.43
              
              
              6.67
      years
              
              $
              8.8
 
 During
fiscal years 2007, 2006, and 2005 the following activity occurred under our
plans:
  2007
                
                2006
                
                2005Total
      intrinsic value of stock options exercised
                
                $
                8,004
                
                $
                12,395
                
                $
                23,569Total
      fair value of stock awards vested
                
                
                1,330
                
                
                1,867
                
                
                5,035Total
      fair value of shared performance stock awards vested
                
                
                1,236
                
                
                -
                
                
                -
 The table
below summarizes outstanding stock option data as of December 31, 2007,
excluding 533,151 options outstanding, held by directors:
  Options
      Outstanding
              
              Options
      ExercisableRange
      of Exercise Prices
              
              Number
      of Shares
              
              Weighted-Average
      Remaining Contractual Life
              
              Weighted-Average
      Exercise Price
              
              Number
      of Shares
              
              Weighted-Average
      Exercise Price$3.52
      - $7.92
              
              
              520,968
              
              
              4.07
      years
              
              $
              6.20
              
              
              489,703
              
              $
              6.10$12.38
      - $19.99
              
              
              705,473
              
              
              5.45
      years
              
              
              18.09
              
              
              475,738
              
              
              17.73$22.00
      - $33.96
              
              
              1,187,864
              
              
              9.10
      years
              
              
              25.47
              
              
              170,150
              
              
              27.262,414,305
              
              
              6.95
      years
              
              $
              19.15
              
              
              1,135,591
              
              $
              14.14
 
 24
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note F:
Shareholders’ Investment (Continued)
  The
following table summarizes changes in nonvested restricted stock
awards:
  Number
      of Shares
              
              Weighted-Average
      Grant Date Fair ValueRestricted
      stock:Nonvested
      balance at December 31, 2006
              
              
              113,361
              
              $
              26.63Granted
              
              
              24,000
              
              
              22.63Vested
              
              
              (60,619
              )
              
              21.94Forfeited
              
              
              (12,742
              )
              
              22.01Nonvested
      balance at December 31, 2007
              
              
              64,000
              
              $
              22.51
 
 The fair
value of each restricted stock award (“RSA”) and unit (“RSU”) is the market
price of our stock on the date of grant. As of December 31, 2007 and 2006, there
was $0.8 million and $1.4 million, respectively, of total unrecognized
compensation cost related to non-vested RSU’s. That cost is expected to be
recognized over a weighted average period of 2 years and 5
months.
  Shared
Performance Stock Awards are a form of stock award in which the number of shares
ultimately received depends on our performance against specified performance
targets. The performance period is January 1 through December 31 and covers a
period of 3 fiscal years. At the end of the performance period, the number of
shares of stock and stock awards issued will be determined by adjusting upward
or downward from the target in a range between 0% and 200%. The final
performance percentage, on which the payout will be based, considering
performance metrics established for the performance period, will be determined
by the Board of Directors or a committee of the board in its sole discretion.
Shares of stock will be issued following the end of the performance period.
Shared Performance Stock Awards are amortized over the vesting period (generally
32 months) using the straight line method.
  Total
compensation expense (credit) related to performance stock awards was
$1.4 million, $(1.0) million and $1.3 million for the years ended December
31, 2007, 2006 and 2005, respectively. The $(1.0) million credit included in
compensation expense for 2006, related to a change in our estimate of projected
performance compared to performance targets.
  Employee
Stock Purchase Plan
  We
administer the Employee Stock Purchase Plan (the “ESPP”) under which
five million shares are reserved for issuance. Employees with three months
of continuous service prior to an offering period are eligible to participate in
the ESPP. Eligible employees may elect to become participants in the ESPP and
may contribute up to $21,250 per year through payroll deductions to purchase
stock purchase rights. Participants may, at any time and for any reason, cancel
their payroll deduction authorizations and have the balance in their stock
purchase right account applied to the purchase of shares or have the amount
refunded. The offering period begins on the first day of the quarter and ends on
the last day of the quarter. The stock purchase rights are used to purchase our
common stock at 85 percent of the fair market value of a share as of the grant
date applicable to the participant. We treat this expense as compensation. The
compensation expense related to the ESPP for the years ended December 31, 2007
and 2006 was $510,700 and $543,000, respectively.
  25
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Investment (Continued)
  Capital
Stock
  At
December 31, 2007 and 2006, 250 million shares of common stock, par value
$0.01, and 50 million shares of preferred stock, par value $0.01 were authorized
for issuance. At December 31, 2007 and 2006, 61,192,019 and 60,318,131 shares of
common stock were outstanding, respectively. There were no shares of preferred
stock outstanding at December 31, 2007 or 2006.
  In 2006
we repurchased $100 million or approximately 3.8 million shares of our common
stock under a share repurchase program.
  Shareholder
Rights Plan
  In
September 1997, the Board of Directors adopted a Share Purchase Rights Plan
(the “Plan”) and, in accordance with such Plan, declared a dividend of one
preferred share purchase right (the “Right”) for each outstanding share of
common stock, payable to shareholders of record on October 31, 1997. All
Rights pertaining to the Plan were extinguished on September 24, 2007. Pursuant
to the terms of the Plan, the Rights expired and became null and void on
September 24, 2007.
  Earnings
(Loss) Per Share
  Basic
earnings (loss) per share is calculated using the weighted average number of
common shares outstanding for the year. Diluted earnings (loss) per share is
computed using basic weighted average outstanding shares plus the dilutive
effect on income from continuing operations of unvested restricted stock and
outstanding stock options using the “treasury stock” method.
  Shares
used for basic and diluted earnings (loss) per share were computed as follows
for the years ended December 31:
  2007
              
              2006
              
              2005Weighted
      average common shares - basic
              
              
              60,358,552
              
              
              62,535,286
              
              
              61,785,295Dilutive
      effect of options, unvested restricted sharesand other common
      stock equivalents
              
              
              804,658
              
              
              1,294,477
              
              
              1,565,057Weighted
      average shares - diluted
              
              
              61,163,210
              
              
              63,829,763
              
              
              63,350,352
 
 At
December 31, 2007 and 2006, employees and directors held options to
purchase 1,012,315 and 655,401 shares, respectively, of common stock that were
anti-dilutive to the computation of diluted earnings (loss) per share from
continuing operations due to the exercise price of these options exceeding the
average fair value of our common stock for the period. These options could
become dilutive in future periods if the average market price of our common
stock exceeds the exercise price of the outstanding options and we report net
earnings.
  26
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Investment (Continued)
  Accumulated
Other Comprehensive Income (Loss)
  At
December 31, 2007, 2006 and 2005, accumulated other comprehensive income
(loss) comprised the following, (thousands of dollars):
  December
      31,2007
              
