Shareholders’ Equity

Stock Compensation Plans

Our 2008 Omnibus Incentive Plan was approved by our shareholders on May 23, 2008 (the “2008 Omnibus Plan”) and again on May 25, 2011. The 2008 Omnibus Plan provides for the grant of incentive awards to officers, other employees, directors and consultants. Previously, we made grants of incentive awards under the 2004 Omnibus Incentive Compensation Plan, the 2002 Director Stock Option and Fee Plan, the 2001 Stock Incentive Plan, and the 1999 Stock Incentive Plan (collectively, the “Prior Plans”). However, as of the date of shareholder approval of the 2008 Omnibus Plan, the 2008 Omnibus Plan replaced the Prior Plans and no new grants will be made under any of the Prior Plans.

The number of shares of common stock authorized for issuance under the 2008 Omnibus Plan, as amended May 25, 2011, is 5,600,000. In addition, (a) any shares not subject to awards under the Prior Plans as of May 23, 2008 (the date of stockholder approval of the 2008 Omnibus Plan) plus (b) any shares subject to outstanding awards under the Prior Plans as of May 23, 2008, that cease to be subject to such awards (other than from exercise or settlement of the awards in vested shares), such as from awards expiring, terminating or being forfeited, automatically become available for issuance under the 2008 Omnibus Plan, up to an aggregate maximum of 4,764,363 shares. Including the number of shares that may become available for issuance under the 2008 Omnibus Plan from the Prior Plans, as of May 23, 2008, the maximum number of shares that may be issued under the 2008 Omnibus Plan was 8,414,363 shares.

Shares of common stock covered by an award granted under the 2008 Omnibus Plan will not be counted as used unless and until they are issued and delivered to a participant. Such shares may also become available again for issuance under the 2008 Omnibus Plan if the awards to which the shares are subject are forfeited, lapse or expire, or are settled in cash, or if the shares are withheld for payment of taxes or the purchase price of an award.

As of December 31, 2012, there were 4,618,273 shares subject to outstanding awards granted under the 2008 Omnibus Plan and 1,010,103 shares subject to outstanding awards granted under the Prior Plans. As of December 31, 2012, there were 3.8 million shares available for grant under our 2008 Omnibus Plan.

Incentive awards may be granted in the form of nonqualified or incentive stock options, stock appreciation rights, restricted stock, stock units and performance units, performance shares or other stock or cash-based awards. Under the 2008 Omnibus Plan (with limited exceptions) and under the Prior Plans, stock options may not be granted at an exercise price less than the fair market value of our common stock on the date of grant. Options granted under the 2008 Omnibus Plan generally vest in equal increments of four years for options granted prior to 2011 and vest in equal increments of three years for options granted in 2011 and later. Options granted prior to 2011 expire in ten years, and options granted in 2011 and later expire in seven years, except in the case of earlier termination of employment or service. Options granted under the Prior Plans generally vest in equal increments over five years and expire in ten years, except in the case of earlier termination of employment or service.

Beginning in 2008, upon approval of the 2008 Omnibus Plan, grants of stock options and other awards are made to our non-employee directors under the 2008 Omnibus Plan. Under the “Director Compensation Program under the 2008 Omnibus Incentive Plan” (the “2008 Program”), directors are annually granted a combination of stock options and deferred restricted stock units. The number of stock options and deferred restricted stock units is determined under the terms of the 2008 Program. Certain pro-rata grants were made in 2008 to reflect the transition from the arrangements in prior calendar years, and these grants vested on December 31, 2008. In 2009, the Board made a one-time 25% reduction in the number of stock options and deferred restricted stock units that would have been granted under the 2008 Program. In 2010, the Board made a one-time 75% reduction in the number of stock options that would have been granted under the 2008 Program. Annual option grants generally vest and become exercisable in four equal installments on the first business day of each fiscal quarter, beginning on the date of grant, and generally expire seven years from the date of grant. Deferred restricted stock unit grants become fully vested on the date of the annual meeting of stockholders following the date of grant, provided a director continues to serve on the Board during that period. In the event of a director’s termination of service prior to vesting, all nonvested deferred restricted stock units are automatically forfeited. All deferred restricted stock unit grants to directors under the 2008 Program will automatically be deferred into and subject to the Director Deferred Compensation Plan. In January 2012, the Board revised the 2008 Program to eliminate annual option and deferred restricted stock unit grants to directors, and instead to provide for annual grants of restricted stock units. The annual restricted stock units vest quarterly, but are payable upon the first anniversary of the date of grant, subject to the director’s election to defer receipt of payout in accordance with the terms of the Director Deferred Compensation Plan.

