Add
IN to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| IN > SEC Filings for IN > Form 10-Q on 5-Nov-2008 | All Recent SEC Filings |
5-Nov-2008
Quarterly Report
Forward-Looking Statements and Risk Factors
Forward-looking statements contained in this filing are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995 (alternatively: Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934) and are dependent upon a variety of important factors that could cause actual results to differ materially from those reflected in such forward-looking statements.
Forward-looking statements include but are not limited to statements about:
maintaining or improving our revenues, gross margins or profits of our
continuing operations, for the current period or any future period; competing
effectively with our current products and planned products, and introducing new
products; effectively completing restructuring activities, including the closure
of certain facilities and redeployment of related functions; maintaining or
reducing expenses; maintaining or improving operational efficiency; increasing
product development capacity; using our investment in research and development
to generate future revenue; and the applicability of accounting policies used in
our financial reporting. When used in this document and in documents it
references, the words "anticipate," "believe," "will," "intend," "project" and
"expect" and similar expressions as they relate to Intermec or our management
are intended to identify such forward-looking statements. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, changed circumstances or any
other reason after the date of this quarterly report.
Forward-looking statements involve and are dependent upon certain risks and uncertainties and are not guarantees of future performance. A number of factors can impact our business and determine whether we can or will achieve any forward-looking statement made in this report. Any one of these factors could cause our actual results to differ materially from those expressed or implied in a forward-looking statement. We outline these risk factors in reports that we file with the SEC, in press releases and on our website, www.intermec.com. You are encouraged to review the discussion below in this Part I, "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations," as well as the Risk Factors set forth in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2007, and the Risk Factors set forth in Part II, "Item 1A. Risk Factors" of our Quarterly Reports on Form 10-Q which discuss risk factors associated with our business.
Results of Operations
The following discussion compares our results of operations for the three and
nine months ended September 28, 2008, and September 30, 2007. Results of
operations and percentage of revenues were as follows (millions of dollars):
Three Months Ended Nine Months Ended
September 28, September 30, September 28, September 30,
2008 2007 2008 2007
Amounts Amounts Amounts Amounts
Revenues $ 234.4 $ 206.0 $ 669.4 $ 595.8
Costs and expenses:
Cost of revenues 142.7 127.9 401.5 372.0
Research and development 15.0 16.0 48.7 49.0
Selling, general and administrative 57.3 57.6 175.4 162.9
Flood related charges - - 1.1 -
Restructuring 3.3 - 3.3 -
Total costs and expenses 218.3 201.5 630.0 583.9
Operating profit from continuing
operations 16.0 4.5 39.4 11.9
Interest, net 0.7 0.7 1.4 1.1
Earnings from continuing operations,
before income tax 16.8 5.2 40.8 13.0
Provision for income tax 5.8 0.8 14.4 5.1
Earnings from continuing operations, net
of tax 11.0 4.4 26.4 7.9
Loss from discontinued operations, net
of tax - - - (1.3 )
Net earnings $ 11.0 $ 4.4 $ 26.4 $ 6.6
Percent of Percent of Percent of Percent of
Revenues Revenues Revenues Revenues
Revenues
Costs and expenses:
Cost of revenues 60.9 % 62.1 % 60.0 % 62.4 %
Research and development 6.4 % 7.7 % 7.3 % 8.2 %
Selling, general and administrative 24.4 % 28.0 % 26.2 % 27.4 %
Flood related charges - - - -
Restructuring - - - -
Total costs and expenses 93.2 % 97.8 % 94.1 % 98.0 %
Operating profit from continuing
operations 6.9 % 2.2 % 5.9 % 2.0 %
Interest, net 0.3 % - 0.2 % - %
Earnings from continuing operations,
before income tax 7.2 % 2.5 % 6.1 % 2.2 %
Provision for income tax - - - -
Earnings from continuing operations, net
of tax 4.7 % 2.1 % 3.9 % 1.3 %
Loss from discontinued operations, net
of tax - - - -
Net earnings 4.7 % 2.1 % 3.9 % 1.1 %
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Revenues
Revenues by category and geographic region and as a percentage of total revenues
from continuing operations for the three and nine months ended September 28,
2008, and September 30, 2007, as well as the same three and nine month's revenue
changes were as follows (millions of dollars):
Three Months Ended
Percentage
September 28, 2008 September 30, 2007 Change Change
Percent
Percent of of
Amount Revenues Amount Revenues
Revenues by product
line:
Systems and 62.1 %
solutions $ 145.5 $ 118.4 57.5 % $ 27.1 22.9 %
Printer and media 50.2 21.4 % 50.8 24.6 % (0.6) (1.3 %)
Service 38.7 16.5 % 36.8 17.9 % 1.9 5.1 %
Total revenues $ 234.4 100.0 % $ 206.0 100.0 % $ 28.4 13.8 %
Revenues by
geographic region:
North America $ 129.1 55.1 % $ 100.8 48.9 % $ 28.4 28.1 %
Europe, Middle East
and Africa
(EMEA) 78.1 33.3 % 74.2 36.0 % 3.8 5.1 %
All others 27.2 11.6 % 31.0 15.1 % (3.8) (12.3 %)
Total revenues $ 234.4 100.0 % $ 206.0 100.0 % $ 73.6 13.8 %
|
Total revenue increased $28.4 million, or 13.8% for the three months ended September 28, 2008 compared to the prior year period, as a result of a $26.5 million increase in product revenue and a $1.9 increase in service revenue. The increase in product revenue was attributable to a $27.1 million increase in systems and solution products, primarily as a result of revenue growth in North America. The $0.6 million decline in printer and media product revenue is due to lower printer revenue in Latin America, partially offset by revenue growth in EMEA (Europe, Middle East and Africa). Sequentially, total revenue increased 7.4% from the second quarter of 2008, primarily from the increase in product revenue and modest growth in service revenue.
