Equifax 2013 Annual Report Download - page 23

41 EQUIFAX 2013 ANNUAL REPORT
Depreciation and amortization expense from continuing operations
related to property and equipment was $71.2 million, $73.9 million
and $73.1 million during the twelve months ended December 31,
2013, 2012, and 2011, respectively.
Industrial Revenue Bonds. Pursuant to the terms of certain industrial
revenue bonds, we have transferred title to certain of our fixed assets
with total costs of $82.6 million and $70.7 million as of December 31,
2013 and 2012, respectively, to a local governmental authority in the
U.S. to receive a property tax abatement related to economic
development. The title to these assets will revert back to us upon
retirement or cancellation of the applicable bonds. These fixed assets
are still recognized in the Company’s Consolidated Balance Sheets
as all risks and rewards remain with the Company.
Impairment of Long-Lived Assets. We monitor the status of our long-
lived assets in order to determine if conditions exist or events and
circumstances indicate that an asset group may be impaired in that
its carrying amount may not be recoverable. Significant 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 group is used; underperformance relative to historical
or expected future operating results; and negative industry or
economic trends. If potential indicators of impairment exist, we
estimate recoverability based on the asset group’s ability to generate
cash flows greater than the carrying value of the asset group. We
estimate the undiscounted future cash flows arising from the use and
eventual disposition of the related long-lived asset group. If the carry-
ing value of the long-lived asset group exceeds the estimated future
undiscounted cash flows, an impairment loss is recorded based on
the amount by which the asset group’s carrying amount exceeds its
fair value. We utilize estimates of discounted future cash flows to
determine the asset group’s fair value. We did not record any impair-
ment losses of long-lived assets in any of the periods presented.
Goodwill and Indefinite-Lived Intangible Assets. Goodwill
represents the cost in excess of the fair value of the net assets of
acquired businesses. Goodwill is not amortized. We are required to
test goodwill for impairment at the reporting unit level on an annual
basis and on an interim basis if an event occurs or circumstances
change that would more likely than not reduce the fair value of a
reporting unit below its carrying value. We perform our annual
goodwill impairment test as of September 30 each year.
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. For reporting units that we
determine meet these criteria, we perform a qualitative assessment.
In this qualitative assessment, we consider 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 results in an amount that
significantly exceeds the carrying amount of the reporting units.
Based on these assessments, we determine whether the likelihood
that a current fair value determination would be less than the current
carrying amount of the reporting unit is not more likely than not. If it is
determined it is not more likely than not, no further testing is required.
If further testing is required, we continue with the quantitative impair-
ment test.
In analyzing goodwill for potential impairment in the quantitative
impairment test, we use a combination of the income and market
approaches to estimate the reporting unit’s fair value. Under the
income approach, we calculate the fair value of a reporting unit based
on estimated future discounted cash flows. 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 earn-
ings before interest, income taxes, depreciation and amortization for
benchmark companies. If the fair value of a reporting unit exceeds its
carrying value, then no further testing is required. However, if a
reporting unit’s fair value were to be less than its carrying value, we
would then determine the amount of the impairment charge, if any,
which would be the amount that the carrying value of the reporting
unit’s goodwill exceeded its implied value.
Indefinite-lived reacquired rights represent the value of rights which
we had granted to various affiliate credit reporting agencies that were
reacquired in the U.S. and Canada. A portion of our reacquired rights
are perpetual in nature and, therefore, the useful lives are considered
indefinite in accordance with the accounting guidance in place at the
time of the acquisitions. Indefinite-lived intangible assets are not
amortized. We are required to test indefinite-lived intangible assets for
impairment annually and whenever events and circumstances
indicate that there may be an impairment of the asset value. Our
annual impairment test date is September 30. We perform the impair-
ment test for our indefinite-lived intangible assets by comparing the
asset’s fair value to its carrying value. We estimate the fair value
based on projected discounted future cash flows. An impairment
charge is recognized if the asset’s estimated fair value is less than its
carrying value.
We completed our annual impairment testing for goodwill and
indefinite-lived intangible assets during the twelve months ended
December 31, 2013, 2012, and 2011, and we determined that there
was no impairment in any of these years.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
42 EQUIFAX 2013 ANNUAL REPORT
Purchased Intangible Assets. Purchased intangible assets
represent the estimated fair value of acquired intangible assets used
in our business. Purchased data files represent the estimated fair
value of consumer credit files acquired primarily through the purchase
of independent credit reporting agencies in the U.S. and Canada. We
expense the cost of modifying and updating credit files in the period
such costs are incurred. We amortize purchased data files, which
primarily consist of acquired credit files, on a straight-line basis. All of
our other purchased intangible assets are also amortized on a
straight-line basis.
