Equifax 2008 Annual Report Download

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turning challenges into opportunities
2008 Annual Report

Table of contents

  • Page 1
    2008 Annual Report turning challenges into opportunities

  • Page 2
    ... information solutions; employment and income verification; as well as human resources business process outsourcing services. Leveraging one of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, we create customized insights which enable...

  • Page 3
    ... markets as market conditions permit. We maintained our investment grade corporate credit rating. Our strong balance sheet enabled us to make investments in product innovation, strategic acquisitions and technology infrastructure. During the year, we repurchased 4.5 million shares of Equifax stock...

  • Page 4
    ...U.S. Consumer Information Solutions (USCIS) business differentiated its offerings by working closely with customers and developing the next generation of risk management tools by linking our key data sources. The combination of the leading consumer credit reporting database linked to The Work Number...

  • Page 5
    ... delivery of products and services through our various enabling technology platforms. We also created millions of dollars of revenue synergies through cross-selling activities with USCIS. We now deliver employment and income information along with credit data to Equifax mortgage customers for their...

  • Page 6
    ... developing the talent of the future." CORETHA RUSHING Corporate Vice President, Chief Human Resources Officer ask the right questions, while creating strong, enduring customer relationships. Staying close to customers, particularly in difficult times, helps us drive new opportunities. In USCIS...

  • Page 7
    ... e-commerce activities in the years to come." STEVE ELY President North America Personal Solutions How do you see your business environment changing? Rudy Ploder: three major reporting agencies, provides alerts to key changes and offers the ability to control access to their Equifax credit file...

  • Page 8
    ...management." MICHAEL SHANNON President North America Commercial Information Solutions At TALX, we also focus on customer intimacy through our long-standing customer advisory board. This board has contributed significantly to the development of many new products and services, and is always a clear...

  • Page 9
    ... customers make highly informed decisions that support their growth. Because of the breadth and depth of our commercial trade and credit data in the U.S., we have developed the financial industry's most predictive credit risk score. By combining this risk score with consumer data on the business...

  • Page 10
    ... data reported by employers, while Unemployment Compensation and Tax Management are important outsourcing services for employers' human resource activities. Talent Assessment provides businesses with prospect evaluations and new employee onboarding services. NORTH AMERICA PERSONAL SOLUTIONS North...

  • Page 11
    ... Services Kathryn J. Harris Office of the Corporate Secretary [email protected] Investor Relations Jeffrey L. Dodge [email protected] Public Relations Timothy J. Klein [email protected] Transfer Agent and Registrar American Stock Transfer & Trust Company 59 Maiden Lane, Plaza Level New York, New...

  • Page 12
    ... 75. Selected Financial Data Management's Discussion & Analysis of Financial Condition and Results of Operations Management's Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting Report of Independent...

  • Page 13
    ... of TALX due 2012, and the commencement of a commercial paper program for general corporate purposes. On January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123R, ''Share-Based Payment'', or SFAS 123R, which resulted in additional stock-based compensation expense during 2008...

  • Page 14
    ... 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...

  • Page 15
    ... shares of our common stock on the open market for $155.7 million during 2008. RESULTS OF OPERATIONS - TWELVE MONTHS ENDED DECEMBER 31, 2008, 2007 AND 2006 Consolidated Financial Results Operating Revenue Operating Revenue (Dollars in millions) U.S. Consumer Information Solutions International TALX...

  • Page 16
    ...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...

  • Page 17
    ... 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 Annual Report. Other income, net, in 2008 includes a $5.5 million gain...

  • Page 18
    ... in operating income from our International, North America Personal Solutions and North America Commercial Solutions segments, when compared to 2006, and from the acquisition of TALX, more than offset by increased interest expense and a higher provision for income taxes. Our 2008 earnings per share...

  • Page 19
    ... towards the enhanced management of their existing customer portfolios as opposed to new account acquisitions. Direct Marketing Services. For 2008, as compared to 2007, revenue declined primarily due to reduced mailing volumes for existing customers reflecting the slowdown in retail sales and the...

