UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended July 1, 2012
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
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 | |
incorporation or organization) | Identification No.) | |
6001 36th Avenue West, Everett, WA | 98203-1264 | |
(Address of principal executive offices) | (Zip Code) |
(425) 348-2600
(Registrants telephone number, including area code)
[None]
(Former name, former address and former fiscal year, if changed since last report)
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 ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | x | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company filer | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
Outstanding at August 1, 2012 | |
Common Stock, $0.01 par value per share | 60,237,626 shares |
INTERMEC, INC.
Page Number |
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PART I. FINANCIAL INFORMATION | ||||||
ITEM 1. | Financial Statements | |||||
Condensed Consolidated Balance Sheets (Unaudited) as of July 1, 2012 and December 31, 2011 |
3 | |||||
4 | ||||||
5 | ||||||
6 | ||||||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
7-20 | |||||
ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
21 | ||||
ITEM 3. | 33 | |||||
ITEM 4. | 33 | |||||
PART II. OTHER INFORMATION | ||||||
ITEM 1. | Legal Proceedings | 34 | ||||
ITEM 1A. | Risk Factors | 34 | ||||
ITEM 6. | Exhibits | 35 | ||||
Signature | 36 |
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
July 1, 2012 |
December 31, 2011 |
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ASSETS | ||||||||
Current assets: |
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Cash and cash equivalents |
$ | 74,711 | $ | 95,108 | ||||
Short-term investments |
181 | 170 | ||||||
Accounts receivable, net |
132,172 | 139,737 | ||||||
Inventories |
97,944 | 103,622 | ||||||
Current deferred tax assets, net |
8,158 | 84,541 | ||||||
Other current assets |
28,908 | 24,226 | ||||||
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Total current assets |
342,074 | 447,404 | ||||||
Deferred tax assets, net |
7,379 | 141,064 | ||||||
Goodwill |
101,996 | 143,510 | ||||||
Intangible assets, net |
52,610 | 61,996 | ||||||
Property, plant and equipment, net |
42,977 | 47,086 | ||||||
Other assets, net |
19,546 | 28,230 | ||||||
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Total assets |
$ | 566,582 | $ | 869,290 | ||||
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LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Current liabilities: |
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Accounts payable |
$ | 70,833 | $ | 92,607 | ||||
Payroll and related expenses |
26,711 | 32,540 | ||||||
Deferred revenue |
60,074 | 47,234 | ||||||
Accrued expenses |
26,727 | 35,118 | ||||||
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Total current liabilities |
184,345 | 207,499 | ||||||
Long-term debt |
85,000 | 85,000 | ||||||
Pension and other postretirement benefits liabilities |
126,309 | 124,058 | ||||||
Long-term deferred revenue |
28,883 | 28,960 | ||||||
Other long-term liabilities |
15,975 | 15,344 | ||||||
Commitments and contingencies |
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Shareholders equity: |
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Common stock (250,000 shares authorized, 63,419 and 62,956 shares issued and 60,113 and 59,717 outstanding) |
639 | 636 | ||||||
Additional paid-in capital |
701,111 | 697,597 | ||||||
Accumulated deficit |
(489,939 | ) | (210,327 | ) | ||||
Accumulated other comprehensive loss |
(85,741 | ) | (79,477 | ) | ||||
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Total shareholders equity |
126,070 | 408,429 | ||||||
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Total liabilities and shareholders equity |
$ | 566,582 | $ | 869,290 | ||||
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See accompanying notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||
Revenues: |
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Product |
$ | 158,357 | $ | 177,751 | $ | 294,828 | $ | 319,487 | ||||||||
Service |
42,594 | 43,331 | 85,801 | 80,113 | ||||||||||||
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Total revenues |
200,951 | 221,082 | 380,629 | 399,600 | ||||||||||||
Costs and expenses: |
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Cost of product revenues |
99,973 | 106,441 | 191,312 | 194,239 | ||||||||||||
Cost of service revenues |
21,781 | 23,325 | 44,195 | 45,752 | ||||||||||||
Research and development |
20,431 | 22,858 | 40,440 | 40,674 | ||||||||||||
Selling, general and administrative |
61,412 | 66,052 | 127,419 | 120,295 | ||||||||||||
Impairment of goodwill |
26,589 | | 41,514 | | ||||||||||||
Gain on sale of assets |
(1,255 | ) | | (2,655 | ) | | ||||||||||
Acquisition costs |
| 373 | | 5,211 | ||||||||||||
Restructuring costs |
5,598 | 5,111 | 5,598 | 5,111 | ||||||||||||
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Total costs and expenses |
234,529 | 224,160 | 447,823 | 411,282 | ||||||||||||
Operating loss |
(33,578 | ) | (3,078 | ) | (67,194 | ) | (11,682 | ) | ||||||||
Interest income |
80 | 306 | 201 | 403 | ||||||||||||
Interest expense |
(882 | ) | (883 | ) | (1,632 | ) | (1,393 | ) | ||||||||
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Loss before income taxes |
(34,380 | ) | (3,655 | ) | (68,625 | ) | (12,672 | ) | ||||||||
Income tax expense (benefit) |
3,142 | 141 | 210,987 | (2,798 | ) | |||||||||||
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Net loss |
$ | (37,522 | ) | $ | (3,796 | ) | $ | (279,612 | ) | $ | (9,874 | ) | ||||
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Loss per common share: |
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Basic loss per share |
$ | (0.62 | ) | $ | (0.06 | ) | $ | (4.65 | ) | $ | (0.16 | ) | ||||
Diluted loss per share |
$ | (0.62 | ) | $ | (0.06 | ) | $ | (4.65 | ) | $ | (0.16 | ) | ||||
Shares used in computing: |
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Basic loss per share |
60,251 | 59,784 | 60,140 | 60,070 | ||||||||||||
Diluted loss per share |
60,251 | 59,784 | 60,140 | 60,070 |
See accompanying notes to condensed consolidated financial statements.
4
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(In thousands)
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||
Net loss: |
$ | (37,522 | ) | $ | (3,796 | ) | $ | (279,612 | ) | $ | (9,874 | ) | ||||
Other comprehensive loss: |
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Foreign currency translation adjustments |
(5,525 | ) | 2,716 | (2,014 | ) | 7,636 | ||||||||||
Unrealized gain (loss) on investment |
(9 | ) | (1 | ) | (9 | ) | (3 | ) | ||||||||
Amortization of benefit plan costs |
(2,119 | ) | 562 | (4,237 | ) | 1,182 | ||||||||||
Income tax on other comprehensive income |
(4 | ) | (202 | ) | (4 | ) | (425 | ) | ||||||||
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Total other comprehensive income |
(7,657 | ) | 3,075 | (6,264 | ) | 8,390 | ||||||||||
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Total comprehensive loss |
$ | (45,179 | ) | $ | (721 | ) | $ | (285,876 | ) | $ | (1,484 | ) | ||||
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See accompanying notes to condensed consolidated financial statements.
5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended | ||||||||
July 1, 2012 | July 3, 2011 | |||||||
Cash and cash equivalents at beginning of the period |
$ | 95,108 | $ | 221,467 | ||||
Cash flows from operating activities: |
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Net loss |
(279,612 | ) | (9,874 | ) | ||||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
18,015 | 12,815 | ||||||
Deferred taxes |
211,321 | (6,810 | ) | |||||
Stock-based compensation |
3,125 | 4,376 | ||||||
Impairment of goodwill |
41,514 | | ||||||
Gain on sale of assets |
(2,655 | ) | | |||||
Gain on company owned life insurance |
(1,174 | ) | | |||||
Change in pension and other postretirement plans |
(1,963 | ) | (608 | ) | ||||
Changes in operating assets and liabilities: |
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Accounts receivable |
7,363 | (4,321 | ) | |||||
Inventories |
5,032 | (1,507 | ) | |||||
Other current assets |
(4,703 | ) | (3,948 | ) | ||||
Accounts payable |
(21,151 | ) | 2,607 | |||||
Payroll and related expenses |
(5,736 | ) | 1,777 | |||||
Accrued expenses |
(7,984 | ) | (8,551 | ) | ||||
Deferred revenue |
13,041 | 5,365 | ||||||
Other operating activities |
(1,232 | ) | 1,514 | |||||
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Net cash used in operating activities |
(26,799 | ) | (7,165 | ) | ||||
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Cash flows from investing activities: |
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Acquisitions, net of cash acquired |
| (200,810 | ) | |||||
Additions to property, plant and equipment |
(4,551 | ) | (11,534 | ) | ||||
Proceeds from sale of assets |
2,359 | | ||||||
Proceeds from company owned life insurance |
8,962 | | ||||||
Other investing activities |
(346 | ) | (699 | ) | ||||
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Net cash provided by (used in) investing activities |
6,424 | (213,043 | ) | |||||
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Cash flows from financing activities: |
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Proceeds from issuance of debt |
| 97,000 | ||||||
Repayment of debt |
| (20,000 | ) | |||||
Stock repurchase |
| (10,014 | ) | |||||
Stock options exercised and other |
1,034 | 1,097 | ||||||
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Net cash provided by financing activities |
1,034 | 68,083 | ||||||
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Effect of exchange rate changes on cash and cash equivalents |
(1,056 | ) | 6,098 | |||||
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Net change in cash and cash equivalents |
(20,397 | ) | (146,027 | ) | ||||
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Cash and cash equivalents at end of the period |
$ | 74,711 | $ | 75,440 | ||||
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Cash paid during the period for income taxes |
$ | (7,091 | ) | $ | (4,317 | ) | ||
Cash paid during the period for interest |
(1,008 | ) | (1,443 | ) |
See accompanying notes to condensed consolidated financial statements.
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 1. Basis of Presentation
Our interim financial periods are based on a thirteen-week internal accounting calendar. In our opinion, the accompanying balance sheets, statements of operations, statements of cash flows and statements of comprehensive income (loss) include all adjustments, consisting mainly of normal recurring items, necessary for their fair presentation in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). The condensed consolidated financial statements include the accounts of Intermec and its subsidiaries. Intercompany transactions and balances have been eliminated. Preparing our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and financial data included in the accompanying notes to the financial statements. Actual results and outcomes may differ from our estimates and assumptions.
Interim results are not necessarily indicative of results for a full year. The information included in this Form 10-Q should be read in conjunction with Managements Discussion and Analysis of Financial Condition and Results of Operations and the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2011 (the 2011 Form 10-K).
Recently Adopted Accounting Pronouncements
Fair Value Measurement - In May 2011, the Financial Accounting Standards Board (FASB) issued guidance which generally provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements, particularly for Level 3 fair value measurements. This guidance was effective for interim and annual reporting periods beginning after December 15, 2011 and was applied on a prospective basis. The Company adopted the guidance on January 1, 2012, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption, see Note 3 Fair Value Measurements for additional disclosures related to this pronouncement.
Comprehensive Income - In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, (ASU 2011-05). ASU 2011-05 eliminates the option to report other comprehensive income (loss) and its components in the statement of changes in equity and requires that all nonowner changes in stockholders equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU 2011-12, Comprehensive Income Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05, to defer the effective date to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this guidance in the first quarter of 2012 and applied it retrospectively. To implement this standard we have added a separate statement labeled Condensed Consolidated Statement of Comprehensive Income (Loss).
Intangibles Goodwill and Other - In September 2011, the FASB issued ASU No. 2011-08, Intangibles Goodwill and Other (Topic 350) (ASU 2011-08). The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This new guidance was adopted and applied in January 2012. The adoption of this accounting standard update did not have an impact on our financial position, results of operations, cash flows, or comprehensive income as it is intended to potentially simplify the assessment for goodwill impairment.
Reclassification
Certain reclassifications have been made to prior periods to conform to the present year presentation. Specifically, for the three and six months ended July 3, 2011 we have reclassified certain costs that were in cost of service revenues to cost of product revenues in the amount of $0.8 and $1.7 million, respectively. This reclassification has no impact on previously reported earnings from operations or net income. In addition, we have reclassified change in pension and other postretirement plans, net, previously reported in other operating activities into its own line item on the condensed consolidated statement of cash flows.
Offsetting of Financial Assets and Financial Liabilities
The Company has taken out policy loans from an insurance company on life insurance policies it owns and offsets these loans against the cash surrender values associated with the company owned life insurance policies. There is no intention to repay the loans prior to maturity or cancellation, and the company owned life insurance policies allow the right to offset the loan against the proceeds received on maturity or cancellation of the policies. The gross amount of the cash surrender values was $22.9 and $26.1 million at July 1, 2012 and December 31, 2011 respectively. The gross amount of the policy loans was $21.4 million and $16.0 million at July 1, 2012 and December 31, 2011 respectively. The net amounts of $1.5 million and $10.1 million at July 1, 2012 and December 31, 2011 respectively are included in our condensed consolidated balance sheets in Other assets, net.
Note 2: Revolving Credit Facility
Effective March 3, 2011, we amended our unsecured revolving credit facility with Wells Fargo Bank, National Association (the Bank) to convert the facility to a three-year, $100 million, secured revolving credit facility, which originally matured on March 3, 2014 (the Revolving Facility). The unsecured revolving credit facility was initiated on September 27, 2007. On
7
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
December 21, 2011, we amended the Revolving Facility to expand our borrowing capacity to $150 million and extended the maturity date to December 31, 2014. On February 2, 2012, we amended the Revolving Facility to modify certain financial covenants relating to net income. Effective March 30, 2012, we amended the Revolving Facility to remove certain financial covenants, to add a new covenant related to minimum adjusted EBITDA and to add a new financial covenant for permitted acquisitions. We were in compliance with all financial and non-financial covenants of the Revolving Facility at July 1, 2012.
In addition to financing the acquisition of Vocollect in 2011, the Revolving Facility is used for general corporate purposes. The Revolving Facility includes financial covenants and is secured by pledges of equity in certain assets of our domestic subsidiaries and guaranties of payment obligations from certain of our domestic subsidiaries. At July 1, 2012, after considering the financial covenant requirements, we had borrowing capacity of $7.3 million under the Revolving Facility with borrowings of $85 million and $1.5 million of letters of credit outstanding. The amount outstanding under the Revolving Facility bears interest at a variable rate equal to LIBOR plus a margin ranging from 1.25% to 1.75%. For the three and six months ended July 1, 2012, the weighted average interest rate on borrowed funds under the Revolving Facility was 2.23% and 2.26%, respectively.
At July 1, 2012, scheduled principal payments on long-term debt were as follows (in thousands):
Total | ||||
2012-2013 |
$ | | ||
2014 |
85,000 | |||
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Total principal payments |
$ | 85,000 | ||
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The key terms of the Revolving Facility are as follows following the most recent amendment:
| Loans bear interest at a variable rate equal to (at our option) (i) LIBOR plus the applicable margin, which ranges from 1.25% to 1.75%, or (ii) the Banks prime rate, less the applicable margin, which ranges from 0.25% to 1.00%. If an event of default occurs and is continuing, then the interest rate on all obligations under the Revolving Facility may be increased by 2.0% above the otherwise applicable rate, and the Bank may declare any outstanding obligations under the Revolving Facility to be immediately due and payable. In addition, the Bank may exercise its security interest in our equity interests in the assets of certain of our domestic subsidiaries, and it may call the guaranties of payment obligations made by certain of our domestic subsidiaries. |
| A fee ranging from 0.60% to 1.00% on the maximum amount available to be drawn under each letter of credit that is issued and outstanding under the Revolving Facility. The fee on the unused portion of the Revolving Facility ranges from 0.15% to 0.25%. |
| Certain of our domestic subsidiaries have guaranteed the Revolving Facility. |
| The Revolving Facility contains various restrictions and covenants, including restrictions on our ability and the ability of our subsidiaries to consolidate or merge, make acquisitions, create liens, incur additional indebtedness or dispose of assets. |
| The Revolving Facility includes covenants requiring us to meet certain minimum financial performance thresholds, including: |
| A ratio of maximum funded debt to EBITDA allowed (as defined in the Revolving Facility) of not more than 2.5 to 1. |
| An Asset Coverage Ratio of not less than 1 to 1 for debt to margined assets. For this purpose, a certain percentage of our accounts receivable and inventory balances are included in margined assets. |
| The minimum adjusted EBITDA allowed (as defined in the Revolving Facility) for the trailing twelve months is $25 million for the second quarter of 2012, $35 million for the third quarter of 2012, and $45 million for all subsequent quarters. |
We expect to be in compliance with our covenants for the next twelve months.
8
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 3. Fair Value Measurements
Assets and Liabilities Measured at Fair Value on a Recurring Basis
Our financial assets and liabilities subject to fair value measurement provisions as of July 1, 2012 comprised the following (in thousands):
Level 1 | Level 2 | Level 3 | Fair Value at July 1, 2012 |
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Money market funds |
$ | 39,561 | $ | | $ | | $ | 39,561 | ||||||||
Stock |
181 | | | 181 | ||||||||||||
Derivative instruments assets |
| 1,317 | | 1,317 | ||||||||||||
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Total assets at fair value |
$ | 39,742 | $ | 1,317 | $ | | $ | 41,059 | ||||||||
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Level 1 | Level 2 | Level 3 | Fair Value at July 1, 2012 |
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Derivative instruments liabilities |
$ | | $ | (575 | ) | $ | | $ | (575 | ) | ||||||
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Total liabilities at fair value |
$ | | $ | (575 | ) | $ | | $ | (575 | ) | ||||||
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Our financial assets and liabilities subject to fair value measurement provisions as of December 31, 2011 comprised the following (in thousands):
Level 1 | Level 2 | Level 3 | Fair Value at December 31, 2011 |
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Money market funds |
$ | 15,275 | $ | | $ | | $ | 15,275 | ||||||||
Certificates of deposit |
| 3,555 | | 3,555 | ||||||||||||
Stock |
170 | | | 170 | ||||||||||||
Derivative instruments assets |
| 985 | | 985 | ||||||||||||
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Total assets at fair value |
$ | 15,445 | $ | 4,540 | $ | | $ | 19,985 | ||||||||
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Level 1 | Level 2 | Level 3 | Fair Value at December 31, 2011 |
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Derivative instruments liabilities |
$ | | $ | (1,801 | ) | $ | | $ | (1,801 | ) | ||||||
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Total liabilities at fair value |
$ | | $ | (1,801 | ) | $ | | $ | (1,801 | ) | ||||||
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Our Level 1 financial instrument values are based on quoted market prices for identical assets in active markets. Our Level 2 financial instrument values are based on quoted prices in active markets for similar assets, which we use to value our certificates of deposit, or comparable sales, such as quoted market rates for similar contracts. Specifically, we obtain current pricing from the issuing bank for identical items purchased on the last business day of our reporting period. Level 3 financial instrument values refer to fair values using unobservable inputs that are not corroborated by market data.
There were no transfers between Level 1 and Level 2 assets and liabilities in the three and six months ended July 1, 2012 and July 3, 2011.
Fair Value of Financial Instruments
The estimated fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and payroll and related expenses at July 1, 2012 and December 31, 2011, approximate their carrying values due to their short-term nature. The fair value of long-term debt at July 1, 2012 approximates its carrying value.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
All other nonfinancial assets and liabilities measured at fair value in the financial statements on a nonrecurring basis are subject to fair value measurements and disclosures. Nonfinancial assets and liabilities included in our condensed consolidated balance sheets and measured on a nonrecurring basis consist of goodwill and long-lived assets, including other acquired intangibles. Goodwill and long-lived assets are measured at fair value to test for and measure impairment, if any, at least annually for goodwill or when necessary for both goodwill and long-lived assets. See Note 16 Goodwill and other Long-Lived Assets for details of our impairment analysis.
9
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The following fair value hierarchy table presents information about our goodwill assets that were measured at fair value on a non-recurring basis at July 1, 2012 (in thousands):
Goodwill |
Level 1 | Level 2 | Level 3 | Fair Value at July 1, 2012 |
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Voice solutions supply chain reporting unit |
$ | | $ | | $ | 89,993 | $ | 89,993 | ||||||||
Voice solutions healthcare reporting unit |
| | 8,655 | 8,655 | ||||||||||||
Intermec global solutions reporting unit |
| | 3,348 | 3,348 | ||||||||||||
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Total goodwill at fair value |
$ | | $ | | $ | 101,996 | $ | 101,996 | ||||||||
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The following fair value hierarchy table presents information about our goodwill assets that were measured at fair value on a non-recurring basis at December 31, 2011(in thousands):
Goodwill | Level 1 | Level 2 | Level 3 | Fair Value at December 31, 2011 |
||||||||||||
Voice solutions supply chain reporting unit |
$ | | $ | | $ | 130,682 | $ | 130,682 | ||||||||
Voice solutions healthcare reporting unit |
9,480 | 9,480 | ||||||||||||||
Intermec global solutions reporting unit |
3,348 | 3,348 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total goodwill at fair value |
$ | | $ | | $ | 143,510 | $ | 143,510 | ||||||||
|
|
|
|
|
|
|
|
A goodwill impairment was recorded in the amount of $26.6 and $41.5 million for the three and six months ended July 1, 2012, respectively, against the Voice Solutions Supply Chain (VSC) and Voice Solutions Healthcare (VHS) reporting units.
