Equifax 2004 Annual Report Download - page 41

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
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involve delivery of multiple product lines. These product
lines are distinct enough to be separated into separate units
of accounting. Each product line does not impact the value
or usage of other deliverables in the arrangement, and each
can be sold alone or purchased from another vendor 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.
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 specifi c customer’s inability to meet its
fi nancial obligations to us, we record a specifi c allowance
against amounts due to reduce the net recognized receiv-
able 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 experi-
ence (i.e., average percentage of receivables written off
historically) and the length of time the receivables are
past due. Allowances for doubtful accounts were approxi-
mately $9.3 million or 5% of the accounts receivable on
our Consolidated Balance Sheets at December 31, 2004.
Accounts receivable, net of allowances, was approximately
$195.1 million or 65% of total current assets in our
Consolidated Balance Sheets on December 31, 2004. We
consider accounting for accounts receivable allowances
critical to all of our operating segments because of the
signifi cance of accounts receivable to our current assets
and operating cash fl ow. If the fi nancial condition of our
customers was to deteriorate, resulting in an impairment
of their ability to make payments, or if economic condi-
tions worsened, additional allowances may be required
in the future, which could have a material effect on our
Consolidated Financial Statements. We reassess our allow-
ance for doubtful accounts each period. If we made differ-
ent 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
impairment 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 indi-
cate that the carrying amounts of long-lived assets (princi-
pally goodwill, purchased data fi les, systems development and
other deferred costs and investments in unconsolidated sub-
sidiaries) may be impaired or not recoverable. The signifi cant
factors that are considered that could trigger an impairment
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 our
long-lived assets other than goodwill for possible impairment,
management estimates that asset’s future undiscounted cash
fl ows 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 fl ows
of the asset over its remaining life. While we believe that
our estimates of future cash fl ows are reasonable, different
assumptions regarding such cash fl ows could materially affect
these evaluations. In 2001, the FASB issued SFAS No. 142,
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 fi rst fair
value-based impairment tests by June 30, 2002. During
2004, we updated our impairment evaluation and deter-
mined that reporting unit goodwill remained unimpaired.
LEGAL฀CONTINGENCIES
We are subject to various proceedings, lawsuits and
claims arising in the normal course of our business. Our
Consolidated Financial Statements refl ect 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
fi nancial exposure. If the likelihood of an adverse outcome
from any claim or legal proceeding is probable and the
amount can be estimated, we accrue a liability for estimated
legal fees and settlements in accordance with SFAS No. 5,
“Accounting for Contingencies.”