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Game Changers
06
ANNUAL REPORT

Table of contents

  • Page 1
    Game Changers 06 ANNUAL REPORT

  • Page 2
    ... consumers to manage their personal credit information, protect their identity, and maximize their financial well-being. Headquartered in Atlanta, Georgia, Equifax Inc. employs approximately 5,000 people in 14 countries throughout North America, Latin America and Europe. Equifax is a member...

  • Page 3
    ...to customers and creating shareholder value. Today, we are deploying new Game Changers across all of our businesses to drive higher levels of performance. As we do so, Equifax becomes the Game Changer as a company, as an industry leader and as a winner in the marketplace. EQUIFAX 2006 ANNUAL REPORT...

  • Page 4
    ...We are transforming data into intelligence. Game Changer: Enabling Technology Technology, analytics and data combine to provide customers with real-time decisioning solutions. Proprietary technology makes Equifax an integral part of a customer's business operation and growth. The customer grows. We...

  • Page 5
    EQUIFAX 2006 ANNUAL REPORT 3

  • Page 6
    ... consumers purchase identity theft and credit monitoring products. By providing solutions targeted to these different consumer needs, we are generating more recurring revenue in the fast-growing personal solutions market. For Equifax and consumers, it's a win-win game. 4 EQUIFAX 2006 ANNUAL REPORT

  • Page 7
    ... ensuring a disciplined, systematic and rapid process to turn new ideas into new products. These products can generate incremental revenues as well as capabilities that we can leverage into new geographies and new vertical markets. It is a game we play well. EQUIFAX 2006 ANNUAL REPORT 5

  • Page 8
    ... of innovation within Equifax - one of the reasons Equifax was in the top 25 companies named to the InformationWeek 500, a prestigious listing of the nation's largest and most innovative providers of information technology. Accel: making a fast-paced game even faster. 6 EQUIFAX 2006 ANNUAL REPORT

  • Page 9
    EQUIFAX 2006 ANNUAL REPORT 7

  • Page 10
    ... analytic models, we mine data to generate new intelligence for customer decisions. This new intelligence fulfills customer decisioning needs and improves portfolio strategies. The result is the opportunity for our customers to offer more products to more of their consumer and business customers...

  • Page 11
    ...about America's small businesses. With this foundation, we are moving aggressively in the multi-billion-dollar global commercial information arena through the formation of North America Commercial Solutions. We are the player whose unique strength is changing the game. EQUIFAX 2006 ANNUAL REPORT 9

  • Page 12
    Because: We are exporting our expertise and technology into global markets. BUENOS AIRES, ARGENTINA 10 EQUIFAX 2006 ANNUAL REPORT

  • Page 13
    ... our predictive sciences and enabling technologies, we see the opportunity for growth as significant, but one that we are approaching with disciplined and well-crafted strategies. Equifax expertise and technology: Game Changers that work on a global playing field. EQUIFAX 2006 ANNUAL REPORT 11

  • Page 14
    ... years in Equifax's 108-year history. Our Company developed a powerful strategic plan for future growth. We created a new vision and a new set of values to guide that growth. We realigned the organization to better execute our strategic plan and to make our culture more customer-centric. Throughout...

  • Page 15
    ... in 2007. Marketing also works closely with the businesses to acquire new data sources, enter new geographic markets, expand into new industry verticals, develop customer segmentation strategies and create initiatives to expand current market share. In addition, this Center of Excellence includes...

  • Page 16
    ... in 2006. Our game-changing structure, which was effective January 1, 2007, is built around four distinct market-facing business units: U.S. Consumer Information Solutions, International, North America Commercial Solutions and North America Personal Solutions. These four businesses are supported by...

  • Page 17
    ...our commercial services. Their product, the A-T Number® is based on proprietary technology and a data-match verification process that allows our customers to see linkage among related businesses. We are approaching the commercial market with clear competitive strengths. EQUIFAX 2006 ANNUAL REPORT...

  • Page 18
    .... We have built a $125 million business with commercial offerings in North America, Europe and Latin America. Our goal is to more than double this over the next four years. This represents a significant growth opportunity for Equifax. Customers want more information and newer technologies to make...

  • Page 19
    ... of our value is reï¬,ected in our stock performance. I believe investors see a successful, proven company that is truly taking its game to a new level. A solid plan acknowledges, identifies and mitigates risks. That's why we've developed an Enterprise Risk Management (ERM) system to continually...

