UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C.  20549

FORM 10-Q

 (Mark One)

 For the quarterly period ended September 30, 2004

 OR

 For the transition period from                                  to                             

 Commission File Number: 001-06605

EQUIFAX INC. 
(Exact name of registrant as specified in its charter)

 404-885-8000
(Registrant’s telephone number, including area code)

 N/A
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes x     No ¨

 Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes x     No ¨

 Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  

Table of Contents

PART I.   FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS 

CONSOLIDATED BALANCE SHEETS

See Notes to Consolidated Financial Statements

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See Notes to Consolidated Financial Statements.  

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  CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See Notes to Consolidated Financial Statements.  

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See Notes to Consolidated Financial Statements.  

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 CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME

Accumulated Other Comprehensive Loss consists of the following components:

Comprehensive Income is as follows:

See Notes to Consolidated Financial Statements.  

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EQUIFAX INC.  
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2004

As used herein, the terms “Equifax”, “the Company”, “we”, “our”, and “us” refer to Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Equifax Inc.  

1.   BASIS OF PRESENTATION

We have prepared the accompanying unaudited consolidated financial statements in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.   This information reflects all adjustments, which are in the opinion of management, necessary for a fair presentation of the statement of financial position as of September 30, 2004, and the results of operations for the three and nine month periods ending September 30, 2004 and 2003 and the cash flows for the nine month periods ending September 30, 2004 and 2003.   All adjustments made have been of a normal recurring nature.   Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the U.S., or GAAP, have been condensed or omitted.   We believe that the disclosures are adequate to make the information presented not misleading.   Certain prior year amounts have been reclassified to conform to the current year presentation.   These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2003.  That report includes a summary of our critical accounting policies.  There have been no material changes in the accounting policies followed by us during fiscal 2004.

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions.   These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period.   Actual results could differ from these estimates. 

2.   NATURE OF OPERATIONS

We collect, organize and manage various types of financial, demographic and marketing information. Our products and services enable businesses to make credit and service decisions, manage their portfolio risk and develop marketing strategies concerning consumers and commercial enterprises. We serve customers across a wide range of industries, including the financial services, mortgage, retail, telecommunications, utilities, automotive, brokerage, healthcare and insurance industries, as well as state and federal governments. We also enable consumers to manage and protect their financial health through a portfolio of products offered directly to individuals. We have approximately 4,500 employees worldwide, and manage our business globally through the following three reportable segments: Equifax North America, Equifax Europe and Equifax Latin America. Our operations are predominantly located within the United States, with foreign operations principally located in Canada, the United Kingdom and Brazil.

Our products and services are categorized as follows: Information Services, Marketing Services and Personal Solutions. Our Information Services products and services allow customers to make credit decisions about consumers and commercial enterprises. Our Marketing Services information products and databases enable customers to identify a target audience for marketing purposes, and our Personal Solutions products and services provide information to consumers which enable them to reduce their exposure to identity fraud and to monitor their credit health.

We develop, maintain and enhance secured proprietary information databases through compilation of accounts receivable information about consumers and businesses that we obtain from a variety of sources, such as credit granting institutions; public record information, including bankruptcies, liens and judgments; and marketing information from surveys and warranty cards. We process this information utilizing our proprietary information management systems and make it available to our customers in virtually any medium or format they choose.

3.  ACQUISITIONS

During the first nine months of 2004, in order to continue to grow our credit data franchise, we acquired the credit files, contractual rights to territories (generally states or integration areas), and customer relationships and related businesses of three independent credit reporting agencies, two in the United States and one in Canada, that house consumer information on our system. We acquired these businesses for $17.4 million in cash, allocating $11.7 million of the purchase price to purchased data files, $1.6 million to non-compete agreements and $4.1 million to goodwill. These allocations are preliminary estimates and will be finalized upon completion of the purchase valuation. The results of operations for these acquisitions have been included in the consolidated statement of income from their respective dates of acquisition, and have not been material.

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4.  DISCONTINUED OPERATIONS

In the third quarter of 2002, we made the decision to exit our commercial services business in Spain. During 2003 and the first six months of 2004, this business component remained as held for sale.  We completed the sale and final disposition of the business and recorded a $0.5 million gain in the third quarter of 2004.

