UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM 10-K


(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, 2008ORo
            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


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
June 27, 2008, 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 $1.3 billion,
based on the closing sale price as reported on the New York Stock
Exchange.


On
February 18, 2009, there were 61,332,549 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 Stockholders scheduled to be held
on May 27, 2009.





INTERMEC,
INC.


TABLE
OF CONTENTS TO ANNUAL REPORT
 ON
FORM 10-K







PagePart
      I.Item 1.
                Business
                3Item 1A.
                Risk Factors
                12Item 1B.
                Unresolved Staff Comments
                16Item 2.
                Properties
                17Item 3.
                Legal Proceedings
                17Item 4.
                Submission of Matters to a Vote of Security
      Holders
                17Part
      II.Item 5.
                Market for the Registrant's Common Equity, Related
      Shareholder
                18Matters and Issuer Purchases of Equity
      SecuritiesItem 6.
                Selected Financial Data
                20Item 7.
                Management's Discussion and Analysis of Financial Condition
      and
                21Results of OperationsItem 7A.
                Quantitative and Qualitative Disclosures about Market
      Risk
                35Item 8.
                Financial Statements and Supplementary
      Data
                36Item 9.
                Changes in and Disagreements With Accountants on
      Accounting
                36and Financial DisclosureItem 9A.
                Controls and Procedures
                36Item 9B.
                Other Information
                36Part
      III.Item 10.
                Directors, Executive Officers and Corporate
      Governance
                37Item 11.
                Executive Compensation
                37Item 12.
                Security Ownership of Certain Beneficial Owners and
      Management
                37and Related Shareholder MattersItem 13.
                Certain Relationships and Related Transactions, and
      Director
                37Independence
                37Item 14.
                Principal Accountant Fees and
    Services37Part IV.Item 15.
                Exhibits, Financial Statement
    Schedule
                37Signatures
                38








PART I




SAFE HARBOR




Forward-looking
statements contained in this filing are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995 (alternatively:
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) and are dependent upon a variety of important
factors that could cause actual results to differ materially from those
reflected in such forward-looking statements.  Forward-looking
statements include, but are not limited to, statements about: our cost reduction
plans; our view of general economic and market conditions; our ability to
develop, produce, market or sell our products, either directly or through third
parties; maintaining or improving our revenues, gross margins or profits of our
continuing operations, for the current period or any future period; competing
effectively with our current products and planned products, and introducing new
products; effectively completing restructuring and related transitional
activities; maintaining or reducing expenses, maintaining or improving
operational efficiency; using our investment in research and development to
generate future revenue; and the applicability of accounting policies used in
our financial reporting.  When used in this document and in documents
it references, the words “anticipate,” “believe,” “will,” “intend,” “project”
and “expect” and similar expressions as they relate to Intermec or our
management are intended to identify such forward-looking
statements.  We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this report
on Form 10-K.
 
 Forward-looking statements involve and
are dependent upon certain risks and uncertainties, and  are not
guarantees of future performance. A number of factors can impact our business
and determine whether we can or will achieve any forward-looking statement made
in this report. Any one of these factors could cause our actual results to
differ materially from those expressed or implied in a forward-looking
statement. We outline these risk factors in reports that we file with the SEC,
in press releases and on our website, www.Intermec.com.  You are encouraged to
review the discussion below in Part I, “Item 1A, Risk Factors,” and in Part II,
“Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operation,” of this filing.
 ITEM
    1.
              BUSINESS
 
 General
 
 Intermec, Inc. (“Intermec”,
“us”, “we”, “our”) became an independent public company when our common stock
was distributed to the shareholders of Western Atlas Inc., our former parent
company, on October 31, 1997. Intermec is a Delaware corporation and our
headquarters are in Everett, Washington. Our major offices, and assembly and
services facilities are in the states of Washington, Iowa, North Carolina and
Ohio and internationally in the United Kingdom, the Netherlands, France, Canada,
Mexico, Brazil and Singapore.
 
 Information
on our company may be found at the Internet website www.intermec.com. Our annual
reports on Form 10-K and certain of our other filings with the Securities
and Exchange Commission (“SEC”) are available in PDF format through our Investor
Relations website at www.intermec.com/IntermecInc/investorinfo.asp.
Our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and amendments to those reports are also
available on the SEC website at www.sec.gov. The contents of
these websites are not incorporated by reference into this report or in any
other report or document we file. Our references to the addresses of these
websites are intended to be inactive textual references only. Shareholders may
request a free copy of the annual reports on Form 10-K and quarterly
reports on Form 10-Q from:
 
 Intermec, Inc.
 Attention:
Investor Relations
 6001 36th
Avenue West
 Everett,
WA 98203-1264
   Continuing
Operations
  We
design, develop, integrate, sell, resell and service wired and wireless
automated identification and data collection (“AIDC”) products and provide
related services. Our products include mobile computing products, bar code
scanners, radio frequency identification (“RFID”) products, wired and wireless
bar code printers and label media products. These products and services allow
customers to identify, track and manage their assets and other resources in ways
that improve the efficiency and effectiveness of their business
operations.  Our products are designed to withstand mobile use and
rugged warehouse and field conditions.
 
 Our
products are sold worldwide for field mobility applications such as asset
visibility and management, direct store delivery, maintenance and repair,
in-transit visibility, routing and navigation, and telematics. Our products are
also sold globally for in-premise applications such as asset visibility, freight
yard operations, inventory management, warehouse operations, and work-in-process
management.
 3
  ITEM
    1.
              BUSINESS
      (Continued)
 
 We
generate our revenues primarily through:
 ●
                The
      sale and resale of wired and wireless AIDC products, mobile computing
      products, bar code scanners, wired and wireless bar code printers, label
      media and RFID products;
 ●
                  The
      granting of licenses to use our intellectual property
    (“IP”);
 ●
              The
      delivery of professional services to actual or potential purchasers of our
      products;
  ●
              The
      sale of service contracts to customers who want “extended” or
      post-warranty service, maintenance or repairs for the products they have
      purchased from us.
  Products
and Services
 
 We sell
wired and wireless AIDC products, including mobile computing products, bar code
scanners, wired and wireless barcode printers, label media, RFID products and
related services. These products and services allow customers to identify, track
and manage their assets and other resources in ways that improve the efficiency
and effectiveness of their business operations.
  Products
  Mobile
      Computing Products
 
 Our
mobile computing products allow a customer’s in-premise and in-field workers to
automatically and wirelessly collect and send data to remote computers and to
automatically and wirelessly receive data from those remote computers. Our
partners offer mobile computing application software that customers can use for
a wide variety of business solutions including inventory management, order entry
and fulfillment, and transaction processing.
 
 Our
mobile computing products include handheld and vehicle-mounted mobile
computers, accessories and services that facilitate local-area and
wide-area voice and data communications. These products typically contain
multiple wireless technologies such as wide-area GPRS and CDMA, with local-area
802.11 and Bluetooth. Our mobile computing portfolio also includes AIDC devices
with barcode scanning and/or RFID capabilities, specialized peripherals and
printer products.
 
 Our
mobile computers use Microsoft Windows®,
Windows® CE and
Windows Mobile®, and
embedded Windows XP operating systems, as well as scanning and Internet
Protocol-based data communication capabilities. Our mobile computing products
range from relatively low-cost, handheld batch and wireless data collection
devices to higher-cost computers with network capabilities and flexible
vehicle-mount communications.
 
 Bar
      Code Scanners
 
 Our bar
code scanning products include fixed, mobile and vehicle-mounted laser scanners
and linear and area imagers. These products are able to collect and decode bar
codes and to transmit the resulting data to enterprise resource planning ("ERP")
systems, warehouse management systems ("WMS"), and order fulfillment,
transportation, logistics systems and other business intelligence
applications.
 
 Printer
      and Label Media Products
 
 We sell
barcode and RFID printers ranging from relatively low-cost, light-duty models to
higher-cost, heavy-duty models. Our specialty printers provide custom
capabilities, including color printing, a global language enabler and high
resolution (400 DPI) printing that produces sharp typefaces and precise graphics
even on small labels such as those used by the electronics industry. Our media
products include pressure-sensitive bar code labels and thermal transfer
ribbons, which are sold to customers worldwide. We also design and manufacture
specialized labels to meet customer requirements for extreme environments such
as clean rooms, chemical baths and high humidity.
  4
  ITEM
    1.
              BUSINESS
      (Continued)
 
 Radio
      Frequency Identification (RFID)
Products
 
 RFID
facilitates wireless communication of more information than that available from
a barcode and does not require “line-of-sight” as barcode technology does. RFID
systems typically consist of RFID readers and RFID tags comprising a computer
chip and antenna encased in a protective covering. RFID tags are programmed by
users to contain identification, serial numbers, history and other product data.
Certain RFID tags contain read/write memory to allow updates and tag reuse.
Customers use RFID technology to track pallets, cartons, containers and
individual goods and assets to make their supply chains and other operations
more efficient, productive and responsive.
 
 Our RFID
product line is currently focused on passive UHF technology and consists of RFID
tags, readers, printers, software and related equipment.  Our RFID
products comply with the EPCglobal Generation 2 UHF standard and other standards
around the world.
 
 Product
Manufacture and Assembly
 
 In 2008,
we relocated the final assembly of our product lines from our headquarters
location in Everett, Washington, to Venture Corporation Limited, a global
electronics services provider.   In December 2008, we entered
into a Manufacturing Services Framework Agreement (the “Agreement”) with Venture
Corporation Limited and its affiliates (collectively, “Venture”). Under an
earlier manufacturing services contract, Venture had manufactured printed
circuit board assemblies and some finished goods for us.  The
Agreement supersedes and replaces the earlier manufacturing services
contract.
 
 Venture
is our exclusive manufacturer for substantially all of the products we offered
for sale at the time the Agreement was entered into. The Agreement provides
that Intermec products introduced to the marketplace after the effective date of
the Agreement will not be automatically included in the Agreement, but they may
be included by mutual agreement.  The Agreement does not require
Intermec to purchase minimum quantities of  its products.
 
 Venture’s
manufacturing services include material and component procurement and equipment
manufacturing, testing, packaging and shipment of finished
goods.  Venture will generally purchase and own raw material,
component, and finished goods inventories, but in certain limited circumstances,
Intermec may take ownership of portions of those inventories. Intermec takes the
lead in selecting and negotiating with suppliers and contract manufacturers on
key components to be purchased by Venture.
 
 Under the
Agreement, we may collaborate with Venture on new product design or current
product upgrades.  We intend to take advantage of Intermec’s knowledge
and experience in product design and Venture’s expertise in manufacturing to
achieve low costs for products that meet stringent performance
demands.
 
 Intellectual
Property
 
 We have
more than 150 RFID patents and more than 20 companies have taken royalty-bearing
licenses under those patents, including Cisco, Motorola, Inc., Texas
Instruments, Avery Dennison, Honeywell Corporation and Zebra
Technologies, Inc.  We also have approximately 400 non-RFID
patents covering wireless communication, networking, Internet access, imaging
and similar technologies and have a licensing program for those patents as
well.
  Services
 We help
our customers design, implement and deploy AIDC systems in their businesses. Our
project management teams create strategic plans that identify the customer’s
operational goals and AIDC solutions that will accomplish the customer’s
business objectives. Our project management teams also define the functional
requirements for implementing AIDC products and systems in the customer’s
business environment.
 
 Our
project management teams prepare an implementation plan, evaluate AIDC products
and integrate new AIDC products into the customer’s existing system. Since our
partners and other vendors provide complementary AIDC products, systems and
services, we offer customers a “one-stop shopping” experience and comprehensive
AIDC solutions.
 
 We
provide technical support and repair services through a global network of
Intermec and third-party facilities. Through our global education services unit,
we also provide AIDC training services, including the design and delivery of
training programs for our customers’ employees.
  5
  ITEM
    1.
              BUSINESS
      (Continued)
 
 Business
Strategy
 
 The key
elements of our strategy are to target high growth opportunities in selected
application markets; focus on developing and selling differentiated new products
and services; emphasize channel fulfillment; pursue geographic expansion
opportunities; and continue the transformation of our supply chain and other
efficiency initiatives.
 
 We and
our partners are focused on the following applications where our products and
services make it possible for our customers to achieve measurable and meaningful
reductions in their operating costs, greater efficiency in their operations and
improvements in their customer service and support activities:
 
 ●
              Field
      Mobility Applications
  ♦
                Asset
      visibility and management. Many firms
      have employees in the field who are using, operating, installing or
      retrieving valuable assets such as machinery, tools, equipment, components
      and parts. Tracking those assets and their condition while they are in the
      field allows our customers to reduce capital expenditures, operating
      expenses, working capital requirements and cash
      consumption.
 ♦
              Direct store delivery
      ("DSD"). DSD is the delivery of consumer goods from a supplier or
      distributor directly to a retail store, bypassing a warehouse. DSD
      activities typically include in-store inventory management, store-level
      authorized item management, store-level ordering, forecasting, product
      pricing, promotion, invoicing, the physical delivery and return of
      merchandise, the electronic exchange of delivery data, and shelf
      merchandising.  Our products and services allow our customers to
      manage these activities while they are in progress in the field and, in
      this manner, increase orders and revenue, achieve just-in-time inventory
      replenishment, update and confirm pricing “on the fly,” track promotion
      costs and product returns, etc.
 
 ♦
              Maintenance, repair and
      overhaul.Many firms provide in-field maintenance, repair and
      refurbishment services for their own products or for products manufactured
      by others.  These services typically involve the steps of
      finding the specific location of the equipment within a facility or a
      yard, evaluating or confirming the nature of the work required, resolving
      technical or other issues which arise while the work is being performed,
      testing to confirm that the work had the desired effect, reporting the
      completion of the work, updating equipment service and repair records,
      invoicing for parts and labor, etc.  Our products and services
      allow our customers to manage these activities while their employees are
      in the field and, in this manner, enhance revenue and decrease the cost,
      time and trouble of in-field maintenance and repair.
 ♦
                In-transit
      visibility. Most shippers and
      transporters want to know where their shipments are, who received the
      shipment, when it was delivered, the conditions and events that may have
      impacted the shipment in transit (e.g., temperature, humidity, shocks),
      the condition of the shipment on delivery, etc. Our products and services
      allow our customers to acquire, transmit, analyze and manage this
      information while the shipments are in the field and, in this manner,
      reduce the cost and simplify the management of outbound and inbound
      shipments.
 ♦
              Routing and
      Navigation.  Many firms that operate transportation
      fleets want in-field control over their transportation assets so they can
      maximize the revenues generated by those assets and minimize their
      costs.  Our products and services make this possible by allowing
      these firms to use automated route and revenue optimization systems,
      dynamic routing systems and navigation support systems while their
      transportation assets are in the
field.
 
 ♦
              Telematics.  Many
      firms operating transportation fleets also want to gather data about their
      transportation assets and operators while they are in the field and use
      that data to improve performance in the field and
      system-wide.  Our products and services make this possible by
      allowing these firms to use automated methods of collecting, transmitting,
      analyzing and acting on data from the field such as vehicle tracking,
      engine diagnostics and parameters, fuel parameters and operator
      hours.
 
 ●
              In-Premise
      Applications
 
 ♦
              Asset visibility and
      management.Most employees are using, operating, installing or
      retrieving valuable assets such as machinery, tools, equipment, components
      and parts in facilities owned or leased by their employers.  Our
      products and services allow our customers to remotely track these assets
      and their condition and, in this manner, reduce shrink, and reduce capital
      expenditures, operating expenses, working capital requirements and cash
      consumption.
  6
 ITEM
    1.
              BUSINESS
      (Continued)
 
 ♦
              Freight yard
      operations.Firms operating transportation fleets want
      to use information about their freight yards to increase revenues, improve
      productivity and reduce costs.  Our products and services allow
      these firms to automatically collect, transmit, analyze and dynamically
      act on data from the yard such as inbound and outbound vehicles, yard
      location of equipment, equipment and operator availability, vehicle /
      trailer mismatches and goods loaded or offloaded from vehicles or
      trailers.
 
 ♦
              Inventory
      management.Most firms want
      an efficient method of regularly gathering inventory data from their
      supply chain so that they can use it to establish optimal inventory
      policies and to rapidly respond to unplanned changes in demand and
      supply.  Our products and services meet this need by allowing
      firms to automatically collect, transmit, analyze and act on inventory
      data whether the inventory is in a plant, warehouse or a retail
      store.
 
 ♦
              Warehouse
      operations.Most firms with
      warehouse operations want to streamline and improve those operations
      through automatic data collection and processing.  Our products
      and services meet this need by providing an automatic method of
      collecting, transmitting, analyzing and acting on data concerning the
      arrival, departure, storage location and condition of goods, equipment and
      workers.
 
 ♦
              Work-in-process (“WIP”)
      management.Most
      manufacturers want to use WIP data to reduce waste and other
      inefficiencies in the manufacturing process.  Our products and
      services meet this need by providing an automatic method of collecting,
      transmitting, analyzing and using WIP data to align production to demand,
      smooth production flow and reduce waste and
  rework.
 
 We and
our partners are focused on private and public sector customers in the following
categories:
 
 ♦
              Consumer Goods. These
      customers make products for retailers and other firms which sell directly
      to businesses and consumers. Segments within this category include firms
      that produce foods, beverages, consumer packaged goods, footwear and
      apparel, health products and pharmaceuticals, beauty products, housewares
      and appliances, electronics, recreation products and services, and media
      and publications.
  ♦
                Healthcare. These
      customers provide healthcare products and services to healthcare
      providers, laboratories or patients. Segments within this category include
      firms that provide preventative and emergency medical services in
      hospitals, clinics and medical offices, firms that provide laboratory and
      test services, and firms that produce the medical and test equipment,
      pharmaceuticals and other products used in hospitals, clinics, medical
      offices and laboratories.
 ♦
              Industrial
      Goods.  Some customers in this category supply raw
      materials, components and assemblies to manufacturers and service
      providers in a variety of industries, including aerospace, automotive,
      chemicals, electronics, and oil and gas. Other customers in this category
      produce durable goods for businesses and consumers, including automobiles,
      computers and household appliances.
 
 ♦
              Retail. These customers
      sell a wide variety of products and services to businesses and consumers
      through brick-and-mortar retail and mall stores, specialty outlets,
      department stores, warehouse-style mega-stores and the
      Internet.  Segments within this category include firms that sell
      foods, beverages and other grocery items, pharmaceuticals, health and
      beauty products, electronics, housewares, appliances, footwear, apparel,
      office products, and books, magazines and other media
      products. .
 
 ♦
              Transportation and
      Logistics. These firms provide shipping, transportation and
      logistics services using their own personnel and equipment or third party
      resources. Segments within this category include motor freight, air
      transport, railways, waterborne transportation and logistics service
      providers.
  Markets
and Customers
 
 Because
AIDC solutions can be used by a company of any size, the AIDC market is large.
Market growth is driven by the need for technologies and solutions that reduce
capital expenditures, operating expenses, working capital requirements and cash
consumption and improve productivity, quality, customer service and support. We
cover the market through a combination of a direct sales and service
organization, two-tier distributors, resellers and independent hardware,
software and service vendors.
 
 Our
direct sales organization serves customers from offices throughout the Americas,
Europe, the Middle East and Africa and in selected Asia Pacific countries,
including China and Australia. Our two-tiered sales channel is also global and
includes value-added distributors and resellers.  7
 ITEM
      1.
              BUSINESS
      (Continued)
 
 Our
customer base consists of private and public entities of many sizes. In 2008,
2007 and 2006, one customer, ScanSource, Inc., and its affiliated companies
accounted for more than 10% of our revenues. Total sales to this customer were
$113.8 million, $108.7 million and $99.8 million for the years ended December
31, 2008, 2007 and 2006, respectively. ScanSource is a distributor of our
products, and not an end user customer.
 
 The AIDC
market is highly competitive and there are many firms capable of becoming and,
we believe, willing to become distributors for Intermec in addition to those now
engaged in that role.  We do not believe that Intermec is
substantially dependent upon any contractual arrangements with ScanSource or its
affiliated companies.
 
 Competition
  The
market for AIDC products is fragmented, highly competitive and rapidly changing.
Independent market surveys suggest that we are one of the larger participants
measured by revenues. Motorola, Inc. and its wholly-owned subsidiary, Symbol
Technologies, Inc., are major competitors, supplying a range of barcode,
RFID and mobile computing products and services. We also face strong competition
in individual AIDC product lines from suppliers such as Zebra Technologies
Corporation, which supplies barcode and RFID printers, and Honeywell
Corporation, which supplies barcode imagers. In the label media area, we
face competition from a number of large and small media producers, including,
among many others, Avery Denison and Brady.
 
 We
compete primarily on the basis of our technology and expertise in our target
markets, but our support services, product functionality, performance,
ruggedness and overall product quality are also important elements of our
competitive offerings.
 
 Research
and Development
 
 Research
and development expenditures amounted to $64.5 million, $65.6 million, and $72.4
million, all of which we sponsored in the years ended December 31, 2008,
2007 and 2006, respectively.
  Intellectual
Property
  We strive
to protect our investment in technology and to secure competitive advantage by
obtaining IP protection. We have obtained approximately 612 patents and a number
of trademarks, copyrights and trade secrets. When appropriate, we have obtained
licenses to use IP controlled by other organizations. As we expand our product
offerings, we try to obtain patents related to such offerings and, when
appropriate, seek licenses to use inventions patented by third
parties.
 
 To
distinguish our products and services from those of our competitors, we have
obtained certain trademarks and trade names, and as we expand our product and
service offerings, we try to obtain trademarks and trade names to cover those
new offerings. We protect certain details of our processes, products and
strategies as trade secrets by restricting access to that information. We have
ongoing programs designed to maintain the confidentiality of such
information.
 
 We
license our IP to generate revenue or to facilitate our effort to market and
sell our products and services.  We try to protect our investment in
technology, generate revenue and secure competitive advantage by enforcing our
IP rights. The nature, timing and geographic location of these efforts depends,
in part, on the types of legal protection given to different types of IP rights
in various countries.
  Seasonality
and Backlog
  Our
quarterly results reflect seasonality in the sale of our products and services,
since our revenues are typically highest in the fourth fiscal quarter and the
lowest in the first fiscal quarter. See “Quarterly Financial Information” on
page 72 of this Form 10-K for quarterly revenues and
expenses.
 
 Sales
backlog from our continuing operations was $80.9 million, $71.1 million and
$42.9 million at December 31, 2008, 2007 and 2006, respectively. Our
business typically operates without a significant backlog of firm orders, and we
do not consider backlog to be a significant indicator of future
sales.
  8
  ITEM
    1.
              BUSINESS
      (Continued)
 
 Employees
  At
December 31, 2008, we had 2,070 full-time employees, of which 2,055 were
engaged in our wholly-owned subsidiary, Intermec Technologies Corporation, and
15 were engaged in our holding company, Intermec, Inc. Approximately 63% of our
full-time employees are in the United States, approximately 20% are in Europe,
the Middle East and Africa (“EMEA”), and the remainder are employed throughout
the rest of the world, including the Asia Pacific region, Latin America, Canada
and Mexico.
 
 Discontinued
Operations
 
 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. At the time of
divestiture, the IAS businesses were producers of manufacturing products and
services, including integrated manufacturing systems, machining systems,
stand-alone machine tools and precision grinding and abrasives operations
primarily serving the global aerospace, automotive, off-road vehicle and diesel
engine industries as well as the industrial components, heavy equipment and
general job shop markets.
  9
 ITEM
      1.
              BUSINESS
      (Continued)
  EXECUTIVE
OFFICERS OF THE REGISTRANT.
  Our
executive officers are elected each year by the Board of Directors at its first
meeting following the Annual Meeting of Shareholders to serve during the ensuing
year and until their respective successors are elected and qualified or until
their earlier resignation or removal. Newly-hired executive officers are elected
at the time of their employment to serve until the next Board of Directors
meeting first following an Annual Meeting of Stockholders and until their
successors are elected and qualified or until their earlier resignation or
removal. There are no family relationships between any of our executive officers
and any director or other executive officer. The following information indicates
the positions and ages of our executive officers on February 24, 2009, and
their business experience during the prior five years.


Name
                Age
                Position with Company and Principal Business AffiliationsDuring Past Five YearsPatrick
      J. Byrne
                48
                Chief
      Executive Officer and President, and member of the Board of Directors
      since July 2007. Prior to joining Intermec, Mr. Byrne served as a Senior
      Vice President of Agilent Technologies Inc., a bio-analytical and
      electronic measurement company, and President of its Electronic
      Measurement Group from February 2005 to March 2007. Prior to assuming
      that position, Mr. Byrne served as Vice President and General Manager
      for Agilent’s Electronic Products and Solutions Group's Wireless Business
      Unit from September 2001 to February 2005.Robert
      J. Driessnack
                50
                Senior
      Vice President and Chief Financial Officer since January 19, 2009. 
      Prior to his appointment as our Chief Financial Officer, Mr. Driessnack
      served as Vice President and Controller of HNI Corporation, a manufacturer
      and distributor of office furniture and hearth products, from 2004 until
      joining Intermec.  Prior to assuming that position, from 2002 to
      2004, Mr. Driessnack served as Vice President and Chief Financial
      Officer for the Retail Systems Division of NCR Corporation, a computer,
      retail and financial products manufacturing, service and distribution
      company, where he held a number of other management positions since
      joining that company in 1989.Janis
      L. Harwell
                54
                Senior
      Vice President and General Counsel since September 2004 and Corporate
      Secretary since January 2006. In February 2009, Ms. Harwell also was
      made Senior Vice President Corporate Strategy. Prior to joining Intermec,
      Ms. Harwell was Vice President, General Counsel and Secretary of Renessen
      LLC, an agricultural biotechnology joint venture formed by
      Cargill, Inc. and Monsanto Company, from January 1999 to
      August 2004.Fredric
      B. Anderson
                41
                Vice
      President, Corporate Controller, since September 2005. Acting Chief
      Financial Officer September 2005 to September 2006. Prior thereto, Mr.
      Anderson was Director of Accounting and Financial Reporting, and Chief
      Accounting Officer, from July 2002 to September 2005.Kenneth
      L. Cohen
                65
                Vice
      President and Treasurer since January 2004 and Vice President, Taxes
      since July 2000.Dennis
      A. Faerber
                56
                Senior
      Vice President, Global Supply Chain Operations and Global Services, of
      Intermec Technologies Corporation, since February 2008 for Global Supply
      Chain Operations, and since February 2009 for Global
      Services. Prior to joining Intermec, Mr. Faerber was employed by
      Applied Materials, Inc. from January 2007 through January 2008 as
      Corporate Vice President (Global Supply Chains) and by KLA-Tencor
      Corporation from March 2004 through January 2007 as Group Vice President
      and Chief Quality Officer.  Prior thereto, Mr. Faerber was
      employed by Advanced Energy Industries, Inc. from February 2003 through
      January 2004 as Chief Operating Officer.Earl
      R. Thompson
                47
                Senior
      Vice President, Mobile Solutions Business Unit since October
      2008.  Mr. Thompson previously served as Vice President and
      General Manager of the Printer/Media Business from April 2008 to October
      2008.  Prior to joining Intermec, Mr. Thompson was Vice
      President and General Manager, Wireless Division of Agilent Technologies,
      Inc. from 2004 to 2007.  Prior thereto, Mr. Thompson was General
      Manager, China Wireless Operations, Wireless Business Unit for Agilent
      Technologies, Inc. from 2002 to 2004.Michael
      A. Wills
                45
                Senior
      Vice President, Global Sales of Intermec Technologies Corporation, since
      January 2007.  Between December 2007 and February 2009, Mr. Wills
      also was Senior Vice President for Global Services.  Mr. Wills
      previously served as our Vice President & General Manager, Global
      Services and RFID from September 2004 to December 2006. Prior thereto, Mr.
      Wills was Vice President & General Manager, Printers and Media, from
      April 2003 to September 2004.
 10
 ITEM
      1.
                  BUSINESS
      (Continued)
 Environmental
and Regulatory Matters
  In
January 2003, the European Parliament and Council adopted Directive
2002/95/EC on the Restriction of the Use of Certain Hazardous Substances in
Electrical and Electronic Equipment (the “RoHS Directive”). The RoHS Directive
went into effect on July 1, 2006, and prohibits firms from putting on the
European Union ("EU") market new electrical and electronic equipment that
contains more than permitted levels of lead, cadmium, hexavalent chromium,
polybrominated biphenyl ("PBB") and polybrominated diphenyl ether ("PBDE"). The
RoHS Directive does not apply to units of equipment already placed on the EU
market prior to July 1, 2006. In addition, the RoHS Directive contains
exemptions for (a) certain types of equipment; (b) reuse of equipment
placed on the EU market prior to July 1, 2006; and (c) spare parts for
the repair of equipment placed on the EU market prior to July 1,
2006.
 
