Equifax 2012 Annual Report Download - page 31

29
Equifax 2012 Annual Report
Effects if actual results differ from assumptions — We have not
experienced significant variances between our estimates of marketing
information services and tax management services revenues reported
to us by our customers and actual reported volumes in the past. We
monitor actual volumes to ensure that we will continue to make
reasonable estimates in the future. If we determine that we are unable
to make reasonable future estimates, revenue may be deferred until
actual customer data is obtained. However, if actual results are not
consistent with our estimates and assumptions, or if our customer
arrangements become more complex or include more bundled offer-
ings in the future, we may be required to recognize revenue differently
in the future to account for these changes. 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 recognize revenue.
Goodwill and Indefinite-Lived Intangible Assets
We review goodwill and indefinite lived intangible assets for impair-
ment annually (as of September 30) and whenever events or changes
in circumstances indicate the carrying value of an asset may not be
recoverable. These events or circumstances could include a
significant change in the business climate, legal factors, operating
performance or trends, competition, or sale or disposition of a
significant portion of a reporting unit. We have ten reporting units
comprised of Consumer Information Solutions (which includes part of
Online Consumer Information Solutions, Mortgage Solutions and
Consumer Financial Marketing Services), Identity Management (part
of Online Consumer Information Solutions), Europe, Latin America,
Canada Consumer, North America Personal Solutions, North America
Commercial Solutions, Verification Services, Tax Management
Services (part of Employer Services) and Talent Management
Services (part of Employer Services).
The goodwill balance at December 31, 2012, for our ten reporting
units was as follows:
December 31,
(In millions) 2012
Consumer Information Solutions $ 893.2
ID Management 54.5
Europe 118.9
Latin America 219.3
Canada Consumer 31.1
North America Personal Solutions 1.8
North America Commercial Solutions 37.6
Verification Services 738.9
Tax Management Services 169.0
Talent Management Services 26.1
Total goodwill $2,290.4
In September 2011, the FASB issued Accounting Standards Update,
Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for
Impairment (the revised standard). The revised standard is intended
to reduce the cost and complexity of the annual goodwill impairment
test by providing entities an option to perform a ‘‘qualitative’’ assess-
ment to determine whether further impairment testing is necessary. If
an entity believes, as a result of its qualitative assessment, that it is
more likely than not that the fair value of a reporting unit is less than
its carrying amount, the quantitative impairment test is required.
Otherwise, no further testing is required. The revised standard is
effective for annual and interim goodwill impairment tests performed
for fiscal years beginning after December 15, 2011. We performed
the qualitative assessment for our Consumer Information Solutions,
Latin America, Europe, Canada Consumer, North America Personal
Solutions, and North America Commercial Solutions reporting units.
In this qualitative assessment, we considered the following items for
each of the reporting units: macroeconomic conditions, industry and
market conditions, overall financial performance and other entity
specific events. In addition, for each of these reporting units, the
most recent fair value determination resulted in an amount that
significantly exceeded the carrying amount of the reporting units.
Based on these assessments, we determined the likelihood that a
current fair value determination would be less than the current carry-
ing amount of the reporting unit is not more likely than not. As a result
of our conclusions, no further testing was required for these report-
ing units.
Judgments and Uncertainties — In determining the fair value of our
reporting units for which we performed a quantitative test, we used a
combination of the income and market approaches to estimate the
reporting unit’s business enterprise value.
Under the income approach, we calculate the fair value of a reporting
unit based on estimated future discounted cash flows which require
assumptions about short and long-term revenue growth rates,
operating margins for each reporting unit, discount rates, foreign cur-
rency exchange rates and estimates of capital charges. The
assumptions we use are based on what we believe a hypothetical
marketplace participant would use in estimating fair value. Under the
market approach, we estimate the fair value based on market
multiples of revenue or earnings before income taxes, depreciation
and amortization, for benchmark companies. We believe the
benchmark companies used for each of the reporting units serve as
an appropriate input for calculating a fair value for the reporting unit
as those benchmark companies have similar risks, participate in
similar markets, provide similar services for their customers and
compete with us directly. The companies we use as benchmarks are
principally outlined in our ‘‘Competition’’ discussion in Item 1 of our
2012 Annual Report on Form 10-K. Data for the benchmark
companies was obtained from publicly available information.
ID Management has benchmark companies that conduct operations
of businesses of a similar type, such as Experian Group Limited and
Fair Isaac Corporation. Verification Services, Tax Management
Services and Talent Management Services share a different set of
benchmark companies, notably ADP and Paychex Inc., as the
markets they serve are different than those served by our other
reporting units. Valuation multiples were selected based on a financial
benchmarking analysis that compared the reporting unit’s operating
result with the comparable companies’ information. In addition to