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, 2007ORo
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934


Commission
file number 001-13279




Intermec, Inc.


(Exact
name of registrant as specified in its charter)


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


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


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


Title
      of each class
            
            Name
      of each exchange on which registeredCommon
      Stock, par value $0.01 per share
            
            New
      York Stock Exchange


Securities
registered pursuant to Section 12(g) of the Act: None




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




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




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




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




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and ”smaller
reporting company” in Rule 12b-2 of the Exchange


Large
      Accelerated Filer x
            
            
            
            Accelerated
      Filer oNon-accelerated
      filer o
            
            
            
            Smaller
      reporting company Filer o(Do
      not check if a smaller reporting company)


Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes o   No
x




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




On
February 21, 2008, there were 60,934,808 shares of Common Stock
outstanding, exclusive of treasury shares.




Documents
Incorporated by Reference


Certain
information required to be reported in Part III of this Annual report on
Form 10-K is herein incorporated by reference from the registrant’s Definitive
Proxy Statement to be filed with the Securities and Exchange Commission with
respect to the registrant’s Annual Meeting of Shareholders scheduled to be held
on May 23, 2008.













INTERMEC,
INC.


TABLE
OF CONTENTS TO ANNUAL REPORT


ON
FORM 10-K







PagePart
      I.Item
      1.
            
            Business
            
            3Item
      1A.
            
            Risk
      Factors
            
            15Item
      1B.
            
            Unresolved
      Staff Comments
            
            19Item
      2.
            
            Properties
            
            20Item
      3.
            
            Legal
      Proceedings
            
            20Item
      4.
            
            Submission
      of Matters to a Vote of Security Holders
            
            20Part
      II.Item
      5.
            
            Market for the
      Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            
            21Item
      6.
            
            Selected
      Financial Data
            
            23Item
      7.
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            
            24Item
      7A.
            
            Quantitative and
      Qualitative Disclosures about Market Risk
            
            42Item
      8.
            
            Financial
      Statements and Supplementary Data
            
            43Item
      9.
            
            Changes in and
      Disagreements With Accountants on Accounting and Financial
      Disclosure
            
            43Item
      9A.
            
            Controls and
      Procedures
            
            43Item
      9B.
            
            Other
      Information
            
            43Part
      III.Item
      10.
            
            Directors,
      Executive Officers and Corporate
    Governance
            
            44Item
      11.
            
            Executive
      Compensation
            
            44Item
      12.
            
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            
            44Item
      13.
            
            Certain
      Relationships and Related Transactions, and Director
      Independence
            
            44Item
      14.
            
            Principal
      Accountant Fees and Services
            
            44Part
      IV.Item
      15.
            
            Exhibits,
      Financial Statement Schedules
            
            45Signatures
            
            46










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. These factors include, but are not
limited to, our ability to maintain or to improve the revenues and profits of
our continuing operations, maintain or reduce expenses, maintain or improve
operational efficiency, use our investment in research and development to
generate future revenue, maintain or improve year-over-year growth in the
revenues and profits of our continuing operations and the other factors
described 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. 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.





Such
forward-looking statements involve and are dependent upon certain risks and
uncertainties. When used in this document and in documents it refers to, the
words “anticipate,” “believe,” “will,” “intend,” “project” and “expect” and
similar expressions as they relate to us or our management are intended to
identify such forward-looking statements.





Forward-looking
statements 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 discussed 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.





ITEM
      1.
            BUSINESS





General





Intermec, Inc.,
formerly UNOVA, 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 manufacturing 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





3




ITEM
    1.
            BUSINESS
      (Continued)




Continuing
Operations




We
design, develop, manufacture, integrate, sell, resell and service wired and
wireless automated identification and data collection (“AIDC”) products. These
products include radio frequency identification (“RFID”) products, mobile
computing products, bar code scanners, wired and wireless bar code printers and
label media products. Our products are sold to customers within and outside of
the United States in industries that include industrial goods, transportation
and logistics, consumer goods and retail and in applications such as warehouse
operations, enterprise asset management, in-transit visibility and direct store
delivery. Our products are used by customers to improve the productivity,
quality and responsiveness of their business operations including supply chain
management, enterprise resource planning, asset tracking and field sales and
service.





We have
the following primary revenue sources:





●
            revenue
      from the design, development, manufacture, 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 and
      license fees and royalty revenue from licenses of our intellectual
      property (IP) portfolio and●
            revenue
      from customer support, product maintenance and other services related to
      our products and systemsdescribed
  above.




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. The IAS businesses are
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.




Products
and Services
  We sell
wired and wireless AIDC products, including RFID products, mobile computing
products, bar code scanners, wired and wireless barcode printers, label media
and related services. These products and services allow customers to identify,
track and manage their assets and other resources and improve the efficiency and
effectiveness of their business operations.




4





ITEM
      1.
            BUSINESS
      (Continued)




Products




Mobile
Computing Products




Our
mobile computing products include handheld and vehicle-mounted mobile computers
and accessories and related services that facilitate local-area and wide-area
wireless and wired data communications. These products typically contain
multiple wireless technologies (such as wide-area GPRS and CDMA, with 802.11 and
Bluetooth) that can operate simultaneously in a mobile computer. This allows
customers to communicate remotely with their field employees. We also develop
and sell handheld computer software tools that can integrate the information
into customers’ enterprise management systems.





We have
developed a client framework that resides on our products allowing enhanced
control by third-party device management software that can interoperate with a
customer’s existing system management software. This allows centralized
management and control of remote devices such as mobile computers. Our mobile
computing portfolio also includes AIDC devices, specialized peripherals and
printer products.





To assist
our customers with the automation of business processes, we provide professional
services such as installation, maintenance, site security and systems
integration. Our line of handheld and vehicle-mounted 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 product
families range from relatively low-cost, handheld batch and wireless data
collection devices to higher-cost pen-based computers with wired and wireless
network capabilities and flexible vehicle-mount communications.





Our
mobile computing products allow a customer’s remote workers to access
centralized computer applications and databases, automatically collect data and
send and receive data on a real-time basis. We and our partners offer mobile
computing application software for workforce automation, customer-level sales
ordering, pricing and forecasting, account settlement and other software
products that manage workforce automation and order dispatching, “total field
asset” visibility, real-time proof of delivery, and other customer
information.




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 standard enterprise resource
planning ("ERP") systems, warehouse management systems ("WMS"), order
fulfillment, transportation, logistics systems and other business intelligence
applications.





5




ITEM
      1.
            BUSINESS
      (Continued)




Printer
and Label Media Products




We sell
wired and wireless barcode and RFID printers ranging from relatively low-cost,
light-duty models to higher-cost, heavy-duty, industrial models. Our specialty
printers provide custom capabilities, including color printing, a global
language enabler and high resolution (400 DPI) printing that ensures sharp fonts
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.




Radio
Frequency Identification (RFID) Products




RFID
facilitates wireless communication of product information that exceeds the
information available from a barcode. This communication occurs between a RFID
reader 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. Unlike
laser-scanned bar codes, RFID tags do not require “line of sight” to be read.
Customers are increasingly using RFID technology to track pallets, cartons,
containers and individual items through their supply chains and for enterprise
asset management.





Our RFID
product line is focused on passive UHF technology and consists of RFID tags,
readers, software and related equipment sold under the Intermec trade name. Our
RFID products comply with the EPCglobal Generation 2 UHF standard (the “Gen 2
Standard”) and with other EPCglobal and International Standards Organization
(“ISO”) standards being adopted by customers worldwide.





We have
approximately 149 RFID patents and more than 20 companies have taken
royalty-bearing licenses under those patents, including but not limited to
Cisco, Motorola, Inc., Texas Instruments, Avery Dennison, Honeywell Corporation
and Zebra Technologies, Inc.




6





ITEM
    1.
            BUSINESS
      (Continued)




Services




With our
large variety of customer support services, professional services and
installation services, we help 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 our customers’ business objectives. Our project management teams
further 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 ADIC products
and integrate new AIDC products into the customer’s existing system. Because we
have relationships with many vendors that provide complementary AIDC products,
systems and services, we offer customers a “one-stop shopping” service
experience and comprehensive AIDC solutions.





We
provide technical support and repair services through a global network of
service and technical support. Through our global education services unit, we
also provide AIDC training services, including the design and delivery of
training programs for our customers’ employees.


7





ITEM
      1.
            BUSINESS
      (Continued)




Business
Strategy





The key
elements of our strategy are to target high growth opportunities in selected
industry and application markets; focus on developing and selling differentiated
new products; emphasize channel fulfillment; concentrate on global market
expansion opportunities; and, continue our supply chain
transformation.





We are
focused on private and public sector customers in the following vertical
markets:





●
            Industrial
      Goods.This vertical
      market includes firms primarily involved in business-to-business commerce.
      They supply raw materials, components and assemblies to consumer goods
      manufacturers and service providers (e.g., aerospace, chemical, oil and
      gas, and electronics). This vertical also includes firms that produce
      large, durable goods for businesses and consumers (e.g., automobiles,
      computers and household
appliances).





●
            Transportation
      and Logistics.This
      vertical market consists of firms providing shipping and transportation
      services with their own equipment, as well as non-asset-based logistics
      providers. The most common non-asset firms are third-party logistics and
      fourth-party logistics providers. Segments within this vertical include
      motor freight, air transport, railways, waterborne transportation and
      logistics service providers.●
            Consumer Goods. This
      vertical market includes firms that make products for retailers and those
      that sell directly to thegeneral public. Segments within the vertical
      include food, beverage, consumer packaged goods,
      footwear/apparel,health/beauty, health/pharmacy, housewares/appliances,
      electronics, recreation, and media/publishing companies.●
            Retail.This is a large, competitive and
      mature vertical market. Customers in this vertical include global Tier 1
      companies with $3 billion or more in sales. Segments within the vertical
      range from grocery, pharmaceutical and specialty outlets to department
      stores and warehouse-style
mega-stores.




8





ITEM 1.
            BUSINESS
      (Continued)




We are
focused on the following applications:




●
            Warehouse
      operations.In many
      warehouses, wireless networks and handheld and mobile devices are used to
      transmit data regarding the movement, location, quantity and attributes of
      inventory in the warehouse to central host computers. This gives customers
      greater visibility to their business operations, helps them to avoid
      inventory shortages and allows them to provide more accurate shipping and
      delivery information to their customers. As competition places more
      pressure on companies for faster operational performance, they typically
      upgrade their supply chain technologies to improve working capital
      efficiency, delivery speed, in-stock availability and order
      accuracy.




●
            EnterpriseAsset
      Management.Most
      firms have a certain percentage of staff responsible for the on-going
      maintenance of property, plant/store and equipment.  In
      addition, other personnel are involved in intermittent “break-fix” field
      service repair operations.  Both of these employee groups are
      increasingly being equipped with automation technology to aid and monitor
      their functions and to track the assets they use to do the work (such as
      repair parts, maintenance supplies, repair tools and test
      equipment).  Intermec and our Value Added Resellers supply the
      equipment and software solutions to schedule, assist and monitor these
      processes, including mobile computers, bar code scanners, RFID tags and
      readers, and label printing
solutions.





●
            In-transit
      visibility.Transportation customers want to know where their shipment is, who picked
      up a package or shipment, when it was delivered, what condition it was in
      on delivery, and who signed for it. Whether the transporter is a private
      fleet or third party logistics provider using for-hire air, truck, railway
      or ocean container operations, the increasing cost of assets, wages, fuel
      and insurance and operating ratios that run around 90% requires maximum
      use of assets. This means turning them faster, eliminating empty return
      runs, reducing equipment downtime and optimizing effective, efficient
      maintenance. All forms of transportation use some form of
      carrier-specified numbering to identify the parcels, pallets or containers
      that make up a shipment for a particular customer. Mobile computing
      devices linked with bar code labels and/or RFID tags can provide signature
      capture and critical item tracking capabilities.●
            Direct store delivery
      ("DSD").DSD is the
      delivery of consumer good products from a supplier/distributor directly to
      a retailstore,
      bypassing a retailer’s warehouse. DSD activities typically include
      in-store inventory management, store-levelauthorized item management,
      store-level ordering/forecasting, product pricing, promotion, invoicing,
      the physical deliveryand return of merchandise, the
      electronic exchange of delivery data with a retail store (DEX/UCS) and
      shelf merchandising.


9





ITEM
    1.
            BUSINESS
      (Continued)








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 improve
quality, productivity and cost. We cover the market through a combination of a
globally coordinated dedicated 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 indirect sales channel is also global and
includes preferred and non-exclusive relationships with value-added distributors
and resellers. We have a field-based business development function, which
identifies new market opportunities and supports the sales effort in those new
areas.





International
sales opportunities exist in countries where communications infrastructure,
mobile computing practices and other systems and applications are similar to
those in the U.S or that are in the process of creating such infrastructure. The
extent of wireless systems opportunities in any particular country is based on
the level of industrialization, the condition of communication infrastructure,
the level of computerization, the status of bar code implementation, and the
regulatory environment for wireless communication technologies.


10





ITEM 1.
            BUSINESS
      (Continued)





Our
customer base consists of private and public entities of many sizes. In 2007 and
2006, one customer accounted for more than 10% of our revenues. Total sales to
this customer were $108.7 million and $99.8 million for the years ended December
31, 2007 and 2006, respectively. No single customer accounted for more than 10%
of our revenues in 2005.




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 Hand Held Products,
recently acquired by Honeywell Corporation, which supplies barcode
imagers. In the label media area, we face competition from a large 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
vertical 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 related to our continuing operations amounted to
$65.6 million, $72.4 million and $66.5 million, all of which we sponsored in the
years ended December 31, 2007, 2006 and 2005, respectively.




Intellectual
Property




We strive
to protect our investment in technology and to secure competitive advantage by
obtaining IP protection within and outside of the United States. We have
obtained approximately 595 patents and a number of trademarks, copyrights and
trade secrets. When appropriate, we have obtained licenses to use IP controlled
by other organizations. The combination of our IP and our licenses to use
third-party IP has been of value in the growth of our business and is expected
to be of value in the future. However, we do not believe that our business
depends on any single patent, trademark, copyright, trade secret or on any
single IP license agreement. We do not believe that our business would be
materially affected by the expiration or termination of any particular
intellectual property rights.





11





ITEM 1.
            BUSINESS
      (Continued)





We
believe that the duration of our patents is adequate relative to the expected
lives of our products. Because of the fast pace of innovation and product
development in the AIDC industry, our products may become obsolete before the
patents related to them expire, and sometimes become obsolete before the patents
related to them are even granted. 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.





From time
to time, we license our IP to generate revenue or to facilitate our effort to
market and sell our products and services. While such licenses have been of
value in the growth of our business in the past and are expected to be of value
in the future, we do not believe that our business is dependent upon any single
IP license and would not be materially affected by the expiration or termination
thereof.





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 88 of this Form 10-K for quarterly revenues and
expenses.





Sales
backlog from our continuing operations was $71.1 million, $42.9 million and
$64.3 million at December 31, 2007, 2006 and 2005, respectively. Our
business typically operates without a significant backlog of firm orders, and we
do not consider backlog to be a significant measure for indicating future
sales.




Employees




At
December 31, 2007, we had 2,308 full-time employees, of which 2,299 were
engaged in our wholly-owned subsidiary, Intermec Technologies Corporation, and 9
were engaged in our holding company, Intermec, Inc. Approximately 70% of our
full-time employees are in the United States, approximately 18% are in Europe,
the Middle East and Africa (“EMEA”), and the remaining are employed throughout
the rest of the world, including the Asia Pacific region, South America, Canada
and Mexico.




12





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 Stockholders 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 22, 2008, and
their business experience during the prior five years.





Name
            Age
            Position with Company and Principal Business Affiliations
              During Past Five YearsPatrick
      J. Byrne
            47
            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.  He served
      as Vice President for Agilent’s Electronic Products and Solutions Group's
      Product Generation Units from 1999 to 2001.Lanny
      H. Michael
            56
            Senior
      Vice President and Chief Financial Officer since joining Intermec in
      September 2006. Prior to joining Intermec, Mr. Michael was a business
      consultant and advisor serving private companies from 2004 to 2006,
      including short-term roles as interim chief operating officer of a retail
      chain store and chief financial officer of a logistics company and a
      startup airline. Prior thereto, Mr. Michael was employed by Airborne, Inc.
      from 1981 to 2004, including as Executive Vice President and Chief
      Financial Officer from 2000-2004 .Janis
      L. Harwell
            53
            Senior
      Vice President and General Counsel since September 2004 and Corporate
      Secretary since January 2006. 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
            40
            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. Prior to joining
      Intermec in 2002, Mr. Anderson was employed by Ernst & Young LLP from
      1990 to 2002, including as Senior Manager from 1998 to
    2002.Kenneth
      L. Cohen
            64
            Vice
      President and Treasurer since January 2004. Mr. Cohen was also Vice
      President, Taxes, from July 2000 to July 2007. Prior thereto, Mr.
      Cohen was Staff Vice President, Taxes, from October 1997. Mr. Cohen
      has been employed by the Company or its predecessors since
      1989.Dennis
      Faerber
            55
            Senior
      Vice President, Global Supply Chain Operations of Intermec Technologies
      Corporation since February 2008. 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.Michael
      A. Wills
            44
            Senior
      Vice President, Global Sales and Services of Intermec Technologies
      Corporation, since January 2007 for Global Sales (including RFID),
      and since December 2007 for Global Services.  Mr. Wills
      previously served as our Vice President & General Manager, Global
      Services & 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.







13





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 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.  In 2007, we spent $0.2 million for our product
and system re-certification to US requirements due to migration to newer, more
efficient power supplies.  Additional certification costs may be
incurred in 2008 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. During 2007, we spent $1.2 million, primarily related to
redesigning products, 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.




14


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 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
      conflict;
 ●
              the
      risk of terrorism and war in a given country or
  region;
 ●
              public
      health issues;
 ●
              economic
      downturns;
 ●
              volatility
      in stock and credit markets; and
 ●
              rising
      energy costs.
 
 A
deterioration of political or economic conditions in a given country or region
could affect potential customers in a way that reduces demand for our products
and disrupts our manufacturing and sales plans.  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 on accounts
receivable in that country or region. In any of these events, our results of
operations could 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.Large, well-financed companies and private equity groups have been
      acquiring companies in the automatic identification and data capture
      (“AIDC”) industry.  As examples, Motorola acquired Symbol
      Technologies, Inc.; a private equity group led by Francisco Partners
      acquired Metrologic Instruments; Honeywell acquired Hand Held Products,
      Inc.; 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
      competitors that 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.
 
 ●
              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 the 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
      research and development (“R&D”), sales and marketing, and customer
      support than we can. 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.
  15
 
 ITEM 1A.
              RISK FACTORS
      (Continued)
 
 ●
              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 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.
 
 ●
              Our
      business may be adversely affected if we do not continue to 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 improve our business processes and our financial, information
      technology and enterprise resource planning systems.  From
      time-to-time we may have to restructure our business to react to changing
      technology, products and markets. Successful completion of these projects
      will require skillful managers and a skilled
      workforce.    Competition for skilled employees is
      high in our industry, and we must remain competitive in terms of
      compensation and other employee benefits to retain key
      employees.  If we are unsuccessful in hiring and retaining
      skilled managers and employees we will be unable to maintain and expand
      our business.
 
 ●
              Our use of
      third-party suppliers and distributors could have a material adverse
      effect on our business.We use third party suppliers to
      produce some of our products or to provide components of our
      products.  We may be impacted by the quality control of these
      third party suppliers or by their ability to meet our delivery
      deadlines.  Products or components may be available only from a
      single source or limited sources, and we may be unable to find alternative
      sources of supply on a timely basis.  In addition to offering
      our products directly, we also offer our products through third party
      distributors and may be impacted by changes affecting these distributors,
      including their ability to bring our products to market at the right times
      and in the right locations. A disruption in third party suppliers or third
      party distribution channels could have a material adverse effect on our
      operations and results.
 ●
                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 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 be unable
      to timely 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.
  16
 ITEM 1A.
              RISK FACTORS
      (Continued)
  ●
              Growth of
      and changes in our revenues and profits depend on our customer mix and
      sales mix.  Fluctuations in our customer mix or our sales mix
      could result in volatility in our revenues, gross margins and
      profits. Sales to large enterprises tend to have lower
      product prices and gross margins than sales to medium and small
      businesses.  The gross margins of the products and services we
      sell vary.  Therefore, growth in our revenues and profits will
      depend on a favorable mix of customers for our products and services and
      on a favorable mix of the products and services we sell.  If we
      fail to execute a sales strategy that will result in a favorable customer
      mix or a favorable sales mix of product and services, our gross margins
      and profitability may decline, even though our revenues may
      increase.  Furthermore, changes in our customer mix or our sales
      mix of product and services from quarter-to-quarter and year-to-year may
      cause our revenues, gross margins and profit margins to be volatile and
      difficult to predict.
 ●
                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 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 may be unable to penetrate that market
      successfully.  Failure of the RFID market to grow significantly
      or our failure to penetrate that market successfully could adversely
      affect our revenue growth and
profitability.
 ●
                Our failure
      to enhance and further develop 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 development and maintenance of a patent portfolio
      are complex and costly activities with uncertain outcomes. Our
      ability to obtain patent protection domestically or internationally for
      our inventions can be adversely affected by changes in patent laws,
      treaties, and regulations and by judicial and administrative
      interpretations of those laws treaties and regulations. 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 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
patent lawsuits initiated by third party patent-holders.  If the
results of such litigation are adverse to us or our customers, we could be
enjoined from practicing an invention covered by the patent in
question.  We could also be required to pay damages for past
infringement, which might have a material adverse effect on our results of
operations.  If an injunction is issued, we may not be able to sell a
particular product or product line, which could materially and adversely impact
our sales, revenues and results of operations.  If third party
patent-holders are willing to license or sell their patents to us, or if we must
redesign the affected products, the associated costs could have a material and
adverse effect on our sales, revenues or results of operations.
  17
 
 
 ITEM 1A.
              RISK FACTORS
      (Continued)
 
 ●
              Fluctuations
      in currency exchange rates may adversely impact our cash flows and
      earnings. Due to our global operations, our cash flow and earnings
      are exposed to currency exchange rate fluctuations.  Exchange
      rate fluctuations may also affect the cost of goods and services that we
      purchase.  When appropriate, we may attempt to limit our
      exposure to exchange rate changes by entering into short-term currency
      exchange contracts. There is no assurance that we will hedge or will be
      able to hedge such foreign currency exchange risk or that our hedges will
      be successful.
 