In accordance with Statement of Financial Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets to be Disposed Of," the net assets, results of operations and cash flows of the Spain commercial business for 2004 and 2003 were classified as "discontinued operations." For the first nine months of 2004 and 2003, revenues totaled $1.3 million and $6.0 million, respectively. We had a $0.1 million gain on discontinued operations and a $10.3 million loss on discontinued operations for the first nine months of 2004 and 2003, respectively.  

5.  RESTRUCTURING AND IMPAIRMENT CHARGES

In the fourth quarter of 2001, we recorded restructuring, impairment and other related charges of $60.4 million ($35.3 million after tax, or $0.25 per diluted share). The restructuring charges, which total $37.2 million, were associated with the alignment of our cost structure with changing market conditions, to reduce expenses and improve efficiencies, particularly in international operations. The restructuring plan, which included headcount reductions of approximately 700 employees, consisted of severance costs and reserves to reflect our estimated exposure on facilities to be vacated or consolidated. The asset impairment charges, which totaled $23.2 million, reflected our write-down of several technology investments. At December 31, 2003, our remaining reserve balance was $13.3 million. During the first nine months of 2004, we paid $0.7 million against the reserve, leaving a remaining balance of $12.6 million. An analysis of 2004 activity in the reserve through September 30, 2004, is as follows (in millions):

In the fourth quarter of 2003, we recorded restructuring, impairment and other related charges related to our eMarketing business of $25.9 million ($16.3 million after tax, or $0.12 per diluted share). The restructuring charges, which totaled $3.3 million, were associated with reducing headcount, consolidating multiple locations, and eliminating our bulk e-mail product. The asset impairment charges, which totaled $22.6 million, reflected our write-down of amortizable intangible assets, indefinite lived intangible assets and fixed assets of our eMarketing business. At December 31, 2003, our remaining reserve balance was $3.3 million. During the first nine months of 2004, we paid $1.8 million against the reserve, leaving a remaining balance of $1.5 million. An analysis of 2004 activity in the reserve through September 30, 2004, is as follows (in millions):

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In the second quarter of 2004, we recorded asset impairment and related charges of $7.6 million ($4.8 million after tax, or $0.03 per diluted share).  The asset impairment charges are primarily for purchased data in our Europe and Marketing Services segments.  In the second quarter of 2004 continued losses in Italy triggered an impairment analysis of that business.  Estimates of future cash flows were used to test the recoverability of the assets of the Italian business and indicated that there was an impairment in the real estate services part of the business.  The assets of the Italian business were written down by $5.3 million to their estimated fair value.  No restructuring charges were associated with this asset impairment. 

6. LONG-TERM DEBT AND SHORT-TERM BORROWINGS

Long-term debt at September 30, 2004 and December 31, 2003 was as follows:

In July 2004, $249.9 million of our 6.3% Notes due 2005 became current.  These notes are classified as short-term debt in our accompanying consolidated balance sheets at September 30, 2004.

In August 2004, we entered into a new five-year, $500.0 million senior unsecured revolving credit agreement.  The new facility provides for a variable interest rate tied to a Base Rate, or the London InterBank Offered Rate (LIBOR) plus a specified margin, or competitive bid options similar to those contained in the previous facility.  The new facility replaces a $465.0 million revolving credit facility.  The weighted average interest rate of borrowings outstanding under this facility was approximately 2.5% as of September 30, 2004. The agreement governing this facility contains various covenants and restrictions, including, among other things, limitations on liens, subsidiary debt, mergers, liquidation, asset dispositions, acquisitions, and maintenance of certain financial covenants. Our borrowings under this facility, which have not been guaranteed by any of our subsidiaries, are unsecured and will rank on parity in right of payment with all of our other unsecured and unsubordinated indebtedness from time to time outstanding. As of September 30, 2004, we had $486.1 million of borrowing capacity available under our $500.0 million revolving credit facility. 

On September 7, 2004, we entered into a new trade receivables-backed revolving credit facility.  Under the terms of the transaction, a wholly-owned subsidiary of Equifax may borrow up to $125.0 million, subject to borrowing base availability and other terms and conditions.  Equifax will use the net proceeds received from the sale of its trade receivables to the subsidiary for general corporate purposes. 

