**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 1934****For
                the fiscal year ended December 31, 2006****OR****o**
            **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
                36****th****Avenue West**
            
            **98203-1264****Everett,
                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 registered**Common
                Stock, par value $0.01 per share
            
            New
                York Stock ExchangeRights
                to Purchase Series A Junior
            
            New
                York Stock ExchangeParticipating
                Preferred Stock







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 o .




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




Large
                Accelerated Filerx
            
            Accelerated
                Filero
            
            Non-accelerated
                filero







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 2, 2006, 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 28, 2007, there were 59,884,736 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 16, 2007.


















**INTERMEC,
      INC.**


**TABLE
      OF CONTENTS TO ANNUAL REPORT**


**ON
      FORM 10-K**




**Page****Part
                  I.**Item
                  1.
              
              Business
              
              1Item
                  1A.
              
              Risk
                  Factors
              
              13Item
                  1B.
              
              Unresolved
                  Staff Comments
              
              17Item
                  2.
              
              Properties
              
              18Item
                  3.
              
              Legal
                  Proceedings
              
              18Item
                  4.
              
              Submission
                  of Matters to a Vote of Security
                  Holders
              
              18**Part
                  II.**Item
                  5.
              
              Market
                  for the Registrant's Common Equity, Related Stockholder
                  Matters and Issuer Purchases of Equity Securities
              
              19Item
                  6.
              
              Selected
                  Financial Data
              
              21Item
                  7.
              
              Management's
                  Discussion and Analysis of Financial Condition and
                  Results of Operations
              
              22Item
                  7A.
              
              Quantitative
                  and Qualitative Disclosures about Market
                  Risk
              
              39Item
                  8.
              
              Financial
                  Statements and Supplementary Data
              
              40Item
                  9.
              
              Changes
                  in and Disagreements With Accountants on Accounting and
                  Financial Disclosure
              
              40Item
                  9A.
              
              Controls
                  and Procedures
              
              40Item
                  9B.
              
              Other
                  Information
              
              40**Part
                  III.**Item
                  10.
              
              Directors,
                  Executive Officers and Corporate
                  Governance
              
              41Item
                  11.
              
              Executive
                  Compensation
              
              41Item
                  12.
              
              Security
                  Ownership of Certain Beneficial Owners and Management
                  and Related Stockholder Matters
              
              41Item
                  13.
              
              Certain
                  Relationships and Related Transactions, and Director
                  Independence
              
              41Item
                  14.
              
              Principal
                  Accountant Fees and Services
              
              41**Part
                  IV.**Item
                  15.
              
              Exhibits,
                  Finacial Statement Schedules
              
              42Signatures
              
              43




*Table
            of Contents*





**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**





Effective
      January 1, 2006, we changed our name from UNOVA, Inc. to
      Intermec, Inc. (“Intermec”, “us”, “we”, “our”). We 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. We are
      a Delaware corporation and our headquarters are located in Everett, Washington.
      Our major offices and manufacturing facilities are located in the states of
      Washington, Iowa, and Ohio and internationally in the United Kingdom, the
      Netherlands, France, Canada, Mexico 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





1
 *Table
            of Contents*




**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
      including radio frequency identification (“RFID”) products, mobile computing
      products, wired and wireless bar code printers and label media products. Our
      products are sold to customers within and outside of the United States in market
      segments that include industrial goods, consumer packaged goods, transportation
      and logistics, retail and the public sector, in work applications such as
      manufacturing production, warehousing, field service, direct store delivery,
      in-transit visibility, store floor operations and management and RFID supply
      chain management. Our products are used by customers to improve the
      productivity, quality and responsiveness of their business operations including
      supply chain management, enterprise resource planning 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, wired and wireless
                bar
                code printers, label media and RFID products and license fees and
                revenue
                from licenses of our intellectual property (IP) portfolio
                and





·
            revenue
                from customer support, product maintenance and other services related
                to
                the products and systems integration described
                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**





Our
      products include wired and wireless AIDC products, including RFID products,
      mobile computing products, 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.




2
 *Table
            of Contents*





**ITEM
              1.**
            **BUSINESS
                (Continued)**





**Products**





*Bar
      Code Scanners*





Our
      bar
      code scanning products include wireless handheld computers and terminals, linear
      and area imagers incorporating active pixel technology, and badge and laser
      scanners. These products are able to read or collect data and move that data
      directly into standard enterprise resource planning ("ERP") systems, warehouse
      management systems ("WMS"), and order fulfillment, transportation, logistics
      and
      other business applications. We also manufacture rugged handheld computers
      for
      use in warehouses and industrial environments. These products are used primarily
      by non-office workers, such as warehouse, delivery, manufacturing and field
      service workers, and other employees who operate outside the typical office
      environment.





Our
      bar
      code scanning products are typically used for workforce automation: tracking
      of
      work-in-process and finished-goods inventory through manufacturing, distribution
      and other commercial operations, “total asset” visibility, and real-time
      monitoring of inventory levels and order status. AIDC products of the type
      we
      sell replace manual data collection techniques that are more susceptible to
      errors or omissions due to inaccurate keystrokes, illegible handwriting or
      overlooked transactions.





*Enterprise
      Wireless Network Technology and Services*





We
      were
      one of the first companies to provide a network architecture that allows
      customers to use multiple radio technologies within one Local Area Network
      ("LAN") system. Starting in the early 1980s, we installed digital communication
      equipment that linked mobile computers and host servers within industrial
      workspaces such as warehouses, distribution centers, factories and large outdoor
      facilities. In 1998, the Institute for Electronic and Electrical Engineering
      (“IEEE”) promulgated a new standard for high-speed network communication via
      wireless radio signals. The 802.11b standard allows customers to purchase
      interoperable digital radios for client computing devices.





In
      the
      years since the 802.11b standard was established, several large network
      equipment vendors have begun selling 802.11b, 802.11a/b and 802.11g wireless
      LAN
      systems, increasing penetration for this technology among office workers and
      in
      public spaces such as hotels, restaurants and airports. We have been named
      a
      Solutions Technology Integrator partner by Cisco Systems Inc. (“Cisco”). We use
      our wireless LAN expertise to enable our AIDC products to work seamlessly across
      a Cisco network. Our device management software allows centralized management
      of
      our wireless products on the network.





Our
      wireless AIDC products include all major radio technologies, including
      synthesized UHF, 900 MHz, 802.11a/b/g and Bluetooth. This radio independence
      allows our customers to choose the most efficient radio technology for their
      facilities.





*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 may also include AIDC devices, specialized peripherals
      and
      printer products.





3
 *Table
            of Contents*




**ITEM
              1.**
            **BUSINESS
                (Continued)**





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.





*Printer
      and Label Media Products*





Our
      line
      of bar code printers ranges from relatively low-cost, light-duty models to
      higher-cost, heavy-duty, industrial models that accommodate a number of printing
      widths, materials and label configurations. Our printers can be wired or can
      be
      wirelessly attached to enterprise networks. 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 extremely small labels such as those used by the electronics industry.
      Our printer product line includes printers that can read and write to RFID
      tags.





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 or for access
      security applications.





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 157 RFID patents and 24 companies have taken licenses under those
      patents, including Cisco, Motorola, Inc., Texas Instruments, Avery Dennison,
      and
      Zebra Technologies, Inc.




4
 *Table
            of Contents*





**ITEM
              1.**
            **BUSINESS
                (Continued)**





**Services**





With
      our
      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 the business
      objectives. Our project management teams also define the functional requirements
      for implementing AIDC products and systems in the customer’s business. This
      includes the reason why they are needed, how they will be used, and how they
      will impact business processes.





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” experience and
      comprehensive AIDC solutions. We also provide customers with:





·
            A
                single point of contact for project
                communications




·
            Project
                planning, including defining the scope of work, preparing a statement
                of
                work, developing project objectives, developing schedules, identifying
                acceptance procedures, and documenting a project
                plan




·
            Project
                implementation, including proper site preparation; tracking, site
                evaluation surveys and installation schedules; coordination of the
                activities of all resources involved in the implementation; project
                status
                reports; and implementation of project
                controls




·
            Oversight
                and management of the overall installation process, including managing
                communications, tracking equipment shipment, managing change requests,
                and
                identifying problems and resolving
                them




·
            Project
                completion and closeout




We
      provide global repair and support through a global network of service centers.
      These service centers provide maintenance and repair services to our customers.
      Our customer service representatives ("CSR") are dispatched from approximately
      60 U.S. locations and from centers outside of the United States. Our Global
      Education Services unit provides AIDC training services and solutions, including
      the design and delivery of training programs and assistance in creating training
      programs to be delivered by the customer’s employees.





**Technologies**





We
      offer
      a line of data capture products which includes linear imaging, area imaging,
      RFID and a laser scanning engine based on micro-electro mechanical system
      ("MEMS") technology. Our product suite provides customers with a range of
      automated identification and AIDC products for their application and cost
      requirements.





We
      regularly integrate new technologies into our products to meet customer demand
      for enhanced functionality and to differentiate our products from competitive
      offerings. Recent examples of technologies added to our products
      include:





·
            Ruggedized
                Windows CE and Windows Mobile-based
                computers




·
            Short-range
                radio system networks using Bluetooth
                technology




·
            MEMS-based
                laser scanning devices




·
            Low-cost,
                miniature linear image scan engines




5
 *Table
            of Contents*





**ITEM
              1.**
            **BUSINESS
                (Continued)**




·
            Devices
                that use the Internet to simplify the management of wireless
                networks




·
            Ergonomic
                integrated terminals with modular designs and a variety of scan
                engines




**Business
      Strategy**


Our
        strategy consists of:
 
 ·
              Technology
                  leadership in the AIDC industry
  ·
              Expanding
                  and leveraging our IP portfolio
  ·
                  Focusing
                      on supply-chain industries and application
                      areas
  ·
              Supplying
                  a broad-based portfolio of products, including terminals, scanners
                  and
                  printers
  ·
              Providing
                  integrated AIDC solutions
  ·
              Partnering
                  with global industry leaders
  ·
              Achieving
                  economies of scale and scope
  ·
              Profitably
                  increasing market share
  ·
              Increasing
                  the scale of the business


Our
      strategy is focused on customers in certain vertical markets,
      including:





·
            *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., automotive, computers and household
                appliances).




·
            *Consumer
                Goods.*This vertical market includes firms that make products for retailers
                and
                those that sell directly to the general public. Segments within the
                vertical include food, beverage, consumer packaged goods,
                footwear/apparel, health/beauty, health/pharmacy, house wares/appliances,
                electronics, recreation, and media/publishing
                companies.




·
            *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.




·
                *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 and warehouse-style
                    mega-stores.




·
                *Government
                    agencies.*This vertical market includes U.S. federal, state and local government
                    entities, although foreign government opportunities are growing
                    at an
                    increasing rate. The U.S. Department of Defense was an early
                    adopter of
                    automated data capture ("ADC") technologies and has been actively
                    deploying automated identification technology ("AIT") logistics
                    applications for more than two decades. Other departments of
                    the federal
                    government are beginning to adopt these technologies to improve
                    their
                    operations. State and local governments are also beginning to
                    adopt these
                    technologies particularly in the areas of public safety and service
                    improvement.




6
 *Table
            of Contents*





**ITEM
              1.**
            **BUSINESS
                (Continued)**




Our
      strategy is focused on certain application markets, including:





·
            *Manufacturing
                operations.*Manufacturers use data collection and computing technology to capture
                and
                monitor product flow during the production process, from raw materials
                or
                parts through to the finished goods stage. They also use the technology
                to
                track the activities and value-added content of labor and to capture
                product genealogy, product location and lines, supplier information
                for
                warranty and liability risk reduction and for regulatory
                compliance.




·
            *Warehouse
                and distribution center operations.*Warehouses and logistics operations rely on wireless networks and
                handheld
                and mobile computers to transmit inventory data regarding movement,
                location, quantity and attributes to central host computers. When
                information is updated in real time, customers have greater visibility
                to
                their business operations and are able to avoid inventory shortages
                and
                improve customer service by providing more accurate shipping and
                delivery
                information. As competition places more pressure on companies for
                faster
                operational performance, they typically upgrade their supply chain
                technologies to improve working capital efficiency and customer
                satisfaction standards, such as delivery speed, in-stock availability
                and
                order accuracy.




·
              *Field
                  service.*Field service managers focus on work order management and asset
                  management. Work orders tie field service technicians to specific
                  jobs.
                  Management must have information from the point where the work
                  is being
                  performed to optimize an entire range of operations including dispatch,
                  routing and scheduling, status updates, service history, parts
                  usage, call
                  type and resolution, schematics, diagnostics, billing information,
                  invoicing, collections, including credit cards, parts ordering
                  and
                  availability, vehicle location and driving directions, as well
                  as internal
                  metrics such as time to repair, labor tracking and job costing.
                  Automated
                  data collection systems linked with field service management software
                  deliver the real-time information required to improve efficiency
                  and
                  reduce costs while increasing customer satisfaction. Asset management
                  is
                  the utilization, movement, and storage of the resources and capital
                  equipment used by or used to support field service employees. This
                  includes vehicles, parts inventory in transit or on the truck,
                  and test
                  and measurement equipment, as well as assets at remote or customer
                  locations, such as consigned inventory and leased equipment. Equipment
                  tagging and access control to secure storage are growing areas
                  for RFID
                  solutions.




·
            *Direct
                store delivery ("DSD").*DSD is the delivery of consumer good products from a supplier/distributor
                directly to a retail store, bypassing a retailer’s warehouse. Activities
                typically include in-store inventory management, store-level authorized
                item management, store-level ordering/forecasting, product pricing,
                promotion, invoicing, the physical delivery and return of merchandise,
                the
                electronic exchange of delivery data with a retail store (DEX/UCS)
                and
                shelf merchandising. General wholesalers and distributors are not
                included
                in this category.




·
            *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.




7
 *Table
            of Contents*





**ITEM
              1.**
            **BUSINESS
                (Continued)**




·
            *Retail
                store operations.*Retailers strive to reduce the number of out-of-stocks and to increase
                the
                time and amount spent by each customer during each visit. Retail
                store
                operations personnel need tools for managing the flow and tracking
                of
                merchandise in the store from receiving to stocking, ordering, pricing,
                price changing, checkout, returns and transfers. They use scanners,
                mobile
                computers, printers, RFID and other data capture devices as the primary
                technologies to accomplish these
                tasks.




·
                *Retail
                    store management.*A
                    recent trend is the desire of retail executives to get the store
                    manager
                    out of the back office and onto the store floor, where he or
                    she can
                    interact with customers and store personnel. To achieve this,
                    store
                    managers need mobile computing tools that give them access to
                    corporate
                    information, store operations metrics and clerk applications
                    and provide
                    in-store merchandise scanning capabilities. This creates demand
                    for
                    scanning, RFID and mobile computing solutions geared specifically
                    for the
                    store manager.




·
            *RFID
                supply chain*.
                RFID supply chain includes RFID compliance, as well as all the
                applications mentioned above. The addition of RFID technology can
                enhance
                the optimization and visibility of information all along a company’s
                supply chain. RFID compliance involves the application of RFID tags
                onto
                cases and pallets and the use of interrogators to read and write
                to those
                tags to meet the information collection and management requirements
                of
                manufactures, retailers and government entities. This includes traveling
                bills-of-material, manufacturing production routers, product history
                (genealogy), repair and upgrade databases, and bill of lading and
                security
                devices.




**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 efficiency in business and government,
      particularly through logistics automation, supply chain execution, asset
      tracking, enterprise resource planning ("ERP") and e-commerce solutions. 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. Distributors, resellers and independent
      vendors of complementary products and services extend our reach in our target
      and application markets and allow us to cost-effectively penetrate and grow
      market share with small, mid-sized and large businesses.





We
      sell
      and service our products through multiple sales and distribution channels:
      (1) a direct field sales force that concentrates on large or complex sales;
      (2) premier value-added resellers (known as Honours Partners) that provide
      application-specific solutions with major systems integrators and enterprise
      computing companies; and (3) distributors that provide value-added services
      to smaller independent software vendors and resellers.





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. Indirect sales channels include preferred and
      non-exclusive relationships with value-added distributors and master resellers.
      Sales of accessories, certain services and low-cost transactional-based business
      can be transacted over the Internet. 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
      or
      likely to become similar to those in the U.S. The extent of wireless systems
      opportunities in any particular country is based on the level of
      industrialization, communication infrastructure, the status of bar code
      implementation, and the regulatory environment for wireless communication
      technologies. The major markets for printers and media are manufacturing,
      distribution, warehousing, transportation, health care, government and other
      services.




8
 *Table
            of Contents*





**ITEM
              1.**
            **BUSINESS
                (Continued)**





Our
      customer base consists of businesses of many sizes in retail, consumer goods,
      industrial goods and transportation and logistics as well as government
      agencies, distributors and resellers. For 2006, one customer accounted for
      more
      than 10% of our revenues. Total sales to this customer were $99.8 million,
      $80.7
      million and $66.5 million for the years ended December 31, 2006, 2005 and 2004,
      respectively. No single customer accounted for more than 10% of our revenues
      in
      2005 or 2004.




**Competition**





The
      market for AIDC products is fragmented. 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 single AIDC product lines from
      suppliers such as Zebra Technologies Corporation, which supplies barcode and
      RFID printers and Hand Held Products, which supplies barcode
      imagers.





The
      market for AIDC products and systems is highly competitive and rapidly changing.
      Some firms, including Fujitsu and Casio, manufacture and market hand held
      systems for field-based ordering and selling applications. In addition, a number
      of firms manufacture and market radio-linked data communication products,
      including Hand Held Products LXE, Motorola (formerly Symbol) and Psion/Teklogix.
      Consumer personal digital assistants from suppliers such as Palm, Hewlett
      Packard and Dell are potential competitors for certain light-duty enterprise
      computing applications. Companies such as Motorola (formerly Symbol) and
      Entersys compete against us and Cisco in the wireless network
      business.





In
      the
      printer market, we face competition from Zebra, Datamax, SATO, Printronix and
      many others, depending on the geographic area. 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 applications
      for specific vertical markets (integrated solutions, open-systems architecture,
      and networking and communications expertise), customer relationships and
      value-added service. Other attributes, such as high level support services,
      product functionality, performance, ruggedness and overall product quality,
      are
      important for market success.





**Research
      and Development**





Research
      and development expenditures related to our continuing operations amounted
      to
      $72.4 million, $66.5 million and $65.9 million, all of which was sponsored
      by
      us, in the years ended December 31, 2006, 2005 and 2004,
      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. Over a period
      of years, we have obtained approximately 588 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 have 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 and we do not believe that our business would
      be
      materially affected by the expiration or termination thereof.





9
 *Table
            of Contents*





**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 be obsolete before the
      patents related to them expire, and sometimes are 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, we seek licenses
      to use inventions patented by third parties. Established competitors in existing
      and new industries, as well as companies that purchase and enforce patents
      may
      already have patents covering similar products. There is no assurance that
      we
      will be able to obtain patents covering our products or that we will be able
      to
      obtain licenses from other organizations on favorable terms or at
      all.





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. Established competitors in existing and new industries may
      attempt to secure the same or similar trademarks or trade names covering similar
      products and services. There is no assurance that we will be able to obtain
      trademarks or trade names covering our own products and services or that we
      will
      be able to obtain licenses for desirable trademarks or trade names from other
      organizations on favorable terms or at all.





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 but there is no
      assurance that these programs will prevent unauthorized disclosures of such
      confidential 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 and would not be materially
      affected by the expiration or termination thereof. We may attempt to license
      more of our intellectual property to other organizations in the future. There
      is
      no assurance that any of these efforts will be successful.





We
      try to
      protect our investment in technology and to secure competitive advantage by
      enforcing our IP rights. The extent of the legal protection given to different
      types of IP rights varies greatly from one country to another. There is no
      assurance that our effort to enforce our intellectual property in any
      jurisdiction will be successful or will be successful enough to materially
      benefit our business.





**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 Q-1 of this Form 10-K for quarterly revenues and
      expenses.





Sales
      backlog for our continuing operations was $42.9 million, $64.3 million and
      $76.0
      million at December 31, 2006, 2005 and 2004, 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, 2006, we had 2,407 full-time employees, of which 2,378 were
      engaged in our wholly-owned subsidiary, Intermec Technologies Corporation,
      and
      29 were engaged in our holding company, Intermec, Inc. Approximately 69% of
      our
      full-time employees are located in the United States, approximately 20% are
      located in Europe, the Middle East and Africa (“EMEA”), and the remaining are
      located throughout the rest of the world, including the Asia Pacific region,
      South America, Canada and Mexico.




10
 *Table
            of Contents*





**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 at March 1, 2007, and
      their business experience during the prior five years.