The increase in quarterly service revenues of $1.9 million, or 5.1%, is primarily attributable to a 16.7% increase in EMEA as a result of improved pricing and the impact of favorable foreign currency exchange rates compared to the prior year period. North America service revenue was relatively flat, while the rest of the world experienced 8.2% growth on a relatively smaller base.
Geographically, revenues in North America and EMEA increased $28.4 million, or 28.1%, and $3.8 million, or 5.1%, respectively, over the corresponding prior-year period. The increase in North America was primarily attributable to increased hardware demand for handheld computers, particularly from governmental agencies. The changes in foreign currency conversion rates favorably impacted EMEA revenue by $3.7 million in the third quarter of 2008, as compared to the prior year period.
In the three months ended September 28, 2008, we observed longer purchase decision-making time frames among large enterprise customers. Thus far, this appears to have resulted in a delay, rather than a cancellation, of some customer projects. We believe that customers in our target markets will continue to invest in projects intended to enhance mobile worker productivity but they may subject these projects to closer scrutiny and longer decision-making processes, in response to uncertainty in the general economic outlook.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Nine Months Ended
Percentage
September 28, 2008 September 30, 2007 Change Change
Percent of Percent of
Amount Revenues Amount Revenues
Revenues by product
line:
Systems and solutions $ 400.7 59.9 % $ 329.5 55.3 % $ 71.2 21.6 %
Printer and media 155.0 23.1 % 151.1 25.4 % 3.9 2.5 %
Service 113.7 17.0 % 115.2 19.3 % (1.5 ) (1.3 %)
Total revenues $ 669.4 100.0 % $ 595.8 100.0 % $ 73.6 12.3 %
Revenues by
geographic region:
North America $ 355.8 53.1 % $ 299.8 50.4 % $ 56.0 18.7 %
Europe, Middle East
and Africa
(EMEA) 232.0 34.7 % 205.8 34.5 % 26.3 12.8 %
All others 81.6 12.2 % 90.2 15.1 % (8.7 ) (9.6 %)
Total revenues $ 669.4 100.0 % $ 595.8 100.0 % $ 73.6 12.3 %
|
Total revenue for the nine months ended September 28, 2008, increased $73.6 million, or 12.3%, due to a $75.1 million, or 24.1%, increase in product revenues, partially offset by $1.5 million, or 1.3%, decrease in service revenues. The increase in product revenues was due to the $71.2 million increase in systems and solution products and a $3.9 million increase in printer and media products. The product revenue growth is primarily a result of the 18.7% growth in North America and 12.8% growth in EMEA. New product introductions continue to drive increased hardware demand in both regions. Product revenue for the rest of the world decreased 9.6%, primarily due to lower revenue in Latin America.
The decrease in nine month service revenues of $ 1.5 million, or 1.3%, was primarily attributable to the slightly lower contract revenue in the first quarter ended March 30, 2008, combined with lower year-to-date custom software and break fix time and material revenues.
