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EXCEL - IDEA: XBRL DOCUMENT - EQUIFAX INC | Financial_Report.xls |
EX-32.1 - EQUIFAX INC | v182291_ex32-1.htm |
EX-32.2 - EQUIFAX INC | v182291_ex32-2.htm |
EX-31.1 - EQUIFAX INC | v182291_ex31-1.htm |
EX-31.2 - EQUIFAX INC | v182291_ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the quarterly period ended March 31, 2010
OR
|
¨
|
TRANSITION REPORT PURSUANT TO
SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
|
For
the transition period
from to .
Commission
File Number: 001-06605
EQUIFAX INC.
(Exact
name of registrant as specified in its charter)
Georgia
(State
or other jurisdiction of
incorporation
or organization)
|
58-0401110
(I.R.S.
Employer
Identification
No.)
|
1550
Peachtree Street, N.W., Atlanta, Georgia
(Address
of principal executive offices)
|
30309
(Zip
Code)
|
404-885-8000
(Registrant’s
telephone number, including area code)
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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer x
|
Accelerated
filer o
|
Non-accelerated
filer o
(Do
not check if a smaller
reporting
company)
|
Smaller
reporting company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ¨ No x
On April
16, 2010, there were 126,612,204 shares of the registrant’s common stock
outstanding.
EQUIFAX INC.
QUARTERLY
REPORT ON FORM 10-Q
QUARTER
ENDED MARCH 31, 2010
INDEX
Page
|
||
PART
I.
|
Financial
Information
|
4
|
Item 1.
|
Financial
Statements (Unaudited)
|
4
|
Consolidated
Statements of Income—Three Months Ended March 31, 2010 and
2009
|
4
|
|
Consolidated
Balance Sheets—March 31, 2010 and December 31,
2009
|
5
|
|
Consolidated
Statements of Cash Flows—Three Months Ended March 31, 2010 and
2009
|
6
|
|
Consolidated
Statements of Equity and Other Comprehensive Income—Three Months Ended
March 31, 2010
|
7
|
|
Notes
to Consolidated Financial Statements
|
8
|
|
Item 2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
17
|
Item 3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
30
|
Item 4.
|
Controls
and Procedures
|
30
|
PART II.
|
Other
Information
|
31
|
Item 1.
|
Legal
Proceedings
|
31
|
Item 1A.
|
Risk
Factors
|
31
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
31
|
Item 6.
|
Exhibits
|
32
|
Signatures
|
33
|
|
Index
to Exhibits
|
34
|
2
FORWARD-LOOKING
STATEMENTS
This
report contains information that may constitute “forward-looking statements.”
Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,”
“project,” “will,” “may” and similar expressions identify forward-looking
statements, which generally are not historical in nature. All statements that
address operating performance, events or developments that we expect or
anticipate will occur in the future, including statements relating to future
operating results, are forward-looking statements. Management believes that
these forward-looking statements are reasonable as and when made. However,
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from our Company’s historical
experience and our present expectations or projections. These risks and
uncertainties include, but are not limited to, those described in Part II,
“Item 1A. Risk Factors,” and elsewhere in this report and in our Annual
Report on Form 10-K for the year ended December 31, 2009, and those
described from time to time in our future reports filed with the Securities and
Exchange Commission. As a result of such risks and uncertainties, we urge you
not to place undue reliance on any such forward-looking statements.
Forward-looking statements speak only as of the date when made. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise, except as required
by law.
3
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS (UNAUDITED)
EQUIFAX INC.
CONSOLIDATED
STATEMENTS OF INCOME
Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
(In
millions, except per share amounts)
|
(Unaudited)
|
|||||||
Operating
revenue
|
$ | 461.3 | $ | 446.6 | ||||
Operating
expenses:
|
||||||||
Cost
of services (exclusive of depreciation and amortization
below)
|
200.3 | 187.0 | ||||||
Selling,
general and administrative expenses
|
112.4 | 122.0 | ||||||
Depreciation
and amortization
|
40.9 | 36.6 | ||||||
Total
operating expenses
|
353.6 | 345.6 | ||||||
Operating
income
|
107.7 | 101.0 | ||||||
Interest
expense
|
(14.2 | ) | (14.3 | ) | ||||
Other
income, net
|
(0.5 | ) | 2.4 | |||||
Consolidated
income from continuing operations before income taxes
|
93.0 | 89.1 | ||||||
Provision
for income taxes
|
(35.0 | ) | (34.1 | ) | ||||
Consolidated
income from continuing operations
|
58.0 | 55.0 | ||||||
Discontinued
operations, net of tax
|
0.6 | 1.1 | ||||||
Consolidated
net income
|
58.6 | 56.1 | ||||||
Less: Net
income attributable to noncontrolling interests
|
(1.9 | ) | (1.7 | ) | ||||
Net
income attributable to Equifax
|
$ | 56.7 | $ | 54.4 | ||||
Amounts
attributable to Equifax:
|
||||||||
Net
income from continuing operations attributable to Equifax
|
$ | 56.1 | $ | 53.3 | ||||
Discontinued
operations, net of tax
|
0.6 | 1.1 | ||||||
Net
income attributable to Equifax
|
$ | 56.7 | $ | 54.4 | ||||
Basic
earnings per common share:
|
||||||||
Net
income from continuing operations attributable to Equifax
|
$ | 0.44 | $ | 0.42 | ||||
Discontinued
operations attributable to Equifax
|
0.01 | 0.01 | ||||||
Net
income attributable to Equifax
|
$ | 0.45 | $ | 0.43 | ||||
Weighted-average
shares used in computing basic earnings per share
|
126.3 | 126.2 | ||||||
Diluted
earnings per common share:
|
||||||||
Net
income from continuing operations attributable to Equifax
|
$ | 0.44 | $ | 0.42 | ||||
Discontinued
operations attributable to Equifax
|
- | 0.01 | ||||||
Net
income attributable to Equifax
|
$ | 0.44 | $ | 0.43 | ||||
Weighted-average
shares used in computing diluted earnings per share
|
128.1 | 127.4 | ||||||
Dividends
per common share
|
$ | 0.04 | $ | 0.04 |
See Notes
to Consolidated Financial Statements.
4
EQUIFAX INC.