  • Page 20
    ... and new revenue streams for us. And, for customers, it increases operational efficiency and empowers front-line employees to make better risk and marketing decisions through application processing, loan origination, credit risk management and cross-sell solutions. The result is more profitable...

  • Page 21
    ...our consumer touch points - call centers, website, advertising and marketing partnerships - will change our game to ensure continued solid growth for Personal Solutions. How We Are In North America Personal Solutions Ste v e Ely Pre s i d e nt North America Personal Solutions EQUIFAX 2006 ANNUAL...

  • Page 22
    ..., in Latin America, we offer our customers unique data, introduce new products, utilize indirect distribution channels to penetrate new markets and offer value-added solutions to gain pricing strength. In Europe, where the economy has rebounded, our business is once again growing top-line revenue...

  • Page 23
    ... of information about 30 million businesses around the globe, as well as proprietary technology. This technology links data records to build corporate family structures for enterprise Michael Shannon Pre s i d e nt North America Commercial Solutions visibility of customers and suppliers for...

  • Page 24
    ... President, Chief Information Officer 4. Coretha Rushing Corporate Vice President, Chief Administrative Officer 5. Michael Shannon President, North America Commercial Solutions 6. Kent Mast Corporate Vice President, Chief Legal Officer 7. Dann Adams President, U.S. Consumer Information Solutions...

  • Page 25
    3, 4 5, 6, 7 11 12 EQUIFAX 2006 ANNUAL REPORT 23

  • Page 26
    ... 2006. Executive Vice President and Chief Financial Officer and a director of The Thomson Corporation, a provider of integrated information solutions, since 1998. He is a member of Fordham University's President's Council and the Advisory Board of Rutgers University's Prudential Center for Business...

  • Page 27
    ... (Loss) Notes to Consolidated Financial Statements Reconciliation Related to Non-GAAP Financial Measures Stock Price Performance Graph Board of Directors, Corporate Officers and Contacts Shareholder Information 52 54 84 85 86 Inside Back Cover 47 48 49 50 51 46 26 45 EQUIFAX 2006 ANNUAL REPORT 25

  • Page 28
    ... 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...

  • Page 29
    ... our former commercial business for the U.S. and Canada that was within North America Information Services as well as our October 2006 acquisition of Austin-Tetra. International consists of Canada (the consumer business), Europe and Latin America. North America Personal Solutions remains unchanged...

  • Page 30
    ... Officer's ("CAO") decisions to retire during the twelve months ended December 31, 2006; higher salary expenses due to increased headcount; and increased professional fees. These increases were partially offset by higher salary and incentive costs in the twelve months ended December 31, 2005 related...

  • Page 31
    ... the twelve months ended December 31, 2006 and 2005 were as follows: % of Revenue % of Revenue (Dollars in millions) 2006 2005 $ Change % Change Operating Revenue North America Information Services Marketing Services Personal Solutions Total North America Europe Latin America Total operating...

  • Page 32
    ... mainly from national and regional customers for certain of our products that target new customers and our account management product offerings, as well as continued demand for core prescreen products and data sales. Direct Marketing Services revenue for the twelve months ended December 31, 2006...

  • Page 33
    ... primarily due to sales growth as well as higher benefits and incentive costs mainly associated with our annual incentive program. During the twelve months ended December 31, 2004, we recorded a $2.4 million asset impairment charge related to Marketing Services, mostly for purchased data files and...

  • Page 34
    ... 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 6 of the Notes to Consolidated Financial Statements. Income Taxes Our effective income tax rate was 36.9% for the twelve months ended...

  • Page 35
    ... % Change Operating Income North America Information Services $ 345.5 Marketing Services 85.2 Marketing Services asset impairment and related charges - Marketing Services, net Personal Solutions Total North America Europe Latin America General Corporate Expense Total operating income nm - not...

  • Page 36
    ... in credit applications and marketing mailings in the U.K., and offset by a rise 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 our Europe 34 EQUIFAX 2006 ANNUAL REPORT

  • Page 37
    ... acquisition of, or investment in, complementary businesses or joint ventures, products, services and technologies, capital expenditures, payment of dividends, repurchase of outstanding shares of common stock and the retirement of debt. We may elect to use available cash and cash equivalents to fund...

