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IN > SEC Filings for IN > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for INTERMEC, INC.

Form 10-Q for INTERMEC, INC.


9-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS AND RISK FACTORS; SAFE HARBOR
Statements made in this filing and related statements that express Intermec's or our management's 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. The forward-looking statements contained herein include, without limitation, statements regarding: our view of general economic and market conditions; our revenue, expenses, earnings or financial outlook for the current period or any other period; our impairment analysis for goodwill and long-lived assets, our compliance with covenants under our secured credit facility; our deferred tax valuation allowances, the applicability and results of accounting policies and analyses used in our financial reporting, the necessity to update information in our periodic or other required reports; our cost reduction plans; and 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, or to continue operational improvement and year-over-year or sequential growth. They also include, without limitation, statements about future financial and operating results of our Company after the acquisition of other businesses and the benefits of such acquisitions. 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 risk factors 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 annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K, which are available, among other places, 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 the Asia Pacific ("ASIAPAC") 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 nine months of results from the Vocollect acquisition, compared to the inclusion of approximately seven months of results in the first nine months of 2011 following the acquisition date of March 3, 2011, and the inclusion of a full nine months of Enterprise Mobile results, compared to approximately seven months of results included in the first nine months of the prior year following the acquisition date of March 15, 2011. For the three months ended September 30, 2012, worldwide revenues decreased 9% over the prior-year quarter. International revenues declined 15% over the prior-year quarter primarily due to lower sales in EMEA and ASIAPAC, and unfavorable foreign


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

currency exchange rates, partially offset by sales growth in LATAM. Revenues in North America decreased 3% due primarily to declines in Intermec-branded product sales. Within our Intermec-branded product categories, Systems and solutions revenues declined 9%, and Printer and media revenue declined 14%. with smaller decline in both our Intermec-branded services and our Voice solutions businesses.
For the nine months ended September 30, 2012, worldwide revenues decreased 6% over the prior-year quarter and decreased 11% when revenue from businesses acquired during the first quarter of 2011 are excluded. International revenues declined 13% over the nine months ended October 2, 2011 reflecting decreases in volume primarily in EMEA and the negative impact of foreign currency exchange rates, 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 15%. Intermec-branded service revenue decreased 4% as compared with the prior-year period, largely due to the related lower product sales, and was down 7% when revenues from acquired businesses are excluded.
Total gross margin for the three months ended September 30, 2012 was 41.5%, flat compared to 41.5% in the prior-year quarter. Gross margin was favorably impacted by reductions in charges for excess and obsolete inventory, offset by decreases in standard margin driven by foreign currency exchange, macroeconomic and competitive pressures in EMEA.
Total gross margin for the nine months ended September 30, 2012 was 39.3%, as compared to 40.5% in the prior year quarter, reflecting negative foreign currency exchange impacts and reduced sales, partially offset by higher margins on our Voice-solutions segment, which included a full nine months of results, and a full nine months of results for Enterprise Mobile, which was included in the Intermec-branded services segment. Additionally, in the first nine months of 2012 we had $2.0 million in charges for engineering fees related to take-or-pay purchase commitment agreements 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 nine months of 2011, currency exchange rates negatively affected revenues by $5.4 million and $16.6 million in the three and nine months ended September 30, 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, after revising our 2012 business forecast to reflect current economic and other expectations, we committed to a business restructuring plan 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 this restructuring plan, we expected to reduce our workforce, primarily in the United States and Europe, by approximately 160 employees, representing approximately 7% of our total global work force. As of September 30, 2012, we have reduced the workforce by 133 employees in connection with this restructuring plan. We anticipate that the final reduction of the workforce, once completed, will be approximately 150 employees.
The total restructuring costs for this plan were 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. In the third quarter we did not incur any additional charges, and we reversed $1.1 million of these charges taken in the second quarter, due to lower negotiated severance payouts, as well as ultimately retaining certain employees who were initially part of the workforce reduction plan. Therefore, the net expense related only to the June 2012 restructuring plan is $4.8 million. The net restructuring expense of $4.5 million reflected in our financial statements for the nine months ended September 30, 2012 also includes a small reversal of $0.3 million made in the second quarter related to the May 2011 restructuring plan.
As of September 30, 2012, we have recorded all of the charges related to the restructuring plan. The costs have been recorded in our condensed consolidated statement of operations in restructuring charges. We expect that the remaining severance-related payments will be cash expenditures.


