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| IN > SEC Filings for IN > Form 10-K on 11-Mar-2013 | All Recent SEC Filings |
11-Mar-2013
Annual Report
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto that are incorporated by reference
from Item 8 of this Annual Report on Form 10-K.
Overview
Intermec, Inc. ("Intermec", "us", "we", "our", or the "Company") 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. We offer
a broad range of products including mobile computers, bar code scanners,
printers, label media, radio frequency identification ("RFID") products and
related software, and wearable voice data collection devices and related
software. With our products, we also offer a variety of services. Refer to
Item 1, Business, 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, bar code scanners, 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 a focus on customer and
partner relationships. We also seek to grow our business by targeting vertical
markets, increasing our marketing activities, expanding our channel, adding
software and managed services to our offerings and introducing innovative new
products.
In 2012, total revenue decreased by 7%, or $58.1 million, compared to 2011. The
decline was driven by several factors, including slowing global economic
activity, particularly in Europe, and declining foreign currency exchange rates
relative to the U.S. dollar. Our international revenues in 2012 declined 11.3%
compared to 2011, largely attributable to a slowdown in Europe, Middle East and
Africa ("EMEA") where total revenues declined 16.1%. Revenues in Asia Pacific
("ASIAPAC") and Latin America and Mexico ("LATAM") declined 5.8% and 1.5%,
respectively, in 2012.
Our financial reporting currency is the U.S. dollar, and changes in exchange
rates can significantly affect our financial trends and reported results. In
2012, the decrease in revenues of $58.1 million included an $18.5 million
decrease attributable to unfavorable foreign currency exchange rates. See
Foreign Currency Transactions and Effect of Foreign Exchange Rates in this Item
7 for further information about our foreign currency exposure and our risk
management program.
Our revenue performance in North America, while still down 2.1% in 2012 over
2011, was stronger than in EMEA and ASIAPAC, due in part to our acquisitions of
Vocollect and Enterprise Mobile that we completed in 2011. Our Voice solutions
segment revenue increased, in part due to the inclusion of a full year of
results in 2012, compared to only ten months of results in 2011 for our
Vocollect business that was acquired in March 2011. Total gross margin for the
year ended December 31, 2012 was 40.0%, as compared to 40.9% in the prior year,
reflecting negative foreign currency exchange impacts and reduced sales,
partially offset by higher margins on our Voice solutions segment, which
included a full year of results in 2012.
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 our largest markets: North America and Europe. These
reductions lowered our service and supply chain overhead and general and
administrative support costs, with lesser impacts to research and development
and sales and marketing. The net restructuring expense for the year ended
December 31, 2012 was $4.4 million. We believe that the restructuring resulted
in savings of approximately $6.7 million in 2012, and approximately $14.1
million on an annualized basis.
Merger Agreement with Honeywell
On December 9, 2012, Intermec entered into an Agreement and Plan of Merger with
Honeywell and Merger Sub. Under the Merger Agreement, Merger Sub will merge with
and into Intermec, with Intermec continuing as the surviving corporation and a
wholly owned subsidiary of Honeywell (the "Merger"). After completion of the
Merger, Honeywell will own 100% of Intermec's outstanding stock, and current
stockholders will no longer have any interest in Intermec. The closing of the
Merger is subject to customary closing conditions, including (i) receiving the
required approval of the Company's stockholders and (ii) the expiration or
termination of the applicable waiting period under the HSR Act, and any
applicable waiting period or approvals under the competition, antitrust or
similar laws of certain foreign jurisdictions. See Part I, Item 1, Business,
Merger Agreement with Honeywell, for more information. The Merger Agreement and
related materials can be found in the Company's SEC filings at www.sec.gov.