  • Page 38
    ... of two independent credit reporting agencies in the U.S. and one in Canada that housed consumer information on our system. We acquired all of these businesses for $121.8 million in cash, net of cash acquired, and the issuance of 0.4 million shares of Equifax treasury stock, which had a value of $14...

  • Page 39
    ... Statements. Equity Transactions Sources and uses of cash related to equity during the twelve months ended December 31, 2006, 2005 and 2004 were as follows: Share Repurchase Program. Under the stock repurchase program authorized by our Board of Directors, we purchased 6.0 million, 4.2 million and...

  • Page 40
    ... in Equifax stock in open market transactions or in privately-negotiated purchases. The timing and nature of any such repurchases will depend on market conditions, other investment opportunities, applicable securities laws and other factors. Dividend Payments. During the twelve months ended December...

  • Page 41
    ...fit 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 EQUIFAX 2006 ANNUAL REPORT 39

  • Page 42
    ...31, 2006 and 2005, and 8.75% for the USRIP for the twelve months ended December 31, 2004. In 2007, the expected rate of return on plan assets used to calculate the annual SFAS 87 expense will be 8.00% for the USRIP and 8.25% for the EIPP. For our non-U.S., tax-qualified retirement plans, we fund at...

  • Page 43
    ...be deferred until actual customer data is obtained. We have certain information solution offerings that are sold as multiple element arrangements. The multiple elements may include consumer or commercial information, file updates for certain solutions, services provided by our enabling technologies...

  • Page 44
    ...EQUIFAX 2006 ANNUAL REPORT Disposal of Long-Lived Assets," and amortize the intangible asset over its remaining useful life. During the twelve months ended December 31, 2006, 2005 and 2004, we recognized no impairment charges related to our contractual/territorial rights. For additional information...

  • Page 45
    ... Financial Statements. For additional information about our income taxes, see Note 7 of the Notes to Consolidated Financial Statements. Pension Plans Our pension plans are accounted for using actuarial valuations required by SFAS 87 and, for the twelve months ended December 31, 2006, SFAS 158. Our...

  • Page 46
    ... to our variable-rate, long-term revolving credit facility and trade receivables-backed revolving credit facility. We attempt to achieve the lowest all-in weighted-average cost of debt while simultaneously taking into account the mix of our fixed- and ï¬,oating-rate debt, and the average life and...

  • Page 47
    ... information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations, and the Consolidated Financial Statements and the accompanying Notes to the Consolidated Financial Statements. Twelve Months Ended December 31, (In millions, except per share data) 2006...

  • Page 48
    ...assessment with the Audit Committee of its Board of Directors. Based on this assessment, management determined that, as of December 31, 2006, Equifax maintained effective internal control over financial reporting. Ernst & Young LLP, an independent registered public accounting firm, who audited and...

  • Page 49
    ... and comprehensive income (loss), and cash ï¬,ows for each of the three years in the period ended December 31, 2006 of Equifax Inc. and subsidiaries and our report dated February 27, 2007 expressed an unqualified opinion thereon. Atlanta, Georgia February 27, 2007 EQUIFAX 2006 ANNUAL REPORT 47

  • Page 50
    ... of the Public Company Accounting Oversight Board (United States), the effectiveness of Equifax Inc.'s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of...

  • Page 51
    ...Months Ended December 31, (In millions, except per share amounts) 2006 2005 2004 Operating revenue Operating expenses: Cost of services (exclusive of depreciation and amortization expense below) Selling, general...0.11 See Notes to Consolidated Financial Statements. EQUIFAX 2006 ANNUAL REPORT 49

  • Page 52
    ... and cash equivalents Trade accounts receivable, net of allowance for doubtful accounts of $8.7 and $9.6 at December 31, 2006 and 2005, respectively Prepaid expenses Other current assets Total current assets Property and equipment: Capitalized internal-use software and system costs Data processing...

  • Page 53
    ... Acquisitions, net of cash acquired Proceeds from sale of investments Other Cash used in investing activities Financing activities: Net short-term (repayments) borrowings Net (repayments) borrowings under long-term revolving credit facilities Payments on long-term debt Treasury stock purchases...