 The State
of California also has adopted restrictions on the use of certain materials in
electronic products that are intended to harmonize with the RoHS Directive.
Those restrictions went into effect in 2007. Other U.S. states are considering
similar legislation or are in the process of implementing enacted legislation.
Similarly, China has promulgated environmental regulations covering the same
substances as the RoHS Directive. China’s regulations became effective on March
1, 2007 and imposed various marking and substance content disclosures (above
defined thresholds) of electronic products imported into China.  We
have implemented a program to comply with these
requirements.   China has not yet defined the list of specific
products for which the substance content will be restricted or the effective
date of any imposed restrictions.  It is unclear whether China’s use
restrictions will be consistent with the use restrictions set forth in the RoHS
Directive. Other countries outside of the EU and China are in various stages of
establishing RoHS requirements and may adopt RoHS-type regulations in the
future.
 
 In
addition, the State of California adopted restrictions on the energy efficiency
of external alternating current power supplies used with many of the products we
manufacture and sell.  No significant costs were incurred in 2008 for
our product and system re-certification to U.S. requirements due to migration to
newer, more efficient power supplies.  Additional certification costs
may be incurred in 2009 and beyond as similar requirements are adopted in other
countries in which we sell or intend to sell.
 
 We have
redesigned some of our current products to bring them into compliance with the
RoHS Directive and similar regulations in other jurisdictions. In other cases,
we are replacing non-compliant products with new products that comply with these
regulations. No costs other than planned R&D expenditures were incurred in
2008 to comply with these regulations. We expect to incur additional costs in
the future for compliance with the RoHS Directive and similar regulations in
other jurisdictions. The amount and timing of such expenditures are uncertain
due to uncertainties about the effective date and final content of RoHS-type
regulations in various jurisdictions and the possibility that RoHS-type
regulations in one jurisdiction will not be consistent with RoHS-type
regulations in other jurisdictions.
 
 Radio
emissions are the subject of governmental regulation in all countries in which
we currently conduct or expect to conduct business. In North America, both the
Canadian and U.S. governments publish radio emission regulations and changes
thereto after public hearings. In other countries, regulatory changes can be
introduced with little or no grace period for implementation. Furthermore, there
is little consistency among the regulations of various countries. Future
regulatory changes in North America, China and other jurisdictions are possible.
These conditions introduce uncertainty into our product-planning process and
could have an adverse effect on our ability to sell our wireless products in a
given country or adversely affect our cost of supplying wireless products in a
given country.
  Raw
Materials
  We use a
variety of raw materials in the manufacture of our products, and we obtain such
raw materials from a variety of suppliers. In general, the raw materials we use
are available from numerous alternative sources. As is customary for our
industry, we at various times enter into certain single-source component part
supply agreements. We believe these agreements will be renewed in the ordinary
course of business.
 
 11
 
 ITEM
      1A.
                  RISK FACTORS
 
 You are
encouraged to review the discussion of Forward Looking Statements and Risk
Factors appearing in this report at Part II, Item 7, “Management’s Discussion
and Analysis of Financial Condition and Results of Operation.”
 
 In
addition to the other information set forth in this report, you should carefully
consider the following factors, which could materially affect our business,
financial condition or operating results. The risks described in this report are
not the only risks facing us. Additional risks and uncertainties not currently
known to us or that we currently deem to be immaterial also may materially
adversely affect our business, financial condition or operating
results.
 
 ●
                  Macroeconomic
      conditions beyond our control could lead to decreases in demand for our
      products, reduced profitability or deterioration in the quality of our
      accounts receivable.Domestic
      and international political and economic conditions are uncertain due to a
      variety of factors, including
 
 ♦
                  global,
      regional and national economic
downturns;
 ♦
                  the
      availability and cost of credit;
 ♦
                  volatility
      in stock and credit markets;
 ♦
                  energy
      costs;
 ♦
                  fluctuations
      in currency exchange rates
 ♦
                  the
      risk of global conflict;
 ♦
                  the
      risk of terrorism and war in a given country or region;
  and
 ♦
                  public
      health issues.
 
 Our
business depends on our customers’ demand for our products and services, the
general economic health of current and prospective customers, and their desire
or ability to make investments in technology.  A
deterioration of global, regional or local political or economic conditions
could affect potential customers in a way that reduces demand for our products
and disrupts our manufacturing and sales plans.  Changes in foreign
currency exchange rates may negatively impact reported revenue and
expenses.  In addition, our sales are typically made on unsecured
credit terms that are generally consistent with the prevailing business
practices in the country in which the customer is located. A deterioration of
political or economic conditions in a given country or region could reduce or
eliminate our ability to collect accounts receivable in that country or region.
In any of these events, our results of operations could be materially and
adversely affected.
 
 ●
                  We
      face risks as a global company that could adversely affect our revenues,
      gross profit margins and results of operations. Due to the global
      nature of our business, we face risks that companies operating in a single
      country or region do not have.  U.S. and foreign government
      restrictions on the export or import of technology could prevent us from
      selling some or all of our products in one or more countries. Our sales
      could also be materially and adversely affected by burdensome laws,
      regulations, security requirements, tariffs, quotas, taxes, trade barriers
      or capital flow restrictions imposed by the U.S. or foreign governments.
      In addition, political and economic instability in a particular country or
      region could reduce demand for our products or impair or eliminate our
      ability to sell or deliver those products to customers in those countries
      or put our assets at risk.  Any of the foregoing factors could
      adversely affect our ability to continue or expand sales of our products
      in any market, and disruptions of our sales could materially and adversely
      impact our revenues, revenue growth, gross profit margins and results of
      operations.
 
 A
significant percentage of our products and components for those products are
designed, manufactured, produced, delivered, serviced or supported in countries
outside of the U.S.  From time to time, we contract with companies
outside of the U.S. to perform one or more of these activities, or portions of
these activities. For operational, legal or other reasons, we may have to change
the mix of domestic and international operations or move outsourced activities
from one overseas vendor to another. In addition, U.S. or foreign government
actions or economic or political instability and potentially weaker foreign
intellectual property protections may disrupt or require changes in our
international operations or international outsourcing arrangements. The process
of implementing such changes and dealing with such disruptions is complex and
can be expensive. There is no assurance that we will be able to accomplish these
tasks in an efficient or cost-effective manner, if at all. If we encounter
difficulties in making such transitions, our revenues, gross profit margins and
results of operations could be materially and adversely affected.
  ●
                    Fluctuations
      in currency exchange rates may adversely impact our cash flows and
      earnings.Due
      to our global operations, our cash flows, revenue and earnings are exposed
      to currency exchange rate fluctuations.  Our international sales
      are typically quoted, billed and collected in the customer’s local
      currency, and therefore exposed to changes in exchange
      rates.  Our product costs are largely denominated in U.S.
      dollars, and as such, do not significantly change with exchange rate
      fluctuations.  Exchange rate fluctuations may also affect the
      cost of goods and services that we purchase and personnel we
      employ.  When appropriate, we may attempt to limit our exposure
      to exchange rate changes by entering into short-term currency exchange
      contracts. There is no assurance that we will hedge or will be able to
      hedge such foreign currency exchange risk or that our hedges will be
      successful.
 12
 ITEM
      1A.
                  RISK
      FACTORS (Continued)
  Our
currency exchange gains or losses (net of hedges) may materially and adversely
impact our cash flows and earnings.  Additionally, adverse movements
in currency exchange rates could result in increases in our cost of goods sold
or reduction in growth in international orders, materially impacting our cash
flows and earnings.
  ●
                  We are
      dependent on Venture Corporation Limited for the manufacture of
      substantially all of our products and any failure or inability of Venture
      to provide its manufacturing services to us would adversely affect our
      business.In relying on Venture to assemble our products, we will
      no longer have direct physical control over the manufacturing process and
      operations.  This might adversely affect our ability to control
      the quality of our products and the timeliness of their delivery to our
      customers.  Either of those potential consequences could
      adversely affect our customer relationships and our
      revenues.  Furthermore, Venture’s access to our intellectual
      property could possibly increase the risk of infringement or
      misappropriation of our assets.
  If
Venture were unable to manufacture our products at one or more of its facilities
for any extended period, we would be required to obtain alternative sources of
manufacturing.  There is no assurance that any such sources would be
available in a timely manner or at comparable cost.  Any such
interruption of Venture’s manufacturing capabilities could increase our costs,
impair our ability to provide our customers with our products in a timely and
efficient manner and adversely affect our customer relationships and our
financial results.
 
 The
transition of our manufacturing to foreign jurisdictions could also result in
operational risk as well as customer concerns regarding product quality and
delivery schedules during the transition period.  We expect to
complete the transition in the first quarter of 2009.  However,
completion of the transition could be delayed by foreign or U.S. regulatory
requirements or other unforeseen events.  If the transition is
inefficient or delayed, our sales and income could be adversely
affected.
 
 ●
                  Venture’s
      use of third-party suppliers could adversely affect our product quality,
      delivery schedules or customer satisfaction, any of which could have an
      adverse effect on our financial results.Third-party
      suppliers that we approve will be providing the components that Venture
      will use in the final assembly of our products.  Some of these
      components may be available only from a single source or limited sources,
      and if they become unavailable for any reason, we or Venture may be unable
      to obtain alternative sources of supply on a timely basis.  Our
      products may also be adversely affected by the quality control of these
      third-party suppliers or by their inability to meet delivery
      deadlines.  Failure of these third-party suppliers in any of
      these respects may negatively affect our revenue and customer
      relationships.  Furthermore, these suppliers may have access to
      our intellectual property, which may increase the risk of infringement or
      misappropriation.
 
 ●
                  Our
      reliance on third-party distributors could adversely affect our business,
      revenues and earnings.
      In addition to offering our products to certain customers and resellers
      directly, we rely to a significant and increasing degree on third-party
      distributors and integrators to sell our products to
      end-users.  In 2007 and 2008, one distributor, ScanSource, Inc.,
      accounted for more than 10% of our sales, and it or other distributors may
      account for a substantial portion of our sales in the
      future.  Changes in markets, customers or products, or negative
      developments in general economic and financial conditions and the
      availability of credit, may adversely affect the ability of these
      distributors to effectively bring our products to market at the right time
      and in the right locations.  In addition, if a significant
      distributor, such as ScanSource, were to become unavailable or
      substantially reduce its purchases from us, we would be required to obtain
      alternative sources of distribution or enhance our internal sales
      force.  Such a disruption in the distribution of our products
      could impair or delay sales of our products to end users and increase our
      costs of distribution, which could adversely affect our sales or
      income.
 
 ●
                  Growth
      of and changes in our revenues and profits depend on the customer,
      product and geographic mix of our sales.  Fluctuations in our
      sales mix could have an adverse impact on or increase the volatility of
      our revenues, gross margins and profits. Sales
      to large enterprises tend to have lower prices and gross margins than
      sales to smaller firms.  In addition, our gross
      margins vary depending on the product or service and the
      geographic region in which sales are made.  Growth in our
      revenues and gross margins therefore depends on the customer,
      product and geographic mix of our sales.  If we are unable to execute
      a sales strategy that results in a favorable sales mix, our revenues,
      gross margins and earnings may decline.  Further,
      changes in the mix of our sales from quarter-to-quarter or
      year-to-year may make our revenues, gross margins and earnings more
      volatile and difficult to predict.
 13
 
 ITEM
      1A.
                  RISK
      FACTORS (Continued)
 ●
                      Our
      business may be adversely affected if we do not continue to transform our
      supply chain, improve our business processes and systems and attract and
      retain skilled managers and employees. In order to increase sales
      and profits, we must continue to expand our operations into new product
      and geographic markets and deepen our penetration of the markets we
      currently serve, and do so in efficient and cost effective ways. To
      achieve our objectives, we need to continue to streamline our supply chain
      and our business processes and continue to improve our financial,
      information technology and enterprise resource planning
      systems.  To accomplish this, there may be times when we must
      significantly restructure our business and recognize the anticipated costs
      of such restructurings.  Such restructuring charges could have a
      material adverse impact on our results of operations. Competition for
      skilled employees is high in our industry, and we must remain competitive
      in terms of compensation and other employee benefits to retain key
      employees.  If we are unsuccessful in hiring and retaining
      skilled managers and employees, we will be unable to achieve the
      objectives of our restructuring programs or to maintain and expand our
      business.
 ●
                    Our
      industry is characterized by rapid technological change, and our success
      depends upon the timely introduction of new products and our ability to
      mitigate the risk of product obsolescence.Customer requirements
      for AIDC products are rapidly evolving and technological changes in our
      industry occur rapidly. To keep up with new customer requirements and
      distinguish Intermec from our competitors, we must frequently introduce
      new products and enhancements of existing products through potentially
      significant investments in research and development
      (“R&D”).  We may not have adequate resources to invest in
      R&D that will keep pace with technological changes in our industry,
      and any such investments may not result in competitive
      products.  Furthermore, we may not be able to launch new
      products before our competition launches comparable
      products.  Any of these factors could cause our business to
      suffer.
  Rapid
technological change, whether through our or our competitors’ introduction of
new products or technologies, could also render our products obsolete and result
in substantial excess inventories. In such event, we might have to sell all or a
portion of the excess or obsolete inventory at a substantial discount to the
planned resale price or the cost of making or acquiring that inventory and write
off the difference. If our response to technological changes and our ability to
introduce new products and product enhancements is not effective, and we do not
mitigate the risk of product obsolescence, our financial results could be
materially and adversely affected.
 
 ●
                  Our
      failure to expand our patent portfolio or to successfully protect our
      intellectual property rights and defend against infringement claims could
      adversely affect the growth of our business and our results of
      operations. One element of our strategy to compete in our industry
      is to expand our AIDC patent portfolio to differentiate our products from
      those of our competitors and to generate royalty
      income.  The expansion of a patent portfolio involves
      a complex and costly set of activities with uncertain
      outcomes.  Our ability to obtain patents can be adversely
      affected by insufficient inventiveness of our employees, by changes
      in patent laws, treaties, and regulations, and by judicial and
      administrative interpretations of those laws treaties and
      regulations.  Our ability to expand our patent portfolio can
      also be adversely affected by the lack of valuable patents for sale or
      license at affordable prices.  There is no assurance that we
      will be able to obtain valuable AIDC patents in the jurisdictions where we
      and our competitors operate or that we will be able to use or license
      those patents to differentiate our products in the marketplace or to
      generate meaningful royalty
revenue.
 
 To
protect our patent portfolio, we may be required to initiate patent infringement
lawsuits. Patent lawsuits are complex proceedings, and the results are very
difficult to predict. There is no assurance that we will prevail in all or any
of these cases. Adverse results in such patent lawsuits could give competitors
the legal right to compete with us and with our licensees using technology that
is similar to or the same as ours. Adverse outcomes in patent lawsuits could
also reduce our royalty revenues.  In some periods, patent litigation
recoveries and expenses could result in large fluctuations from prior periods,
increasing the volatility of our financial results and possibly impacting our
earnings per share.
 
 Since our
business strategy includes global expansion, we are operating in developing
countries (e.g., China) where the institutional structures for creating and
enforcing intellectual property rights are very new or non-existent and where
government agencies, courts and market participants have little experience with
intellectual property rights. There is no assurance that we will be able to
protect our technology in such countries because we may not be able to obtain or
enforce patents or other intellectual property rights in those jurisdictions and
alternative methods of protecting our technology may not be effective. Our
inability to prevent competitors in these developing markets from
misappropriating our technology could materially and adversely affect our sales,
revenues and results of operations.
 
 Our
competitors, potential competitors and companies that purchase and enforce
patents may have patents covering AIDC products and services similar to those we
market and sell. These firms may try to use their patents to prevent us from
selling some of our AIDC products, to collect royalties from us with respect to
sales of products they claim are covered by their patents, or to deter us from
enforcing our patents against them. As part of this effort, the patent-holders
may initiate patent infringement lawsuits against us or our
customers.  These lawsuits are complex proceedings with uncertain
outcomes. There is no assurance that we or our customers will prevail in any
 14
 
 ITEM
      1A.
                  RISK
      FACTORS (Continued)
    ●
                    Some
      of our competitors are substantially larger or more profitable than we
      are, which may give them a competitive advantage. We operate in a
      highly competitive industry.  Due to acquisitions and other
      consolidation of the AIDC industry, competition is likely to
      intensify.  Some of our competitors have substantially more
      revenue or profit than we do. The scale advantage of these companies may
      allow them to invest more in R&D, sales and marketing, and customer
      support than we can or to achieve economies of scale in manufacturing and
      distribution. The scale advantage may also allow them to acquire or make
      complementary products that alone or in combination with other AIDC
      products could afford them a competitive advantage. These
      advantages may enable our larger competitors to weather market downturns
      longer or adapt more quickly to emerging technology developments, market
      trends or price declines than we can. Those competitors may also be able
      to precipitate such market changes by introducing new technologies,
      reducing their prices or otherwise changing their activities. There is no
      assurance that our strategies to counteract our competitors’ advantages
      will successfully offset all or a portion of this scale imbalance. If we
      are unable to offset all or a significant portion of this imbalance, our
      earnings may be materially and adversely
  affected.
 ●
                  Business
      combinations, private equity transactions and similar events are altering
      the structure of the AIDC industry and, could intensify competition and
      create other risks for our business. Large, well-financed companies
      and private equity groups have been acquiring companies in AIDC
      industry.  As examples, Motorola acquired Symbol Technologies,
      Inc.; Honeywell acquired Hand Held Products, Inc. and Metrologic Holdings
      Corporation, parent of Metrologic Instruments; and Zebra Technologies
      acquired WhereNet, Navis Holdings LLC and proveo AG.  These
      acquisitions and other similar events have altered the structure of the
      AIDC industry and may spawn more transactions and additional structural
      changes.  These events could intensify competition within the
      AIDC industry by expanding the presence of companies that have greater
      business and financial resources than the firms they acquired and by
      increasing the market share of some companies in our
      industry.  Such increased competition could have material
      adverse impacts to our revenues, revenue growth and results of
      operations.  There is no assurance that any of the strategies we
      employ to react to the structural changes and related increased
      competition in our industry will be
successful.
 
 ●
                  Growth
      in our revenues and profits depends, in part, on development of the RFID
      market.  There is uncertainty about the volume and the
      timing of demand for RFID products in the vertical markets and
      applications that we and our licensees target.  Potential
      RFID customers typically use pilot programs, qualification processes and
      certification processes to determine whether to acquire an RFID system and
      which vendor’s products and systems to buy.  We cannot predict
      how fast the RFID market will grow or how large it will
      become.  If it grows into a significant market, we and our
      licensees may not be able to successfully penetrate that
      market with our RFID product offerings.  If the RFID
      market does not grow significantly or if we and our
      licensees are unable to successfully penetrate that market,
      our revenue growth and profitability could be adversely
      affected.
 
 ●
                  To
      compete effectively in the AIDC industry, we may seek to acquire or make
      investments in other businesses, patents, technologies, products or
      services, and our failure to do so successfully may adversely affect our
      competitive position or financial results.The industry
      trend toward business combinations and other factors may make it
      appropriate for us to acquire or make investments in other businesses,
      patents, technologies, products or services.  Our ability to do
      so could be hampered if we are unable to identify suitable acquisitions
      and investments or to agree on the terms of any such acquisition or
      investment.  We may not be able to consummate any such
      transaction if we cannot obtain financing at a reasonable cost and lack
      sufficient resources to finance the transaction on our own.  If
      we are not able to complete such transactions, our competitive position
      may suffer, which could have adverse impacts on our revenues, revenue
      growth and results of operations.
 
 ●
                  Our
      business combinations or other transactions may not succeed in generating
      the intended benefits and therefore adversely affect shareholder value or
      our financial results.Integration of new
      businesses or technologies into our business may have any of the following
      adverse effects:
 
 ♦
                  We
      may have difficulty transitioning customers and other business
      relationships to Intermec.
 ♦
                  We
      may have problems unifying management of a combined
    Company.
 ♦
                  We
      may lose key employees from our existing or acquired
      businesses.
 ♦
                  We
      may experience intensified competition from other companies seeking to
      expand sales and market share during the integration
    period.
 
 15
 
 ITEM
      1A.
                  RISK
      FACTORS (Continued)
  Furthermore,
in order to complete such transactions, we may have to use cash, issue new
equity securities with dilutive effects on existing shareholders, take on new
debt, assume contingent liabilities or amortize assets or expenses in a manner
that has a material adverse effect on our balance sheet or results of
operations.  We may also consume considerable management time and
attention on the integration that would divert resources from the development
and operation of our existing business.  These and other potential
problems could prevent us from realizing the benefits of such transactions and
have a material adverse impact on our revenues, revenue growth, balance sheet
and results of operations.
  ●
                  Global
      regulation and regulatory compliance, including environmental,
      technological and standards setting regulations, may limit our sales or
      increase our costs, which could adversely impact our revenues and results
      of operations.We are subject to domestic and international
      technical and environmental standards and regulations that govern or
      influence the design, components or operation of our products. Such
      standards and regulations may also require us to pay for specified
      collection, recycling, treatment and disposal of past and future covered
      products. Our ability to sell AIDC products in a given country and the
      gross margins on products sold in a given country could be affected by
      such regulations. We are also subject to self-imposed standards setting
      activities sponsored by organizations such as ISO, AIM, IEEE and EPCglobal
      that provide our customers with the ability to seamlessly use our products
      with products from other AIDC vendors, which our customers
      demand.  Changes in standards and regulations may be introduced
      at any time and with little or no time to bring products into compliance
      with the revised technical standard or regulation. Standards and
      regulations may:
 
 ♦
                  prevent
      us from selling one or more of our products in a particular
      country;
 ♦
                  increase
      our cost of supplying our products by requiring us to redesign existing
      products or to use more expensive designs or
  components;
 ♦
                  require
      us to obtain services or create infrastructure in a particular country to
      address collection, recycling and similar obligations;
  or
 ♦
                  require
      us to license our patents on a royalty free basis and prevent us from
      seeking damages and injunctive relief for patent
      infringements.
 
 In these
cases, we may experience unexpected disruptions in our ability to supply
customers with our products or may have to incur unexpected costs to bring our
products into compliance.  Due to these uncertainties and compliance
burdens, our customers may postpone or cancel purchases of our
products.  As a result, global regulation and compliance could have an
adverse effect on our revenues, gross profit margins and results of operations
and increase the volatility of our financial results.
 
 ●
                  Seasonal
      variations in demand could increase the volatility of our financial
      results.Our revenues are affected by the seasonality of technology
      purchases and the timing of the introduction of new products and
      enhancements to existing products.  Our quarterly results
      reflect seasonality in the sale of our products and services, as our
      revenues are historically highest in the fourth fiscal quarter and the
      lowest in the first fiscal quarter.  Revenues may also decline
      in quarters when our customers are anticipating new product introductions
      or significant product enhancements, but may increase significantly in
      quarters when we announce those product introductions or
      enhancements.  These fluctuations in demand may also impact our
      ability to manufacture and distribute products in an efficient
      manner.  Any of these factors could increase the volatility of
      our revenues, gross margins and results of operations from one period to
      another.
 
 ●
                  Our
      effective tax rate is impacted by a number of factors that could have a
      material impact on our financial results and could increase the volatility
      of those results. Due to the global nature of our business, we are
      subject to national and local taxation in many different countries, and we
      file a significant number of tax returns that are subject to audit by the
      tax authorities in those countries. Tax audits are often complex and may
      require several years to resolve. There is no assurance that all or any of
      these tax audits will be resolved in our favor.  In addition,
      under applicable accounting rules, the value that we report for our
      deferred tax assets reflects our estimate for these assets, net of those
      that we believe are more likely than not to expire before being
      utilized.   Our financial results may include favorable or
      unfavorable adjustments to our estimated tax liabilities or deferred tax
      assets in the periods when the tax assessments are made or resolved or
      when statutes of limitations on the tax assessments or tax attributes
      expire. The outcome of these tax assessments or estimates could have a
      material positive or negative impact on our earnings and increase the
      volatility of our earnings relative to prior
  periods.
 
 ITEM
      1B.
                  UNRESOLVED STAFF
COMMENTS
  Not
Applicable.
 
