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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, 2011
 
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  x   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  ¨
Non-accelerated filer  ¨
(Do not check if a smaller
reporting company)
Smaller reporting company  ¨
 
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 15, 2011, there were 123,071,084 shares of the registrant’s common stock outstanding.
 

 
 

 
 
EQUIFAX INC.
 
QUARTERLY REPORT ON FORM 10-Q
 
QUARTER ENDED MARCH 31, 2011
 
INDEX
 
     
Page
PART I.
Financial Information
 
4
Item 1.
Financial Statements (Unaudited)
 
4
 
Consolidated Statements of Income—Three Months Ended March 31, 2011 and 2010
 
4
 
Consolidated Balance Sheets—March 31, 2011 and December 31, 2010
 
5
 
Consolidated Statements of Cash Flows—Three Months Ended March 31, 2011 and 2010
 
6
 
Consolidated Statements of Equity and Other Comprehensive Income—Three Months Ended March 31, 2011 and 2010
 
7
 
Notes to Consolidated Financial Statements
 
9
Item 2. 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
20
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
33
Item 4.
Controls and Procedures
 
33
PART II.
Other Information
 
34
Item 1.
Legal Proceedings
 
34
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
34
Item 6.
Exhibits
 
35
Signatures
 
36
Index to Exhibits
 
37

 
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, 2010, 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,
 
   
2011
   
2010
 
(In millions, except per share amounts)
 
(Unaudited)
 
Operating revenue
  $ 472.6     $ 443.0  
Operating expenses:
               
Cost of services (exclusive of depreciation and amortization below)
    194.3       190.1  
Selling, general and administrative expenses
    126.5       109.5  
Depreciation and amortization
    42.7       39.1  
Total operating expenses
    363.5       338.7  
Operating income
    109.1       104.3  
Interest expense
    (13.8 )     (14.2 )
Other income, net
    0.3       (0.5 )
Consolidated income from continuing operations before income taxes
    95.6       89.6  
Provision for income taxes
    (36.3 )     (33.7 )
Consolidated income from continuing operations
    59.3       55.9  
Discontinued operations, net of tax
    -       2.7  
Consolidated net income
    59.3       58.6  
Less:  Net income attributable to noncontrolling interests
    (2.0 )     (1.9 )
Net income attributable to Equifax
  $ 57.3     $ 56.7  
Amounts attributable to Equifax:
               
Net income from continuing operations attributable to Equifax
  $ 57.3     $ 54.0  
Discontinued operations, net of tax
    -       2.7  
Net income attributable to Equifax
  $ 57.3     $ 56.7  
Basic earnings per common share:
               
Net income from continuing operations attributable to Equifax
  $ 0.47     $ 0.43  
Discontinued operations attributable to Equifax
    -       0.02  
Net income attributable to Equifax
  $ 0.47     $ 0.45  
Weighted-average shares used in computing basic earnings per share
    122.8       126.3  
Diluted earnings per common share:
               
Net income from continuing operations attributable to Equifax
  $ 0.46     $ 0.42  
Discontinued operations attributable to Equifax
    -       0.02  
Net income attributable to Equifax
  $ 0.46     $ 0.44  
Weighted-average shares used in computing diluted earnings per share
    124.7       128.1  
Dividends per common share
  $ 0.16     $ 0.04  

See Notes to Consolidated Financial Statements.

 
4

 
 
EQUIFAX INC.
 
CONSOLIDATED BALANCE SHEETS
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
             
(In millions, except par values)
 
(Unaudited)
       
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 86.9     $ 119.4  
Trade accounts receivable, net of allowance for doubtful accounts of $7.4 and $7.5 at March 31, 2011 and December 31, 2010, respectively
    283.5       262.6  
Prepaid expenses
    34.4       26.1  
Other current assets
    22.4       21.1  
Total current assets
    427.2       429.2  
Property and equipment:
               
Capitalized internal-use software and system costs
    327.4       315.9  
Data processing equipment and furniture
    189.4       181.0  
Land, buildings and improvements
    174.9       169.5  
Total property and equipment
    691.7       666.4  
Less accumulated depreciation and amortization
    (385.3 )     (368.0 )
Total property and equipment, net
    306.4       298.4  
Goodwill
    1,946.1       1,914.7  
Indefinite-lived intangible assets
    95.7       95.6  
Purchased intangible assets, net
    586.6       593.9  
Other assets, net
    106.8       101.8  
Total assets
  $ 3,468.8     $ 3,433.6  
                 
LIABILITIES AND EQUITY
               
Current liabilities:
               
Short-term debt and current maturities
  $ 40.7     $ 20.7  
Accounts payable
    22.4       24.6  
Accrued expenses
    58.7       61.9  
Accrued salaries and bonuses
    30.9       71.9  
Deferred revenue
    59.5       58.7  
Other current liabilities
    91.3       81.7  
Total current liabilities
    303.5       319.5  
                 
