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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 )