  • Page 54
    ... 31, 2006, $132.6 million was authorized for future repurchases of our common stock. In February 2007, our Board of Directors amended the plan to authorize an additional repurchase of $650.0 million of our common stock. See Notes to Consolidated Financial Statements. 52 EQUIFAX 2006 ANNUAL REPORT

  • Page 55
    ... Minimum pension liability adjustment Change in cumulative loss from cash ï¬,ow hedging transactions Comprehensive income $274.5 26.9 - 9.0 0.4 $310.8 $246.5 8.1 - 100.3 0.8 $355.7 $234.7 29.5 (4.0) 3.1 0.5 $263.8 See Notes to Consolidated Financial Statements. EQUIFAX 2006 ANNUAL REPORT 53

  • Page 56
    ...enable consumers to manage and protect their financial health through a portfolio of products offered directly to consumers. As of December 31, 2006, we operated in 14 countries organized by reportable segments as follows: North America (the United States (U.S.), Canada and Costa Rica), Europe (the...

  • Page 57
    ... data acquisition and royalty fees; (2) customer service costs, which include: 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...

  • Page 58
    ... on a straight-line basis over estimated assets' useful lives, which are generally three to ten years for data processing equipment and capitalized internal-use software and systems costs. Leasehold improvements are depreciated over the shorter of their estimated useful lives or lease terms that are...

  • Page 59
    ... credit files, on a straight-line basis. All of our other purchased intangible assets are also amortized on a straight-line basis. See Note 4 for additional information about our purchased intangible assets. Useful Life Asset Purchased Data Files Acquired Software Non-compete Agreements Customer...

  • Page 60
    ... short-term nature of these instruments. As of December 31, 2006 and 2005, the fair value of our fixed-rate debt (determined internally through the use of related public financial information) was $414.2 million and $412.4 million, respectively, compared to its carrying value, net of discount, of...

  • Page 61
    ... APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). SFAS 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...

  • Page 62
    ...years based on service. The following table summarizes changes in our nonvested stock during the twelve months ended December 31, 2006 and the related weighted-average grant date fair value: WeightedAverage Grant Date Fair Value $28.74 $36.97 $27.94 $27.90 $31.64 (In thousands) Shares 689 271 (133...

  • Page 63
    ... stock grants for the twelve months ended December 31, 2005 and 2004: Shares Year 2005 2004 Grants Cancellations Grants Cancellations (In thousands) Average Fair Value $32.28 $ 29.12 $25.86 $25.60 290 (15) 487 (7) We expect to issue new shares of common stock or common shares held by our employee...

  • Page 64
    ... 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 multichannel marketers. BeNow combines database management and analytics to support customer...

  • Page 65
    ...or integration areas) and customer relationships and related businesses of two independent credit reporting agencies in the U.S. (also referred to as "Affiliates") and one in Canada that house their consumer information on our system. The acquisitions in 2005 had a total cash purchase price of $129...

  • Page 66
    ...territories acquired through the purchase of independent credit reporting agencies in the U.S. and Canada. Our contractual/territorial rights are perpetual in nature and, therefore, the useful lives are considered indefinite. Indefinite-lived intangible assets are not amortized. As discussed in Note...

  • Page 67
    ... with SFAS No. 57, "Related Party Disclosures," since members of our Board of Directors have affiliations with these companies. Under the Amended and Restated Credit Agreement (the "Amended Credit Agreement"), SunTrust Bank and Banc of America Securities, LLC have each committed $75.0 million...

  • Page 68
    ... 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 percent of our consolidated total assets, measured as of the end of the preceding fiscal year. At December 31, 2006, interest was payable on...

  • Page 69
    ... in North America, Europe, 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, 2006...

  • Page 70
    ...We estimate that if the option were exercised at December 31, 2006, the price range would approximate $650 million to $725 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...

  • Page 71
    ... 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. Contingencies...

  • Page 72
    ... with Naviant, Inc. The non-taxable gain reduced our 2006 effective rate by 1.3%. See Note 6 for additional information about this matter. Current: Federal State Foreign Deferred: Federal State Foreign (0.8) (4.5) 2.7 (2.6) Provision for income taxes $141.4 70 EQUIFAX 2006 ANNUAL REPORT

  • Page 73
    ... dedicated to ensure the payment of benefits accrued under our Supplemental Executive Retirement Plans in case of a change in control, as defined in this trust agreement. The assets in these plans are subject to creditors claims in case of insolvency of Equifax Inc. EQUIFAX 2006 ANNUAL REPORT 71

  • Page 74
    ...of minimum funding requirements, subject to statutory limitations. Supplemental Retirement Plans. We maintain two supplemental executive retirement programs for certain key employees. The plans, which are unfunded, provide supplemental retirement payments, based on salary and years of service. Other...

  • Page 75
    ...fit obligations in excess of those plans' respective assets. The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for these plans were $141.0 million, $123.5 million and $72.6 million, respectively, at December 31, 2005. EQUIFAX 2006 ANNUAL REPORT 73

  • Page 76
    ... long-term deferred income tax assets related to our pension and other postretirement plans. The following table represents the net amounts recognized, or the funded status of our pension and other postretirement benefit plans, in our Consolidated Balance Sheet at December 31, 2006 in accordance...

  • Page 77
    ... The calculation of the net periodic benefit cost for the USRIP, EIPP and CRIP utilizes a market-related value of assets. The market-related value of assets recognizes the difference between actual returns and expected returns over five years at a rate of 20% per year. EQUIFAX 2006 ANNUAL REPORT...

  • Page 78
    ... employed by the Plans in their fixed income portfolios and in the hedge fund-of-funds area. The Plans are prohibited from investing additional amounts in Equifax stock once the market value of stock held by each plan exceeds 10% of the total market value of each plan. At December 31, 2006 and 2005...

  • Page 79
    ... current investment policy imposes those restrictions on investments or transactions such as (1) Equifax common stock or securities, except as might be incidental to any pooled funds which the plan may have, (2) commodities or loans, (3) short sales and the use of margin accounts, (4) put and call...

  • Page 80
    ... 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 81
    ...million synthetic lease facility related to our Atlanta corporate headquarters building. As of December 31, 2006 and 2005, the amount of this facility was $29.0 million. See Note 6 for additional information about this lease. • SunTrust provides investment management services for our USRIP through...

  • Page 82
    ... below. Latin America. Information Services, which includes consumer and commercial services (such as credit and financial information, credit scoring and credit modeling services), Credit Marketing Services and Personal Solutions. 14. SEGMENT INFORMATION We manage our business and report our...

  • Page 83
    ... Ended December 31, (In millions) 2006 2005 2004 Operating Income (Loss) North America Information Services $343.3 Marketing Services 99.1 Marketing Services restructuring and impairment charges - Marketing Services, net Personal Solutions North America Europe Latin America General Corporate...

  • Page 84
    ... commercial business for the U.S. and Canada that was within North America Information Services as well as our October 2006 acquisition of Austin-Tetra. International consists of our consumer business in Canada and all of our businesses in Europe and Latin America. North America Personal Solutions...

  • Page 85
    .... • During the fourth quarter of 2006, we recorded a severance charge of $6.4 million ($4.0 million, net of tax) related to an organizational realignment. For additional information about this charge, see Note 11 of the Notes to Consolidated Financial Statements. EQUIFAX 2006 ANNUAL REPORT 83

  • Page 86
    ... how our management reviews and assesses Equifax's historical performance and is useful when planning, forecasting and analyzing future periods. 84 EQUIFAX 2006 ANNUAL REPORT Loss Contingencies - During the first nine months of 2006, we recorded a $5.0 million, pretax, loss contingency related to...

  • Page 87
    ... +))/ S&P DJ EFX December 31 Initial Equifax Inc. Dow Jones U.S. General Financial Index S&P 500 Index $100 $100 $100 2002 $96.12 $78.31 $77.90 2003 $102.13 $107.59 $100.25 2004 $117.64 $118.51 $111.15 2005 $159.87 $127.90 $1 1 6.61 2006 $171.49 $159.10 $135.03 EQUIFAX 2006 ANNUAL REPORT 85

  • Page 88
    ... [email protected] Transfer Agent and Registrar Computershare Investor Services LLC P.O. Box 43078 Providence, Rhode Island 02940 Telephone (800) 568-3476 Independent Registered Public Accounting Firm Ernst & Young LLP 600 Peachtree Street Suite 2800 Atlanta, Georgia 30308-2215 86 EQUIFAX 2006 ANNUAL...

  • Page 89
    ... meeting. EQUIFAX ON THE INTERNET A broad range of consumer, business, investor and governance information is available at www.equifax.com. INVESTOR RELATIONS Investor requests for financial information may be directed by phone to (404) 885-8000; in writing to P.O. Box 4081, Atlanta, Georgia 30302...

  • Page 90
    Equifax Inc. 1550 Peachtree Street, N.W. Atlanta, Georgia 30309 Telephone (404) 885-8000 www.equifax.com