  • Page 20
    ...new and renewed contracts to provide services related to our customers' marketing databases. U.S. Consumer Information Solutions Operating Margin. Operating margin decreased for 2008, as compared to 2007, mainly due to the decline in revenue described above. With a high portion of fixed costs, USCIS...

  • Page 21
    ...steady growth in Tax Management Services, driven by increased unemployment compensation claims activity. TALX acquisition-related amortization expense was $54.5 million for 2008, compared to $34.0 million for 2007. Total employment records in The Work Number database increased during the year to 188...

  • Page 22
    ... volume for U.S. commercial credit information products increased to 4.9 million during 2008, up 4%, from 2007. For 2008, as compared to 2007, operating margin increased primarily due to revenue growth in our U.S. Commercial business partially offset by increased personnel and software costs as we...

  • Page 23
    ... 2007 increase in operating cash flow, as compared to 2006, was primarily due to incremental income from our TALX acquisition, revenue growth in our existing businesses and positive changes in our working capital, partially offset by increased interest payments. 28FEB200910255904 2008 ANNUAL REPORT...

  • Page 24
    ... of 2009 revenue targets. The results of these acquisitions are not material. On June 30, 2008, as a part of our long-term growth strategy of entering new geographies, we acquired a 28 percent equity interest in Global Payments Credit Services LLC, or GPCS, a credit information company in Russia...

  • Page 25
    ... used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchase programs. In 2008, the net borrowing activity under long-term revolving credit facilities primarily represents our pay down of $216.5 million of commercial paper notes outstanding...

  • Page 26
    ... paper program and credit facilities, and could limit, or in the case of a significant downgrade, preclude our ability to issue commercial paper. If our credit ratings were to decline to lower levels, we could experience increases in the interest cost for any new debt. In addition, the market...

  • Page 27
    ... be the payment to Computer Sciences Corporation, or CSC, if it were to exercise its option to sell its credit reporting business to us at any time prior to 2013. The option exercise price would be determined by agreement or by an appraisal process and would be due in cash within 180 days after the...

  • Page 28
    ... about our benefit plans, see Note 9 of the Notes to Consolidated Financial Statements in this Annual Report. Seasonality We experience seasonality in certain of our revenue streams. Revenue generated from The Work Number and Tax and Talent Management business units within the TALX operating segment...

  • Page 29
    ... to our customer. In addition, the determination of certain of our marketing information services and tax management services revenue requires the use of estimates, principally related to transaction volumes in instances where these volumes are reported to us by our clients on a monthly basis in...

  • Page 30
    ..., we calculate the fair value of a reporting unit based on estimated future discounted cash flows. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings for comparable companies. If the fair value of the reporting unit exceeds the carrying value of...

  • Page 31
    ... analysis specific to our estimated future benefit payments available as of the measurement date. Discount rates are reset annually on the measurement date to reflect current market conditions. We use a publicly published yield curve updated monthly to develop our discount rates. The yield curve...

  • Page 32
    ...average discount rate (6.23% at December 31, 2008) by 0.5% would change our estimated pension expense in 2009 by approximately $2.0 million. expected return assumes a return to pre-2008 historical trends. Under SFAS 87, the expected long-term rate of return is calculated on the market-related value...

  • Page 33
    ... 2008 and 2007. Interest Rate Risk Our exposure to market risk for changes in interest rates relates to our variable-rate, long-term Senior Credit Facility and commercial paper borrowings. We attempt to achieve the lowest all-in weighted-average cost of debt while simultaneously taking into account...

  • Page 34
    ..., management determined that, as of December 31, 2008, Equifax maintained effective internal control over financial reporting. Ernst & Young LLP, the Company's independent registered public accounting firm, has issued an audit report on the Company's internal control over financial reporting as...