 Our
currency exchange gains or losses (net of hedges) may materially and adversely
impact our cash flows and earnings.  Additionally, adverse movements
in currency exchange rates could result in increases in our cost of goods sold
or reduction in growth in international orders, materially impacting our cash
flows and earnings.
 
 ●
              Global
      regulation and regulatory compliance, including environmental,
      technological and standards setting regulations, may limit our sales or
      increase our costs, which could adversely impact our revenues and results
      of operations.We are subject to domestic and international
      technical and environmental standards and regulations that govern or
      influence the design, components or operation of our products. Such
      standards and regulations may also require us to pay for specified
      collection, recycling, treatment and disposal of past and future covered
      products. Our ability to sell AIDC products in a given country and the
      gross margins on products sold in a given country could be affected by
      such regulations. We are also subject to self-imposed standards setting
      activities sponsored by organizations such as ISO, AIM, IEEE and EPCglobal
      that provide our customers with the ability to seamlessly use our products
      with products from other AIDC vendors, which our customers
      demand.  Changes in standards and regulations may be introduced
      at any time and with little or no time to bring products into compliance
      with the revised technical standard or regulation. Standards and
      regulations may:
 
 ●
              prevent
      us from selling one or more of our products in a particular
      country;
 ●
              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.
 18
  ITEM 1A.
              RISK FACTORS
      (Continued)
  ●
              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. Our financial results may
      include favorable or unfavorable adjustments to our estimated tax
      liabilities in the periods when the tax assessments are made or resolved
      or when statutes of limitations on the tax assessments expire. The outcome
      of these tax assessments 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.




19





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 762,724
square feet, of which 578,410 square feet, or 76%, are located in the United
States, and 184,314 square feet, or 24%, are located outside the United States,
primarily in the Netherlands, France, Spain, Germany and Canada.




Approximately
43,260 square feet, or 6%, of our principal plant, office and commercial floor
area, 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
            
            
            92,927North
      Carolina
            
            
            41,272Total
            
            
            578,410




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 25,532 square feet inNew
      Mexicoand 43,474
      square feet inCalifornia.




●
            Properties previously used in
      divested IAS businesses:




●
            Various properties we own,
      totaling approximately 1.3 million square feet, located inOhiothat are idle as of
      December 31, 2007. These properties are classified as other assets on
      our consolidated balance sheet as of December 31,
      2007.




●
            Approximately 312,000 square
      feet, located inMichigan, held under
      lease.




●
            Properties we own that are not
      used in operations are classified as other assets, having an aggregate
      floor area of approximately 746,473 square feet, of which 495,662 square
      feet, or 66% are located in Pennsylvania and 250,811 square feet, or 34%
      are located in Illinois.




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,
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, 2007.


20





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, 2007 and 2006, are as follows:




Year
      Ended December 31,2007
            
            2006High
            
            Low
            
            High
            
            LowFirst
      Quarter
            
            $
            25.81
            
            $
            20.50
            
            $
            38.81
            
            $
            29.71Second
      Quarter
            
            
            26.40
            
            
            20.90
            
            
            30.40
            
            
            21.45Third
      Quarter
            
            
            30.16
            
            
            23.32
            
            
            30.74
            
            
            20.50Fourth
      Quarter
            
            
            27.48
            
            
            20.12
            
            
            26.43
            
            
            21.00






Our
common stock is traded on the New York Stock Exchange under the symbol IN. As of
February 21, 2008, there were approximately 11,400 holders of record
and 28,300 beneficial owners of our common stock. No cash dividends were
paid during 2007 or 2006.




Common
stock repurchases in the fourth quarter of 2007 were as follows:




Total
      Number of Shares Purchased
            
            Average
      Price Paid per Share
            
            Total
      Number of Shares Purchased as Part of Publicly Announced Plans or
      Programs
            
            Maximum
      Number of Shares (or Approximate Dollar Value) that May Yet Be Purchased
      Under the Plans or ProgramsOctober
      1 to October 28, 2007
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -October
      29 to November 25, 2007
            
            
            -
            
            
            -
            
            
            -
            
            
            -November
      26 to December 31, 2007
            
            
            5,786
            
            
            21.78
            
            
            -
            
            
            -Total
            
            
            5,786
            
            $
            21.78
            
            
            -
            
            $
            -




The
purchased shares indicated in the above table were surrendered to us to satisfy
tax withholding obligations in connection with the vesting of restricted stock
by employees in our foreign operations.





21


ITEM 5.
            MARKET FOR THE REGISTRANT’S
      COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES (Continued)




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, 2007, 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.




Total
      Return To Shareholders(Includes
      reinvestment of dividends)ANNUAL
      RETURN PERCENTAGEYears
      Ended December 31,Company
      / Index
            
            2003
            
            2004
            
            2005
            
            2006
            
            2007INTERMEC
      INC
            
            
            282.50
            
            
            10.20
            
            
            33.65
            
            
            (28.20
            )
            
            (16.32
            )S&P
      MIDCAP 400 INDEX
            
            
            35.62
            
            
            16.48
            
            
            12.55
            
            
            10.32
            
            
            7.98S&P
      1500 ELECTRONIC EQUIPMENT & INSTRUMENTS
            
            
            61.83
            
            
            (2.85
            )
            
            13.57
            
            
            7.43
            
            
            8.08




INDEXED
      RETURNSYears
      Ending December 31,Base
      PeriodCompany
      / Index
            
            2002
            
            2003
            
            2004
            
            2005
            
            2006
            
            2007INTERMEC
      INC
            
            
            100
            
            
            382.50
            
            
            421.50
            
            
            563.33
            
            
            404.50
            
            
            338.50S&P
      MIDCAP 400 INDEX
            
            
            100
            
            
            135.62
            
            
            157.97
            
            
            177.81
            
            
            196.16
            
            
            211.81S&P
      1500 ELECTRONIC EQUIPMENT & INSTRUMENTS
            
            
            100
            
            
            161.83
            
            
            157.22
            
            
            178.56
            
            
            191.83
            
            
            207.33





22





ITEM
      6.
            SELECTED FINANCIAL
      DATA




Intermec, Inc.


(Millions
of dollars, except per share data)




Year
      Ended December 31,2007
            
            2006
            
            2005
            
            2004
            
            2003Operating
      results: (a)Revenues
            
            $
            849.2
            
            $
            850.0
            
            $
            875.5
            
            $
            791.7
            
            $
            687.9Earnings
      from continuing operations (b)
            
            $
            24.4
            
            $
            35.0
            
            $
            40.7
            
            $
            52.2
            
            $
            15.1Earnings
      (loss) from discontinued operations
            
            
            (1.3
            )
            
            (3.0
            )
            
            21.1
            
            
            (101.3
            )
            
            (34.4
            )Net
      earnings (loss)
            
            $
            23.1
            
            $
            32.0
            
            $
            61.8
            
            $
            (49.1
            )
            $
            (19.3
            )Basis
      earnings (loss) per shareContinuing
      operations
            
            $
            0.40
            
            $
            0.56
            
            $
            0.66
            
            $
            0.86
            
            $
            0.26Discontinued
      operations
            
            
            (0.02
            )
            
            (0.05
            )
            
            0.34
            
            
            (1.67
            )
            
            (0.59
            )Net
      earnings (loss) per share
            
            $
            0.38
            
            $
            0.51
            
            $
            1.00
            
            $
            (0.81
            )
            $
            (0.33
            )Diluted
      earnings (loss) per shareContinuing
      operations
            
            $
            0.40
            
            $
            0.55
            
            $
            0.64
            
            $
            0.84
            
            $
            0.25Discontinued
      operations
            
            
            (0.02
            )
            
            (0.05
            )
            
            0.34
            
            
            (1.63
            )
            
            (0.57
            )Net
      earnings (loss) per share
            
            $
            0.38
            
            $
            0.50
            
            $
            0.98
            
            $
            (0.79
            )
            $
            (0.32
            )Shares
      used for basis earnings (loss) per share
            
            
            60,359
            
            
            62,535
            
            
            61,785
            
            
            60,502
            
            
            58,828Shares
      used for diluted earnings (loss) per share
            
            
            61,163
            
            
            63,830
            
            
            63,350
            
            
            62,154
            
            
            60,234Financial
      position (at end of year):Total
      assets
            
            $
            900.6
            
            $
            810.3
            
            $
            902.7
            
            $
            1,072.7
            
            $
            1,090.8Current
      portion of long-term debt
            
            $
            100.0
            
            $
            -
            
            $
            -
            
            $
            108.5
            
            $
            -Long-term
      debt
            
            $
            -
            
            $
            100.0
            
            $
            100.0
            
            $
            100.0
            
            $
            208.5Working
      capital
            
            $
            323.5
            
            $
            350.2
            
            $
            440.4
            
            $
            399.2
            
            $
            440.4Current
      ratio
            
            
            2.0
            
            
            2.98
            
            
            3.0
            
            
            1.9
            
            
            2.4Total
      debt as a percentage of total capitalization
            
            
            17
            %
            
            19
            %
            
            17
            %
            
            34
            %
            
            33
            %




(a)
            All periods reflect the
      classification of IAS as discontinued
  operations.




(b)
            Includes pre-tax gains on
      intellectual property settlements of $16.5 million, $15.6 million, and
      $12.5 million, in 2006, 2004, and 2003,
    respectively.




23




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”), formerly UNOVA, Inc., designs, develops,
manufactures, integrates, sells, resells and services wired and wireless
automated identification and data collection (“AIDC”) products and systems
including radio frequency identification (“RFID”) products and systems, mobile
computing products and systems, wired and wireless bar code printers and label
media. Our products and services are used by customers within and outside of the
United States to improve the productivity, quality and responsiveness of their
business operations, including supply chain management, enterprise resource
planning and field sales and service. Customers for our products and services
operate in market segments that include manufacturing, warehousing, direct store
delivery, retail, consumer packaged goods, field service, government, and
transportation and logistics.




Our
strategy consists of: market focus, differentiated new products, channel
fulfillment, global expansion and supply chain transformation.




Our
strategy is focused on customers in certain vertical markets, including:
industrial goods, transportation and logistics, consumer goods and
retail.




Our
strategy is also focused on certain application markets, including: warehouse
operations, enterprise asset management, in-transit visibility and direct store
delivery.





24





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, 2007, 2006 and 2005. The results of operations and
percentage of revenues were as follows (millions of dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Amounts
            
            Percent
      of Revenues
            
            Amounts
            
            Percent
      of Revenues
            
            Amounts
            
            Percent
      of RevenuesRevenues
            
            $
            849.2
            
            
            
            
            $
            850.0
            
            
            
            
            $
            875.5Costs
      and expenses:Cost
      of revenues
            
            
            522.4
            
            
            61.5
            %
            
            517.9
            
            
            60.9
            %
            
            512.6
            
            
            58.5
            %Research
      and development
            
            
            65.6
            
            
            7.7
            %
            
            72.4
            
            
            8.5
            %
            
            66.5
            
            
            7.6
            %Selling,
      general and administrative
            
            
            223.8
            
            
            26.4
            %
            
            227.8
            
            
            26.8
            %
            
            237.8
            
            
            27.2
            %Gains
      on intellectual property settlements
            
            
            -
            
            
            -
            %
            
            (16.5
            )
            
            (1.9
            )%
            
            -
            
            
            -Restructuring
      charge
            
            
            -
            
            
            -
            %
            
            11.6
            
            
            1.4
            %
            
            -
            
            
            -Total
      costs and expenses
            
            
            811.8
            
            
            95.6
            %
            
            813.2
            
            
            95.7
            %
            
            816.9
            
            
            93.3
            %Operating
      profit from continuing operations
            
            
            37.4
            
            
            4.4
            %
            
            36.8
            
            
            4.3
            %
            
            58.6
            
            
            6.7
            %Interest,
      net
            
            
            1.8
            
            
            0.2
            %
            
            6.5
            
            
            0.8
            %
            
            (4.0
            )
            
            (0.5
            )%Gain
      on sale of investments
            
            
            -
            
            
            -
            %
            
            2.3
            
            
            0.3
            %
            
            -
            
            
            -Earnings
      fromcontinuing
      operationsbefore income
      taxes
            
            
            39.2
            
            
            4.6
            %
            
            45.6
            
            
            5.4
            %
            
            54.6
            
            
            6.2
            %Provision
      for income taxes
            
            
            14.8
            
            
            1.8
            %
            
            10.6
            
            
            1.2
            %
            
            13.9
            
            
            1.6
            %Earnings
      from continuing operations, net of tax
            
            
            24.4
            
            
            2.9
            %
            
            35.0
            
            
            4.1
            %
            
            40.7
            
            
            4.6
            %Earnings
      (loss) from discontinuedoperations, net of
      tax
            
            
            (1.3
            )
            
            (0.2
            )%
            
            (3.0
            )
            
            (0.4
            )%
            
            21.1
            
            
            2.4
            %Net
      earnings
            
            $
            23.1
            
            
            2.7
            %
            $
            32.0
            
            
            3.8
            %
            $
            61.8
            
            
            7.1
            %




25


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, 2007, 2006 and 2005, as well as the
year-over-year product and service revenue growth were as follows (millions of
dollars):





Year
      Ended December 31,2007
            
            2006
            
            2005Amount
            
            Percent
      of Revenues
            
            Amount
            
            Percent
      of Revenues
            
            Amount
            
            Percent
      of RevenuesRevenues
      by category:Systems
      and solutions
            
            $
            485.6
            
            
            57.2
            %
            $
            477.2
            
            
            56.1
            %
            $
            497.8
            
            
            56.9
            %Printer
      and media
            
            
            206.4
            
            
            24.3
            %
            
            215.2
            
            
            25.3
            %
            
            223.2
            
            
            25.5
            %Total
      product
            
            
            692.0
            
            
            81.5
            %
            
            692.4
            
            
            81.5
            %
            
            721.0
            
            
            82.4
            %Service
            
            
            157.2
            
            
            18.5
            %
            
            157.6
            
            
            18.5
            %
            
            154.5
            
            
            17.6
            %Total
      revenues
            
            $
            849.2
            
            
            100.0
            %
            $
            850.0
            
            
            100.0
            %
            $
            875.5
            
            
            100.0
            %





2007
      v. 2006
            
            2006
      v. 2005Product
      and service revenue growth:
            
            Amount
            
            Percent
            
            Amount
            
            PercentSystems
      and solutions
            
            $
            8.4
            
            
            1.8
            %
            $
            (20.6
            )
            
            (4.1
            )%Printer
      and media
            
            
            (8.8
            )
            
            (4.1
            )%
            
            (8.0
            )
            
            (3.6
            )%Total
      product
            
            
            (0.4
            )
            
            (0.1
            )%
            
            (28.6
            )
            
            (4.0
            )%Service
            
            
            (0.4
            )
            
            (0.3
            )%
            
            3.1
            
            
            2.0
            %Total
      revenues
            
            $
            (0.8
            )
            
            (0.1
            )%
            $
            (25.5
            )
            
            (2.9
            )%




Revenues
by geographic region and as a percentage of related revenues from continuing
operations for the years ended December 31, 2007, 2006 and 2005, as well as the
year-over-year geographic region revenue growth were as follows (millions of
dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Amount
            
            Percent
      of Revenues
            
            Amount
            
            Percent
      of Revenues
            
            Amount
            
            Percent
      of RevenuesRevenues
      by geographic region:North
      America
            
            $
            423.1
            
            
            49.8
            %
            $
            494.4
            
            
            58.2
            %
            $
            513.6
            
            
            58.7
            %Europe,
      Middle East and Africa
            
            
            290.4
            
            
            34.2
            %
            
            241.1
            
            
            28.4
            %
            
            260.4
            
            
            29.7
            %All
      others
            
            
            135.7
            
            
            16.0
            %
            
            114.5
            
            
            13.4
            %
            
            101.5
            
            
            11.6
            %Total
      revenues
            
            $
            849.2
            
            
            100.0
            %
            $
            850.0
            
            
            100.0
            %
            $
            875.5
            
            
            100.0
            %




2007
      v. 2006
            
            2006
      v. 2005Geographic
      region revenue growth:
            
            Amount
            
            Percent
            
            Amount
            
            PercentNorth
      America
            
            $
            (71.3
            )
            
            (14.4
            )%
            $
            (19.2
            )
            
            (3.7
            )%Europe,
      Middle East and Africa
            
            
            49.3
            
            
            20.4
            %
            
            (19.3
            )
            
            (7.4
            )%All
      others
            
            
            21.2
            
            
            18.5
            %
            
            13.0
            
            
            12.8
            %Total
      revenues
            
            $
            (0.8
            )
            
            (0.1
            )%
            $
            (25.5
            )
            
            (2.9
            )%


26





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




Product
revenues in 2007 were flat compared to 2006.  The growth in our 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 Europe, the Middle East and Africa (EMEA) and
the Rest of the World (“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.




Product
revenues in 2006 decreased $28.6 million, or 4.0%, compared to 2005. The decline
in product revenue was primarily attributable to a 5.4% decrease in systems and
solutions products. Our analysis of the causal factors for the decline in
product revenue suggests that the most significant factor was the announcement
and availability of several new products in the third quarter of 2006. In the
second half of the year, we introduced three new major products. In light of
this announcement, it is our belief that certain customers delayed orders
awaiting the availability of the new products. The second factor negatively
impacting product revenue was the RoHS ("Restriction of Hazardous Substances")
Directive, which became effective July 1, 2006, within the European Union
(“EU”). The third factor that contributed to the product revenue decline is the
increase in competitive programs and pricing.




Service
revenues of $157.2 million for 2007 are 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 US Government professional services and declines in
time-and-material repairs.




Service
revenues in 2006 increased $3.1 million, or 2%, compared to 2005. The increase
in service revenue was primarily due to an increase in revenue from the
U.S. government contracts of $1.0 million. Also, service revenues in Canada
and Mexico increased approximately $1.0 million and $0.5 million,
respectively.


Geographically,
for the year ended December 31, 2007, product and service revenue decreased in
North America by 14.4%, while EMEA and ROW increased 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.




Geographically,
for the year ended December 31, 2006, product and service revenue decreased in
North America by 3.7% and in EMEA by 7.4%, offset partially by a 12.8% increase
in the ROW. The decrease in EMEA revenues compared to 2005 is primarily
attributable to the RoHS Directive.




27





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, 2007, 2006 and 2005, were as follows (millions of
dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Gross
      Profit
            
            Gross
      Margin
            
            Gross
      Profit
            
            Gross
      Margin
            
            Gross
      Profit
            
            Gross
      MarginProduct
            
            $
            259.9
            
            
            37.6
            %
            $
            262.7
            
            
            37.9
            %
            $
            300.3
            
            
            41.7
            %Service
            
            
            67.0
            
            
            42.6
            %
            
            69.3
            
            
            44.0
            %
            
            62.6
            
            
            40.5
            %Total
      gross profit and gross margin
            
            $
            326.9
            
            
            38.5
            %
            $
            332.0
            
            
            39.1
            %
            $
            362.9
            
            
            41.4
            %





Total
gross profit for the year ended December 31, 2007, decreased $5.1 million, or
1.6%, compared to the prior year. Product gross profit decreased by $2.8 million
in 2007 compared to 2006, as a result of the 30 basis point reduction in related
gross margin. 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 margin percentage 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.




Total
gross profit for the year ended December 31, 2006, decreased $30.9 million, or
8.5%, compared to the prior year end. Product gross profit decreased by $37.6
million, or 12.5%, in 2006 compared to 2005, due primarily to the 2.3% decrease
in gross margin percentage. The decrease in gross margins is primarily due to
lower average selling prices, with lower absorption on lower
volumes.




The
increase in service gross margin percentage for 2006 of 3.5% compared to 2005 is
primarily due to lower operating expenses and improved margins in Latin America
due to a higher mix of professional service sales.




Research
and Development Expense (In millions)


Year
      Ended December 31,2007
      Amount
              Change
      from Prior Year
              2006
      Amount
              Change
      from Prior Year
              2005
      AmountResearch
      and development expense
              
              $
              65.6
              
              $
              (6.8)
              
              $
              72.4
              
              $
              5.9
              
              $
              66.5





Research
and development 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”).





Research
and development expense increased $5.9 million in 2006 compared to 2005,
primarily as a result of the $7.7 million of expense related to the RoHS
Directive.




28







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 31,2007
      Amount
              Change
      from Prior Year
              2006
      Amount
              Change
      from Prior Year
              2005
      AmountSelling,
      general and administrative expense
              
              $
              223.8
              
              $
              (4.1)
              
              $
              227.9
              
              $
              (9.9)
              
              $
              237.8





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





The
decrease in SG&A of $9.9 million in 2006 compared to 2005 primarily reflects
the decrease in legal expense of $7.2 million and a $2.1 million curtailment
gain from the changes to our US pension and post-retirement plans.





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, 2007 or 2005. Net pretax gains from
IP settlements included in operating profits were $16.5 million in
2006.





Restructuring
Costs





In March
2006, we announced our plan to close our design centers in Goteborg and Lund,
Sweden. The activities previously assigned to the design centers in Sweden have
been reassigned to other parts of our business or moved to third-party vendors
to improve efficiencies and benefit from reduced costs. In addition to the
anticipated cost savings, this realignment of resources is expected to increase
new product development capacity. This restructuring, which was substantially
completed by the end of 2006, resulted in charges for severance of $3.1 million
for the elimination of 65 positions in Sweden. The restructuring costs also
included facility closure costs of $1.3 million, and other related costs of
$0.3 million.




