UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

Commission file number:  001-13279

INTERMEC, INC.
(Exact name of registrant as specified in its charter)

(425) 265-2400
(Registrant’s 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.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

INTERMEC, INC.
INDEX
REPORT ON FORM 10-Q
FOR THE QUARTER ENDED APRIL 2, 2006

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTERMEC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share amounts)
(unaudited)

See accompanying notes to consolidated financial statements.

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INTERMEC, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)

See accompanying notes to consolidated financial statements.

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INTERMEC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(thousands of dollars)

See accompanying notes to consolidated financial statements.

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INTERMEC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

1.                          Description of the Business

Effective January 1, 2006, Intermec changed its name from UNOVA, Inc. to Intermec, Inc. (“Intermec”). Intermec is a leader in global supply chain solutions and in the design, development, manufacture and integration of wired and wireless automated data collection, mobile computing systems, bar code printers, label media and Intermec RFID (radio frequency identification). Intermec’s products and services are used by customers in many industries to improve productivity, quality and responsiveness of business operations, from supply chain management and enterprise resource planning to field sales and service. Intermec’s products and services are sold globally to a diverse set of customers in markets such as manufacturing, warehousing, direct store delivery, retail, consumer goods, field services, government, security, healthcare, transportation and logistics.

In 2005, Intermec divested its Industrial Automation Systems (“IAS”) businesses, which comprised the Cincinnati Lamb and Landis Grinding Systems divisions. The IAS businesses are classified as discontinued operations for accounting purposes in Intermec’s consolidated financial statements and related notes.

2.                          Basis of Presentation

Intermec’s interim financial periods are based on a thirteen-week internal accounting calendar. In the opinion of management, the accompanying balance sheets and interim statements of operations, and statements of cash flows include all adjustments, consisting only 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 financial statements include the accounts of Intermec and its subsidiaries. Intercompany transactions and balances have been eliminated. Equity investments in which we exercise significant influence but do not exercise control and are not the primary beneficiary are accounted for using the equity method. Investments in which we are not able to exercise significant influence over the investee are accounted for under the cost method. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses, and financial data included in the accompanying notes to the financial statements. Actual results and outcomes may differ from management’s 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 Management’s Discussion and Analysis and the financial statements and notes thereto included in the Intermec Inc.’s 2005 Form 10-K.

Certain amounts in our prior-period consolidated financial statements and notes have been reclassified to conform to the current-period presentation. The consolidated statement of cash flows for the three months ended April 3, 2005, reflects the reclassification of $50 million in restricted cash from financing activities to investing activities and $3.9 million of cash used in operating activities of discontinued operations was reclassified from operating activities of continuing operations.

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3.                          Stock-Based Compensation

We adopted Statement of Financial Accounting Standards (SFAS) 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), using the modified prospective transition method beginning January 1, 2006. The statement eliminates the ability to account for share-based compensation transactions, as we formerly did, using the intrinsic value method as prescribed by Accounting Principles Board, or APB, Opinion No. 25, “Accounting for Stock Issued to Employees,” and generally requires that such transactions be accounted for using a fair-value-based method and recognized as expenses in our consolidated statement of income.

Our consolidated financial statements as of and for the quarter ended April 2, 2006 reflect the impact of adopting SFAS 123(R). In accordance with the modified prospective method, the consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).

Stock-based compensation expense recognized during the period is based on the value of the portion of stock options that are ultimately expected to vest. Stock-based compensation expense recognized in the consolidated statement of operations during the first quarter of 2006 included compensation expense for stock-based payment awards granted prior to, but not yet vested, as of December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of SFAS 148 “Accounting for Stock-Based Compensation—Transition and Disclosure” (SFAS 148) and compensation expense for the stock-based payment awards granted subsequent to December 31, 2005, based on the grant date fair value estimated in accordance with SFAS 123(R). As stock-based compensation expense recognized in the statement of operations for the first quarter of 2006 is based on awards ultimately expected to vest, the expense has been reduced for estimated forfeitures. SFAS 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In the pro forma information required under SFAS 148 for the periods prior to 2006, we accounted for forfeitures as they occurred.