The credit facility has an expiration date of September 6, 2005, but may be extended for an additional period of up to three years if specified conditions are satisfied.  Loans will bear interest based on commercial paper rates, LIBOR or Base Rate plus a specified margin.   Outstanding debt under the facility will be consolidated on Equifax’s balance sheet for financial reporting purposes.  As of September 30, 2004, $73.0 million was available and $10.0 million was outstanding under this facility.

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One of our Canadian subsidiaries had an unsecured, 364-day C$100.0 million revolving credit facility that expired on September 30, 2004.  The agreement provided for borrowings tied to the Prime Rate, Base Rate, LIBOR or Canadian Banker’s Acceptances, and contains financial covenants related to interest coverage, funded debt to cash flow, and limitations on subsidiary indebtedness.  We guaranteed the indebtedness of our Canadian subsidiary under this credit facility.  As of September 30, 2004, C$3.0 million (US$2.4 million) was outstanding under this facility.  The bank agreed to carry the amounts outstanding under the facility on a demand basis following the expiration of the revolver on September 30, 2004, and the remaining balance was paid on October 8, 2004.

The bank is reviewing a request from the Company to put into place a new 364-day C$25.0 million revolving credit facility with the same Canadian subsidiary which had been the obligor on the C$100.0 million facility which expired September 30, 2004.  The Company anticipates that its request will be approved by the bank prior to November 30, 2004, and that the terms and conditions of the new facility will be essentially the same as those obtained under the previous C$100.0 million revolving credit agreement which expired on September 30, 2004.

7. INCOME TAXES

Annual Effective Tax Rates.    The effective tax rate from continuing operations was 38.2% for the first nine months of 2004 compared to an effective tax rate of 37.0% in 2003.  For the quarter ending September 30, 2004 and 2003, the effective tax rate from continuing operations was 39.8% and 36.0%, respectively.  The increase in the effective tax rate in the third quarter of 2004 is primarily the result of increased tax expense due to limitations on our ability to utilize foreign tax credits.

Deferred Tax Assets.    We estimate levels of future taxable income and utilize prudent and feasible tax planning strategies in establishing and maintaining deferred tax assets. If we are unable to realize all or part of our deferred tax assets in the future, our effective tax rate could increase.  

8. SHAREHOLDERS' EQUITY

Treasury Stock.    During the first nine months of 2004, we repurchased 4,105,610 shares at an average price of $25.09 per share through open market transactions at an aggregate investment of $103.0 million. At September 30, 2004, approximately $274.3 million remained authorized for future share repurchases. For additional information on our stock purchase program see Part II, Item 2—"Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities" below.

9. STOCK-BASED COMPENSATION

We have stock-based compensation plans for our employees, including stock option and restricted stock plans.  We continue to apply Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations in accounting for these plans. Accordingly, because the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant, we have not recognized any expense for stock option grants.  We have restricted stock grants which vest based on continued employment with Equifax or upon achievement of specified performance goals.  We record compensation expense related to our grants based on the current market price of our common stock and the extent to which time vesting or performance criteria are met.

The fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

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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:

10.  EMPLOYEE BENEFITS

The following table provides the components of net periodic benefit cost for the three months ended September 30, 2004 and 2003:

The following table provides the components of net periodic benefit cost for the nine months ended September 30, 2004 and 2003:

For 2004, we have met our minimum funding requirement under the Employee Retirement Income Security Act of 1974 (ERISA) for our U.S. Retirement Income Plan (USRIP), a non-contributory qualified retirement plan covering most of our U.S. salaried employees. We made a discretionary contribution of $20.0 million to the USRIP during the quarter ended March 31, 2004. We do not expect to have to make minimum contributions under ERISA to the USRIP prior to 2009. The Pension Funding Equity Act of 2004, which became law on April 10, 2004, provides defined benefit plan quarterly contribution relief for plan years beginning in 2004 and 2005. Also, we expect no minimum funding requirements for our Canadian Retirement Income Plan, a defined benefit plan for most salaried employees in Canada until 2007 pursuant to the Income Tax Act of the Canada Customs and Revenue Agency.