CONSOLIDATED
BALANCE SHEETS
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(In
millions, except par values)
|
(Unaudited)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 77.1 | $ | 103.1 | ||||
Trade
accounts receivable, net of allowance for doubtful accounts of $12.3 and
$15.1 at March 31, 2010 and December 31, 2009,
respectively
|
258.5 | 258.7 | ||||||
Prepaid
expenses
|
37.7 | 27.6 | ||||||
Other
current assets
|
73.5 | 27.4 | ||||||
Total
current assets
|
446.8 | 416.8 | ||||||
Property
and equipment:
|
||||||||
Capitalized
internal-use software and system costs
|
302.4 | 316.6 | ||||||
Data
processing equipment and furniture
|
180.7 | 184.2 | ||||||
Land,
buildings and improvements
|
165.3 | 164.5 | ||||||
Total
property and equipment
|
648.4 | 665.3 | ||||||
Less
accumulated depreciation and amortization
|
(338.9 | ) | (346.0 | ) | ||||
Total
property and equipment, net
|
309.5 | 319.3 | ||||||
Goodwill
|
1,916.2 | 1,943.2 | ||||||
Indefinite-lived
intangible assets
|
95.6 | 95.5 | ||||||
Purchased
intangible assets, net
|
645.7 | 687.0 | ||||||
Other
assets, net
|
91.8 | 88.7 | ||||||
Total
assets
|
$ | 3,505.6 | $ | 3,550.5 | ||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Short-term
debt and current maturities
|
$ | 157.2 | $ | 154.2 | ||||
Capitalized
lease obligation
|
- | 29.0 | ||||||
Accounts
payable
|
26.0 | 35.9 | ||||||
Accrued
expenses
|
62.6 | 67.7 | ||||||
Accrued
salaries and bonuses
|
28.7 | 58.1 | ||||||
Deferred
revenue
|
68.6 | 69.8 | ||||||
Other
current liabilities
|
86.3 | 77.5 | ||||||
Total
current liabilities
|
429.4 | 492.2 | ||||||
Long-term
debt
|
990.6 | 990.9 | ||||||
Deferred
income tax liabilities, net
|
248.2 | 249.3 | ||||||
Long-term
pension and other postretirement benefit liabilities
|
119.9 | 142.5 | ||||||
Other
long-term liabilities
|
54.3 | 60.6 | ||||||
Total
liabilities
|
1,842.4 | 1,935.5 | ||||||
Commitments
and Contingencies (see Note 5)
|
||||||||
Equifax
shareholders' equity:
|
||||||||
Preferred
stock, $0.01 par value: Authorized shares - 10.0; Issued shares -
none
|
- | - | ||||||
Common
stock, $1.25 par value: Authorized shares - 300.0; Issued shares - 189.3
at March 31, 2010 and December 31, 2009; Outstanding shares - 126.6 and
126.2 at March 31, 2010 and December 31, 2009,
respectively
|
236.6 | 236.6 | ||||||
Paid-in
capital
|
1,097.3 | 1,102.0 | ||||||
Retained
earnings
|
2,545.8 | 2,494.2 | ||||||
Accumulated
other comprehensive loss
|
(330.1 | ) | (318.7 | ) | ||||
Treasury
stock, at cost, 60.6 shares and 61.0 shares at March 31, 2010 and December
31, 2009, respectively
|
(1,860.5 | ) | (1,871.7 | ) | ||||
Stock
held by employee benefits trusts, at cost, 2.1 shares at March 31, 2010
and December 31, 2009
|
(41.2 | ) | (41.2 | ) | ||||
Total
Equifax shareholders' equity
|
1,647.9 | 1,601.2 | ||||||
Noncontrolling
interests
|
15.3 | 13.8 | ||||||
Total
equity
|
1,663.2 | 1,615.0 | ||||||
Total
liabilities and equity
|
$ | 3,505.6 | $ | 3,550.5 |
See Notes
to Consolidated Financial Statements.
5
EQUIFAX INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
(In
millions)
|
(Unaudited)
|
|||||||
Operating
activities:
|
||||||||
Consolidated
net income
|
$ | 58.6 | $ | 56.1 | ||||
Adjustments
to reconcile consolidated net income to net cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
42.5 | 38.2 | ||||||
Stock-based
compensation expense
|
4.4 | 3.7 | ||||||
Tax
effects of stock-based compensation plans
|
1.4 | (0.1 | ) | |||||
Excess
tax benefits from stock-based compensation plans
|
(1.4 | ) | (0.2 | ) | ||||
Deferred
income taxes
|
(0.1 | ) | 3.2 | |||||
Changes
in assets and liabilities, excluding effects of
acquisitions:
|
||||||||
Accounts
receivable, net
|
(5.8 | ) | (10.3 | ) | ||||
Prepaid
expenses and other current assets
|
(7.9 | ) | (3.3 | ) | ||||
Other
assets
|
3.5 | (0.3 | ) | |||||
Current
liabilities, excluding debt
|
(34.1 | ) | (28.7 | ) | ||||
Other
long-term liabilities, excluding debt
|
(23.4 | ) | (13.8 | ) | ||||
Cash
provided by operating activities
|
37.7 | 44.5 | ||||||
Investing
activities:
|
||||||||
Capital
expenditures
|
(50.0 | ) | (15.0 | ) | ||||
Acquisitions,
net of cash acquired
|
(6.0 | ) | - | |||||
Dividend
from unconsolidated affiliates
|
- | 1.0 | ||||||
Cash
used in investing activities
|
(56.0 | ) | (14.0 | ) | ||||
Financing
activities:
|
||||||||
Net
short-term borrowings
|
2.7 | 260.1 | ||||||
Net
repayments under long-term revolving credit facilities
|
(4.6 | ) | (270.0 | ) | ||||
Proceeds
from issuance of long-term debt
|
1.4 | - | ||||||
Payments
on long-term debt
|
(3.1 | ) | (6.4 | ) | ||||
Treasury
stock purchases
|
(9.4 | ) | (9.1 | ) | ||||
Dividends
paid to Equifax shareholders
|
(5.0 | ) | (5.0 | ) | ||||
Dividends
paid to noncontrolling interests
|
(0.3 | ) | (0.4 | ) | ||||
Proceeds
from exercise of stock options
|
11.6 | 3.4 | ||||||
Excess
tax benefits from stock-based compensation plans
|
1.4 | 0.2 | ||||||
Other
|
(0.2 | ) | (0.5 | ) | ||||
Cash
used in financing activities
|
(5.5 | ) | (27.7 | ) | ||||
Effect
of foreign currency exchange rates on cash and cash
equivalents
|
(2.2 | ) | (1.0 | ) | ||||
(Decrease)
increase in cash and cash equivalents
|
(26.0 | ) | 1.8 | |||||
Cash
and cash equivalents, beginning of period
|
103.1 | 58.2 | ||||||
Cash
and cash equivalents, end of period
|
$ | 77.1 | $ | 60.0 |
See Notes
to Consolidated Financial Statements.
6
EQUIFAX INC.
CONSOLIDATED
STATEMENT OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME
For
the Three Months Ended March 31, 2010
(Unaudited)
Equifax Shareholders
|
||||||||||||||||||||||||||||||||||||
Stock
|
||||||||||||||||||||||||||||||||||||
Accumulated
|
Held By
|
|||||||||||||||||||||||||||||||||||
Common Stock
|
Other
|
Employee
|
||||||||||||||||||||||||||||||||||
Shares
|
Paid-In
|
Retained
|
Comprehensive
|
Treasury
|
Benefits
|
Noncontrolling
|
Total
|
|||||||||||||||||||||||||||||
Outstanding
|
Amount
|
Capital
|
Earnings
|
Loss
|
Stock
|
Trusts
|
Interests
|
Equity
|
||||||||||||||||||||||||||||
(In
millions, except per share amounts)
|
||||||||||||||||||||||||||||||||||||
Balance,
December 31, 2009
|
126.2 | $ | 236.6 | $ | 1,102.0 | $ | 2,494.2 | $ | (318.7 | ) | $ | (1,871.7 | ) | $ | (41.2 | ) | $ | 13.8 | $ | 1,615.0 | ||||||||||||||||
Net
income
|
- | - | - | 56.7 | - | - | - | 1.9 | 58.6 | |||||||||||||||||||||||||||
Other
comprehensive income
|
- | - | - | - | (11.4 | ) | - | - | (0.1 | ) | (11.5 | ) | ||||||||||||||||||||||||
Shares
issued under stock and benefit plans, net of minimum tax
withholdings
|
0.7 | - | (10.6 | ) | - | - | 20.6 | - | - | 10.0 | ||||||||||||||||||||||||||
Treasury
stock purchased under share repurchase program ($31.43 per
share)*
|
(0.3 | ) | - | - | - | - | (9.4 | ) | - | - | (9.4 | ) | ||||||||||||||||||||||||
Cash
dividends ($0.04 per share)
|
- | - | - | (5.1 | ) | - | - | - | - | (5.1 | ) | |||||||||||||||||||||||||
Dividends
paid to employee benefits trusts
|
- | - | 0.1 | - | - | - | - | - | 0.1 | |||||||||||||||||||||||||||
Stock-based
compensation expense
|
- | - | 4.4 | - | - | - | - | - | 4.4 | |||||||||||||||||||||||||||
Tax
effects of stock-based compensation plans
|
- | - | 1.4 | - | - | - | - | - | 1.4 | |||||||||||||||||||||||||||
Dividends
paid to noncontrolling interests
|
- | - | - | - | - | - | - | (0.3 | ) | (0.3 | ) | |||||||||||||||||||||||||
Balance,
March 31, 2010
|
126.6 | $ | 236.6 | $ | 1,097.3 | $ | 2,545.8 | $ | (330.1 | ) | $ | (1,860.5 | ) | $ | (41.2 | ) | $ | 15.3 | $ | 1,663.2 |
*
|
At
March 31, 2010, $112.5 million was authorized for future
purchases of common stock under our share repurchase
authorization.