Results of Operations
The following compares our results of operations and percentages of revenues for
the years ended December 31, 2012, 2011 and 2010 (in millions, except for per
share data):
Year Ended December 31,
2012 2011 2010
Percent of Percent of Percent of
Amounts Revenues Amounts Revenues Amounts Revenues
Total revenues $ 790.1 $ 848.2 $ 679.1
Costs and expenses:
Cost of revenue 474.1 60.0 % 501.4 59.1 % 421.5 62.1 %
Research and development, net 82.5 10.4 % 84.4 10.0 % 69.5 10.2 %
Selling, general and
administrative 246.8 31.2 % 250.2 29.5 % 184.9 27.2 %
Impairment of property, plant
and equipment - - % 0.9 0.1 % 3.0 0.4 %
Capitalized legal fees charge - - % 5.6 0.7 % - - %
Impairment of goodwill 51.2 6.5 % - - % - - %
Gain on sale of assets (5.2 ) (0.7 )% - - % (2.9 ) (0.4 )%
Acquisition costs - - % 6.0 0.7 % - - %
Restructuring costs 4.4 0.6 % 5.9 0.7 % 2.8 0.4 %
Total costs and expenses 853.8 108.1 % 854.4 100.7 % 678.8 100.0 %
Operating (loss) profit (63.7 ) (8.1 )% (6.2 ) (0.7 )% 0.3 - %
Interest expense, net (2.8 ) (0.4 )% (2.2 ) (0.3 )% (0.1 ) - %
(Loss) earnings before income
taxes (66.5 ) (8.4 )% (8.4 ) - 0.2 - %
Income tax expense 216.0 27.3 % 22.3 2.6 % 5.5 0.8 %
Net loss $ (282.5 ) (35.8 )% $ (30.7 ) (3.6 )% $ (5.3 ) (0.8 )%
Loss per share:
Basic $ (4.68 ) $ (0.51 ) $ (0.09 )
Diluted $ (4.68 ) $ (0.51 ) $ (0.09 )
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS (Continued)
Revenues
Revenues by category and as a percentage of total revenues from continuing
operations for the years ended December 31, 2012, 2011 and 2010, as well as the
year-over-year product and service revenue changes were as follows (in
millions):
Year Ended December 31,
2012 2011 2010
Percent of Percent of Percent of
Amount Revenues Amount Revenues Amount Revenues
Revenues by category
Intermec branded:
Systems and solutions $ 380.7 48.2 % $ 423.4 49.9 % $ 381.6 56.2 %
Printer and media 148.9 18.8 % 175.5 20.7 % 163.6 24.1 %
Services 138.3 17.5 % 143.1 16.9 % 133.9 19.7 %
Voice solutions 122.2 15.5 % 106.2 12.5 % - - %
Total revenues $ 790.1 100.0 % $ 848.2 100.0 % $ 679.1 100.0 %
2012 v. 2011 2011 v. 2010
Amount Percent Amount Percent
Changes in revenues by category:
Intermec branded:
Systems and solutions $ (42.7 ) (10.1 )% $ 41.8 11.0 %
Printer and media (26.6 ) (15.2 )% 11.9 7.2 %
Services (4.8 ) (3.4 )% 9.2 6.8 %
Voice solutions 16.0 15.1 % 106.2 100.0 %
Total revenues $ (58.1 ) (6.8 )% $ 169.1 24.9 %
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We sell our products and services in four global regions: North America; Europe,
the Middle East and Africa ("EMEA"); Latin America and Mexico ("LATAM"); and
Asia Pacific ("ASIAPAC"). Revenues by geographic region and as a percentage of
related revenues for the years ended December 31, 2012, 2011 and 2010, as well
as the year-over-year geographic region revenue changes were as follows (in
millions):
Year Ended December 31,
2012 2011 2010
Percent of Percent of Percent of
Amount Revenues Amount Revenues Amount Revenues
Revenues by geographic
region:
North America $ 399.7 50.6 % $ 408.3 48.1 % $ 344.1 50.7 %
Europe, Middle East and
Africa (EMEA) 231.0 29.2 % 275.4 32.5 % 213.0 31.4 %
Latin America and Mexico
(LATAM) 101.1 12.8 % 102.6 12.1 % 76.2 11.2 %
Asia Pacific (ASIAPAC) 58.3 7.4 % 61.9 7.3 % 45.8 6.7 %
Total revenues $ 790.1 100.0 % $ 848.2 100.0 % $ 679.1 100.0 %
2012 v. 2011 2011 v. 2010
Amount Percent Amount Percent
Changes in revenues by
geographic region:
North America $ (8.6 ) (2.1 )% $ 64.2 18.6 %
Europe, Middle East and
Africa (EMEA) (44.4 ) (16.1 )% 62.4 29.3 %
Latin America and Mexico
(LATAM) (1.5 ) (1.5 )% 26.4 34.6 %
Asia Pacific (ASIAPAC) (3.6 ) (5.8 )% 16.1 35.2 %
Total revenues $ (58.1 ) (6.8 )% $ 169.1 24.9 %
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2012 vs. 2011. Total revenue for the year ended December 31, 2012 decreased by $58.1 million, or 6.8%, compared to the year ended December 31, 2011. Unfavorable movement in foreign currency rates resulted in a decrease in total revenue of $18.5 million, or 2.2%. The overall decrease is partially offset by an increase of $18.9 million attributable to the inclusion of a full year of operations of Vocollect and Enterprise Mobile in 2012, as compared to approximately ten months in 2011 based on the timing of the acquisitions in March 2011. A discussion of total revenues by category and geographic region follows.