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The annual report produced by our consulting actuaries specifies the funding requirements for our plans, based on projected liabilities of the benefits for plan participants, historical investment results on plan assets, current discount rates for liabilities, assumptions for future demographic developments and investment results, and recent changes in statutory requirements. We may elect to make additional discretionary contributions to our plans in excess of minimum funding requirements, subject to statutory limitations.

As discussed in our Form 10-K for 2003, the other postretirement benefits obligation, and postretirement benefit expense recognized through September 30, 2004, includes the expected favorable impact of the federal subsidy and other provisions of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

Our postretirement benefits obligations reflect that the Company will recognize the 28% subsidy as an offset to healthcare plan costs and this is reflected as an unrecognized net gain to that plan. This gain was reflected in net periodic benefit cost for the first time in 2004. For retirees paying no premiums for coverage, the 28% subsidy is expected to reduce the Company's prescription drug plan costs by an average of  $389 per individual in 2006 and this amount is expected to increase by the valuation trend rates. The Company's actuaries have determined that the Company's prescription drug plan provides a benefit that is at least actuarially equivalent to the Medicare prescription drug plan. The obligations assume no change to the participation assumption. For retirees paying a premium of more than 40% of total medical costs, the Medicare prescription drug subsidy is not reflected.

11. COMMITMENTS AND CONTINGENCIES

Data Processing and Outsourcing Services Agreements:    We have separate agreements with IBM, Polk/Axciom, Seisint Inc., Xerox Connect, Inc., and Jones-Lang LaSalle with which we outsource portions of our computer data processing operations and related functions, and certain administrative functions. The agreements expire between 2004 and 2013. The estimated aggregate minimal contractual obligation remaining under these agreements was $325.0 million as of December 31, 2003, with no future year minimum expected to exceed $56.3 million. Annual payment obligations in regard to these agreements vary due to factors such as the volume of data processed; changes in our servicing needs as a result of new product offerings, acquisitions or divestitures, the introduction of significant new technologies, or the general rate of inflation. Our data processing outsourcing agreement with IBM was renegotiated in 2003 and now has a ten-year term. Under this agreement (which covers our operations in North America, the United Kingdom, Ireland and Spain), we have outsourced our mainframe and midrange operations, help service and desktop support functions, and the operation of our voice and data networks. As of December 31, 2003, the estimated future minimum contractual obligation under this agreement was $272.8 million, with no year expected to exceed $40.4 million. In certain circumstances (e.g., a change in control, or for our convenience), we may terminate these data processing and outsourcing agreements, and, in doing so, certain of these agreements require us to pay a significant penalty.

Agreement with Computer Sciences Corporation:    We have an agreement with Computer Sciences Corporation and certain of its affiliates (collectively, "CSC"), under which CSC-owned credit reporting agencies utilize our computerized credit database services. CSC retains ownership of its credit files and the revenues generated by its credit reporting activity. We receive a processing fee for maintaining the database and for each report supplied. The agreement was renewed by CSC for a ten-year period beginning August 1, 1998. The agreement provides us with an option to purchase CSC's credit reporting business if CSC does not elect to renew the agreement or if there is a change in control of CSC while the agreement is in effect. Under the agreement, CSC also has an option, exercisable at any time, to sell its credit reporting business to us. The option expires in 2013. The option exercise price will be determined by a third-party appraisal process and would be due in cash within 180 days after the exercise of the option. We estimate that if the option were exercised at this time, the price range would approximate $650.0 to $700.0 million. This estimate is based solely on our internal analysis of the value of the businesses, current market conditions, and other factors, all of which are subject to constant change. Therefore, the actual option exercise price could be materially higher or lower than the estimated amount. If CSC were to exercise its option, we would have to obtain additional sources of funding. We believe that this funding would be available from sources such as additional bank lines of credit and the issuance of public debt and/or equity. However, the availability and terms of any such capital financing would be subject to a number of factors, including credit market conditions, the state of the equity markets, general economic conditions, and our financial performance and condition. For additional information on our agreement with CSC, see the "Risk Factors" section of the "Management's Discussion and Analysis" included in our annual report on Form 10-K for the year ended December 31, 2003.

