Equifax 2006 Annual Report Download - page 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
contracts having an unlimited volume is recognized ratably
during the contract term.
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
recognized until the earlier of receipt of customer accep-
tance 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
transaction 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 cus-
tomers 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 experi-
enced signifi cant variances between our estimates and
actual reported volumes in the past. We monitor actual vol-
umes 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 sep-
arately, 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 elements. For
certain customer contracts, the total arrangement fee is allo-
cated 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, we apply one of the
accounting policies described above. This may lead to the
arrangement consideration being recognized as the fi nal
contract element is delivered to our customer.
Many of our multiple element arrangements involve the
delivery of services generated by a combination of our con-
sumer, commercial or marketing information services. No
individual information service impacts the value or usage of
other information services included in an arrangement and
each service can be sold alone or purchased from another
vendor without affecting the quality of use or value to the
customer of the other information services included in the
arrangement. Some of our products require the development
of interfaces or platforms by our enabling technologies
personnel that allow our customers to interact with our pro-
prietary information databases. These development services
do not meet the requirement for having stand-alone value,
thus any related development fees are deferred when billed
and are recognized over the expected period of benefi t of
the related customer contract. Revenue from the provision
of statistical models is recognized as the service is provided
and accepted, assuming all other revenue recognition crite-
ria are met.
We record revenue on a net basis for those sales in
which we have in substance acted as an agent or broker in
the transaction.
Deferred revenue consists of amounts billed in excess
of revenue recognized on sales of our information services
relating generally to the deferral of subscription fees and
arrangement consideration from elements not meeting
the criteria for having stand-alone value discussed above.
Deferred revenues are subsequently recorded as revenue
in accordance with our revenue recognition policies.
Cost of Services. Cost of services consist primarily of (1)
data acquisition and royalty fees; (2) customer service
costs, which include: personnel costs to collect, maintain
and update our proprietary databases, to develop and
maintain software application platforms and to provide
consumer and customer call center support; (3) hardware
and software expense associated with transaction process-
ing systems; (4) telecommunication and computer network
expense; and (5) occupancy costs associated with facilities
where these functions are performed by Equifax employees.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses consist primarily of per-
sonnel-related costs, fees for professional and consulting
services, and advertising costs.
Advertising. Advertising costs, which are expensed as
incurred, totaled $31.6 million, $30.8 million, and $19.0
million during the twelve months ended December 31,
2006, 2005 and 2004, respectively.
Income Taxes. In accordance with Statement of Financial
Accounting Standards (“SFAS”) No. 109, “Accounting for
Income Taxes,” we account for income taxes under the lia-
bility method. Deferred income tax assets and liabilities are
determined based on the estimated future tax effects of
temporary differences between the fi nancial statement and
tax bases of assets and liabilities, as measured by current
enacted tax rates. We periodically assess whether it is more
likely than not that we will generate suffi cient taxable
income to realize our deferred tax assets. We record a valu-
ation allowance, as necessary, to reduce our deferred tax
assets to the amount of future tax benefi t that we estimate
is more likely than not to be realized.
Our income tax provisions are based on assumptions
and calculations which will be subject to examination by
various tax authorities. We record tax benefi ts for positions
that we believe are probable of being sustained under such
examinations. Regularly, we assess the potential outcome of
such examinations to determine the adequacy of our
income tax accruals. We adjust our income tax provision
during the period in which we determine that the actual
results of the examinations may differ from our estimates.
EQUIFAX 2006 ANNUAL REPORT 55