For the year ended December 31, 2012, within the Intermec-branded product segment, Systems and solutions revenue declined $42.7 million, or 10.1%; and Printer and media revenue decreased $26.6 million, or 15.2%, compared to 2011. The decrease was primarily due to the decline 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, we saw a decline in sales in North America.
Intermec-branded service revenue of $138.3 million decreased by $4.8 million, or 3%, as compared to 2011, and was down $7.7 million, or 6%, when revenues from acquired businesses are excluded. The decline was largely due to the decrease in related product sales, and a lower average price per unit under contract as a result of competitive pricing.
Voice solutions revenue of $122.2 million for the year ended December 31, 2012
increased $16.0 million, or 15.1%, due primarily to the inclusion of a full year
of results from the Vocollect acquisition, as compared to ten months of results
in 2011.
Revenues varied across the geographic regions for the year ended December 31,
2012 as compared with 2011, as follows:
• North America revenues decreased $8.6 million, or 2.1%. This was primarily
attributable to a decrease of System and solutions revenue of $14.2
million and lower printer sales of $5.3 million. The decrease was offset
by a $12.4 million increase from our entities acquired in March 2011.
• EMEA revenues decreased $44.4 million, or 16.1%, over 2011. 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, competitive pressures and economic conditions in that region. The decline in revenue included $28.3 million of Systems and solutions and $16.6 million of Printer and media. Foreign currency conversion rates unfavorably impacted EMEA revenue by $10.5 million, or 3.8%. These decreases in EMEA were partially offset by a $6.0 million increase in Vocollect's revenues in EMEA.
• LATAM revenues decreased $1.5 million, or 1.5%, from the prior-year period. This decrease includes a $0.5 million decrease in Vocollect's revenues in LATAM, and slight decreases of Systems and solutions and Service revenue.
• ASIAPAC revenues decreased $3.6 million, or 5.8%, primarily due to an economic slowdown in China and other southeast Asian economies. Printer and media sales decreased by $4.3 million, partially offset by a $1.0 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 $18.5 million, or 2.2%, unfavorable to revenue.
2011 vs. 2010. Excluding the impact from acquisitions, total revenues in
2011increased 7.8%, or $52.8 million, compared to 2010, with growth in EMEA,
ASIAPAC and LATAM of 11.7%, 22.7% and 29.3% respectively.
Intermec-branded product revenues of $598.9 million for the year ended
December 31, 2011, increased $53.6 million, or 9.8%, compared to 2010. The
growth in our 2011 Intermec-branded product revenues was due to a $41.8 million,
or 11.0%, increase in sales of Systems and solutions products and $11.9 million,
or 7.2%, increase in sales of Printer and media products. The increase in
Printer and media products revenues was primarily driven by an increase in our
sales to distribution channel partners, and the increase in Systems and
solutions products revenues was primarily related to increased product volumes.