Long-term debt
    974.8       978.9  
Deferred income tax liabilities, net
    250.2       244.2  
Long-term pension and other postretirement benefit liabilities
    116.4       129.0  
Other long-term liabilities
    54.1       53.6  
Total liabilities
    1,699.0       1,725.2  
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, 2011 and December 31, 2010;
               
Outstanding shares - 123.0 and 122.6 at March 31, 2011 and December 31, 2010, respectively
    236.6       236.6  
Paid-in capital
    1,104.2       1,105.8  
Retained earnings
    2,763.1       2,725.7  
Accumulated other comprehensive loss
    (331.3 )     (344.5 )
Treasury stock, at cost, 64.2 shares and 64.6 shares at March 31, 2011 and December 31, 2010, respectively
    (1,980.8 )     (1,991.0 )
Stock held by employee benefits trusts, at cost, 2.1 shares at  both March 31, 2011 and December 31, 2010
    (41.2 )     (41.2 )
Total Equifax shareholders' equity
    1,750.6       1,691.4  
Noncontrolling interests
    19.2       17.0  
Total equity
    1,769.8       1,708.4  
                 
Total liabilities and equity
  $ 3,468.8     $ 3,433.6  

See Notes to Consolidated Financial Statements.

 
5

 

EQUIFAX INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS

   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
(In millions)
 
(Unaudited)
 
Operating activities:
           
Consolidated net income
  $ 59.3     $ 58.6  
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
               
Depreciation and amortization
    42.7       42.5  
Stock-based compensation expense
    4.7       4.4  
Excess tax benefits from stock-based compensation plans
    (0.5 )     (1.4 )
Deferred income taxes
    (0.1 )     (0.1 )
Changes in assets and liabilities, excluding effects of acquisitions:
               
Accounts receivable, net
    (17.0 )     (5.8 )
Prepaid expenses and other current assets
    (9.4 )     (7.9 )
Other assets
    0.1       3.5  
Current liabilities, excluding debt
    (48.0 )     (32.7 )
Other long-term liabilities, excluding debt
    (8.7 )     (23.4 )
Cash provided by operating activities
    23.1       37.7  
                 
Investing activities:
               
Capital expenditures
    (26.2 )     (50.0 )
Acquisitions, net of cash acquired
    (30.7 )     (6.0 )
Investment in unconsolidated affiliates, net
    (2.7 )     -  
Cash used in investing activities
    (59.6 )     (56.0 )
                 
Financing activities:
               
Net short-term borrowings
    19.8       2.7  
Net repayments under long-term revolving credit facilities
    -       (4.6 )
Payments on long-term debt
    (1.7 )     (3.1 )
Proceeds from issuance of long-term debt
    -       1.4  
Treasury stock purchases
    -       (9.4 )
Dividends paid to Equifax shareholders
    (19.6 )     (5.0 )
Dividends paid to noncontrolling interests
    -       (0.3 )
Proceeds from exercise of stock options
    5.1       11.6  
Excess tax benefits from stock-based compensation plans
    0.5       1.4  
Other
    (2.5 )     (0.2 )
Cash provided by (used in) financing activities
    1.6       (5.5 )
Effect of foreign currency exchange rates on cash and cash equivalents
    2.4       (2.2 )
Decrease in cash and cash equivalents
    (32.5 )     (26.0 )
Cash and cash equivalents, beginning of period
    119.4       103.1  
Cash and cash equivalents, end of period
  $ 86.9     $ 77.1  

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, 2011
 
(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, 2010
    122.6     $ 236.6     $ 1,105.8     $ 2,725.7     $ (344.5 )   $ (1,991.0 )   $ (41.2 )   $ 17.0     $ 1,708.4  
Net income
    -       -       -       57.3       -       -       -       2.0       59.3  
Other comprehensive income
    -       -       -       -       13.2       -       -       0.2       13.4  
Shares issued under stock and benefit plans, net of minimum tax withholdings
    0.4       -       (7.3 )     -       -       10.2       -       -       2.9  
Cash dividends ($0.16 per share)
    -       -       -       (19.9 )     -       -       -       -       (19.9 )
Dividends paid to employee benefits trusts
    -       -       0.3       -       -       -       -       -       0.3  
Stock-based compensation expense
    -       -       4.7       -       -       -       -       -       4.7  
Tax effects of stock-based compensation plans
    -       -       0.7       -       -       -       -       -       0.7  
Balance, March 31, 2011
    123.0     $ 236.6     $ 1,104.2     $ 2,763.1     $ (331.3 )   $ (1,980.8 )   $ (41.2 )   $ 19.2     $ 1,769.8  

*
At March 31, 2011, $104.5 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,
 
   
2011
   
2010
 
   
(In millions)
 
Foreign currency translation
  $ (89.9 )   $ (100.8 )
Unrecognized actuarial losses and prior service cost related to our pension and other postretirement benefit plans, net of accumulated tax of $137.5 and $138.6 at March 31, 2011 and December 31, 2010, respectively
    (239.1 )     (241.3 )
Cash flow hedging transactions, net of accumulated tax of $1.5 and $1.6 at March 31, 2011 and December 31, 2010, respectively
    (2.3 )     (2.4 )
Accumulated other comprehensive loss
  $ (331.3 )   $ (344.5 )

See Notes to Consolidated Financial Statements.

