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 September 30, 2005

OR

o                                 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


GRAPHIC

EQUIFAX INC.

(Exact name of registrant as specified in its charter)

Georgia

 

58-0401110

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

1550 Peachtree Street, N.W., Atlanta, Georgia

 

30309

(Address of principal executive offices)

 

(Zip Code)

404-885-8000

(Registrant’s telephone number, including area code)

N/A

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

 

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   o    No  x

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

Class

 

Outstanding at October 31, 2005

Common Stock, $1.25 Par Value

 

129,868,318

 

 




EQUIFAX INC.
INDEX

Page
No.

PART I

Financial Information (Unaudited)

3

 

Item 1.

Financial Statements

3

 

 

Consolidated Balance Sheets—September 30, 2005 and December 31, 2004

3

 

 

Consolidated Statements of Income—Three Months Ended September 30, 2005
and 2004

4

 

 

Consolidated Statements of Income—Nine Months Ended September 30, 2005
and 2004

5

 

 

Consolidated Statements of Cash Flows—Nine Months Ended September 30, 2005
and 2004

6

 

 

Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss)—Nine Months Ended September 30, 2005

7

 

 

Notes to Consolidated Financial Statements

8

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations 

22

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

37

 

Item 4.

Controls and Procedures

37

 

PART II

Other Information

38

 

Item 1.

Legal Proceedings

38

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

40

 

Item 6.

Exhibits

41

 

Signatures

42

 

Index to Exhibits

43

 

 

2




PART I. FINANCIAL INFORMATION

ITEM 1.                FINANCIAL STATEMENTS

EQUIFAX
CONSOLIDATED BALANCE SHEETS

 

 

September 30,
2005

 

December 31,
2004

 

 

 

(Unaudited)

 

 

 

 

 

(In millions, except
par values)

 

ASSETS

 

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

41.5

 

 

 

$

52.1

 

 

Trade accounts receivable, net of allowance for doubtful accounts of $10.0 in 2005 and $9.3 in 2004

 

 

224.0

 

 

 

195.1

 

 

Deferred income tax assets

 

 

14.3

 

 

 

13.2

 

 

Other current assets

 

 

24.9

 

 

 

38.7

 

 

Current assets from discontinued operations

 

 

 

 

 

0.5

 

 

Total current assets

 

 

304.7

 

 

 

299.6

 

 

Property and Equipment:

 

 

 

 

 

 

 

 

 

Land, buildings and improvements

 

 

29.5

 

 

 

30.2

 

 

Data processing equipment and furniture

 

 

284.2

 

 

 

297.9

 

 

 

 

 

313.7

 

 

 

328.1

 

 

Less accumulated depreciation

 

 

175.7

 

 

 

189.8

 

 

 

 

 

138.0

 

 

 

138.3

 

 

Goodwill, net

 

 

832.7

 

 

 

747.5

 

 

Purchased Intangible Assets, net

 

 

332.0

 

 

 

281.3

 

 

Other Assets, net

 

 

105.6

 

 

 

90.5

 

 

 

 

 

$

1,713.0

 

 

 

$

1,557.2

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

 

Short-term debt and current maturities

 

 

$

88.8

 

 

 

$

255.7

 

 

Accounts payable

 

 

5.1

 

 

 

9.7

 

 

Other current liabilities

 

 

202.4

 

 

 

191.2

 

 

Current liabilities of discontinued operations

 

 

 

 

 

0.3

 

 

Total current liabilities

 

 

296.3

 

 

 

456.9

 

 

Long-Term Debt

 

 

518.8

 

 

 

398.5

 

 

Deferred Revenue

 

 

4.1

 

 

 

9.8

 

 

Deferred Income Tax Liabilities

 

 

78.9

 

 

 

38.6

 

 

Other Long-Term Liabilities

 

 

117.2

 

 

 

129.8

 

 

Total liabilities

 

 

1,015.3

 

 

 

1,033.6

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

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—184.7 in 2005 and 182.0 in 2004;

 

 

 

 

 

 

 

 

 

Outstanding shares—129.8 in 2005 and 129.4 in 2004

 

 

230.9

 

 

 

227.5

 

 

Paid-in capital

 

 

539.2

 

 

 

466.9

 

 

Retained earnings

 

 

1,467.7

 

 

 

1,298.8

 

 

Accumulated other comprehensive loss

 

 

(251.3

)

 

 

(267.0

)

 

Treasury stock, at cost, 50.3 shares in 2005 and 47.7 shares in 2004

 

 

(1,223.0

)

 

 

(1,133.4

)

 

Stock held by employee benefits trusts, at cost, 4.6 shares in 2005 and 4.9 shares in 2004

 

 

(65.8

)

 

 

(69.2

)

 

Total shareholders’ equity

 

 

697.7

 

 

 

523.6

 

 

 

 

 

$

1,713.0

 

 

 

$

1,557.2

 

 

 

See Notes to Consolidated Financial Statements.