**Name**
            
            **Age**
            
            **Position with Company and Principal Business Affiliations**
              **During Past Five Years**Larry
                D. Brady
            
            64
            
            Chairman
                of the Board since August 2001. Chief Executive Officer since
                September 2000. Director since September 1999, and President
                since July 1999. Served as Chief Operating Officer from
                July 1999 to September 2000. For prior business experience, see
                the description of Directors in “Election of Directors” in the 2006 Proxy
                Statement and in our 2007 Proxy Statement, when filed.Lanny
                H. Michael
            
            55
            
            Senior
                Vice President and Chief Financial Officer since joining Intermec
                in
                September 2006. Prior thereto, 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,
                employed by Airborne, Inc. from 1981 to 2004, including as Executive
                Vice
                President and Chief Financial Officer from 2000-2004 .Steven
                J. Winter
            
            50
            
            Senior
                Vice President since May 2006; Vice President since 1999. President
                and
                Chief Operating Officer of our Intermec Technologies Corporation
                subsidiary (“ITC”) since September 2005. Prior thereto, Executive Vice
                President and Chief Operating Officer of ITC from October 2004 to
                September 2005. Prior thereto, Executive Vice President from March
                2004 to
                September 2004. Prior thereto, Senior Vice President of Global Services
                of
                ITC from November 1999 to March 2004. Mr. Winter has been employed
                by ITC
                since 1977.Janis
                L. Harwell
            
            52
            
            Senior
                Vice President and General Counsel since September 2004 and Corporate
                Secretary since January 2006. Prior thereto, 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
            
            39
            
            Vice
                President, Corporate Controller, since September 2005. Acting Chief
                Financial Officer September 2005 to September 2006. Prior thereto,
                Director of Accounting and Financial Reporting, and Chief Accounting
                Officer, from July 2002 to September 2005. Prior thereto, employed
                by
                Ernst & Young LLP from 1990 to 2002, including as Senior Manager from
                1998 to 2002.Kenneth
                L. Cohen
            
            63
            
            Vice
                President and Treasurer since January  2004 and Vice President, Taxes
                since July 2000. Prior thereto, Staff Vice President, Taxes from
                October 1997. Mr. Cohen has been employed by the Company or its
                predecessors since 1989.




11
 *Table
            of Contents*





**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 go into effect in 2007. Other U.S. states are considering
      similar legislation. Similarly, China has promulgated use restrictions on the
      same substances as the RoHS Directive. China has not yet defined the scope
      of
      affected products or the effective date of the regulation and 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 may adopt
      RoHS-type regulations in the future.





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 2006, we incurred $7.7 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.




12
 *Table
            of Contents*





**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.





·
            ***Business
                combinations, private equity transactions and similar events have
                altered
                the structure of the AIDC industry and could intensify competition
                within
                the industry.***Motorola’s acquisition of Symbol Technologies, Inc., Metrologic
                Instruments’ private equity transaction and similar events have altered
                the structure of theautomated
                identification and data capture (“AIDC”)industry and may spawn more transactions and additional structural
                changes. Separately or together, any of these events could intensify
                competition within the AIDC industry by expanding the presence in
                our
                industry of firms that have not traditionally participated extensively
                in
                this line of business, and enhancing the business and financial resources
                of some firms in our industry. There is no assurance that any of
                the
                strategies we employ to react to the structural changes in our industry
                will be successful. Failure of our strategies could result in material
                adverse impacts to our revenues, revenue growth and results of operations.




·
            ***Some
                of our competitors are substantially larger or are more profitable
                than we
                are which may give them a competitive advantage.***Some of our competitors are substantially larger in terms of revenue
                or
                profit than we are. The scale advantage of these firms may allow
                them to
                invest more in research and development ("R&D"), systems and human
                resources than we can. These advantages may enable our larger competitors
                to weather market downturns longer or adapt more quickly to market
                trends
                or price declines than we can. Those competitors may also be able
                to
                precipitate such market changes. There is no assurance that the strategies
                we use 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 revenues, revenue
                growth
                and results of operations may be materially and adversely
                affected.





·
            ***Macroeconomic
                conditions beyond our control could lead to decreases in demand for
                our
                products or deterioration in the quality of our accounts
                receivable.***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. 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.




·
            ***Rapid
                technological change or technological convergence could hurt results
                of
                operations by increasing product or inventory
                obsolescence.***Rapid technological change or technological convergence could render
                our
                products obsolete or cause us to have excess inventory or obsolete
                inventory. In such event, we might have to sell all or a portion
                of the
                excess or obsolete products or parts at substantially lower prices
                than
                originally planned, or write off the carrying value of all or a portion
                of
                the excess or obsolete inventory. This could materially and adversely
                impact our revenues, gross profit margins and results of operations.




·
            ***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 and support
                these
                activities, we need to continue to improve
                our business processes and our financial, information technology
                and
                enterprise resource planning systems,and
                from time-to-time restructure aspects of our business
                organization.
                Successful completion of these projects will require skillful managers
                and
                a skilled workforce. Our business could be materially and adversely
                affected if we are not successful in these
                areas.





13
 *Table
            of Contents*





**ITEM
              1A.**
            **RISK
                FACTORS (Continued)**




·
            ***Our
                industry is characterized by product and technology cycles which
                may
                intensify competition, particularly at the end of a
                cycle.*****Customer requirements for AIDC products are rapidly evolving. To
                keep up
                with new customer requirements and distinguish Intermec from our
                competitors, we must frequently introduce new products. There is
                no
                assurance that we will be able to successfully launch new products
                before
                competitors launch comparable products. If we experience delays or
                other
                problems with the introduction of our new products or competitors
                are able
                to launch comparable products faster, our sales, profits and results
                of
                operations could be materially and adversely
                affected.





·
            ***Changes
                in customer mix can have an impact on sales growth, margin mix and
                volatility.***Since
                sales to large enterprises tend to have lower prices and gross margins
                than sales to medium and small businesses, customer mix may have
                a
                material effect on our sales growth and gross margins and may increase
                volatility. There is no assurance that we will be able to successfully
                implement our sales strategy. Our revenue, revenue growth, gross
                profit
                margins and results of operations could be materially and adversely
                affected if we do not achieve our
                objectives.





·
            ***If
                the market for RFID products does not develop as we currently anticipate,
                our revenues and results of operations could be adversely affected.***There
                is uncertainty about the volume and the timing of demand for RFID
                products
                in the vertical markets and applications that we target. There is
                no
                assurance that demand for RFID products in our target markets will
                achieve
                anticipated levels at the projected times. RFID customers typically
                use
                pilot programs, qualification processes and certification processes
                to
                decide which vendor’s equipment to purchase. There is no assurance that we
                will be successful in these programs or processes. The purchase decisions
                of some large RFID customers influence the purchase decisions of
                other
                customers. There is no assurance that any of these influential customers
                will select us as an RFID vendor. Since a customer may change RFID
                vendors
                over time or purchase from two or more RFID vendors at the same time,
                there is no assurance that we will be the sole source for any RFID
                customer or that we will be able to obtain repeat business from any
                RFID
                customer. Some vendors are giving RFID products to customers without
                charge or selling them at prices that are below cost, at cost or
                only
                slightly above cost. If this persists longer than anticipated, our
                sales,
                revenues or results of operations could be materially and adversely
                affected.





·
            ***Technological
                convergence could intensify competition in some of our target markets.***A
                number of firms have developed handheld mobile computing and communication
                devices such as personal digital assistants and cell phones for light-duty
                consumer and business applications. Improvements in the computing
                power,
                the communication capabilities or the ruggedness of these devices
                might
                make them attractive substitutes for some of the products that we
                have
                developed for AIDC applications. To respond, we must continue to
                improve
                our AIDC products by investing in R&D. There is no assurance that we
                will be able to make sufficient investments in R&D to keep up with
                technological convergence or that such investments will result in
                competitive products. If our response to technological convergence
                is not
                effective, our sales, profits or results of operations could be materially
                and adversely affected.




·
            ***Export
                controls, import controls and operating conditions in markets outside
                of
                the U.S. could adversely affect our revenues, gross profit margins
                and
                results of operations.***We
                sell a significant percentage of our products in markets outside
                of the
                U.S. and one element of our strategy is to expand sales outside of
                the
                U.S., particularly in developing countries. 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 outside
                of
                the U.S. Our sales outside of the U.S. could also be materially and
                adversely affected by burdensome laws, regulations, tariffs, quotas,
                taxes, trade barriers or capital flow restrictions imposed by the
                U.S. or
                foreign governments. In addition, political and economic instability
                in
                foreign countries 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 foreign assets at risk. There is no assurance
                that we will be able to continue or expand sales of our products
                in any
                foreign market. Disruptions of such sales could materially and adversely
                impact our revenues, revenue growth, gross profit margins and results
                of
                operations.





14
 *Table
            of Contents*





**ITEM
                1A.**
            **RISK
                FACTORS (Continued)**




·
            ***Changes
                or disruptions in our international design, manufacture, production,
                delivery, service and support operations or in our international
                outsourcing arrangements could have an adverse effect on our operations
                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. and, from time to time, we outsource
                one or
                more of these activities, or portions of these activities, by arranging
                for companies outside of the U.S. to perform these tasks. For operational,
                legal or other reasons, we may have to change the mix of U.S. 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 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. There is no assurance that we will be able to accomplish
                these
                tasks at all or in an efficient or cost-effective manner. If we encounter
                difficulties in making such transitions, our revenues, gross profit
                margins and results of operations could be materially and adversely
                affected.




·
            ***Fluctuations
                in foreign exchange rates may adversely impact our cash flows and
                earnings.***Due to our global operations, our cash flow and earnings are exposed
                to
                foreign exchange rate fluctuations. When appropriate, we may attempt
                to
                limit our exposure to foreign exchange rate changes by entering into
                short-term foreign 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 foreign currency exchange
                gains
                or losses (net of hedges) may materially and adversely impact our
                cash
                flows and earnings.




·
            ***Seasonal
                variations in demand could increase the volatility of our financial
                results*****.**Our
                quarterly results reflect seasonality in the sale of our products
                and
                services, as our revenues are typically highest in the fourth fiscal
                quarter and the lowest in the first fiscal quarter. These seasonal
                fluctuations could increase the volatility of our revenues, gross
                margins
                and results of operations from one period to
                another.




·
            ***Our
                results of operations could suffer if we are unable to expand and
                enforce
                our patent estate.*******One
                element of our strategy is to expand our AIDC patent estate and to
                use
                that estate to differentiate Intermec in the marketplace or generate
                royalty revenue, or both. The creation and maintenance of a patent
                estate
                is a complex activity with uncertain outcomes. There is no assurance
                that
                we can or will obtain valuable AIDC patents in the jurisdictions
                where we
                and our competitors operate. As part of our intellectual property
                strategy, 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 our licensees
                using
                technology that is similar to or the same as ours. Our results of
                operations could be materially and adversely impacted if we do not
                adequately invest in the acquisition, maintenance and enforcement
                of AIDC
                patents, if we are unable to obtain AIDC patents covering products
                and
                services that customers consider valuable enough to purchase or if
                our
                effort to enforce our patents is
                unsuccessful.




·
            ***Expansion
                in developing markets with weak intellectual property regimes could
                hurt
                our results of operations if we are unable to protect our technology
                in
                those jurisdictions.***Our
                strategy includes expanding operations in and into 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 because alternative methods of protecting our technology
                may not be effective. Our ability to prevent competitors in these
                developing markets from misappropriating our technology could materially
                and adversely affect our sales, revenues and results of operations
                in
                those developing markets and in markets supplied from those developing
                markets.





15
 *Table
            of Contents*





**ITEM
                1A.**
            **RISK
                FACTORS (Continued)**




·
            ***Patents
                controlled by our competitors, potential competitors or others may
                prevent
                us from selling or may increase the cost of our
                products.***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. As explained above,
                patent 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 and we may also be
                required
                to pay damages for past infringement, which, in our case, might have
                a
                material adverse effect on 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.




·
            ***Operating
                gains and expenses related to patent litigation may materially impact
                or
                increase the volatility of our financial
                results.***Since patent litigation involves complex technical and economic issues,
                it
                is difficult to predict the amount or the timing of gains and expenses
                associated with such litigation. 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.




·
            ***Standards
                setting activities influence demand for AIDC products and may have
                a
                material impact on our sales and results of operations.***AIDC
                customers typically want the ability to choose between two or more
                vendors
                and to seamlessly use the products of one vendor that work with the
                products of other vendors. We and other AIDC vendors try to respond
                to
                these customer requirements by participating in standards setting
                activities sponsored by organizations such as ISO, AIM, IEEE and
                EPCglobal. Depending on the standard, the standards organization
                and the
                form of participation, we may decide to or we may be required to
                license
                one or more of our patents or patent claims on a royalty-free or
                RAND
                basis. It is also possible that, during standards setting and product
                certification activities associated with EPCglobal, EPCglobal
                rules regarding disclosure of patents may result in a royalty-free or
                RAND license of one or more patents or patent claims. Such licenses
                might
                prevent us from obtaining injunctive relief against infringers of
                our
                patents or prevent us from collecting any royalty for the use of
                our
                patented inventions and RAND licenses would limit our royalty from
                a
                licensee to a reasonable amount that is consistent with the royalty
                we
                collect from other licensees of the same
                technology.





·
            ***U.S.
                and international technical and environmental standards and regulations
                may hamper or prevent sales or increase our costs, which might adversely
                impact our sales, revenues and results of operations.***Many
                jurisdictions have technical and environmental standards and regulations
                that govern or influence the design, components or operation of such
                products. Such standards and regulations may also require producers
                of
                electrical goods 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. Changes in those
                standards and regulations are always possible and, in some jurisdictions,
                changes may be introduced with little or no time to bring products
                into
                compliance with the revised technical standard or regulation. Standards
                and regulations may:




Ÿ
            Prevent
                us from selling one or more of our products in a particular
                country,


Ÿ
            Increase
                our cost of supplying the products by forcing us to redesign existing
                products or to use more expensive designs or components,
                or


Ÿ
            Require
                us to obtain services or create infrastructure in a particular country
                to
                address collection, recycling and similar obligations.





16
 *Table
            of Contents*





**ITEM
              1A.**
            **RISK
                FACTORS (Continued)**




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. This could have an adverse effect on our revenues,
      gross profit margins and results of operations and increase the volatility
      of
      our financial results.




·
            ***U.S.
                and international technical and environmental standards and regulations
                may affect customer decision-making, which might adversely impact
                our
                sales, revenues and results of operations.***Technical
                and environmental standards and regulations that govern or influence
                the
                design, components or operation of our products, or their collection,
                recycling, treatment and disposal, may affect customer in various
                ways.
                Uncertainty connected with these types of environmental regulations
                may
                cause customers to postpone or cancel purchases of our products and
                that
                may have a material adverse effect on our revenues. Compliance burdens
                that affect customers if our products do not meet certain requirements
                may
                reduce demand for our products or effectively require us to redesign
                existing products or components or to use more expensive designs
                or
                components, or provide services in that country to support collection,
                recycling and similar obligations. In these cases, we may experience
                unexpected disruptions in our ability to sell our products in a particular
                country or may have to incur unexpected costs to meet customer demands
                to
                support their compliance. This could have an adverse effect on our
                revenues, gross profit margins and results of operations and increase
                the
                volatility of our financial
                results.




·
            ***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.***We
                operate in a number of countries around the world and, therefore,
                are
                subject to tax in a number of jurisdictions. Accordingly, we file
                a
                significant number of tax returns that are subject to audit by the
                relevant tax authorities. 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.




17
 *Table
            of Contents*





**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 797,184
      square feet, of which 599,282 square feet, or 75%, are located in the United
      States, and 197,902 square feet, or 25%, are located outside the United States,
      primarily in the Netherlands, France, Spain, Germany and Canada.




Approximately
      48,400 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
            
            
            342,000Ohio
            
            
            97,483Iowa
            
            
            92,927Other
                states
            
            
            66,872Total
            
            
            599,282




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 in New Mexico and 43,474 square feet in
                California.




·
            Properties
                previously used in divested IAS
                businesses:




·
            Various
                properties we own, totaling approximately 1.3 million square feet,
                located
                in Ohio that are idle as of December 31, 2006. These properties are
                classified as assets held for sale on our consolidated balance sheet
                as of
                December 31, 2006. (See Footnote D to our Consolidated Financial
                Statements.)




·
            Approximately
                312,000 square feet, located in Michigan, held under
                lease.




·
            Properties
                we own that are classified as other assets, having an aggregate floor
                area
                of approximately 700,811 square feet, of which 450,000 square feet,
                or 64%
                are located in Pennsylvania and 250,811 square feet, or 36% are located
                in
                Illinois.




**ITEM
              3.**
            **LEGAL
                PROCEEDINGS**




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.




**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, 2006.




18
 *Table
            of Contents*





**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, 2006 and
      2005,
      are as follows:




**Year
                Ended December 31,****2006**
            
            **2005****High**
            
            **Low**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            38.81
            
            $
            29.71
            
            $
            25.55
            
            $
            19.84Second
                Quarter
            
            
            30.40
            
            
            21.45
            
            
            27.44
            
            
            16.69Third
                Quarter
            
            
            30.74
            
            
            20.50
            
            
            35.15
            
            
            26.03Fourth
                Quarter
            
            
            26.43
            
            
            21.00
            
            
            37.04
            
            
            25.12






Our
      common stock is traded on the New York Stock Exchange under the symbol IN.
      As of
      February 22, 2007, there were approximately 11,800 holders of record and
      33,100 beneficial owners of our common stock. No cash dividends were paid during
      2006 or 2005. Our Revolving Facility places limits on the payment of dividends.
      See discussion of the Revolving Facility under the heading “Liquidity and
      Capital Resources” in Item 7 of this annual report
      on
      Form 10-K.




Common
      stock repurchases in the fourth quarter of 2006 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 Programs**October
                2 to October 29, 2006
            
            
            -
            
            
            -
            
            
            -
            
            $
            50,000,000October
                30 to November 26, 2006
            
            
            716,108
            
            $
            23.76
            
            
            706,000
            
            
            33,222,730November
                27 to December 31, 2006
            
            
            1,381,589
            
            
            24.05
            
            
            1,381,589
            
            
            -Total
            
            
            2,097,697
            
            $
            23.95
            
            
            2,087,589
            
            
            -






An
      authorization from our Board of Directors allowed us to repurchase up to $100
      million of shares of our common stock. On August 7, 2006, and on November
      3, 2006, we entered into a share repurchase agreement under Rule 10b5-1 of
      the Securities Exchange Act of 1934 to facilitate the repurchase of up to $50
      million of our common stock pursuant to the previously announced share
      repurchase authorization by our Board of Directors. For the year ended December
      31, 2006, we have repurchased $100 million or approximately 3.8 million shares
      of our common stock.




In
      addition, the table above includes shares surrendered to us to satisfy tax
      withholding obligations in connection with the vesting of restricted stock.
      For
      the fourth quarter 2006, 10,108 shares were surrendered.