 
7

 

EQUIFAX INC.
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AND COMPREHENSIVE INCOME
 
For the Three Months Ended March 31, 2011
 
(Unaudited)
 
Comprehensive Income is as follows:

   
Three Months Ended March 31,
 
   
2011
   
2010
 
   
Equifax
   
Noncontrolling
         
Equifax
   
Noncontrolling
       
   
Shareholders
   
Interests
   
Total
   
Shareholders
   
Interests
   
Total
 
   
(In millions)
 
Net income
  $ 57.3     $ 2.0     $ 59.3     $ 56.7     $ 1.9     $ 58.6  
Other comprehensive income:
                                               
Foreign currency translation adjustment
    10.9       0.2       11.1       (13.2 )     (0.1 )     (13.3 )
Change in unrecognized prior service cost and actuarial losses related to our pension and other postretirement benefit plans
    2.2       -       2.2       1.7       -       1.7  
Change in cumulative loss from cash flow hedging transactions
    0.1       -       0.1       0.1       -       0.1  
Comprehensive income
  $ 70.5     $ 2.2     $ 72.7     $ 45.3     $ 1.8     $ 47.1  

See Notes to Consolidated Financial Statements.

 
8

 

EQUIFAX INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
March 31, 2011
 
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 human resources, employment tax and payroll-related 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, 2011, we operated in the following countries: Argentina, Brazil, Canada, Chile, Ecuador, El Salvador, Honduras, Paraguay, 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 offer credit services in Russia and India through joint ventures.
 
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, 2010, or 2010 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 businesses reclassified as discontinued operations, which are more fully described in Note 2 of the Notes to Consolidated Financial Statements.
 
Earnings Per Share.   Our basic earnings per share, or EPS, is calculated as net income attributable to Equifax 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:

 
9

 
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

   
Three Months Ended March 31,
 
   
2011
   
2010
 
   
(In millions)
 
Weighted-average shares outstanding (basic)
    122.8       126.3  
Effect of dilutive securities:
               
Stock options and restricted stock units
    1.9       1.8  
Weighted-average shares outstanding (diluted)
    124.7       128.1  

For the three months ended March 31, 2011 and 2010, 1.2 million and 3.3 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. As of March 31, 2011 and December 31, 2010, the fair value of our debt was $1.04 billion and $1.05 billion, respectively, compared to its carrying value of $0.98 billion for both periods presented.
 
Derivatives and Hedging Activities.   Although derivative financial instruments are not utilized for speculative purposes, derivatives have been used as a risk management tool to hedge the Company’s exposure to changes in interest 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. We recognize all derivatives on the balance sheet at fair value. Derivative valuations reflect the value of the instrument including material amounts associated with counterparty risk.  
 
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 $7.6 million and $9.7 million at March 31, 2011 and December 31, 2010, respectively, and was recorded in other long-term assets 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:

 
10

 

 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

          
Fair Value Measurements at Reporting Date Using:
 
Description
 
Fair Value of
Assets
(Liabilities) at
March 31, 2011
   
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(1)
  $ 7.6     $ -     $ 7.6     $ -  
Notes, due 2014
    (282.6 )     -       (282.6 )     -  
Deferred Compensation Plan(2)
    (13.5 )     (13.5 )     -       -  
Total
  $ (288.5 )   $ (13.5 )   $ (275.0 )   $ -  

(1)        The fair value of our interest rate swaps, which are designated as fair value hedges, and notes are based on the present value of expected future cash flows using zero coupon rates and are classified within Level 2 of the fair value hierarchy.
 
(2)        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, 2011. As such, we have classified this liability as Level 1 within 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 $10.8 million at March 31, 2011, 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.    Revenue Arrangements with Multiple Deliverables.   In October 2009, the FASB issued revenue guidance for multiple-deliverable arrangements which addresses how to separate deliverables and how to measure and allocate arrangement consideration.  This guidance requires vendors to develop the best estimate of selling price for each deliverable and to allocate arrangement consideration using this selling price.  The guidance is effective prospectively for revenue arrangements entered into or materially modified in annual periods beginning after June 15, 2010.  The adoption of this guidance on January 1, 2011 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 2010 Form 10-K.

 
11

 
 
2. DISCONTINUED OPERATIONS
 
On April 23, 2010, we sold our APPRO loan origination software business (“APPRO”), for $72 million.  On July 1, 2010, we sold substantially all the assets of our Direct Marketing Services division (“DMS”) for $117 million.  Both of these businesses were reported in our U.S. Consumer Information Solutions segment.  The historical results of these operations for the three month period ended March 31, 2010 are classified as discontinued operations in the Consolidated Statements of Income.  Revenue for these businesses for the three months ended March 31, 2011 and 2010 was $0 and $23.6 million, respectively.  Pretax income was $0 and $4.3 million for the three months ended March 31, 2011 and 2010, respectively.  
  