Guarantees:    We will from time to time issue standby letters of credit, performance bonds or other guarantees in the normal course of business. The aggregate notional amount of all performance bonds and standby letters of credit is less than $8.0 million and all have a maturity of one year or less. Guarantees are issued from time to time to support the needs of operating units. The only outstanding guarantee that is not reflected as a liability on our balance sheet was extended in connection with the sale of our risk management collections business to RMA Holdings, LLC ("RMA") in October 2000, at which time we guaranteed the operating lease payments of a partnership affiliated with RMA to a lender of the partnership pursuant to a term loan. The operating lease, which expires December 31, 2011, has a remaining balance of $8.7 million based on the undiscounted value of remaining lease payments at September 30, 2004. Our obligations under this guarantee are not secured. We believe that the likelihood of demand for payment under these instruments is minimal and expect no material losses to occur in connection with these instruments.

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Subsidiary Dividends and Fund Transfers:    The ability of certain of our subsidiaries and associated companies to transfer funds to us is limited by certain restrictions imposed by foreign governments, which do not, individually or in the aggregate, materially limit our ability to service our indebtedness, meet our current obligations, or pay dividends.

Litigation:    In November 2001, the landlord of our former headquarters facility brought an action, 1600 Peachtree, L.L.C. v. Equifax Inc., against us in the Superior Court of Fulton County, Georgia, which asserts claims related to our guaranty obligations under our lease termination agreement. This lawsuit seeks damages of approximately $28.0 million, substantially all of which represents future rent contingencies, and punitive damages. On motions for summary judgment, the Superior Court ruled against our discharge defense and against plaintiff's fraud claim. On June 29, 2004, the Georgia Court of Appeals affirmed the Superior Court’s rulings. Both parties appealed these rulings to the Georgia Supreme Court, which on September 27, 2004 declined to hear the appeals. The remaining issues in the case will now be tried in the Superior Court.   No trial date has been set.  We intend to continue to contest in the Superior Court the damages claimed by the plaintiff.

We are involved in other lawsuits, claims and proceedings as is normal in the ordinary course of our business. Any possible adverse outcome arising from these matters is not expected to have a material impact on our results of operations or financial position, either individually or in the aggregate. However, our evaluation of the likely impact of these pending lawsuits could change in the future. For our pending litigation, we accrue for estimated settlements and judgments, and incurred but unpaid legal fees for services performed to date. In our opinion, the ultimate resolution of these matters will not have a material adverse effect on our consolidated financial statements.

12. SEGMENT INFORMATION

Segment Reporting

We manage our business and report our financial results primarily through the following three reportable segments:

• Equifax North America
• Equifax Europe
• Equifax Latin America

The North American reportable segment is made up of three operating segments:

• Information Services
• Marketing Services
• Personal Solutions

The Europe and Latin America reportable segments are made up of varying mixes of three product lines: Information Services, Marketing Services and Personal Solutions.

A summary of segment products and services is as follows:

Equifax North America:    Information Services, which includes consumer services (such as credit information, locator services, fraud detection and prevention services, mortgage loan origination information, analytics and consulting, identity verification services, small business services and commercial services (primarily in Canada)); Marketing Services, which consist of credit card marketing services and the provision of consumer demographic and lifestyle information; and Personal Solutions, which consists of credit and finance products sold directly to individuals.

Equifax Europe:    Information Services, which includes consumer and commercial services (such as credit, credit scoring and modeling services) and Credit Marketing Services.

Equifax Latin America:    Information Services, which includes consumer and commercial services, such as credit and other commercial, financial and consumer information.

There has been no material change in segment assets since December 31, 2003.

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Operating revenue and operating income by segment for the third quarter and first nine months of 2004 and 2003 are as follows:

       *  Does not total due to rounding

13. RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board (FASB) 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 accounting methodology to apply to revenue arrangements that involve the delivery or performance 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 fiscal periods beginning after June 15, 2003. We adopted EITF Issue No. 00-21 on July 1, 2003 and it did not have a material impact on our financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 requires that contracts with comparable characteristics be accounted for similarly. In particular, SFAS 149 clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, clarifies when a derivative contains a financing component, and amends the meaning of the term "an underlying" to conform it to language used in FIN 45. SFAS 149 is effective, on a prospective basis, for contracts entered into or modified after September 30, 2003, and for hedging relationships designated after September 30, 2003. We have adopted SFAS 149 and it has not had a material impact on our financial position or results of operations.