              2006
              
              2005Currency
      translation adjustment, net
              
              $
              8,842
              
              $
              2,933
              
              $
              (3,418
              )Unamortized
      benefit plan costs,net of tax benefit of $4,320 and $16,446,
      respectively
              
              
              (7,884
              )
              
              (30,543
              )
              
              -Minimum
      pension liability adjustmentnet of tax benefit of
      $5,995
              
              
              -
              
              
              -
              
              
              (12,727
              )Unrealized
      gain on securities, net
              
              
              95
              
              
              49
              
              
              -Accumulated
      other comprehensive income (loss)
              
              $
              1,053
              
              $
              (27,561
              )
              $
              (16,145
              )
 
 At
December 31, 2005, $4.9 million of the minimum pension liability adjustment
relates to continuing operations and $7.8 million relates to discontinued
operations. (See Note K).
  Note
G: Restructuring
  In March
2006, we announced our plan to close our design centers in Goteborg and Lund,
Sweden. The activities previously assigned to the design centers in Sweden have
been reassigned to other parts of our business or moved to third-party vendors
to improve efficiencies and benefit from reduced costs. In addition to the
anticipated cost savings, this realignment of resources is expected to increase
new product development capacity. This restructuring, which was substantially
completed by the end of 2006, resulted in charges for severance of $3.1 million
for the elimination of 65 positions in Sweden. The restructuring costs also
included facility closure costs of $1.3 million and other related costs of
$0.3 million.
  On
November 15, 2006, we committed to a business restructuring plan intended to
reduce costs, streamline operations and improve productivity. The restructuring
included headcount reductions and consolidation of certain facilities on a
regional and/or global basis. The restructuring is expected to be substantially
completed by the end of the first fiscal quarter of 2007 and full implementation
of the plan is expected to be completed by the end of 2007. During the fourth
quarter of 2006, we recorded charges for severance of $6.8 million for the
termination of 205 employees and $0.1 of other exit costs in accordance with
SFAS 146. As of December 31, 2006, 86 employees had been terminated and $1.6
million in severance costs had been paid.
 The
restructuring liability is summarized as follows (in thousands):
 
 TotalBalance
      at December 31, 2006
                
                $
                6,338New
      charges
                
                
                -Cash
      payments
                
                
                (6,338
                )Balance
      at December 31, 2007
                
                $
                -
 27
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
H: Discontinued Operations
    On
April 3, 2005, we completed the sale of the Cincinnati Lamb business. The
consideration received for the Cincinnati Lamb business included (i) $16
million, paid in cash on April 4, 2005, (ii) a $10.0 million long-term
secured note receivable with an estimated fair value of $8.4 million at the time
of sale and (iii) liabilities related to certain pension and other
post-retirement obligations of $39.1 million assumed by the buyer. We were also
required to deliver to the buyer a guaranteed net working asset balance.
Accordingly, during the second quarter of 2005, we reimbursed the buyer
$12.6 million for accounts payable related to the Cincinnati Lamb business,
satisfying the net working asset adjustment.
  In
connection with the sale, during the second quarter of 2005, we loaned the buyer
$1.5 million. This note receivable, the $10.0 million long-term secured note and
an additional $1.0 million of face value note were combined into a single $12.5
million long-term note receivable secured by the assets sold, bearing interest
at an annual rate of LIBOR plus three percent with interest payable quarterly.
We received the final payment of the note in December 2007.
 
 We
recognized a pre-tax loss on the sale of the Cincinnati Lamb business of $34.7
million during the quarter ended April 3, 2005. During the second quarter
of 2006, we recognized an additional $1.2 million pre-tax loss on the sale of
the Cincinnati Lamb business. The loss on the sale recorded in 2005 includes an
$8.3 million gain related to cumulative translation adjustment and a $12.9
million charge related to the adjustment to recognize minimum pension liability
related to Cincinnati Lamb, which previously had been included in the
accumulated other comprehensive income component of shareholders’ investment
(“OCI”). We also incurred $5.3 million of transaction-related expense primarily
for severance and professional services.
  On
December 9, 2005, we completed the sale of the Landis Grinding Systems
division (“Landis”). The consideration received for the Landis purchased assets
consists of $69 million in cash, a $10 million two-year note at an interest rate
of 5% per annum guaranteed by the buyer’s parent, classified as other current
assets on the balance sheet, and the buyer’s assumption of certain liabilities,
including certain pension and other post-retirement obligations. We received
payment for the $10 million two-year note from Landis on December 10, 2007. We
additionally recorded a $10.2 million favorable price adjustment related to
net working assets at closing in 2005.
  The gain
on the sale of Landis was $42.9 million. The gain includes a $2.7 million gain
related to cumulative translation adjustment, a $7.8 million charge for the
write-off of goodwill, a $3.8 million accrual relating to the fair value of
below-market leases provided to buyer under the terms of the sale agreement, and
$14.3 million in settlement and curtailment gains that includes $13.8 million of
long-term liabilities sold. We also incurred $2.8 million of transaction-related
expense, primarily for professional services.
  28
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
H: Discontinued Operations (Continued)
  The
following table sets forth the components of earnings (loss) from discontinued
operations, net of tax, for the years ended December 31, 2007, 2006 and
2005 (thousands of dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005Product
      and service revenues
              
              $
              -
              
              $
              -
              
              $
              223,460Operating
      loss
              
              
              -
              
              
              -
              
              
              (14,114
              )Loss
      on sale of Cincinnati Lamb
              
              
              -
              
              
              -
              
              
              (35,926
              )Gain
      on sale of Landis
              
              
              -
              
              
              -
              
              
              (42,945
              )Loss
      from discontinued operations before tax
              
              
              (1,995
              )
              
              (3,747
              )
              
              (7,095
              )Benefit
      for income taxes
              
              
              712
              
              
              748
              
              
              28,242Earnings
      (loss) from discontinued operations net of tax
              
              $
              (1,283
              )
              $
              (2,999
              )
              $
              21,147
 
 The loss
from discontinued operations, before tax, in 2007 includes the write-off of a
$2.0 million account receivable related to the sale of the Cincinnati Lamb
business.
 