19
 *Table
            of Contents*




**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 ending December
      31, 2006, with the cumulative total return for the same period of the Standard
      & Poor’s Midcap 400 Index and the Standard & Poor’s 1500 Electrical
      Equipment and Instruments index. The graph assumes an investment of $100 at
      the
      beginning of the period of common stock, in the S&P Midcap 400 Index and in
      the companies included in the Standard & Poor’s 1500 Electrical 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 PERCENTAGE****Years
                Ending December 31,****Company
                / Index**
            
            **2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006****INTERMEC
                INC**
            
            
            3.45
            
            
            282.50
            
            
            10.20
            
            
            33.65
            
            
            (28.20
            )**S&P
                MIDCAP 400 INDEX**
            
            
            (14.51
            )
            
            35.62
            
            
            16.48
            
            
            12.56
            
            
            10.32**S&P
                1500 ELECTRICAL EQUIPMENT & INSTRUMENTS**
            
            
            (45.61
            )
            
            64.88
            
            
            (3.63
            )
            
            1.45
            
            
            7.37






**INDEXED
                RETURNS****Years
                Ending December 31,****Base**Period**Company
                / Index**
            
            **2001**
            
            **2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006****INTERMEC
                INC**
            
            
            **100**
            
            
            103.45
            
            
            395.69
            
            
            436.03
            
            
            582.76
            
            
            418.45**S&P
                MIDCAP 400 INDEX**
            
            
            **100**
            
            
            85.49
            
            
            115.94
            
            
            135.05
            
            
            152.00
            
            
            167.69**S&P
                1500 ELECTRICAL EQUIPMENT & INSTRUMENTS**
            
            
            **100**
            
            
            54.39
            
            
            89.69
            
            
            86.43
            
            
            87.69
            
            
            94.15












20
 *Table
            of Contents*





**ITEM****6.**
            **SELECTED
                FINANCIAL DATA**




**Intermec, Inc.**


**(Millions
      of dollars, except per share data)**




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002****Operating
                Results: (a)**Revenues
            
            $
            850.0
            
            $
            875.5
            
            $
            791.7
            
            $
            687.9
            
            $
            632.0Earnings
                from Continuing Operations (b)
            
            $
            35.0
            
            $
            40.7
            
            $
            52.2
            
            $
            15.1
            
            $
            37.6Earnings
                (Loss) from Discontinued Operations
            
            
            (3.0
            )
            
            21.1
            
            
            (101.3
            )
            
            (34.4
            )
            
            (35.2
            )Net
                Earnings (Loss)
            
            $
            32.0
            
            $
            61.8
            
            $
            (49.1
            )
            $
            (19.3
            )
            $
            2.4Basis
                Earnings (Loss) per ShareContinuing
                Operations
            
            $
            0.56
            
            $
            0.66
            
            $
            0.86
            
            $
            0.26
            
            $
            0.65Discontinued
                Operations
            
            
            (0.05
            )
            
            0.34
            
            
            (1.67
            )
            
            (0.59
            )
            
            (0.61
            )Net
                earnings (loss) per share
            
            $
            0.51
            
            $
            1.00
            
            $
            (0.81
            )
            $
            (0.33
            )
            $
            0.04Diluted
                Earnings (Loss) per ShareContinuing
                Operations
            
            $
            0.55
            
            $
            0.64
            
            $
            0.84
            
            $
            0.25
            
            $
            0.64Discontinued
                Operations
            
            
            (0.05
            )
            
            0.34
            
            
            (1.63
            )
            
            (0.57
            )
            
            (0.60
            )Net
                earnings (loss) per share
            
            $
            0.50
            
            $
            0.98
            
            $
            (0.79
            )
            $
            (0.32
            )
            $
            0.04Shares
                used for Basis Earnings (Loss) per Share
            
            
            62,535
            
            
            61,785
            
            
            60,502
            
            
            58,828
            
            
            57,821Shares
                used for Diluted Earnings (Loss) per Share
            
            
            63,830
            
            
            63,350
            
            
            62,154
            
            
            60,234
            
            
            58,614**Financial
                Position (at end of year):**Total
                Assets
            
            $
            810.3
            
            $
            902.7
            
            $
            1,072.7
            
            $
            1,090.8
            
            $
            1,124.8Current
                Portion of Long-term Debt
            
            $
            -
            
            $
            -
            
            $
            108.5
            
            $
            -
            
            $
            -Long-term
                Debt
            
            $
            100.0
            
            $
            100.0
            
            $
            100.0
            
            $
            208.5
            
            $
            224.7Working
                Capital
            
            $
            358.9
            
            $
            440.4
            
            $
            399.2
            
            $
            440.4
            
            $
            386.8Current
                Ratio
            
            
            2.9
            
            
            3.0
            
            
            1.9
            
            
            2.4
            
            
            2.1Total
                Debt as a Percentage of Total Capitalization
            
            
            19
            %
            
            17
            %
            
            34
            %
            
            33
            %
            
            35
            %




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




(b)
            Includes
                gains on intellectual property settlements of $16.5 million, $15.6
                million, $12.5 million and $90.2 million, in 2006, 2004, 2003 and
                2002,
                respectively.




21
 *Table
            of Contents*




**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**




*Continuing
      Operations*




Effective
      January 1, 2006, we changed our name from UNOVA, Inc. to
      Intermec, Inc. (“Intermec”, “us”, “we”, “our”). We design, develop,
      manufacture, integrate, sell, resell and service 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: technology leadership in the AIDC industry; expanding,
      strengthening and leveraging our AIDC intellectual property portfolio; expanding
      and strengthening our AIDC product portfolio; providing integrated AIDC
      solutions; partnering with global industry leaders; achieving economies of
      scale
      and scope; profitably increasing market share; and increasing the scale of
      the
      business.




Our
      strategy is focused on customers in certain vertical markets, including:
      retailers; consumer goods manufacturers; industrial goods manufacturers;
      transportation and logistics providers; and government agencies.




Our
      strategy is also focused on certain application markets, including: warehouse
      and distribution center operations; retail store operations; retail store
      management; in-transit visibility; field service; manufacturing operations;
      direct store delivery; and RFID supply chain.




*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.




22
 *Table
            of Contents*





**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, 2006, 2005 and 2004. The operating results of the IAS
      businesses are classified as discontinued operations. Results of operations
      and
      percentage of revenues were as follows (millions of dollars):




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Amounts**
            
            **Percent
                of Revenues**
            
            **Amounts**
            
            **Percent
                of Revenues**
            
            **Amounts**
            
            **Percent
                of Revenues**Revenues
            
            $
            850.0
            
            
            
            
            $
            875.5
            
            
            
            
            $
            791.7Costs
                and Expenses:Cost
                of revenues
            
            
            517.9
            
            
            60.9
            %
            
            512.6
            
            
            58.5
            %
            
            461.4
            
            
            58.3
            %Selling,
                general and administrative
            
            
            300.2
            
            
            35.3
            %
            
            304.3
            
            
            34.8
            %
            
            282.8
            
            
            35.7
            %Gains
                on intellectual property settlements
            
            
            (16.5
            )
            
            (1.9
            )%
            
            -
            
            
            -
            
            
            (15.6
            )
            
            (2.0
            )%Restructuring
                charge
            
            
            11.6
            
            
            1.4
            %
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                Costs and Expenses
            
            
            813.2
            
            
            95.7
            %
            
            816.9
            
            
            93.3
            %
            
            728.6
            
            
            92.0
            %Operating
                Profit from ContinuingOperations
            
            
            36.8
            
            
            4.3
            %
            
            58.6
            
            
            6.7
            %
            
            63.1
            
            
            8.0
            %Interest,
                net
            
            
            6.5
            
            
            0.8
            %
            
            (4.0
            )
            
            (0.5
            )%
            
            (12.4
            )
            
            (1.6
            )%Gain
                on sale of investments
            
            
            2.3
            
            
            0.3
            %
            
            -
            
            
            -
            
            
            -
            
            
            -Earnings
                from Continuing Operations beforeIncome
                Taxes
            
            
            45.6
            
            
            5.4
            %
            
            54.6
            
            
            6.2
            %
            
            50.7
            
            
            6.4
            %Provision
                (Benefit) for Income Taxes
            
            
            10.6
            
            
            1.2
            %
            
            13.9
            
            
            1.6
            %
            
            (1.5
            )
            
            (0.2
            )%Earnings
                from Continuing Operations, net of tax
            
            
            35.0
            
            
            4.1
            %
            
            40.7
            
            
            4.6
            %
            
            52.2
            
            
            6.6
            %Earnings
                (Loss) from DiscontinuedOperations,
                net of tax
            
            
            (3.0
            )
            
            (0.4
            )%
            
            21.1
            
            
            2.4
            %
            
            (101.3
            )
            
            (12.8
            )%Net
                Earnings (Loss)
            
            $
            32.0
            
            
            3.8
            %
            $
            61.8
            
            
            7.1
            %
            $
            (49.1
            )
            
            (6.2
            )%




23
 *Table
            of Contents*





**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, 2006, 2005 and 2004, as well as the
      year-over-year product and service revenue growth were as follows (millions
      of
      dollars):





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Amount**
            
            **Percent
                of Revenues**
            
            **Amount**
            
            **Percent
                of Revenues**
            
            **Amount**
            
            **Percent
                of Revenues**Revenues
                by Category:Product
            
            $
            692.4
            
            
            81.5
            %
            $
            721.0
            
            
            82.4
            %
            $
            654.9
            
            
            82.7
            %Service
            
            
            157.6
            
            
            18.5
            %
            
            154.5
            
            
            17.6
            %
            
            136.8
            
            
            17.3
            %Total
                Revenues
            
            $
            850.0
            
            
            100.0
            %
            $
            875.5
            
            
            100.0
            %
            $
            791.7
            
            
            100.0
            %








**2006
                v. 2005**
            
            **2005
                v. 2004**Product
                and Service Revenue Growth:
            
            **Amount**
            
            **Percent**
            
            **Amount**
            
            **Percent**Product
            
            $
            (28.6
            )
            
            (4.0
            )%
            $
            66.1
            
            
            10.1
            %Service
            
            
            3.1
            
            
            2.0
            %
            
            17.7
            
            
            12.9
            %Total
                Product and Service Revenues
            
            $
            (25.5
            )
            
            (2.9
            )%
            $
            83.8
            
            
            10.6
            %






Revenues
      by geographic region and as a percentage of related revenues from continuing
      operations for the years ended December 31, 2006, 2005 and 2004, were as follows
      (millions of dollars):




**Year
                Ended December 31,****2006**
            
            
            
            **2005**
            
            
            
            **2004****Amount**
            
            **Percent
                of Revenues**
            
            **Amount**
            
            **Percent
                of Revenues**
            
            **Amount**
            
            **Percent
                of Revenues**Revenues
                by Geographic Region:North
                America
            
            $
            494.4
            
            
            58.2
            %
            $
            513.6
            
            
            58.7
            %
            $
            447.6
            
            
            56.5
            %Europe,
                Middle East and Africa(EMEA)
            
            
            241.1
            
            
            28.4
            %
            
            260.4
            
            
            29.7
            %
            
            253.8
            
            
            32.1
            %All
                Others
            
            
            114.5
            
            
            13.4
            %
            
            101.5
            
            
            11.6
            %
            
            90.3
            
            
            11.4
            %Total
                Revenues
            
            $
            850.0
            
            
            100.0
            %
            $
            875.5
            
            
            100.0
            %
            $
            791.7
            
            
            100.0
            %




24
 *Table
            of Contents*





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




Product
      revenues in 2006 decreased $28.6 million, or 4.0%, compared to 2005. The decline
      in product revenue is 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 is the RoHS ("Restriction of Hazardous Substances")
      Directive, which became effective July 1, 2006, within the European Union
      (“EU”). The third factor which contributed to the product revenue decline is the
      increase in competitive programs and pricing.




Product
      revenues in 2005 increased $66.1 million, or 10.1%, compared to 2004, primarily
      due to a 8.6% increase in systems and solutions products and a 12.8% increase
      in
      printer/media revenues. The growth in systems and solutions was driven by
      broad-based product demand, including an increase in large enterprise account
      rollouts across our industry verticals, growth in the indirect sales channel
      and
      increasing penetration in the retail market. New computer terminals such as
      CK61, CN2 and CK31 contributed to customer demand. Also during 2005, the 700
      series mobile computer had a significant technology upgrade, increasing
      performance and expanding market capabilities. The increase in printer/media
      revenue was primarily driven by demand in North America as a result of new
      product introductions, including the PX4i and PX6i label printers and a new
      PB42
      receipt printer.




Service
      revenues in 2006 increased $3.1 million, or 2%, compared to 2005. The increase
      in service revenue is primarily from increases in revenue from the U.S.
      government contracts and in Canada of approximately $1.0 million each, and
      a
      $0.5 million increase in Mexico.




Service
      revenues in 2005 increased $17.7 million, or 12.9%, compared to 2004. The 2005
      growth in service revenue was driven by improving contract renewal rates,
      resulting in a 17% increase in new service contracts during 2005, and an
      expansion of professional services, which more than doubled in 2005, compared
      to
      the prior year.




Geographically,
      product and service revenue decreased in North America by 3.7% and in Europe,
      the Middle East and Africa (EMEA) by 7.4%, offset partially by a 12.8% increase
      in the Rest of the World (“ROW”), for the year ended December 31, 2006. The
      decrease in EMEA revenues is primarily attributable to the RoHS Directive.




For
      the
      year ended December 31, 2005, product and service revenue increased in all
      regions compared to 2004 *,* with
      North America contributing 14.2% growth, EMEA contributing 2.6% growth and
      the
      ROW contributing 12.3% growth.




25
 *Table
            of Contents*





**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, 2006, 2005 and 2004, were as follows (millions of
      dollars):




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004****Gross
                Profit**
            
            **Gross
                Margin**
            
            **Gross
                Profit**
            
            **Gross
                Margin**
            
            **Gross
                Profit**
            
            **Gross
                Margin**Product
            
            $
            262.7
            
            
            37.9
            %
            $
            300.3
            
            
            41.7
            %
            $
            274.3
            
            
            41.9
            %Service
            
            
            69.3
            
            
            44.0
            %
            
            62.6
            
            
            40.5
            %
            
            56.0
            
            
            40.9
            %Total
                Gross Profit and Gross Margin
            
            $
            332.0
            
            
            39.1
            %
            $
            362.9
            
            
            41.4
            %
            $
            330.3
            
            
            41.7
            %






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.




Product
      gross profit increased $26.0 million, or 9.5%, in 2005 compared to 2004, due
      to
      the increase in revenue, slightly offset by a 0.3% decline in gross margin
      percentage. The decline in product gross margin percentage is primarily due
      to
      an increase in the mix of lower margin enterprise business.




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. Service margins are
      relatively comparable in 2005 and 2004.




*Selling,
      General and Administrative Expense*




Selling,
      general and administrative (“SG&A”) expenses were $300.3 million, $304.3
      million and $282.8 million for the years ended December 31, 2006, 2005 and
      2004, respectively. The decrease in SG&A of $4.0 million in 2006 compared to
      2005 primarily reflects the $5.8 million increase in research and development
      (“R&D”) more than offset by a $7.2 million reduction in legal expense and a
      $2.1 million curtailment gain from the changes to our US pension and
      post-retirement plans.





SG&A
      expense increased $21.5 million in 2005 compared to 2004, due approximately
      to
      $11.1 million of incremental legal expense, $1.8 million of expense related
      to
      certain termination benefits and to a general increase in costs. R&D expense
      decreased $0.6 million for the same period.




*Gains
      on Intellectual Property Settlements*




In
      March
      2006, we settled an intellectual property 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 intellectual property lawsuits.
      In
      aggregate, gains from IP settlements included in operating profits were $16.5
      million and $15.6 million in 2006 and 2004, respectively. There were no IP
      settlements for the year ended December 31, 2005. Prior
      to
      the fourth quarter of 2006, we recognized certain amounts arising from IP
      settlements as revenue and direct costs related to the settlements as cost
      of
      revenue. We have determined that these IP settlements should more appropriately
      be recorded as “Gains on intellectual property settlements” in operations rather
      than as revenue and cost of revenue and accordingly have reclassified $19.6
      million previously recorded as IP settlement revenue and $4.0 million of IP
      settlement cost as a net Gain on intellectual property settlements of $15.6
      million within the 2004 Consolidated Statement of Operations.




26
 *Table
            of Contents*





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




*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 cost. 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
      includes 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 total restructuring costs are
      expected to be $8.0 million. These estimated restructuring costs include
      employee termination expense of $7.3 million, facility closure costs of
      approximately $0.6 million and other exit costs of approximately $0.1 million.
      We expect the remaining unrecognized restructuring costs will be recognized
      during 2007.




*Interest,
      Net*





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.




Net
      interest expense for the year ended December 31, 2005, was $4.0 million compared
      to $12.4 million in the prior year. The reduction in net interest expense
      resulted from lower average debt and higher cash and cash equivalent balances
      during 2005. We retired our $100 million seven-year bonds in March 2005 and
      our $8.5 million industrial revenue bond in July 2005.




*Provision
      for Income Taxes*




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.




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.




27
 *Table
            of Contents*





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




The
      tax
      benefit for the year ended December 31, 2004, reflects an effective tax
      rate for continuing operations of 3.0% compared to a U.S. statutory provision
      rate of 35.0%. The reduction in the effective tax rate is primarily due to
      a
      $13.5 million tax benefit related to goodwill and intangible amortization of
      our
      Swedish operations. Through the implementation of a tax restructuring plan,
      we
      ceased reinvesting permanently in our Swedish operations in the fourth quarter
      of 2004. The restructuring resulted in the recognition of a deferred tax benefit
      related to goodwill and intangibles. In addition, as part of our overall review
      of our business operations in 2004 and our commitment to a plan to divest its
      IAS business, we recognized additional deferred tax benefits related to its
      U.S.
      and foreign jurisdictions.




*Gain
      (Loss) from Discontinued Operations*




During
      the fourth quarter of 2004, we committed to a plan to dispose of our IAS
      businesses, comprising the Cincinnati Lamb and Landis Grinding Systems
      businesses and began classifying IAS as discontinued operations in our
      consolidated financial statements for all periods presented.





The
      following table sets forth the components of earnings (loss) from discontinued
      operations, net of tax, for the years ended December 31, 2006, 2005 and
      2004 (thousands of dollars):




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Product
                and service revenues
            
            $
            -
            
            $
            223,460
            
            $
            471,135Loss
                from discontinued operations before tax
            
            
            (3,747
            )
            
            (7,095
            )
            
            (109,410
            )Benefit
                for income taxes
            
            
            748
            
            
            28,242
            
            
            8,100Earnings
                (loss) from discontinued operations net of tax
            
            $
            (2,999
            )
            $
            21,147
            
            $
            (101,310
            )






On
      December 9, 2005, we completed the sale of the Landis Grinding Systems
      division (“Landis”). The consideration received for the Landis purchased assets
      comprised $69 million in cash, a $10 million two-year note at an interest rate
      of five percent 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. As of December 31, 2006, the estimated fair
      value of the note is $9.7 million, based on the estimated cash flows from the
      note and a risk-adjusted discount rate equal to LIBOR plus 2.25%.




The
      gain
      on the sale of Landis was $42.9 million. The gain included 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,
      $3.8 million accrual relating to leases of retained buildings, and $14.3
      million in settlement and curtailment gains that included $13.8 million of
      long-term liabilities sold. We also incurred $2.8 million of transaction-related
      expense primarily for professional services.




On
      April 3, 2005, we completed the sale of the Cincinnati Lamb business. 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 2005, we recognized an additional $1.2 million pre-tax loss on the sale
      of
      the Cincinnati Lamb business. The net assets sold of the Cincinnati Lamb
      business were recorded at $36.7 million as of the date of the sale and comprised
      the majority of operating assets and liabilities of the business.




The
      loss
      on the sale included 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.




28
 *Table
            of Contents*





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





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 (8.3% as of December 31,
      2006) with interest payable quarterly. Principal payments on the note are due
      in
      six semiannual installments beginning April 2007 of $1.5 million, $2.0
      million, $2.0 million, $2.5 million, $2.0 million and $2.5 million. As of
      December 31, 2006, the estimated fair value of the note was $11.3 million,
      based on the estimated cash flows from the note and a risk-adjusted discount
      rate equal to LIBOR plus eight percent. Our consolidated balance sheet as of
      December 31, 2006, classifies the $11.3 million as other current assets and
      other assets.




In
      conjunction with the disposal plan, we analyzed the net assets of IAS for
      impairment, resulting in a charge of $104.1 million in 2004 to write down the
      net assets of Cincinnati Lamb to their estimated net realizable value. The
      charge included impairments of $63.3 million for goodwill, $30.2 million for
      property, plant and equipment and other long-lived assets and $10.6 million
      for
      current assets. In computing the impairment loss, we considered the $9.1 million
      credit balance for the cumulative translation adjustment and the $9.1 million
      unrealized minimum pension liability adjustment, net of tax, related to
      Cincinnati Lamb, which was included in the accumulated other comprehensive
      income component of shareholders’ investment.




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 purchase price adjustments.




The
      loss
      from discontinued operations before tax in 2005 includes non-cash impairment
      charges of $2.0 million and $9.9 million related to the settlement of lawsuits.
      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 businesses through the disposition
      of
      the Cincinnati Lamb business and the Landis 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 carry forward
      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.




Loss
      from
      discontinued operations before tax in 2004 includes impairment charges of $104.1
      million. As a result of merging the Cincinnati Machine, Lamb Machining Systems
      and Lamb Body and Assembly Systems (“Lamb B&A”) divisions, which were
      initiated in the fourth quarter of 2002, restructuring charges of $0.5 million
      were incurred in 2004. The loss from discontinued operations before tax
      also includes Lamb B&A operating losses of $2.0 million, in
      2004.




29
 *Table
            of Contents*





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





The
      tax
      benefit for discontinued operations for the year ended December 31, 2004,
      reflects an effective tax rate of 7.4% compared to the U.S. statutory tax rate
      of 35%. The reduction in the effective tax rate is largely attributable to
      the
      $63.3 million impairment charge related to non-deductible goodwill and
      additional state and foreign valuation allowances recorded against previously
      recognized deferred tax assets, resulting from our plan to divest IAS. In
      2004, we determined that certain state and foreign deferred
      tax assets of discontinued operations would not be realizable and recorded
      valuation allowances of $5.4 million and $31.3 million, respectively.





**Foreign
      Currency Transactions**




We
      are
      subject to the effects of international currency fluctuations due to the global
      nature of our operations. Foreign currency exposures are hedged as part of
      our
      global risk management program, which is designed to minimize short-term
      exposure to foreign currency fluctuations. Movements in exchange rates, net
      of
      hedging activities, resulted in net
      currency transaction gains (losses) of $(1.3) million, $0.7 million, $(1.7)
      million for the years ended December 31, 2006, 2005 and 2004,
      respectively.




