Equifax 2010 Annual Report Download - page 33

acquisition of the reporting unit on May 17, 2007, therefore revenue
growth is expected to continue for each of the years used in the
preparation of the discounted cash flows. The actual growth rate for
The Work Number would have to decline to a compounded rate of
5% growth, with all other factors held constant, for the reporting
unit’s fair value to drop below its carrying value. However, in the
event that the revenue growth rate was to decline, management
would take action to preserve operating margins. If the fair value
dropped below carrying value, we would compare the carrying value
of the goodwill to the implied fair value of goodwill to determine if a
goodwill impairment charge would become necessary.
The calculated percentage excess in the Latin America reporting
unit, at approximately 15%, reflects in part the effect of the uncertain
economic and competitive conditions in Latin America on our actual
and projected financial performance. The projections used in the
calculation of fair value reflect our assumption of moderate economic
growth in most of these countries, increases in revenue from the
addition of sales staff and from new product and new customer
segment initiatives, and our planned spending on operating
improvement initiatives in 2011 to drive improving growth and
profitability, particularly in Brazil, followed by growth for all of Latin
America in 2012. If our operating improvement initiatives are not
successful, there could be a change in the valuation of our goodwill
in future periods and may possibly result in the recognition of an
impairment loss.
The reporting unit having the lowest absolute dollar excess of fair
value over carrying value is our Talent Management Services busi-
ness which has a goodwill balance of $26.1 million as of
September 30, 2010. This reporting unit has been impacted by
uncertainty in government hiring activity and, as a result, we have
lowered our revenue growth projections. While no impairment was
noted in our impairment test as of September 30, 2010, if customer
hiring activity does not increase in the near to medium term as
forecast or if other events adversely impact the business drivers and
corresponding assumptions used to value this reporting unit, there
could be a change in the valuation of our goodwill in future periods
and may possibly result in the recognition of an impairment loss.
No new indications of impairment existed during the fourth quarter
of 2010, thus no impairment testing was updated as of
December 31, 2010.
Effect if actual results differ from assumptions — We believe that our
estimates are consistent with assumptions that marketplace
participants would use in their estimates of fair value. However, if
actual results are not consistent with our estimates and assumptions,
we may be exposed to an impairment charge that could be material.
Loss Contingencies
We are subject to various proceedings, lawsuits and claims arising in
the normal course of our business. We determine whether to disclose
and/or accrue for loss contingencies based on our assessment of
whether the potential loss is probable, reasonably possible or remote.
Judgments and uncertainties — We periodically review claims and
legal proceedings and assess whether we have potential financial
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 contingency. Our
assumptions related to loss contingencies are inherently subjective.
Effect if actual results differ from assumptions — We do not believe
there is a reasonable likelihood that there will be a material change
in the future estimates or assumptions we use to determine loss
contingencies. However, if facts and circumstances change in the
future that change our belief regarding assumptions used to
determine our estimates, we may be exposed to a loss that could
be material.
Income Taxes
We record deferred income taxes using enacted tax laws and rates
for the years in which the taxes are expected to be paid. We assess
the likelihood that our net deferred tax assets will be recovered from
future taxable income or other tax planning strategies. To the extent
that we believe that recovery is not likely, we must establish a valua-
tion allowance to reduce the deferred tax asset to the amount we
estimate will be recoverable.
Our income tax provisions are based on assumptions and calcula-
tions which will be subject to examination by various tax authorities.
We record tax benefits for positions in which we believe are more
likely than not of being sustained under such examinations. We
assess the potential outcome of such examinations to determine the
adequacy of our income tax accruals.
Judgments and uncertainties — We consider accounting for income
taxes critical because management is required to make significant
judgments in determining our provision for income taxes, our deferred
tax assets and liabilities, and our future taxable income for purposes
of assessing our ability to realize any future benefit from our deferred
tax assets. These judgments and estimates are affected by our
expectations of future taxable income, mix of earnings among differ-
ent taxing jurisdictions, and timing of the reversal of deferred tax
assets and liabilities.
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