Awards granted to employees must be approved or authorized by the Compensation Committee of the Board of Directors, which consists entirely of non-employee directors. The Compensation Committee has delegated certain authority related to grants to non-executive employee grants to a subcommittee of Directors of the Board. Awards granted to non-employee directors must be approved or authorized by the Governance Committee of the Board of Directors.

We account for stock-based compensation expense based on the grant-date fair value of awards. Stock-based compensation expense for awards with only service vesting conditions is generally recognized as expense over the applicable vesting period of the stock award using a straight-line amortization method, net of estimated forfeitures. When estimating forfeitures, we consider actual voluntary and involuntary termination trends.

The impact of stock-based compensation expense on our results of operations during 2012, 2011 and 2010 was as follows (in thousands):



	Year Ended December 31,
	2012		2011		2010
Cost of revenue	$	252	$	252	$	252
Selling, general and administrative	6,532		10,687		8,317
Total	$	6,784	$	10,939	$	8,569

The related income tax benefit from stock-based compensation cost recognized in income was $1.0 million and $0.6 million for the years ended December 31, 2011 and 2010, respectively. For the year ended December 31, 2012, there was no related income tax benefit from stock-based compensation.

Stock Options

The fair value of stock option awards is estimated on the date of grant using the Black-Scholes option-pricing model. The assumptions used in the model are as follows:


•	Expected life. The period of time that an option is expected to be outstanding based on historical experience of similar awards granted under our plans, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior.


•	Expected volatility. Based on a combination of the actual historical volatility of our stock and the implied volatility of exchange-traded options on our own stock. Historical volatility is calculated over a period of time equal to the expected life of the options granted.


•	Expected dividend yield. Based on forecasted dividend yield; not applicable to us, as we do not pay dividends.


•	Risk-free interest rate. Based on the implied yield of U.S. Treasury zero-coupon issues with a remaining term equal to the expected life.

The weighted averages of the assumptions used to determine the fair value of employee stock options granted during 2012, 2011 and 2010 were as follows:



Employee stock option grants	2012		2011		2010
Fair value assumptions:
Expected life in years	5.71		5.14		5.08
Expected volatility	51.00	%	43.65	%	42.72	%
Expected dividend yield	0.00	%	0.00	%	0.00	%
Risk-free interest rate	0.89	%	1.45	%	2.06	%

During 2012, we granted 621,605 options to our employees, including 227,780 performance-vested stock options. For non-performance vested stock options, we calculated weighted-average grant-date fair values per option of $2.76, $3.84 and $4.68 during the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, we do not expect the performance target thresholds for the performance-vested stock options to be met.

The weighted averages of the assumptions used to determine the fair value of director stock option awards in 2011 and 2010 were as follows:



Director stock option grants	2011		2010
Fair value assumptions:
Expected life in years	4.99		6.51
Expected volatility	43.34	%	44.29	%
Expected dividend yield	0.00	%	0.00	%
Risk-free interest rate	0.19	%	2.08	%

During 2012, we did not grant options to our directors. During 2011 and 2010, we granted options to our directors with a weighted-average grant-date fair value per option of $4.48 and $5.09, respectively.