Geographically, revenues in North America and EMEA increased $56 million, or 18.7%, and $26.3 million, or 12.8%, respectively, over the corresponding prior-year period. The increases were primarily attributable to increased hardware demand in both regions, with new product introductions driving a majority of the growth. The changes in foreign currency conversion rates favorably impacted EMEA revenue by $19.0 million for the nine months ended September 28, 2008, as compared to the prior year period.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Gross Profit
Gross profit and gross margin by revenue category for the three and nine months
ended September 28, 2008 and September 30, 2007, were as follows (millions of
dollars):
Three Months Ended Nine Months Ended
September 28, 2008 September 30, 2007 September 28, 2008 September 30, 2007
Gross Profit Gross Margin Gross Profit Gross Margin Gross Profit Gross Margin Gross Profit Gross Margin
Product $ 75.8 38.7 % $ 63.7 37.6 % $ 219.9 39.6 % $ 174.2 36.2 %
Service 15.9 41.1 % 14.4 39.1 % 48.0 42.3 % 49.6 43.0 %
Total gross profit
and gross margin $ 91.7 39.1 % $ 78.1 37.9 % $ 267.9 40.0 % $ 223.8 37.6 %
|
The total gross profit for the three and nine months ended September 28, 2008, increased by $13.6 million and $44.1 million, respectively, compared to the corresponding prior year periods. The increases are attributable to product revenue growth in the North America and EMEA regions, as well as improvements in product gross margins in the respective periods. The increase in product gross margins is primarily due to new product introductions, favorable manufacturing absorption on higher volumes and product cost reductions.
Service gross profit increased $1.5 million for the three months ended September 28, 2008 compared to the prior year period, primarily due to the increase in revenue. The cost reductions as a result of the restructuring activities were partially offset by transition-related costs in the period. The decrease in service gross profit of $1.6 million for the nine months ended September 28, 2009 compared to the corresponding 2007 period is primarily due to the lower revenue in the first half of 2008.
Research and Development
Research and development costs for the three and nine months ended September 28,
2008 and September 30, 2007, were as follows (millions of dollars):
Three Months ended Nine Months ended
September 28, September 30, Change from September 28, September 30, Change from
2008 2007 prior year 2008 2007 prior year
Research and
development expense $ 15.0 $ 16.0 $ (1.0 ) $ 48.7 $ 49.0 $ (0.3 )
|
The total research and development ("R&D") expense was $15.0 million and $48.6 million for the three and nine months ended September 28, 2008, respectively, compared with R&D expense of $16.0 million and $49.0 million for the corresponding prior-year periods. R&D expense for the current quarter includes a $1.4 million credit recorded for the reimbursement of certain R&D expenses under a foreign grant program that became realizable in the quarter.
Selling, General and Administrative
Selling, General and Administrative costs for the three and nine months ended
September 28, 2008 and September 30, 2007, were as follows (millions of
dollars):
Three Months ended Nine Months ended
Change from prior September 28, September 30, Change from prior
September 28, 2008 September 30, 2007 year 2008 2007 year
Selling, general and
administrative
expense $ 57.3 $ 57.6 $ (0.3. ) $ 175.4 $ 162.9 $ 12.5
|
The total selling, general and administrative ("SG&A") expense was $57.3 million and $175.4 million for the three and nine months ended September 28, 2008, respectively, compared with SG&A expense of $57.6 million and $162.9 million for the corresponding prior-year period. The increase in SG&A expense in the third quarter of 2008 is primarily related to the impact of international costs translated to US dollars at less favorable exchange rates. The third quarter of 2007 SG&A expense included approximately $2.0 million of other operating gains. The higher costs for the nine month period in 2008 is primarily related to the impact of international costs translated to US dollars at less favorable exchange rates than in the same period of 2007, higher information systems expense as a result of our ERP upgrade, higher selling and marketing costs, and higher labor costs, partially offset by a $2.9 million gain from the sale of property in the second quarter of 2008.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Flood related charges
In June 2008, our Cedar Rapids, Iowa facilities were flooded, and we incurred damages to both a facility that we own and one that we lease. A portion of these damages was covered by insurance to the extent reasonable. While the flood caused significant damage, we were able to redirect the work done by our Cedar Rapids groups to temporary locations, and therefore the flood did not cause a significant interruption of our business. During the three and nine months ended September 28, 2008, we had $5.1 million in clean up costs and property damages that were offset by $4.0 million of insurance for a net pre-tax charge of $1.1 million.
Interest, Net
Interest income, net of interest expense for the three and nine months ended
September 28, 2008 and September 30, 2007, was as follows (millions of dollars):
Three Months ended Nine Months ended
Change from prior
September 28, 2008 September 30, 2007 Change from prior year September 28, 2008 September 30, 2007 year
Interest income, net $ 0.7 $ 0.7 $ - $ 1.4 $ 1.1 $ 0.3
|
Net interest income was $0.7 million and $1.4 million for the three and nine months ended September 28, 2008, compared to net interest income of $0.7 million and $1.1 million for the corresponding prior-year period.
Restructuring
In July 2008, we committed to a business restructuring plan intended to reduce our cost structure and streamline operations. Pursuant to this plan, we will relocate the final assembly of our product lines from Everett, Washington, to Venture Corporation Limited, a global electronics services provider. As part of the plan we will also consolidate two U.S. service depots to existing locations in Charlotte, North Carolina, and Monterey, Mexico, and transfer our on-site field service repair to a third party supplier. We expect the plan to be fully implemented by June 30, 2009.