Accordingly, during the three-month period ended April 3, 2006, we recorded stock-based compensation expense for awards granted prior to, but not yet vested, as of January 1, 2006, as if the fair value method required for pro forma disclosure under SFAS 123 were in effect for expense recognition purposes, adjusted for estimated forfeitures.  For stock-based awards granted after January 1, 2006, we have recognized compensation expense based on the estimated grant date fair value method using the Black-Scholes valuation model. For these awards, we have recognized compensation expense using a straight-line amortization method. As SFAS 123(R) requires that stock-based compensation expense be based on awards that are ultimately expected to vest, stock-based compensation for the three-month period ended April 2, 2006 has been reduced for estimated forfeitures. When estimating forfeitures, we consider voluntary termination behaviors as well as trends of actual option forfeitures. The impact on our results of operations of recording stock-based compensation for the three-month period ended April 2, 2006 was as follows (in thousands):

Prior to adopting SFAS 123(R), we presented all tax benefits resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. SFAS 123(R) requires cash flows resulting from excess tax benefits to be classified as a part of cash flows from financing activities. Excess tax benefits are realized tax benefits from tax deductions for exercised options in excess of the deferred tax asset attributable to stock compensation costs for such options. As a result of adopting SFAS 123(R), $2.2 million of excess tax benefits for the three months ended April 2, 2006 have been classified as a source of cash from financing activities. Cash

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received from option exercises under all share-based payment arrangements for the three-month periods ended April 2, 2006 and April 3, 2005, was $3.1 million and $1.3 million, respectively. The total income tax benefit recognized in the statement of operations for stock-based compensation costs was $0.7 million, and $0.5 million for the three-month periods ended April 2, 2006, and April 3, 2005, respectively.

We calculated the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for each respective period:

Our computation of expected volatility for the first quarter of 2006 is based on a combination of historical and market-based implied volatility from traded options on our stock. Prior to 2006, our computation of expected volatility was based on historical volatility. Our computation of expected life in 2006, was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.

The fair value of the options granted based on the above assumptions are $16.76 and $12.72 for the periods ended April 2, 2006 and April 3, 2005, respectively.  All grants of our options under all plans must be approved by the Compensation Committee of the Board of Directors, which consists entirely of outside directors.

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The following table summarizes the pro forma effect of stock-based compensation as if the fair value method of accounting for stock compensation had been applied.

The above amounts reflect a revision of previously reported pro forma stock-based compensation expense for the three months ended April 3, 2005.  The effect of this revision was to decrease stock-based compensation expense computed under the fair value method, net of tax effect, by $1,383 for the three months ended April 3, 2005, and increase pro forma net earnings for that period by the same amount. The effect on both basic and diluted pro forma earnings per share was an increase of $0.02 for the three months ended April 3, 2005. Additionally, the above amounts reflects the adoption of SFAS 123(R) and a reduction to the previously recorded pro form stock-based compensation expense, net of tax effect, by $181 for the three months ended April 3, 2005.  The effect on pro forma net earnings was an increase of the same amount.  There was no effect on the basic and diluted pro forma earnings per share for the three months ended April 3, 2005.

The Intermec, Inc. 2001, 1999 and 1997 Stock Incentive Plans and the Intermec Inc. 2004 Omnibus Incentive Compensation Plan (the “Stock Incentive Plans,” collectively) provide for the grant of incentive awards to officers and other key employees. The numbers of shares authorized for grant under the 2004, 2001 and 1999 plans are 3,000,000, 1,000,000, and 4,500,000, respectively. No additional shares are authorized for grant under the 1997 plan, which was frozen subsequent to the approval of the 1999 Stock Incentive Plan. As of April 2, 2006, there were 551,304 options outstanding that were granted under the 1997 Plan before it was frozen.

Incentive awards may be granted in the form of stock options with or without related stock appreciation rights, restricted stock, restricted stock units and performance units. Under the Stock Incentive Plans, stock options may not be granted at an exercise price less than the market value of Intermec’s common stock on the date of grant. The Stock Incentive Plans options generally vest in equal increments over five years and expire in ten years.

The 2002 Director Stock Option and Fee Plan (“2002 DSOP”) and the 1997 Director Stock Option Plan (“1997 DSOP”, collectively “DSOPs”) provide for the grant of stock options to Intermec’s non-employee directors. The numbers of shares authorized for grant under the 2002 DSOP is 745,000. No additional shares are authorized under the 1997 DSOP. Subsequent to the grant of 255,000 options under the 1997 DSOP, it was frozen upon the approval of the 2002 DSOP. Under the 2002 DSOP, stock options are granted annually at an exercise price equal to the fair market value of Intermec’s common stock on the date of grant. The number of options granted annually to each director is fixed by the Director Plan. Such options become fully exercisable on the first anniversary of their date of grant. Additionally, there was a grant in January, 2006 to the Director’s that vested immediately. Therefore, the corresponding expense was recorded in the quarter ended April 2, 2006.

As of April 2, 2006 there were 3,153,026 shares available for grant under Intermec’s Stock Incentive Plans and DSOPs. The following table summarizes changes in options outstanding and exercisable under Intermec’s stock award plans:

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As of April 2, 2006, there was $5.6 million of total unrecognized compensation cost related to non-vested options. That cost is expected to be recognized over a weighted average period of 2 years and 11 months.

