Equifax 2003 Annual Report Download - page 52

NOTES TO CONSOLIDATED FINANCIAL STATEM ENTS
EQUIFAX. INFORMATION THAT EMPOWERS. 49
NOTES TO CONSOLIDATED FINANCIAL STATEM ENTS
6. RESTRUCTURING AND IM PAIRM ENT CHARGES
During 2003, our eMarketing business (in our North America report-
able segment) experienced difficulty in aligning operations with
revenue. Our incremental eMarketing operating expenses in 2003
were $37.5 million, or 34%, of our consolidated expense growth
while eMarketing revenue was flat with 2002. In the second quarter
of 2003, we disclosed that $4.3 million in purchased data was deter-
mined to be of no value to the business and $4.2 million in receiv-
ables were determined to be uncollectible were written off. We
severed our relationship with those members of Naviant manage-
ment responsible for these write-offs. In the third quarter of 2003 we
effected eMarketing personnel reductions (109 full time equivalents)
and operating efficiencies, with the goal of bringing eMarketing
operating costs in line with eM arketing revenue.
In the fourth quarter of 2003, we determined that additional action
would be needed due to the continued deterioration of the market for
permission-based eMarketing products. This change in circum-
stances indicated that our eMarketing long-lived assets may not
be fully recoverable. Subsequently, we estimated their recoverability
using undiscounted future cash flows from the use and eventual
disposition of the related eMarketing long-lived asset group. The
carrying value of the asset group exceeded the estimated undis-
counted future cash flows and an impairment loss was recorded
based on the amount by which the asset’s carrying amount exceeded
its estimated fair value. We estimated the fair value of the asset
group by discounting the present value of the future cash flows of the
asset group. The impairment loss was calculated in December 2003,
using the November 30, 2003 balance sheet. The long-lived asset
group was comprised of the amortizable intangible assets, indefinite
lived intangible assets and fixed assets of our eMarketing business.
Other assets are primarily eM arketing trade accounts receivable
which were assessed for collection. Credit M arketing Services and
Direct Marketing Services, which include our eM arketing business,
comprise one reporting unit. As of December 31, 2003, the estimated
fair value of this reporting unit was greater than the carrying value of
those businesses, therefore goodwill was not impaired.
November 30, 2003 Adjusted
(In millions) Book Value Impairment Book Value
eMarketing
Amortizable intangible assets $18.3 $(15.5) $2.8
Indefinite lived intangible assets 4.3 (4.2) 0.1
Fixed assets 3.1 (2.6) 0.5
Other assets 4.4 (0.3) 4.1
Totals $30.1 $(22.6) $7.5
To complete the restructuring of our eMarketing business, we also
significantly reduced headcount, consolidated multiple locations,
and eliminated our bulk e-mail product. None of these restructuring
charges were paid in 2003. In 2004, $1.0 million in facilities charges
will be due and severance and other items will be paid. In 2005, the
remaining facilities charges will be paid.
(In millions)
Facilities $1.8
Severance 1.1
Other 0.4
Totals $3.3
Additionally, we also wrote off $4.8 million in other software
development costs that were unrelated to the eMarketing busi-
ness. Combined, the total fourth quarter 2003 asset impairment
and restructuring charges totaled $30.6 million.
In the fourth quarter of 2001, we recorded restructuring and impair-
ment charges (discussed below) of $60.4 million ($35.3 million after
tax, or $0.25 per share).
Due to changes in market conditions and our technology strategy,
we recorded an impairment charge in the fourth quarter of 2001
of $23.2 million to write down certain technology investments,
including $6.9 million of investments in several third-party tech-
nology companies.
In the fourth quarter of 2001, we initiated a restructuring plan to
align our cost structure with changing market conditions, reduce
expenses and improve efficiencies, particularly in international
operations. The plan included headcount reductions of approxi-
mately 700 employees, primarily located in our international oper-
ations. The restructuring charge for the year ended 2001 totaled
$37.2 million, and consisted of severance costs associated with
headcount reductions and other related costs, including reserves
to reflect our estimated exposure on facilities to be vacated or
consolidated. Charges to the restructuring reserve totaled $12.1 mil-
lion in 2003 and $8.8 million in 2002, and the remaining reserve of
$16.3 million at December 31, 2003 is included in other current
liabilities in the accompanying consolidated balance sheet. During
the fourth quarter of 2003, based on revised estimates, we deter-
mined that the severance portion of the reserve was inadequate and
that the facilities and other portion of the reserve was excessive and
made an adjustment of $1.6 million to each reserve with no effect to
net income. The majority of the remaining severance and related
charges are expected to be paid in 2003, with charges related to real
estate rental obligations being paid over the next several years.