UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


x                               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 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


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)

 

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

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Common Stock, $1.25 par value per share

 

New York Stock Exchange

Common Stock Purchase Rights

 

New York Stock Exchange

 

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Exchange Act (“Act”).
                 
x YES                  o NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
                 
o YES                  x NO

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 at least the past 90 days.
                 
x YES                  o NO

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
                 
x Large accelerated filer                 o Accelerated filer            o Non-accelerated filer

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

As of the last day of the second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $4,202,477,677 based on the closing sale price as reported on the New York Stock Exchange. At January 31, 2006, there were 129,414,320 shares of voting common stock with a par value of $1.25 outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Registrant’s definitive proxy statement relating to its annual meeting of shareholders to be held on May 17, 2006 is incorporated by reference in Part III to the extent described therein.

 




FORWARD-LOOKING STATEMENTS

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.

This Form 10-K and certain information incorporated herein by reference contains forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of 1934. In addition, certain statements included in our future filings with the Securities and Exchange Commission (“SEC”), in press releases, and in oral and written statements made by us or with our approval, which are not statements of historical fact, are forward-looking statements. Words such as “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “seeks,” “plan,” “project,” “continue,” “predict,” and other words or expressions of similar meaning are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements are found at various places throughout this report and in the documents incorporated herein by reference. These statements are based on our current expectations about future events or results and information that is currently available to us, involve assumptions, risks, and uncertainties, and speak only as of the date on which such statements are made. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Our actual results may differ materially from those expressed or implied in these forward-looking statements. Factors that may cause such a difference, include, but are not limited to those discussed in Part I, Item IA, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Risk Factors, below, as well as: changes in worldwide and U.S. economic conditions that materially impact consumer spending and consumer debt; interest rate increases or other factors that reduce mortgage refinancings or new mortgages; changes in the marketing techniques of credit card issuers; pricing and other competitive pressures and the company’s ability to gain or maintain share of sales as a result of actions by competitors and others; risks relating to illegal third party efforts to access data; risks associated with the integration of acquisitions and other investments; the outcome of our litigation; changes in estimates in critical accounting judgments; changes in or failure to comply with laws and regulations, including changes in the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act, accounting standards, taxation requirements (including tax rate changes, new tax laws and revised tax interpretations) in domestic or foreign jurisdictions; costs associated with compliance with the Fair and Accurate Credit Transactions Act of 2003 and federal or state responses to identity theft concerns; exchange rate fluctuations and other risks associated with investments and operations in foreign countries; our ability to successfully develop and market new products and services, incorporate new technology and adapt to technological change; equity markets, including market disruptions and significant interest rate fluctuations, which may impede our access to, or increase the cost of, external financing; increased competitive pressures both domestically and internationally; and international conflict, including terrorist acts. Equifax undertakes no duty to update, whether as a result of new information, future events or otherwise, unless required by law.

Readers should carefully review the disclosures and the risk factors described in this and other documents we file from time to time with the SEC, including future reports on Forms 10-Q and 8-K, and any amendments thereto.

You may obtain our SEC filings at our website, www.equifax.com/OurCompany/Investor Center/Financials/SEC Filings, or over the Internet at the SEC’s web site, www.sec.gov.

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PART I

ITEM 1.                BUSINESS

Overview

We were founded in Atlanta, Georgia, in 1899, incorporated in Georgia in 1913, and have been known as Equifax Inc. since 1975. We have been publicly owned since 1965, listed on the New York Stock Exchange since 1971 and are a member of the S&P 500 and certain other indices.

GRAPHIC

We collect, organize and manage numerous types of credit, financial, public record, demographic and marketing information regarding individuals and businesses. This information originates from a variety of sources including financial or credit granting institutions, governmental entities and consumers. Our proprietary databases contain information on more than 400 million consumers and businesses worldwide. The original data is compiled and processed utilizing our proprietary software and systems and distributed to customers in a variety of user-friendly and value-add formats. Our products and services include consumer credit information, information database management, marketing information, business credit information, decisioning and analytical tools, and identity verification services which enable businesses to make informed decisions about extending credit or service, mitigate fraud, manage portfolio risk, and develop marketing strategies for consumers and businesses. We also enable consumers to manage and protect their financial affairs through a portfolio of products that we sell directly via the Internet and in various hard-copy formats.

We currently operate in 13 countries: North America (the U.S., Canada and Costa Rica), Europe (the U.K., Ireland, Spain and Portugal) and Latin America (Brazil, Argentina, Chile, El Salvador, Peru and Uruguay). We serve customers across a wide range of industries, including the financial services, retail, telecommunications, utilities, automotive, brokerage, healthcare and insurance industries, as well as state and federal governments. Our revenue stream is highly diversified with our largest customer providing slightly more than 2% of total revenues.

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Segment Reporting

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

·       North America

·       Europe

·       Latin America

The North America reportable segment consists of three operating segments:

·       Information Services

·       Marketing Services

·       Personal Solutions

Detailed financial results and segment information are provided below in Part II, Item 8, Financial Statements and Supplementary Data—Note 13 of the Notes to Consolidated Financial Statements, Segment Information.

Overview

Our strategic objective is to provide value-add products and services that leverage our information and enabling technology assets to allow customers to determine the type of business relationship to have with a particular consumer or small business. These products and services include:

·  Enabling businesses to make informed decisions utilizing credit information;

·       Assisting customers in reducing the impact of fraudulent activities;

·       Assisting companies in the management of their credit portfolios;

·       Enabling customers to manage their debt recovery activities;

·       Enabling customers to market specific products and services to consumers and small businesses;

·       Enabling customers to develop marketing strategies for cross-selling other products and services to their entire customer base;

·       Enabling consumers to manage information on their personal credit and financial histories; and

·       Enabling customers to comply with federal and state legislation in their customer management and ID verification processes.

To meet these strategic objectives, we have developed numerous analytical tools for customers to use in their consumer and commercial decisioning activities. These activities cover the complete customer life cycle from consumer acquisition, to relationship management (e.g., up-selling, cross-selling), to risk management.

Our Predictive Sciences solutions include (1) the statistical analysis of data, (2) creation of models, (3) integration of models into decisioning platforms (e.g. enabling technologies) and (4) consulting with our customers in the formulation and execution of strategies to maximize revenue opportunities throughout our Information and Marketing Services businesses. We also sell our services to institutions that may not be customers for our information services, but will utilize our enabling technology solutions to make better business decisions.

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Our enabling technologies include products such as ePort, APPLY, Decision Power, ID Authentication, Accel CM, Accel DM and InterConnect. These platforms are developed in an Application Service Provider (“ASP”) format to allow for ease of integration with customers’ internal systems and to leverage Equifax’s extensive technological systems and communication networks. To broaden and further strengthen our enabling technologies capabilities within North America Information Services, we acquired APPRO Systems, Inc. (“APPRO”) on March 15, 2005. APPRO’s LoanCenter software products and services serve the credit origination, underwriting and fulfillment needs for financial institutions, credit unions and automotive lending institutions. Also, on August 29, 2005, we acquired BeNow, Inc., a provider of leading edge solutions to multi-channel marketers, to enhance our Marketing Services business and add to our enabling technology capabilities.

North America

North America is our largest reportable segment and in 2005 generated 81% of our revenue and 87% of our operating profit before general corporate expense. This segment includes results of our Information Services, Marketing Services and Personal Solutions operating segments in the U.S., Canada and Costa Rica. Approximately 2,750 employees were employed in the North America reporting segment as of December 31, 2005.

Information Services

In North America, our Information Services operating segment consists of the following components: U.S. Consumer and Commercial Services, Mortgage Services and our Canadian Operations.

Our Consumer Services products and services are derived from the credit information that we maintain about individual consumers, and are the dominant products and services in our North America segment. We maintain information on more than 290 million consumers in North America, where we are a market leader in Consumer Services. We offer a full range of Consumer Services products in our North America markets, including credit reporting, credit scoring, mortgage reporting, risk management, fraud detection and modeling services, together with certain of our decisioning products that facilitate pre-approved offers of credit and automate a variety of credit decisions. Our customers utilize the information we provide to make decisions for a wide range of credit and business purposes, such as whether, and on what terms, to approve mortgage or auto loans, credit card applications, identity verification and similar business uses. Risk management and fraud detection and prevention services enable banks and financial institutions to monitor default rates and proactively manage their existing credit card accounts.

Customers of our Consumer Services products and services access them through a full range of electronic distribution mechanisms, including direct real-time access, which facilitates instant decisions for the immediate granting of credit. Customers of our Consumer Services products include banks, mortgage lenders, financial institutions, telecommunications and utility companies, retailers, automotive manufacturers and dealers, brokerage firms, insurance companies, healthcare providers and governments.

Our Commercial Services products and services are derived from our databases of credit and financial information about businesses. The sale of credit information, scores and decisioning tools are the primary sources of revenue, and are purchased by a wide variety of customers. We have created Small Business Exchange, a unique single source of small business credit information in the U.S., and maintain information on more than 30 million small businesses. Our Small Business Credit Database includes loan, credit card, public records data and leasing history as well as trade accounts receivable performance. Customers utilize our reports to make financial and marketing decisions.

Our Mortgage Services products, available only in the U.S., consist of specialized credit reports that combine the reports of the three major consumer credit reporting agencies into one. Mortgage lenders use these reports in making their mortgage underwriting decisions.

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Our operations in Canada include our Consumer and Commercial Services product lines, and these revenues are consolidated on a geographic basis as Canadian Operations.

Marketing Services

Our Marketing Services operating segment includes our Credit Marketing and Direct Marketing products and services. We offer a full range of credit and direct marketing products in the U.S., which provide customers with the tools they need to maximize and manage their customer marketing efforts, effectively utilize a variety of marketing methods, efficiently identify and acquire new customers and realize additional revenue from existing customers. Our Marketing Services products enable customers to:

·       Identify, target and reach the best prospects and customers;

·       Utilize our accurate and powerful consumer databases to manage their customer portfolios;

·       Segment customers according to particular criteria;

·       Select from specialty, self-reported or permission-based direct mailing lists;

·       Easily access on-line customer mailing lists;

·       Use “what-if” scenarios to create customized mailing lists on-line;

·       Improve their direct mail response rate; and

·       Reduce costs associated with unwanted or unnecessary mailings.

Our Credit Marketing Services products and services, available in the U.S., Canada, Latin America and Europe, utilize our consumer credit information databases through batch processing to help our customers acquire new customers and monitor current relationships using a variety of products and services including prescreen and account review services.

We provide Direct Marketing Services products, such as compiled, self-reported and permission-based consumer marketing databases and services, and integrated precision marketing tools that enable marketers to identify, target and build consumer relationships through postal and email marketing. Our targeted high quality demographic and lifestyle information lists and list performance services, which include data enhancement, data quality, modeling and analytical consulting, facilitate improved direct mail response and increased customer loyalty. Our products enable customers to target specifically defined market segments and individuals, and to design more effective and economically efficient marketing campaigns. Customers include financial institutions, insurers, catalogers, publishers, technology companies, manufacturers and telecommunications companies.

Personal Solutions

Our products and services allow consumers to make smarter financial decisions. We focus on solving three problems for consumers—managing personal credit, preparing for a major purchase and protecting personal identity. Equifax Credit Report™ provides consumers with access to their credit profile. Equifax Credit Watch™ is a subscription service that assists consumers in protecting against identity theft and the associated fraud that typically occurs as a result of identity theft. ScorePower® provides consumers with access to their FICO® score, the score used most frequently by lenders when making lending decisions. Score Watch™ is a subscription service that monitors a consumer’s FICO® score and shows correlating interest rates likely to be offered within credit score ranges. The Equifax 3-in-1 Credit Report™ combines reports from the three nationwide credit reporting agencies, in one convenient easy to use product. 3-in-1 Monitoring is a subscription service that monitors and reports changes on reports at any of the three consumer credit reporting agencies. We offer our products in both online and off-line versions, depending

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upon the preference of the consumer. We also offer our products through relationships with business partners, by providing them the ability to distribute our products to their customers. Most of our products are available in the U.S., Canada and the U.K.

Europe

The Europe segment consists of our operations conducted in the U.K., Ireland, Spain and Portugal, and accounted for 10% of our 2005 revenue. The U.K. accounted for 88% of the segment’s revenue. Approximately 570 employees were employed in Europe as of December 31, 2005.

Our Information Services product line is sold in the U.K., Portugal and Spain. These products are based on consumer credit records that we maintain. The Consumer Services products we provide include credit reporting, credit scoring, risk management, fraud detection and modeling services. Our Commercial Services products, such as business credit reporting and commercial risk management services, are only available in the U.K.

In the U.K., we also provide both Credit Marketing and Direct Marketing products and services, similar to the U.S. Our core offerings include prospect list generation for marketing to businesses and consumers along with analytics supporting marketing campaigns. We have a limited offering of Marketing Services’ products in Spain as well. We also offer our Personal Solutions products in the U.K. under the branding of myEquifax™, a unique on-line service for consumers.

Europe customers include banks, mortgage lenders, financial institutions and governments, which utilize the information we provide to make decisions for a wide range of credit and business purposes, such as approval of loans for many purposes, applications, verification of identities, account management and other related business uses. Products are developed to respond to market needs and opportunities and may include variations of products offered in the U.S. market.

Latin America

The Latin America segment consists of our operations conducted in Brazil, Argentina, Chile, El Salvador, Peru and Uruguay, and accounted for 9% of our 2005 revenue. Brazil accounted for 53% of the segment’s revenue. Approximately 950 employees were employed in Latin America as of December 31, 2005. Our Information Services product and services line is sold in each country of Latin America, and our Consumer Services products and services are the dominant source of revenue in each of these countries, with the exception of Brazil. We offer a full range of Consumer Services products based on the consumer credit records that we maintain, including credit reporting, credit scoring, risk management, identity verification and fraud detection services.

We offer our Commercial Services products and services line in each of the Latin America countries to varying degrees and it is the dominant source of revenue in Brazil where we are a market leader. Services offered include credit reporting, decisioning tools and software and commercial risk management services on businesses operating in these countries.

We also offer our Credit Marketing products and services to varying degrees in each of the Latin America countries and provide a variety of consumer and commercial marketing services based on our extensive credit information databases including: account profitability analysis, business profile analysis, business prospect lists and database management.

Latin America customers include banks, telecommunications companies, retailers, financial institutions and governments which utilize the information we provide to make decisions for a wide range of credit and business purposes such as credit card applications, service applications, identity verification and similar business uses. In each of this segment’s countries the majority of our customers access our products and services through a number of electronic distribution mechanisms, including direct real-time

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access, which facilitates instant decisions and cross-selling opportunities. We also sell directly our various reports and services via branches, websites and mail fulfillment.

Sales and Distribution

We have a sales organization in each of our geographical segments. We sell our products primarily through our direct sales force, although the sales channels used by us can and will vary by product and service depending on market and business needs. We also sell and market our products and services through indirect sales channels. We also sell through direct mail and various websites, such as www.equifax.com, which is the primary distribution channel for our Personal Solutions products and services.

We primarily distribute our products and services to customers worldwide through electronic data interfaces. Our enabling technologies platforms are developed primarily in an ASP format to allow for ease of integration into customers’ inhouse technology systems and to leverage our extensive technological system and communication network. Equifax ePORT™, our web-based product delivery channel, enables us to deliver services to customers via a secure Internet connection. The success of our Personal Solutions product line is directly linked to delivery of products to consumers through a secure Internet channel. We will continue to leverage technology to capitalize on the most efficient and effective means of delivering products and services to our customers.

Product Development

Our products and services are based on proprietary technology and databases enabling customers to operate their businesses efficiently and effectively. We constantly expand our product and service offerings through internal development, partnering with third parties and through acquisitions.

Data Sources

We rely extensively on data from external sources for our proprietary and non-proprietary databases. These sources include financial or credit granting institutions, which provide loan and accounts receivable information; governmental entities, which provide public records of bankruptcies, liens and judgments; and consumers, who participate in surveys and submit warranty cards from which we gather demographic and marketing information. Our Information Services product line relies predominately on data received from customers via contractual relationships and from various government and public record services. Additionally, in the U.S. we also rely on a contractual relationship with Computer Sciences Corporation, a division of which is a third party affiliate, to provide us data in certain geographic areas. Outside of the U.S., governmental data sources are generally more significant to our business.

Our Marketing Services operating segment, with the exception of the Credit Marketing Services products, is derived from proprietary databases consisting of consumer, lifestyle and demographic information. The majority of this information is gathered by consumers reporting information on warranty cards, voluntarily providing information via websites maintained by us, or otherwise requesting certain types of information. This permission-based information is generally less regulated and restricted than the credit information that we maintain. See “Government Regulation” below. These databases provide us with the opportunity to develop new products to explore cross-selling synergies with all of our databases. Our Credit Marketing Services products utilize information derived from the credit-based consumer data that also underlies our Information Services segments.

