Equifax 2013 Annual Report Download - page 28

51 EQUIFAX 2013 ANNUAL REPORT
Domestic and foreign income from continuing operations before
income taxes was as follows:
Twelve Months Ended
December 31,
(In millions) 2013 2012 2011
U.S. $458.4 $341.8 $338.6
Foreign 72.0 89.5 67.3
$530.4 $431.3 $405.9
The provision for income taxes reconciles with the U.S. federal statu-
tory rate, as follows:
Twelve Months Ended
December 31,
(In millions) 2013 2012 2011
Federal statutory rate 35.0% 35.0% 35.0%
Provision computed at
federal statutory rate $185.6 $151.0 $142.0
State and local taxes, net of
federal tax benefit 12.1 5.8 5.8
Foreign (4.1) (5.3) 3.1
Valuation allowance (0.6) (0.9) (0.6)
Tax reserves (1.2) 0.2 (1.1)
Currency and other tax
effects of Brazil
Transaction
(1)
—(15.3) 20.5
Global restructuring
(2)
—20.5 —
Other (2.9) — (2.6)
Provision for income taxes $188.9 $156.0 $167.1
Effective income tax rate 35.6% 36.2% 42.1%
(1) During the fourth quarter of 2012, we recorded a $15.3 million
tax benefit as a result of tax authorities approving a tax method
change which impacted the tax expense recorded in connection
with the merger of our Brazilian business in the second quarter
of 2011.
(2) During the fourth quarter of 2012, we completed an
international tax restructuring resulting in the recognition of tax
expense of $20.5 million.
We record deferred income taxes using enacted tax laws and rates
for the years in which the taxes are expected to be paid. Deferred
income tax assets and liabilities are recorded based on the differ-
ences between the financial reporting and income tax bases of
assets and liabilities. For additional information about our income tax
policy, see Note 1 of the Notes to Consolidated Financial Statements.
Components of the deferred income tax assets and liabilities at
December 31, 2013 and 2012, were as follows:
December 31,
(In millions) 2013 2012
Deferred income tax assets:
Employee pension benefits $ 108.9 $ 149.9
Net operating and capital loss carry-
forwards 132.3 107.3
Foreign tax credits 51.7 54.2
Employee compensation programs 61.9 54.9
Reserves and accrued expenses 8.5 7.7
Deferred revenue 2.5 3.8
Other 5.9 3.1
Gross deferred income tax assets 371.7 380.9
Valuation allowance (121.5) (102.5)
Total deferred income tax assets, net $ 250.2 $ 278.4
Deferred income tax liabilities:
Goodwill and intangible assets (313.7) (305.2)
Pension expense (101.9) (101.4)
Undistributed earnings of foreign
subsidiaries (52.5) (52.3)
Depreciation (14.5) (15.3)
Other (11.7) (18.8)
Total deferred income tax liability (494.3) (493.0)
Net deferred income tax liability $(244.1) $(214.6)
Our deferred income tax assets and deferred income tax liabilities at
December 31, 2013 and 2012, are included in the accompanying
Consolidated Balance Sheets as follows:
December 31,
(In millions) 2013 2012
Current deferred income tax assets,
included in other current assets $ 18.3 $ 17.4
Long-term deferred income tax assets,
included in other assets $ 1.3 $ 4.7
Long-term deferred income tax
liabilities (263.7) (236.7)
Net deferred income tax liability $(244.1) $(214.6)
We record deferred income taxes on the temporary differences of our
foreign subsidiaries and branches, except for the temporary differ-
ences related to undistributed earnings of subsidiaries which we
consider indefinitely invested. As of December 31, 2013, we have
indefinitely invested $85.7 million attributable to pre-2004
undistributed earnings of our Canadian and Chilean subsidiaries. If
the pre-2004 earnings were not considered indefinitely invested,
$4.7 million of deferred U.S. income taxes would have been provided.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
52 EQUIFAX 2013 ANNUAL REPORT
At December 31, 2013, we had U.S. federal and state net operating
loss carryforwards of $86.7 million which will expire at various times
between 2014 and 2029. We also had foreign net operating loss car-
ryforwards totaling $368.4 million of which $34.8 million will expire
between 2014 and 2023 and the remaining $333.6 million will carry-
forward indefinitely. Foreign capital loss carryforwards of $20.3 million
may be carried forward indefinitely, and state capital loss carryfor-
wards of $1.7 million which will expire in 2018. The deferred tax asset
related to the net operating loss and capital loss carryforwards is
$132.4 million of which $120.1 million has been fully reserved in the
deferred tax valuation allowance. Additionally, we had foreign tax
credit carryforwards of $51.7 million, of which $4.9 million will expire
in 2022 and $46.8 million will be available to be utilized upon repatria-
tion of foreign earnings.