For
      fiscal year 2006, our continuing operations derived approximately 43.9% of
      revenues from non-U.S. customers. At December 31, 2006, long-lived assets
      attributable to foreign countries comprised 10.6% of total long-lived assets.
      The largest components of these foreign assets are attributable to European
      nations, primarily the Netherlands and France.




**Liquidity
      and Capital Resources**




At
      December 31, 2006, cash, cash equivalents and short-term investments
      totaled $184.5 million, a decrease of $72.3 million compared to the
      December 31, 2005 balance of $256.8 million.




Cash
      provided by operating activities of continuing operations comprises net income
      adjusted for certain non-cash items and changes in assets and liabilities.
      For
      2006, cash provided by operating activities of continuing operations was $25.9
      million, compared to $57.8 million in 2005 and $44.9 million in 2004. 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 $22.6 million
      decrease in accounts receivable, offset partially by an increase in inventory
      of
      $37.0 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 $57.8 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 2004, cash provided by operating
      activities of continuing operations of $44.9 million was attributable to $52.2
      million of net earnings and reductions in other current assets and prepaid
      pension cost, partially offset by increases in net deferred tax assets and
      net
      working capital. The
      increase in net earnings includes $15.6  million
      of net proceeds before tax from an IP settlement.




In
      2006,
      investing activities of continuing operations primarily included capital
      expenditures of $22.4 million and net investment purchases of $26.6 million,
      reflecting a net use of $49.0 million in cash. Investing activities of
      continuing operations in 2005 provided $51.6 million of net cash primarily
      due
      to the release of $50.0 million of unrestricted cash and $11.0 million in
      proceeds from the sale of property, plant and equipment, which was principally
      offset by capital expenditures.  Investing activities of continuing
      operations in 2004 used net cash of $56.5 million primarily related to the
      classification of restricted cash in preparation for the repayment of debt
      and
      for capital expenditures, partially offset by proceeds from the sale of
      property, plant and equipment.




Capital
      expenditures were $22.4 million, $10.1 million and $10.3 million for 2006,
      2005
      and 2004, respectively. Proceeds from sales of property, plant and equipment
      were $11.0 million and $4.0 million in 2005 and 2004, respectively. There were
      no proceeds from sales of property, plant and equipment for 2006.




30
 *Table
            of Contents*




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





Financing
      activities of continuing operations in 2006, includes $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 includes $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. Financing activities of
      continuing operations in 2004 reflects $5.7 million in proceeds from stock
      option exercises.





Net
      cash
      used by operating activities of discontinued operations was $52.6 million and
      $13.4 million in 2005 and 2004, respectively. There was no cash used for
      operating activities of discontinued operations in 2006. 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. The net cash used by
      operating activities in 2004, was primarily due to an increase in accounts
      receivable.




Net
      cash
      provided by investing activities of discontinued operations was $5.7 million
      in
      2006, related primarily to cash received as part of the sale of the IAS
      businesses. Net cash provided by investing activities of discontinued operations
      of $70.4 million in 2005 was due primarily to sale of the IAS businesses. Net
      cash used by investing activities of discontinued operations was $1.4 million
      in
      2004.




We
      have a
      secured long-term revolving credit facility (the “Revolving Facility”), with a
      maximum amount available of $50.0 million at December 31, 2006 and 2005. Net
      of
      outstanding letters of credit and limitations on availability, we had borrowing
      capacity under the Revolving Facility of $19.6 million and $7.1 million at
      December 31, 2006 and 2005, respectively. We made no borrowings under the
      Revolving Facility during 2006, and as of December 31, 2006, no borrowings
      were outstanding under this facility. As of December 31, 2006, we were in
      compliance with the financial covenants of the Revolving Facility.




The
      key
      terms of the Revolving Facility are as follows:




·
            Our
                obligations under the Revolving Facility are secured by substantially
                all
                our U.S. assets and our U.S. subsidiaries and a pledge of 65% of
                the stock
                of certain of its foreign
                subsidiaries.




·
            Borrowings
                under the Revolving Facility bear interest at a variable rate equal
                to (at
                our option) (i) LIBOR plus an applicable margin ranging from 1.5% to
                2.5% based on consolidated leverage, or (ii) the greater of the
                federal funds rate plus 0.50% or the bank’s prime rate, plus an applicable
                margin ranging from 0.5% to 1.5% based on consolidated
                leverage.




·
            The
                Revolving Facility places certain restrictions on our and our subsidiaries
                ability to consolidate or merge, make acquisitions, create liens,
                incur
                additional indebtedness, dispose of assets or pay
                dividends.




·
            Financial
                covenants include a Consolidated Leverage test, a Consolidated Interest
                Coverage test and a Consolidated Net Worth test, each as defined
                in the
                Revolving Facility.




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 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.




31
 *Table
            of Contents*





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




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 next twelve months and working capital, capital expenditure
      and debt repayment obligations for the foreseeable future. Projected cash flows
      from operations are largely based on our revenue estimates, cost estimates,
      and
      the related timing of cash receipts and cash disbursements. If actual
      performance differs from estimated performance, cash flow from operations could
      be positively or negatively impacted. Additional sources of liquidity include
      our Revolving Facility.




**Contractual
      Obligations**




The
      following table summarizes our significant contractual commitments for
      continuing operations as of December 31, 2006 (millions of dollars). The
      table does not include amounts recorded on our consolidated balance sheet as
      current liabilities. Long-term debt and operating leases are discussed in the
      indicated Notes to our Consolidated Financial Statements.




**Payments
                Due by Period****Total**
            
            **Less
                than 1 Year**
            
            **1
                - 3 Years**
            
            **3
                - 5 Years**
            
            **After
                5 Years**Long-term
                debt (Note B)
            
            $
            100.0
            
            $
            -
            
            $
            100.0
            
            $
            -
            
            $
            -Interest
                on long-term debt
            
            
            10.5
            
            
            7.0
            
            
            3.5
            
            
            -
            
            
            -Operating
                leases (Note D)
            
            
            51.3
            
            
            11.0
            
            
            16.1
            
            
            10.9
            
            
            13.3Total
                Contractual Obligations
            
            $
            161.8
            
            $
            18.0
            
            $
            119.6
            
            $
            10.9
            
            $
            13.3






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.




Expected
      future benefit payments by our pension and other postretirement benefit plans
      are $9.0 million in 2007, $19.4 million for 2008 and 2009 combined, $20.9
      million for 2010 and 2011 combined, and $65.5 million for the subsequent
      five-year period 2012 through 2016.




**Off-Balance
      Sheet Arrangements**




At
      December 31, 2006, we had aggregate off-balance-sheet letter-of-credit
      reimbursement agreements totaling $7.4 million, compared to $25.8 million at
      December 31, 2005. 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 2006, 2005 or 2004 and has not had a significant impact upon the
      results of our operations during these fiscal years.




32
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            of Contents*





**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. 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, tax contingency accruals, recoverability of other intangible assets,
      warranty costs, pension and post retirement obligations, 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.




*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.




*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 record estimated tax liabilities to the extent the contingencies
      are
      probable and can be reasonably estimated. Such estimated tax liabilities 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.




33
 *Table
            of Contents*





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




*Intangible
      Assets.*  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 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. During the fourth quarter of 2005, we wrote off our
      remaining goodwill
      balance of $7.8 million in conjunction with the sale of the Landis business.





*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.





*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 in consultation with an external actuary. 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.




34
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            of Contents*





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




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, 2006 were 5.95% and 5.00%, respectively, compared to 5.75% and
      5.50% as of December 31, 2005. The increase in the discount rate used for
      domestic plans reflects higher interest rates in the current market. The effect
      of a one-half percentage point decrease in our discount rate on pension cost
      result in an increase in benefit obligation of $14.4 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 7.60%, 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 $0.7 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 5.70%, 5.00% and 6.00% at
      December 31, 2006, 2005 and 2004, 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 2006 was 10.00% and is projected to decrease over six 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.




*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, 2006, 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 recognizes the cost as expense on a
      straight-line basis (net of estimated forfeitures) over the employee requisite
      service period. We estimate the fair value of stock options using a
      Black-Scholes valuation model. The expense is recorded in Cost and SG&A in
      the Consolidated Statement of Operations based on the employees’ respective
      function. 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). See note F, Shareholders’ Investment, for
      additional information.




35
 *Table
            of Contents*





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




*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 price 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 it is 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.




Rapid
      Start RFID intellectual property (“RFID IP”) royalties—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. 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 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 worldwide 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 have
      determined that, due to the lack of historical trends coupled with the
      anticipated escalating business trends, we
      do not
      have the ability to reliably estimate the running royalties when earned.
      Therefore, we recognize such royalty revenue in the quarter in which the
      royalties are reported to us by the licensees.




**New
      Accounting Pronouncements**




In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      SFAS No. 123(R), *Share
      Based Payment.* This
      statement establishes standards for the accounting for transactions in which
      an
      entity exchanges its equity instruments for goods and services. It focuses
      primarily on accounting for transactions in which an entity obtains employee
      services in share-based payment transactions (such as employee stock options
      and
      restricted stock units). The statement requires the measurement of the cost
      of
      employee services received in exchange for an award of equity instruments (such
      as employee stock options and restricted stock units) at fair value on the
      grant
      date. That cost will be recognized over the period during which an employee
      is
      required to provide services in exchange for the award (the requisite service
      period). We adopted this statement in the fiscal first quarter of 2006, applying
      the modified prospective transition method.




36
 *Table
            of Contents*





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




We
      implemented SFAS 151, *Inventory
      Costs, an amendment of ARB No. 43* in
      the
      fiscal first quarter of 2006. The adoption of this statement did not have a
      material effect on our results of operations, cash flows or financial position.




In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”). FIN 48 is an interpretation of FASB Statement No. 109, which provides
      comprehensive guidance on the recognition and measurement of tax positions
      in
      previously filed tax returns or positions expected to be taken in future tax
      returns. The benefit from an uncertain tax position must meet a
“more-likely-than-not” recognition threshold and is measured at the largest
      amount of benefit greater than 50% determined by cumulative probability of
      being
      realized upon ultimate settlement with the taxing authority. The interpretation
      also provides guidance on derecognition, classification, interest and penalties,
      as well as disclosure in financial statements of uncertain tax positions. The
      interpretation is effective for fiscal years beginning after December 15, 2006.
      Effective for January 1, 2007, we will be required to adjust the opening balance
      of retained earnings (or other components of shareholders’ investment in the
      statement of financial position) for the cumulative effect of the difference
      in
      the net amount of assets and liabilities for all open tax positions at the
      effective date. We expect the effect of adoption of FIN 48 to fall within a
      range of $0.1 million to $10.0 million.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      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. The statement is effective in the fiscal first quarter
      of
      2008 and we will adopt the statement at that time. 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 Statement of Financial Accounting Standards
      No. 158, *Employer’s
      Accounting for Defined Pension and Other Postretirement Plans — an
      amendment of FASB Statements No. 87, 88, 106 and 132(R).* This
      statement requires the recognition of the funded status of a benefit plan in
      the
      statement of financial position. It also requires the recognition as a component
      of other comprehensive income (“OCI”), net of tax, of the gains or losses and
      prior service costs or credits that arise during the period but are not
      recognized as components of net periodic benefit cost pursuant to
      statements 87 or 106. The statement also has new provisions regarding the
      measurement date as well as certain disclosure requirements, effective December
      31, 2008. The statement was effective at fiscal year end 2006 and we adopted
      the
      statement at that time.




In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) 108, which
      expresses the Staff’s views regarding the process of quantifying financial
      statement misstatements. The bulletin was effective at fiscal year end 2006.
      The
      implementation of this bulletin had no impact on our results of operations,
      cash
      flows or financial position.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, The *Fair
      Value Option for Financial Assets and Financial Liabilities* .
      This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. Unrealized gains and losses for which the
      fair value option has been elected will be reported in earnings. This statement
      is effective as of the beginning of the first fiscal quarter of 2008. We believe
      that the adoption of SFAS No. 159 will not have a material effect on our results
      of operations, cash flows or financial position.




37
 *Table
            of Contents*




**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.




38
 *Table
            of Contents*





**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, 2006, our outstanding borrowings were comprised 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,
      2006, 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.




*Foreign
      Exchange Rates:*  Due
      to
      our global operations, our cash flow and earnings are exposed to foreign
      exchange rate fluctuations. When appropriate, we may attempt to limit our
      exposure to changing foreign exchange rates by entering into short-term foreign
      currency exchange contracts. We do not enter into any foreign 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 foreign currency
      exchange rates applied to the exposure described above. As of December 31,
      2006, the analysis indicated that if our hedges of foreign exchange exposure
      were not in place, such market movements would have an impact of approximately
      $12.3 million on our results of operations. Actual gains or losses in the future
      may differ significantly from that analysis, however, based on changes in the
      timing and amount of interest rate and foreign currency exchange rate movements
      and our actual exposures and hedging activities.




During
      2006, our sales comprised $543.3 million, or 62%, denominated in U.S. dollars,
      $160.3 million, or 19%, denominated in euros, $44.5 million or 5%, denominated
      in British pounds, and $124.9 million, or 14% denominated in other foreign
      currencies. Fluctuations in foreign currency translation rates positively
      impacted our sales by approximately $6.9 million, $2.1 million and $24.7 million
      in 2006, 2005 and 2004, respectively.





39
 *Table
            of Contents*





**ITEM8.**
            **FINANCIAL
                STATEMENTS AND SUPPLEMENTARY
                DATA**





**Page**Management's
                Report on Internal Control over Financial
                Reporting
            
            
            F-1Management's
                Certifications
            
            
            F-2Reports
                of Independent Registered Public Accounting
                Firm
            
            
            F-3
                to F-4Consolidated
                Statements of Operations for the years ended
                December 31, 2006, 2005 and 2004
            
            
            F-5Consolidated
                Balance Sheets as of December 31, 2006 and
                2005
            
            
            F-6Consolidated
                Statements of Cash Flows for the years ended
                December 31, 2006, 2005 and 2004
            
            
            F-7Consolidated
                Statements of Changes in Shareholders' Investment
                for the years ended December 31, 2006, 2005 and 2004
            
            
            F-8Notes
                to Consolidated Financial Statements
            
            
            F-9
                to F-38Quarterly
                Financial Information
                (unaudited)
            
            
            Q-1







**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.




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 F-1 of this
      annual report on Form 10-K and is incorporated by reference.




(b)
            Attestation
                Report of the Registered Public Accounting
                Firm




Management’s
      assessment of the effectiveness of our internal control over financial reporting
      as of December 31, 2006, has been audited by Deloitte & Touche
      LLP, an independent registered public accounting firm, as stated in their report
      which is on page F-3 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 2006, 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




40
 *Table
            of Contents*





**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
      36 th 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 16, 2007 (the “2007 Proxy
      Statement”). Information to be included in Part III, Item 10 will be included in
      our 2007 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 2007 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 2007 Proxy
      Statement, and is incorporated herein by this reference.




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




Information
      to be included in Part III, Item 13, will be included in our 2007 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 2007 Proxy
      Statement, and is incorporated herein by this reference.




41
 *Table
            of Contents*





**PART IV**




**ITEM
                15****.**
            **EXHIBITS
                AND FINANCIAL STATEMENT
                SCHEDULES.**




(a)
            (1)
            Financial
                Statements




See
      listing of financial statements as set forth in Part I, Item 8 of this annual
      report on Form 10-K.




(2)
            Financial
                Statement Schedule




Schedule
      II. Valuation and Qualifying Accounts at page S-1 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 Arrangements




Executive
      compensation plans and arrangements are listed as exhibits 10.4 through 10.44
      as
      set forth in the Index to Exhibits at page E-1 of this annual
      report.




(b)
            Index
                to Exhibits at page E-1 of this annual
                report.




42
 *Table
            of Contents*





**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. Michael*Senior
                Vice President, Chief Financial Officer*March 20,
                2007







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/
                Larry D. Brady
            
            Director,
                Chairman of the Board,
            
            March 20,
                2007Larry
                D. Brady
            
            President
                and Chief Executive Officer/s/
                Stephen E. Frank
            
            Director
            
            March 20,
                2007Stephen
                E. Frank/s/
                Claire W. Gargalli
            
            Director
            
            March 20,
                2007Claire
                W. Gargalli/s/
                Gregory K. Hinckley
            
            Director
            
            March 20,
                2007Gregory
                K. Hinckley/s/
                Lydia H. Kennard
            
            Director
            
            March 20,
                2007Lydia
                H. Kennard/s/
                Allen J. Lauer
            
            Director
            
            March 20,
                2007Allen
                J. Lauer/s/
                Stephen P. Reynolds
            
            Director
            
            March 20,
                2007Stephen
                P. Reynolds/s/
                Steven B. Sample
            
            Director
            
            March 20,
                2007Steven
                B. Sample/s/
                Oren G. Shaffer
            
            Director
            
            March 20,
                2007Oren
                G. Shaffer/s/
                Larry D. Yost
            
            Director
            
            March 20,
                2007Larry
                D. Yost/s/
                Lanny H. Michael
            
            Senior
                Vice President, Chief Financial Officer
            
            March 20,
                2007Lanny
                H. Michael
            
            (Principal
                Financial Officer)/s/
                Fredric B. Anderson
            
            Vice
                President, Corporate Controller
            
            March 20,
                2007Fredric
                B. Anderson
            
            (Principal
                Accounting Officer)




43
 *Table
            of Contents*





**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 U.S. generally accepted
      accounting principles. 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 U.S. 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 (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, 2006,
      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. This assessment is supported by testing
      and
      monitoring performed by both our Internal Audit organization and our Finance
      organization.




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 U.S. generally accepted accounting principles. We reviewed
      the
      results of management’s assessment with the Audit Committee of our Board of
      Directors. In addition, on a quarterly basis we evaluate any changes to our
      internal control over financial reporting to determine if material changes
      occurred.




Our
      independent registered public accounting firm, Deloitte & Touche, LLP,
      audited management’s assessment and independently assessed the effectiveness of
      the company’s internal control over financial reporting. Deloitte & Touche,
      LLP, has issued an audit report on management’s assessment, which appears on
      page F-4.





F-1
 *Table
            of Contents*





**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 2006, 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/Larry
                D. BradyLarry
                D. Brady*Chief
                Executive Officer*/s/Lanny
                H. MichaelLanny
                H. Michael*Senior
                Vice President and**Chief
                Financial Officer*




F-2
 *Table
            of Contents*




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**




To
      the
      Board of Directors and Stockholders of


Intermec,
      Inc.


Everett,
      Washington




We
      have
      audited the accompanying consolidated balance sheets of Intermec, Inc. and
      subsidiaries (the “Company”) as of December 31, 2006 and 2005, 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,
      2006.  Our audits also included the financial statement schedule listed in
      the Index at Item 15.  These financial statements and financial statement
      schedule are the responsibility of the Company's management.  Our
      responsibility is to express an opinion on the financial statements and
      financial statement schedule 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.  An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements.  An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation.  We believe that
      our audits provide a reasonable basis for our opinion.




In
      our
      opinion, such consolidated financial statements present fairly, in all material
      respects, the financial position of Intermec, Inc. and subsidiaries as of
      December 31, 2006 and 2005, and the results of their operations and their cash
      flows for each of the three years in the period ended December 31, 2006, in
      conformity with accounting principles generally accepted in the United States
      of
      America.  Also, in our opinion, such financial statement schedule, when
      considered in relation to the basic consolidated financial statements taken
      as a
      whole, presents fairly, in all material respects, the information set forth
      therein.




As
      discussed in Note F to the consolidated financial statements, the Company
      adopted the provisions of Statement of Financial Accounting Standards No.
      123(R), *Share
      Based Payment* ,
      effective January 1, 2006 and, as discussed in Note K to the consolidated
      financial statements, the Company adopted the provisions of Statement of
      Financial Accounting Standards No. 158, ** *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans - an
      Amendment of FASB Statements No. 87, 88, 106 and 132(R)* ,
      which
      changed its method of accounting for pension and postretirement benefits as
      of
      December 31, 2006.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the effectiveness of the Company's internal
      control over financial reporting as of December 31, 2006, based on the criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission and our report dated March
      20, 2007 expressed an unqualified opinion on management's assessment of the
      effectiveness of the Company's internal control over financial reporting and
      an
      unqualified opinion on the effectiveness of the Company's internal control
      over
      financial reporting.






Seattle,
      Washington




/s/
      Deloitte & Touche, LLP.


March
      20,
      2007




F-3
 *Table
            of Contents*




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
      FIRM**






To
      the
      Board of Directors and Stockholders of


Intermec,
      Inc.