The fair value of each restricted stock award (RSA) is the market price of our stock on the date of grant. The total intrinsic value of RSA’s vested during the three months ended April 2, 2006 and April 3, 2005, was $0.6 million and $0.8 million, respectively. As of April 2, 2006, there was $0.8 million of total unrecognized compensation cost related to non-vested RSA’s. That cost is expected to be recognized over a weighted average period of 2 years and 6 months.

Shared Performance Stock Awards are a form of stock award in which the number of shares ultimately received depends on our performance against specified performance targets. The performance period is January 1 through December 31 and covers a period of 3 fiscal years. At the end of the performance period, the number of shares of stock and stock awards issued will be determined by adjusting upward or downward from the target in a range between 0% and 200%. The final performance percentage on which the payout will be based, considering performance metrics established for the performance period, will be determined by the Board of Directors or a committee of the board in its sole discretion. Shares of stock will be issued following the end of the performance period. Shared Performance Stock Awards are amortized over the vesting period (generally 32 months) using the straight line method.  Total compensation expense related to performance stock awards was $711,711 and $323,172, for the periods ended April 2, 2006 and April 13, 2005, respectively.

We administer the Employee Stock Purchase Plan under which $5.0 million shares are reserved for issuance. Employees with three months of continuous service prior to an offering period are eligible to participate in the plan. Eligible employees may elect to become participants in the plan and may contribute up to $21,250 per year through payroll deductions to purchase stock purchase rights. Participants may, at any time and for any reason, cancel their payroll deduction authorizations and have the balance in their stock purchase right account applied to the purchase of shares or have the amount refunded. The offering period begins on the first day of the quarter and ends on the last day of the quarter. The stock purchase rights are used to purchase the common stock of Intermec at 85 percent of the fair market value of a share as of the grant date applicable to the participant.

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4.                          Inventories

Inventories comprise the following (thousands of dollars):

5.                          Notes Receivable

In connection with the sale of Cincinnati Lamb, Intermec received a $12.5 million long-term note receivable secured by the assets sold, bearing interest at an annual rate of LIBOR plus three percent (7.83% as of April 2, 2006) with interest payable quarterly. Principal payments on the note are due in six semiannual installments beginning April 2007 of $1.5 million, $2.0 million, $2.0 million, $2.5 million, $2.0 million and $2.5 million. As of April 2, 2006, the estimated fair value of the note is $10.7 million, based on the estimated cash flows from the note and a risk-adjusted discount rate equal to LIBOR plus eight percent. Intermec’s consolidated balance sheet as of April 2, 2006, classifies the $10.7 million long-term note receivable as other assets.

As part of the sale of Landis Grinding Systems we received a $10 million two-year note at an interest rate of five percent per annum guaranteed by the buyer’s parent company. As of April 2, 2006, the estimated fair value of the note is $9.5 million, based on the estimated cash flows from the note and a risk-adjusted discount rate equal to LIBOR plus 2.25% (7.54% as of April 2, 2006). This long-term note receivable is included in other assets on our balance sheet.

6.                          Long-term Debt and Interest, net

Intermec has a secured long-term revolving credit facility (the “Revolving Facility”) with a maximum amount available under the Revolving Facility of $50.0 million. Net of outstanding letters of credit and limitations on availability, Intermec had borrowing capacity at April 2, 2006, of $17.7 million under the Revolving Facility. Intermec made no borrowings under the Revolving Facility during 2006, and as of April 2, 2006, no borrowings were outstanding under this facility. As of April 2, 2006, Intermec was in compliance with all financial covenants of this agreement.

The Company has $100.0 million of ten-year senior unsecured debt outstanding as of April 2, 2006. Interest payments at 7.0% are due semi-annually in March and September. Including underwriting fees, discounts and other issuance costs, the effective interest rate is 7.175%. In March 2005, Intermec retired the $100.0 million of seven-year notes.

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Interest income (expense) comprises the following (thousands of dollars):

Intermec also has letter-of-credit reimbursement agreements totaling $14.0 million at April 2, 2006, compared to $25.8 million at December 31, 2005. As of April 2, 2006, $7.8 million of the agreements related to performance on contracts with current customers and vendors, and $3.9 million of the agreements related to customer contracts assumed by the purchaser of the Cincinnati Lamb operations that were sold and $2.3 million of the agreements related to customer contracts assumed by the purchaser of the Landis operations that were sold. Intermec is indemnified by the purchaser of the Cincinnati Lamb operation on the $3.9 million of letter-of-credit agreements related to Cincinnati Lamb and is the beneficiary of a backup letter-of-credit in the aggregate amount of $4.2 million issued pursuant to the terms of the sale. Intermec believes it is not practicable to estimate fair values of these instruments and considers the risk of non-performance on the contracts to be remote. Intermec is indemnified by the purchaser of the Landis operations on the $2.3 million of letter-of-credit agreement to Landis.