3




EQUIFAX
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

THREE MONTHS ENDED
September 30,

 

 

 

       2005       

 

       2004        

 

 

 

(In millions, except per
share amounts)

 

Operating revenue

 

 

$

375.3

 

 

 

$

319.9

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of services

 

 

153.0

 

 

 

134.4

 

 

Selling, general and administrative expenses

 

 

94.5

 

 

 

70.8

 

 

Depreciation and amortization

 

 

20.5

 

 

 

19.0

 

 

Total costs and expenses

 

 

268.0

 

 

 

224.2

 

 

Operating income

 

 

107.3

 

 

 

95.7

 

 

Other income, net

 

 

4.8

 

 

 

2.4

 

 

Minority interests in earnings, net of tax

 

 

(1.0

)

 

 

(0.8

)

 

Interest expense

 

 

(8.6

)

 

 

(9.2

)

 

Income from continuing operations before income taxes

 

 

102.5

 

 

 

88.1

 

 

Provision for income taxes

 

 

(40.0

)

 

 

(34.8

)

 

Income from continuing operations

 

 

62.5

 

 

 

53.3

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income tax expense of $0.0 in 2005 and $0.1 in 2004

 

 

 

 

 

(0.1

)

 

Net income

 

 

$

62.5

 

 

 

$

53.2

 

 

Per common share (basic):

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

$

0.48

 

 

 

$

0.41

 

 

Discontinued operations

 

 

 

 

 

(0.01

)

 

Net income

 

 

$

0.48

 

 

 

$

0.40

 

 

Shares used in computing basic earnings per share

 

 

129.9

 

 

 

130.7

 

 

Per common share (diluted):

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

$

0.47

 

 

 

$

0.40

 

 

Discontinued operations

 

 

 

 

 

 

 

Net income

 

 

$

0.47

 

 

 

$

0.40

 

 

Shares used in computing diluted earnings per share

 

 

132.5

 

 

 

132.5

 

 

Dividends per common share

 

 

$

0.04

 

 

 

$

0.03

 

 

 

See Notes to Consolidated Financial Statements.

4




EQUIFAX
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

 

 

NINE MONTHS ENDED
September 30,

 

 

 

     2005     

 

     2004     

 

 

 

(In millions,
except per share amounts)

 

Operating revenue

 

 

$

1,082.1

 

 

 

$

945.2

 

 

Costs and expenses:

 

 

 

 

 

 

 

 

 

Costs of services

 

 

443.3

 

 

 

394.8

 

 

Selling, general and administrative expenses

 

 

262.3

 

 

 

211.2

 

 

Depreciation and amortization

 

 

60.5

 

 

 

60.7

 

 

Asset impairment and related charges

 

 

 

 

 

2.4

 

 

Total costs and expenses

 

 

766.1

 

 

 

669.1

 

 

Operating income

 

 

316.0

 

 

 

276.1

 

 

Other income, net

 

 

9.9

 

 

 

45.4

 

 

Minority interests in earnings, net of tax

 

 

(3.6

)

 

 

(2.3

)

 

Interest expense

 

 

(27.5

)

 

 

(25.8

)

 

Income from continuing operations before income taxes

 

 

294.8

 

 

 

293.4

 

 

Provision for income taxes

 

 

(111.1

)

 

 

(111.3

)

 

Income from continuing operations

 

 

183.7

 

 

 

182.1

 

 

Discontinued operations

 

 

 

 

 

 

 

 

 

Loss from discontinued operations, net of income tax benefit of $0.0 in 2005 and $1.8 in 2004

 

 

 

 

 

(4.9

)

 

Net Income

 

 

$

183.7

 

 

 

$

177.2

 

 

Per common share (basic):

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

$

1.42

 

 

 

$

1.38

 

 

Discontinued operations

 

 

 

 

 

(0.04

)

 

Net income

 

 

$

1.42

 

 

 

$

1.34

 

 

Shares used in computing basic earnings per share

 

 

129.8

 

 

 

131.8

 

 

Per common share (diluted):

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

 

$

1.39

 

 

 

$

1.36

 

 

Discontinued operations

 

 

 

 

 

(0.04

)

 

Net income

 

 

$

1.39

 

 

 

$

1.32

 

 

Shares used in computing diluted earnings per share

 

 

132.6

 

 

 

133.8

 

 

Dividends per common share

 

 

$

0.11

 

 

 

$

0.08

 

 

 

See Notes to Consolidated Financial Statements.

5




EQUIFAX
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 

 

NINE MONTHS ENDED
September 30,

 

 

 

     2005     

 

     2004     

 

 

 

(In millions)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

Net income

 

 

$

183.7

 

 

 

$

177.2

 

 

Adjustments to reconcile net income to net cash provided by operating activities of continuing operations:

 

 

 

 

 

 

 

 

 

Gain on sale of investment in Intersections Inc.

 

 

 

 

 

(36.8

)

 

Loss from discontinued operations

 

 

 

 

 

4.9

 

 

Depreciation and amortization

 

 

60.5

 

 

 

60.7

 

 

Asset impairment and related charges

 

 

 

 

 

2.4

 

 

Income tax benefit from stock plans

 

 

13.0

 

 

 

4.4

 

 

Deferred income taxes

 

 

13.7

 

 

 

14.0

 

 

Changes in assets and liabilities, excluding effects of acquisitions:

 

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(21.4

)

 

 

(22.5

)

 

Current liabilities, excluding debt

 

 

(4.5

)

 

 

5.3

 

 

Other current assets

 

 

10.9

 

 

 

4.5

 

 

Other long-term liabilities, excluding debt

 

 

(11.8

)

 

 

1.9

 

 

Other assets

 

 

(12.3

)

 

 

(10.3

)

 

Other

 

 

 

 

 

(0.1

)

 

Cash provided by operating activities

 

 

231.8

 

 

 

205.6

 

 

Investing activities:

 

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(33.3

)

 

 

(33.0

)

 

Acquisitions, net of cash acquired

 

 

(121.8

)

 

 

(17.4

)

 

Proceeds from sale of investments

 

 

10.1

 

 

 

59.4

 

 

Deferred payments on prior year acquisitions

 

 

 

 

 

(1.4

)

 

Cash (used) provided by investing activities

 

 

(145.0

)

 

 

7.6

 

 

Financing activities:

 

 

 

 

 

 

 