The following table presents qualitative information with respect to Level 3 fair value measurements for assets and liabilities measured at fair value on a non-recurring basis at July 1, 2012:
Reporting Unit |
Fair Value | Valuation Technique(s) |
Unobservable Input(s) | |||||
Voice Solutions Supply Chain |
||||||||
Goodwill |
$ | 89,993 | Income Approach | Financial Forecast | ||||
Terminal Growth Rate | ||||||||
Weighted Average Cost of Capital | ||||||||
Expected Cash Flow | ||||||||
Market Approach | Public Company Multiples | |||||||
Voice Solutions Healthcare |
||||||||
Goodwill |
$ | 8,655 | Income Approach | Financial Forecast | ||||
Terminal Growth Rate | ||||||||
Weighted Average Cost of Capital | ||||||||
Intermec Global Solutions |
||||||||
Goodwill |
$ | 3,348 | Income Approach | Financial Forecast | ||||
Terminal Growth Rate | ||||||||
Weighted Average Cost of Capital | ||||||||
|
|
|||||||
Total Goodwill |
$ | 101,996 | ||||||
|
|
Note 4. Derivative Instruments
Due to our global operations, we are exposed to foreign currency exchange rate fluctuations in the normal course of our business. Our treasury policies provide for risk mitigation of the effects of certain foreign currency exposures through the purchase of foreign exchange forward contracts. Our policy prohibits speculation in financial instruments for profit on the exchange rate price fluctuation. We enter into foreign exchange forward contracts primarily to economically hedge the impact of fluctuations of foreign exchange arising from intercompany inventory sales made to our subsidiaries that are denominated primarily in
10
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Euros or British Pounds, customer receivables of our foreign subsidiaries denominated primarily in U.S. Dollars and Euros and intercompany loans denominated in Euros, Swedish Krona, Norwegian Kroner, Danish Krone and Canadian Dollar. Our foreign exchange forward contracts are not designated as hedging instruments for accounting purposes; accordingly, we record these contracts at fair value on our consolidated balance sheets, with changes in fair value recognized in earnings in the period of the change. The aggregate notional amounts of the forward contracts we held for foreign currencies were $129.0 million as of July 1, 2012. Principal currencies we economically hedged include the Euro, British Pound, Brazilian Real, Canadian Dollar, Mexican Peso, Singapore Dollar, Swedish Krona, Norwegian Kroner and Danish Krone. These contracts do not contain any credit-risk-related contingent features.
We attempt to manage the counterparty risk associated with these foreign exchange forward contracts by limiting transactions to counterparties with which we have an established banking relationship. In addition, these contracts generally settle in approximately 30 days. See Note 3, Fair Value Measurements, for information on the fair value of these contracts.
The net loss (gain) resulting from these contracts recorded in selling, general and administrative expense was approximately $2.4 and $1.5 million for the three and six months ended July 1, 2012, and $0.5 and $1.1 million for the three and six months ended July 3, 2011, respectively. We recorded a net (liability) asset of $0.7 and $(0.8) million in other current assets or accounts payable and accrued expenses as of ended July 1, 2012 and December 31, 2011, respectively.
Note 5. Accounts Receivable, Net
Accounts receivable, net, consisted of the following (in thousands):
July 1, 2012 | December 31, 2011 | |||||||
Accounts receivable, gross |
$ | 138,132 | $ | 146,682 | ||||
Less: |
||||||||
Allowance for sales returns |
4,185 | 4,423 | ||||||
Allowance for doubtful accounts |
1,775 | 2,522 | ||||||
|
|
|
|
|||||
Accounts receivable, net |
$ | 132,172 | $ | 139,737 | ||||
|
|
|
|
Our allowance for sales returns includes estimated customer returns and other incentives that are recorded as a reduction of sales. Price exceptions globally are recorded directly to the customers accounts instead of an allowance to gross receivables. One customer, ScanSource, our largest distributor, accounted for 26% and 19% of our accounts receivable as of July 1, 2012 and December 31, 2011, respectively.
One distributor, ScanSource Inc., accounted for more than 10% of our revenues. Total sales to this distributor were $41.1 and $71.9 million for the three months and six months ended July 1, 2012, respectively, and $28.1 and $68.7 million for the three and six months ended July 3, 2011, respectively
Note 6. Inventories
Inventories consisted of the following (in thousands):
July 1, 2012 | December 31, 2011 | |||||||
Raw materials |
$ | 27,739 | $ | 30,485 | ||||
Service parts |
14,651 | 13,412 | ||||||
Work in process |
550 | 316 | ||||||
Finished goods |
55,004 | 59,409 | ||||||
|
|
|
|
|||||
Inventories |
$ | 97,944 | $ | 103,622 | ||||
|
|
|
|
In addition to the inventories described above, we have service parts inventories totaling $4.3 and $4.3 million at July l, 2012 and December 31, 2011, respectively, which are included in our condensed consolidated balance sheets in Other assets, net.
11
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 7. Intangibles
The following table presents the gross carrying amount and accumulated amortization of intangible assets as of July 1, 2012 (in thousands):
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
Developed technology |
$ | 40,200 | $ | 16,053 | $ | 24,147 | 5 years | |||||||||
In-process research and development |
1,900 | 138 | 1,762 | 7 years | ||||||||||||
Customer relationships |
17,600 | 1,948 | 15,652 | 11 years | ||||||||||||
Trademarks |
5,200 | 519 | 4,681 | 10 years | ||||||||||||
Lease agreements |
2,600 | 463 | 2,137 | 8 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total acquired intangible assets from Vocollect acquisition: |
67,500 | 19,121 | 48,379 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Other intangibles |
14,459 | 10,228 | 4,231 | 5 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 81,959 | $ | 29,349 | $ | 52,610 | ||||||||||
|
|
|
|
|
|
The following table presents the gross carrying amount and accumulated amortization of intangible assets as of December 31, 2011 (in thousands):
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Weighted Average Useful Life |
|||||||||||||
Developed technology |
$ | 40,200 | $ | 9,416 | $ | 30,784 | 5 years | |||||||||
In-process research and development |
1,900 | | 1,900 | 7 years | ||||||||||||
Customer relationships |
17,600 | 623 | 16,977 | 11 years | ||||||||||||
Trademarks |
5,200 | 303 | 4,897 | 10 years | ||||||||||||
Lease agreements |
2,600 | 245 | 2,355 | 8 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total acquired intangible assets from Vocollect acquisition: |
67,500 | 10,587 | 56,913 | |||||||||||||
|
|
|
|
|
|
|||||||||||
Other intangibles |
14,459 | 9,376 | 5,083 | 5 years | ||||||||||||
|
|
|
|
|
|
|||||||||||
Total |
$ | 81,959 | $ | 19,963 | $ | 61,996 | ||||||||||
|
|
|
|
|
|
Total amortization expense on intangibles for the three and six months ended July 1, 2012 was $4.7 and $9.4 million, respectively, and $3.3 and $4.3 million, for the three and six months ended July 3, 2011, respectively. Estimated future amortization expense for intangible assets for the next five years is as follows (in thousands):
Year |
Amount | |||
2012 |
$ | 18,558 | ||
2013 |
16,367 | |||
2014 |
8,865 | |||
2015 |
6,005 | |||
2016 |
3,482 |
Note 8. Provision for Income Taxes
In the second quarter, we recorded a tax provision of $1.7 million on foreign earnings and no tax benefit for earnings in the United States, Singapore and Japan due to losses in those jurisdictions. We also provided $1.4 million for deferred taxes on projected future repatriation from certain foreign subsidiaries which are not permanently reinvested. The tax provision for the three months ended April 1, 2012 included a net $206.9 million non-cash charge to record a valuation allowance against our U.S. deferred tax assets.
12
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Currently, we record valuation allowances in the following jurisdictions: United States, Singapore and Japan. Under GAAP, a valuation allowance against our deferred tax assets is appropriate if based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that the value of such assets will not be realized in the future. The valuation of deferred tax assets requires judgment in assessing a number of factors, including the likely future tax consequences of events we expect to recognize in our financial statements and tax returns, as well as our historical performance. Key factors we considered include our results for the quarter ended April 1, 2012; we recorded a pre-tax loss and significantly underperformed relative to our forecast. We also revised our forecast downward in the first quarter of 2012 for our U.S. and global operations for the remainder of 2012. We concluded that it was more likely than not that the value of such assets would not be realized, and we recorded a valuation allowance for our U.S. entities representing the full balance of these assets.
A sustained period of profitability in our U.S. operations is required before we would change our judgment regarding the need for a full valuation allowance against our U.S. deferred tax assets. In the event that we determine in the future that we expect to benefit from our deferred income tax assets in excess of the net balance at that time, we will make an adjustment to the deferred tax asset valuation allowance. This will reduce the provision for income taxes in that period. Until such time, we will offset U.S. profits against our deferred tax assets and will reduce the overall level of deferred tax assets subject to valuation allowance as a result.
For the jurisdictions where we did not record a valuation allowance, our tax provision includes an estimated annual effective tax rate from continuing operations of approximately 31%. Our effective tax rate from continuing operations in those jurisdictions is lower than the U.S. statutory rate of 35% due primarily to lower tax rates and tax incentives in those jurisdictions.
Note 9. Shares Used in Computing Earnings (Loss) per Share
Basic earnings (loss) per share are calculated using the weighted average number of common shares issued and outstanding for the applicable period. Diluted loss per share is computed using basic weighted average shares issued and outstanding plus the dilutive effect of unvested restricted stock and outstanding stock options using the treasury stock method.
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||
Weighted average shares - basic |
60,251,466 | 59,784,479 | 60,140,033 | 60,070,394 | ||||||||||||
Dilutive effect of unvested restricted shares and stock options |
| | | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Weighted average shares - diluted |
60,251,466 | 59,784,479 | 60,140,033 | 60,070,394 | ||||||||||||
|
|
|
|
|
|
|
|
Our employees and directors held options to purchase 3,950,272 and 3,844,272 shares of our common stock for the three and six months ended July 1, 2012, respectively, and 3,451,713 and 3,078,769 shares of our common stock for the three and six months ended July 3, 2011, respectively, that were not included in weighted average shares diluted calculation because they were anti-dilutive to the diluted loss per share computation. These options would 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.
Note 10. Stock-Based Compensation
A summary of stock-based compensation expense related to director and employee stock options, Restricted Stock Units (RSU), Performance Stock Units (PSU), and Employee Stock Purchase Plan (ESPP) for the three and six months ended July 1, 2012 and July 3, 2011 is as follows (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||
Cost of revenue |
$ | 63 | $ | 63 | $ | 126 | $ | 126 | ||||||||
Selling, general and administrative |
421 | 2,152 | 2,999 | 4,299 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 484 | $ | 2,215 | $ | 3,125 | $ | 4,425 | ||||||||
|
|
|
|
|
|
|
|
Stock compensation expense for the three and six months ended July 1, 2012 was reduced by $1.9 million primarily due to forfeitures related to the departure of our former CEO.
13
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
For the three and six months ended July 1, 2012, we granted 572,855 and 586,855 options, respectively, to employees with a weighted-average grant-date fair value of $2.71 and $2.72 per option, respectively, which will vest annually in substantially equal quantities over three years from the date of grant.
Note 11. Segment Reporting
Our chief operating decision maker is our Chief Executive Officer. Based on the evaluation of our financial information our reportable segments are comprised of Intermec-branded products, Intermec-branded services and Voice solutions. The Intermec-branded product segment generates revenue from the design, development, manufacture, sale and resale of mobile computing products, bar code scanners, wired and wireless bar code printers and label media products, and RFID products and license fees. Our Intermec-branded service segment generates revenue from managed services, customer support, product maintenance and professional services related to products and systems integration. The Voice solutions segment is comprised of voice data, collection terminals and professional services related to these products. Our statements of operations separately disclose revenues and costs related to our products and services on a consolidated basis.
Our chief operating decision maker evaluates revenue performance of product lines, both domestically and internationally. However, operating, strategic and resource allocation decisions are based primarily on the overall performance of our operating segments. The accounting policies of our three reportable segments are the same as those used to prepare our consolidated financial statements. Performance and resource allocation are primarily measured by sales and standard gross profit. All other earnings, costs and expenses are aggregated and reported on a consolidated basis. It is not practicable to segregate total assets by segment. Total assets at July 1, 2012 and December 31, 2011 were $566.6 and $869.3 million, respectively.
The following table sets forth our revenues and gross profit by reportable segment (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||
Revenues: |
||||||||||||||||
Intermec-branded products |
$ | 135,618 | $ | 153,329 | $ | 252,951 | $ | 287,183 | ||||||||
Intermec-branded services |
34,747 | 37,301 | 69,696 | 72,162 | ||||||||||||
Voice solutions |
30,586 | 30,452 | 57,982 | 40,255 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 200,951 | $ | 221,082 | 380,629 | $ | 399,600 | |||||||||
|
|
|
|
|
|
|
|
|||||||||
Gross profit: |
||||||||||||||||
Intermec-branded products |
$ | 47,348 | $ | 60,998 | $ | 84,162 | $ | 112,467 | ||||||||
Intermec-branded services |
14,237 | 13,234 | 28,017 | 25,814 | ||||||||||||
Voice solutions |
17,612 | 17,084 | 32,943 | 21,328 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 79,197 | $ | 91,316 | $ | 145,122 | $ | 159,609 | ||||||||
|
|
|
|
|
|
|
|
The following table sets forth our revenues by product lines (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||
Revenues: |
||||||||||||||||
Intermec branded: |
||||||||||||||||
Systems and solutions |
$ | 96,924 | $ | 108,664 | $ | 178,730 | $ | 199,045 | ||||||||
Printer and media |
38,694 | 44,665 | 74,221 | 88,138 | ||||||||||||
Service |
34,747 | 37,301 | 69,696 | 72,162 | ||||||||||||
Voice solutions |
30,586 | 30,452 | 57,982 | 40,255 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 200,951 | $ | 221,082 | $ | 380,629 | $ | 399,600 | ||||||||
|
|
|
|
|
|
|
|
14
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 12. Product Warranties
The following table summarizes our warranty liability activity included in current liabilities, for the six month period ended July 1, 2012 and the year ended December 31, 2011, respectively (in thousands):
July 1, 2012 | December 31, 2011 | |||||||
Beginning balance |
$ | 4,853 | $ | 2,555 | ||||
Vocollect addition at acquisition |
| 948 | ||||||
Payments or parts usage |
(2,645 | ) | (5,867 | ) | ||||
Additional provision |
3,060 | 7,217 | ||||||
|
|
|
|
|||||
Ending balance |
$ | 5,268 | $ | 4,853 | ||||
|
|
|
|
Note 13. Commitments and Contingencies
We have entered into a variety of agreements with third parties that include indemnification clauses, both in the ordinary course of business and in connection with our divestitures of certain product lines. These clauses require us to compensate these third parties for certain liabilities and damages that may be incurred by them. Fair value of guarantees is required to be recorded as a liability. We do not believe that we have any significant exposure related to such guarantees and therefore have not recorded a liability as of July 1, 2012 or December 31, 2011. We have not made any significant indemnification payments as a result of these clauses.
In the three and six months ended July 1, 2012, we recorded $0.5 and $1.9 million in engineering fees related to take or pay purchase commitment agreements. We expect to make these payments by the end of 2012.
We currently, and from time to time, are subject to disputes, claims and lawsuits arising in the ordinary course of business. With the exception of certain cases involving intellectual property described below, the external legal costs incurred in these matters are expensed. These matters include claims by third parties against us for amounts allegedly owed to them as well as counterclaims against us in cases where we have made claims against third parties. Resolution of these disputes could result in the write down or write off of accounts receivable or the payment of damages. The ultimate resolution of such matters is inherently subject to uncertainty. An adverse outcome in certain of these matters could result in a material charge in the period in which the matter is resolved. However, we currently do not expect the ultimate resolution of pending proceedings and disputes to have a material effect on our business, financial condition, results of operations or liquidity. In the second quarter of 2012, we settled a pending lawsuit against us in the amount of $1.2 million. This amount is recorded in Selling, general and administrative expenses on our condensed consolidated statement of operations.
One of our pending lawsuits involves the defense of our patents; the external legal costs incurred in this matter are capitalized. We capitalize external legal costs incurred in the defense of our patents when we believe that there is an evident increase in the value of the patent and that the successful outcome of the legal action is probable. During the course of any legal action, the court where the case is pending makes decisions and issues rulings of various kinds, which may be favorable or unfavorable. We monitor developments in the legal action, the legal costs incurred and the anticipated outcome of the legal action, and assess the likelihood of a successful outcome based on the entire action. If changes in the anticipated outcome occur that reduce the likelihood of a successful outcome to less than probable, the capitalized costs would be charged to expense in the period in which the change is determined. As of July 1, 2012 and December, 31, 2011, $7.5 and $7.4 million of legal patent costs have been capitalized, respectively. All of these amounts relate to the case Alien Technologies Corporation v. Intermec, Inc., et al., Civil Action No. 3:06-cv-0051, United States District Court for the District of North Dakota, Southeastern Division (the Alien Case). The capitalized legal patent costs are recorded in other assets on our condensed consolidated balance sheets.
15
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Note 14. Pension and Other Postretirement Benefits Liabilities
The components of net pension and postretirement periodic benefit cost (income) for the three and six months ended July 1, 2012 and July 3, 2011, were as follows (in thousands):
U.S. Defined Benefit Plans | Non U.S. Defined Benefit Plans |
Other Postretirement Benefit Plans |
||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Three Months Ended July 1, 2012, and July 3, 2011: |
||||||||||||||||||||||||
Interest cost |
$ | 2,983 | $ | 3,029 | $ | 495 | $ | 528 | $ | 34 | $ | 40 | ||||||||||||
Expected return on plan assets |
(2,592 | ) | (2,689 | ) | (532 | ) | (517 | ) | | | ||||||||||||||
Amortization and deferrals: |
||||||||||||||||||||||||
Transition asset |
| | (34 | ) | (33 | ) | | | ||||||||||||||||
Actuarial loss |
888 | 563 | 163 | 163 | | | ||||||||||||||||||
Prior service cost |
| | | | (41 | ) | (40 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net pension and postretirement periodic benefit cost (income) |
$ | 1,279 | $ | 903 | $ | 92 | $ | 141 | $ | (7 | ) | $ | | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Defined Benefit Plans | Non U.S. Defined Benefit Plans |
Other Postretirement Benefit Plans |
||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | 2012 | 2011 | |||||||||||||||||||
Six Months Ended July 1, 2012, and July 3, 2011: |
||||||||||||||||||||||||
Interest cost |
$ | 5,965 | $ | 6,059 | $ | 994 | $ | 1,057 | $ | 69 | $ | 80 | ||||||||||||
Expected return on plan assets |
(5,183 | ) | (5,377 | ) | (1,069 | ) | (1,035 | ) | | | ||||||||||||||
Amortization and deferrals: |
||||||||||||||||||||||||
Transition asset |
| | (68 | ) | (66 | ) | | | ||||||||||||||||
Actuarial loss |
1,776 | 1,126 | 328 | 326 | | | ||||||||||||||||||
Prior service cost |
| | | | (83 | ) | (79 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Net pension and postretirement periodic benefit cost (income) |
$ | 2,558 | $ | 1,808 | $ | 185 | $ | 282 | $ | (14 | ) | $ | 1 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Our pension and other postretirement benefit plan contributions for the three and six months ended July 1, 2012, were as follows (in thousands):
Three Months Ended July 1, 2012 |
Six Months Ended July 1, 2012 |
|||||||
U.S. defined benefit postretirement benefit plans |
$ | 2,122 | 3,117 | |||||
Matching contributions to 401(k) plan |
1,087 | 2,322 | ||||||
Foreign pension plans |
956 | 1,770 | ||||||
|
|
|
|
|||||
Total |
$ | 4,165 | 7,209 | |||||
|
|
|
|
Benefits paid pertaining to our other postretirement benefit plans were not material for the three and six months ended July 1, 2012.
We expect to contribute an additional $10.7 million to these plans during the remainder of 2012, including $4.8 million of contributions to our U.S. pension plan, $2.3 million of benefit payments for our unfunded U.S. defined benefit plans, $1.9 million in matching contributions to our 401(k) plan, and $1.7 million in contributions to our foreign pension plans.
Note 15. Acquisitions
On March 3, 2011, we completed our acquisition of Vocollect Inc. 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, net of cash acquired. 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.
16
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
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 $5.2 million were recorded as an expense for the three and six months ended July 3, 2011, respectively, and are included in the total acquisition costs of $5.2 million in our condensed consolidated statement of operations. Acquisition related costs include direct integration costs, transaction fees and professional services.
The allocation of the purchase price to Vocollects assets acquired and liabilities assumed, net of cash acquired, is as follows (in thousands):
At Acquisition March 3, 2011 (Adjusted) |
||||
Accounts receivable (gross contractual receivables total of $21,461) |
$ | 20,569 | ||
Inventories |
7,520 | |||
Net deferred tax assets |
7,880 | |||
Other current assets |
7,353 | |||
Goodwill (including $7.9 million for assembled workforce) |
140,162 | |||
Intangible assets |
67,500 | |||
Property, plant and equipment |
9,123 | |||
Other assets |
137 | |||
Accounts payable |
(6,818 | ) | ||
Payroll and related expenses |
(8,812 | ) | ||
Deferred revenue |
(10,936 | ) | ||
Accrued expenses |
(8,739 | ) | ||
Deferred tax liabilities |
(22,570 | ) | ||
Long-term deferred revenue |
(4,282 | ) | ||
Other long-term liabilities |
(1,370 | ) | ||
|
|
|||
Total net assets acquired |
$ | 196,717 | ||
|
|
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.
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 2011. 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 2011.
(in thousands) | Three Months Ended July 3, 2011 |
Six Months Ended July 3, 2011 |
||||||
Total revenues |
$ | 221,082 | $ | 417,911 | ||||
Net loss |
(3,796 | ) | (7,006 | ) |
Note 16. Goodwill and Other Long-Lived Assets
Goodwill
We assign goodwill to our reporting units based on the expected benefit from the growth and synergies arising from each acquisition. We have three reportable segments: Intermec-branded products, Intermec-branded services and Voice solutions.
17
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Intermec-branded services and Voice solutions each comprise two reporting units. Intermec-branded services are divided into: Core Service and Intermec Global Solutions (IGS). Voice solutions contains the Supply Chain (VSC) and Healthcare (VHS) reporting units.