7.                          Discontinued Operations

During 2005, Intermec completed its divestiture of the IAS businesses with the sale of the Cincinnati Lamb business in the first quarter of 2005 and the sale of the Landis Grinding Systems business in the fourth quarter of 2005. The loss from discontinued operations for the three months ended April 2, 2006 include period expenses related to finalizing the sale of the Landis Grinding Systems and changes to the estimated purchase price adjustment, net of tax benefits.

The loss from discontinued operations for the three months ended April 3, 2005, includes the operating results of the Cincinnati Lamb and Landis Grinding Systems businesses as well as the loss on the sale of Cincinnati Lamb, net of related tax benefits.

8.                          Restructuring Costs

In March 2006, Intermec announced its plan to close its design centers in Goteborg and Lund, Sweden. The activities currently assigned to the design centers in Sweden will be reassigned to other parts of Intermec or moved to third-party vendors to improve efficiencies and benefit from reduced cost. In addition to the anticipated cost savings, this realignment of resources is expected to increase new product development capacity. The total cost of closing the design centers in Sweden and the elimination of 65 positions in Sweden is estimated to be approximately $5.0 million. The estimated restructuring costs include $2.9 million of employee termination expense, facility closure costs of $1.4 million non-cash, asset impairment expense of $0.1 million and other exit costs of $0.6 million. We recorded a restructuring charge of $1.1 million for employee termination costs, in the first quarter of 2006, in accordance with SFAS 146, “Accounting for Costs Associated with Exit or Disposal Activities” (SFAS 146), and anticipate most of the remaining unrecognized restructuring costs will be recognized over the last 3 quarters of 2006.

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9.                          Intellectual Property Settlement

During the first quarter of 2006, we received compensation in relation to a settlement of a patent dispute regarding certain of Intermec’s intellectual property (“IP”). Intermec’s patents involved its smart battery management technology in which a portable computer incorporates a rechargeable battery that uses a processor chip to communicate data to the portable computer so that the computer can monitor and regulate battery use. The effective date of this settlement was February 27, 2006 and the terms are confidential. The operating profit from this settlement, net of attorneys fees and costs, is $16.5 million for the first quarter of 2006. IP settlement compensation is classified as revenue and the related legal costs are classified as cost of intellectual property settlement in our consolidated statements of operations.

10.                   Provision for Income Taxes

The tax provision for the quarter ended April 2, 2006 reflects an effective tax rate for continuing operations of 21.3% compared to a U.S. statutory rate of 35%. The tax provision for the 2006 first quarter was reduced by $2.2 million due to the favorable conclusion of a Canadian tax audit.

The tax provision for the quarter ended April 3, 2005 reflects an effective tax rate for continuing operations of 32.1% compared to a U.S. statutory rate of 35%. The reduction in the effective tax rate is primarily due to favorable foreign currency exchange variance associated with foreign tax contingency accruals.

11.                   Shares Used in Computing Earnings per Share

Basic earnings per share is calculated using the weighted average number of common shares outstanding and issuable for the applicable period. Diluted earnings per share is computed using basic weighted average shares plus the dilutive effect of unvested restricted stock and outstanding stock options using the “treasury stock” method.

Our employees and directors held options to purchase 93,151 and 106,500 shares of Intermec common stock for the quarters ended April 2, 2006, and April 3, 2005, respectively, that were not included in weighted average shares diluted because they were antidilutive to the diluted earnings per share computation. These options could become dilutive in future periods if the average market price of Intermec’s common stock exceeds the exercise price of the outstanding options and Intermec reports net earnings.

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12.                   Comprehensive Earnings

Intermec’s comprehensive earnings comprise the following (thousands of dollars):

Foreign currency translation adjustments for the quarter ended April 3, 2005 in the above table include a credit balance cumulative translation adjustment of $8.3 million which was reclassified from OCI to net earnings as a result of the Cincinnati Lamb sale.