 The loss
from discontinued operations, before tax, in 2006 includes period expenses
related to finalizing the sale of the Landis Grinding Systems and changes to the
closing balance sheets and estimated sales price adjustments. The tax benefit
for discontinued operations for the year ended December 31, 2006, reflects a
$1.4 million benefit related to our true up of the tax provision during the
third quarter.
  The loss
from discontinued operations, before tax, of $14.1 million in 2005, which
includes non-cash impairment charges of $2.0 million and a $9.9 million charge
relating to a legal settlement.
 The tax
benefit for discontinued operations for the year ended December 31, 2005
reflects a significant difference from the U.S. statutory tax rate of 35% as a
result of our divestiture of our IAS business through the disposition of the
Cincinnati Lamb business and the Landis grinding business in the first and
fourth quarters of 2005, respectively. The increase is primarily due to
approximately $24.0 million of tax benefits from the disposition of the
Cincinnati Lamb business. These benefits, including a tax effected capital loss
in the U.S. in the amount of $12.4 million, resulted from differences between
the book basis of assets sold and the related tax basis of the stock and a
benefit of $6.9 million from a deferred intercompany sale and an election to
treat a foreign subsidiary as a branch.
 
 29
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
I: Income Taxes
  Earnings
from continuing operations before income taxes by geographic area are as follows
(thousands of dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005United
      States
              
              $
              26,180
              
              $
              34,426
              
              $
              41,950International
              
              
              12,999
              
              
              11,148
              
              
              12,575Earnings
      from continuing operationsbefore income taxes
              
              $
              39,179
              
              $
              45,574
              
              $
              54,525
 
 Income
taxes for continuing operations consist of the following provision (thousands of
dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005Current:United
      States
              
              $
              -
              
              $
              (1,173
              )
              $
              19International
              
              
              6,488
              
              
              (1,315
              )
              
              167Total
      current
              
              
              6,488
              
              
              (2,488
              )
              
              186Deferred:United
      States (a)
              
              
              8,553
              
              
              13,045
              
              
              11,604International
              
              
              (198
              )
              
              18
              
              
              2,090Total
      deferred
              
              
              8,355
              
              
              13,063
              
              
              13,694Provision
      for income taxes
              
              $
              14,843
              
              $
              10,575
              
              $
              13,880
 
 (a) U.S.
income taxes include state taxes of approximately 1.2% per
year.
  The
following is a reconciliation of income taxes at the U.S. statutory rate to the
provision for income taxes:
  Year
      Ended December 31,2007
              
              2006
              
              
              2005Tax
      at U.S. statutory rate
              
              
              35.0
              %
              35.0
              %
              
              35.0
              %State
      income taxes net of federal benefit
              
              
              1.2
              %
              (1.6
              )%
              
              (0.9
              )%Deductible
      goodwill & intangibles
              
              
              0.0
              %
              0.0
              %
              
              2.8
              %Tax
      credits
              
              
              (4.3
              )%
              (2.4
              )%
              
              (8.9
              )%Extraterritorial
      income exclusion
              
              
              0.0
              %
              (1.5
              )%
              
              (1.6
              )%Foreign
      net earnings taxed at other than U.S statutory rate
    (b)
              
              
              2.3
              %
              (4.0
              )%
              
              (7.0
              )%Tax
      settlement
              
              
              0.0
              %
              (11.9
              )%
              
              0.0
              %Provision
      to return true up
              
              
              0.0
              %
              4.9
              %
              
              5.8
              %Change
      in tax contingencies
              
              
              (3.3
              )%
              0.0
              %
              
              0.0
              %Nondeductible
      expenses
              
              
              0.0
              %
              2.0
              %
              
              1.2
              %Change
      in valuation allowance
              
              
              5.6
              %
              0.0
              %
              
              0.0
              %Stock
      compensation expense
              
              
              2.2
              %
              1.8
              %
              
              0.0
              %Officer’s
      life insurance
              
              
              (2.1
              )%
              0.0
              %
              
              0.0
              %Other
      items
              
              
              1.3
              %
              0.9
              %
              
              (0.9
              )%37.9
              %
              23.2
              %
              
              25.5
              %
 
 (b)
Includes the effect of resolution of certain foreign tax audits.
  30
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
I: Income Taxes (Continued)
  Deferred
income taxes reflect the net tax effect of transactions which are recognized in
different periods for financial and tax reporting purposes. The primary
components of our deferred tax assets and liabilities are as follows (thousands
of dollars):
  December
      31,2007
              
              2006Current
      deferred tax assets:Accrued
      expenses
              
              $
              13,970
              
              $
              17,027Receivable
      and inventories
              
              
              10,264
              
              
              9,397Net
      operating loss carryforwards
              
              
              37,730
              
              
              17,859Capitalized
      R&D
              
              
              -
              
              
              6,878Other
      items
              
              
              1,400
              
              
              -Total
      current deferred tax assets
              
              
              63,364
              
              
              51,161Valuation
      allowance
              
              
              (1,832
              )
              
              (1,538
              )Net
      current deferred tax assets
              
              
              61,532
              
              
              49,623Long-term
      deferred tax assets:Retiree
      medical benefits
              
              
              11,163
              
              
              12,972Intangibles
              
              
              8,601
              
              
              10,311Tax
      credit carryforwards
              
              
              88,891
              
              
              91,312Deferred
      income
              
              
              7,125
              
              
              8,120Fixed
      assets
              
              
              1,676
              
              
              1,004Net
      operating loss carryforwards
              
              
              30,839
              
              
              32,974Capitalized
      R&D
              
              
              12,600
              
              
              35,518Cumulative
      translation adjustments
              
              
              1,172
              
              
              1,817Pension
              
              
              -
              
              
              8,672Other
      items
              
              
              1,512
              
              
              16Total
      long-term deferred tax assets
              
              
              163,579
              
              
              202,716Valuation
      allowance
              
              
              (13,425
              )
              
              (12,033
              )Net
      long-term deferred tax assets
              
              
              150,154
              
              
              190,683Deferred
      tax liabilities:Pensions
              
              
              (784
              )
              
              -Net
      deferred tax asset
              
              $
              210,902
              
              $
              240,306
  We have
considered 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 in determining the
realizability of deferred tax assets. 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 net
deferred tax asset 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. Our deferred tax assets include
future tax benefits of discontinued operations that remain with us.
  31
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
I: Income Taxes (Continued)
  We have
available at December 31, 2007 net operating tax loss carryforwards in the
United States of approximately $146.5 million, which result in a deferred tax
asset of $51.3 million. These losses expire from 2023 through 2025.
 
