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| EFX > SEC Filings for EFX > Form 10-K on 26-Feb-2009 | All Recent SEC Filings |
26-Feb-2009
Annual Report
As used herein, the terms Equifax, the Company, we, our and us refer to Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Equifax Inc.
All references to earnings per share data in Management's Discussion and Analysis, or MD&A, are to diluted earnings per share, or EPS, unless otherwise noted. Diluted EPS is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding.
BUSINESS OVERVIEW
We are a leading global provider of information solutions, employment and income verification and human resources business process outsourcing services. We leverage some of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, to create customized insights which enable our business customers to grow faster, more efficiently, more profitably and to inform and empower consumers.
Businesses rely on us for consumer and business credit intelligence, credit portfolio management, fraud detection, decisioning technology, marketing tools, and human resources and payroll services. We also offer a portfolio of products that enable individual consumers to manage their financial affairs and protect their identity. Our revenue stream is diversified among individual consumers and among businesses across a wide range of industries and international geographies.
Segment and Geographic Information
Segments. The U.S. Consumer Information Solutions, or USCIS, segment, the largest of our five segments, consists of four product and service lines: Online Consumer Information Solutions, or OCIS; Mortgage Solutions; Credit Marketing Services; and Direct Marketing Services. OCIS and Mortgage Solutions revenue is principally transaction-based and is derived from our sales of products such as consumer credit reporting and scoring, mortgage settlement services, identity verification, fraud detection and modeling services. USCIS also markets certain of our decisioning products which facilitate and automate a variety of consumer credit-oriented decisions. A significant majority of USCIS products are delivered electronically. Credit Marketing Services and Direct Marketing Services revenue is principally project- and subscription-based and is derived from our sales of batch credit or demographic information such as those that assist clients in acquiring new customers, cross-selling to existing customers and managing portfolio risk.
The International segment consists of Canada Consumer, Europe and Latin America. Canada Consumer's products and services are similar to our USCIS offerings, while Europe and Latin America are made up of varying mixes of product lines that are in our USCIS, North America Commercial Solutions and North America Personal Solutions reportable segments.
The TALX segment consists of The Work Number® and Tax and Talent Management business units. The Work Number revenue is transaction-based and is derived primarily from verification of employment and income data of employees in the U.S. reported to us by employers. Tax and Talent Management revenues are derived from our provision of certain human resources business process outsourcing services that include both transaction- and subscription-based product offerings. These services assist our customers with the administration of unemployment claims and employer-based tax credits and the assessment of new hires.
North America Personal Solutions revenue is both transaction- and subscription-based and is derived from the sale of credit monitoring and identity theft protection products, which we deliver to consumers through the mail and electronically via the internet.
North America Commercial Solutions revenue is principally transaction-based and is derived from the sale of business information, credit scores and portfolio analytics that enable customers to utilize our reports to make financial, marketing and purchasing decisions related to businesses.
Key Performance Indicators. Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include measurements of operating revenue, change in operating revenue, operating income, operating margin, net income, diluted earnings per share, cash provided by operating activities and capital expenditures. The key performance indicators for the twelve months ended December 31, 2008, 2007 and 2006, were as follows:
Key Performance Indicators
Twelve Months Ended
December 31,
(Dollars in millions, except per share data) 2008 2007 2006
Operating revenue $ 1,935.7 $ 1,843.0 $ 1,546.3
Change in operating revenue 5 % 19 % 7 %
Operating income $ 477.2 $ 486.2 $ 436.1
Operating margin 24.7 % 26.4 % 28.2 %
Net income $ 272.8 $ 272.7 $ 274.5
Diluted earnings per share $ 2.09 $ 2.02 $ 2.12
Cash provided by operating activities $ 444.7 $ 449.9 $ 372.1
Capital expenditures $ 110.5 $ 118.5 $ 52.0
Operational Highlights.
º •
º Revenue increased five percent to $1.9 billion.
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º •
º EPS for the full year 2008 was $2.09, a four percent increase over $2.02 in
2007.