In December 2003, the FASB issued a revision to SFAS No. 132 "Employers’ Disclosures about Pensions and Other Postretirement Benefits." The purpose of the revision is to require additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. These additional disclosures include information describing the types of plan assets, investment strategy, measurements date(s), plan obligations, cash flows, and components of net periodic benefit cost recognized during interim periods. As revised, SFAS 132 now enhances disclosures of relevant accounting information by providing more information about the plan assets available to finance benefit payments, the obligation to pay benefits, and an entity's obligation to fund the plan. This revised version of SFAS 132 is effective for fiscal years ending after December 15, 2003. We have adopted the revisions to SFAS 132 and have included the revised disclosures in our Notes to our Consolidated Financial Statements.

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In January 2003, the FASB issued FIN 46, "Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51," which addresses consolidation by business enterprises of variable interest entities (VIEs) either: (1) that do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) in which the equity investors lack an essential characteristic of a controlling financial interest. In December 2003, the FASB completed deliberations of proposed modifications to FIN 46 (Revised Interpretations) resulting in multiple effective dates based on the nature as well as the creation date of the VIE. VIEs created prior to January 1, 2004, may be accounted for either based on the original interpretation or the Revised Interpretations. However, the Revised Interpretations must be applied no later than the first quarter of fiscal year 2004. VIEs created after January 1, 2004 must be accounted for under the Revised Interpretations. We have adopted the provisions of FIN 46 and it has not had a material impact on our financial statements.

In December 2003, the Staff of the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition", which supersedes SAB 101, "Revenue Recognition in Financial Statements." SAB 104's primary purpose is to rescind the accounting guidance contained in SAB 101 related to multiple-element revenue arrangements that was superseded as a result of the issuance of EITF 00-21, "Accounting for Revenue Arrangements with Multiple Deliverables." Additionally, SAB 104 rescinds the SEC's related "Revenue Recognition in Financial Statements Frequently Asked Questions and Answers" issued with SAB 101 that had been codified in SEC Topic 13, "Revenue Recognition." While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104, which was effective upon issuance. The implementation of SAB 104 did not have a material effect on our financial position or results of operations.

In May 2004, the FASB issued staff position (FSP) No. 106-2 "Accounting and Disclosure Requirements Related to the Medicare Modernization Act of 2003."   This staff position supersedes FSP No. 106-1 "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" by clarifying the guidance on the recognition of the effects of the Act on an employers accumulated post-retirement benefit obligation. Employers that sponsor a postretirement health care plan that provides prescription benefits that are deemed actuarially equivalent to the Medicare Part D benefit are eligible for a federal subsidy.  This subsidy is to be treated as an actuarial experience gain in the calculation of the accumulated post-retirement benefit obligation.  FSP 106-2 is effective for the first interim period or annual period beginning after June 15, 2004.  We adopted the accounting and disclosure provisions of FSP 106-2 during the third quarter of 2004 and it did not have a material effect on our financial position or results of operations.

In July 2004, the EITF of the FASB reached consensus Issue No. 02-14 “Whether the Equity Method of Accounting Applies When an Investor Does Not Have an Investment in Voting Stock of an Investee but Exercises Significant Influence through Other Means.”  EITF Issue No. 02-14 provides guidance pertaining to an investors accounting when the investor has significant influence over an investee through means other the voting stock.  The provisions of EITF No. 02-14 apply to reporting periods beginning after September 15, 2004.  The Company’s accounting for such investments has essentially been consistent with the EITF 02-14 and its adoption during the fourth quarter of 2004 will not have a material impact on our financial position or results of operations.

14. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

Effective January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." 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 mix of fixed versus floating interest rate obligations of our debt portfolio. As of September 30, 2004, the only hedging transactions to which we were a counterparty consisted of interest rate swap agreements.

