Equifax 2007 Annual Report Download - page 60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
58 EQUIFAX | 2007 ANNUAL REPORT
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 determination 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 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.
Within our TALX operating segment, the fees for certain of our
tax credits and incentives revenue are based on a portion of the
credit delivered to our clients. Revenue for these arrangements is
recognized based on the achievement of milestones, upon calculation
of the credit, or when the credit is utilized by our client, depending
on the provisions of the client contract.
We have certain information solution offerings that are sold as
multiple element arrangements. The multiple elements may include
consumer or commercial information, file updates for certain
solutions, services provided by our enabling technologies personnel,
training services, statistical models and other services. 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
elements. For certain customer contracts, the total arrangement
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, we apply one of the accounting policies described
above. This may lead to the arrangement consideration being recog-
nized 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 services provided by
one or more of our operating segments. 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,
in most cases, 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 tech-
nologies personnel that allow our customers to interact with our
proprietary 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 recog-
nized 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 criteria 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. The
direct costs of set up of a customer are capitalized and amortized
as a cost of service during the term of the related customer contract.
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 pro-
prietary 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
processing 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 personnel-related
costs, corporate costs, fees for professional and consulting services,
advertising costs, and other costs of administration.
Advertising. Advertising costs, which are expensed as incurred,
totaled $27.5 million, $31.6 million and $30.8 million during 2007,
2006 and 2005, respectively.
Stock-Based Compensation. On January 1, 2006, we adopted
Statement of Financial Accounting Standards, or SFAS, No. 123R,
“Share-Based Payment,” or SFAS 123R, which replaced SFAS
No. 123, “Accounting for Stock-Based Compensation,” or
SFAS 123, and superseded APB Opinion No. 25, “Accounting for
Stock Issued to Employees,” or APB 25. SFAS 123R requires that
the cost relating to stock-based payment transactions be recognized
in the fi nancial statements over the period services are rendered
according to the fair value of the stock-based awards issued. We
are no longer permitted to follow the previously permitted pro forma
disclosure-only method of APB 25 as an alternative to fi nancial
statement recognition. Prior to the adoption of SFAS 123R, we
recognized compensation expense for share-based payment awards
over the stated vesting period in accordance with APB 25.
SFAS 123R applies to all of our outstanding unvested,
share-based payment awards as of January 1, 2006 and all prospec-
tive awards. All of our stock-based awards, which are stock options
and nonvested stock, are classified as equity instruments. In
accordance with SFAS 123R, we elected to use the modifi ed pro-
spective transition method as opposed to the modifi ed retrospective
transition method. Under the modifi ed prospective transition method,
fi nancial statements prior to adoption remain unchanged.