Cash paid for income taxes, net of amounts refunded, was
$174.8 million, $181.7 million and $127.5 million during the twelve
months ended December 31, 2013, 2012 and 2011, respectively.
We recognize interest and penalties accrued related to unrecognized
tax benefits in the provision for income taxes on our Consolidated
Statements of Income.
A reconciliation of the beginning and ending amount of unrecognized
tax benefits is as follows:
(In millions) 2013 2012
Beginning balance (January 1) $19.5 $19.9
Increases related to prior year tax posi-
tions 3.0 1.9
Decreases related to prior year tax
positions (0.1) (0.5)
Increases related to current year tax
positions 4.1 2.6
Decreases related to settlements (0.5) (1.0)
Expiration of the statute of limitations
for the assessment of taxes (6.4) (3.3)
Currency translation adjustment (0.5) (0.1)
Ending balance (December 31) $19.1 $19.5
We recorded liabilities of $22.6 million and $24.2 million for
unrecognized tax benefits as of December 31, 2013 and 2012,
respectively, which included interest and penalties of $3.5 million and
$4.7 million, respectively. As of December 31, 2013 and 2012, the
total amount of unrecognized benefits that, if recognized, would have
affected the effective tax rate was $19.4 million and $20.6 million,
respectively, which included interest and penalties of $2.9 million and
$4.1 million, respectively. The accruals for potential interest and
penalties during 2013 and 2012 were not material.
Equifax and its subsidiaries are subject to U.S. federal, state and
international income taxes. We are generally no longer subject to
federal, state or international income tax examinations by tax authori-
ties for years before 2008. Due to the potential for resolution of state
and foreign examinations, and the expiration of various statutes of
limitations, it is reasonably possible that Equifax’s gross unrecognized
tax benefit balance may change within the next twelve months by a
range of zero to $6.0 million.
In September 2013, the IRS released final tangible property regula-
tions under Sections 162(a) and 263(a) of the Internal Revenue Code
regarding the deduction and capitalization of expenditures related to
tangible property as well as disposition of tangible property. These
regulations will be effective for our tax year beginning January 1,
2014. We have assessed the impact of these regulations and
determined they do not have a material impact on our consolidated
financial position, results of operations, or cash flows.
9. STOCK-BASED COMPENSATION
We have one active share-based award plan, the amended and
restated 2008 Omnibus Incentive Plan. This plan was originally
approved by our shareholders in 2008 and was amended and
restated with shareholder approval in May 2013 to, among other
things, increase the reserve for awards under the plan by 11 million
shares. The plan provides our directors, officers and certain key
employees with stock options and nonvested stock. The plan is
described below. We expect to issue common shares held as either
treasury stock or new issue shares upon the exercise of stock
options or once nonvested shares vest. Total stock-based
compensation expense in our Consolidated Statements of Income
during the twelve months ended December 31, 2013, 2012 and
2011, was as follows:
Twelve Months Ended
December 31,
(in millions) 2013 2012 2011
Cost of services $ 4.2 $ 3.9 $ 3.6
Selling, general and
administrative expenses 28.0 24.1 20.8
Stock-based compensation
expense, before income
taxes $32.2 $28.0 $24.4
The total income tax benefit recognized for stock-based compensa-
tion expense was $11.6 million, $9.8 million and $8.7 million for the
twelve months ended December 31, 2013, 2012 and 2011,
respectively.
Benefits of tax deductions in excess of recognized compensation
cost are reported as a financing cash flow, rather than as an operat-
ing cash flow. This requirement reduced operating cash flows and
increased financing cash flows by $14.6 million, $1.7 million and
$1.2 million during the twelve months ended December 31, 2013,
2012 and 2011, respectively.