The following table represents changes in goodwill (amounts in thousands):
Reportable Segment |
Reporting Unit |
Goodwill balance at 12/31/2011 |
Goodwill impairment |
Goodwill balance at 7/1/2012 |
||||||||||
Intermec-branded services: |
Intermec Global Solutions | $ | 3,348 | $ | | $ | 3,348 | |||||||
Voice solutions: |
Supply chain | 130,682 | (40,689 | ) | 89,993 | |||||||||
Healthcare |
9,480 | (825 | ) | 8,655 | ||||||||||
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Total: |
$ | 143,510 | $ | (41,514 | ) | $ | 101,996 | |||||||
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Goodwill impairment charges of $26.6 and $41.5 million were recognized during the three and six months ended July 1, 2012, respectively. There were no goodwill impairment charges for the similar periods in 2011.
Q1 2012 goodwill impairment analysis
During the first quarter of 2012, two events occurred that triggered an analysis of the carrying value of goodwill and resulted in the estimated write down of goodwill of $14.9 million. Specifically, operating income was less than our forecast, primarily due to an $19 million loss on operations in the first quarter principally in the Intermec-branded products and services segments. In addition, our financial results negatively impacted the price per share of Intermec stock, causing the market capitalization of the Company to be significantly below its net book value. These triggering events were indicators that it was more likely than not the fair value of the Companys goodwill was less than its book value.
We prepared a Step 1 goodwill impairment analysis to determine the fair values of all three reporting units with goodwill (Intermec Global Solutions, Healthcare, and Supply Chain). To calculate the fair values we used the discounted cash flow method and market approach. We made significant assumptions and estimates about the extent and timing of future cash flows, growth rates, and discount rates that represent unobservable inputs into our valuation methodologies used to calculate fair value. The cash flows were estimated over a significant future period of time, which made those estimates and assumptions subject to a high degree of uncertainty. Where available and as appropriate, comparative market multiples and the quoted market price of our common stock were used to corroborate the results of the discounted cash flow method and market approach. Assumptions used in our analysis that have the most significant effect on the estimated fair values of our reporting units include:
| Our estimated weighted-average cost of capital (WACC); and |
| Our estimated long-term growth |
| Market mutiples |
Once we had determined our assumptions, we calculated the fair value of each reporting unit and compared it to the carrying value of the reporting unit. After performing our Step 1 analysis for the reporting units, we determined that the carrying value of the Supply Chain reporting unit exceeded its fair value by $14.9 million and recognized an estimated impairment charge in the first quarter. Due to the timing and complexity of this analysis, Step 2 of the impairment test was substantially completed in the second quarter of 2012. After performing that test we determined we had an additional goodwill impairment of $25.8 million associated with our Supply Chain reporting unit. The additional impairment was the result of an increase in the fair value of developed and in process technology intangible assets within the Supply Chain reporting unit. The increase in the intangible assets reduced the implied fair value of the goodwill, and we recognized a $40.7 million cumulative impairment of the Supply Chain reporting unit goodwill for the six months ended July 1, 2012.
Determining the fair value of goodwill for the Supply Chain reporting unit for Step 2 was judgmental in nature and involved the use of significant estimates and assumptions to calculate a hypothetical fair value of the assets and liabilities within the reporting unit. Our analysis utilized the income approach to calculate the implied fair value of goodwill of the Supply Chain reporting unit. The key inputs we used in the income approach included our forecast of revenue and expenses, a migration curve of developed and in-process technology, tax rate, discount rates, customer retention rates, useful lives, and contributory charge rates. These key inputs, for the income approach, are classified as Level 3 within the fair value hierarchy; see Note 3 Fair Value Measurements.
18
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
Q2 2012 goodwill impairment analysis
During the three months ended July 1, 2012, we changed the composition of key senior management at the reporting units and also changed our Chief Executive Officer. Additionally, we evaluated certain market trends and specific changes in our marketplace including, macro and micro economic conditions, expected government spending and industry data. As a result of the changes and evaluations, a review was performed over all areas in which we engage in business. Upon conclusion of the review, key operational and investment decisions were made which resulted in changes in the amount and timing of receipts and expenditures. Specifically, forecasts of revenue, research and development costs, capital expenditures, and other inputs to operations were revised, and the result was reduced cash flow forecasts across the three reporting units with goodwill. Consequently, a triggering event occurred to evaluate impairment of goodwill, specific to facts and circumstances during the three months ended July 1, 2012.
We prepared a Step 1 goodwill impairment analysis to determine the fair values of all three reporting units with goodwill (Intermec Global Solutions, Healthcare, and Supply Chain). To calculate the fair values we used the discounted cash flow method and market approach. We utilized the same methods listed above in Q1 2012 goodwill impairment analysis to perform our Step 1 analysis for the three months ended July 1, 2012. Once we had determined our assumptions we calculated the fair value of each reporting unit and compared it to the carrying value of the reporting unit.
After performing our Step 1 analysis, for the reporting units, we determined that the carrying value of the Healthcare reporting unit exceeded its fair value, so we then performed a Step 2 analysis. Based on our preliminary Step 2 analysis we determined we had an estimated goodwill impairment of $0.8 million associated with our Healthcare reporting unit. This impairment was primarily the result of a reduction in our long term business forecast specifically related to expected government spending in the skilled nursing area, the likely impact on capital investments in that market and the timing of the launch of new products for our Healthcare reporting unit. Due to the timing and complexity of this Step 2 analysis, we will finalize it in the third quarter of 2012 and the impairment amount may change at that time.
Determining the fair value of goodwill for the Healthcare reporting unit for Step 2 is judgmental in nature and involves the use of significant estimates and assumptions to perform a hypothetical fair value of the assets and liabilities within the reporting unit. Our analysis utilized the income approach to calculate the implied fair value of goodwill of the Healthcare reporting unit. The key inputs we used in the income approach included our forecast of revenue and expenses, a migration curve of developed and new technology, tax rate, discount rates, customer retention rates, useful lives, and contributory charge rates. These key inputs, for the income approach, are classified as Level 3 within the fair value hierarchy. See Note 3 Fair Value Measurements to our Condensed Consolidated Financial Statements for further detail.
Future goodwill impairments that may be material could be recognized should the recent economic uncertainty continue, our equity price declines on a sustained basis, global economies enter in another recession, or industry growth stagnates further. Our fair value estimates for event-driven impairment tests assume the achievement of future financial results contemplated in our forecasted cash flows and there can be no assurance that we will realize that value. The estimates and assumptions used are subject to significant uncertainties, many of which are beyond our control, and there is no assurance that anticipated financial results will be achieved.
Valuation of Long-Lived Assets
Long-lived assets, such as property, plant, and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in our statement of operations and as a reduction to the asset group to the extent that the fair market value of the asset group is less than its carrying value. Due to the same circumstances that required the interim goodwill impairment test above, we evaluated our long lived assets for impairment for the quarters ended April 1, 2012 and July 1, 2012. We determined that the carrying amount of our long-lived assets did not exceed their estimated undiscounted future cash flows, and thus our long-lived assets are not impaired as of April 1, 2012 and July 1, 2012.
Note 17. Restructuring
After revising our 2012 business forecast to reflect current economic and other expectations, we committed to a business restructuring plan on June 12, 2012 that was intended to better align our cost structure with our current and anticipated needs by lowering costs primarily in North America and Europe. These reductions were primarily intended to lower our service and supply chain overhead and general and administrative support costs, with lesser impacts to Research and Development and Sales and Marketing. Under the business restructuring plan, we are reducing our work force primarily in the United States and Europe by approximately 160 employees, which represent approximately 7% of our current total global work force. We implemented this restructuring plan beginning in June of 2012 and expect to complete it over the remainder of fiscal year 2012.
19
INTERMEC, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
The total restructuring costs for this plan are expected to be $6.4 million, including employee termination costs of $5.9 million and $0.5 million of other associated costs. We recorded $5.9 million of these charges in the second quarter of 2012. We expect to record the majority of the remaining charge throughout 2012. We anticipate that substantially all of the severance-related and periodic other associated costs will be cash expenditures. These costs are recorded on our condensed consolidated statement of operations in restructuring charges.
The reconciliation of accrued restructuring charges as of July 1, 2012 is summarized in the table below (in millions):
Accrued Employee Termination Costs per Contract |
Accrued Other Costs |
Total Accrued Restructuring Charges |
||||||||||
Balance at December 31, 2011 |
$ | 1.0 | $ | 1.2 | $ | 2.2 | ||||||
Restructuring charges for 2012 plan |
5.9 | | 5.9 | |||||||||
Utilization of restructuring plans |
(1.1 | ) | (0.2 | ) | (1.3 | ) | ||||||
Reversal of prior year restructuring charges |
(0.3 | ) | | (0.3 | ) | |||||||
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Balance at July 1, 2012 |
$ | 5.5 | $ | 1.0 | $ | 6.5 | ||||||
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Note 18. Accumulated Other Comprehensive Loss
At July 1, 2012 and December 31, 2011, accumulated other comprehensive income comprised the following (in thousands):
July 1, 2012 | December 31, 2011 | |||||||
Foreign currency translation adjustment |
$ | (6,563 | ) | $ | (4,546 | ) | ||
Unamortized benefit plan costs |
(78,861 | ) | (74,623 | ) | ||||
Unrealized loss on investments |
(317 | ) | (308 | ) | ||||
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Accumulated other comprehensive loss |
$ | (85,741 | ) | $ | (79,477 | ) | ||
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20
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS AND RISK FACTORS; SAFE HARBOR
Statements made in this filing and any related statements that express Intermecs or our managements intentions, hopes, indications, beliefs, expectations, guidance, estimates, forecasts or predictions of the future constitute forward-looking statements, as defined by the Private Securities Litigation Reform Act of 1995, and relate to matters that are not historical facts. They include, without limitation statements about: our view of general economic and market conditions; our revenue, expense, earnings, tax attributes or financial outlook for the current or any other period; our compliance with covenants under our secured credit facility; our analysis of deferred tax valuation allowances, impairment analysis, and cost reduction plans; our ability to develop, produce, market or sell our products, either directly or through third parties, to reduce or control expenses, to improve efficiency, to realign resources, to successfully integrate acquired companies, or to continue operational improvement and year-over-year or sequential growth; our management succession; and the applicability of accounting policies used in our financial reporting. 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. These statements represent beliefs and expectations only as of the date they were made. We may elect to update forward-looking statements but we expressly disclaim any obligation to do so, even if our beliefs and expectations change.
Actual results may differ from those expressed or implied in our forward-looking statements. Such forward-looking statements involve and are subject to certain risks and uncertainties, which may cause our actual results to differ materially from those discussed in a forward-looking statement. These include, but are not limited to, risks and uncertainties described more fully in our reports filed or to be filed with the Securities and Exchange Commission including, but not limited to, our 2011 Form 10-K, current reports on Form 8-K, and quarterly reports on Form 10-Q, which are available on our website at www.intermec.com.
You are encouraged to review the Risk Factors portion of Item 1A of Part II of this filing which discusses the risk factors associated with our business.
Overview
Intermec is a global business that designs, develops, integrates, sells and resells wired and wireless automated identification and data collection (AIDC) products and related services. Our products and services are used by businesses of all sizes, throughout the world, and are particularly suited for challenging or harsh environments where mobility, reliability and durability are important. Our products include mobile computers, barcode scanners, printers, label media, radio frequency identification (RFID) products and related software. With our acquisition of Vocollect in March 2011, our products now include wearable voice data collection devices and related software. We also offer a variety of services related to our product offerings. Refer to Item 1 Business, in our 2011 Form 10-K, for detail about our products and services. Most of our revenue is currently generated through sales of mobile computers, wearable voice data capture devices and related software, printers and repair services.
Our strategy is to provide mobile business solutions that help our customers improve workflow performance, increase revenues, lower costs and improve customer satisfaction and loyalty. As part of that strategy, we seek to strengthen our position as a Solutions Company in the AIDC industry through vertical market expertise, a solutions orientation and customer and partner intimacy. We also seek to grow our business by targeting vertical markets, increasing our marketing activities, expanding our channel, adding more software and managed services to our offerings and introducing innovative new products.
Total revenue declined on a year-over-year basis predominantly from the segments of our business that are most comparable to our business as it existed prior to the acquisitions in March 2011. This decline was more pronounced in our Intermec-branded products segment, predominately in Europe, Middle East and Africa (EMEA) and to a lesser extent in North America, Asia Pacific (ASIAPAC) and Latin America (LATAM) geographic regions. We believe that our revenue decline reflects a decrease in enterprise spending globally and competitive pressure, particularly in Europe. We believe that many of our end customers completed projects in 2011 that had previously been started, but have taken a more cautious approach in 2012. These declines were partially offset by businesses that we acquired last year, specifically, the inclusion of a full six months of results from the Vocollect acquisition, compared to the inclusion of approximately four months results in the first six months of 2011 following the acquisition date of March 3, 2011, and the inclusion of a full six months of Enterprise Mobile results, compared to three and one half months of results included in the first six months of the prior year following the acquisition date of March 15, 2011.
For the three months ended July 1, 2012, worldwide revenues decreased 9% over the prior-year quarter. International revenues declined 12% over the prior-year quarter reflecting the negative impact of foreign currency exchange rates, significantly lower sales in EMEA, partially offset by growth in ASIAPAC and LATAM. Revenues in North America decreased 6% due primarily to declines in Intermec-branded product sales and a reduction in sales to the U.S. government. Within our Intermec-branded product categories, Systems and solutions revenues declined 11%, and Printer and media revenue declined 14%, partially mitigated by a smaller decline in our Intermec-branded services and a small increase in our Voice solutions businesses.
21
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the six months ended July 1, 2012, worldwide revenues decreased 5% over the prior-year quarter and decreased 11% when revenue from businesses acquired during the first quarter of 2011 are excluded. International revenues declined 12% over the prior-year quarter reflecting the negative impact of foreign currency exchange rates, significantly lower sales in EMEA, partially offset by the benefit of acquired revenues in those geographies. Revenues in North America increased due to the positive effects of revenue from Vocollect and Enterprise Mobile, partially offset by declines in Intermec-branded product sales. Within our Intermec-branded product categories, Systems and solutions revenues declined 10%, and Printer and media revenue declined 16%. Intermec-branded service revenue decreased 4% as compared with the prior-year period, largely due to the related lower product sales, and was down 9% when revenues from acquired businesses are excluded.
Total gross profit margin for the three months ended July 1, 2012 were 39.4%, as compared to 41.3% in the prior-year quarter, reflecting increased discounts on Intermec-branded products, reduced sales leverage on fixed costs, negative foreign currency exchange impacts and certain engineering fee payments.
Total gross profit margins for the six months ended July 1, 2012 were 38.1%, as compared to 39.9% in the prior year quarter, reflecting increased discounts on Intermec-branded products, negative foreign currency exchange impacts and reduced sales, partially offset by higher margins on our Voice-solutions segment which included a full six months of results, and a full six months results for Enterprise Mobile which was included in the Intermec-branded services segment. Additionally, in the first six months of 2012 we had several unusual charges and expenses that we do not anticipate will recur, including a $1.9 million charge for non-recurring engineering fees for volume buy pay outs on minimum purchase commitments and a $0.9 million charge for royalties based on the outcome of a software vendor audit.
Our financial reporting currency is the U.S. dollar, and changes in exchange rates can significantly affect our financial trends and reported results. Overall, as compared to the first six months of 2011, currency exchange rates negatively affected revenues by $8.5 million and $11.4 million in the first three and six months of 2012, respectively. Our consolidated revenues and operating expenses are subject to the fluctuations of foreign exchange rates; however, our cost of revenue is primarily denominated in U.S. dollars, and therefore, is less affected by changes in foreign exchange rates. If the U.S. dollar weakens year-over-year relative to currencies in our international locations, our consolidated revenues, costs of revenues and operating expenses will be higher than if currencies had remained constant. A weaker U.S. dollar typically results in improved gross margin yields as the increase in revenue would normally exceed the corresponding increase in costs. If the U.S. dollar strengthens year-over-year relative to currencies in our international locations, our consolidated revenues, operating expenses and to a certain extent cost of revenues will be lower than if currencies had remained constant. A stronger U.S. dollar typically results in diminished gross margin yields as the decreased revenue would normally outpace the corresponding reduction in costs. We believe it is important to evaluate our growth rates before and after the effect of foreign currency changes.
On June 12, 2012, we committed to a business restructuring plan intended to better align our cost structure with our current and anticipated needs by lowering costs in North America and Europe. These reductions are intended to lower our general and administrative support costs. Under the business restructuring plan, we will reduce our work force primarily in the United States and Europe by approximately 160 employees, which represent approximately 7% of our current total global workforce. We implemented this restructuring plan beginning later in the second quarter of 2012 and expect to complete it over the remainder of fiscal year 2012.
The total restructuring costs for this plan are expected to be approximately $6.4 million, including employee termination costs of $5.9 million and $0.5 million of other associated costs. We recorded $5.9 million of these charges in both the three and six months ended July 1, 2012. We expect to record the majority of the remaining charge throughout 2012. We anticipate that substantially all of the severance-related and periodic other associated costs will be cash expenditures. These costs are recorded on our condensed consolidated statement of operations in restructuring costs.
22
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following compares our results of operations and percentages of revenues for the three and six months ended July 1, 2012 and July 3, 2011 (in millions, except for per share data):
Three Months Ended | Six Months Ended | |||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||
Amounts | Amounts | Amounts | Amounts | |||||||||||||
Revenues |
$ | 201.0 | $ | 221.1 | $ | 380.6 | $ | 399.6 | ||||||||
Costs and expenses: |
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Cost of revenues |
121.8 | 129.8 | 235.6 | 240.0 | ||||||||||||
Research and development |
20.4 | 22.8 | 40.4 | 40.7 | ||||||||||||
Selling, general and administrative |
61.4 | 66.1 | 127.4 | 120.3 | ||||||||||||
Impairment of goodwill |
26.6 | | 41.5 | | ||||||||||||
Gain on sale of assets |
(1.3 | ) | | (2.7 | ) | | ||||||||||
Acquisition costs |
| 0.4 | | 5.2 | ||||||||||||
Restructuring charges |
5.6 | 5.1 | 5.6 | 5.1 | ||||||||||||
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Total costs and expenses |
234.5 | 224.2 | 447.8 | 411.3 | ||||||||||||
Operating loss |
(33.5 | ) | (3.1 | ) | (67.2 | ) | (11.7 | ) | ||||||||
Interest, net |
(0.8 | ) | (0.6 | ) | (1.4 | ) | (1.0 | ) | ||||||||
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Loss before income taxes |
(34.3 | ) | (3.7 | ) | (68.6 | ) | (12.7 | ) | ||||||||
Income tax (benefit) expense |
3.2 | 0.1 | 211.0 | (2.8 | ) | |||||||||||
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Net loss |
$ | (37.5 | ) | $ | (3.8 | ) | $ | (279.6 | ) | $ | (9.9 | ) | ||||
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Basic loss per share |
$ | (0.62 | ) | $ | (0.06 | ) | $ | (4.65 | ) | $ | (0.16 | ) | ||||
Diluted loss per share |
$ | (0.62 | ) | $ | (0.06 | ) | $ | (4.65 | ) | $ | (0.16 | ) | ||||
Percent of Revenues |
Percent of Revenues |
Percent of Revenues |
Percent of Revenues |
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Costs and expenses: |
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Cost of revenues |
60.6 | % | 58.7 | % | 61.9 | % | 60.1 | % | ||||||||
Research and development |
10.1 | 10.3 | 10.6 | 10.2 | ||||||||||||
Selling, general and administrative |
30.5 | 29.9 | 33.5 | 30.1 | ||||||||||||
Impairment of goodwill |
13.2 | | 10.9 | | ||||||||||||
Gain on sale of assets |
(0.6 | ) | | (0.7 | ) | | ||||||||||
Acquisition costs |
| 0.2 | | 1.3 | ||||||||||||
Restructuring charges |
2.8 | 2.3 | 1.5 | 1.3 | ||||||||||||
Total costs and expenses |
116.7 | 101.4 | 117.7 | 102.9 | ||||||||||||
Operating loss |
(16.7 | ) | (1.4 | ) | (17.7 | ) | (2.9 | ) | ||||||||
Interest, net |
(0.4 | ) | (0.3 | ) | (0.4 | ) | (0.3 | ) | ||||||||
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Loss before income taxes |
(17.1 | ) | (1.7 | ) | (18.0 | ) | (3.2 | ) | ||||||||
Income tax expense (benefit) |
1.6 | 0.0 | 55.4 | (0.7 | ) | |||||||||||
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Net loss |
(18.7 | )% | (1.7 | )% | (73.5 | )% | (2.5 | )% | ||||||||
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23
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues (in millions)
Revenues by category and geographic region and as a percentage of total revenues for the three months ended July 1, 2012, and July 3, 2011, as well as the same three months revenue changes were as follows (in millions):
Three Months Ended | ||||||||||||||||||||||||
July 1, | Percent of | July 3, | Percent of | Percentage | ||||||||||||||||||||
2012 | Revenues | 2011 | Revenues | Change | Change | |||||||||||||||||||
Revenues by category: |
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Intermec-branded: |
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Systems and solutions |
$ | 96.9 | 48.2 | % | $ | 108.6 | 49.1 | % | $ | (11.7 | ) | (10.8 | )% | |||||||||||
Printer and media |
38.7 | 19.3 | 44.7 | 20.2 | (6.0 | ) | (13.4 | ) | ||||||||||||||||
Services |
34.8 | 17.3 | 37.3 | 16.9 | (2.5 | ) | (6.7 | ) | ||||||||||||||||
Voice solutions |
30.6 | 15.2 | 30.5 | 13.8 | 0.1 | 0.3 | ||||||||||||||||||
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Total revenues |
$ | 201.0 | 100.0 | % | $ | 221.1 | 100.0 | % | $ | (20.1 | ) | (9.1 | )% | |||||||||||
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Three Months Ended | ||||||||||||||||||||||||
July 1, | Percent of | July 3, | Percent of | Percentage | ||||||||||||||||||||
2012 | Revenues | 2011 | Revenues | Change | Change | |||||||||||||||||||
Revenues by geographic region: |
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North America |
$ | 101.2 | 50.3 | % | $ | 107.2 | 48.5 | % | $ | (6.0 | ) | (5.6 | )% | |||||||||||
Europe, Middle East and Africa (EMEA) |
55.9 | 27.8 | 70.0 | 31.7 | (14.1 | ) | (20.1 | ) | ||||||||||||||||
Latin America and Mexico (LATAM) |
26.7 | 13.3 | 26.4 | 11.9 | 0.3 | 1.1 | ||||||||||||||||||
Asia Pacific (ASIAPAC) |
17.2 | 8.6 | 17.5 | 7.9 | (0.3 | ) | (1.7 | ) | ||||||||||||||||
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Total revenues |
$ | 201.0 | 100.0 | % | $ | 221.1 | 100.0 | % | $ | (20.1 | ) | (9.1 | )% | |||||||||||
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Revenue for the three months ended July 1, 2012, decreased $20.1 million, or 9.1%, compared to the prior year period. This decrease is substantially due to declines in sales in our Systems and solutions and Printer and media segments in our EMEA region primarily due to economic uncertainty in the region, increased competitive pressure and an $8.5 million unfavorable change in foreign currencies as compared to the prior year currency rates across all regions. The majority of the unfavorable change in foreign currencies is due to currency rates of the Euro, Peso and Real.