Everett,
      Washington






We
      have
      audited management's assessment, included in the accompanying *Management’s
      Report on Internal Control over Financial Reporting* ,
      that
      Intermec, Inc. and subsidiaries (the "Company") maintained effective internal
      control over financial reporting as of December 31, 2006, based on criteria
      established in Internal Control—Integrated Framework issued by the Committee of
      Sponsoring Organizations of the Treadway Commission.  The Company's
      management is responsible for maintaining effective internal control over
      financial reporting and for its assessment of the effectiveness of internal
      control over financial reporting.  Our responsibility is to express an
      opinion on management's assessment and an opinion on the effectiveness of the
      Company's internal control over financial reporting based on our
      audit.




We
      conducted our audit 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
      effective internal control over financial reporting was maintained in all
      material respects.  Our audit included obtaining an understanding of
      internal control over financial reporting, evaluating management's assessment,
      testing and evaluating the design and operating effectiveness of internal
      control, and performing such other procedures as we considered necessary in
      the
      circumstances.  We believe that our audit provides 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, management's assessment that the Company maintained effective internal
      control over financial reporting as of December 31, 2006, is fairly stated,
      in
      all material respects, based on the criteria established in Internal
      Control—Integrated Framework ** issued
      by
      the Committee of Sponsoring Organizations of the Treadway Commission.  Also
      in our opinion, the Company maintained, in all material respects, effective
      internal control over financial reporting as of December 31, 2006, based on
      the
      criteria established in Internal Control—Integrated Framework ** issued
      by
      the Committee of Sponsoring Organizations of the Treadway
      Commission.




We
      have
      also audited, in accordance with the standards of the Public Company Accounting
      Oversight Board (United States), the consolidated financial statements and
      financial statement schedule **** as
      of and
      for the year ended December 31, 2006 of the Company and our report dated March
      20, 2007 expressed an unqualified opinion on those financial statements and
      financial statement schedules.






Seattle,
      Washington




/s/
      Deloitte & Touche, LLP.


March
      20,
      2007




F-4
 *Table
            of Contents*





**INTERMEC,
      INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(thousands
      of dollars, except per share amounts)**





**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Revenues:Product
            
            $
            692,417
            
            $
            720,959
            
            $
            654,867Service
            
            
            157,552
            
            
            154,523
            
            
            136,800Total
                Revenues
            
            
            849,969
            
            
            875,482
            
            
            791,667Costs
                and expenses:Cost
                of product revenues
            
            
            429,691
            
            
            420,707
            
            
            380,578Cost
                of service revenues
            
            
            88,238
            
            
            91,899
            
            
            80,821Selling,
                general and administrative
            
            
            300,264
            
            
            304,325
            
            
            282,849Gains
                on intellectual property settlements
            
            
            (16,538
            )
            
            -
            
            
            (15,619
            )Restructuring
                charge
            
            
            11,583
            
            
            -
            
            
            -Total
                costs and expenses
            
            
            813,238
            
            
            816,931
            
            
            728,629Operating
                profit from continuing operations
            
            
            36,731
            
            
            58,551
            
            
            63,038Gain
                on sale of investments
            
            
            2,305
            
            
            -
            
            
            -Interest
                income
            
            
            15,898
            
            
            7,016
            
            
            4,166Interest
                expense
            
            
            (9,360
            )
            
            (11,042
            )
            
            (16,527
            )Earnings
                from continuing operations before income taxes
            
            
            45,574
            
            
            54,525
            
            
            50,677Provision
                (benefit) for income taxes
            
            
            10,575
            
            
            13,880
            
            
            (1,504
            )Earnings
                before discontinued operations
            
            
            34,999
            
            
            40,645
            
            
            52,181Earnings
                (loss) from discontinued operations, net of tax
            
            
            (2,999
            )
            
            21,147
            
            
            (101,310
            )Net
                earnings (loss)
            
            $
            32,000
            
            $
            61,792
            
            $
            (49,129
            )Basic
                earnings (loss) per shareContinuing
                operations
            
            $
            0.56
            
            $
            0.66
            
            $
            0.86Discontinued
                operations
            
            
            (0.05
            )
            
            0.34
            
            
            (1.67
            )Net
                earnings (loss) per share
            
            $
            0.51
            
            $
            1.00
            
            $
            (0.81
            )Diluted
                earnings (loss) per shareContinuing
                operations
            
            $
            0.55
            
            $
            0.64
            
            $
            0.84Discontinued
                operations
            
            
            (0.05
            )
            
            0.34
            
            
            (1.63
            )Net
                earnings (loss) per share
            
            $
            0.50
            
            $
            0.98
            
            $
            (0.79
            )Shares
                used in computing basic earnings (loss) per share
            
            
            62,535
            
            
            61,785
            
            
            60,502Shares
                used in computing diluted earnings (loss) per share
            
            
            63,830
            
            
            63,350
            
            
            62,154




See
            accompanying notes to consolidated financial statements.
 F-5
 *Table
            of Contents*





**INTERMEC,
      INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(thousands
      of dollars)**




**December
                31,****2006**
            
            **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            155,027
            
            $
            256,782Short-term
                investments
            
            
            29,510
            
            
            -Accounts
                receivable, net of allowance for doubtful accountsand
                sales returns of $7,796 and $8,157
            
            
            158,369
            
            
            180,985Inventories
            
            
            119,027
            
            
            82,088Net
                current deferred tax assets
            
            
            49,623
            
            
            100,656Assets
                held for sale
            
            
            8,661
            
            
            8,517Other
                current assets
            
            
            28,913
            
            
            29,468Total
                current assets
            
            
            549,130
            
            
            658,496Property,
                plant and equipment, net
            
            
            43,453
            
            
            30,820Intangibles,
                net
            
            
            3,978
            
            
            6,871Net
                deferred tax assets
            
            
            190,683
            
            
            137,578Other
                assets
            
            
            23,096
            
            
            68,955Total
                assets
            
            $
            810,340
            
            $
            902,720**LIABILITIES
                AND SHAREHOLDERS’ INVESTMENT**Current
                liabilities:Accounts
                payable and accrued expenses
            
            $
            113,207
            
            $
            148,731Payroll
                and related expenses
            
            
            32,008
            
            
            31,011Deferred
                revenue
            
            
            45,021
            
            
            38,369Total
                current liabilities
            
            
            190,236
            
            
            218,111Long-term
                deferred revenue
            
            
            17,318
            
            
            20,095Long-term
                debt
            
            
            100,000
            
            
            100,000Other
                long-term liabilities
            
            
            85,184
            
            
            88,711Shareholders’
                investment:Common
                stock
            
            
            598
            
            
            627Additional
                paid-in capital
            
            
            657,468
            
            
            736,224Accumulated
                deficit
            
            
            (212,903
            )
            
            (244,903
            )Accumulated
                other comprehensive loss
            
            
            (27,561
            )
            
            (16,145
            )Total
                shareholders’ investment
            
            
            417,602
            
            
            475,803Total
                liabilities and shareholders’ investment
            
            $
            810,340
            
            $
            902,720




See
            accompanying notes to consolidated financial statements.
 F-6
 *Table
            of Contents*




**INTERMEC,
      INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(thousands
      of dollars)**




**Year
                  Ended December 31,****2006**
              
              **2005**
              
              **2004**Cash
                  and Cash Equivalents at Beginning of Year
              
              $
              256,782
              
              $
              217,899
              
              $
              238,447Cash
                  Flows from Operating Activities of Continuing Operations:Net
                  earnings from continuing operations
              
              
              34,999
              
              
              40,645
              
              
              52,181Adjustments
                  to reconcile net earnings to net cash provided
                  by operating activities:Depreciation
                  and amortization
              
              
              9,942
              
              
              9,865
              
              
              10,847Gain
                  on sale of investments
              
              
              (2,305
              )
              
              -
              
              
              -Change
                  in prepaid pension costs, net
              
              
              17,182
              
              
              11,525
              
              
              11,098Deferred
                  taxes
              
              
              13,063
              
              
              11,615
              
              
              (33,698
              )Stock-based
                  compensation and other
              
              
              5,892
              
              
              1,975
              
              
              1,665Excess
                  tax benefits from stock-based payment arrangements
              
              
              (4,733
              )
              
              -
              
              
              -Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              22,616
              
              
              (33,561
              )
              
              (10,191
              )Inventories
              
              
              (36,939
              )
              
              (2,344
              )
              
              (6,599
              )Other
                  current assets
              
              
              5,271
              
              
              (1,906
              )
              
              11,069Accounts
                  payable and accrued expenses
              
              
              (46,438
              )
              
              9,134
              
              
              6,952Payroll
                  and related expenses
              
              
              1,200
              
              
              (636
              )
              
              (2,628
              )Other
                  long-term liabilities
              
              
              1.757
              
              
              15,111
              
              
              2,565Other
                  operating activities
              
              
              4,384
              
              
              (3,640
              )
              
              1,603Net
                  Cash Provided by Operating Activities of ContinuingOperations
              
              
              25,891
              
              
              57,783
              
              
              44,864Cash
                  Flows from Investing Activities of Continuing Operations:Capital
                  expenditures
              
              
              (22,365
              )
              
              (10,136
              )
              
              (10,284
              )Purchases
                  of investments
              
              
              (31,450
              )
              
              -
              
              
              -Decrease
                  in restricted cash
              
              
              -
              
              
              50,000
              
              
              (50,000
              )Proceeds
                  from sales of investments
              
              
              4,873
              
              
              -
              
              
              -Patent
                  legal fees
              
              
              (705
              )
              
              -
              
              
              -Sale
                  of property, plant and equipment
              
              
              -
              
              
              10,987
              
              
              4,026Other
                  investing activities
              
              
              653
              
              
              729
              
              
              (225
              )Net
                  Cash Provided By (Used In) Investing Activities of Continuing Operations
              
              
              (48,994
              )
              
              51,580
              
              
              (56,483
              )Cash
                  Flows from Financing Activities of Continuing Operations:Repayment
                  of long-term obligations
              
              
              -
              
              
              (108,500
              )
              
              -Excess
                  tax benefits from stock-based payment arrangements
              
              
              4,733
              
              
              -
              
              
              -Stock
                  options exercised
              
              
              8,073
              
              
              18,014
              
              
              5,683Stock
                  repurchase
              
              
              (99,948
              )
              
              -
              
              
              -Other
                  financing activities
              
              
              2,780
              
              
              2,148
              
              
              211Net
                  Cash Provided by (Used In) Financing Activities ofContinuing Operations
              
              
              (84,362
              )
              
              (88,338
              )
              
              5,894Net
                  Cash Provided By (Used In) Continuing Operations
              
              
              (107,465
              )
              
              21,025
              
              
              (5,725
              )Net
                  Cash Used In Operating Activities of Discontinued
                  Operations
              
              
              -
              
              
              (52,558
              )
              
              (13,382
              )Net
                  Cash Provided By (Used In) Investing Activities ofDiscontinued
                  Operations
              
              
              5,710
              
              
              70,416
              
              
              (1,441
              )Resulting
                  Increase (Decrease) in Cash and Cash Equivalents
              
              
              (101,755
              )
              
              38,883
              
              
              (20,548
              )Cash
                  and Cash Equivalents at End of Period
              
              $
              155,027
              
              $
              256,782
              
              $
              217,899**Supplemental
                  Information**Effect
                  of exchange rates on cash and cash equivalents
              
              $
              1,659
              
              $
              (7,928
              )
              $
              6,677Cash
                  Payments:Interest
                  on Long-term Debt
              
              
              (7,243
              )
              
              (11,498
              )
              
              (15,379
              )Income
                  Taxes
              
              
              (5,361
              )
              
              (6,199
              )
              
              (4,338
              )


See
            accompanying notes to consolidated financial statements.
 F-7
 *Table
            of Contents*





**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)**
              
              **Total**Balance,
                  January 1, 2004
              
              $
              605
              
              $
              690,745
              
              $
              (257,566
              )
              $
              (2,956
              )
              $
              430,828Comprehensive
                  Income:Net
                  loss
              
              
              
              
              
              
              
              
              (49,129
              )
              
              
              
              
              (49,129
              )Currency
                  translation adjustment and other, net
              
              
              
              
              
              
              
              
              
              
              
              15,519
              
              
              15,519Minimum
                  pension liability adjustment, net
              
              
              
              
              
              
              
              
              
              
              
              1,339
              
              
              1,339Comprehensive
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (32,271
              )Issuance
                  of common stock
              
              
              6
              
              
              12,671
              
              
              
              
              
              
              
              
              12,677Balance,
                  December 31, 2004
              
              
              611
              
              
              703,416
              
              
              (306,695
              )
              
              13,902
              
              
              411,234Comprehensive
                  Income:Net
                  income
              
              
              
              
              
              
              
              
              61,792
              
              
              
              
              
              61,792Currency
                  translation adjustment and other, net
              
              
              
              
              
              
              
              
              
              
              
              (26,464
              )
              
              (26,464
              )Minimum
                  pension liability adjustment, net
              
              
              
              
              
              
              
              
              
              
              
              (3,583
              )
              
              (3,583
              )Comprehensive
                  income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              31,745Issuance
                  of common stock
              
              
              16
              
              
              32,808
              
              
              
              
              
              
              
              
              32,824Balance,
                  December 31, 2005
              
              
              627
              
              
              736,224
              
              
              (244,903
              )
              
              (16,145
              )
              
              475,803Comprehensive
                  Income:Net
                  income
              
              
              
              
              
              
              
              
              32,000
              
              
              
              
              
              32,000Currency
                  translation adjustment, 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
              )Issuance
                of common stock
              
              
              9
              
              
              21,154
              
              
              
              
              
              
              
              
              21,163Balance,
                  December 31, 2006
              
              $
              598
              
              $
              657,468
              
              $
              (212,903
              )
              $
              (27,561
              )
              $
              417,602


See
            accompanying notes to consolidated financial statements.
 F-8
 *Table
            of Contents*
 **INTERMEC,
            INC** **NOTES
              TO CONSOLIDATED FINANCIAL
              STATMENTS**




**Note
      A: Significant Accounting Policies**




*Nature
      of Operations.*  Effective
      January 1, 2006, we changed our name from UNOVA, Inc. to
      Intermec, Inc. (“Intermec”, “us”, “we”, “our”). We provide global supply
      chain solutions and design, development, manufacture and integrate 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.




*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, 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.




*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 begin expensing stock options as required under SFAS No. 123(R), Share-Based
      Payments.




F-9
 *Table
            of Contents*
 **INTERMEC,
              INC**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      A: Significant Accounting Policies (Continued)**




*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 price 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 it is 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.




Rapid
      Start RFID intellectual property (“RFID IP”) royalties - 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. 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 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 worldwide 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 have
      determined that, due to the lack of historical trends coupled with the
      anticipated escalating business trends, we
      do not
      have the ability to reliably estimate the running royalties when earned.
      Therefore, we recognize such royalty revenue in the quarter in which the
      royalties are reported to us by the licensees.




*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.




*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.




F-10
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      A: Significant Accounting Policies (Continued)**




*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 in consultation with an external actuary. 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 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. We also determine our tax contingencies in accordance with
      SFAS
      No. 5, *Accounting
      for Contingencies* .
      We
      record a liability for tax contingencies for estimated tax liabilities to the
      extent they are probable and can be reasonably estimated. We classify our
      contingent tax liabilities based upon when expected cash will ultimately be
      paid.




*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 2006, one customer accounted
      for more than 10% of our revenues. Total sales to this customer were $99.8
      million, $80.7 million and $66.5 million for the years ended December 31, 2006,
      2005 and 2004, respectively. No single customer accounted for more than 10%
      of
      our revenues in 2005 or 2004.




*Foreign
      Currencies.*  Our
      consolidated financial statements are presented in U.S. dollars. The financial
      statements of our foreign operations, 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 on the consolidated statements of operations. Operating results include
      net currency transaction gains (losses) of ($1.3) million, $0.7 million, ($1.7)
      million December 31, 2006, 2005 and 2004.




F-11
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      A: Significant Accounting Policies (Continued)**




*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, 2006 and
      2005 was not material.




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




During
      the fourth quarter of 2005, we wrote off our remaining goodwill balance of
      $7.8
      million in conjunction with the sale of the Landis business. See Note H for
      additional information.




*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”).





*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.




F-12
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      A: Significant Accounting Policies (Continued)**




*Research
      and Development.*  Research
      and development (“R&D”) costs are charged to selling, general and
      administrative expense as incurred. Total expenditures of continuing operations
      on research and development activities amounted to $72.4 million, $66.5 million
      and $65.9 million for the years ended December 31, 2006, 2005 and 2004,
      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, 2006, 2005 and 2004 were $1.3 million, $1.7 million and $1.7
      million, respectively.




*New
      Accounting Pronouncements* .
      In
      December 2004, the Financial Accounting Standards Board (“FASB”) issued
      SFAS No. 123(R), *Share Based Payment*. This statement
      establishes standards for the accounting for transactions in which an entity
      exchanges its equity instruments for goods and services. It focuses primarily
      on
      accounting for transactions in which an entity obtains employee services in
      share-based payment transactions (such as employee stock options and restricted
      stock units). The statement requires the measurement of the cost of employee
      services received in exchange for an award of equity instruments (such as
      employee stock options and restricted stock units) at fair value on the grant
      date. That cost will be recognized over the period during which an employee
      is
      required to provide services in exchange for the award (the requisite service
      period). We adopted this statement in the fiscal first quarter of 2006, applying
      the modified prospective transition method *.*
      To calculate the excess tax benefits available as of the date of adoption for
      use in offsetting future tax shortfalls, the company followed the alternative
      transition method discussed in FASB Staff Position No. 123(R)-3.




We
      implemented SFAS 151, *Inventory
      Costs, an amendment of ARB No. 43* in
      the
      fiscal first quarter of 2006. The adoption of this statement did not have a
      material effect on our results of operations, cash flows or financial position.




In
      June
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”). FIN 48 is an interpretation of FASB Statement No. 109 which provides
      comprehensive guidance on the recognition and measurement of tax positions
      in
      previously filed tax returns or positions expected to be taken in future tax
      returns.





The
      benefit from an uncertain tax position must meet a “more-likely-than-not”
recognition threshold and is measured at the largest amount of benefit greater
      than 50% determined by cumulative probability of being realized upon ultimate
      settlement with the taxing authority. The interpretation also provides guidance
      on derecognition, classification, interest and penalties, as well as disclosure
      in financial statements of uncertain tax positions. The interpretation is
      effective for fiscal years beginning after December 15, 2006. Effective for
      January 1, 2007, we will be required to adjust the opening balance of retained
      earnings (or other components of shareholders’ investment in the statement of
      financial position) for the cumulative effect of the difference in the net
      amount of assets and liabilities for all open tax positions at the effective
      date. We expect the effect of adoption of FIN 48 to fall within a range of
      $0.1
      million to $10.0 million.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      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. The statement is effective in the fiscal first quarter
      of
      2008 and we will adopt the statement at that time. We believe that the adoption
      of SFAS No. 157 will not have a material effect on its results of
      operations, cash flows or financial position.




In
      September 2006, the FASB issued Statement of Financial Accounting Standards
      No. 158, *Employer’s
      Accounting for Defined Pension and Other Postretirement Plans — an
      amendment of FASB Statements No. 87, 88, 106 and 132(R).* This
      statement requires the recognition of the funded status of a benefit plan in
      the
      statement of financial position. It also requires the recognition as a component
      of other comprehensive income (“OCI”), net of tax, of the gains or losses and
      prior service costs or credits that arise during the period but are not
      recognized as components of net periodic benefit cost pursuant to
      statements 87 or 106. This provision of the statement was effective at
      fiscal year end 2006 and we adopted the statement at that time.




F-13
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      A: Significant Accounting Policies (Continued)**




The
      statement also 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 will require 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.




In
      September 2006, the SEC issued Staff Accounting Bulletin (“SAB”) 108, which
      expresses the Staff’s views regarding the process of quantifying financial
      statement misstatements. The bulletin was effective at fiscal year end 2006.
      The
      provisions of this bulletin had no impact on our results of operations, cash
      flows or financial position.




In
      February 2007, the FASB issued Statement of Financial Accounting Standards
      No.
      159, The *Fair
      Value Option for Financial Assets and Financial Liabilities* .
      This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value. Unrealized gains and losses for which the
      fair value option has been elected will be reported in earnings. This statement
      is effective as of the beginning of the first fiscal quarter of 2008. We believe
      that the adoption of SFAS No. 159 will not have a material effect on our results
      of operations, cash flows or financial position.




*Reclassifications.* Certain
      amounts in our prior-year consolidated financial statements and notes have
      been
      reclassified to conform to the current-year presentation. The consolidated
      statement of cash flows for the year ended December 31, 2005, reflects the
      reclassification of $50.0 million in restricted cash from financing activities
      to investing activities and $3.9 million of cash used in operating activities
      of
      discontinued operations was reclassified from operating activities of continuing
      operations. Prior to the fourth quarter of 2006, we recognized certain amounts
      arising from IP settlements as revenue and direct costs related to the
      settlements as cost of revenue. We have determined that these IP settlements
      should more appropriately be recorded as “Gains on intellectual property
      settlements” in operations rather than as revenue and cost of revenue and
      accordingly have reclassified $19.6 million previously recorded as IP settlement
      revenue and $4.0 million of IP settlement cost as a net Gain on intellectual
      property settlements of $15.6 million within the 2004 Consolidated Statement
      of
      Operations.




