Acquisition And Goodwill

9 Months Ended

Oct. 02, 2011

Acquisition And Goodwill

Acquisition And Goodwill

Note 2. Acquisition and Goodwill

On March 3, 2011, we completed our acquisition of Vocollect by acquiring all of the outstanding shares of capital stock of Vocollect and all in-the-money options to purchase shares of common stock of Vocollect for an aggregate purchase price of approximately $197 million in cash. Vocollect provides voice-centric solutions for mobile workers in distribution, warehouse and healthcare environments worldwide through design, manufacture and sale of voice data collection terminals and related software. This acquisition is part of our strategy to expand our warehouse and mobility solutions.

We have included the financial results of Vocollect in our condensed consolidated financial statements from the date of acquisition. Vocollect acquisition and related costs of approximately $0.3 and $5.1 million were recorded as an expense for the three and nine months ended October 2, 2011, respectively, and are included in the total acquisition costs of $0.6 and $5.8 million in our condensed consolidated statement of operations for the three and nine months ended October 2, 2011. The remainder of the acquisition costs recorded in the three and nine months ended October 2, 2011 relate to an immaterial acquisition. Acquisition related costs include direct integrations costs and professional services.

The allocation of the purchase price to Vocollect's assets acquired and liabilities assumed, net of cash acquired, is as follows (in thousands):

	At Acquisition March 3, 2011			Adjustments			At Acquisition March 3, 2011 (Adjusted)
Accounts receivable (gross contractual	$	20,569		$	—		$	20,569
receivables totals to $21,461)
Inventories		6,800			1,100			7,900
Net deferred tax assets		7,552			—			7,552
Other current assets		1,606			5,747			7,353
Goodwill (including $7.9 million for assembled workforce)		131,167			9,623			140,790
Intangible assets		85,600			(18,100	)		67,500
Property, plant and equipment		10,060			(937	)		9,123
Other assets		3,235			(3,098	)		137
Accounts payable		(6,818	)		—			(6,818	)
Payroll and related expenses		(531	)		(8,281	)		(8,812	)
Deferred revenue		(11,616	)		—			(11,616	)
Accrued expenses		(11,231	)		2,492			(8,739	)
Deferred tax liabilities		(35,370	)		12,800			(22,570	)
Long-term deferred revenue		(4,282	)		—			(4,282	)
Other long-term liabilities		(370	)		(1,000	)		(1,370	)
Total net assets acquired	$	196,371		$	346		$	196,717

The adjustments identified above were recorded in the second and third quarters of 2011 and are required to properly reflect the fair value of the assets acquired and liabilities assumed in connection with our acquisition of Vocollect on March 3, 2011. In the second quarter, we adjusted the value of the acquired inventory, other current assets, intangible assets, property, plant and equipment, other assets, assumed accrued expenses, deferred tax liabilities, and other long-term liabilities. We also recognized an assumed liability of $1.0 million for the probable amount earned under Vocollect's Long Term Incentive Plan ("LTIP"). In the third quarter, we finalized our analysis of customer retention rates and reduced the useful life of the acquired customer relationships from 13 years to 11 years which resulted in an $18.5 million reduction in the value of that intangible asset. Deferred tax liabilities were adjusted for the reduction of the customer relationship asset and to recognize the tax benefit attributable to payments anticipated to be made in the future to former Vocollect stock option holders. The remaining open matters in the acquisition accounting include the valuation and useful life of developed technologies, will be finalized in the fourth quarter.

Goodwill recognized is attributable primarily to the expected synergies and the assembled workforce of Vocollect and is not deductible for income tax purposes. Goodwill associated with the Vocollect acquisition has been allocated to the Voice solutions reportable segment.

The carrying value of goodwill by reporting unit as of October 2, 2011 is as follows (in thousands):

Reportable Segment	Reporting Unit	Goodwill at October 2, 2011
Intermec-branded services:	IGS	$	2,656
Voice solutions:	Supply chain		131,310
	Healthcare		9,480
	Total:	$	143,446

Refer to Note 1: Summary of Significant Accounting Policies for a description of our reporting units and the methods used to determine the fair value of our reporting units for purposes of completing the interim impairment analysis.

The changes to the carrying amount of goodwill for the nine months ended October 2, 2011 are as follows (in thousands):

Goodwill balance at December 31, 2010	$	1,152
Goodwill from acquisition of Vocollect		140,790
Goodwill from other acquisitions		1,214
Deferred tax adjustment for 2010 acquisition		290
Goodwill balance at October 2, 2011	$	143,446

The following table presents the gross carrying amount and accumulated amortization of other acquired intangible assets as of October 2, 2011 (in thousands):

	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Useful Life
Developed technology	$	40,200	$	6,592	$	33,608		5 years
In-process research and development		1,900		194		1,706		7 years
Customer relationships		17,600		436		17,164		11 years
Trademarks		5,200		212		4,988		10 years
Lease agreements		2,600		171		2,429		8 years
Total other acquired intangible assets from Vocollect acquisition:		67,500		7,605		59,895
Other intangibles		14,180		8,906		5,274
Total	$	81,680	$	16,511	$	65,169

Total amortization expense on other acquired intangibles for the three and nine months ended October 2, 2011 was $3.3 million and $7.6 million, respectively. Estimated future amortization expense for intangible assets for the next five years is as follows (in thousands):

Year	Amount
2012	$	14,100
2013		7,300
2014		4,500
2015		3,000
2016		3,000

The following table presents the total revenue and net income (loss) for Vocollect, including amortization of intangibles and other purchase accounting charges resulting from the acquisition of Vocollect for the three and nine months ended October 2, 2011 (in thousands):

	Three Months Ended October 2, 2011		Nine Months Ended October 2, 2011
Revenue	$	30,784	$	71,040
Net income (loss)		129		(6,020	)

Unaudited Pro Forma Financial Information

The unaudited pro forma financial information in the table below summarizes the combined results of operations for Intermec and Vocollect as though the acquisition occurred at the beginning of fiscal 2010. The pro forma financial information presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisitions and any borrowings undertaken to finance the acquisition had taken place at the beginning of fiscal 2010. Results for the three months ended October 2, 2011 are actual results, not proforma, and are included for comparative purposes.

	Three Months Ended					Nine Months Ended
(in thousands)	October 2, 2011		September 26, 2010			October 2, 2011			September 26, 2010
Total revenues	$	211,805	$	195,448		$	629,716		$	558,301
Net income (loss)		704		(9,242	)		(6,302	)		(22,842	)