Equifax 2007 Annual Report Download - page 73

EQUIFAX | 2007 ANNUAL REPORT 71
for resolution of Federal, state and foreign examinations, and
the expiration of various statutes of limitations, it is reasonably
possible that Equifax’s gross unrecognized tax benefi t balance
may change within the next twelve months by a range of zero to
$17.9 million, related primarily to issues involving the Brazilian
and U.K. operations.
7.
STOCK-BASED COMPENSATION
We have two active share-based award plans that provide our
offi cers and certain employees with stock options and nonvested
stock. These plans are described below. Total stock-based
compensation expense was $17.6 million, $17.4 million and
$8.2 million, for the twelve months ended December 31, 2007,
2006 and 2005, respectively, of which $15.7 million, $16.1 million
and $8.2 million, respectively, was included in selling, general and
administrative expenses and the remaining amount is included in
cost of services in our Consolidated Statements of Income. The
income tax benefi t related to stock-based compensation expense was
$6.6 million, $8.9 million and $18.1 million for the twelve months
ended December 31, 2007, 2006 and 2005, respectively.
SFAS 123R requires that benefi ts of tax deductions in excess
of recognized compensation cost be reported as a fi nancing cash
fl ow, rather than as an operating cash fl ow. This requirement reduced
operating cash flows and increased financing cash flows by
$7.0 million and $7.2 million during the twelve months ended
December 31, 2007 and 2006.
Stock Options.
Our shareholders have approved a stock option plan, the 2000 Stock
Incentive Plan, which provides that qualifi ed and nonqualifi ed
stock options may be granted to offi cers and other employees. In
conjunction with our acquisition of TALX, we assumed options
outstanding under the legacy TALX stock option plan, which was
approved by TALX shareholders. In addition, stock options remain
outstanding under two shareholder-approved plans and three
non-shareholder-approved plans from which no new grants may be
made. The 2000 Stock Incentive Plan requires that stock options
be granted at exercise prices not less than market value on the date
of grant. Generally, stock options are subject to graded vesting for
periods of up to three years based on service, with 33% vesting
for each year of completed service, and expire ten years from the
grant date.
We use the binomial model to calculate the fair value of stock
options granted on or after January 1, 2006. The binomial model
incorporates assumptions regarding anticipated employee exercise
behavior, expected stock price volatility, dividend yield and risk-free
interest rate. Anticipated employee exercise behavior and expected
post-vesting cancellations over the contractual term used in the
binomial model were primarily based on historical exercise patterns.
These historical exercise patterns indicated there was not signifi cantly
different exercise behavior between employee groups. For our
expected stock price volatility assumption, we weighted historical
volatility and implied volatility. We used daily observations for
historical volatility, while our implied volatility assumption was
based on actively traded options related to our common stock.
The expected term is derived from the binomial model, based on
assumptions incorporated into the binomial model as described
above.
The fair value for stock options granted during the twelve
months ended December 31, 2007, 2006 and 2005, was esti-
mated at the date of grant, using the binomial model (2007 and
2006) and the Black-Scholes-Merton model (2005), respectively,
with the following weighted-average assumptions:
Twelve Months Ended December 31,
2007 2006 2005
Dividend yield 0.5% 0.5% 0.5%
Expected volatility 22.4% 24.0% 33.0%
Risk-free interest rate 4.6% 4.8% 3.8%
Expected term (in years) 4.6 4.4 4.5
Weighted-average fair value
of stock options granted $10.52 $8.33 $9.81
The following table summarizes changes in outstanding stock options during the twelve months ended December 31, 2007, as well
as stock options that are vested and expected to vest and stock options exercisable at December 31, 2007:
Weighted-Average
Weighted-Average Remaining Aggregate
Shares Exercise Price Contractual Term Intrinsic Value
(in thousands) (in years) (in millions)
Outstanding at December 31, 2006 5,930 $24.95
Granted (all at market price) 2,742 $18.60
Exercised (2,073) $16.15
Forfeited and cancelled (115) $32.64
Outstanding at December 31, 2007 6,484 $24.94 5.1 $77.7
Vested and expected to vest at December 31, 2007 6,297 $24.61 5.0 $77.3
Exercisable at December 31, 2007 5,157 $21.52 4.3 $76.7