Equifax 2003 Annual Report Download - page 44

NOTES TO CONSOLIDATED FINANCIAL STATEM ENTS
EQUIFAX. INFORMATION THAT EMPOWERS. 41
in the accompanying Consolidated Balance Sheets, and totaled
$22.9 million at both December 31, 2003 and 2002. In conjunction
with the divestiture of our risk management collections businesses
in the U.S. and Canada in October 2000, certain of the proceeds
received related to contracts to provide credit information products
and services to the buyers over the next five to six years and were
recorded in current and long-term deferred revenue. At December 31,
2003 and 2002, $11.6 million and $14.9 million, respectively, remained
unrecognized, with $9.2 million and $10.6 million, respectively,
included in long-term deferred revenue in the accompanying
Consolidated Balance Sheets. This deferred revenue will be rec-
ognized as the contracted products and services are provided.
Allow ance for Doubtful Trade Accounts Receivable The
provision for estimated losses on trade accounts receivable is based
on an analysis of the aging of outstanding receivables and associ-
ated customer payment patterns, and the establishment of specific
reserves for customers in adverse financial condition or for existing
contractual disputes wherein we are not assured of a favorable
outcome. The allowance for doubtful accounts was $11.9 million
and $17.3 million, respectively, at December 31, 2003 and 2002.
Increases to the provision are recorded as bad debt expenses and
are included in the “selling, general and administrative expenses”
line item on the accompanying Consolidated Statements of Income.
Bad debt expense was $8.8 million or 0.72% of revenue for 2003
and $10.1 million or 0.91% of revenue for 2002. During 2003, we
wrote-off $17.0 million of accounts receivable, which included
$11.0 million from our eMarketing business unit, and recovered
$0.6 million of previously written-off accounts receivable. During
2002, we wrote-off $12.6 million and recovered $1.0 million of
previously written-off accounts receivable.
Costs of Services Costs of services consist primarily of data
acquisition and royalties; customer service costs, which include:
personnel costs to collect, maintain and update our proprietary
databases, to develop and maintain software application plat-
forms, and to provide consumer and customer call center support;
hardware and software expense associated with transaction
processing systems; telecommunication and computer network
expense; and occupancy costs associated with facilities where
these functions are performed.
Selling, General and Administrative Expenses Selling,
general and administrative expenses consist primarily of personnel-
related costs paid to sales and administrative employees and
management, fees for professional and consulting services, and
advertising costs.
Legal Contingencies We periodically review claims and legal
proceedings and assess whether we have potential financial expo-
sure. If the potential loss from any claim or legal proceeding is
probable and can be estimated, we accrue a liability for estimated
legal fees and settlements.
Income Taxes We base income tax expense on pre-tax financial
accounting income, and recognize deferred tax assets and liabili-
ties for the expected tax consequences of temporary differences
between the tax bases of assets and liabilities and their reported
amounts. Significant judgment is required to determine our overall
local, state, federal and foreign income tax expense due to transac-
tions and calculations where the ultimate tax consequence is
uncertain. We have recorded a valuation allowance to reduce our
deferred tax assets to the amount of future tax benefit that we
estimate is likely to be received. We believe that our estimates are
reasonable; however, the final outcome of tax matters may be
different than the estimates reflected on our financial statements.
Earnings Per Share Our basic earnings per share, or EPS, is
calculated as income available to common stockholders divided by
the weighted average number of common shares outstanding during
the period. Diluted EPS is calculated to reflect the potential dilution
that would occur if stock options or other contracts to issue common
stock were exercised and resulted in additional common shares out-
standing. As of December 31, 2003 and 2002, 1.6 million and 1.7 mil-
lion, respectively, of our outstanding options were anti-dilutive.
The income amount used in our EPS calculations is the same for both
basic and diluted EPS. A reconciliation of the weighted average
outstanding shares used in the two calculations is as follows:
(In millions) 2003 2002 2001
Weighted average shares
outstanding (basic) 134.5 136.2 136.8
Effect of dilutive securities:
Stock options 2.0 2.3 2.1
Long-term incentive plans 0.2 –0.1
Weighted average shares
outstanding (diluted) 136.7 138.5 139.0
Property and Equipment The cost of property and equipment
is depreciated primarily on the straight-line basis over estimated
asset lives of 30 to 50 years for buildings; useful lives, not to
exceed lease terms, for leasehold improvements; three to five
years for data processing equipment; and eight to 20 years for
other fixed assets.