 

 

Net short-term borrowings (payments)

 

 

88.6

 

 

 

(133.1

)

 

Additions to long-term debt

 

 

180.1

 

 

 

 

 

Payments on long-term debt

 

 

(310.0

)

 

 

(0.6

)

 

Treasury stock purchases

 

 

(95.0

)

 

 

(103.0

)

 

Dividends paid

 

 

(14.8

)

 

 

(11.0

)

 

Proceeds from exercise of stock options

 

 

47.7

 

 

 

22.5

 

 

Other

 

 

6.5

 

 

 

(2.1

)

 

Cash used by financing activities

 

 

(96.9

)

 

 

(227.3

)

 

Effect of foreign currency exchange rates on cash

 

 

(0.5

)

 

 

(3.7

)

 

Cash provided by discontinued operations

 

 

 

 

 

1.6

 

 

Decrease in cash and cash equivalents

 

 

(10.6

)

 

 

(16.2

)

 

Cash and cash equivalents, beginning of year

 

 

52.1

 

 

 

38.1

 

 

Cash and cash equivalents, end of period

 

 

$

41.5

 

 

 

$

21.9

 

 

 

See Notes to Consolidated Financial Statements.

6




EQUIFAX

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND

COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

Held By

 

 

 

 

 

Common Stock:

 

 

 

 

 

Other

 

 

 

Employee

 

Total

 

 

 

Shares

 

 

 

Paid-In

 

Retained

 

Comprehensive

 

Treasury

 

Benefits

 

Shareholders’

 

 

 

Outstanding

 

Amount

 

Capital

 

Earnings

 

Loss

 

Stock

 

Trusts

 

Equity

 

 

 

(In millions)

 

Balance, December 31, 2004

 

 

129.4

 

 

 

$

227.5

 

 

 

$

466.9

 

 

 

$

1,298.8

 

 

 

$

(267.0

)

 

$

(1,133.4

)

 

$

(69.2

)

 

 

$

523.6

 

 

Net income

 

 

 

 

 

 

 

 

 

 

 

183.7

 

 

 

 

 

 

 

 

 

 

183.7

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15.7

 

 

 

 

 

 

 

15.7

 

 

Shares issued under stock plans

 

 

2.5

 

 

 

3.4

 

 

 

52.4

 

 

 

 

 

 

 

 

(5.4

)

 

 

 

 

50.4

 

 

Shares issued under benefits plans

 

 

0.3

 

 

 

 

 

 

2.5

 

 

 

 

 

 

 

 

 

 

3.4

 

 

 

5.9

 

 

Shares issued under treasury stock

 

 

0.4

 

 

 

 

 

 

4.0

 

 

 

 

 

 

 

 

10.8

 

 

 

 

 

14.8

 

 

Income tax benefit from stock plans

 

 

 

 

 

 

 

 

13.0

 

 

 

 

 

 

 

 

 

 

 

 

 

13.0

 

 

Treasury stock purchased

 

 

(2.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(95.0

)

 

 

 

 

(95.0

)

 

Cash dividends

 

 

 

 

 

 

 

 

 

 

 

(14.8

)

 

 

 

 

 

 

 

 

 

(14.8

)

 

Dividends from employee benefits trusts

 

 

 

 

 

 

 

 

0.4

 

 

 

 

 

 

 

 

 

 

 

 

 

0.4

 

 

Balance, Septebmer 30, 2005 (Unaudited)

 

 

129.8

 

 

 

$

230.9

 

 

 

$

539.2

 

 

 

$

1,467.7

 

 

 

$

(251.3

)

 

$

(1,223.0

)

 

$

(65.8

)

 

 

$

697.7

 

 

 

Accumulated Other Comprehensive Loss consists of the following components:

 

 

September 30,

 

December 31,

 

 

 

2005

 

2004

 

 

 

(Unaudited)

 

 

 

 

 

(In millions)

 

Foreign currency translation

 

 

$

(132.1

)

 

 

$

(148.2

)

 

Minimum pension liability, net of accumulated tax of $70.2 in 2005 and 2004

 

 

(118.0

)

 

 

(117.0

)

 

Cash flow hedging transactions, net of tax of $1.0 in 2005 and $1.1 in 2004

 

 

(1.2

)

 

 

(1.8

)

 

 

 

 

$

(251.3

)

 

 

$

(267.0

)

 

 

Comprehensive Income is as follows:

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

 

 

(In millions)

 

Net income

 

 

$

62.5

 

 

 

$

53.2

 

 

 

$

183.7

 

 

 

$

177.2

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

15.0

 

 

 

17.6

 

 

 

16.1

 

 

 

3.0

 

 

Change in cumulative loss from cash flow hedging transactions

 

 

0.4

 

 

 

(0.3

)

 

 

0.6

 

 

 

0.3

 

 

Supplemental retirement plan minimum liability adjustment

 

 

 

 

 

 

 

 

(1.0

)

 

 

1.0

 

 

 

 

 

$

77.9

 

 

 

$

70.5

 

 

 

$

199.4

 

 

 

$

181.5

 

 

 

See Notes to Consolidated Financial Statements.

7




EQUIFAX
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2005

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

1.   BASIS OF PRESENTATION

We have prepared the accompanying unaudited Consolidated Financial Statements in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. This information reflects all adjustments which in the opinion of management are necessary for a fair presentation of the statement of financial position as of September 30, 2005, and the results of operations for the three and nine month periods ending September 30, 2005 and 2004 and the cash flows for the nine month periods ending September 30, 2005 and 2004. All adjustments made have been of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. We believe that the disclosures are adequate to make the information presented not misleading. Certain prior year amounts have been reclassified to conform to the current year presentation. These Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our annual report on Form 10-K/A for the fiscal year ended December 31, 2004 (“2004 Form 10-K”). That report includes a summary of our critical accounting policies. There have been no material changes in our accounting policies during fiscal 2005.