As of September 28, 2008, 55 employees have been terminated as part of the restructuring. All severance and other periodic transitional costs will be cash expenditures. Our remaining future expected costs are $0.2 million for employee termination and $ 0.8 million for other costs. The aggregate costs incurred to date are presented in restructuring costs in the Condensed Consolidated Statement of Operations and are itemized along with expected additional costs in the table below:
Employee
In millions of dollars SFAS 112 SFAS 146 termination Other costs Total restructuring
Total Restructuring
Original restructuring charge,
Third quarter of 2008 $ 2.7 $ 0.6 $ 3.0 $ 0.3 $ 3.3
Utilization (0.6 ) - (0.6 ) (0.3 ) (0.9 )
Balance at September 28, 2008 $ 2.1 $ 0.6 $ 2.4 $ - $ 2.4
Utilization by segment
Service $ 0.6
Products $ 0.3
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Provision for Income Taxes
The provision for income taxes for the three and nine months ended September 28,
2008 and September 30, 2007, was as follows (millions of dollars):
Three Months ended Nine Months ended
Change from prior
September 28, 2008 September 30, 2007 Change from prior year September 28, 2008 September 30, 2007 year
Provision for income taxes $ 5.8 $ 0.8 $ 5.0 $ 14.4 $ 5.1 $ 9.3
|
The tax expense for the three and nine months ended September 28, 2008, reflects an effective tax rate for continuing operations of 34.5% and 35.3%, respectively, compared to a U.S. statutory rate of 35%. In the third quarter of 2008, we recorded tax benefits which decreased our Q3 effective tax rate 1.7% for a foreign tax refund and adjustments pertaining to our 2007 tax returns filed this quarter. These rates reflect our recurring estimated effective tax rate of approximately 37% for fiscal year 2008, which excludes the impact of discrete items.
The tax expense for the three and nine months ended September 30, 2007, reflects an effective tax rate for continuing operations of 16.2% and 39.3%, respectively, compared to a U.S. statutory rate of 35%. In the third quarter of 2007, the tax provision was decreased to record benefits primarily resulting from certain changes in foreign and state tax law and for deferred taxes related to tax amortizable goodwill. These rates reflect our recurring estimated effective tax rate of approximately 36% for fiscal year 2007, which excludes the impact of discrete items.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments as of September 28, 2008, totaled $202.1 million, compared to $265.5 million as of December 31, 2007. Operating activities for the nine months ended September 28, 2008 provided $38.3 million of cash flow, primarily resulting from customer receipts exceeding billings by $40.7 million and $12.1 million from teh utilization of deferred tax assets, partially offset by a decrease in accounts payable of $38.3 million and increased inventory of $12.0 million. Investing activities for the nine months ended September 28, 2008, provided $20.5 million related primarily to the sale of investments totaling $28.5 million. Financing activities for the nine months ended September 28, 2008, used $92.7 million, primarily for the $100 million debt repayment in March, 2008.
Net of outstanding letters of credit and limitations on minimum availability, we had borrowing capacity at September 28, 2008, of $46.9 million under the Revolving Facility. We made no borrowings under the Revolving Facility during the third quarter of 2008, and as of September 28, 2008, no borrowings were outstanding under the Revolving Facility. As of September 28, 2008, we were in compliance with the financial covenants of the Revolving Facility.
The key terms of the Revolving Facility are as follows:
º Loans will bear interest at a variable rate equal to (at our option) (i)
LIBOR plus the applicable margin, which ranges from 0.60% to 1.00%, or (ii)
the Bank's prime rate, less the applicable margin, which ranges from 0.25%
to 1.00%. If an event of default occurs and is continuing, then the
interest rate on all obligations under the Revolving Facility may be
increased by 2.0% above the otherwise applicable rate, and the Bank may
declare any outstanding obligations under the Revolving Facility to be
immediately due and payable.
º A fee ranging from 0.60% to 1.00% on the maximum amount available to be
drawn under each letter of credit that is issued and outstanding under the
Revolving Facility will be required. The fee on the unused portion of the
Revolving Facility ranges from 0.125% to 0.20%.
º Certain of our domestic subsidiaries have guaranteed the Revolving
Facility.
º 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.
º Financial covenants include a Maximum Leverage test and a Minimum Tangible
Net Worth test, each as defined in the Revolving Facility.
Management believes that cash and cash equivalents on hand, combined with projected cash flow from operations and available borrowings under our Revolving Facility will be sufficient to fund our operations, research and development efforts, anticipated capital expenditures, liabilities, commitments, and other . . .
|
|