Equifax 2002 Annual Report Download - page 51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We have computed the pro forma disclosures required under
SFAS No. 123 using the Black-Scholes option pricing model.
The fair value of options granted in 2002, 2001, and 2000 is esti-
mated on the date of grant using the Black-Scholes option pricing
model based on the following weighted average assumptions:
2002 2001 2000
Dividend yield 0.3% 0.5% 1.7%
Expected volatility 40.8% 41.0% 42.0%
Risk-free interest rate 3.5% 4.2% 6.5%
Expected life in years 2.9 2.6 2.3
The weighted-average grant-date fair value per share of options
granted in 2002, 2001, and 2000 is as follows:
2002 2001 2000
Grants (all at market price) $7.51 $8.80 $6.14
If we had elected to recognize compensation cost for these
plans based on the fair value at grant date as prescribed by SFAS
No. 123, net income and net income per share would have been
reduced to the pro forma amounts indicated in the table below
(in millions, except per share amounts):
47
2002 2001 2000
Pro Pro Pro
Reported Forma Reported Forma Reported Forma
Net income $178.0 $163.9 $122.5 $102.6 $228.0 $211.9
Net income per share (basic) $1.31 $ 1.20 $0.90 $ 0.75 $ 1.70 $ 1.58
Net income per share (diluted) $1.29 $ 1.18 $0.88 $ 0.74 $ 1.68 $ 1.56
Derivative Instruments and Hedging Activities Effective
January 1, 2001, we adopted SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities,” or SFAS 133.
SFAS 133 requires that a company recognize derivatives as assets
or liabilities on its balance sheet, and also requires that the gain
or loss related to the effective portion of derivatives designated
as cash flow hedges be recorded as a component of other
comprehensive income.
We enter into hedging transactions in order to reduce financial
volatility and manage the fixed-floating mix of our debt portfolio. As
of December 31, 2002, the only hedging transactions to which we
were a counterparty consisted of interest rate swap agreements.
At December 31, 2002, we have a $29.0 million notional amount
floating-to-fixed interest rate swap agreement in place with a bank
counterparty that fixes the interest rate on the $29.0 million syn-
thetic lease related to our corporate headquarters through its matu-
rity in 2010. This hedge has been designated as a cash flow hedge
under SFAS 133, is fully effective, and at December 31, 2002, was
valued as a liability totaling $4.7 million. This liability is included
with other current liabilities in the accompanying consolidated
balance sheets, and the related loss was recorded, net of income
tax, as a component of accumulated other comprehensive loss.
At December 31, 2002, we also have interest rate swap agree-
ments in place with a bank counterparty to float the interest rate
on $250.0 million of our fixed rate senior unsecured notes through
their maturity date in 2005. These derivatives have been desig-
nated as fair value hedges and are fully effective. The value of
these swaps was $18.3 million at December 31, 2002, and was
recorded as an asset along with a corresponding increase in
long-term debt.
Our maximum exposure to loss due to credit risk on these interest
rate swap agreements approximates $13.5 million if all of the bank
counterparties default. We mitigate this exposure by monitoring
the concentration of risk exposure that we have with any one bank,
and through the use of minimum credit quality standards for
all counterparties.
Recent Accounting Pronouncements In January 2002,
we adopted SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” or SFAS 144. The statement super-
sedes SFAS No. 121,“Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of,” but retains
the fundamental provisions of that statement related to the recog-
nition and measurement of the impairment of long-lived assets to
be held and used while expanding the measurement requirements
of long-lived assets to be disposed of by sale to include discontin-
ued operations. SFAS 144 also supersedes Accounting Principles
Board Opinion No. 30,“ Reporting the Results of Operations –
Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and
Transactions,” or APB 30, for the disposal of a segment of busi-
ness, extending the reporting of a discontinued operation to a
“component of an entity.” Further, SFAS 144 requires operating
losses from a “component of an entity” to be recognized in the
period(s) in which they occur rather than at the measurement date
as had been required under APB 30.