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

Earnings Per Share.   Our basic earnings per share (“EPS”) is calculated as income from continuing operations or 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 income amounts used in both our basic and diluted EPS calculations is the same. A reconciliation of the weighted average outstanding shares used in the two calculations is as follows:

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

    2005    

 

    2004    

 

    2005    

 

    2004    

 

 

 

(In millions)

 

Weighted average shares outstanding (basic)

 

 

129.9

 

 

 

130.7

 

 

 

129.8

 

 

 

131.8

 

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options

 

 

2.0

 

 

 

1.3

 

 

 

2.2

 

 

 

1.5

 

 

Long-term incentive plans

 

 

0.6

 

 

 

0.5

 

 

 

0.6

 

 

 

0.5

 

 

Weighted average shares outstanding (diluted)

 

 

132.5

 

 

 

132.5

 

 

 

132.6

 

 

 

133.8

 

 

 

8




Stock-Based Compensation.   In accordance with the accounting provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” (“SFAS No. 123”) and SFAS No. 148, “Accounting for Stock-Based Compensation—Transitional Disclosure,” we have elected to apply Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB No. 25”) and related interpretations in accounting for our stock option and performance share plans. Accordingly, by our use of the intrinsic value method to account for stock-based employee compensation, we do not recognize compensation cost in connection with our stock options since the strike price was equal to the fair value of the underlying stock on the date of grant.

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

 

 

September 30, 2005

 

September 30, 2004

 

Expected Life in Years

 

 

4.5

 

 

 

4.6

 

 

Risk Free Interest Rate

 

 

3.68

%

 

 

3.19

%

 

Volatility

 

 

31.44

%

 

 

33.70

%

 

Dividend Yield

 

 

0.5

%

 

 

0.5

%

 

 

If we had elected to recognize compensation cost for these plans based on the fair value at grant date as prescribed by SFAS No. 123, net income and net income per share would have been reduced to the pro forma amounts indicated in the table below:

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

 

 

    2005    

 

    2004    

 

    2005    

 

    2004    

 

 

 

(In millions, except per share data)

 

Net income, as reported

 

 

$

62.5

 

 

 

$

53.2

 

 

 

$

183.7

 

 

 

$

177.2

 

 

Add: Total stock-based employee compensation expense, net of related tax effect, included in reported net income

 

 

1.3

 

 

 

0.3

 

 

 

3.7

 

 

 

1.0

 

 

Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects

 

 

(3.0

)

 

 

(1.9

)

 

 

(8.6

)

 

 

(5.1

)

 

Pro forma net income

 

 

$

60.8

 

 

 

$

51.6

 

 

 

$

178.8

 

 

 

$

173.1

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic—as reported

 

 

$

0.48

 

 

 

$

0.40

 

 

 

$

1.42

 

 

 

$

1.34

 

 

Basic—pro forma

 

 

$

0.47

 

 

 

$

0.39

 

 

 

$

1.38

 

 

 

$

1.32

 

 

Diluted—as reported

 

 

$

0.47

 

 

 

$

0.40

 

 

 

$

1.39

 

 

 

$

1.32

 

 

Diluted—pro forma

 

 

$

0.46

 

 

 

$

0.39

 

 

 

$

1.35

 

 

 

$

1.31

 

 

 

2.   NATURE OF OPERATIONS

We collect, organize and manage various types of financial, demographic and marketing information. Our products and services enable businesses to make credit and marketing decisions, manage their portfolio risk and develop marketing strategies concerning consumers and commercial enterprises. We serve customers across a wide range of industries, including the financial services, mortgage, retail, telecommunications, utilities, automotive, brokerage, healthcare and insurance industries, as well as state and federal government entities. We also enable consumers to manage and protect their financial health through a portfolio of products offered directly to individuals. We have approximately 4,600 employees worldwide and manage our business globally through the following three reportable segments: Equifax

9




North America, Equifax Europe and Equifax Latin America. Our operations are predominantly located within the U.S., with foreign operations principally located in Canada, the U.K. and Brazil.

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

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

3.   ACQUISITIONS

On August 29, 2005, we acquired BeNow Inc. (“BeNow”), a provider of leading edge solutions to multi-channel marketers, as a part of our Marketing Services business. BeNow combines database management and analytics to support customer marketing campaigns and optimize market opportunities in particular industries. We paid a total of approximately $17.5 million in cash to the stockholders of BeNow. The net cash impact to us of the acquisition was approximately $16.7 million. We financed the purchase price of the acquisition through available cash and approximately $5.9 million in short-term borrowings.

To broaden and further strengthen our enabling technologies capabilities in our North America Information Services business, we acquired APPRO Systems, Inc. (“APPRO”) on March 15, 2005. APPRO provides automated credit risk management and financial technologies for consumer, commercial and retail banking lending operations. We paid a total of approximately $91.5 million in cash to the stockholders and option holders of APPRO. The net cash impact to us of the acquisition was approximately $74.9 million after disposition of certain assets. We financed the purchase price of the acquisition through available cash and approximately $72.0 million in borrowings under our existing trade receivables-backed revolving credit facility.

During the first nine months of 2005, in order to continue to grow our credit data business, we acquired the credit files, contractual rights to territories (generally states or integration areas) and customer relationships and related businesses of two independent credit reporting agencies in the U.S. and one in Canada that house consumer information on our system.