Increased sales in LATAM market contributed the most of any region to the growth
in both the Printer and media and Systems and solution product lines.
Intermec-branded service revenues of $143.1 million for the year ended
December 31, 2011 increased $9.2 million, or 6.8%, compared to 2010. The
increase in Intermec-branded service revenues was driven by service revenue from
the Enterprise Mobile acquisition in March 2011, partially offset by a
year-over-year decline in service revenue from U.S. federal government
customers.
Geographically, revenues in North America for the year ended December 31, 2011,
increased by $64.2 million, or 18.6%, while revenues in EMEA, LATAM and ASIAPAC
increased by $62.4 million, or 29.3%, by $26.4 million or 34.6% and by $16.1
million, or 35.2%, respectively, compared to 2010. The increase in North America
revenues in 2011 was attributable to sales related to companies acquired in
2011, partially offset by decreased sales of Intermec-branded printer, media and
RFID products. The increase
in EMEA revenues in 2011 was related to growth in our overall business and sales
related to companies acquired in 2011 and changes in foreign currency conversion
rates that favorably impacted EMEA revenues by $8.6 million, or 4.5%, as
compared to the foreign currency exchange rates experienced in 2010. Across all
regions, the favorable impact of foreign currency rates as compared to the
foreign currency exchange rates experienced in 2010 was $10.4 million, or 1.5%.
The increase in LATAM revenue was primarily attributable to continued expansion
of Intermec-branded product sales to existing customers. The increase in ASIAPAC
was primarily attributable to continued growth in the markets we serve across
multiple product lines.
Segment Gross Profit
Segment gross profit and segment gross margin by revenue category for the years
ended December 31, 2012, 2011 and 2010, were as follows (in millions):
Year Ended December 31,
2012 2011 2010
Gross Gross Gross Gross Gross Gross
Profit Margin Profit Margin Profit Margin
Intermec-branded products $ 189.1 35.7 % $ 238.9 39.9 % $ 204.0 37.4 %
Intermec-branded services 53.8 39.0 % 51.1 35.7 % 53.6 40.0 %
Voice solutions 73.1 59.8 % 56.7 53.4 % - - %
Total gross profit and gross margin $ 316.0 40.0 % $ 346.7 40.9 % $ 257.6 37.9 %
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2012 vs. 2011. Total gross profit for the year ended December 31, 2012,
decreased by $30.7 million, or 8.9%, as compared to 2011. The decrease in total
gross profit was primarily attributable to increased pricing discounts on
Intermec-branded products, reduced sales and negative foreign currency exchange
impacts. The gross profit decline was partially offset by the inclusion of a
full year of Vocollect results in the Voice solutions segment.
Intermec-branded product gross profit decreased $49.8 million, or 20.8%, for the
year ended December 31, 2012, as compared to 2011, primarily due to certain
pricing discounts, reduced sales and the impact of foreign currency conversion
rates.
Intermec-branded service gross profit increased $2.7 million, or 5.3%, for the
year ended December 31, 2012, attributable primarily 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.
Voice solutions gross profit increased $16.4 million for the year ended
December 31, 2012 due primarily to the inclusion of a full year of Vocollect
results as compared to ten months in 2011.
2011 vs. 2010. Total gross profit for the year ended December 31, 2011,
increased $89.1 million and the total gross margin increased by 300 basis points
compared to 2010. The increase in total gross profit reflects a $31.0 million,
or 180 basis points, increase in gross profit for the Intermec-branded products
segment and incremental gross profit on our acquired Voice solutions in our
sales mix, partially offset by a $2.6 million, or 420 basis points, decrease in
gross profit for the Intermec-branded service segment. The increase in 2011
product gross profit and gross margin was primarily due to an increased volume
of product sales including acquisitions and favorable product mix.