13.                   Segment Reporting

During the first quarter of 2006, we integrated the corporate expense into our Products and Service segments. Intrasegment transactions have been eliminated and there are no material intersegment transactions. It is not practicable to segregate operating profit, capital expenditures, depreciation and amortization expense or total assets into the Intermec Product and Intermec Service segments, so this is reported below in aggregate. The following table sets forth Intermec’s operations by reportable segments (thousands of dollars):

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14.                   Related Party Transactions

Unitrin, Inc. and its subsidiaries (“Unitrin”) is a significant shareholder of Intermec, owning contract with approximately 20% of our outstanding shares. In January 2005, Unitrin’s Life and Health Insurance segment agreed to contract with our subsidiary to develop the software for the next generation of Life and Health Insurance’s handheld computers. In the quarters ended April 2, 2006, and April 3, 2005, Intermec did not recognize any revenues from this arrangement.

15.                   Commitments and Contingencies

Provisions for estimated expenses related to product warranties are made at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims. Management actively studies trends of warranty claims and takes action to improve product quality and minimize warranty claims. The following table indicates the change in Intermec’s warranty accrual included in current liabilities (thousands of dollars):

Intermec has 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 Intermec to compensate these third parties for certain liabilities and damages incurred by them.

FASB Interpretation No. 45, “Guarantors’ Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” requires that Intermec estimate and record the fair value of guarantees as a liability. Intermec does not believe it has any significant exposure related to such guarantees and therefore has not recorded a liability as of April 2, 2006, or December 31, 2005. Intermec has not made any significant indemnification payments as a result of these clauses, nor does it believe the fair value of any of these guarantees has a material effect on Intermec’s financial position or results of operations.

Intermec is currently, and is from time to time, subject to claims and lawsuits arising in the ordinary course of its business. Intermec believes it has valid defenses with respect to legal matters pending against it. The ultimate resolution of currently pending proceedings is not expected to have a material adverse effect on Intermec’s financial condition, results of operations or liquidity. Nevertheless, it is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies or by the creation of significant legal or other expenses related to such matters.

On March 10, 2005, Symbol Technologies, Inc. (“Symbol”) terminated its original equipment manufacturing (“OEM”) agreement with Intermec to supply laser scan engines and stopped shipping laser scan engines to Intermec. On March 10, 2005, Symbol filed a lawsuit in the United States District Court for the District of Delaware seeking a declaratory judgment that its termination of the OEM agreement is lawful (the “Contract Case”). Intermec believes that the termination of the OEM agreement by Symbol will not have a material adverse effect on operations.

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Also on March 11, 2005, Symbol announced that it had filed a lawsuit against Intermec on March 10, 2005, in the United States District Court for the District of Delaware for infringement of certain of Symbol’s wireless technology patent (the “Wireless Case”). On March 23, 2005, Intermec filed its answer to Symbol’s complaint and filed counterclaims against Symbol for infringing Intermec’s wireless access, terminal and software patents. Intermec simultaneously filed its answer to Symbol’s declaratory judgment action in the contract case and filed counterclaims against Symbol for breach of the OEM agreement.

On April 28, 2005, Symbol announced that it had filed a lawsuit against Intermec in the United States District Court for the Western District of Wisconsin for infringing Symbol’s barcode decoding patents (the “Decoding Case”). On July 14, 2005, in response to a motion by Intermec, the Decoding Case was transferred to the United States District Court for the District of Delaware. That case has now been consolidated for purposes of discovery with the Wireless Case. Intermec has denied liability in the Decoding Case and pursuant to the standstill agreement discussed below retains the right to file counterclaims against Symbol in the Decoding Case.

On June 30, 2005, Intermec filed a complaint with the U.S. International Trade Commission (the “ITC”) alleging that Symbol is illegally importing products that infringe Intermec patents that cover pocket-sized handheld computing devices, modular handheld computing devices and recharging and data exchanging cradles (the “ITC Case”). On July 29, 2005, the ITC voted to investigate Intermec’s allegations against Symbol. Pursuant to the standstill agreement, discussed below, Intermec asked the ITC to dismiss and close the investigation. On September 26, 2005, in response to Intermec’s request, the Administrative Law Judge terminated the investigation. On October 12, 2005, the ITC entered a Notice Not to Review the Order terminating the investigation.

The complaints in Wireless Case and Decoding Case do not contain sufficient details for Intermec to assess what Symbol will claim regarding the relationship between its cited patents and Intermec’s products. However, based on Intermec’s analysis of the cited Symbol patents, Intermec believes it has substantial defenses to each of those patent infringement claims and Intermec intends to vigorously defend itself against the claims made in Symbol’s lawsuits.