 16
 
 ITEM
      2.
                  PROPERTIES
  Our
executive offices are located at 6001 36th Avenue West, Everett, Washington. Our
continuing operations have an aggregate floor area of approximately 938,131
square feet, of which 680,614 square feet, or 73%, are located in the United
States, and 257,517 square feet, or 27%, are located outside the United States,
primarily in the Netherlands, France, Spain, Germany and Canada.
  Approximately
92,000 square feet, or 10%, of our principal plant, office and commercial floor
area associated with continuing operations, is owned by us, and the balance is
held under lease.
  The U.S. plants and
offices associated with our continuing operations are located in the following
states (in square feet):
  Washington
                        
                        
                        346,728Ohio
                        
                        
                        97,483Iowa
                        
                        
                        180,927Other
      states
                        
                        
                        55,476Total
                        
                        
                        680,614
 The
above-mentioned facilities are in satisfactory condition and suitable for the
particular purposes for which they were acquired, constructed or leased and are
adequate for present operations.
  The
foregoing information excludes the following properties:
  ♦
                  Plants
      or offices that, when added to all other of our plants and offices in the
      same city, have a total floor area of less than 10,000 square
      feet.
  ♦
                  Facilities
      held under lease that we are subleasing to third parties, comprising
      26,000 square feet in New Mexico.
  ♦
                    Various
      properties we own that are not used for operations are classified as
      other assets as of December 31, 2008. These properties total 2.0
      million square feet and include 1.3 million square feet, located in Ohio,
      459,000 square feet, located in Pennsylvania and 251,000 square feet,
      located in Illinois.
 ♦
                  Approximately
      312,000 square feet, previously used in a discontinued business located in
      Michigan, held under lease.
  ITEM
      3.
                  LEGAL PROCEEDINGS
  We
currently, and from time to time, are involved in claims, lawsuits and other
proceedings, including, but not limited to, intellectual property, commercial,
and employment matters, which arise in the ordinary course of
business.  We do not expect the ultimate resolution of currently
pending matters to be material in relation to our business, financial condition,
and results of operations or liquidity.
  ITEM
      4.
                  SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
  No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year ended
December 31, 2008.
  17
  PART II
  ITEM
      5.
                  MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
    SECURITIES
  The high
and low sales prices of our common stock, by quarter, in the years ended
December 31, 2008 and 2007, are as follows:
 Year
      Ended December 31,2008
                    
                    2007High
                    
                    Low
                    
                    High
                    
                    LowFirst
      Quarter
                    
                    $
                    24.86
                    
                    
                    $
                    17.53
                    
                    
                    $
                    25.81
                    
                    
                    $
                    20.50Second
      Quarter
                    
                    
                    24.96
                    
                    
                    
                    19.56
                    
                    
                    
                    26.40
                    
                    
                    
                    20.90Third
      Quarter
                    
                    
                    23.00
                    
                    
                    
                    15.09
                    
                    
                    
                    30.16
                    
                    
                    
                    23.32Fourth
      Quarter
                    
                    
                    19.65
                    
                    
                    
                    9.29
                    
                    
                    
                    27.48
                    
                    
                    
                    20.12
  Our
common stock is traded on the New York Stock Exchange under the symbol IN. As of
February 6, 2009, there were approximately 11,081 holders of record
and 19,585 beneficial owners of our common stock. No cash dividends were
paid during 2008 or 2007.
  No
shares of common stock were repurchased in the fourth quarter of
2008.
  STOCK
PERFORMANCE GRAPH
  Set
forth below is a line graph comparing the percentage change in the cumulative
total shareholder return on our common stock for the five-year period ended
December 31, 2008, with the cumulative total return for the same period of the
Standard & Poor’s Midcap 400 Index and the Standard & Poor’s 1500
Electronic Equipment and Instruments index. The graph assumes an investment of
$100 at the beginning of the period in our common stock, in the S&P Midcap
400 Index and in the companies included in the Standard & Poor’s 1500
Electronic Equipment and Instruments index. Total shareholder return was
calculated on the basis that in each case all dividends were reinvested. The
stock price performance shown in the graph is not necessarily indicative of
future price performance.
  18
 ITEM
      5.
                              MARKET
      FOR THE REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
(Continued)
  Total
      Return To Shareholders(Includes
      reinvestment of dividends)ANNUAL
      RETURN PERCENTAGEYears
      Ended December 31,Company
      / Index
                            
                            2004
                            
                            2005
                            
                            2006
                            
                            2007
                            
                            2008INTERMEC
      INC
                            
                            
                            10.20
                            
                            33.65
                            
                            
                            (28.20)
                            
                            (16.32)
                            
                            
                            (34.61)S&P
      MIDCAP 400 INDEX
                            
                            
                            16.48
                            
                            12.55
                            
                            
                            10.32
                            
                            7.98
                            
                            
                            (36.23)S&P
      1500 ELECTRONIC EQUIPMENT & INSTRUMENTS
                            
                            
                            20.03
                            
                            11.56
                            
                            
                            19.65
                            
                            23.57
                            
                            
                            (36.99)
  INDEXED
      RETURNSYears
      Ending December 31,Base
      PeriodCompany
      / Index
                      
                      2003
                      
                      2004
                      
                      2005
                      
                      2006
                      
                      2007
                      
                      2008INTERMEC
      INC
                      
                      
                      100
                      
                      110.20
                      
                      
                      147.28
                      
                      105.75
                      
                      
                      88.50
                      
                      57.86S&P
      MIDCAP 400 INDEX
                      
                      
                      100
                      
                      116.48
                      
                      
                      131.11
                      
                      144.64
                      
                      
                      156.18
                      
                      99.59S&P
      1500 ELECTRONIC EQUIPMENT & INSTRUMENTS
                      
                      
                      100
                      
                      120.03
                      
                      
                      133.91
                      
                      160.23
                      
                      
                      197.99
                      
                      124.76







19




ITEM
      6.
              SELECTED
      FINANCIAL DATA
  INTERMEC,
INC.
 (Millions
of dollars, except per share data)
 Year
      Ended December 31,2008
                    
                    
                    2007
                    
                    
                    2006
                    
                    
                    2005
                    
                    
                    2004Operating results: (a)Revenues
                    
                    $
                    890.9
                    
                    
                    $
                    849.2
                    
                    
                    $
                    850.0
                    
                    
                    $
                    875.5
                    
                    
                    $
                    791.7Operating
      profits from continuing operations (b)
                    
                    $
                    47.0
                    
                    
                    $
                    37.4
                    
                    
                    $
                    36.7
                    
                    
                    $
                    58.6
                    
                    
                    $
                    64.7Earnings
      from continuing operations
                    
                    $
                    35.7
                    
                    
                    $
                    24.4
                    
                    
                    $
                    35.0
                    
                    
                    $
                    40.7
                    
                    
                    $
                    52.2Earnings
      (loss) from discontinued operations
                    
                    
                    -
                    
                    
                    
                    (1.3
                    )
                    
                    
                    (3.0
                    )
                    
                    
                    21.1
                    
                    
                    
                    (101.3
                    )Net
      earnings (loss)
                    
                    $
                    35.7
                    
                    
                    $
                    23.1
                    
                    
                    $
                    32.0
                    
                    
                    $
                    61.8
                    
                    
                    $
                    (49.1
                    )Basis
      earnings (loss) per shareContinuing
      operations
                    
                    $
                    0.58
                    
                    
                    $
                    0.40
                    
                    
                    $
                    0.56
                    
                    
                    $
                    0.66
                    
                    
                    $
                    0.86Discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    (0.02
                    )
                    
                    
                    (0.05
                    )
                    
                    
                    0.34
                    
                    
                    
                    (1.67
                    )Net
      earnings (loss) per share
                    
                    $
                    0.58
                    
                    
                    $
                    0.38
                    
                    
                    $
                    0.51
                    
                    
                    $
                    1.00
                    
                    
                    $
                    (0.81
                    )Diluted
      earnings (loss) per shareContinuing
      operations
                    
                    $
                    0.58
                    
                    
                    $
                    0.40
                    
                    
                    $
                    0.55
                    
                    
                    $
                    0.64
                    
                    
                    $
                    0.84Discontinued
      operations
                    
                    
                    -
                    
                    
                    
                    (0.02
                    )
                    
                    
                    (0.05
                    )
                    
                    
                    0.34
                    
                    
                    
                    (1.63
                    )Net
      earnings (loss) per share
                    
                    $
                    0.58
                    
                    
                    $
                    0.38
                    
                    
                    $
                    0.50
                    
                    
                    $
                    0.98
                    
                    
                    $
                    (0.79
                    )(In thousands)Shares
      used for basic earnings (loss) per share
                    
                    
                    61,183
                    
                    
                    
                    60,359
                    
                    
                    
                    62,535
                    
                    
                    
                    61,785
                    
                    
                    
                    60,502Shares
      used for diluted earnings (loss) per share
                    
                    
                    61,658
                    
                    
                    
                    61,163
                    
                    
                    
                    63,830
                    
                    
                    
                    63,350
                    
                    
                    
                    62,154Financial
      position (at end of year):Total
      assets
                    
                    $
                    789.9
                    
                    
                    $
                    900.6
                    
                    
                    $
                    810.3
                    
                    
                    $
                    902.7
                    
                    
                    $
                    1,072.7Current
      portion of long-term debt
                    
                    $
                    -
                    
                    
                    $
                    100.0
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    108.5Long-term
      debt
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    100.0
                    
                    
                    $
                    100.0
                    
                    
                    $
                    100.0Working
      capital
                    
                    $
                    371.4
                    
                    
                    $
                    323.5
                    
                    
                    $
                    350.2
                    
                    
                    $
                    440.4
                    
                    
                    $
                    399.2Current
      ratio
                    
                    
                    3.1
                    
                    
                    
                    2.0
                    
                    
                    
                    2.98
                    
                    
                    
                    3.0
                    
                    
                    
                    1.9Total
      debt as a percentage of total capitalization
                    
                    
                    -
                    %
                    
                    
                    17
                    %
                    
                    
                    19
                    %
                    
                    
                    17
                    %
                    
                    
                    34
                    %
  (a)
                All
      periods reflect the classification of IAS as discontinued
      operations.
  (b)
                Includes
      restructuring charges of $5.8 million in 2008 and $11.6 million in 2006.
      Also includes pre-tax gains on intellectual property settlements of $16.5
      million and $15.6 million in 2006 and 2004,
  respectively.
 20
 
 ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
  The following discussion should be
read in conjunction with the Consolidated Financial Statements and the notes
thereto that appear in Item 8 of this annual report on Form 10-K.
  Overview
  Intermec, Inc. (“Intermec”,
“us”, “we”, “our”) designs, develops, integrates, sells, resells and services
wired and wireless automated identification and data collection (“AIDC”)
products and provides related services. Our products include mobile computing
products, bar code scanners, radio frequency identification (“RFID”) products,
wired and wireless bar code printers and label media products. These products
and services allow customers to identify, track and manage their assets and
other resources in ways that improve the efficiency and effectiveness of their
business operations.  Our products are designed to withstand mobile
use and rugged warehouse and field conditions.
 
 Our
products are sold globally for field mobility applications such as asset
visibility and management, direct store delivery, maintenance and repair,
in-transit visibility, routing and navigation, and telematics. Our products are
also sold globally for in-premise applications such as asset visibility, freight
yard operations, inventory management, warehouse operations, and work-in-process
management.
  The key
elements of our strategy are to target high growth opportunities in selected
application markets; focus on developing and selling differentiated new products
and services; emphasize channel fulfillment; pursue geographic expansion
opportunities; and continue the transformation of our supply chain and our other
efficiency initiatives.
 
 Our
financial reporting currency is the U.S. Dollar, and changes in exchange
rates can significantly affect our financial trends and reported results. 
If the U.S. Dollar weakens year-over-year relative to currencies in our
international locations, our consolidated revenues, costs of revenues and
operating expenses will be higher than if currencies had remained constant.
If the U.S. Dollar strengthens year-over-year relative to currencies in our
international locations, our consolidated revenues, costs of revenues and
operating expenses will be lower than if currencies had remained constant. We
believe it is important to evaluate our operating results and growth rates
before and after the effect of currency changes.
 
 21
 
 ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued)
  Results
of Operations
  The
following discussion compares our historical results of operations for the years
ended December 31, 2008, 2007 and 2006. The results of operations and
percentage of revenues were as follows (millions of dollars):
  Year
      Ended December 31,2008
                                                                            
                                                                            
                                                                            2007
                                                                            
                                                                            
                                                                            2006Amounts
                                                                            
                                                                            
                                                                            Percent
      of Revenues
                                                                            
                                                                            
                                                                            Amounts
                                                                            
                                                                            
                                                                            Percent
      of Revenues
                                                                            
                                                                            
                                                                            Amounts
                                                                            
                                                                            
                                                                            Percent
      of RevenuesRevenues
                                                                            
                                                                            $
                                                                            890.9
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            849.2
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            850.0Costs
      and expenses:Cost
      of revenues
                                                                            
                                                                            
                                                                            536.1
                                                                            
                                                                            
                                                                            
                                                                            60.2
                                                                            %
                                                                            
                                                                            
                                                                            522.4
                                                                            
                                                                            
                                                                            
                                                                            61.5
                                                                            %
                                                                            
                                                                            
                                                                            517.9
                                                                            
                                                                            
                                                                            
                                                                            60.9
                                                                            %Research
      and development
                                                                            
                                                                            
                                                                            64.5
                                                                            
                                                                            
                                                                            
                                                                            7.2
                                                                            %
                                                                            
                                                                            
                                                                            65.6
                                                                            
                                                                            
                                                                            
                                                                            7.7
                                                                            %
                                                                            
                                                                            
                                                                            72.4
                                                                            
                                                                            
                                                                            
                                                                            8.5
                                                                            %Selling,
      general and administrative
                                                                            
                                                                            
                                                                            236.4
                                                                            
                                                                            
                                                                            
                                                                            26.5
                                                                            %
                                                                            
                                                                            
                                                                            223.8
                                                                            
                                                                            
                                                                            
                                                                            26.4
                                                                            %
                                                                            
                                                                            
                                                                            227.8
                                                                            
                                                                            
                                                                            
                                                                            26.8
                                                                            %Gains
      on intellectual property settlements
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            (16.5
                                                                            )
                                                                            
                                                                            
                                                                            -1.9
                                                                            %Flood
      related charge
                                                                            
                                                                            
                                                                            1.1
                                                                            
                                                                            
                                                                            
                                                                            0.1
                                                                            %
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -Restructuring
      charge
                                                                            
                                                                            
                                                                            5.8
                                                                            
                                                                            
                                                                            
                                                                            0.7
                                                                            %
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            11.6
                                                                            
                                                                            
                                                                            
                                                                            1.4Total
      costs and expenses
                                                                            
                                                                            
                                                                            843.9
                                                                            
                                                                            
                                                                            
                                                                            94.7
                                                                            %
                                                                            
                                                                            
                                                                            811.8
                                                                            
                                                                            
                                                                            
                                                                            95.6
                                                                            %
                                                                            
                                                                            
                                                                            813.2
                                                                            
                                                                            
                                                                            
                                                                            95.7
                                                                            %Operating
      profit from continuingoperations
                                                                            
                                                                            
                                                                            47.0
                                                                            
                                                                            
                                                                            
                                                                            5.3
                                                                            %
                                                                            
                                                                            
                                                                            37.4
                                                                            
                                                                            
                                                                            
                                                                            4.4
                                                                            %
                                                                            
                                                                            
                                                                            36.8
                                                                            
                                                                            
                                                                            
                                                                            4.3
                                                                            %Interest,
      net
                                                                            
                                                                            
                                                                            2.3
                                                                            
                                                                            
                                                                            
                                                                            0.3
                                                                            %
                                                                            
                                                                            
                                                                            1.8
                                                                            
                                                                            
                                                                            
                                                                            0.2
                                                                            %
                                                                            
                                                                            
                                                                            6.5
                                                                            
                                                                            
                                                                            
                                                                            0.8
                                                                            %Gain
      on sale of investments
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            2.3
                                                                            
                                                                            
                                                                            
                                                                            0.3
                                                                            %Earnings
      from continuing operations beforeincome
      taxes
                                                                            
                                                                            
                                                                            49.3
                                                                            
                                                                            
                                                                            
                                                                            5.5
                                                                            %
                                                                            
                                                                            
                                                                            39.2
                                                                            
                                                                            
                                                                            
                                                                            4.6
                                                                            %
                                                                            
                                                                            
                                                                            45.6
                                                                            
                                                                            
                                                                            
                                                                            5.4
                                                                            %Provision  for
      income taxes
                                                                            
                                                                            
                                                                            13.6
                                                                            
                                                                            
                                                                            
                                                                            1.5
                                                                            %
                                                                            
                                                                            
                                                                            14.8
                                                                            
                                                                            
                                                                            
                                                                            1.8
                                                                            %
                                                                            
                                                                            
                                                                            10.6
                                                                            
                                                                            
                                                                            
                                                                            1.2
                                                                            %Earnings
      from continuing operations, net of tax
                                                                            
                                                                            
                                                                            35.7
                                                                            
                                                                            
                                                                            
                                                                            4.0
                                                                            %
                                                                            
                                                                            
                                                                            24.4
                                                                            
                                                                            
                                                                            
                                                                            2.9
                                                                            %
                                                                            
                                                                            
                                                                            35.0
                                                                            
                                                                            
                                                                            
                                                                            4.1
                                                                            %Loss
      from discontinuedoperations,
      net of tax
                                                                            
                                                                            
                                                                            -
                                                                            
                                                                            
                                                                            
                                                                            -
                                                                            %
                                                                            
                                                                            
                                                                            (1.3
                                                                            )
                                                                            
                                                                            
                                                                            -0.2
                                                                            %
                                                                            
                                                                            
                                                                            (3.0
                                                                            )
                                                                            
                                                                            
                                                                            -0.4
                                                                            %Net
      earnings
                                                                            
                                                                            $
                                                                            35.7
                                                                            
                                                                            
                                                                            
                                                                            4.0
                                                                            %
                                                                            
                                                                            $
                                                                            23.1
                                                                            
                                                                            
                                                                            
                                                                            2.7
                                                                            %
                                                                            
                                                                            $
                                                                            32.0
                                                                            
                                                                            
                                                                            
                                                                            3.8
                                                                            %Basic
      earnings per share fromcontinuing
      operations
                                                                            
                                                                            $
                                                                            0.58
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            0.40
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            0.56Diluted
      earnings per share fromcontinuing
      operations
                                                                            
                                                                            $
                                                                            0.58
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            0.40
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            
                                                                            $
                                                                            0.55
  22
 
 ITEM
      7.
              MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (Continued)
  Revenues
  Revenues
by category and as a percentage of total revenues from continuing operations for
the years ended December 31, 2008, 2007 and 2006, as well as the
year-over-year product and service revenue changes were as follows (millions of
dollars):
 
 Year
      Ended December 31,2008
                    
                    2007
                    
                    2006Amount
                    
                    Percent
      of Revenues
                    
                    Amount
                    Percent
      of Revenues
                    
                    Amount
                    Percent
      of RevenuesRevenues
      by category:Systems
      and solutions
                    
                    $
                    542.1
                    
                    60.8
                    %
                    $
                    485.6
                    57.2
                    %
                    $
                    477.2
                    56.1
                    %Printer
      and media
                    
                    
                    196.3
                    
                    22.0
                    %
                    
                    206.4
                    24.3
                    %
                    
                    215.2
                    25.3
                    %Total
      product
                    
                    
                    738.4
                    
                    82.8
                    %
                    
                    692.0
                    81.5
                    %
                    
                    692.4
                    81.5
                    %Service
                    
                    
                    152.5
                    
                    17.2
                    %
                    
                    157.2
                    18.5
                    %
                    
                    157.6
                    18.5
                    %Total
      revenues
                    
                    $
                    890.9
                    
                    100.0
                    %
                    $
                    849.2
                    100.0
                    %
                    $
                    850.0
                    100.0
                    %
  2008
      v. 2007
                                            
                                            
                                            
                                            2007
      v. 2006Product
      and service revenue change:
                                            
                                            Amount
                                            
                                            
                                            Percent
                                            
                                            
                                            Amount
                                            
                                            
                                            PercentSystems
      and solutions
                                            
                                            $
                                            56.5
                                            
                                            
                                            
                                            11.6
                                            %
                                            
                                            $
                                            8.4
                                            
                                            
                                            
                                            1.8
                                            %Printer
      and media
                                            
                                            
                                            (10.1
                                            )
                                            
                                            
                                            -4.9
                                            %
                                            
                                            
                                            (8.8
                                            )
                                            
                                            
                                            -4.1
                                            %Total
      product
                                            
                                            $
                                            46.4
                                            
                                            
                                            
                                            6.7
                                            %
                                            
                                            $
                                            (0.4
                                            )
                                            
                                            
                                            -0.1
                                            %Service
                                            
                                            
                                            (4.7
                                            )
                                            
                                            
                                            -3.0
                                            %
                                            
                                            
                                            (0.4
                                            )
                                            
                                            
                                            -0.3
                                            %Total  revenues
                                            
                                            $
                                            41.7
                                            
                                            
                                            
                                            4.9
                                            %
                                            
                                            $
                                            (0.8
                                            )
                                            
                                            
                                            -0.1
                                            %
  Revenues
by geographic region and as a percentage of related revenues from continuing
operations for the years ended December 31, 2008, 2007 and 2006, as well as the
year-over-year geographic region revenue changes were as follows (millions of
dollars):




Year
      Ended December 31,2008
                      
                      2007
                      
                      2006Amount
                      
                      Percent
      of Revenues
                      
                      Amount
                      Percent
      of Revenues
                      
                      Amount
                      Percent
      of RevenuesRevenues
      by geographic region:North
      America
                      
                      $
                      492.8
                      
                      55.3
                      %
                      $
                      422.9
                      49.8
                      %
                      $
                      494.4
                      58.2
                      %Europe,
      Middle East and Africa
                      
                      
                      290.4
                      
                      32.6
                      %
                      
                      290.6
                      34.2
                      %
                      
                      241.1
                      28.4
                      %All
      others
                      
                      
                      107.7
                      
                      12.1
                      %
                      
                      135.7
                      16.0
                      %
                      
                      114.5
                      13.4
                      %Total
      revenues
                      
                      $
                      890.9
                      
                      100.0
                      %
                      $
                      849.2
                      100.0
                      %
                      $
                      850.0
                      100.0
                      %




2008
      v. 2007
                                  
                                  
                                  
                                  2007
      v. 2006Geographic
      region revenue change:
                                  
                                  Amount
                                  
                                  
                                  Percent
                                  
                                  
                                  Amount
                                  
                                  
                                  PercentNorth
      America
                                  
                                  $
                                  69.9
                                  
                                  
                                  
                                  16.5
                                  %
                                  
                                  $
                                  (71.5
                                  )
                                  
                                  
                                  -14.4
                                  %Europe,
      Middle East and Africa (EMEA)
                                  
                                  
                                  -
                                  
                                  
                                  
                                  0
                                  %
                                  
                                  
                                  49.5
                                  
                                  
                                  
                                  20.4
                                  %All
      others
                                  
                                  
                                  (28.0
                                  )
                                  
                                  
                                  -20.6
                                  %
                                  
                                  
                                  21.2
                                  
                                  
                                  
                                  18.5
                                  %Total  revenues
                                  
                                  $
                                  41.7
                                  
                                  
                                  
                                  4.9
                                  %
                                  
                                  $
                                  (0.8
                                  )
                                  
                                  
                                  -0.1
                                  %









23





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




Product
revenues in 2008 increased $46.4 million, or 6.7% compared to
2007.  The growth in our 2008 product revenue was driven by system and
solutions revenues, which increased $56.5 million, or 11.6%, compared to
2007.  This increase resulted from North America systems and solutions
revenue growth as a result of larger direct accounts, sales to the U.S.
Government Department of Defense and higher revenue through our distribution
partners.  The increase in revenues from systems and solutions was offset
by a $10.1 million, or 4.9%, decline in our printer and media revenue for the
comparable periods.  The decrease in printer and media revenue in 2008
was primarily related to less revenue in Latin America, which had a number of
large direct accounts that included significant printer revenue in 2007.
 Product revenues in Europe, the Middle East and Africa (EMEA) were flat in
2008 compared to 2007, which includes approximately $8.4 million from favorable
changes in currency exchange rates in 2008 compared to 2007. Product
revenue in the Rest of the World (“ROW”) decreased 23%, primarily due to lower
product revenue in Latin America, which had a number of large direct accounts in
2007.





Product
revenues in 2007 were flat compared to 2006.  The growth in our 2007
system and solutions revenues of $8.4 million, or 1.8%, compared to 2006, was
offset by an $8.8 million, or 4.1%, decline in our printer and media revenue for
the comparable periods. The growth in systems and solutions resulted from 2007
growth rates of 31.2% and 14.7% in EMEA and ROW, respectively, partially offset
by a 16.2% decrease in North America. The higher systems and solutions revenue
in EMEA during 2007 was primarily attributable to strong market acceptance of
new product introductions and a refreshed product line to be in compliance with
the European Union’s Reduction of Hazardous Substances (“RoHS”) directive. The
growth in EMEA revenue also includes approximately $12.0 million, or 9.0%, from
favorable changes in currency exchange rates in 2007 compared to 2006. The lower
systems and solutions revenue in North America during 2007 compared to 2006
reflects declining revenues in the first half of 2007, as a result of lower
enterprise sales and delays in customer purchases during our transition to newly
introduced products, partially offset by 20% growth in the fourth quarter of
2007 compared to the corresponding 2006 period.




Service
revenues of $152.5 million for 2008 were down $4.7 million, or 3.0%
compared to 2007. We experienced higher 2008 service revenue in EMEA, which was
more than offset by lower service revenue in North America and Latin
America compared to 2007.  The decrease in North America service
revenues is primarily a result of lower time-and-material repairs.





Service
revenues of $157.2 million for 2007 were essentially flat with 2006. We
experienced higher service revenue in EMEA and Latin America during 2007,
primarily from the regional growth in product revenues, which was offset by a
decrease in U.S. Government professional services and declines in
time-and-material repairs.




Geographically,
for the year ended December 31, 2008, product and service revenues increased in
North America by 16.5%, while EMEA remained flat and ROW decreased 20.6%. The
growth in North America revenue is primarily attributable to strong system and
solutions revenue. The revenue decrease in ROW is primarily attributable to
lower product revenue in Latin America, which had a number of large direct
accounts in 2007.




For 2007,
product and service revenue decreased in North America by 14.4%, while EMEA and
ROW increased by 20.4 % and 18.5%, respectively. The growth in EMEA revenue is
primarily attributable to strong market acceptance of new products
and $21.5 million, or 9.0%, from favorable changes in currency exchange
rates in 2007 compared to 2006. The revenue growth in ROW is primarily
attributable to several large enterprise sales in Latin American and
approximately $3.6 million, or 3.1%, due to favorable changes in currency
exchange rates.





24





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




Gross
Profit




Gross
profit and gross margin by revenue category for the years ended
December 31, 2008, 2007 and 2006, were as follows (millions of
dollars):




Year
      Ended December 31,2008
                
                2007
                
                2006Gross
      Profit
                
                Gross
      Margin
                
                Gross
      Profit
                Gross
      Margin
                
                Gross
      Profit
                Gross
      MarginProduct
                
                $
                290.2
                
                39.3
                %
                $
                259.9
                37.6
                %
                $
                262.7
                37.9
                %Service
                
                
                64.6
                
                42.4
                %
                
                67.0
                42.6
                %
                
                69.3
                44.0
                %Total
      gross profit and gross margin
                
                $
                354.8
                
                39.8
                %
                $
                326.9
                38.5
                %
                $
                332.0
                39.1
                %





Total
gross profit for the year ended December 31, 2008, increased $27.9 million, or
8.5%, compared to 2007.  The increase in total gross profit is
primarily due to the 6.7% increase in product revenue, combined with a 170 basis
point improvement in the related gross margin. The increase in product
gross margins is primarily a result of a higher proportion of our product
revenue from systems and solutions, the favorable impact from foreign exchange
rate movements, component cost reductions and higher capacity utilization
related to the revenue growth. Service gross profit decreased by $2.4
million, or 3.6%, in 2008 compared to 2007 due primarily to the 3.0% decrease in
related revenue.




Total
gross profit for the year ended December 31, 2007, decreased $5.1 million, or
1.6%, compared to the prior year end. Product gross profit decreased by $2.8
million, or 12.5%, in 2007 compared to 2006, due primarily to the 30 basis point
decrease in gross margin percentage. Service gross profit decreased by $2.3
million, or 3.3%, in 2007 compared to 2006 due to the 140 basis point reduction
in gross margin. The decrease in gross margins is due to the regional mix
change, as lower service revenues in North America were offset by increases in
lower margin service revenues in Latin America.




