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Equifax 2005 Annual Report
Table of contents
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Page 1
... 73639576110293792645993275194736225384273639576110293792645993275194736 26459932751947362253842736395761102937926459932751947362253842736395761 26459932751947362253842736395761102937926459932751947362253842736395761 2005 Annual Report Seven Ways To Recognize -
Page 2
... Utilizing our databases, advanced analytics and proprietary enabling technology, we provide real-time answers for our customers. This innovative ability to transform information into intelligence is valued by customers across a wide range of industries and markets. Headquartered in Atlanta, Georgia... -
Page 3
... 9846501206759034967501498210468205485757624300116263619846501206759034967501498210468205485757624 Seven Ways To Recognize A Great Information Technology Company Seven Ways To Recognize Seven Ways To Recognize -
Page 4
... 264599327519473622538427363957611029379264599327519473622538427363957611029379264599 264599327519473622538427363957611029379264599327519473622538427363957611029379264599 It Thinks Innovation And... Seven Ways To Recognize A Great Information Technology Company -
Page 5
...all three major credit reporting companies using a single monitoring service? Our Personal Solutions Group answered "yes" and then introduced Equifax Credit Watchâ„¢ Gold with 3-in-1 Monitoring last year. To date, hundreds of thousands of new subscribers have purchased this identity theft protection... -
Page 6
... BeNOW, Inc. into Equifax Marketing Services growth opportunity for our Personal Solutions 2645993275194736225384273639576110293792645993275194 enabled us to expand our marketing solutions offerings to help companies better acquire, manage and grow customer relationships. Another way in which we... -
Page 7
... to customers require 24/7, fail-safe technology 4736225384273639576110293792645993275194736225384273 4736225384273639576110293792645993275194736225384273 solutions - Equifax delivers these in5761102937926459932751947362253842736395761102937926 real time. improve the quality of their customer data... -
Page 8
... Businesses in every developed economy share mation technology services in Canada, the 792645993275194736225384273639576110293792645993275194736225384273639 029379264599327519473622538427363957611029379264599327519473622538427 common needs. Granting credit. Making loans. United Kingdom, Spain... -
Page 9
...assist them in verifying the identity of passport applicants to ensure they are only issued to bona ï¬de candidates. One way we will evaluate international expansion opportunities is by analyzing how well our past successes can work in new markets. In Latin America, for instance, working with local... -
Page 10
... 7570120675903496750149821 EQU I FAX 2 0 0 5 AN N UAL R E P ORT 8 0468205485757012067590349 6750149821046820548575701 It Has Great Fundamentals. 1.5 Revenue ($ in millions) 1.2 0.9 0.6 0.3 0.0 12 18 24 30 Seven Ways To Recognize A Great Information Technology Company 0 6 -
Page 11
SEVEN WAYS TO R ECO GNIZE A GREAT INFORMATION TECHNOLO GY COMPANY Strong Cash Flow High operating leverage generates substantial levels of cash ï¬,ow from operations. We utilize this cash to reinvest in the business, either through product and technology innovation or strategic acquisitions and ... -
Page 12
... good credit because their "My bank customers are eager to grow 937926459932751947362253842736395761102937926459932751947362253842736395761102937 473622538427363957611029379264599327519473622538427363957611029379264599327519473 credit information is used in decisions their small-business customer... -
Page 13
...to help businesses minimize risk and increase proï¬tability. Ranging from off-the-shelf decisioning products to customized platforms, our Enabling Technologies is a gamechanger for us and our customers." Anne Doherty Marketing Services, Sales Kim Farley North American Information Services, Sales... -
Page 14
...Trades...Company's leadership in 57611029379264599327519473622538427363957611029379264 57611029379264599327519473622538427363957611029379264 information technology... 10 0 2005 Dow Jones Industrial Average NASDAQ S&P 500 Equifax Seven Ways To R A Great Information Tech EQU I FAX 2 0 ... -
Page 15
... in Canada, revenue grew 12 percent to a record level. Marketing Services delivered its best performance in ï¬ve years, driven by new leadership and new products. Personal Solutions continued its strong growth, increasing revenue 19 percent to $115 million. Rick Smith Chairman and Chief Executive... -
Page 16
..., Equifax annual billings are growing rapidly, and sales for some accounts often double within a few years. Innovation Capitalizes On Growth Markets The success of Enabling Technologies underscores the innovative thinking within Equifax that leads to new growth opportunities through the development... -
Page 17
... than doubling annual revenue in 2005. Personal Solutions is another area where innovation is occurring in a dynamic growth market. We estimate the current market for direct-to-consumer products is $1 billion and growing. We continue to invest in this opportunity with products such as subscription... -
Page 18
QA -
Page 19
... it knows how to grow. My job is to accelerate the pace. Rick Smith Chairman and Chief Executive Officer A Conversation with Rick Smith How will further development of the Equifax technological competencies impact capital investment? The Equifax business model is a strong one that historically has... -
