Experian 2011 Annual Report Download - page 107

Financial statements 105
6. Critical accounting estimates and judgments (continued)
Goodwill
Goodwill is allocated to CGUs and monitored for internal management purposes by operating segment. The allocation is made to those CGUs
or groups of CGUs that are expected to benet from the business combination in which the goodwill arose.
The Group tests goodwill for impairment annually or more frequently if events or changes in circumstances indicate that the goodwill may be
impaired. The recoverable amount of each CGU is generally determined on the basis of value-in-use calculations which require the use of cash
ow projections based on nancial budgets approved by management, looking forward up to ve years. Management determines budgeted
gross margin based on past performance and its expectations for the market development. Cash ows are extrapolated using estimated growth
rates beyond a ve year period. The growth rates used do not exceed the long-term average growth rate for the markets in which the segment
operates. The discount rates used reect the segment’s weighted average cost of capital (‘WACC’).
The key assumptions used for value-in-use calculations are:
2011 2010
CGU
Pre-tax
WACC
%
Long-term
growth rate
%
Pre-tax
WACC
%
Long-term
growth rate
%
North America 12.7 2.3 12.2 2.3
Latin America 16.4 6.7 15.4 6.4
UK and Ireland 10.4 2.3 10.5 2.3
EMEA 11.2 4.3 9.8 4.3
Asia Pacic 12.0 5.1 11.6 4.8
At 31 March 2011, the recoverable amount of the Latin America CGU exceeds the carrying value by approximately US$800m and an increase
in the pre-tax WACC of 4.8% would reduce the value-in-use of its goodwill to an amount equal to its carrying value. At 31 March 2011, the
recoverable amount of the Asia Pacic CGU exceeds the carrying value by approximately US$100m and an increase in the pre-tax WACC of
2.5% or a reduction of 3.9% in the long-term growth rate would reduce the value-in-use of its goodwill to an amount equal to its carrying value.
The recoverable amount of the other CGUs exceed their carrying value on the basis of the above assumptions and any reasonably possible
changes thereof.
Share-based payments
The assumptions used in determining the amounts charged in the Group income statement include judgments in respect of performance
conditions and length of service together with future share prices, dividend and interest yields and exercise patterns.
(b) Critical judgments
Management has made certain judgments in the process of applying the Group’s accounting policies that have a signicant effect on the
amounts recognised in the Group nancial statements. These judgments include the classication of transactions between the Group income
statement and the Group balance sheet.
The most signicant of these judgments is in respect of intangible assets where certain costs incurred in the developmental phase of an internal
project are capitalised if a number of criteria are met. Management has made certain judgments and assumptions when assessing whether a
project meets these criteria, and on measuring the costs and the economic life attributed to such projects. On acquisition, specic intangible
assets are identied and recognised separately from goodwill and then amortised over their estimated useful lives. These include such items
as brand names and customer lists, to which value is rst attributed at the time of acquisition. The capitalisation of these assets and the
related amortisation charges are based on judgments about the value and economic life of such items. The economic lives for intangible assets
are estimated at between three and ten years for internal projects, which include databases, internal use software and internally generated
software, and between two and twenty years for acquisition intangibles.
7. Use of non-GAAP measures in the Group nancial statements
The Group has identied certain measures that it believes will assist understanding of the performance of the business. The measures are
not dened under IFRS and they may not be directly comparable with other companies’ adjusted measures. The non-GAAP measures are not
intended to be a substitute for, or superior to, any IFRS measures of performance but management has included them as they consider them to
be important comparables and key measures used within the business for assessing performance.
The following are the key non-GAAP measures identied by the Group and used in the Group nancial statements:
Benchmark prot before tax (‘Benchmark PBT’)
Benchmark PBT is dened as prot before amortisation of acquisition intangibles, acquisition expenses, goodwill impairments, adjustments
to contingent consideration, charges in respect of the demerger-related equity incentive plans, exceptional items, nancing fair value
remeasurements, tax and discontinued operations. It includes the Group’s share of continuing associates’ pre-tax results.