5. Goodwill and Other Long-Lived Assets

Changes in the carrying value of our goodwill by reporting unit for the three months ended March 31, 2012 are as follows (in thousands):

Risk of Future Impairment

At March 31, 2012, our market capitalization of $278 million was 46% below the book value of our stockholders’ equity, which is an indicator of goodwill impairment.  We evaluate our goodwill for possible impairment at the reporting unit level.  At December 31, 2011, based on a variety of methods including discounted cash flow models that use our internal forecasts, we determined the fair value of our online reporting unit was 6% in excess of its carrying value.  In preparing our discounted cash flow models, we make assumptions about future revenues and expenses to determine the cash flows that will result from the operation of each reporting unit.  As of March 31, 2012, we continue to believe that the fair value of our online unit exceeds its carrying value and therefore there is no impairment.

As part of our evaluation for the quarter ended March 31, 2012, we are mindful of a few factors.  First, we expect 2012 to be a challenging year as we transition the Unicast and EyeWonder customers to the MediaMind campaign management platform.  Second, our business is seasonal with the first quarter generally being the weakest in terms of revenue and operating margins.  We expect revenue and adjusted EBITDA margins will increase later in the year.  Third, as previously announced, we are in the process of realizing a substantial amount of operating synergies as we combine Unicast, EyeWonder and MediaMind into a single operation.  We have already taken steps to implement the majority of these planned synergies, however, the timing of realizing the benefits thereof are not always immediate.  We expect the full benefits of these synergies to be realized in 2013.

In spite of our expectations, as with any forecast, there is substantial risk the forecasted cash flows of our online reporting unit may fall short of our expectations.  If actual or expected future cash flows should fall below our current forecast, it is likely we would be required to record an impairment charge on the online reporting unit’s goodwill and may also need to record an impairment charge on the online reporting unit’s long-lived assets.  Future net cash flows are impacted by a variety of factors including revenues, our ability to achieve forecasted synergies from our acquisitions, operating margins, income tax rates, and discount rates.  Lastly, if our market capitalization remains well below our total stockholders’ equity for an extended period, it is likely we would be required to record an impairment charge.