Equifax 2013 Annual Report Download - page 24

43 EQUIFAX 2013 ANNUAL REPORT
Fair Value Hedges. In conjunction with our fourth quarter 2009 sale of
five-year Senior Notes, we entered into five-year interest rate swaps,
designated as fair value hedges, which convert the debt’s fixed inter-
est rate to a variable rate. These swaps involve the receipt of fixed
rate amounts for floating interest rate payments over the life of the
swaps without exchange of the underlying principal amount. Changes
in the fair value of the interest rate swaps offset changes in the fair
value of the fixed-rate Senior Notes they hedge due to changes in the
designated benchmark interest rate and are recorded in interest
expense. The full fair value of the interest rate swap is classified as a
non-current asset or liability as the remaining maturity of the fixed-
rate Senior Notes they hedge is more than twelve months. There was
no ineffectiveness on our fair value hedge that impacted current year
earnings. The fair value of these interest rate swaps at December 31,
2013 and 2012 was $6.0 million and $12.2 million, respectively,
recorded in other assets, net on our Consolidated Balance Sheets.
Cash Flow Hedges. Changes in the fair value of highly effective
derivatives designated as cash flow hedges are initially recorded in
accumulated other comprehensive income and are reclassified into
the line item in the Consolidated Statements of Income in which the
hedged item is recorded in the same period the hedged item impacts
earnings. Any ineffective portion is recorded in current period earn-
ings. We did not have any unsettled cash flow hedges outstanding as
of December 31, 2013 or December 31, 2012.
Fair Value Measurements. Fair value is determined based on the
assumptions marketplace participants use in pricing the asset or
liability. We use a three level fair value hierarchy to prioritize the inputs
used in valuation techniques between observable inputs that reflect
quoted prices in active markets, inputs other than quoted prices with
observable market data and unobservable data (e.g., a company’s
own data). The adoption of fair value guidance for nonfinancial assets
and nonfinancial liabilities on January 1, 2009 did not have a material
impact on our Consolidated Financial Statements.
The following table presents assets and liabilities measured at fair
value on a recurring basis:
Fair Value Measurements at
Reporting Date Using:
Description
Fair Value at
December 31,
2013
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
(In millions)
Assets and
Liabilities:
Fair Value Interest
Rate Swaps
(1)
$ 6.0 $ — $ 6.0 $—
Notes, due 2014
(1)
(281.0) — (281.0) —
Deferred
Compensation
Plan Assets
(2)
22.0 22.0 — —
Deferred
Compensation
Plan Liability
(2)
(22.0) — (22.0) —
Total assets and
liabilities $(275.0) $22.0 $(297.0) $—
(1) The fair value of our interest rate swaps, designated as fair value
hedges, and notes are based on the present value of expected
future cash flows using zero coupon rates and are classified
within Level 2 of the fair value hierarchy.
(2) We maintain deferred compensation plans that allow for certain
management employees to defer the receipt of compensation
(such as salary, incentive compensation and commissions) until
a later date based on the terms of the plans. The liability
representing benefits accrued for plan participants is valued at
the quoted market prices of the participants’ investment elec-
tions. The asset consists of mutual funds reflective of the
participants investment selections and is valued at daily quoted
market prices.
Variable Interest Entities. We hold interests in certain entities,
including credit data and information solutions ventures, that are
considered variable interest entities, or VIEs. These variable interests
relate to ownership interests that require financial support for these
entities. Our investments related to these VIEs totaled $23.6 million at
December 31, 2013, representing our maximum exposure to loss.
These investments are classified in other assets, net on our
Consolidated Balance Sheets. We are not the primary beneficiary and
are not required to consolidate any of these VIEs.
Recent Accounting Pronouncements. Testing Indefinite-Lived
Intangible Assets for Impairment. In July 2012, the FASB issued
Accounting Standards Update No. 2012-02, ‘‘Intangibles — Goodwill
and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for
Impairment,’’ which allows a company the option to first assess
qualitative factors to determine whether it is necessary to perform a
quantitative impairment test. Under that option, a company would no
longer be required to calculate the fair value of an indefinite-lived
intangible asset unless the company determines, based on the
qualitative assessment, that it is more likely than not that the fair value
of the indefinite-lived intangible asset is less than its carrying amount.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
44 EQUIFAX 2013 ANNUAL REPORT
This guidance is effective for annual and interim indefinite-lived
intangible asset impairment tests performed for fiscal years beginning
after September 15, 2012. Early adoption is permitted. We
implemented the new standard in our 2013 annual impairment test-
ing. This guidance did not have a material effect on our financial
condition or results of operations.