Within the Intermec-branded product segment, Systems and solutions and Printer and media revenue for the three months ended July 1, 2012 decreased $17.7 million from the prior year comparable period primarily due to declines in sales in EMEA which reflect economic uncertainty in the region and competitive pressure and, to a lesser extent, a decline in sales of our Printer and media product line in North America.
Intermec-branded service revenues of $34.8 million for the quarter ended July 1, 2012, declined compared to the corresponding prior-year period. Service revenue declined in the three months ended July 1, 2012 as compared to the prior-year period. This decline is primarily attributable to reduced product sales that drive service revenues and a lower average price per unit under contract due to mix of lower cost product sales and competitive pricing.
Voice solutions revenue of $30.6 million for the three months ended July 1, 2012 increased $0.1 million, or 0.3%, compared to the corresponding prior-year period. Sales were lower than expected primarily due to delays in closing business as a result of turnover in our voice sales team in North America. We also anticipate reduced government program reimbursements related to customers of our Voice solution Healthcare (VHS) reporting unit of Voice Solutions, which may impact revenues going forward.
Revenues varied across the geographic regions for the quarter ended July 1, 2012. North America revenues decreased $6.0 million, or 5.6%. The decrease in North America revenues was attributable primarily to a decline in Intermec-branded printer and media sales. EMEA revenues decreased $14.1 million, or 20.1%, over the corresponding prior-year period. The decrease in EMEA revenues was mainly attributable to lower sales in our Intermec-branded product revenues driven by a slowing of large deals compared to the prior-year period, competitive pressure and economic conditions in that region. Foreign currency conversion rates unfavorably impacted EMEA revenue by $4.7 million, or 6.7%. LATAM revenues grew slightly, up $0.3 million from the prior year quarter. ASIAPAC revenues decreased $0.3 million, or 1.7% primarily due to a strong comparable quarter in 2011. Across all regions the impact of foreign currency rates as compared to the foreign currency rates in the prior-year period was $8.5 million, or 3.9%, unfavorable to revenue.
24
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Revenues by category and geographic region and as a percentage of total revenues for the six months ended July 1, 2012, and July 3, 2011, as well as the same six months revenue changes were as follows (in millions):
Six Months Ended | ||||||||||||||||||||||||
July 1, 2012 |
Percent of Revenues |
July 3, 2011 |
Percent of Revenues |
Change | Percentage Change |
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Revenues by category: |
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Intermec-branded: |
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Systems and solutions |
$ | 178.7 | 47.0 | % | $ | 199.0 | 49.8 | % | $ | (20.3 | ) | (10.2 | )% | |||||||||||
Printer and media |
74.2 | 19.5 | 88.1 | 22.0 | (13.9 | ) | (15.8 | ) | ||||||||||||||||
Services |
69.7 | 18.3 | 72.2 | 18.1 | (2.5 | ) | (3.5 | ) | ||||||||||||||||
Voice solutions |
58.0 | 15.2 | 40.3 | 10.1 | 17.7 | 43.9 | ||||||||||||||||||
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Total revenues |
$ | 380.6 | 100.0 | % | $ | 399.6 | 100.0 | % | $ | (19.0 | ) | (4.8 | )% | |||||||||||
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July 1, 2012 |
Percent of Revenues |
July 3, 2011 |
Percent of Revenues |
Change | Percentage Change |
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Revenues by geographic region: |
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North America |
$ | 192.8 | 50.7 | % | $ | 185.6 | 46.4 | % | $ | 7.2 | 3.9 | % | ||||||||||||
Europe, Middle East and Africa (EMEA) |
110.5 | 29.0 | 135.9 | 34.0 | (25.4 | ) | (18.7 | ) | ||||||||||||||||
Latin America and Mexico (LATAM) |
46.5 | 12.2 | 46.3 | 11.6 | 0.2 | 0.4 | ||||||||||||||||||
Asia Pacific (ASIAPAC) |
30.8 | 8.1 | 31.8 | 8.0 | (1.0 | ) | (3.1 | ) | ||||||||||||||||
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Total revenues |
$ | 380.6 | 100.0 | % | $ | 399.6 | 100.0 | % | $ | (19.0 | ) | (4.8 | )% | |||||||||||
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Revenue for the six months ended July 1, 2012, decreased $19.0 million, or 4.8%, due largely to an $11.4 million unfavorable change in foreign currencies as compared to the prior year currency rates across all regions. The decline in sales in our Systems and solutions and Printer and media segments in our EMEA region were primarily due to a slowing of large deals, competitive pressure and economic uncertainty in the region. These declines were partially offset by modest growth in and the inclusion of a full six months of the operations of Vocollect and Enterprise Mobile. These operations increased revenues by $21.7 million over the prior year.
Within the Intermec-branded product segment, Systems and solutions and Printer and media revenue for the six months ended July 1, 2012 decreased $34.2 million from the prior year comparable period primarily due to the declines in sales in EMEA which we believe reflects a slowing of large deals, competitive pressure and uncertainty in the economy and, to a lesser extent, a decline in sales of our Printer and media product line in North America.
Intermec-branded service revenues of $69.7 million for the six months ended July 1, 2012, declined compared to the corresponding prior-year period. Intermec-branded service revenues for the six months ended July 1, 2012, includes $7.1 million of revenue from Enterprise Mobile, acquired in 2011, which represents growth of $4.0 million from the $3.1 million of comparable revenues for the first six months of 2011. The decline is primarily attributable to reduced product sales and a lower average price per unit under contract due to mix of lower cost product sales and competitive pricing.
Voice solutions revenue of $58.0 million for the six months ended July 1, 2012, increased $17.7 million, or 43.9%, compared to the corresponding prior-year period, due to the inclusion of a full six months results from the Vocollect acquisition, compared to the inclusion of the results from acquisition date, March 3, 2011, in the first six months of 2011.
Revenues varied across the geographic regions for the six months ended July 1, 2012. North America revenues increased $7.2 million or 3.9%. The increase in North America revenues was attributable to $16.4 million for the inclusion of a full six months results of entities acquired in March, 2011, offset by a decline in Intermec-branded printer and media sales. EMEA revenues decreased $25.4 million, or 18.7%, over the corresponding prior-year period. The decrease in EMEA revenues was mainly attributable to lower sales in our Intermec-branded product revenues driven by a slowing of large deals compared to the prior-year period and economic conditions in that region. Foreign currency conversion rates unfavorably impacted EMEA revenue by $6.7 million, or 4.9%. These decreases in EMEA were partially offset by the inclusion of a full six months of Vocollect results, which increased $4.6 million over the prior year. LATAM revenues remained fairly steady from the prior years period. ASIAPAC revenues decreased $1.0 million, or 3.1% primarily due to a particularly strong first six months in 2011. Across all regions the impact of foreign currency rates as compared to the foreign currency rates in the prior-year period
25
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
was $11.4 million, or 2.9%, unfavorable to revenue. Operations of acquired entities positively contributed $16.4, $4.6 and $0.4 million of the total change in revenues in North America, EMEA, and LATAM, respectively, for the six months ended July 1, 2012.
Gross Profit and Gross Margin
Gross profit and gross margin by revenue category for the three and months ended July 1, 2012 and July 3, 2011, were as follows (in millions):
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
July 1, 2012 | July 3, 2011 | July 1, 2012 | July 3, 2011 | |||||||||||||||||||||||||||||
Gross Profit |
Gross Margin |
Gross Profit |
Gross Margin |
Gross Profit |
Gross Margin |
Gross Profit |
Gross Margin |
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Intermec-branded products |
$ | 47.3 | 34.9 | % | $ | 61.0 | 39.8 | % | $ | 84.2 | 33.3 | % | $ | 112.5 | 39.2 | % | ||||||||||||||||
Intermec-branded service |
14.2 | 41.0 | % | 13.2 | 35.5 | % | 28.0 | 40.2 | % | 25.8 | 35.8 | % | ||||||||||||||||||||
Voice solutions |
17.6 | 57.6 | % | 17.1 | 56.1 | % | 32.9 | 56.8 | % | 21.3 | 52.9 | % | ||||||||||||||||||||
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Total |
$ | 79.1 | 39.4 | % | $ | 91.3 | 41.3 | % | $ | 145.1 | 38.1 | % | $ | 159.6 | 39.9 | % | ||||||||||||||||
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Total gross profit for the three months and six months ended July 1, 2012, decreased by $12.2 and $14.5 million, respectively, as compared to the corresponding prior-year period. These decreases in total gross profit were primarily attributable to increases pricing discounts on Intermec-branded products, reduced sales, negative foreign currency exchange impacts and engineering fees related to Intermec branded products and services. The gross profit decline for the six months ended July 1, 2012 was partially offset by the inclusion of a full six months of the Voice solutions segment.
Intermec-branded product gross profit decreased $13.7 and $28.3 million for the three and six months ended July 1, 2012, respectively, compared to the corresponding prior-year period primarily due to certain pricing discounts, reduced sales and the impact of foreign currency conversion rates.
The increase in Intermec-branded service gross profit for the three and six months ended July 1, 2012, from the corresponding prior-year periods was attributable to the inclusion of results for a full period from the Enterprise Mobile acquisition and reduced costs, partially offset by reduced sales in our traditional services business, largely in EMEA.
The increase in Voice solutions gross profit for the three and six months ended July 1, 2012, from the corresponding prior-year periods was attributable to a favorable sales mix. The increase for the six months ended July 1, 2012 was also attributable to the inclusion of a full six months of the Voice solutions results.
Operating Expenses and Interest Expense (in millions)
Three Months Ended | ||||||||||||
July 1, 2012 | July 3, 2011 | Change | ||||||||||
Research and development expense |
$ | 20.4 | $ | 22.9 | $ | (2.5 | ) | |||||
Selling, general and administrative expense |
61.4 | 66.1 | (4.7 | ) | ||||||||
Impairment of goodwill |
26.6 | | 26.6 | |||||||||
Gain on sale of assets |
(1.3 | ) | | (1.3 | ) | |||||||
Acquisition costs |
| 0.4 | (0.4 | ) | ||||||||
Restructuring costs |
5.6 | 5.1 | 0.5 | |||||||||
Interest, net |
(0.8 | ) | (0.6 | ) | (0.2 | ) | ||||||
Six Months Ended | ||||||||||||
July 1, 2012 | July 3, 2011 | Change | ||||||||||
Research and development expense |
$ | 40.4 | $ | 40.7 | $ | (0.3 | ) | |||||
Selling, general and administrative expense |
127.4 | 120.3 | 7.1 | |||||||||
Impairment of goodwill |
41.5 | | 41.5 | |||||||||
Gain on sale of assets |
(2.7 | ) | | (2.7 | ) | |||||||
Acquisition costs |
| 5.2 | (5.2 | ) | ||||||||
Restructuring costs |
5.6 | 5.1 | 0.5 | |||||||||
Interest, net |
(1.5 | ) | (1.0 | ) | (0.5 | ) |
26
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Research and Development Expenses - The total research and development (R&D) expenses were $20.4 and $40.4 for the three and six months ended July 1, 2012, respectively, compared to R&D expenses of $22.9 and $40.7 million for the corresponding prior-year periods. The decrease for the three months ended July 1, 2012 was primarily due to decreases in bonus and salary expense. The decrease for the six months ended July 1, 2012 was due to decreases in bonus expense partially offset by the inclusion of a full six months of Vocollect financial results compared to four months in 2011.
Selling, General and Administrative Expenses - Total selling, general and administrative (SG&A) expenses were $61.4 and $127.4 million for the three and six months ended July 1, 2012, compared to SG&A expenses of $66.1 and $120.3 million, respectively, for the corresponding prior-year period. The decrease in SG&A expenses for the three months ended July 1, 2012 as compared to the three months ended July 3, 2011, was primarily attributable to decreases in bonus expense, lower commissions on reduced sales, and stock compensation forfeitures related primarily to the departure of the former CEO. This decrease was partially offset by severance pay for our former CEO and a lawsuit settlement and payment. The increase in SG&A expenses for the six months ended July 1, 2012 was due to the inclusion of a full six months of expenses related to businesses acquired in March 2011 and severance pay for our former CEO, partially offset by a decrease in bonus expense, lower commissions on reduced sales, stock compensation forfeitures related primarily to the departure of the former CEO, and a gain on the sale of a small business entity.
Impairment of Goodwill - Impairment of goodwill during the three and six months of 2012 totaled $26.6 and $41.5 million, respectively, representing a partial write-off of previously acquired goodwill. The impairment was a result of a number of factors that existed during the first six months of 2012, and primarily reflects our business performance versus our prior forecast and the Companys current and recent lower market capitalization. See Note 16 to the Condensed Consolidated Financial Statements Goodwill and Other Long-Lived Assets for further discussion. We had no similar expense related to impairment of goodwill or other long-lived assets in the first three and six months ended July 3, 2011.
Gain on sale of assets - The gain on the sale of assets for the three and six months ended July 1, 2012 represents a $1.3 million gain on the sale of a small European based reseller business. The six months ended July 1, 2012 included an additional $1.4 million net gain from the sale of certain patents. There were no similar transactions for the comparable periods in 2011.
Acquisition Costs - The acquisition costs of $0.4 and $5.2 million for the three and six months ended July 3, 2011 relate to the acquisitions made in the first quarter of 2011.
Restructuring Costs. The increase in restructuring costs of $0.5 and $0.5 million for the three and six months ended July 1, 2012, respectively, as compared to the corresponding prior-year periods, was mainly due to the restructuring program announced in June 2012 to lower general and administrative support costs as compared to the restructuring program announced in May 2011 to restructure our non-US service group. Details of these programs are as follows:
The total pre-tax restructuring costs for the restructuring plan announced in June 2012 are expected to be approximately $6.4 million, including employee termination costs of approximately $5.9 million, and $0.5 million of other transitional costs. We recorded $5.9 million of the restructuring costs in the second quarter of 2012, and expect to record the remainder in the balance of the year. Substantially all of the severance-related and periodic transitional costs were cash expenditures. The net expense of $5.6 million in the quarter includes a small reduction of the estimates recorded for the 2011 restructuring plan.
The total pre-tax restructuring costs for the restructuring plan announced in May 2011 were expected to be approximately $5.9 million, including employee termination costs of approximately $5.1 million, and $0.8 million of other transitional costs. We recorded $5.1 million of the restructuring costs in the second quarter of 2011, and recorded the remainder over the balance of the year. Substantially all of the severance-related and periodic transitional costs were cash expenditures. A small reduction to these costs was recorded in the second quarter of 2012 as noted in the paragraph immediately above.
Interest, Net - Net interest (income) expense was $0.8 and $1.5 million for the three and six months ended July 1, 2012, compared to net interest expense of $0.6 and $1.0 million for the corresponding prior-year periods. The increase in net interest expense was mainly due to the addition of interest paid on a full three months of borrowings under our Revolving Credit Facility, which was used to finance a portion of the Vocollect acquisition in March, 2011.
Income tax (benefit) expense (in millions)
Three Months Ended | Six Months Ended | |||||||||||||||||||||||
July 1, | July 3, | Change from | July 1, | July 3, | Change from | |||||||||||||||||||
2012 | 2011 | prior year | 2012 | 2011 | prior year | |||||||||||||||||||
Income tax (benefit) expense |
$ | 3.1 | $ | 0.1 | $ | 3.0 | $ | 211.0 | $ | (2.8 | ) | $ | 213.8 |
27
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In the second quarter, we recorded a tax provision of $1.7 million on foreign earnings and no tax benefit for earnings in the United States, Singapore and Japan due to losses in those jurisdictions. We also provided $1.4 million for deferred taxes on projected future repatriation from certain foreign subsidiaries which are not permanently reinvested. The tax provision for the three months ending April 1, 2012 includes a net $206.9 million non-cash charge to record a valuation allowance against our U.S. deferred tax assets.
Currently, we record valuation allowances in the following jurisdictions: United States, Singapore and Japan. Under GAAP, a valuation allowance against our deferred tax assets is appropriate if based on the available evidence, it is more likely than not (defined as a likelihood of more than 50%) that the value of such assets will not be realized in the future. The valuation of deferred tax assets requires judgment in assessing a number of factors, including the likely future tax consequences of events we expect to recognize in our financial statements and tax returns, as well as our historical performance.
Key factors we considered include our results for the quarter ended April 1, 2012; we recorded a pre-tax loss and significantly underperformed relative to our forecast. We also revised our forecast downward in the first quarter of 2012 for our U.S. and global operations for the remainder of 2012. We concluded that it was more likely than not that the value of such assets would not be realized and we recorded a valuation allowance for our U.S. entities representing the full balance of these assets. A sustained period of profitability in our U.S. operations is required before we would change our judgment regarding the need for a full valuation allowance against our U.S. deferred tax assets. In the event that we determine in the future that we expect to benefit from our deferred income tax assets in excess of the net balance at that time, we will make an adjustment to the deferred tax asset valuation allowance. This will reduce the provision for income taxes in that period. Until such time, we will offset U.S. profits against our deferred tax assets and will reduce the overall level of deferred tax assets subject to valuation allowance as a result.
For the jurisdictions where we did not record a valuation allowance, our tax provision includes an estimated annual effective tax rate from continuing operations of approximately 31%. Our effective tax rate from continuing operations in those jurisdictions is lower than the U.S. statutory rate of 35% due primarily to lower tax rates and tax incentives in those jurisdictions.
Liquidity and Capital Resources
Our principal sources of liquidity are our cash, cash equivalents and short-term investments, as well as cash flow that we expect to generate from our operations. In addition, we have a secured Revolving Credit Facility as described in the Capital Resources section below (in millions). Our cash flows are summarized in the following table:
Six Months Ended | ||||||||
(in millions) | July 1, 2012 |
July 3, 2011 |
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Net cash used in operating activities |
$ | (26,799 | ) | $ | (7,165 | ) | ||
Net cash provided by (used in) investing activities |
6,424 | (213,043 | ) | |||||
Net cash provided by financing activities |
1,034 | 68,083 |
Cash Flow Summary
At July 1, 2012, cash, cash equivalents and short-term investments totaled $74.9 million, a decrease of $20.4 million compared to the December 31, 2011 balance of $95.3 million. The decrease in cash is primarily due to cash used in operations described below, offset by proceeds from our company owned life insurance policies.
Cash used in operating activities of $26.8 million in the first six months of 2012 was primarily due to a net loss of $279.6 million, adjusted for a non-cash deferred tax valuation allowance and goodwill impairment charges of $254.4 million and decreases in accounts payable and payroll partially offset by a reduction in accounts receivable. Cash used in operating activities of $7.2 million in the first half of 2011 was primarily due to a net loss of $9.9 million offset by an increase in amortization and deferred tax related to acquisitions.
For the six months ended July 1, 2012, investing activities provided $6.4 million of cash primarily due to proceeds from loans against and the cash surrender of certain executive life insurance programs of $9.0 million and the sale of intellectual property of $1.4 million, offset by capital expenditures of $4.6 million. For the six months ended July 3, 2011, investing activities used $213.0 million of cash primarily due to the acquisition of Vocollect and Enterprise Mobile and capital expenditures of $11.5 million.
28
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing activities for the six months ended July 1, 2012, provided cash of $1.0 million primarily related to the vesting of restricted stock units. Financing activities for the six months ended July 3, 2011, provided cash of $68.1 million primarily related to incurring debt of $97.0 million, offset by a $20.0 million repayment of this debt and $10.0 million of stock repurchased.
Capital Resources
Our principal capital resources include cash, cash equivalents and short-term investments. In addition, we have a secured Revolving Credit Facility (the Revolving Facility). Effective March 3, 2011, we amended our unsecured revolving credit facility with Wells Fargo Bank, National Association (the Bank) to convert the facility to a three-year, $100 million, secured revolving credit facility, which matures on March 3, 2014 (the Revolving Facility). The unsecured revolving credit facility was initiated on September 27, 2007. On December 21, 2011, we amended the Revolving Facility to expand our borrowing capacity to $150 million and extended the maturity date to December 31, 2014. On February 2, 2012, we amended the Revolving Facility to modify certain financial covenants relating to net income. Effective March 30, 2012, we amended the Revolving Facility to remove certain financial covenants, to add a new covenant related to minimum adjusted EBITDA and to add a new financial covenant for permitted acquisitions. We were in compliance with all financial and non-financial covenants of the Revolving Facility at July 1, 2012.