F-14
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





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




Cash
      and
      cash equivalents amounted to $155.0 and $256.8 million at December 31, 2006
      and 2005, respectively, and consisted mainly of bank deposits and money market
      funds. Cash and cash equivalents at December 31, 2006 and 2005, include
      $1.2 million and $5.7 million of bank deposits required to be maintained in
      support of letters of credit, respectively. Letters of credit are purchased
      guarantees to ensure our contract performance to third parties in accordance
      with specified terms and conditions. Management has determined that our letters
      of credit do not create additional risk.




Short-term
      investments totaled $29.5 million at December 31, 2006 and primarily consisted
      of variable rate demand notes totaling $28.5 million. Fair value approximates
      carrying value for short-term investments.




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




**Current
                  Portion of Long-term Debt**
              
              **Non-Current
                  Portion of Long-term Debt****December
                  31,**
              
              **December
                  31,****2006**
              
              **2005**
              
              **2006**
              
              **2005**Debentures,
                  with interest at 7.00%, due March 2008
              
              $
              -
              
              $
              -
              
              $
              100,000
              
              $
              100,000Long-term
                  obligations
              
              $
              -
              
              $
              -
              
              $
              100,000
              
              $
              100,000






We
      have a
      secured long-term revolving credit facility (the “Revolving Facility”), with a
      maximum amount available of $50.0 million at December 31, 2006 and 2005. Net
      of
      outstanding letters of credit and limitations on availability, we had borrowing
      capacity of $19.6 million and $7.1 million under the Revolving Facility at
      December 31, 2006 and 2005, respectively. We made no borrowings under the
      Revolving Facility during 2006 or 2005, and as of December 31, 2006 and
      2005, no borrowings were outstanding under this facility. As of
      December 31, 2006, we were in compliance with the financial covenants of
      this agreement.




The
      key
      terms of the Revolving Facility are as follows:




·
            Our
                obligations under the Revolving Facility are secured by substantially
                all
                of our U.S. assets and our U.S. subsidiaries and a pledge of 65%
                of our
                stock of certain foreign
                subsidiaries.




·
            Borrowings
                under the Revolving Facility bear interest at a variable rate equal
                to (at
                our option) (i) LIBOR plus an applicable margin ranging from 1.5% to
                2.5% based on consolidated leverage or (ii) the greater of the
                federal funds rate plus 0.50% or the bank’s prime rate plus an applicable
                margin ranging from 0.5% to 1.5% based on consolidated
                leverage.




·
            The
                Revolving Facility places certain restrictions on our ability and
                our
                subsidiaries ability to consolidate or merge, make acquisitions,
                create
                liens, incur additional indebtedness, dispose of assets or pay
                dividends




·
            Financial
                covenants include a Consolidated Leverage test, a Consolidated Interest
                Coverage test and a Consolidated 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 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.




F-15
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





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




At
      December 31, 2006 and 2005, our fixed rate debentures had carrying and
      estimated fair market values of $100.0 million, based on market trade values.
      At
      December 31, 2006 and 2005, 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 $7.4 million at
      December 31, 2006, compared to $25.8 million at December 31, 2005. As
      of December 31, 2006, $6.4 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 $0.9 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 $0.9 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,****2006**
            
            **2005**Raw
                materials
            
            $
            69,769
            
            $
            50,505Work
                in process
            
            
            450
            
            
            705Finished
                goods
            
            
            48,808
            
            
            30,878Inventories
            
            $
            119,027
            
            $
            82,088






**Note
      D: Property, Plant and Equipment, Net** **,
      Commitments and Assets Held for Sale**




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




**December
                31,****2006**
            
            **2005**Property,
                plant and equipment, at costLand
            
            $
            5,960
            
            $
            5,859Buildings
                and improvements
            
            
            7,619
            
            
            6,032Machinery
                and equipment
            
            
            130,625
            
            
            117,961Total
                property, plant and equipment, at cost
            
            
            144,204
            
            
            129,852Less:
                accumulated depreciation
            
            
            (100,751
            )
            
            (99,032
            )Property,
              plant and equipment, net
            
            $
            43,453
            
            $
            30,820






Depreciation
      expense from continuing operations was $10.5 million, $9.5 million and $10.5
      million for the years ended December 31, 2006, 2005 and 2004,
      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




F-16
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      D: Property, Plant and Equipment, Net, Commitments and Assets Held for Sale
      (Continued)**




As
      of
      December 31, 2006 and 2005, we deferred $3.7 million and $4.1 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, net of deferred gain amortization and sublease income, under
      non-cancellable operating leases were as follows at December 31, 2006
      (thousands of dollars):




2007
            
            $
            11,0262008
            
            
            9,0402009
            
            
            7,0412010
            
            
            6,0882011
            
            
            4,835Thereafter
            
            
            13,255Total
            
            $
            51,285






Rental
      expense for operating leases of continuing operations, including amounts for
      short-term leases with nominal, if any, future rental commitments, was $11.0
      million, $12.8 million and $12.6 million, for the years ended December 31,
      2006, 2005 and 2004, respectively.




Aggregate
      future minimum rental income to be received under non-cancelable subleases
      is
      $4.8 million at December 31, 2006.




*Assets
      Held for Sale:* In
      conjunction with restructuring activities related to our IAS business during
      2003, we reclassified certain property, plant and equipment to assets held
      for
      sale. In accordance with SFAS No. 144, the carrying amount of these assets
      is the lower of book value or net realizable value. At December 31, 2006
      and 2005, assets held for sale of $8.7 million and $8.5 million, respectively,
      comprised of land and buildings.




**Note
      E: Intangibles, Net**




For
      the
      year ended December 31, 2006, intangibles, net comprised a $4.0 million patent
      portfolio. For the year ended December 31, 2006, we adopted FAS 158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans* (“SFAS
      158”), which resulted in the write off of a $2.1 million intangible asset
      recognized in the prior year related to the minimum pension liability for our
      US
      defined benefit pension plans. 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,****2006**
            
            **2005**Amortizable
                intangibles:Gross
                carrying amount
            
            $
            10,769
            
            $
            10,064Accumulated
                amortization
            
            
            (6,791
            )
            
            (6,391
            )Other
                intangibles, net
            
            
            3,978
            
            
            3,673US
                defined benefit pension intangible asset
            
            
            -
            
            
            3,198Intangibles,
                net
            
            $
            3,978
            
            $
            6,871






Included
      in intangibles assets above, as of December 31, 2006, is approximately $0.7
      million related to capitalized legal costs incurred in defending our
      patents.




Amortization
      expense on intangible assets for the years ended December 31, 2006, 2005
      and 2004 was $0.4 million for each of the years.




F-17
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      E: Intangibles, Net (Continued)**




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




**Year
                Ending December 31,**2007
            
            $
            3982008
            
            
            3982009
            
            
            3982010
            
            
            3982011
            
            
            398






**Note
      F: Shareholders’ Investment**




**Capital
      Stock**




At
      December 31, 2006 and 2005, 250 million shares of common stock, par value
      $0.01, and 50 million shares of preferred stock, par value $0.01 were authorized
      to issue. At December 31, 2006 and 2005, 60,318,131 and 63,188,112 shares of
      common stock were outstanding, respectively. There were no shares of preferred
      stock outstanding at December 31, 2006 or 2005.




**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. The
      Plan will cause substantial dilution to a party that attempts to acquire us
      in a
      manner or on terms not approved by the Board of Directors. Each Right entitles
      the holder to purchase from us one one-hundredth of a share of Series A
      Preferred Stock at a price of seventy dollars. The Rights become exercisable
      if
      a person other than a person which presently holds more than 15 percent of
      our
      common stock acquires 15 percent or more, or announces a tender offer for 15
      percent or more, of our outstanding common stock. If a person acquires 15
      percent or more of our outstanding common stock, each right will entitle the
      holder to purchase common stock having a market value of twice the exercise
      price of the Right. The Rights, which expire in September 2007, may be
      redeemed by us at a price of one cent per Right at any time prior to a person
      acquiring 15 percent or more of the outstanding common stock.




**Earnings
      (Loss) Per Share**




Basic
      earnings (loss) per share is calculated using the weighted average number of
      common shares outstanding and issuable 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:




**2006**
            
            **2005**
            
            **2004**Weighted
                average common shares - Basic
            
            
            62,535,286
            
            
            61,785,295
            
            
            60,501,931Dilutive
                effect of options, unvested restricted sharesand
                other common stock equivalents
            
            
            1,294,477
            
            
            1,565,057
            
            
            1,651,905Weighted
                average shares - Diluted
            
            
            63,829,763
            
            
            63,350,352
            
            
            62,153,836






At
      December 31, 2004, employees and directors held options to purchase 30,420
      shares 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.




F-18
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      F: Shareholders’ Investment (Continued)**




**Stock
      Awards**




We
      adopted Statement of Financial Accounting Standards (“SFAS”) 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.




Our
      consolidated financial statements for the year ended December 31, 2006, reflect
      the impact of adopting SFAS 123(R). In accordance with the modified
      prospective method, the consolidated financial statements for prior periods
      have
      stock-based compensation expense recognized in the consolidated statement of
      operations for the year ended December 31, 2006, including compensation expense
      for stock-based payment awards granted prior to, but not yet vested, as of
      December 31, 2005, based on the grant date fair value estimated in
      accordance with the pro forma provisions of SFAS 123, *Accounting for
      Stock-Based Compensation* (“SFAS 123”) and compensation expense for the
      stock-based payment awards granted subsequent to December 31, 2005, based
      on the grant date fair value estimated in accordance with SFAS 123(R).




Stock-based
      compensation  expense
      recognized in the consolidated statement of operations for the year ended
      December 31, 2006, is based on options ultimately expected to vest. As a result,
      the expense is net of estimated forfeitures. SFAS 123(R) requires
      forfeitures to be estimated at the time of grant and revised, if necessary,
      in
      subsequent periods if actual forfeitures differ from those estimates. In the
      pro
      forma information required under SFAS 148 for the periods prior to January
      1, 2006, we accounted for forfeitures as they occurred.




Accordingly,
      in 2006, we recorded stock-based compensation expense for awards granted prior
      to, but not yet vested as of, January 1, 2006, as if the fair value method
      required for pro forma disclosure under SFAS 123 were in effect for expense
      recognition purposes, adjusted for estimated forfeitures. 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 year ended December 31, 2006
      was
      as follows (in thousands):




Cost
                of revenues
            
            $
            275Selling,
                general and administrative
            
            
            4,487$
            4,762




F-19
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**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), $4.7 million of
      excess tax benefits for the year ended December 31, 2006, has 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,
      2006, 2005 and 2004 was $8.1 million, $18.0 million and $5.7 million,
      respectively. The total income tax benefit recognized in the statement of
      operations for stock-based compensation costs was $1.7 million for the year
      ended December 31, 2006. 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:




**2006**
            
            **2005**
            
            **2004**Risk-free
                interest rate
            
            
            4.82
            %
            
            3.84
            %
            
            3.81
            %Expected
                option life
            
            
            4.8
                years
            
            
            5
                years
            
            
            5
                yearsExpected
                stock price votatility
            
            
            40.15
            %
            
            53.29
            %
            
            56.13
            %Expected
                dividend yield
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %






Our
      computation of expected volatility for 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 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 $12.80, $10.75
      and $8.96 for the years ended December 31, 2006, 2005 and 2004, 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.




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):




C****ontinuing
              Operations:****
            
            **2005**
            
            **2004**Net
                earnings from continuing operations as reported
            
            $
            40,645
            
            $
            52,181Add
                stock compensation expense recorded under theintrinsic
                value method, net of tax
            
            
            1,427
            
            
            1,108Less
                pro forma stock compensation expense computed under thefair
                value method, net of tax
            
            
            (3,970
            )
            
            (3,131
            )Pro
                forma net earnings
            
            $
            38,102
            
            $
            50,158Basic
                pro forma earnings per share
            
            $
            0.62
            
            $
            0.83Diluted
                pro forma earnings per share
            
            $
            0.60
            
            $
            0.81


**Discontinued
                  Operations:**
              
              
              **2005**
              
              
              **2004**Net
                  earnings from continuing operations as reported
              
              $
              21,147
              
              $
              (101,310
              )Add
                  stock compensation expense recorded under theintrinsic
                  value method, net of tax
              
              
              1,734
              
              
              384Less
                  pro forma stock compensation expense computed under thefair
                  value method, net of tax
              
              
              (1,623
              )
              
              (715
              )Pro
                  forma net earnings
              
              $
              21,258
              
              $
              (101,641
              )Basic
                  pro forma earnings per share
              
              $
              0.34
              
              $
              (1.68
              )Diluted
                  pro forma earnings per share
              
              $
              0.33
              
              $
              (1.63
              )




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, 2006, there were 432,294 options
      outstanding that were granted under the 1997 Plan before it was
      frozen.




F-20
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**




**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.




As
      of
      December 31, 2006, there were 2.9 million shares available for grant under
      our Stock Incentive Plans and DSOPs, respectively. The following table
      summarizes changes in options outstanding and exercisable under our stock award
      plans:




**Outstanding**
            
            **Exercisable****Number
                of Shares**
            
            **Weighted-Average
                Exercise Price Per Share**
            
            **Number
                of Shares**
            
            **Weighted-Average
                Exercise Price Per Share**January
                1, 2004
            
            
            4,744,555
            
            $
            10.50
            
            
            3,012,269
            
            $
            12.77Granted
            
            
            570,500
            
            
            17.29Exercised
            
            
            (656,990
            )
            
            8.78Canceled
            
            
            (242,799
            )
            
            9.26December
                31, 2004
            
            
            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
            )
            
            13.74Forfeited
            
            
            (158,951
            )
            
            21.27Canceled
            
            
            (7,000
            )
            
            14.71December
                31, 2006
            
            
            2,950,973
            
            $
            16.43
            
            
            1,732,881
            
            $
            13.77






As
      of
      December 31, 2006, there was $8.4 million of total unrecognized
      compensation cost related to non-vested options. That cost is expected to be
      recognized over a weighted average period of 2 years and 3
      months.




Number
                  of Shares
              
              
              Weighted
                  Average Exercise Price
              
              
              Weighted
                  Average Remaining Contractual Term (In Years)
              
              
              Aggregate
                  Intrinsic Value (In millions)Vested
              
              
              1,416,730
              
              $
              13.84
              
              
              4.14
                  years
              
              $
              15.7Expected
                  to vest
              
              
              966,237
              
              $
              19.67
              
              
              8.09
                  years
              
              $
              5.49Total
              
              
              2,382,967
              
              $
              16.21
              
              
              5.74
                  years
              
              $
              21.2







F-21
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      F: Shareholders’ Investment (Continued)**




The
      table
      below summarizes outstanding stock option data as of December 31, 2006,
      excluding 316,151 options outstanding, held by directors:




**Options
                Outstanding**
            
            
            
            
            
            **Options
                Exercisable****Range
                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
            
            
            801,218
            
            
            5.16
                years
            
            $
            6.36
            
            
            593,656
            
            $
            5.95$12.38
                - $19.99
            
            
            1,261,054
            
            
            5.06
                years
            
            
            18.19
            
            
            728,874
            
            
            17.72$22.00
                - $33.96
            
            
            572,550
            
            
            9.32
                years
            
            
            28.30
            
            
            94,200
            
            
            33.512,634,822
            
            
            6.01
                years
            
            $
            16.79
            
            
            1,416,730
            
            $
            13.84






The
      following table summarizes changes in nonvested
      restricted stock awards:




**Number
                of Shares**
            
            **Weighted-Average
                Grant Date Fair Value****Restricted
                stock awards:**Nonvested
                balance at December 31, 2005
            
            
            86,070
            
            $
            11.52Granted
            
            
            109,088
            
            
            27.29Vested
            
            
            (66,968
            )
            
            9.18Forfeited
            
            
            (14,829
            )
            
            23.69Nonvested
                balance at December 31, 2006
            
            
            113,361
            
            $
            26.63






The
      fair
      value of each restricted stock award (“RSA”) is the market price of our stock on
      the date of grant. The total fair value of RSA’s vested during the years ended
      December 31, 2006, 2005 and 2004, was $1.8 million, $4.9 million and $3.5
      million, respectively. As of December 31, 2006, there was $1.4 million of
      total unrecognized compensation cost related to non-vested RSA’s. That cost is
      expected to be recognized over a weighted average period of 1
      year.




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
      $(1.0) million, $1.3 million and $ 0.4 million for the years ended
      December 31, 2006, 2005 and 2004, 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 was $543,000 for the year ended
      December 31, 2006




F-22
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      F: Shareholders’ Investment (Continued)**




**Accumulated
      Other Comprehensive Income (Loss)**




At
      December 31, 2006, 2005 and 2004, accumulated other comprehensive income
      (loss) comprised the following, (thousands of dollars):




**December
                31,****2006**
            
            **2005**
            
            **2004**Currency
                translation adjustment, net
            
            $
            2,933
            
            $
            (3,418
            )
            $
            23,046Unamortized
                benefit plan costs,net
                of tax benefit of $16,446
            
            
            (30,543
            )
            
            -
            
            
            -Minimum
                pension liability adjustmentnet
                of tax benefit of $5,995 and $2,673
            
            
            -
            
            
            (12,727
            )
            
            (9,144
            )Unrealized
                gain on securities, net
            
            
            49
            
            
            -
            
            
            -Accumulated
                other comprehensive income (loss)
            
            $
            (27,561
            )
            $
            (16,145
            )
            $
            13,902






Currency
      translation adjustment as of December 31, 2004, includes $19.7 million
      relating to discontinued operations. The minimum pension liability adjustment
      as
      of December 31, 2004 also relates to discontinued operations. 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 cost. 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
      includes 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.




**Note
      H: Discontinued Operations**




During
      the fourth quarter of 2004, we committed to a plan to dispose of our IAS
      business, comprising the Cincinnati Lamb and Landis Grinding Systems businesses,
      after it was determined that the IAS business was no longer aligned with our
      long-term strategy. In accordance with SFAS 144, “Accounting for Disposal or
      Impairment of Long-Lived Assets,” the IAS business is classified as discontinued
      operations in our consolidated financial statements for all periods
      presented.




F-23
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      H: Discontinued Operations (Continued)**




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 to 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 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 3.0% percent (8.3% as of
      December 31, 2006), with interest payable quarterly. Principal payments on
      the note are due in six semiannual installments beginning April 2007 of
      $1.5 million, $2.0 million, $2.0 million, $2.5 million, $2.0 million and $2.5
      million. As of December 31,
      2006, the estimated fair value of the note is $11.3 million, based on the
      estimated cash flows from the note and a risk-adjusted discount rate equal
      to
      LIBOR plus eight percent. Our consolidated balance sheet as of December 31,
      2006, classifies the $11.3 million as other current assets and other
      assets.




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 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. As of
      December 31, 2006, the estimated fair value of the note is $9.7 million,
      based on the estimated cash flows from the note and a risk-adjusted discount
      rate equal to LIBOR plus 2.25%. We additionally recorded $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.




F-24
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**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, 2006, 2005 and
      2004 (thousands of dollars):




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Product
                and service revenues
            
            $
            -
            
            $
            223,460
            
            $
            471,135Loss
                from discontinued operations before tax
            
            
            (3,747
            )
            
            (7,095
            )
            
            (109,410
            )Benefit
                for income taxes
            
            
            748
            
            
            28,242
            
            
            8,100Earnings
                (loss) from discontinued operations net of tax
            
            $
            (2,999
            )
            $
            21,147
            
            $
            (101,310
            )






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, in 2005 includes non-cash impairment
      charges of $2.0 million and a $9.9 million charge relating to a legal
      settlement. Loss from discontinued operations, before tax, in 2004 includes
      a
      non-cash impairment charge of $104.1 million.




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.




The
      tax
      benefit for discontinued operations for the year ended December 31, 2004,
      reflects an effective tax rate of 7.4% compared to the U.S. statutory tax rate
      of 35%. The reduction in the effective tax rate is largely attributable to
      the
      $63.3 million impairment charge related to non-deductible goodwill and
      additional state and foreign valuation allowances recorded against previously
      recognized deferred tax assets, resulting from our plan to divest IAS. We
      expect that certain state and foreign deferred tax assets of discontinued
      operations will not be realizable and in 2004 recorded valuation allowances
      of
      $5.4 million and $31.3 million, respectively.