At September 30, 2004, we had 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 synthetic lease related to our corporate headquarters through its maturity in 2010. This hedge has been designated as a cash flow hedge under SFAS 133, is fully effective, and at September 30, 2004, was valued as a liability totaling $3.5 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 September 30, 2004, we also had interest rate swap agreements 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 designated as fair value hedges and are fully effective. The value of these swaps was $6.0 million at September 30, 2004, and was recorded as an asset along with a corresponding increase in short-term debt in the accompanying consolidated balance sheets.

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Our maximum exposure to loss due to credit risk on these interest rate swap agreements would approximate $2.5 million if all of the bank counterparties were to 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.

15. SALE OF INVESTMENT IN INTERSECTIONS INC.

On May 5, 2004, Equifax, through its wholly owned subsidiary CD Holdings, Inc., completed the sale of 3,755,792 shares of common stock it owned in Intersections Inc., a provider of identity theft protection and credit management services, in an underwritten public offering of common stock for net proceeds of $59.4 million. Immediately prior to the public offering, CD Holdings converted a $20.0 million senior secured convertible note issued to it by Intersections in November 2001 into 3,755,792 shares of Intersections common stock, or approximately 26.9% of Intersections' outstanding stock before its public offering. The book value of our investment in Intersections was $22.3 million, including accrued interest of $2.3 million. In the second quarter of 2004, we recorded, net of income taxes of $13.8 million, a net gain of $23.0 million or $0.17 per diluted share.

16. EARNINGS PER SHARE

There are no adjustments to “Income from continuing operations” or “Net income” for the diluted earnings per share computations.  The following table reconciles the denominator for the basic and diluted earnings per share computations shown on the accompanying consolidated statements of income:

17. GOODWILL

SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that reporting unit goodwill be re-evaluated and tested for impairment at least on an annual basis.  Accordingly, we have updated our impairment evaluation as of September 30, 2004 and determined that reporting unit goodwill remained unimpaired.

18. SUBSEQUENT EVENT

On October 29, 2004, Equifax sold its Italian operations.  The sale generated an after-tax gain of approximately $1.5 million which will be recognized in the fourth quarter of 2004.  The gain on disposition and results of operations will be reported as discontinued operations beginning in the fourth quarter of 2004.

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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 

 The following discussion of our financial condition and results of operations should be read in conjunction with our annual report on Form 10-K for the fiscal year ended December 31, 2003 and our unaudited consolidated financial statements and the related notes in Part I, Item 1—“Financial Statements,” above.  We sometimes use information derived from consolidated information but not presented in our financial statements prepared in accordance with generally accepted accounting principles (GAAP).  Certain of these data are considered “non-GAAP financial measures” under Securities and Exchange Commission regulations; those rules require the supplemental explanation and reconciliation provided in Exhibit 99.1 to this Form 10-Q report.

All references to earnings per share data in this MD&A are to diluted earnings per share unless otherwise noted.

Executive Overview

Equifax collects, organizes and manages numerous types of credit, financial, public record, demographic, and marketing information regarding individuals and businesses. This information originates from a variety of sources including financial or credit granting institutions, which provide loan and accounts receivable information; governmental entities, which provide public records of bankruptcies, liens, and judgments; and consumers who participate in surveys and submit warranty registration cards from which we gather demographic and marketing information. Our proprietary databases contain information on approximately 400 million consumers and businesses worldwide. The original data is compiled and processed utilizing our proprietary software and systems and distributed to customers in a variety of user-friendly and value-add formats. Our products and services include consumer credit information, information database management, marketing information, business credit information, decisioning and analytical tools, and identity verification services which enable businesses to make informed decisions about extending credit or service, manage portfolio risk, and develop marketing strategies for consumers and small businesses. We also enable consumers to manage and protect their financial affairs through a portfolio of products that we sell directly via the Internet and in various hard-copy formats.