During the three and six months ended July 1, 2012, our average borrowings outstanding were $86.5 and $85.7 million, respectively. At July 1, 2012, after considering the financial covenant requirements, we had borrowing capacity of $7.3 million under the Revolving Facility, borrowings of $85.0 million and $1.5 million of letters of credit outstanding under the Revolving Facility. After giving effect to the February 2, 2012 and March 30, 2012 amendments, we were in compliance with the financial covenants of the Revolving Facility at July 1 2012. The key terms of the Revolving Facility are as follows following the amendments:
| Loans bear interest at a variable rate equal to (at our option) (i) LIBOR plus the applicable margin, which ranges from 1.25% to 1.75%, or (ii) the Banks prime rate, less the applicable margin, which ranges from 0.25% to 1.00%. If an event of default occurs and is continuing, then the interest rate on all obligations under the Revolving Facility may be increased by 2.0% above the otherwise applicable rate, and the Bank may declare any outstanding obligations under the Revolving Facility to be immediately due and payable. In addition, the Bank may exercise its security interest in our equity interests in the assets of certain of our domestic subsidiaries, and it may call the guaranties of payment obligations made by certain of our domestic subsidiaries. |
| A fee ranging from 0.60% to 1.00% on the maximum amount available to be drawn under each letter of credit that is issued and outstanding under the Revolving Facility. The fee on the unused portion of the Revolving Facility ranges from 0.15% to 0.25%. |
| Certain of our domestic subsidiaries have guaranteed the Revolving Facility. |
| The Revolving Facility contains various restrictions and covenants, including restrictions on our ability and the ability of our subsidiaries to consolidate or merge, make acquisitions, create liens, incur additional indebtedness or dispose of assets. |
| The Revolving Facility includes covenants requiring us to meet certain minimum financial performance thresholds, including: |
| A ratio of maximum funded debt to EBITDA allowed (as defined in the Revolving Facility) of not more than 2.5 to 1. |
| An Asset Coverage Ratio of not less than 1 to 1 for debt to margined assets. For this purpose, a certain percentage of our accounts receivable and inventory balances are included in margined assets. |
| The minimum adjusted EBITDA allowed(as defined in the Revolving Facility) for the trailing twelve months is $25 million for the second quarter of 2012, $35 million for the third quarter of 2012, and $45 million for all subsequent quarters. |
We expect to be in compliance with our covenants for the next twelve months. A number of factors, including (without limitation) general macroeconomic and competitive conditions, increase the risk and uncertainty relating to achieving the levels of financial performance we expect and that would be required to remain in compliance with the financial covenants in the Revolving Facility, particularly the EBITDA-related covenants. If our financial performance does not meet our expectations we could fail to be in compliance with the financial covenants in the Revolving Facility. For example, with regard to the EBITDA-related covenants, a decline in revenue from expected levels would negatively affect our ability to comply with these covenants.
If we were to determine that we are or expect to be out of compliance with the financial covenants of the Revolving Facility, we believe that we could take steps available to us to avoid, mitigate or cure the breach, which may include, without limitation, steps such as: (i) seeking a waiver of compliance from the Bank and modifying the Revolving Facility in a manner satisfactory to the Bank, as we have done in the past, (ii) reducing the borrowings under the Revolving Facility using our existing cash to make payments to the Bank, or (iii) seeking other amendments or a restructuring or replacement of our Revolving Facility. We believe we can fund our ongoing working capital needs from operating cash flows and cash on hand.
For more information about risk factors related to the Revolving Facility and compliance with its covenants, and about risks related to our business performance, refer to our Risk Factors set forth in Part II, Item 1A. Risk Factors, of this Quarterly Report on Form 10-Q.
29
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From time to time, we may look for potential acquisition targets for growth opportunities within our market, or to expand into new markets, which we believe can be funded with a combination of cash on hand, projected cash flows from operations and additional financing.
Depending on our assessment of the economic environment from time-to-time, we may decide to hold more cash than may be required to fund our future investment in working capital, capital expenditures and research and development and to implement changes in our cost structure. 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 flows from operations could be positively or negatively impacted.
Contractual Obligations
Except for the Revolving Facility outlined in Capital Resources above, our contractual commitments as of July 1, 2012 have not changed materially from those disclosed in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of our 2011 Form 10-K.
Critical Accounting Policies and Estimates
Our condensed 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. Our critical accounting policies and estimates are discussed in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations of our 2011 Form 10-K.
Goodwill. The accounting for goodwill requires that we test the goodwill of our reporting units for impairment on an annual basis, or when an event occurs or circumstances change such that it is more likely than not that impairment may exist. Our annual testing date is in the fourth quarter. In assessing the existence of impairment, our considerations include the impact of significant adverse changes in market and economic conditions; the results of our operational performance and strategic plans; unanticipated changes in competition; market share; and the potential for the sale or disposal of all or a significant portion of our business or a reporting unit. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its fair value. Accounting rules require a two-step goodwill impairment test whereby the first step, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the estimated fair value of a reporting unit is less than its carrying amount, goodwill of the reporting unit is potentially impaired, thus the second step of the goodwill impairment test is used to quantify the amount of any impairment that exists.
We assign goodwill to our reporting units based on the expected benefit from the synergies arising from each business combination. We have three reportable segments: Intermec-branded products, Intermec-branded services and Voice solutions. Intermec-branded services and Voice solutions each comprise two reporting units. Intermec-branded services are divided into: Core Service and Intermec Global Solutions (IGS). Voice solutions contains the Vocollect Supply Chain (VSC) and Vocollect Healthcare reporting units (VHS).
Q1 2012 goodwill impairment analysis
During the first quarter of 2012, two events occurred that triggered an analysis of the carrying value of goodwill and resulted in the estimated write down of goodwill of $14.9 million. Specifically, operating income was less than our forecast, primarily due to an $19 million loss on operations in the first quarter principally in the Intermec-branded products and services segments. In addition, our financial results negatively impacted the price per share of Intermec stock, causing the market capitalization of the Company to be significantly below its net book value. These triggering events were indicators that it was more likely than not the fair value of the Companys goodwill was less than its book value.
We prepared a Step 1 goodwill impairment analysis to determine the fair values of all three reporting units with goodwill (Intermec Global Solutions, Healthcare, and Supply Chain). To calculate the fair values we used the discounted cash flow method and market approach. We made significant assumptions and estimates about the extent and timing of future cash flows, growth rates, and discount rates that represent unobservable inputs into our valuation methodologies used to calculate fair value. The cash flows were estimated over a significant future period of time, which made those estimates and assumptions subject to
30
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
a high degree of uncertainty. Where available and as appropriate, comparative market multiples and the quoted market price of our common stock were used to corroborate the results of the discounted cash flow method and market approach. Assumptions used in our analysis that have the most significant effect on the estimated fair values of our reporting units include:
| Our estimated weighted-average cost of capital (WACC); and |
| Our estimated long-term growth |
| Market multiples |
Once we had determined our assumptions, we calculated the fair value of each reporting unit and compared it to the carrying value of the reporting unit. After performing our Step 1 analysis for the reporting units, we determined that the carrying value of the Supply Chain reporting unit exceeded its fair value by $14.9 million and recognized an estimated impairment charge in the first quarter. Due to the timing and complexity of this analysis, Step 2 of the impairment test was substantially completed in the second quarter of 2012. After performing that test, we determined we had an additional goodwill impairment of $25.8 million associated with our Supply Chain reporting unit. The additional impairment was the result of an increase in the fair value of developed and in-process technology intangible assets within the Supply Chain reporting unit. The increase in the intangible assets reduced the implied fair value of the goodwill, and we recognized a $40.7 million cumulative impairment of the Supply Chain reporting unit goodwill for the six months ended July 1, 2012.
Determining the fair value of goodwill for the Supply Chain reporting unit for Step 2 was judgmental in nature and involved the use of significant estimates and assumptions to calculate a hypothetical fair value of the assets and liabilities within the reporting unit. Our analysis utilized the income approach to calculate the implied fair value of goodwill of the Supply Chain reporting unit. The key inputs we used in the income approach included our forecast of revenue and expenses, a migration curve of developed and in-process technology, tax rate, discount rates, customer retention rates, useful lives, and contributory charge rates. These key inputs, for the income approach, are classified as Level 3 within the fair value hierarchy, see Note 3 Fair Value Measurements.
Q2 2012 goodwill impairment analysis
During the three months ended July 1, 2012, we significantly changed the composition of key senior management at the reporting units and also changed our Chief Executive Officer. Additionally, we evaluated certain market trends and specific changes in our marketplace including, macro and micro economic conditions, expected government spending and industry data. As a result of the changes and evaluations, a review was performed over all areas in which we engage in business. Upon conclusion of the review, key operational and investment decisions were made which resulted in changes in the amount and timing of receipts and expenditures. Specifically, forecasts of revenue, research and development costs, capital expenditures, and other inputs to operations were revised, and the result was reduced cash flow forecasts across the three reporting units with goodwill. Consequently, a triggering event occurred to evaluate impairment of goodwill, specific to facts and circumstances during the three months ended July 1, 2012.
We prepared a Step 1 goodwill impairment analysis to determine the fair values of all three reporting units with goodwill (Intermec Global Solutions, Healthcare, and Supply Chain). To calculate the fair values we used the discounted cash flow method and market approach. We utilized the same methods listed above in Q1 2012 goodwill impairment analysis to perform our Step 1 analysis for the three months ended July 1, 2012. Once we had determined our assumptions, we calculated the fair value of each reporting unit and compared it to the carrying value of the reporting unit.
After performing our Step 1 analysis for the reporting units we determined that the carrying value of the Healthcare reporting unit exceeded its fair value, so we then performed a Step 2 analysis. Based on a preliminary Step 2 analysis we determined we had a estimated goodwill impairment of $0.8 million associated with our Healthcare reporting unit. This impairment was primarily the result of a reduction in our long term business forecast specifically related to expected government spending in the skilled nursing are, the likely impact on capital investments in that market and the timing of the launch of new products for our Healthcare reporting unit. Due to the complexity and timing of this Step 2 analysis we will finalize it in the third quarter of 2012 and the impairment amount may change at that time.
Determining the fair value of goodwill for the Healthcare reporting unit for Step 2 is judgmental in nature and involves the use of significant estimates and assumptions to perform a hypothetical fair value of the assets and liabilities within the reporting unit. Our analysis utilized the income approach to calculate the implied fair value of goodwill of the Healthcare reporting unit. The key inputs we used in the income approach included our forecast of revenue and expenses, a migration curve of developed and new technology, tax rate, discount rates, customer retention rates, useful lives, and contributory charge rates. These key inputs, for the income approach, are classified as Level 3 within the fair value hierarchy. See Note 3 Fair Value Measurements to our Condensed Consolidated Financial Statements for further detail.
Future goodwill impairments that may be material could be recognized should the recent economic uncertainty continue, our equity price declines on a sustained basis, global economies enter in another recession, or industry growth stagnates further. Our
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
fair value estimates for event-driven impairment tests assume the achievement of future financial results contemplated in our forecasted cash flows and there can be no assurance that we will realize that value. The estimates and assumptions used are subject to significant uncertainties, many of which are beyond our control, and there is no assurance that anticipated financial results will be achieved.
The fair value for the Intermec Global Services reporting unit and the Supply Chain reporting unit exceeded their carrying value by 8.5% and 8.2%, respectively and therefore are not impaired. Performance of our business operations could lag behind our forecast, which in turn could impact the fair value of our reporting units. In addition, based upon the results of our Step 1 test the margin between the fair value of the Intermec Global Services, Supply Chain and Healthcare reporting units and their carrying amounts are sensitive to changes in discount rate and forward operating results. An 100 bps increase in our discount rate may trigger an impairment when coupled with declining results of operations. In addition, a 5% decrease in the cash flows from operations may also yield recognition of impairment. Based upon the best information available, it does not appear more likely than not that either of these scenarios will occur.
Valuation of Long-Lived Assets. Long-lived assets, such as property, plant, and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized on our statement of operations and as a reduction to the asset group to the extent that the fair market value of the asset group is less than its carrying value. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. Due to the same circumstances that required the interim goodwill impairment test above, we evaluated our long-lived assets for impairment for the quarters ended April 1, 2012 and July 1, 2012. We determined that the carrying amount of our long-lived assets does not exceed their estimated undiscounted future cash flow and therefore our long-lived assets are not impaired as of April 1, 2012 or July 1, 2012.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of July 1, 2012, there have been no material changes in the information provided in Item 7A of our 2011 Form 10-K, which contains a complete discussion of our material exposures to foreign currency exchange rate risk.
ITEM 4. CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, including the Interim Chief Executive Officer, or CEO, and Chief Financial Officer, or CFO, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(e) as of the end of the period covered by this quarterly report. Based on that evaluation, management, including the CEO and CFO, has concluded that our disclosure controls and procedures as defined in Rule 13a-15(e) were effective as of July 1, 2012. There were no changes in our internal control over financial reporting during the quarter ended July 1, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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We currently, and from time to time, are involved in claims, lawsuits and other proceedings, including, but not limited to, intellectual property, commercial, and employment matters, which arise in the ordinary course of business. We currently do not expect the ultimate resolution of pending matters (including the matters described below) to be material to Intermec in relation to our business, financial condition, results of operations or liquidity. With the exception of one of our cases, which involves the defense of our patents, the external legal costs incurred in these matters are expensed.
In the case Intermec Technologies Corporation v. Palm, Inc., Civil Action No. 1:05-cv-00147-SLR, United States District Court for the District of Delaware (the Palm Case), the parties entered into a confidential settlement agreement that ended the case before trial.
In the case Intermec, Inc. v. International Business Machines Corporation, Civil Action No. 2:11-cv-00165, United States District Court for the Western District of Washington (the IBM Case), there have been no material changes in the case during the second quarter of 2012 since those described in our Report on Form 10-Q for the period ended April 1, 2012. The trial in the IBM Case concluded on March 29, 2012, with a jury verdict in Intermecs favor of $1.05 million, which was $0.7 million less than the receivable carried on our balance sheet. This $0.7 million was expensed in the first quarter of 2012. In the second quarter of 2012, IBM filed a Motion for Judgment Not Withstanding the Verdict and indicated that it intends to appeal the decision in the District Court, and Intermec asked the Court for a new trial or order on the issue whether pre-trial interest is owed to Intermec on the amount awarded by the jury.
In the case Alien Technologies Corporation v. Intermec, Inc., et al., Civil Action No. 3:06-cv-0051, United States District Court for the District of North Dakota, Southeastern Division (the Alien Case), Alien Technologies Corporation (Alien) sued Intermec in June 2006 for a declaratory judgment that Alien does not infringe certain Intermec patents relating to radio frequency identification technology (RFID) and that certain Intermec RFID patents are invalid; Aliens case against Intermec does not assert any counterclaimed damages or loss against Intermec. Intermec counterclaimed against Alien for infringement related to certain of those patents. In the suit, Intermec is seeking a decision that its patents are valid and infringed by Alien. Both parties have requested reimbursement of legal fees. The Intermec patent remaining in the Alien Case after the District Court's summary judgment decisions has been the subject of proceedings in the U.S. Patent and Trademark Office (USPTO), which upheld the validity of most of the original claims as well as found new claims patentable upon reexamination. The reexamination decision was appealed by Alien to the Board of Patent Appeals and Interferences (BPAI) of the USPTO. On July 19, 2012, the BPAI issued a decision finding that the examiner erred in not considering certain grounds of rejection previously proposed by Alien. Intermec intends to continue reexamination proceedings for the patent claims at issue, including the submission of further evidence demonstrating that the possible new grounds of rejection should not be adopted by the examiner. The BPAI did not find error with the examiners decision not to adopt any other grounds of rejection originally proposed by Alien. The legal fees related to the defense of this case have been capitalized and reported on our Condensed Consolidated Balance Sheets as Other assets.
Refer to Commitments and Contingencies in Note 13 of the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q, and to Capitalized Legal Patent Costs in Significant Accounting Policies in Note 1 and to Commitments and Contingencies in Note 13 of the Notes to Condensed Consolidated Financial Statements in our 2011 Form 10-K.
ITEM 1A. | RISK FACTORS |
You are encouraged to review the discussion of Forward Looking Statements and Risk Factors appearing in this report at Part I, Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A. Risk Factors in our 2011 Form 10-K, and the factors discussed in this Part II, Item 1A, Risk Factors of this Quarterly Report on Form 10-Q for the quarter ended July 1, 2012 (the Second Quarter Form 10-Q) and in the First Quarter Form 10-Q, which could materially affect our business, financial condition, operating results, earnings or stock price, in various ways. The risks described in our 2011 Form 10-K and in the Second Quarter Form 10-Q are not the only risks facing our Company. 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.
The risk factor included in the 2011 Form 10-K under the caption We have entered into a senior secured credit facility agreement that includes covenants, financial tests and ratios, which, if not met, may have an adverse effect on our business, financial condition, results of operations and cash flows is restated in its entirety as follows:
| We have entered into a senior secured credit facility agreement that includes covenants, financial tests and ratios, which, if not met, may have an adverse effect on our business, financial condition, results of operations and cash flows. We maintain a senior secured credit facility that contains certain customary covenants to the Bank providing the credit facility, including financial covenants that require us to comply with specified financial ratios and tests. The credit facility is secured by pledges of equity in and assets of certain of our domestic subsidiaries, which have also guaranteed our payment obligations under the credit facility. We must take into account the requirements of these covenants in the conduct of our business. Depending on the circumstances under which we could fail to satisfy one or more of these covenants, we may need to make choices that limit some of our business or financing activities in order to comply with them. These choices may have an adverse effect on our results of operations and cash flows. Furthermore, we were not in compliance with certain of our debt covenants effective as of each of December 31, 2011, and April 1, 2012, but in each case the Bank agreed to amend the credit facility agreement to bring us back into compliance. However, if we fail to comply with the requirements of the credit facility in the future, we would be in default, and we may not be able to obtain the necessary amendments or waivers of an event of default. In that event, the Bank could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. The Bank could also move to enforce its rights under its security interests in our assets and those of our subsidiaries. If at that time we were not able to repay any amounts borrowed under the credit facility using our existing cash, or to obtain sufficient financing from alternative sources to make the repayment, or if alternative financing is not available on favorable terms, or at all, our business and financial condition would be materially adversely affected. Such alternative financing, if available, may include increased costs or other terms affecting our business or assets. We could also incur substantial costs in pursuing such alternative financing arrangements. Financing arrangements that include the issuances of equity or other securities convertible into equity could cause our existing stockholders interests to be diluted. |
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10.1 | Director Compensation Program under the Companys 2008 Omnibus Incentive Plan, as amended and restated as of June 14, 2012 | |
10.2 | Form of Employee Stock Option Grant Notice (For U.S. Optionees) and Stock Option Agreement under the Companys 2008 Omnibus Incentive Plan, effective for awards granted on or after May 21, 2012 | |
10.3 | Form of Nonqualified Stock Option Grant Notice (Performance Vested for Senior Officers) and Stock Option Agreement under the Companys 2008 Omnibus Incentive Plan, effective for awards granted on or after May 21, 2012 | |
10.4 | Clarification of Letter Agreement with Interim Chief Executive Officer, Dated June 18, 2012 | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2012. | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2012. | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2012. | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated as of August 9, 2012. | |
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
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Pursuant to the requirements 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. | ||
(Registrant) | ||
/s/ Robert J. Driessnack | ||
| ||
Robert J. Driessnack | ||
Senior Vice President and Chief Financial Officer | ||
August 9, 2012 |
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Exhibit 10.1
DIRECTOR COMPENSATION PROGRAM UNDER THE
INTERMEC, INC. 2008 OMNIBUS INCENTIVE PLAN
(Amended and Restated as of June 14, 2012)
The following provisions set forth the terms of the compensation program (the Program) for nonemployee directors of Intermec, Inc. (the Company) under the Intermec, Inc. 2008 Omnibus Incentive Plan (the Plan), as it may be amended from time to time. The following terms are intended to supplement, not alter or change, the provisions of the Plan, and in the event of any inconsistency between the terms contained herein and in the Plan, the Plan shall govern. All capitalized terms that are not defined herein shall be as defined in the Plan.
1. | Eligibility |
Each director of the Company elected or appointed to the Board who is not otherwise an officer or employee of the Company or a Related Company (a Director) shall be eligible to receive the Awards set forth in the Program.
2. | Option Grants (Grants Prior to 2012) |
(a) | Timing and Number of Shares Subject to Option Grants |
(i) Annual Option Grants. Immediately after the 2008 Annual Meeting of Stockholders and at each Annual Meeting of Stockholders thereafter, each Director shall automatically be granted a Nonqualified Stock Option to purchase shares of Common Stock with a Black-Scholes value of $80,000, with any fractional share rounded to the nearest whole share (0.5 to be rounded up) (each, an Annual Option Grant).
(ii) Initial Option Grants. Any person who becomes a Director at any time of the year other than the date of the Annual Meeting of Stockholders shall automatically be granted a Nonqualified Stock Option to purchase shares of Common Stock for a pro rata portion of the value of the most recent preceding Annual Option Grant, based on the time remaining in the one-year period following the date of the previous Annual Meeting of Stockholders, such grant to be effective on the date he or she becomes a Director (an Initial Option Grant).
(iii) Makeup Option Grants. Immediately after the 2008 Annual Meeting of Stockholders, each Director shall automatically be granted a Nonqualified Stock Option to purchase shares of Common Stock for a pro rata portion of the value of the Annual Option Grant made on the same date, based on the time between January 1, 2008 and the date of the 2008 Annual Meeting of Stockholders (each, a Makeup Option Grant).
(b) | Exercise Price of Options. |
Annual Option Grants, Initial Option Grants and Makeup Option Grants shall have a per share exercise price equal to the Fair Market Value of the Common Stock on the Grant Date of the Option.
(c) | Option Vesting and Exercisability |
Options granted at the Annual Meeting of Stockholders shall vest and become exercisable in four equal installments (subject to adjustment for fractional shares) on the first business day of each fiscal quarter of the Company, beginning on the Grant Date. Options granted on a day other than the date of the Annual Meeting of Stockholders shall vest and become exercisable in equal installments (subject to adjustment for fractional shares) on the Grant Date and the first business day of each fiscal quarter of the Company, if any, that occurs up to, and including, the first quarter of the year in which the next Annual Meeting of Stockholders occurs. Notwithstanding the forgoing, Makeup Option Grants made pursuant to Section 1(a)(iii) shall vest and become exercisable in three installments (subject to adjustment for fractional shares) on the first business day of each fiscal quarter of the Company, beginning on the Grant Date. The first installment will be equal to one half of the Makeup Option Grant; the second and third installments will be equal to one quarter of the Makeup Option Grant.