 We also
have available at December 31, 2007 capital tax loss carryforwards in the
United States of approximately $9.3 million which expire in 2010. No deferred
tax asset has been recognized for capital loss carryforwards.
  Our
valuation allowance increased during 2007 primarily for certain foreign net
operating loss carryforwards and general business credit carryforwards, which
will not be used within their respective carryforward periods.
 We have
$34.2 million general business credit carryforwards and $53.2 million foreign
tax credit carryforwards at December 31, 2007. The general business credit
carryforwards have expiration dates ranging from 2010 through 2027. The foreign
tax credit carryforwards have expiration dates ranging from 2013 to 2017. We have a
valuation allowance of $1.2 million at December 31, 2007 for general business
credit carryforwards.
 
 We have
a valuation allowance of $5.6 million at December 31, 2007 for deferred tax
assets related to state net operating tax loss carryforwards from discontinued
operations.  We have recognized deferred tax assets of $4.6 million at
December 31, 2007 for state net operating loss carryforwards from continuing
operations.
 
 At
December 31, 2007, we have foreign net operating tax loss carryforwards in
the Netherlands and Canada which result in a deferred tax asset of $0.6 million
after considering a valuation allowance of $1.3 million.  We also have
a full valuation allowance against our U.K. capital loss carryforwards of
$23.1 million as of December 31, 2007, which carries forward
indefinitely.
 
 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. 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 basis. For
example, in 2006 we recorded tax settlement benefits attributed to prior years
of $5.4 million, primarily related to settlement of Canadian tax
disputes.
 
 We have
not provided deferred U.S. income taxes on undistributed earnings of certain
foreign subsidiaries that we intend to reinvest permanently outside of the
United States; the total amount of such earnings as of December 31, 2007,
was $64.3 million. Should we distribute earnings of foreign subsidiaries in the
form of dividends or otherwise, we may be subject to U.S. income taxes. Due to
complexities in tax laws and various assumptions that would have to be made, it
is not practicable to estimate the amount of unrecognized deferred U.S. taxes on
these earnings.
 
 On
January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) issued
FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement 109” (“FIN
48”).  Upon adoption of FIN 48, we recognized a charge of $6.9 million
to accumulated deficit in shareholders’ investment.  The following
table sets forth the reconciliation of the beginning and ending amount of
unrecognized tax benefits at December 31, 2007 (thousands of
dollars):
 
 For
      the year ended December 31, 2007Balance
      at January 1, 2007
              
              $
              21,132Additions
      related to positions taken this year
              
              
              -Additions
      for tax positions of prior years
              
              
              641Reductions
      for tax positions of prior years
              
              
              (1,633
              )Reduction
      for tax positions of prior years – lapse of statute
              
              
              (189
              )Settlements
              
              
              -Balance
      at December 31, 2007
              
              $
              19,951
  32
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
I: Income Taxes (Continued)
 
 Estimated
interest and penalties related to the underpayment of income taxes are
classified as a component of tax expense in the consolidated statement of
operations. We recognized approximately $0.1 million in interest and penalties
for the years ended December 31, 2007.  We had approximately $0.1
million for the payment of interest and penalties accrued at December 31,
2007.
 
 We file
our tax returns as prescribed by the tax laws of the jurisdictions in which we
operate. In the U.S., our tax years 1997 – 2007 remain open to examination by
the Internal Revenue Service, as well as various state jurisdictions. In the
normal course of business, we are subject to examination by taxing authorities
throughout the world, including such major jurisdictions as Canada, France,
Germany, Italy, Mexico, the Netherlands, Spain, Sweden and the United Kingdom.
In many cases, our uncertain tax positions are related to tax years that remain
subject to examination by the relevant taxing authorities.
 
 Based on
the outcome of relevant examinations, or as a result of the expiration of
statute of limitations for specific jurisdictions, it is not reasonably possible
that the related unrecognized tax benefits for tax positions taken regarding
previously filed tax returns will materially change within the next twelve
months from those recorded as liabilities for uncertain tax positions in our
financial statements at December 31, 2007.
 
 Note
J: Intellectual Property Settlements
  In March
2006, we settled an intellectual property lawsuit relating to our battery
power-management patents. The terms of this settlement are confidential. IP
settlements relating to the battery power-management patents have been reached
to date with companies that, in the aggregate, represent over ninety percent of
U.S. laptop sales. We are involved in various other patent infringement lawsuits
that may result in future revenue and operating profit. Management cannot
predict the outcome, timing or amount of future settlements or judgments in
intellectual property lawsuits. Net pretax gains from IP settlements for the
year ended December 31, 2006 was $16.5 million.
  33
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
K: Pension and Other Postretirement Benefit Plans
  We have
retirement and pension plans that cover most of our employees. Most of our U.S.
employees, as well as the employees of certain non-U.S. subsidiaries, are
covered by contributory defined benefit plans under which employees may
contribute up to 4% of covered compensation annually. Annual contributions are
made to the extent such contributions are actuarially determined to adequately
fund the plans. Retiree benefits are based on the amount of participant
contributions over the term of the participant’s employment. There are also
defined contribution voluntary savings programs generally available for U.S.
employees, which qualify under Sections 401(a) and 401(k) of the
Internal Revenue Code. These plans are designed to enhance the retirement
programs of participating employees. Under these plans, we match up to 80% of a
certain portion of participants’ contributions. Matching
contributions for these plans were $2.6 million and $1.2 million in fiscal years
2007 and 2006, respectively.
  Effective
June 30, 2006, we amended our Financial Security and Savings Program, Pension
Plan, Restoration Plan and Supplemental Executive Retirement Plan (collectively,
the “U.S. Defined Benefit Plans”). The effect of these amendments was to
“freeze” benefit accruals under the U.S. Defined Benefit Plans and to fully vest
benefits under the U.S. Defined Benefits Plan, except for the Nonqualified
Supplemental Employee Retirement Plan (“SERP”), as of June 30, 2006, for most
participants. In accordance with SFAS No. 88, Employers’ Accounting for
Settlements and Curtailments for Defined Benefit Pension Plans and for
Termination Benefits (“SFAS 88”), the effects of these amendments require
a new measurement date. The impact of the related curtailments reflected in 2006
was a $2.1 million gain.
  Effective
December 31, 2006, we adopted SFAS No. 158, which requires the recognition of
the funded status of a defined benefit or postretirement plan on our
consolidated balance sheet. Upon adoption, we recorded an adjustment of $17.5
million to the end-of-year balance of accumulated other comprehensive loss in
shareholders’ investment to recognize unamortized pension and postretirement
benefit plan costs as components of the ending balance of other comprehensive
income, net of tax.
  Effective
December 31, 2008, SFAS No. 158 will require us to measure plan assets and
benefit obligations at fiscal year end. We currently perform this measurement at
September 30 of each year. In addition, this Standard requires us to eliminate
the use of a three-month lag period when recognizing the impact of curtailments
or settlements and, instead, recognize these amounts in the period in which they
occur. The provisions of SFAS No. 158 do not permit retrospective application.
We expect to incur between $0.5 million and $1.0 million as an adjustment to
equity upon adoption of the remainder of this statement.
  34
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
K: Pension and Other Postretirement Benefit Plans (Continued)
  We use a
measurement date of September 30 for our pension and other postretirement
benefit plans. The following table sets forth the change in benefit obligations
and plan assets of our pension plans and the funded status (thousands of
dollars):
  2007
              