F-25
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      I: Income Taxes**




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




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**United
                States
            
            $
            34,426
            
            $
            41,950
            
            $
            33,784International
            
            
            11,148
            
            
            12,575
            
            
            16,893Earnings
                from continuing operationsbefore
                income taxes
            
            $
            45,574
            
            $
            54,525
            
            $
            50,677






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




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Current:United
                States
            
            $
            (1,173
            )
            $
            19
            
            $
            (354
            )International
            
            
            (1,315
            )
            
            167
            
            
            12,949Total
                Current
            
            
            (2,488
            )
            
            186
            
            
            12,595Deferred:United
                States
            
            
            13,045
            
            
            11,604
            
            
            (9,722
            )International
            
            
            18
            
            
            2,090
            
            
            (4,377
            )Total
                Deferred
            
            
            13,063
            
            
            13,694
            
            
            (14,099
            )Provision
                (Benefit) for Income Taxes
            
            $
            10,575
            
            $
            13,880
            
            $
            (1,504
            )






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




**Year
                    Ended December 31,****2006**
              
              **2005**
              
              
              **2004**Tax
                  at U.S. statutory rate
              
              
              35.0
              
              35.0
              %
              
              35.0
              %State
                  income taxes net of federal benefit
              
              
              -1.6
              
              -0.9
              %
              
              -4.8
              %Deductible
                  goodwill & intangibles
              
              
              0.0
              
              2.8
              %
              
              -26.7
              %Tax
                  credits
              
              
              -2.4
              
              -8.9
              %
              
              -5.7
              %Extraterritorial
                  income exclusion
              
              
              -1.5
              
              -1.6
              %
              
              -1.6
              %Foreign
                  net earnings taxed at other than U.S statutory rate
              
              
              -4.0
              
              -7.0
              %
              
              7.3
              %Tax
                  Settlement (a)
              
              
              -11.9
              
              0.0
              %
              
              0.0
              %Provision
                  to return true up
              
              
              4.9
              
              5.8
              %
              
              -7.3
              %Nondeductible
                  expenses
              
              
              2.0
              
              1.2
              %
              
              1.3
              %Stock
                  compensation expense
              
              
              1.8
              
              0.0
              %
              
              0.0
              %Other
                  items
              
              
              0.9
              
              -0.9
              %
              
              -0.5
              %23.2
              
              25.5
              %
              
              -3.0
              %






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





F-26
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**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,****2006**
            
            **2005**Current
                deferred tax assets:Accrued
                expenses
            
            $
            17,027
            
            $
            20,918Receivable
                and inventories
            
            
            9,397
            
            
            7,508Net
                operating loss carryforwards
            
            
            17,859
            
            
            73,850Capitalized
                R&D
            
            
            6,878
            
            
            -Other
                items
            
            
            -
            
            
            330Total
                current deferred tax assets
            
            
            51,161
            
            
            102,606Valuation
                allowance
            
            
            (1,538
            )
            
            (1,950
            )Net
                current deferred tax assets
            
            
            49,623
            
            
            100,656Long-term
                deferred tax assets:Retiree
                medical benefits
            
            
            12,972
            
            
            8,653Intangibles
            
            
            10,311
            
            
            12,537Tax
                credit carryforwards
            
            
            91,312
            
            
            91,132Deferred
                income
            
            
            8,120
            
            
            2,723Fixed
                assets
            
            
            1,004
            
            
            1,048Net
                operating loss carryforwards
            
            
            32,974
            
            
            72,351Capitalized
                R&D
            
            
            35,518
            
            
            -Cumulative
                translation adjustments
            
            
            1,817
            
            
            1,580Pension
            
            
            8,672
            
            
            1,025Other
                items
            
            
            16
            
            
            -Total
                deferred tax assets
            
            
            252,339
            
            
            291,705Valuation
                allowance
            
            
            (12,033
            )
            
            (9,990
            )Net
                deferred tax assets
            
            
            240,306
            
            
            281,715Deferred
                tax liabilities:Foreign
                earnings
            
            
            -
            
            
            (43,103
            )Other
            
            
            -
            
            
            (378
            )Net
                deferred tax asset
            
            $
            240,306
            
            $
            238,234







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




F-27
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      I: Income Taxes (Continued)**




We
      have
      available at December 31, 2006, net operating tax loss carry forwards in
      the United States of approximately $77.0 million, which result in a deferred
      tax
      benefit of $27.0 million. These losses expire in 2025. In 2003 and 2006, we
      determined that certain foreign tax credit carry forwards would not be realized
      prior to their scheduled expiration dates ranging from 2009 through 2012. These
      tax credits were converted to $8.6 million of net operating tax loss carry
      forwards and are included in the $77.0 million above.




We
      also
      have available at December 31, 2006; capital tax loss carry forwards in the
      United States of approximately $12.0 million, which are expected to expire
      in
      2010. The deferred tax benefit associated with these losses is $4.2
      million.




We
      have
      $41.1 million general business credit carry forwards and $50.2 million foreign
      tax credit carry forwards at December 31, 2006. The general business credit
      carry forwards have expiration dates ranging from 2007 through 2026. The foreign
      tax credit carry forwards are expected to expire between 2013 and
      2016.




We
      have
      provided a valuation allowance in the amount of $6.4 million for state deferred
      tax assets from discontinued operations of which $6.0 million relates to net
      operating tax loss carry forwards. We have determined that other state deferred
      tax assets of $6.5 million, which includes net operating loss carry forwards
      of
      $3.3 million, more likely than not will be realized.




At
      December 31, 2006, we have foreign net operating tax loss carry forwards of
      $7.8 million, which result in a deferred tax benefit of $2.7 million. Valuation
      allowance provided for deferred income tax benefits related to the foreign
      tax
      loss carry forwards was $0.2 million as of December 31, 2006. We also have
      foreign capital loss carry forwards of $23.1 million as of December 31,
      2006, and a full valuation allowance for the related deferred tax asset of
      $6.9
      million has been 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 record estimated tax liabilities to the extent the contingencies
      are
      probable and can be reasonably estimated. These liabilities for tax
      contingencies totaled $14.4 million and $18.8 million as of December 31,
      2006 and 2005, respectively. The reduction in the tax contingency accrual
      relates to the resolution of a Canadian tax audit. Such estimated tax
      liabilities 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.




We
      have
      not provided for deferred U.S. income taxes on undistributed earnings of foreign
      subsidiaries that we intend to reinvest permanently outside of the United
      States; the total amount of such earnings as of December 31, 2006, was
      $46.0 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.




**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. In aggregate, operating profits from IP
      settlements for the years ended December 31, 2006 and 2004 were $16.5 million
      and $15.6 million, respectively. There were no IP settlements for the year
      ended
      December 31, 2005.




F-28
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**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 50%
      of a
      certain portion of participants’ contributions.




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 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, beginning in fourth quarter of 2007,
      this Standard will require 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.




The
      following table sets forth the unamortized benefit plan costs and the related
      tax benefit recognized as components of other comprehensive income at December
      31, 2006 (thousands of dollars):




**For
                the year ended December 31, 2006**Net
                actuarial loss
            
            $
            46,038Prior
                service cost and transition obligation
            
            
            2,131Transition
                asset
            
            
            (1,180
            )Income
                tax benefits related to above items
            
            
            (16,446
            )Unamortized
                benefit plan costs
            
            $
            30,543




F-29
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





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




Unamortized
      benefit plan costs in the above table are primarily related to our U.S. and
      Non-U.S. pension plans. Unamortized benefit plan costs related to other
      postretirement benefits are not material. The table below sets forth the amounts
      in accumulated other comprehensive loss at December 31, 2006, that we expect
      to
      recognize in periodic benefit cost in 2007 (thousands of dollars):




Amortization
                of net actuarial loss
            
            $
            4,176Amortization
                of prior service cost
            
            
            577Amortization
                of transition asset
            
            
            (168
            )Total
            
            $
            4,585







The
      following table shows the incremental effect of applying SFAS No. 158 on
      individual line items on our consolidated balance sheet at December 31, 2006
      (thousands of dollars):




**Before
                  Application of SFAS No. 158**
              
              
              **Adjustment**
              
              
              **After
                  Application of SFAS No. 158**Other
                  current assets
              
              $
              21,258
              
              $
              (2,054
              )
              $
              19,204Net
                  deferred tax assets
              
              
              190,716
              
              
              9,417
              
              
              200,133Other
                  assets
              
              
              57,208
              
              
              (26,508
              )
              
              30,700Total
                  Assets
              
              
              827,380
              
              
              (19,145
              )
              
              808,235Accounts
                  payable and accrued expenses
              
              
              (2,982
              )
              
              -
              
              
              (2,982
              )Other
                  long-term liabilities
              
              
              84,736
              
              
              (1,657
              )
              
              83,079Accumulated
                  other comprehensive lossUnamortized
                  benefit plan costs, net of tax
              
              
              -
              
              
              30,543
              
              
              30,543Additional
                  minimum pension liability, net of tax
              
              
              13,055
              
              
              (13,055
              )
              
              -Total
              
              $
              13,055
              
              $
              17,488
              
              $
              30,543Total
                  Shareholders' Investment
              
              $
              435,090
              
              $
              (17,488
              )
              $
              417,602






In
      2005,
      we recorded an adjustment to recognize the minimum pension liability related
      to
      our U.S. plans in accordance with SFAS No. 87. The amount recorded in 2005
      included an accrued benefit liability of $11.1 million, intangible assets
      of $3.9 million, long-term deferred tax assets of $2.5 million, and
      other comprehensive loss of $4.7 million, related to minimum pension
      liability of our U.S plans related to 2004 and prior periods. This adjustment
      had no effect on our results of operations, cash flows or the benefit obligation
      or funded status of our pension plan.




F-30
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**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):




**2006**
            
            **2005****U.S.**
            
            **Non
                U.S.**
            
            **U.S.**
            
            **Non
                U.S.**Change
                in benefit obligations:Benefit
                obligation at beginning of year
            
            $
            201,354
            
            $
            43,518
            
            $
            160,653
            
            $
            192,459Service
                cost
            
            
            5,757
            
            
            1,106
            
            
            8,254
            
            
            3,459Interest
                cost
            
            
            11,642
            
            
            2,234
            
            
            10,107
            
            
            5,947Special
                termination benefits
            
            
            1,350
            
            
            -
            
            
            2,027
            
            
            -Plan
                participants' contributions
            
            
            3,350
            
            
            -
            
            
            2,284
            
            
            819Actuarial
                loss (gain)
            
            
            (16,724
            )
            
            3,481
            
            
            26,736
            
            
            11,791Benefits
                paid
            
            
            (5,112
            )
            
            (3,134
            )
            
            (4,477
            )
            
            (4,456
            )Curtailment
            
            
            (18,850
            )
            
            -
            
            
            (6,425
            )
            
            (5,396
            )Settlements
            
            
            -
            
            
            -
            
            
            2,195
            
            
            (150,014
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            5,857
            
            
            -
            
            
            (11,091
            )Benefit
                obligation at end of year
            
            
            182,767
            
            
            53,062
            
            
            201,354
            
            
            43,518Change
                in plan assets:Fair
                value of plan assets at beginning of year
            
            
            115,431
            
            
            32,466
            
            
            100,191
            
            
            143,879Actual
                return on plan assets
            
            
            8,484
            
            
            5,024
            
            
            13,024
            
            
            15,831Plan
                participants' contributions
            
            
            3,350
            
            
            -
            
            
            2,284
            
            
            819Employer
                contributions
            
            
            2,226
            
            
            12,481
            
            
            2,191
            
            
            4,032Benefits
                paid
            
            
            (5,112
            )
            
            (3,134
            )
            
            (4,454
            )
            
            (4,456
            )Settlement
            
            
            -
            
            
            -
            
            
            2,195
            
            
            (120,066
            )Foreign
                currency translation adjustment
            
            
            -
            
            
            5,835
            
            
            -
            
            
            (7,573
            )Fair
                value of plan assets at end of year
            
            
            124,389
            
            
            52,672
            
            
            115,431
            
            
            32,466Funded
                status
            
            
            (58,378
            )
            
            (390
            )
            
            (85,923
            )
            
            (11,052
            )Unrecognized
                actuarial loss
            
            
            -
            
            
            -
            
            
            66,856
            
            
            12,356Unrecognized
                prior service cost
            
            
            -
            
            
            -
            
            
            3,340
            
            
            -Unrecognized
                transition asset
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,193
            )Fourth
                quarter contribution
            
            
            -
            
            
            -
            
            
            -
            
            
            11,052Adjustment
                to recognize minimumpension
                liability
            
            
            -
            
            
            -
            
            
            (10,757
            )
            
            (11,163
            )Net
                amount recognized
            
            $
            (58,378
            )
            $
            (390
            )
            $
            (26,484
            )
            $
            -




F-31
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**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):




**2006**
            
            **2005****U.S.**
            
            **Non
                U.S.**
            
            **U.S.**
            
            **Non
                U.S.**Years
                prior to the adoption of SFAS No. 158Prepaid
                benefit cost
            
            
            -
            
            
            -
            
            $
            35,068
            
            $
            11,163Accrued
                benefit liability
            
            
            -
            
            
            -
            
            
            (50,795
            )
            
            -Additional
                minimum liability
            
            
            -
            
            
            -
            
            
            (10,757
            )
            
            (11,163
            )Intangible
                asset
            
            
            -
            
            
            -
            
            
            3,198
            
            
            -Accumulated
                other comprehensive loss
            
            
            -
            
            
            -
            
            
            7,559
            
            
            11,163Years
                after the adoption of SFAS No. 158Noncurrent
                assets
            
            
            2,135
            
            
            -
            
            
            -
            
            
            -Current
                liabilities
            
            
            (2,596
            )
            
            (390
            )
            
            -
            
            
            -Noncurrent
                liabilities
            
            
            (57,917
            )
            
            -
            
            
            -
            
            
            -Net
                amount recognized
            
            $
            (58,378
            )
            $
            (390
            )
            $
            (15,727
            )
            $
            11,163







In
      2006,
      prior to the adoption of SFAS No. 158, we recorded an adjustment, net of tax,
      of
      ($0.3) million to accumulated other comprehensive loss to increase the
      additional minimum pension liability as of December 31, 2006. Accumulated other
      comprehensive loss was subsequently adjusted upon our adoption of SFAS No.
      158,
      as previously discussed. To recognize changes in our additional minimum pension
      liability, for the years ended December 31, 2005 and 2004, we recorded
      adjustments, net of tax, to other comprehensive income (loss) of ($3.6) million
      and $1.3 million, respectively.




The
      accumulated benefit cost for the U.S. plans was $171.6 million and $165.0
      million as of December 31, 2006, and 2005, respectively. The accumulated
      benefit cost for the U.K. plans was $53.1 million and $43.5 million as of
      December 31, 2006, and 2005, 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):




**2006**
            
            **2005****U.S.**
            
            **Non
                U.S.**
            
            **U.S.**
            
            **Non
                U.S.**Projected
                benefit obligation
            
            $
            60,513
            
            $
            53,062
            
            $
            64,481
            
            $
            43,518Accumulated
                benefit obligation
            
            $
            56,670
            
            $
            53,062
            
            $
            55,003
            
            $
            43,518Fair
                value of plan assets
            
            $
            -
            
            $
            52,672
            
            $
            -
            
            $
            32,466







We
      do not
      expect to contribute to our U.S. funded plans in 2007. We expect to contribute
      $2.6 million to our U.S. unfunded plans in 2007. For the U.K. plans, expected
      employer contributions for 2007 are $0.7 million.




The
      weighted average actuarial assumptions used to determine benefit obligations
      at
      the end of the 2006 and 2005 fiscal years are as follows:




**2006**
            
            **2005****U.S.**
            
            **Non
                U.S.**
            
            **U.S.**
            
            **Non
                U.S.**Discount
                rate
            
            
            5.95
            %
            
            5.00
            %
            
            5.75
            %
            
            5.00
            %Rate
                of compensation increase
            
            
            4.00
            %
            
            N/A
            
            
            4.00
            %
            
            N/A




F-32
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





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




U.S.  plan
      assets consist primarily of equity securities, U.S. government securities,
      and
      corporate bonds and at December 31, 2006 and 2005, include 31,475 shares of
      our common stock. The asset allocation for our U.S pension plans as of
      December 31, 2006 and 2005, and the target allocation, by asset category,
      are as follows:




**Allocation
                of Plan Assets at Measurement Date****U.S.
                Pension Plans**
            
            **Target
                Allocation**
            
            **2006**
            
            **2005**Equity
                securities
            
            
            65
            %
            
            59
            %
            
            57
            %Debt
                securities
            
            
            29
            %
            
            24
            %
            
            27
            %Other
            
            
            5
            %
            
            12
            %
            
            12
            %Cash
                and cash equivalents
            
            
            1
            %
            
            5
            %
            
            4
            %Total
            
            
            100
            %
            
            100
            %
            
            100
            %







Most
      of
      our US 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, represent
      primarily private equity-type investments and private placements.




Non-U.S.
      plan assets consist primarily of equity securities, U.K. 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 U.K. pension plans
      as
      of December 31, 2006 and 2005, and the target allocation, by asset
      category, are as follows:




**Allocation
                of Plan Assets at Measurement Date****Non-U.S.
                Pension Plans**
            
            **Target
                Allocation**
            
            **2006**
            
            **2005**Equity
                securities
            
            
            75
            %
            
            74
            %
            
            76
            %Debt
                securities
            
            
            25
            %
            
            25
            %
            
            12
            %Cash
                and cash equivalents and other
            
            
            0
            %
            
            1
            %
            
            12
            %Total
            
            
            100
            %
            
            100
            %
            
            100
            %




F-33
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





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




In
      2006,
      2005 and 2004, we offered voluntary early retirement to certain U.S. employees
      resulting in special termination benefits charges of $1.4 million, $2.0 million
      and $2.4 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,****2006**
            
            **2005**
            
            **2004****U.S.**
            
            **Non-U.S.**
            
            **U.S.**
            
            **Non-U.S.**
            
            **U.S.**
            
            **Non-U.S.**Components
                of net periodic pension
                expense:Service
                cost
            
            $
            5,757
            
            $
            1,106
            
            $
            8,254
            
            $
            3,459
            
            $
            9,670
            
            $
            5,148Interest
                cost
            
            
            11,642
            
            
            2,234
            
            
            10,107
            
            
            5,947
            
            
            8,953
            
            
            9,429Expected
                return on plan assets
            
            
            (10,023
            )
            
            (3,061
            )
            
            (10,086
            )
            
            (5,682
            )
            
            (9,792
            )
            
            (9,694
            )Amortization
                of prior service cost
            
            
            676
            
            
            -
            
            
            714
            
            
            -
            
            
            717
            
            
            -Recognized
                net actuarial loss
            
            
            4,491
            
            
            454
            
            
            3,282
            
            
            1,239
            
            
            3,146
            
            
            1,917Amortization
                of transition asset
            
            
            -
            
            
            (159
            )
            
            -
            
            
            (336
            )
            
            (42
            )
            
            (339
            )Special
                termination benefits
            
            
            1,350
            
            
            -
            
            
            2,027
            
            
            -
            
            
            2,430
            
            
            -Curtailment
                and settlement charges
            
            
            (2,146
            )
            
            -
            
            
            (171
            )
            
            (2,691
            )
            
            -
            
            
            -11,747
            
            
            574
            
            
            14,127
            
            
            1,936
            
            
            15,082
            
            
            6,461Defined
                contribution plans
            
            
            1,099
            
            
            526
            
            
            2,232
            
            
            932
            
            
            2,794
            
            
            1,386Net
                periodic pension expense
            
            $
            12,846
            
            $
            1,100
            
            $
            16,359
            
            $
            2,868
            
            $
            17,876
            
            $
            7,847






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. For 2004, net periodic
      pension expense of $6.2 million is classified in loss from discontinued
      operations. The portion of U.S. plan net periodic pension expense classified
      in
      loss from discontinued operations is $4.0 million and $5.1 million for the
      years
      ended December 31, 2005 and 2004, respectively.




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




**U.S.**
            
            **Non-U.S.****2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2004**Discount
                rate
            
            
            5.91
            %
            
            6.00
            %
            
            6.00
            %
            
            5.00
            %
            
            5.50
            %
            
            5.50
            %Expected
                return on plan assets
            
            
            8.75
            %
            
            9.00
            %
            
            9.00
            %
            
            7.60
            %
            
            8.00
            %
            
            7.50
            %Rate
                of compensation increase
            
            
            4.00
            %
            
            4.00
            %
            
            4.00
            %
            
            N/A
            
            
            3.75
            %
            
            3.50
            %




F-34
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





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




The
      discount rate used to determine net cost for the U.S. plans in 2006 was 5.75%
      through the first nine months of the plan year, until the June 30, 2006,
“Freeze”, and was 6.40% from that time through the September 30, 2006,
      measurement date.