º •
º During the third quarter of 2008, we realigned our business to better
support our strategic objectives which resulted in $16.8 million of
restructuring and asset write-down charges ($10.5 million, net of tax). We
also recognized a tax benefit of $14.6 million related to uncertain tax
positions for which the statute of limitations expired.
º •
º We repurchased 4.5 million shares of our common stock on the open market
for $155.7 million during 2008.
º •
º Our effective tax rate for the full year 2008 was 32.8 percent, down from
35.8 percent in 2007.
º •
º Total debt was $1.22 billion at December 31, 2008, a decrease of
$168 million from December 31, 2007.
Business Environment, Company Outlook and Strategy
During 2008, the financial markets experienced unprecedented volatility around the world. Many of our customers, especially financial institutions, are encountering much uncertainty, which limits our visibility into their future plans and activities. A number of our customers have reduced their level of activity as a result of continued weakening of the U.S. and U.K. economies in particular.
Additionally, there has been more significant activity related to the consolidation of financial institutions, including the recent acquisitions of Wachovia by Wells Fargo, of Countywide Financial by Bank of America and Washington Mutual by JPMorgan Chase. In the past, we have been impacted by industry consolidation. While average core product unit prices tend to decline as a result of consolidation, we look to negotiate higher volumes and capitalize on opportunities to sell additional products and services to offset the decline in prices. However, given significant financial stress impacting financial markets and reduced willingness to extend credit, past experience may or may not continue in the current market.
Given the slowing global economic growth and challenging business environment, we continue to focus on our initiatives to reduce and manage our expenses, while trying to preserve our operating margins, earnings performance and cash flows from operations. Also, we continue to realign our resources to pursue key strategic objectives, including new product innovation and international expansion. Based
on the uncertainty in the global economy, assuming exchange rates remain at levels consistent with December 31, 2008, we expect revenue in the first quarter of 2009 to be similar to the fourth quarter of 2008.
RESULTS OF OPERATIONS - TWELVE MONTHS ENDED DECEMBER 31, 2008, 2007 AND 2006
Consolidated Financial Results
Operating Revenue
Operating Revenue Twelve Months Ended December 31, Change
2008 vs. 2007 2007 vs. 2006
(Dollars in
millions) 2008 2007 2006 $ % $ %
U.S. Consumer
Information
Solutions $ 890.8 $ 969.7 $ 968.1 $ (78.9 ) (8 )% $ 1.6 0 %
International 505.7 472.8 402.8 32.9 7 % 70.0 17 %
TALX 305.1 179.4 - 125.7 70 % 179.4 nm
North America
Personal Solutions 162.6 153.5 126.0 9.1 6 % 27.5 22 %
North America
Commercial
Solutions 71.5 67.6 49.4 3.9 6 % 18.2 37 %
Consolidated
operating revenue $ 1,935.7 $ 1,843.0 $ 1,546.3 $ 92.7 5 % $ 296.7 19 %
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nm - not meaningful
2008 revenue increased 5%, or $92.7 million, compared to 2007 primarily due to the full year inclusion of TALX, which was acquired on May 15, 2007. Revenue in our four other business units collectively declined by $33.0 million, or two percent, as growth in our International, North America Personal Solutions and North America Commercial Solutions segments through the first nine months of the year was able to partially, but not fully, offset an eight percent decline in our USCIS business. Although the impact of foreign currency exchange rates on 2008 full year revenue growth was minimal, a strengthening of the U.S. dollar in the fourth quarter of 2008 compared to 2007 exchange rates negatively impacted fourth quarter revenue growth. If foreign exchange rates remain at levels consistent with December 31, 2008, foreign currency translation would negatively impact expected 2009 revenue growth by approximately four percent.
The 2007 increase in revenue, as compared to 2006, is primarily due to $179.4 million of incremental revenue from our acquisition of TALX. Additionally, double-digit growth in our International, North America Personal Solutions and North America Commercial Solutions segments also contributed to the increase in revenue, as discussed in greater detail in "Segment Financial Results" below. Foreign currency had a favorable impact on 2007 revenue growth of $32.5 million, or 2%, when using 2006 exchange rates.