Page 20
... senior management positions in business development, risk management services, sales and globalizing North American products and services in Latin America. Prior to joining Equifax, he was Senior Credit Officer, Retailer Financial Services of the GE Capital Corporation. Rick฀Smith Jeff฀Dodge... -
Page 21
... in the customer service area and held key sales positions, including Regional Vice President, until 1992. At that time, she moved into the human resources area of the Company. As Chief Administrative Officer, she currently is responsible for human resources, community affairs, corporate security... -
Page 22
... of three operating segments: Information Services, Marketing Services and Personal Solutions. Equifax Europe includes operations in the United Kingdom, the Republic of Ireland (production and call center operations only), Spain and Portugal. Equifax Latin America includes operations in Argentina... -
Page 23
...auto or home equity loan. Continuous score monitoring can help subscribers learn about factors affecting interest rates and costs. Equifax Credit Watchâ„¢ Gold This subscription-based, credit monitoring identity protection service sends you email notiï¬cations within 24 hours of key inquiries or... -
Page 24
America Commercial Solutions Equifax offers a unique and comprehensive suite of commercial services delivered through our enabling technology platforms, and focused on credit risk assessment and decisioning solutions. Services include business credit reports, credit scores and portfolio analytics... -
Page 25
..., proprietary enabling technology for the Latin American market. The software provides customized, automated decisioning and scoring applications to meet the needs of banks, telecommunications companies and small and medium-sized enterprises. Portfolio Management Marketing Services Launched in... -
Page 26
... - Americas of GE Global Insurance Holdings Corporation from 2001 to 2003. Prior to that, President and Chief Executive Officer, GE Capital Modular Space from 1995 to 2000. Garry Betty Director since 2005. President, Chief Executive Officer and a director of EarthLink, Inc., an Internet service... -
Page 27
2005 Management's Discussion and Analysis of Financial Condition and Results of Operations Selected Financial Data Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting Fi na nci a l Re v... -
Page 28
...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... -
Page 29
... 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... -
Page 30
... in our North America and Latin America business units. RESULTS OF OPERATIONS - TWELVE MONTHS ENDED DECEMBER 31, 2005 AND 2004 to our Chief Executive Officer ("CEO") transition as well as increased year-over-year expenses related to our annual incentive program based on our 2005 ï¬nancial results... -
Page 31
...) 2005 % of Revenue 2004 % of Revenue $ Change % Change North America Revenue U.S. Consumer and Commercial Services Mortgage Services Canadian Operations Total North America Information Services Credit Marketing Services Direct Marketing Services Total Marketing Services Personal Solutions... -
Page 32
...) 2005 % of Revenue 2004 % of Revenue $ Change % Change North America Revenue U.S. Consumer and Commercial Services Mortgage Services Canadian Operations Total North America Information Services Credit Marketing Services Direct Marketing Services Total Marketing Services Personal Solutions... -
Page 33
..., 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 ï¬,uctuation against the U.S. dollar unfavorably impacted... -
Page 34
... 5% % Change (in millions) 2004 Operating Income (Loss) North America Information Services Marketing Services Marketing Services asset impairment & related charges Marketing Services, net Personal Solutions Europe Latin America General Corporate Expense $ 299.5 74.4 (2.4) 72.0 17.6 389.1 30.0 17... -
Page 35
... % of Revenue $ Change % Change North America Revenue U.S. Consumer and Commercial Services Mortgage Services Canadian Operations Total North America Information Services Credit Marketing Services Direct Marketing Services Total Marketing Services Personal Solutions $ 532.6 75.5 99.0 707.1 139... -
Page 36
... 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 re... -
Page 37
... 2003, we acquired consumer credit ï¬les, 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... -
Page 38
... 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... -
Page 39
...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...on our Atlanta corporate headquarters building in order to obtain favorable ï¬nancing terms with ... -
Page 40
...primarily a function of salary and years of service. On January 1, 2005, we separated the USRIP into two deï¬ned beneï¬t 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... -
Page 41
... 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-qualiï¬ed retirement plans, we fund at least the amounts... -
Page 42
... 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... -
Page 43
... 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 ï¬,ows from our reporting units to determine whether the reporting unit's estimated fair value exceeds... -
Page 44
... 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... -
Page 45
...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. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET... -
Page 46
... 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... -
Page 47