The databases underlying our Information Services and Marketing Services segments include numerous generalized databases and specialized databases of varying sizes. Some of these databases are subject to regulatory or contractual restrictions regarding usage. All databases are regularly updated by information provided by banks, financial institutions, telecommunications companies, other trade credit

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providers and governments, and we are committed to enhancing, expanding and maintaining the integrity of our proprietary databases. Our Personal Solutions product line relies on the consumer credit information databases, which support our Consumer Services products.

Government Regulation

Since our business involves the collection of consumer data and the distribution of such information to businesses who make credit, service and marketing decisions, certain of our activities and products and services are subject to regulation under various local, state and federal laws in the U.S. governing consumer report data and consumer reporting agencies, including the Fair Credit Reporting Act (“FCRA”), which regulates the use of consumer credit information and, to a lesser extent, the Gramm-Leach-Bliley Act, which regulates the use of non-public personal financial information held by financial institutions. The Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”) amended the FCRA and became law in December 2003. During 2004, as required by the FACT Act, we established, along with the other nationwide credit reporting agencies, a centralized request facility, Central Source, LLC, which is owned jointly by Equifax, Experian Information Solutions, Inc. (“Experian”) and TransUnion LLC (“TransUnion”), to provide to consumers, upon their request, a free annual credit file disclosure on a phased-in between December 1, 2004 and September 1, 2005. Additional provisions of the FACT Act impose requirements designed to reduce consumer identity theft, limit provision of medical information and require reports to the Federal Trade Commission (“FTC”) regarding consumer complaints. For additional information on the FACT Act, see Part I, Item IA, “Risk Factors—Risks Relating to Regulation and Litigation” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

We continue to monitor federal and state legislative and regulatory issues involving consumer data privacy and protection. Much of this activity resulted from highly publicized third party security breaches in early 2005 involving personal financial data. While numerous bills have been introduced and a few have become law at the state level, governing matters such as the right of consumers to “freeze” the credit files maintained by credit reporting agencies under certain circumstances and security breach notification provisions, these have not resulted in significant changes to our business practices. We expect to see an increase in the number of notices resulting from breached third party databases and the number of consumers that contact credit reporting companies following a breach. At the federal level, Congress has held hearings and drafted various bills dealing with data security and identity theft issues. We cannot predict the outcome of any of these bills in 2006 and the potential impact on our Consolidated Financial Statements. The FCRA, as amended in 2003, contains a number of significant identity theft protections for consumers and we continue to work with regulators to fully implement all of its provisions.

We are also subject to privacy and consumer credit laws and regulations in foreign countries where we do business, including the European Union’s Privacy Directive. The U.K.’s Data Protection Act of 1998 regulates the manner in which we can use third-party data. Recent regulatory limitations affect our use of the Electoral Roll, one of our key data sources in the U.K. Generally, the data underlying the products offered by our U.K. Information Services and Personal Solutions product lines, excluding our Commercial Services products, are subject to these regulations.

The information underlying our U.S. Commercial Services and Direct Marketing Services business is less regulated than the other portions of our business. A significant portion of the information maintained by our Marketing Services business is voluntarily provided by individuals, rendering it subject to fewer restrictions on use. It is our policy, however, to treat all information with a high degree of security reflecting our recognition of individuals’ privacy concerns.

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Intellectual Property

We generally seek protection under federal, state and foreign laws for strategic or financially important intellectual property developed in connection with our business. Certain intellectual property, where appropriate, is protected by contracts, licenses, registrations, confidentiality or other agreements or protections. We own several patents registered in the U.S. and certain foreign countries, the more important of which cover various aspects of and relate to the use of data within a consumer credit file. We also have certain registered trademarks in the U.S. and in many foreign countries. The most important of these is “Equifax” and many variations thereof. These marks are used in connection with most of our product lines and services. Although these patents and trademarks are important and valuable assets in the aggregate, no single patent, group of patents or trademark is critical to the success of our business. We do not hold any franchises or concessions that are material to our business or results of operations.

We license other companies to use certain data, technology and other intellectual property rights we own or control, primarily as core components of our products and services, on terms that are consistent with customary industry standards.

We are licensed by others to use certain data, technology and other intellectual property rights they own or control, none of which is material to our business except for licenses from (1) Fair Isaac Corporation, relating to certain credit scoring algorithms and the right to sell credit scores derived there-from, which licenses have varying durations and generally provide for usage-based fees; and (2) Seisint, Inc., relating to a software platform which facilitates sales by our Direct Marketing Services and Credit Marketing Services units, which licenses have ten-year terms beginning in 2002 and may be renewed on an annual basis thereafter.

Competition

We operate in a number of geographic, product and service markets, which are highly competitive. Our Information Services products primarily compete with the products of two global consumer credit reporting companies, Experian and TransUnion, which offer a range of consumer credit reporting products that are similar to products we offer. We believe that our products and services offer customers an advantage over those of our competitors because of the quality of our data files, which we believe to be superior in terms of depth and accuracy. Our competitive strategy is to rely on product features and quality while remaining competitive on price. Experian and Dun & Bradstreet, Inc. are the major competitors for our Commercial Services products, although we believe we have a unique database and product for the small business segment of that market. Our Marketing Services products also compete with these companies and others who offer demographic information products and services, including Acxiom Corporation, Harte-Hanks, Inc. and InfoUSA, Inc. We believe the Marketing Services products and services are superior and, in some cases unique compared to those offered by our competitors at comparable prices. Our Personal Solutions products and services compete with similar offerings sold directly by Experian and TransUnion and also with offerings from a number of resellers of consumer credit information sold by Experian, TransUnion and us. We tailor our pricing of Personal Solutions products to the needs of the market, which can change frequently due to the dynamic nature of the consumer market. We change our pricing periodically to accommodate new product introductions, or other market conditions.

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Employees

We employed approximately 4,600 employees in 13 countries as of January 31, 2006. The North America segment employed approximately 2,750 of these employees, Europe employed approximately 580, Latin America employed approximately 960 and general corporate employed approximately 310. None of our U.S. employees are subject to a collective bargaining agreement and no work stoppages have been experienced. Pursuant to local laws, our employees in Brazil, Spain and Argentina are subject to collective bargaining agreements that govern general salary and compensation matters, basic benefits and hours of work. Equifax is not a party to these agreements. We consider our employee relations to be good. Information regarding our officers is included in “Executive Officers of the Registrant” below.

Available Information

Our website is www.equifax.com. We make available on this website, free of charge, our annual reports on Form 10-K, quarterly filings on Form 10-Q, current reports on Form 8-K, proxy statements and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. Information contained on our website is not part of this Form 10-K or our other filings with the SEC.

Financial Information About Geographic Areas

Detailed financial information by geographic area, including revenues for the past three fiscal years from our customers in the U.S., from our customers outside the U.S., and from customers in certain foreign countries, is set forth in Part II, Item 8, Financial Statements and Supplementary Data—Note 13 of the Notes to Consolidated Financial Statements, Segment Information.

Executive Officers of the Registrant

Following are the persons serving as our executive officers as of March 2, 2006, together with their ages, positions and brief summaries of their business experience are as follows:

Name

 

 

 

Age

 

Position

 

Officer Since

 

Richard F. Smith

 

 

46

 

 

Chairman and Chief Executive Officer

 

 

2005

 

 

Karen H. Gaston

 

 

53

 

 

Corporate Vice President and Chief Administrative Officer

 

 

1998

 

 

Donald T. Heroman

 

 

54

 

 

Corporate Vice President and Chief Financial Officer

 

 

2002

 

 

Kent E. Mast

 

 

62

 

 

Corporate Vice President and General Counsel

 

 

2000

 

 

Paul J. Springman

 

 

60

 

 

Corporate Vice President and Chief Marketing Officer

 

 

1990

 

 

Nuala M. King

 

 

52

 

 

Vice President and Corporate Controller

 

 

2004

 

 

 

There are no family relationships among our executive officers, nor are there any arrangements or understandings between any of the officers and any other persons pursuant to which they were selected as officers.

Mr. Smith has been Chairman and Chief Executive Officer since December 15, 2005. He was named Chairman-Elect and Chief Executive Officer effective September 19, 2005 and was elected as a Director on September 22, 2005. Prior to that, Mr. Smith served as Chief Operating Officer, GE Insurance Solutions, since 2004; as President and Chief Executive Officer of GE Property and Casualty Reinsurance from 2003 to 2004; as President and Chief Executive Officer of GE Property and Casualty Reinsurance—Americas of GE Global Insurance Holdings Corp. from 2001 to 2003; and as President and Chief Executive Officer,

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GE Capital Fleet Services from 1995 to 2000; and in various other executive positions with General Electric Corporation.

Ms. Gaston, Mr. Mast and Mr. Springman have been employed with Equifax or its subsidiaries in executive positions for the previous five years.

Mr. Heroman joined Equifax as Corporate Vice President and Chief Financial Officer in November 2002. Prior to joining Equifax, he served as Executive Vice President and Chief Financial Officer of People’s Bank in Bridgeport, Connecticut. Before joining People’s Bank, he was at SunTrust Banks, Inc. from 1988 until 2001, where his last position held was Senior Vice President and Treasurer.

Ms. King joined Equifax in March 2004 as Vice President and Corporate Controller. Prior to joining Equifax, Ms. King served as Corporate Controller for UPS Capital, and in various executive positions with The Coca-Cola Company for more than 18 years.

ITEM 1A.        RISK FACTORS

The following risk factors and other information included in this Form 10-K should be carefully considered. The risks and uncertainties described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be less significant may also impair our business operations. If any of the following risks actually were to occur, our business, financial condition or results of operations could be materially and adversely affected.

Risks Related to Our Business

Since our revenues depend to a large extent on our customers’ demand for consumer credit information, deterioration of current economic conditions may harm our results of operations.

Consumer credit reports constitute our core product. In general, our customers use our credit information and related services to process applications for new credit cards, automobile loans, home mortgages and refinancing and other consumer loans. They also use our credit information and services to monitor existing credit relationships. Consumer demand for credit, i.e., rates of spending and levels of indebtedness, tends to grow more slowly or decline during periods of economic contraction or slow economic growth. Rising rates of interest may reduce consumer demand for mortgage loans. A decline in consumer demand for credit may reduce our customers’ demand for our consumer credit information. Consequently, our revenues from consumer credit information products and services could be negatively affected and our results of operations harmed if consumer demand for credit decreases.

The loss of access to credit and other data from external sources could harm our ability to provide our products and services.

We rely extensively upon data from external sources to maintain our proprietary and non-proprietary databases, including data received from customers and various government and public record services. Our data sources could withdraw their data from us for a variety of reasons, including legislatively or judicially imposed restrictions on use. If a substantial number of data sources were to withdraw their data, or if we were to lose access to data due to government regulation, our ability to provide products and services to our clients could be materially adversely impacted, which could result in decreased revenues, net income and earnings per share.

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Our markets are highly competitive and new product introductions and pricing strategies being offered by our competitors could decrease our sales and market share, or require us to reduce our prices in a manner that reduces our gross margins.

We operate in a number of geographic, product and service markets that are highly competitive. In consumer credit reporting services, we compete primarily with two global consumer credit reporting companies, Experian and TransUnion. We also compete with these and other companies, including Acxiom Corporation, Harte-Hanks, Inc. and InfoUSA, Inc. with respect to our direct marketing services, Fair Issac Corporation, Experian and TransUnion with respect to our analytical tools and a variety of software companies with respect to our enabling technologies. Competitors may develop products and services that are superior to or that achieve greater market acceptance than our products and services.

The sizes of our competitors vary across market segments, as do the resources we have allocated to the segments we target. Therefore, some of our competitors may have significantly greater financial, technical, marketing or other resources than we do in each of our market segments or overall. As a result, our competitors may be in a position to respond more quickly than we can to new or emerging technologies and changes in customer requirements, or may devote greater resources than we can to the development, promotion, sale and support of products and services. Moreover, new competitors or alliances among our competitors may emerge and potentially reduce our market share. If we are unable to respond as quickly or effectively to changes in customer requirements as our competition, our ability to expand our business and sell our products and services will be negatively affected.

Some of our competitors may also be able to sell products competitive to ours at lower prices given proprietary ownership of data, technical superiority or economies of scale. Price reductions by our competitors could negatively impact our margins and results of operations, and could also harm our ability to obtain new commercial relationships on favorable terms.

Our ability to increase our revenues will depend to some extent upon introducing new products and services, and if the marketplace does not accept these new products and services, our revenues may decline.

To increase our revenues, we must enhance and improve existing products and continue to introduce new products and new versions of existing products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance. We believe much of our future growth prospects will rest on our ability to continue to expand into newer products and services. Products that we plan to market in the future are in various stages of development. We cannot assure that the marketplace will accept these products. If our current or potential customers are not willing to switch to or adopt our new products and services, our ability to increase revenues will be impaired.

If we fail to keep up with rapidly changing technologies, our products and services could become less competitive or obsolete.

In our markets, technology changes rapidly and there are continuous improvements in computer hardware, network operating systems, programming tools, programming languages, operating systems, database technology and the use of the Internet. Advances in technology may result in changing customer preferences for products and services and delivery formats. If we fail to enhance our current products and develop new products in response to changes in technology, industry standards or customer preferences, our products and services could rapidly become less competitive or obsolete. Our future success will depend, in part, upon our ability to internally develop new and competitive technologies; use leading third-party technologies effectively; continue to develop our technical expertise; anticipate and effectively respond to changing customer needs; and influence and respond to emerging industry standards and other technological changes.

13




We may suffer adverse financial consequences if Computer Sciences Corporation requires us to purchase its credit reporting business when the public equity or debt markets or other financing conditions are unfavorable to us.

In 1988, we entered into an agreement with Computer Sciences Corporation, or CSC, and certain of its affiliates under which CSC’s credit reporting agencies utilize our computerized credit database services. Under the agreement, CSC has an option, exercisable at any time, to sell its credit reporting business to us. The option expires in August 2013. The option exercise price will be determined by an appraisal process and would be due in cash within 180 days after the exercise of the option. We estimate that if CSC were to exercise the option today, the option price would be approximately $650 million to $700 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. Because we do not control the timing of CSC’s exercise of its option, we could be required to seek such financing and increase our debt levels at a time when market or other conditions are unfavorable.

Our international operations subject us to additional business risks that may reduce our profitability or revenues.

We conduct business outside the U.S. During the fiscal year ended December 31, 2005, we received approximately 26% of our revenues from business outside the U.S. As part of our growth strategy, we plan to continue to pursue opportunities outside the U.S. As a result, our future operating results could be negatively affected by a variety of factors, many of which are beyond our control. The risks and potential costs of our international operations include: political and economic instability; changes in regulatory requirements and policy and the adoption of laws detrimental to our operations, such as legislation relating to the collection and use of personal data; negative impact of currency exchange rate fluctuations; potentially adverse tax consequences; increased restrictions on the repatriation of earnings; and general economic conditions in international markets. We may not be able to avoid significant expenditures in addressing these potential risks.

Security is important to our business, and breaches of security, or the perception that e-commerce is not secure, could harm our business.

Business-to-business and business-to-consumer electronic commerce, including that which is Internet-based, requires the secure transmission of confidential information over public networks. Several of our products are accessed through the Internet, including our consumer and commercial information services that are delivered via ePORT™, our Internet delivery channel and our Personal Solutions services accessible through the www.equifax.com website. Security breaches in connection with the delivery of our products and services via ePORT™, our Personal Solutions website or well-publicized security breaches not involving the Internet that may affect us or our industry, such as database intrusion, could be detrimental to our business, operating results and financial condition. We cannot be certain that advances in criminal capabilities, new discoveries in the field of cryptography or other developments will not compromise or breach the technology protecting the networks that access our products, consumer services and proprietary database information.

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If we experience system failures, the delivery of our products and services to our customers could be delayed or interrupted, which could harm our business and reputation and result in the loss of customers.

Our ability to provide reliable service largely depends on the efficient and uninterrupted operation of our computer network systems and data centers. Some of these systems have been outsourced to third party providers. Any significant interruptions could severely harm our business and reputation and result in a loss of customers. Our systems and operations could be exposed to damage or interruption from fire, natural disaster, power loss, telecommunications failure, unauthorized entry and computer viruses. The steps we have taken to prevent a system failure, including backup disaster recovery systems, may not be successful and our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur.

We may incur risks related to acquisitions or significant investment in businesses.