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, 2006,
      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 U.K. plans supports
      a
      long term rate of return of approximately 6.6% 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.**2007
            
            $
            5.4
            
            $
            3.32008
            
            
            6.2
            
            
            3.12009
            
            
            6.6
            
            
            2.92010
            
            
            7.0
            
            
            2.72011
            
            
            7.7
            
            
            2.92012
                through 2016
            
            
            49.6
            
            
            14.6







**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,****2006**
            
            **2005**Change
                in postretirement benefit obligations:Benefit
                obligation at beginning of year
            
            $
            4,953
            
            $
            43,038Service
                cost
            
            
            16
            
            
            134Interst
                cost
            
            
            264
            
            
            1,563Actuarial
                loss (gain)
            
            
            (1,549
            )
            
            834Benefits
                paid
            
            
            (318
            )
            
            (2,761
            )Curtailment
            
            
            (114
            )
            
            (270
            )Settlement
            
            
            -
            
            
            (37,585
            )Benefit
                obligation at end of year
            
            
            3,252
            
            
            4,953Funded
                status
            
            
            (3,252
            )
            
            (4,953
            )Unrecognized
                net actuarial loss
            
            
            -
            
            
            1,729Fourth
                quarter contribution
            
            
            76
            
            
            103Accrued
                postretirement benefit obligation
            
            $
            (3,176
            )
            $
            (3,121
            )




F-35
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**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,****2006**
            
            **2005**
            
            **2004**Components
                of net periodic postretirement (benefit) cost:Service
                cost
            
            $
            16
            
            $
            134
            
            $
            156Interest
                cost
            
            
            264
            
            
            1,563
            
            
            2,758Recognized
                actuarial loss and transition obligation
            
            
            110
            
            
            374
            
            
            915Amortization
                of prior service cost
            
            
            -
            
            
            (598
            )
            
            (1,196
            )Curtailment
            
            
            -
            
            
            (12,274
            )
            
            -Settlement
            
            
            -
            
            
            (25,694
            )
            
            -Net
                periodic postretirement (benefit) cost
            
            $
            390
            
            $
            (36,495
            )
            $
            2,633







For
      years
      ended December 31, 2005 and 2004 ($36.8) million and $2.4
      million, **** respectively,
      of the net periodic postretirement (benefit) cost is classified as (gain) loss
      from discontinued operations within our consolidated statements of
      operations.




Actuarial
      assumptions used to measure the postretirement benefit obligation include a
      discount rate of 5.70% and 5.50% at December 31, 2006 and 2005,
      respectively. The weighted average discount rates used to measure net periodic
      benefit cost for the years ended December 31, 2006, 2005 and 2004 were 5.58%,
      6.00% and 6.00%, respectively. The assumed health care cost trend rate for
      fiscal year 2006 was 10.00% and is projected to decrease over six 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,
      2007 through 2011, and $1.3 million in aggregate for the subsequent five year
      period, 2012 through 2016.




Our
      pre-tax loss on the sale of Cincinnati Lamb in the first quarter of 2005 (see
      Note H) takes into consideration the curtailment and settlement gains totaling
      $40.5 million, comprising $33.4 million relating to the postretirement benefit
      plans and $7.1 million relating to the non-U.S. defined benefit plans. These
      curtailment and settlement gains comprise the pension and post-retirement
      obligations assumed by the
      buyer. In addition, the pre-tax loss on the sale of Cincinnati Lamb includes
      a
      loss of $12.9 million, representing the cumulative adjustment to recognize
      the
      minimum pension liability of our non-U.S. defined benefit plans, which prior
      to
      the sale, had been deferred in the other comprehensive loss component of
      shareholders’ investment on our consolidated balance sheets.




F-36
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





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




Our
      pre-tax gain on the sale of Landis in the fourth quarter of 2005 (see Note
      H)
      takes into consideration curtailment and settlement gains totaling $14.3
      million, comprising $4.6 million relating to the postretirement benefit plans,
      and $9.7 million relating to the non-U.S. defined benefit plans. These
      curtailment and settlement gains comprise the pension and post-retirement
      obligations assumed by the buyer.




**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, 2006 and 2005, (thousands of dollars):




**Year
                Ended December 31,****2006**
            
            **2005**Beginning
                Balance
            
            $
            5,542
            
            $
            4,878Payments
            
            
            (8,231
            )
            
            (7,397
            )Increase
                in liability (new warranties issued)
            
            
            9,489
            
            
            8,061Ending
                Balance
            
            $
            6,800
            
            $
            5,542







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, 2006 and 2005, we recognized $0.3 million and
      $2.7 million in revenues from Unitrin for the sale of hardware,
      respectively. Also, as of December 31, 2006 and 2005, there
      was $0.3 million 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, 2006 and
      2005, 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, 2006 and 2005 were $810.3 million and $902.7 million,
      respectively.




As
      described in Note A, certain 2004 amounts related
      to IP settlements have been reclassified to conform with the 2006 presentation.
      The effect of such reclassification on 2004 segment amounts was to reduce
      product revenue by $19.6 million, reduce product gross profit by $15.6 million
      and reduce United States revenue by $19.6.




F-37
 *Table
            of Contents*
 **INTERMEC,
              INC.**
 **NOTES
              TO CONSOLIDATED FINANCIAL STATMENTS
              (Continued)**





**Note
      N: Segment Reporting (Continued)**




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




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Revenues:Product
            
            $
            692.4
            
            $
            721.0
            
            $
            654.9Service
            
            
            157.6
            
            
            154.5
            
            
            136.8Total
            
            $
            850.0
            
            $
            875.5
            
            $
            791.7Gross
                Profit:Product
            
            
            262.7
            
            
            300.3
            
            
            274.3Service
            
            
            69.3
            
            
            62.6
            
            
            56.0Total
            
            $
            332.0
            
            $
            362.9
            
            $
            330.3







For
      2006,
      one customer accounted for more than 10% of our consolidated revenues. Total
      sales to this customer were $99.8 million, $80.7 million and $66.5 million
      for
      the years ended December 31, 2006, 2005 and 2004, respectively, and primarily
      related to product sales. No single customer accounted for more than 10% of
      our
      consolidated revenues in 2005 or 2004.




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




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Revenues:Systems
                and Solutions
            
            $
            477.2
            
            $
            497.8
            
            $
            456.9Printer
                and Media
            
            
            215.2
            
            
            223.2
            
            
            198.0Service
            
            
            157.6
            
            
            154.5
            
            
            136.8Total
            
            $
            850.0
            
            $
            875.5
            
            $
            791.7







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 United States, exceeds
      10% of consolidated revenues. The following table sets forth our revenues by
      geographic region (millions of dollars):




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**United
                States
            
            $
            476.9
            
            $
            478.6
            
            $
            424.5Europe
            
            
            214.5
            
            
            244.1
            
            
            237.2Other
                Regions
            
            
            158.6
            
            
            152.8
            
            
            130.0Total
            
            $
            850.0
            
            $
            875.5
            
            $
            791.7







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




**December
                31,****2006**
            
            **2005**United
                States
            
            $
            63.0
            
            $
            101.3Europe
            
            
            5.7
            
            
            4.6Other
                Regions
            
            
            1.8
            
            
            0.7Total
            
            $
            70.5
            
            $
            106.6




F-38
 *Table
            of Contents*





**INTERMEC,
      INC.**


**QUARTERLY
      FINANCIAL INFORMATION (unaudited)**




Beginning
      in 2005, our interim financial periods are based on a thirteen-week internal
      accounting calendar. We do not believe this change has had any material impact
      on comparability of our financial statements.  Below is unaudited quarterly
      financial information for 2006 and 2005 (in thousands, except earnings per
      share
      and common stock sales price):




**2006****Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**Revenues
                (a), (c)
            
            $
            203.8
            
            $
            231.4
            
            $
            195.9
            
            $
            218.9Gross
                Profit (d)
            
            
            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 (Loss) 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







**2005****Q1**
            
            **Q2**
            
            **Q3**
            
            **Q4**Revenues
                (a)
            
            $
            196.5
            
            $
            217.5
            
            $
            219.8
            
            $
            241.7Gross
                Profit
            
            
            82.9
            
            
            94.4
            
            
            87.7
            
            
            97.9Earnings
                from Continuing Operations
            
            
            5.4
            
            
            11.8
            
            
            11.3
            
            
            12.1Net
                Earnings (b)
            
            
            3.5
            
            
            12.1
            
            
            4.6
            
            
            41.6Basic
                Earnings per Share
            
            $
            0.60
            
            $
            0.20
            
            $
            0.07
            
            $
            0.67Diluted
                Earnings per Share
            
            $
            0.60
            
            $
            0.19
            
            $
            0.07
            
            $
            0.65Common
                Stock Sales Price per Share:High
            
            $
            25.55
            
            $
            27.44
            
            $
            35.15
            
            $
            37.04Low
            
            $
            19.84
            
            $
            16.69
            
            $
            26.03
            
            $
            25.12





(a)
      Excludes revenues from discontinued operations as follows (millions of
      dollars):






**2006**
            
            **2005**First
                Quarter
            
            $
            -
            
            $
            114.5Second
                Quarter
            
            
            -
            
            
            46.4Third
                Quarter
            
            
            -
            
            
            37.9Fourth
                Quarter
            
            
            -
            
            
            24.6




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






**2006**
            
            **2005**First
                Quarter
            
            $
            (1.1
            )
            $
            (1.9
            )Second
                Quarter
            
            
            (0.9
            )
            
            0.2Third
                Quarter
            
            
            1.3
            
            
            (6.7
            )Fourth
                Quarter
            
            
            (2.3
            )
            
            29.5






(c)
      Excludes IP settlement revenue of $23.0 million for the first quarter 2006,
      as
      previously reported in Form 10-Q for the three month period ended April 2,
      2006.
      See Note A for additional information.




(d)
      Excludes IP settlement gross profit of $16.5 million for the first quarter
      2006,
      as previously reported in Form 10-Q for the three month period ended April
      2,
      2006. See Note A for additional information.




Q-1
 *Table
            of Contents*




**SCHEDULE
      II**




**VALUATION
      AND QUALIFYING ACCOUNTS**


**(Thousands
      of Dollars)**




**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**Accounts
                receivable - allowance for doubtful accounts:Balance
                at beginning of year
            
            
            
            
            $
            8,157
            
            $
            9,771
            
            $
            11,927Additions
                charged to cost and expenses
            
            
            
            
            
            480
            
            
            1,281
            
            
            744Deductions
                (a)
            
            
            
            
            
            (841
            )
            
            (2,895
            )
            
            (2,900
            )Balance
                at end of year
            
            
            
            
            $
            7,796
            
            $
            8,157
            
            $
            9,771




(a)  Primarily
      uncollectible accounts written off.




S-1
 *Table
            of Contents*




**INTERMEC,
      INC.**


**INDEX
      TO EXHIBITS**





**Exhibit
                No.**
            
            **Description
                of Exhibit**3.1
            
            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 September 14, 2006), filed as Exhibit
                3.2 to
                the Company’s October 1, 2006, quarterly report on Form 10-Q, and
                incorporated herein by reference.4.1
            
            Credit
                Agreement among the Company, UNOVA Industrial Automation
                Systems, Inc., Intermec Technologies Corporation, Intermec
                International Inc., Intermec Technologies Manufacturing, LLC, Intermec
                IP
                Corp. and UNOVA IP Corp. as Borrowers, the financial institutions
                listed
                on the signature pages of the Credit Agreement, as the Lenders,
                Keybank National Association as Administrative agent, Lead Arranger
                and
                Book Manager, and Keybank National Association, as LC Issuer, dated
                as of
                September 30, 2004, filed as Exhibit 4.1 to the Company’s
                September 30, 2004, quarterly report on Form 10-Q, and
                incorporated herein by reference.4.2
            
            Security
                Agreement among the Company, UNOVA Industrial Automation
                Systems, Inc., Intermec Technologies Corporation, Intermec
                Technologies Manufacturing, LLC, Intermec IP Corp. and UNOVA IP Corp.
                and
                Keybank National Association as Administrative Agent, dated as of
                September 30, 2004, filed as Exhibit 4.1 to the Company’s
                September 30, 2004 quarterly report on Form 10-Q, and
                incorporated herein by reference.4.3
            
            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”).4.4
            
            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.4.5
            
            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.4.6
            
            Amendment
                No. 1 to Credit Agreement and Consents and Waiver and Amendment
                No. 1 to Security Agreement—Borrowers, dated March 29, 2005,
                among the Company, UNOVA Industrial Automation Systems, Inc.,
                Intermec Technologies Corporation, Intermec International, Inc.,
                Intermec Technologies Manufacturing, LLC, Intermec IP Corp., and
                UNOVA IP
                Corp., as the Borrowers, the financial institutions listed on the
                signature pages of the Credit Agreement, as the Lenders, Keybank
                National Association, a national banking association, as the
                Administrative Agent for the Lenders, and Keybank National Association,
                a
                national banking association, as the LC Issuer, filed as Exhibit 4.3
                to the Company’s April 3, 2005, quarterly report on Form 10-Q,
                and incorporated herein by
                reference.





E-1
 *Table
            of Contents*




**INTERMEC,
      INC.**


**INDEX
      TO EXHIBITS**





From
                time to time other instruments defining the rights of holders of
                other
                long-term debt of the Company may not be filed as exhibits because
                the
                amount of debt authorized under any such instrument does not exceed
                10% of
                the total assets of the Company and its consolidated subsidiaries.
                The
                Company hereby undertakes to furnish a copy of any such instrument
                to the
                Commission upon request.10.1
            
            Distribution
                and Indemnity Agreement, dated October 31, 1997, between Western
                Atlas Inc. and the Company, filed as Exhibit 10.1 to the Company’s
                September 30, 1997 quarterly report on Form 10-Q, and
                incorporated herein by reference.10.2
            
            Tax
                Sharing Agreement, dated October 31, 1997, between Western Atlas Inc.
                and the Company, filed as Exhibit 10.2 to the Company’s
                September 30, 1997 quarterly report on Form 10-Q, and
                incorporated herein by reference.10.3
            
            Intellectual
                Property Agreement, dated October 31, 1997, between Western Atlas
                Inc. and the Company, filed as Exhibit 10.4 to the Company’s
                September 30, 1997, quarterly report on Form 10-Q, and
                incorporated herein by reference.10.4
            
            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
            
            2002
                Director Stock Option and Fee Plan, As Amended Effective January 1,
                2007, filed as Exhibit 10.7 to the Company’s October 1, 2006, quarterly
                report on Form 10-Q, and incorporated herein by
                reference.**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
            
            Form of
                Amended and Restated Change of Control Employment Agreement applicable
                to
                the Company’s Chief Executive Officer, filed as Exhibit 10.1 to the
                Company’s November 16, 2006, current report on Form 8-K, and
                incorporated herein by reference.**10.10
            
            Form of
                Amended and Restated Change of Control Employment Agreement applicable
                to
                the Company’s Executive Officers other than the Chief Executive Officer,
                filed as Exhibit 10.2 to the Company’s November 16, 2006, current
                report on Form 8-K, and incorporated herein by
                reference.**10.11
            
            Form of
                Executive Severance Plan applicable to Chief Executive Officer, filed
                as
                Exhibit 10.1 to the Company’s February 20, 2007, current report on Form
                8-K, and incorporated herein by
                reference.**





E-2
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            of Contents*




**INTERMEC,
      INC.**


**INDEX
      TO EXHIBITS**





10.12
            
            Form of
                Executive Severance Plan applicable to named executive officers other
                than
                the Chief Executive Officer filed as Exhibit 10.2 to the Company’s
                February 20, 2007, current report on Form 8-K, 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, filed on August 18, 1997, as Exhibit 10.1 to the Company’s
                registration statement on Form 10 No. 001-13279, and
                incorporated herein by reference.**10.15
            
            Amendment
                to Restoration Plan, executed August 6, 2004, filed as Exhibit 10.14
                to
                the Company’s 2005 annual report on Form 10-K, and incorporated
                herein by reference.**10.16
            
            Supplemental
                Executive Retirement Plan, filed on October 1, 1997, as
                Exhibit 10.H to Amendment No. 1 to the Company’s registration
                statement on Form 10 No. 001-13279, and incorporated herein by
                reference.**10.17
            
            Amendment
                No. 1 to Supplemental Executive Retirement Plan, dated
                September 23, 1998, filed as Exhibit 10.22 to the Company’s
                September 30, 1998, quarterly report on Form 10-Q, and
                incorporated herein by reference.**10.18
            
            Amendment
                No. 2 to Supplemental Executive Retirement Plan, dated March 11,
                1999, filed as Exhibit 10.15 to the Company’s 1998 annual report on
                Form 10-K, and incorporated herein by reference.**10.19
            
            Amendment
                No. 3 to Supplemental Executive Retirement Plan, dated March 15,
                2000, filed as Exhibit 10.20 to the Company’s 1999 annual report on
                Form 10-K, and incorporated herein by reference.**10.20
            
            Amendment
                No. 4 to Supplemental Executive Retirement Plan, dated July 11,
                2000, filed as Exhibit 10.15 to the Company’s June 30, 2000,
                quarterly report on Form 10-Q, and incorporated herein by
                reference.**10.21
            
            Amendment,
                dated August 6, 2004, to the Supplemental Executive Retirement Plan,
                filed as Exhibit 10.20 to the Company’s 2005 annual report on
                Form 10-K, and incorporated herein by reference.**10.22
            
            Amendment,
                dated June 29, 2006, to the Supplemental Executive Retirement Plan,
                filed
                as Exhibit 10.3 to the Company’s July 2, 2006, quarterly report on
                Form 10-Q, and incorporated herein by reference.**10.23
            
            1997
                Stock Incentive Plan, filed as Exhibit 10.12 to the Company’s
                September 30, 1997, quarterly report on Form 10-Q, and
                incorporated herein by reference.**10.24
            
            1999
                Stock Incentive Plan, filed as Annex A to the Company’s definitive Proxy
                Statement relating to the Annual Meeting of Shareholders held on
                May 7, 1999, and incorporated herein by
                reference.**





E-3
 *Table
            of Contents*




**INTERMEC,
      INC.**


**INDEX
      TO EXHIBITS**


10.25
              
              2001
                  Stock Incentive Plan, filed as Exhibit B to the Company’s definitive
                  Proxy Statement relating to the Annual Meeting of Shareholders
                  held on
                  May 8, 2001, and incorporated herein by
                  reference.**10.26
              
              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.**10.27
              
              Management
                  Incentive Compensation Plan, filed as Annex B to the Company’s 2002 Proxy
                  Statement, and incorporated herein by reference.**10.28
              
              2004
                  Omnibus Incentive Compensation Plan, filed as Appendix C to the
                  Company’s
                  definitive Proxy Statement relating to the Annual Meeting of Shareholders
                  held on May 6, 2004, and incorporated herein by
                  reference.**10.29
              
              Restated
                  2004 Omnibus Incentive Compensation Plan, filed as Exhibit 10.1
                  to the
                  Company’sJuly 2,
                  2006, quarterly report on Form 10-Q, and incorporated herein by
                  reference.**10.3
              
              Intermec
                  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.**10.31
              
              Adoption
                  Agreement to Intermec Deferred Compensation Plan, dated June 29,
                  2006. *
                  **10.32
              
              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.**10.33
              
              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.**10.34
              
              Form of
                  Restricted Stock Unit Agreement for awards under the 2004 Plan,
                  filed as
                  Exhibit 10.5 to the Company’s September 30, 2004, quarterly
                  report on Form 10-Q, and incorporated herein by
                  reference.**10.35
              
              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.**10.36
              
              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.**10.37
              
              Form of
                  Amendment dated December 23, 2005, to all Performance Share Unit
                  Agreements for Performance Periods begun in 2004 and 2005, filed
                  as
                  Exhibit 10.31 to the Company’s 2005 annual report on Form 10-K, and
                  incorporated herein by
                  reference.**




E-4
 *Table
            of Contents*




**INTERMEC,
      INC.**


**INDEX
      TO EXHIBITS**





10.38
            
            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.**10.39
            
            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.**10.40
            
            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.**10.41
            
            Form of
                Incentive Stock Option Agreement for awards under the 2001 Plan,
                filed as
                Exhibit 10.3 to the Company’s July 3, 2005, quarterly report on
                Form 10-Q, and incorporated herein by reference.**10.42
            
            Form of
                Non-Qualified Stock Option Agreement for awards under the 2001 Plan,
                filed
                as Exhibit 10.4 to the Company’s July 3, 2005, quarterly report
                on Form 10-Q, and incorporated herein by
                reference.**10.43
            
            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. **10.44
            
            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.**10.45
            
            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.**10.46
            
            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.





E-5
 *Table
            of Contents*


**INTERMEC,
        INC.**
 **INDEX
        TO EXHIBITS**


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 18, 2007.*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 18, 2007.*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 18, 2007.*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 18,
                2007.*




*   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.






E-6