... Data: Total assets Long-term debt Total debt Shareholders' equity Common shares outstanding Other Information: Stock price per share Market capitalization Employees - continuing operations (1) For information about acquisition activity during certain periods presented in the table above, see Note... -
Page 48
... 2005, Equifax maintained effective internal control over ï¬nancial reporting. Ernst & Young LLP, an independent registered public accounting ï¬rm, who audited and reported on the consolidated ï¬nancial statements of Equifax included in this report, has issued an attestation report on management... -
Page 49
... 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 ï¬nancial reporting as of December 31, 2005 is fairly stated, in all material... -
Page 50
... period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. 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 ï¬nancial reporting... -
Page 51
... Statements of Income Twelve Months Ended December 31, (in millions, except per share amounts) 2005 $1,443.4 2004 $1,272.8 2003 $1,210.7 Operating revenue Operating expenses: Cost of services (exclusive of depreciation and amortization expense below) Selling, general and administrative expenses... -
Page 52
... cash equivalents Trade accounts receivable, net of allowance for doubtful accounts of $9.6 in 2005 and $9.3 in 2004 Deferred income tax assets, net Prepaid expenses Other current assets Total current assets Property and Equipment: Capitalized internal-use software and system costs Data processing... -
Page 53
... revolving credit facilities Payments on long-term debt Treasury stock purchases Dividends paid Proceeds from exercise of stock options Other Cash used in ï¬nancing activities Effect of foreign currency exchange rates on cash and cash equivalents Cash provided by discontinued operations (see Note... -
Page 54
... Shares issued under beneï¬ts plans Treasury stock issued for an acquisition Other treasury stock purchases (1) Treasury stock purchased under share repurchase program Cash dividends ($0.15 per share) Income tax beneï¬t from stock plans Dividends from employee beneï¬ts Balance, December 31, 2005... -
Page 55
...as follows: Twelve Months Ended December 31, (in millions) 2005 $246.5 8.1 - 0.8 100.3 $355.7 See Notes to Consolidated Financial ...sale of discontinued operations Change in cumulative loss from cash ï¬,ow hedging transactions Minimum pension liability adjustment Comprehensive income EQU I FAX... -
Page 56
... various types of ï¬nancial, demographic and marketing information. Our products and services enable businesses to make credit and service decisions, manage their portfolio risk and develop marketing strategies concerning consumers and commercial enterprises. We serve customers across a wide range... -
Page 57
...: personnel costs to collect, maintain and update our proprietary databases, to develop and maintain software application platforms and to provide consumer and customer call center support; (3) hardware and software expense associated with transaction processing systems; (4) telecommunication and... -
Page 58
... expense related to capitalized internal-use software and system costs totaled $21.2 million, $21.9 million and $28.2 million during the twelve months ended December 31, 2005, 2004 and 2003, respectively. In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets... -
Page 59
...: Information Services, Marketing Services, Personal Solutions, Europe and Latin America. Contractual/territorial rights represent the estimated fair value of rights to operate in certain territories acquired through the purchase of independent credit reporting agencies in the U.S. and Canada... -
Page 60
... plans under the fair value method prescribed by SFAS No. 123, as amended by SFAS No. 148, utilizing the assumptions in the table above: Twelve Months Ended December 31, (in millions, except per share data) Net income, as reported Add: Total stock-based employee compensation expense, net of related... -
Page 61
... cash and cash equivalents, accounts and notes receivable, accounts payable and short-term and long-term debt. The carrying amounts of these items, other than long-term debt, approximate their fair market values due to the short-term nature of these instruments. As of December 31, 2005 and 2004, the... -
Page 62
... credit facility. To enhance our Marketing Services business and add to our enabling technology capabilities, on August 29, 2005, we acquired BeNow Inc. ("BeNow"), a provider of leading edge solutions to multi-channel marketers. BeNow combines database management and analytics to support customer... -
Page 63
... twelve months ended December 31, 2005 and 2004, are as follows: (in millions) 3. Information Marketing Services Services Personal Solutions European Operations Latin American Operations Corporate Total Balance, December 31, 2003 Acquisitions Adjustments to initial purchase price allocation... -
Page 64
... 2028 150.0 Notes, 6.3%, due July 2005 - Trade receivables-backed revolving credit facility, weighted-average rate of 3.9% in 2005 88.0 Borrowings under U.S. revolving credit facilities, weighted-average rate of 4.1% in 2005 65.0 Other 4.4 Total debt Less short-term debt and current maturities Less... -
Page 65
... 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... -
Page 66
... U.K., Ireland, Spain, Brazil and Chile), we have outsourced our mainframe and midrange operations, help desk service and desktop support functions and the operation of our voice and data networks. The scope of such services varies by location. During the twelve months ended December 31, 2005, 2004... -