On
November 15, 2006, we committed to a business restructuring plan intended to
reduce costs, streamline operations and improve productivity. The restructuring
included headcount reductions and consolidation of certain facilities on a
regional and/or global basis. The restructuring was substantially completed by
the end of 2006. During the fourth quarter of 2006, we recorded charges for
severance of $6.8 million for the termination of 205 employees and $0.1 of other
exit costs in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 146, “Accounting
for Costs Associated with Exit or Disposal Activities.” 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 $8.0 million include employee
termination expense of $7.3 million, facility closure costs of $0.6 million and
other exit costs of $0.1 million.




29





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




Interest, Net (In
millions)


Year
      Ended December 31,2007
      Amount
              Change
      from Prior Year
              2006
      Amount
              Change
      from Prior Year
              2005
      AmountInterest,
      net
              
              $
              1.8
              
              $
              (4.7)
              
              $
              6.5
              
              $
              10.5
              
              $
              (4.0)




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 average invested cash in
2007 when compared to 2006.




Net
interest income for the year ended December 31, 2006, was $6.5 million, compared
to net interest expense of $4.0 million in the prior year. The improvement in
net interest income reflects the reduction in outstanding debt balance, as well
as higher investment returns. During 2005, we retired bonds totaling $108.5
million.




Provision
for Income Taxes (In millions)


Year
      Ended December 31,2007
      Amount
              Change
      from Prior Year
              2006
      Amount
              Change
      from Prior Year
              2005
      AmountProvision
      for income taxes
              
              $
              14.8
              
              $
              4.2
              
              $
              10.6
              
              $
              (3.3)
              
              $
              13.9


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 non deductible 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 settlement of foreign tax audits.




30





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




The
provision for income taxes for the year ended December 31, 2005, reflects
an effective tax rate for continuing operations of 25.5%, compared to a U.S.
statutory provision rate of 35.0%. The reduction in the effective tax rate is
primarily due to reductions in U.S. and foreign tax contingency accruals. The
reduction in the U.S. tax contingency accrual relates to Credit for Increasing
Research Activities, resulting from the resolution of a U.S. tax audit of a
former parent for the same issue. The reduction from the resolution of foreign
tax contingency accrual relates to the favorable resolution of a German tax
audit.




Gain
(Loss) from Discontinued Operations




During
2005, we divested of our IAS businesses, comprised of Cincinnati Lamb and Landis
Grinding Systems. The following table sets forth the components of earnings
(loss) from discontinued operations, net of tax, for the years ended
December 31, 2007, 2006 and 2005 (thousands of dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Product
      and service revenues
            
            $
            -
            
            $
            -
            
            $
            223,460Loss
      from discontinued operations before tax
            
            
            (1,995
            )
            
            (3,747
            )
            
            (7,095
            )Benefit
      for income taxes
            
            
            712
            
            
            748
            
            
            28,242Earnings
      (loss) from discontinued operations net of tax
            
            $
            (1,283
            )
            $
            (2,999
            )
            $
            21,147





31





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




Currency
Transactions




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 gains (losses) of $(1.5) million, $(1.3) million,
$0.7 million for the years ended December 31, 2007, 2006 and 2005,
respectively.




For
fiscal year 2007, our continuing operations derived approximately 51.6% of
revenues from non-U.S. customers. At December 31, 2007, long-lived assets
attributable to countries outside of the U.S. comprised 15.9% of total
long-lived assets. The largest components of these assets are attributable to
European nations, primarily the Netherlands and the United Kingdom.




Liquidity
and Capital Resources




At
December 31, 2007, cash, cash equivalents and short-term investments
totaled $265.5 million, an increase of $81.0 million compared to the
December 31, 2006 balance of $184.5 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 2007,
cash provided by operating activities of continuing operations was primarily due
to customer receipts of $864.5 million, which was offset by payments to vendors
and employees of $804.1 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 is $16.5 million of net proceeds before tax
from an IP settlement. In 2005, cash provided by operating activities of
continuing operations of $62.4 million was primarily due to operating profit of
$40.6 million and cash proceeds recorded as deferred revenue from our 2005 Rapid
Start intellectual licensing program of approximately $21.4
million.




In 2007,
investing activities of continuing operations used $17.4 million of cash
primarily due to capital expenditures of $15.8 million.




Capital
expenditures were $15.8 million, $22.4 million and $10.1 million for 2007, 2006
and 2005, respectively. Proceeds from sales of property, plant and equipment
were $0.7 million and $11.0 million in 2007 and 2005, respectively. There were
no proceeds from sales of property, plant and equipment for 2006.




32




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





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, 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, with
a net use of $84.4 million in cash. Financing activities of continuing
operations in 2005 included $18.0 million in proceeds from stock option
exercises and the repayment of long-term debt of $108.5 million, reflecting a
net use of $88.3 million in cash.





Net cash
used by operating activities of discontinued operations was $52.6 million in
2005. The net cash used by operating activities in 2005 was primarily due to a
$13.5 million settlement of a lawsuit, a contribution of $11.1 million made
to our non-U.S. pension plan covering retirees of the divested IAS businesses,
as well as an increase in net working assets prior to the
divestures.




Net cash
provided by investing activities of discontinued operations was $20.2 million in
2007, 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, 2007, of $47.6
million under the Revolving Facility. We made no borrowings under the Revolving
Facility as of December 31, 2007. As of December 31, 2007, we were in
compliance with the financial covenants of the Revolving Facility. The Revolving
Facility matures in October 2012.





The key
terms of the Revolving Facility are as follows:





·
            Loans
      will bear interest at a variable rate equal to (at our option) (i) LIBOR
      plus the applicable margin, which ranges from 0.60% to 1.00%, or (ii) the
      Bank’s prime rate, less the applicable margin, which ranges from 0.25% to
      1.00%.  If an event of default occurs and is continuing, then
      the interest rate on all obligations under the Revolving Facility may be
      increased by 2.0% above the otherwise applicable rate, and the Bank may
      declare any outstanding obligations under the Revolving Facility to be
      immediately due and payable.




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




·
            Certain
      of our domestic subsidiaries have guaranteed the Revolving
      Facility.




·
            The
      Revolving Facility contains various restrictions and covenants, including
      restrictions on our ability and the ability of our subsidiaries to
      consolidate or merge, make acquisitions, create liens, incur additional
      indebtedness or dispose of assets.




·
            Financial
      covenants include a Maximum Leverage test and a Minimum Tangible Net Worth
      test, each as defined in the Revolving
Facility.










33







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





We also
have maintained a secured Credit Agreement (the “Secured Revolving Facility”),
dated as of September 30, 2004. We terminated the Secured Revolving Facility on
September 27, 2007 in connection with entering into the Revolving Facility. The
Secured Revolving Facility was scheduled to expire on September 30, 2007. We
have no material continuing obligations under the terminated Secured Revolving
Facility, and we incurred no material early termination fees in connection with
the termination. We believe that the termination of the Secured Revolving
Facility will not have any adverse effect on our financial condition or
liquidity.





We also
have maintained a secured long-term revolving facility and related overdraft
facility (collectively, the “UK Facility”). In accordance with its terms, the UK
Facility terminated on February 9, 2006, and we did not extend the term of
the facility. We believe that the termination of the UK Facility will not have
any adverse effect on our financial condition or liquidity.





In
March 1998, we sold $200.0 million principal amount of senior unsecured
debt in an underwritten offering. The debt comprised $100.0 million of 6.875%
seven-year notes and $100.0 million of 7.00% ten-year notes. On March 15,
2005, we retired the $100.0 million of seven-year notes. Interest payments on
the ten-year notes are due semi-annually in March and September. Including
underwriting fees, discounts and other issuance costs, the effective interest
rates on the ten-year notes is 7.175%. The ten-year notes mature in
March 2008.




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 for the foreseeable future, in addition to working capital,
capital expenditure and debt repayment obligations. 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. Additional sources of liquidity include our
Revolving Facility.


34





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




Contractual
Obligations




The
following table summarizes our significant contractual commitments for
continuing operations as of December 31, 2007 (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)
            
            $
            56.6
            
            $
            11.5
            
            $
            18.0
            
            $
            13.0
            
            $
            14.1Purchase
      commitments
            
            
            23.7
            
            
            14.4
            
            
            9.4
            
            
            -
            
            
            -Total
      contractual obligations
            
            $
            80.3
            
            $
            25.9
            
            $
            27.4
            
            $
            13.0
            
            $
            14.1




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, 2007
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 $8.6 million in 2008, $19.4 million for 2009 and 2010 combined, $22.6
million for 2011 and 2012 combined, and $71.9 million for the subsequent
five-year period 2013 through 2017.




Off-Balance
Sheet Arrangements




At
December 31, 2007, we had aggregate off-balance-sheet letter-of-credit
reimbursement agreements totaling $3.9 million, compared to $7.4 million at
December 31, 2006. 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 2007, 2006 or 2005 and has not had a significant impact upon the
results of our operations during these fiscal years.




35





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




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 post
retirement 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 products
are shipped or services are rendered, the title and risk of loss has passed to
the customer, the sales price is fixed or determinable and collectibility is
reasonably assured. Royalty revenue is recorded when the revenue is earned, the
amount due is fixed or determinable and collectibility is reasonably assured.
Service and maintenance revenue is recognized as services are rendered,
generally over the contract term, and collectibility is reasonably assured. When
a sale involves multiple elements, such as sales of products that include
services, the entire revenue from the arrangement is allocated to each
respective element based on its relative fair value and is recognized when the
revenue recognition criteria for each element are met. Fair value for each
element is established based on the sales price charged when the same element is
sold separately. We reduce revenue for estimated customer returns, price
protection, rebates and other offerings that occur under sales programs
established by us directly or with our distributors and resellers. We accrue the
estimated cost of post-sale obligations, including basic product warranties,
based on historical experience at the time we recognize revenue.




We
typically do not sell our software products without the related hardware. Our
typical products require no significant production, modification or
customization of the software or hardware after they are shipped. For software
sales, and hardware sales where the software is more than incidental, revenue is
recognized upon shipment, delivery, installation or customer acceptance of the
product, as defined in the customer contract.




Under our
Rapid Start RFID intellectual property (“RFID IP”) licensing program, we license
rights to use portions of our IP portfolio, including certain patents essential
to and/or useful in the manufacture and sale of certain RFID products and
systems. As a result of our RFID IP licensing program, which ended on
August 31, 2005, we have expanded our revenue recognition policy to include
the license fees from this program. Licensees participating in the Rapid Start
program typically paid a nonrefundable up-front fee and agreed to pay ongoing
royalties based on their sales of products incorporating or using our licensed
RFID IP. Under the terms of such Rapid Start RFID license agreements, the
licensees receive the right to certain future divisions, continuations and
continuations-in-part of the licensed RFID patents. Non-refundable up-front fees
and license transfer fees related to our Rapid Start RFID IP licensing program
are recorded as deferred revenue and recognized over five years, representing
the estimated future period we expect to receive patents on certain divisions,
continuations and/or continuations-in-part for the licensed RFID patents and our
estimate of the average technology lifecycle for the 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.





36








ITEM 7.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
      (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-off inventory
is sold.




Income Taxes.  We
consider future market growth, forecasted earnings, future taxable income, 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 is currently a valuation allowance would be
realized, the related valuation allowance would be reduced and a benefit to
earnings would be recorded.





We
conduct business in various countries throughout the world and are subject to
tax in numerous jurisdictions. As a result of our business activities, we file a
significant number of tax returns that are subject to audit by various tax
authorities. Tax audits are often complex and may require several years to
resolve. We also 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 our patent portfolio
and have estimated useful lives of 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 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.





Discontinued
Operations.  Divested businesses are classified in the
consolidated financial statements as discontinued operations. For businesses
classified as discontinued operations, the balance sheet amounts and income
statement results and cash flows are reclassified from their historical
presentation to assets and liabilities of discontinued operations on the
consolidated balance sheets, to profit or loss from discontinued operations in
the consolidated statements of operations, and to cash flows from discontinued
operations on the consolidated statements of cash flows for all periods
presented. Additionally, segment information does not include the results of
businesses classified as discontinued operations.








37







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





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 in the period the change is
determined. Patent costs are amortized over the remaining life of the patents.
During 2007 and 2006, we capitalized $2.5 million and $0.7 million,
respectively, in external legal costs incurred in the defense of our
patents.





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’ 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
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 as of
December 31, 2007 were 6.35% and 5.90%, respectively, compared to 5.95% and
5.00% as of December 31, 2006. The increase in the discount rate used for
domestic plans reflects higher 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 8.75% 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 6.10%, and 5.70% at
December 31, 2007, and 2006, 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 2007 was
8.50% and is projected to decrease over seven years to 5.00%, where it is
expected to remain thereafter. The effect of a one-percentage-point increase or
decrease in the assumed health care cost trend rate on the service cost and
interest cost components of the net periodic postretirement benefit cost is not
material. A one-percentage-point increase in the assumed health care cost trend
rate on the postretirement benefit obligation 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, 2006, we adopted SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106 and 132(R) (SFAS No. 158), which requires that the
consolidated statements of financial position reflect the funded status of the
pension and postretirement plans (See Note K, Pension and Other Postretirement
Benefit Plans). In future reporting periods, the difference between actual
amounts and estimates based on actuarial assumptions will be recognized in other
comprehensive loss in the period in which they occur.





38







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





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, 2007, 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.




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
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities, Including an Amendment of FASB Statement No.
115,” which will become effective in 2008. SFAS No. 159 permits entities
to measure eligible financial assets, financial liabilities and firm commitments
at fair value, on an instrument-by-instrument basis, that are otherwise not
permitted to be accounted for at fair value under other generally accepted
accounting principles. The fair value measurement election is irrevocable and
subsequent changes in fair value must be recorded in earnings. We will adopt
this Statement in fiscal year 2008 and will determine whether we will
elect the fair value option for any of our eligible financial instruments and
other items. We do not expect this statement will have a significant impact on
our consolidated financial statements.




In
September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements.”
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. While the statement is effective in the first fiscal
quarter of 2008, the FASB provided a one year deferral for the implementation
with respect to other nonfinancial assets and liabilities. We believe that
the adoption of SFAS No. 157 will not have a material effect on our
results of operations, cash flows or financial
position.


39







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





In
September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined
Pension and Other Postretirement Plans—an amendment of FASB Statements
No. 87, 88, 106 and 132(R)”. The statement has new provisions
regarding the measurement date as well as certain disclosure requirements.
Effective December 31, 2008, SFAS No. 158 will require us to measure
plan assets and benefit obligations at fiscal year end. We currently perform
this measurement at September 30 of each year. In addition, beginning in
fourth quarter of 2007, this Standard required that we eliminate the use of a
three-month lag period when recognizing the impact of curtailments or
settlements and instead, recognize these amounts in the period in which they
occur. The provisions of SFAS No. 158 do not permit retrospective
application. We expect to incur between $0.5 million and $1.0 million as an
adjustment to retained earnings upon adoption of the remainder of this
statement.





In
September 2006, the EITF issued EITF 06-4, “Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements”
(“EITF 06-04”), which will become effective in 2008. The Task Force concluded
that an employer should recognize a liability for future benefits in accordance
with SFAS No. 106, “Employers'
Accounting for Postretirement Benefits Other Than Pensions” or Opinion
12, “Classification and
Disclosure of Allowances Disclosure of Depreciable Assets and Depreciation
Deferred Compensation Contracts Capital Changes Convertible Debt and Debt Issued
with Stock Warrants Amortization of Debt Discount and Expense or Premium”
based on the substantive agreement with the employee. We do not expect the
adoption of EITF 06-4 to result in a change to our accounting policy or
have an effect on our consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which
was effective for all business acquisitions with an acquisition date on or after
January 1, 2009. This statement generally requires an acquirer to recognize the
assets acquired, the liabilities assumed, contingent purchase consideration, and
any noncontrolling interest in the acquiree, at fair value on the date of
acquisition. SFAS No. 141R also requires an acquirer to expense most transaction
and restructuring costs as incurred, and not include such items in the cost of
the acquired entity. We are currently evaluating the impact of the adoption of
SFAS No. 141R on our consolidated financial statements.




40







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




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. These factors include but are not
limited to our ability to maintain or to improve the revenues and profits of our
continuing operations, maintain or reduce expenses, maintain or improve
operational efficiency, use our investment in research and development to
generate future revenue, maintain or improve year-over-year growth in the
revenues and profits of our continuing operations and the other factors
described 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. 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.





Such
forward-looking statements involve and are dependent upon certain risks and
uncertainties. When used in this document and in documents it refers to, the
words “anticipate,” “believe,” “will,” “intend,” “project” and “expect” and
similar expressions as they relate to us or our management are intended to
identify such forward-looking statements.





Forward-looking
statements 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 discussed 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 Risk Factors portion of Item 1A of Part I of this
filing which discusses the risk factors associated with our
business.




41





ITEM
      7A.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK




We are
exposed to 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: As of
December 31, 2007, our outstanding borrowings consisted of $100.0 million in
fixed rate debentures that mature in March 2008 and have an interest rate
of 7.00%. The fair value of the fixed rate debentures on December 31, 2007,
as determined based on recent market trades, was $100.0 million. See discussions
of our credit facilities under the heading “Liquidity and Capital Resources” in
Item 7 of this annual report and in Note B to the consolidated financial
statements.




Currency Exchange Rates: Due
to our global operations, our cash flow and earnings are exposed to currency
exchange rate fluctuations. When appropriate, we may attempt to limit our
exposure to changing currency exchange rates by entering into short-term
currency exchange contracts. We do not enter into any currency contracts for
speculative or trading purposes. Contracts that effectively meet risk reduction
and correlation criteria are accounted for as hedges, and accordingly, gains and
losses from mark-to-market adjustments are deferred in the cost basis of the
underlying transaction. In those circumstances when it is not appropriate to
account for contracts as hedges, gains and losses from mark-to-market
adjustments are recorded currently 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, 2007, the
analysis indicated that if our hedges of exchange exposure were not in place,
such market movements would have an impact of approximately $29.1 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
2007, our sales comprised $460.5 million, or 54%, denominated in U.S. dollars,
$195.1 million, or 23%, denominated in euros, $62.9 million, or 8%, denominated
in British pounds, and $130.8 million, or 15% denominated in other foreign
currencies. Fluctuations in foreign currency translation rates positively
impacted our sales by approximately $25.0 million, $6.9 million and $2.1 million
in 2007, 2006 and 2005, respectively.





42





ITEM
      8.
            FINANCIAL STATEMENTS AND
      SUPPLEMENTARY DATA





PageManagement's Report on Internal Control over Financial
      Reporting
            
            
            47Management's
      Certifications
            
            
            48Report of
      Independent Registered Public Accounting
    Firm
            
            
            49 to
      50Consolidated
      Statements of Operations for the years ended December 31, 2007, 2006 and
      2005
            
            
            51Consolidated
      Balance Sheets as of December 31, 2007 and
      2006
            
            
            52Consolidated
      Statements of Cash Flows for the years ended December 31, 2007, 2006
      (restated) and 2005 (restated)
            
            
            53Consolidated
      Statements of Changes in Shareholders' Investment for the years ended
      December 31, 2007, 2006 and 2005
            
            
            54Notes to
      Consolidated Financial Statements
            
            
            55
      to 86Quarterly
      Financial Information (unaudited)
            
            
            87








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, 2007.




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 48 of this
annual report on Form 10-K and is incorporated by reference.




(b)
            Attestation Report of the
      Registered Public Accounting
Firm




The
operating effectiveness of our internal control over financial reporting as of
December 31, 2007, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report which
is on page 50 of this annual report on Form 10-K and is incorporated
by reference.




(c)
            Changes in Internal Control over
      Financial Reporting




During
the fourth quarter 2007, we made changes to our controls and procedures as part
of our ongoing monitoring of controls. However, none of these changes has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.




ITEM 9B.
            OTHER
      INFORMATION




None




43





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 23, 2008 (the “2008 Proxy
Statement”). Information to be included in Part III, Item 10, will be included
in our 2008 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 2008 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 2008 Proxy
Statement, and is incorporated herein by this reference.




ITEM 13.
            CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS, AND DIRECTORINDEPENDENCE.




Information
to be included in Part III, Item 13, will be included in our 2008 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 2008 Proxy
Statement, and is incorporated herein by this reference.




44





PART IV




ITEM 15.
            EXHIBITS AND FINANCIAL STATEMENT
      SCHEDULES.




(a)
            (1)
            Financial
      StatementsSee
      listing of financial statements as set forth in Part I, Item 8 of this
      annual report on Form 10-K.




(2)
            Financial Statement
      ScheduleSchedule
      II. Valuation and Qualifying Accounts at page 88 of this annual
      report on Form 10-K.All
      other schedules specified under Regulation S-X are omitted because they
      are either not applicable, not required or the information called for
      therein appears in the consolidated financial statements or notes
      thereto.




(3)
            Executive Compensation Plans and
      ArrangementsExecutive
      compensation plans and arrangements are listed as exhibits 10.4 through
      10.45 as set forth in the Index to Exhibits at page 89 of this annual
      report.




(b)
            Index to Exhibits at page 89
      of this annual report.




45





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/
      Lanny H. MichaelLanny
      H. MichaelSenior
      Vice President, Chief Financial OfficerMarch
      2, 2008







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
            
            March
      2, 2008Patrick
      J. Byrne
            
            Chief
      Executive Officer/s/
      Allen J. Lauer
            
            Director
      and Chairman of the Board
            
            March
      2, 2008Allen
      J. Lauer/s/
      Gregory K. Hinckley
            
            Director
            
            March
      2, 2008Gregory
      K. Hinckley/s/
      Lydia H. Kennard
            
            Director
            
            March
      2, 2008Lydia
      H. Kennard/s/
      Stephen P. Reynolds
            
            Director
            
            March
      2, 2008Stephen
      P. Reynolds/s/
      Steven B. Sample
            
            Director
            
            March
      2, 2008Steven
      B. Sample/s/
      Oren G. Shaffer
            
            Director
            
            March
      2, 2008Oren
      G. Shaffer/s/
      Larry D. Yost
            
            Director
            
            March
      2, 2008Larry
      D. Yost/s/
      Lanny H. Michael
            
            Senior
      Vice President, Chief Financial Officer
            
            March
      2, 2008Lanny
      H. Michael
            
            (Principal
      Financial Officer)/s/
      Fredric B. Anderson
            
            Vice
      President, Corporate Controller
            
            March
      2, 2008Fredric
      B. Anderson
            
            (Principal
      Accounting Officer)




46




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, 2007,
the end of our fiscal year. Management based its assessment on criteria
established in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Management’s assessment included
evaluation of elements such as the design and operating effectiveness of key
financial reporting controls, process documentation, accounting policies, and
our overall control environment.