  • Page 35
    ... and comprehensive income, and cash flows for each of the three years in the period ended December 31, 2008 of Equifax Inc. and our report dated February 25, 2009 expressed an unqualified opinion thereon. 3MAR200912401731 Atlanta, Georgia February 25, 2009 28FEB200910255904 2008 ANNUAL REPORT 33

  • Page 36
    ... in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Equifax Inc.'s internal control over financial reporting as of December 31, 2008, based on criteria established in...

  • Page 37
    ... Twelve Months Ended December 31, (In millions, except per share amounts) Operating revenue Operating expenses: Cost of services (exclusive of depreciation and amortization below) Selling, general and administrative expenses Depreciation and amortization Total operating expenses Operating income...

  • Page 38
    ... and cash equivalents Trade accounts receivable, net of allowance for doubtful accounts of $14.5 and $8.9 at December 31, 2008 and 2007, respectively Prepaid expenses Other current assets Total current assets Property and equipment: Capitalized internal-use software and system costs Data processing...

  • Page 39
    ... by operating activities Investing activities: Capital expenditures Acquisitions, net of cash acquired Investment in unconsolidated affiliates Cash used in investing activities Financing activities: Net short-term (repayments) borrowings Net borrowings (repayments) under long-term revolving credit...

  • Page 40
    ...Net income Other comprehensive income Shares issued under stock and benefit plans, net of minimum tax witholdings Equity consideration issued for TALX acquisition Treasury stock purchased under share repurchase program ($40.12 per share)* Cash dividends ($0.16 per share) Reclassification of director...

  • Page 41
    ... is as follows: Twelve Months Ended December 31, (In millions) Net income Other comprehensive income: Foreign currency translation adjustment Recognition of prior service cost and actuarial (losses) gains related to our pension and other postretirement benefit plans Change in cumulative loss (gain...

  • Page 42
    ...employment and marketing information. Our products and services enable businesses to make credit and service decisions, manage their portfolio risk, automate or outsource certain payroll, tax and human resources business processes, and develop marketing strategies concerning consumers and commercial...

  • Page 43
    ... 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 44
    ... Opinion No. 25, ''Accounting for Stock Issued to Employees'', or APB 25. SFAS 123R requires that the cost relating to stock-based payment transactions be recognized in the financial statements over the period services are rendered according to the fair value of the stock-based awards issued. Prior...

  • Page 45
    ... and amortization expense, related to the write-down of certain internal-use software from which we will no longer derive future benefit. Goodwill and Indefinite-Lived Intangible Assets. Goodwill represents the cost in excess of the fair value of the net assets of acquired businesses. In accordance...

  • Page 46
    ...Asset Purchased data files Acquired software and technology Non-compete agreements Proprietary database Customer relationships Trade names Other Assets. Other assets on our Consolidated Balance Sheets primarily represents the cash surrender value of life insurance policies covering certain officers...

  • Page 47
    ... life insurance policies. Identical instruments are traded in active markets that we have access to as of December 31, 2008. As such, we have classified this liability as Level 1 within the fair value hierarchy set forth by SFAS 157. Fair Value Measurements at Reporting Date Using: Quoted Prices...

  • Page 48
    ... of 2009 revenue targets. The results of these acquisitions are not material. On June 30, 2008, as a part of our long-term growth strategy of entering new geographies, we acquired a 28 percent equity interest in Global Payments Credit Services LLC, or GPCS, a credit information company in Russia...

  • Page 49
    ... asset category Customer relationships Proprietary database Purchased data files Acquired software and technology Non-compete agreements Trade names and other intangible assets Total acquired intangibles Fair value (in millions) $ 12.2 - 0.4 0.9 0.3 2.4 $ 16.2 Weighted-average useful life (in years...

  • Page 50
    ... of the TALX purchase price allocation, we reallocated goodwill to reporting units expected to benefit from revenue synergies of the combined company. Changes in the amount of goodwill for the twelve months ended December 31, 2008 and 2007, are as follows: 28FEB200910255904 48 EQUIFAX INC.

