MONSTER WORLDWIDE, INC. | 2013 | FY |

4. GOODWILL AND INTANGIBLE ASSETS

The Company tests the recorded amount of goodwill for recovery on an annual basis in the fourth quarter of each fiscal year. Goodwill is tested more frequently if indicators of impairment exist. The goodwill impairment test is performed at the reporting unit level. Prior to the sale of Careers-China on February 5, 2013, the Company had four reporting units which were equivalent to our four operating segments: Careers-North America, Careers-International, Careers-China, presented for all periods as a discontinued operation, and Internet Advertising & Fees. Following the sale of the Careers-China business, the Company has three reporting units which are equivalent to our three operating segments: Careers-North America, Careers-International, and Internet Advertising & Fees.

In determining if goodwill is impaired, we estimate the fair value of the reporting unit and compare it to the carrying value of the assets and liabilities of that reporting unit. The Company determines the fair value of its reporting units using a weighting of fair values derived from the income approach and the market approach, depending on the availability of relevant market comparable information. Under the income approach, the Company calculates the fair value of a reporting unit based on the present value of estimated future cash flows. Cash flow projections are based on management’s estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used is based on the weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the business’s ability to execute on the projected cash flows. Under the market approach, the Company estimates the fair value based on market multiples of cash flow and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit and considering a reasonable control premium. The weighting of the fair value derived from the market approach differs for each reporting unit depending on the level of comparability of these publicly-traded companies to the reporting unit. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates.

 

For the annual goodwill impairment test performed in the fourth quarter of 2013, each of the Careers-International and the Internet Advertising & Fees reporting units had fair value that substantially exceeded its carrying value. For the Careers-North America reporting unit, the Company calculated, using a discount rate of 14% and a terminal growth rate of 2.8% that the fair value would have to be at least 22% less than the computed amount to result in any goodwill impairment charges. The recorded amount of goodwill for the Careers-North America reporting unit was $598,114 as of December 31, 2013. The Company believes the inputs and assumptions used in determining the fair value of the Careers-North America reporting unit are reasonable.

During the third quarter of 2012, the Company performed a qualitative analysis for the Careers-China reporting unit and it was determined that the Careers-China reporting unit was more likely than not to have a fair value less than the unit’s carrying amount. The conclusion was based on the recent financial performance of Careers-China compared to previously forecasted results, updated projections of future profitability as well as indicative offers from potential buyers of the Careers-China business (please see Note 6-Discontinued Operations). Accordingly, the Company performed a step one fair value evaluation of Careers-China utilizing both a discounted cash flow analysis and the indicative offers from potential buyers of the Careers-China business. The result of this fair value analysis was that the fair value of the reporting unit was less than the carrying value and a step two analysis was required to determine the amount of goodwill impairment, if any. The Company performed the step two evaluation and determined that the goodwill for the Careers-China reporting unit was impaired and recorded a goodwill impairment charge for Careers-China of $216,221. In the fourth quarter of 2012, the Company impaired the remaining goodwill balance of the Careers-China business and recorded an additional $46,429 impairment, leaving the Careers-China business with no goodwill.

As a corroborative source of information, the Company reconciles the estimated fair values of its reporting units to within a reasonable range of its market capitalization, which includes an assumed control premium (an adjustment reflecting an estimated fair value on a control basis) to verify the reasonableness of the fair value of its reporting units obtained through the aforementioned methods. The control premium is estimated based upon control premiums observed in comparable market transactions. As none of our reporting units are publicly-traded, individual reporting unit fair value determinations do not directly correlate to the Company’s stock price. Although the Company believes it is reasonable to conclude that market capitalization could be an indicator of fair value over time, we believe that our current market capitalization undervalues the aggregate fair values of our individual reporting units.

The Company recognizes that during certain periods our market capitalization has been below our book value. Accordingly, we monitor changes in our share price to ensure that our reconciled market capitalization continues to exceed or is not significantly below the carrying value of our net assets. In the event that our reconciled market capitalization does decline below its book value, we consider the length and severity of the decline and the reason for the decline when assessing whether potential goodwill impairment exists. Further, if a reporting unit does not appear to be achieving the projected growth plan used in determining its fair value, we will reevaluate the reporting unit for potential goodwill impairment based on revised projections, as available.

A summary of changes in goodwill by reportable segment are as follows:

 

		Careers- North America				Careers- International				Internet Advertising & Fees				Total
Balance as of December 31, 2011		$	594,094			$	386,477			$	151,590			$	1,132,161
Impairment of Careers China			—				(262,650	)			—				(262,650	)
Translation and other, net			—				17,760				—				17,760
Balance as of December 31, 2012		$	594,094			$	141,587			$	151,590			$	887,271
Translation and other, net			4,020				4,227				—				8,247
Balance as of December 31, 2013		$	598,114			$	145,814			$	151,590			$	895,518

 

The Company’s intangible assets, excluding the assets of the discontinued operations at December 31, 2013, consisted of the following:

 

		December 31, 2013								December 31, 2012
		Gross Carrying Amount				Accumulated Amortization				Gross Carrying Amount				Accumulated Amortization				Weighted Average Amortization Period (Years)
Customer relationships		$	49,808			$	(48,895	)		$	49,068			$	(42,532	)		3
Trademarks/Internet domains			15,240				—				15,530				—			Indefinite lived
Trade Names			10,600				(3,926	)			10,600				(2,763	)		4
Other			30,516				(29,285	)			29,957				(27,277	)		7
Total		$	106,164			$	(82,106	)		$	105,155			$	(72,572	)

The Company recorded amortization expense, excluding discontinued operations, of $9,234, $12,353 and $12,789 relating to its intangible assets for the years ended December 31, 2013, 2012 and 2011, respectively.

Based on the carrying value of identified intangible assets recorded as of December 31, 2013, and assuming no subsequent impairment of the underlying assets, the estimated annual amortization expense for the next five years is as follows:

 

		2014				2015				2016				2017				2018
Estimated amortization expense		$	2,013			$	1,387			$	1,387			$	1,378			$	1,280