Equifax 2003 Annual Report Download - page 62

NOTES TO CONSOLIDATED FINANCIAL STATEM ENTS
EQUIFAX. INFORMATION THAT EMPOWERS. 59
stock. Employees may sell their stock, including shares contributed
as the Company match, at any time. Expense for these plans was
$3.1 million in 2003, $3.0 million in 2002, and $2.5 million in 2001.
11. COM M ITM ENTS AND CONTINGENCIES
Leases Our operating leases involve principally office space and
office equipment. Under the terms of the operating lease for our
headquarters building in Atlanta, Georgia, which commenced in
1998, we have guaranteed a portion of the residual value of the
building at the end of the lease in 2010. The maximum exposure
under the guarantee is approximately $23.2 million. We believe
that the fair market value of this property exceeds the amount of
the guarantee.
Rental expense related to our operating leases was $18.0 million in
2003, $22.0 million in 2002, and $23.8 million in 2001. Our headquar-
ters building operating lease has ground purchase options exercis-
able beginning in 2019, ground renewal options exercisable in 2048,
and escalation clauses of $50,000 beginning in 2009. Our technology
center in Alpharetta, Georgia, has rent escalations of approximately
$4.0 million over the next five years, termination options exercisable
beginning in 2003, and renewal options through 2039. Future mini-
mum payment obligations for noncancellable operating leases
exceeding one year are as follows as of December 31, 2003:
(In millions) Amount
2004 $17.4
2005 9.7
2006 5.4
2007 4.8
2008 7.1
Thereafter 51.8
$96.2
Data Processing and Outsourcing Services Agreements
We have separate agreements with IBM , Polk/Axciom, Seisint Inc.,
Xerox Connect, Inc., and Jones-Lang LaSalle with which we out-
source portions of our computer data processing operations and
related functions, and certain administrative functions. The agree-
ments expire between 2004 and 2013. The estimated aggregate
minimal contractual obligation remaining under these agreements
is $325.0 million as of December 31, 2003, with no future year
expected to exceed $56.3 million. Annual payment obligations in
regard to these agreements vary due to factors such as the volume
of data processed; changes in our servicing needs as a result of
new product offerings, acquisitions or divestitures, the introduction
of significant new technologies; or the general rate of inflation.
Our data processing outsourcing agreement with IBM was renego-
tiated in 2003 and now has a ten-year term. Under this agreement
(which covers our operations in North America, the United Kingdom,
Ireland, and Spain), we have outsourced our mainframe and mid-
range operations, help service and desktop support functions, and
the operation of our voice and data networks. During 2003 we paid
$81.1 million for these services, which included nonrecurring
transitional costs in regard to implementing the new outsourcing
agreement. The estimated future minimum contractual obligations
under this agreement is $272.8 million, with no year expected to
exceed $40.4 million. In certain circumstances (e.g., a change in
control, or for our convenience), we may terminate these data
processing and outsourcing agreements, and, in doing so, certain
of these agreements require us to pay a significant penalty.
Agreement w ith Computer Sciences Corporation We have
an agreement with Computer Sciences Corporation and certain of
its affiliates, collectively, CSC, under which CSC-owned credit
reporting agencies utilize our computerized credit database ser-
vices. CSC retains ownership of its credit files and the revenues
generated by its credit reporting activity. We receive a processing
fee for maintaining the database and for each report supplied. The
agreement was renewed by CSC for a ten-year period beginning
August 1, 1998. The agreement provides us with an option to
purchase CSC’s credit reporting business if CSC does not elect to
renew the agreement or if there is a change in control of CSC while
the agreement is in effect. Under the agreement CSC also has an
option, exercisable at any time, to sell its credit reporting business
to us. The option expires in 2013. The option exercise price will be
determined by a third-party appraisal process and would be due in
cash within 180 days after the exercise of the option. We estimate
that if the option were exercised at this time, the price range would
approximate $650.0–$700.0 million. This estimate is based solely
on our internal analysis of the value of the businesses, current
market conditions, and other factors, all of which are subject to
constant change. Therefore, the actual option exercise price could
be materially higher or lower than the estimated amount. If CSC
were to exercise its option, we would have to obtain additional
sources of funding. We believe that this funding would be available
from sources such as additional bank lines of credit and the
issuance of public debt and/or equity. However, the availability and
terms of any such capital financing would be subject to a number of
factors, including credit market conditions, the state of the equity
markets, general economic conditions, and our financial perform-
ance and condition. See the “ Risk Factors” section of the “Manage-
ment’s Discussion and Analysis” included in our annual report on
Form 10-K for the year ended December 31, 2003.
Change in Control Agreements We have agreements with
some of our key officers which provide certain severance pay and
benefits in the event of a termination of the officer’s employment
under certain circumstances following a “change in control.”
“Change in control” is defined as the accumulation by any person,
entity, or group of 20% or more of the combined voting power of