10




The above acquisitions were accounted for as purchases and had a total cash purchase price of $129.1 million. The purchase of one U.S. independent credit reporting agency was paid for primarily with the issuance of 0.4 million shares of Equifax treasury stock. The following table summarizes the estimated fair value of the net assets acquired and the liabilities assumed at the acquisition dates. These allocations are preliminary estimates and will be finalized upon completion of the purchase valuation of the acquired assets and liabilities.

 

 

2005

 

 

 

(In millions)

 

Current assets

 

 

$

27.7

 

 

Property and equipment

 

 

4.8

 

 

Other assets

 

 

0.1

 

 

Purchased intangible assets

 

 

76.4

 

 

Deferred tax assets

 

 

2.8

 

 

Goodwill

 

 

66.5

 

 

Total acquired assets

 

 

178.3

 

 

Total liabilities

 

 

34.5

 

 

Net assets acquired

 

 

$

143.8

 

 

 

The results of operations for these acquisitions have been included in the Consolidated Statements of Income from their respective dates of acquisition and have not been material.

4.   OTHER CURRENT ASSETS

Other current assets.   Other current assets at September 30, 2005 and December 31, 2004 consist of the following:

 

 

September 30,
2005

 

December 31,
2004

 

 

 

(In millions)

 

Prepaid expenses

 

 

$

19.1

 

 

 

$

17.1

 

 

Other current assets

 

 

5.8

 

 

 

21.6

 

 

Total other current assets

 

 

$

24.9

 

 

 

$

38.7

 

 

 

5.   GOODWILL AND PURCHASED INTANGIBLE ASSETS

Goodwill.   Goodwill allocated to our reporting units at January 1, 2005 and changes in the carrying amount of goodwill for the first nine months of 2005 are as follows:

 

 

Reporting Units

 

 

 

 

 

Information
Services

 

Marketing
Services

 

Personal
Solutions

 

European
Operations

 

Latin America
Operations

 

Corporate

 

Total

 

 

 

(In millions)

 

Balance, January 1, 2005

 

 

$

212.1

 

 

 

$

275.9

 

 

 

$

1.8

 

 

 

$

117.7

 

 

 

$

134.2

 

 

 

$

5.9

 

 

$

747.5

*

Acquisitions

 

 

54.4

 

 

 

12.1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

66.5

 

Adjustments

 

 

1.7

 

 

 

(1.8

)

 

 

 

 

 

 

 

 

6.7

 

 

 

 

 

6.6

 

Foreign currency translation 

 

 

1.6

 

 

 

 

 

 

 

 

 

(9.9

)

 

 

20.3

 

 

 

 

 

12.0

 

Balance, September 30, 2005

 

 

$

269.8

 

 

 

$

286.2

 

 

 

$

1.8

 

 

 

$

107.8

 

 

 

$

161.2

 

 

 

$

5.9

 

 

$

832.7

*


*                    Does not total due to rounding

11




Goodwill is the cost in excess of the fair value of the net assets of acquired businesses. SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that reporting unit goodwill be evaluated and tested for impairment at least on an annual basis. Accordingly, we performed our impairment evaluation as of September 30, 2005 which resulted in no impairment. However, future goodwill impairment tests could result in a charge to earnings. We will continue to evaluate goodwill annually or whenever events and circumstances indicate that there may be an impairment of the asset value.

The acquisitions in the table above relate primarily to the APPRO and BeNow acquisitions, as discussed in Note 3 of the Notes to Consolidated Financial Statements in this Form 10-Q.

Purchased Intangible Assets.   Purchased intangible assets, as recorded on the accompanying Consolidated Balance Sheets, represent the estimated fair value of acquired intangible assets used in our products and services. Purchased data files, net, is the carrying value of 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. Purchased intangible assets at September 30, 2005 and December 31, 2004 consist of the following:

 

 

September 30, 2005

 

December 31, 2004

 

 

 

Gross

 

Accumulated
amortization

 

Net

 

Gross

 

Accumulated
amortization

 

Net

 

 

 

(In millions)

 

Purchased data files

 

$

399.8

 

 

$

(170.7

)

 

$

229.1

 

$

405.4

 

 

$

(171.7

)

 

$

233.7

 

Acquired software

 

39.4

 

 

(10.8

)

 

28.6

 

10.4

 

 

(8.2

)

 

2.2

 

Non-compete agreements

 

11.5

 

 

(8.2

)

 

3.3

 

11.7

 

 

(7.3

)

 

4.4

 

Contractual and territorial rights

 

48.9

 

 

 

 

48.9

 

41.0

 

 

 

 

41.0

 

Customer relationships

 

21.9

 

 

(0.5

)

 

21.4

 

 

 

 

 

 

Purchased trademarks

 

0.8

 

 

(0.1

)

 

0.7

 

 

 

 

 

 

Total purchased intangible assets

 

$

522.3

 

 

$

(190.3

)

 

$

332.0

 

$

468.5

 

 

$

(187.2

)

 

$

281.3

 

 

We amortize purchased data files over a 15-year period on a straight line basis. Acquired software is amortized over a period of three to ten years. Non-compete agreements are amortized over a period of two to three years. Our contractual and territorial rights are perpetual in nature and, therefore, the useful lives are considered indefinite. Customer relationships are amortized over a ten-year period. Amortization expense related to purchased intangible assets was approximately $22.9 million and $24.9 million for the first nine months of 2005 and 2004, respectively.

We perform annual impairment tests for our purchased intangible assets with indefinite lives. Based on the results of our impairment tests, we determined that no impairment of the contractual and territorial rights existed at December 31, 2004. However, future impairment tests could result in a charge to earnings. We will continue to evaluate our purchased intangible assets annually or whenever events and circumstances indicate that there may be an impairment of the asset value.