We have made in the past, and may make in the future, acquisitions of, or significant investments in, businesses that offer complementary products, services and technologies. Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses. Such risks include:

·       The financial and strategic goals for the acquired and combined business may not be achieved;

·       The possibility that we will pay more than the acquired companies or assets are worth;

·       Unexpected liabilities arising out of the acquired businesses;

·       The difficulty of assimilating the operations and personnel of the acquired businesses;

·       The potential disruption of our ongoing business;

·       The potential dilution of our existing shareholders and earnings per share;

·       Unanticipated liabilities, legal risks and costs;

·       The distraction of management from our ongoing business; and

·       The impairment of relationships with employees and customers as a result of any integration of new management personnel.

These factors could harm our business, results of operations or financial position, particularly in the event of a significant acquisition. The acquisition of businesses having a significant presence outside the U.S. will increase our relative exposure to the risks of conducting operations in international markets.

The loss of key personnel, or the inability to attract and retain highly skilled personnel, could make it more difficult to run our business and reduce our likelihood of success.

We are dependent on the principal members of our management and technical computer information systems staff. We do not have employment agreements with any of our executive officers other than Richard F. Smith, Chairman and Chief Executive Officer, and Donald T. Heroman, Chief Financial Officer. The loss of our management and key technical employees might slow the achievement of important business goals. It is also critical to our success that we recruit and retain qualified technical personnel to perform development work. We may not be able to attract and retain skilled and experienced technical personnel on acceptable terms because of intense competition.

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Risks Related to Our Common Stock

We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock.

The issuance of additional equity securities or securities convertible into equity securities would result in dilution of the then-existing shareholders’ equity interests in us. Our Board of Directors has the authority to issue, without vote or action of shareholders, up to 10,000,000 shares of preferred stock in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series. Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common stock. If we issue convertible preferred stock, a subsequent conversion may dilute the current common shareholders’ interest. Our Board of Directors has no present intention of issuing any such preferred stock, but reserves the right to do so in the future. In addition, we are authorized to issue, without shareholder approval, up to 300,000,000 shares of common stock, of which 133,534,624 shares were outstanding as of December 31, 2005, including shares held by employee benefits trusts.

Provisions in our articles of incorporation, bylaws, shareholder rights plan, other agreements and Georgia law may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by our shareholders.

Our articles of incorporation, bylaws, shareholder rights plan, other agreements and the General Business Corporation Code of the State of Georgia, or Georgia Code, contain provisions that may delay or prevent an attempt by a third party to acquire control of our company. For example, our articles of incorporation:

·       Provide for classified terms for the members of our Board of Directors;

·       Authorize our Board of Directors to fill vacant directorships or to increase the size of the Board;

·       Do not authorize our shareholders to remove a director without cause;

·       Do not authorize our shareholders to cumulate voting in the election of directors; and

·       Authorize the issuance of preferred stock with such rights, powers and privileges as the Board of Directors deems appropriate.

In addition, our bylaws limit the ability of shareholders to bring business before a meeting of shareholders and do not allow our shareholders to act by written consent.

We are a Georgia corporation and have elected to be governed by the “business combination” and “fair price” provisions of the Georgia Code, that could be viewed as having the effect of discouraging an attempt to obtain control of us. The business combination provision generally would prohibit us from engaging in various business combination transactions with any interested shareholder for a period of five years after the date of the transaction in which the person became an interested shareholder unless certain designated conditions are met.

The fair price provision generally requires that, absent Board or shareholder approval of an acquisition or merger, an interested shareholder seeking to engage in a business combination transaction with us must pay the remaining shareholders the same price for their shares as was paid by the interested shareholder to acquire beneficial ownership of 10% or more of our outstanding voting shares.

We have also implemented a shareholder rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire our company on a hostile basis.

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These provisions could also discourage or impede a tender offer, proxy contest or other similar transactions involving control of us, even if viewed favorably by shareholders.

Risks Relating to Regulation and Litigation

Compliance with recent amendments to the FCRA have increased our compliance costs.

The FACT Act, which amended the FCRA, became law in December 2003. Beginning on December 1, 2004, the FACT Act, among other things, required us on an annual basis to provide free credit reports to consumers upon request. These reports may be requested by Internet, telephone or mail through centralized request facilities which we and other nationwide credit reporting agencies must establish and support. In addition, subject to final regulations to be adopted by the FTC, consumers will be entitled to a free credit report upon request if a report results in the consumer obtaining credit terms less favorable than those provided to a majority of the credit provider’s customers (also known as risk-based pricing). The FACT Act also requires us to provide credit scores to requesting consumers for a reasonable fee, as determined by the FTC.

The FTC has issued regulations to implement many of these requirements, including establishment of the centralized request facilities and development of procedures to phase-in such requests. The phase-in was completed on September 1, 2005. Additional provisions of the FACT Act impose requirements designed to reduce consumer identity theft, limit provision of medical information and require reports to the FTC regarding consumer complaints. We have modified our procedures and systems to deal with these and other FACT Act provisions where applicable.

We have incurred significant compliance costs to implement the FACT Act requirements, and we expect to continue incurring expenses to comply with the FTC’s regulations that could have a material adverse effect on our financial condition and results of operations. The net impact of the free report disclosure and other requirements of the FACT Act on our business will depend on numerous factors, including among others the actual demand of consumers for free credit reports; our ability to increase fees to customers to recover these regulatory costs; our experience marketing fee-generating products to consumers requesting free credit file disclosures; the FTC’s final determination of the fee we can charge for providing credit score disclosures to requesting consumers; the actual cost of resolving additional credit file and credit score reinvestigation requests from consumers; and approval of final FTC and Federal Reserve Board rules on risk-based pricing transactions and other matters.

Changes in the legislative, regulatory and judicial environments may adversely affect our ability to collect, manage, aggregate and use data.

Our business involves collection of consumer and business data and distribution of such information to businesses making credit and marketing decisions. Consequently, certain of our activities and services are subject to regulation by federal, state and local authorities in the U.S. and Canada, and in those countries within Europe and Latin America where we do business. For instance, much of the data and services that we provide are subject to regulation under the FCRA which regulates the use of consumer credit information and, to a lesser extent, the Gramm-Leach-Bliley Act which regulates the use of non-public personal information held by financial institutions.

We are also subject to the U.K.’s Data Protection Act of 1998, which regulates the manner in which we can use third-party data and recent regulatory limitations relating to use of the Electoral Roll, one of our key data sources in the U.K. In addition, public interest in individual privacy rights and the collection, distribution and use of information about individuals may result in the adoption of new federal, state, local and foreign laws and regulations that could include increased compliance requirements and restrictions on the purchase, sale and sharing of information about consumers for commercial purposes, and have a negative impact on our ability to collect such information provided by consumers voluntarily. Future

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international, federal, state and local laws and regulations with respect to the collection, management and use of data about individuals, and adverse publicity, judicial interpretations or potential litigation concerning the commercial use of such information, may result in substantial regulatory compliance costs, litigation expense or a loss of revenue. The outcome of litigation is inherently uncertain and adverse developments or outcomes can result in significant monetary damages, penalities or injunctive relief against us.

ITEM 1B.       UNRESOLVED STAFF COMMENTS

There were no unresolved comments from the Staff of the SEC at December 31, 2005.

ITEM 2.                PROPERTIES

Our executive offices are located at 1550 Peachtree Street, N.W., Atlanta, Georgia, in a leased facility that is also utilized by our North America and Latin America segments. Our other properties are geographically distributed to meet sales and operating requirements worldwide. We consider these properties to be both suitable and adequate to meet our current operating requirements, and most of the space is being utilized. We ordinarily lease office space for conducting our business and are obligated under approximately 80 leases and other rental arrangements for our headquarters and field locations. We own four office buildings. One is located in Wexford, Ireland and is utilized by Europe. One each, utilized by Latin America, is located in Sao Paulo, Brazil and in Santiago, Chile. A fourth located in Buenos Aires, Argentina was purchased in 2001 for use by Latin America but never occupied, and is now held for sale or lease. We also own 23.5 acres in Windward Office Park located in Alpharetta, Georgia, adjacent to office space we currently lease. For additional information regarding our obligations under leases, see Part II, Item 8, Financial Statements and Supplementary Data—Note 5 of the Notes to Consolidated Financial Statements, Commitments and Contingencies. We believe that suitable additional space will be available to accommodate our future needs.

ITEM 3.                LEGAL PROCEEDINGS

On December 30, 2003, Equifax and Naviant, Inc. served a demand for arbitration alleging, among other things, that the shareholder sellers of Naviant had breached various representations and warranties concerning information furnished to us in connection with our acquisition of Naviant in 2002. The arbitration demand seeks rescission of our Naviant purchase and the recovery of the purchase price or, in the alternative, recovery of monetary damages on various grounds. On March 22, 2004, we recommenced our demand for arbitration in order to utilize the procedures of the American Arbitration Association. Some of the respondents have answered and denied liability. Following the dismissal of the action described in the next paragraph, a schedule was established for the arbitration, which is now underway. Discovery is ongoing and a hearing on the merits is scheduled for October 2006. We cannot at this time predict the probable outcome of this matter.

On April 28, 2004, in a case captioned Softbank Capital Partners LP, et al. v. Equifax Inc. and Naviant, Inc., certain of the former shareholders of Naviant filed suit in the U.S. District Court for the Southern District of Florida seeking declaratory relief to prevent Equifax and Naviant from proceeding with the arbitration discussed in the preceding paragraph, except for claims asserted against Softbank Capital Partners LP, as Shareholders’ Representative. On March 31, 2005, the District Court denied plaintiffs’ motion for partial summary judgment, granted Equifax’s and Naviant’s motion to dismiss and dismissed the lawsuit. Plaintiffs have appealed the dismissal to the U.S. Court of Appeals for the Eleventh Circuit. The District Court has dismissed Equifax’s and Naviant’s counterclaims. Although Equifax believes it and Naviant have substantial factual and legal defenses to plaintiffs’ claims, we cannot at this time predict the outcome of this matter.

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On August 13, 2004, in a case captioned Equifax Inc and Naviant, Inc. v. Austin Ventures VII, L.P., et al., Equifax filed suit in the U.S. District Court for the Southern District of Florida to preserve its claims against the shareholder and option holder sellers of Naviant pending the arbitration proceeding described above. On June 20, 2005, the District Court granted the request of Equifax to stay the litigation pending the arbitration. The District Court denied the motion to dismiss of two defendants, and Equifax subsequently dismissed its claims against one of these defendants, Seisint, Inc., as part of a settlement.

On November 19, 2004, an action was commenced captioned Robbie Hillis v. Equifax Consumer Services, Inc. and Fair Isaac, Inc., in the U.S. District Court for the Northern District of Georgia. Plaintiff asserts that defendants have jointly sold Equifax’s Score Power® credit score product in violation of certain procedural requirements under the federal Credit Repair Organizations Act (“CROA”). Plaintiff contends that Equifax Consumer and Fair Isaac are “credit repair organizations” under CROA and that the transaction by which he purchased Score Power® was in violation of CROA and fraudulent. Plaintiff seeks certification of a class on behalf of all individuals who purchased such services from defendants within the five-year period prior to the filing of the complaint. Plaintiff seeks unspecified damages, attorneys’ fees and costs. On May 23, 2005, the District Court denied defendants’ partial motions to dismiss the case and the defendants have answered, denying all liability or wrongdoing. Discovery is concluded. Plaintiff has filed motions for class certification and partial summary judgment. Equifax denies any liability or wrongdoing, denies that a class action is appropriate and will vigorously defend against all claims.

On October 18, 2005, in an action captioned Steven G. Millett and Melody J. Millett v. Equifax Information Services, LLC and Equifax Consumer Services, Inc., which was originally filed on June 16, 2004 and was recently transferred from the U.S. District Court for Kansas to the U.S. District Court for the Northern District of Georgia, plaintiffs filed a Fourth Amended Complaint. In this Complaint, plaintiffs for the first time assert, among other allegations, that Equifax Consumer Services, Inc. sold Equifax’s Credit Watch product in violation of certain procedural requirements under CROA, similar to the claims made by plaintiff in the Hillis case described in the preceding paragraph. Plaintiffs seek certification of a class on behalf of all individuals who purchased the CreditWatch product from Equifax from September 9, 2001 to the present, and unspecified damages, attorney’s fees and costs. Equifax has filed a partial motion to dismiss. Discovery is ongoing. Equifax denies any liability or wrongdoing, denies that a class action is appropriate and will vigorously defend against all claims.

On March 25, 2004, the National Credit Reporting Association, Inc. (“NCRA”), a trade association of mortgage credit information resellers, and, separately, 23 of NCRA’s members, commenced suits against Equifax, Experian and TransUnion alleging various violations of antitrust and unfair practices laws. After a variety of rulings on procedural and substantive issues, including grants on two occasions of all or part of defendants’ motions to dismiss, the remaining claims of all plaintiffs have been consolidated under a Third Amended Complaint, filed June 29, 2005, in an action captioned Standfacts Credit Services, et al. v. Experian Informations Solutions, Inc., Equifax Inc., and TransUnion, LLC, pending in the U.S District Court of the Central District of California. Plaintiffs seek to represent a class of all resellers that have purchased information from defendants since March 2000, and allege that the defendants have conspired to monopolize, have discriminated among resellers in pricing and have treated resellers unfairly. The amended complaint seeks injunctive relief and unspecified amounts of damages. On August 12, 2005, the defendants moved to dismiss the antitrust claims and for summary judgment on the unfair practices claims. The District Court granted defendants’ motions to dismiss all claims except for one remaining Sherman Act, Section 1 conspiracy claim and a state law claim based on the same theory. Equifax denies any liability or wrongdoing, denies that a class action is appropriate and will vigorously defend against all claims.

On October 13, 2004, an action captioned Nunnally et al. v. Equifax Information Services LLC was commenced in the U.S. District Court of the Northern District of Alabama. The complaint alleges that the Company violated the Fair Credit Reporting Act by failing to provide a full disclosure along with its reinvestigation results sent to consumers that disputed the accuracy of their consumer reports. Plaintiffs

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seek to represent a class of all consumers to which the Company failed to send a complete disclosure after completion of reinvestigation. Plaintiffs are seeking unspecified damages, attorneys’ fees and costs. On February 4, 2005, the District Court denied our motion to dismiss the complaint, but certified the issue for immediate appeal and stayed the case. The Eleventh Circuit granted our motion to appeal and the appeal is now pending. Equifax believes it has meritorious defenses to the claims asserted and intends to vigorously defend this case.

We are involved in other matters, claims and proceedings as is normal in the ordinary course of our business. Any possible adverse outcome arising from these matters is not expected to have a material impact on our results of operations or financial position, either individually or in the aggregate. However, our evaluation of the likely impact of these pending lawsuits could change in the future.

For information about contingent tax matters related to Canada Revenue Agency, see Part II, Item 8, Financial Statements and Supplementary Data—Note 5 of the Notes to Consolidated Financial Statements, Commitments and Contingencies, in this Form 10-K.

ITEM 4.                SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of our security holders during the fourth quarter of 2005.

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PART II

ITEM 5.                MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

Our common stock is listed and traded on the New York Stock Exchange under the ticker symbol “EFX”. The following table shows the high and low sales prices for our stock, as reported on the New York Stock Exchange, for each quarter in the last two fiscal years:

 

 

2005

 

2004

 

 

 

High

 

Low

 

High

 

Low

 

 

 

(In dollars)

 

First

 

$ 31.57

 

$ 26.97

 

$ 27.18

 

$ 23.90

 

Second

 

$ 36.52

 

$ 29.63

 

$ 27.37

 

$ 23.52

 

Third

 

$ 38.07

 

$ 32.60

 

$ 26.70

 

$ 22.60

 

Fourth

 

$ 38.98

 

$ 33.50

 

$ 28.46

 

$ 25.15

 

Year

 

$ 38.98

 

$ 26.97

 

$ 28.46

 

$ 22.60

 

 

Holders

At January 31, 2006, we had approximately 7,730 holders of record of our common stock; however, we believe the number of beneficial owners of common stock exceeds this number.

Dividends

While we have historically paid dividends to common shareholders, the declaration and payment of future dividends will depend on many factors, including our earnings, financial condition, business development needs, and regulatory considerations and is at the discretion of our Board of Directors. Set forth below is the amount of cash dividends declared per share of Equifax common stock for each quarter in the last two fiscal years:

 

 

2005

 

2004

 

First

 

$ 0.03

 

$ 0.02

 

Second

 

0.04

 

0.03

 

Third

 

0.04

 

0.03

 

Fourth

 

0.04

 

0.03

 

Year

 

$ 0.15

 

$ 0.11

 

 

Securities Authorized for Issuance Under Equity Compensation Plans

Information required by this Item regarding the securities authorized for issuance under our equity compensation plans is included in the section captioned “Securities Authorized for Issuance Under Equity Compensation Plans” of our Proxy Statement for the Annual Meeting of Shareholders to be held May 17, 2006 to be filed with the Securities and Exchange Commission (“SEC”), and is incorporated herein by reference.

