Equifax 2006 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EQUIFAX 2006 ANNUAL REPORT 41
Financial Statements and the Notes to Consolidated
Financial Statements. The following accounting policies
involve a critical accounting estimate because they are partic-
ularly dependent on estimates and assumptions made by
management about matters that are uncertain at the time the
accounting estimates are made. In addition, while we have
used our best estimates based on facts and circumstances
available to us at the time, different estimates reasonably
could have been used in the current period, or changes in the
accounting estimates that we used are reasonably likely to
occur from period to period which may have a material impact
on the presentation of our Consolidated Balance Sheets and
Statements of Income. We also have other signifi cant account-
ing policies, which involve the use of estimates, judgments and
assumptions that are relevant to understanding our results.
For additional information about these policies, see Note 1 of
the Notes to Consolidated Financial Statements. Although we
believe that our estimates, assumptions and judgments are
reasonable, they are based upon information presently avail-
able. Actual results may differ signifi cantly from these esti-
mates under different assumptions, judgments or conditions.
Revenue Recognition
Revenue is recognized when persuasive evidence of an
arrangement exists, collectibility of arrangement consider-
ation is reasonably assured, the arrangement fees are fi xed or
determinable and delivery of the product or service has been
completed. A signifi cant portion of our revenue is derived
from our processing of transactions related to the provision
of information services to our customers, in which case reve-
nue is recognized, assuming all other revenue recognition
criteria are met, when the service is provided.
If at the outset of an arrangement, we determine that
collectibility is not reasonably assured, revenue is deferred
until the earlier of when collectibility becomes probable or
the receipt of payment. If there is uncertainty as to the cus-
tomer’s acceptance of our deliverables, revenue is not rec-
ognized until the earlier of receipt of customer acceptance
or expiration of the acceptance period. If at the outset of
an arrangement, we determine that the arrangement fee is
not fi xed or determinable, revenue is deferred until the
arrangement fee becomes estimable, assuming all other
revenue recognition criteria have been met. The determina-
tion of certain of our marketing information services revenue
requires the use of estimates, principally related to transac-
tion volumes in instances where these volumes are reported
to us by our clients on a monthly basis in arrears. In these
instances, we estimate transaction volumes based on average
actual reported volumes reported by our customers in the
past. Differences between our estimates and actual fi nal
volumes reported are recorded in the period in which actual
volumes are reported. We have not experienced signifi cant
variances between our estimates and actual reported volumes
in the past. We monitor actual volumes to ensure that we will
continue to make reasonable estimates in the future. If we
determine that we are unable to make reasonable future
estimates, revenue may be deferred until actual customer
data is obtained.
We have certain information solution offerings that are
sold as multiple element arrangements. The multiple ele-
ments may include consumer or commercial information,
fi le updates for certain solutions, services provided by our
enabling technologies personnel, training services and/or
statistical models. To account for each of these elements
separately, the delivered elements must have stand-alone
value to our customer, and there must exist objective and
reliable evidence of the fair value for any undelivered ele-
ments. For certain customer contracts, the total arrange-
ment fee is allocated to the undelivered elements based on
their fair values and to the initial delivered elements using
the residual method. If we are unable to unbundle the
arrangement into separate elements for accounting,
arrangement consideration may only be recognized as
the fi nal contract element is delivered to our customer.
Valuation of Goodwill, Indefi nite-Lived Intangible Assets
and Long-Lived Assets
Goodwill. Goodwill represents the cost in excess of the fair
value of the net assets of acquired businesses. We review
goodwill for impairment based on the requirements of
Statement of Financial Accounting Standards, No. 142,
“Goodwill and Other Intangible Assets” (“SFAS 142”). In
accordance with SFAS 142, goodwill is tested for impairment
at the reporting unit level on an annual basis or on an interim
basis if an event occurs or circumstances change that would
reduce the fair value of a reporting unit below its carrying
value. These events or circumstances would include a signifi -
cant change in the business climate, legal factors, operating
performance indicators, competition, sale or disposition of a
signifi cant portion of the business or other factors. We per-
form our annual goodwill impairment test as of September
30th. During 2006, we were not required to test goodwill
for impairment at an interim date.
In accordance with SFAS 142, we are required to test
goodwill at the reporting unit level as defined by refer-
ence to our operating segments determined under SFAS
No. 131, “Disclosures about Segments of an Enterprise
and Related Information.”
In analyzing goodwill for potential impairment, we use
projections of future discounted cash fl ows from our reporting
units to determine whether the reporting unit’s estimated fair
value exceeds its carrying value. These projections of cash
fl ows are based on our views of growth rates, anticipated
future economic conditions and the appropriate discount
rates relative to risk and estimates of residual values. We
believe that our estimates are consistent with assumptions
that marketplace participants would use in their estimates
of fair value. Our estimates of fair value for each reporting