|
Accumulated
Other Comprehensive Loss consists of the following components:
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(In
millions)
|
||||||||
Foreign
currency translation
|
$ | (113.1 | ) | $ | (99.9 | ) | ||
Unrecognized
actuarial losses and prior service cost related to our pension and other
postretirement benefit plans, net of accumulated tax of $124.0 and $124.9
at March 31, 2010 and December 31, 2009, respectively
|
(214.5 | ) | (216.2 | ) | ||||
Cash
flow hedging transactions, net of tax of $1.6 and $1.7 at March 31, 2010
and December 31, 2009, respectively
|
(2.5 | ) | (2.6 | ) | ||||
Accumulated
other comprehensive loss
|
$ | (330.1 | ) | $ | (318.7 | ) |
Comprehensive
Income is as follows:
Three Months Ended March 31,
|
||||||||||||||||||||||||
2010
|
2009
|
|||||||||||||||||||||||
Equifax
|
Noncontrolling
|
Equifax
|
Noncontrolling
|
|||||||||||||||||||||
Shareholders
|
Interests
|
Total
|
Shareholders
|
Interests
|
Total
|
|||||||||||||||||||
(In
millions)
|
||||||||||||||||||||||||
Net
income
|
$ | 56.7 | $ | 1.9 | $ | 58.6 | $ | 54.4 | $ | 1.7 | $ | 56.1 | ||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||
Foreign
currency translation adjustment
|
(13.2 | ) | (0.1 | ) | (13.3 | ) | 5.1 | (0.6 | ) | 4.5 | ||||||||||||||
Recognition
of prior service cost and actuarial losses related to our pension and
other postretirement benefit plans
|
1.7 | - | 1.7 | 1.6 | - | 1.6 | ||||||||||||||||||
Change
in cumulative loss from cash flow hedging transactions
|
0.1 | - | 0.1 | 0.3 | - | 0.3 | ||||||||||||||||||
Comprehensive
income
|
$ | 45.3 | $ | 1.8 | $ | 47.1 | $ | 61.4 | $ | 1.1 | $ | 62.5 |
See Notes
to Consolidated Financial Statements.
7
EQUIFAX INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March
31, 2010
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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of
Operations. We collect, organize and manage various types of
financial, demographic, employment and marketing information. Our products and
services enable businesses to make credit and service decisions, manage their
portfolio risk, automate or outsource certain payroll, tax and human resources
business processes, 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 government agencies. We also enable consumers to manage and protect their
financial health through a portfolio of products offered directly to consumers.
As of March 31, 2010, we operated in the following countries: Argentina, Brazil,
Canada, Chile, Ecuador, El Salvador, Honduras, Peru, Portugal, Spain, the United
Kingdom, or U.K., Uruguay, and the United States of America, or U.S. We also
maintain support operations in Costa Rica and the Republic of Ireland. We own an
equity interest in a consumer credit information company in Russia. In March
2010, our Indian joint venture received a license to operate a nationwide credit
information company in India.
We
develop, maintain and enhance secured proprietary information databases through
the compilation of actual consumer data, including credit, employment, asset,
liquidity, net worth and spending activity, and business data, including credit
and business demographics, that we obtain from a variety of sources, such as
credit granting institutions, public record information (including bankruptcies,
liens and judgments), income and tax information primarily from large to
mid-sized companies in the U.S., and marketing information. We
process this information utilizing our proprietary information management
systems.
Basis of
Presentation. The accompanying unaudited Consolidated
Financial Statements have been prepared in accordance with U.S. generally
accepted accounting principles, or GAAP, the instructions to Form 10-Q and
applicable sections of Regulation S-X. To understand our complete financial
position and results, as defined by GAAP, this Form 10-Q 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, 2009, or 2009 Form 10-K.
Our
unaudited Consolidated Financial Statements reflect all adjustments which are,
in the opinion of management, necessary for a fair presentation of the periods
presented. Certain prior year amounts have been reclassified to conform to
current year presentation including the results of a business reclassified as a
discontinued operation, which is more fully described in Note 2 of the Notes to
Consolidated Financial Statements. The effect of these reclassifications was not
material.
Earnings Per
Share. Our basic earnings per share, or EPS, is calculated as
net income divided by the weighted-average number of common shares outstanding
during the period. Diluted EPS is calculated to reflect the potential dilution
that would occur if stock options or other contracts to issue common stock were
exercised and resulted in additional common shares outstanding. The net income
amounts used in both our basic and diluted EPS calculations are the same. A
reconciliation of the weighted-average outstanding shares used in the two
calculations is as follows:
8
Three Months Ended March 31,
|
||||||||
2010
|
2009
|
|||||||
(In
millions)
|
||||||||
Weighted-average
shares outstanding (basic)
|
126.3 | 126.3 | ||||||
Effect
of dilutive securities:
|
||||||||
Stock
options and restricted stock units
|
1.8 | 1.1 | ||||||
Weighted-average
shares outstanding (diluted)
|
128.1 | 127.4 |
For the
three months ended March 31, 2010 and 2009, 3.3 million and
4.5 million stock options, respectively, were anti-dilutive and therefore
excluded from this calculation.
Financial
Instruments. Our financial instruments consist primarily of
cash and cash equivalents, accounts and notes receivable, accounts payable and
short-term 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 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
March 31, 2010 and December 31, 2009, the fair value of our fixed-rate debt was
$1.04 billion and $1.02 billion, respectively, compared to its carrying value of
$1.01 billion and $1.00 billion, respectively.
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 manage
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 counterparty risk. As of March 31, 2010, we do
not have any unsettled cash flow hedges. The fair value liability of
our unsettled foreign currency cash flow hedges was not material at December 31,
2009.
Fair Value
Hedges. In conjunction with our November 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 interest 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 fair value of these interest rate swaps was an asset of
$3.3 million at March 31, 2010 and was recorded in other long-term assets on our
Consolidated Balance Sheet. The fair value of these interest rate
swaps was a liability of $3.3 million at December 31, 2009 and was recorded in
other long-term liabilities on our Consolidated Balance Sheet.
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 quoted prices in
active markets, inputs other than quoted prices with observable market data and
unobservable data (e.g., a company’s own data).
The
following table presents items measured at fair value on a recurring
basis:
9
Fair Value Measurements at Reporting Date Using:
|
||||||||||||||||
Description
|
Fair Value of
Assets
(Liabilities) at
March 31, 2010
|
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
|
Significant Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
(In
millions)
|
||||||||||||||||
Fair
Value Interest Rate Swaps(2)
|
$ | 3.3 | $ | - | $ | 3.3 | $ | - | ||||||||
Deferred
Compensation Plan(1)
|
(11.3 | ) | (11.3 | ) | - | - | ||||||||||
Total
|
$ | (8.0 | ) | $ | (11.3 | ) | $ | 3.3 | $ | - |
(1)
We
maintain a deferred compensation plan that allows for certain management
employees to defer the receipt of compensation (such as salary, incentive
compensation and commissions) until a later date based on the terms of the plan.