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Issuer Purchases of Equity Securities

The following table contains information with respect to purchases made by or on behalf of Equifax or any “affiliated purchaser” (as defined in Rule 10b-18(a) (3) under the Securities Exchange Act of 1934), of our common stock during our fourth quarter ended December 31, 2005:

 

 

 

 

 

 

 

Maximum Number

 

 

 

 

 

 

 

 

 

(or Approximate

 

 

 

 

 

 

 

Total Number

 

Dollar Value)

 

 

 

 

 

Average

 

of Shares Purchased

 

of Shares that May

 

 

 

Total Number

 

Price

 

as Part of

 

Yet Be Purchased

 

 

 

of Shares

 

Paid

 

Publicly-Announced

 

Under the Plans or

 

Period

 

 

 

Purchased(1)

 

Per Share(2)

 

Plans or Programs

 

Programs(3)

 

September 30, 2005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ 144,341,256

 

 

October 1 - October 31, 2005

 

 

210,798

 

 

 

$ 35.56

 

 

 

210,000

 

 

 

$ 136,873,418

 

 

November 1 - November 30, 2005

 

 

791,145

 

 

 

$ 36.18

 

 

 

791,000

 

 

 

$ 108,258,545

 

 

December 1 - December 31, 2005

 

 

411,433

 

 

 

$ 37.97

 

 

 

340,200

 

 

 

$ 95,342,269

 

 

Total

 

 

1,413,376

 

 

 

$ 36.53

 

 

 

1,341,200

 

 

 

$ 95,342,269

 

 


(1)                The total number of shares purchased includes: (1) shares purchased pursuant to our publicly announced share repurchase program; and (2) shares surrendered, or deemed surrendered, in satisfaction of the exercise price and/or to satisfy tax withholding obligations in connection with the exercise of employee stock options, totaling 798 shares for the month of October 2005, 145 shares for the month of November 2005 and 71,233 shares for the month of December 2005.

(2)                Average price paid per share for shares purchased as part of our publicly announced plan (includes brokerage commissions).

(3)                Our publicly announced share repurchase program was amended by our Board of Directors on August 6, 2004, to authorize the repurchase of $250.0 million of our common stock (in addition to the then remaining authorization of $33.0 million from the Board’s prior authorization) from time to time, directly or through brokers or agents, and has no stated expiration date. On February 24, 2006, the Board of Directors authorized approximately $250 million for additional share repurchases under this program.

Dividend and Share Repurchase Restrictions

Our $500.0 million senior unsecured revolving credit agreement entered into in August 2004 with SunTrust Bank and other lenders restricts our ability to pay cash dividends on our capital stock or repurchase capital stock if the total amount of such payments in any fiscal year would exceed 20% of our consolidated total assets measured as of the end of the preceding fiscal year.

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ITEM 6.                SELECTED FINANCIAL DATA

The table below summarizes our selected historical financial information for each of the last five years. The summary of operations for the years ended December 31, 2005, 2004 and 2003, and the balance sheet data as of December 31, 2005 and 2004, has been derived from our audited Consolidated Financial Statements included in Part II, Item 8, Financial Statements and Supplementary Data. The summary of operations for the years ended December 31, 2002 and 2001, and the balance sheet data as of December 31, 2003, 2002 and 2001 has been derived from Consolidated Financial Statements not included in this report. Other information was derived from unaudited financial data. The historical selected financial information may not be indicative of our future performance, and should be read in conjunction with the information contained in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and the accompanying Notes to the Financial Statements. See Part II, Item 8, Financial Statements and Supplementary Data, and see Note 11 of the Notes to Consolidated Financial Statements, Discontinued Operations.

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

 

2005

 

2004

 

2003(3)

 

2002

 

2001(5)

 

 

 

(In millions, except per share data)

 

Summary of Operations:(1)(2)

 

 

 

 

 

 

 

 

 

 

 

Operating revenue

 

$ 1,443.4

 

$ 1,272.8

 

$ 1,210.7

 

$ 1,095.3

 

$ 1,096.7

 

Operating expenses(4)

 

$ 1,021.4

 

$  897.0

 

$  896.5

 

$  742.8

 

$  779.0

 

Operating income

 

$  422.0

 

$  375.8

 

$  314.2

 

$  352.5

 

$  317.7

 

Income from continuing operations

 

$  246.5

 

$  237.3

 

$  180.7

 

$  191.7

 

$  124.4

 

Dividends paid

 

$    20.2

 

$    15.0

 

$    11.3

 

$    11.4

 

$    32.3

 

Per common share (diluted):

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations per share

 

$    1.86

 

$    1.78

 

$    1.32

 

$    1.38

 

$    0.90

 

Cash dividends declared per share

 

$    0.15

 

$    0.11

 

$    0.08

 

$    0.08

 

$    0.23

 

Weighted average common shares oustanding (diluted)

 

132.2

 

133.5

 

136.7

 

138.5

 

139.0

 

 

 

 

As of December 31,

 

 

 

2005

 

2004

 

2003

 

2002

 

2001

 

 

 

(In millions, except per share and employee data)

 

Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$ 1,831.5

 

$ 1,557.2

 

$ 1,553.5

 

$ 1,506.9

 

$ 1,422.6

 

Long-term debt

 

$  463.8

 

$  398.5

 

$  663.0

 

$  690.6

 

$  693.6

 

Total debt

 

$  556.1

 

$  654.2

 

$  823.5

 

$  924.5

 

$  755.6

 

Shareholders’ equity

 

$  820.3

 

$  523.6

 

$  371.5

 

$  221.0

 

$  243.5

 

Common shares outstanding

 

129.2

 

129.4

 

132.7

 

135.7

 

136.2

 

Other Information:

 

 

 

 

 

 

 

 

 

 

 

Stock price per share

 

$  38.02

 

$  28.10

 

$  24.50

 

$  23.14

 

$  24.15

 

Market capitalization

 

$ 4,912.2

 

$ 3,636.1

 

$ 3,250.4

 

$ 3,152.6

 

$ 3,288.4

 

Employees-continuing operations

 

4,600

 

4,400

 

4,600

 

5,000

 

5,200

 


(1)    For information about acquisition activity during certain periods presented in the table above, see Part II, Item 8, Financial Statements and Supplementary Data—Note 2 of the Notes to Consolidated Financial Statements, Acquisitions.

(2)    Our results of operations related to Spain and Italy for certain periods presented in the table above have been reclassified to discontinued operations. For additional information about these discontinued operations, see Part II, Item 8, Financial Statements and Supplementary Data—Note 11 of the Notes to Consolidated Financial Statements, Discontinued Operations.

(3)    In 2003, we recorded asset impairment and restructuring charges of $30.6 million ($19.3 million after tax, or $0.14 per diluted share). Restructuring charges primarily consist of employee severance and facilities consolidation. For additional information

23




about these charges, see Part II, Item 8, Financial Statements and Supplementary Data—Note 10 of the Notes to Consolidated Financial Statements, Restructuring and Impairment Charges.

(4)    In 2002, we adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 modifies the accounting for goodwill and other intangible assets. As of January 1, 2002, we ceased amortizing goodwill and other intangible assets with indefinite useful lives.

(5)    In 2001, we recorded restructuring and other charges of $60.4 million ($35.3 million after tax, or $0.25 per diluted share) for employee severance, facilities consolidation and the write-down of certain technology assets. Additionally, as a result of the spin-off of Certegy Inc. on July 7, 2001, our financial statements for the twelve months ended December 31, 2001, have been reclassified to isolate and show Certegy’s net assets, results of operations and cash flows as discontinued operations.

 

24




ITEM 7.                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.

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes in Part II, Item 8—Financial Statements and Supplementary Data. This discussion contains forward-looking statements. Throughout Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), we refer to several measures used by management to evaluate performance including free cash flow, other financial results adjusted for the impact of the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”), and one-time items, which are not prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Under Securities and Exchange Commission (“SEC”) regulations, we are required to provide supplemental explanations and reconciliations for these “non-GAAP financial measures,” which we have included in Exhibit 99.1 to this Form 10-K.

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

OVERVIEW

Our business plan is focused on providing a comprehensive information database, analytical resources to transform information into value-add insight for our customers and technology platforms that deliver highly customized decisioning tools that enable our customers to make decisions about their customers in “real time” at the point of interaction. Our products and services include consumer credit information, information database management, marketing information, commercial credit information, decisioning and analytical tools and identity verification services which enable businesses to make informed decisions about extending credit or service, managing portfolio risk and developing strategies for marketing to consumers and businesses. We also enable consumers to manage and protect their financial affairs through a portfolio of products that we sell directly and indirectly via the Internet and other marketing channels of distribution.

Information.   We collect, organize and manage numerous types of credit, financial, public record, demographic and marketing information regarding individuals and businesses. This information originates from a variety of sources including financial or credit granting institutions, which provide loan and accounts receivable information; governmental entities, which provide public records of bankruptcies, liens and judgments; and consumers who participate in surveys and submit warranty registration cards from which we gather demographic and marketing information. Our proprietary databases contain information on more than 400 million consumers and businesses worldwide. The original data is compiled and processed utilizing our proprietary software and systems and distributed to customers in a variety of user-friendly and value-add formats. During 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 of two independent credit reporting agencies in the U.S. and one in Canada that house consumer information on our system.

Analytics and Insights.   We have developed analytical tools for customers to use in their consumer and commercial oriented decisioning activities. These decisioning activities include numerous types of consumer interactions including customer acquisition, relationship management (e.g., up-selling and cross-selling) and risk management.

25




Enabling Technologies.   Our enabling technologies include products such as ePort, APPLY, Decision Power, ID Authentication, Accel CM, Accel DM and InterConnect. These platforms are generally distributed using the application service provider model to allow for ease of integration into customers’ in-house technology systems and to leverage our extensive technological systems and communication networks. We anticipate that our acquisitions in (1) March 2005 of APPRO Systems, Inc. (“APPRO”), a leading provider of enabling technologies for consumer and commercial lending operations, and (2) August 2005 of BeNow, Inc. (“BeNow”), a provider of leading edge solutions to multi-channel marketers, will help drive future growth in this market.

We are organized and report our business results in three reportable segments: North America, Europe and Latin America. The North America segment consists of three operating segments: Information Services, Marketing Services and Personal Solutions. The Europe and Latin America reportable segments are made up of varying mixes of three product lines: Information Services, Marketing Services and Personal Solutions. Information Services revenue is principally transaction related and is derived from our sales of the following products, of which a significant majority are delivered electronically: credit reporting and scoring, mortgage reporting, identity verification, fraud detection and modeling services, and certain of our decisioning products that facilitate and automate a variety of credit oriented decisions. Marketing Services revenue is derived from sales of products that help customers acquire new customers, cross-sell to existing customers and manage portfolio risk. Personal Solutions revenue is transaction and subscription based, and is derived from sales of credit monitoring and identity theft protection products, which we deliver to consumers through mail delivery and electronically via the Internet. For additional information regarding our geographic business units and operating segments, including detailed financial results, see Note 13 of the Notes to Consolidated Financial Statements in this Form 10-K as well as further discussion below within MD&A.

We operate in 13 countries: North America (the U.S., Canada and Costa Rica), Europe (the United Kingdom, Ireland, Spain and Portugal) and Latin America (Brazil, Argentina, Chile, El Salvador, Peru and Uruguay). We serve customers across a wide range of industries, including the financial services, retail, telecommunications, utilities, automotive, brokerage, healthcare and insurance industries, as well as state and federal governments. Our revenue stream is highly diversified with our largest customer only providing slightly more than 2% of total revenues. Our revenues are sensitive to a variety of factors, such as demand for, and price of, our services, technological competitiveness, our reputation for providing timely and reliable service, competition within our industry, federal, state and foreign regulatory requirements governing privacy and use of data and general economic conditions.

Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include measurements of operating revenue, operating revenue growth, operating income, operating margin, income from continuing operations, diluted earnings per share from continuing operations, capital expenditures and cash provided by operating activities. We monitor these indicators, and our corporate governance practices, to ensure that business vitality is maintained and effective control is exercised.

26




The key performance indicators for the twelve months ended December 31, 2005, 2004 and 2003 were as follows:

 

 

Key Performance Indicators

 

 

 

Twelve Months Ended

 

 

 

December 31,

 

 

 

2005

 

2004

 

2003

 

 

 

(Dollars in millions,
except per share data)

 

Operating revenue

 

$

1,443.4

 

$

1,272.8

 

$

1,210.7

 

Operating revenue growth

 

13

%

5

%

11

%

Operating income

 

$

422.0

 

$

375.8

 

$

314.2

 

Operating margin

 

29

%

30

%

26

%

Income from continuing operations

 

$

246.5

 

$

237.3

 

$

180.7

 

Diluted earnings per share from continuing operations

 

$

1.86

 

$

1.78

 

$

1.32

 

Capital expenditures

 

$

46.2

 

$

47.5

 

$

52.7

 

Cash provided by operating activities

 

$

337.8

 

$

309.0

 

$

293.7

 

 

For additional key performance indicators related to non-GAAP financial measures and our operating segments, see Exhibit 99.1 to this Form 10-K and further discussion below, respectively.

Business Environment

Our financial condition and operating performance are driven primarily by the rate at which the U.S. economy grows, as measured by the gross domestic product, as well as levels of consumer spending and confidence regarding jobs and the health of the economy. Changes in overall economic conditions in the U.S., and other countries in which we operate, generally impact the demand for our credit information, as well as other products and services. These effects are dynamic and complex. For example, in 2005, interest rate increases in the U.S. began to negatively impact our Mortgage business. However, despite this trend, we achieved 13% growth in our Mortgage revenue in 2005 as compared to 2004 due to the diversity of our customers and product offerings. Additionally, we generally experience growth in our Marketing Services business during periods of rising interest rates. Lenders typically spend more on their marketing efforts in order to retain or expand market share in consumer credit markets, which may mitigate the impact on us of rising interest rates and an economic downturn.

The credit information business is characterized by intense price and service competition among a limited number of providers, investment in proprietary credit information databases, changes in customer requirements, continued consolidation in the lending, credit card and telecommunications industries, emerging new market segments and technological innovation. Being competitive requires an emphasis on efficient processing to offset price compression, technological competence, protection of sensitive data, devotion of significant resources to marketing and applications development to differentiate our products and services from those of our competitors. Other significant factors include product cost, brand recognition, customer responsiveness, ability to successfully integrate acquisitions and regulatory compliance.

Consolidated Outlook for 2006

Looking forward, we believe that the performance of our business units in 2005, discussed in detail below, positions our company well for 2006. In 2006, we expect continued U.S. economic expansion, although at a slightly lower growth rate than in 2005 and 2004.

27




During 2006, we expect:

·       U.S. Consumer and Commercial Services to continue its solid performance. We serve a diverse group of industries and applications within those industries which should allow this business to continue to grow and deliver a solid financial performance. The value added services, including Predictive Sciences and enabling technologies, will continue to drive revenue growth.

·       Marketing Services’ performance will primarily be driven by financial institutions’ activities in acquiring, managing and collecting their account portfolios. As the economy continues to expand, this business should continue to grow in 2006.

·       Personal Solutions to continue to grow in 2006, aided by consumers’ increased focus on identity theft and fiscal responsibility, which drives demand for our products and services.

·       Latin America to continue its solid performance, although at a more moderate rate than 2005. Latin America’s financial performance improved dramatically in 2005 due to increased volume and higher pricing. In addition, new value-add products and services contributed to revenue growth and improved competitive position in 2005.

·       Europe to continue to experience challenges due to the economic environment in the U.K.

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

RESULTS OF OPERATIONS—TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2004

Consolidated Financial Results

Income from continuing operations for the twelve months ended December 31, 2005 was $246.5 million, compared to $237.3 million for the twelve months ended December 31, 2004. Earnings per share from continuing operations increased to $1.86 for the twelve months ended December 31, 2005 as compared to $1.78 for the same period a year ago.

Operating Revenue

Consolidated operating revenue for the twelve months ended December 31, 2005 increased $170.6 million, or 13%, from $1,272.8 million in 2004 to $1,443.4 million in 2005. This increase is due to growth in all of our reporting segments, except Europe which was flat. Our regulatory recovery fee revenue related to the FACT Act contributed $38.0 million for the twelve months ended December 31, 2005. Regulatory recovery fee revenue was not material during the twelve months ended December 31, 2004. See further discussion of segment financial results below.