Page 67
... 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... -
Page 68
... limit our ability to service our indebtedness, meet our current obligations or pay dividends. Contingencies. We are involved in legal proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our exposure related to these matters based on the information... -
Page 69
... graded periods of up to three years based on service and expire ten years from the grant date. Certain of the plans also provide for awards of nonvested shares of our common stock that can be granted to executive officers, employees and directors. At December 31, 2005, there were 1.9 million shares... -
Page 70
...following table summarizes information about nonvested stock grants during the twelve months ended December 31, 2005, 2004 and 2003: Year 2005 Grants Cancellations 2004 Grants Cancellations 2003 Grants Cancellations Number of Shares 289,942 15,000 486,500 6,500 103,000 110,000 Average Fair Value $32... -
Page 71
...primarily a function of salary and years of service. On January 1, 2005, we separated the USRIP into two deï¬ned beneï¬t 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... -
Page 72
...ï¬t plans for eligible retired employees. Substantially all of our U.S. employees may become eligible for the health care beneï¬ts if they reach retirement age while working for us and satisfy certain years of service requirements. The retiree life insurance program was frozen to new participants... -
Page 73
... cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized actuarial loss Total net periodic beneï¬t cost (income) Weighted-Average Assumptions. Pension Beneï¬ts 2005 Weighted-average assumption to determine beneï¬t obligations at December 31, Discount... -
Page 74
... 28% subsidy for post-age 65 drug coverage as an offset to healthcare plan costs. The reduction in obligations due to the subsidy is reï¬,ected as an unrecognized net gain to the plan. The gain was reï¬,ected in net periodic beneï¬t cost for the ï¬rst time in 2004. For current and future retirees... -
Page 75
...short sales and the use of margin accounts, (4) put and call options, (5) private placements and (6) transactions which are "party related" in nature as speciï¬ed by the Canadian Pension Beneï¬ts Standards Act and its regulations. The plan's manager derives its investment return projections using... -
Page 76
...2004, Equifax, through its wholly-owned subsidiary CD Holdings, Inc. ("CD Holdings"), completed the sale of 3,755,792 shares of common stock it owned in Intersections Inc., a provider of identity theft protection and credit management services, in an underwritten public offering of common stock for... -
Page 77
... operations. 12. RELATED PARTY TRANSACTIONS • SunTrust extends ï¬nancing in the form of an amortizing term loan to a leveraged real estate limited partnership, which owns our Atlanta data center located in Alpharetta, Georgia where we are the primary operating lease tenant. An unrelated bank... -
Page 78
... in Europe's reported segment results. Latin America. Information Services, which includes consumer and commercial services (such as credit and ï¬nancial information, credit scoring and credit modeling services), Credit Marketing Services and Personal Solutions. Segment information for 2005, 2004... -
Page 79
....0) 523.4 0.2 $ 523.6 2005 2004 2003 Operating Income (Loss) North America Information Services $345.5 Marketing Services 85.2 Marketing Services restructuring and impairment charges - Marketing Services, net Personal Solutions North America Europe Latin America General Corporate Expense 85.2 13... -
Page 80
... Twelve Months Ended December 31, 2005 (in millions) 2004 % 73% 8% 9% 5% 5% Amount $ 940.3 99.0 124.3 47.3 61.9 $1,272.8 % 74% 8% 10% 4% 5% 100%* Amount $ 924.1 90.9 101.6 45.9 48.2 $1,210.7 2003 % 76% 8% 8% 4% 4% 100% Amount Operating Revenue (based on location of customer) U.S. $1,063.9 Canada... -
Page 81
... weighted average shares outstanding between periods. The comparability of our quarterly ï¬nancial results during 2005 and 2004 were impacted by certain events, as follows: • In May 2004, we recorded a gain related to the sale of our investment in Intersections. For additional information about... -
Page 82
... activities Less additions to property and equipment and other assets Free cash ï¬,ow Twelve Months Ended December 31, 2005 North America Information Services U.S. Commercial and Consumer Services Mortgage Services (in millions) Consolidated Reconciliation of operating revenue to operating... -
Page 83
... and Commercial, Mortgage Services, Information Services and Personal Solutions businesses. Our management believes that excluding the impact of the FACT Act provides a useful perspective on changes in the basic underlying operations of these businesses and our company as a whole, and is a key... -
Page 84
... Dodge [email protected] Public Relations David M. Rubinger [email protected] Transfer Agent And Registrar SunTrust Bank Stock Transfer Department P.O. Box 4625 Atlanta, Georgia 30302 Telephone (800) 568-3476 Independent Registered Public Accounting Firm Ernst & Young LLP 600 Peachtree Street Suite... -
Page 85
... requests for ï¬nancial information may be directed by phone to (404) 885-8000; in writing to P.O. Box 4081, Atlanta, Georgia 30302; or by email to [email protected]. Requests may be faxed to (404) 885-8988. Shareholders may obtain a copy of our 2005 Annual Report on Form 10-K, without charge... -
Page 86
Equifax Inc. 1550 Peachtree Street, N.W. Atlanta, GA 30309 www.equifax.com