The decrease in Intermec-branded service gross profit and gross margin for the
year ended December 31, 2011, was mainly attributable to lower services sales to
our North America customers, lower initial margins from our acquired managed
services focused businesses and one-time costs associated with our transition to
an outsourcing supplier in EMEA, which are not included in restructuring costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF
OPERATIONS (Continued)
Operating Expense and Interest Expense (in millions)
Year Ended December 31,
2012 2011 2010
Change Change
from prior from prior
Amount year Amount year Amount
Research and development,
net $ 82.5 $ (1.9 ) $ 84.4 $ 14.9 $ 69.5
Selling, general and
administrative expense 246.8 (3.4 ) 250.2 65.1 185.1
Impairment of property,
plant and equipment - (0.9 ) 0.9 (2.1 ) 3.0
Capitalized legal fees
charge - (5.6 ) 5.6 5.6 -
Impairment of goodwill 51.2 51.2 - - -
Gain on sale of assets (5.2 ) (5.2 ) - 3.1 (3.1 )
Acquisition costs - (6.0 ) 6.0 6.0 -
Restructuring costs 4.4 (1.5 ) 5.9 3.1 2.8
Interest expense, net 2.8 0.6 2.2 2.1 0.1
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Research and Development Expense - Research and development ("R&D") expense
decreased $1.9 million, or 2.3%, for the year ended December 31, 2012, compared
to 2011. This decrease in R&D expense was primarily due to a $2.0 million
decrease in costs for labor, contractors and bonuses.
R&D expense increased $14.9 million, or 21.4%, for the year ended December 31,
2011 compared to 2010. This increase in R&D expense was due to $18.8 million
related to the Vocollect acquisition, partially offset by lower expenditures in
2011 driven by efficiency initiatives in the Intermec-branded products business.
Selling, General and Administrative Expense - Total selling, general and
administrative ("SG&A") expenses were $246.8 million for the year ended
December 31, 2012, compared to SG&A expenses of $250.2 million for the year
ended December 31, 2011. The decrease of $3.4 million, or 1.4%, was partially
due to $6.6 million from foreign exchange forward contracts, which had gains of
$0.5 million in 2012 compared with losses of $6.1 million in 2011; offset by
increases of approximately $3.0 million in 2012 due to transaction costs for the
Honeywell merger agreement. SG&A was also impacted by decreases in salary
expense related to the restructuring plan in June 2012, reduced bonus expense,
gains from death benefits under company-owned life insurance, lower commissions
on decreased sales and decreases in stock-based compensation expense due to
forfeitures of awards related primarily to the departure of our former CEO;
partially offset by increases for severance pay for our former CEO, increased
bad debt expense and the inclusion of a full year of expenses related to
businesses acquired in March 2011.
SG&A expense increased $65.1 million, or 35.2%, for the year ended December 31,
2011 compared to 2010. The increase was primarily attributable to $41.9 million
of costs associated with the Vocollect business we acquired, increased
investment in our sales and marketing organization, an ERP system implementation
in EMEA and increased incentive compensation.
Impairment of Goodwill - Impairment of goodwill for the year ended December 31,
2012 totaled $51.2 million. We recorded several goodwill impairment charges
during the year as a result of the carrying amount of the reporting unit's
goodwill exceeding its implied fair value, which primarily reflected our
business performance versus our forecast and the Company's lower market
capitalization. See Note 15, Goodwill and Other Long-Lived Assets, to the
Consolidated Financial Statements for further discussion. We had no similar
expense related to impairment of goodwill during 2011 and 2010.
Acquisition Costs - The acquisition costs of $6.0 million for the year ended
2011 consist of transaction related fees such as investment banking, legal and
audit fees, along with integration, retention and transition costs that relate
to the acquisitions made in the first quarter of 2011.
Capitalized Legal Fees Charge - The write-off of capitalized patent defense
costs of $5.6 million for the year ended 2011 relate to legal costs capitalized
between 2007 and 2011 attributable to a patent lawsuit. There were no similar
transactions in 2012 or 2010. Refer to Note 13, Litigation, Commitments and
Contingencies, to the Consolidated Financial Statements for more information
about charges taken during 2011, and about other capitalized patent defense
costs reflected on our balance sheet.
Gain on Sale of Assets - In 2012, we realized a gain of $5.2 million on the sale . . .
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