Operating Expenses and Operating Margin

Consolidated total operating expenses increased $124.4 million, or 14%, for the twelve months ended December 31, 2005 as compared to the same period a year ago. Cost of services in 2005 increased $62.7 million, or 12%, when compared to 2004, primarily due to revenue growth as well as higher benefits and incentive costs mainly associated with our annual incentive program. During 2005 and 2004, we also incurred significant compliance costs, including operating expenses and capital investment, to implement the FACT Act requirements.

Selling, general and administrative costs rose $60.6 million, or 21%, in 2005 as compared to the same prior year period, mainly due to higher salary, incentive and benefit costs related to our Chief Executive

28




Officer (“CEO”) transition as well as increased year-over-year expenses related to our annual incentive program based on our 2005 financial results. As part of the CEO transition, effective September 19, 2005, Richard F. Smith became our CEO, which, along with the retirement of our former CEO Thomas F. Chapman in 2005, contributed to the higher salary, incentive and benefit costs during the year. Additionally, higher year-over-year advertising costs also contributed to the increase in selling, general and administrative costs.

During the twelve months ended December 31, 2004, we recorded a $2.4 million asset impairment charge, primarily for purchased data files and other assets.

Consolidated operating margin for the twelve months ended December 31, 2005 was 29% as compared to 30% for the same period in 2004.

Other Income, Net

Consolidated other income, net decreased $38.3 million for the twelve months ended December 31, 2005, as compared to the same period a year ago. The decrease is primarily driven by a $36.8 million gain recorded in 2004 related to the sale of our investment in Intersections Inc. (for additional information regarding this sale, see Note 9 of the Notes to Consolidated Financial Statements in this Form 10-K), partially offset by a $3.3 million gain recorded during the third quarter of 2005 related to an amendment to an agreement with RMA Holdings, LLC. For additional information about this gain, see Note 5 of the Notes to Consolidated Financial Statements in this Form 10-K.

Effective Income Tax Rate

Our effective income tax rate from continuing operations was 36.9% for the twelve months ended December 31, 2005, down from 38.4% for the same period in 2004. The favorable reduction was primarily due to lower state income taxes and a reduction to the tax contingency reserve, partially offset by additional tax expense related to non-deductible executive compensation.

Discontinued Operations

In 2002, we made the decision to exit our commercial services business in Spain, which was part of our European reportable segment. We disposed of this business in 2004. We have reclassified the 2004 and 2003 results of our commercial business in Spain to loss from discontinued operations. Additionally, in 2004, we sold our Italian business and have reclassified the 2004 and 2003 results of Italy to loss from discontinued operations. Accordingly, we recorded a $2.6 million, net of tax, loss from discontinued operations for the twelve months ended December 31, 2004. For additional information about our discontinued operations, see Note 11 of the Notes to Consolidated Financial Statements in this Form 10-K.

29




Segment Financial Results

Our segment results for the twelve months ended December 31, 2005 and 2004 were as follows:

 

 

2005

 

% of Revenue

 

2004

 

% of Revenue

 

$ Change

 

% Change

 

 

 

(In millions)

 

Operating Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Services

 

 

$

806.3

 

 

 

55

%

 

$

707.1

 

 

56

%

 

 

$

99.2

 

 

 

14

%

 

Marketing Services

 

 

253.7

 

 

 

18

%

 

236.1

 

 

19

%

 

 

17.6

 

 

 

7

%

 

Personal Solutions

 

 

114.7

 

 

 

8

%

 

96.1

 

 

7

%

 

 

18.6

 

 

 

19

%

 

 

 

 

1,174.7

 

 

 

81

%

 

1,039.3

 

 

82

%

 

 

135.4

 

 

 

13

%

 

Europe

 

 

142.0

 

 

 

10

%

 

142.0

 

 

11

%

 

 

 

 

 

0

%

 

Latin America

 

 

126.7

 

 

 

9

%

 

91.5

 

 

7

%

 

 

35.2

 

 

 

38

%

 

 

 

 

$

1,443.4

 

 

 

100

%

 

$

1,272.8

 

 

100

%

 

 

$

170.6

 

 

 

13

%

 

 

 

 

2005

 

Profit Margin

 

2004 

 

Profit Margin

 

$ Change

 

% Change

 

 

 

(In millions)

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Services

 

$

345.5

 

 

43

%

 

$

299.5

 

 

42

%

 

 

$

46.0

 

 

 

15

%

 

Marketing Services

 

85.2

 

 

34

%

 

74.4

 

 

32

%

 

 

10.8

 

 

 

15

%

 

Marketing Services asset impairment & related charges

 

 

 

0

%

 

(2.4

)

 

(1

)%

 

 

2.4

 

 

 

nm

 

 

Marketing Services, net

 

85.2

 

 

34

%

 

72.0

 

 

31

%

 

 

13.2

 

 

 

18

%

 

Personal Solutions

 

13.5

 

 

12

%

 

17.6

 

 

18

%

 

 

(4.1

)

 

 

(23

)%

 

 

 

444.2

 

 

38

%

 

389.1

 

 

37

%

 

 

55.1

 

 

 

14

%

 

Europe

 

33.4

 

 

24

%

 

30.0

 

 

21

%

 

 

3.4

 

 

 

11

%

 

Latin America

 

33.3

 

 

26

%

 

17.0

 

 

19

%

 

 

16.3

 

 

 

96

%

 

General Corporate Expense

 

(88.9

)

 

nm

 

 

(60.3

)

 

nm

 

 

 

(28.6

)

 

 

(47

)%

 

 

 

$

422.0

 

 

29

%

 

$

375.8

 

 

30

%

 

 

$

46.2

 

 

 

12

%

 


nm—not meaningful

Our North America revenue for the twelve months ended December 31, 2005 and 2004 was as follows:

 

 

2005

 

% of Revenue

 

2004

 

% of Revenue

 

$ Change

 

% Change

 

 

 

(In millions)

 

North America Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Consumer and Commercial Services

 

$

610.4

 

 

52

%

 

$

532.6

 

 

51

%

 

 

$

77.8

 

 

 

15

%

 

Mortgage Services

 

85.1

 

 

7

%

 

75.5

 

 

7

%

 

 

9.6

 

 

 

13

%

 

Canadian Operations

 

110.8

 

 

9

%

 

99.0

 

 

10

%

 

 

11.8

 

 

 

12

%

 

Total North America Information Services

 

806.3

 

 

68

%

 

707.1

 

 

68

%

 

 

99.2

 

 

 

14

%

 

Credit Marketing Services

 

150.7

 

 

13

%

 

139.5

 

 

14

%

 

 

11.2

 

 

 

8

%

 

Direct Marketing Services

 

103.0

 

 

9

%

 

96.6

 

 

9

%

 

 

6.4

 

 

 

7

%

 

Total Marketing Services

 

253.7

 

 

22

%

 

236.1

 

 

23

%

 

 

17.6

 

 

 

7

%

 

Personal Solutions

 

114.7

 

 

10

%

 

96.1

 

 

9

%

 

 

18.6

 

 

 

19

%

 

 

 

$

1,174.7

 

 

100

%

 

$

1,039.3

 

 

100

%

 

 

$

135.4

 

 

 

13

%

 

 

30




Our North America revenue excluding the impact of the FACT Act (non-GAAP) for the twelve months ended December 31, 2005 and 2004 was as follows:

 

 

2005

 

% of Revenue

 

2004

 

% of Revenue

 

$ Change

 

% Change

 

 

 

(In millions)

 

North America Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Consumer and Commercial Services

 

$

575.3

 

 

51

%

 

$

532.6

 

 

51

%

 

 

$

42.7

 

 

 

8

%

 

Mortgage Services

 

82.2

 

 

7

%

 

75.5

 

 

7

%

 

 

6.7

 

 

 

9

%

 

Canadian Operations

 

110.8

 

 

10

%

 

99.0

 

 

10

%

 

 

11.8

 

 

 

12

%

 

Total North America Information Services

 

768.3

 

 

68

%

 

707.1

 

 

68

%

 

 

61.2

 

 

 

9

%

 

Credit Marketing Services

 

150.7

 

 

13

%

 

139.5

 

 

14

%

 

 

11.2

 

 

 

8

%

 

Direct Marketing Services

 

103.0

 

 

9

%

 

96.6

 

 

9

%

 

 

6.4

 

 

 

7

%

 

Total Marketing Services

 

253.7

 

 

22

%

 

236.1

 

 

23

%

 

 

17.6

 

 

 

7

%

 

Personal Solutions

 

114.7

 

 

10

%

 

96.1

 

 

9

%

 

 

18.6

 

 

 

19

%

 

 

 

$

1,136.7

 

 

100

%

 

$

1,039.3

 

 

100

%

 

 

$

97.4

 

 

 

9

%

 

 

North America

Information Services

For the twelve months ended December 31, 2005, total revenue for Information Services increased $99.2 million, or 14%, to $806.3 million in 2005 compared to $707.1 million in 2004, as discussed further below. Operating income was $345.5 million for Information Services, an increase of $46.0 million, or 15%, over the same period a year ago. The increase in operating income is primarily the result of higher sales volume in all businesses and positive margins related to the FACT Act in 2005. While our total FACT Act-related costs have been greater than the related revenue since January 1, 2004, certain costs related to establishing systems to comply with the FACT Act were capitalized and are being depreciated over their respective useful lives.

U.S. Consumer and Commercial Services revenue for the twelve months ended December 31, 2005 increased $77.8 million, or 15%, from $532.6 million in 2004 to $610.4 million in 2005. This increase is primarily due to higher sales to our specialty and financial services customers, regulatory recovery fee revenue of $35.1 million related to the FACT Act for the year ended December 31, 2005, acquisitions that occurred during 2005 (mainly APPRO) and increased revenue from products sold in our commercial services unit. In our U.S. Consumer Information business, on-line transaction volume was approximately 610 million, up 8% year-over-year.

Mortgage Services revenue for the twelve months ended December 31, 2005 increased 13%, from $75.5 million in 2004 to $85.1 million. This increase is primarily due to new customers, increased market share, an affiliate acquisition as well as regulatory recovery fee revenue of $2.9 million related to the FACT Act in 2005. These increases were partially offset by less favorable mortgage marketing conditions.

Canadian operating revenue increased 12%, from $99.0 million in 2004 to $110.8 million in 2005, primarily due to favorable currency impact and increased sales volume. Local currency fluctuation against the U.S. dollar favorably impacted our Canadian revenue by $7.6 million, or 8%.

Marketing Services

Credit Marketing Services revenue for the twelve months ended December 31, 2005 increased $11.2 million, or 8%, compared to the same period in 2004. The rise in revenue is primarily due to increased volume from mainly financial institutions for certain of our products that target new customers as well as

31




higher revenue from other existing and new customers. Direct Marketing Services revenue increased $6.4 million, or 7%, as compared to the same period in 2004. This increase is primarily due to higher volume from existing customers and revenue from new customers and products, as well as the acquisition of BeNow in 2005. Operating income for the twelve months ended December 31, 2005 was $85.2 million for Marketing Services, an increase of $13.2 million, or 18%, resulting primarily from increased revenue, reduced production related expenses for our traditional mail products and a $2.4 million asset impairment charge taken during 2004. For additional information about this charge, see Note 10 of the Notes to Consolidated Financial Statements in this Form 10-K.

Personal Solutions

Personal Solutions revenue for the twelve months ended December 31, 2005 increased $18.6 million, or 19%, compared to the same period in 2004 primarily due to increased volume and new products, including CreditWatch, ScoreWatch and 3-in-1 Credit Report Monitoring. In 2005, operating income was $13.5 million for Personal Solutions, a decrease of $4.1 million, or 23%, primarily due to an increase in advertising and other promotional campaigns.

Europe

Europe revenue was flat at $142.0 million for the twelve months ended December 31, 2005 and 2004, primarily due to a decline in credit applications and marketing mailings in the U.K., offset by an increase in our Personal Solutions business, new product sales and increases in our account management scores. Local currency fluctuation against the U.S. dollar unfavorably impacted our Europe revenue by $1.0 million, or 1%. Operating income for the twelve months ended December 31, 2005 increased $3.4 million, or 11%, when compared to the same period a year ago. The improvement in operating income was driven by expense reductions. However, softness in the U.K. economy during 2005 continued to impact the overall performance of our European operations. Europe’s operating margin was 24% for the year ended December 31, 2005, versus 21% for the same period in 2004.

In June 2004, after incurring losses in each of the last four years, we determined that certain long-lived assets in the Italian business were impaired and recorded an impairment charge of $5.3 million. In 2004, we sold our Italian business and commercial services business in Spain. We have reclassified the 2004 and 2003 results from these businesses to loss from discontinued operations. For additional information about our discontinued operations, see Note 11 of the Notes to Consolidated Financial Statements in this Form 10-K.

Latin America

Our Latin America segment revenue increased 38% to $126.7 million for the twelve months ended December 31, 2005. Local currency fluctuation against the U.S. dollar favorably impacted our Latin America revenue by $15.1 million and Latin America operating income by $3.4 million. Six countries in Latin America experienced double digit revenue growth due to increased volume resulting from strengthening local economies and higher pricing associated with better contract execution.

Operating income increased to $33.3 million for the twelve months ended December 31, 2005, compared to $17.0 million for the same period in 2004. This increase was primarily the result of higher sales volumes and increased pricing, as well as favorable currency impact. Latin America operating margin was 26% for the twelve months ended December 31, 2005, versus 19% for the same period in 2004.

General Corporate Expense

Our “general corporate expenses” are expenses that are incurred at the corporate level and have no clear relationship in their support of our business units, and ultimately the reportable segments. These

32




expenses include shared services and administrative and legal expenses. General corporate expense was $88.9 million for the twelve months ended December 31, 2005, compared to $60.3 million for the same period in 2004. This increase was primarily driven by higher salary, incentive and benefit costs related to our CEO transition (see discussion above) as well as increased year-over-year expenses related to our annual incentive program based on our financial results.

RESULTS OF OPERATIONS—YEARS ENDED DECEMBER 31, 2004 AND 2003

Consolidated Financial Results

Income from continuing operations for the twelve months ended December 31, 2004 was $237.3 million, compared to $180.7 million for the twelve months ended December 31, 2003. Earnings per share from continuing operations increased to $1.78 for the twelve months ended December 31, 2004 as compared to $1.32 for the same period in 2003.

Operating Revenue

Consolidated operating revenue for the twelve months ended December 31, 2004 increased 5%, from $1,210.7 million in 2003 to $1,272.8 million in 2004. This increase was primarily due to growth in North America Information Services, Personal Solutions, Europe and Latin America, partially offset by a decrease in Marketing Services revenue. See further discussion of segment financial results below.

Operating Expenses and Operating Margin

Consolidated total operating expenses were relatively flat for the twelve months ended December 31, 2004 as compared to the same period in 2003. Cost of services in 2004 increased $31.8 million, or 6%, when compared to 2003, primarily due to revenue growth as well as higher benefits and incentive costs. During 2004, we also incurred significant compliance costs, including operating expenses and capital investment to implement the FACT Act requirements.

Selling, general and administrative costs rose $8.6 million, or 3%, in 2004 as compared to the same period in 2003 mainly due to higher benefit costs and increased professional fees. The increase in professional fees was associated with expenses we incurred to comply with our 2004 review of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002, which were in excess of $5.0 million, and expenses associated with services provided by our independent registered public accounting firm. These fees totaled $3.7 million in 2004, an increase of 162% compared to 2003. Depreciation and amortization expense declined $11.7 million, or 13%, in 2004 as compared to the same period in 2003, primarily due to the write-off of certain amortizable intangible assets related to our eMarketing business in 2003.

During the twelve months ended December 31, 2004, we recorded a $2.4 million asset impairment charge related to Marketing Services, primarily for purchased data. For the twelve months ended December 31, 2003, we recorded $30.6 million of restructuring and impairment charges primarily related to our eMarketing business. For additional information about these charges, see Note 10 of the Notes to Consolidated Financial Statements in this Form 10-K.

Consolidated operating margin for the twelve months ended December 31, 2004 was 30%, up from 26% for the same period in 2003. The increase in margin is primarily due to higher operating revenue and relatively flat total operating expenses, as discussed above.

Other Income, Net

Consolidated other income, net increased $33.5 million for the twelve months ended December 31, 2004, as compared to the same period a year ago. The increase is primarily driven by a $36.8 million gain

33




recorded in 2004 related to the sale of our investment in Intersections Inc. For additional information regarding this sale, see Note 9 of the Notes to Consolidated Financial Statements in this Form 10-K.

Effective Income Tax Rate

Our effective income tax rate from continuing operations was 38.4% for the twelve months ended December 31, 2004, up from 36.7% for the same period in 2003. The increase was primarily due to limitations on our ability to utilize foreign tax credits and higher state income taxes due to a reduction in the availability of state tax net operating losses for use in 2004.