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ITEM 2. MANAGEMENT'S 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 nine months ended September 30, 2012 and October 2, 2011 (in
millions, except for per share data):

                                                Three Months Ended                          Nine Months Ended
                                      September 30, 2012      October 2, 2011     September 30, 2012     October 2, 2011
                                            Amounts               Amounts              Amounts               Amounts
Revenues                             $          192.8        $         211.8     $           573.5      $         611.4
Costs and expenses:
Cost of revenues                                112.8                  124.0                 348.4                363.9
Research and development                         20.3                   22.0                  60.7                 62.7
Selling, general and administrative              54.5                   63.6                 181.9                183.9
Impairment of goodwill                           (0.2 )                    -                  41.3                    -
Gain on sale of assets                           (2.5 )                    -                  (5.2 )                  -
Acquisition costs                                   -                    0.6                     -                  5.8
Restructuring charges                            (1.1 )                  0.6                   4.5                  5.8
Total costs and expenses                        183.8                  210.8                 631.6                622.1
Operating profit (loss)                           9.0                    1.0                 (58.1 )              (10.7 )
Interest expense, net                            (0.6 )                 (0.4 )                (2.0 )               (1.4 )
Earnings (loss) before income taxes               8.4                    0.6                 (60.1 )              (12.1 )
Income tax expense (benefit)                      1.2                   (0.1 )               212.2                 (2.9 )
Net earnings (loss)                  $            7.2        $           0.7     $          (272.3 )    $          (9.2 )
Basic earnings (loss) per share      $           0.12        $          0.01     $           (4.52 )    $         (0.15 )
Diluted earnings (loss) per share    $           0.12        $          0.01     $           (4.52 )    $         (0.15 )



                                       Percent of       Percent of      Percent of     Percent of
                                        Revenues         Revenues        Revenues       Revenues
Costs and expenses:
Cost of revenues                          58.5  %          58.5  %          60.7  %        59.5  %
Research and development                  10.5             10.4             10.6           10.3
Selling, general and administrative       28.3             30.0             31.7           30.1
Impairment of goodwill                    (0.1 )              -              7.2              -
Gain on sale of assets                    (1.3 )              -             (0.9 )            -
Acquisition costs                            -              0.3                -            0.9
Restructuring charges                     (0.6 )            0.3              0.8            0.9
Total costs and expenses                  95.3             99.5            110.1          101.8
Operating profit (loss)                    4.7              0.5            (10.1 )         (1.8 )
Interest expense, net                     (0.3 )           (0.2 )           (0.3 )         (0.2 )
Earnings (loss) before income taxes        4.4              0.3            (10.5 )         (2.0 )
Income tax expense (benefit)               0.6                -             37.0           (0.5 )

Net earnings (loss) 3.7 % 0.3 % (47.5 )% (1.5 )%


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ITEM 2. MANAGEMENT'S 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 September 30, 2012, and October 2, 2011, as well as
revenue changes for the same three-month periods, were as follows (in millions):

                                                   Three Months Ended
                               September 30,     Percent of      October 2,     Percent of                 Percentage
                                   2012           Revenues          2011         Revenues       Change       Change
Revenues by category:
Intermec-branded:
Systems and solutions        $          92.6          48.1 %   $      102.1          48.2 %   $   (9.5 )       (9.3 )%
Printer and media                       37.4          19.4             43.7          20.6         (6.3 )      (14.4 )
Services                                33.6          17.4             35.2          16.6         (1.6 )       (4.5 )
Voice solutions                         29.2          15.1             30.8          14.6         (1.6 )       (5.2 )
Total revenues               $         192.8         100.0 %   $      211.8         100.0 %   $  (19.0 )       (9.0 )%



                                                  Three Months Ended
                              September 30,     Percent of      October 2,     Percent of                 Percentage
                                  2012           Revenues          2011         Revenues       Change       Change
Revenues by geographic
region:
North America               $         104.0          53.9 %   $      107.1          50.6 %   $   (3.1 )       (2.9 )%
Europe, Middle East and
Africa (EMEA)                          50.2          26.0             64.7          30.6        (14.5 )      (22.4 )
Latin America and Mexico
(LATAM)                                27.3          14.2             23.6          11.1          3.7         15.7
Asia Pacific (ASIAPAC)                 11.3           5.9             16.4           7.7         (5.1 )      (31.1 )
Total revenues              $         192.8         100.0 %   $      211.8         100.0 %   $  (19.0 )       (9.0 )%

Revenue for the three months ended September 30, 2012, decreased $19.0 million, or 9.0%, 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 and ASIAPAC regions primarily due to economic uncertainty, increased competitive pressure and a $5.4 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 primarily to the currency rates of the Euro.
Within the Intermec-branded product segment, Systems and solutions and Printer and media revenue for the three months ended September 30, 2012 decreased $15.8 million from the prior year comparable period primarily due to declines in sales in EMEA, which reflect economic uncertainty in the region, 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 $33.6 million for the quarter ended September 30, 2012, declined by $1.6 million compared to the corresponding 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-priced product sales and competitive pricing. Voice solutions revenue of $29.2 million for the three months ended September 30, 2012 decreased $1.6 million, or 5.2%, 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 solutions sales team in North America.
Revenues varied across the geographic regions for the quarter ended September 30, 2012 as follows:
North America revenues decreased $3.1 million, or 2.9%. The decrease in North America revenues was attributable primarily to a decline in Intermec-branded printer and media sales.

EMEA revenues decreased $14.5 million, or 22.4%, 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 $3.2 million, or 4.9%.