The liability representing benefits accrued for plan participants is valued at
the quoted market prices of the participants’ elections for investments.
Identical instruments are traded in active markets as of March 31, 2010. As
such, we have classified this liability as Level 1 within the fair value
hierarchy.
(2)
The fair
value of our interest rate swaps, designated as fair value hedges, is based on
the present value of expected future cash flows using zero coupon rates and is
classified within Level 2 of the fair value hierarchy.
Variable Interest
Entities. We hold interests in certain entities, including
credit data and information solutions ventures, that are considered variable
interest entities, or VIEs. These variable interests relate to
ownership interests that require financial support for these
entities. Our investments related to these VIEs totaled $8.7 million
at March 31, 2010, representing our maximum exposure to loss. We are
not the primary beneficiary and are not required to consolidate any of these
VIEs.
Recent Accounting
Pronouncements. Fair Value
Disclosures. In January 2010, the Financial Accounting
Standards Board, or FASB, issued guidance requiring additional fair value
disclosures for significant transfers between levels of the fair value hierarchy
and gross presentation of items within the Level 3 reconciliation. This
guidance also clarifies that entities need to disclose fair value information
for each class of asset and liability measured at fair value and that valuation
techniques need to be provided for all non-market observable measurements. Our
adoption of this guidance on January 1, 2010, did not impact our
Consolidated Financial Statements as we have no items classified as Level
3.
Variable Interest
Entities. In June 2009, the FASB amended the consolidation
guidance for variable-interest entities and expanded disclosure requirements.
The new guidance requires an enterprise to perform an analysis to determine
whether the enterprise’s variable interests give it a controlling financial
interest in the variable interest entity. The adoption of this guidance as noted
above on January 1, 2010, did not have a material impact on our
Consolidated Financial Statements.
For
additional information about recent accounting pronouncements adopted or pending
adoption, see Note 1 of the Notes to Consolidated Financial Statements in
our 2009 Form 10-K.
10
2.
DISCONTINUED OPERATION
On April 23, 2010, we sold our Equifax
Enabling Technologies LLC legal entity, consisting of our APPRO loan origination
software (“APPRO”), for approximately $72 million. APPRO was
previously reported in our U.S. Consumer Information Solutions
segment. The results of operations for our APPRO business for the
three months ended March 31, 2010 and 2009 were classified as a discontinued
operation. Revenue for this business for the three months ended March
31, 2010 and 2009 was $5.3 million and $6.3 million,
respectively. Pretax income was not material for the three month
periods ended March 31, 2010 and 2009. We expect to record a gain
from the sale in the second quarter of 2010 of approximately $12 million, after
tax.
As of March 31, 2010, assets and
liabilities comprising the APPRO disposal group were considered held for
sale. APPRO’s assets, all of which are classified as current, and
liabilities classified as held for sale at March 31, 2010 were as
follows:
March 31,
|
||||
2010
|
||||
(In millions)
|
||||
Current
assets
|
$ | 5.0 | ||
Noncurrent
assets
|
42.8 | |||
Current
liabilities
|
(5.9 | ) | ||
Net
assets held for sale
|
$ | 41.9 |
3.
GOODWILL AND INTANGIBLE ASSETS
Goodwill. Goodwill
represents the cost in excess of the fair value of the net assets acquired in a
business combination. Goodwill is tested for impairment at the reporting unit
level on an annual basis and on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. We perform our annual goodwill impairment tests as of
September 30.
Changes
in the amount of goodwill for the three months ended March 31, 2010, are as
follows:
U.S. Consumer
|
North America
|
North America
|
||||||||||||||||||||||
Information
|
Personal
|
Commercial
|
||||||||||||||||||||||
Solutions
|
International
|
TALX
|
Solutions
|
Solutions
|
Total
|
|||||||||||||||||||
(In millions)
|
||||||||||||||||||||||||
Balance,
December 31, 2009
|
$ | 667.8 | $ | 335.7 | $ | 900.6 | $ | 1.8 | $ | 37.3 | $ | 1,943.2 | ||||||||||||
Foreign
currency translation
|
- | (11.0 | ) | - | - | 0.1 | (10.9 | ) | ||||||||||||||||
Tax
benefits of stock options exercised
|
- | - | (0.4 | ) | - | - | (0.4 | ) | ||||||||||||||||
Held
for sale
|
(15.7 | ) | - | - | - | - | (15.7 | ) | ||||||||||||||||
Balance,
March 31, 2010
|
$ | 652.1 | $ | 324.7 | $ | 900.2 | $ | 1.8 | $ | 37.4 | $ | 1,916.2 |
Indefinite-Lived
Intangible Assets. Indefinite-lived intangible assets consist
of contractual/territorial rights representing the estimated fair value of
rights to operate in certain territories acquired through the purchase of
independent credit reporting agencies in the U.S. and Canada. Our
contractual/territorial rights are perpetual in nature and, therefore, the
useful lives are considered indefinite. Indefinite-lived intangible assets are
not amortized. We are required to test indefinite-lived intangible assets for
impairment annually and whenever events or circumstances indicate that there may
be an impairment of the asset value. We perform our annual indefinite-lived
intangible asset impairment test as of September 30. Our
contractual/territorial rights carrying amounts did not change materially during
the three months ended March 31, 2010.
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 consumer credit files, on a straight-line
basis. Primarily all of our other purchased intangible assets are also amortized
on a straight-line basis. For additional information about the useful lives
related to our purchased intangible assets, see Note 1 of the Notes to
Consolidated Financial Statements in our 2009 Form 10-K.
11
Purchased
intangible assets at March 31, 2010 and December 31, 2009 consisted of the
following:
March 31, 2010
|
December 31, 2009
|
|||||||||||||||||||||||
Accumulated
|
Accumulated
|
|||||||||||||||||||||||
Gross
|
Amortization
|
Net
|
Gross
|
Amortization
|
Net
|
|||||||||||||||||||
|
(In
millions)
|
|||||||||||||||||||||||
Definite-lived intangible assets: | ||||||||||||||||||||||||
Purchased
data files
|
$ | 375.2 | $ | (247.6 | ) | $ | 127.6 | $ | 373.8 | $ | (240.6 | ) | $ | 133.2 | ||||||||||
Acquired
software and technology
|
42.3 | (26.2 | ) | 16.1 | 70.3 | (37.1 | ) | 33.2 | ||||||||||||||||
Customer
relationships
|
480.8 | (75.5 | ) | 405.3 | 488.0 | (70.8 | ) | 417.2 | ||||||||||||||||
Proprietary
database
|
125.0 | (57.8 | ) | 67.2 | 125.0 | (52.2 | ) | 72.8 | ||||||||||||||||
Non-compete
agreements
|
3.3 | (0.7 | ) | 2.6 | 3.3 | (0.5 | ) | 2.8 | ||||||||||||||||
Trade
names and other intangible assets
|
36.0 | (9.1 | ) | 26.9 | 36.0 | (8.2 | ) | 27.8 | ||||||||||||||||
Total
definite-lived intangible assets
|
$ | 1,062.6 | $ | (416.9 | ) | $ | 645.7 | $ | 1,096.4 | $ | (409.4 | ) | $ | 687.0 |
Amortization
expense related to purchased intangible assets was $23.0 million and
$20.3 million during the three months ended March 31, 2010 and 2009,
respectively.