Based on
our assessment, management has concluded that our internal control over
financial reporting was effective as of the end of the fiscal year to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external reporting purposes in
accordance with accounting principles generally accepted in the United States.
The effectiveness of the Company's internal control over financial reporting as
of December 31, 2007 has been audited by Deloitte & Touche, LLP, an
independent registered public accounting firm, as stated in their report which
appears herein.





47





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 2007, the Chief Executive Officer provided
to the New York Stock Exchange the annual CEO certification regarding our
compliance with the New York Stock Exchange’s corporate governance listing
standards.




/s/
      Patrick J. ByrnePatrick
      J. ByrneChief
      Executive Officer/s/
      Lanny H. MichaelLanny
      H. MichaelSenior
      Vice President andChief
      Financial Officer




48






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM











To the
Board of Directors and Shareholders of


Intermec,
Inc.


Everett,
WA





We have
audited the accompanying consolidated balance sheets of Intermec, Inc. and
subsidiaries (the "Company") as of December 31, 2007 and 2006, and the related
consolidated statements of operations, changes in shareholders’ investment, and
cash flows for each of the three years in the period ended December 31, 2007.
Our audits also included the financial statement schedule listed in the Index at
Item 15.  We also have audited the Company's internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  The Company's management is responsible for these
financial statements and financial statement schedule, for maintaining effective
internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial
Reporting.Our
responsibility is to express an opinion on the financial statements and
financial statement schedule and an opinion on the Company's internal control
over financial reporting based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects.  Our audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation.  Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk.  Our audits also included performing such other
procedures as we considered necessary in the circumstances.  We believe
that our audits provide a reasonable basis for our opinions.





A
company's internal control over financial reporting is a process designed by, or
under the supervision of, the company's principal executive and principal
financial officers, or persons performing similar functions, and effected by the
company's board of directors, management, and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles.  A company's internal control
over financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial
statements.





Because
of the inherent limitations of internal control over financial reporting,
including the possibility of collusion or improper management override of
controls, material misstatements due to error or fraud may not be prevented or
detected on a timely basis.  Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods
are subject to the risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Intermec, Inc and
subsidiaries as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2007, in conformity with accounting principles generally accepted
in the United States of America.  Also, in our opinion, such financial
statement schedule when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.  Also, in our opinion, the Company
maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2007, based on the criteria established in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.





49







As
discussed in Note A to the financial statements, effective January 1, 2007 the
Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes.”Also, effective January 1, 2006, the Company adopted the provision of
FASB Statement No. 123(R), “Share-Based Payment.” Effective December 31, 2006, the
Companyadoptedcertain provisions of Statement of Financial Accounting Standard
No. 158, “Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans – an
Amendment of FASB Statements No. 87, 88, 106 and 132(R).”




As
discussed in Note A to the financial statements, the consolidated statements of
cash flows for the years ended December 31, 2006 and 2005 have been
restated.





March 2,
2007













50





INTERMEC, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


(thousands
of dollars, except per share amounts)





Year
      Ended December 31,2007
            
            2006
            
            2005Revenues:Product
            
            $
            692,050
            
            $
            692,417
            
            $
            720,959Service
            
            
            157,170
            
            
            157,552
            
            
            154,523Total
      revenues
            
            
            849,220
            
            
            849,969
            
            
            875,482Costs
      and expenses:Cost
      of product revenues
            
            
            432,166
            
            
            429,691
            
            
            420,707Cost
      of service revenues
            
            
            90,188
            
            
            88,238
            
            
            91,899Research
      and development
            
            
            65,610
            
            
            72,356
            
            
            66,506Selling,
      general and administrative
            
            
            223,838
            
            
            227,908
            
            
            237,819Gains
      on intellectual property settlements
            
            
            -
            
            
            (16,538
            )
            
            -Restructuring
      charge
            
            
            -
            
            
            11,583
            
            
            -Total
      costs and expenses
            
            
            811,802
            
            
            813,238
            
            
            816,931Operating
      profit from continuing operations
            
            
            37,418
            
            
            36,731
            
            
            58,551Gain
      on sale of investments
            
            
            -
            
            
            2,305
            
            
            -Interest
      income
            
            
            10,706
            
            
            15,898
            
            
            7,016Interest
      expense
            
            
            (8,946
            )
            
            (9,360
            )
            
            (11,042
            )Earnings
      from continuing operations before income taxes
            
            
            39,178
            
            
            45,574
            
            
            54,525Provision
      for income taxes
            
            
            14,843
            
            
            10,575
            
            
            13,880Earnings
      from continuing operations
            
            
            24,335
            
            
            34,999
            
            
            40,645Earnings
      (loss) from discontinued operations, net of tax
            
            
            (1,283
            )
            
            (2,999
            )
            
            21,147Net
      earnings
            
            $
            23,052
            
            $
            32,000
            
            $
            61,792Basic
      earnings (loss) per shareContinuing
      operations
            
            $
            0.40
            
            $
            0.56
            
            $
            0.66Discontinued
      operations
            
            
            (0.02
            )
            
            (0.05
            )
            
            0.34Net
      earnings per share
            
            $
            0.38
            
            $
            0.51
            
            $
            1.00Diluted
      earnings (loss) per shareContinuing
      operations
            
            $
            0.40
            
            $
            0.55
            
            $
            0.64Discontinued
      operations
            
            
            (0.02
            )
            
            (0.05
            )
            
            0.34Net
      earnings per share
            
            $
            0.38
            
            $
            0.50
            
            $
            0.98Shares
      used in computing basic earnings (loss) per share
            
            
            60,359
            
            
            62,535
            
            
            61,785Shares
      used in computing diluted earnings (loss) per share
            
            
            61,163
            
            
            63,830
            
            
            63,350




See
accompanying notes to consolidated financial statements.
 51





INTERMEC, INC.


CONSOLIDATED
BALANCE SHEETS


(thousands
of dollars)




December
      31,2007
            
            2006ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            237,247
            
            $
            155,027Short-term
      investments
            
            
            28,230
            
            
            29,510Accounts
      receivable, net
            
            
            191,487
            
            
            158,369Inventories
            
            
            113,145
            
            
            119,027Net
      current deferred tax assets
            
            
            61,532
            
            
            49,623Other
      current assets
            
            
            14,690
            
            
            28,913Total
      current assets
            
            
            646,331
            
            
            540,469Property,
      plant and equipment, net
            
            
            47,732
            
            
            43,453Intangibles,
      net
            
            
            4,138
            
            
            3,978Net
      deferred tax assets
            
            
            150,154
            
            
            190,683Other
      assets
            
            
            52,280
            
            
            31,757Total
      assets
            
            $
            900,635
            
            $
            810,340LIABILITIES
      AND SHAREHOLDERS’ INVESTMENTCurrent
      liabilities:Accounts
      payable and accrued expenses
            
            $
            141,667
            
            $
            113,207Payroll
      and related expenses
            
            
            32,170
            
            
            32,008Deferred
      revenue
            
            
            49,020
            
            
            45,021Current
      debt
            
            
            100,000
            
            
            -Total
      current liabilities
            
            
            322,857
            
            
            190,236Long-term
      deferred revenue
            
            
            20,109
            
            
            17,318Long-term
      debt
            
            
            -
            
            
            100,000Other
      long-term liabilities
            
            
            73,558
            
            
            85,184Shareholders’
      investment:Common
      stock (250,000 shares authorized, 61,192 and 60,318 shares issued and
      outstanding)
            
            
            612
            
            
            598Additional
      paid-in capital
            
            
            679,241
            
            
            657,468Accumulated
      deficit
            
            
            (196,795
            )
            
            (212,903
            )Accumulated
      other comprehensive income (loss)
            
            
            1,053
            
            
            (27,561
            )Total
      shareholders’ investment
            
            
            484,111
            
            
            417,602Total
      liabilities and shareholders’ investment
            
            $
            900,635
            
            $
            810,340




See
accompanying notes to consolidated financial statements.
 52


INTERMEC, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


(thousands
of dollars)




Year
      Ended December 31,2007
            
            2006
              (Restated,
      see Note A)
            
            2005
                (Restated,
      see Note A)Cash
      and cash equivalents at beginning of year
            
            $
            155,027
            
            $
            256,782
            
            $
            217,899Cash
      flows from operating activities:Net
      earnings
            
            
            23,052
            
            
            32,000
            
            
            61,792Net
      (earnings) loss from discontinued operations
            
            
            1,283
            
            
            2,999
            
            
            (21,147
            )Adjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
            
            
            13,314
            
            
            10,939
            
            
            9,865Gain on
      sale of investments
            
            
            -
            
            
            (2,305
            )
            
            -Change
      in prepaid pension costs, net
            
            
            (5,290
            )
            
            17,178
            
            
            11,525Deferred
      taxes
            
            
            7,643
            
            
            12,412
            
            
            11,155Stock-based
      compensation and other
            
            
            9,037
            
            
            5,892
            
            
            1,975Excess
      tax benefits from stock-based payment arrangements
            
            
            (2,050
            )
            
            (4,733
            )
            
            -Changes
      in operating assets and liabilities:Accounts
      receivable
            
            
            (25,204
            )
            
            28,269
            
            
            (33,560
            )Inventories
            
            
            8,060
            
            
            (35,477
            )
            
            (2,344
            )Other
      current assets
            
            
            (1,662
            )
            
            5,577
            
            
            (1,906
            )Accounts
      payable and accrued expenses
            
            
            35,805
            
            
            (49,965
            )
            
            9,482Payroll
      and related expenses
            
            
            (815
            )
            
            179
            
            
            (636
            )Other
      long-term liabilities
            
            
            (1,467
            )
            
            1,548
            
            
            15,257Other
      operating activities
            
            
            (5,081
            )
            
            (4,296
            )
            
            914Net
      cash provided by operating activities of
      continuing operations
            
            
            56,625
            
            
            20,217
            
            
            62,372Cash
      flows from investing activities of continuing
      operations:Capital
      expenditures
            
            
            (15,779
            )
            
            (22,365
            )
            
            (10,136
            )Purchases
      of investments
            
            
            -
            
            
            (31,450
            )
            
            -Sale
      of investments
            
            
            2,002
            
            
            4,873
            
            
            -Restricted
      cash
            
            
            -
            
            
            -
            
            
            50,000Patent
      legal fees
            
            
            (2,398
            )
            
            (705
            )
            
            -Sale
      of property, plant and equipment
            
            
            -
            
            
            -
            
            
            10,987Other
      investing activities
            
            
            (1,253
            )
            
            653
            
            
            729Net
      cash provided by (used in) investing activities ofcontinuing
      operations
            
            
            (17,428
            )
            
            (48,994
            )
            
            51,580Cash
      flows from financing activities of continuing
      operations:Repayment
      of long-term obligations
            
            
            -
            
            
            -
            
            
            (108,500
            )Excess
      tax benefits from stock-based payment arrangements
            
            
            2,050
            
            
            4,733
            
            
            -Stock
      options exercised
            
            
            8,434
            
            
            8,073
            
            
            18,014Stock
      repurchase
            
            
            -
            
            
            (99,948
            )
            
            -Other
      financing activities
            
            
            2,269
            
            
            2,780
            
            
            2,148Net
      cash provided by (used in) financing activities of continuing
      operations
            
            
            12,753
            
            
            (84,362
            )
            
            (88,338
            )Net
      cash provided by (used in) continuing operations
            
            
            51,950
            
            
            (113,139
            )
            
            25,614Net
      cash used in operating activities of discontinued
      operations
            
            
            -
            
            
            -
            
            
            (52,558
            )Net
      cash provided by investing activities ofdiscontinued
      operations
            
            
            20,178
            
            
            5,710
            
            
            70,416Effect
      of exchange rate changes on cash and cash
equivalents
            
            
            10,092
            
            
            5,674
            
            
            (4,589
            )Resulting
      increase (decrease) in cash and cash equivalents
            
            
            82,220
            
            
            (101,755
            )
            
            38,883Cash
      and cash equivalents at end of period
            
            $
            237,247
            
            $
            155,027
            
            $
            256,782Supplemental
      informationCash
      payments:Interest
      on debt
            
            $
            (7,000
            )
            $
            (7,243
            )
            $
            (11,498
            )Income
      taxes
            
            
            (5,943
            )
            
            (5,361
            )
            
            (6,199
            )




See
accompanying notes to consolidated financial statements.
 53





INTERMEC, INC.


CONSOLIDATED
STATEMENTS OF CHANGES IN SHAREHOLDERS’ INVESTMENT


(thousands
of dollars)




Common
      Stock
            
            Additional
      Paid-in Capital
            
            Accumulated
      Deficit
            
            Accumulated
      Other Comprehensive Income (Loss)
            
            TotalBalance,
      January 1, 2005
            
            $
            611
            
            $
            703,416
            
            $
            (306,695
            )
            $
            13,902
            
            $
            411,234Comprehensive
      income:Net
      earnings
            
            
            
            
            
            
            
            
            61,792
            
            
            
            
            
            61,792Currency translation adjustment
      and other, net
            
            
            
            
            
            
            
            
            
            
            
            (26,464
            )
            
            (26,464
            )Minimum pension liability
      adjustment, net
            
            
            
            
            
            
            
            
            
            
            
            (3,583
            )
            
            (3,583
            )Comprehensive
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            31,745Stock-based
      activity
            
            
            16
            
            
            32,808
            
            
            
            
            
            
            
            
            32,824Balance,
      December 31, 2005
            
            
            627
            
            
            736,224
            
            
            (244,903
            )
            
            (16,145
            )
            
            475,803Comprehensive
      income:Net
      earnings
            
            
            
            
            
            
            
            
            32,000
            
            
            
            
            
            32,000Currency translation adjustment
      and other, net
            
            
            
            
            
            
            
            
            
            
            
            6,351
            
            
            6,351Unrealized
      gain on securities, net
            
            
            
            
            
            
            
            
            
            
            
            49
            
            
            49Minimum pension liability
      adjustment, net
            
            
            
            
            
            
            
            
            
            
            
            (328
            )
            
            (328
            )Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            38,072SFAS
      158 transition amount, net
            
            
            
            
            
            
            
            
            
            
            
            (17,488
            )
            
            (17,488
            )Repurchase
      of common stock
            
            
            (38
            )
            
            (99,910
            )
            
            
            
            
            
            
            
            (99,948
            )Stock-based
      activity
            
            
            9
            
            
            21,154
            
            
            
            
            
            
            
            
            21,163Balance,
      December 31, 2006
            
            
            598
            
            
            657,468
            
            
            (212,903
            )
            
            (27,561
            )
            
            417,602Comprehensive
      income:Net
      earnings
            
            
            
            
            
            
            
            
            23,052
            
            
            
            
            
            23,052Currency translation adjustment
      and other, net
            
            
            
            
            
            
            
            
            
            
            
            5,851
            
            
            5,851SFAS
      158, net of tax of $4.3 million
            
            
            
            
            
            
            
            
            
            
            
            22,668
            
            
            22,668Unrealized gain on securities,
      net
            
            
            
            
            
            
            
            
            
            
            
            95
            
            
            95Comprehensive
      income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            51,666FIN
      48 adoption
            
            
            
            
            
            
            
            
            (6,944
            )
            
            
            
            
            (6,944
            )Stock-based
      activity
            
            
            14
            
            
            21,773
            
            
            
            
            
            
            
            
            21,787Balance,
      December 31, 2007
            
            $
            612
            
            $
            679,241
            
            $
            (196,795
            )
            $
            1,053
            
            $
            484,111




See
accompanying notes to consolidated financial statements.
 54


INTERMEC, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
A: Significant Accounting Policies




Nature of
Operations.  Intermec, Inc. (“Intermec”, “us”, “we”,
“our”), formerly UNOVA, Inc., provides global supply chain solutions and design,
development, manufactures and integrates wired and wireless automated data
collection, mobile computing systems, bar code printers, label media and
Intermec RFID (radio frequency identification). Our products and services are
used by customers in many industries to improve productivity, quality and
responsiveness of business operations, from supply chain management and
enterprise resource planning to field sales and service. Our products and
services are sold globally to a diverse set of customers in markets and
applications such as manufacturing, warehousing, direct store delivery, retail,
consumer goods, field services, government, security, healthcare, transportation
and logistics.




In 2005,
we divested our Industrial Automation Systems (“IAS”) businesses, which
comprised the Cincinnati Lamb and Landis Grinding Systems divisions. The IAS
businesses are classified as discontinued operations for accounting purposes in
our consolidated financial statements and related notes.




Restatement:  Cash flows from operating activities in the
consolidated statements of cash flows for the years ended December 31, 2006 and
2005 have been restated from amounts previously reported to properly separate
the effects of exchange rate changes on cash, which were previously reflected in
certain line items of the consolidated statements of cash flows for those years.
The impact of this restatement was to increase (decrease) the reported cash
flows from operating activities for 2006 and 2005 by approximately ($5.7)
million and $4.6 million, respectively, and to reflect the effect of foreign
exchange rates on cash as a reconciling item after cash provided by (used in)
operating, investing and financing activities, before the total change in cash
and cash equivalents, as an increase (decrease) in cash of $5.7 million and
($4.6) million for the years ended December 31, 2006 and 2005, respectively.
There was no change in cash and cash equivalents from amounts previously
reported at the end of those periods.
 The
results of this restatement on the recorded amounts and a disclosure within the
2006 and 2005 consolidated statements of cash flows are as follow (thousands of
dollars):
  For
      the year ended December 31, 2006
              
              For
      the year ended December 31, 2005As
      previously reported
              
              As
      restated
              
              As
      previously reported
              
              As
      restatedAdjustments
      to reconcile net earnings to net cash provided by operating
      activities:Depreciation
      and amortization
              
              $
              9,942
              
              $
              10,939
              
              $
              9,865
              
              $
              9,865Change
      in prepaid pension costs, net
              
              
              17,182
              
              
              17,178
              
              
              11,525
              
              
              11,525Deferred
      taxes
              
              
              13,063
              
              
              12,412
              
              
              11,615
              
              
              11,155Accounts
      receivable
              
              
              22,616
              
              
              28,269
              
              
              (33,561
              )
              
              (33,560
              )Inventories
              
              
              (36,939
              )
              
              (35,477
              )
              
              (2,344
              )
              
              (2,344
              )Other
      current assets
              
              
              5,271
              
              
              5,577
              
              
              (1,906
              )
              
              (1,906
              )Accounts
      payable and accruedexpenses
              
              
              (46,438
              )
              
              (49,965
              )
              
              9,134
              
              
              9,482Payroll
      and related expenses
              
              
              1,200
              
              
              179
              
              
              (636
              )
              
              (636
              )Other
      long-term liabilities
              
              
              1,757
              
              
              1,548
              
              
              15,111
              
              
              15,257Other
      operating activities
              
              
              4,384
              
              
              (4,296
              )
              
              (3,640
              )
              
              914Net
      cash provided by operating activities of continuing
      operations
              
              
              25,891
              
              
              20,217
              
              
              57,783
              
              
              62,372Net
      cash provided by (used in) continuing operations
              
              
              (107,465
              )
              
              (113,139
              )
              
              21,025
              
              
              25,614Effect
      of exchange rate changes on cash and cash
equivalents
              
              
              -
              
              
              5,674
              
              
              -
              
              
              (4,589
              )Supplemental
      InformationEffect
      of exchange rates on cash and cash equivalents
              
              
              1,659
              
              
              -
              
              
              (7,928
              )
              
              -
 
 55


INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


Note
A: Significant Accounting Policies (Continued)


Principles of
Consolidation.  The consolidated financial statements include
the accounts of Intermec, Inc., our wholly owned subsidiaries and companies
in which we have a controlling interest. Investments in companies over which we
have influence, but not a controlling interest, are accounted for using the
equity method. Equity investments of less than 20% ownership in other companies
are carried at cost. All significant intercompany transactions and balances have
been eliminated in consolidation. We have no unconsolidated
subsidiaries.




Use of Estimates in the Preparation
of Financial Statements.  The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses for each reported period. Actual
results could differ from those estimates. Significant estimates and assumptions
were used to determine the provisions for uncollectible accounts receivable,
allowance for sales returns, excess and obsolete inventory, tax valuation
allowances, tax contingency accruals, recoverability of other intangible assets,
warranty costs, pension and post retirement obligations, and stock-based
compensation.




Revenue
Recognition.  Revenues are generally recognized when products
are shipped or services are rendered, the title and risk of loss has passed to
the customer, the sales price is fixed or determinable and collectibility is
reasonably assured. Royalty revenue is recorded when the revenue is earned and
reported, the amount due is fixed or determinable and collectibility is
reasonably assured. Service and maintenance revenue is recognized as services
are rendered, generally over the contract term, and collectibility is reasonably
assured. When a sale involves multiple elements, such as sales of products that
include services, the entire revenue from the arrangement is allocated to each
respective element based on its relative fair value and is recognized when the
revenue recognition criteria for each element are met. Fair value for each
element is established based on the sales price charged when the same element is
sold separately. We reduce revenue for estimated customer returns, price
protection, rebates and other offerings that occur under sales programs
established by us directly or with our distributors and resellers. We accrue the
estimated cost of post-sale obligations, including basic product warranties,
based on historical experience at the time we recognize revenue.




We
typically do not sell our software products without the related hardware. Our
typical products require no significant production, modification or
customization of the software or hardware after they are shipped. For software
sales, and hardware sales where the software is more than incidental, revenue is
recognized upon shipment, delivery, installation or customer acceptance of the
product, as defined in the customer contract.