12




6.   OTHER CURRENT LIABILITIES

Other current liabilities.   Other current liabilities at September 30, 2005 and December 31, 2004 consist of the following:

 

 

September 30,
2005

 

December 31,
2004

 

 

 

(In millions)

 

Current deferred revenue

 

 

$

45.3

 

 

 

$

33.8

 

 

Income taxes payable

 

 

13.9

 

 

 

6.9

 

 

Accrued salaries and bonuses

 

 

42.5

 

 

 

28.8

 

 

Accrued other

 

 

100.7

 

 

 

121.7

 

 

Total other current liabilities

 

 

$

202.4

 

 

 

$

191.2

 

 

 

7.   DEBT

Debt at September 30, 2005 and December 31, 2004 consists of the following:

 

 

September 30,
2005

 

December 31,
2004

 

 

 

(In millions)

 

Notes, 4.95%, due 2007, net of unamortized discount of $0.2 million and $0.3 million at September 30, 2005 and December 31, 2004, respectively

 

 

$

249.8

 

 

 

$

249.7

 

 

Debentures, 6.9%, due 2028, net of unamortized discount of $1.1 million and $1.2 million at September 30, 2005 and December 31, 2004, respectively

 

 

148.9

 

 

 

148.8

 

 

Notes, 6.3%, due 2005, net of unamortized discount of $0.1 million at December 31, 2004

 

 

 

 

 

249.9

 

 

Long-term U.S. revolving credit facility

 

 

120.0

 

 

 

 

 

Trade receivables-backed revolving credit facility

 

 

83.0

 

 

 

 

 

Other

 

 

5.9

 

 

 

5.8

 

 

 

 

 

607.6

 

 

 

654.2

 

 

Less current maturities

 

 

88.8

 

 

 

255.7

 

 

 

 

 

$

518.8

 

 

 

$

398.5

 

 

 

We redeemed $250 million principal amount of our 6.3% senior unsecured Notes (“6.3% Notes”) on July 1, 2005, by utilizing borrowings of $165.0 million under our U.S. senior unsecured revolving credit agreement and $85.0 million under our trade receivables-backed revolving credit facility. A portion of the borrowings under our U.S. senior unsecured revolving credit agreement was subsequently repaid.

During the three months ended September 30, 2005, we amended our trade receivables-backed revolving credit facility and C$25.0 million revolving credit facility to extend the expiration dates to September 5, 2006 and September 30, 2006, respectively. For additional information regarding these credit facilities, see Note 7 to our Consolidated Financial Statements in our 2004 Form 10-K.

8.   INCOME TAXES

Annual Effective Tax Rates.   The tax provisions for the nine months ended September 30, 2005 and 2004 were based on the estimated effective tax rates applicable for the full years ended December 31, 2005 and 2004, after giving effect to items specifically related to the interim periods. The estimated effective tax rate from continuing operations was 37.7% for the first nine months of 2005, down from 38.2% in 2004,

13




due primarily to favorable items related to state income taxes offset by additional tax expense related to non-deductible compensation in 2005.

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

9.   SHAREHOLDERS’ EQUITY

Treasury Stock.   During the first nine months of 2005, we repurchased 2.8 million shares at an average price of $33.46 per share through open market transactions at an aggregate investment of $95.0 million. At September 30, 2005, approximately $144.3 million remained authorized for future share repurchases. We also issued 0.4 million shares of treasury stock in connection with one of our affiliate acquisitions. For additional information about our share issuance and the stock purchase program see Note 3 of the Notes to Consolidated Financial Statements in this Form 10-Q and Part II, Item 2—”Unregistered Sales of Equity Securities and Use of Proceeds” below, respectively.

10.   EMPLOYEE BENEFITS

The following table provides the components of net periodic benefit cost for the three months ended September 30, 2005 and 2004:

 

 

Pension Benefits

 

Other Benefits

 

Three Months Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

(In millions)

 

Components of net periodic benefit cost

 

 

 

 

 

 

 

 

 

Service cost

 

$

2.0

 

$

1.8

 

$

0.1

 

$

0.1

 

Interest cost

 

7.9

 

7.8

 

0.4

 

0.4

 

Expected return on plan assets

 

(10.1

)

(10.9

)

(0.3

)

(0.2

)

Amortization of prior service cost

 

1.2

 

0.1

 

0.2

 

0.2

 

Recognized actuarial loss

 

2.1

 

3.5

 

 

 

Total net periodic benefit cost

 

$

3.1

 

$

2.3

 

$

0.4

 

$

0.5

 

 

The following table provides the components of net periodic benefit cost for the nine months ended September 30, 2005 and 2004:

 

 

Pension Benefits

 

Other Benefits

 

Nine Months Ended September 30,

 

 

 

2005

 

2004

 

2005

 

2004

 

 

 

(In millions)

 

Components of net periodic benefit cost

 

 

 

 

 

 

 

 

 

Service cost

 

$

5.9

 

$

5.5

 

$

0.3

 

$

0.3

 

Interest cost

 

23.7

 

23.4

 

1.2

 

1.1

 

Expected return on plan assets

 

(30.3

)

(32.9

)

(0.9

)

(0.6

)

Amortization of prior service cost

 

3.4

 

0.3

 

0.6

 

0.5

 

Recognized actuarial loss

 

6.3

 

10.5

 

 

 

Total net periodic benefit cost

 

$

9.0

 

$

6.8

 

$

1.2

 

$

1.3

 

 

On January 1, 2005, we separated our U.S. Retirement Income Plan (“USRIP”) into two defined benefit plans subject to the Employee Retirement Income Security Act (“ERISA”). The new plan, the Equifax Inc. Pension Plan (“EIPP”), was funded in January 2005 with the transfer of $17.0 million of assets from the USRIP to the EIPP and a company contribution of $20.0 million. The EIPP contained all active employee participants of Equifax as of January 1, 2005, and the USRIP contained all inactive retired and vested participants as of that date. Inactive participants constituted approximately 85% of total

14




participants prior to the separation. The benefits of participants in both plans were unaffected by the separation. The two groups of participants—active and inactive—had projected patterns of actuarial liabilities which were markedly different, due to the demographic differences between the two populations. The two plans will have separate assumed rates of return and separate asset allocation strategies, which will allow us to more efficiently fund our pension liabilities. Additionally, the assets of one plan will not be available to fund the liabilities of the other plan.