4.
DEBT
Debt
outstanding at March 31, 2010 and December 31, 2009 was as
follows:
March 31,
|
December 31,
|
|||||||
2010
|
2009
|
|||||||
(In
millions)
|
||||||||
Commercial
paper, weighted-average rate of 0.3% and 0.4% in 2010 and 2009,
respectively
|
$ | 137.7 | $ | 135.0 | ||||
Notes,
4.25%, due in installments through May 2012
|
4.6 | 7.6 | ||||||
Notes,
7.34%, due in installments through May 2014
|
75.0 | 75.0 | ||||||
Notes,
4.45%, due December 2014
|
275.0 | 275.0 | ||||||
Notes,
6.30%, due July 2017
|
272.5 | 272.5 | ||||||
Debentures,
6.90%, due July 2028
|
125.0 | 125.0 | ||||||
Notes,
7.00%, due July 2037
|
250.0 | 250.0 | ||||||
Borrowings
under long-term revolving credit facilities, weighted-average rate of 0.9%
in 2009
|
- | 4.8 | ||||||
Capitalized
lease obligation
|
- | 29.0 | ||||||
Other
|
4.4 | 3.1 | ||||||
Total
debt
|
1,144.2 | 1,177.0 | ||||||
Less
short-term debt and current maturities
|
(157.2 | ) | (154.2 | ) | ||||
Less
capitalized lease obligation
|
- | (29.0 | ) | |||||
Less
unamortized discounts
|
(2.3 | ) | (2.4 | ) | ||||
Plus
fair value adjustments
|
5.9 | (0.5 | ) | |||||
Total
long-term debt, net
|
$ | 990.6 | $ | 990.9 |
Senior Credit
Facility. We are party to an $850.0 million senior
unsecured revolving credit facility, which we refer to as the Senior Credit
Facility, with a group of financial institutions. Borrowings may be used for
general corporate purposes, including working capital, capital expenditures,
acquisitions and share repurchase programs. The Senior Credit Facility is
scheduled to expire in July 2011. Availability of the Senior Credit Facility for
borrowings is reduced by the outstanding face amount of any letters of credit
issued under the facility and, pursuant to our existing Board of Directors
authorization, by the outstanding principal amount of our commercial paper
notes. As of March 31, 2010, there were no outstanding borrowings under this
facility and $708.6 million was available for borrowings.
12
Commercial Paper
Program. Our $850.0 million commercial paper program has
been established through the private placement of commercial paper notes from
time-to-time. Maturities of commercial paper can range from overnight to
397 days. The commercial paper program is supported by our Senior Credit
Facility and, pursuant to our existing Board of Directors authorization, the
total amount of commercial paper which may be issued is reduced by the amount of
any outstanding borrowings under our Senior Credit Facility. At March 31, 2010,
$137.7 million in commercial paper notes was outstanding, all with
maturities of less than 90 days.
Canadian Credit
Facility. We are a party to a credit agreement with a Canadian
financial institution that provides for a C$20.0 million (denominated in
Canadian dollars), 364-day revolving credit agreement. This agreement is
scheduled to expire in June 2010. As of March 31, 2010, there were no
outstanding borrowings under this facility.
For
additional information about our debt agreements, see Note 4 of the Notes
to Consolidated Financial Statements in our 2009 Form 10-K.
5.
COMMITMENTS AND CONTINGENCIES
Headquarters
Building. On February 26, 2010, we purchased our
headquarters building in Atlanta, Georgia, for cash consideration of
$29.1 million, including fees. The building and related capital
lease obligation were recorded on our Consolidated Balance Sheets in February
2009 when we provided the lessor notification of our intent to purchase the
building.
Data Processing,
Outsourcing Services and Other Agreements. We have separate
agreements with IBM, Acxiom, Tata Consultancy Services and others to outsource
portions of our computer data processing operations, applications development,
maintenance and related functions and to provide certain other administrative
and operational services. The agreements expire between 2010 and 2014. The
estimated aggregate minimum contractual obligation remaining under these
agreements was approximately $175 million at December 31, 2009, with
no future year’s minimum contractual obligation expected to exceed approximately
$55 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; foreign currency; or the general
rate of inflation. 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, or CSC, 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 activities. We receive a
processing fee for maintaining the database and for each report supplied. The
agreement will expire on July 31, 2018, and is renewable at the option of
CSC for successive ten-year periods. The agreement provides us with an option to
purchase CSC’s credit reporting business if it 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 December 31, 2009, the price
range would be approximately $600 million to $675 million. This
estimate is based solely on our internal analysis of the value of the business,
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 our estimate.
Guarantees and
General Indemnifications. We may 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 not material at March 31, 2010, and all have a remaining maturity of
one year or less. The maximum potential future payments we could be required to
make under the guarantees is not material at March 31, 2010.
13
We have
agreed to standard indemnification clauses in many of our lease agreements for
office space, covering such things as tort, environmental and other liabilities
that arise out of or relate to our use or occupancy of the leased premises.
Certain of our credit agreements include provisions which require us to make
payments to preserve an expected economic return to the lenders if that economic
return is diminished due to certain changes in law or regulations. In
conjunction with certain transactions, such as sales or purchases of operating
assets or services in the ordinary course of business, or the disposition of
certain assets or businesses, we sometimes provide routine indemnifications, the
terms of which range in duration and sometimes are not limited. Additionally,
the Company has entered into indemnification agreements with its directors and
executive officers to indemnify such individuals to the fullest extent permitted
by law against liabilities that arise by reason of their status as directors or
officers. The Company maintains directors and officers liability insurance
coverage to reduce its exposure to such obligations.
We cannot
reasonably estimate our potential future payments under the indemnities and
related provisions described above because we cannot predict when and under what
circumstances these provisions may be triggered. We had no accruals related to
indemnifications on our Consolidated Balance Sheets at March 31, 2010 or
December 31, 2009.
Contingencies. We
are involved in legal proceedings, claims and litigation arising in the ordinary
course of business. We periodically assess our exposure related to these matters
based on the information which is available. We have recorded accruals in our
Consolidated Financial Statements for those matters in which it is probable that
we have incurred a loss and the amount of the loss, or range of loss, can be
reasonably estimated.
For other
legal proceedings, claims and litigation, we have recorded loss contingencies
that are immaterial, or we cannot reasonably estimate the potential loss because
of uncertainties about the outcome of the matter and the amount of the loss or
range of loss. Although the final outcome of these other matters cannot be
predicted with certainty, any possible adverse outcome arising from these
matters is not expected to have a material impact on our Consolidated Financial
Statements, either individually or in the aggregate. However, our evaluation of
the likely impact of these matters may change in the future.
Tax
Matters. In 2003, the Canada Revenue Agency, or CRA, issued
Notices of Reassessment, asserting that Acrofax, Inc., a wholly-owned
Canadian subsidiary of Equifax, is liable for additional tax for the 1995
through 2000 tax years, related to certain intercompany capital contributions
and loans. The additional tax sought by the CRA for these periods ranges, based
on alternative theories, from $8.4 million (8.5 million in Canadian
dollars) to $18.6 million (19.0 million in Canadian dollars) plus
interest and penalties. Subsequently in 2003, we made a statutorily-required
deposit for a portion of the claim. We intend to vigorously contest these
reassessments and do not believe we have violated any statutory provision or
rule. While we believe our potential exposure is less than the asserted claims
and not material to our Consolidated Financial Statements, if the final outcome
of this matter was unfavorable to us, an additional claim may be filed by the
local province. The likelihood and potential amount of such claim is unknown at
this time. We cannot predict when this tax matter will be resolved.