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, 2011, are as follows:
 
   
U.S. Consumer
               
North America
   
North America
       
   
Information
               
Personal
   
Commercial
       
   
Solutions
   
International
   
TALX
   
Solutions
   
Solutions
   
Total
 
   
(In millions)
 
Balance, December 31, 2010
  $ 628.5     $ 346.9     $ 899.9     $ 1.8     $ 37.6     $ 1,914.7  
Acquisitions
    -       23.3       -       -       -       23.3  
Adjustments to initial purchase price allocation
    0.1       -       -       -       -       0.1  
Foreign currency translation
    -       7.9       -       -       0.1       8.0  
Balance, March 31, 2011
  $ 628.6     $ 378.1     $ 899.9     $ 1.8     $ 37.7     $ 1,946.1  

Indefinite-Lived Intangible Assets.   Indefinite-lived intangible assets consist of contractual/territorial rights representing the estimated acquisition date 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, 2011.

 
12

 
 
3. GOODWILL AND INTANGIBLE ASSETS (Continued)

Purchased Intangible Assets.   Purchased intangible assets represent the estimated acquisition date fair value of acquired intangible assets used in our business. Purchased data files represent the estimated acquisition date 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 2010 Form 10-K.
 
Purchased intangible assets at March 31, 2011 and December 31, 2010 consisted of the following:
 
   
March 31, 2011
   
December 31, 2010
 
         
Accumulated
               
Accumulated
       
   
Gross
   
Amortization
   
Net
   
Gross
   
Amortization
   
Net
 
Definite-lived intangible assets:
 
(In millions)
 
Purchased data files
  $ 345.7     $ (249.0 )   $ 96.7     $ 339.2     $ (240.7 )   $ 98.5  
Acquired software and technology
    56.5       (36.4 )     20.1       55.0       (33.3 )     21.7  
Customer relationships
    497.7       (105.2 )     392.5       489.2       (97.1 )     392.1  
Proprietary database
    125.0       (79.7 )     45.3       125.0       (74.4 )     50.6  
Non-compete agreements
    8.6       (1.8 )     6.8       7.2       (1.4 )     5.8  
Trade names and other intangible assets
    38.5       (13.3 )     25.2       37.4       (12.2 )     25.2  
Total definite-lived intangible assets
  $ 1,072.0     $ (485.4 )   $ 586.6     $ 1,053.0     $ (459.1 )   $ 593.9  

Amortization expense from continuing operations related to purchased intangible assets was $23.6 million and $22.2 million during the three months ended March 31, 2011 and 2010, respectively.  

 
13

 
 
4. DEBT
 
Debt outstanding at March 31, 2011 and December 31, 2010 was as follows:
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
   
(In millions)
 
Commercial paper
  $ 23.0     $ -  
Note, 4.25%, due in installments through March 2012
    -       4.7  
Notes, 7.34%, due in installments through May 2014
    60.0       60.0  
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  
Capitalized lease obligation
    1.8       2.0  
Other
    1.0       1.0  
Total debt
    1,008.3       990.2  
Less short-term debt and current maturities
    (40.7 )     (20.7 )
Less unamortized discounts
    (2.0 )     (2.1 )
Plus fair value adjustments
    9.2       11.5  
Total long-term debt, net
  $ 974.8     $ 978.9  

Senior Credit Facility.   During the first quarter of 2011, we extended the maturity date and reduced the borrowing limits of our existing unsecured revolving credit facility, which we refer to as the Senior Credit Facility, by entering into a Second Amended and Restated Credit Agreement dated as of February 18, 2011 (the “Amended Agreement”).  The Senior Credit Facility had been scheduled to expire on July 24, 2011, and provided $850.0 million of borrowing capacity.  The Amended Agreement provides for a maturity date of February 18, 2015.  We elected to reduce the size of the facility to $500.0 million in line with our liquidity needs and current credit market conditions, including higher upfront fees and fees for unused borrowing availability.  The Amended Agreement also provides an accordion feature that allows us to request an increase in the total commitment to $750.0 million should we so choose.  We added certain of our subsidiaries in Canada, the U.K. and Luxembourg as co-borrowers in addition to the Company to provide additional flexibility as to the place of borrowing.  Borrowings may be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchase programs. 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, 2011, there were no outstanding borrowings under this facility and $475.4 million was available for borrowings.

 Commercial Paper Program.   During the first quarter of 2011, we reduced the size of our commercial paper program from $850.0 million to $500.0 million.  Our 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, 2011, $23.0 million in commercial paper notes was outstanding, all with maturities of less than 90 days.
 
Canadian Credit Facility.   We were party to a credit agreement with a Canadian financial institution that provided for a C$10.0 million (denominated in Canadian dollars), 364-day revolving credit agreement. This agreement was scheduled to expire in June 2011. In connection with the Amended Agreement, we cancelled this agreement as of March 31, 2011, and there were no outstanding borrowings under this agreement at the time of cancellation.
 