The following table summarizes the stock option activity for the year ended December 31, 2012:



Stock options	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value¹ (in thousands)
Outstanding at December 31, 2011	4,320,803		$	16.04
Granted	621,605		5.78
Exercised	(9,427	)	7.67
Forfeited	(425,342	)	13.63
Expired	(600,929	)	19.63
Outstanding at December 31, 2012	3,906,710		$	14.14	6.27	$	3,000,993

Vested and expected to vest at December 31, 2012	3,906,710		$	14.14	6.27	$	3,000,993

Exercisable at December 31, 2012	2,502,908		$	16.98	6.28	$	434,726

¹ The aggregate intrinsic value in the table above is the amount by which the market value of the underlying stock exceeded the exercise price of outstanding options, before applicable income taxes; and represents the amount the option holder would have realized if all in-the-money options had been exercised on the last business day of the period indicated.

The total intrinsic value of stock options exercised was not material in 2012 and 2011, and was $1.0 million in 2010.

Total unrecognized compensation expense related to unvested stock options was $3.9 million, which is expected to be recognized over a weighted-average period of 1.9 years.

Cash received from option exercises during 2012, 2011 and 2010 was $0.1 million, $0.2 million and $0.6 million, respectively. The related income tax benefit from compensation deductions on stock option exercises during 2012, 2011 and 2010 was not material.

Restricted Stock and Performance Share Units

The fair value of each restricted stock unit ("RSU") is the fair value of the underlying stock as of the date of grant. RSUs typically vest over a total of three fiscal years, with one-third of the award vesting each year on the anniversary of the grant date. Compensation expense for RSUs is recognized on a straight-line basis over the vesting period.

Performance share units ("PSU") are a form of stock award in which the number of shares ultimately received depends on performance against specified performance targets. The performance period is typically January 1 through December 31 and covers a period of three fiscal years. At the end of the performance period, the number of shares of stock and stock awards issued is determined by adjusting upward or downward from the target in a range between 0% and 200%. The final payout performance percentage is determined by the Board of Directors or a committee of the Board at its sole discretion. Compensation expense for PSUs is recognized on a straight-line basis over the vesting period, generally three years.

The following table summarizes changes in nonvested restricted stock and performance share units:



Restricted stock units	Number of Shares		Weighted Average Grant Date Fair Value
Nonvested balance at December 31, 2011	760,627		11.73
Granted	1,137,148		6.78
Vested	(364,111	)	9.91
Forfeited	(228,129	)	10.90
Nonvested balance at December 31, 2012	1,305,535		7.72

Performance share units
Nonvested balance at December 31, 2011	506,267		13.98
Granted	129,564		7.73
Vested	(2,313	)	14.76
Forfeited	(557,622	)	10.60
Nonvested balance at December 31, 2012	75,896		10.84

At December 31, 2012, total unrecognized compensation expense related to nonvested restricted stock was $8.6 million, which is expected to be recognized over a weighted-average period of 1.8 years.

At December 31, 2012, total unrecognized compensation expense related to nonvested performance share units was $0.3 million, which is expected to be recognized over a weighted-average period of 1.0 years.

The related income tax benefit from compensation deductions on restricted stock units was $0.6 million, $1.0 million and $0.3 million during 2012, 2011 and 2010, respectively. We had no related income tax benefit for performance share units during 2012, 2011 or 2010.

The fair value of vested RSU and PSU shares during the years 2012, 2011 and 2010 was as follows (in thousands):



	2012		2011		2010
Total fair value of restricted stock units vested	$	1,676	$	2,804	$	749
Total fair value of performance share units vested	$	34	$	—	$	—

Employee Stock Purchase Plan

Our 2008 Employee Stock Purchase Plan was approved by our shareholders on May 23, 2008 (the “2008 ESPP”) and became effective on July 1, 2008. Under the 2008 ESPP, 1,500,000 shares of our common stock were authorized and reserved for issuance. During 2012, the 2008 Plan was amended and restated to increase this authorization by an additional 1,500,000 shares to a total aggregate maximum of 3,000,000 shares of our common stock.

The 2008 ESPP provides for the issuance to our employees of shares of our common stock pursuant to options granted under: (a) an employee stock purchase plan that is intended to qualify under the terms of Internal Revenue Code Section 423(b) (the “423 Plan”); and (b) an employee stock purchase plan that is not intended to qualify under Internal Revenue Code Section 423(b) (the “Non-423 Plan”). Participants granted options under the 423 Plan must have the same rights and privileges within the meaning of U.S. federal tax laws, except as may be required by other applicable laws.