Research and Development Expense,
net (In millions)


Year
      Ended December 31,2008
      Amount
                
                Change
      from Prior Year
                
                2007
      Amount
                
                Change
      from Prior Year
                
                2006
      AmountResearch
      and development expense
                
                $
                64.5
                
                
                $
                (1.1
                )
                
                $
                65.6
                
                
                $
                (6.8
                )
                
                $
                72.4





Research
and development (“R&D”) expense decreased $1.1 million in 2008 compared to
2007.  The decrease in R&D expense resulted from a $1.8 million
credit recorded for the reimbursement of certain R&D expenses under a
foreign grant program which was received during 2008.





R&D
expense decreased $6.8 million in 2007 compared to 2006. The decrease primarily
reflects the elimination of $7.7 million of incremental expense incurred during
2006 to redesign our current products and bring them into compliance with the
European Parliament and Council Directive 2002/95/EC on the Restrictions of the
Use of Certain Hazardous Substances in Electrical and Electronic Equipment (the
“RoHS Directive”).





25





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




Selling,
General and Administrative Expense (In millions)


Year
      Ended December 31,2008
      Amount
                
                Change
      from Prior Year
                
                2007
      Amount
                
                Change
      from Prior Year
                
                2006
      AmountSelling,
      general and administrative expense
                
                $
                236.4
                
                
                $
                12.6
                
                
                $
                223.8
                
                
                $
                (4.1
                )
                
                $
                227.9





The
increase in selling, general and administrative expense (“SG&A”) in 2008 of
$12.6 million compared to 2007 is primarily attributable to a $4.1 million
increase for information systems expense , primarily resulting from higher
depreciation expense and consulting costs, as a result of our ERP upgrade, a
$3.2 million increase due to the impact of international costs translated to
U.S. dollars at less favorable average exchange rates during 2008, a $3.2
million increase in foreign exchange contract and re-measurement losses, and
higher labor costs.





The
decrease in SG&A of $4.1 million in 2007 compared to 2006 primarily reflects
a $4.5 million reduction in our U.S. pension and post-retirement expense as a
result of the changes to our U.S. plans in 2006.





Flood
related charges





In June
2008, our Cedar Rapids, Iowa facilities were flooded, and we incurred damages to
both a facility that we own and one that we lease. A portion of these damages
was covered by insurance. While the flood caused significant damage, we were
able to redirect the work done by our Cedar Rapids groups to temporary
locations, and therefore the flood did not cause a significant interruption of
our business. For the year ended December 31, 2008, we had $5.1 million in clean
up costs and property damages that were partially offset by $4.0 million of
insurance for a net pre-tax charge of $1.1 million.





Gains
on Intellectual Property Settlements




In March
2006, we settled an intellectual property (“IP”) lawsuit relating to our battery
power-management patents. 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
or gains and operating profit. Management cannot predict the outcome, timing or
amount of future settlements or judgments in IP lawsuits. There were no IP
settlements for the years ended December 31, 2008 or 2007. The net pretax gain
from an IP settlement included in operating profits was $16.5 million in
2006.





Restructuring
Costs





In July
2008, we committed to a business restructuring plan intended to reduce our cost
structure and streamline operations. Pursuant to this plan, we relocated
the final assembly of our product lines from Everett, Washington, to Venture
Corporation Limited, a global electronics services provider.  As part
of the plan we have consolidated two U.S. service depots to existing locations
in Charlotte, North Carolina and Monterey, Mexico and transferred our on-site
field service repair to a third party supplier.




We
commenced implementation of the plan in the third quarter of 2008 and expect the
plan to be fully implemented in the first half of 2009.  As
of December 31, 2008, 230 employees have been terminated as part of the
restructuring.  We expect all severance and other periodic
transitional costs will be cash expenditures. All the restructuring costs have
been accrued as of December 31, 2008. The aggregate costs incurred to date are
presented in restructuring costs in the Condensed Consolidated Statement of
Operations and are itemized along with expected additional costs in the table
below.





In
      millions of dollars
                
                SFAS
      No. 112
                
                
                SFAS
      No. 146
                
                
                Employee
      termination
                
                
                Other
      costs
                
                
                Total
      restructuringTotal
      RestructuringOriginal
      restructuring charge
                
                $
                3.0
                
                
                $
                2.1
                
                
                $
                5.1
                
                
                $
                0.7
                
                
                $
                5.8Utilization
                
                
                (1.8
                )
                
                
                (2.1
                )
                
                
                (3.9
                )
                
                
                (0.6
                )
                
                
                (4.5
                )Balance
      at December 31,  2008
                
                $
                1.2
                
                
                $
                -
                
                
                $
                1.2
                
                
                $
                0.1
                
                
                $
                1.3Utilization
      by segmentServices
                
                $
                1.2Products
                
                $
                3.3





26


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




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 were
reassigned to other parts of our business or moved to third-party vendors to
improve efficiencies and reduce costs. In addition to the anticipated cost
savings, this realignment of resources is expected to increase new product
development capacity. This restructuring activity was substantially completed by
the end of 2006.




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 was substantially completed by
the end of 2006.





As of
December 31, 2006, 86 employees had been terminated and $1.6 million in
severance costs had been paid. The total restructuring costs of $11.6 million
include employee termination expense of $9.9 million, facility closure costs of
$1.3 million and $0.4 million of other exit costs in accordance with Statement
of Financial Accounting Standards (“SFAS”) No. 146, “Accounting for Costs Associated with
Exit or Disposal Activities.”




On
January 7, 2009, we committed to a business restructuring plan intended to
reorganize our sales function and to reduce our operating cost structure and
improve efficiency. We believe these actions are appropriate strategically and
are prudent changes in view of the generally weakened global economy and
uncertain market conditions expected in the foreseeable future.




We expect
to implement this plan over the next six months and to reduce our workforce by
approximately 150 employees worldwide. A majority of the headcount reductions
will be made in the United States. The total restructuring costs are expected to
be in a pre-tax range of $9.8 million to $10.8 million, including employee
termination costs of approximately $9.3 million, and $0.5 million to $1.5
million of other restructuring costs. We expect to record most of the
restructuring charge in the first quarter of 2009, and the remainder in the
second quarter of 2009. We anticipate that all of the severance related and
periodic transitional costs will be cash expenditures.




Interest,
Net (In millions)





Year
      Ended December 31,2008
      Amount
                
                Change
      from Prior Year
                
                2007
      Amount
                
                Change
      from Prior Year
                
                2006
      AmountInterest,
      net
                
                $
                2.3
                
                
                $
                0.5
                
                
                $
                1.8
                
                
                $
                (4.7
                )
                
                $
                6.5




Net
interest income for the year ended December 31, 2008, increased $0.5 million
compared with 2007 due to the reduction of interest expense as a result of our
$100 million debt repayment during March 2008.





Net
interest income for the year ended December 31, 2007, was $1.8 million, compared
to net interest income of $6.5 million in the prior year. The decrease in net
interest income reflects decreased interest rates and lower average invested
cash in 2007 when compared to 2006.




Provision
for Income Taxes (In millions)




Year
      Ended December 31,2008
      Amount
                
                Change
      from Prior Year
                
                2007
      Amount
                
                Change
      from Prior Year
                
                2006
      AmountProvision
      for income taxes
                
                $
                13.6
                
                
                $
                (1.2
                )
                
                $
                14.8
                
                
                $
                4.2
                
                
                $
                10.6




The
provision for income taxes for the year ended December 31, 2008, reflects an
effective tax rate for continuing operations of 27.6%, compared to a U.S.
statutory provision rate of 35.0%. The provision for income taxes includes a
favorable adjustment of $4.0 million as a result of our new manufacturing
structure and future foreign income expectations. We also recorded a benefit for
2008 research credits and provisions for state taxes and nondeductible incentive
stock based compensation.





The
provision for income taxes for the year ended December 31, 2007, reflects an
effective tax rate for continuing operations of 37.9%, compared to a U.S.
statutory provision rate of 35.0%. The effective tax rate exceeded the statutory
tax rate primarily due to state taxes and nondeductible incentive
stock based compensation, which was partially offset by research tax
credit benefits.




The
provision for income taxes for the year ended December 31, 2006, reflects an
effective tax rate for continuing operations of 23.2%, compared to a U.S.
statutory provision rate of 35.0%. The reduction in the effective tax rate is
primarily due to the settlement of foreign tax audits.


27





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




Foreign
Currency Transactions and Effect of Foreign Exchange Rates




We are
subject to the effects of currency fluctuations due to the global nature of our
operations. Currency exposures are hedged as part of our global risk management
program, which is designed to minimize short-term exposure to currency
fluctuations. Movements in exchange rates, net of hedging activities, resulted
in net currency transaction losses of  $(4.7) million , $(1.5) million
and $(1.3) million for the years ended December 31, 2008, 2007 and 2006,
respectively.




For
fiscal year 2008, we derived approximately 45.3% of revenues from non-U.S.
customers. At December 31, 2008, long-lived assets attributable to
countries outside of the U.S. comprised 6.6% of total net long-lived assets. The
largest components of these assets are attributable to France followed by
Mexico.




Liquidity
and Capital Resources




At
December 31, 2008, cash, cash equivalents and short-term investments
totaled $221.5 million, a decrease of $44.0 million compared to the
December 31, 2007 balance of $265.5 million. 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.




In 2008,
the $70.5 million of cash provided by operating activities of continuing
operations was primarily due to net earnings of $35.7 million and a $53.4
million decrease in accounts receivable, offset partially by a decrease in
accounts payable and accrued expenses of $25.9 million. In 2007, the $56.6
million of cash provided by operating activities of continuing operations was
primarily due to net earnings from continuing operations of $24.3 million and a
$35.8 million increase in accounts payable and accrued expenses, offset
partially by an increase in accounts receivable of $25.2 million. In 2006, cash
provided by operating activities of continuing operations was primarily due to
net earnings from continuing operations of $35.0 million and a $28.3 million
decrease in accounts receivable, offset partially by an increase in inventory of
$35.5 million. Included in earnings from continuing operations was $16.5 million
of net proceeds before tax from an IP settlement.




In 2008,
investing activities of continuing operations provided $16.4 million of cash
primarily due to sale of investments of $28.5 million and sale of property,
plant and equipment of $5.5 million. In 2007, investing activities of continuing
operations used $17.4 million of cash primarily due to capital expenditures of
$15.8 million. In 2006, investing activities of continuing operations primarily
included capital expenditures of $22.4 million and net investment purchases of
$26.6 million, reflecting a net use of $49 million in cash. Capital
expenditures were $13.8 million, $15.8 million and $22.4 million for 2008, 2007
and 2006, respectively. Proceeds from sales of property, plant and equipment
were $5.5 million and $0.7 million in 2008 and 2007, respectively. There were no
proceeds from sales of property, plant and equipment for 2006.




Financing
activities in 2008 used $92.0 million, primarily for the $100.0
million debt repayment in March.  Financing activities of continuing
operations in 2007 provided $12.8 million primarily due to $8.4 million in
proceeds from stock option exercises and $2.1 million in excess tax benefits
from stock-based payment arrangements. Financing activities of continuing
operations in 2006 were a net use of $84.4 million in cash, which included
$100.0 million of common stock repurchased, offset by $8.1 million in proceeds
from stock option exercises and $4.7 million in excess tax benefits from stock
based payment arrangements.





Net cash
provided by investing activities of discontinued operations in 2007 was $20.2
million, related primarily to note receivable maturities.




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, 2008, of $46.9
million under the Revolving Facility. We had no borrowings under the Revolving
Facility as of December 31, 2008. As of December 31, 2008, 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.





28





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





Liquidity
and Capital Resources (continued)





♦  
A fee ranging from 0.60% to 1.00% on the maximum amount available to be drawn
under each letter of credit that is issued and outstanding under the Revolving
Facility.  The fee on the unused portion of the Revolving Facility ranges
from 0.125% to 0.20%.




♦   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 2008, we paid off the remaining $100.0 million of our $200.0 million
principal amount, senior unsecured debt that was sold in 1998.





We
believe that cash, cash equivalents and short-term investments, combined
with projected cash flow from operations, will provide adequate funding to
meet our expected working capital, capital expenditure and restructuring cost
requirements for the foreseeable future. Projected cash flows from operations
are largely based on our revenue estimates, cost estimates, and the related
timing of cash receipts and cash disbursements. If actual performance differs
from estimated performance, cash flow from operations could be positively or
negatively impacted. An additional source of liquidity includes our Revolving
Credit Facility.





Contractual
Obligations




The
following table summarizes our significant contractual commitments for
continuing operations as of December 31, 2008 (millions of dollars). The
table does not include amounts recorded on our consolidated balance sheet as
current liabilities. Operating leases are discussed in the indicated Note to our
consolidated financial statements.




Payments
      Due by PeriodTotal
                
                Less
      than 1 Year
                
                1
      - 3 Years
                
                3
      - 5 Years
                
                After
      5 YearsOperating
      leases (Note D)
                
                $
                51.2
                
                
                $
                11.9
                
                
                $
                18.3
                
                
                $
                13.0
                
                
                $
                8.0Purchase
      commitments
                
                
                9.4
                
                
                
                4.5
                
                
                
                4.9
                
                
                
                -
                
                
                
                -Total
      contractual obligations
                
                $
                60.6
                
                
                $
                16.4
                
                
                $
                23.2
                
                
                $
                13.0
                
                
                $
                8.0




Purchase
orders or contracts for the purchase of raw materials and other goods and
services are not included in the table above. We are not able to determine the
aggregate amount of such purchase orders that represent contractual obligations,
as purchase orders may represent authorizations to purchase rather than binding
agreements. For the purposes of this table, contractual obligations for the
purchase of goods or services are defined as agreements that are enforceable and
legally binding on us and that specify all significant terms, including: fixed
or minimum quantities to be purchased; fixed, minimum or variable price
provisions; and the approximate timing of the transaction. Our purchase orders
are based on current manufacturing needs and are fulfilled by vendors within
short time horizons.




Our
liability for unrecognized tax benefits of $20.0 million at December 31, 2008
has been omitted from the table above, because we cannot determine with
certainty when this liability will be settled.





Expected
future benefit payments by our pension and other postretirement benefit plans
are $9.3 million in 2009, $9.7 million in 2010, $10.3 million in 2011, $11.3
million in 2012, $12.1 million in 2013 and $72.5 million for the subsequent
five-year period 2014 through 2018.





29


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




Off-Balance
Sheet Arrangements




At
December 31, 2008, we had aggregate off-balance-sheet letter-of-credit
reimbursement agreements totaling $3.7 million, compared to $3.9 million at
December 31, 2007. We do not believe that these letter-of-credit reimbursement
agreements have a material effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources.




Inflation




In our
opinion, inflation has not been a significant factor in the markets in which we
operate in 2008, 2007 or 2006 and has not had a significant impact upon the
results of our operations during these fiscal years.




Critical
Accounting Policies and Estimates




Our
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States (“US GAAP”). The
preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual amounts could differ from those estimates under
different assumptions or conditions. Significant estimates and assumptions were
used to determine the provisions for uncollectible accounts receivable, excess
and obsolete inventory, tax valuation allowances, uncertain tax positions,
recoverability of other intangible assets, warranty costs, pension and
postretirement obligations, fair value of pension assets, and stock-based
compensation. Despite these inherent limitations, we believe that Management’s
Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) and our financial statements and related footnotes provide a
meaningful and fair perspective.




A summary
of our significant accounting policies is included in Note A to the consolidated
financial statements. We believe that the application of these policies on a
consistent basis enables us to provide the users of the financial statements
with useful and reliable information about our operating results and financial
position. We believe that the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements.




Revenue
Recognition.  Revenues are generally recognized when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the sales price is fixed or determinable and collectability is
reasonably assured. Royalty revenue is recorded when the revenue is earned, the
amount due is fixed or determinable and collectability is reasonably assured.
Service and maintenance revenue is recognized as services are rendered,
generally over the contract term, and collectability is reasonably assured. When
a sale involves multiple elements, such as large deals that include both
products and 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. 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 AIDC industry. We earn royalties on
licensed RFID products sold by our 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.




Allowance for Doubtful
Accounts.  We maintain an
allowance for doubtful accounts for estimated losses resulting from the
inability of our customers to make required payments. Changes in the financial
condition of our customers could result in upward or downward adjustments to the
allowance for doubtful accounts.  30


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





Critical
Accounting Policies and Estimates (continued)





Inventory
Obsolescence.  We write down our inventory for estimated
obsolete or unsalable inventory based on assumptions about future demand for our
products and market conditions. If future demand and market conditions are less
favorable than our assumptions, additional inventory write-downs could be
required. Likewise, favorable future demand and market conditions could
positively impact future operating results if previously written-down inventory
is sold.




Income Taxes.  We
consider future market growth, forecasted earnings, future taxable income, and
the mix of earnings in the jurisdictions in which we operate and prudent,
feasible and permissible tax planning strategies 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 valuation
allowance would be charged to earnings in the period such determination was
made. Conversely, if we were to make a determination that it is more likely than
not that the deferred tax assets for which there are currently a valuation
allowance would be realized, the related valuation allowance would be reduced
and a benefit to earnings would be recorded.





We
conduct business in various countries throughout the world and are subject to
tax in numerous jurisdictions. As a result of our business activities, we file a
significant number of tax returns that are subject to audit by various tax
authorities. Tax audits are often complex and may require several years to
resolve. We also record 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. Such amounts are based
on management’s judgment and best estimate as to the ultimate outcome of tax
audits. However, our future results may include favorable or unfavorable
adjustments to our estimated tax liabilities in the period the assessments are
made or resolved or when statutes of limitation on potential assessments expire.
As a result, our effective tax rate may fluctuate significantly on a quarterly
basis.




Intangible
Assets.  Intangible assets with finite useful lives are
amortized generally on a straight-line basis over the periods benefited. A
majority of our finite-lived intangible assets pertain to a portion of our
patent portfolio and have estimated that those patents have useful lives of up
to 18 years. See Note E to the consolidated financial statements for additional
information.




The
carrying values of intangible assets with indefinite useful lives are tested for
impairment annually in our 4th quarter
or when events or circumstances indicate the carrying value of an asset may not
be recoverable. If the carrying value of a reporting unit’s intangible asset
exceeds its fair value, an impairment loss is recognized. Fair value is
estimated based on discounted expected future cash flows.




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. We have recorded approximately $0.8 million of impairment loss for
certain property for the year ended December 31, 2008.





Derivative Instruments and Hedging
Activities. Due to our global operations, our cash flows and
earnings are exposed to risks related to fluctuations in foreign exchange rates.
Our treasury policies allow us to hedge major foreign currency cash flow
exposures through the purchase of foreign exchange forward contracts at amounts
up to 100% of such cash flows.  When our hedges are designated as
effective cash flow hedges under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activties (as amended) any translation gains and losses on the effective
portion of the hedging instruments are recorded in Other Comprehensive Income
(“OCI”). All derivative instruments not designated as effective hedges under
SFAS No. 133 are recorded at fair value, with changes in value recognized in
earnings in the period of change and 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 was $3.6 million as of December 31,
2008.





Patent Costs. We
capitalize external legal costs incurred in the defense of our patents where we
believe that the future economic benefit of the patent will be increased in
accordance with Statement of Financial Accounting Concepts 6, Elements of Financial
Statements. We monitor the legal costs incurred and the anticipated
outcome of the legal action and, if changes in the anticipated outcome occur,
capitalized costs are charged to the period in which the change is
determined. Patent costs are amortized over the remaining useful life of the
patents. As of December 31, 2008 and 2007, $6.7 million and $3.2 million of
legal patent defense costs have been capitalized.





31





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





Critical
Accounting Policies and Estimates (continued)





Pension and Other Postretirement
Benefits.We have retirement plans that 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’ contributions. 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
periodically by management. Changes in assumptions are based on relevant
internal 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 rates 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.




The
discount rate, used to discount future cash flows of benefit obligations back to
the measurement date, reflects the market rate for high-quality fixed-income
debt instruments. The discount rates for domestic and foreign plans for the
fifteen months ended December 31, 2008 were 6.24% and 5.80% respectively,
compared to 6.35% and 5.90% as for the twelve months ended September 30,
2007. The decrease in the discount rate used for domestic plans reflects lower
interest rates in the current market. A one-half percentage point decrease in
our discount rate on pension cost would result in an increase in benefit
obligation of $14.0 million. To determine the expected long-term rate of return,
we use historic market trends combined with current market conditions. The
weighted average expected long-term rate of return on our domestic and foreign
plans was 8.50% and 6.40%, respectively. The effect on our pension cost of a
one-half percentage point decrease in the expected long-term rate of return
would be an increase of $0.5 million. We determine the expected rate of
compensation increase based on historic trends and comparisons to external
rates. For domestic plans, we concluded that no adjustment to the expected rate
of compensation increase was necessary and continued to use 4.00%. For foreign
plans, we concluded that no adjustment to the expected rate of compensation was
necessary as there are no active employees covered under the plans.


Actuarial
assumptions used to measure the accumulated benefit obligation for other
postretirement benefits include a discount rate of 6.40%, and 6.10% at
December 31, 2008, and 2007, respectively. The effect on our postretirement
benefit cost of one-half percentage point decrease in the discount rate would be
immaterial. The assumed health care cost trend rate for fiscal year 2008 was
8.50% and is projected to decrease over nineteen years to 4.50%, where it is
expected to remain thereafter. The effect of a one-percentage-point increase or
decrease in the assumed health care cost trend rate on the service cost and
interest cost components of the net periodic postretirement benefit cost is not
material. A one-percentage-point increase in the assumed health care cost trend
rate on the postretirement benefit obligation would result in an increase of
approximately $0.2 million, while a one-percentage point decrease would result
in a decrease of $0.2 million.





Effective
December 31, 2008, we adopted the remaining provisions of 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 required 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). The difference between actual amounts and estimates based on
actuarial assumptions is recognized in other comprehensive income (loss) in the
period in which they occur.





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 contingency differs from our estimates,
results of operations are adjusted upward or downward.





Stock-Based
Compensation.  As of December 31, 2008, we had four
stock-based compensation plans available for future grants. Prior to January 1,
2006, these plans are 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.





32





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





Critical
Accounting Policies and Estimates (continued)





Stock-based
compensation represents the cost related to stock-based awards granted to
employees. We measure stock-based compensation cost at grant date, based on the
estimated fair value of the award, and recognize the cost as expense on a
straight-line basis (net of estimated forfeitures) over the employee’s requisite
service period. We estimate the fair value of stock options using a
Black-Scholes valuation model. The expense is recorded in cost of revenues and
SG&A in the consolidated statement of operations based on the employees’
respective functions. We record deferred tax assets for awards that result in
deductions on our income tax returns, based on the amount of compensation cost
recognized and our statutory tax rate in the jurisdiction in which we will
receive a deduction. Differences between the deferred tax assets recognized for
financial reporting purposes and the actual tax deduction reported on our income
tax return are recorded in Additional Paid-In Capital (if the tax deduction
exceeds the deferred tax asset) or in the consolidated statement of earnings (if
the deferred tax asset exceeds the tax deduction and no additional paid-in
capital exists from previous awards).





New
Accounting Pronouncements




In
September 2006, the Financial Accounting Standard Board (“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. This statement applies to all
financial instruments that are being measured and reported on a fair value
basis. As defined in this statement, fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. We adopted SFAS
No. 157 effective January 1, 2008. The adoption of SFAS No. 157 did not have a
material impact on our condensed consolidated financial statements. See
“Note B: Cash and Cash Equivalents, Short-term Investments and Long-term Debt”
for further discussion. In February 2008, the FASB issued  FASB Staff
Position (“FSP”) No. 157-2, which delays the effective date of SFAS No. 157 for
all nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a
recurring  basis (at least annually). FSP No. 157-2 is effective for
us beginning January 1, 2009. The adoption of this will not have a material
impact on our consolidated financial statements.





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 required us to measure plan
assets and benefit obligations at fiscal year end. We previously performed this
measurement at September 30 of each year. Beginning in the 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 recorded $0.5
million as an adjustment to opening retained earnings in the fourth quarter of
2008 as a result of adopting this provision for our U.S. and non-U.S. pension
plans.





In
September 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-4, Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements(“EITF 06-04”), which became 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 Pensionsor 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. Upon adoption of EITF 06-4, as
of January 1, 2008, we increased our accumulated deficit $0.9 million,
recognized a $1.4 million long-term liability, and recorded a tax effect of $0.5
million within long-term deferred tax assets.




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations, which
is 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 non-controlling 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.





In April
2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, Determination of the Useful Life of
Intangible Assets. The final FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No.142, Goodwill and Other Intangible Assets. The FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those fiscal years. We are in the
process of evaluating the impact FSP No. 142-3 will have on our consolidated
financial statements.





33





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





New
Accounting Pronouncements (continued)





In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No.
133, which requires additional disclosures about the objectives of the
derivative instruments and hedging activities, the method of accounting for such
instruments under SFAS No. 133 and its related interpretations, and a tabular
disclosure of the effects of such instruments and related hedged items on our
financial position, financial performance, and cash flows. SFAS No. 161 is
effective for us beginning January 1, 2009. We are currently assessing the
potential impact that adoption of SFAS No. 161 may have on our financial
statements.





In
December 2008, the FASB issued FSP No. FAS 132 (R) -1, Employers’ Disclosures about
Postretirement Benefit Plan Assets, an amendment of FASB Statement No. 132
(revised 2003).It provides guidance on an employer’s disclosures about
plan assets, including: how investment allocation decisions are made and factors
that are pertinent to an understanding of investment policies and strategies;
the major categories of plan assets; the inputs and valuation techniques used to
measure the fair value of plan assets; the effect of fair value measurements
using significant unobservable inputs (level 3) on changes in plan assets for
the period, and significant concentrations of risks within plan assets.FSP FAS 132 (R) -1 is
effective for fiscal years ending after December 15, 2009. We are currently
assessing the potential impact that adoption of this FSP may have on our
financial statements.




Forward-Looking
Statements and Risk Factors




Forward-looking
statements contained in this filing are subject to the safe harbor created by
the Private Securities Litigation Reform Act of 1995 (alternatively:
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934) and are dependent upon a variety of important
factors that could cause actual results to differ materially from those
reflected in such forward-looking statements.  Forward-looking
statements include, but are not limited to, statements about: our cost reduction
plans; our view of general economic and market conditions; our ability to
develop, produce, market or sell our products, either directly or through third
parties; maintaining or improving our revenues, gross margins or profits of our
continuing operations, for the current period or any future period; competing
effectively with our current products and planned products, and introducing new
products; effectively completing restructuring and related transitional
activities; maintaining or reducing expenses, maintaining or improving
operational efficiency; using our investment in research and development to
generate future revenue; and the applicability of accounting policies used in
our financial reporting.  When used in this document and in documents
it references, the words “anticipate,” “believe,” “will,” “intend,” “project”
and “expect” and similar expressions as they relate to Intermec or our
management are intended to identify such forward-looking
statements.  We undertake no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information, future
events, changed circumstances or any other reason after the date of this report
on Form 10-K.
 