  • Page 51
    ... Acquisitions Adjustments to initial purchase price allocation Foreign currency translation Tax benefits of options exercised Reallocation of goodwill Balance, December 31, 2008 $ 491.4 - International $ 310.7 5.2 $ TALX - 963.6 North America Personal Solutions $ 1.8 - North America Commercial...

  • Page 52
    ..., are as follows: December 31, 2008 (In millions) Definite-lived intangible assets: Purchased data files Acquired software and technology Customer relationships Proprietary database Non-compete agreements Trade names and other intangible assets Total definite-lived intangible assets $ Gross 375.3 72...

  • Page 53
    ... our Atlanta, Georgia data center, we assumed a $12.5 million mortgage obligation from the prior owner of the building. The mortgage obligation has a fixed rate of interest of 4.25% per annum and is payable in annual installments until March 1, 2012. TALX Debt. At the closing of the TALX acquisition...

  • Page 54
    ... $60 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; foreign currency...

  • Page 55
    ... 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, 2008...

  • Page 56
    ... of these credit agreements, we also bear the risk of certain changes in tax laws that would subject payments to non-U.S. lenders to withholding taxes. In conjunction with certain transactions, such as sales or purchases of operating assets or services in the ordinary course of business, or the...

  • Page 57
    ... the financial reporting and income tax bases of assets and liabilities. For additional information about our income tax policy, see Note 1 of the Notes to Consolidated Financial Statements. The provision for income taxes from continuing operations consisted of the following: Twelve Months Ended...

  • Page 58
    ...Employee pension benefits Net operating and capital loss carryforwards Unrealized foreign exchange loss Foreign tax credits Employee compensation programs Reserves and accrued expenses Deferred revenue... $144.9 million during the twelve months ended December 31, 2008, 2007 and 2006, respectively. We...

  • Page 59
    ... the next twelve months by a range of zero to $6.0 million, related primarily to issues involving U.K. operations. 7. STOCK-BASED COMPENSATION We have two active share-based award plans that provide our directors, officers and certain employees with stock 28FEB200910255904 2008 ANNUAL REPORT 57

  • Page 60
    ..., was continued estimated at the date of grant, using the binomial model with the following weighted-average assumptions: Twelve Months Ended December 31, 2008 Dividend yield Expected volatility Risk-free interest rate Expected term (in years) Weighted-average fair value of stock options granted...

  • Page 61
    ... service period (discounted using the appropriate risk-free interest rate upon the adoption of SFAS 123R). The following table summarizes changes in our nonvested stock during the twelve months ended December 31, 2008, 2007 and 2006 and the related weighted-average grant date fair value: Grant Date...

  • Page 62
    ...number of shares of securities or other property of Equifax having a market value equal to two times the exercise price of the Right. If Equifax were acquired in a merger or other business combination, each Right would entitle its holder to purchase the number of the acquiring company's common stock...

  • Page 63
    ... 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 Benefits. We maintain certain healthcare and life insurance benefit plans...

  • Page 64
    ... and fair value of plan assets for these plans in the aggregate were $47.1 million, $43.6 million and zero, respectively, at December 31, 2007. continued The following table represents the net amounts recognized, or the funded status of our pension and other postretirement benefit plans, in our...

  • Page 65
    ...: (In millions) Prior service cost, net of taxes of $0.3 for pension benefits and and $(0.1) for other benefits Actuarial loss, net of taxes of $3.2 for pension benefits and and $0.6 for other benefits Pension Benefits $ 0.5 $ 5.5 Other Benefits $ (0.1) $ 1.0 28FEB200910255904 2008 ANNUAL REPORT 63

  • Page 66
    ... 4.38% Pension Benefits Weighted-average assumptions used to determine net periodic benefit cost at December 31, Discount rate Expected return on plan assets Rate of compensation increase The calculation of the net periodic benefit cost for the USRIP, EIPP and CRIP utilizes a market-related value of...