              2006U.S.
              
              Non
      U.S.
              
              U.S.
              
              Non
      U.S.Change
      in benefit obligations:Benefit
      obligation at beginning of year
              
              $
              182,767
              
              $
              53,062
              
              $
              201,354
              
              $
              43,518Service
      cost
              
              
              1,810
              
              
              -
              
              
              5,757
              
              
              1,106Interest
      cost
              
              
              10,712
              
              
              2,591
              
              
              11,642
              
              
              2,234Special
      termination benefits
              
              
              -
              
              
              -
              
              
              1,350
              
              
              -Plan
      participants' contributions
              
              
              1,456
              
              
              -
              
              
              3,350
              
              
              -Actuarial
      loss (gain)
              
              
              (17,284
              )
              
              (7,722
              )
              
              (16,724
              )
              
              3,481Benefits
      paid
              
              
              (5,198
              )
              
              (2,339
              )
              
              (5,112
              )
              
              (3,134
              )Application
      of SFAS No. 158
              
              
              -
              
              
              1,905
              
              
              -
              
              
              -Curtailment
              
              
              -
              
              
              -
              
              
              (18,850
              )
              
              -Foreign
      currency translation adjustment
              
              
              -
              
              
              770
              
              
              -
              
              
              5,857Benefit
      obligation at end of year
              
              
              174,263
              
              
              48,267
              
              
              182,767
              
              
              53,062Change
      in plan assets:Fair
      value of plan assets at beginning of year
              
              
              124,390
              
              
              52,672
              
              
              115,431
              
              
              32,466Actual
      return on plan assets
              
              
              16,739
              
              
              3,126
              
              
              8,484
              
              
              5,024Plan
      participants' contributions
              
              
              1,456
              
              
              -
              
              
              3,350
              
              
              -Employer
      contributions
              
              
              2,246
              
              
              590
              
              
              2,226
              
              
              12,481Benefits
      paid
              
              
              (5,198
              )
              
              (2,339
              )
              
              (5,112
              )
              
              (3,134
              )Application
      of SFAS No. 158
              
              
              -
              
              
              1,026
              
              
              -
              
              
              -Settlement
              
              
              -
              
              
              -
              
              
              -
              
              
              -Foreign
      currency translation adjustment
              
              
              -
              
              
              833
              
              
              -
              
              
              5,835Fair
      value of plan assets at end of year
              
              
              139,633
              
              
              55,908
              
              
              124,389
              
              
              52,672Funded
      status
              
              
              (34,630
              )
              
              7,641
              
              
              (58,378
              )
              
              (390
              )Net
      amount recognized
              
              $
              (34,630
              )
              $
              7,641
              
              $
              (58,378
              )
              $
              (390
              )
  35
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
K: Pension and Other Postretirement Benefit Plans (Continued)
  Amounts
pertaining to our U.S. and non-U.S. pension plans recognized on our consolidated
balance sheets are classified as follows (thousands of dollars):
  2007
              
              2006U.S.
              
              Non
      U.S.
              
              U.S.
              
              Non
      U.S.Noncurrent
      assets
              
              
              21,889
              
              
              8,520
              
              
              2,135
              
              
              -Current
      liabilities
              
              
              (3,221
              )
              
              -
              
              
              (2,596
              )
              
              (390
              )Noncurrent
      liabilities
              
              
              (53,299
              )
              
              (879
              )
              
              (57,917
              )
              
              -Net amount
      recognized
              
              $
              (34,631
              )
              $
              7,641
              
              $
              (58,378
              )
              $
              (390
              )
  The
accumulated benefit cost for the U.S. plans was $165.7 million and $171.6
million as of December 31, 2007, and 2006, respectively. The accumulated
benefit cost for the non-U.S. plans was $46.4 million and $53.1 million as
of December 31, 2007, and 2006, respectively.
  The table
below sets forth amounts for our pension plans with accumulated benefit
obligations in excess of fair value of plan assets (thousand of
dollars):
  2007
              
              2006U.S.
              
              Non
      U.S.
              
              U.S.
              
              Non
      U.S.Projected
      benefit obligation
              
              $
              56,520
              
              $
              1,905
              
              $
              60,513
              
              $
              53,062Accumulated
      benefit obligation
              
              $
              54,529
              
              $
              1,026
              
              $
              56,670
              
              $
              53,062Fair
      value of plan assets
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              52,672
  We do not
expect to contribute to our U.S. funded plans in 2008. We expect to contribute
$3.2 million to our U.S. unfunded plans in 2008. For the non-U.S. plans, we
do not expect to contribute for 2008.
  The
weighted average actuarial assumptions used to determine benefit obligations at
the end of the 2007 and 2006 fiscal years are as follows:
  2007
              
              2006U.S.
              
              Non
      U.S.
              
              U.S.
              