Under our
Rapid Start RFID intellectual property (“RFID IP”) licensing program, we license
rights to use portions of our IP portfolio, including certain patents essential
to and/or useful in the manufacture and sale of certain RFID products and
systems. As a result of our RFID IP licensing program, which ended on
August 31, 2005, we have expanded our revenue recognition policy to include
the license fees from this program. Licensees participating in the Rapid Start
program typically paid a nonrefundable up-front fee and agreed to pay ongoing
royalties based on their sales of products incorporating or using our licensed
RFID IP. Under the terms of such Rapid Start RFID license agreements, the
licensees receive the right to certain future divisions, continuations and
continuations-in-part of the licensed RFID patents. Non-refundable up-front fees
and license transfer fees related to our Rapid Start RFID IP licensing program
are recorded as deferred revenue and recognized over five years, representing
the estimated future period we expect to receive patents on certain divisions,
continuations and/or continuations-in-part for the licensed RFID patents and our
estimate of the average technology lifecycle for the automated identification
data capture (“AIDC”) industry. We earn royalties on licensed RFID products sold
by its licensees’ at the time that the licensees’ sales occur. Our licensees
report and pay royalties owed for sales made in any given quarter after the
conclusion of that quarter. We
recognize such royalty revenue in the period earned and reported from
licensees.




56


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
A: Significant Accounting Policies (Continued)




Stock-Based
Compensation.As of December 31, 2006, we had four
stock-based compensation plans available for future grants. Prior to January 1,
2006, these plans were accounted for under the recognition and measurement
principles of APB Opinion No. 25, Accounting for Stock Issued to Employees,
and related Interpretations. During the first quarter of 2006, we began
expensing stock options as required under SFAS No. 123(R), “Share-Based
Payments.”
  Cash
Equivalents.We consider highly liquid investments purchased
within three months of their date of maturity to be cash
equivalents.
  Short-term
Investments.All short-term investments are classified as
“available-for-sale” under SFAS No. 115, Accounting for Certain Investments
in Debt and Equity Securities.  Unrealized gains and losses, net of
tax, related to available-for-sale securities are included in accumulated other
comprehensive loss within shareholders’ investment. We evaluate the carrying
value of our investments in marketable equity securities considered
available-for-sale as required under the provisions of
SFAS No. 115.
  Accounts
Receivable.We provide an allowance for doubtful accounts
equal to the estimated uncollectible accounts receivable. That estimate is based
on historical collection experience, the aging of the accounts receivable,
current international, political, economic and market conditions, and a review
of the current status of specific customer’s trade accounts receivable. Our
allowance for doubtful accounts and sales returns was $12,854 and $7,796 at
December 31, 207 and 2006, respectively.
  Inventories.  Inventories
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method. Inventoried costs include material, labor and
manufacturing overhead. General and administrative costs are expensed as
incurred. We write down estimated obsolete or unsalable inventory based on
assumptions about future demand for our products and market
conditions.
  Property, Plant and
Equipment.  Property, plant and equipment are stated at cost,
net of accumulated depreciation. Depreciation, computed generally by the
straight-line method, is provided over the estimated useful lives of the related
assets.


Pension and Other Postretirement
Benefits.We have retirement plans which cover most of our
employees. Some of these plans were frozen June 2006. Annual employer
contributions are made to the extent such contributions are actuarially
determined to adequately fund the plans, and to match a portion of the
employees’ contribution. Retiree benefits are based on the amount of participant
contributions over the term of the participant’s employment.




Assumptions
used in determining projected benefit obligations and the fair values of plan
assets for our pension plans and other postretirement benefits are evaluated at
least annually by management. Changes in assumptions are based on relevant data,
such as the rate of increase in compensation levels and the expected long-term
rate of return on plan assets. Critical assumptions such as the discount rate
used to measure the benefit obligations, the expected long-term rate of return
on plan assets and health care cost projections are evaluated and updated
annually. Note K to the consolidated financial statements includes disclosure of
these assumptions for our domestic and foreign plans. We believe the assumptions
are appropriate. However, these assumptions could vary materially from actual
results due to economic events or different rates of retirement, mortality or
withdrawal, positively or negatively impacting future results of
operations.




Effective
December 31, 2006, we adopted SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements
No. 87, 88, 106 and 132(R) (SFAS No. 158), which requires that the
consolidated statements of financial position reflect the funded status of the
pension and postretirement plans (See Note K, Pension and Other Postretirement
Benefit Plans). In future reporting periods, the difference between actual
amounts and estimates based on actuarial assumptions will be recognized in other
comprehensive income (loss) in the period in which they occur.




Income Taxes.  We
account for income taxes using the asset and liability approach, which requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of temporary differences between the carrying amounts and the
tax bases of assets and liabilities. This method also requires the recognition
of future tax benefits, such as net operating loss carry forwards and other tax
credits. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to reverse. Valuation allowances are provided to reduce
deferred tax assets to an amount that is more likely than not to be realized. We
evaluate the likelihood of realizing our deferred tax assets by estimating
sources of future taxable income and the impact of tax planning strategies. Our
deferred tax assets include future tax benefits of discontinued operations that
remain with us. Effective
January 1, 2007 we began recording benefits from uncertain tax positions in
accordance with FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes.”  Accordingly, we recognize the largest amount of
benefit greater than 50% determined by cumulative probability of being realized
upon ultimate settlement with the tax authority.


57


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
A: Significant Accounting Policies (Continued)




Concentrations of Credit
Risk.  Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. We place our cash and cash equivalents with
high-credit-quality institutions. Concentrations of credit risk with respect to
trade receivables are limited because a large number of geographically diverse
customers make up our customer base, thus spreading the credit risk. We evaluate
the creditworthiness of our customers and maintain an allowance for anticipated
losses. For 2007 and 2006, one customer accounted for more than 10% of our
revenues. Total
sales to this customer were 13% and 12% for the years ended December 31,
2007 and 2006, respectively. No single customer accounted for more than
10% of our revenues in 2005.
  Currencies.  Our
consolidated financial statements are presented in U.S. dollars. The financial
statements of our operations outside the U.S., whose functional currencies are
not the U.S. dollar, are translated into U.S. dollars at the exchange rates in
effect at the balance sheet dates for assets and liabilities and at average
rates for the period for revenues and expenses. The unrealized translation gains
and losses on our net investment in these operations, including long-term
intercompany advances considered part of the net investment, are accumulated as
a component of other comprehensive income (loss). Currency transaction gains and
losses are recorded in the consolidated statements of operations. Operating
results include net currency transaction gains (losses) of $(1.5) million,
$(1.3) million, $0.7 million December 31, 2007, 2006 and 2005.


Derivative
Instruments and Hedging Activities.Due to our global operations, our cash
flows and earnings are exposed to foreign exchange rate risk. Our use of
derivatives is limited to foreign currency exchange contracts entered into to
limit this exposure to foreign currency exchange rate fluctuations. We enter
into these contracts with major financial institutions to minimize our risk of
foreign exchange loss. Our policies do not permit active trading of or
speculation in derivative financial instruments. Our policy is to hedge major
foreign currency cash flow exposures through foreign exchange forward contracts
at amounts up to 100% of such cash flows. The translation gains and losses on
the effective portion of the hedging instruments that qualify for hedge
accounting are recorded in OCI; other translation gains and losses are recorded
in net earnings (loss). The fair values of derivative instruments are recorded
on the consolidated balance sheets. The difference between the net fair values
of foreign exchange contracts and the underlying foreign currency based assets
and liabilities as of December 31, 2007 and 2006 was not
material.




Intangibles.  Intangible
assets with finite useful lives are amortized generally on a straight-line basis
over the periods benefited. All of our finite-lived intangible assets pertain to
our patent portfolio and have estimated useful lives of 18 years. See Note E for
additional information.




The
carrying values of intangible assets with definite useful lives are tested for
impairment annually or when events or circumstances indicate the carrying value
of an asset may not be recoverable. If the carrying value of an intangible asset
exceeds its fair value, an impairment loss is recognized. Fair value is
estimated based on discounted expected future cash flows.




Other
assets.  Other assets consist primarily of pension assets in
excess of pension liabilities and certain idle facilities. Assets held for sale
totaling $8.7 million and previously reported as such at December 31, 2006, have
been reclassified to other assets to conform with the 2007
presentation.




Warranty
Costs.  Provisions for estimated expenses related to product
warranties are made at the time products are sold. These estimates are
established using historical information on the nature, frequency, and average
cost of warranty claims. Management actively studies trends of warranty claims
and takes action to improve product quality and minimize warranty
claims.




Impairment of Long-Lived
Assets.  We assess the recoverability of long-lived assets when
events or circumstances indicate that the carrying amount of an asset may not be
fully recoverable. If undiscounted expected cash flows to be generated by a
long-lived asset or asset group are less than its carrying amount, we record an
impairment to write down the long-lived asset or asset group to its estimated
fair value. Fair value is estimated based on discounted expected future cash
flows.




Discontinued
Operations.Divested businesses are classified in the
consolidated financial statements as discontinued operations. For businesses
classified as discontinued operations, the balance sheet amounts and income
statement results and cash flows are reclassified from their historical
presentation to assets and liabilities of discontinued operations on the
consolidated balance sheets, to loss from discontinued operations in the
consolidated statements of operations, and to cash flows from discontinued
operations on the consolidated statements of cash flows for all periods
presented. Additionally, segment information does not include the results of
businesses classified as discontinued operations.





Restructuring
Charge.We record restructuring charges when a liability is
incurred for costs associated with an exit or disposal activity at fair value,
in accordance with SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities (“SFAS 146”).




58


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
A: Significant Accounting Policies (Continued)




Environmental
Costs.  A liability for environmental costs is recorded when we
determine our responsibility for remedial efforts and such amounts are
reasonably estimable. Environmental costs were not material for all years
presented.
  Contingencies.  We
assess our exposure to loss contingencies, including environmental, legal and
income tax matters, and provide for an exposure if it is judged to be probable
and estimable. If the actual loss from a loss contingency differs from
management’s estimates, results of operations could be adjusted upward or
downward.


Research and
Development.  Research and development (“R&D”) costs are
expensed as incurred. Total expenditures of continuing operations on research
and development activities amounted to $65.6 million, $72.4 million and $66.5
million for the years ended December 31, 2007, 2006 and 2005, respectively.
These expenditures were for Company-sponsored R&D and were primarily for
labor, materials and other administrative costs. We incurred no costs associated
with R&D sponsored by customers or other external parties.




Advertising.Advertising
costs are expensed as incurred. Advertising expenses for the years ended
December 31, 2007, 2006 and 2005 were $1.0 million, $1.3 million and $1.7
million, respectively.




New Accounting
Pronouncements.  In February 2007, the FASB issued SFAS No.
159, “The Fair Value Option
for Financial Assets and Financial Liabilities, Including an Amendment of FASB
Statement No. 115,” which will become effective in 2008. SFAS No. 159
permits entities to measure eligible financial assets, financial liabilities and
firm commitments at fair value, on an instrument-by-instrument basis, that are
otherwise not permitted to be accounted for at fair value under other generally
accepted accounting principles. The fair value measurement election is
irrevocable and subsequent changes in fair value must be recorded in earnings.
We will adopt this Statement in fiscal year 2008 and will
determine whether we will elect the fair value option for any of our
eligible financial instruments and other items. We do not expect this statement
will have a significant impact on our consolidated financial
statements.





In
September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements.”
This statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and expands disclosures about
fair value measurements. While the statement is effective in the first fiscal
quarter of 2008, the FASB provided a one year deferral for the implementation
with respect to other nonfinancial assets and liabilities. We believe that
the adoption of SFAS No. 157 will not have a material effect on our
results of operations, cash flows or financial position.


In
September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined
Pension and Other Postretirement Plans—an amendment of FASB Statements
No. 87, 88, 106 and 132(R)”. The statement has new provisions
regarding the measurement date as well as certain disclosure requirements.
Effective December 31, 2008, SFAS No. 158 will require us to measure
plan assets and benefit obligations at fiscal year end. We currently perform
this measurement at September 30 of each year. In addition, beginning in
fourth quarter of 2007, this Standard required that we eliminate the use of a
three-month lag period when recognizing the impact of curtailments or
settlements and instead, recognize these amounts in the period in which they
occur. The provisions of SFAS No. 158 do not permit retrospective
application. We expect to incur between $0.5 million and $1.0 million as an
adjustment to retained earnings upon adoption of the remainder of this
statement.





In
September 2006, the EITF issued EITF 06-4, “Accounting for Deferred Compensation
and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
Arrangements”
(“EITF 06-04”), which will become effective in 2008. The Task Force concluded
that an employer should recognize a liability for future benefits in accordance
with SFAS No. 106, “Employers'
Accounting for Postretirement Benefits Other Than Pensions” or Opinion
12, “Classification and
Disclosure of Allowances Disclosure of Depreciable Assets and Depreciation
Deferred Compensation Contracts Capital Changes Convertible Debt and Debt Issued
with Stock Warrants Amortization of Debt Discount and Expense or Premium”
based on the substantive agreement with the employee. We do not expect the
adoption of EITF 06-4 to result in a change to our accounting policy or
have an effect on our consolidated financial statements.




In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations,” which
was effective for all business acquisitions with an acquisition date on or after
January 1, 2009. This statement generally requires an acquirer to recognize the
assets acquired, the liabilities assumed, contingent purchase consideration, and
any noncontrolling interest in the acquiree, at fair value on the date of
acquisition. SFAS No. 141R also requires an acquirer to expense most transaction
and restructuring costs as incurred, and not include such items in the cost of
the acquired entity. We are currently evaluating the impact of the adoption of
SFAS No. 141R on our consolidated financial statements.
 59


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
B: Cash and Cash Equivalents, Short-term Investments and Long-term
Debt




Cash and
cash equivalents amounted to $237.2 and $155.0 million at December 31, 2007
and 2006, respectively, and consisted mainly of bank deposits and money market
funds. Cash and cash equivalents at December 31, 2007 and 2006, include
$1.4 million and $1.2 million, respectively, of bank deposits required to be
maintained in support of letters of credit. Letters of credit are purchased
guarantees to ensure our contract performance to third parties in accordance
with specified terms and conditions. We have
two money market funds totaling 25.6% and 22.7%, respectively, of cash and cash
equivalents at December 31, 2007.




Short-term
investments totaled $28.2 million at December 31, 2007 and primarily consisted
of variable rate demand notes totaling
$27.8 million. Fair value approximates carrying value for short-term
investments. Due to the nature of these instruments, we consider it reasonable
to expect that their fair market values will not be significantly impacted by a
change in interest rates, and that they can be liquidated for cash upon
demand.




Long-term
debt comprises the following (thousands of dollars):




Current
      Portion of Long-term Debt
            
            Non-Current
      Portion of Long-term DebtDecember
      31,
            
            December
      31,2007
            
            2006
            
            2007
            
            2006Debentures,
      with interest at 7.00%, due March 2008
            
            $
            100,000
            
            $
            -
            
            $
            -
            
            $
            100,000Long-term
      obligations
            
            $
            100,000
            
            $
            -
            
            $
            -
            
            $
            100,000





On
September 27, 2007 we closed on a new unsecured Revolving Credit Facility (the
“Revolving Facility”) with a maximum amount available under the Revolving
Facility of $50.0 million. Net of outstanding letters of credit and limitations
on availability, we had borrowing capacity at December 31, 2007, of $47.6
million under the Revolving Facility. We made no borrowings under the Revolving
Facility as of December 31, 2007. As of December 31, 2007, we were in
compliance with the financial covenants of the Revolving Facility. The Revolving
Facility matures in October 2012.





The key
terms of the Revolving Facility are as follows:





·
            Loans
      will bear interest at a variable rate equal to (at our option) (i) LIBOR
      plus the applicable margin, which ranges from 0.60% to 1.00%, or (ii) the
      Bank’s prime rate, less the applicable margin, which ranges from 0.25% to
      1.00%.  If an event of default occurs and is continuing, then
      the interest rate on all obligations under the Revolving Facility may be
      increased by 2.0% above the otherwise applicable rate, and the Bank may
      declare any outstanding obligations under the Revolving Facility to be
      immediately due and payable.




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




·
            Certain
      of our domestic subsidiaries have guaranteed the Revolving
      Facility.




·
            The
      Revolving Facility contains various restrictions and covenants, including
      restrictions on our ability and the ability of our subsidiaries to
      consolidate or merge, make acquisitions, create liens, incur additional
      indebtedness or dispose of assets.




·
            Financial
      covenants include a Maximum Leverage test and a Minimum Tangible Net Worth
      test, each as defined in the Revolving
Facility.




In
March 1998, we sold $200.0 million principal amount of senior unsecured
debt in an underwritten offering. The debt comprised $100.0 million of 6.875%
seven-year notes and $100.0 million of 7.00% ten-year notes. In March 2005,
we retired the $100.0 million of seven-year notes. Interest payments on the
ten-year notes are due semi-annually in March and September. Including
underwriting fees, discounts and other issuance costs, the effective interest
rates on the ten-year notes is 7.175%. The ten-year notes will mature in March
2008.




60


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
B: Cash and Cash Equivalents, Short-term Investments and Long-term Debt
(Continued)




At
December 31, 2007 and 2006, our fixed rate debentures had carrying and
estimated fair market values of $100.0 million, based on market trade values. At
December 31, 2007 and 2006, we had no variable rate borrowings. Fair values of
our accounts receivable and accounts payable approximate their carrying values
due to their short-term nature.




We also
have letter-of-credit reimbursement agreements totaling $3.9 million at
December 31, 2007, compared to $7.4 million at December 31, 2006. As
of December 31, 2007, $3.8 million of the agreements related to performance
on contracts with current customers and vendors, $0.1 million of the agreements
related to customer contracts assumed by the purchaser of the Cincinnati Lamb
operations that were sold and $0.2 million of the agreements related to customer
contracts assumed by the purchaser of the Landis operations that were sold. We
are indemnified by the purchaser of the Cincinnati Lamb operation on the $0.1
million of letter-of-credit agreements related to Cincinnati Lamb. We are also
indemnified by the purchaser of the Landis operations on the $0.2 million of
letter-of-credit agreement to Landis. No liability is recorded as the risk of
non-performance is remote.




Note
C: Inventories




Inventories
comprise the following (thousands of dollars):




December
      31,2007
            
            2006Raw
      materials
            
            $
            65,257
            
            $
            69,769Work
      in process
            
            
            1,318
            
            
            450Finished
      goods
            
            
            46,569
            
            
            48,808Inventories
            
            $
            113,145
            
            $
            119,027






Note
D: Property, Plant and Equipment, Net, and Commitments




Property,
plant and equipment, net, comprise the following (thousands of
dollars):




December
      31,2007
            
            2006Property,
      plant and equipment, at costLand
            
            $
            6,080
            
            $
            5,960Buildings
      and improvements
            
            
            8,508
            
            
            7,619Machinery
      and equipment
            
            
            139,040
            
            
            130,625Total
      property, plant and equipment, at cost
            
            
            153,628
            
            
            144,204Less:
      accumulated depreciation
            
            
            (105,896
            )
            
            (100,751
            )Property, plant and equipment,
      net
            
            $
            47,732
            
            $
            43,453





Included
in machinery and equipment above, as of December 31, 2007 and 2006, is the
capitalization of imputed interest of $0.6 million and $0.3 million,
respectively, related to improvements to our Enterprise Resource Planning
(“ERP”) system.





Depreciation
expense from continuing operations was $12.6 million, $10.5 million and $9.5
million for the years ended December 31, 2007, 2006 and 2005,
respectively.




The
ranges of estimated useful lives of the major classes of assets
are:




Buildings
            
            
            21-30
      yearsBuilding
      improvements
            
            
            2-10
      yearsMachinery
      and equipment
            
            
            2-10
      years




61


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
D: Property, Plant and Equipment, Net, and Commitments (Continued)




As of
December 31, 2007 and 2006, we deferred $3.2 million and $3.7 million,
respectively, of gains related to sale-leaseback transactions. These deferred
gains are being amortized over the terms of the related leases. Minimum rental
commitments under non-cancellable operating leases were as follows at
December 31, 2007 (thousands of dollars):




2008
            
            $
            11,5492009
            
            
            9,5192010
            
            
            8,4672011
            
            
            6,8562012
            
            
            6,149Thereafter
            
            
            14,052Total
            
            $
            56,592




Rental
expense for operating leases of continuing operations, including amounts for
short-term leases with nominal, if any, future rental commitments, was $9.1
million, $11.0 million and $12.8 million, for the years ended December 31,
2007, 2006 and 2005, respectively.




Aggregate
future minimum rental income to be received under non-cancelable subleases is
$2.3 million at December 31, 2007.




Note
E: Intangibles, Net




For the
year ended December 31, 2007, intangibles, net comprised a $4.1 million patent
portfolio. The components of intangibles, net, including the gross carrying
amount and accumulated amortization of our amortizable intangibles, are as
follows (thousands of dollars):




December
      31,2007
            
            2006Amortizable
      intangibles:Gross
      carrying amount
            
            $
            11,329
            
            $
            10,769Accumulated
      amortization
            
            
            (7,191
            )
            
            (6,791
            )Intangibles,
      net
            
            $
            4,138
            
            $
            3,978





Included
in intangible assets above, as of December 31, 2007, is approximately $0.2
million related to capitalized legal costs incurred in successfully defending
our patents.




Amortization
expense on intangible assets was $0.7 million, $0.4 million and $0.4 million,
for the years ended December 31, 2007, 2006 and 2005,
respectively.




62


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
E: Intangibles, Net (Continued)




Estimated
amortization expense for the succeeding five fiscal years is as follows
(thousands of dollars):




Year
      Ending December 31,2008
            
            $
            9142009
            
            
            9142010
            
            
            6272011
            
            
            3982012
            
            
            398





Note
F: Shareholders’ Investment




Stock
Awards




We
adopted SFAS No. 123 (revised 2004), Share-Based Payment (“SFAS
123(R)”), using the modified prospective transition method beginning
January 1, 2006. SFAS 123(R) eliminates the ability to account for
share-based compensation transactions, as we formerly did, using the intrinsic
value method as prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to
Employees, and generally requires that such transactions be accounted for
using a fair-value-based method and recognized as expenses in our consolidated
statements of operations over the requisite service period.