We have met our minimum funding requirements under ERISA for 2005 with respect to the USRIP and the EIPP. We made a discretionary contribution of $20.0 million to the EIPP during the quarter ended March 31, 2005. The Pension Funding Equity Act of 2004, which became law on April 10, 2004, provides defined benefit plan quarterly contribution relief for plan years beginning in 2004 and 2005. We do not expect to have to make any minimum funding contributions under ERISA for 2006 with respect to the USRIP or the EIPP based on applicable law as currently in effect.

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

As discussed in our 2004 Form 10-K, the other postretirement benefit obligation and postretirement benefit expense recognized through September 30, 2005 includes the expected favorable impact of the federal subsidy and other provisions of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Our postretirement benefit obligations reflect that we will recognize the 28% subsidy for post-age 65 drug coverage as an offset to healthcare plan costs. The reduction in obligations due to the subsidy is reflected as an unrecognized net gain to the plan. The gain was reflected in net periodic benefit cost for the first time in 2004. For current and future retirees, the 28% subsidy is expected to reduce our prescription drug plan costs by $529 per individual in 2006, and this amount is expected to increase by the valuation trend rates. This estimate will be updated in the fourth quarter of 2005 for the impact of final regulations issued in January 2005. We have determined that our prescription drug plan provides a benefit that is at least actuarially equivalent to the Medicare prescription drug plan. The following represents our expected Medicare Part D reimbursements:

 

 

Estimated

 

Year

 

 

 

Reimbursement

 

 

 

(In millions)

 

2005

 

 

$

 

 

2006

 

 

0.4

 

 

2007

 

 

0.5

 

 

2008

 

 

0.5

 

 

2009

 

 

0.6

 

 

2010 - 2014

 

 

3.4

 

 

 

 

 

$

5.4

 

 

 

15




11.   COMMITMENTS AND CONTINGENCIES

Data Processing and Outsourcing Services Agreements.   We have separate agreements with IBM, Polk/Acxiom and others with which we outsource portions of our computer data processing operations and related functions and certain administrative functions. The agreements expire between 2005 and 2013. The estimated aggregate minimal contractual obligation remaining under these agreements was $389.4 million at December 31, 2004, with no future year minimum expected to exceed $70.8 million. Annual payment obligations in regards 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 offering, acquisitions or divestitures, the introduction of significant new technologies or the general rate of inflation. Our data processing outsourcing agreement with IBM was renegotiated in 2003 for a ten-year term. Under this agreement (which covers our operations in North America, the U.K., Ireland, Spain, Brazil and Chile), we have outsourced our mainframe and midrange operations, help service and desktop support functions and the operation of our voice and data networks. The scope of such services varied by location. At December 31, 2004, the estimated future minimum contractual obligation under this agreement was $361.8 million, with no year expected to exceed $54.5 million. In certain circumstances (e.g., a change in control, or for our convenience), we may terminate these data processing and outsourcing agreements, and in doing so certain of these agreements require us to pay a significant penalty.

Agreement with Computer Sciences Corporation.   We have an agreement with Computer Sciences Corporation and certain of its affiliates (collectively, “CSC”), under which CSC-owned credit reporting agencies utilize our computerized credit database services. CSC retains ownership of its credit files and the revenues generated by its credit reporting activity. We receive a processing fee for maintaining the database and for each report supplied. The agreement was renewed by CSC for a ten-year period beginning August 1, 1998. The agreement provides us with an option to purchase CSC’s credit reporting business if CSC does not elect to renew the agreement or if there is a change in control of CSC while the agreement is in effect. Under the agreement CSC also has an option, exercisable at any time, to sell its credit reporting business to us. The option expires in 2013. The option exercise price will be determined by a third-party appraisal process and would be due in cash within 180 days after the exercise of the option. We estimate that if the option were exercised at this time, the price range would approximate $650.0 to $700.0 million. This estimate is based solely on our internal analysis of the value of the businesses, current market conditions and other factors, all of which are subject to constant change. Therefore, the actual option exercise price could be materially higher or lower than the estimated amount. If CSC were to exercise its option, we would have to obtain additional sources of funding. We believe that this funding would be available from sources such as additional bank lines of credit and the issuance of public debt and/or equity. However, the availability and terms of any such capital financing would be subject to a number of factors, including credit market conditions, the state of the equity markets, general economic conditions and our financial performance and condition. For additional information on our agreement with CSC, see the “Risk Factors” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2004 Form 10-K.

Guarantees.   We will from time to time issue standby letters of credit, performance bonds or other guarantees in the normal course of business. The aggregate notional amount of all performance bonds and standby letters of credit is less than $2.0 million and all have a maturity of one year or less. Guarantees are issued from time to time to support the needs of operating units. The only outstanding guarantee that is not reflected as a liability on our Consolidated Balance Sheets was issued in connection with the sale of our risk management collections business to RMA Holdings, LLC (“RMA”) in October 2000, at which time we guaranteed the operating lease payments of a partnership affiliated with RMA to a lender of the partnership pursuant to a term loan. The operating lease, which expires December 31, 2011, has a remaining balance of $8.3 million based on the undiscounted value of remaining lease payments at September 30, 2005.