Discontinued Operations

In 2002, we made the decision to exit our commercial services business in Spain, which was part of our European reportable segment. We disposed of this business in 2004. We have reclassified the 2004 and 2003 results of our commercial business in Spain to loss from discontinued operations. Additionally, in 2004, we sold our Italian business and have reclassified the 2004 and 2003 results of Italy to loss from discontinued operations. Accordingly, we recorded a $2.6 million, net of tax, and a $15.8 million, net of tax, loss from discontinued operations for the twelve months ended December 31, 2004 and 2003, respectively. For additional information about our discontinued operations, see Note 11 of the Notes to Consolidated Financial Statements in this Form 10-K.

Segment Financial Results

Our segment results for the twelve months ended December 31, 2004 and 2003 were as follows:

 

 

2004

 

% of Revenue

 

2003

 

% of Revenue

 

$ Change

 

% Change

 

 

 

(In millions)

 

Operating Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Services

 

$

707.1

 

 

56

%

 

$

679.8

 

 

56

%

 

 

$

27.3

 

 

 

4

%

 

Marketing Services

 

236.1

 

 

19

%

 

265.7

 

 

22

%

 

 

(29.6

)

 

 

(11

)%

 

Personal Solutions

 

96.1

 

 

7

%

 

69.5

 

 

6

%

 

 

26.6

 

 

 

38

%

 

 

 

1,039.3

 

 

82

%

 

1,015.0

 

 

84

%

 

 

24.3

 

 

 

2

%

 

Europe

 

142.0

 

 

11

%

 

115.8

 

 

10

%

 

 

26.2

 

 

 

23

%

 

Latin America

 

91.5

 

 

7

%

 

79.9

 

 

6

%

 

 

11.6

 

 

 

14

%

 

 

 

$

1,272.8

 

 

100

%

 

$

1,210.7

 

 

100

%

 

 

$

62.1

 

 

 

5

%

 

 

 

 

2004

 

Profit Margin

 

2003 

 

Profit Margin

 

$ Change

 

% Change

 

 

 

(In millions)

 

Operating Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Services

 

$

299.5

 

 

42

%

 

$

296.9

 

 

44

%

 

 

$

2.6

 

 

 

1

%

 

Marketing Services

 

74.4

 

 

32

%

 

48.8

 

 

18

%

 

 

25.6

 

 

 

52

%

 

Marketing Services asset impairment & related charges

 

(2.4

)

 

(1

)%

 

(30.6

)

 

(12

)%

 

 

28.2

 

 

 

nm

 

 

Marketing Services, net

 

72.0

 

 

31

%

 

18.2

 

 

6

%

 

 

53.8

 

 

 

nm

 

 

Personal Solutions

 

17.6

 

 

18

%

 

9.2

 

 

13

%

 

 

8.4

 

 

 

91

%

 

 

 

389.1

 

 

37

%

 

324.3

 

 

32

%

 

 

64.8

 

 

 

20

%

 

Europe

 

30.0

 

 

21

%

 

22.9

 

 

20

%

 

 

7.1

 

 

 

31

%

 

Latin America

 

17.0

 

 

19

%

 

20.0

 

 

25

%

 

 

(3.0

)

 

 

(15

)%

 

General Corporate Expense

 

(60.3

)

 

nm

 

 

(53.0

)

 

nm

 

 

 

(7.3

)

 

 

(14

)%

 

 

 

$

375.8

 

 

30

%

 

$

314.2

 

 

26

%

 

 

$

61.6

 

 

 

20

%

 


nm—not meaningful

34




Our North America revenue for the twelve months ended December 31, 2004 and 2003 was as follows:

 

 

2004

 

% of Revenue

 

2003

 

% of Revenue

 

$ Change

 

% Change

 

 

 

(In millions)

 

North America Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Consumer and Commercial Services

 

$

532.6

 

 

51

%

 

$

517.3

 

 

51

%

 

 

$

15.3

 

 

 

3

%

 

Mortgage Services

 

75.5

 

 

7

%

 

71.6

 

 

7

%

 

 

3.9

 

 

 

5

%

 

Canadian Operations

 

99.0

 

 

10

%

 

90.9

 

 

9

%

 

 

8.1

 

 

 

9

%

 

Total North America Information Services

 

707.1

 

 

68

%

 

679.8

 

 

67

%

 

 

27.3

 

 

 

4

%

 

Credit Marketing Services

 

139.5

 

 

14

%

 

149.8

 

 

15

%

 

 

(10.3

)

 

 

(7

)%

 

Direct Marketing Services

 

96.6

 

 

9

%

 

115.9

 

 

11

%

 

 

(19.3

)

 

 

(17

)%

 

Total Marketing Services

 

236.1

 

 

23

%

 

265.7

 

 

26

%

 

 

(29.6

)

 

 

(11

)%

 

Personal Solutions

 

96.1

 

 

9

%

 

69.5

 

 

7

%

 

 

26.6

 

 

 

38

%

 

 

 

$

1,039.3

 

 

100

%

 

$

1,015.0

 

 

100

%

 

 

$

24.3

 

 

 

2

%

 

 

North America

Information Services

For the twelve months ended December 31, 2004, total revenue for Information Services increased $27.3 million, or 4%, to $707.1 million in 2004 compared to $679.8 million in 2003, as discussed further below. For the twelve months ended December 31, 2004, operating income was $299.5 million for Information Services, an increase of $2.6 million, or 1%, over the same period a year ago. The increase in operating income is primarily due to increased revenue partially offset by increased costs associated with higher volume in our financial services, utilities and telecommunications lines of business.

U.S. Consumer and Commercial Services revenues for the twelve months ended December 31, 2004 increased 3%, from $517.3 million in 2003 to $532.6 million in 2004. This increase is primarily due to higher sales for our commercial services products and to our customers in the financial services, utilities and telecommunications industries, which was partially offset by decreased sales of mortgage-related products. In our U.S Consumer Information business, on-line transaction volume was approximately 565 million, up 20% year-over-year.

Mortgage Services revenue for the twelve months ended December 31, 2004 increased 5%, from $71.6 million in 2003 to $75.5 million in 2004, counter to the prevailing trends in the mortgage marketplace primarily due to our ability to attract new customers and increase our market share.

Canadian operations increased $8.1 million, or 9%, when compared to 2003 due to favorable currency impact. Local currency fluctuation against the U.S. dollar favorably impacted our Canadian revenue by $6.9 million, or 8%.

Marketing Services

Credit Marketing Services revenues for the twelve months ended December 31, 2004 decreased $10.3 million, or 7%, compared to 2003. The year-over-year decline is primarily due to net volume decreases. Direct Marketing Services revenues decreased by $19.3 million, or 17%, primarily due to reduced eMarketing revenue from volume decreases, partially offset by increases in our traditional mail products in 2004 as compared to 2003. Marketing Services operating income for 2004 was $74.4 million, an increase of $25.6 million, or 52%, (excluding asset impairment and restructuring charges) resulting from the elimination of eMarketing operating losses as a result of our December 2003 eMarketing restructuring. In 2004, we determined that continued difficulties with our eMarketing operations indicated that certain

35




remaining assets may not be recoverable and we recorded an asset impairment charge of $2.4 million. For additional information about this charge, see Note 10 of the Notes to Consolidated Financial Statements in this Form 10-K.

Personal Solutions

Personal Solutions revenues for the year ended December 31, 2004 increased $26.6 million, or 38%, compared to 2003 due to increased volume. In 2004, operating income was $17.6 million for Personal Solutions, an increase of $8.4 million, or 91%, primarily due to profit contribution from incremental revenue.

Europe

Europe revenues increased from $115.8 million in 2003 to $142.0 million in 2004, including favorable currency impact of $14.9 million, or 13%. Operating income for 2004 increased $7.1 million, or 31%, when compared to 2003. The improvement in operating income was driven by increased volume, expense reductions, operating efficiencies and the impact of foreign currency. Positive performance in our consumer line resulted in improved profit in the U.K.

In June 2004, after incurring losses in each of the last four years, we determined that certain long-lived assets in the Italian business were impaired and recorded an impairment charge of $5.3 million. In 2004, we sold our Italian business and commercial services business in Spain. We have reclassified the 2004 and 2003 results to loss from discontinued operations. For additional information about our discontinued operations, see Note 11 of the Notes to Consolidated Financial Statements in this Form 10-K.

Latin America

Our Latin America segment revenue increased 14% to $91.5 million for the twelve months ended December 31, 2004. Local currency fluctuation against the U.S. dollar favorably impacted our Latin America revenue by $4.4 million, or 6%.

Operating income decreased to $17.0 million for the twelve months ended December 31, 2004, compared to $20.0 million for the same period in 2003. This decrease was primarily the result of slower revenue growth and increased data-related costs in our Brazilian operations. Latin America operating margin was 19% for the year ended December 31, 2004, versus 25% for the same period in 2003.

General Corporate Expense

Our “general corporate expenses” are expenses that are incurred at the corporate level and have no clear relationship in their support of our business units, and ultimately the reportable segments. These expenses include shared services and administrative and legal expenses. General corporate expense was $60.3 million for the year ended December 31, 2004, compared to $53.0 million for the same period in 2003. This increase was primarily driven by higher benefit costs and professional fees. Our total expenses incurred to comply with our 2004 review of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002 were in excess of $5.0 million. A substantial portion of our increased professional fees related to expenses associated with services provided by our independent registered public accounting firm. These fees totaled $3.7 million in 2004, an increase of 162% compared to 2003.

LIQUIDITY AND FINANCIAL CONDITION

Our principal sources of liquidity are cash flow provided by our operating activities, our revolving credit and asset securitization facilities and cash and cash equivalents on hand. Our ability to generate cash

36




from operations is one of our fundamental financial strengths. We use and intend to continue using cash flows from operations, along with borrowings, to fund our capital expenditures and growth initiatives, make acquisitions, retire outstanding indebtedness, pay dividends and purchase outstanding shares of our common stock.

We believe that anticipated cash flows provided by our operating activities, together with current cash and cash equivalent balances and access to committed and uncommitted credit facilities and the capital market, if required, will be sufficient to meet our projected cash requirements for the next twelve months, and the foreseeable future thereafter, although any projections of future cash needs and cash flows are subject to substantial uncertainty. At December 31, 2005, we had a principal amount of $249.8 million, net of discount, of our 4.95% senior unsecured notes due November 1, 2007. We currently anticipate that these notes will be retired upon maturity in 2007 through a combination of borrowings under our $500.0 million senior unsecured revolving credit agreement and excess corporate cash and cash equivalents available at that time. Alternatively, we could refinance these notes, if we choose to do so.

We continue to evaluate our ability to sell additional equity or debt securities, obtain credit facilities from lenders and restructure our long-term debt for strategic reasons or to further strengthen our financial position. The sale of additional equity or convertible debt securities could result in additional dilution to our shareholders. In addition, we will, from time to time, consider the acquisition of, or investment in, complementary businesses, products, services and technologies, and the retirement of debt, which might affect our liquidity requirements or cause us to issue additional equity or debt securities. There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all.

Our cash and cash equivalents were $37.5 million and $52.1 million at December 31, 2005 and 2004, respectively.

Operating Activities

For the twelve months ended December 31, 2005, we generated $337.8 million of net cash flow from operating activities compared to $309.0 million for the year ended December 31, 2004, a 9% increase. For the twelve months ended December 31, 2005, we generated $291.6 million of free cash flow (a non-GAAP financial measure) compared to $261.5 million for the twelve months ended December 31, 2004, a 12% increase. The major source of cash provided by operating activities for 2005 was net income of $246.5 million, net of $82.2 million of depreciation and amortization.

Our net cash flow from operating activities for the twelve months ended December 31, 2004 was $309.0 million compared to $293.7 million for the same period in 2003, a 5% increase. The major source of cash provided by operating activities for 2004 was net income of $234.7 million, net of $78.7 million of depreciation and amortization offset by our gain on the sale of our investment in Intersections Inc. of $36.8 million.

Investing Activities

Net cash used in investing activities totaled $157.9 million for the twelve months ended December 31, 2005, primarily for acquisitions and capital expenditures. During the twelve months ended December 31, 2004, we used net cash for investing activities of $6.5 million, primarily for capital expenditures and acquisitions, substantially offset by proceeds from the sale of Intersections Inc. In March 2005, we acquired APPRO to broaden and further strengthen our enabling technologies capabilities in our North America Information Services business. In August 2005, we acquired BeNow to grow our Marketing Services business. We paid a total of $109.0 million in cash to acquire APPRO and BeNow. The net cash impact to us of these acquisitions was $91.6 million, after disposition of certain investments related to APPRO and net of cash acquired. We financed the purchase price of the acquisitions through available cash and short-term borrowings, including $72.0 million in borrowings under our trade receivables-backed revolving credit

37




facility. We acquired APPRO and BeNow as well as two affiliates in the U.S. and one affiliate in Canada for a total of $121.8 million in cash, net of cash acquired, and 0.4 million shares of our common stock, which were issued from treasury stock. This issuance of common stock was a non-cash transaction in conjunction with the purchase of certain credit files and other assets of one of these U.S. affiliates. During 2004, we acquired the credit files, contractual rights to territories, customer relationships and related businesses of two credit reporting agencies in the U.S. and one in Canada, for $17.4 million in cash. For additional information about our acquisitions, see Note 2 of the Notes to Consolidated Financial Statements in this Form 10-K.

Capital expenditures, which include additions to property and equipment and other assets, net, used cash of $46.2 million and $47.5 million for 2005 and 2004, respectively. Our capital expenditures are used for developing, enhancing and deploying new and existing technology platforms, replacing or adding equipment, updating systems for regulatory compliance, licensing software applications and investing in disaster recovery systems. In 2005 and 2004, FACT Act-related capital expenditures totaled $2.8 million and $9.2 million, respectively. In 2006, we expect total capital expenditures to be approximately $60 million to $65 million.

In 2004, net cash used in investing activities totaled $6.5 million, a decrease from $98.8 million in 2003. The decrease was primarily due to net proceeds of $59.4 million from the sale of our investment in Intersections, Inc. in 2004 and a year-over-year decrease in cash used for acquisitions. Our acquisitions, net of cash acquired, accounted for $17.4 million and $40.7 million of total cash invested in 2004 and 2003, respectively. During 2003, we acquired consumer credit files, contractual rights to territories and customer relationships and related businesses from four affiliates in the U.S. and one in Canada and an email marketing business for $41.0 million in cash and $1.9 million in liabilities. Capital expenditures, exclusive of acquisitions, totaled $47.5 million and $52.7 million in 2004 and 2003, respectively, which principally represented development associated with key technology platforms in our businesses.

Financing Activities

Net cash used in financing activities for the twelve months ended December 31, 2005 totaled $193.5 million, compared with net cash used in financing activities of $289.0 million and $195.3 million during the same period in 2004 and 2003, respectively. Net borrowings on short-term debt were $92.3 million for the twelve months ended December 31, 2005, primarily due to borrowings under our trade receivables-backed revolving credit facility to fund the APPRO acquisition and pay down debt maturities. Net borrowings under our long-term revolving credit facilities for 2005 were $65.0 million. On July 1, 2005, we redeemed $250.0 million principal amount of our 6.3% senior unsecured Notes 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. Net payments on short-term debt were $22.5 million for the twelve months ended December 31, 2004, while net payments on our long-term revolving credit facilities were $138.0 million for the same period.

Additionally, we used $144.0 million during the twelve months ended December 31, 2005 for the purchase of 4.2 million shares of our common stock at an average price of $34.45. During 2004, we used $138.0 million for the purchase of 5.4 million shares of our common stock at an average price of $25.57. At December 31, 2005, our remaining authorized amount for share repurchases was approximately $95 million. On February 24, 2006, the Board of Directors authorized approximately $250 million for additional share repurchases under this program. We expect to continue to purchase our common stock, if conditions warrant.

We paid cash dividends of $20.2 million and $15.0 million during the twelve months ended December 31, 2005 and 2004, respectively. In March 2004, we increased our quarterly dividend per share

38




from $0.02 per share to $0.03 per share. Additionally, we increased our quarterly dividend per share from $0.03 per share to $0.04 per share in March 2005. While we have historically paid dividends to common shareholders, the declaration and payment of future dividends will depend on many factors, including our earnings, financial condition, business development needs, and regulatory considerations and is at the discretion of our Board of Directors. We received cash of $62.8 million and $28.1 million during the twelve months ended December 31, 2005 and 2004, respectively, from the exercise of stock options.

In 2003, net payments on short-term debt were $16.0 million. Payments on our long-term debt were $202.6 million during 2003, which primarily represents the retirement of the $200.0 million aggregate principal amount of our outstanding 6.5% senior notes that matured in June 2003. Net borrowings under our long-term revolving credit facilities in 2003 were $113.0 million. In addition, we used $94.9 million during 2003 for the purchase of 4.1 million shares of our common stock at an average price of $22.75. Our dividend policy remained consistent; we paid cash dividends of $11.3 million in 2003. We received cash of $19.5 million during 2003 for the exercise of stock options.

