Goodwill and Other Long-lived Assets

Goodwill

The following table reflects goodwill allocated to each reportable segment at December 31, 2012 and 2011 (in thousands):



	Intermec Branded			Voice Solutions			Total
Goodwill balances at December 31, 2010	$	1,152		$	—		$	1,152
Goodwill from acquisitions	2,196			140,162			142,358
Goodwill balances at December 31, 2011	3,348			140,162			143,510
Goodwill impairment	(3,348		)	(47,809		)	(51,157		)
Goodwill balances at December 31, 2012	$	—		$	92,353		$	92,353

During 2012, we had several triggering events that required us to perform goodwill impairment analyses and record total goodwill impairment charges of $51.2 million during the year ended December 31, 2012. Below is a detail by quarter of each goodwill impairment analysis performed during 2012. The following discussion reflects the effect of the corrections disclosed in Note 17, Quarterly Financial Information (Unaudited).

Q1 2012 goodwill impairment analysis. During the first quarter of 2012, two events occurred that triggered an analysis of the carrying value of goodwill. Specifically, operating income was less than our forecast, primarily due to a $19.0 million loss on operations in the first quarter principally in the Intermec-branded products and services segments. In addition, our financial results negatively impacted the price per share of Intermec stock, causing the market capitalization of the Company to be significantly below its net book value. These triggering events were indicators that it was more likely than not the fair value of the Company’s goodwill was less than its book value. We prepared a Step 1 goodwill impairment analysis to determine the fair values of all three reporting units with goodwill (IGS, VHS, and VSC). After performing our Step 1 analysis for the reporting units, we determined that the carrying value of our VSC reporting unit exceeded its fair value. We completed our Step 2 impairment test and recorded a goodwill impairment charge of $41.2 million ($14.9 million recorded in Q1 2012 and $26.3 million recorded in Q2 2012), associated with the first quarter Step 2 goodwill impairment analysis of our VSC reporting unit for the year ended December 31, 2012.

Q2 2012 goodwill impairment analysis. During the second quarter of 2012, the composition of key senior management changed at the reporting units, and we also changed our Chief Executive Officer. Additionally, we evaluated certain market trends and specific changes in our marketplace, including macro and micro economic conditions, expected government spending and industry data. As a result of the changes and evaluations, a review was performed over all areas in which we engage in business. Upon conclusion of the review, key operational and investment decisions were updated that resulted in changes in the forecasted amount and timing of future receipts and expenditures. Specifically, forecasts of revenue, research and development costs, capital expenditures, and other inputs to operations were revised, resulting in reduced cash flow forecasts across the three reporting units with goodwill. Consequently, a triggering event occurred that required us to evaluate impairment of goodwill, specific to facts and circumstances during the three months ended July 1, 2012.

We prepared a Step 1 goodwill impairment analysis to determine the fair values of all three reporting units with goodwill (IGS, VHS, and VSC). After performing our Step 1 analysis for the reporting units, we determined that the carrying value of our VHS reporting unit exceeded its fair value, so we then performed a Step 2 analysis. Based on our analysis we recorded a goodwill impairment of $5.4 million associated with the second quarter Step 2 impairment analysis of our VHS reporting unit. This impairment was primarily the result of a reduction in our long-term business forecast specifically related to expected government spending in the skilled nursing area, the likely impact on capital investments in that market, and the timing of the launch of new products for our Healthcare reporting unit.

Q3 2012 goodwill impairment analysis. During the three months ended September 30, 2012, we missed our revenue and operating income forecast in our VSC reporting unit, due to significant economic pressures as well as slower revenue growth in North America. In addition, our VSC reporting unit experienced changes in key management personnel in our North American region, and we lowered our forecast.

As a result of the changes and evaluations, key operational and investment decisions were made that resulted in changes in the amount and timing of receipts and expenditures. Specifically, the forecast of revenue was revised, which resulted in a significant decrease in the forecast of our VSC reporting unit. We performed a Step 1 goodwill impairment test as of September 30, 2012, which determined that the fair value of the VSC reporting unit exceeded its carrying value and, as a result, there was no goodwill impairment as of September 30, 2012.

Annual 2012 goodwill impairment analysis. As part of our annual goodwill impairment analysis, we performed a Step 1 goodwill impairment analysis of all our reporting units as of our measurement date of November 30, which determined that the carrying values of our VHS and IGS reporting units exceeded their fair values. As a result, we performed a Step 2 goodwill impairment analysis of our VHS and IGS reporting units.

The impairment of our VHS reporting unit was largely the result of an increase in the fair value of intangible assets other than goodwill. In the Step 2 analysis, intangibles for the reporting unit are revalued for the purposes of the impairment calculation. As of the November 30, 2012 measurement date, the fair value of the VHS intangible assets increased due to ongoing in-process product development and new customer sales. The increase in the intangible assets reduced the implied fair value of the goodwill, resulting in an impairment charge in the fourth quarter of 2012 of $1.2 million relating to our VHS reporting unit.

The impairment of our IGS reporting unit was primarily due to a significant decline in the financial performance of the reporting unit during the fourth quarter of 2012, which was negatively impacted by the loss of two major customers and required a significant decrease in the outlook of the business. As a result, we recorded a goodwill impairment charge of $3.3 million in the fourth quarter of 2012 relating to our IGS reporting unit.

The goodwill balance before and after the goodwill impairment charges recorded during the year ended December 31, 2012 is as follows (in thousands):



Reportable Segment	Reporting Unit	Goodwill Balance at December 31, 2011		Goodwill impairment			Goodwill Balance at December 31, 2012
Intermec-branded services:	Intermec Global Solutions (IGS)	$	3,348	$	(3,348	)	$	—
Voice solutions:	Supply chain (VSC)	130,682		(41,174		)	89,508
	Healthcare (VHS)	9,480		(6,635		)	2,845
	Total:	$	143,510	$	(51,157	)	$	92,353

Refer to Note 1, Significant Accounting Policies, for a description of our reporting units and the methods used to determine the fair value of our reporting units.

Valuation of Long-Lived Assets

Long-lived assets, such as property, plant, and equipment, and intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized in our statement of operations and as a reduction to the asset group to the extent that the fair market value of the asset group is less than its carrying value. Due to the same circumstances that required the interim goodwill impairment test and annual goodwill impairment test above, we evaluated the long-lived assets of our reporting units with goodwill for impairment for the quarters ended April 1, 2012, July 1, 2012, September 30, 2012 (VSC reporting unit only for the third quarter of 2012), and November 30, 2012, the measurement date of our annual goodwill impairment test. We determined that the carrying amount of the long-lived assets of our reporting units with goodwill did not exceed their estimated undiscounted future cash flows, and thus our total long-lived assets were not impaired as of April 1, 2012, July 1, 2012, September 30, 2012 (VSC reporting unit only for the third quarter of 2012), and November 30, 2012.