For
stock-based awards granted after January 1, 2006, we have recognized
compensation expense based on the estimated grant date fair value method using
the Black-Scholes valuation model. For these awards, we have recognized
compensation expense using a straight-line amortization method. Because
SFAS 123(R) requires that stock-based compensation expense be based on
awards that are ultimately expected to vest, stock-based compensation has been
reduced for estimated forfeitures. When estimating forfeitures, we consider
voluntary termination behaviors as well as trends of actual option forfeitures.
The impact on our results of operations of recording stock-based compensation
for the years ended December 31 (in thousands):




2007
            
            
            2006Cost
      of revenues
            
            $
            507
            
            $
            275Selling,
      general and administrative
            
            
            8,464
            
            
            4,487$
            8,971
            
            $
            4,762




63


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
F: Shareholders’ Investment (Continued)




Prior to
adopting SFAS 123(R), we presented all tax benefits resulting from the
exercise of stock options as operating cash flows in the Statement of Cash
Flows. SFAS 123(R) requires cash flows resulting from excess tax benefits
to be classified as a part of cash flows from financing activities. Excess tax
benefits are realized tax benefits from tax deductions for exercised options in
excess of the deferred tax asset attributable to stock compensation costs for
such options. As a result of adopting SFAS 123(R), $2.1 million and
$4.7 million for the years ended December 31, 2007 and 2006, respectively, of
excess tax benefits have been classified as a source of cash from financing
activities. Cash received from option exercises under all share-based payment
arrangements for the years ended December 31, 2007, 2006 and 2005 was $8.4
million, $8.1 million and $18.0 million, respectively. The total income tax
benefit recognized in the statement of operations for stock-based compensation
costs was $3.4 million and $1.7 million for the years ended December 31,
2007 and 2006, respectively. We calculated the fair value of each option award
on the date of grant using the Black-Scholes option pricing model. The following
assumptions were used for each respective period:




2007
            
            2006
            
            2005Risk-free
      interest rate
            
            
            4.72
            %
            
            4.82
            %
            
            3.84
            %Expected
      option life
            
            
            4.9
      years
            
            
            4.8
      years
            
            
            5
      yearsExpected
      stock price volatility
            
            
            38.35
            %
            
            40.15
            %
            
            53.29
            %Expected
      dividend yield
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %





Our
computation of expected volatility for 2007 and 2006 is based on a combination
of historical and market-based implied volatility from traded options on a group
of peer stocks. Prior to 2006, our computation of expected volatility was based
on historical volatility. Our computation of expected life in 2007 and 2006 was
determined based on historical experience of similar awards, giving
consideration to the contractual terms of the stock-based awards, vesting
schedules and expectations of future employee behavior. The interest rate for
periods within the contractual life of the award is based on the
U.S. Treasury yield curve in effect at the time of grant.




The fair
value of the options granted based on the above assumptions is $9.87, $12.80 and
$10.75 for the years ended December 31, 2007, 2006 and 2005, respectively. All
grants of our options under all plans must be approved or authorized by the
Compensation Committee of the Board of Directors, which consists entirely of
outside directors.




64


INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
F: Shareholders’ Investment (Continued)





The
following tables summarize the pro forma effect of stock-based compensation as
if the fair value method of accounting for stock compensation had been applied
in periods prior to January 1, 2006 (in thousands, except earnings per
share):




Continuing
      operations:
            
            
            
            2005Net
      earnings from continuing operationsas
      reported
            
            
            
            
            $
            40,645Add
      stock compensation expense recorded under theintrinsic value
      method, net of tax
            
            
            
            
            
            1,427Less
      pro forma stock compensation expense computed under thefair value
      method, net of tax
            
            
            
            
            
            (3,970
            )Pro
      forma net earnings
            
            
            
            
            $
            38,102Basic
      pro forma earnings per share
            
            
            
            
            $
            0.62Diluted
      pro forma earnings per share
            
            
            
            
            $
            0.60





Discontinued
      operations:
            
            
            
            
            
            2005Net
      earnings from discontinued operations as
    reported
            
            
            
            
            $
            21,147Add
      stock compensation expense recorded under theintrinsic value method, net of
      tax
            
            
            
            
            
            1,734Less
      pro forma stock compensation expense computed under thefair value
      method, net of tax
            
            
            
            
            
            (1,623
            )Pro
      forma net earnings
            
            
            
            
            $
            21,258Basic
      pro forma earnings per share
            
            
            
            
            $
            0.34Diluted
      pro forma earnings per share
            
            
            
            
            $
            0.33




Our 2001,
1999 and 1997 Stock Incentive Plans and our 2004 Omnibus Incentive Compensation
Plan (the “Stock Incentive Plans,” collectively) provide for the grant of
incentive awards to officers and other key employees. The numbers of shares
authorized for grant under the 2004, 2001 and 1999 Plans are 3,000,000,
1,000,000, and 4,500,000, respectively. No additional shares are authorized for
grant under the 1997 Plan, which was frozen subsequent to the approval of the
1999 Stock Incentive Plan. As of December 31, 2007, there were 161,700 options
outstanding that were granted under the 1997 Plan before it was
frozen.




65


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
F: Shareholders’ Investment (Continued)




Incentive
awards may be granted in the form of stock options with or without related stock
appreciation rights, restricted stock, restricted stock units and performance
units. Under the Stock Incentive Plans, stock options may not be granted at an
exercise price less than the market value of our common stock on the date of
grant. The Stock Incentive Plans’ options generally vest in equal increments
over five years and expire in ten years.




The 2002
Director Stock Option and Fee Plan (“2002 DSOP”) and the 1997 Director Stock
Option Plan (“1997 DSOP”, collectively “DSOPs”) provide for the grant of stock
options to our non-employee directors. The numbers of shares authorized for
grant under the 2002 DSOP is 745,000. No additional shares are authorized under
the 1997 DSOP. Subsequent to the grant of 255,000 options under the 1997 DSOP,
it was frozen upon the approval of the 2002 DSOP. Under the 2002 DSOP, stock
options are granted annually at an exercise price equal to the fair market value
of our common stock on the date of grant. The number of options granted annually
to each director is fixed by the Director Plan. Prior to 2006, such options
became fully exercisable on the first anniversary of their date of grant.
Pursuant to an amendment, the grant made to the directors in January, 2006,
vested immediately. Therefore, the corresponding expense was recorded in the
quarter ended April 2, 2006. Starting in January 2007, the options granted to
our director vest over four quarters.




As of
December 31, 2007, there were 2.3 million shares available for grant under
our Stock Incentive Plans and DSOPs. The following table summarizes changes in
options outstanding and exercisable under our stock award plans:




Outstanding
            
            ExercisableNumber
      of Shares
            
            Weighted-Average
      Exercise Price Per Share
            
            Number
      of Shares
            
            Weighted-Average
      Exercise Price Per ShareJanuary
      1, 2005
            
            
            4,415,266
            
            $
            11.70
            
            
            2,876,822
            
            $
            12.37Granted
            
            
            685,151
            
            
            20.91Exercised
            
            
            (1,525,145
            )
            
            12.27Canceled
            
            
            (356,346
            )
            
            11.37December
      31, 2005
            
            
            3,218,926
            
            
            13.35
            
            
            1,902,288
            
            
            11.66Granted
            
            
            604,250
            
            
            28.26Exercised
            
            
            (706,252
            )
            
            11.43Forfeited
            
            
            (158,951
            )
            
            21.27Canceled
            
            
            (7,000
            )
            
            14.71December
      31, 2006
            
            
            2,950,973
            
            
            16.43
            
            
            1,732,881
            
            
            13.77Granted
            
            
            974,364
            
            
            24.33Exercised
            
            
            (662,935
            )
            
            12.72Forfeited
            
            
            (293,206
            )
            
            21.98Canceled
            
            
            (21,740
            )
            
            17.72December
      31, 2007
            
            
            2,947,456
            
            $
            19.31
            
            
            1,668,742
            
            $
            16.03





66


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
F: Shareholders’ Investment (Continued)





As of
December 31, 2007, there was $10.7 million of total unrecognized
compensation cost related to non-vested options. That cost is expected to be
recognized over a weighted average period of 3 years and 7
months.




Number
      of Shares
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Term (In Years)
            
            
            Aggregate
      Intrinsic Value (In millions)Vested
            
            
            1,135,591
            
            $
            14.14
            
            
            4.94
      years
            
            $
            8.2Expected
      to vest
            
            
            971,690
            
            $
            23.45
            
            
            8.69
      years
            
            $
            0.6Total
            
            
            2,107,281
            
            $
            18.43
            
            
            6.67
      years
            
            $
            8.8





During
fiscal years 2007, 2006, and 2005 the following activity occurred under our
plans:
  2007
              
              2006
              
              2005Total
      intrinsic value of stock options exercised
              
              $
              8,004
              
              $
              12,395
              
              $
              23,569Total
      fair value of stock awards vested
              
              
              1,330
              
              
              1,867
              
              
              5,035Total
      fair value of shared performance stock awards vested
              
              
              1,236
              
              
              -
              
              
              -


The table
below summarizes outstanding stock option data as of December 31, 2007,
excluding 533,151 options outstanding, held by directors:




Options
      Outstanding
            
            Options
      ExercisableRange
      of Exercise Prices
            
            Number
      of Shares
            
            Weighted-Average
      Remaining Contractual Life
            
            Weighted-Average
      Exercise Price
            
            Number
      of Shares
            
            Weighted-Average
      Exercise Price$3.52
      - $7.92
            
            
            520,968
            
            
            4.07
      years
            
            $
            6.20
            
            
            489,703
            
            $
            6.10$12.38
      - $19.99
            
            
            705,473
            
            
            5.45
      years
            
            
            18.09
            
            
            475,738
            
            
            17.73$22.00
      - $33.96
            
            
            1,187,864
            
            
            9.10
      years
            
            
            25.47
            
            
            170,150
            
            
            27.262,414,305
            
            
            6.95
      years
            
            $
            19.15
            
            
            1,135,591
            
            $
            14.14





67


INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note F:
Shareholders’ Investment (Continued)




The
following table summarizes changes in nonvested restricted stock
awards:




Number
      of Shares
            
            Weighted-Average
      Grant Date Fair ValueRestricted
      stock:Nonvested
      balance at December 31, 2006
            
            
            113,361
            
            $
            26.63Granted
            
            
            24,000
            
            
            22.63Vested
            
            
            (60,619
            )
            
            21.94Forfeited
            
            
            (12,742
            )
            
            22.01Nonvested
      balance at December 31, 2007
            
            
            64,000
            
            $
            22.51





The fair
value of each restricted stock award (“RSA”) and unit (“RSU”) is the market
price of our stock on the date of grant. As of December 31, 2007 and 2006, there
was $0.8 million and $1.4 million, respectively, of total unrecognized
compensation cost related to non-vested RSU’s. That cost is expected to be
recognized over a weighted average period of 2 years and 5
months.




Shared
Performance Stock Awards are a form of stock award in which the number of shares
ultimately received depends on our performance against specified performance
targets. The performance period is January 1 through December 31 and covers a
period of 3 fiscal years. At the end of the performance period, the number of
shares of stock and stock awards issued will be determined by adjusting upward
or downward from the target in a range between 0% and 200%. The final
performance percentage, on which the payout will be based, considering
performance metrics established for the performance period, will be determined
by the Board of Directors or a committee of the board in its sole discretion.
Shares of stock will be issued following the end of the performance period.
Shared Performance Stock Awards are amortized over the vesting period (generally
32 months) using the straight line method.




Total
compensation expense (credit) related to performance stock awards was
$1.4 million, $(1.0) million and $1.3 million for the years ended December
31, 2007, 2006 and 2005, respectively. The $(1.0) million credit included in
compensation expense for 2006, related to a change in our estimate of projected
performance compared to performance targets.




Employee
Stock Purchase Plan




We
administer the Employee Stock Purchase Plan (the “ESPP”) under which
five million shares are reserved for issuance. Employees with three months
of continuous service prior to an offering period are eligible to participate in
the ESPP. Eligible employees may elect to become participants in the ESPP and
may contribute up to $21,250 per year through payroll deductions to purchase
stock purchase rights. Participants may, at any time and for any reason, cancel
their payroll deduction authorizations and have the balance in their stock
purchase right account applied to the purchase of shares or have the amount
refunded. The offering period begins on the first day of the quarter and ends on
the last day of the quarter. The stock purchase rights are used to purchase our
common stock at 85 percent of the fair market value of a share as of the grant
date applicable to the participant. We treat this expense as compensation. The
compensation expense related to the ESPP for the years ended December 31, 2007
and 2006 was $510,700 and $543,000, respectively.




68


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
F: Shareholders’ Investment (Continued)




Capital
Stock




At
December 31, 2007 and 2006, 250 million shares of common stock, par value
$0.01, and 50 million shares of preferred stock, par value $0.01 were authorized
for issuance. At December 31, 2007 and 2006, 61,192,019 and 60,318,131 shares of
common stock were outstanding, respectively. There were no shares of preferred
stock outstanding at December 31, 2007 or 2006.




In 2006
we repurchased $100 million or approximately 3.8 million shares of our common
stock under a share repurchase program.




Shareholder
Rights Plan




In
September 1997, the Board of Directors adopted a Share Purchase Rights Plan
(the “Plan”) and, in accordance with such Plan, declared a dividend of one
preferred share purchase right (the “Right”) for each outstanding share of
common stock, payable to shareholders of record on October 31, 1997. All
Rights pertaining to the Plan were extinguished on September 24, 2007. Pursuant
to the terms of the Plan, the Rights expired and became null and void on
September 24, 2007.




Earnings
(Loss) Per Share




Basic
earnings (loss) per share is calculated using the weighted average number of
common shares outstanding for the year. Diluted earnings (loss) per share is
computed using basic weighted average outstanding shares plus the dilutive
effect on income from continuing operations of unvested restricted stock and
outstanding stock options using the “treasury stock” method.




Shares
used for basic and diluted earnings (loss) per share were computed as follows
for the years ended December 31:




2007
            
            2006
            
            2005Weighted
      average common shares - basic
            
            
            60,358,552
            
            
            62,535,286
            
            
            61,785,295Dilutive
      effect of options, unvested restricted sharesand other common
      stock equivalents
            
            
            804,658
            
            
            1,294,477
            
            
            1,565,057Weighted
      average shares - diluted
            
            
            61,163,210
            
            
            63,829,763
            
            
            63,350,352





At
December 31, 2007 and 2006, employees and directors held options to
purchase 1,012,315 and 655,401 shares, respectively, of common stock that were
anti-dilutive to the computation of diluted earnings (loss) per share from
continuing operations due to the exercise price of these options exceeding the
average fair value of our common stock for the period. These options could
become dilutive in future periods if the average market price of our common
stock exceeds the exercise price of the outstanding options and we report net
earnings.




69


INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
F: Shareholders’ Investment (Continued)




Accumulated
Other Comprehensive Income (Loss)




At
December 31, 2007, 2006 and 2005, accumulated other comprehensive income
(loss) comprised the following, (thousands of dollars):




December
      31,2007
            
            2006
            
            2005Currency
      translation adjustment, net
            
            $
            8,842
            
            $
            2,933
            
            $
            (3,418
            )Unamortized
      benefit plan costs,net of tax benefit of $4,320 and $16,446,
      respectively
            
            
            (7,884
            )
            
            (30,543
            )
            
            -Minimum
      pension liability adjustmentnet of tax benefit of
      $5,995
            
            
            -
            
            
            -
            
            
            (12,727
            )Unrealized
      gain on securities, net
            
            
            95
            
            
            49
            
            
            -Accumulated
      other comprehensive income (loss)
            
            $
            1,053
            
            $
            (27,561
            )
            $
            (16,145
            )





At
December 31, 2005, $4.9 million of the minimum pension liability adjustment
relates to continuing operations and $7.8 million relates to discontinued
operations. (See Note K).




Note
G: Restructuring




In March
2006, we announced our plan to close our design centers in Goteborg and Lund,
Sweden. The activities previously assigned to the design centers in Sweden have
been reassigned to other parts of our business or moved to third-party vendors
to improve efficiencies and benefit from reduced costs. In addition to the
anticipated cost savings, this realignment of resources is expected to increase
new product development capacity. This restructuring, which was substantially
completed by the end of 2006, resulted in charges for severance of $3.1 million
for the elimination of 65 positions in Sweden. The restructuring costs also
included facility closure costs of $1.3 million and other related costs of
$0.3 million.




On
November 15, 2006, we committed to a business restructuring plan intended to
reduce costs, streamline operations and improve productivity. The restructuring
included headcount reductions and consolidation of certain facilities on a
regional and/or global basis. The restructuring is expected to be substantially
completed by the end of the first fiscal quarter of 2007 and full implementation
of the plan is expected to be completed by the end of 2007. During the fourth
quarter of 2006, we recorded charges for severance of $6.8 million for the
termination of 205 employees and $0.1 of other exit costs in accordance with
SFAS 146. As of December 31, 2006, 86 employees had been terminated and $1.6
million in severance costs had been paid.


The
restructuring liability is summarized as follows (in thousands):
 
 TotalBalance
      at December 31, 2006
              
              $
              6,338New
      charges
              
              
              -Cash
      payments
              
              
              (6,338
              )Balance
      at December 31, 2007
              
              $
              -
 70


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
H: Discontinued Operations








On
April 3, 2005, we completed the sale of the Cincinnati Lamb business. The
consideration received for the Cincinnati Lamb business included (i) $16
million, paid in cash on April 4, 2005, (ii) a $10.0 million long-term
secured note receivable with an estimated fair value of $8.4 million at the time
of sale and (iii) liabilities related to certain pension and other
post-retirement obligations of $39.1 million assumed by the buyer. We were also
required to deliver to the buyer a guaranteed net working asset balance.
Accordingly, during the second quarter of 2005, we reimbursed the buyer
$12.6 million for accounts payable related to the Cincinnati Lamb business,
satisfying the net working asset adjustment.




In
connection with the sale, during the second quarter of 2005, we loaned the buyer
$1.5 million. This note receivable, the $10.0 million long-term secured note and
an additional $1.0 million of face value note were combined into a single $12.5
million long-term note receivable secured by the assets sold, bearing interest
at an annual rate of LIBOR plus three percent with interest payable quarterly.
We received the final payment of the note in December 2007.





We
recognized a pre-tax loss on the sale of the Cincinnati Lamb business of $34.7
million during the quarter ended April 3, 2005. During the second quarter
of 2006, we recognized an additional $1.2 million pre-tax loss on the sale of
the Cincinnati Lamb business. The loss on the sale recorded in 2005 includes an
$8.3 million gain related to cumulative translation adjustment and a $12.9
million charge related to the adjustment to recognize minimum pension liability
related to Cincinnati Lamb, which previously had been included in the
accumulated other comprehensive income component of shareholders’ investment
(“OCI”). We also incurred $5.3 million of transaction-related expense primarily
for severance and professional services.




On
December 9, 2005, we completed the sale of the Landis Grinding Systems
division (“Landis”). The consideration received for the Landis purchased assets
consists of $69 million in cash, a $10 million two-year note at an interest rate
of 5% per annum guaranteed by the buyer’s parent, classified as other current
assets on the balance sheet, and the buyer’s assumption of certain liabilities,
including certain pension and other post-retirement obligations. We received
payment for the $10 million two-year note from Landis on December 10, 2007. We
additionally recorded a $10.2 million favorable price adjustment related to
net working assets at closing in 2005.




The gain
on the sale of Landis was $42.9 million. The gain includes a $2.7 million gain
related to cumulative translation adjustment, a $7.8 million charge for the
write-off of goodwill, a $3.8 million accrual relating to the fair value of
below-market leases provided to buyer under the terms of the sale agreement, and
$14.3 million in settlement and curtailment gains that includes $13.8 million of
long-term liabilities sold. We also incurred $2.8 million of transaction-related
expense, primarily for professional services.




71


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
H: Discontinued Operations (Continued)




The
following table sets forth the components of earnings (loss) from discontinued
operations, net of tax, for the years ended December 31, 2007, 2006 and
2005 (thousands of dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Product
      and service revenues
            
            $
            -
            
            $
            -
            
            $
            223,460Operating
      loss
            
            
            -
            
            
            -
            
            
            (14,114
            )Loss
      on sale of Cincinnati Lamb
            
            
            -
            
            
            -
            
            
            (35,926
            )Gain
      on sale of Landis
            
            
            -
            
            
            -
            
            
            (42,945
            )Loss
      from discontinued operations before tax
            
            
            (1,995
            )
            
            (3,747
            )
            
            (7,095
            )Benefit
      for income taxes
            
            
            712
            
            
            748
            
            
            28,242Earnings
      (loss) from discontinued operations net of tax
            
            $
            (1,283
            )
            $
            (2,999
            )
            $
            21,147





The loss
from discontinued operations, before tax, in 2007 includes the write-off of a
$2.0 million account receivable related to the sale of the Cincinnati Lamb
business.





The loss
from discontinued operations, before tax, in 2006 includes period expenses
related to finalizing the sale of the Landis Grinding Systems and changes to the
closing balance sheets and estimated sales price adjustments. The tax benefit
for discontinued operations for the year ended December 31, 2006, reflects a
$1.4 million benefit related to our true up of the tax provision during the
third quarter.




The loss
from discontinued operations, before tax, of $14.1 million in 2005, which
includes non-cash impairment charges of $2.0 million and a $9.9 million charge
relating to a legal settlement.


The tax
benefit for discontinued operations for the year ended December 31, 2005
reflects a significant difference from the U.S. statutory tax rate of 35% as a
result of our divestiture of our IAS business through the disposition of the
Cincinnati Lamb business and the Landis grinding business in the first and
fourth quarters of 2005, respectively. The increase is primarily due to
approximately $24.0 million of tax benefits from the disposition of the
Cincinnati Lamb business. These benefits, including a tax effected capital loss
in the U.S. in the amount of $12.4 million, resulted from differences between
the book basis of assets sold and the related tax basis of the stock and a
benefit of $6.9 million from a deferred intercompany sale and an election to
treat a foreign subsidiary as a branch.