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(d) | Term of Options |
Each Option shall expire seven years from the Grant Date thereof, but shall be subject to earlier termination as follows:
(i) In the event that a Director ceases to be a Director of the Company for any reason other than the death of the Director, the unvested portion of any Option granted to the Director shall terminate immediately, and the vested portion of the option may be exercised by the Director only within three years after the date he or she ceases to be a Director of the Company or prior to the date on which the Option expires by its terms, whichever is earlier.
(ii) In the event of the death of a Director, the unvested portion of any Option granted to the Director shall become fully vested and exercisable, and the option may be exercised only within three years after the date of death of the Director or prior to the date on which the Option expires by its terms, whichever is earlier, by the personal representative of the Directors estate, the person(s) to whom the Directors rights under the option have passed by will or the applicable laws of descent and distribution, or any beneficiary designated pursuant to Section 13 of the Plan.
(e) | Exercise of Options |
Options shall be exercised by giving the required notice to the Company (or a brokerage firm designated or approved by the Company), stating the number of shares of Common Stock with respect to which the Option is being exercised, accompanied by payment in full for such Common Stock, which payment may be, to the extent permitted by applicable laws and regulations, in whole or in part, (a) in cash or check; (b) by having the Company withhold shares of Common Stock that would otherwise be issued on exercise of the Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; (d) by tendering (either actually or by attestation) shares of Common Stock owned by the Director that have an aggregate Fair Market Value equal to the aggregate exercise price of the shares being purchased under the Option; (e) if and so long as the Common Stock is registered under the Exchange Act, by delivery of a properly executed exercise notice, together with irrevocable instructions to a broker, to promptly deliver to the Company the amount of proceeds to pay the exercise price, all in accordance with the regulations of the Federal Reserve Board.
(f) | No Options will be granted under the Program after 2011. |
3. | Restricted Deferred Stock Unit Grants (Grants Prior to 2012) |
(a) | Timing and Number of Restricted Deferred Stock Units |
(i) Annual Restricted Deferred Stock Unit Grants. Immediately after the 2008 Annual Meeting of Stockholders, and at each Annual Meeting of Stockholders thereafter, each Director shall automatically be granted restricted deferred stock units with a value of $80,000, based on the Fair Market Value of the Common Stock on the Grant Date, with any fractional share rounded to the nearest whole share (0.5 to be rounded up) (each, an Annual Restricted Deferred Stock Unit Grant); provided, that any person who becomes a Director at any time of the year other than the date of the Annual Meeting of Stockholders shall receive a pro rata portion of the value of the most recent preceding Annual Restricted Deferred Stock Unit Grant, based on the time remaining in the one-year period following the date of the previous Annual Meeting of Stockholders, such grant to be effective on the date he or she becomes a Director.
(ii) Makeup Restricted Deferred Stock Unit Grant. Immediately after the 2008 Annual Meeting of Stockholders, each Director shall automatically receive a pro rata portion of the value of the Annual Restricted Deferred Stock Unit Grant made on the same date, based on the time between January 1, 2008 and the date of the 2008 Annual Meeting of Stockholders.
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(b) | Mandatory Deferrals of Restricted Deferred Stock Units |
All restricted deferred stock unit grants that Directors are entitled to receive under the Program shall automatically be deferred into and shall be subject to the terms and conditions of the Companys Director Deferred Compensation Plan or any similar successor plan thereto (the Deferred Compensation Plan).
(c) | Vesting of Restricted Deferred Stock Units |
All restricted deferred stock unit awards granted under the Program shall be fully vested as of the date of the next Annual Meeting of Stockholders following the Grant Date, assuming the Directors continued service on the Board during such period. In the event of a Directors termination of service prior to the vesting of restricted deferred stock units, such units shall automatically be forfeited to the Company.
(d) | No restricted deferred stock unit awards will be granted under the Program after 2011. |
4. | Restricted Stock Unit Grants (Grants After 2011) |
(a) | Timing and Number of Restricted Stock Units |
Immediately after the 2012 Annual Meeting of Stockholders, and at each Annual Meeting of Stockholders thereafter, each Director shall automatically be granted restricted stock units (RSUs) with a value of $100,000 (RSU Value), based on the Fair Market Value of the Common Stock on the Grant Date, with any fractional share rounded to the nearest whole share (0.5 to be rounded up) (each, an Annual RSU Award); provided, that any person who becomes a Director at any time of the year other than the date of the Annual Meeting of Stockholders shall automatically be granted RSUs equal to a pro rata portion of the RSU Value, based on the time remaining in the one-year period following the date of the previous Annual Meeting of Stockholders, such grant to be effective on the date he or she becomes a Director and based on the Fair Market Value of the Common Stock on the Grant Date, with any fractional share rounded to the nearest whole share (0.5 to be rounded up) (a Mid-Term RSU Award).
(b) | Voluntary Deferrals of Restricted Stock Units |
All shares of Common Stock under RSU Awards that Directors are entitled to receive under the Program may be deferred into and shall be subject to the terms and conditions of the Deferred Compensation Plan, provided that the deferral election requirements of the Deferred Compensation Plan are met.
(c) | Vesting of Restricted Stock Units |
RSU Awards granted under the Program shall vest as follows:
(i) Annual RSU Awards shall vest in four equal installments (subject to adjustment for fractional shares as set forth below), with 25% of such Annual RSU Awards vesting on the first day of the calendar quarter that begins after the Annual Meeting of Stockholders occurs at which the Annual RSU Awards were granted and an additional 25% vesting on the first day of each of the three calendar quarters thereafter.
(ii) A Mid-Term RSU Award granted to a Director who commences service on the Board on or after January 1 of a calendar year but before the Annual Meeting of Stockholders for such calendar year will fully vest on the date of the Annual Meeting of Stockholders for such year.
(iii) A Mid-Term RSU Award granted to a Director who commences service on the Board after the Annual Meeting of Stockholders for a calendar year but before the end of the calendar year in which such Annual Meeting of Stockholders occurs will vest proportionately in accordance with the number of vesting dates remaining, as set forth in (i) above.
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(iv) In all cases, a Directors continued service on the Board is required through each vesting date; provided, that unvested RSU Awards shall become fully vested in the event of a Directors Termination of Service by reason of death or a Change of Control. In the event a Director ceases service on the Board prior to the vesting of his or her RSU Awards, such unvested RSU Awards shall automatically be forfeited to the Company. Vesting shall occur with respect to whole shares of Common Stock only, with any fractional shares carried forward to the final vesting date for a particular RSU Award.
(d) | Form and Timing of Payment of Restricted Stock Units |
(i) Subject to the terms of a deferral election made by a Director pursuant to Paragraph 4(b) hereof, upon full vesting of an Annual RSU Award or a Mid-Term RSU Award granted pursuant to Paragraph 4(c)(iii) above, such vested RSU Award shall be settled in shares of Common Stock upon the earlier to occur of the following (each, a Settlement Date): (A) the one-year anniversary of the Grant Date of the RSU Award (or with respect to a Mid-Term RSU Award granted pursuant to Paragraph 4(c)(iii), the one-year anniversary of the Grant Date of the most recently granted Annual RSU Awards) (provided that if such Settlement Date is not a business date, the Settlement Date shall be the immediately preceding business date) and (B) a Change of Control, provided such Change of Control also constitutes a change in control event within the meaning of Section 409A. Issuance of such shares shall occur within 30 days of the Settlement Date.
In the event a Change of Control is not a change in control event within the meaning of Section 409A, RSU Awards that are outstanding immediately prior to the effective date of such Change of Control shall remain an outstanding obligation of the Company or the Successor Company, as the case may be, and will be converted into a contractual right to receive a cash payment (a Cash Payment Right) in an amount equal to the Fair Market Value of the shares of Common Stock subject to the RSU Awards on the effective date of the Change of Control. After such conversion, no interest or dividend equivalents will be accrued, credited or paid with respect to a Cash Payment Right. The Cash Payment Right will be paid in accordance with the same schedule set forth in this Paragraph 4(d)(i) hereof, as applicable, with respect to RSU Awards.
(ii) Subject to the terms of a deferral election made by a Director pursuant to Paragraph 4(b) hereof, upon full vesting of a Mid-Term RSU Award granted pursuant to Paragraph 4(c)(ii) above, such vested RSU Award shall be settled in shares of Common Stock on the vesting date for such Mid-Term RSU Award, or if earlier, upon the Directors Termination of Service by reason of death or a Change of Control. Issuance of such shares shall occur within 30 days thereof.
5. | Terms and Conditions of Payment of Fees |
(a) | Retainer Fees |
There shall automatically be granted each year to each Director retainer fees of $40,000. In addition, a non-executive Director serving as Chairman of the Board shall be paid an additional retainer of $150,000 for the twelve month period ending June 30, 2008 and $120,000 for the twelve month period thereafter ending June 30, 2009. During each of the foregoing periods, this additional retainer payable to the Chairman of the Board shall automatically be deferred into a stock account under the Deferred Compensation Plan. After June 30, 2009, a non-executive Director serving as Chairman of the Board shall be paid an additional annual retainer of $80,000. In addition, the Chairs of the Audit and Compliance Committee, Compensation Committee and Governance and Nominating Committee shall each be paid an additional annual retainer of $15,000, $10,000 and $10,000, respectively; provided that, during the period July 1, 2007 through June 30, 2009, the Chairman of the Board, when also acting in the capacity of the Chair of the Governance and Nominating Committee, shall not receive any additional retainer. For the avoidance of doubt, after June 30, 2009, the Chairman of the Board, when also acting in the capacity of the Chair of the Governance and Nominating Committee, shall also be eligible to receive the additional retainer for his or her service as Chair of such Committee.
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(b) | Meeting Fees |
Each Director shall automatically receive an attendance fee of $2,000 for his or her attendance at the following meetings:
(i) each physical or telephonic meeting of a committee of the Board of which that Director is a member;
(ii) each physical or telephonic meeting of the Board; and
(iii) each special meeting, physical or telephonic, of a committee of the Board of which that Director is not a member, if his or her attendance is required for the business of such meeting.
(c) | Payment of Fees |
Except as otherwise set forth above, all retainer fees and meeting fees shall be paid in cash quarterly, after the end of the quarter in which earned. Notwithstanding the foregoing and except as otherwise set forth above, Directors may elect to receive any retainer fees and meeting fees in shares of Common Stock in accordance with Section 4(d) below or may defer retainer fees and meeting fees into cash or stock accounts under the Deferred Compensation Plan.
(d) | Share Election and Issuance of Shares |
(i) Share Election. A Director may make a share election (Share Election) to receive in the form of Common Stock all of his or her retainer fees or meeting fees earned in each calendar year that are otherwise payable in cash. The shares of Common Stock (and cash in lieu of fractional shares) issuable pursuant to a Share Election shall be issued quarterly in accordance with Section 4(d)(ii). The Share Election must be in writing and delivered to the Secretary of the Company on or prior to December 31 of the calendar year preceding the calendar year in which the applicable retainer fees or meeting fees are to be earned; provided, however, that any Director who commences service on the Board on or subsequent to January 1 of a calendar year may make a Share Election during the 30-day period immediately following the commencement of his or her directorship. A Share Election, once made, shall be irrevocable for the calendar year with respect to which it is made and shall remain in effect for future calendar years, unless revoked in writing or modified by a subsequent Share Election with respect to future calendar years. Such subsequent Share Election must be made on or prior to December 31 of the calendar year preceding the calendar year in which such revocation shall take effect and in accordance with the provisions hereof.
(ii) Issuance of Shares. Shares of Common Stock issuable to a Director pursuant to this Section 4 shall be issued to such Director on the first business day following the end of each calendar quarter. The total number of shares of Common Stock to be issued shall be determined by dividing (x) the dollar amount of the Directors retainer fees and meeting fees for the preceding calendar quarter to which a Share Election applies by (y) the Fair Market Value of the Common Stock on the date such retainer fees or meeting fees would otherwise have been paid in cash. In no event shall the Company be required to issue fractional shares. In the event that a fractional share of Common Stock would otherwise be required to be issued, an amount in lieu thereof shall be paid in cash based on the Fair Market Value of such fractional share on the last business day of the preceding calendar quarter.
(e) | Retainer Fees and Meeting Fees for Non-Standing Committees. |
Notwithstanding any other provision in the Program to the contrary, the Board may fix, by resolution, the retainer fee and meeting fee of any committee of the Board or subcommittee of a committee of the Board, other than the Audit and Compliance Committee, the Compensation Committee and the Governance and Nominating Committee (collectively, the Standing Committees); provided, however, that the retainer fee for the Chairman of such committee or subcommittee shall not exceed $5,000 per year and the meeting fees
Page 5 of 7
payable to the members of such committee or subcommittee shall not exceed $2,000 per individual meeting attended or, in the case of a retainer for meeting attendance in lieu of individual meeting fees, $4,000 per quarter. Any retainer fees or meeting fees (including a retainer paid in lieu of individual meeting fees) shall be subject to the provisions of subsections (c) and (d) of this section 5. Nothing in this subsection (e) shall require the Board to authorize compensation for any committee or subcommittee other than the Standing Committees.
6. | Change of Control |
Upon a Change of Control, (a) all Options outstanding as of the date of such Change of Control, and which are not then exercisable and vested, shall immediately become fully exercisable and vested; (b) the restrictions applicable to any restricted deferred stock unit shall lapse, and such restricted deferred stock unit grants shall become free of all restrictions and become fully vested and transferable; and (c) fees earned in respect of the calendar quarter in which the Change of Control occurs shall be paid in cash as soon as practicable. Upon a Change of Control, RSU Awards shall be treated as set forth in Paragraphs 4(c) and 4(d) of the Program.
7. | Amendment |
The Board may amend the provisions contained herein in such respects as it deems advisable. Any such amendment shall not, without the consent of the Director, impair or diminish any rights of a Director or any rights of the Company under an Award.
Provisions of the Plan (including any amendments) not discussed above, to the extent applicable to Directors, shall continue to govern the terms and conditions of Awards granted to Directors.
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ADDENDA TO THE DIRECTOR COMPENSATION PROGRAM UNDER THE
INTERMEC, INC. 2008 OMNIBUS INCENTIVE PLAN
AMENDMENT NO. 1
The Director Compensation Program under the Intermec, Inc. 2008 Omnibus Incentive Plan (the Program) is hereby amended by adding the following addendum:
Notwithstanding any other provision in the Program to the contrary, all retainer and meeting fees payable pursuant to the Program for services performed during the twelve-month period ending December 31, 2009 shall be reduced by ten percent.
In all other respects, the Program is hereby ratified and confirmed. The effective date of this amendment is January 1, 2009.
AMENDMENT NO. 2
The Director Compensation Program under the Intermec, Inc. 2008 Omnibus Incentive Plan (the Program) is hereby amended by adding the following addendum:
Notwithstanding any other provision in the Program to the contrary, the value of the Annual Option Grants made at the May 27, 2009 Annual Meeting of Stockholders in accordance with Section 2(a)(i) of the Program shall be $60,000, and the value of the Annual Restricted Deferred Stock Unit Grants made at the May 27, 2009 Annual Meeting of Stockholders in accordance with Section 3(a)(i) of the Program shall be $60,000.
In all other respects, the Program is hereby ratified and confirmed. The effective date of this amendment is May 26, 2009.
AMENDMENT NO. 3
The terms of AMENDMENT NO. 3, which was adopted July 16, 2009, are reflected in the restated document.
AMENDMENT NO. 4
The Director Compensation Program under the Intermec, Inc. 2008 Omnibus Incentive Plan (the Program) is hereby amended by adding the following addendum:
Notwithstanding any other provision in the Program to the contrary, the value of the Annual Option Grants made at the May 26, 2010 Annual Meeting of Stockholders in accordance with Section 2(a)(i) of the Program shall be $20,000.
In all other respects, the Program is hereby ratified and confirmed. The effective date of this amendment is May 26, 2010.
AMENDMENT NO. 5
The terms of AMENDMENT NO. 5, which was adopted January 19, 2012, are reflected in the restated document.
AMENDMENT NO. 6
The terms of AMENDMENT NO. 6, which was adopted June 14, 2012, are reflected in the restated document.
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Exhibit 10.2
INTERMEC, INC.
2008 OMNIBUS INCENTIVE PLAN
(As Amended and Restated Effective May 25, 2011)
NONQUALIFIED STOCK OPTION GRANT NOTICE
(FOR U.S. OPTIONEES)
Intermec, Inc. (the Company) hereby grants to you an Option (the Option) to purchase shares of the Companys Common Stock under the Companys 2008 Omnibus Incentive Plan, as amended and restated effective May 25, 2011 (the Plan). The Option is subject to all the terms and conditions set forth in this Nonqualified Stock Option Grant Notice (this Grant Notice) and in the Nonqualified Stock Option Agreement (the Stock Option Agreement) and the Plan, which are incorporated into this Grant Notice in their entirety. Capitalized terms that are not defined herein shall have the meanings assigned to such terms in the Plan.
[NAME] [ADDRESS] |
Option Number: | [OPTION_NUMBER] | ||
Option Plan: | 2008 | |||
Grant Date: | [OPTION_DATE] | |||
Option Shares: | [NUMBER] | |||
Exercise Price (per Share): | [PRICE] | |||
Type of Option: | Nonqualified Stock Option |
Vesting and Exercisability Schedule: The Option shall, subject to the provisions of the Plan, become vested and exercisable in installments on the dates set forth below and shall remain cumulatively exercisable until the Option Expiration Date indicated, subject to earlier expiration in the event of your Termination of Service as set forth in the Stock Option Agreement:
Number of Shares |
Date Option May First Be Exercised |
Option Expiration Date | ||
[INSERT VESTING SCHEDULE] |
Page 1 of 8
Additional Terms/Acknowledgement: You acknowledge receipt of, and understand and agree to, this Grant Notice and the Stock Option Agreement. You further acknowledge that as of the Grant Date, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between you and the Company regarding the Option and supersede all prior oral and written agreements on the subject. You also acknowledge that you have received the Plan and the plan summary for the Plan. You are encouraged to review the Companys most recent annual report and proxy statement, which may be found at www.intermec.com.
IN WITNESS WHEREOF, this Grant Notice has been executed by you and by the Company through its duly authorized officer, all as of the Grant Date indicated above.
Intermec, Inc. | ||||||
By: |
| |||||
[NAME] [TITLE] | ||||||
Participant: | ||||||
IMPORTANT PLEASE ACCEPT ELECTRONICALLY OR SIGN AND RETURN PROMPTLY |
| |||||
[NAME] |
Page 2 of 8
INTERMEC, INC.
2008 OMNIBUS INCENTIVE PLAN
(As Amended and Restated Effective May 25, 2011)
NONQUALIFIED STOCK OPTION AGREEMENT
(FOR U.S. OPTIONEES)
Pursuant to your Nonqualified Stock Option Grant Notice (the Grant Notice) and this Nonqualified Stock Option Agreement (this Agreement), the Company has granted you an Option under its 2008 Omnibus Incentive Plan, as amended and restated effective May 25, 2011 (the Plan), to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice (the Shares) at the exercise price indicated in your Grant Notice.
Capitalized terms that are not defined herein shall have the meanings assigned to such terms in the Plan. The Plan shall control in the event there is any express conflict between the Plan and the Grant Notice or this Agreement and with respect to such matters as are not expressly covered herein.
The details of the Option are as follows:
1. Vesting and Exercisability. Subject to the limitations contained herein, the Option will vest and become exercisable as provided in your Grant Notice, provided that, unless otherwise provided in the Grant Notice or this Agreement, vesting will cease upon your Termination of Service and the unvested portion of the Option will terminate.
2. Securities Law Compliance. Notwithstanding any other provision of this Agreement, you may not exercise the Option unless the Shares issuable upon exercise are registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
3. Independent Tax Advice. You should obtain independent tax advice prior to exercising the Option and prior to the disposition of any Shares. The Option is intended to be a Nonqualified Stock Option, as that term is defined in the Plan.
4. Methods of Exercise. Subject to the provisions of this Agreement, the vested portion of the Option may be exercised, in whole or in part, at any time during the term of the Option by giving written notice of exercise to the Company on the form furnished by the Company for that purpose or, to the extent applicable, by written notice to a brokerage firm designated or approved by the Company, specifying the number of Shares subject to the Option to be purchased.
Page 3 of 8
The exercise price for Shares to be purchased upon exercise of all or a portion of the Option shall be paid in any combination of the following:
(a) in cash in United States dollars (by certified or bank check or such other instrument payable to the order of Intermec, Inc. as the Company may accept);
(b) if permitted by the Committee, by having the Company withhold Shares that would otherwise be issued on exercise of the Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the Shares being purchased under the Option;
(c) if permitted by the Committee, by tendering (either actually or by attestation) shares of Common Stock owned by you that have an aggregate Fair Market Value equal to the aggregate exercise price of the Shares being purchased under the Option;
(d) to the extent permitted by applicable law, by delivering a properly executed exercise notice, together with irrevocable instructions to a broker, to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price, and, if requested by you or required by law to be withheld by the Company, the amount of any federal, state, local and foreign withholding taxes, all in accordance with the regulations of the Federal Reserve Board; or
(e) by any other method permitted by the Committee.
5. Treatment upon Termination of Employment or Service Relationship.
(a) General Rule. In the event of your Termination of Service for any reason other than Disability, death or for Cause, you may thereafter exercise the Option, to the extent it was vested on the date of termination, for a period of three months from the date of such Termination of Service or until the Option Expiration Date, whichever period is shorter, provided that if you die within such three-month period, any unexercised Option held by you shall, notwithstanding the expiration of such three-month period, continue to be exercisable to the extent to which it was vested at the time of death for a period of 12 months from the date of such death or until the Option Expiration Date, whichever period is shorter.