On September 1, 2005, the parties agreed that they would try to resolve their patent disputes through negotiation. To facilitate that effort, the parties entered into a standstill agreement pursuant to which they sought the court’s permission to postpone litigation activity in the cases pending in the U.S. District Court for the District of Delaware (the Contract, Wireless and Decoding Cases) until December 1, 2005, and to postpone filing any new patent infringement law suits against each other until March 1, 2006. The standstill agreement’s only exception to the agreed ban on new lawsuits until March 1, 2006, allows Intermec to file counterclaims against Symbol in the Decoding Case and to file a case in the United States District Court for the District of Delaware alleging infringement by Symbol of the patents asserted by Intermec in the ITC case. According to the standstill agreement these permitted counterclaims and new action had to have been filed no sooner than December 1, 2005, and no later than December 9, 2005. The parties also agreed not to pursue or seek temporary restraining orders, preliminary injunctions or ITC exclusion orders against each other for a period of two years. The United States District Court for the District of Delaware has granted the scheduling changes required to effectuate the standstill agreement of the parties.

In December of 2005, the parties agreed to provide additional time for settlement discussions by extending the schedule set forth in the standstill agreement by a minimum of 120 days. The parties sought the approval of the United States District Court for the District of Delaware for the scheduling changes required to postpone litigation activity in the cases pending in that court for an additional 120 days. The court has granted those scheduling changes with respect to the Wireless and Decoding Cases.

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With respect to the Contract Case, the parties agreed that Symbol would dismiss without prejudice its declaratory judgment complaint and that Intermec would dismiss without prejudice the breach of contract and patent infringement counterclaims.  If the parties are unable to reach a settlement, each party will have the right to refile those claims and counterclaims in the same court.

On May 8, 2006, the parties agreed to provide additional time for settlement discussions by extending the schedule set forth in the standstill agreement by 64 days.

16.                   Pension and Other Postretirement Benefit Plans

The information in this note represents the net periodic pension and post-retirement benefit costs and related components in accordance with SFAS 132(R). The components of net pension and postretirement periodic benefit cost (credit) for the three months ended April 2, 2006, and April 3, 2005, are as follows (thousands of dollars):

Our pre-tax loss on the sale of Cincinnati Lamb in the first quarter of 2005 takes into consideration the curtailment and settlement gains totaling $39.1 million, comprising $33.4 million relating to the postretirement benefit plans, and $5.7 million relating to the Non-U.S. Defined Benefit Plans. These curtailment and settlement gains comprise the pension and post-retirement obligations assumed by the buyer. In addition, the pre-tax loss on the sale of Cincinnati Lamb includes a loss of $12.9 million representing the cumulative adjustment to recognize the minimum pension liability of our Non-U.S. defined benefit plans, which prior to the sale, had been deferred in the other comprehensive loss component of shareholders’ investment in our consolidated balance sheets.

During the three months ended April 2, 2006, we contributed approximately $1.7 million to our pension and other postretirement benefit plans, comprising $0.5 million in benefits paid pertaining to unfunded U.S. defined benefit plans, $0.5 million in matching contributions to its 401(k) plan, $0.6 million in contributions to its foreign pension plans, and $0.1 million in benefits paid pertaining to its other postretirement benefits plans. We expect to contribute an additional $4.0 million to these plans during the remainder of 2006, of which $1.7 million relates to benefit payments on our unfunded U.S. defined benefit plans, $1.2 million in matching contributions to our 401(k) plan, $0.8 million in contributions to our foreign pension plans and $0.3 million in benefit payments pertaining to our other postretirement benefit plans.

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17.                   Recent Accounting Pronouncements

In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of Accounting Principles Board (“APB”) Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”). SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle unless it is impracticable. APB Opinion No. 20, “Accounting Changes,” previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 became effective for us on January 1, 2006. The adoption of SFAS No. 154 did not have a material impact on our consolidated financial statements.

Effective January 1, 2006, we adopted SFAS No. 123(R), “Share-Based Payment”, using the modified prospective application transition method. Because the fair value recognition provisions of SFAS No. 123 and SFAS No. 123(R) were materially consistent under our equity plans, the adoption of SFAS No. 123(R) did not have a significant impact on our financial position or our results of operations. Prior to our adoption of SFAS No. 123(R), benefits of tax deductions in excess of recognized compensation costs were reported as operating cash flows. SFAS No. 123(R) requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.

In November 2005, the FASB issued Staff Position (“FSP”) FAS123(R)-3, Transition Election to Accounting for the Tax Effects of Share-Based Payment Awards. This FSP requires an entity to follow either the transition guidance for the additional-paid-in-capital pool as prescribed in SFAS No. 123(R), Share-Based Payment, or the alternative transition method as described in the FSP. An entity that adopts SFAS No. 123(R) using the modified prospective application may make a one-time election to adopt the transition method described in this FSP. An entity may take up to one year from the later of its initial adoption of SFAS No. 123(R) or the effective date of this FSP to evaluate its available transition alternatives and make its one-time election. This FSP became effective in November 2005. We continue to evaluate the impact that the adoption of this FSP could have on our financial statements.