For additional information about our debt agreements, see Note 5 of the Notes to Consolidated Financial Statements in our 2010 Form 10-K.

 
14

 
 
5. COMMITMENTS AND CONTINGENCIES
 
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 2011 and 2016. The estimated aggregate minimum contractual obligation remaining under these agreements was approximately $100 million at December 31, 2010, with no future year’s minimum contractual obligation expected to exceed approximately $40 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, 2010, the price range would be approximately $625 million to $700 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 was not material at March 31, 2011, 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, 2011.

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 applicable 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.

 
15

 
 
5. COMMITMENTS AND CONTINGENCIES (Continued)
 
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, 2011 or December 31, 2010.
 
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 $8.8 million (8.5 million in Canadian dollars) to $19.5 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.
 
For additional information about these and other commitments and contingencies, see Note 6 of the Notes to Consolidated Financial Statements in our 2010 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). 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 $0 to $7.1 million.
 
Effective Tax Rate.      Our effective tax rate was 37.9% for the three months ended March 31, 2011 up from 37.6% for the same period in 2010.  Our foreign and state income tax rates were higher for the three months ended March 31, 2011 versus the prior year, partially offset by a favorable federal tax benefit not recognized during the same period of the prior year.  

 
16

 

7. BENEFIT PLANS
 
We sponsor defined benefit pension plans and defined contribution plans. For additional information about our benefit plans, see Note 10 of the Notes to Consolidated Financial Statements in our 2010 Form 10-K.
 
The following table provides the components of net periodic benefit cost for the three months ended March 31, 2011 and 2010:

   
Pension Benefits
   
Other Benefits
 
   
Three Months Ended March 31,
 
   
2011
   
2010
   
2011
   
2010
 
   
(In millions)
 
Service cost
  $ 1.6     $ 1.5     $ 0.1     $ 0.1  
Interest cost
    8.6       8.7       0.4       0.5  
Expected return on plan assets
    (11.6 )     (11.1 )     (0.4 )     (0.4 )
Amortization of prior service cost
    0.2       0.2       -       (0.1 )
Recognized actuarial loss
    3.0       2.2       0.3       0.3  
Total net periodic benefit cost
  $ 1.8     $ 1.5     $ 0.4     $ 0.4  

 
17

 

8. 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
 
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 2010 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 multi-factor authentication solutions.
 
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.

 
18

 

8. SEGMENT INFORMATION (Continued)
 
Operating revenue and operating income by operating segment during the three months ended March 31, 2011 and 2010, are as follows:
 
   
Three Months Ended
 
(In millions)
 
March 31,
 
Operating revenue:
 
2011
   
2010
 
U.S. Consumer Information Solutions
  $ 181.0     $ 173.1  
International
    127.2       116.2  
TALX
    99.4       95.3  
North America Personal Solutions
    44.4       39.7  
North America Commercial Solutions
    20.6       18.7  
Total operating revenue
  $ 472.6     $ 443.0  

   
Three Months Ended
 
(In millions)
 
March 31,
 
Operating income:
 
2011
   
2010
 
U.S. Consumer Information Solutions
  $ 61.7     $ 60.1  
International
    29.8       28.7  
TALX
    21.7       21.5  
North America Personal Solutions
    12.7       10.0  
North America Commercial Solutions
    5.1       4.4  
General Corporate Expense
    (21.9 )     (20.4 )
Total operating income
  $ 109.1     $ 104.3  

 
19

 

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 and income 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 and 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-related 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 three product and service lines: Online Consumer Information Solutions, or OCIS; Mortgage Solutions; and Consumer Financial 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 revenue is principally project- and subscription-based and is derived from our sales of batch credit and consumer wealth 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.

 
20

 

Geographic Information.   We currently operate in the following countries: Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, Paraguay, 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 offer consumer credit services in Russia and India through joint ventures.
 
Key Performance Indicators.   Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include 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, 2011 and 2010, were as follows:
   
Key Performance Indicators
 
   
Three Months Ended
 
   
March 31,
 
   
2011
   
2010
 
   
(Dollars in millions, except per share data)
 
Operating revenue
  $ 472.6     $ 443.0  
Operating revenue change
    7 %     4 %
Operating income  
  $ 109.1     $ 104.3  
Operating margin
    23.1 %     23.5 %
Net income from continuing operations attributable to Equifax  
  $ 57.3     $ 54.0  
Net income attributable to Equifax
  $ 57.3     $ 56.7  
Diluted earnings per share from continuing operations attributable to Equifax  
  $ 0.46     $ 0.42  
Diluted earnings per share attributable to Equifax
  $ 0.46     $ 0.44  
Cash provided by operating activities  
  $ 23.1     $ 37.7  
Capital expenditures
  $ 26.2     $ 50.0  
 
Business Environment and Company Strategy
 
Consumer and small business lending activity, which is one of the drivers of demand for our services, has stabilized in most markets around the world, but in most cases is not yet showing strong growth.  We expect growth in consumer lending to continue to lag the general economic recovery, particularly in the more mature markets.  In addition, new financial regulations are increasing the compliance requirements for many of our customers and introduce new challenges as well as opportunities in the marketing of our product and service offerings to our customers. In an effort to respond to these market conditions, we have focused on the following activities:

 
-
Further diversification of 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 platforms.
 
