Equifax 2002 Annual Report Download - page 36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
information see Notes to Consolidated Financial Statements,
Note 1– Significant Accounting and Reporting Policies. Although
we believe that our estimates, assumptions and judgments are
reasonable, they are based upon information presently available.
Actual results may differ significantly from these estimates under
different assumptions, judgments or conditions.
REVENUE RECOGNITION
We recognize revenue when the following four conditions are met:
(1) persuasive evidence of an arrangement exists, (2) delivery has
occurred or services have been rendered, (3) the price is fixed or
determinable and (4) collectibility of the selling price is reasonably
assured. For sales contracts having multiple elements that can be
divided into separate units of accounting, we allocate revenue to
these separate units based on their relative fair values. If relative
fair values cannot be established, revenue recognition is deferred
until all elements under the contract have been delivered. Multiple
deliverable arrangements generally involve delivery of multiple
product lines. These product lines are distinct enough to be sepa-
rated into separate units of accounting. Each product line does
not impact the value or usage of other deliverables in the arrange-
ment, and each can be sold alone or purchased from another ven-
dor without affecting the quality of use or value to the customer of
the remaining deliverables. Delivery of product lines generally
occurs consistently over the contract period.
In conjunction with certain products and services, we charge non-
refundable set-up fees which we recognize on a pro-rata basis
over the term of the contract. Revenue from the sale of decision or
statistical models is recognized upon customer installation and
acceptance. For certain products and services sold on a subscrip-
tion basis, we recognize revenue pro rata over the term of the con-
tract. We consider revenue recognition to be critical to all of our
operating segments due to the impact on our results of operations.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
We evaluate the collectibility of our accounts receivable based on a
combination of factors. In circumstances where we are aware of a
specific customer’s inability to meet its financial obligations to us,
we record a specific allowance against amounts due to reduce the
net recognized receivable to the amount we reasonably believe
will be collected. For all other accounts receivable, we recognize
allowances for doubtful accounts based on our past write-off expe-
rience (i.e., average percentage of receivables written off histori-
cally) and the length of time the receivables are past due. Allowances
for doubtful accounts were approximately $17.3 million or 9% of
the accounts receivable on our consolidated balance sheet at
December 31, 2002. Accounts receivable, net of allowances, was
approximately $179.8 million or 63% of total current assets in our
consolidated balance sheet of December 31, 2002. We consider
accounting for accounts receivable allowances critical to all of our
operating segments because of the significance of accounts receiv-
able to our current assets and operating cash flow. If the financial
condition of our customers was to deteriorate, resulting in an
impairment of their ability to make payments, or if economic con-
ditions worsened, additional allowances may be required in the
future, which could have a material effect on our consolidated
financial statements. We reassess our allowance for doubtful
accounts each period. If we made different judgments or utilized
different estimates for any period, material differences in the
amount and timing of revenue or expense recognized could result.
VALUATION OF LONG-LIVED AND INTANGIBLE ASSETS
Goodwill and certain other intangible assets are tested for impair-
ment in accordance with SFAS 142, and all other long-lived assets
are tested for impairment in accordance with SFAS No. 144,
“ Accounting for the Impairment or Disposal of Long-Lived Assets.”
We regularly evaluate whether events or circumstances have
occurred which indicate that the carrying amounts of long-lived
assets (principally goodwill, purchased data files, systems devel-
opment and other deferred costs, and investments in unconsoli-
dated subsidiaries) may be impaired or not recoverable. The
significant factors that are considered that could trigger an impair-
ment review include: changes in business strategy, market condi-
tions, or the manner of use of an asset; underperformance relative
to historical or expected future operating results; and negative
industry or economic trends. In evaluating an asset for possible
impairment, management estimates that asset’s future undis-
counted cash flows to measure whether the asset is recoverable.
If it is determined that the asset is not recoverable, we measure
the impairment based on the projected discounted cash flows of
the asset over its remaining life. While we believe that our esti-
mates of future cash flows are reasonable, different assumptions
regarding such cash flows could materially affect these evalua-
tions. In 2001, the FASB issued Statement No. 142, “Goodwill and
Other Intangible Assets,” which among other things, eliminates
the amortization of goodwill and certain other intangible assets
and requires that goodwill be evaluated annually for impairment
by applying a fair value-based test. We adopted the standard
effective January 1, 2002 for acquisitions prior to June 30, 2001,
and, in accordance with the standard, completed our first fair
value-based impairment tests by June 30, 2002.
LEGAL CONTINGENCIES
We are subject to various proceedings, lawsuits, and claims aris-
ing in the normal course of our business. Our consolidated financial
statements reflect the treatment of claims and contingencies
based on our management’s view of the expected outcome. We
periodically review claims and legal proceedings and assess
whether we have potential financial exposure. If the likelihood of
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