If an Intermec subsidiary participates either in the 423 Plan or in the Non-423 Plan, all eligible employees of that subsidiary may elect to participate in the 2008 ESPP. Eligible employees who elect to participate in the 2008 ESPP may authorize payroll deductions for the purchase of our common stock but may not purchase more than $25,000 worth of shares in any calendar year (based on the fair market value of a share as of the beginning of an offering period). Participants may, at any time and for any reason, cancel their payroll deduction authorizations and have accumulated payroll deductions applied to the purchase of shares under the 2008 ESPP or have the amount refunded to them. Offering periods under the 2008 ESPP begin on the first day of the quarter and end on the last day of that quarter. Accumulated payroll deductions are used to purchase our common stock at 85 percent of the fair market value of a share as of the last day of an offering period.

We incur compensation expense equal to the value of the 15% discount given to participants for the purchase of shares under the 2008 ESPP. The aggregate compensation expense related to the 2008 ESPP for the years ended December 31, 2012, 2011 and 2010, was $0.4 million, $0.3 million and $0.2 million, respectively. The compensation expense under our 2008 ESPP is recognized straight-line over the period from the start of the offering period to the date shares are purchased, which is a three-month period. The related income tax benefit from compensation deductions related to the employee stock purchase plan was $0.1 million during 2012 and was not material during 2010 and 2011.

In connection with the Merger Agreement with Honeywell, the company has suspended the commencement of any offering periods under the ESPP after December 31, 2012. The Company could resume offering periods under the ESPP if the Merger were not to occur.

Capital Stock

At December 31, 2012 and 2011, there were 250 million shares of common stock, par value $0.01, and 50 million shares of preferred stock, par value $0.01 authorized for issuance. At December 31, 2012 and 2011, 60,353,839 and 59,717,242 shares of common stock were outstanding, respectively. There were no shares of preferred stock outstanding at December 31, 2012 and 2011.

Loss Per Share

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

Shares used for computing basic and diluted loss per share were computed as follows for the years ended December 31, 2012, 2011 and 2010 (in thousands, except per share data):



	2012			2011			2010
Net loss	$	(282,503	)	$	(30,757	)	$	(5,325	)

Weighted-average common shares outstanding - basic	60,324			60,098			61,364
Dilutive effect of nonvested restricted shares and stock options	—			—			—
Weighted-average shares outstanding - diluted	60,324			60,098			61,364

Loss per share:
Basic	$	(4.68	)	$	(0.51	)	$	(0.09	)
Diluted	$	(4.68	)	$	(0.51	)	$	(0.09	)

At December 31, 2012, 2011 and 2010, we excluded approximately 3,268,152, 4,316,869 and 3,616,015 stock options, respectively, from our calculation of diluted loss per share, because their inclusion would have been anti-dilutive due to: i) their exercise prices exceeding the average market price of our stock during the respective periods, and ii) regardless of exercise price, all outstanding stock options were excluded due to the net loss recorded for each such period. In periods where net earnings are reported, these options may become dilutive if the average market price of our common stock exceeds the exercise price of the outstanding options.

Share Repurchases

During the year ended December 31, 2010, pursuant to our previously announced share repurchase authorization by our Board of Directors of $75 million, we entered into share repurchase agreements with a broker under Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, to facilitate the repurchase of up to an aggregate total of $20 million of our outstanding common stock. During 2010, we repurchased 1,835,865 shares of our outstanding common stock at an average price of $10.89 per share pursuant to these share repurchase agreements.

During the year ended December 31, 2011, we entered into a share repurchase agreement with a broker under Rule 10b5-1 and Rule 10b-18 of the Securities Exchange Act of 1934, to facilitate the repurchase of up to an aggregate total of $10 million of our outstanding common stock, pursuant to our previously announced share repurchase authorization approved by our Board of Directors in 2010. During 2011, we repurchased 936,533 shares of our outstanding common stock at an average price of $10.68 per share pursuant to the share repurchase agreement.