72


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
I: Income Taxes




Earnings
from continuing operations before income taxes by geographic area are as follows
(thousands of dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005United
      States
            
            $
            26,180
            
            $
            34,426
            
            $
            41,950International
            
            
            12,999
            
            
            11,148
            
            
            12,575Earnings
      from continuing operationsbefore income taxes
            
            $
            39,179
            
            $
            45,574
            
            $
            54,525





Income
taxes for continuing operations consist of the following provision (thousands of
dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Current:United
      States
            
            $
            -
            
            $
            (1,173
            )
            $
            19International
            
            
            6,488
            
            
            (1,315
            )
            
            167Total
      current
            
            
            6,488
            
            
            (2,488
            )
            
            186Deferred:United
      States (a)
            
            
            8,553
            
            
            13,045
            
            
            11,604International
            
            
            (198
            )
            
            18
            
            
            2,090Total
      deferred
            
            
            8,355
            
            
            13,063
            
            
            13,694Provision
      for income taxes
            
            $
            14,843
            
            $
            10,575
            
            $
            13,880





(a) U.S.
income taxes include state taxes of approximately 1.2% per
year.




The
following is a reconciliation of income taxes at the U.S. statutory rate to the
provision for income taxes:




Year
      Ended December 31,2007
            
            2006
            
            
            2005Tax
      at U.S. statutory rate
            
            
            35.0
            %
            35.0
            %
            
            35.0
            %State
      income taxes net of federal benefit
            
            
            1.2
            %
            (1.6
            )%
            
            (0.9
            )%Deductible
      goodwill & intangibles
            
            
            0.0
            %
            0.0
            %
            
            2.8
            %Tax
      credits
            
            
            (4.3
            )%
            (2.4
            )%
            
            (8.9
            )%Extraterritorial
      income exclusion
            
            
            0.0
            %
            (1.5
            )%
            
            (1.6
            )%Foreign
      net earnings taxed at other than U.S statutory rate
    (b)
            
            
            2.3
            %
            (4.0
            )%
            
            (7.0
            )%Tax
      settlement
            
            
            0.0
            %
            (11.9
            )%
            
            0.0
            %Provision
      to return true up
            
            
            0.0
            %
            4.9
            %
            
            5.8
            %Change
      in tax contingencies
            
            
            (3.3
            )%
            0.0
            %
            
            0.0
            %Nondeductible
      expenses
            
            
            0.0
            %
            2.0
            %
            
            1.2
            %Change
      in valuation allowance
            
            
            5.6
            %
            0.0
            %
            
            0.0
            %Stock
      compensation expense
            
            
            2.2
            %
            1.8
            %
            
            0.0
            %Officer’s
      life insurance
            
            
            (2.1
            )%
            0.0
            %
            
            0.0
            %Other
      items
            
            
            1.3
            %
            0.9
            %
            
            (0.9
            )%37.9
            %
            23.2
            %
            
            25.5
            %





(b)
Includes the effect of resolution of certain foreign tax audits.




73


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
I: Income Taxes (Continued)




Deferred
income taxes reflect the net tax effect of transactions which are recognized in
different periods for financial and tax reporting purposes. The primary
components of our deferred tax assets and liabilities are as follows (thousands
of dollars):




December
      31,2007
            
            2006Current
      deferred tax assets:Accrued
      expenses
            
            $
            13,970
            
            $
            17,027Receivable
      and inventories
            
            
            10,264
            
            
            9,397Net
      operating loss carryforwards
            
            
            37,730
            
            
            17,859Capitalized
      R&D
            
            
            -
            
            
            6,878Other
      items
            
            
            1,400
            
            
            -Total
      current deferred tax assets
            
            
            63,364
            
            
            51,161Valuation
      allowance
            
            
            (1,832
            )
            
            (1,538
            )Net
      current deferred tax assets
            
            
            61,532
            
            
            49,623Long-term
      deferred tax assets:Retiree
      medical benefits
            
            
            11,163
            
            
            12,972Intangibles
            
            
            8,601
            
            
            10,311Tax
      credit carryforwards
            
            
            88,891
            
            
            91,312Deferred
      income
            
            
            7,125
            
            
            8,120Fixed
      assets
            
            
            1,676
            
            
            1,004Net
      operating loss carryforwards
            
            
            30,839
            
            
            32,974Capitalized
      R&D
            
            
            12,600
            
            
            35,518Cumulative
      translation adjustments
            
            
            1,172
            
            
            1,817Pension
            
            
            -
            
            
            8,672Other
      items
            
            
            1,512
            
            
            16Total
      long-term deferred tax assets
            
            
            163,579
            
            
            202,716Valuation
      allowance
            
            
            (13,425
            )
            
            (12,033
            )Net
      long-term deferred tax assets
            
            
            150,154
            
            
            190,683Deferred
      tax liabilities:Pensions
            
            
            (784
            )
            
            -Net
      deferred tax asset
            
            $
            210,902
            
            $
            240,306




We have
considered future market growth, forecasted earnings, future taxable income and
the mix of earnings in the jurisdictions in which we operate and prudent,
feasible and permissible tax planning strategies in determining the
realizability of deferred tax assets. If we were to determine that we would not
be able to realize a portion of our net deferred tax asset in the future for
which there is currently no valuation allowance, an adjustment to the net
deferred tax asset would be charged to earnings in the period such determination
was made. Conversely, if we were to make a determination that it is more likely
than not that the deferred tax assets for which there is currently a valuation
allowance would be realized, the related valuation allowance would be reduced
and a benefit to earnings would be recorded. Our deferred tax assets include
future tax benefits of discontinued operations that remain with us.




74


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
I: Income Taxes (Continued)




We have
available at December 31, 2007 net operating tax loss carryforwards in the
United States of approximately $146.5 million, which result in a deferred tax
asset of $51.3 million. These losses expire from 2023 through 2025.





We also
have available at December 31, 2007 capital tax loss carryforwards in the
United States of approximately $9.3 million which expire in 2010. No deferred
tax asset has been recognized for capital loss carryforwards.




Our
valuation allowance increased during 2007 primarily for certain foreign net
operating loss carryforwards and general business credit carryforwards, which
will not be used within their respective carryforward periods.


We have
$34.2 million general business credit carryforwards and $53.2 million foreign
tax credit carryforwards at December 31, 2007. The general business credit
carryforwards have expiration dates ranging from 2010 through 2027. The foreign
tax credit carryforwards have expiration dates ranging from 2013 to 2017. We have a
valuation allowance of $1.2 million at December 31, 2007 for general business
credit carryforwards.





We have
a valuation allowance of $5.6 million at December 31, 2007 for deferred tax
assets related to state net operating tax loss carryforwards from discontinued
operations.  We have recognized deferred tax assets of $4.6 million at
December 31, 2007 for state net operating loss carryforwards from continuing
operations.





At
December 31, 2007, we have foreign net operating tax loss carryforwards in
the Netherlands and Canada which result in a deferred tax asset of $0.6 million
after considering a valuation allowance of $1.3 million.  We also have
a full valuation allowance against our U.K. capital loss carryforwards of
$23.1 million as of December 31, 2007, which carries forward
indefinitely.





We
conduct business in various countries throughout the world and are subject to
tax in numerous jurisdictions. As a result of our business activities, we file a
significant number of tax returns that are subject to audit by various tax
authorities. Tax audits are often complex and may require several years to
resolve. Our future results may include favorable or unfavorable adjustments to
our estimated tax liabilities in the period the assessments are made or resolved
or when statutes of limitation on potential assessments expire. As a result, our
effective tax rate may fluctuate significantly on a quarterly basis. For
example, in 2006 we recorded tax settlement benefits attributed to prior years
of $5.4 million, primarily related to settlement of Canadian tax
disputes.





We have
not provided deferred U.S. income taxes on undistributed earnings of certain
foreign subsidiaries that we intend to reinvest permanently outside of the
United States; the total amount of such earnings as of December 31, 2007,
was $64.3 million. Should we distribute earnings of foreign subsidiaries in the
form of dividends or otherwise, we may be subject to U.S. income taxes. Due to
complexities in tax laws and various assumptions that would have to be made, it
is not practicable to estimate the amount of unrecognized deferred U.S. taxes on
these earnings.





On
January 1, 2007, we adopted Financial Accounting Standards Board (“FASB”) issued
FASB Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement 109” (“FIN
48”).  Upon adoption of FIN 48, we recognized a charge of $6.9 million
to accumulated deficit in shareholders’ investment.  The following
table sets forth the reconciliation of the beginning and ending amount of
unrecognized tax benefits at December 31, 2007 (thousands of
dollars):





For
      the year ended December 31, 2007Balance
      at January 1, 2007
            
            $
            21,132Additions
      related to positions taken this year
            
            
            -Additions
      for tax positions of prior years
            
            
            641Reductions
      for tax positions of prior years
            
            
            (1,633
            )Reduction
      for tax positions of prior years – lapse of statute
            
            
            (189
            )Settlements
            
            
            -Balance
      at December 31, 2007
            
            $
            19,951




75


INTERMEC,
INC.
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
I: Income Taxes (Continued)





Estimated
interest and penalties related to the underpayment of income taxes are
classified as a component of tax expense in the consolidated statement of
operations. We recognized approximately $0.1 million in interest and penalties
for the years ended December 31, 2007.  We had approximately $0.1
million for the payment of interest and penalties accrued at December 31,
2007.





We file
our tax returns as prescribed by the tax laws of the jurisdictions in which we
operate. In the U.S., our tax years 1997 – 2007 remain open to examination by
the Internal Revenue Service, as well as various state jurisdictions. In the
normal course of business, we are subject to examination by taxing authorities
throughout the world, including such major jurisdictions as Canada, France,
Germany, Italy, Mexico, the Netherlands, Spain, Sweden and the United Kingdom.
In many cases, our uncertain tax positions are related to tax years that remain
subject to examination by the relevant taxing authorities.





Based on
the outcome of relevant examinations, or as a result of the expiration of
statute of limitations for specific jurisdictions, it is not reasonably possible
that the related unrecognized tax benefits for tax positions taken regarding
previously filed tax returns will materially change within the next twelve
months from those recorded as liabilities for uncertain tax positions in our
financial statements at December 31, 2007.





Note
J: Intellectual Property Settlements




In March
2006, we settled an intellectual property lawsuit relating to our battery
power-management patents. The terms of this settlement are confidential. IP
settlements relating to the battery power-management patents have been reached
to date with companies that, in the aggregate, represent over ninety percent of
U.S. laptop sales. We are involved in various other patent infringement lawsuits
that may result in future revenue and operating profit. Management cannot
predict the outcome, timing or amount of future settlements or judgments in
intellectual property lawsuits. Net pretax gains from IP settlements for the
year ended December 31, 2006 was $16.5 million.




76


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
K: Pension and Other Postretirement Benefit Plans




We have
retirement and pension plans that cover most of our employees. Most of our U.S.
employees, as well as the employees of certain non-U.S. subsidiaries, are
covered by contributory defined benefit plans under which employees may
contribute up to 4% of covered compensation annually. Annual contributions are
made to the extent such contributions are actuarially determined to adequately
fund the plans. Retiree benefits are based on the amount of participant
contributions over the term of the participant’s employment. There are also
defined contribution voluntary savings programs generally available for U.S.
employees, which qualify under Sections 401(a) and 401(k) of the
Internal Revenue Code. These plans are designed to enhance the retirement
programs of participating employees. Under these plans, we match up to 80% of a
certain portion of participants’ contributions. Matching
contributions for these plans were $2.6 million and $1.2 million in fiscal years
2007 and 2006, respectively.




Effective
June 30, 2006, we amended our Financial Security and Savings Program, Pension
Plan, Restoration Plan and Supplemental Executive Retirement Plan (collectively,
the “U.S. Defined Benefit Plans”). The effect of these amendments was to
“freeze” benefit accruals under the U.S. Defined Benefit Plans and to fully vest
benefits under the U.S. Defined Benefits Plan, except for the Nonqualified
Supplemental Employee Retirement Plan (“SERP”), as of June 30, 2006, for most
participants. In accordance with SFAS No. 88, Employers’ Accounting for
Settlements and Curtailments for Defined Benefit Pension Plans and for
Termination Benefits (“SFAS 88”), the effects of these amendments require
a new measurement date. The impact of the related curtailments reflected in 2006
was a $2.1 million gain.




Effective
December 31, 2006, we adopted SFAS No. 158, which requires the recognition of
the funded status of a defined benefit or postretirement plan on our
consolidated balance sheet. Upon adoption, we recorded an adjustment of $17.5
million to the end-of-year balance of accumulated other comprehensive loss in
shareholders’ investment to recognize unamortized pension and postretirement
benefit plan costs as components of the ending balance of other comprehensive
income, net of tax.




Effective
December 31, 2008, SFAS No. 158 will require us to measure plan assets and
benefit obligations at fiscal year end. We currently perform this measurement at
September 30 of each year. In addition, this Standard requires us to eliminate
the use of a three-month lag period when recognizing the impact of curtailments
or settlements and, instead, recognize these amounts in the period in which they
occur. The provisions of SFAS No. 158 do not permit retrospective application.
We expect to incur between $0.5 million and $1.0 million as an adjustment to
equity upon adoption of the remainder of this statement.




77


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
K: Pension and Other Postretirement Benefit Plans (Continued)




We use a
measurement date of September 30 for our pension and other postretirement
benefit plans. The following table sets forth the change in benefit obligations
and plan assets of our pension plans and the funded status (thousands of
dollars):




2007
            
            2006U.S.
            
            Non
      U.S.
            
            U.S.
            
            Non
      U.S.Change
      in benefit obligations:Benefit
      obligation at beginning of year
            
            $
            182,767
            
            $
            53,062
            
            $
            201,354
            
            $
            43,518Service
      cost
            
            
            1,810
            
            
            -
            
            
            5,757
            
            
            1,106Interest
      cost
            
            
            10,712
            
            
            2,591
            
            
            11,642
            
            
            2,234Special
      termination benefits
            
            
            -
            
            
            -
            
            
            1,350
            
            
            -Plan
      participants' contributions
            
            
            1,456
            
            
            -
            
            
            3,350
            
            
            -Actuarial
      loss (gain)
            
            
            (17,284
            )
            
            (7,722
            )
            
            (16,724
            )
            
            3,481Benefits
      paid
            
            
            (5,198
            )
            
            (2,339
            )
            
            (5,112
            )
            
            (3,134
            )Application
      of SFAS No. 158
            
            
            -
            
            
            1,905
            
            
            -
            
            
            -Curtailment
            
            
            -
            
            
            -
            
            
            (18,850
            )
            
            -Foreign
      currency translation adjustment
            
            
            -
            
            
            770
            
            
            -
            
            
            5,857Benefit
      obligation at end of year
            
            
            174,263
            
            
            48,267
            
            
            182,767
            
            
            53,062Change
      in plan assets:Fair
      value of plan assets at beginning of year
            
            
            124,390
            
            
            52,672
            
            
            115,431
            
            
            32,466Actual
      return on plan assets
            
            
            16,739
            
            
            3,126
            
            
            8,484
            
            
            5,024Plan
      participants' contributions
            
            
            1,456
            
            
            -
            
            
            3,350
            
            
            -Employer
      contributions
            
            
            2,246
            
            
            590
            
            
            2,226
            
            
            12,481Benefits
      paid
            
            
            (5,198
            )
            
            (2,339
            )
            
            (5,112
            )
            
            (3,134
            )Application
      of SFAS No. 158
            
            
            -
            
            
            1,026
            
            
            -
            
            
            -Settlement
            
            
            -
            
            
            -
            
            
            -
            
            
            -Foreign
      currency translation adjustment
            
            
            -
            
            
            833
            
            
            -
            
            
            5,835Fair
      value of plan assets at end of year
            
            
            139,633
            
            
            55,908
            
            
            124,389
            
            
            52,672Funded
      status
            
            
            (34,630
            )
            
            7,641
            
            
            (58,378
            )
            
            (390
            )Net
      amount recognized
            
            $
            (34,630
            )
            $
            7,641
            
            $
            (58,378
            )
            $
            (390
            )




78


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
K: Pension and Other Postretirement Benefit Plans (Continued)




Amounts
pertaining to our U.S. and non-U.S. pension plans recognized on our consolidated
balance sheets are classified as follows (thousands of dollars):




2007
            
            2006U.S.
            
            Non
      U.S.
            
            U.S.
            
            Non
      U.S.Noncurrent
      assets
            
            
            21,889
            
            
            8,520
            
            
            2,135
            
            
            -Current
      liabilities
            
            
            (3,221
            )
            
            -
            
            
            (2,596
            )
            
            (390
            )Noncurrent
      liabilities
            
            
            (53,299
            )
            
            (879
            )
            
            (57,917
            )
            
            -Net amount
      recognized
            
            $
            (34,631
            )
            $
            7,641
            
            $
            (58,378
            )
            $
            (390
            )




The
accumulated benefit cost for the U.S. plans was $165.7 million and $171.6
million as of December 31, 2007, and 2006, respectively. The accumulated
benefit cost for the non-U.S. plans was $46.4 million and $53.1 million as
of December 31, 2007, and 2006, respectively.




The table
below sets forth amounts for our pension plans with accumulated benefit
obligations in excess of fair value of plan assets (thousand of
dollars):




2007
            
            2006U.S.
            
            Non
      U.S.
            
            U.S.
            
            Non
      U.S.Projected
      benefit obligation
            
            $
            56,520
            
            $
            1,905
            
            $
            60,513
            
            $
            53,062Accumulated
      benefit obligation
            
            $
            54,529
            
            $
            1,026
            
            $
            56,670
            
            $
            53,062Fair
      value of plan assets
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            52,672




We do not
expect to contribute to our U.S. funded plans in 2008. We expect to contribute
$3.2 million to our U.S. unfunded plans in 2008. For the non-U.S. plans, we
do not expect to contribute for 2008.




The
weighted average actuarial assumptions used to determine benefit obligations at
the end of the 2007 and 2006 fiscal years are as follows:




2007
            
            2006U.S.
            
            Non
      U.S.
            
            U.S.
            
            Non
      U.S.Discount
      rate
            
            
            6.35
            %
            
            5.88
            %
            
            5.95
            %
            
            5.00
            %Rate
      of compensation increase
            
            
            4.00
            %
            
            3.00
            %
            
            4.00
            %
            
            N/A




79


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
K: Pension and Other Postretirement Benefit Plans (Continued)




U.S.plan assets consist primarily of equity
securities,U.S.government securities, corporate bonds
and 31,475 shares of our common stock at December 31, 2007 and 2006. The
asset allocation for our U.S pension plans as of December 31, 2007 and
2006, and the target allocation, by asset category, are as
follows:




Allocation
      of Plan Assets at Measurement DateU.S.
      Pension Plans
            
            Target
      Allocation
            
            2007
            
            2006Equity
      securities
            
            
            65
            %
            
            68
            %
            
            59
            %Debt
      securities
            
            
            29
            %
            
            24
            %
            
            24
            %Other
            
            
            5
            %
            
            5
            %
            
            12
            %Cash
      and cash equivalents
            
            
            1
            %
            
            3
            %
            
            5
            %Total
            
            
            100
            %
            
            100
            %
            
            100
            %




Most of
our U.S. pension obligations are 20 to 30 years in the future. Consistent with
this obligation, our investment strategy for the plan assets is to invest for
strong long-term returns. As a result of a reversion of surplus pension assets
in 2001, the allocation of assets among asset categories is different from our
target allocation. Our objective is to adjust the investment allocation to
reflect the target allocation as certain alternative investments liquidate.
Alternative investments, classified as other in the above table, are $7.5
million and $14.5 million at December 31, 2007 and 2006,
respectively.  They include holdings in partnerships and funds that
invest in public and private debt and equity and emerging markets real estate.
These investments reflect fair value, as determined by active trades, appraisals
and other relevant data.





Non-U.S.
plan assets consist primarily of equity securities, non-U.S. government
securities, and corporate bonds. Our investment strategy for the plan assets is
to invest for strong long-term returns. The asset allocation for
our non-U.S. pension plans as of December 31, 2007 and 2006, and the
target allocation, by asset category, are as follows:




Allocation
      of Plan Assets at Measurement DateNon-U.S.
      Pension Plans
            
            Target
      Allocation
            
            2007
            
            2006Equity
      securities
            
            
            60
            %
            
            73
            %
            
            74
            %Debt
      securities
            
            
            40
            %
            
            26
            %
            
            25
            %Cash
      and cash equivalents and other
            
            
            -
            
            
            1
            %
            
            1
            %Total
            
            
            100
            %
            
            100
            %
            
            100
            %




80


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
K: Pension and Other Postretirement Benefit Plans (Continued)




In  2006
and 2005, we offered voluntary early retirement to certain U.S. employees
resulting in special termination benefits charges of $1.4 million and $2.0
million, respectively. A summary of the components of net periodic pension
expense (income) for our defined benefit plans and defined contribution plans is
as follows (thousands of dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005U.S.
            
            Non-U.S.
            
            U.S.
            
            Non-U.S.
            
            U.S.
            