In February 2006, the FASB issued Staff Position (“FSP”) FAS123(R)-4, Classification of Options and Similar Instruments Issued as Employee Compensation That Allow for Cash Settlement upon the Occurrence of a Contingent Event. This FSP addresses the classification of options and similar instruments issued as employee compensation that allow for cash settlement upon the occurrence of a contingent event. We have evaluated the impact of this FSP and do not expect it to have a material impact on our financial statements.

In November 2005, the FASB issued FASB Staff Position (“FSP”) No. FAS 115-1 and FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments,” which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss.  This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No. 18, The Equity Method of Accounting for Investments in Common Stock. This FSP became effective for us in the first quarter of 2006. The adoption of this Statement did not have a material impact on our financial condition or results of operations.

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

Special Note About Forward-Looking Statements

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. These factors include but are not limited to Intermec’s ability to maintain or to improve the revenues and profits of its continuing operations, maintain or reduce expenses, maintain or improve operational efficiency, use its investment in research and development to generate future revenue, maintain or improve year-over-year growth in the revenues and profits of its continuing operations and the other factors described in Part I, Item 2 and Part II, Item 1A of this filing. Intermec undertakes 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.

Such forward-looking statements involve and are dependent upon certain risks and uncertainties. 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 its management are intended to identify such forward-looking statements.

Forward-looking statements are not guarantees of future performance. A number of factors can impact Intermec’s business and determine whether Intermec can or will achieve any forward-looking statement made in this report. Any one of these factors could cause Intermec’s actual results to differ materially from those discussed in a forward-looking statement. Intermec outlines these risk factors in reports that it files with the SEC, in press releases and on its website, www.intermec.com.

Readers of this report are encouraged to review the Risk Factors portion of Part II, Item 1A of this filing which discusses the risk factors associated with Intermec’s business.

Overview

Continuing Operations

Effective January 1, 2006, Intermec changed its name from UNOVA, Inc. to Intermec, Inc. (“Intermec”). Intermec designs, develops, manufactures, integrates, sells, resells and services wired and wireless automated identification and data collection (“AIDC”) products and systems, mobile computing products and systems, wired and wireless bar code printers, label media and RFID (radio frequency identification) products and systems. Intermec’s products and services are used by customers within and outside of the United States to improve the productivity, quality and responsiveness of their business operations including supply chain management, enterprise resource planning and field sales and service. Customers for Intermec’s products and services operate in market segments that include manufacturing, warehousing, direct store delivery, retail, consumer packaged goods, field service, government, and transportation and logistics.

Intermec’s strategy consists of: technology leadership in the AIDC industry; expanding, strengthening and leveraging Intermec’s AIDC intellectual property portfolio; expanding and strengthening Intermec’s AIDC product portfolio; providing integrated AIDC solutions; partnering with global industry leaders; achieving economies of scale and scope; profitably increasing market share; and increasing the scale of the business.

Intermec’s strategy is focused on customers in certain vertical markets, including: retailers; consumer goods manufacturers; industrial goods manufacturers; transportation and logistics providers; and government agencies.

Intermec’s strategy is also focused on certain application markets, including: warehouse and distribution center operations; retail store operations; retail store management; in-transit visibility; field service; manufacturing operations; direct store delivery; and RFID supply chain.

Discontinued Operations

In 2005, Intermec divested its Industrial Automation Systems (IAS) businesses, which comprised the Cincinnati Lamb and Landis Grinding Systems divisions. The IAS businesses are classified as discontinued operations for accounting purposes in Intermec’s consolidated financial statements and related notes. The IAS businesses are producers of manufacturing products and services, including integrated manufacturing systems, machining systems, stand-alone machine tools and precision grinding and abrasives operations primarily serving the global aerospace, automotive, off-road vehicle and diesel engine industries as well as the industrial components, heavy equipment and general job shop markets.

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Results of Operations

The following discussion compares the Company’s results of operations for the fiscal quarter ended April 2, 2006 and April 3, 2005. Results from continuing operations include the operations of Intermec Technology and Corporate expenses. The operating results of the IAS business are classified as discontinued operations. Results of operations were as follows (millions of dollars):

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Revenues

Revenues by category and as a percentage of related revenues from continuing operations for the quarters ended April 2, 2006 and April 3, 2005 were as follows (millions of dollars):

Quarterly revenue growth of 15.4% was primarily attributable to the intellectual property settlement and Systems and Solutions revenue growth of 7.4% compared to the prior year period. Product revenues for the quarter ended April 2, 2006 increased 2.7% compared with the corresponding prior-year period as a result of the strong Systems and Solutions revenue growth partially offset by the 9.9% decrease for Printer/Media products. Service revenue increased 8.5% over the corresponding prior-year period principally from the technical engineering services for government contracts, as a result of AIT III. Geographically, products and service revenue in North America rose 18.8% over the corresponding prior-year period, offsetting decreases of 16.9% and 9.0% in Europe, Middle East and Africa (“EMEA”) and the rest of the world, respectively. Approximately half of the decrease in EMEA revenue is attributable to unfavorable foreign exchange rates and the remainder of the decrease is primarily a result of the regional economic weakness compounded by the European compliance regulations to eliminate hazardous material from electronic products.