              Non
      U.S.Discount
      rate
              
              
              6.35
              %
              
              5.88
              %
              
              5.95
              %
              
              5.00
              %Rate
      of compensation increase
              
              
              4.00
              %
              
              3.00
              %
              
              4.00
              %
              
              N/A
  36
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
K: Pension and Other Postretirement Benefit Plans (Continued)
  U.S.plan assets consist primarily of equity
securities,U.S.government securities, corporate bonds
and 31,475 shares of our common stock at December 31, 2007 and 2006. The
asset allocation for our U.S pension plans as of December 31, 2007 and
2006, and the target allocation, by asset category, are as
follows:
  Allocation
      of Plan Assets at Measurement DateU.S.
      Pension Plans
              
              Target
      Allocation
              
              2007
              
              2006Equity
      securities
              
              
              65
              %
              
              68
              %
              
              59
              %Debt
      securities
              
              
              29
              %
              
              24
              %
              
              24
              %Other
              
              
              5
              %
              
              5
              %
              
              12
              %Cash
      and cash equivalents
              
              
              1
              %
              
              3
              %
              
              5
              %Total
              
              
              100
              %
              
              100
              %
              
              100
              %
  Most of
our U.S. pension obligations are 20 to 30 years in the future. Consistent with
this obligation, our investment strategy for the plan assets is to invest for
strong long-term returns. As a result of a reversion of surplus pension assets
in 2001, the allocation of assets among asset categories is different from our
target allocation. Our objective is to adjust the investment allocation to
reflect the target allocation as certain alternative investments liquidate.
Alternative investments, classified as other in the above table, are $7.5
million and $14.5 million at December 31, 2007 and 2006,
respectively.  They include holdings in partnerships and funds that
invest in public and private debt and equity and emerging markets real estate.
These investments reflect fair value, as determined by active trades, appraisals
and other relevant data.
 
 Non-U.S.
plan assets consist primarily of equity securities, non-U.S. government
securities, and corporate bonds. Our investment strategy for the plan assets is
to invest for strong long-term returns. The asset allocation for
our non-U.S. pension plans as of December 31, 2007 and 2006, and the
target allocation, by asset category, are as follows:
  Allocation
      of Plan Assets at Measurement DateNon-U.S.
      Pension Plans
              
              Target
      Allocation
              
              2007
              
              2006Equity
      securities
              
              
              60
              %
              
              73
              %
              
              74
              %Debt
      securities
              
              
              40
              %
              
              26
              %
              
              25
              %Cash
      and cash equivalents and other
              
              
              -
              
              
              1
              %
              
              1
              %Total
              
              
              100
              %
              
              100
              %
              
              100
              %
  37
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
K: Pension and Other Postretirement Benefit Plans (Continued)
  In  2006
and 2005, we offered voluntary early retirement to certain U.S. employees
resulting in special termination benefits charges of $1.4 million and $2.0
million, respectively. A summary of the components of net periodic pension
expense (income) for our defined benefit plans and defined contribution plans is
as follows (thousands of dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005U.S.
              
              Non-U.S.
              
              U.S.
              
              Non-U.S.
              
              U.S.
              
              Non-U.S.Components
      of net periodic pension expense:Service
      cost
              
              $
              1,810
              
              $
              -
              
              $
              5,757
              
              $
              1,106
              
              $
              8,254
              
              $
              3,459Interest
      cost
              
              
              10,712
              
              
              2,591
              
              
              11,642
              
              
              2,234
              
              
              10,107
              
              
              5,947Expected
      return on plan assets
              
              
              (10,443
              )
              
              (3,127
              )
              
              (10,023
              )
              
              (3,061
              )
              
              (10,086
              )
              
              (5,682
              )Amortization
      of prior service cost
              
              
              577
              
              
              -
              
              
              676
              
              
              -
              
              
              714
              
              
              -Recognized
      net actuarial loss
              
              
              3,768
              
              
              411
              
              
              4,491
              
              
              454
              
              
              3,282
              
              
              1,239Amortization
      of transition asset
              
              
              -
              
              
              (169
              )
              
              -
              
              
              (159
              )
              
              -
              
              
              (336
              )Special
      termination benefits
              
              
              -
              
              
              -
              
              
              1,350
              
              
              -
              
              
              2,027
              
              
              -Curtailment
      and settlement charges
              
              
              -
              
              
              -
              
              
              (2,146
              )
              
              -
              
              
              (171
              )
              
              (2,691
              )6,423
              
              
              (294
              )
              
              11,747
              
              
              574
              
              
              14,127
              
              
              1,936Defined
      contribution plans
              
              
              350
              
              
              730
              
              
              1,099
              
              
              526
              
              
              2,232
              
              
              932Net
      periodic pension expense
              
              $
              6,773
              
              $
              436
              
              $
              12,846
              
              $
              1,100
              
              $
              16,359
              
              $
              2,868
 
 For the
year ended December 31, 2005, net periodic pension income of $11.9 million,
relating to our non-U.S. plans is classified in loss from discontinued
operations on our consolidated statements of operations. The portion of U.S.
plan net periodic pension expense classified in loss from discontinued
operations is $4.0 million for the year ended December 31,
2005.
  The
weighted average actuarial assumptions used to determine net cost are as
follows:
  U.S.
              
              Non-U.S.2007
              
              2006
              
              2005
              
              2007
              
              2006
              
              2005Discount
      rate
              
              
              6.35
              %
              
              5.91
              %
              
              6.00
              %
              
              5.90
              %
              
              5.00
              %
              
              5.50
              %Expected
      return on plan assets
              
              
              8.75
              %
              
              8.75
              %
              
              9.00
              %
              
              6.40
              %
              
              7.60
              %
              
              8.00
              %Rate
      of compensation increase
              
              
              4.00
              %
              
              4.00
              %
              
              4.00
              %
              
              3.00
              %
              
              N/A
              
              
              3.75
              %
  38
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
K: Pension and Other Postretirement Benefit Plans (Continued)
  Our
analysis of the asset rate of return assumptions for the U.S. plans supports a
long-term rate of approximately 8.75% for the September 30, 2007,
measurement date based on the long-term perspective of the investments and the
historical results of investment funds.
  Our
analysis of the asset rate of return assumptions for the non-U.S. plans
supports a long term rate of return of approximately 6.40% based on the
long-term perspective of the investments and the historical results of
investment funds.
  The table
below sets forth the expected future pension benefit payments for the next five
years and the following five-year period (millions of dollars):
  Years
              
              U.S.
              