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On September 12, 2005, RMA sold substantially all of its assets to NCO Group, Inc. (“NCO”), after obtaining approval from the U.S. Bankruptcy Court for the Northern District of Ohio, Eastern Division. In conjunction with this sale, NCO agreed to assume the operating lease obligations discussed above, which we will continue to guarantee. We believe that the likelihood of demand for payment by us is minimal and expect no material losses to occur related to this guarantee. This sale also resulted in an amendment to an agreement that provides RMA with credit information products and services over several years, which we entered into in 2000 in conjunction with the sale of our risk management collections business. The amendment to this agreement reduced the level of credit information products and services that we are obligated to provide, which resulted in a $3.3 million gain recorded during the third quarter of 2005 in other income, net on our Consolidated Statements of Income. The balance of the remaining credit information products and services we are required to provide is recorded in other current liabilities and long-term deferred revenue on our Consolidated Balance Sheets.

Other than facility leasing arrangements, we do not engage in off-balance sheet financing activities. We have entered into a synthetic lease on our Atlanta corporate headquarters building in order to provide us with favorable financing terms with regard to this facility. This $29.0 million lease was entered into in 1998 and expires in 2010. Total lease payments for the remaining term total $8.3 million. Under this synthetic lease arrangement, we have also guaranteed the residual value of the leased property to the lessor. In the event that the property were to be sold by the lessor at the end of the lease term, we would be responsible for any shortfall of the sales proceeds, up to a maximum amount of $23.2 million, which equals 80% of the value of the property at the beginning of the lease term. Based on an appraisal of the property at December 31, 2004, we determined that its fair value is $25.0 million. The $4.0 million shortfall against the residual value guarantee is being recognized as an expense ratably over the remaining lease term.

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

Litigation.   We are involved in lawsuits, claims and legal proceedings as is normal in the ordinary course of our business. Any possible adverse outcome arising from these matters is not expected to have a material impact on our results of operations or financial position, either individually or in the aggregate. However, our evaluation of the likely impact of these pending lawsuits could change in the future. If the potential loss from any claim or legal proceeding is probable and can be estimated, we accrue a liability for estimated settlements and incurred but unpaid legal fees for services performed to date. In our opinion, the ultimate resolution of these matters, including those discussed below in Part II, Other Information, Item I, Legal Proceedings, will not have a materially adverse effect on our financial position, liquidity or results of operations.

Income Taxes.   Our tax filings for various periods are subjected to audit by tax authorities in most jurisdictions where we conduct business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Currently, there are assessments involving certain of our subsidiaries, including Canada (see Part II, Other Information, Item 1, Legal Proceedings), that may not be resolved for many years. We believe we have substantial defenses to the questions being raised and would pursue all legal remedies should an unfavorable outcome result. We believe we have adequately provided for any ultimate amounts that would result from these proceedings where it is probable we will pay some amounts and the amounts can be estimated; however, it is too early to predict a final outcome of these matters.

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12.   SEGMENT INFORMATION

Segment Reporting

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

·       Equifax North America

·       Equifax Europe

·       Equifax Latin America

The North America reportable segment consists of three operating segments:

·       Information Services

·       Marketing Services

·       Personal Solutions

The Europe and Latin America reportable segments include similar product lines.

A summary of segment products and services is as follows:

Equifax North America.   Information Services, which includes consumer and commercial services (such as credit information and credit scoring, credit modeling services, locate services, fraud detection and prevention services, mortgage loan origination information services, identity verification services and other consulting services); Marketing Services, which includes credit card marketing services and consumer demographic and lifestyle information services; and Personal Solutions, which consists of credit monitoring and identity theft protection products sold directly to individuals.

Equifax Europe.   Information Services, which includes consumer and commercial services (such as credit and financial information, credit scoring and credit modeling services), Credit Marketing Services and Personal Solutions. The operating results for our Italian businesses that were disposed of in the fourth quarter of 2004 have been reclassified to discontinued operations and are not included in the Equifax Europe’s reported segment results as shown below.

Equifax Latin America.   Information Services, which includes consumer and commercial services (such as credit and financial information, credit scoring and credit modeling services), Credit Marketing Services and Personal Solutions.

There has been no material change in segment assets since December 31, 2004.

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Operating revenue and operating income by segment for the three and nine months ended September 30, 2005 and 2004 are as follows:

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

    2005    

 

    2004    

 

    2005    

 

    2004    

 

 

 

(In millions)

 

Operating revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equifax North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Services

 

 

$

211.2

 

 

 

$

177.3

 

 

$

609.5

 

 

$

527.3

 

 

Marketing Services

 

 

65.6

 

 

 

60.0

 

 

187.2

 

 

175.1

 

 

Personal Solutions

 

 

28.8

 

 

 

23.5

 

 

87.9

 

 

72.8

 

 

North America—Total

 

 

305.6

 

 

 

260.8

 

 

884.6

 

 

775.2

 

 

Equifax Europe

 

 

35.1

 

 

 

35.5

 

 

106.8

 

 

103.9

 

 

Equifax Latin America

 

 

34.6

 

 

 

23.6

 

 

90.7

 

 

66.1

 

 

 

 

 

$

375.3

 

 

 

$

319.9

 

 

$

1,082.1

 

 

$

945.2

 

 

Operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equifax North America