(b) Disability. In the event of your Termination of Service by reason of Disability, the Option shall become fully vested and exercisable and you may thereafter exercise the Option for a period of three years from the date of such Termination of Service or until the Option Expiration Date, whichever period is shorter, provided that if you die within such period, any unexercised portion of the Option shall, notwithstanding the expiration of such period, continue to be exercisable for a period of 12 months from the date of such death or until the Option Expiration Date, whichever period is shorter. Disability means your permanent and total disability as more specifically defined in the Plan.
(c) Death. In the event of your Termination of Service by reason of death, the Option shall become fully vested and exercisable and may thereafter be exercised for a period of 12 months from the date of such death or until the Option Expiration Date, whichever period is shorter.
Page 4 of 8
(d) Cause. The Option, both the vested and unvested portion, will automatically expire at the time the Company first notifies you of your Termination of Service for Cause, unless the Committee determines otherwise. If your employment or service relationship is suspended pending an investigation of whether you will be terminated for Cause, all your rights under the Option likewise will be suspended during the period of investigation. If any facts that would constitute termination for Cause are discovered after your Termination of Service, any Option you then hold may be immediately terminated by the Committee.
(e) Other. Notwithstanding the foregoing provisions of this Paragraph 5, if exercise of the vested portion of the Option following your Termination of Service during the applicable time period above would be prohibited solely because the issuance of Shares upon exercise of the Option would violate the registration requirements under the Securities Act or the Companys insider trading policy, then the Option shall remain exercisable until the later of the expiration of (i) the applicable time period set forth above and (ii) a three-month period during which exercise of the Option would not be a violation of the Securities Act or the Companys insider trading policy requirements, but in no event later than the Option Expiration Date.
It is your responsibility to be aware of the date on which the Option terminates.
6. Limited Transferability. You may transfer all or a portion of the Option by way of gift to any family member, provided that any such transferee shall agree in writing with you (or any successor optionee) and the Company, as a condition to such transfer, to be bound by the provisions of all agreements and other instruments relating to the Option, including without limitation, the Plan, and shall agree in writing to such other terms as the Company may reasonably require to assure compliance with applicable federal and state securities and other laws. For purposes of the preceding sentence, family member shall include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing your household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the optionee) control the management of assets, and any other entity in which these persons (or the optionee) own more than 50% of the voting interests. The Option shall be exercisable, subject to the terms of the Plan, only by you, your guardian or legal representative, or any person to whom such Option is transferred pursuant to this paragraph, it being understood that the term optionee includes such guardian, legal representative and other trustee. If such transfer is made to a family member, there may be additional tax consequences at the time of transfer, and the Company will not be responsible for such tax consequences.
7. Change of Control. The effect of a Change of Control on the Option shall be governed by the terms of the Standard Change of Control Policy for the Plan (in which event, Section 2 of the Standard Change of Control Policy for the Plan shall govern).
8. Clawback Policy. The Option and any Shares issued thereunder shall be subject to potential cancellation, rescission, payback, recoupment or other action in accordance with the terms of the Companys clawback policy (the Policy), as then in effect and as it may be amended from time to time, to the extent the Policy applies to the Option and any Shares issued thereunder (including a Policy implemented or amendments made thereto after the Grant Date for the Option). By accepting the Option, you agree to execute any additional documents to effect the Companys application, implementation and enforcement of such Policy with respect to the Option and any Shares issued thereunder.
Page 5 of 8
9. Withholding Taxes. No later than the date as of which an amount first becomes includable in your gross income for federal income tax purposes or otherwise with respect to any portion of the Option, you shall pay to the Company or a Related Company, as applicable, or make arrangements satisfactory to the Company or a Related Company regarding the payment of, any federal, state or local, and foreign taxes of any kind required by law to be withheld by the Company or a Related Company with respect to such amount. If permitted by the Committee, the minimum amount of statutory withholding obligations may be settled with unrestricted shares of Common Stock having a Fair Market Value on the date of the exercise of the Option equal to the amount of taxes required by law to be withheld, including Shares otherwise issuable upon exercise of the Option. Tax withholding in excess of the statutory minimum amount may not be satisfied in shares of Common Stock but may, if desired, be paid in cash. The obligations of the Company under the Plan shall be conditional on such payment or arrangements having been made, and the Company and its Related Companies shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due you.
10. Stockholder Rights. No Shares subject to the Option shall be issued until full payment therefor, including applicable withholding taxes, has been made. You shall have all of the rights of a stockholder of the Company with respect to Shares subject to the Option (including, if applicable, the right to vote the Shares and the right to receive dividends, if any) when you have given written notice of exercise and have paid the exercise price and applicable withholding taxes in full for such Shares.
11. Adjustments. If, as a result of any adjustment to the number of Shares subject to this Agreement made pursuant to Section 14 of the Plan, any fractional share would be issuable under this Agreement, such fractional share shall be canceled without the payment of any consideration to you.
12. Voluntary Nature of Plan and Awards Granted Thereunder; No Employment or Service Contract. The Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Agreement. Grants of Options and other Awards under the Plan are made from time to time in the sole discretion of the Committee. The grant of the Option or other Award does not create any contractual or other right to receive future grants of Options, or benefits in lieu of Options, even if Options have been granted repeatedly in the past. You acknowledge that future grants under the Plan, if any, will be at the sole discretion of the Committee, including the timing of any grant, the number of shares subject to the Option, the vesting provisions, and the exercise price. The grant of an Option to you in any year shall give you neither any right to similar grants in future years nor any right to be retained in the employ or other service of the Company or a Related Company, such employment or service relationship being terminable to the same extent as if the Plan and this Agreement were not in effect. The right and power of the Company and its Related Companies to dismiss or discharge you is specifically and unqualifiedly unimpaired by this Agreement.
You acknowledge that your participation in the Plan is voluntary and the value of the Option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or its Related Companies, and is outside the scope of any employment or other contract you may have, unless such contract specifically provides otherwise. As such, you understand that the Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-term service awards, pension or retirement benefits, or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or its Related Companies.
Page 6 of 8
13. Data Privacy Rights. If employed by a Related Company, you authorize and direct such Related Company or any agent of the Company or such Related Company administering the Plan or providing plan recordkeeping services to disclose to the Company or any of its Related Companies such information and data as it shall request in order to facilitate the grant of the Option and the administration of the Plan, and you waive any data privacy rights you may have with respect to such information. By accepting this Agreement, you authorize the Company and the Related Company by which you are employed, if applicable, to store and transmit such information in electronic form.
14. Option Expiration. It is the present practice of the Company to provide participants in the Plan, solely as a courtesy and not as a Company policy, with written or oral notification of the imminent expiration of any Option having monetary value. You acknowledge that the Company and its subsidiaries and agents shall have no liability or responsibility in the event you should fail to receive any such courtesy notice and the Option expires unexercised. You acknowledge that the obligation to monitor the schedule of exercisability and expiration of the Option evidenced by this Agreement, and to procure current quotations regarding the market value of the Shares, is solely your obligation and not that of the Company or any Related Company by which you are employed or the agents of either of them.
15. Notices. Each notice relating to this Agreement shall be in writing and delivered in person or by mail to the Company at its office, 6001 36th Avenue West, Everett, WA 98203-1264, to the attention of the Companys Secretary, or at such other address as may be furnished to you in writing. All notices to you (or other person or persons then entitled to exercise any right pursuant to this Agreement) shall be delivered to the most recent address for you (or such other person) in the Companys records or at such other address as you (or such other person) may specify in writing to the Secretary of the Company by a notice delivered in accordance with this paragraph.
16. Electronic Notices. The Company may, in its sole discretion, deliver any documents related to the Option, or future Options (if any) that may be granted under the Plan, by electronic means or request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
17. Entire Agreement; Choice of Law and Venue. The terms and conditions of this Agreement and the Grant Notice and the Plan, both of which are incorporated by reference herein, comprise the whole terms and conditions between you and the Company with respect to the subject matter of the Grant Notice and this Agreement, and shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A., without reference to principles of conflicts of law. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the Grant Notice and this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of Washington, U.S.A., and agree that such litigation shall be conducted only in the courts of Washington, U.S.A., or the federal courts for the United States for the Western District of Washington, and no other courts where this grant is made and/or to be performed.
Page 7 of 8
The Company hereby reserves the right to alter, amend, modify, restate, suspend or terminate the Plan and the Grant Notice and this Agreement in accordance with Section 16 of the Plan, but, subject to the terms of the Plan, no such subsequent amendment, modification, restatement or termination of the Plan or the Grant Notice or this Agreement shall adversely affect in any material way your rights under the Grant Notice or this Agreement without your written consent. The Grant Notice and this Agreement shall be subject, without further action by the Company or you, to such amendment, modification or restatement.
The provisions of the Grant Notice and this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
18. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon each successor of the Company and, to the extent specifically provided therein and in the Plan, shall inure to the benefit of and shall be binding upon your heirs, legal representatives, and successors and upon any person to whom a transfer of the Option permitted by Paragraph 6 of this Agreement has been made.
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Exhibit 10.3
INTERMEC, INC.
2008 OMNIBUS INCENTIVE PLAN
(As Amended and Restated Effective May 25, 2011)
NONQUALIFIED STOCK OPTION GRANT NOTICE
(PERFORMANCE VESTED FOR SENIOR OFFICERS)
Intermec, Inc. (the Company) hereby grants to you an Option (the Option) to purchase shares of the Companys Common Stock under the Companys 2008 Omnibus Incentive Plan, as amended and restated effective May 25, 2011 (the Plan). The Option is subject to all the terms and conditions set forth in this Nonqualified Stock Option Grant Notice (this Grant Notice) and in the Nonqualified Stock Option Agreement (the Stock Option Agreement) and the Plan, which are incorporated into this Grant Notice in their entirety. Capitalized terms that are not defined herein shall have the meanings assigned to such terms in the Plan.
[NAME] [ADDRESS] |
Option Number: | |||
Option Plan: | 2008 | |||
Grant Date: | ||||
Option Shares: | ||||
Exercise Price (per Share): | ||||
Type of Option: | Nonqualified Stock Option | |||
Option Expiration Date: | [7 years from grant date] |
Vesting and Exercisability Schedule: The Option shall, subject to the provisions of the Plan, become vested and exercisable in installments on the date(s) set forth below and, to the extent vested, shall remain cumulatively exercisable until the Option Expiration Date indicated above, subject to earlier expiration in the event of your Termination of Service as set forth in the Stock Option Agreement:
| Vesting is based on annual achievement of performance goals. |
| The determination of the annual vesting percentage (if any) is made by the Committee in February after each performance year. |
| The vesting percentage for a performance year becomes effective on the next following anniversary of the Grant Date (identified as a Vesting Date below), subject to continued employment. |
| The vesting percentage set forth below is net of any prior years actual vesting percentage, if any. |
Page 1 of 8
Performance Award Vesting Determination:
Goal BOP%* (as a percentage of revenue) |
Vesting % |
Vesting Date | ||
FY 2012 |
||||
If> % of revenue |
33% | [Grant anniversary 2013] | ||
If< % |
Delay | |||
FY 2013 |
||||
If> % of revenue |
67% | [Grant anniversary 2014] | ||
If< % |
Delay | |||
FY 2014 |
||||
If> % of revenue |
100% | [Grant anniversary 2015] | ||
If< % |
Delay | |||
FY 2015 |
||||
If> % of revenue |
100% | [Grant anniversary 2016] | ||
If< % |
Forfeit Unvested Options |
* | Business Operating Profit (BOP) as a percentage of Revenue. BOP attained is calculated to equate to what the Company reports as Adjusted Operating Profit, typically excluding charges related to: (i) restructuring costs, (ii) transaction costs, purchase accounting adjustments and/or intangible amortization from any current year business acquisitions, (iii) distressed asset impairments, and (iv) resolution of legal disputes. |
Additional Terms/Acknowledgement: You acknowledge receipt of, and understand and agree to, this Grant Notice and the Stock Option Agreement. You further acknowledge that as of the Grant Date, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between you and the Company regarding the Option and supersede all prior oral and written agreements on the subject. You also acknowledge that you have received the Plan and the plan summary for the Plan. You are encouraged to review the Companys most recent annual report and proxy statement, which may be found at www.intermec.com.
IN WITNESS WHEREOF, this Grant Notice has been executed by you and by the Company through its duly authorized officer, all as of the Grant Date indicated above.
Intermec, Inc. | ||||||
By: |
| |||||
[NAME] [TITLE] | ||||||
Participant: | ||||||
IMPORTANT PLEASE ACCEPT ELECTRONICALLY OR SIGN AND RETURN PROMPTLY |
| |||||
[Name] |
Page 2 of 8
INTERMEC, INC.
2008 OMNIBUS INCENTIVE PLAN
(As Amended and Restated Effective May 25, 2011)
NONQUALIFIED STOCK OPTION AGREEMENT
(PERFORMANCE VESTED FOR SENIOR OFFICERS)
Pursuant to your Nonqualified Stock Option Grant Notice (the Grant Notice) and this Nonqualified Stock Option Agreement (this Agreement), the Company has granted you an Option under its 2008 Omnibus Incentive Plan, as amended and restated effective May 25, 2011 (the Plan), to purchase the number of shares of the Companys Common Stock indicated in your Grant Notice (the Shares) at the exercise price indicated in your Grant Notice.
Capitalized terms that are not defined herein shall have the meanings assigned to such terms in the Plan. The Plan shall control in the event there is any express conflict between the Plan and the Grant Notice or this Agreement and with respect to such matters as are not expressly covered herein.
The details of the Option are as follows:
1. Vesting and Exercisability. Subject to the limitations contained herein, the Option will vest and become exercisable as provided in your Grant Notice, provided that, unless otherwise provided in the Grant Notice or this Agreement, vesting will cease upon your Termination of Service and the unvested portion of the Option will terminate.
2. Securities Law Compliance. Notwithstanding any other provision of this Agreement, you may not exercise the Option unless the Shares issuable upon exercise are registered under the Securities Act or, if such Shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of the Option must also comply with other applicable laws and regulations governing the Option, and you may not exercise the Option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
3. Independent Tax Advice. You should obtain independent tax advice prior to exercising the Option and prior to the disposition of any Shares. The Option is intended to be a Nonqualified Stock Option, as that term is defined in the Plan.
4. Methods of Exercise. Subject to the provisions of this Agreement, the vested portion of the Option may be exercised, in whole or in part, at any time during the term of the Option by giving written notice of exercise to the Company on the form furnished by the Company for that purpose or, to the extent applicable, by written notice to a brokerage firm designated or approved by the Company, specifying the number of Shares subject to the Option to be purchased.
Page 3 of 8
The exercise price for Shares to be purchased upon exercise of all or a portion of the Option shall be paid in any combination of the following:
(a) in cash in United States dollars (by certified or bank check or such other instrument payable to the order of Intermec, Inc. as the Company may accept);
(b) if permitted by the Committee, by having the Company withhold Shares that would otherwise be issued on exercise of the Option that have an aggregate Fair Market Value equal to the aggregate exercise price of the Shares being purchased under the Option;
(c) if permitted by the Committee, by tendering (either actually or by attestation) shares of Common Stock owned by you that have an aggregate Fair Market Value equal to the aggregate exercise price of the Shares being purchased under the Option;
(d) to the extent permitted by applicable law, by delivering a properly executed exercise notice, together with irrevocable instructions to a broker, to deliver promptly to the Company the aggregate amount of proceeds to pay the Option exercise price, and, if requested by you or required by law to be withheld by the Company, the amount of any federal, state, local and foreign withholding taxes, all in accordance with the regulations of the Federal Reserve Board; or
(e) by any other method permitted by the Committee.
5. Treatment upon Termination of Employment or Service Relationship.
(a) General Rule. In the event of your Termination of Service for any reason other than Disability, death or for Cause, you may thereafter exercise the Option, to the extent it was vested on the date of termination, for a period of three months from the date of such Termination of Service or until the Option Expiration Date, whichever period is shorter, provided that if you die within such three-month period, any unexercised Option held by you shall, notwithstanding the expiration of such three-month period, continue to be exercisable to the extent to which it was vested at the time of death for a period of 12 months from the date of such death or until the Option Expiration Date, whichever period is shorter.
(b) Disability. In the event of your Termination of Service by reason of Disability, the Option shall become fully vested and exercisable and you may thereafter exercise the Option for a period of three years from the date of such Termination of Service or until the Option Expiration Date, whichever period is shorter, provided that if you die within such period, any unexercised portion of the Option shall, notwithstanding the expiration of such period, continue to be exercisable for a period of 12 months from the date of such death or until the Option Expiration Date, whichever period is shorter. Disability means your permanent and total disability as more specifically defined in the Plan.
(c) Death. In the event of your Termination of Service by reason of death, the Option shall become fully vested and exercisable and may thereafter be exercised for a period of 12 months from the date of such death or until the Option Expiration Date, whichever period is shorter.
Page 4 of 8
(d) Cause. The Option, both the vested and unvested portion, will automatically expire at the time the Company first notifies you of your Termination of Service for Cause, unless the Committee determines otherwise. If your employment or service relationship is suspended pending an investigation of whether you will be terminated for Cause, all your rights under the Option likewise will be suspended during the period of investigation. If any facts that would constitute termination for Cause are discovered after your Termination of Service, any Option you then hold may be immediately terminated by the Committee.
(e) Other. Notwithstanding the foregoing provisions of this Paragraph 5, if exercise of the vested portion of the Option following your Termination of Service during the applicable time period above would be prohibited solely because the issuance of Shares upon exercise of the Option would violate the registration requirements under the Securities Act or the Companys insider trading policy, then the Option shall remain exercisable until the later of the expiration of (i) the applicable time period set forth above and (ii) a three-month period during which exercise of the Option would not be a violation of the Securities Act or the Companys insider trading policy requirements, but in no event later than the Option Expiration Date.
It is your responsibility to be aware of the date on which the Option terminates.
6. Limited Transferability. You may transfer all or a portion of the Option by way of gift to any family member, provided that any such transferee shall agree in writing with you (or any successor optionee) and the Company, as a condition to such transfer, to be bound by the provisions of all agreements and other instruments relating to the Option, including without limitation, the Plan, and shall agree in writing to such other terms as the Company may reasonably require to assure compliance with applicable federal and state securities and other laws. For purposes of the preceding sentence, family member shall include any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing your household (other than a tenant or employee), a trust in which these persons have more than 50% of the beneficial interest, a foundation in which these persons (or the optionee) control the management of assets, and any other entity in which these persons (or the optionee) own more than 50% of the voting interests. The Option shall be exercisable, subject to the terms of the Plan, only by you, your guardian or legal representative, or any person to whom such Option is transferred pursuant to this paragraph, it being understood that the term optionee includes such guardian, legal representative and other trustee. If such transfer is made to a family member, there may be additional tax consequences at the time of transfer, and the Company will not be responsible for such tax consequences.
7. Change of Control. The effect of a Change of Control on the Option shall be governed by the terms of the Executive Change of Control Policy for the Plan (in which event, Section 2 of the Executive Change of Control Policy for the Plan shall govern).
8. Clawback Policy. The Option and any Shares issued thereunder shall be subject to the Companys Policy for Recovery of Incentive Compensation (the Recovery Policy) adopted February 22, 2012. The Option and any Shares issued thereunder shall also be subject to potential cancellation, rescission, payback, recoupment or other action in accordance with the terms of any other Company clawback policy (a Clawback Policy), as then in effect and as it may be amended from time to time, to the extent the Clawback Policy applies to the Option and any Shares issued thereunder (including a Clawback Policy implemented or amendments made thereto after the Grant Date for the Option). By accepting
Page 5 of 8
the Option, you agree to execute any additional documents to effect the Companys application, implementation and enforcement of the Recovery Policy or a Clawback Policy with respect to the Option and any Shares issued thereunder.
9. Withholding Taxes. No later than the date as of which an amount first becomes includable in your gross income for federal income tax purposes or otherwise with respect to any portion of the Option, you shall pay to the Company or a Related Company, as applicable, or make arrangements satisfactory to the Company or a Related Company regarding the payment of, any federal, state or local, and foreign taxes of any kind required by law to be withheld by the Company or a Related Company with respect to such amount. If permitted by the Committee, the minimum amount of statutory withholding obligations may be settled with unrestricted shares of Common Stock having a Fair Market Value on the date of the exercise of the Option equal to the amount of taxes required by law to be withheld, including Shares otherwise issuable upon exercise of the Option. Tax withholding in excess of the statutory minimum amount may not be satisfied in shares of Common Stock but may, if desired, be paid in cash. The obligations of the Company under the Plan shall be conditional on such payment or arrangements having been made, and the Company and its Related Companies shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due you.
10. Stockholder Rights. No Shares subject to the Option shall be issued until full payment therefor, including applicable withholding taxes, has been made. You shall have all of the rights of a stockholder of the Company with respect to Shares subject to the Option (including, if applicable, the right to vote the Shares and the right to receive dividends, if any) when you have given written notice of exercise and have paid the exercise price and applicable withholding taxes in full for such Shares.
11. Adjustments. If, as a result of any adjustment to the number of Shares subject to this Agreement made pursuant to Section 14 of the Plan, any fractional share would be issuable under this Agreement, such fractional share shall be canceled without the payment of any consideration to you.