              Non
      U.S.2008
              
              $
              6,263
              
              $
              2,3782009
              
              
              6,787
              
              
              2,5992010
              
              
              7,391
              
              
              2,6332011
              
              
              7,955
              
              
              2,8332012
              
              
              9,007
              
              
              2,8382013
      through 2017
              
              
              56,313
              
              
              15,621
  Other
Postretirement Benefits
  In
addition to pension benefits, certain U.S. employees are covered by
postretirement health care and life insurance benefit plans provided by us.
These benefit plans are unfunded. The following table sets forth the change in
benefit obligation of our other postretirement benefits and amounts recognized
in our balance sheets (thousands of dollars):
  December
      31,2007
              
              2006Change
      in postretirement benefit obligations:Benefit
      obligation at beginning of year
              
              $
              3,252
              
              $
              4,953Service
      cost
              
              
              -
              
              
              16Interest
      cost
              
              
              177
              
              
              264Actuarial
      loss (gain)
              
              
              (152
              )
              
              (1,549
              )Benefits
      paid
              
              
              (251
              )
              
              (318
              )Curtailment
              
              
              -
              
              
              (114
              )Benefit
      obligation at end of year
              
              
              3,026
              
              
              3,252Funded
      status
              
              
              (3,026
              )
              
              (3,252
              )Unrecognized
      net actuarial loss
              
              
              -
              
              
              -Fourth
      quarter contribution
              
              
              75
              
              
              76Accrued
      postretirement benefit obligation
              
              $
              (2,951
              )
              $
              (3,176
              )
  39
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
K: Pension and Other Postretirement Benefit Plans (Continued)
  A summary
of our net periodic postretirement (benefit) cost is as follows (thousands of
dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005Components
      of net periodic postretirement (benefit) cost:Service
      cost
              
              $
              -
              
              $
              16
              
              $
              134Interest
      cost
              
              
              177
              
              
              264
              
              
              1,563Recognized
      actuarial loss and transition obligation
              
              
              -
              
              
              110
              
              
              374Amortization
      of prior service cost
              
              
              -
              
              
              -
              
              
              (598
              )Curtailment
              
              
              -
              
              
              -
              
              
              (12,274
              )Settlement
              
              
              -
              
              
              -
              
              
              (25,694
              )Net
      periodic postretirement (benefit) cost
              
              $
              177
              
              $
              390
              
              $
              (36,495
              )
  For the
year ended December 31, 2005, ($36.5) million of the net periodic
postretirement benefit is classified as a gain from discontinued operations
within our consolidated statements of operations.
  Actuarial
assumptions used to measure the postretirement benefit obligation include a
discount rate of 6.10% and 5.70% at December 31, 2007 and 2006,
respectively. The weighted average discount rates used to measure net periodic
benefit cost for the years ended December 31, 2007, 2006 and 2005 were 5.70%,
5.58% and 6.00%, respectively. The assumed health care cost trend rate for
fiscal year 2007 was 8.50% and is projected to decrease over seven years to
5.00%, 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 in
the assumed health care cost trend rate on the postretirement benefit obligation
results in an increase of approximately $0.2 million, while a
one-percentage point decrease results in a decrease of $0.2
million.
  Estimated
future gross benefit payments are $0.3 million for each of the next five years,
2008 through 2012, and $1.3 million in aggregate for the subsequent five-year
period, 2013 through 2017.
  40
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
L: Litigation, Commitments and Contingencies
  Provisions
for estimated expenses related to product warranties are made at the time
products are sold. These estimates are established using historical information
on the nature, frequency, and average cost of warranty claims. Management
actively studies trends of warranty claims and takes action to improve product
quality and minimize warranty claims. The following table indicates the change
in our warranty liability from continuing operations during the years ended
December 31, 2007 and 2006, (thousands of dollars):
  Year
      Ended December 31,2007
              
              2006Beginning
      balance
              
              $
              6,800
              
              $
              5,542Payments
              
              
              (6,235
              )
              
              (8,231
              )Increase
      in liability (new warranties issued)
              
              
              3,740
              
              
              9,489Ending
      balance
              
              $
              4,305
              
              $
              6,800
  We
currently, and from time to time, are subject to claims and lawsuits arising in
the ordinary course of business. The ultimate resolution of currently pending
proceedings is not expected to have a material adverse effect on our business,
financial condition, results of operations or liquidity.
  Note
M: Related Party Transactions
  Unitrin, Inc.
and its subsidiaries (“Unitrin”) is a significant shareholder, owning 21% of our
outstanding shares. In January 2005, Unitrin’s Life and Health Insurance
segment agreed to hire one of our subsidiaries to develop the software for the
next generation of Life and Health Insurance’s handheld computers. For the years
ended December 31, 2007, 2006 and 2005, we recognized $0.1 million,
$0.3 million and $2.7 million, respectively, in revenues from Unitrin for
the sale of hardware. Also, as of December 31, 2007and 2006, there
was $0.4 million and $0.3 million, respectively, of deferred service
revenue from Unitrin. We believe that the prices of goods and services sold to
Unitrin are comparable to those received from unaffiliated third parties. As of
December 31, 2007 and 2006, accounts receivable from Unitrin were not
material.
  Note
N: Segment Reporting
  Our
reportable segments comprise products and services. The product segment
generates revenue from the design, development, manufacture, sale and resale of
wired and wireless AIDC products, mobile computing products, wired and wireless
bar code printers, label media and RFID products and license fees. The service
segment generates revenue from customer support, product maintenance and other
services related to the products and systems integration.
 