 Forward-looking statements involve and
are dependent upon certain risks and uncertainties, and  are not
guarantees of future performance. A number of factors can impact our business
and determine whether we can or will achieve any forward-looking statement made
in this report. Any one of these factors could cause our actual results to
differ materially from those expressed or implied in a forward-looking
statement. We outline these risk factors in reports that we file with the SEC,
in press releases and on our website, www.Intermec.com.  You are encouraged to
review the discussion below in Part I, “Item 1A, Risk Factors,” and in Part II,
“Item 7, Management’s Discussion and Analysis of Financial Condition and Results
of Operation,” of this filing.


You are
encouraged to review the Risk Factors portion of Item 1A of Part I of this
filing which discusses the risk factors associated with our
business.





34





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




We are exposedto interest rate risk primarily from our
short-term and long-term borrowings and to foreign exchange rate risk with
respect to our foreign operations and from foreign currency
transactions.




Interest Rates: Our
exposure to market risk for changes in interest rates relates primarily to our
short-term and long-term borrowings. During March 2008, we paid off our
$100.0 million fixed rate senior unsecured debt.  See discussions of
our credit facilities under the heading “Liquidity and Capital Resources” in
Item 7 of this annual report on Form 10-K and in Note B to the consolidated
financial statements contained in this annual report on Form 10-K.




Currency Exchange Rates:Due
to our global operations, our cash flow and earnings are exposed to risk based
on movements in foreign exchange rates.  We conduct business in
approximately 91 countries throughout the world and generally invoice customers
in their local currency and have a resulting foreign currency denominated
revenue transaction and accounts receivable balance. We also purchase certain
raw materials and other items in foreign currencies.





When
appropriate, we may attempt to limit our exposure to changing currency exchange
rates by entering into short-term forward contracts. We do not enter into any
forward contracts for speculative or trading purposes. When the forward
contracts effectively meet the risk reduction and correlation criteria
established in SFAS No. 133 we apply hedge accounting, and accordingly, gains
and losses from mark-to-market adjustments are included in other comprehensive
income. In those circumstances where our hedges do not meet the effective hedge
criteria and it is not appropriate to account for the forward contracts as
hedges, gains and losses from mark-to-market adjustments are recorded in
earnings.




We
performed a sensitivity analysis assuming a hypothetical 10 percent movement in
currency exchange rates applied to the exposure described above. As of
December 31, 2008, the analysis indicated that if our hedges of exchange
exposure were not in place, such market movements would have an impact of
approximately $23.3 million on our results of operations. Actual gains or losses
in the future may differ significantly from that analysis, however, based on
changes in the timing and amount of interest rate and currency exchange rate
movements and our actual exposures and hedging activities.




During
2008, our revenue consisted of $514.0 million or 57.7%, denominated in U.S.
dollars, $178.4 million, or 20.0%, denominated in Euros, $78.8 million, or 8.8%,
denominated in British pounds, and $119.7 million, or 13.5% denominated in other
foreign currencies. Fluctuations in foreign currency translation rates
positively impacted our revenue by approximately $9.6 million, $25.0
million and $6.9 million in 2008, 2007 and 2006, respectively, in comparison to
the corresponding prior year.





35





ITEM
      8.
            FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA





PageManagement's Report on
      Internal Control over Financial Reporting
                
                
                39Management's
      Certifications
                
                
                39Report of Independent
      Registered Public Accounting Firm
                
                
                40Consolidated Statements of
      Operations for the Years ended December 31, 2008, 2007 and
      2006
                
                
                41Consolidated Balance Sheets as of
      December 31, 2008 and 2007
                
                
                42Consolidated Statements of Cash
      Flows for the Years ended December 31, 2008, 2007 and 2006
                
                
                43Consolidated Statements of
      Changes in Shareholders' Equity for the Years ended December 31,
      2008, 2007 and 2006
                
                
                44Notes to Consolidated Financial
      Statements
                
                
                45
      to 71Quarterly Financial
      Information (unaudited)
                
                
                72








ITEM
      9.
            CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE




None.




ITEM
      9A.
            CONTROLS AND
PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Our Chief
Executive Officer and Chief Financial Officer have evaluated our disclosure
controls and procedures as of the end of the period covered by this report and
they have concluded that these controls and procedures are effective as of
December 31, 2008.




Internal
control over financial reporting




(a)
            Management’s
      Annual Report on Internal Control over Financial
  Reporting




Management’s
Report on Internal Control over Financial Reporting is on page 39 of this
annual report on Form 10-K and is incorporated by reference.




(b)
            Report
      of the Independent Registered Public Accounting
  Firm




The
operating effectiveness of our internal control over financial reporting as of
December 31, 2008, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which
is on page 40 of this annual report on Form 10-K.




(c)
            Changes
      in Internal Control over Financial
Reporting




There
were no changes in our internal control over financial reporting that occurred
during the fourth quarter 2008 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.




ITEM
      9B.
            OTHERINFORMATION




None





36





PART III




ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.




We have
adopted a code of business conduct and ethics for all directors, officers and
employees, known as the Standards of Conduct. The Standards of Conduct are
available on our website under Investor Information at http://www.intermec.com. We
intend to disclose on our website any amendment to, or waiver of, the Standards
of Conduct related to our senior officers. Shareholders may request a free copy
of the Standards of Conduct from:




Intermec, Inc.


Attention:
Investor Relations


6001
36th Avenue
West


Everett,
WA 98203-1264





We are
permitted to incorporate by reference into this report certain information that
will be contained in our definitive Proxy Statement relating to the Annual
Meeting of Stockholders to be held on May 27, 2009 (the “2009 Proxy
Statement”). Information to be included in Part III, Item 10, will be included
in our 2009 Proxy Statement, and is incorporated herein by this reference.
Certain information regarding our executive officers is set forth under the
caption “Executive Officers of the Registrant” in Part I of this
report.




ITEM
      11.
            EXECUTIVE
      COMPENSATION.




Information
to be included in Part III, Item 11, will be included in our 2009 Proxy
Statement, and is incorporated herein this by this reference.




ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.




Information
to be included in Part III, Item 12, will be included in our 2009 Proxy
Statement, and is incorporated herein by this reference.




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE.




Information
to be included in Part III, Item 13, will be included in our 2009 Proxy
Statement, and is incorporated herein by this reference.




ITEM
      14.
            PRINCIPAL
      ACCOUNTANT FEES AND SERVICES.




Information
to be included in Part III, Item 14, will be included in our 2009 Proxy
Statement, and is incorporated herein by this reference.




PART IV
  ITEM
      15.
              EXHIBITS
      AND FINANCIAL STATEMENT SCHEDULES.
  (b)           Index
to Exhibits at page 73 of this annual report on Form
10-K.
 
 37
 
 SIGNATURES
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
  Intermec, Inc./s/
      Robert J. DriessnackRobert
      J. DriessnackSenior
      Vice President, Chief Financial OfficerFebruary
      25, 2009
 
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
  /s/
      Patrick J. Byrne
                
                Director,
      President and
                
                February
      25, 2009Patrick
      J. Byrne
                
                Chief
      Executive Officer/s/
      Allen J. Lauer
                
                Director
      and Chairman of the Board
                
                February
      25, 2009Allen
      J. Lauer/s/
      Eric J. Draut
                
                Director
                
                February
      25, 2009Eric
      J. Draut/s/
      Gregory K. Hinckley
                
                Director
                
                February
      25, 2009Gregory
      K. Hinckley/s/
      Lydia H. Kennard
                
                Director
                
                February
      25, 2009Lydia
      H. Kennard/s/
      Stephen P. Reynolds
                
                Director
                
                February
      25, 2009Stephen
      P. Reynolds/s/
      Steven B. Sample
                
                Director
                
                February
      25, 2009Steven
      B. Sample/s/
      Oren G. Shaffer
                
                Director
                
                February
      25, 2009Oren
      G. Shaffer/s/
      Larry D. Yost
                
                Director
                
                February
      25, 2009Larry
      D. Yost/s/
      Robert J. Driessnack
                
                Senior
      Vice President, Chief Financial Officer
                
                February
      25, 2009Robert
      J. Driessnack
                
                (Principal
      Financial Officer)/s/
      Fredric B. Anderson
                
                Vice
      President, Corporate Controller
                
                February
      25, 2009Fredric
      B. Anderson
                
                (Principal
      Accounting Officer)
 
 
 38
 
 Intermec, Inc.
  Management’s
Report on Internal Control over Financial Reporting
  Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the
reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles
generally accepted in the United States. Internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that in reasonable detail accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company’s assets that could have a
material effect on the financial statements.
  Management
assessed our internal control over financial reporting as of December 31, 2008,
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, 2008 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.
 
 Management’s
Certifications
  The
certifications of the Chief Executive Officer and Chief Financial Officer
required by the Sarbanes-Oxley Act have been included as Exhibits 31 and 32 in
the Form 10-K. In addition, in 2008, 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/
      Robert J. DriessnackRobert
      J. DriessnackSenior
      Vice President andChief
      Financial Officer


39
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the
Board of Directors and Shareholders of
 Intermec, Inc.
 Everett,
Washington
  We have
audited the accompanying consolidated balance sheets of Intermec, Inc. and
subsidiaries (the “Company”) as of December 31, 2008 and 2007, and the
related consolidated statements of operations, changes in shareholders’ equity,
and of cash flows for each of the three years in the period ended
December 31, 2008. 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, 2008, based on
criteria established in Internal
Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. The Company’s management is
responsible for these financial statements and 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, and 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, 2008 and 2007, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2008, 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, 2008, based on the criteria established in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.
  As
discussed in Notes A and K to the financial statements, the Company adopted
portions 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) during 2008. Also, as
discussed in Notes A and I, the Company adopted FASB Interpretation
No. 48, Accounting for
Uncertainty in Income Taxes during 2007.
 Seattle,
Washington
  February 25,
2009


40


INTERMEC,
INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(thousands of dollars,
except per share amounts)


Year
      Ended December 31,2008
                                      
                                      
                                      2007
                                      
                                      
                                      2006Revenues:Product
                                      
                                      $
                                      738,426
                                      
                                      
                                      $
                                      692,050
                                      
                                      
                                      $
                                      692,417Service
                                      
                                      
                                      152,457
                                      
                                      
                                      
                                      157,170
                                      
                                      
                                      
                                      157,552Total
      revenues
                                      
                                      
                                      890,883
                                      
                                      
                                      
                                      849,220
                                      
                                      
                                      
                                      849,969Costs
      and expenses:Cost
      of product revenues
                                      
                                      
                                      448,216
                                      
                                      
                                      
                                      432,166
                                      
                                      
                                      
                                      429,691Cost
      of service revenues
                                      
                                      
                                      87,881
                                      
                                      
                                      
                                      90,188
                                      
                                      
                                      
                                      88,238Research
      and development
                                      
                                      
                                      64,532
                                      
                                      
                                      
                                      65,610
                                      
                                      
                                      
                                      72,356Selling,
      general and administrative
                                      
                                      
                                      236,350
                                      
                                      
                                      
                                      223,838
                                      
                                      
                                      
                                      227,908Gains
      on intellectual property settlements
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (16,538
                                      )Flood
      related charge, net of insurance proceeds
                                      
                                      
                                      1,122
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Restructuring
      charges
                                      
                                      
                                      5,748
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      11,583Total
      costs and expenses
                                      
                                      
                                      843,849
                                      
                                      
                                      
                                      811,802
                                      
                                      
                                      
                                      813,238Operating
      profit from continuing operations
                                      
                                      
                                      47,034
                                      
                                      
                                      
                                      37,418
                                      
                                      
                                      
                                      36,731Gain
      on sale of investments
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      2,305Interest
      income
                                      
                                      
                                      4,787
                                      
                                      
                                      
                                      10,706
                                      
                                      
                                      
                                      15,898Interest
      expense
                                      
                                      
                                      (2,520
                                      )
                                      
                                      
                                      (8,946
                                      )
                                      
                                      
                                      (9,360
                                      )Earnings
      from continuing operations before income taxes
                                      
                                      
                                      49,301
                                      
                                      
                                      
                                      39,178
                                      
                                      
                                      
                                      45,574Provision
      for income taxes
                                      
                                      
                                      13,615
                                      
                                      
                                      
                                      14,843
                                      
                                      
                                      
                                      10,575Earnings
      from continuing operations
                                      
                                      
                                      35,686
                                      
                                      
                                      
                                      24,335
                                      
                                      
                                      
                                      34,999Loss
      from discontinued operations, net of tax
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (1,283
                                      )
                                      
                                      
                                      (2,999
                                      )Net
      earnings
                                      
                                      $
                                      35,686
                                      
                                      
                                      $
                                      23,052
                                      
                                      
                                      $
                                      32,000Basic
      earnings(loss) per share:Continuing
      operations
                                      
                                      $
                                      0.58
                                      
                                      
                                      $
                                      0.40
                                      
                                      
                                      $
                                      0.56Discontinued
      operations
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (0.02
                                      )
                                      
                                      
                                      (0.05
                                      )Net
      earnings per share
                                      
                                      $
                                      0.58
                                      
                                      
                                      $
                                      0.38
                                      
                                      
                                      $
                                      0.51Diluted
      earnings (loss) per share:Continuing
      operations
                                      
                                      $
                                      0.58
                                      
                                      
                                      $
                                      0.40
                                      
                                      
                                      $
                                      0.55Discontinued
      operations
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (0.02
                                      )
                                      
                                      
                                      (0.05
                                      )Net
      earnings per share
                                      
                                      $
                                      0.58
                                      
                                      
                                      $
                                      0.38
                                      
                                      
                                      $
                                      0.50(In thousands)Shares
      used in computing basic earnings (loss) per share
                                      
                                      
                                      61,183
                                      
                                      
                                      
                                      60,359
                                      
                                      
                                      
                                      62,535Shares
      used in computing diluted earnings (loss)  per
    share
                                      
                                      
                                      61,658
                                      
                                      
                                      
                                      61,163
                                      
                                      
                                      
                                      63,830











41


INTERMEC,
INC.


CONSOLIDATED
BALANCE SHEETS


(thousands)





December
      31,2008
                
                
                2007ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                221,335
                
                
                $
                237,247Short-term
      investments
                
                
                156
                
                
                
                28,230Accounts
      receivable, net of allowance for doubtful accounts and sales returns of
      $10,789 and $12,854
                
                
                138,549
                
                
                
                191,487Inventories
                
                
                116,949
                
                
                
                113,145Net
      current deferred tax assets
                
                
                56,295
                
                
                
                61,532Other
      current assets
                
                
                14,405
                
                
                
                14,690Total
      current assets
                
                
                547,689
                
                
                
                646,331Property,
      plant and equipment, net
                
                
                41,348
                
                
                
                47,732Intangibles,
      net
                
                
                3,521
                
                
                
                4,138Net
      deferred tax assets
                
                
                167,834
                
                
                
                150,154Other
      assets
                
                
                29,503
                
                
                
                52,280Total
      assets
                
                $
                789,895
                
                
                $
                900,635LIABILITIES
      AND SHAREHOLDERS’ EQUITYCurrent
      liabilities:Accounts
      payable and accrued expenses
                
                $
                112,772
                
                
                $
                141,667Payroll
      and related expenses
                
                
                24,799
                
                
                
                32,170Deferred
      revenue
                
                
                38,712
                
                
                
                49,020Current
      debt
                
                
                -
                
                
                
                100,000Total
      current liabilities
                
                
                176,283
                
                
                
                322,857Long-term
      deferred revenue
                
                
                25,980
                
                
                
                20,109Pension
      liability
                
                
                92,129
                
                
                
                56,015Other
      long-term liabilities
                
                
                13,747
                
                
                
                17,543Shareholders’
      equity:Common
      stock (250,000 shares authorized, 61,766 and 61,192 shares issued and
      outstanding)
                
                
                618
                
                
                
                612Additional
      paid-in capital
                
                
                694,296
                
                
                
                679,241Accumulated
      deficit
                
                
                (162,402
                )
                
                
                (196,795
                )Accumulated
      other comprehensive (loss) income
                
                
                (50,756
                )
                
                
                1,053Total
      shareholders’ equity
                
                
                481,756
                
                
                
                484,111Total
      liabilities and shareholders’ equity
                
                $
                789,895
                
                
                $
                900,635







42


INTERMEC,
INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(thousands of dollars)




Year
      Ended December 31,2008
                          
                          
                          2007
                          
                          
                          2006Cash
      and cash equivalents at beginning of year
                          
                          $
                          237,247
                          
                          
                          $
                          155,027
                          
                          
                          
                          256,782Cash
      flows from operating activities of continuing operations:Net
      earnings
                          
                          
                          35,686
                          
                          
                          
                          23,052
                          
                          
                          
                          32,000Losses
      from discontinued operations
                          
                          
                          -
                          
                          
                          
                          1,283
                          
                          
                          
                          2,999Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
                          
                          
                          16,493
                          
                          
                          
                          13,314
                          
                          
                          
                          10,939Impairment
      loss on certain property
                          
                          
                          802
                          
                          
                          
                          -
                          
                          
                          
                          -Gain
      on sale of property, plant and equipment
                          
                          
                          (2,873
                          )
                          
                          
                          -
                          
                          
                          
                          -Gain
      on sale of investments
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (2,305
                          )Change
      in prepaid pension costs, net
                          
                          
                          (749
                          )
                          
                          
                          (5,290
                          )
                          
                          
                          17,178Deferred
      taxes
                          
                          
                          9,759
                          
                          
                          
                          7,643
                          
                          
                          
                          12,412Stock-based
      compensation and other
                          
                          
                          7,027
                          
                          
                          
                          9,037
                          
                          
                          
                          5,892Excess
      tax benefits from stock-based payment arrangements
                          
                          
                          (937
                          )
                          
                          
                          (2,050
                          )
                          
                          
                          (4,733
                          )Changes
      in operating assets and liabilities:Accounts
      receivable
                          
                          
                          52,938
                          
                          
                          
                          (25,204
                          )
                          
                          
                          28,269Inventories
                          
                          
                          (7,781
                          )
                          
                          
                          8,060
                          
                          
                          
                          (35,477
                          )Other
      current assets
                          
                          
                          285
                          
                          
                          
                          (1,662
                          )
                          
                          
                          5,577Accounts
      payable and accrued expenses
                          
                          
                          (25,853
                          )
                          
                          
                          35,805
                          
                          
                          
                          (49,965
                          )Payroll
      and related expenses
                          
                          
                          (7,371
                          )
                          
                          
                          (815
                          )
                          
                          
                          179Other
      long-term liabilities
                          
                          
                          (6,758
                          )
                          
                          
                          (1,467
                          )
                          
                          
                          1,548Other
      operating activities
                          
                          
                          (180
                          )
                          
                          
                          (5,081
                          )
                          
                          
                          (4,296
                          )Net
      cash provided by operating activities of continuing
    operations
                          
                          
                          70,488
                          
                          
                          
                          56,625
                          
                          
                          
                          20,217Cash
      flows from investing activities of continuing operations:Capital
      expenditures
                          
                          
                          (13,766
                          )
                          
                          
                          (15,779
                          )
                          
                          
                          (22,365
                          )Purchases
      of investments
                          
                          
                          (760
                          )
                          
                          
                          -
                          
                          
                          
                          (31,450
                          )Sales
      of investments
                          
                          
                          28,515
                          
                          
                          
                          2,002
                          
                          
                          
                          4,873Capitalized
      patent legal fees
                          
                          
                          (3,637
                          )
                          
                          
                          (2,398
                          )
                          
                          
                          (705
                          )Sale
      of property, plant and equipment
                          
                          
                          5,497
                          
                          
                          
                          -
                          
                          
                          
                          -Other
      investing activities
                          
                          
                          600
                          
                          
                          
                          (1,253
                          )
                          
                          
                          653Net
      cash provided by (used in) investing activities of continuing
      operations
                          
                          
                          16,449
                          
                          
                          
                          (17,428
                          )
                          
                          
                          (48,994
                          )Cash
      flows from financing activities of continuing operations:Repayment
      of debt
                          
                          
                          (100,000
                          )
                          
                          
                          -
                          
                          
                          
                          -Excess
      tax benefits from stock-based payment arrangements
                          
                          
                          937
                          
                          
                          
                          2,050
                          
                          
                          
                          4,733Proceeds
      from stock options exercised
                          
                          
                          4,362
                          
                          
                          
                          8,434
                          
                          
                          
                          8,073Stock
      repurchase
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (99,948
                          )Other
      financing activities
                          
                          
                          2,735
                          
                          
                          
                          2,269
                          
                          
                          
                          2,780Net
      cash (used in) provided by financing activities of continuing
      operations
                          
                          
                          (91,966
                          )
                          
                          
                          12,753
                          
                          
                          
                          (84,362
                          )Net
      cash (used in) provided by continuing operations
                          
                          
                          (5,029
                          )
                          
                          
                          51,950
                          
                          
                          
                          (113,139
                          )Net
      cash provided by investing activities of discontinued
      operations
                          
                          
                          -
                          
                          
                          
                          20,178
                          
                          
                          
                          5,710Effect
      of exchange rate changes on cash and cash equivalents
                          
                          
                          (10,883
                          )
                          
                          
                          10,092
                          
                          
                          
                          5,674Resulting
      (decrease) increase in cash and cash equivalents
                          
                          
                          (15,912
                          )
                          
                          
                          82,220
                          
                          
                          
                          (101,755
                          )Cash
      and cash equivalents at end of period
                          
                          $
                          221,335
                          
                          
                          $
                          237,247
                          
                          
                          $
                          155,027Supplemental
      InformationCash
      payments:Interest
      on Debt
                          
                          
                          (3,500
                          )
                          
                          
                          (7,000
                          )
                          
                          
                          (7,243
                          )Income
      taxes paid
                          
                          
                          (5,889
                          )
                          
                          
                          (5,943
                          )
                          
                          
                          (5,361
                          )






43


INTERMEC,
INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


(thousands of dollars,
except where otherwise stated)




Common
      Stock
                                                                        
                                                                        
                                                                        Additional
      Paid-in Capital
                                                                        
                                                                        
                                                                        Accumulated
      Deficit
                                                                        
                                                                        
                                                                        Accumulated
      Other Comprehensive Income (Loss)
                                                                        
                                                                        
                                                                        TotalBalance,
      January 1, 2006
                                                                        
                                                                        $
                                                                        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 pension adjustment, 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
                                                                        
                                                                        
                                                                        $
                                                                        484,111Comprehensive
      income (loss):Net
      earnings
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        35,686
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        35,686Currency
      translation adjustment and other, net
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (9,729
                                                                        )
                                                                        
                                                                        
                                                                        (9,729
                                                                        )SFAS
      158 pension adjustment, net of tax of $27.4
      million
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (41,761
                                                                        )
                                                                        
                                                                        
                                                                        (41,761
                                                                        )Unrealized
      loss on securities, net
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (319
                                                                        )
                                                                        
                                                                        
                                                                        (319
                                                                        )Comprehensive
      loss
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (16,123
                                                                        )Pension
      and other postretirement benefits real time adoption
      adjustment
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (1,293
                                                                        )
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        (1,293
                                                                        )Stock-based
      activity
                                                                        
                                                                        
                                                                        6
                                                                        
                                                                        
                                                                        
                                                                        15,055
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        
                                                                        15,061Balance,
      December 31, 2008
                                                                        
                                                                        $
                                                                        618
                                                                        
                                                                        
                                                                        $
                                                                        694,296
                                                                        
                                                                        
                                                                        $
                                                                        (162,402
                                                                        )
                                                                        
                                                                        $
                                                                        (50,756
                                                                        )
                                                                        
                                                                        $
                                                                        481,756









44


INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
A: Significant Accounting Policies
  Intermec, Inc.
(“Intermec”, “us”, “we”, “our”)  designs, develops, integrates, sells,
resells and services wired and wireless automated identification and data
collection (“AIDC”) products and provides related services. Our products include
mobile computing products, bar code scanners, wired and wireless bar code
printers and label media products, including radio frequency identification
(“RFID”) products. These products and services allow customers to identify,
track and manage their assets and other resources in ways that improve the
efficiency and effectiveness of their business operations. Our products are
designed to withstand mobile use and rugged warehouse and field
conditions.
  Our
products are sold worldwide for field mobility applications such as asset
visibility and management, direct store delivery, maintenance and repair,
in-transit visibility, routing and navigation, and telematics. Our products are
also sold globally for in-premise applications such as asset visibility, freight
yard operations, inventory management, warehouse operations, and work-in-process
management.
  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.
  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 significant 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 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, the liabilities for uncertain tax
provisions, recoverability of other intangible assets, warranty costs, pension
and postretirement obligations, and stock-based
compensation.
  Revenue
Recognition.  Revenues are generally recognized when persuasive
evidence of an arrangement exists, delivery has occurred or services have been
rendered, the sales price is fixed or determinable and collectability is
reasonably assured. Royalty revenue is recorded when the revenue is earned and
reported, the amount due is fixed or determinable and collectability is
reasonably assured. Service and maintenance revenue is recognized as services
are rendered, generally over the contract term, and collectability is reasonably
assured. When a sale involves multiple elements, such as large deals that
include both products and 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.
 
 45
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
A: Significant Accounting Policies (Continued)
 
 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. 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.
  Stock-Based
Compensation.As of December 31, 2008, 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 Accounting Principles Board (“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 the
Statement of Financial Accounting Standards (“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.
  Allowance
for Doubtful Accounts.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 $10.8 million and $12.9 million at December 31, 2008 and 2007,
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. Service
inventories totaling $4.0 million are classified as other assets as of
December 31, 2008 due to their long-term
nature.
  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 in 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.
 
 46
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
A: Significant Accounting Policies (Continued)
 
 Effective
December 31, 2006, we adopted certain provisions of 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), which required
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). The difference between actual amounts and
estimates based on actuarial assumptions is recognized in other comprehensive
income (loss) in the period in which they occur.
  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 Financial Accounting Standard Board (“FASB”)
Interpretation (“FIN”) No. 48, Accounting
for Uncertainty in Income Taxes. Accordingly, we recognize the
largest amount of benefit greater than 50% cumulative probability of being
realized upon ultimate settlement with the tax
authority.
  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 2008, 2007 and 2006, one customer, ScanSource, Inc., accounted for
more than 10% of our revenues. Total sales to this customer were 13%, 13%
and 12% of related revenue for the years ended December 31, 2008 and 2007,
and 2006, respectively.
 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 losses of $(4.7) million, $(1.5)
million and $(1.3) million for the years ended December 31, 2008, 2007 and
2006, respectively.
  Derivative
Instruments and Hedging Activities. Due to our global operations,
our cash flows and earnings are exposed to risks related to fluctuations in
foreign exchange rates. Our treasury policies allow us to hedge major foreign
currency cash flow exposures through the purchase of foreign exchange forward
contracts at amounts up to 100% of such cash flows.  When our hedges
are designated as effective cash flow hedges under SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activties (as amended), any translation gains and
losses on the effective portion of the hedging instruments are recorded in Other
Comprehensive Income.  All derivative instruments not designated as
effective hedges under SFAS No. 133 are recorded at fair value, with changes in
value recognized in earnings in the period of change. 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,
2008 was $3.6 million.
  Intangibles.  Intangible
assets with finite useful lives are amortized generally on a straight-line basis
over the periods benefited. The majority 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 indefinite 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.
  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.
 