For
additional information about these and other commitments and contingencies, see
Note 5 of the Notes to Consolidated Financial Statements in our 2009
Form 10-K.
6.
INCOME TAXES
We are
subject to U.S. federal, state and international income taxes. We are generally
no longer subject to federal, state, or international income tax examinations by
tax authorities for years ending prior to December 31, 2002, with few
exceptions. In Canada, we are under audit by the Canada Revenue Agency for the
1995 through 2000 tax years (see Note 5 of the Notes to Consolidated
Financial Statements). For the U.K., tax years after 1999 are open for
examination. Due to the potential for resolution of state and foreign
examinations, and the expiration of various statutes of limitations, it is
reasonably possible that our gross unrecognized tax benefit balance may change
within the next twelve months by a range of zero to $6.4 million, related
primarily to issues involving our U.K. operations.
Effective Tax
Rate. Our effective income tax rate was 37.6% for the three
months ended March 31, 2010, down from 38.3% for the same period in 2009, as a
higher foreign tax rate in 2010 was more than offset by an unfavorable discrete
item recorded in the first quarter of 2009 related to the effect of a change in
California state income taxes on our deferred tax liabilities.
14
7.
BENEFIT PLANS
We
sponsor defined benefit pension plans and defined contribution plans. We also
maintain certain healthcare and life insurance benefit plans for eligible active
and retired employees. For additional information about our benefit plans, see
Note 9 of the Notes to Consolidated Financial Statements in our 2009
Form 10-K.
The
following table provides the components of net periodic benefit cost for the
three months ended March 31, 2010 and 2009:
Pension Benefits
|
Other Benefits
|
|||||||||||||||
Three Months Ended March 31,
|
||||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
(In
millions)
|
||||||||||||||||
Service
cost
|
$ | 1.5 | $ | 1.4 | $ | 0.1 | $ | 0.1 | ||||||||
Interest
cost
|
8.7 | 8.8 | 0.5 | 0.5 | ||||||||||||
Expected
return on plan assets
|
(11.1 | ) | (11.3 | ) | (0.4 | ) | (0.4 | ) | ||||||||
Amortization
of prior service cost
|
0.2 | 0.2 | (0.1 | ) | (0.1 | ) | ||||||||||
Recognized
actuarial loss
|
2.2 | 2.2 | 0.3 | 0.3 | ||||||||||||
Total
net periodic benefit cost
|
$ | 1.5 | $ | 1.3 | $ | 0.4 | $ | 0.4 |
8.
RESTRUCTURING CHARGES
2009
Restructuring Charges. In the fourth quarter of 2009, we
recorded a $16.4 million restructuring charge ($10.4 million, net of
tax) in selling, general and administrative expenses on our Consolidated
Statements of Income primarily related to headcount reductions of approximately
400 positions. This charge resulted from our continuing efforts to align our
business to better support our strategic objectives. Generally, severance
benefits for our U.S. employees are paid through monthly payroll according to
the number of weeks of severance benefit provided to the employee, while our
international employees receive a lump sum severance payment for their benefit.
Accordingly, we expect the majority of the payments to be completed by December
2010. Payments related to this charge totaled $3.1 million for the three
months ended March 31, 2010. Total payments to date, through March
31, 2010, related to the fourth quarter 2009 restructuring charge were $4.8
million.
During
the first quarter of 2009, we recorded in selling, general and administrative
expenses on our Consolidated Statements of Income an $8.4 million
restructuring charge ($5.4 million, net of tax) associated with headcount
reductions of approximately 300 positions. This charge resulted from our efforts
to reduce and manage our expenses and to maintain our financial results in the
face of a weak global economy and reduced revenues. The majority of the payments
were completed by the end of the first quarter of 2010. Payments related to this
charge were not material during the three months ended March 31,
2010. Total payments to date, through March 31, 2010, related to the
first quarter 2009 restructuring charge were $7.7 million.
9.
SEGMENT INFORMATION
Reportable
Segments. We manage our business and report our financial
results through the following five reportable segments, which are the same as
our operating segments:
|
•
|
U.S.
Consumer Information Solutions
|
|
•
|
International
|
|
•
|
TALX
|
|
•
|
North
America Personal Solutions
|
|
•
|
North
America Commercial Solutions
|
15
The
accounting policies of the reportable segments are the same as those described
in our summary of significant accounting policies in Note 1 of the Notes to
Consolidated Financial Statements in our 2009 Form 10-K. We evaluate the
performance of these reportable segments based on their operating revenues,
operating income and operating margins, excluding unusual or infrequent items,
if any. Inter-segment sales and transfers are not material for all periods
presented. The measurement criteria for segment profit or loss and segment
assets are substantially the same for each reportable segment. All transactions
between segments are accounted for at cost, and no timing differences occur
between segments.
A summary
of segment products and services is as follows:
U.S. Consumer
Information Solutions. This segment includes consumer
information services (such as credit information and credit scoring, credit
modeling services, locate services, fraud detection and prevention services,
identity verification services and other consulting services); mortgage loan
origination information, appraisal, title and closing services; consumer
financial marketing services; and consumer demographic and lifestyle information
services.
International. This
segment includes information services products, which includes consumer and
commercial services (such as credit and financial information, credit scoring
and credit modeling services), credit and other marketing products and services,
and products and services sold directly to consumers similar to those sold by
North America Personal Solutions.
TALX. This
segment includes employment, income and social security number verification
services (known as The Work Number®) and
employment tax and talent management services.
North America
Personal Solutions. This segment includes credit information,
credit monitoring and identity theft protection products sold directly to
consumers via the internet.
North America
Commercial Solutions. This segment includes commercial
products and services such as business credit and demographic information,
credit scores and portfolio analytics (decisioning tools), which are derived
from our databases of business credit and financial information.
Operating
revenue and operating income by operating segment during the three months ended
March 31, 2010 and 2009, are as follows:
Three Months Ended
|
||||||||
(In millions)
|
March 31,
|
|||||||
|
2010
|
2009
|
||||||
Operating revenue: | ||||||||
U.S.
Consumer Information Solutions
|
$ | 191.4 | $ | 203.7 | ||||
International
|
116.2 | 100.8 | ||||||
TALX
|
95.3 | 87.9 | ||||||
North
America Personal Solutions
|
39.7 | 38.4 | ||||||
North
America Commercial Solutions
|
18.7 | 15.8 | ||||||
Total
operating revenue
|
$ | 461.3 | $ | 446.6 | ||||
Three Months Ended
|
||||||||
(In
millions)
|
March 31,
|
|||||||
|
2010
|
2009
|
||||||
Operating income: | ||||||||
U.S.
Consumer Information Solutions
|
$ | 63.5 | $ | 73.8 | ||||
International
|
28.7 | 28.9 | ||||||
TALX
|
21.5 | 18.8 | ||||||
North
America Personal Solutions
|
10.0 | 6.0 | ||||||
North
America Commercial Solutions
|
4.4 | 2.3 | ||||||
General
Corporate Expense
|
(20.4 | ) | (28.8 | ) | ||||
Total
operating income
|
$ | 107.7 | $ | 101.0 |
16
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
All
references to earnings per share data in Management’s Discussion and Analysis,
or MD&A, are to diluted earnings per share, or EPS, unless otherwise noted.
Diluted EPS is calculated to reflect the potential dilution that would occur if
stock options or other contracts to issue common stock were exercised and
resulted in additional common shares outstanding.