            Non-U.S.Components
      of net periodic pension expense:Service
      cost
            
            $
            1,810
            
            $
            -
            
            $
            5,757
            
            $
            1,106
            
            $
            8,254
            
            $
            3,459Interest
      cost
            
            
            10,712
            
            
            2,591
            
            
            11,642
            
            
            2,234
            
            
            10,107
            
            
            5,947Expected
      return on plan assets
            
            
            (10,443
            )
            
            (3,127
            )
            
            (10,023
            )
            
            (3,061
            )
            
            (10,086
            )
            
            (5,682
            )Amortization
      of prior service cost
            
            
            577
            
            
            -
            
            
            676
            
            
            -
            
            
            714
            
            
            -Recognized
      net actuarial loss
            
            
            3,768
            
            
            411
            
            
            4,491
            
            
            454
            
            
            3,282
            
            
            1,239Amortization
      of transition asset
            
            
            -
            
            
            (169
            )
            
            -
            
            
            (159
            )
            
            -
            
            
            (336
            )Special
      termination benefits
            
            
            -
            
            
            -
            
            
            1,350
            
            
            -
            
            
            2,027
            
            
            -Curtailment
      and settlement charges
            
            
            -
            
            
            -
            
            
            (2,146
            )
            
            -
            
            
            (171
            )
            
            (2,691
            )6,423
            
            
            (294
            )
            
            11,747
            
            
            574
            
            
            14,127
            
            
            1,936Defined
      contribution plans
            
            
            350
            
            
            730
            
            
            1,099
            
            
            526
            
            
            2,232
            
            
            932Net
      periodic pension expense
            
            $
            6,773
            
            $
            436
            
            $
            12,846
            
            $
            1,100
            
            $
            16,359
            
            $
            2,868





For the
year ended December 31, 2005, net periodic pension income of $11.9 million,
relating to our non-U.S. plans is classified in loss from discontinued
operations on our consolidated statements of operations. The portion of U.S.
plan net periodic pension expense classified in loss from discontinued
operations is $4.0 million for the year ended December 31,
2005.




The
weighted average actuarial assumptions used to determine net cost are as
follows:




U.S.
            
            Non-U.S.2007
            
            2006
            
            2005
            
            2007
            
            2006
            
            2005Discount
      rate
            
            
            6.35
            %
            
            5.91
            %
            
            6.00
            %
            
            5.90
            %
            
            5.00
            %
            
            5.50
            %Expected
      return on plan assets
            
            
            8.75
            %
            
            8.75
            %
            
            9.00
            %
            
            6.40
            %
            
            7.60
            %
            
            8.00
            %Rate
      of compensation increase
            
            
            4.00
            %
            
            4.00
            %
            
            4.00
            %
            
            3.00
            %
            
            N/A
            
            
            3.75
            %




81


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
K: Pension and Other Postretirement Benefit Plans (Continued)




Our
analysis of the asset rate of return assumptions for the U.S. plans supports a
long-term rate of approximately 8.75% for the September 30, 2007,
measurement date based on the long-term perspective of the investments and the
historical results of investment funds.




Our
analysis of the asset rate of return assumptions for the non-U.S. plans
supports a long term rate of return of approximately 6.40% based on the
long-term perspective of the investments and the historical results of
investment funds.




The table
below sets forth the expected future pension benefit payments for the next five
years and the following five-year period (millions of dollars):




Years
            
            U.S.
            
            Non
      U.S.2008
            
            $
            6,263
            
            $
            2,3782009
            
            
            6,787
            
            
            2,5992010
            
            
            7,391
            
            
            2,6332011
            
            
            7,955
            
            
            2,8332012
            
            
            9,007
            
            
            2,8382013
      through 2017
            
            
            56,313
            
            
            15,621




Other
Postretirement Benefits




In
addition to pension benefits, certain U.S. employees are covered by
postretirement health care and life insurance benefit plans provided by us.
These benefit plans are unfunded. The following table sets forth the change in
benefit obligation of our other postretirement benefits and amounts recognized
in our balance sheets (thousands of dollars):




December
      31,2007
            
            2006Change
      in postretirement benefit obligations:Benefit
      obligation at beginning of year
            
            $
            3,252
            
            $
            4,953Service
      cost
            
            
            -
            
            
            16Interest
      cost
            
            
            177
            
            
            264Actuarial
      loss (gain)
            
            
            (152
            )
            
            (1,549
            )Benefits
      paid
            
            
            (251
            )
            
            (318
            )Curtailment
            
            
            -
            
            
            (114
            )Benefit
      obligation at end of year
            
            
            3,026
            
            
            3,252Funded
      status
            
            
            (3,026
            )
            
            (3,252
            )Unrecognized
      net actuarial loss
            
            
            -
            
            
            -Fourth
      quarter contribution
            
            
            75
            
            
            76Accrued
      postretirement benefit obligation
            
            $
            (2,951
            )
            $
            (3,176
            )




82


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
K: Pension and Other Postretirement Benefit Plans (Continued)




A summary
of our net periodic postretirement (benefit) cost is as follows (thousands of
dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Components
      of net periodic postretirement (benefit) cost:Service
      cost
            
            $
            -
            
            $
            16
            
            $
            134Interest
      cost
            
            
            177
            
            
            264
            
            
            1,563Recognized
      actuarial loss and transition obligation
            
            
            -
            
            
            110
            
            
            374Amortization
      of prior service cost
            
            
            -
            
            
            -
            
            
            (598
            )Curtailment
            
            
            -
            
            
            -
            
            
            (12,274
            )Settlement
            
            
            -
            
            
            -
            
            
            (25,694
            )Net
      periodic postretirement (benefit) cost
            
            $
            177
            
            $
            390
            
            $
            (36,495
            )




For the
year ended December 31, 2005, ($36.5) million of the net periodic
postretirement benefit is classified as a gain from discontinued operations
within our consolidated statements of operations.




Actuarial
assumptions used to measure the postretirement benefit obligation include a
discount rate of 6.10% and 5.70% at December 31, 2007 and 2006,
respectively. The weighted average discount rates used to measure net periodic
benefit cost for the years ended December 31, 2007, 2006 and 2005 were 5.70%,
5.58% and 6.00%, respectively. The assumed health care cost trend rate for
fiscal year 2007 was 8.50% and is projected to decrease over seven years to
5.00%, where it is expected to remain thereafter. The effect of a
one-percentage-point increase or decrease in the assumed health care cost trend
rate on the service cost and interest cost components of the net periodic
postretirement benefit cost is not material. A one-percentage-point increase in
the assumed health care cost trend rate on the postretirement benefit obligation
results in an increase of approximately $0.2 million, while a
one-percentage point decrease results in a decrease of $0.2
million.




Estimated
future gross benefit payments are $0.3 million for each of the next five years,
2008 through 2012, and $1.3 million in aggregate for the subsequent five-year
period, 2013 through 2017.




83


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
L: Litigation, Commitments and Contingencies




Provisions
for estimated expenses related to product warranties are made at the time
products are sold. These estimates are established using historical information
on the nature, frequency, and average cost of warranty claims. Management
actively studies trends of warranty claims and takes action to improve product
quality and minimize warranty claims. The following table indicates the change
in our warranty liability from continuing operations during the years ended
December 31, 2007 and 2006, (thousands of dollars):




Year
      Ended December 31,2007
            
            2006Beginning
      balance
            
            $
            6,800
            
            $
            5,542Payments
            
            
            (6,235
            )
            
            (8,231
            )Increase
      in liability (new warranties issued)
            
            
            3,740
            
            
            9,489Ending
      balance
            
            $
            4,305
            
            $
            6,800




We
currently, and from time to time, are subject to claims and lawsuits arising in
the ordinary course of business. The ultimate resolution of currently pending
proceedings is not expected to have a material adverse effect on our business,
financial condition, results of operations or liquidity.




Note
M: Related Party Transactions




Unitrin, Inc.
and its subsidiaries (“Unitrin”) is a significant shareholder, owning 21% of our
outstanding shares. In January 2005, Unitrin’s Life and Health Insurance
segment agreed to hire one of our subsidiaries to develop the software for the
next generation of Life and Health Insurance’s handheld computers. For the years
ended December 31, 2007, 2006 and 2005, we recognized $0.1 million,
$0.3 million and $2.7 million, respectively, in revenues from Unitrin for
the sale of hardware. Also, as of December 31, 2007and 2006, there
was $0.4 million and $0.3 million, respectively, of deferred service
revenue from Unitrin. We believe that the prices of goods and services sold to
Unitrin are comparable to those received from unaffiliated third parties. As of
December 31, 2007 and 2006, accounts receivable from Unitrin were not
material.




Note
N: Segment Reporting




Our
reportable segments comprise products and services. The product segment
generates revenue from the design, development, manufacture, sale and resale of
wired and wireless AIDC products, mobile computing products, wired and wireless
bar code printers, label media and RFID products and license fees. The service
segment generates revenue from customer support, product maintenance and other
services related to the products and systems integration.





The
accounting policies of our two reportable segments are the same as those used to
prepare our consolidated financial statements. Performance and resource
allocation are primarily measured by sales and standard gross profit. All other
earnings, costs and expenses are aggregated and reported on a consolidated
basis. It is also not practicable to segregate total assets by segment. Total
assets for the year ended December 31, 2007 and 2006 were $900.6 million and
$810.3 million, respectively.




84


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
N: Segment Reporting (Continued)




The
following table sets forth our operations by reportable segment (millions of
dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Revenues:Product
            
            $
            692.0
            
            $
            692.4
            
            $
            721.0Service
            
            
            157.2
            
            
            157.6
            
            
            154.5Total
            
            $
            849.2
            
            $
            850.0
            
            $
            875.5Gross
      profit:Product
            
            
            259.9
            
            
            262.7
            
            
            300.3Service
            
            
            67.0
            
            
            69.3
            
            
            62.6Total
            
            $
            326.9
            
            $
            332.0
            
            $
            362.9




For 2007
and 2006, one customer accounted for more than 10% of our consolidated revenues.
Total sales to this customer were $108.7 million, $99.8 million and $80.7
million for the years ended December 31, 2007, 2006 and 2005, respectively, and
primarily related to product sales. No single customer accounted for more than
10% of our consolidated revenues in 2005.




The
following table sets forth our revenues by product lines (millions of
dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005Revenues:Systems
      and solutions
            
            $
            485.6
            
            $
            477.2
            
            $
            497.8Printer
      and media
            
            
            206.4
            
            
            215.2
            
            
            223.2Service
            
            
            157.2
            
            
            157.6
            
            
            154.5Total
            
            $
            849.2
            
            $
            850.0
            
            $
            875.5




Revenues
by geographic region are determined based on the location of the customer.
European revenues and long-lived assets relate primarily to the United Kingdom,
Germany and France. No individual country, other than the U.S., exceeds 10% of
consolidated revenues. The following table sets forth our revenues by geographic
region (millions of dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005North
      America
            
            $
            422.9
            
            $
            494.4
            
            $
            512.4Europe,
      Middle East and Africa
            
            
            290.6
            
            
            241.1
            
            
            260.4All
      others
            
            
            135.7
            
            
            114.5
            
            
            102.7Total
            
            $
            849.2
            
            $
            850.0
            
            $
            875.5




85


INTERMEC,
INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS




Note
N: Segment Reporting (Continued)




The
following table sets forth our long-lived assets by geographic region (millions
of dollars):




December
      31,2007
            
            2006North
      America
            
            $
            87.7
            
            $
            63.1Europe,
      Middle East and Africa
            
            
            14.8
            
            
            5.7All
      others
            
            
            1.7
            
            
            1.7Total
            
            $
            104.2
            
            $
            70.5




The
following table sets forth depreciation for our long-lived assets by geographic
region (millions of dollars):




Year
      Ended December 31,2007
            
            2006
            
            2005North
      America
            
            $
            10.4
            
            $
            8.9
            
            $
            7.3Europe,
      Middle East and Africa
            
            
            1.5
            
            
            1.3
            
            
            1.9All
      others
            
            
            0.7
            
            
            0.3
            
            
            0.3Total
            
            $
            12.6
            
            $
            10.5
            
            $
            9.5




86


INTERMEC, INC.


QUARTERLY
FINANCIAL INFORMATION (unaudited)




Below is
unaudited quarterly financial information for 2007 and 2006 (in millions, except
earnings per share and common stock sales price):




2007Q1
            
            Q2
            
            Q3
            
            Q4 
      (a)Revenues
            
            $
            179.3
            
            $
            210.5
            
            $
            206.0
            
            $
            253.4Gross
      profit
            
            
            64.5
            
            
            81.2
            
            
            78.1
            
            
            103.1Earnings
      from continuing operations
            
            
            (4.4
            )
            
            7.9
            
            
            4.4
            
            
            16.4Net
      earnings (b)
            
            
            (4.4
            )
            
            6.6
            
            
            4.4
            
            
            16.4Basic
      earnings per share
            
            $
            (0.07
            )
            $
            0.11
            
            $
            0.07
            
            $
            0.27Diluted
      earnings (loss) per share
            
            $
            (0.07
            )
            $
            0.11
            
            $
            0.07
            
            $
            0.27Common
      stock sales price per share:High
            
            $
            25.81
            
            $
            26.40
            
            $
            30.16
            
            $
            27.48Low
            
            $
            20.50
            
            $
            20.90
            
            $
            23.32
            
            $
            20.12




2006Q1
            
            Q2
            
            Q3
            
            Q4Revenues
            
            $
            203.8
            
            $
            231.4
            
            $
            195.9
            
            $
            218.9Gross
      profit
            
            
            80.4
            
            
            93.6
            
            
            76.1
            
            
            81.9Earnings
      from continuing operations
            
            
            15.1
            
            
            11.3
            
            
            3.4
            
            
            5.2Net
      earnings (b)
            
            
            14.0
            
            
            10.4
            
            
            4.8
            
            
            2.8Basic
      earnings per share
            
            $
            0.22
            
            $
            0.16
            
            $
            0.07
            
            $
            0.05Diluted
      earnings per share
            
            $
            0.22
            
            $
            0.16
            
            $
            0.07
            
            $
            0.05Common
      stock sales price per share:High
            
            $
            38.81
            
            $
            30.40
            
            $
            30.74
            
            $
            26.43Low
            
            $
            29.71
            
            $
            21.45
            
            $
            20.50
            
            $
            21.00




(a) Includes
certain adjustments, after tax, totaling approximately $1.3 million, which
primarily relate to royalty revenues which should have been recorded in prior
quarters of 2007.


(b)
Includes earnings (loss) from discontinued operations as follows (millions of
dollars):





2007
            
            2006First
      Quarter
            
            $
            -
            
            $
            (1.1
            )Second
      Quarter
            
            
            (1.3
            )
            
            (0.9
            )Third
      Quarter
            
            
            -
            
            
            1.3Fourth
      Quarter
            
            
            -
            
            
            (2.3
            )




87




SCHEDULE
II




VALUATION
AND QUALIFYING ACCOUNTS
 Years
ended December 31, 2007, 2006, and 2005
 (Thousands
of Dollars)
  Balance
      at beginning of period
              
              Costs
      charged to expenses
              
              Deductions
      and write-offs
              
              
              Balance
      at end of periodAs
      of December 31, 2007Allowance
      for accounts receivable
              $
              3,653
              $
              342
              $
              (159
              )
              $
              3,836Allowance
      for sales returns
              
              4,143
              
              -
              
              4,875
              
              
              9,018As
      of December 31, 2006Allowance
      for accounts receivable
              $
              4,409
              $
              85
              $
              (841
              )
              $
              3,653Allowance
      for sales returns
              
              3,748
              
              -
              
              395
              
              
              4,143As
      of December 31, 2005Allowance
      for accounts receivable
              $
              5,619
              $
              714
              $
              (1,924
              )
              $
              4,409Allowance
      for sales returns
              
              3,181
              
              -
              
              567
              
              
              3,748
  88




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
            By-Laws
      of the Company., as amended July 19, 2007 filed as Exhibit 3.1 to the
      Company’s  July 1, 2007, quarterly report on Form 10-Q, and
      incorporated herein by reference.4.1
            Indenture,
      dated as of March 11, 1998, between the Company and The First
      National Bank of Chicago, Trustee, providing for the issuance of
      securities in series, filed as Exhibit 4.5 to the Company’s 1997
      annual report on Form 10-K, and incorporated herein by reference (the
      “Indenture”).4.2
            Resignation,
      Appointment and Acceptance Agreement, dated March 16, 2001, among
      Bank One, N.A., as successor-in-interest to The First National Bank of
      Chicago, National City Bank of Indiana, and the Company in relation to the
      Indenture, filed as Exhibit 4.14 to the Company’s 2002 annual report
      on Form 10-K, and incorporated herein by reference.4.3
            Form of
      7.00% Notes due March 15, 2008, issued by the Company under the
      Indenture, filed as Exhibit 4.7 to the Company’s 1997 annual report
      on Form 10-K, and incorporated herein by reference.4.4
            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.4.5
            Revolving
      Line of Credit Note between the Company, as the Borrower,  and
      Wells Fargo Bank, National Association, as the Lender, dated as of
      September 27, 2007,  filed as Exhibit 10.7 to the Company’s
      September 30, 2007 quarterly report on Form 10-Q, and incorporated herein
      by reference.4.6
            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.4.7
            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.
              Continuing
      Guaranty by Intermec Technologies Manufacturing, LLC, as the Guarantor, to
      Wells Fargo Bank, National Association, as the Bank, dated as of September
      27, 2007,  filed as Exhibit 10.10 to the Company’s September 30,
      2007 quarterly report on Form 10-Q, and incorporated herein by
      reference.




89


INTERMEC,
INC.


INDEX
TO EXHIBITS





Exhibit No.
            Description
      of Exhibit10.1
            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
            Director
      Stock Option and Fee Plan, filed as Exhibit 10.7 to the Company’s
      September 30, 1997 quarterly report on Form 10-Q, and
      incorporated herein by reference.**10.5
            Amendment
      No. 1 to the Director Stock Option and Fee Plan, filed as
      Exhibit 10.13 to the Company’s September 30, 1999 quarterly
      report on Form 10-Q, and incorporated herein by
      reference.**10.6
            Director
      Stock Option and Fee Plan, As Amended Effective November 19,
      2007*  **10.7
            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.**10.8
            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.**10.9
            Amended
      and Restated Change of Control Employment Agreement applicable to the
      Company’s Chief Executive Officer, as amended  July 18, 2007,
      filed as Exhibit 10.2 to the Company’s  July 1, 2007 quarterly
      report on Form 10-Q, and incorporated herein by
      reference.**10.10
            Amended
      and Restated Change of Control Employment Agreement applicable to the
      Company’s Executive Officers other than the Chief Executive Officer, as
      amended  July 18, 2007, filed as Exhibit 10.3 to the
      Company’s  July 1, 2007 quarterly report on Form 10-Q, and
      incorporated herein by reference.**10.11
            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.**10.12
            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.**10.13
            Employment
      Agreement between the Company and Thomas O. Miller, dated as of
      October 21, 2005, filed as Exhibit 4.1 to the Company’s
      October 2, 2005, quarterly report on Form 10-Q, and incorporated
      herein by reference.**10.14
            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.**










INTERMEC,
INC.


INDEX
TO EXHIBITS





Exhibit No.
            Description
      of Exhibit10.15
            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.**10.16
            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.**10.17
            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.**10.18
            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.**10.19
            Amendment
      of Restricted Stock Agreements, 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.**10.20
            Amendment
      of Restricted Stock Agreements, 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.**10.21
            Management
      Incentive Compensation Plan, Amended and Restated as of January 1,
      2008,  filed as Exhibit 10.10 to the Company’s  July
      1, 2007 quarterly report on Form 10-Q, and incorporated herein by
      reference.**10.22
            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.**10.23
            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.**10.24
            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.**10.25
            Adoption
      Agreement to the Company’s Deferred Compensation Plan, dated June 29,
      2006. **10.26
            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.**10.27
            Form of
      Restricted Stock Agreement for awards under the Company’s 2001 Stock
      Incentive Plan (the “2001 Plan”) and 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.**




90


INTERMEC,
INC.


INDEX
TO EXHIBITS





Exhibit No.
            Description
      of Exhibit10.28
            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.**10.29
            Restricted
      Stock Unit Agreement with Thomas O. Miller, under the 2004 Plan, dated as
      of May 6, 2004 (portions omitted pursuant to a request for
      confidential treatment filed separately with the Securities and Exchange
      Commission), filed as Exhibit 10.6 to the Company’s
      September 30, 2004, quarterly report on Form 10-Q/A, and
      incorporated herein by reference.**10.30
            Amended
      and Restated Restricted Stock Unit Agreement, dated September 13, 2007,
      between the Company. and Lanny H. Michael,  filed as Exhibit
      10.3 to the Company’s  September 30, 2007 quarterly report on
      Form 10-Q, and incorporated herein by reference.**10.31
            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.**10.32
            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.**10.33
            Form of
      Performance Share Unit Agreement under the Long-Term Program for use after
      2005, filed as Exhibit 10.30 to the Company’s 2005 annual report on
      Form 10-K, and incorporated herein by reference.**10.34
            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.**10.35
            Arrangement
      for Annual Incentives for 2004 and 2005, filed as Exhibit 10.1 to the
      Company’s February 23, 2005, current report on Form 8-K, and
      incorporated herein by reference.**10.36
            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.**10.37
            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.**10.38
            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.**10.39
            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.**10.40
            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. **




91


INTERMEC,
INC.


INDEX
TO EXHIBITS





Exhibit No.
            Description
      of Exhibit10.41
            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.**10.42
            Summary
      Sheet—Employment Arrangement with Lanny  H. Michael, filed as
      Exhibit 3.2 to the Company’s October 1, 2006, quarterly report
      on Form 10-Q, and incorporated herein by reference.**10.43
            Summary
      Sheet – Compensation Arrangements for Patrick J. Byrne, President and
      Chief Executive Officer, filed as Exhibit 10.13 to the Company’s
      July 1, 2007 quarterly report on Form 10-Q, and incorporated
      herein by reference.**10.44
            Cash
      Retention Agreement, dated as of March 30, 2007, between the Company
      and  Steven J. Winter, filed as Exhibit 10.1 to the Company’s
      September 30, 2007 quarterly report on form 10-Q, and incorporated herein
      by reference.**10.45
            Separation
      Agreement, dated as of October 9, 2007, between the Company
      and  Steven J. Winter, filed as Exhibit 10.2 to the Company’s
      September 30, 2007 quarterly report on form 10-Q, and incorporated herein
      by reference.**10.46
            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.10.47
            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.10.48
            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.10.49
            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.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 March 2, 2008.*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 March 2, 2008.*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 March 2, 2008.*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 March 2, 2008.*





*   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.








92