Intermec operating results for the quarter ended April 2, 2006 include $23.0 million of revenue and $16.5 million of operating profit from compensation related to a settlement regarding certain of the Company’s intellectual property (“IP Settlement”). This IP Settlement represents the last of the laptop computer manufacturers to settle with the Company regarding its battery power-management patents.

Gross Profit

Gross profit and gross margin by revenue category for the quarter ended April 2, 2006 and April 3, 2005 were as follows (millions of dollars):

The total gross profit for the quarter ended April 2, 2006 increased $14.0 million, or 16.9% compared to the corresponding prior-year period. The increase in gross profit primarily results from the $16.5 million in gross profit from the intellectual property settlement partially offset by the reduction in product related gross profit. Product gross margin for the quarter ended April 2, 2006 decreased 3 percentage points. The reduction in product gross

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margin is due to the unfavorable change in foreign exchange rates, an increase in mix of lower margin enterprise business, and the mix of the growth in the various sales regions.

Selling, General and Administrative

The total selling, general and administrative (“SG&A”) expenses were $77.8 million and $72.8 million for the quarters ended April 2, 2006 and April 3, 2005, respectively. The $5.0 million increase in Intermec’s SG&A expense is attributable to the $2.6 million incremental investment in research and development activities and $1.9 million in stock option expense recognized as a result of the adoption SFAS 123(R). Intermec’s R&D expense as a percentage of product and service revenues increased to 8.9% for the quarter ended April 2, 2006 compared with 7.9% for the corresponding prior-year period.

Restructuring Charge

In March 2006, Intermec announced its plan to close its design centers in Goteborg and Lund, Sweden. The activities currently assigned to the design centers in Sweden will be reassigned to other parts of Intermec or moved to third-party vendors to improve efficiencies and benefit from reduced cost. In addition to anticipated cost savings, this realignment of resources is expected to result in a significant increase in new product development capacity. The total cost of closing the design centers in Sweden and the elimination of approximately 65 positions in Sweden is estimated to be approximately $5 million. Estimated restructuring costs include employee severance, facility closure and other exit costs. The Company recorded a restructuring charge of $1.1 million for employee termination costs in the first quarter of 2006, and anticipates the majority of the remaining restructuring costs will be recognized over the remainder of 2006. Intermec estimates that the savings from these restructuring activities will begin in the fourth quarter of 2006, and reach its estimated annual pre-tax savings of $8 million by the first quarter of 2007.

Operating Profit

Intermec operating profit from continuing operations for the quarter ended April 2, 2006, increased $7.9 million, or 78.3%, compared with the corresponding prior-year period. The operating results for the first quarter 2006 include the IP Settlement, which favorably impacted operating profit by $16.5 million. The restructuring charge in the quarter related to the closure of the Swedish design centers negatively impacted operating profit by $1.1 million. In the first quarter of 2006, the Company adopted SFAS No. 123(R), Share-Based Payment, which resulted in the recognition of $1.9 million in expense related to stock options and the employee stock purchase plan. Operating profit was negatively impacted in the first quarter of 2006 compared to the prior year period by incremental research and development expense of $2.6 million and lower gross margins for product and service revenue.

Interest, Net

Net interest income was $1.1 million for the quarter ended April 2, 2006 compared to interest expense of $2.1 million for the corresponding prior-year period. The $3.2 million improvement in net interest reflects the reduction in the outstanding debt balance, the increase in average cash, cash equivalent and short-term investment balances as well as higher investment returns.

Provision for Income Taxes

The tax provision for the quarter ended April 2, 2006 reflects an effective tax rate for continuing operations of 21.3% compared to a U.S. statutory rate of 35%. The tax provision for the 2006 first quarter was reduced by $2.2 million due to the favorable conclusion of a Canadian tax audit.

The tax provision for the quarter ended April 3, 2005 reflects an effective tax rate for continuing operations of 32.1% compared to a U.S. statutory rate of 35%. The reduction in the effective tax rate is primarily due to favorable foreign currency exchange variance associated with foreign tax contingency accruals.