-
Reorganizing our sales force with key customer teams dedicated to our largest accounts.
 
-
Acquiring new data assets and technologies in addition to international expansion.
 
-
Continuing our focus on managing our expenses through the use of LEAN, Work Out and other process improvement initiatives.

For 2011, the operating environment will continue to present challenges for the marketing and growth of our traditional products and services, but will also create new opportunities for our more recently developed products. These newer product offerings leverage our diverse data assets, analytical capabilities and technology platforms to improve customers' decisioning capabilities and risk management activities.  In 2011, we expect improvements in the credit economy to be very modest and, therefore, not contribute measurably to organic growth. However, we do expect to derive organic growth through our new product offerings and from the momentum we achieved as a result of our performance in 2010.

 
21

 
RESULTS OF OPERATIONS—THREE MONTHS ENDED MARCH 31, 2011 AND 2010
 
Consolidated Financial Results
 
Operating Revenue
   
Three Months Ended March 31,
             
               
Change
 
Consolidated Operating Revenue
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
                         
U.S. Consumer Information Solutions
  $ 181.0     $ 173.1     $ 7.9       5 %
International
    127.2       116.2       11.0       9 %
TALX  
    99.4       95.3       4.1       4 %
North America Personal Solutions
    44.4       39.7       4.7       12 %
North America Commercial Solutions  
    20.6       18.7       1.9       10 %
Consolidated operating revenue
  $ 472.6     $ 443.0     $ 29.6       7 %

Revenue from continuing operations increased by 7% in the first quarter of 2011 compared to the same period in 2010.  The favorable effect of foreign exchange rates increased revenue by $4.6 million, or 1%, in the first quarter compared to the year ago period.  Revenue grew over the prior year in the first quarter compared to the prior year in each of our operating segments, primarily driven by strong execution of key strategic initiatives.
 
Operating Expenses
   
Three Months Ended March 31,
             
               
Change
 
Consolidated Operating Expenses
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
                         
Consolidated cost of services
  $ 194.3     $ 190.1     $ 4.2       2 %
Consolidated selling, general and administrative expenses
    126.5       109.5       17.0       16 %
Consolidated depreciation and amortization expense
    42.7       39.1       3.6       9 %
Consolidated operating expenses
  $ 363.5     $ 338.7     $ 24.8       7 %

The increase in cost of services from continuing operations, when compared to the first quarter of 2010, was due primarily to the impact of increased salary and benefits expense of $4.3 million and the impact of changes in foreign currency exchange rates which increased our cost of services by $2.2 million, offset by decreases in direct production costs.
 
Selling, general and administrative expense from continuing operations increased $17.0 million in the first quarter compared to the year ago quarter.  Salary and incentive expense increased $8.6 million due to increased headcount as compared to the first quarter of 2010. The impact of changes in foreign currency exchange rates increased our selling, general and administrative expenses by $1.3 million.  The remaining increase was primarily due to higher advertising expenses and professional fees.

Depreciation and amortization expense from continuing operations increased in 2011 over the same three month period in 2010, primarily due to our fourth quarter 2010 acquisition of Anakam which contributed $1.2 million of incremental depreciation and amortization expense, as well as the effect of recent investments in new products and technology infrastructure.
 
 
22

 
 
Operating Income and Operating Margin
 
   
Three Months Ended March 31,
             
               
Change
 
Consolidated Operating Income
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
                         
Consolidated operating revenue
  $ 472.6     $ 443.0     $ 29.6       7 %
Consolidated operating expenses
    (363.5 )     (338.7 )     (24.8 )     7 %
Consolidated operating income
  $ 109.1     $ 104.3     $ 4.8       5 %
Consolidated operating margin
    23.1 %     23.5 %          
-0.4
%pts

The increase in operating income from continuing operations for the first quarter of 2011, when compared to the same period in 2010, was driven by the solid revenue growth achieved across our businesses.  Operating margin declined slightly to 23.1% due to increases in expenses related to sales force expansion and amortization related to our recent acquisition.
 
Other Expense, Net
   
Three Months Ended March 31,
             
               
Change
 
Consolidated Other Expense, Net
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
                         
Consolidated interest expense
  $ 13.8     $ 14.2     $ (0.4 )     -3 %
Consolidated other income, net
    (0.3 )     0.5       (0.8 )     -169 %
Consolidated other expense, net
  $ 13.5     $ 14.7     $ (1.2 )     -8 %
Average cost of debt
    5.4 %     4.9 %                
Total consolidated debt, net, at quarter end
  $ 1,015.5     $ 1,147.8     $ (132.3 )     -12 %
 
Other expense, net, from continuing operations for the first quarter of 2011 decreased $1.2 million compared to the same period in 2010 primarily due to higher income from our investment in Russia as compared to the prior year period.  Interest expense decreased slightly for the first three months of 2011, when compared to the same period in 2010, as a decrease in our average debt balance from $1.1 billion to $1.0 billion more than offset an increase in the average cost of our total debt from 4.9% in 2010 to 5.4% in 2011.
 