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LATAM revenues grew $3.7 million, or 15.7%, from the prior-year quarter primarily due to increases in Northern LATAM, including Mexico, as a result of the timing of completing certain larger deals after the third quarter of 2011; and to a lesser degree, steady growth in Southern LATAM, including Brazil.

ASIAPAC revenues decreased $5.1 million, or 31.1%, primarily due to economic slowdown in China and other southeast Asian economies.

Across all regions the combined impact of foreign currency rates as compared to the foreign currency rates in the prior-year period was $5.4 million, or 2.5%, unfavorable to revenue.
Revenues by category and geographic region and as a percentage of total revenues for the nine months ended September 30, 2012 and October 2, 2011, as well as revenue changes for the same nine-month periods, were as follows (in millions):

                                                 Nine Months Ended
                             September 30,     Percent of      October 2,     Percent of                 Percentage
                                 2012           Revenues          2011         Revenues       Change       Change
Revenues by category:
Intermec-branded:
Systems and solutions      $         271.4          47.3 %   $      301.2          49.3 %   $  (29.8 )       (9.9 )%
Printer and media                    111.6          19.5            131.8          21.6        (20.2 )      (15.3 )
Services                             103.4          18.0            107.4          17.5         (4.0 )       (3.7 )
Voice solutions                       87.1          15.2             71.0          11.6         16.1         22.7
Total revenues             $         573.5         100.0 %   $      611.4         100.0 %   $  (37.9 )       (6.2 )%



                                                  Nine Months Ended
                              September 30,     Percent of      October 2,     Percent of                 Percentage
                                  2012           Revenues          2011         Revenues       Change       Change
Revenues by geographic
region:
North America               $         296.8          51.8 %   $      292.6          47.9 %   $    4.2          1.4  %
Europe, Middle East and
Africa (EMEA)                         160.7          28.0            200.6          32.8        (39.9 )      (19.9 )
Latin America and Mexico
(LATAM)                                73.9          12.9             70.0          11.4          3.9          5.6
Asia Pacific (ASIAPAC)                 42.1           7.3             48.2           7.9         (6.1 )      (12.7 )
Total revenues              $         573.5         100.0 %   $      611.4         100.0 %   $  (37.9 )       (6.2 )%

Revenue for the nine months ended September 30, 2012, decreased $37.9 million, or 6.2%. This decrease includes a partial offsetting increase of $19.5 million attributable to the inclusion of a full nine months of the operations of Vocollect and Enterprise Mobile in 2012, as compared to the inclusion of approximately seven months in the prior year period based on the timing of the acquisitions in 2011. A discussion of total revenues by category and geographic region follows.
Within the Intermec-branded product segment, Systems and solutions and Printer and media revenue for the nine months ended September 30, 2012 decreased $50.0 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 pressures and significant 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 $103.4 million declined by $4.0 million for the nine months ended September 30, 2012 compared to the corresponding prior-year period. For the nine months ended September 30, 2012 Intermec-branded service revenues include $10.1 million from Enterprise Mobile, acquired in March of 2011, compared to $6.7 million for the first nine 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-priced product sales and competitive pricing.
Voice solutions revenue of $87.1 million for the nine months ended September 30, 2012, increased $16.1 million, or 22.7%, compared to the corresponding prior-year period, due to the inclusion of a full nine months results from the Vocollect acquisition,


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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

compared to the inclusion of the results from acquisition date, March 3, 2011, in the first nine months of 2011.
Revenues varied across the geographic regions for the nine months ended September 30, 2012 as compared with the same period in the prior year, as follows:
North America revenues increased $4.2 million or 1.4%. This was primarily attributable to a $15.4 million increase from our entities acquired in March 2011, which more than offsets declines in North America attributable to lower Intermec-branded printer and media sales.

EMEA revenues decreased $39.9 million, or 19.9%, over the corresponding prior-year period. The decrease in EMEA revenues was mainly attributable to lower sales of our Intermec-branded products driven by a slowing of large deals compared to the prior-year period, competitive pressures and economic conditions in that region. Foreign currency conversion rates unfavorably impacted EMEA revenue by $3.2 million, or 4.9%. These decreases in EMEA were partially offset by a $4.3 million increase in Vocollect's revenues in EMEA.

LATAM revenues increased $3.9 million from the prior-year period primarily due to growth in the channel and strong sales to direct customers. This increase was partially offset by a $0.6 million decrease in Vocollect's revenues in LATAM.

ASIAPAC revenues decreased $6.1 million, or 12.7%, primarily due to an economic slowdown in China and other southeast Asian economies. The decrease was partially offset by a $0.4 million increase in Vocollect's revenues in ASIAPAC.

Across all regions the combined impact from foreign currency rates as compared to the prior-year period was $16.6 million, or 2.7%, unfavorable to revenue. Gross Profit and Gross Margin
Gross profit and gross margin by revenue category for the three and nine months ended September 30, 2012 and October 2, 2011, were as follows (in millions):

                                         Three Months Ended                                     Nine Months Ended
. . .
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