Other Comprehensive Income. In February 2013, the FASB issued
Accounting Standards Update No. 2013-02, ‘‘Reporting of Amounts
Reclassified Out of Other Comprehensive Income,’’ which requires
public companies to present information about reclassification adjust-
ments from accumulated other comprehensive income in their annual
and interim financial statements in a single note or on the face of the
financial statements. This standard is effective prospectively for
annual and interim reporting periods beginning after December 15,
2012. We adopted this standard in the first quarter of 2013 and it did
not have an effect on our financial condition or results of operations.
2. MERGER OF BRAZILIAN BUSINESS
On May 31, 2011, we completed the merger of our Brazilian business
with Boa Vista Serviços S.A. (‘‘BVS’’) in exchange for a 15% equity
interest in BVS (the ‘‘Brazilian Transaction’’). The transaction was
accounted for as a sale of our Brazilian business, which was decon-
solidated. BVS, an unrelated third party whose results we do not
consolidate, is the second largest consumer and commercial credit
information company in Brazil. Our investment in BVS was valued at
130 million Brazilian Reais, is recorded in other assets, net on the
Consolidated Balance Sheets and is accounted for using the cost
method. The initial fair value was determined by a third-party using
income and market approaches. In accounting for the transaction,
we wrote off $33.2 million of goodwill and $27.0 million of cumulative
foreign currency translation adjustments. In addition, as part of the
agreement with BVS, we have retained certain contingent liabilities. A
pre-tax loss of $10.3 million was recognized during the second
quarter of 2011 related to the Brazilian Transaction and was included
in other income (expense) in the Consolidated Statements of Income.
Tax expense of $17.5 million was also recorded in conjunction with
the Brazilian Transaction. At December 31, 2012, we estimated the
fair value of the investment in local currency approximated the initial
fair value of the investment recorded.
During the fourth quarter of 2013, management of BVS updated
financial projections in connection with a request for additional financ-
ing. The financial projections reflected the effects of reduced near-
term market expectations for consumer credit and for credit
information services in Brazil and increased investment to achieve the
strategic objectives and capitalize on future market opportunities,
such as positive data, resulting in reduced expected cash flows. The
request for financing, the projections received, along with the near-
term weakness in the Brazilian consumer and small commercial credit
markets were considered indicators of impairment. Management of
Equifax prepared an analysis to estimate the fair value of our invest-
ment at December 31, 2013 and estimated that value to be 90 million
Reais ($38.2 million). As a result, we wrote-down the carrying value of
our investment and recorded a loss of 40 million Reais ($17.0 million)
which is included in other (expense) income in the Consolidated
Statements of Income.
3. DISCONTINUED OPERATIONS
During the first quarter of 2013, we divested of two non-strategic
business lines, Equifax Settlement Services, which was part of our
Mortgage business within the USCIS operating segment, and Talent
Management Services, which was part of our Employer Services
business within our Workforce Solutions operating segment, for a
total of $47.5 million. $3.5 million of the proceeds of the sale of Talent
Management Services was placed in escrow and is due 18 months
after the transaction date. The historical results of these operations
are classified as discontinued operations in the Consolidated State-
ments of Income. Revenue for these business lines for the twelve
months ended December 31, 2013 and 2012 was $9.3 million and
$87.5 million, respectively. Pretax income was $0.5 million and
$8.9 million for the twelve months ended December 31, 2013 and
2012, respectively. We recorded a gain on the disposals in the first
quarter of 2013 of $18.4 million, including an income tax benefit of
$18.1 million, of which $14.3 million was current tax benefits. The tax
benefit is primarily a result of our tax basis in Talent Management
Services. The gain was classified as discontinued operations in the
Consolidated Statements of Income.
During 2011, we settled various contingencies related to past
divestitures that resulted in $2.9 million of income from discontinued
operations, net of tax.
4. ACQUISITIONS AND INVESTMENTS
2013 Acquisitions and Investments. To further broaden our
product offerings, we made several acquisition during 2013. During
the third quarter of 2013, we acquired TrustedID, a direct-to-
consumer identity protection business that is included as part of our
North America Personal Solutions business unit. During the fourth
quarter of 2013, we also completed two acquisitions in Paraguay and
Mexico in the Latin America region of our International segment. The
total purchase price of these acquisitions was $98.8 million.
2012 Acquisitions and Investments. On December 28, 2012, as a
part of our long-term growth strategy of expanding our USCIS busi-
ness, we acquired certain credit services business assets and
operations of Computer Sciences Corporation for $1.0 billion. The
results of this acquisition have been included in our USCIS operating
segment subsequent to the acquisition and are not material for 2012.