Operating Expenses
Operating Expenses Twelve Months Ended December 31, Change
2008 vs. 2007 2007 vs. 2006
(Dollars in
millions) 2008 2007 2006 $ % $ %
Consolidated cost
of services $ 778.8 $ 752.0 $ 626.4 $ 26.8 4 % $ 125.6 20 %
Consolidated
selling, general
and administrative
expenses 524.3 477.1 401.0 47.2 10 % 76.1 19 %
Consolidated
depreciation and
amortization
expense 155.4 127.7 82.8 27.7 22 % 44.9 54 %
Consolidated
operating expenses $ 1,458.5 $ 1,356.8 $ 1,110.2 $ 101.7 8 % $ 246.6 22 %
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The 2007 increase in cost of services, as compared to 2006, was significantly affected by our acquisition of TALX, which contributed $60.1 million of this increase. The remainder of the increase is primarily due to (1) higher production and related costs due to revenue growth, including costs related to converting a major customer to our enabling technologies; (2) the impact of foreign currency translation; (3) expenditures to enhance the efficiency, effectiveness and reliability of our information technology platforms, processes, and development capabilities in support of our long-term growth strategy; and (4) higher salary and contractor staffing costs, partly due to increased call volume and a second outsourced call center related to North America Personal Solutions.
Selling, General and Administrative Expenses. Selling, general and administrative expense for 2008, as compared to 2007, increased mainly as a result of our acquisition of TALX, which contributed $39.2 million of incremental cost year-over-year. This increase was also due to a $14.4 million charge recorded in the third quarter of 2008 related to headcount reductions and certain contractual costs. These charges were related to our business realignment to better support our strategic objectives in the current economic environment. These increases were partially offset by reduced personnel costs, incentive expenses and discretionary spending based on actions taken as a response to the deteriorating U.S. economy in 2008.
The 2007 increase in selling, general and administrative expenses, as compared
to 2006, was mainly due to our acquisition of TALX, which contributed
$51.8 million of this increase. The remainder of the increase is primarily due
to (1) salary costs related to increased headcount for the expansion of
corporate capabilities in key support areas, including marketing and technology;
(2) the impact of foreign currency translation; and (3) expenses related to
Austin-Tetra (which was acquired in October 2006). This increase was partially
offset by lower litigation costs.
Depreciation and Amortization. The increase in depreciation and amortization expense for 2008, as compared to 2007, was primarily due to the inclusion of a full year of results from our acquisition of TALX, which contributed $24.3 million of incremental depreciation and amortization expense in 2008, and a $2.4 million software write-down charge recorded in the third quarter of 2008 associated with our business realignment.
The 2007 increase in depreciation and amortization expense, as compared to 2006, was mainly due to $38.3 million in incremental depreciation and amortization expense related to our acquisition of TALX. The remainder of the increase is primarily due to higher depreciation expense related to increased capital expenditures in 2007, including the purchase of our data center facility in Atlanta, Georgia in July 2007, and higher intangible amortization expense related to our acquisitions of Austin-Tetra in October 2006 and of three mortgage affiliates in the first quarter of 2007.
For additional information about the charges and fees related to our business realignment, see Note 10 of the Notes to the Consolidated Financial Statements in this Form 10-K.
Operating
Income and
Operating
Margin Twelve Months Ended December 31, Change
2008 vs. 2007 2007 vs. 2006
(Dollars in
millions) 2008 2007 2006 $ % $ %
Consolidated
operating
revenue $ 1,935.7 $ 1,843.0 $ 1,546.3 $ 92.7 5 % $ 296.7 19 %
Consolidated
operating
expenses (1,458.5 ) (1,356.8 ) (1,110.2 ) (101.7 ) 8 % (246.6 ) 22 %
Consolidated
operating
income $ 477.2 $ 486.2 $ 436.1 $ (9.0 ) (2 )% $ 50.1 11 %
Consolidated
operating
margin 24.7 % 26.4 % 28.2 % (1.7 ) pts (1.8 ) pts
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The decline in the operating margin for 2008, as compared to 2007, mainly reflects higher acquisition-related amortization expense, which increased $20.9 million primarily due to our acquisition of TALX; the increase in general corporate expense, which includes the $16.8 million restructuring and asset write-down charges related to our business realignment recorded in the third quarter of 2008; and the decrease in operating margin for our USCIS business, as described in more detail below.