Revolving Credit Facilities

In August 2004, we entered into a five-year, $500.0 million senior unsecured revolving credit agreement. This facility provides for a variable interest rate tied to a Base Rate, London InterBank Offered Rate (“LIBOR”) plus a specified margin or competitive bid options. We also pay an annual facility fee on the total amount of the facility, regardless of borrowings. Under our senior credit agreement, we must comply with various financial and non-financial covenants. Our borrowings under this facility, which have not been guaranteed by any of our subsidiaries, are unsecured and will rank on parity in right of payment with all of our other unsecured and unsubordinated indebtedness from time to time outstanding. As of December 31, 2005, $435.0 million was available as there were outstanding borrowings of $65.0 million under this facility.

In September 2004, we entered into a trade receivables-backed revolving credit facility. Under the terms of the transaction, a wholly-owned subsidiary of Equifax may borrow up to $125.0 million, subject to borrowing base availability and other terms and conditions. We generally use the net proceeds received from the sale of our trade receivables to our subsidiary for general corporate purposes and acquisitions. The credit facility has an expiration date of September 5, 2006, as amended, but may be extended for an additional period of up to two years if specified conditions are satisfied. Borrowings bear interest at commercial paper rates, LIBOR or Base Rate plus a specified margin. We pay a commitment fee based on an annual rate of 17.5 basis points on any unused portion of the facility. Outstanding debt under the facility is consolidated on our balance sheet for financial reporting purposes. Based on the calculation of the borrowing base applicable at December 31, 2005, $0.4 million was available for borrowing and $88.0 million was outstanding under this facility.

In November 2004, we entered into a C$25.0 million revolving credit facility denominated in Canadian dollars that replaced a C$100.0 million facility that expired in September 2004. The C$25.0 million facility, as amended, expires in September 2006. We pay a commitment fee based on an annual rate of 10.0 basis points on any unused portion of the facility. There were no borrowings outstanding under this facility at December 31, 2005.

Interest rates on our variable rate debt ranged from 4.7% to 4.9% at December 31, 2005. These interest rates reset periodically, depending the terms of the financing agreements. Additionally, at December 31, 2005, we were in compliance with all of our debt covenants. For additional information about our revolving credit facilities, including our financial and non-financial covenants, see Note 4 of the Notes to Consolidated Financial Statements in this Form 10-K.

At February 1, 2006, our senior unsecured long-term fixed debt ratings were A- by Standard & Poor’s and Baa1 by Moody’s.

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Contractual Obligations and Commercial Commitments

The following table summarizes our significant contractual obligations and commitments as of December 31, 2005. The table excludes commitments that are contingent based on events or factors uncertain at this time. Some of the excluded commitments are discussed below the footnotes to the table.

 

 

Payments due by

 

 

 

Total

 

Less than 1 year

 

1 to 3 years

 

3 to 5 years

 

Thereafter

 

 

 

(In millions)

 

Debt(1)

 

$

557.4

 

 

$

92.3

 

 

 

$

250.1

 

 

 

$

65.0

 

 

 

$

150.0

 

 

Operating leases(2)

 

98.8

 

 

16.3

 

 

 

24.4

 

 

 

14.9

 

 

 

43.2

 

 

Data processing, outsourcing agreements and other purchase obligations(3)

 

357.8

 

 

74.1

 

 

 

100.1

 

 

 

82.9

 

 

 

100.7

 

 

Other long-term liabilities(4)

 

84.1

 

 

10.9

 

 

 

13.9

 

 

 

12.8

 

 

 

46.5

 

 

Interest payments(5)

 

271.8

 

 

29.2

 

 

 

38.5

 

 

 

23.0

 

 

 

181.1

 

 

 

 

$

1,369.9

 

 

$

222.8

 

 

 

$

427.0

 

 

 

$

198.6

 

 

 

$

521.5

 

 


(1)      The amounts are gross of unamortized discounts totaling $1.3 million at December 31, 2005. Total debt on our Consolidated Balance Sheets is net of the unamortized discounts. For additional information about our debt, see Note 4 of the Notes to Consolidated Financial Statements in this Form 10-K.

(2)      Our operating lease obligations principally involve office space and equipment, which includes the lease of our technology center that expires in 2012, the lease associated with our headquarters building that expires in 2010 and the ground lease related to our headquarters building that expires in 2048. For additional information about our operating leases, see Note 5 of the Notes to the Consolidated Financial Statements in this Form 10-K.

(3)      These agreements primarily represent our minimum contractual obligations for services that we outsource associated with our computer data processing operations and related functions, and certain administrative functions. These agreements expire between 2006 and 2013. For additional information about these agreements, see Note 5 of the Notes to Consolidated Financial Statements in this Form 10-K.

(4)      These long-term liabilities primarily relate to obligations associated with certain of our pension, postretirement and other compensation related plans. We made certain assumptions about the timing of such future payments.

(5)      For future interest payments on related variable rate debt, which is generally based on LIBOR plus a specified margin, we used the variable rate in effect at December 31, 2005 to calculate these payments. The variable portion of the rate at December 31, 2005 (excluding the margin and facility fees) was between 4.3% and 4.4%. Future interest payments related to the our $500.0 million revolving credit facility and trade receivables-backed revolving credit facility are based on the outstanding borrowings at December 31, 2005 through their respective maturity dates, assuming such borrowings are outstanding until that time. Future interest payments may be different depending on the borrowing activity going forward under these revolving credit facilities.

A potential extraordinary use of cash would be the option that Computer Sciences Corporation (“CSC”) can exercise to sell its credit reporting business to us at any time prior to 2013. The option exercise price will be determined by an appraisal process and would be due in cash within 180 days after the exercise of the option. We estimate that if CSC were to exercise the option today, the option price would be approximately $650 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. 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 credit and the issuance of public debt or equity financings. However, the availability and terms of any such financing would be subject to a number of factors, including credit market conditions, the condition of the equity markets, general economic conditions and our financial performance and condition. Because we do not control the timing of CSC’s exercise of its option, we could be required to seek such financing and increase our indebtedness at a time when market or other conditions are unfavorable. Additionally, 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.

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In the table above, we have not included amounts related to future pension contributions and payments for our other benefit plans, as such required funding amounts have not been determined. For additional information about our pension and other benefit plans, see Note 8 of the Notes to Consolidated Financial Statements in this Form 10-K.

Off Balance Sheet Transactions

Other than facility leasing arrangements, we do not engage in off-balance sheet financing activities. In 1998, we entered into a synthetic lease on our Atlanta corporate headquarters building in order to obtain favorable financing terms with regard to this facility. This $29.0 million lease expires in 2010. Lease payments for the remaining term total $7.9 million. Under this synthetic lease arrangement, we have 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. There was not a material change in the fair value of the property during 2005.

Letters of Credit and 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 $3.4 million at December 31, 2005, and all have a maturity of one year or less. Guarantees are issued from time to time to support the needs of operating units. In connection with the sale of our risk management collections business to RMA Holdings, LLC (“RMA”) in October 2000, 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 $7.9 million based on the undiscounted value of remaining lease payments, including real estate taxes, at December 31, 2005.

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. Accordingly, we do not have a liability on our Consolidated Balance Sheets at December 31, 2005 or 2004 related to this guarantee. For additional information regarding this transaction, including the remaining amount of deferred revenue, see Notes 1 and 5 of the Notes to the Consolidated Financial Statements in this Form 10-K.

Other Contingencies

There are other matters which we are involved in, such as legal proceedings, claims and litigation, for which the final outcome and impact to our Consolidated Financial Statements is uncertain at December 31, 2005. For additional information about these matters, see Note 5 of the Notes to Consolidated Financial Statements in this Form 10-K.

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.

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Pension Plans

Pension benefits are provided through U.S. and Canadian defined benefit pension plans and two supplemental executive defined benefit pension plans. Substantially all employees participate in one or more of these plans. The measurement date for our defined benefit pension plans is December 31st of each year.

Prior to January 1, 2005, we had one non-contributory qualified retirement plan covering most U.S. salaried employees (the U.S. Retirement Income Plan, or “USRIP”) and a defined benefit plan for most salaried employees in Canada (the Canadian Retirement Income Plan, or “CRIP”). Benefits of both plans are primarily a function of salary and years of service.

On January 1, 2005, we separated the 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 and a company contribution of $20.0 million. In November 2005, an additional $30.1 million of plan assets were transferred from the USRIP to the EIPP. The EIPP covers all active employee participants of Equifax as of January 1, 2005, and the USRIP covers all inactive retired and vested participants as of that date. Inactive participants constituted approximately 85% of total 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. The CRIP was not impacted by the separation of the USRIP.

At December 31, 2005, the USRIP and the EIPP met or exceeded ERISA’s minimum funding requirements. 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. In January 2006, however, we made a discretionary contribution of $20.0 million to the EIPP.

We reduced the discount rate assumption used to measure the projected pension obligations from 5.92% for the twelve months ended December 31, 2004 to 5.68% for the twelve months ended December 31, 2005. The decrease in discount rate is due to the general decline in long-term interest rates during 2005 and the consequent effect on the yields of the portfolio of long-term corporate bonds, which are used to determine the discount rate. This reduction caused the aggregated projected benefit obligation of all plans to increase $28.2 million, from $551.5 million at December 31, 2004 to $579.7 million at December 31, 2005. At December 31, 2005, the EIPP and Supplemental Retirement Plans were underfunded with respect to their accumulated benefit obligation by $50.9 million as determined by Statement of Financial Accounting Standards (“SFAS”) No. 87, “Employers’ Accounting for Pensions”  (“SFAS No. 87”), whereas the USRIP and CRIP were overfunded with respect to their accumulated benefit obligation by $24.2 million.

The expected rate of return on pension plan assets should approximate the actual long-term investment gain on those assets. The expected rate of return on plan assets used to calculate annual expense was 8.75% for the USRIP for the year ended December 31, 2004 and was 8.00% for the USRIP and 8.25% for the EIPP for the year ended December 31, 2005. In 2006, the expected rate of return on plan assets used to calculate the annual SFAS No. 87 expense will be 8.00% for the USRIP and 8.25% for the EIPP, the same as 2005.

For our non-U.S. retirement tax-qualified retirement plans, we fund at least the amounts sufficient to meet minimum funding requirements but no more than allowed as a tax deduction pursuant to applicable tax regulations. For the non-qualified supplementary retirement plans, we fund the benefits as they are paid to retired participants, but accrue the associated expense and liabilities in accordance with GAAP.

42




Related Party Transactions

We engage in various transactions and arrangements with related parties. We believe the terms of the transactions and arrangements do not differ from those that would have been negotiated with an independent party. For additional information about these transactions and arrangements, see Note 12 of the Notes to Consolidated Financial Statements in this Form 10-K.

Inflation

We do not believe that the rate of inflation has had a material effect on our operating results. However, inflation could adversely affect our future operating results.

Recent Accounting Pronouncements

The following are recently issued accounting pronouncements:

Stock-Based Compensation

In December 2004, SFAS No. 123R, “Share-Based Payment” (“SFAS No. 123R”), was issued which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”) and supersedes Accounting Principles Board No. 25, “Accounting for Stock Issued to Employees.” SFAS No. 123R requires that the cost relating to share-based payment transactions in which an entity exchanges its equity instruments for goods or services from either employees or non-employees be recognized in the financial statements as the goods are received or services are rendered. Related to this guidance, in March 2005, the SEC issued Staff Accounting Bulletin (“SAB”) No. 107, “Share-Based Payment” (“SAB 107”), which expressed the SEC’s views regarding the interaction between SFAS No. 123R and certain SEC rules and regulations.

We adopted SFAS No. 123R in January 2006, which applies to all of our outstanding unvested share-based payment awards as of January 1, 2006 and all prospective awards. We elected to use the modified prospective transition method as opposed to the modified retrospective transition method. Under the modified prospective transition method, financial statements prior to the adoption of SFAS No. 123R remain unchanged. The following discusses several other elections we made as a result of adopting SFAS No. 123R:

·       For our pro forma disclosures under SFAS No. 123, we used the Black-Scholes option pricing model. Upon the adoption of SFAS No. 123R, we will compute the fair value of options granted on or after January 1, 2006 using the binomial model. Additionally, based on the guidance in SAB 107 we will change our expected volatility assumption used in the binomial model. We expect the compensation expense to be slightly lower using the binomial model as opposed to the Black-Scholes model. However, the assumptions used in the model have a significant impact on the valuation; we will revisit all assumptions at each grant date. The fair value of stock options granted prior to the adoption of SFAS No. 123R calculated using the Black-Scholes model will remain unchanged.

·       Forfeitures under SFAS No. 123 were recognized when they occurred. SFAS No. 123R, however, requires forfeitures to be estimated at the grant date. Accordingly, compensation cost will be recognized based on the number of awards expected to vest. There may be adjustments in future periods if actual forfeitures differ from our estimates. For nonvested shares granted prior to our adoption of SFAS No. 123R, we recorded a cumulative catch-up adjustment in January 2006 related to estimated forfeitures. The adjustment was not material to our Consolidated Financial Statements.

43




·       Generally, our stock options have graded vesting, while our nonvested shares have cliff vesting. SFAS No. 123R permits entities to elect between the accelerated recognition method or straight-line recognition method for recognizing compensation cost related to awards with graded vesting based on a service condition. Consistent with our prior practice, we intend to continue to apply the accelerated recognition method related to awards with graded vesting which results in more compensation cost early in the vesting period.

Upon the adoption of SFAS No. 123R, we began recognizing compensation cost related to new stock-based awards from the grant date through the date the employee is eligible to receive the award without further service, such as when the employee becomes retirement eligible, which may be shorter than the stated vesting period (“New Policy”). For stock-based awards granted prior to the adoption of SFAS No. 123R with accelerated vesting terms, we recognized compensation cost over the stated vesting period; this recognition policy will continue for any such awards that are unvested at the time of adoption. If we had recognized compensation cost related to all stock-based awards granted in prior periods under the New Policy in our pro forma disclosures, the compensation cost and earnings per share amounts would not have been materially different than our historical pro forma disclosures.

We do not expect to change our policies related to stock-based awards, such as the quantity or type of instruments issued, as a result of adopting SFAS No. 123R, nor do we plan on changing the terms of our stock-based awards. We generally issue stock options and nonvested shares each year to certain employees, which typically vest based on service over a three year period. Our stock-based awards have accelerated vesting features upon retirement. At December 31, 2005, our total unrecognized compensation cost related to nonvested stock and stock options was $13.2 million with a weighted average recognition period of 2.6 years and $4.0 million with a weighted average recognition period of 0.9 years, respectively.

We estimate that the adoption of SFAS No. 123R will reduce our 2006 fully diluted earnings per share on a consolidated basis by approximately $0.05. This estimate, however, is subject to change based on a number of factors including, without limitation, the number, terms and conditions of new stock awards and the fair value at date of grant of such awards.

Income Taxes

On October 22, 2004, the American Jobs Creation Act was signed into law. In December 2004, Financial Accounting Standards Board Staff Position No. 109-2, “Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004” (“FSP 109-2”), was issued. FSP 109-2 specifically addresses the one-time deduction of 85% of certain foreign earnings that are repatriated. We did not elect to apply this provision to qualifying earnings repatriations.

For additional information about these recent accounting pronouncements and the impact to our Consolidated Financial Statements, see Note 1 of the Notes to Consolidated Financial Statements in this Form 10-K.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with GAAP requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our Consolidated Financial Statements and accompanying notes. The following accounting policies involve a “critical accounting estimate” because they are particularly dependent on estimates and assumptions made by management about matters that are uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period, or changes in the accounting estimates that we used are reasonably

44




likely to occur from period to period which may have a material impact on the presentation of our financial condition and results of operations. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results. For additional information about these policies, see Note 1 of the Notes to Consolidated Financial Statements in this Form 10-K. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

Revenue Recognition

We recognize revenue in accordance with SEC SAB No. 104, “Revenue Recognition.” A significant portion of our revenues is based upon transactional activity generated by customers’ access to, or queries of, our propriety data bases. Product or service delivery and customer acceptance is inherent in this process by nature of the value thereby transferred to and utilized by the customer. Revenues are typically usage based and incorporate predetermined volume-tiered unit pricing.

Revenue from, and customer billing for, the sale of complementary Information Service products, such as the development of unique decision or predictive statistical models, and the sale of Marketing Service products, such as demographic data lists, data queries and market research, is recognized upon delivery and customer acceptance.

