Equifax 2004 Annual Report Download - page 58

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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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):
Twelve Months Ended
December 31,
(in millions, except per share data)
2004
2003 2002
Net income, as reported
$234.7
$164.9 $178.0
Add: Total stock-based employee compensation expense,
net of related tax effect, included in reported net income
1.5
2.3 2.0
Deduct: Total stock-based employee compensation expense determined under fair
value-based method for all awards, net of related tax effects
(6.4)
(14.4) (16.1)
Pro forma net income
$229.8
$152.8 $163.9
Earnings per share:
Basic – as reported
$ 1.79
$ 1.23 $ 1.31
Basic – pro forma
$ 1.75
$ 1.14 $ 1.20
Diluted – as reported
$ 1.76
$ 1.21 $ 1.29
Diluted – pro forma
$ 1.72
$ 1.12 $ 1.18
Derivative Instruments and Hedging Activities.
We
recognize derivatives as assets or liabilities on our balance
sheet at fair value, and the gain or loss related to the effec-
tive portion of derivatives designated as cash fl ow hedges
as a component of other comprehensive income.
We enter into hedging transactions in order to reduce
fi nancial volatility and manage the fi xed-fl oating mix of our
debt portfolio. As of December 31, 2004, the only hedging
transactions to which we were a counterparty consisted of
interest rate swap agreements.
At December 31, 2004, we have a $29.0 million notional
amount fl oating-to-fi xed interest rate swap agreement in place
with a bank counterparty that fi xes the interest rate on the
$29.0 million synthetic lease related to our corporate head-
quarters through its maturity in 2010. This hedge has been
designated as a cash fl ow hedge under SFAS 133, is fully effec-
tive, and at December 31, 2004, was marked to market and
valued as a liability totaling $3.1 million. We determine the fair
value of our interest rate swap derivative through the inquiry
of the counterparty banks. This liability is included with other
current liabilities in the accompanying Consolidated Balance
Sheets, and the related loss of $1.8 million was recorded, net
of income tax, as a component of accumulated other com-
prehensive loss. The termination of the lease, whenever that
occurs, of our headquarters building will result in the reclassifi -
cation of accumulated other comprehensive loss into earnings
for the cash fl ow hedge.
At December 31, 2004, we also have interest rate swap
agreements in place with a bank counterparty to fl oat the
interest rate on $250.0 million of our fi xed rate senior unse-
cured notes through their maturity date in 2005. These
derivatives have been designated as fair value hedges and are
fully effective. The value of these swaps was $5.6 million at
December 31, 2004, and is included with other current assets
in the accompanying Consolidated Balance Sheets with a
corresponding increase in the amount of currently maturing
short-term debt. Changes in the fair value of these swaps and
that of the related debt are recorded in interest expense in the
accompanying Consolidated Statements of Income, the net
of which is zero in 2004, 2003 and 2002.
Our maximum economic exposure to loss due to credit risk
on these interest rate swap agreements approximates $2.5 mil-
lion if all bank counterparties were to default. We manage
this exposure by monitoring the concentration of risk that
we have with any one bank, and through the use of mini-
mum credit quality standards for all counterparties.
2.฀RECENT฀ACCOUNTING฀PRONOUNCEMENTS฀
In November 2002, the EITF reached a consensus on
Issue No. 00-21, “Revenue Arrangements with Multiple
Deliverables.” EITF Issue No. 00-21 provides guidance
pertaining to the revenue recognition methodology to apply
to revenue arrangements that involve the delivery or per-
formance of multiple products, services, and/or rights to
use assets. The provisions of EITF Issue No. 00-21 apply
to revenue arrangements entered into in fi scal periods