  • Page 67
    ... 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 options, (5) private placements, and (6) transactions which are ''related-party'' in nature as 28FEB200910255904 2008 ANNUAL REPORT 65

  • Page 68
    ... Bond Index plus 0.5% Scotia Capital 91-Day Treasury Bill Index plus 0.3% continued Foreign Retirement Plans. We also maintain defined contribution plans for certain employees in the U.K. and Canada. For the years ended December 31, 2008, 2007 and 2006, our expenses related to these plans were...

  • Page 69
    ... million mortgage obligation on the facility that houses our Atlanta, Georgia data center, which we acquired on July 26, 2007. • SunTrust provides the $29.0 million synthetic lease facility related to our Atlanta corporate headquarters building. As of December 31, 2008 and 2007, the amount of this...

  • Page 70
    ...until that date is President and Chief Executive Officer and a Director of FNIS. We sell certain consumer credit information services to FNIS. Revenue from FNIS, as a customer, for credit disclosure reports and portfolio reviews was not material during the twelve months ended December 31, 2008, 2007...

  • Page 71
    ...consumer and commercial services (such as credit and financial information, credit scoring and credit modeling services), credit and other marketing products and services, and products and services sold directly to consumers. North America Personal Solutions. This segment includes credit information...

  • Page 72
    ...575.7 15.5 78.2 228.9 $ 3,523.9 2008 2007 continued Twelve Months Ended December 31, (in millions) Capital expenditures: U.S. Consumer Information Solutions International TALX North America Personal Solutions North America Commercial Solutions General Corporate Total capital expenditures $ 22.1 22...

  • Page 73
    Financial information by geographic area is as follows: Twelve Months Ended December 31, 2008 (in millions) Operating revenue (based on location of customer): U.S. Canada U.K. Brazil Other Total operating revenue Amount $ 1,404.7 136.2 141.0 97.6 156.2 $ 1,935.7 % 2007 Amount % 2006 Amount % 72% 8% ...

  • Page 74
    ... STATEMENTS continued 13. QUARTERLY FINANCIAL DATA (UNAUDITED) Quarterly financial data for 2008 and 2007 was as follows: Three Months Ended (In millions, except per share data) 2008 Operating revenue Operating income Net income Basic earnings per common share* Diluted earnings per common...

  • Page 75
    ... to Costs and Expenses Charged to Other Accounts Column D Column E Balance at End of ...Trade accounts receivable Deferred income tax asset valuation allowance $ 9.6 81.2 $ 5.2 0.3 $ 5.5 $ - 5.5 $ 5.5 $ (6.1) (12.2) $ 8.7 74.8 $ 90.8 $ (18.3) $ 83.5 28FEB200910255904 2008 ANNUAL REPORT...

  • Page 76
    ... the twelve months ended December 31, 2008, as compared to the same period in 2007, since charges of such a material amount are not comparable to similar activity in the prior year. Income Tax Benefit - During the third quarter of 2008, the applicable statute of limitations related to an uncertain...

  • Page 77
    ... FISCAL YEAR ENDING DECEMBER 31, Initial Equifax Inc Dow Jones U.S. General Financial Index S&P 500 Index 100.00 100.00 100.00 2004 115.19 110.10 110.88 2005 156.54 118.88 116.33 2006 167.91 147.88 134.70 2007 150.98 125.21 142.10 2008 110.71 65.51 89.53 28FEB200910255904 2008 ANNUAL REPORT...

  • Page 78
    ... financial 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 Annual Report on Form 10-K for the year ended December 31, 2008...

  • Page 79
    ... GE Capital Corporation from 1995 to 1998; and Partner, Financial Services Technology Practice, for Ernst & Young International from 1982 to 1995. MARK B. TEMPLETON Director since February 2008. President of Citrix Systems, Inc., a global software development firm, since 1998 and Chief Executive Of...

  • Page 80
    EQUIFAX INC. 1550 Peachtree Street, N.W. Atlanta, Georgia 30309 404-885-8000 www.equifax.com