Revenue for contracts containing multiple elements that can be divided into separate units of accounting is allocated to those separate units based on their relative fair values. If the relative fair value cannot be determined for a particular deliverable, then the associated component of the arrangement fees is deferred and combined with the amount allocable to the applicable undelivered element(s) of the total arrangement fee and recognized when those elements have been delivered and accepted by the customer. Multiple deliverable arrangements generally involve the delivery of services generated by various product lines. The distinction between product lines facilitates the separation of the contract’s deliverables into separate units of accounting. No specific product line impacts the value or usage of other deliverables in the arrangement, and each deliverable can be sold alone or purchased from another vendor without affecting the quality of use or value to the customer of the remaining deliverables.

We consider revenue recognition to be critical to all of our operating segments due to the impact on our results of operations.

Valuation of Long-Lived Assets, Goodwill and Intangible Assets

Long-Lived Assets.   We monitor the status of our long-lived assets annually or more frequently if necessary, in order to determine if conditions exist or events and circumstances indicate that an asset may be impaired in that its carrying amount may not be recoverable. Significant factors that are considered that could be indicative of an impairment include: changes in business strategy, market conditions or the manner in which an asset is used; underperformance relative to historical or expected future operating results; and negative industry or economic trends. If potential indicators of impairment exist, we estimate recoverability based on the asset’s ability to generate cash flows greater than the carrying value of the asset. We estimate the undiscounted future cash flows arising from the use and eventual disposition of the related long-lived asset group. If the carrying value of the long-lived asset group exceeds the estimated future undiscounted cash flows, an impairment loss is recorded based on the amount by which the asset’s carrying amount exceeds its fair value. We utilize the discounted present value of the associated future estimated cash flows to determine the asset’s fair value. The projected cash flows require several assumptions related to, among other things, relevant market factors, revenue growth, if any, and operating margins. While we believe our assumptions are reasonable, changes in these assumptions in future periods may have a material impact on our Consolidated Financial Statements. There was no impairment charge

45




during the year ended December 31, 2005. For additional information about the charges in 2004 and 2003, see Note 10 of the Notes to Consolidated Financial Statements in this Form 10-K.

Goodwill.   Goodwill is the cost in excess of the fair value of the net assets of acquired businesses. We review goodwill for impairment based on the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”). In accordance with SFAS No. 142, goodwill is tested for impairment at the reporting unit level on an annual basis or 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. These events or circumstances would include a significant change in the business climate, legal factors, operating performance indicators, competition, sale or disposition of a significant portion of the business or other factors. We perform our annual goodwill impairment test as of September 30th. During 2005, we were not required to test goodwill for impairment at an interim date.

In accordance with SFAS No. 142, we are required to test goodwill at the reporting unit level as defined by reference to our operating segments determined under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” We have five reporting units for which we test goodwill for impairment: Information Services, Marketing Services, Personal Solutions, Europe and Latin America.

In analyzing goodwill for potential impairment, we use projections of future discounted cash flows from our reporting units to determine whether the reporting unit’s estimated fair value exceeds its carrying value. These projections of cash flows are based on our views of growth rates, anticipated future economic conditions and the appropriate discount rates relative to risk and estimates of residual values. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value. Our estimates of fair value for each reporting unit are corroborated by market multiple comparables. The use of different estimates or assumptions within our projected discounted cash flows (e.g., growth rates, future economic conditions, discount rates and estimates of terminal values) when determining the fair value of our reporting units could result in different values and may result in a goodwill impairment charge. Additionally, a change in our reporting unit structure would result in the requirement to test goodwill for impairment at different reporting units. During the twelve months ended December 31, 2005, 2004 and 2003, we had no impairment of our reporting unit goodwill balances. For additional information about goodwill, see Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K.

Indefinite-Lived Intangible Assets.   Our contractual/territorial rights recorded in goodwill and indefinite-lived intangible assets on our accompanying Consolidated Balance Sheets are perpetual in nature and, therefore, the useful lives are considered indefinite. The balance of our contractual/territorial rights represents the estimated fair value at the date of acquisition.

In accordance with SFAS No. 142, we are required to test indefinite-lived intangible assets for impairment annually or whenever events and circumstances change that would indicate the asset might be impaired. We perform the impairment test for our indefinite-lived intangible assets by comparing the asset’s fair value to its carrying value. An impairment charge is recognized if the asset’s estimated fair value is less than its carrying value. We perform our annual impairment test as of September 30th. During 2005, we were not required to test contractual/territorial rights for impairment at an interim date.

We estimate the fair value based on projected discounted future cash flows. The use of different estimates or assumptions within our discounted cash flow model when determining the fair value of our contractual/territorial rights or using a methodology other than a discounted cash flow model could result in different values for our contractual/territorial rights and could result in an impairment charge. The most significant assumptions within our discounted cash flow model are the discount rate and the growth rate. We believe that our estimates are consistent with assumptions that marketplace participants would use in their estimates of fair value.

46




If any legal, regulatory, contractual, competitive, economic or other factors were to limit the useful lives of our indefinite-lived intangible assets, we would be required to test these intangible assets for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and amortize the intangible asset over its remaining useful life.

During the twelve months ended December 31, 2005, 2004 and 2003, we recognized no impairment charges related to our contractual/territorial rights. For additional information about contractual/territorial rights, see Note 3 of the Notes to Consolidated Financial Statements in this Form 10-K.

Contingencies

We are subject to various proceedings, lawsuits and claims arising in the normal course of our business. In accordance with SFAS No. 5, “Accounting for Contingencies,” we determine whether to disclose and/or accrue for loss contingencies based on our assessment of whether the potential loss is probable, reasonably possible or remote. We periodically review claims and legal proceedings and assess whether we have potential financial exposure based on consultation with internal and outside legal counsel and other advisors. If the likelihood of an adverse outcome from any claim or legal proceeding is probable and the amount can be reasonably estimated, we accrue a liability for the estimated settlement. If the likelihood of an adverse outcome is reasonably possible, but not probable, we provide disclosures related to the potential loss contingency. Our assumptions related to loss contingencies are inherently subjective. Changes in these assumptions in future periods or an outcome different than our assumption may have a material impact on our Consolidated Financial Statements. For additional information about our contingencies, see Note 5 of the Notes to Consolidated Financial Statements in this Form 10-K.

Income Taxes

We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” As part of the process of preparing our Consolidated Financial Statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our Consolidated Balance Sheets. We must then assess the likelihood that our net deferred tax assets will be recovered from future taxable income or other tax planning opportunities, and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the Consolidated Statements of Income. A valuation allowance is currently set against certain net deferred tax assets because we believe it is more likely than not that these deferred tax assets will not be realized through the generation of future taxable income or other tax planning opportunities. Significant management judgment is required in determining our provision for income taxes and our deferred tax assets and liabilities and our future taxable income for purposes of assessing our ability to realize any future benefit from our deferred tax assets.

Our income tax provisions are based on assumptions and calculations which will be subject to examination by various tax authorities. We record tax benefits for positions in which we believe they are probable of being sustained under such examinations. Regularly, we assess the potential outcome of such examinations to determine the adequacy of our income tax accruals. We adjust our income tax provision during the period in which we determine that the actual results of the examinations may differ from our estimates. Changes in tax laws and rates are reflected in our income tax provision in the period in which they occur.

47




Changes in these assumptions in future periods or actual results different from our estimates may have a material impact on our Consolidated Financial Statements. For additional information about our income taxes, see Note 6 of the Notes to Consolidated Financial Statements in this Form 10-K.

Pension Plans

Our pension plans are accounted for using actuarial valuations required by SFAS No. 87. Our prepaid pension asset and accrued benefit liability as of December 31, 2005, were $183.7 million, or 10% of total assets, and $50.9 million, or 5% of the total liabilities, respectively, on our Consolidated Balance Sheet as of December 31, 2005. We consider accounting for our U.S. and Canadian pension plans critical because our management is required to make significant subjective judgments about a number of actuarial assumptions, which include discount rates, salary growth, expected return on plan assets, interest cost and mortality rates.

We believe that the most critical assumptions are (1) the expected return on plan assets and (2) the discount rate. The expected rate of return on plan assets is primarily based on two methods prepared by an external advisor which consider, among other things, (1) the expected equity returns based on assumptions such as dividend yield and growth rate, and (2) estimated risk premium for various asset categories. These assumptions are projected using an asset/liability forecasting model which produces a range and distribution of values for the assumed rate of return. Adjusting our expected long-term rate of return (7.98% at December 31, 2005) by 0.5% would change our estimated pension expense in 2006 by approximately $3 million. We determine our discount rates primarily based on high-quality fixed-income investments and yield-to-maturity analysis specific to our estimated future benefit payments. Adjusting our weighted average discount rate (5.90% at December 31, 2005) by 0.5% would change our estimated pension expense in 2006 by approximately $3 million.

Depending on the assumptions and estimates used, the pension expense could vary within a range of outcomes and have a material impact on our Consolidated Financial Statements. For additional information about our pension plans, see Note 8 of the Notes to Consolidated Financial Statements in this Form 10-K.

ITEM 7A.        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of our business, we are exposed to market risk, primarily from changes in foreign currency exchange rates and changes in interest rates, that could impact our results of operations and financial position. We manage our exposure to these market risks through our regular operating and financing activities, and when deemed appropriate, through the use of derivative financial instruments, such as interest rate swaps, to hedge certain of these exposures. We use derivative financial instruments as risk management tools and not for speculative or trading purposes.

Foreign Currency Exchange Rate Risk

A substantial majority of our revenue, expense and capital expenditure activities are transacted in U.S. dollars. However, we do transact business in other currencies, primarily the British pound, the euro, the Canadian dollar and the Brazilian real. For most of these foreign currencies, we are a net recipient, and therefore, benefit from a weaker U.S. dollar and are adversely affected by a stronger U.S. dollar relative to the foreign currencies in which we transact significant amounts of business.

We are required to translate, or express in U.S. dollars, the assets and liabilities of our foreign subsidiaries that are denominated or measured in foreign currencies at the applicable year-end rate of exchange on our Consolidated Balance Sheets, and income statement items of our foreign subsidiaries at the average rates prevailing during the year. We record the resulting translation adjustment, and gains and losses resulting from the translation of intercompany balances of a long-term investment nature, as

48




components of our shareholders’ equity. Other immaterial foreign currency transaction gains and losses are recorded in our Consolidated Statements of Income. We do not, as a matter of policy, hedge translational foreign currency exposure. We may, however, hedge transactional foreign currency exchange rate risks associated with material transactions which are denominated in a foreign currency.

At December 31, 2005, a 10% weaker U.S. dollar against the currencies of all foreign countries in which we had operations during 2005, would have resulted in an increase of our revenue by $37.8 million, and an increase of our pre-tax operating profit by $11.1 million. A 10% stronger U.S. dollar would have resulted in similar decreases to our revenue and pre-tax operating profit.

Interest Rate Risk

Our exposure to market risk for changes in interest rates primarily relates to our variable rate revolving credit debt and, until July 2005, the interest rate swap agreements associated with portions of our fixed rate public debt. The nature and amount of our long-term and short-term debt as well as the proportionate amount of fixed-rate and floating-rate debt can be expected to vary as a result of future business requirements, market conditions and other factors.

We attempt to achieve the lowest all-in weighted average cost of debt while simultaneously taking into account the mix of our fixed and floating rate debt, and the average life and scheduled maturities of our debt. At December 31, 2005, our weighted average cost of debt was 5.4% and weighted average life of debt was 7.5 years. At December 31, 2005, 72% of our debt was fixed rate, and the remaining 28% floating rate. Occasionally we use derivatives to manage our exposure to changes in interest rates by entering into interest rate swaps.

Our variable rate indebtedness consists primarily of (1) our $500.0 million unsecured revolving credit facility, (2) trade receivables-backed revolving credit facility under which we may borrow up to $125.0 million, subject to borrowing base availability and other terms and conditions, and (3) a separate C$25.0 million revolving credit facility in Canada, which is denominated in Canadian dollars. Interest related to borrowings under these facilities is generally based on LIBOR, Base Rate plus a specified margin or commercial paper rates. We also have a $29.0 million floating-to-fixed interest rate swap, maturing 2010, which fixes the effective rate of interest on the $29.0 million synthetic lease for our Atlanta corporate headquarters. This derivative instrument is designated as a cash flow hedge, was documented as fully effective under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” (“SFAS No. 133”) and was valued on a mark-to-market basis as a liability totaling $1.6 million at December 31, 2005. This interest rate swap gives us the right to receive a floating rate payment tied to three-month LIBOR plus a spread from the counterparty, in exchange for a fixed rate payment from us. The net settlements occur quarterly.

A 1% increase in the average rate of interest on the variable rate debt outstanding under our revolving credit facilities during 2005 would have increased our pre-tax interest expense by $2.4 million. Since our interest rate swap related to the synthetic lease is fully effective in accordance with SFAS No. 133, our income statement is unaffected by the non-cash quarterly mark-to-market adjustments associated with these derivatives.

For additional information about our debt, including interest rates at December 31, 2005, see Note 4 of the Notes to Consolidated Financial Statements in this Form 10-K.

49




ITEM 8.                FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Financial Statements

Management’s Report on Internal Control over Financial Reporting

51

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting 

52

Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements

53

Consolidated Statements of Income for each of the three years in the period ended December 31, 2005

54

Consolidated Balance Sheets at December 31, 2005 and 2004

55

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2005

56

Consolidated Statements of Shareholders’ Equity and Comprehensive Income for each of the three years in the period ended December 31, 2005

57

Notes to Consolidated Financial Statements

59

 

50




MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Equifax is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. Equifax’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those written policies and procedures that:

·       pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of Equifax;

·       provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles;

·       provide reasonable assurance that receipts and expenditures of Equifax are being made only in accordance with authorization of management and the Board of Directors of Equifax; and

·       provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.

Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of Equifax’s internal control over financial reporting as of December 31, 2005. Management based this assessment on criteria for effective internal control over financial reporting described in “Internal Control—Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of Equifax’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.

Based on this assessment, management determined that, as of December 31, 2005, Equifax maintained effective internal control over financial reporting.

Ernst & Young LLP, an independent registered public accounting firm, who audited and reported on the consolidated financial statements of Equifax included in this report, has issued an attestation report on management’s assessment of internal control over financial reporting which is included on page 52 of this report.

51




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors and
Shareholders of Equifax Inc.:

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Equifax Inc. and subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Equifax Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Equifax Inc. maintained effective internal control over financial reporting as of December 31, 2005 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Equifax Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005 based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2005 of Equifax Inc. and subsidiaries and our report dated March 1, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Atlanta, Georgia

 

March 1, 2006

 

 

52




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and
Shareholders of Equifax Inc.:

We have audited the accompanying consolidated balance sheets of Equifax Inc. and subsidiaries, as of December 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Equifax Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set therein.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Equifax Inc.’s internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 1, 2006 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

Atlanta, Georgia

 

March 1, 2006

 

 

53




EQUIFAX INC.
CONSOLIDATED STATEMENTS OF INCOME

 

 

Twelve Months Ended
December 31,

 

 

 

2005

 

2004

 

2003

 

 

 

(In millions,
except per share amounts)

 

Operating revenue

 

$

1,443.4

 

$

1,272.8

 

$

1,210.7

 

Operating expenses:

 

 

 

 

 

 

 

Cost of services (exclusive of depreciation and amortization expense below)

 

594.2

 

531.5

 

499.7

 

Selling, general and administrative expenses

 

345.0

 

284.4

 

275.8

 

Depreciation and amortization

 

82.2

 

78.7

 

90.4

 

Asset impairment and related charges

 

 

2.4

 

30.6

 

Total operating expenses

 

1,021.4

 

897.0

 

896.5

 

Operating income

 

422.0

 

375.8

 

314.2

 

Interest expense

 

(35.6

)

(34.9

)

(39.6

)

Minority interests in earnings, net of tax

 

(4.9

)

(3.2

)

(3.3

)

Other income, net

 

9.2

 

47.5

 

14.0

 

Income from continuing operations before income taxes

 

390.7

 

385.2

 

285.3

 

Provision for income taxes

 

(144.2

)

(147.9

)

(104.6

)

Income from continuing operations

 

246.5

 

237.3

 

180.7

 

Discontinued operations (Note 11)

 

 

 

 

 

 

 

Loss from discontinued operations, net of income tax benefit of $1.5 in 2004 and $0.0 in 2003

 

 

(2.6

)

(15.8

)

Net income

 

$

246.5

 

$

234.7

 

$

164.9

 

Per common share (basic):

 

 

 

 

 

 

 

Income from continuing operations

 

$

1.90

 

$

1.81

 

$

1.35

 

Loss from discontinued operations

 

 

(0.02

)

(0.12

)

Net income

 

$