 
23

 
 
Income Taxes
   
Three Months Ended March 31,
             
               
Change
 
Consolidated Provision for Income Taxes
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
                         
Consolidated provision for income taxes
  $ 36.3     $ 33.7     $ 2.6       8 %
Effective income tax rate
    37.9 %     37.6 %                
  
Our effective tax rate was 37.9% for the three months ended March 31, 2011 up from 37.6% for the same period in 2010.  Our foreign and state income tax rates were higher for the three months ended March 31, 2011 versus the prior year, partially offset by a favorable federal tax benefit not recognized during the same period in the prior year.  
 
Net Income
   
Three Months Ended March 31,
             
               
Change
 
Consolidated Net Income
 
2011
   
2010
   
$
   
%
 
   
(In millions, except per share amounts)
 
                         
Consolidated operating income
  $ 109.1     $ 104.3     $ 4.8       5 %
Consolidated other expense, net
    (13.5 )     (14.7 )     1.2       -8 %
Consolidated provision for income taxes
    (36.3 )     (33.7 )     (2.6 )     8 %
Consolidated income from continuing operations
    59.3       55.9       3.4       6 %
Discontinued operations, net of tax
    -       2.7       (2.7 )     -100 %
Consolidated net income
    59.3       58.6       0.7       1 %
Net income attributable to noncontrolling interests
    (2.0 )     (1.9 )     (0.1 )     8 %
Net income attributable to Equifax
  $ 57.3     $ 56.7     $ 0.6       1 %
Diluted earnings per common share attributable to Equifax
  $ 0.46     $ 0.44     $ 0.02       4 %
Diluted earnings per common share from continuing operations
  $ 0.46     $ 0.42     $ 0.04       9 %
Weighted-average shares used in computing diluted earnings per share
    124.7       128.1                  
 
Consolidated income from continuing operations grew $3.4 million, or 6%, in the first quarter of 2011, compared to the same period in 2010.  This growth was generally in line with the growth in revenue.  Because prior year net income benefitted by $2.7 million from discontinued operations, the growth in consolidated net income was only $0.7 million, or 1%.  Due to a reduction in weighted-average shares outstanding, diluted earnings per common share attributable to Equifax increased 4% from the prior year.
 
24

 
 
Segment Financial Results
 
USCIS
   
Three Months Ended March 31,
             
               
Change
 
U.S. Consumer Information Solutions
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
Operating revenue:
                       
Online Consumer Information Solutions (OCIS)
  $ 120.2     $ 119.7     $ 0.5       0 %
Mortgage Solutions
    27.3       23.2       4.1       18 %
Consumer Financial Marketing Services
    33.5       30.2       3.3       11 %
Total operating revenue
  $ 181.0     $ 173.1     $ 7.9       5 %
% of consolidated revenue
    38 %     39 %                
Total operating income
  $ 61.7     $ 60.1     $ 1.6       3 %
Operating margin
    34.1 %     34.6 %          
-0.5
%pts
 
U.S. Consumer Information Solutions revenue increased 5% in the first quarter as compared to the prior year period due to growth in Mortgage Solutions and Consumer Financial Marketing Services.
 
OCIS
 
Revenue for the first quarter of 2011 remained relatively flat when compared to the prior year period.  Revenue from our fourth quarter 2010 acquisition was partially offset by slightly lower online transaction revenue as compared to the first quarter of 2010.
 
Mortgage Solutions
 
Mortgage revenue increased for the three months ended March 31, 2011 when compared to the prior year period due primarily to increased sales of settlement services as a result of increased market share from existing customers. Results in Mortgage Solutions over the remainder of 2011 are subject to variability due to potential changes in market demand and other competitive and market conditions.
 
Consumer Financial Marketing Services
 
Revenue increased for the first quarter of 2011, as compared to the same period in 2010, primarily due to sales to new customers and higher pre-screen and database management revenue resulting from increased volume and product sales to existing customers.
 
USCIS Operating Margin
 
Operating margin decreased 50 basis points in the first quarter of 2011, as compared to the same period in 2010, due to the recent acquisition whose margins were negatively impacted by amortization of acquisition related intangible assets.
 
 
25

 
International
   
Three Months Ended March 31,
             
               
Change
 
International
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
Operating revenue:
                       
Latin America
  $ 59.9     $ 55.1     $ 4.8       9 %
Europe
    37.4       33.9       3.5       11 %
Canada Consumer
    29.9       27.2       2.7       10 %
Total operating revenue
  $ 127.2     $ 116.2     $ 11.0       9 %
% of consolidated revenue
    27 %     26 %                
Total operating income
  $ 29.8     $ 28.7     $ 1.1       4 %
Operating margin
    23.4 %     24.7 %          
-1.3
%pts
 
International revenue increased in the three month period compared to the same period in 2010 due to growth in all three of our regions and the favorable impact of changes in foreign exchange rates.  Local currency fluctuations against the U.S. dollar favorably impacted our International revenue by $4.3 million, or 3%, in the first quarter.  In local currency, International revenue was up 6% from the three month period in 2010. 
 
