Equifax 2012 Annual Report Download - page 49

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Equifax 2012 Annual Report
Purchased Intangible Assets. Purchased intangible assets
represent the estimated fair value of acquired intangible assets used
in our business. Purchased data files represent the estimated fair
value of consumer credit files acquired primarily through the purchase
of independent credit reporting agencies in the U.S. and Canada. We
expense the cost of modifying and updating credit files in the period
such costs are incurred. We amortize purchased data files, which
primarily consist of acquired credit files, on a straight-line basis.
Predominantly all of our other purchased intangible assets are also
amortized on a straight-line basis.
Asset
Useful Life
(in years)
Purchased data files 2 to 15
Acquired software and technology 1 to 10
Non-compete agreements 1 to 10
Proprietary database 6 to 10
Customer relationships 2 to 25
Trade names 5 to 15
Other Assets. Other assets on our Consolidated Balance Sheets
primarily represents our investment in unconsolidated affiliates, inter-
est rate swaps, assets related to life insurance policies covering
certain officers of the Company, employee benefit trust assets and
data purchases, net of related amortization.
Benefit Plans. We sponsor various pension and defined contribution
plans. We also maintain certain healthcare and life insurance benefit
plans for eligible retired U.S. employees. Benefits under the pension
and other postretirement benefit plans are generally based on age at
retirement and years of service and for some pension plans, benefits
are also based on the employee’s annual earnings. The net periodic
cost of our pension and other postretirement plans is determined
using several actuarial assumptions, the most significant of which are
the discount rate and the expected return on plan assets. Our
Consolidated Balance Sheets reflect the funded status of the pension
and other postretirement plans.
Foreign Currency Translation. The functional currency of each of
our foreign operating subsidiaries is that subsidiary’s local currency.
We translate the assets and liabilities of foreign subsidiaries at the
year-end rate of exchange and revenue and expenses at the monthly
average rates during the year. We record the resulting translation
adjustment in other comprehensive income, a component of
shareholders’ equity. We also record gains and losses resulting from
the translation of intercompany balances of a long-term investment
nature in accumulated other comprehensive loss.
Financial Instruments. Our financial instruments consist primarily of
cash and cash equivalents, accounts and notes receivable, accounts
payable and short and long-term debt. The carrying amounts of these
items, other than long-term debt, approximate their fair market values
due to the short-term nature of these instruments. The fair value of
our fixed-rate debt is determined using Level 2 inputs such as quoted
market prices for publicly traded instruments, and for non-publicly
traded instruments through valuation techniques depending on the
specific characteristics of the debt instrument, taking into account
credit risk. As of December 31, 2012 and 2011, the fair value of our
fixed-rate debt was $1.6 billion and $1.09 billion, respectively,
compared to its carrying value of $1.5 billion and $0.97 billion,
respectively, based on recent trading prices.
Derivatives and Hedging Activities. Although derivative financial
instruments are not utilized for speculative purposes or as the
Company’s primary risk management tool, derivatives have been
used as a risk management tool to hedge the Company’s exposure
to changes in interest rates and foreign exchange rates. We have
used interest rate swaps and interest rate lock agreements to man-
age interest rate risk associated with our fixed and floating-rate
borrowings. Forward contracts on various foreign currencies have
been used to manage the foreign currency exchange rate risk of
certain firm commitments denominated in foreign currencies. We
recognize all derivatives on the balance sheet at fair value. Derivative
valuations reflect the value of the instrument including the value
associated with any material counterparty risk.
Fair Value Hedges. In conjunction with our fourth quarter 2009 sale of
five-year Senior Notes, we entered into five-year interest rate swaps,
designated as fair value hedges, which convert the debt’s fixed inter-
est rate to a variable rate. These swaps involve the receipt of fixed
rate amounts for floating interest rate payments over the life of the
swaps without exchange of the underlying principal amount. Changes
in the fair value of the interest rate swaps offset changes in the fair
value of the fixed-rate Senior Notes they hedge due to changes in the
designated benchmark interest rate and are recorded in interest
expense. The full fair value of the interest rate swap is classified as a
non-current asset or liability as the remaining maturity of the fixed-
rate Senior Notes they hedge is more than twelve months. There was
no ineffectiveness on our fair value hedge that impacted current year
earnings. The fair value of these interest rate swaps at December 31,
2012 and 2011 was $12.2 million and $14.8 million, respectively,
recorded in other assets, net on our Consolidated Balance Sheets.
Cash Flow Hedges. Changes in the fair value of highly effective
derivatives designated as cash flow hedges are initially recorded in
accumulated other comprehensive income and are reclassified into
the line item in the Consolidated Statements of Income in which the
hedged item is recorded in the same period the hedged item impacts
earnings. Any ineffective portion is recorded in current period earn-
ings. We did not have any unsettled cash flow hedges outstanding as
of December 31, 2012 or December 31, 2011.
Fair Value Measurements. Fair value is determined based on the
assumptions marketplace participants use in pricing the asset or
liability. We use a three level fair value hierarchy to prioritize the inputs
used in valuation techniques between observable inputs that reflect