We operate in 13 countries: North America (the United States and Canada), Europe (the United Kingdom, Ireland, Spain, Italy and Portugal) and Latin America (Brazil, Argentina, Chile, El Salvador, Peru and Uruguay). We serve customers across a wide range of industries, including the financial services, retail, telecommunications, utilities, automotive, brokerage, healthcare, and insurance industries, as well as state and federal governments. Our revenue stream is highly diversified with our largest customer providing less than 3% of total revenues.  Our revenues are sensitive to a variety of factors, such as demand for, and price of, our services, technological competitiveness, our reputation for providing timely and reliable service, competition within our industry, federal, state, foreign and regulatory requirements governing privacy and use of data, and general economic conditions.

We manage our business and report our financial results through the following three reportable segments:

• Equifax North America
• Equifax Europe
• Equifax Latin America

The North American reportable segment is made up of three operating segments:

• Information Services
• Marketing Services
• Personal Solutions (formerly referred to as Consumer Direct)

The Europe and Latin America reportable segments are made up of varying mixes of three product lines: Information Services, Marketing Services, and Personal Solutions. Detailed financial results and segment information are provided in Part I, Item 1, Financial Statements—Notes to Consolidated Financial Statements, Note 12, Segment Information.

Information Services revenues are principally transaction related, and are derived from our sales of the following products, many of which are delivered electronically: credit reporting and scoring, mortgage reporting, identity verification, fraud detection and modeling services, and certain of our decisioning products that facilitate pre-approved offers of credit that automate a variety of decisions. Revenues from our Marketing Services are derived from our sales of products that help customers acquire new customers. Personal Solutions revenues are transaction related, and are derived from our sales of credit reporting products and identity theft monitoring services, which we deliver to consumers electronically via the Internet and via mail.

We see material opportunities for growth through our ability to identify and enhance our customers’ decisioning intelligence to more effectively interact with, and serve, their customers; broadening our Personal Solutions offerings to consumers; and ultimately moving our own businesses further up our value chain from data to analytics and decisioning technology – the main driver of growth and differentiation in our North American business units.

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Management focuses on a variety of key indicators to monitor operating and financial performance.  These indicators include measurements of revenue growth, operating income, operating margin, income from continuing operations, diluted earnings per share, capital expenditures and cash flow.  The monitoring of these indicators, as well as Equifax’s corporate governance practices, is used to ensure that business vitality is maintained and effective control is exercised.  The success of these measures is reflected in the steady growth of our business and in our strong financial position.  Our strong financial position, in turn provides flexibility for future investments and growth.

Results of Operations

Overview of the three months ended September 30, 2004 and 2003

GAAP Performance Highlights:

• Consolidated revenue was $323.0 million, up 4%;

• Income from continuing operations was $52.7 million, unchanged;

• Earnings per share were $0.40, up 3%;

• Consolidated operating margin increased to 30% from 29%;

• Cash flow from operations was $93.7 million, up 3%;

• North America revenue was $260.8 million, up 2%;

• North America Information Services revenue was $177.3 million, up 1%

• North America Marketing Services revenue was $60.0 million, down 3%;

• North America Personal Solutions revenue was $23.5 million, up 26%;

• Europe revenue was $38.6 million, up 22%; and

• Latin America revenue was $23.6 million, up 10%.

NON-GAAP Performance Highlights:

• Consolidated revenue  - excluding mortgage-related and eMarketing revenue was $268.2 million, up 8%;

• Free cash flow was $80.9 million, up 4%; and

• The impact of an increase in the effective tax rate for the quarter from 37.5% to 39.8% was $2.1 million, or $0.01 per share decline in earnings per share.

Overview Notes:

• Consolidated revenue grew 4% for the third quarter of 2004 compared to 2003 due primarily to growth in the U.K. and Personal Solutions.

• In North America, our largest reportable segment, a trend established during the first six months of the year continued – declines in our mortgage-related revenue were offset by growth in other parts of our U.S. Consumer and Commercial information business, primarily in services provided to financial services, telecommunications and utility customers.

• Our Marketing Services businesses improved operating profit through improved expense control compared to 2003. 

• We continue to prepare for the initial phase-in of consumer eligibility for a free annual credit report, upon request, beginning on December 1, 2004.  See “FACT Act Update” below.

• The increase in the effective tax rate in the third quarter of 2004 is primarily the result of increased tax expense due to limitations on our ability to utilize foreign tax credits.

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Our segment results for the quarters ended September 30, 2004 and 2003 are as follows: