Equifax 2006 Annual Report Download - page 86

RECONCILIATION RELATED TO NON-GAAP
FINANCIAL MEASURES
Twelve Months Ended
December 31,
2006 2005
Diluted earnings per share (GAAP) $ 2.12 $ 1.86
Charge related to organizational realignment 0.03 –
Litigation settlement (0.11) –
Loss contingencies 0.04 –
Income tax benefi t (0.07) –
Diluted earnings per share, adjusted for certain items (Non-GAAP) $ 2.01 $ 1.86
84 EQUIFAX 2006 ANNUAL REPORT
Notes to the Reconciliation of a Non-GAAP Financial
Measure to the Comparable GAAP Financial Measure
A disclosure prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) contained within
this annual report, diluted earnings per share, is supplemented
by a disclosure that is not prepared in conformity with GAAP.
This non-GAAP fi nancial disclosure, detailed in the preceding
reconciliation, excludes certain items from the nearest equiv-
alent GAAP presentation. We believe that an understanding
of this non-GAAP measure is required for a meaningful
analysis of our fi nancial performance.
Diluted Earnings per Share, Excluding Certain Items –
We have presented a fi nancial measure with the following
non-GAAP adjustments:
Organizational Realignment – During the fourth quarter of
2006, we recorded a $6.4 million severance charge related
to our organizational realignment. Management believes
excluding this charge from certain fi nancial results provides
meaningful supplemental information regarding our fi nancial
results for the three and twelve months ended December 31,
2006, as compared to the same periods in 2005 since a charge
of such a material amount during the periods is not compa-
rable to similar activity in the prior periods presented. This is
consistent with how our management reviews and assesses
Equifax’s historical performance and is useful when planning,
forecasting and analyzing future periods.
Litigation Settlement – In June 2006, we consummated a
settlement of claims against certain former selling share-
holders of Naviant, Inc. In 2004, we served a demand for
arbitration alleging, among other things, that the sellers were
liable for rescission or for indemnification as a result of
breaches of various representations and warranties concern-
ing information furnished to us in connection with our
acquisition of Naviant, Inc. in 2002. As a result of this
settlement, we recognized a $14.1 million non-taxable gain
in other income, net, on our Consolidated Statements of
Income for the twelve months ended December 31, 2006.
Management believes excluding this litigation settlement
from certain fi nancial results provides meaningful supple-
mental information regarding our fi nancial results for the
twelve months ended December 31, 2006, as compared to the
same period in 2005 since the gain related to the litigation
settlement associated with our previous acquisition of Naviant,
Inc. is material and is not refl ective of our core operations.
This is consistent with how our management reviews and
assesses Equifax’s historical performance and is useful when
planning, forecasting and analyzing future periods.
Loss Contingencies – During the fi rst nine months of 2006,
we recorded a $5.0 million, pretax, loss contingency related
to certain legal matters. Of this $5.0 million, pretax loss,
$4.0 million was recognized in selling, general and admin-
istrative expenses and $1.0 million was recognized in cost
of services on our Consolidated Statements of Income. This
loss is included within our Personal Solutions segment
fi nancial results.
During the third quarter of 2006, we also recorded a
$4.0 million, pretax, loss associated with certain litigation
matters within our North America Information Services
segment. Of this $4.0 million, pretax loss, $3.5 million was
recognized in selling, general and administrative expenses,
and $0.5 million was recognized in cost of services on our
Consolidated Statements of Income.
Management believes excluding these litigation matters
from certain fi nancial results provides meaningful supplemen-
tal information regarding our fi nancial results for the twelve
months ended December 31, 2006, as compared to the same
periods in 2005 since the litigation loss contingencies and
related reversal of such a material amount during the periods
is not comparable to similar activity in the prior periods pre-
sented. This is consistent with how our management reviews
and assesses Equifax’s historical performance and is useful
when planning, forecasting and analyzing future periods.
Income Tax Benefi t – During the third quarter of 2006, the
applicable statute of limitations related to uncertain tax
positions expired, resulting in the reversal of the related
income tax reserve. The reversal of the reserves resulted
in a $9.5 million income tax benefit. The income tax
benefit was recorded in provision for income taxes on
our Consolidated Statements of Income for the twelve
months ended December 31, 2006.
Management believes excluding this income tax benefi t
from certain fi nancial results provides meaningful supplemen-
tal information regarding our fi nancial results for the twelve
months ended December 31, 2006, as compared to the same
period in 2005 since an income tax benefi t of such a material
amount is not comparable to similar activity in the prior period
presented. This is consistent with how our management
reviews and assesses Equifax’s historical performance and is
useful when planning, forecasting and analyzing future periods.
This non-GAAP fi nancial measure is not a measurement of
fi nancial performance under GAAP and should not be consid-
ered as an alternative to net income, operating income, operat-
ing margin or earnings per share and may not be comparable
to non-GAAP fi nancial measures used by other companies.