 47
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
A: Significant Accounting Policies (Continued)
 
 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. We have recorded approximately $0.8 million of
impairment loss for certain property for the year ended December 31,
2008.
  Restructuring
Charges.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 and SFAS No. 112,
Employers’
Accounting for Postemployment Benefits an Amendment of FASB Statements No. 5 and
43.
  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 $64.5 million, $65.6 million and
$72.4 million for the years ended December 31, 2008, 2007 and 2006,
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.
 
 New
Accounting Pronouncements.  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. This statement applies to
all financial instruments that are being measured and reported on a fair value
basis. As defined in this statement, fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. We adopted SFAS
No. 157 effective January 1, 2008. The adoption of SFAS No. 157 did not have a
material impact on our condensed consolidated financial statements. See
“Note B: Cash and Cash Equivalents, Short-term Investments and Long-term Debt”
for further discussion. In February 2008, the FASB issued  FASB Staff
Position (“FSP”) No.
157-2, which delays the effective date of SFAS No. 157 for all
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a
recurring  basis (at least annually). FSP 157-2 is effective for us
beginning January 1, 2009. The adoption of this will not have a material impact
on our consolidated financial
statements.
  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 required us to
measure plan assets and benefit obligations at fiscal year end. We previously
performed this measurement at September 30 of each year. 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 recorded $0.5 million as an adjustment to opening retained
earnings in the fourth quarter of 2008 as a result of adopting this provision
for our U.S. and non-U.S. pension plans.
  In
September 2006, the Emerging Issues Task Force (“EITF”) issued EITF 06-4, Accounting
for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements(“EITF
06-04”), which became 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. Upon adoption of EITF
06-4, as of January 1, 2008, we increased our accumulated deficit $0.9 million,
recognized a $1.4 million long-term liability, and recorded a tax effect of $0.5
million within long-term deferred tax assets.
 
 48
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
A: Significant Accounting Policies (Continued)
 
 
 In
December 2007, the FASB issued SFAS No. 141R, Business
Combinations, which is 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 non-controlling 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.
  In
April 2008, the FASB issued FSP No. FAS 142-3, Determination
of the Useful Life of Intangible Assets. The final FSP amends the factors
that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No.142,
Goodwill and Other Intangible Assets.
The FSP is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years. We are
in the process of evaluating the impact FSP 142-3 will have on our consolidated
financial statements.
  In
March 2008, the FASB issued SFAS No. 161, Disclosures
about Derivative Instruments and Hedging Activities, an amendment of FASB
Statement No. 133, which requires additional disclosures about the
objectives of the derivative instruments and hedging activities, the method of
accounting for such instruments under SFAS No. 133 and its related
interpretations, and a tabular disclosure of the effects of such instruments and
related hedged items on our financial position, financial performance, and cash
flows. SFAS No. 161 is effective for us beginning January 1, 2009. We are
currently assessing the potential impact that adoption of SFAS No. 161 may have
on our financial statements.
  In
December 2008, the FASB issued FSP No. FAS 132 (R) -1, Employers’
Disclosures about Postretirement Benefit Plan Assets, an amendment of FASB
Statement No. 132 (revised 2003).It provides guidance on an employer’s
disclosures about plan assets, including: how investment allocation decisions
are made and factors that are pertinent to an understanding of investment
policies and strategies; the major categories of plan assets; the inputs and
valuation techniques used to measure the fair value of plan assets; the effect
of fair value measurements using significant unobservable inputs (level 3) on
changes in plan assets for the period, and significant concentrations of risks
within plan assets.FSP FAS 132 (R) -1 is effective for fiscal years ending after December
15, 2009. We are currently assessing the potential impact that adoption of this
FSP may have on our financial statements.
  Reclassification.
  Note
B: Cash and Cash Equivalents, Short-term Investments and Long-term
Debt
  Cash
and cash equivalents amounted to $221.3 and $237.2 million at December 31,
2008 and 2007, respectively, and consisted mainly of bank deposits and money
market funds. Cash and cash equivalents at December 31, 2008 and 2007,
include $0.4 million and $1.4 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 invested in a Wells
Fargo & Company money market fund which represents 44% of cash and cash
equivalents at December 31, 2008.
  Short-term
investments totaled $0.2 million at December 31, 2008 and primarily consisted of
marketable equity securities classified as available-for-sale. The total
unrealized loss included in other comprehensive loss was $0.3 million before
tax. We evaluated the duration of the impairment and concluded that such amount
was not “other-than-temporary.”
 Long-term
debt comprises the following (thousands of dollars):
  Current
      Portion of Long-term DebtDecember
      31,2008
                      
                      
                      2007Debentures,
      with interest at 7.00%, due March 2008
                      
                      $
                      -
                      
                      
                      $
                      100,000Total
      long-term obligations
                      
                      $
                      -
                      
                      
                      $
                      100,000
 
 
 49
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
B: Cash and Cash Equivalents, Short-term Investments and Long-term Debt
(Continued)
  In
March 2008, we repaid the remaining $100 million ten-year notes and have no
remaining long-term debt.
 SFAS
No. 157 requires financial assets and liabilities to be classified and disclosed
in one of the following three categories:
  ●              Level
1: Inputs based on quoted market prices for identical assets or liabilities in
active markets.
 ●              Level
2: Observable market based inputs or unobservable inputs that are corroborated
by market data.
 ●              Level
3: Unobservable inputs that are not corroborated by market
data.
 
 Our
level 1 financial instrument values are based on quoted market prices in
active markets for identical assets, which we use to value our certificates of
deposit, money market funds and equity securities. Our level 2 financial
instrument values are based on comparable sales, such as quoted market rates for
similar contracts. We do not have any financial instruments that
require
 valuation
using level 3 inputs.
  Our
financial assets and liabilities subject to these fair value measurement
provisions comprised the following (thousands of dollars):
  Balance
      as ofLevel
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    December
      31, 2008Money
      market funds
                    
                    $
                    132,309
                    
                    
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    132,309Certificates
      of deposit
                    
                    
                    3,709
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    3,709Stock
                    
                    
                    156
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    156Derivative
      instruments – assets
                    
                    
                    -
                    
                    
                    $
                    3,712
                    
                    
                    
                    -
                    
                    
                    
                    3,712Total
      assets at fair value
                    
                    $
                    136,174
                    
                    
                    $
                    3,712
                    
                    
                    $
                    -
                    
                    
                    $
                    139,886Balance
      as ofLevel
      1
                    
                    
                    Level
      2
                    
                    
                    Level
      3
                    
                    
                    December
      31, 2008Derivative
      instruments – liabilities
                    
                    $
                    -
                    
                    
                    $
                    (7,271)
                    
                    
                    $
                    -
                    
                    
                    $
                    (7,271)Total
      liabilities at fair value
                    
                    $
                    -
                    
                    
                    $
                    (7,271)
                    
                    
                    $
                    -
                    
                    
                    $
                    (7,271)
  On
September 27, 2007, we entered into a new unsecured Revolving Credit
Facility with Wells Fargo Bank, National Association (the “Revolving Facility”)
with a maximum amount available under the Revolving Facility of $50.0 million.
In December 2008 we made a non-material amendment to the form of Revolving Line
of Credit Note under the Revolving Facility. Net of outstanding letters of
credit and limitations on availability, we had borrowing capacity at December
31, 2008, of $46.9 million under the Revolving Facility. We had no outstanding
borrowings under the Revolving Facility as of December 31, 2008. As of
December 31, 2008, we were in compliance with the financial covenants of
the Revolving Facility. The Revolving Facility matures in October
2012.
 50
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 Note
B: Cash and Cash Equivalents, Short-term Investments and Long-term Debt
(Continued)
 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.
  At
December 31, 2008 and 2007, we had no variable rate borrowings. Fair values of
our accounts receivable and accounts payable and accrued expenses as well as
payroll and related expenses approximate their carrying values due to their
short-term nature.
  We
also have letter-of-credit reimbursement agreements totaling $3.7 million at
December 31, 2008, compared to $3.9 million at December 31, 2007. As
of December 31, 2008, these letter-of-credit agreements relate to
performance on contracts with customers and vendors.
  Note
C: Inventories
  Inventories
comprise the following (thousands of dollars):
  December
      31,2008
                      
                      
                      2007Raw
      materials
                      
                      $
                      54,680
                      
                      
                      $
                      65,257Work
      in process
                      
                      
                      269
                      
                      
                      
                      1,318Finished
      goods
                      
                      
                      62,000
                      
                      
                      
                      46,569Inventories
                      
                      $
                      116,949
                      
                      
                      $
                      113,145
 51
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
D: Property, Plant and Equipment, Net, and
Commitments
  Property,
plant and equipment, net, comprise the following (thousands of
dollars):
  December
      31,2008
                    
                    
                    2007Property,
      plant and equipment, at costLand
                    
                    $
                    4,924
                    
                    
                    $
                    6,080Buildings
      and improvements
                    
                    
                    6,502
                    
                    
                    
                    8,508Machinery
      and equipment
                    
                    
                    137,795
                    
                    
                    
                    139,040Total
      property, plant and equipment, at cost
                    
                    
                    149,221
                    
                    
                    
                    153,628Less:
      accumulated depreciation
                    
                    
                    (107,873
                    )
                    
                    
                    (105,896
                    )Property,
      plant and equipment, net
                    
                    $
                    41,348
                    
                    
                    $
                    47,732
 
 Included
in machinery and equipment above, as of December 31, 2008 and 2007, is the
capitalization of imputed interest of $0.2 million and $0.6 million,
respectively, related to improvements to our Enterprise Resource Planning (“ERP”)
system.
  Depreciation
expense from continuing operations was $15.5 million, $12.6 million and $10.5
million for the years ended December 31, 2008, 2007 and 2006,
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
  As
of December 31, 2008 and 2007, we deferred $2.8 and $3.2 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, 2008 (thousands of dollars):
  2009
                      
                      $
                      11,9152010
                      
                      
                      10,3302011
                      
                      
                      7,9662012
                      
                      
                      6,6052013
                      
                      
                      6,448Thereafter
                      
                      
                      7,942Total
                      
                      $
                      51,206
  Rental
expense for operating leases of continuing operations, including amounts for
short-term leases with nominal, if any, future rental commitments, was $11.9
million, $9.1 million and  $11.0 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
  Aggregate
future minimum rental income to be received under non-cancelable subleases is
$1.0 million at December 31, 2008.
 52
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
E: Intangibles, Net
  For
the year ended December 31, 2008, intangibles, net comprised a $3.5 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
      31,2008
                    
                    2007Amortizable
      intangibles:Gross
      carrying amount
                    
                    $
                    11,962
                    
                    
                    $
                    11,617Accumulated
      amortization
                    
                    
                    (8,441
                    )
                    
                    
                    (7,479
                    )Intangibles,
      net
                    
                    $
                    3,521
                    
                    
                    $
                    4,138
 
 Amortization
expense on intangible assets was $1.0 million, $0.7 million and $0.4 million,
for the years ended December 31, 2008, 2007 and 2006,
respectively.
 Estimated
amortization expense for the succeeding five fiscal years is as follows
(thousands of dollars):
  Year
      Ending December 31,2009
                      
                      $
                      1,0312010
                      
                      
                      7442011
                      
                      
                      4662012
                      
                      
                      3982013
                      
                      
                      398
 
 Note
F: Shareholders’ Equity
  Stock
Awards
  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) is as follows:
  2008
                            
                            
                            2007
                            
                            
                            2006Cost
      of revenues
                            
                            $
                            229
                            
                            
                            $
                            507
                            
                            
                            $
                            275Selling,
      general and administrative
                            
                            
                            6,462
                            
                            
                            
                            8,464
                            
                            
                            
                            4,487$
                            6,691
                            
                            
                            $
                            8,971
                            
                            
                            $
                            4,762
 53
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Equity (Continued)
  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:
  2008
                      
                      2007
                      
                      2006Risk-free
      interest rate
                      
                      
                      3.08
                      %
                      4.72
                      %
                      4.82
                      %Expected
      option life (in years)
                      
                      
                      4.73
                      
                      4.90
                      
                      4.80Expected
      stock price volatility
                      
                      
                      42.12
                      %
                      38.35
                      %
                      40.15
                      %Expected
      dividend yield
                      
                      
                      0.00
                      %
                      0.00
                      %
                      0.00
                      %
 
 Our
computation of expected volatility for 2008, 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 2008, 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 was $8.38,
$9.87 and $12.80 per share for the years ended December 31, 2008, 2007 and 2006,
respectively. All grants of our options under all plans must be approved or
authorized by the Board of Directors or the Compensation Committee of the Board
of Directors, which consists entirely of non-employee directors.
 Our 2008
Omnibus Incentive Plan was approved by our shareholders on May 23, 2008 (the
“2008 Omnibus Plan”).  The 2008 Omnibus Plan provides for the grant of
incentive awards to officers, other employees, directors and
consultants.   Previously, we made grants of incentive awards
under the 2004 Omnibus Incentive Compensation Plan, the 2002 Director Stock
Option and Fee Plan, the 2001 Stock Incentive Plan, and the 1999 Stock Incentive
Plan (collectively, the “Prior Plans”).  However, as of the date of
shareholder approval of the 2008 Omnibus Plan, the 2008 Omnibus Plan replaced
the Prior Plans and no new grants will be made under any of the Prior
Plans.
 
 The
number of shares of common stock authorized for issuance under the 2008 Omnibus
Plan is 3,650,000. In addition, (a) any shares not subject to awards under
the Prior Plans as of May 23, 2008 (the date of stockholder approval of the 2008
Omnibus Plan) plus (b) any shares subject to outstanding awards under the
Prior Plans as of May 23, 2008 that cease to be subject to such awards (other
than from exercise or settlement of the awards in vested shares, such as from
awards expiring, terminating or being forfeited) will automatically become
available for issuance under the 2008 Omnibus Plan, up to an aggregate maximum
of  4,764,363 shares.  Including the number of shares
that may become available for issuance under the 2008 Omnibus Plan from the
Prior Plans, as of May 23, 2008, the maximum number of shares that may be issued
under the 2008 Omnibus Plan was 8,414,363 shares.
 
 Shares of
common stock covered by an award granted under the 2008 Omnibus Plan will not be
counted as used unless and until they are issued and delivered to a
participant.   Such shares may also become available again for
issuance under the 2008 Omnibus Plan if the awards to which the shares are
subject are forfeited, lapse or expire, are settled in cash, or the shares are
withheld for payment of taxes or the purchase price of an award.
 
 As of
December 31, 2008, there were 981,569 shares subject to outstanding awards
granted under the 2008 Omnibus Plan.  As of December 31, 2008, there
were 3,104,290 shares subject to outstanding awards granted under the Prior
Plans.
  Incentive
awards may be granted in the form of nonqualified or incentive stock options,
stock appreciation rights, restricted stock, stock units and performance units,
performance shares or other stock or cash-based awards. Under the 2008 Omnibus
Plan (with limited exceptions) and under the Prior Plans, stock options may not
be granted at an exercise price less than the fair market value of our common
stock on the date of grant. Options granted under the 2008 Omnibus Plan
generally vest in equal increments over four years and expire in ten years,
except in the case of earlier termination of employment or service; options
granted under the Prior Plans generally vest in equal increments over five years
and expire in ten years, except in the case of earlier termination of employment
or service.
 54
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Equity (Continued)
  The 2002
Director Stock Option and Fee Plan (“2002 DSOP”) was one of the Prior
Plans.  Upon approval of the 2008 Omnibus Plan, the 2002 DSOP was
amended and restated and renamed the “Director Deferred Compensation
Plan.”  The 2002 DSOP and the 1997 Director Stock Option Plan (“1997
DSOP” and, collectively, “DSOPs”) provided for the grant of stock options to our
non-employee directors. The number of shares authorized for grant under the 2002
DSOP was 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 were
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 was fixed by the 2002 DSOP. 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. For 2007, the options granted to our directors under the
2002 DSOP vested over four quarters.
 
 Beginning
in 2008, upon approval of the 2008 Omnibus Plan, grants of stock options and
other awards are made to our non-employee directors under the 2008 Omnibus
Plan.  Under the “Director Compensation Program under the 2008 Omnibus
Incentive Plan” (the “2008 Program”), directors are annually granted a
combination of stock options and restricted deferred stock units.  The
number of stock options and restricted deferred stock units is determined under
the terms of the 2008 Program.  Certain pro rata grants were made in
2008 to reflect the transition from the arrangements in prior calendar years,
and these grants vested on December 31, 2008.  Otherwise, annual
option grants generally vest and become exercisable in four equal installments
on the first business day of each fiscal quarter, beginning on the date of
grant, and generally expire seven years from the date of grant. Restricted
deferred stock unit grants become fully vested on the date of the annual meeting
of stockholders following the date of grant, provided a director continues to
serve on the Board during that period. In the event of a director’s termination
of service prior to vesting, all unvested restricted deferred stock units are
automatically forfeited to the Company. All restricted deferred stock unit
grants to directors under the 2008 Program will automatically be deferred into
and subject to the Director Deferred Compensation Plan.
 As of
December 31, 2008, there were 4.5 million shares available for grant under
our 2008 Omnibus Plan. The following table summarizes changes in options
outstanding and exercisable under both the 2008 Omnibus Plan and under our Prior
Plans:
 Outstanding
                          
                          ExercisableNumber
      of Shares
                          
                          Weighted-Average
      Exercise Price Per Share
                          
                          Number
      of Shares
                          
                          Weighted-Average
      Exercise Price Per ShareJanuary
      1, 2006
                          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
                          
                          $
                          16.03Granted
                          1,029,862
                          
                          
                          21.17Exercised
                          (373,566)
                          
                          
                          11.22Forfeited
                          (269,620)
                          
                          
                          21.80Canceled
                          (53,900)
                          
                          
                          16.59December
      31, 2008
                          3,280,232
                          
                          $
                          20.66
                          
                          1,563,340
                          
                          $
                          15.12
 55
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Equity (Continued)
  As
of December 31, 2008, there was $12.7 million of total unrecognized
compensation cost related to non-vested options. That cost is expected to be
recognized over a weighted average period of 2 years and 6
months.
  Number
      of Shares
                    
                    
                    Weighted
      Average Exercise Price
                    
                    
                    Weighted
      Average Remaining Contractual Term (In Years)
                    
                    
                    Aggregate
      Intrinsic Value (In millions)Vested
                    
                    
                    1,107,689
                    
                    
                    $
                    17.55
                    
                    
                    
                    5.84
                    
                    
                    $
                    2.4Expected
      to vest
                    
                    
                    1,104,773
                    
                    
                    $
                    23.04
                    
                    
                    
                    8.44
                    
                    
                    $
                    0.1Total
                    
                    
                    2,212,462
                    
                    
                    $
                    20.29
                    
                    
                    
                    7.14
                    
                    
                    $
                    2.5
 
 During
fiscal years 2008, 2007, and 2006, the following activity occurred under our
plans:
  (in thousands)
                    
                    2008
                    
                    
                    2007
                    
                    
                    2006Total
      intrinsic value of stock options exercised
                    
                    $
                    7,932
                    
                    
                    $
                    8,004
                    
                    
                    $
                    12,395Total
      fair value of stock awards vested
                    
                    
                    30
                    
                    
                    
                    1,330
                    
                    
                    
                    1,867Total
      fair value of shared performance stock awards vested
                    
                    
                    855
                    
                    
                    
                    1,236
                    
                    
                    
                    -
 The
table below summarizes outstanding stock option data as of December 31, 2008,
excluding 455,651 options outstanding, held by directors:
  Options
      Outstanding
                                
                                Options
      ExercisableRange
      of Exercise Prices
                                
                                Number
      of Shares
                                
                                Weighted-Average
      Remaining Contractual Life (in years)
                                
                                Weighted-Average
      Exercise Price
                                
                                Number
      of Shares
                                
                                Weighted-Average
      Exercise Price$3.52
      - $7.84
                                
                                
                                323,485
                                
                                
                                2.95
                                
                                $
                                5.97
                                
                                
                                323,485
                                
                                $
                                5.97$10.59
      - $16.96
                                
                                
                                103,900
                                
                                
                                1.52
                                
                                
                                13.03
                                
                                
                                41,000
                                
                                
                                14.40$17.19
      - $19.99
                                
                                
                                512,828
                                
                                
                                3.58
                                
                                
                                18.81
                                
                                
                                306,823
                                
                                
                                18.87$22.00
      - $27.53
                                
                                
                                1,884,368
                                
                                
                                1.87
                                
                                
                                24.06
                                
                                
                                436,381
                                
                                
                                25.512,824,581
                                
                                
                                2.29
                                
                                $
                                20.63
                                
                                
                                1,107,689
                                
                                $
                                17.55
 56
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  
 Note
F: Shareholders’ Equity (Continued)
  The
following table summarizes changes in nonvested restricted stock
awards:
  Number
      of Shares
                        
                        Weighted-Average
      Grant Date Fair ValueRestricted
      stock:Non-vested
      balance at December 31, 2006
                        113,361
                        
                        $
                        26.63Granted
                        24,000
                        
                        
                        22.63Vested
                        (60,619)
                        
                        
                        21.94Forfeited
                        (12,742)
                        
                        
                        22.01Non-vested
      balance at December 31, 2007
                        64,000
                        
                        $
                        22.51Granted
                        4,000
                        
                        
                        17.53Vested
                        (21,333)
                        
                        
                        27.24Forfeited
                        -
                        
                        
                        -Non-vested
      balance at December 31, 2008
                        46,667
                        
                        $
                        18.61
 
 The
fair value of each restricted stock award (“RSA”) and restricted stock unit
(“RSU”) is the market price of our stock on the date of grant. As of December
31, 2008, 2007 and 2006, there was $0.2 million, $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 6 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; we also refer to them as performance stock unit awards. 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 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 $0.9
million, $1.4 million and $(1.0) million for the years ended December 31,
2008, 2007 and 2006, 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
  Our 2008
Employee Stock Purchase Plan was approved by our shareholders on May 23, 2008
(the “2008 ESPP”) and became effective on July 1, 2008 (the “2008
ESPP”).  Under the 2008 ESPP, 1,500,000 shares of our common stock are
authorized and reserved for issuance.
 
 The 2008
ESPP provides for the issuance to our employees of shares of our common stock
pursuant to options granted under:  (a) an employee stock purchase
plan that is intended to qualify under the terms of Internal Revenue Code
Section 423(b) (the “423 Plan”); and (b) an employee stock purchase
plan that is not intended to qualify under Internal Revenue Code
Section 423(b) (the “Non-423 Plan”).  Participants granted
options under the 423 Plan must have the same rights and privileges within the
meaning of U.S. federal tax laws, except as may be required by other applicable
laws.
 
 If an
Intermec subsidiary participates either in the 423 Plan or in the Non-423 Plan,
all eligible employees of that subsidiary may elect to participate in the 2008
ESPP. Eligible employees who elect to participate in the 2008 ESPP may authorize
payroll deductions for the purchase of our common stock but may not purchase
more than $25,000 worth of shares in any calendar year (based on the fair market
value of a share as of the beginning of an offering period). Participants may,
at any time and for any reason, cancel their payroll deduction authorizations
and have accumulated payroll deductions applied to the purchase of shares under
the 2008 ESPP or have the amount refunded to them. Offering periods under the
2008 ESPP begin on the first day of the quarter and end on the last day of that
quarter. Accumulated payroll deductions are used to purchase our common stock at
85 percent of the fair market value of a share as of the last day of an offering
period.
 57
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
F: Shareholders’ Equity (Continued)
  Before
the 2008 ESPP became effective, we administered an employee stock purchase plan
that had been adopted by our Board and approved by our shareholders in 1997 (the
“Prior ESPP”).  The Prior ESPP terminated on July 1,
2008.  Under the Prior ESPP, 5,000,000 shares of our common stock were
reserved for issuance.  The eligibility of employees to participate in
the Prior ESPP, contribute payroll deductions and cancel payroll deduction
authorizations was substantially the same as described in the preceding
paragraph regarding the 2008 ESPP.  Similarly, the offering period and
purchase price of our common stock (i.e., 85 percent of the fair market
value of a share as of the grant date applicable to the participant) was
the same under the Prior ESPP as it is currently under the 2008
ESPP.
 