During the year ended December 31, 2012, we made no share repurchases. At December 31, 2012, we had a remaining authorization of $45.0 million.

Accumulated Other Comprehensive Loss

At December 31, 2012 and 2011, the changes in the balances of each component of accumulated other comprehensive loss was as follows (in thousands):



	Foreign currency translation adjustment			Unrealized gain (loss) on investments, net of tax			Unamortized benefit plan costs, net of tax			Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2009	$	3,900		$	(182	)	$	(43,402	)	$	(39,684	)

Other comprehensive income (loss), net of tax	(2,610		)	37			(11,860		)	(14,433		)
Balance, December 31, 2010	1,290			(145		)	(55,262		)	(54,117		)

Other comprehensive loss, net of tax	(5,967		)	(34		)	(19,359		)	(25,360		)
Balance, December 31, 2011	(4,677		)	(179		)	(74,621		)	(79,477		)

Other comprehensive income (loss), net of tax	1,873			38			(9,378		)	(7,467		)
Balance, December 31, 2012	$	(2,804	)	$	(141	)	$	(83,999	)	$	(86,944	)

Other Comprehensive Loss

Other comprehensive loss is reflected as a net decrease to shareholders’ equity and is not reflected in our results of operations. The before-tax amount, income tax (provision) benefit, and net-of-tax amount related to each component of other comprehensive loss during the reporting periods were as follows (in thousands):



	Year Ended December 31,
	2012			2011			2010
Before-tax amount:
Foreign currency translation adjustments	$	1,873		$	(5,967	)	$	(2,610	)
Unrealized gain (loss) on investments	57			(54		)	58
Amortization of benefit plan costs	(9,378		)	(30,524		)	(18,419		)
Total other comprehensive loss, before tax	(7,448		)	(36,545		)	(20,971		)

Tax (provision) benefit:
Foreign currency translation adjustments	—			—			—
Unrealized gain (loss) on investments	(19		)	20			(21		)
Amortization of benefit plan costs	—			11,165			6,559
Total other comprehensive loss, tax (provision) benefit	(19		)	11,185			6,538

Net-of-tax amount:
Foreign currency translation adjustments	1,873			(5,967		)	(2,610		)
Unrealized gain (loss) on investments	38			(34		)	37
Amortization of benefit plan costs	(9,378		)	(19,359		)	(11,860		)
Total other comprehensive loss, net of tax	$	(7,467	)	$	(25,360	)	$	(14,433	)

Merger Related Information

On December 9, 2012, Intermec entered into an Agreement and Plan of Merger with Honeywell International Inc. ("Honeywell") and Hawkeye Merger Sub Corp., a wholly owned subsidiary of Honeywell ("Merger Sub"). See Note 1. Significant Accounting Policies, for further details regarding the merger agreement.

After completion of the Merger, Honeywell will own 100% of Intermec's outstanding stock, and current stockholders will no longer have any interest in Intermec. If the Merger is completed, each share of Intermec common stock outstanding immediately prior to the effective time of the Merger (other than shares held by us as treasury stock and any shares owned by Honeywell or Merger Sub or any of their respective wholly owned subsidiaries, or by holders properly exercising appraisal rights under Delaware law), will be converted at the effective time of the Merger into the right to receive cash, without interest and subject to any required withholding of taxes, in the amount of $10.00 per share.

Each Intermec option outstanding immediately prior to the Merger, whether or not then vested and exercisable, will be cancelled and converted into the right to receive, for each share of common stock subject to such stock option, an amount in cash equal to the excess, if any, of $10.00 over the per share exercise price of such option, without interest and subject to any required withholding of taxes. In addition, restricted stock units and performance share units will become fully vested and payable, and the holder of such units will be entitled to receive, in full settlement of such restricted stock units or performance share units, an amount in cash equal to the product of (a) $10.00 multiplied by (b) the number of shares of our common stock subject to such restricted stock units or deemed payable under such performance share units, without interest and subject to any required withholding of taxes.