Asset
Useful Life
(in years)
Purchased data files 2 to 15
Acquired software and technology 1 to 10
Non-compete agreements 1 to 10
Proprietary database 6 to 10
Customer relationships 2 to 25
Trade names 5 to 15
Reacquired rights represent the value of rights which we had granted
to Computer Sciences Corporation that were reacquired in connec-
tion with the acquisition of CSC Credit Services in the fourth quarter
of 2012 based on the accounting guidance in place at that time.
These reacquired rights are being amortized over the remaining term
of the affiliation agreement on a straight-line basis from December 28,
2012 to August 1, 2018.
Other Assets. Other assets on our Consolidated Balance Sheets
primarily represents our investment in unconsolidated affiliates, our
cost method investment in Boa Vista Servicos (‘‘BVS’’), interest rate
swaps, assets related to life insurance policies covering certain offic-
ers of the Company, and employee benefit trust assets.
Impairment of Cost Method Investment. We monitor the status of our
cost method investment in order to determine if conditions exist or
events and circumstances indicate that it may be impaired in that its
carrying amount may exceed the fair value of the investment.
Significant factors that are considered that could be indicative of an
impairment include: changes in business strategy, market conditions,
underperformance relative to historical or expected future operating
results; and negative industry or economic trends. If potential indica-
tors of impairment exist, we estimate the fair value of the investment
using a combination of a discounted cash flow analysis and an evalu-
ation of EBITDA and transaction multiples for comparable companies.
If the carrying value of the investment exceeds the estimated fair
value, an impairment loss is recorded based on the amount by which
the investment’s carrying amount exceeds its fair value. We recorded
an impairment of our cost method investment in 2013. See Note 2 for
further discussion.
Benefit Plans. We sponsor various pension and defined contribution
plans. We also maintain certain healthcare and life insurance benefit
plans for eligible retired U.S. employees. Benefits under the pension
and other postretirement benefit plans are generally based on age at
retirement and years of service and for some pension plans, benefits
are also based on the employee’s annual earnings. The net periodic
cost of our pension and other postretirement plans is determined
using several actuarial assumptions, the most significant of which are
the discount rate and the expected return on plan assets. Our
Consolidated Balance Sheets reflect the funded status of the pension
and other postretirement plans.
Foreign Currency Translation. The functional currency of each of
our foreign operating subsidiaries is that subsidiary’s local currency.
We translate the assets and liabilities of foreign subsidiaries at the
year-end rate of exchange and revenue and expenses at the monthly
average rates during the year. We record the resulting translation
adjustment in other comprehensive income, a component of
shareholders’ equity. We also record gains and losses resulting from
the translation of intercompany balances of a long-term investment
nature in accumulated other comprehensive loss. In the year ended
December 31, 2013, we recorded $6.8 million of foreign currency
transaction losses. The amount was not material for the year ended
December 31, 2012.
Financial Instruments. Our financial instruments consist primarily of
cash and cash equivalents, accounts and notes receivable, accounts
payable and short and long-term debt. The carrying amounts of these
items, other than long-term debt, approximate their fair market values
due to the short-term nature of these instruments. The fair value of
our fixed-rate debt is determined using Level 2 inputs such as quoted
market prices for publicly traded instruments, and for non-publicly
traded instruments through valuation techniques depending on the
specific characteristics of the debt instrument, taking into account
credit risk. As of December 31, 2013 and 2012, the fair value of our
fixed-rate debt was $1.2 billion and $1.6 billion, respectively,
compared to its carrying value of $1.1 billion and $1.5 billion,
respectively, based on recent trading prices.
Derivatives and Hedging Activities. Although derivative financial
instruments are not utilized for speculative purposes or as the
Company’s primary risk management tool, derivatives have been
used as a risk management tool to hedge the Company’s exposure
to changes in interest rates and foreign exchange rates. We have
used interest rate swaps and interest rate lock agreements to man-
age interest rate risk associated with our fixed and floating-rate
borrowings. Forward contracts on various foreign currencies have
been used to manage the foreign currency exchange rate risk of
certain firm commitments denominated in foreign currencies. We
recognize all derivatives on the balance sheet at fair value. Derivative
valuations reflect the value of the instrument including the value
associated with any material counterparty risk.