Equifax 2006 Annual Report Download - page 44

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
42 EQUIFAX 2006 ANNUAL REPORT
unit are corroborated by market multiple comparables. The
use of different estimates or assumptions within our pro-
jected discounted cash fl ows (e.g., growth rates, future eco-
nomic conditions, discount rates and estimates of terminal
values) when determining the fair value of our reporting
units could result in different values and could result in a
goodwill impairment charge. Additionally, a change in our
reporting unit structure would result in the requirement to
test goodwill for impairment at different reporting units.
During the twelve months ended December 31, 2006, 2005
and 2004, we had no impairment of our reporting unit good-
will balances. For additional information about goodwill, see
Note 4 of the Notes to Consolidated Financial Statements.
As a result of the change in operating segments, effective
January 1, 2007, our reporting units under which we test
goodwill for impairment in accordance with SFAS 142 have
also changed. During the fi rst quarter of 2007, we have real-
located the goodwill associated with our previous reporting
units, in accordance with SFAS 142, to our new reporting
units. We are currently in the process of testing the goodwill
related to our new reporting units for impairment.
Indefi nite-Lived Intangible Assets. Indefi nite-lived intangible
assets consist of contractual/territorial rights representing
the estimated fair value of rights to operate in certain territo-
ries acquired through the purchase of independent credit
reporting agencies in the U.S. and Canada. Our contractual/
territorial rights are perpetual in nature and, therefore, the
useful lives are considered indefi nite. Indefi nite-lived
intangible assets are not amortized.
In accordance with SFAS 142, we are required to test
indefi nite-lived intangible assets for impairment annually
or whenever events and circumstances change that would
indicate the asset might be impaired. We perform the
impairment test for our indefi nite-lived intangible assets
by comparing the asset’s fair value to its carrying value.
An impairment charge is recognized if the asset’s esti-
mated fair value is less than its carrying value. We per-
form our annual impairment test as of September 30th.
During 2006, we were not required to test contractual/
territorial rights for impairment at an interim date.
We estimate the fair value of our contractual/territorial
rights based on projected discounted future cash fl ows. The
use of different estimates or assumptions within our dis-
counted cash fl ow model when determining the fair value of
our contractual/territorial rights, or using a methodology
other than a discounted cash fl ow model, could result in dif-
ferent values for our contractual/territorial rights and could
result in an impairment charge. The most signifi cant
assumptions within our discounted cash fl ow model are the
discount rate, growth rate and charge for contributory assets.
We believe that our estimates are consistent with assump-
tions that marketplace participants would use in their esti-
mates of fair value.
If any legal, regulatory, contractual, competitive, eco-
nomic or other factors were to limit the useful lives of our
indefi nite-lived intangible assets, we would be required to
test these intangible assets for impairment in accordance
with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” and amortize the intangible
asset over its remaining useful life.
During the twelve months ended December 31, 2006,
2005 and 2004, we recognized no impairment charges
related to our contractual/territorial rights. For additional
information about contractual/territorial rights, see Note 4
of the Notes to Consolidated Financial Statements.
Long-Lived Assets. We monitor the status of our long-lived
assets annually or more frequently if necessary, in order to
determine if conditions exist or events and circumstances
indicate that an asset, or asset group, may be impaired in
that its carrying amount may not be recoverable. Signifi cant
factors that are considered that could be indicative of an
impairment include: changes in business strategy, market
conditions or the manner in which an asset is used; under-
performance relative to historical or expected future operat-
ing results; and negative industry or economic trends. If
potential indicators of impairment exist, we estimate recov-
erability based on the asset’s, or asset group’s, ability to gen-
erate cash fl ows greater than the carrying value of the asset,
or asset group. We estimate the undiscounted future cash
fl ows arising from the use and eventual disposition of the
related long-lived asset, or asset group. If the carrying value
of the long-lived asset, or asset group, exceeds the estimated
future undiscounted cash flows, an impairment loss is
recorded based on the amount by which the asset’s carrying
amount exceeds its fair value. We utilize the discounted
present value of the associated future estimated cash fl ows
to determine the asset’s, or asset group’s, fair value, which
requires us to make assumptions regarding the discount
rate. The projected cash fl ows require several assumptions
related to, among other things, relevant market factors,
revenue growth, if any, and operating margins. While we
believe our assumptions are reasonable, changes in these
assumptions in future periods may have a material impact
on our Consolidated Financial Statements. There were no
impairment charges during the twelve months ended
December 31, 2006 and 2005. During the twelve months
ended December 31, 2004, we recorded a $2.4 million
impairment charge.
Loss Contingencies
We are subject to various proceedings, lawsuits and claims
arising in the normal course of our business. In accordance
with SFAS No. 5, “Accounting for Contingencies,” we deter-
mine whether to disclose and/or accrue for loss contingencies
based on our assessment of whether the potential loss is
probable, reasonably possible or remote. We periodically
review claims and legal proceedings and assess whether we
have potential fi nancial exposure based on consultation with
internal and outside legal counsel and other advisors. If the
likelihood of an adverse outcome from any claim or legal
proceeding is probable and the amount can be reasonably
estimated, we record a liability in our Consolidated Balance
Sheet for the estimated settlement costs. If the likelihood of
an adverse outcome is reasonably possible, but not probable,
we provide disclosures related to the potential loss contin-
gency. Our assumptions related to loss contingencies are