12. Voluntary Nature of Plan and Awards Granted Thereunder; No Employment or Service Contract. The Plan is established voluntarily by the Company, it is discretionary in nature and it may be modified, amended, suspended or terminated by the Company at any time, unless otherwise provided in the Plan and this Agreement. Grants of Options and other Awards under the Plan are made from time to time in the sole discretion of the Committee. The grant of the Option or other Award does not create any contractual or other right to receive future grants of Options, or benefits in lieu of Options, even if Options have been granted repeatedly in the past. You acknowledge that future grants under the Plan, if any, will be at the sole discretion of the Committee, including the timing of any grant, the number of shares subject to the Option, the vesting provisions, and the exercise price. The grant of an Option to you in any year shall give you neither any right to similar grants in future years nor any right to be retained in the employ or other service of the Company or a Related Company, such employment or service relationship being terminable to the same extent as if the Plan and this Agreement were not in effect. The right and power of the Company and its Related Companies to dismiss or discharge you is specifically and unqualifiedly unimpaired by this Agreement.
Page 6 of 8
You acknowledge that your participation in the Plan is voluntary and the value of the Option is an extraordinary item that does not constitute compensation of any kind for services of any kind rendered to the Company or its Related Companies, and is outside the scope of any employment or other contract you may have, unless such contract specifically provides otherwise. As such, you understand that the Option is not part of normal or expected compensation for purposes of calculating any severance, resignation, redundancy, end of service payments, bonuses, long-term service awards, pension or retirement benefits, or similar payments and in no event should be considered as compensation for, or relating in any way to, past services for the Company or its Related Companies.
13. Data Privacy Rights. If employed by a Related Company, you authorize and direct such Related Company or any agent of the Company or such Related Company administering the Plan or providing plan recordkeeping services to disclose to the Company or any of its Related Companies such information and data as it shall request in order to facilitate the grant of the Option and the administration of the Plan, and you waive any data privacy rights you may have with respect to such information. By accepting this Agreement, you authorize the Company and the Related Company by which you are employed, if applicable, to store and transmit such information in electronic form.
14. Option Expiration. It is the present practice of the Company to provide participants in the Plan, solely as a courtesy and not as a Company policy, with written or oral notification of the imminent expiration of any Option having monetary value. You acknowledge that the Company and its subsidiaries and agents shall have no liability or responsibility in the event you should fail to receive any such courtesy notice and the Option expires unexercised. You acknowledge that the obligation to monitor the schedule of exercisability and expiration of the Option evidenced by this Agreement, and to procure current quotations regarding the market value of the Shares, is solely your obligation and not that of the Company or any Related Company by which you are employed or the agents of either of them.
15. Notices. Each notice relating to this Agreement shall be in writing and delivered in person or by mail to the Company at its office, 6001 36th Avenue West, Everett, WA 98203-1264, to the attention of the Companys Secretary, or at such other address as may be furnished to you in writing. All notices to you (or other person or persons then entitled to exercise any right pursuant to this Agreement) shall be delivered to the most recent address for you (or such other person) in the Companys records or at such other address as you (or such other person) may specify in writing to the Secretary of the Company by a notice delivered in accordance with this paragraph.
16. Electronic Notices. The Company may, in its sole discretion, deliver any documents related to the Option, or future Options (if any) that may be granted under the Plan, by electronic means or request your consent to participate in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.
17. Entire Agreement; Choice of Law and Venue. The terms and conditions of this Agreement and the Grant Notice and the Plan, both of which are incorporated by reference herein, comprise the whole terms and conditions between you and the Company with respect to the subject matter of the Grant Notice and this Agreement, and shall be governed by and construed in accordance with the laws of the State of Washington, U.S.A., without reference to principles of conflicts of law. For purposes of litigating any dispute that arises directly or
Page 7 of 8
indirectly from the relationship of the parties evidenced by the Grant Notice and this Agreement, the parties hereby submit to and consent to the exclusive jurisdiction of the State of Washington, U.S.A., and agree that such litigation shall be conducted only in the courts of Washington, U.S.A., or the federal courts for the United States for the Western District of Washington, and no other courts where this grant is made and/or to be performed.
The Company hereby reserves the right to alter, amend, modify, restate, suspend or terminate the Plan and the Grant Notice and this Agreement in accordance with Section 16 of the Plan, but, subject to the terms of the Plan, no such subsequent amendment, modification, restatement or termination of the Plan or the Grant Notice or this Agreement shall adversely affect in any material way your rights under the Grant Notice or this Agreement without your written consent. The Grant Notice and this Agreement shall be subject, without further action by the Company or you, to such amendment, modification or restatement.
The provisions of the Grant Notice and this Agreement are severable and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
18. Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon each successor of the Company and, to the extent specifically provided therein and in the Plan, shall inure to the benefit of and shall be binding upon your heirs, legal representatives, and successors and upon any person to whom a transfer of the Option permitted by Paragraph 6 of this Agreement has been made.
Page 8 of 8
Exhibit 10.4
[COMPANY LETTERHEAD]
June 18, 2012
Allen J. Lauer
Dear Al:
The purpose of this letter is to clarify the intent and circumstances related to certain of the terms of your employment as Interim Chief Executive Officer and President (Interim CEO) of Intermec, Inc. (the Company), as set forth in the letter agreement, dated May 21, 2012, and effective as of April 30, 2012 (the Employment Agreement). In particular, we wish to affirm that, in view of the interim nature of the CEO position, it was not our expectation that you relocate to Washington State. Rather, we understand that you will determine the extent to which you should travel to the Companys headquarters in Everett, WA in order to effectively fulfill your duties.
Accordingly, we propose the following revisions to the Employment Agreement:
Paragraph 1. Position is revised to read as follows:
1. Position. In your position as Interim CEO, you will report to the Companys Board of Directors (the Board). The Interim CEO position is a full-time position. Although you will be expected to spend time in Everett at the Companys headquarters, we anticipate that your travel plans may vary significantly week to week and you will work principally from your home office in California. While you render services to the Company as Interim CEO, you will not engage in any other employment, consulting or other business activity (whether full-time or part-time) that would create a conflict of interest with the Company; provided, however, that you may continue to serve on any boards of directors or committees thereof on which you served as of the Effective Date. By signing this Agreement, you confirm to the Company that you have no contractual commitments or other legal obligations that would prohibit you from performing your duties for the Company.
Paragraph 5. Expenses is revised to read as follows:
5. Expenses. The Company will reimburse you for all reasonable and necessary expenses incurred by you in connection with your performance of services as Interim CEO on behalf of the Company, in accordance with applicable Company policies and guidelines.
Except as revised in this letter, the terms of the Employment Agreement continue to apply.
Very truly yours, | ||||
INTERMEC, INC. | ||||
By: | /s/ Stephen P. Reynolds | |||
Stephen P. Reynolds | ||||
Title: | Lead Independent Director |
I have read and agree with the above clarification and amendment of the Employment Agreement. |
/s/ Allen J. Lauer |
Signature of Allen J. Lauer |
Dated: |
Exhibit 31.1
CERTIFICATION
I, Allen J. Lauer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intermec, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
August 9, 2012 |
/s/ Allen J. Lauer |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
I, Robert J. Driessnack , Chief Financial Officer, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intermec, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
August 9, 2012 |
/s/ Robert J. Driessnack |
Senior Vice President and Chief Financial Officer |
Exhibit 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)
In connection with the Quarterly Report on Form 10-Q of Intermec, Inc. (the Company) for the period ended July 1, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Allen J. Lauer, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. 1350, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 9, 2012
/s/ Allen J. Lauer |
Chief Executive Officer |
Exhibit 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)
In connection with the Quarterly Report on Form 10-Q of Intermec, Inc. (the Company) for the period ended July 1, 2012, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Robert J. Driessnack, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. 1350, that:
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
August 9, 2012
/s/ Robert J. Driessnack |
Senior Vice President and |
Chief Financial Officer |
Accumulated Other Comprehensive Loss (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2012
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Accumulated Other Comprehensive Income | At July 1, 2012 and December 31, 2011, accumulated other comprehensive income comprised the following (in thousands):
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Schedule Of Estimated Future Amortization Expense For Intangible Assets (Detail) (USD $)
In Thousands, unless otherwise specified |
Jul. 01, 2012
|
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Intangibles [Abstract] | |
2012 | $ 18,558 |
2013 | 16,367 |
2014 | 8,865 |
2015 | 6,005 |
2016 | $ 3,482 |
Schedule Of Accounts Receivable, Net (Detail) (USD $)
In Thousands, unless otherwise specified |
Jul. 01, 2012
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Dec. 31, 2011
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Accounts, Notes, Loans and Financing Receivable [Line Items] | ||
Accounts receivable, gross | $ 138,132 | $ 146,682 |
Allowance for sales returns | 4,185 | 4,423 |
Allowance for doubtful accounts | 1,775 | 2,522 |
Accounts receivable, net | $ 132,172 | $ 139,737 |
Schedule Of Allocation Of Purchase Price To Assets Acquired And Liabilities Assumed, Net of Cash Acquired (Parenthetical) (Detail) (Adjusted Purchase Price, USD $)
In Thousands, unless otherwise specified |
Mar. 03, 2011
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Adjusted Purchase Price
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Schedule of Business Acquisitions, Purchase Price Allocation [Line Items] | |
Gross contractual receivables | $ 21,461 |
Goodwill for assembled workforce | $ 7,900 |
Provision for Income Taxes - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended |
---|---|---|
Apr. 01, 2012
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Jul. 01, 2012
|
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Tax Credit Carryforward [Line Items] | ||
Tax provision on foreign earnings | $ 1.7 | |
Deferred taxes from foreign subsidiaries | 1.4 | |
Valuation allowance increase | $ 206.9 | |
Minimum likelihood of tax benefits being recognized upon ultimate settlement | 50.00% | |
Effective tax rate for continuing operations | 31.00% | |
U.S. statutory rate | 35.00% |
Level 3 Fair Value Measurement for Assets and Liabilities Measured at Fair Value on Non-recurring Basis (Detail) (Goodwill, USD $)
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6 Months Ended |
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Jul. 01, 2012
|
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Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |
Fair Value | $ 101,996 |
Voice Solutions Supply Chain Reporting Unit
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|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |
Fair Value | 89,993 |
Valuation Technique | Income Approach |
Voice Solutions Healthcare Reporting Unit
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|
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |
Fair Value | 8,655 |
Valuation Technique | Income Approach |
Intermec Global Solutions Reporting Unit
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Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items] | |
Fair Value | $ 3,348 |
Valuation Technique | Income Approach |
Segment Reporting (Tables)
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2012
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Schedule Of Revenues And Gross Profit By Reportable Segment | The following table sets forth our revenues and gross profit by reportable segment (in thousands):
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Schedule Of Revenues By Product Lines | The following table sets forth our revenues by product lines (in thousands):
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Goodwill and Other Long-Lived Assets - Additional Information (Detail) (USD $)
|
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jul. 01, 2012
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Apr. 01, 2012
Segment
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Jul. 03, 2011
|
Jul. 01, 2012
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Jul. 03, 2011
|
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Goodwill and Other Assets Disclosure [Line Items] | |||||
Impairment of goodwill | $ 26,589,000 | $ 14,900,000 | $ 41,514,000 | ||
Loss in operations | (33,578,000) | (19,000,000) | (3,078,000) | (67,194,000) | (11,682,000) |
Number of reporting units with goodwill | 3 | ||||
Supply Chain
|
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Goodwill and Other Assets Disclosure [Line Items] | |||||
Impairment of goodwill | 40,700,000 | ||||
Goodwill impairment charge | 14,900,000 | ||||
Goodwill impairment adjustment | 25,800,000 | ||||
Healthcare
|
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Goodwill and Other Assets Disclosure [Line Items] | |||||
Goodwill impairment adjustment | $ 800,000 |
Shares Used in Computing Earnings (Loss) per Share - Additional Information (Detail)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 01, 2012
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Jul. 03, 2011
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Jul. 01, 2012
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Jul. 03, 2011
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Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items] | ||||
Common stock that were not included in weighted average shares diluted calculation | 3,950,272 | 3,451,713 | 3,844,272 | 3,078,769 |
Accumulated Other Comprehensive Income (Detail) (USD $)
In Thousands, unless otherwise specified |
Jul. 01, 2012
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Dec. 31, 2011
|
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Foreign currency translation adjustment | $ (6,563) | $ (4,546) |
Unamortized benefit plan costs | (78,861) | (74,623) |
Unrealized loss on investments | (317) | (308) |
Accumulated other comprehensive loss | $ (85,741) | $ (79,477) |
Schedule Of Unaudited Pro Forma Financial Information (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended |
---|---|---|
Jul. 03, 2011
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Jul. 03, 2011
|
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Pro forma | ||
Total revenues | $ 221,082 | $ 417,911 |
Net loss | $ (3,796) | $ (7,006) |
Basis of Presentation (Policies)
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6 Months Ended |
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Jul. 01, 2012
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Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements Fair Value Measurement - In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance which generally provides a consistent definition of fair value and ensures that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. The guidance changes certain fair value measurement principles and enhances the disclosure requirements, particularly for Level 3 fair value measurements. This guidance was effective for interim and annual reporting periods beginning after December 15, 2011 and was applied on a prospective basis. The Company adopted the guidance on January 1, 2012, as required. There was no material impact on the Consolidated Financial Statements resulting from the adoption, see Note 3 Fair Value Measurements for additional disclosures related to this pronouncement. |
Comprehensive Income | Comprehensive Income - In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income (loss) and its components in the statement of changes in equity and requires that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. In December 2011, the FASB issued ASU 2011-12, “Comprehensive Income — Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05,” to defer the effective date to present items that are reclassified out of accumulated other comprehensive income to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. We adopted this guidance in the first quarter of 2012 and applied it retrospectively. To implement this standard we have added a separate statement labeled Condensed Consolidated Statement of Comprehensive Income (Loss). |
Goodwill | Intangibles – Goodwill and Other - In September 2011, the FASB issued ASU No. 2011-08, “Intangibles – Goodwill and Other (Topic 350) (“ASU 2011-08”). The amendments in this update will allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under these amendments, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The amendments include a number of events and circumstances for an entity to consider in conducting the qualitative assessment. This new guidance was adopted and applied in January 2012. The adoption of this accounting standard update did not have an impact on our financial position, results of operations, cash flows, or comprehensive income as it is intended to potentially simplify the assessment for goodwill impairment. |
Reclassification | Reclassification Certain reclassifications have been made to prior periods to conform to the present year presentation. Specifically, for the three and six months ended July 3, 2011 we have reclassified certain costs that were in cost of service revenues to cost of product revenues in the amount of $0.8 and $1.7 million, respectively. This reclassification has no impact on previously reported earnings from operations or net income. In addition, we have reclassified change in pension and other postretirement plans, net, previously reported in other operating activities into its own line item on the condensed consolidated statement of cash flow. |
Schedule Of Inventories (Detail) (USD $)
In Thousands, unless otherwise specified |
Jul. 01, 2012
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Dec. 31, 2011
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Inventories [Abstract] | ||
Raw materials | $ 27,739 | $ 30,485 |
Service parts | 14,651 | 13,412 |
Work in process | 550 | 316 |
Finished goods | 55,004 | 59,409 |
Inventories | $ 97,944 | $ 103,622 |
Schedule Of Long-Term Debt Principal Payments (Detail) (USD $)
In Thousands, unless otherwise specified |
Jul. 01, 2012
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Dec. 31, 2011
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Revolving Credit Facility [Abstract] | ||
2012-2013 | ||
2014 | 85,000 | |
Total principal payments | $ 85,000 | $ 85,000 |
Schedule Of Reconciliation Of Accrued Restructuring Charges (Detail) (USD $)
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3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 01, 2012
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Jul. 03, 2011
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Jul. 01, 2012
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Jul. 03, 2011
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Restructuring Cost and Reserve [Line Items] | ||||
Restructuring charges | $ 5,598,000 | $ 5,111,000 | $ 5,598,000 | $ 5,111,000 |
Accrued Employee Termination Costs Per Contract
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||||
Restructuring Cost and Reserve [Line Items] | ||||
Beginning Balance | 1,000,000 | |||
Utilization of restructuring plans | (1,100,000) | |||
Reversal of prior year restructuring charges | (300,000) | |||
Ending Balance | 5,500,000 | 5,500,000 | ||
Accrued Other Costs
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Restructuring Cost and Reserve [Line Items] | ||||
Beginning Balance | 1,200,000 | |||
Utilization of restructuring plans | (200,000) | |||
Ending Balance | 1,000,000 | 1,000,000 | ||
Total Accrued Restructuring Charges
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||||
Restructuring Cost and Reserve [Line Items] | ||||
Beginning Balance | 2,200,000 | |||
Utilization of restructuring plans | (1,300,000) | |||
Reversal of prior year restructuring charges | (300,000) | |||
Ending Balance | 6,500,000 | 6,500,000 | ||
2012 Restructuring Plan | Accrued Employee Termination Costs Per Contract
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Restructuring Cost and Reserve [Line Items] | ||||
Restructuring charges | 5,900,000 | |||
2012 Restructuring Plan | Total Accrued Restructuring Charges
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||||
Restructuring Cost and Reserve [Line Items] | ||||
Restructuring charges | $ 5,900,000 |
Goodwill and Other Long-Lived Assets (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2012
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Schedule Of Changes In Goodwill | The following table represents changes in goodwill (amounts in thousands):
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Schedule Of Revenues And Gross Profit By Reportable Segment (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 01, 2012
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Jul. 03, 2011
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Jul. 01, 2012
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Jul. 03, 2011
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Segment Reporting Information [Line Items] | ||||
Revenues | $ 200,951 | $ 221,082 | $ 380,629 | $ 399,600 |
Gross profit | 79,197 | 91,316 | 145,122 | 159,609 |
Intermec-Branded Products
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Segment Reporting Information [Line Items] | ||||
Revenues | 135,618 | 153,329 | 252,951 | 287,183 |
Gross profit | 47,348 | 60,998 | 84,162 | 112,467 |
Intermec-Branded Services
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Segment Reporting Information [Line Items] | ||||
Revenues | 34,747 | 37,301 | 69,696 | 72,162 |
Gross profit | 14,237 | 13,234 | 28,017 | 25,814 |
Voice Solutions
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Segment Reporting Information [Line Items] | ||||
Revenues | 30,586 | 30,452 | 57,982 | 40,255 |
Gross profit | $ 17,612 | $ 17,084 | $ 32,943 | $ 21,328 |
Derivative Instruments - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jul. 01, 2012
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Jul. 03, 2011
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Jul. 01, 2012
Day
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Jul. 03, 2011
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Dec. 31, 2011
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Derivative Instruments and Hedging Activities Disclosure [Line Items] | |||||
Notional amounts of the forward contracts | $ 129.0 | $ 129.0 | |||
Foreign exchange forward contracts, settlement, period, in days | 30 | ||||
Net loss (gain) from forward contracts, recorded in selling, general and administrative expense | 2.4 | 0.5 | 1.5 | 1.1 | |
Net (liability) asset recorded in other current assets or accounts payable and accrued expenses | $ 0.7 | $ 0.7 | $ (0.8) |
Fair Value Measurements
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 01, 2012
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Fair Value Measurements | Note 3. Fair Value Measurements Assets and Liabilities Measured at Fair Value on a Recurring Basis Our financial assets and liabilities subject to fair value measurement provisions as of July 1, 2012 comprised the following (in thousands):
Our financial assets and liabilities subject to fair value measurement provisions as of December 31, 2011 comprised the following (in thousands):
Our Level 1 financial instrument values are based on quoted market prices for identical assets in active markets. Our Level 2 financial instrument values are based on quoted prices in active markets for similar assets, which we use to value our certificates of deposit, or comparable sales, such as quoted market rates for similar contracts. Specifically, we obtain current pricing from the issuing bank for identical items purchased on the last business day of our reporting period. Level 3 financial instrument values refer to fair values using unobservable inputs that are not corroborated by market data. There were no transfers between Level 1 and Level 2 assets and liabilities in the three and six months ended July 1, 2012 and July 3, 2011. Fair Value of Financial Instruments The estimated fair values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and payroll and related expenses at July 1, 2012 and December 31, 2011, approximate their carrying values due to their short-term nature. The fair value of long-term debt at July 1, 2012 approximates its carrying value. Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis All other nonfinancial assets and liabilities measured at fair value in the financial statements on a nonrecurring basis are subject to fair value measurements and disclosures. Nonfinancial assets and liabilities included in our condensed consolidated balance sheets and measured on a nonrecurring basis consist of goodwill and long-lived assets, including other acquired intangibles. Goodwill and long-lived assets are measured at fair value to test for and measure impairment, if any, at least annually for goodwill or when necessary for both goodwill and long-lived assets. See Note 16 – Goodwill and other Long-Lived Assets for details of our impairment analysis.
The following fair value hierarchy table presents information about our goodwill assets that were measured at fair value on a non-recurring basis at July 1, 2012 (in thousands):
The following fair value hierarchy table presents information about our goodwill assets that were measured at fair value on a non-recurring basis at December 31, 2011(in thousands):
A goodwill impairment was recorded in the amount of $26.6 and $41.5 million for the three and six months ended July 1, 2012, respectively, against the Voice Solutions Supply Chain (“VSC”) and Voice Solutions Healthcare (“VHS”) reporting units. The following table presents qualitative information with respect to Level 3 fair value measurements for assets and liabilities measured at fair value on a non-recurring basis at July 1, 2012:
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Schedule Of Revenues By Product Lines (Detail) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jul. 01, 2012
|
Jul. 03, 2011
|
Jul. 01, 2012
|
Jul. 03, 2011
|
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Segment Reporting Information [Line Items] | ||||
Revenues | $ 200,951 | $ 221,082 | $ 380,629 | $ 399,600 |
Systems And Solutions
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Segment Reporting Information [Line Items] | ||||
Revenues | 96,924 | 108,664 | 178,730 | 199,045 |
Printer And Media
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Segment Reporting Information [Line Items] | ||||
Revenues | 38,694 | 44,665 | 74,221 | 88,138 |
Services
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Segment Reporting Information [Line Items] | ||||
Revenues | 34,747 | 37,301 | 69,696 | 72,162 |
Voice Solutions
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Segment Reporting Information [Line Items] | ||||
Revenues | $ 30,586 | $ 30,452 | $ 57,982 | $ 40,255 |