BUSINESS
OVERVIEW
We are a
leading global provider of information solutions, employment, income and social
security number verifications and human resources business process outsourcing
services. We leverage some of the largest sources of consumer and commercial
data, along with advanced analytics and proprietary technology, to create
customized insights which enable our business customers to grow faster, more
efficiently, more profitably and to inform and empower consumers.
Businesses
rely on us for consumer and business credit intelligence, credit portfolio
management, fraud detection, decisioning technology, marketing tools, and human
resources and payroll services. We also offer a portfolio of products that
enable individual consumers to manage their financial affairs and protect their
identity. Our revenue stream is diversified among individual consumers and among
businesses across a wide range of industries and international
geographies.
Segment
and Geographic Information
Segments. The
U.S. Consumer Information Solutions, or USCIS, segment, the largest of our five
segments, consists of four product and service lines: Online Consumer
Information Solutions, or OCIS; Mortgage Solutions; Consumer Financial Marketing
Services; and Direct Marketing Services. OCIS and Mortgage Solutions revenue is
principally transaction-based and is derived from our sales of products such as
consumer credit reporting and scoring, mortgage settlement services, identity
verification, fraud detection and modeling services. USCIS also markets certain
of our decisioning products which facilitate and automate a variety of consumer
credit-oriented decisions. Consumer Financial Marketing Services and Direct
Marketing Services revenue is principally project- and subscription-based and is
derived from our sales of batch credit, consumer wealth or demographic
information such as those that assist clients in acquiring new customers,
cross-selling to existing customers and managing portfolio risk.
The
International segment consists of Canada Consumer, Europe and Latin America.
Canada Consumer’s products and services are similar to our USCIS offerings,
while Europe and Latin America are made up of varying mixes of product lines
that are in our USCIS, North America Commercial Solutions and North America
Personal Solutions reportable segments.
The TALX
segment consists of The Work Number® and Tax and Talent Management business
units. The Work Number revenue is transaction-based and is derived primarily
from employment, income and social security number verifications. Tax and Talent
Management revenues are derived from our provision of certain human resources
business process outsourcing services that include both transaction- and
subscription-based product offerings. These services assist our customers with
the administration of unemployment claims and employer-based tax credits and the
assessment of new hires.
North
America Personal Solutions revenue is both transaction- and subscription-based
and is derived from the sale of credit monitoring, debt management and identity
theft protection products, which we deliver to consumers electronically via the
internet.
North
America Commercial Solutions revenue is principally transaction-based, with the
remainder project-based, and is derived from the sale of business information,
credit scores and portfolio analytics that enable customers to utilize our
reports to make financing, marketing and purchasing decisions related to
businesses.
17
Geographic
Information. We currently operate in the following countries:
Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras,
Peru, Portugal, the Republic of Ireland, Spain, the U.K., Uruguay, and the U.S.
Our operations in Costa Rica and the Republic of Ireland focus on data handling
and customer support activities. We own an equity interest in a consumer credit
information company in Russia. In March 2010, our Indian joint venture received
a license to operate a nationwide credit information company in
India.
Key Performance
Indicators. Management focuses on a variety of key indicators
to monitor operating and financial performance. These performance indicators
include measurements of operating revenue, change in operating revenue,
operating income, operating margin, net income attributable to Equifax, diluted
earnings per share, cash provided by operating activities and capital
expenditures. The key performance indicators for the three months ended March
31, 2010 and 2009, were as follows:
Key Performance Indicators
|
||||||||
Three Months Ended
|
||||||||
March 31,
|
||||||||
2010
|
2009
|
|||||||
(Dollars
in millions, except per share data)
|
||||||||
Operating
revenue
|
$ | 461.3 | $ | 446.6 | ||||
Operating
revenue change
|
3 | % | -10 | % | ||||
Operating
income
|
$ | 107.7 | $ | 101.0 | ||||
Operating
margin
|
23.3 | % | 22.6 | % | ||||
Net
income from continuing operations attributable to Equifax
|
$ | 56.1 | $ | 53.3 | ||||
Net
income attributable to Equifax
|
$ | 56.7 | $ | 54.4 | ||||
Diluted
earnings per share from continuing operations attributable to
Equifax
|
$ | 0.44 | $ | 0.42 | ||||
Diluted
earnings per share attributable to Equifax
|
$ | 0.44 | $ | 0.43 | ||||
Cash
provided by operating activities
|
$ | 37.7 | $ | 44.5 | ||||
Capital
expenditures
|
$ | 50.0 | $ | 15.0 |
Business
Environment and Company Strategy
Consumer
and small business lending activity, which is one of the drivers of demand for
our services, continues to be soft in many markets around the world, and we
expect growth in consumer lending to lag the general economic recovery that is
emerging in many of these markets. In addition, new financial
regulations are increasing the compliance requirements for our customers,
introducing new challenges and opportunities in the marketing of our product and
service offerings to financial institutions. Accordingly, we are further
diversifying our revenues by pursuing and investing in key strategic initiatives
including new product innovation, differentiated decisioning solutions and
analytics leveraging our diverse data assets and technology, acquiring new data
assets and technologies, and international expansion. We are also focused on
managing our expenses through the use of LEAN, Work Out and other process
improvement initiatives in order to maintain operating margins, earnings
performance and cash flow.
For 2010,
we anticipate increasing interest for our services from credit card issuers
following the actions they have taken to comply with the new credit card
regulations which became effective in February of this year and as they begin to
engage in new lending activity. As a result, we expect to see revenue growth
gradually improve in 2010. Given our outlook and current foreign exchange rates,
we expect operating results to be stable at their current levels during the
first half of the year, with some increase in performance during the second
half.
18
RESULTS
OF OPERATIONS—THREE MONTHS ENDED MARCH 31, 2010 AND 2009
Consolidated
Financial Results
Operating
Revenue
Three Months Ended March
31,
|
||||||||||||||||
Change
|
||||||||||||||||
Consolidated Operating
Revenue
|
2010
|
2009
|
$
|
%
|
||||||||||||
(Dollars
in millions)
|
||||||||||||||||
U.S.
Consumer Information Solutions
|
$ | 191.4 | $ | 203.7 | $ | (12.3 | ) | -6 | % | |||||||
International
|
116.2 | 100.8 | 15.4 | 15 | % | |||||||||||
TALX
|
95.3 | 87.9 | 7.4 | 8 | % | |||||||||||
North
America Personal Solutions
|
39.7 | 38.4 | 1.3 | 3 | % | |||||||||||
North
America Commercial Solutions
|
18.7 | 15.8 | 2.9 | 18 | % | |||||||||||
Consolidated
operating revenue
|
$ | 461.3 | $ | 446.6 | $ | 14.7 | 3 | % |
Revenue increased, when compared to the
first quarter of 2009, primarily due to the favorable effect of foreign exchange
rates which increased revenue by $14.8 million, or 3%. The revenue
decline in our U.S. Consumer Information Solutions segment in the first quarter
of 2010, when compared to the prior year, was offset by revenue increases in our
four other segments. For additional information about revenue
fluctuations and operating income by segment, see “Segment Financial Results”
below.