 The
company incurs a compensation expense equal to the value of the 15 percent
discount given to participants for the purchase of shares under the 2008 ESPP
and, previously, under the Prior ESPP. The aggregate compensation expense
related to the 2008 ESPP and the Prior ESPP for the years ended December 31,
2008, 2007 and 2006 was $516,000, $510,700 and $543,000,
respectively.
 Capital
Stock
  At
December 31, 2008 and 2007, 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, 2008 and 2007, 61,766,095 and 61,192,019 shares of
common stock were outstanding, respectively. There were no shares of preferred
stock outstanding at December 31, 2008 or 2007.
  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:
  2008
                    
                    2007
                    
                    2006Weighted
      average common shares – basic
                    
                    
                    61,182,854
                    
                    60,358,552
                    
                    
                    62,535,286Dilutive
      effect of options, unvested restricted shares and other common stock
      equivalents
                    
                    
                    475,306
                    
                    804,658
                    
                    
                    1,294,477Weighted
      average shares – diluted
                    
                    
                    61,658,160
                    
                    61,163,210
                    
                    
                    63,829,763
 
 At
December 31, 2008 and 2007, employees and directors held options to
purchase 2,864,405 and 1,012,315  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.
 Accumulated
Other Comprehensive (Loss) Income
  At
December 31, 2008 and 2007, accumulated other comprehensive (loss) income
comprised the following, (thousands of dollars):
  December
      31,2008
                                    
                                    
                                    2007Currency
      translation adjustment, net
                                    
                                    $
                                    (792
                                    )
                                    
                                    $
                                    8,842Unamortized
      benefit plan costs, net of tax benefit of $27,419 and $4,320,
      respectively
                                    
                                    
                                    (49,645
                                    )
                                    
                                    
                                    (7,884
                                    )Unrealized
      (loss) gain on securities, net
                                    
                                    
                                    (319
                                    )
                                    
                                    
                                    95Accumulated
      other comprehensive (loss) income
                                    
                                    $
                                    (50,756
                                    )
                                    
                                    $
                                    1,053
 58
 
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 Note
G: Restructuring
  In
July 2008, we committed to a business restructuring plan intended to reduce our
cost structure and streamline operations. Pursuant to this plan, we
relocated the final assembly of our product lines from Everett, Washington, to
Venture Corporation Limited, a global electronics services
provider.  As part of the plan, we have consolidated two U.S. service
depots to existing locations in Charlotte, North Carolina and Monterey, Mexico
and transferred our on-site field service repair to a third party
supplier.
  We
commenced implementation of the plan in the third quarter of 2008 and expect the
plan to be fully implemented by June 30, 2009.  As of December 31,
2008, 230 employees have been terminated as part of the
restructuring.  We expect all severance and other periodic
transitional costs will be cash expenditures. All the restructuring costs have
been accrued as of December 31, 2008. The aggregate costs incurred to date are
presented in restructuring costs in the Condensed Consolidated Statement of
Operations and are itemized along with expected additional costs in the table
below.
  In
      millions of dollars
                    
                    SFAS
      No. 112
                    
                    
                    SFAS
      No. 146
                    
                    
                    Employee
      termination
                    
                    
                    Other
      costs
                    
                    
                    Total
      restructuringTotal
      RestructuringOriginal
      restructuring charge
                    
                    $
                    3.0
                    
                    
                    $
                    2.1
                    
                    
                    $
                    5.1
                    
                    
                    $
                    0.7
                    
                    
                    $
                    5.8Utilization
                    
                    
                    (1.8
                    )
                    
                    
                    (2.1
                    )
                    
                    
                    (3.9
                    )
                    
                    
                    (0.6
                    )
                    
                    
                    (4.5
                    )Balance
      at December 31,  2008
                    
                    $
                    1.2
                    
                    
                    $
                    -
                    
                    
                    $
                    1.2
                    
                    
                    $
                    0.1
                    
                    
                    $
                    1.3Utilization
      by segmentServices
                    
                    $
                    1.2Products
                    
                    $
                    3.3
 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
were reassigned to other parts of our business or moved to third-party vendors
to improve efficiencies and reduce costs. In addition to the anticipated cost
savings, this realignment of resources was expected to increase new product
development capacity. This restructuring activity was substantially completed by
the end of 2006.
  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 was substantially completed by
the end of 2006.
  As
of December 31, 2006, 86 employees had been terminated and $1.6 million in
severance costs had been paid. The total restructuring costs of $11.6 million
include employee termination expense of $9.9 million, facility closure costs of
$1.3 million and $0.4 million of other exit costs in accordance with SFAS No.
146, Accounting
for Costs Associated with Exit or Disposal Activities.
  Note
H: Discontinued Operations
  During
the fourth quarter of 2004, we committed to a plan to dispose of our IAS
business, comprising the Cincinnati Lamb and Landis Grinding Systems businesses,
after it was determined that the IAS business was no longer aligned with our
long-term strategy. In accordance with SFAS No. 144, Accounting for Disposal or Impairment of Long-Lived
Assets, the IAS business is classified as discontinued operations in our
consolidated financial statements for all periods presented.
  In
2007 the loss from discontinued operations, before tax, includes the write-off
of a $2.0 million account receivable related to the sale of the Cincinnati Lamb
business. In 2006, the loss from discontinued operations, before tax, 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.
 59
 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 31,2008
                    
                    2007
                    
                    2006United
      States
                    
                    $
                    34,205
                    
                    
                    $
                    26,180
                    
                    
                    $
                    34,426International
                    
                    
                    15,096
                    
                    
                    
                    12,998
                    
                    
                    
                    11,148Earnings
      from continuing operations before income taxes
                    
                    $
                    49,301
                    
                    
                    $
                    39,178
                    
                    
                    $
                    45,574
 
 Income
taxes for continuing operations consist of the following provision (thousands of
dollars):
  Year
      Ended December 31,2008
                                      
                                      
                                      2007
                                      
                                      
                                      2006Current:United
      States
                                      
                                      $
                                      (484
                                      )
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      (1,210
                                      )State
                                      
                                      
                                      744
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      37International
                                      
                                      
                                      3,596
                                      
                                      
                                      
                                      6,488
                                      
                                      
                                      
                                      (1,315
                                      )Total
      current
                                      
                                      
                                      3,856
                                      
                                      
                                      
                                      6,488
                                      
                                      
                                      
                                      (2,488Deferred:United
      States
                                      
                                      
                                      8,110
                                      
                                      
                                      
                                      7,688
                                      
                                      
                                      
                                      15,527State
                                      
                                      
                                      1,958
                                      
                                      
                                      
                                      865
                                      
                                      
                                      
                                      (2,482
                                      )International
                                      
                                      
                                      (309
                                      )
                                      
                                      
                                      (198
                                      )
                                      
                                      
                                      18Total
      deferred
                                      
                                      
                                      9,759
                                      
                                      
                                      
                                      8,355
                                      
                                      
                                      
                                      13,063Provision
      for income taxes
                                      
                                      $
                                      13,615
                                      
                                      
                                      $
                                      14,843
                                      
                                      
                                      $
                                      10,575
 
 The
following is a reconciliation of income taxes at the U.S. statutory rate to the
provision for income taxes:
  Year
      Ended December 31,2008
                                            
                                            
                                            2007
                                            
                                            
                                            2006Tax
      at U.S. statutory rate
                                            
                                            
                                            35.0
                                            %
                                            
                                            
                                            35.0
                                            %
                                            
                                            
                                            35.0
                                            %State
      income taxes, net of federal benefit
                                            
                                            
                                            3.7
                                            %
                                            
                                            
                                            1.2
                                            %
                                            
                                            
                                            (1.6
                                            )%Research
      and experimentation tax credits
                                            
                                            
                                            (1.8
                                            )%
                                            
                                            
                                            (3.4
                                            )%
                                            
                                            
                                            (1.2
                                            )%U.S.
      tax on repatriation of earnings
                                            
                                            
                                            0.1
                                            %
                                            
                                            
                                            (0.9
                                            )
      %
                                            
                                            
                                            (1.3
                                            )
      %Foreign
      net earnings taxed at other than U.S. statutory rate
                                            
                                            
                                            (2.9
                                            )%
                                            
                                            
                                            2.3
                                            %
                                            
                                            
                                            (4.0
                                            )%Foreign
      Tax Credit adjustments
                                            
                                            
                                            (10.8
                                            )%
                                            
                                            
                                            (0.0
                                            )
      %
                                            
                                            
                                            (0.0
                                            )
      %Extraterritorial
      income exclusion
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            (1.5
                                            )%Tax
      settlement
                                            
                                            
                                            (0.3
                                            )%
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            (11.9
                                            )%Provision
      to return true up
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            4.9
                                            %Change
      in tax contingencies
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            (3.3
                                            )%
                                            
                                            
                                            0.0
                                            %Nondeductible
      expenses
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            2.0
                                            %Change
      in valuation allowance
                                            
                                            
                                            1.1
                                            %
                                            
                                            
                                            5.6
                                            %
                                            
                                            
                                            0.0
                                            %Stock
      compensation expense
                                            
                                            
                                            1.8
                                            %
                                            
                                            
                                            2.2
                                            %
                                            
                                            
                                            1.8
                                            %Officer’s
      life insurance
                                            
                                            
                                            0.0
                                            %
                                            
                                            
                                            (2.1
                                            )%
                                            
                                            
                                            0.0
                                            %Other
      items
                                            
                                            
                                            1.7
                                            %
                                            
                                            
                                            1.3
                                            %
                                            
                                            
                                            0.9
                                            %Provision for income taxes
                                            
                                            
                                            27.6
                                            %
                                            
                                            
                                            37.9
                                            %
                                            
                                            
                                            23.2
                                            %
  60
 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
      31,2008
                                        
                                        
                                        2007Current
      deferred tax assets:Accrued
      expenses
                                        
                                        $
                                        13,246
                                        
                                        
                                        $
                                        13,970Receivable
      and inventories
                                        
                                        
                                        12,476
                                        
                                        
                                        
                                        10,264Net
      operating loss carryforwards
                                        
                                        
                                        23,901
                                        
                                        
                                        
                                        37,730Capitalized
      R&D
                                        
                                        
                                        3,346
                                        
                                        
                                        
                                        -Tax
      credit carryforwards
                                        
                                        
                                        6,265
                                        
                                        
                                        
                                        -Other
      items
                                        
                                        
                                        1,342
                                        
                                        
                                        
                                        1,400Total
      current deferred tax assets
                                        
                                        
                                        60,576
                                        
                                        
                                        
                                        63,364Valuation
      allowance
                                        
                                        
                                        (4,281
                                        )
                                        
                                        
                                        (1,832
                                        )Net
      current deferred tax assets
                                        
                                        
                                        56,295
                                        
                                        
                                        
                                        61,532Long-term
      deferred tax assets:Postretirement
      obligations
                                        
                                        
                                        33,652
                                        
                                        
                                        
                                        11,163Intangibles
                                        
                                        
                                        6,413
                                        
                                        
                                        
                                        8,601Tax
      credit carryforwards
                                        
                                        
                                        89,376
                                        
                                        
                                        
                                        88,891Deferred
      income
                                        
                                        
                                        6,312
                                        
                                        
                                        
                                        7,125Fixed
      assets
                                        
                                        
                                        1,381
                                        
                                        
                                        
                                        1,676Net
      operating loss carryforwards
                                        
                                        
                                        1,092
                                        
                                        
                                        
                                        30,839Capitalized
      R&D
                                        
                                        
                                        25,103
                                        
                                        
                                        
                                        12,600Cumulative
      translation adjustments
                                        
                                        
                                        1,158
                                        
                                        
                                        
                                        1,172Other
      items
                                        
                                        
                                        8,273
                                        
                                        
                                        
                                        1,512Total
      long-term deferred tax assets
                                        
                                        
                                        172,760
                                        
                                        
                                        
                                        163,579Valuation
      allowance
                                        
                                        
                                        (4,926
                                        )
                                        
                                        
                                        (13,425
                                        )Net
      deferred tax assets
                                        
                                        
                                        167,834
                                        
                                        
                                        
                                        150,154Deferred
      tax liabilities:Pensions
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (784
                                        )Net
      deferred tax asset
                                        
                                        $
                                        224,129
                                        
                                        
                                        $
                                        210,902
  61
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
I: Income Taxes (Continued)
  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 it was not
more likely than not that we would  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 are 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 tax losses and tax
credits that remain with us from discontinued operations.
 
 In
the fourth quarter of 2008, we elected to convert $8.4 million of foreign taxes
from deductions to tax credits for a net benefit to our tax provision of
approximately $5.3 million.
  In
2008, we provided a valuation allowance of $1.2 million and $0.3 million for
research credits and capital losses, respectively, which are not expected to be
used within their carry forward periods.  We also reduced our
valuation allowance by $0.7 million for foreign losses which were utilized in
2008.  Finally, we reduced our valuation allowance by $6.9 million for
United Kingdom capital losses; however, this change was offset by the
corresponding deferred tax asset, resulting in no net effect to the tax
provision from U.K. capital losses.
 We
have available at December 31, 2008 net operating tax loss carry-forwards
in the United States of approximately $68 million, which have expiration dates
from 2023 through 2025.  We also have $35.5 million general business
credit carry-forwards and $60.5 million foreign tax credit carry-forwards at
December 31, 2008. The general business credit carry-forwards have
expiration dates ranging from 2010 through 2028. The foreign tax credit
carry-forwards have expiration dates ranging from 2009 to 2018. We have a
valuation allowance of $2.2 million at December 31, 2008 for general business
credit carry-forwards.  At
December 31, 2008, we have foreign net operating tax loss carry-forwards in
the Netherlands which result in a deferred tax asset of $0.3 million after
considering a valuation allowance of $0.5 million.
  We
have available at December 31, 2008 capital tax loss carry-forwards in the
United States of approximately $8.2 million which expire in 2010. We also have
available at December 31, 2008 capital loss carry-forwards in the U.K. of
approximately $23.0 million which carry forward indefinitely.  No
deferred tax asset has been recognized for capital loss carry-forwards in the
United States or the U.K.
  We have
a valuation allowance of $5.9 million at December 31, 2008 for deferred tax
assets related to state net operating tax loss carry-forwards from discontinued
operations.  We have recognized deferred tax assets of $1.9 million at
December 31, 2008 for state net operating loss carry-forwards from continuing
operations.
 62
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
I: Income Taxes (Continued)
 
 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 U.S.;
the total amount of such earnings as of December 31, 2008, was $83.3
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 FIN No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement 109(“FIN 48”).   The following table sets forth the
reconciliation of the beginning and ending amount of unrecognized tax benefits
at December 31, 2008 (thousands of dollars):
 
 For
      the year ended December 31, 2008
                                  
                                  
                                  For
      the year ended December 31, 2007Balance
      at January 1
                                  
                                  $
                                  19,951
                                  
                                  
                                  $
                                  21,132Additions
      related to positions taken this year
                                  
                                  
                                  288
                                  
                                  
                                  
                                  -Additions
      for tax positions of prior years
                                  
                                  
                                  -
                                  
                                  
                                  
                                  641Reductions
      for tax positions of prior years
                                  
                                  
                                  (42
                                  )
                                  
                                  
                                  (1,633
                                  )Reduction
      for tax positions of prior years – lapse of statute
                                  
                                  
                                  (150
                                  )
                                  
                                  
                                  (189
                                  )Settlements
                                  
                                  
                                  (109
                                  )
                                  
                                  
                                  -Balance
      at December 31
                                  
                                  $
                                  19,938
                                  
                                  
                                  $
                                  19,951
 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 no significant interest or penalties for the year ended December 31,
2008.  We had approximately $0.1 million for the payment of interest
and penalties accrued at December 31, 2008.
 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 to 2008 remain effectively 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, 2008.
  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 were $16.5 million.
 63
 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 are intended to 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 $2.8 million and $2.6 million for the 15
months ended December 31, 2008 and the twelve months ended September 30, 2007,
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’ equity 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 required us to measure plan assets and benefit
obligations at fiscal year end. We previously performed this measurement at
September 30 of each year. This Standard required 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.
 64
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note K: Pension and
Other Postretirement Benefit Plans (Continued)
 As
of December 31, 2008, we use a measurement date of December 31 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):
  15
      Month Period Ending December 31,  2008
                                      
                                      
                                      12
      Month Period Ending September 30, 2007U.S.
                                      
                                      
                                      Non
      U.S.
                                      
                                      
                                      U.S.
                                      
                                      
                                      Non
      U.S.Change
      in benefit obligations:Benefit
      obligation at beginning of year
                                      
                                      $
                                      174,263
                                      
                                      
                                      $
                                      48,267
                                      
                                      
                                      $
                                      182,767
                                      
                                      
                                      $
                                      53,062Service
      cost
                                      
                                      
                                      1,698
                                      
                                      
                                      
                                      289
                                      
                                      
                                      
                                      1,810
                                      
                                      
                                      
                                      -Interest
      cost
                                      
                                      
                                      13,727
                                      
                                      
                                      
                                      2,458
                                      
                                      
                                      
                                      10,712
                                      
                                      
                                      
                                      2,591Special
      termination benefits
                                      
                                      
                                      851
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Plan
      participants' contributions
                                      
                                      
                                      3,064
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,456
                                      
                                      
                                      
                                      -Actuarial
      loss (gain)
                                      
                                      
                                      5,772
                                      
                                      
                                      
                                      (3,583
                                      )
                                      
                                      
                                      (17,284
                                      )
                                      
                                      
                                      (7,722Benefits
      paid
                                      
                                      
                                      (7,597
                                      )
                                      
                                      
                                      (2,838
                                      )
                                      
                                      
                                      (5,198
                                      )
                                      
                                      
                                      (2,339
                                      )Application
      of SFAS No. 158
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,905Curtailment
                                      
                                      
                                      (656
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Foreign
      currency translation adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (10,906
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      770Benefit
      obligation at end of year
                                      
                                      
                                      191,122
                                      
                                      
                                      
                                      33,687
                                      
                                      
                                      
                                      174,263
                                      
                                      
                                      
                                      48,267Change
      in plan assets:Fair
      value of plan assets at beginning of year
                                      
                                      
                                      139,633
                                      
                                      
                                      
                                      55,908
                                      
                                      
                                      
                                      124,390
                                      
                                      
                                      
                                      52,672Actual
      return on plan assets
                                      
                                      
                                      (38,481
                                      )
                                      
                                      
                                      (8,700
                                      )
                                      
                                      
                                      16,739
                                      
                                      
                                      
                                      3,126Plan
      participants' contributions
                                      
                                      
                                      3,064
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,456
                                      
                                      
                                      
                                      -Employer
      contributions
                                      
                                      
                                      3,790
                                      
                                      
                                      
                                      755
                                      
                                      
                                      
                                      2,246
                                      
                                      
                                      
                                      590Benefits
      paid
                                      
                                      
                                      (7,597
                                      )
                                      
                                      
                                      (2,838
                                      )
                                      
                                      
                                      (5,198
                                      )
                                      
                                      
                                      (2,339
                                      )Application
      of SFAS No. 158
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      1,026Foreign
      currency translation adjustment
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (12,228
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      833Fair
      value of plan assets at end of year
                                      
                                      
                                      100,409
                                      
                                      
                                      
                                      32,897
                                      
                                      
                                      
                                      139,633
                                      
                                      
                                      
                                      55,908Funded
      status
                                      
                                      
                                      (90,713
                                      )
                                      
                                      
                                      (790
                                      )
                                      
                                      
                                      (34,630
                                      )
                                      
                                      
                                      7,641Net
      amount recognized
                                      
                                      $
                                      (90,713
                                      )
                                      
                                      $
                                      (790
                                      )
                                      
                                      $
                                      (34,630
                                      )
                                      
                                      $
                                      7,641
 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):
  15
      Month Period Ending December 31,  2008
                                        
                                        
                                        12
      Month Period Ending September 30, 2007U.S.
                                        
                                        
                                        Non
      U.S.
                                        
                                        
                                        U.S.
                                        
                                        
                                        Non
      U.S.Noncurrent
      assets
                                        
                                        $
                                        -
                                        
                                        
                                        $
                                        260
                                        
                                        
                                        $
                                        21,889
                                        
                                        
                                        $
                                        8,520Current
      liabilities
                                        
                                        
                                        (3,427
                                        )
                                        
                                        
                                        -
                                        
                                        
                                        
                                        (3,221
                                        )
                                        
                                        
                                        -Noncurrent
      liabilities
                                        
                                        
                                        (87,286
                                        )
                                        
                                        
                                        (1,050
                                        )
                                        
                                        
                                        (53,299
                                        )
                                        
                                        
                                        (879
                                        )Net
      amount recognized
                                        
                                        $
                                        (90,713
                                        )
                                        
                                        $
                                        (790
                                        )
                                        
                                        $
                                        (34,631
                                        )
                                        
                                        $
                                        7,641
 65
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
K: Pension and Other Postretirement Benefit Plans (Continued)
 The
accumulated benefit obligation for the U.S. plans was $184.4 million and $165.7
million as of December 31, 2008, and September 30, 2007, respectively. The
accumulated benefit obligation for the non-U.S. plans was $33.9 million and
$46.4 million as of December 31, 2008, and September 30, 2007,
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):
  15
      Month Period Ending December 31,  2008
                      
                      
                      12
      Month Period Ending September 30, 2007U.S.
                      
                      
                      Non
      U.S.
                      
                      
                      U.S.
                      
                      
                      Non
      U.S.Projected
      benefit obligation
                      
                      $
                      191,122
                      
                      
                      $
                      2,568
                      
                      
                      $
                      56,520
                      
                      
                      $
                      1,905Accumulated
      benefit obligation
                      
                      $
                      184,392
                      
                      
                      $
                      1,518
                      
                      
                      $
                      54,529
                      
                      
                      $
                      1,026Fair
      value of plan assets
                      
                      $
                      100,409
                      
                      
                      $
                      2,022
                      
                      
                      $
                      -
                      
                      
                      $
                      -
  We
expect to contribute $3.4 million to our U.S. unfunded plans in 2009. For
the non-U.S. plans, we expect to contribute $0.3 million for
2009.
  The
weighted average actuarial assumptions used to determine benefit obligations are
as follows:
  15
      Month Period Ending December 31,  2008
                      
                      12
      Month Period Ending September 30, 2007U.S.
                      
                      Non
      U.S.
                      
                      U.S.
                      
                      Non
      U.S.Discount
      rate
                      
                      
                      6.24
                      %
                      5.80
                      %
                      6.35
                      %
                      5.88
                      %Rate
      of compensation increase
                      
                      
                      4.00
                      %
                      2.80
                      %
                      4.00
                      %
                      3.00
                      %
  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, 2008
and September 30, 2007. The asset allocation for our U.S pension plans as of
December 31, 2008 and September 30, 2007, and the target allocation, by
asset category, are as follows:
  Allocation
      of Plan Assets at Measurement DateU.S.
      Pension Plans
                      
                      Target
      Allocation
                      
                      2008
                      
                      2007Equity
      securities
                      
                      
                      65
                      %
                      52
                      %
                      68
                      %Debt
      securities
                      
                      
                      29
                      %
                      38
                      %
                      24
                      %Other
                      
                      
                      5
                      %
                      5
                      %
                      5
                      %Cash
      and cash equivalents
                      
                      
                      1
                      %
                      5
                      %
                      3
                      %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 $5.7
million and $7.5 million at December 31, 2008 and September 30, 2007,
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.
  66
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
K: Pension and Other Postretirement Benefit Plans (Continued)
  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, 2008 and September 30,
2007, and the target allocation, by asset category, are as follows:
  Allocation
      of Plan Assets at Measurement DateNon-U.S.
      Pension Plans
                      
                      Target
      Allocation
                      
                      2008
                      
                      2007Equity
      securities
                      
                      
                      60
                      %
                      50
                      %
                      73
                      %Debt
      securities
                      
                      
                      40
                      %
                      49
                      %
                      26
                      %Cash
      and cash equivalents and other
                      
                      
                      -
                      
                      1
                      %
                      1
                      %Total
                      
                      
                      100
                      %
                      100
                      %
                      100
                      %
  In 2006,
we offered voluntary early retirement to certain U.S. employees resulting in
special termination benefits charges of $1.4 million. 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 31,2008
                        
                        
                        2007
                        
                        
                        2006U.S.
                        
                        
                        Non-U.S.
                        
                        
                        U.S.
                        
                        
                        Non-U.S.
                        
                        
                        U.S.
                        
                        
                        Non-U.S.Components
      of net periodic pension expense:Service
      cost
                        
                        $
                        1,332
                        
                        
                        $
                        290
                        
                        
                        $
                        1,810
                        
                        
                        $
                        -
                        
                        
                        $
                        5,757
                        
                        
                        $
                        1,106Interest
      cost
                        
                        
                        11,022
                        
                        
                        
                        2,458
                        
                        
                        
                        10,712
                        
                        
                        
                        2,591
                        
                        
                        
                        11,642
                        
                        
                        
                        2,234Expected
      return on plan assets
                        
                        
                        (11,428
                        )
                        
                        
                        (6,979
                        )
                        
                        
                        (10,443
                        )
                        
                        
                        (3,127
                        )
                        
                        
                        (10,023
                        )
                        
                        
                        (3,061
                        )Amortization
      of prior service cost
                        
                        
                        576
                        
                        
                        
                        -
                        
                        
                        
                        577
                        
                        
                        
                        -
                        
                        
                        
                        676
                        
                        
                        
                        -Recognized
      net actuarial loss
                        
                        
                        769
                        
                        
                        
                        -
                        
                        
                        
                        3,768
                        
                        
                        
                        411
                        
                        
                        
                        4,491
                        
                        
                        
                        454Amortization
      of transition asset
                        
                        
                        -
                        
                        
                        
                        125
                        
                        
                        
                        -
                        
                        
                        
                        (169
                        )
                        
                        
                        -
                        
                        
                        
                        (159
                        )Special
      termination benefits
                        
                        
                        851
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        1,350
                        
                        
                        
                        -Curtailment
      and settlement charges
                        
                        
                        7
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (2,146
                        )
                        
                        
                        -Subtotal
                        
                        
                        3,129
                        
                        
                        
                        (4,106
                        )
                        
                        
                        6,423
                        
                        
                        
                        (294
                        )
                        
                        
                        11,747
                        
                        
                        
                        574Defined
      contribution plans
                        
                        
                        129
                        
                        
                        
                        -
                        
                        
                        
                        350
                        
                        
                        
                        730
                        
                        
                        
                        1,099
                        
                        
                        
                        526Net
      periodic pension expense
                        
                        $
                        3,258
                        
                        
                        $
                        (4,106
                        )
                        
                        $
                        6,773
                        
                        
                        $
                        436
                        
                        
                        $
                        12,846
                        
                        
                        $
                        1,100
 
 The
weighted average actuarial assumptions used to determine net cost are as
follows:
  U.S.
                                                  
                                                  Non-U.S.15
      Months Ended December 31, 2008
                                                  
                                                  12
      Months Ended September 30, 2007
                                                  
                                                  12
      Months Ended September 30, 2006
                                                  
                                                  15
      Months Ended December 31, 2008
                                                  
                                                  12
      Months Ended September 30, 2007
                                                  
                                                  12
      Months Ended September 30, 2006Discount
      rate
                                                  
                                                  
                                                  5.80
                                                  %
                                                  
                                                  
                                                  6.35
                                                  %
                                                  
                                                  
                                                  5.91
                                                  %
                                                  
                                                  
                                                  5.05
                                                  %
                                                  
                                                  
                                                  5.90
                                                  %
                                                  
                                                  
                                                  5.00
                                                  %Expected
      return on plan assets
                                                  
                                                  
                                                  8.50
                                                  %
                                                  
                                                  
                                                  8.75
                                                  %
                                                  
                                                  
                                                  8.75
                                                  %
                                                  
                                                  
                                                  6.37
                                                  %
                                                  
                                                  
                                                  6.40
                                                  %
                                                  
                                                  
                                                  7.60
                                                  %Rate
      of compensation increase
                                                  
                                                  
                                                  4.00
                                                  %
                                                  
                                                  
                                                  4.00
                                                  %
                                                  
                                                  
                                                  4.00
                                                  %
                                                  
                                                  
                                                  2.80
                                                  %
                                                  
                                                  
                                                  3.00
                                                  %
                                                  
                                                  
                                                  N/A
  Our
analysis of the asset rate of return assumptions for the U.S. plans supports a
long-term rate of approximately 8.00% for the December 31, 2008,
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 5.51% based on the
long-term perspective of the investments and the historical results of
investment funds.
  67
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
K: Pension and Other Postretirement Benefit Plans
(Continued)
  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.2009
                        
                        $
                        6,928
                        
                        
                        $
                        1,9412010
                        
                        
                        7,371
                        
                        
                        
                        1,9412011
                        
                        
                        7,918
                        
                        
                        
                        1,9412012
                        
                        
                        8,916
                        
                        
                        
                        1,9412013
                        
                        
                        9,609
                        
                        
                        
                        2,0912014
      through 2018
                        
                        
                        59,904
                        
                        
                        
                        10,757
  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):
  15
      Months Ended December 31, 2008
                            
                            
                            12
      Months Ended September 30, 2007Change
      in postretirement benefit obligations:Benefit
      obligation at beginning of year
                            
                            $
                            3,026
                            
                            
                            $
                            3,252Adjustment
      to retained earnings at January 1 2008
                            
                            
                            1,370
                            
                            
                            
                            -Service
      cost
                            
                            
                            -
                            
                            
                            
                            -Interst
      cost
                            
                            
                            298
                            
                            
                            
                            177Actuarial
      gain
                            
                            
                            (143
                            )
                            
                            
                            (152
                            )Benefits
      paid
                            
                            
                            (390
                            )
                            
                            
                            (251
                            )Benefit
      obligation at end of year
                            
                            
                            4,161
                            
                            
                            
                            3,026Funded
      status
                            
                            
                            (4,161
                            )
                            
                            
                            (3,026
                            )Fourth
      quarter contribution
                            
                            
                            -
                            
                            
                            
                            75Accrued
      postretirement benefit obligation
                            
                            $
                            (4,161
                            )
                            
                            $
                            (2,951
                            )
  A
summary of our net periodic postretirement cost is as follows (thousands of
dollars):
  Year
      Ended December 31,2008
                            
                            2007
                            
                            2006Components
      of net periodic postretirement  cost:Service
      cost
                            
                            $
                            -
                            
                            
                            $
                            -
                            
                            
                            $
                            16Interest
      cost
                            
                            
                            254
                            
                            
                            
                            177
                            
                            
                            
                            264Recognized
      actuarial loss and transition obligation
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            110Net
      periodic postretirement  cost
                            
                            $
                            254
                            
                            
                            $
                            177
                            
                            
                            $
                            390
  Actuarial
assumptions used to measure the postretirement benefit obligation include a
discount rate of 6.40% and 6.10% at December 31, 2008 and 2007,
respectively. The weighted average discount rates used to measure net periodic
benefit cost for the years ended December 31, 2008, 2007 and 2006 were 6.10%,
5.70% and 5.58%, respectively. The assumed health care cost trend rate for
fiscal year 2008 was 8.50% and is projected to decrease over nineteen years to
4.50%, where it is expected to remain thereafter. The effect of a
one-percentage-point increase or decrease in the assumed health care cost trend
rate on the service cost and interest cost components of the net periodic
postretirement benefit cost is not material. A one-percentage-point increase 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 $0.4 million for each of the next five years,
2009 through 2013, and $1.8 million in aggregate for the subsequent five-year
period, 2014 through 2018.
 68
  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
regularly 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, 2008 and 2007 (thousands of dollars):
  Year
      Ended December 31,2008
                      
                      
                      2007Beginning
      balance
                      
                      $
                      4,305
                      
                      
                      $
                      6,800Payments
                      
                      
                      (2,402
                      )
                      
                      
                      (6,235
                      )Increase
      in liability (new warranties issued)
                      
                      
                      2,317
                      
                      
                      
                      3,740Ending
      balance
                      
                      $
                      4,220
                      
                      
                      $
                      4,305
  We
have entered into a variety of agreements with third parties that include
indemnification clauses, both in the ordinary course of business and in
connection with our divestitures of certain product lines. These clauses require
us to compensate these third parties for certain liabilities and damages which
may be incurred by them.
 FASB
Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, requires that we estimate and
record the fair value of guarantees as a liability. We do not believe that we
have any significant exposure related to such guarantees and therefore have not
recorded a liability as of December 31, 2008 or 2007. We have not made any
significant indemnification payments as a result of these clauses.
  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.
  In
June 2008, our Cedar Rapids, Iowa facilities were flooded, and we incurred
damages to both a facility that we own and one that we lease. A portion of these
damages was covered by insurance. While the flood caused significant damage, we
were able to redirect the work done by our Cedar Rapids groups to temporary
locations, and therefore the flood did not cause a significant interruption on
our business. For the year ended December 31, 2008, we had $5.1 million in clean
up costs and property damages that were offset by $4.0 million of insurance, for
a net pre-tax charge of $1.1million.
  Note
M: 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 not practicable to segregate total assets by segment. Total assets
for the year ended December 31, 2008 and 2007 were $789.9 million and $900.6
million, respectively.
  69
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
M: Segment Reporting (Continued)
  The
following table sets forth our operations by reportable segment (millions of
dollars):
  Year
      Ended December 31,2008
                      
                      
                      2007
                      
                      
                      2006Revenues:Product
                      
                      $
                      738.4
                      
                      
                      $
                      692.0
                      
                      
                      $
                      692.4Service
                      
                      
                      152.5
                      
                      
                      
                      157.2
                      
                      
                      
                      157.6Total
                      
                      $
                      890.9
                      
                      
                      $
                      849.2
                      
                      
                      $
                      850.0Gross
      profit:Product
                      
                      
                      290.2
                      
                      
                      
                      259.9
                      
                      
                      
                      262.7Service
                      
                      
                      64.6
                      
                      
                      
                      67.0
                      
                      
                      
                      69.3Total
                      
                      $
                      354.8
                      
                      
                      $
                      326.9
                      
                      
                      $
                      332.0
  For
2008, 2007 and 2006, one customer accounted for more than 10% of our
consolidated revenues. Total sales to this customer were $113.8 million, $108.7
million and $99.8 million for the years ended December 31, 2008, 2007 and 2006,
respectively, and primarily related to product sales.
  The
following table sets forth our revenues by product lines (millions of
dollars):
  Year
      Ended December 31,2008
                      
                      2007
                      
                      2006Revenues:Systems
      and solutions
                      
                      $
                      542.1
                      
                      
                      $
                      485.6
                      
                      
                      $
                      477.2Printer
      and media
                      
                      
                      196.3
                      
                      
                      
                      206.4
                      
                      
                      
                      215.2Service
                      
                      
                      152.5
                      
                      
                      
                      157.2
                      
                      
                      
                      157.6Total
                      
                      $
                      890.9
                      
                      
                      $
                      849.2
                      
                      
                      $
                      850.0
  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 31,2008
                      
                      2007
                      
                      2006North
      America
                      
                      $
                      492.8
                      
                      
                      $
                      422.9
                      
                      
                      $
                      494.4Europe,
      Middle East and Africa
                      
                      
                      290.4
                      
                      
                      
                      290.6
                      
                      
                      
                      241.1All
      others
                      
                      
                      107.7
                      
                      
                      
                      135.7
                      
                      
                      
                      114.5Total
                      
                      $
                      890.9
                      
                      
                      $
                      849.2
                      
                      
                      $
                      850.0
  70
 INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
  Note
M: Segment Reporting (Continued)
  The
following table sets forth our long-lived assets by geographic region (millions
of dollars):
  December
      31,2008
                      
                      2007North
      America
                      
                      $
                      69.5
                      
                      
                      $
                      87.7Europe,
      Middle East and Africa
                      
                      
                      3.1
                      
                      
                      
                      14.8All
      others
                      
                      
                      1.8
                      
                      
                      
                      1.7Total
                      
                      $
                      74.4
                      
                      
                      $
                      104.2
  The
following table sets forth depreciation for our long-lived assets by geographic
region (millions of dollars):
  Year
      Ended December 31,2008
                    
                    2007
                    
                    2006North
      America
                    
                    $
                    13.1
                    
                    $
                    10.4
                    
                    $
                    8.9Europe,
      Middle East and Africa
                    
                    
                    1.4
                    
                    
                    1.5
                    
                    
                    1.3All
      others
                    
                    
                    1.0
                    
                    
                    0.7
                    
                    
                    0.3Total
                    
                    $
                    15.5
                    
                    $
                    12.6
                    
                    $
                    10.5
   Note
N: Subsequent event
  On
January 7, 2009, we committed to a business restructuring plan intended to
reorganize our sales function and to reduce our operating cost structure and
improve efficiency. We believe these actions are appropriate strategically and
are prudent adjustments in view of the generally weakened global economy and
uncertain market conditions expected in the foreseeable future.
  Additionally,
headcount reductions will also be made in many other departments throughout the
company. The majority of the reductions are in selling, general and
administrative areas.
  We
expect to implement this plan over the next six months and to reduce our
workforce by approximately 150 employees worldwide. A majority of these
headcount reductions will be made in the United States. We currently employ
approximately 2,100 employees worldwide.
  The
total restructuring costs are expected to be in a pre-tax range of $9.8 million
to $10.8 million, including employee termination costs of approximately $9.3
million, and $0.5 million to $1.5 million of other restructuring costs. We
expect to record most of the restructuring charge in the first quarter of 2009,
and the remainder in the second quarter of 2009. We anticipate that all of the
severance related and periodic transitional costs will be cash
expenditures.
  71
 INTERMEC,
INC.
 QUARTERLY
FINANCIAL INFORMATION (unaudited)
  Below
is unaudited quarterly financial information for 2008 and 2007 (in millions,
except earnings per share and common stock sales price):
  2008Q1
                      
                      
                      
                      Q2
                      
                      
                      
                      Q3
                      
                      
                      
                      Q4
                      (a)Revenues
                      
                      $
                      216.8
                      
                      
                      $
                      218.3
                      
                      
                      $
                      234.4
                      
                      
                      $
                      221.5Gross
      profit
                      
                      
                      87.4
                      
                      
                      
                      88.9
                      
                      
                      
                      91.6
                      
                      
                      
                      86.8Net
      earnings
                      
                      
                      7.7
                      
                      
                      
                      7.7
                      
                      
                      
                      11.0
                      
                      
                      
                      9.3Basic
      earnings per share
                      
                      $
                      0.13
                      
                      
                      $
                      0.13
                      
                      
                      $
                      0.18
                      
                      
                      $
                      0.15Diluted
      earnings per share
                      
                      $
                      0.13
                      
                      
                      $
                      0.13
                      
                      
                      $
                      0.18
                      
                      
                      $
                      0.15Common
      stock sales price per share:High
                      
                      $
                      24.86
                      
                      
                      $
                      24.96
                      
                      
                      $
                      23.00
                      
                      
                      $
                      19.65Low
                      
                      $
                      17.53
                      
                      
                      $
                      19.56
                      
                      
                      $
                      15.09
                      
                      
                      $
                      9.29
  2007Q1
                      
                      
                      
                      Q2
                      
                      
                      
                      Q3
                      
                      
                      
                      Q4Revenues
                      
                      $
                      179.3
                      
                      
                      $
                      210.5
                      
                      
                      $
                      206.0
                      
                      
                      $
                      253.4Gross
      profit
                      
                      
                      64.5
                      
                      
                      
                      81.2
                      
                      
                      
                      78.1
                      
                      
                      
                      103.1Net
      earnings
                      
                      
                      (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
  _________
 (a)
Includes certain adjustments, after tax, totaling approximately $1.0 million
that negatively impacted Q4 2008, which should have been recorded in prior
periods.
 72
    SCHEDULE
II
  
 VALUATION
AND QUALIFYING ACCOUNTS
 Years
ended December 31, 2008, 2007, and 2006
 (Thousands
of Dollars)
  Balance
      at beginning of period
                  
                  
                  Costs
      charged to expenses
                  
                  
                  Deductions
      and write-offs
                  
                  
                  Balance
      at end of periodAs
      of December 31, 2008Allowance
      for uncollectible accounts receivable
                  
                  $
                  3,836
                  
                  
                  $
                  (441
                  )
                  
                  $
                  (1,310
                  )
                  
                  $
                  2,085Allowance
      for sales returns
                  
                  
                  9,018
                  
                  
                  
                  (314
                  )
                  
                  
                  -
                  
                  
                  
                  8,704As
      of December 31, 2007Allowance
      for uncollectible accounts receivable
                  
                  $
                  3,653
                  
                  
                  $
                  342
                  
                  
                  $
                  (159
                  )
                  
                  $
                  3,836Allowance
      for sales returns
                  
                  
                  4,143
                  
                  
                  
                  -
                  
                  
                  
                  4,875
                  
                  
                  
                  9,018As
      of December 31, 2006Allowance
      for uncollectible accounts receivable
                  
                  $
                  4,409
                  
                  
                  $
                  85
                  
                  
                  $
                  (841
                  )
                  
                  $
                  3,653Allowance
      for sales returns
                  
                  
                  3,748
                  
                  
                  
                  -
                  
                  
                  
                  395
                  
                  
                  
                  4,143
 
 73
 INTERMEC,
INC.
 INDEX
TO EXHIBITS
  Exhibit No.
              Description
      of Exhibit3.1
              Restated
      Certificate of Incorporation of Intermec, Inc. (formerly, UNOVA, Inc. and
      referred to below as the “Company”), filed as Exhibit 3.1 to the Company’s
      May 17, 2006 current report on Form 8-K, and incorporated herein by
      reference.3.2
              Amended
      and Restated By-Laws of the Company, as amended as of September 11, 2008
      and filed as Exhibit 3.1 to the Company’s September 11, 2008 Current
      Report on Form 8-K, and incorporated herein by
  reference.4.1
              Credit
      Agreement between the Company, as the Borrower, and Wells Fargo Bank,
      National Association, as the Lender, dated as of September 27,
      2007,  filed as Exhibit 10.6 to the Company’s September 30, 2007
      quarterly report on Form 10-Q, and incorporated herein by
      reference.4.2
              Revolving
      Line of Credit Note between the Company, as the Borrower,  and
      Wells Fargo Bank, National Association, as the Lender, amended as of
      December 12, 2008.*4.3
              Continuing
      Guaranty by Intermec IP Corp., as the Guarantor, to Wells Fargo Bank,
      National Association, as the Bank, dated as of September 27,
      2007,  filed as Exhibit 10.8 to the Company’s September 30, 2007
      quarterly report on Form 10-Q, and incorporated herein by
      reference.4.4
              Continuing
      Guaranty by Intermec Technologies Corporation, as the Guarantor, to Wells
      Fargo Bank, National Association, as the Bank, dated as of September 27,
      2007,  filed as Exhibit 10.9 to the September 30, 2007 quarterly
      report on Form 10-Q, and incorporated herein by
  reference.10.1
              Distribution
      and Indemnity Agreement, dated October 31, 1997, between Western
      Atlas Inc. and the Company, filed as Exhibit 10.1 to the Company’s
      September 30, 1997 quarterly report on Form 10-Q, and
      incorporated herein by reference.10.2
              Tax
      Sharing Agreement, dated October 31, 1997 between Western Atlas Inc.
      and the Company, filed as Exhibit 10.2 to the Company’s
      September 30, 1997 quarterly report on Form 10-Q, and
      incorporated herein by reference.10.3
              Intellectual
      Property Agreement, dated October 31, 1997 between Western Atlas Inc.
      and the Company, filed as Exhibit 10.4 to the Company’s
      September 30, 1997 quarterly report on Form 10-Q, and
      incorporated herein by reference.10.4
              Employee
      Benefits Agreement, dated October 31, 1997, between Western Atlas
      Inc., and the Company, filed as Exhibit 10.3 to the Company’s
      September 30, 1997 quarterly report on Form 10-Q, and
      incorporated herein by reference.**10.5
              Purchase
      and Sale Agreement, dated as of March 17, 2005, among the Company,
      UNOVA Industrial Automation Systems, Inc., UNOVA U.K. Limited,
      Cincinnati Machine U.K. Limited (now UNOVA Operations U.K. Limited),
      Honsberg Lamb Sonderwerkzeugmachinen GmbH (now UNOVA Germany GmbH), UNOVA
      Canada, Inc., and UNOVA IP Corp., as Selling entities, and R&B
      Plastics Holdings, Inc. and MAG Industrial Automation Systems, LLC,
      as Purchasing Entities (the “Cincinnati Purchase and Sale Agreement”),
      filed as Exhibit 4.1 to the Company’s April 3, 2005, quarterly
      report on Form 10-Q, and incorporated herein by
      reference.10.6
              First
      Amendment to the Cincinnati Purchase and Sale Agreement, dated
      April 1, 2005, filed as Exhibit 4.2 to the Company’s
      April 3, 2005 quarterly report on Form 10-Q, and incorporated
      herein by reference.10.7
              Purchase
      and Sale of Cincinnati Lamb Group—Settlement Agreement, dated
      June 30, 2005, filed as Exhibit 10.7 to the Company’s
      July 3, 2005 quarterly report on Form 10-Q, and incorporated
      herein by reference.10.8
              Purchase
      and Sale Agreement, dated as of October 27, 2005, among the Company,
      UNOVA Industrial Automation Systems, Inc., UNOVA IP Corp. and UNOVA
      U.K. Limited, as Selling Entities, and Compagnie De Fives-Lille, Cinetic
      Landis Grinding Corp. and Cinetic Landis Grinding Limited, as Purchasing
      Entities, filed as Exhibit 10.42 to the Company’s 2005 annual report on
      Form 10-K, and incorporated herein by reference.10.9
              Venture
      Manufacturing Services Framework Agreement, dated December 3, 2008,
      between Venture Corporation Limited and the Company.
      *  +10.10
              Director
      Compensation Program under the Company’s 2008 Omnibus Incentive Plan,
      filed as Exhibit 10.6 to the Company’s August 7, 2008 quarterly report on
      Form 10-Q and incorporated herein by reference.**10.11
              Amendment
      No. 1 to the Director Compensation Program under the Company’s 2008
      Omnibus Incentive Plan, effective January 1, 2009. * **10.12
              Form
      of Stock Option Grant Notice and Stock Option Agreement for Non-Employee
      Directors under the Company’s 2008 Omnibus Incentive Plan, filed as
      Exhibit 10.7 to the Company’s August 7, 2008 quarterly report on Form 10-Q
      and incorporated herein by reference.**10.13
              Director
      Deferred Compensation Plan, filed as Exhibit 10.8 to the Company’s August
      7, 2008 quarterly report on Form 10-Q and incorporated herein by
      reference.**10.14
              Director
      Stock Option and Fee Plan, As Amended Effective November 19, 2007,
      filed as Exhibit 10.6 to the Company’s 2007 annual report on Form 10-K,
      and incorporated herein by reference.**10.15
              The
      Company’s Deferred Compensation Plan, filed as Exhibit 10.4 to the
      Company’s July 2, 2006 quarterly report on Form 10-Q, and
      incorporated herein by reference.**10.16
              Adoption
      Agreement to the Company’s Deferred Compensation Plan, dated June 29,
      2006, filed as Exhibit 10.31 to the Company’s 2007 annual report on
      Form 10-K, and incorporated herein by reference.
**10.17
              Intermec,
      Inc. Change of Control Severance Plan, effective January 7, 2009, filed as
      Exhibit 10.1 to the Company’s January 7, 2009 current report on
      Form 8-K, and incorporated herein by reference.**10.18
              Executive
      Severance Plan, Chief Executive Officer, effective as of March 30, 2007,
      filed as Exhibit 10.9 to the Company’s April 1, 2007 quarterly report
      on Form 10-Q, and incorporated herein by
  reference.**
 74
  Exhibit No.
                Description
      of Exhibit10.19
                Executive
      Severance Plan, Senior Vice Presidents and Elected Vice Presidents,
      effective as of March 30, 2007, filed as Exhibit 10.10 to the Company’s
      April 1, 2007 quarterly report on Form 10-Q, and incorporated herein
      by reference.**10.20
                Restoration
      Plan, Amended and Restated as of January 1, 2008, filed as Exhibit 10.6 to
      the Company’s July 1, 2007 quarterly report on Form 10-Q, and incorporated
      herein by reference.**10.21
                Supplemental
      Executive Retirement Plan, Amended and Restated as of January 1, 2008,
      filed as Exhibit 10.7 to the Company’s  July 1, 2007, quarterly
      report on Form 10-Q, and incorporated herein by
      reference.**10.22
                Summary
      of Executive Life Insurance Benefit.* **10.23
                2008
      Employee Stock Purchase Plan, approved by shareholders May 23, 2008 and
      effective July 1, 2008, filed as Exhibit 10.9 to the Company’s August 7,
      2008 quarterly report on Form 10-Q and incorporated herein by
      reference.**10.24
                2008
      Omnibus Incentive Plan, as amended effective July 9, 2008, filed as
      Exhibit 10.1 to the Company’s August 7, 2008 quarterly report on Form 10-Q
      and incorporated herein by reference.**10.25
                Executive
      Change of Control Policy for 2008 Omnibus Incentive Plan.*
    **10.26
                Standard
      Change of Control Policy for 2008 Omnibus Incentive Plan. *
    **10.27
                Form
      of Employee Stock Option Grant Notice and Stock Option Agreement under the
      Company’s 2008 Omnibus Incentive Plan, filed as Exhibit 10.2 to the
      Company’s August 7, 2008 quarterly report on Form 10-Q and incorporated
      herein by reference.**10.28
                Form
      of Employee Restricted Stock Unit Agreement under the Company’s 2008
      Omnibus Incentive Plan, filed as Exhibit 10.3 to the Company’s August 7,
      2008 quarterly report on Form 10-Q and incorporated herein by
      reference.**10.29
                2008
      Long-Term Performance Share Program under the Company’s 2008 Omnibus
      Incentive Plan, filed as Exhibit 10.4 to the Company’s August 7, 2008
      quarterly report on Form 10-Q and incorporated herein by
      reference.**10.30
                Form
      of Employee Long-Term Performance Share Program Agreement under the
      Intermec, Inc. 2008 Omnibus Incentive Plan, filed as Exhibit 10.5 to the
      Company’s August 7, 2008 quarterly report on Form 10-Q and incorporated
      herein by reference.**10.31
                2004
      Omnibus Compensation Plan, Approved May 6, 2004, Amended and Restated as
      of January 1, 2008, filed as Exhibit 10.11 to the Company’s July 1, 2007
      quarterly report on Form 10-Q, and incorporated herein by
      reference.**10.32
                Form of
      Incentive Stock Option Agreement for awards under the 2004 Plan, filed as
      Exhibit 10.1 to the Company’s July 3, 2005 quarterly report on
      Form 10-Q and incorporated herein by reference.**10.33
                Form of
      Non-Qualified Stock Option Agreement for awards under the 2004 Plan, filed
      as Exhibit 10.2 to the Company’s July 3, 2005 quarterly report
      on Form 10-Q, and incorporated herein by
  reference.**10.34
                Restricted
      Stock Unit Agreement for awards under the 2004 Plan, filed as
      Exhibit 10.5 to the Company’s September 30, 2004, quarterly
      report on Form 10-Q, and incorporated herein by
      reference.**10.35
                Form of
      Restricted Stock Agreement for awards under the 2004 Plan, filed as
      Exhibit 10.4 to the Company’s September 30, 2004 quarterly
      report on Form 10-Q, and incorporated herein by
      reference.**10.36
                Form
      of Performance Share Unit Agreement under the Company’s 2004 Long-Term
      Agreement, filed as Exhibit 10.1 to the Company’s May 6, 2008 quarterly
      report on Form 10-Q, and incorporated herein by
    reference.**10.37
                Form of
      Amendment dated December 23, 2005, to all Performance Share Unit
      Agreements for Performance Periods begun in 2004 and 2005, filed as
      Exhibit 10.31 to the Company’s 2005 annual report on Form 10-K, and
      incorporated herein by reference.**10.38
                2004
      Long Term Performance Share Program, a sub-plan under the 2004 Omnibus
      Incentive Compensation Plan, filed as exhibit 10.12 to the Company’s July
      1, 2007 quarterly report on Form 10-Q, and incorporated herein by
      reference.**10.39
                2004
      Long-Term Performance Share Program (the “Long-Term Program”), a sub-plan
      under the Company’s 2004 Omnibus Incentive Compensation Plan (the “2004
      Plan”), as amended effective January 1, 2006, filed as Exhibit 10.27
      to the Company’s 2005 annual report on Form 10-K, and incorporated
      herein by reference.**10.40
                2001
      Stock Incentive Plan, Amended and Restated as of January 1, 2008, filed as
      Exhibit 10.9  to the Company’s July 1, 2007 quarterly
      report on Form 10-Q, and incorporated herein by
      reference.**10.41
                Form of
      Incentive Stock Option Agreement for awards under the 2001 Plan, filed as
      Exhibit 10.3 to the Company’s July 3, 2005 quarterly report on
      Form 10-Q, and incorporated herein by reference.**10.42
                Form of
      Non-Qualified Stock Option Agreement for awards under the 2001 Plan, filed
      as Exhibit 10.4 to the Company’s July 3, 2005 quarterly report
      on Form 10-Q, and incorporated herein by
  reference.**10.43
                Amendment
      of Restricted Stock Agreements under 2001 Plan, dated as of
      September 12, 2002, filed as Exhibit 10.30 to the Company’s
      September 30, 2002 quarterly report on Form 10-Q, and
      incorporated herein by reference.**10.44
                Form of
      Restricted Stock Agreement for awards under the 2001 Plan, filed as
      Exhibit 10.4 to the Company’s September 30, 2004 quarterly
      report on Form 10-Q, and incorporated herein by
      reference.**10.45
                2001
      Plan Document Relating to Election to Receive Employee Stock Options in
      Lieu of Certain Cash Compensation Payable to Company Officers in Fiscal
      Year 2002, filed as Exhibit 10.6 to the Company’s 2001 annual report
      on Form 10-K, and incorporated herein by
  reference.**10.46
                1999
      Stock Incentive Plan, Amended and Restated as of January 1, 2008, filed as
      Exhibit 10.8 to the Company’s July 1, 2007 quarterly report on
      Form 10-Q, and incorporated herein by reference.**10.47
                Form of
      Incentive Stock Option Agreement for awards under the 1999 Stock Incentive
      Plan (the “1999 Plan”), filed as Exhibit 10.5 to the July 3,
      2005 quarterly report on Form 10-Q, and incorporated herein by
      reference.**
  75
  Exhibit No.
                Description
      of Exhibit10.48
                Form of
      Non-Qualified Stock Option Agreement for awards under the 1999 Plan, filed
      as Exhibit 10.6 to the July 3, 2005 quarterly report on
      Form 10-Q, and incorporated herein by reference.**10.49
                Amendment
      of Restricted Stock Agreements under 1999 Plan, dated as of
      September 12, 2002, filed as Exhibit 10.30 to the Company’s
      September 30, 2002 quarterly report on Form 10-Q, and
      incorporated herein by reference.**10.50
                1999
      Plan Document Relating to Election to Receive Employee Stock Options in
      Lieu of Certain Cash Compensation Payable to Company Officers in Fiscal
      Year 2002, filed as Exhibit 10.6 to the Company’s 2001 annual report
      on Form 10-K, and incorporated herein by
  reference.**10.51
                1997
      Stock Incentive Plan, as amended March 30, 2007, filed as
      Exhibit 10.4 to the Company’s April 1, 2007 quarterly report on
      Form 10-Q, and incorporated herein by reference.**10.52
                Summary
      Sheet – Compensation Arrangements for Robert J. Driessnack, Senior Vice
      President and Chief Financial Officer.* **10.53
                Separation
      Agreement between the Company and Lanny H. Michael, effective December 18,
      2008.* **10.54
                Amended
      and Restated Restricted Stock Unit Agreement, dated September 13, 2007,
      between the Company and  Janis L. Harwell,  filed as
      Exhibit 10.4 to the Company’s September 30, 2007 quarterly report on
      Form 10-Q, and incorporated herein by reference.**10.55
                Restricted
      Stock Unit Agreement dated September 13, 2007, between the Company
      and  Janis L. Harwell,  filed as Exhibit 10.5 to the
      Company’s  September 30, 2007 quarterly report on
      Form 10-Q, and incorporated herein by reference.**21.1
                Subsidiaries
      of the Registrant.*23.1
                Consent
      of Independent Registered Public Accounting Firm.*31.1
                Certification
      pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (subsections
      (a) and (b) of section 1350, chapter 63 of Title 18, United
      States Code), dated February 25, 2009.*31.2
                Certification
      pursuant to section 302 of the Sarbanes-Oxley Act of 2002 (subsections
      (a) and (b) of section 1350, chapter 63 of Title 18, United
      States Code), dated February 25, 2009.*32.1
                Certification
      pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
      (a) and (b) of section 1350, chapter 63 of Title 18, United
      States Code), dated February 25, 2009.*32.2
                Certification
      pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections
      (a) and (b) of section 1350, chapter 63 of Title 18, United
      States Code), dated February 25,
2009.*
  *   Copies
of these exhibits are included in this Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
 
 **
Compensatory plan or arrangement.
 
 +
Confidential treatment has been requested for portions of this exhibit. These
portions have been omitted from this Report and have been filed separately with
the Securities and Exchange Commission.
 
 76