The 2007 decline in operating margin, as compared to 2006, was primarily due to a decline in the margins of our USCIS business unit and the impact of acquisition-related amortization expense from our acquisition of TALX. This amortization expense represented 2% of 2007 consolidated revenue.
Other Expense, Net
Other Expense,
Net Twelve Months Ended December 31, Change
2008 vs. 2007 2007 vs. 2006
(Dollars in
millions) 2008 2007 2006 $ % $ %
Consolidated
interest expense $ 71.3 $ 58.5 $ 31.9 $ 12.8 22 % $ 26.6 83 %
Consolidated
minority
interests in
earnings, net of
tax 6.2 6.1 4.5 0.1 2 % 1.6 36 %
Consolidated
other income, net (6.2 ) (3.0 ) (16.2 ) (3.2 ) 106 % 13.2 (81 )%
Consolidated
other expense,
net $ 71.3 $ 61.6 $ 20.2 $ 9.7 16 % $ 41.4 205 %
Annual average
cost of debt 5.3 % 6.1 % 5.7 %
Total
consolidated
debt, net $ 1,219.3 $ 1,387.3 $ 503.9 $ (168.0 ) (12 )% $ 883.4 175 %
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The increases in other expense, net, for 2008 and 2007 as compared to the prior periods, were primarily due to increased interest expense driven by a higher level of debt which was used to fund the acquisition of TALX in 2007 and our share repurchase activity in both years. For additional information about our debt agreements, see Note 4 of the Notes to the Consolidated Financial Statements in this Form 10-K.
Other income, net, in 2008 includes a $5.5 million gain on our repurchase of $20 million principal amount of ten-year senior notes due 2017. The decrease in other income, net, in 2007 over 2006 was primarily due to the $14.1 million non-taxable gain recognized during 2006 in connection with our Naviant litigation settlement.
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Income Taxes
Provision for
Income Taxes Twelve Months Ended December 31, Change
2008 vs. 2007 2007 vs. 2006
(Dollars in
millions) 2008 2007 2006 $ % $ %
Consolidated
provision for
income taxes $ 133.1 $ 151.9 $ 141.4 $ (18.8 ) (12 )% $ 10.5 7 %
Effective income
tax rate 32.8 % 35.8 % 34.0 %
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Our effective income tax rate for 2008 was down from 2007, primarily due to the recognition of a $14.6 million income tax benefit related to uncertain tax positions associated with our Brazilian operations, for which the statute of limitations expired during the third quarter of 2008.
The 2007 increase in our effective income tax rate, as compared to 2006, was primarily due to changes in several tax reserves in 2006 that did not recur in 2007. This increase was partially offset by a lower foreign and state tax rate compared to 2006; a favorable second quarter 2007 discrete item related to our foreign tax credit utilization; and discrete items recorded during fourth quarter 2007, including a $2.9 million benefit for refunds related to our 2002 and 2003 U.S. federal income tax filings.
Net Income Net Income Twelve Months Ended December 31, Change (Dollars in 2008 vs. 2007 2007 vs. 2006 millions, except per share amounts) 2008 2007 2006 $ % $ % Consolidated net income $ 272.8 $ 272.7 $ 274.5 $ 0.1 0 % $ (1.8 ) (1 )% Diluted earnings per common share $ 2.09 $ 2.02 $ 2.12 $ 0.07 4 % $ (0.10 ) (5 )% Weighted-average shares used in computing diluted earnings per share, in millions 130.4 135.1 129.4 |
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