Operating
Expenses
Three Months Ended March
31,
|
||||||||||||||||
Change
|
||||||||||||||||
Consolidated Operating
Expenses
|
2010
|
2009
|
$
|
%
|
||||||||||||
(Dollars
in millions)
|
||||||||||||||||
Consolidated
cost of services
|
$ | 200.3 | $ | 187.0 | $ | 13.3 | 7 | % | ||||||||
Consolidated
selling, general and administrative expenses
|
112.4 | 122.0 | (9.6 | ) | -8 | % | ||||||||||
Consolidated
depreciation and amortization expense
|
40.9 | 36.6 | 4.3 | 12 | % | |||||||||||
Consolidated
operating expenses
|
$ | 353.6 | $ | 345.6 | $ | 8.0 | 2 | % |
The increase in cost of services, when
compared to the same period in 2009, was due to the impact of foreign currency
translation, which increased our cost of services by $6.9 million during the
first quarter of 2010, and our fourth quarter 2009 acquisitions of IXI
Corporation and Rapid Reporting Verification Company which contributed $6.2
million of incremental cost year-over-year. Overall cost of services
increased at a faster rate than revenues because some of our highest margin
credit reporting services have declined in this market environment, while we
have replaced this revenue with our acquisitions and with services that have
higher data and/or operating costs.
Selling,
general and administrative expense decreased $9.6 million, compared to the
same period in 2009. This decrease was primarily due to a
restructuring charge of $8.4 million incurred in the first quarter of 2009
related to headcount reductions. Other increases in selling, general
and administrative expenses of $3.5 million due to changes in foreign exchange
rates and $4.4 million due to the inclusions of businesses which we acquired in
the fourth quarter of 2009 were offset by the impact of our cost reduction
programs implemented over the last year, lower bad debt expense and lower
incentive costs.
19
Depreciation
and amortization expense increased over the same period in 2009, primarily due
to our fourth quarter 2009 acquisitions which contributed $2.7 million of
incremental depreciation and amortization expense.
For
additional information about the charges and fees related to our restructuring
activity, see Note 8 of the Notes to the Consolidated Financial Statements
in this Form 10-Q.
Operating
Income and Operating Margin
Three
Months Ended March 31,
|
||||||||||||||||
Change
|
||||||||||||||||
Consolidated
Operating Income
|
2010
|
2009
|
$
|
%
|
||||||||||||
(Dollars
in millions)
|
||||||||||||||||
Consolidated
operating revenue
|
$ | 461.3 | $ | 446.6 | $ | 14.7 | 3 | % | ||||||||
Consolidated
operating expenses
|
(353.6 | ) | (345.6 | ) | (8.0 | ) | 2 | % | ||||||||
Consolidated
operating income
|
$ | 107.7 | $ | 101.0 | $ | 6.7 | 7 | % | ||||||||
Consolidated
operating margin
|
23.3 | % | 22.6 | % |
0.7
|
% pts |
The
$6.7 million, or 7%, increase in operating income for the first quarter of
2010, when compared to the same period in 2009, is attributed to the 3% increase
in revenues and a net improvement in operating margin, driven by the $8.4
million restructuring charge in the first quarter of 2009 which did not recur
this year, but was partially offset by a less favorable mix of
products.
Other
Expense, Net
Three Months Ended March
31,
|
||||||||||||||||
Change
|
||||||||||||||||
Consolidated Other Expense,
Net
|
2010
|
2009
|
$
|
%
|
||||||||||||
(Dollars
in millions)
|
||||||||||||||||
Consolidated
interest expense
|
$ | 14.2 | $ | 14.3 | $ | (0.1 | ) | -1 | % | |||||||
Consolidated
other income, net
|
0.5 | (2.4 | ) | 2.9 | -119 | % | ||||||||||
Consolidated
other expense, net
|
$ | 14.7 | $ | 11.9 | $ | 2.8 | 24 | % | ||||||||
Average
cost of debt
|
4.9 | % | 4.7 | % | ||||||||||||
Total
consolidated debt, net, at quarter end
|
$ | 1,147.8 | $ | 1,230.0 | $ | (82.2 | ) | -7 | % |
The increase in other expense, net, as
compared to 2009, was primarily due to the change in other income, net, as
interest expense was flat. Other income, net, for 2009 included a
$1.1 million gain on our repurchase of $7.5 million principal amount
of our ten-year senior notes due 2017 and a $1.3 million gain related to a
litigation settlement. Interest expense was flat, when compared to
the same period in 2009, as our average debt balance decreased from $1.23
billion in 2009 to $1.17 billion in 2010 while the average cost of our total
debt increased slightly from 4.7% in 2009 to 4.9% in 2010.
20
Income
Taxes
Three Months Ended March
31,
|
||||||||||||||||
Change
|
||||||||||||||||
Consolidated Provision for Income
Taxes
|
2010
|
2009
|
$
|
%
|
||||||||||||
(Dollars
in millions)
|
||||||||||||||||
Consolidated
provision for income taxes
|
$ | 35.0 | $ | 34.1 | $ | 0.9 | 3 | % | ||||||||
Effective
income tax rate
|
37.6 | % | 38.3 | % |
Our effective income tax rate was 37.6%
for the three months ended March 31, 2010, down from 38.3% for the same period
in 2009, due primarily to a higher foreign tax rate for 2010 more than offset by
an unfavorable discrete item recorded in the first quarter of 2009 related to
the effect of a change in California state income taxes on our deferred tax
liabilities.
Net
Income
Three Months Ended March
31,
|
||||||||||||||||
Change
|
||||||||||||||||
Consolidated Net Income
|
2010
|
2009
|
$
|
%
|
||||||||||||
(In
millions, except per share amounts)
|
||||||||||||||||
Consolidated
operating income
|
$ | 107.7 | $ | 101.0 | $ | 6.7 | 7 | % | ||||||||
Consolidated
other expense, net
|
(14.7 | ) | (11.9 | ) | (2.8 | ) | 24 | % | ||||||||
Consolidated
provision for income taxes
|
(35.0 | ) | (34.1 | ) | (0.9 | ) | 3 | % | ||||||||
Consolidated
income from continuing operations
|
58.0 | 55.0 | 3.0 | 5 | % | |||||||||||
Discontinued
operations, net of tax
|
0.6 | 1.1 | (0.5 | ) | -45 | % | ||||||||||
Consolidated
net income
|
58.6 | 56.1 | 2.5 | 4 | % | |||||||||||
Net
income attributable to noncontrolling interests
|
(1.9 | ) | (1.7 | ) | (0.2 | ) | 13 | % | ||||||||
Net
income attributable to Equifax
|
$ | 56.7 | $ | 54.4 | $ | 2.3 | 4 | % | ||||||||
Diluted
earnings per common share attributable to Equifax
|
$ | 0.44 | $ | 0.43 | $ | 0.01 | 4 | % | ||||||||
Diluted
earnings per common share from continuing operations
|
$ | 0.44 | $ | 0.42 | $ | 0.02 | 5 | % | ||||||||
Weighted-average shares used in
computing diluted earnings per share
|
128.1 | 127.4 |
The increase in net income attributable
to Equifax for the first quarter of 2010, as compared to the same period in
2009, was primarily a function of higher operating income in three of our five
businesses, a reduction in restructuring charges as we recorded $8.4 million
during the first quarter of 2009 and a lower effective tax rate for
2010.
21
Segment
Financial Results
USCIS
Three Months Ended March
31,
|
||||||||||||||||
Change
|
||||||||||||||||
U.S. Consumer Information
Solutions
|
2010
|
2009
|
$
|
%
|
||||||||||||
(Dollars
in millions)
|
||||||||||||||||
Operating
revenue:
|
||||||||||||||||
Online
Consumer Information Solutions (OCIS)
|
$ | 119.8 | $ | 130.9 | $ | (11.1 | ) | -8 | % | |||||||
Mortgage
Solutions
|
23.2 | 25.4 | (2.2 | ) | -9 | % | ||||||||||
Consumer
Financial Marketing Services
|
30.2 | 27.3 | 2.9 | 10 | % | |||||||||||
Direct
Marketing Services
|
18.2 | 20.1 | (1.9 | ) |