 The
accounting policies of our two reportable segments are the same as those used to
prepare our consolidated financial statements. Performance and resource
allocation are primarily measured by sales and standard gross profit. All other
earnings, costs and expenses are aggregated and reported on a consolidated
basis. It is also not practicable to segregate total assets by segment. Total
assets for the year ended December 31, 2007 and 2006 were $900.6 million and
$810.3 million, respectively.
  41
  INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
N: Segment Reporting (Continued)
  The
following table sets forth our operations by reportable segment (millions of
dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005Revenues:Product
              
              $
              692.0
              
              $
              692.4
              
              $
              721.0Service
              
              
              157.2
              
              
              157.6
              
              
              154.5Total
              
              $
              849.2
              
              $
              850.0
              
              $
              875.5Gross
      profit:Product
              
              
              259.9
              
              
              262.7
              
              
              300.3Service
              
              
              67.0
              
              
              69.3
              
              
              62.6Total
              
              $
              326.9
              
              $
              332.0
              
              $
              362.9
  For 2007
and 2006, one customer accounted for more than 10% of our consolidated revenues.
Total sales to this customer were $108.7 million, $99.8 million and $80.7
million for the years ended December 31, 2007, 2006 and 2005, respectively, and
primarily related to product sales. No single customer accounted for more than
10% of our consolidated revenues in 2005.
  The
following table sets forth our revenues by product lines (millions of
dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005Revenues:Systems
      and solutions
              
              $
              485.6
              
              $
              477.2
              
              $
              497.8Printer
      and media
              
              
              206.4
              
              
              215.2
              
              
              223.2Service
              
              
              157.2
              
              
              157.6
              
              
              154.5Total
              
              $
              849.2
              
              $
              850.0
              
              $
              875.5
  Revenues
by geographic region are determined based on the location of the customer.
European revenues and long-lived assets relate primarily to the United Kingdom,
Germany and France. No individual country, other than the U.S., exceeds 10% of
consolidated revenues. The following table sets forth our revenues by geographic
region (millions of dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005North
      America
              
              $
              422.9
              
              $
              494.4
              
              $
              512.4Europe,
      Middle East and Africa
              
              
              290.6
              
              
              241.1
              
              
              260.4All
      others
              
              
              135.7
              
              
              114.5
              
              
              102.7Total
              
              $
              849.2
              
              $
              850.0
              
              $
              875.5
  42
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
N: Segment Reporting (Continued)
  The
following table sets forth our long-lived assets by geographic region (millions
of dollars):
  December
      31,2007
              
              2006North
      America
              
              $
              87.7
              
              $
              63.1Europe,
      Middle East and Africa
              
              
              14.8
              
              
              5.7All
      others
              
              
              1.7
              
              
              1.7Total
              
              $
              104.2
              
              $
              70.5
  The
following table sets forth depreciation for our long-lived assets by geographic
region (millions of dollars):
  Year
      Ended December 31,2007
              
              2006
              
              2005North
      America
              
              $
              10.4
              
              $
              8.9
              
              $
              7.3Europe,
      Middle East and Africa
              
              
              1.5
              
              
              1.3
              
              
              1.9All
      others
              
              
              0.7
              
              
              0.3
              
              
              0.3Total
              
              $
              12.6
              
              $
              10.5
              
              $
              9.5
  43
  INTERMEC, INC.
 QUARTERLY
FINANCIAL INFORMATION (unaudited)
  Below is
unaudited quarterly financial information for 2007 and 2006 (in millions, except
earnings per share and common stock sales price):
  2007Q1
              
              Q2
              
              Q3
              
              Q4 
      (a)Revenues
              
              $
              179.3
              
              $
              210.5
              
              $
              206.0
              
              $
              253.4Gross
      profit
              
              
              64.5
              
              
              81.2
              
              
              78.1
              
              
              103.1Earnings
      from continuing operations
              
              
              (4.4
              )
              
              7.9
              
              
              4.4
              
              
              16.4Net
      earnings (b)
              
              
              (4.4
              )
              
              6.6
              
              
              4.4
              
              
              16.4Basic
      earnings per share
              
              $
              (0.07
              )
              $
              0.11
              
              $
              0.07
              
              $
              0.27Diluted
      earnings (loss) per share
              
              $
              (0.07
              )
              $
              0.11
              
              $
              0.07
              
              $
              0.27Common
      stock sales price per share:High
              
              $
              25.81
              
              $
              26.40
              
              $
              30.16
              
              $
              27.48Low
              
              $
              20.50
              
              $
              20.90
              
              $
              23.32
              
              $
              20.12
  2006Q1
              
              Q2
              
              Q3
              
              Q4Revenues
              
              $
              203.8
              
              $
              231.4
              
              $
              195.9
              
              $
              218.9Gross
      profit
              
              
              80.4
              
              
              93.6
              
              
              76.1
              
              
              81.9Earnings
      from continuing operations
              
              
              15.1
              
              
              11.3
              
              
              3.4
              
              
              5.2Net
      earnings (b)
              
              
              14.0
              
              
              10.4
              
              
              4.8
              
              
              2.8Basic
      earnings per share
              
              $
              0.22
              
              $
              0.16
              
              $
              0.07
              
              $
              0.05Diluted
      earnings per share
              
              $
              0.22
              
              $
              0.16
              
              $
              0.07
              
              $
              0.05Common
      stock sales price per share:High
              
              $
              38.81
              
              $
              30.40
              
              $
              30.74
              
              $
              26.43Low
              
              $
              29.71
              
              $
              21.45
              
              $
              20.50
              
              $
              21.00
  (a) Includes
certain adjustments, after tax, totaling approximately $1.3 million, which
primarily relate to royalty revenues which should have been recorded in prior
quarters of 2007.
 (b)
Includes earnings (loss) from discontinued operations as follows (millions of
dollars):
 
 2007
              
              2006First
      Quarter
              
              $
              -
              
              $
              (1.1
              )Second
      Quarter
              
              
              (1.3
              )
              
              (0.9
              )Third
      Quarter
              
              
              -
              
              
              1.3Fourth
      Quarter
              
              
              -
              
              
              (2.3
              )
  44




SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.




Intermec, Inc.By:
            /s/
      Lanny H. MichaelLanny
      H. MichaelSenior
      Vice President, Chief Financial OfficerMarch 27,
      2008




45






INTERMEC, INC.
  INDEX TO
EXHIBITS
  Exhibit No.
              
              Description
      of Exhibit23.1
              
              Consent
      of Independent Registered Public Accounting Firm.31.1
              
              Certification
      pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (Rules
      13a-14 (a) and 15 (d)-14 (a) under the Securities Exchange Act of
      1934, as amended), dated March 27, 2008.31.2
              
              Certification
      pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (Rules
      13a-14 (a) and 15 (d)-14 (a) under the Securities Exchange Act of
      1934, as amended), dated March 27, 2008.32.1
              
              Certification
      pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a)
      and (b) of section 1350, chapter 63 of Title 18, United States Code),
      dated March 27, 2008.32.2
              
              Certification
      pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsection (a)
      and (b) of section 1350, chapter 63 of Title 18, United States Code),
      dated March 27, 2008.




46