Latin America
 
Revenue for the first quarter of 2011 increased 5% from the first quarter of 2010 in local currency. Local currency revenue increased in most of our Latin American geographies, resulting from broad-based growth across all product segments, partially offset by a decline in Brazil.  Revenue also increased over the prior year quarter due to favorable foreign currency impact of $2.0 million, or 4%.

Europe
 
Revenue increased 9% in local currency for the first quarter of 2011, as compared to the prior year period, due primarily to increased sales in our consumer information solutions products along with growth in our personal solutions and analytical services products.  Growth was also partially due to favorable foreign currency impact of $0.7 million, or 2%.
 
Canada Consumer
 
Revenue increased 4% in local currency for the first quarter of 2011, as compared to the prior year period, due to increased volumes for our technology and analytical services products primarily due to growth in the customer base for a new fraud mitigation product.  Revenue also increased over the prior year quarter due to favorable foreign currency impact of $1.6 million, or 6%.
 
International Operating Margin
 
Operating margin declined in the first quarter of 2011 as compared to the prior year period primarily due to increased investments in new product development and increased sales force, particularly in Brazil.
 
 
26

 
TALX
   
Three Months Ended March 31,
             
               
Change
 
TALX
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
Operating revenue:
                       
The Work Number  
  $ 53.5     $ 49.7     $ 3.8       8 %
Tax and Talent Management Services
    45.9       45.6       0.3       1 %
Total operating revenue  
  $ 99.4     $ 95.3     $ 4.1       4 %
% of consolidated revenue
    21 %     22 %                
Total operating income  
  $ 21.7     $ 21.5     $ 0.2       1 %
Operating margin
    21.9 %     22.6 %          
-0.7
%pts

The Work Number
 
Revenue from The Work Number increased $3.8 million, or 8%, in the first quarter of 2011 compared to the first quarter of 2010 due to double-digit growth from traditional employment based verification and complementary services, with strong demand across the pre-employment screening, social services and collections sectors.  This growth was offset by weakness in our government-based tax transcript verifications as a result of a slowdown in mortgage refinancing.

Tax and Talent Management Services
 
The slight increase in revenue during the first quarter of 2011, as compared to the same period in 2010, resulted primarily from revenue growth in our Tax Management Services business, partially offset by revenue declines in our Talent Management Services business due to decreased government hiring activity at the U.S. Transportation and Security Administration and other large government customers.
 
TALX Operating Margin
 
Operating margin decreased 70 basis points for the first quarter of 2011, as compared to the prior year, as a result of higher operating expenses due to increased people costs.  
 
North America Personal Solutions
   
Three Months Ended March 31,
       
               
Change
 
North America Personal Solutions
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
                         
Total operating revenue
  $ 44.4     $ 39.7     $ 4.7       12 %
% of consolidated revenue
    10 %     9 %                
Total operating income
  $ 12.7     $ 10.0     $ 2.7       27 %
Operating margin
    28.7 %     25.2 %          
3.5
%pts
 
Revenue increased $4.7 million, or 12%, from the prior year quarter primarily due to increased revenue to wholesalers and increased direct to consumer, Equifax-branded subscription service revenue, which was up 8% from the prior year quarter, driven by higher average revenue per subscriber due to new product offerings and better market segmentation.  The operating margin increase in the first quarter, as compared to the prior year period, was primarily due to the increase in revenue discussed above.
 
 
27

 
North America Commercial Solutions
   
Three Months Ended March 31,
       
               
Change
 
North America Commercial Solutions
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
                         
Total operating revenue
  $ 20.6     $ 18.7     $ 1.9       10 %
% of consolidated revenue
    4 %     4 %                
Total operating income
  $ 5.1     $ 4.4     $ 0.7       16 %
Operating margin
    24.9 %     23.5 %          
1.4
%pts
 
Revenue increased for the three months ended March 31, 2011, as compared to the same period in the prior year, by 10%.  The favorable impact of changes in the U.S.—Canadian foreign exchange rate impacted revenue by $0.3 million, or 2%, as compared to the first quarter of 2010.  In local currency, revenue increased 8% compared to the prior year. The local currency increase was primarily due to increases in U.S. risk and marketing service revenue and revenue from our data management products.   Online transaction volume for U.S. commercial credit information products for the first quarter of 2011 increased when compared to the prior year period. Operating margin also increased for the first quarter of 2011, as compared to the same period in 2010, due to revenue growth.
 
General Corporate Expense
   
Three Months Ended March 31,
       
               
Change
 
General Corporate Expense
 
2011
   
2010
   
$
   
%
 
   
(Dollars in millions)
 
       
General corporate expense