Attached files
file | filename |
---|---|
8-K - EQUIFAX INC | v191174_8k.htm |
EX-99.2 - EQUIFAX INC | v191174_ex99-2.htm |
EX-99.5 - EQUIFAX INC | v191174_ex99-5.htm |
EX-99.4 - EQUIFAX INC | v191174_ex99-4.htm |
EX-23.1 - EQUIFAX INC | v191174_ex23-1.htm |
EX-99.1 - EQUIFAX INC | v191174_ex99-1.htm |
Exhibit
99.3
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index
to Financial Statements
|
||||
Management’s
Report on Internal Control over Financial Reporting
|
1 | |||
Report
of Independent Registered Public Accounting Firm on Internal Control over
Financial Reporting
|
2 | |||
Report
of Independent Registered Public Accounting Firm
|
3 | |||
Consolidated
Statements of Income for each of the three years in the period ended
December 31, 2009
|
4 | |||
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
5 | |||
Consolidated
Statements of Cash Flows for each of the three years in the period ended
December 31, 2009
|
6 | |||
Consolidated
Statements of Shareholders’ Equity and Comprehensive Income for each of
the three years in the period ended December 31, 2009
|
7 | |||
Notes
to Consolidated Financial Statements
|
8 |
MANAGEMENT’S
REPORT ON INTERNAL
CONTROL
OVER FINANCIAL REPORTING
Management
of Equifax is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act of 1934. Equifax’s internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally accepted accounting
principles. Internal control over financial reporting includes those written
policies and procedures that:
•
|
Pertain
to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of
Equifax;
|
•
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with U.S. generally
accepted accounting principles;
|
•
|
Provide
reasonable assurance that receipts and expenditures of Equifax are being
made only in accordance with authorization of management and the Board of
Directors of Equifax; and
|
•
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of assets that could have a
material effect on the consolidated financial
statements.
|
Internal
control over financial reporting includes the controls themselves, monitoring
and internal auditing practices, and actions taken to correct deficiencies as
identified.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect all misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management
assessed the effectiveness of Equifax’s internal control over financial
reporting as of December 31, 2009. Management based this assessment on
criteria for effective internal control over financial reporting described in
“Internal Control — Integrated Framework” issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Management’s assessment
included an evaluation of the design of Equifax’s internal control over
financial reporting and testing of the operational effectiveness of its internal
control over financial reporting. Management reviewed the results of its
assessment with the Audit Committee of its Board of Directors.
Based on
this assessment, management determined that, as of December 31, 2009,
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 of December 31, 2009.
1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Board
of Directors and Shareholders of Equifax Inc.:
We have
audited Equifax Inc.’s internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control —
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (the COSO criteria). Equifax Inc.’s management is
responsible for maintaining effective internal control over financial reporting,
and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control
over Financial Reporting. Our responsibility is to express an opinion on the
company’s internal control over financial reporting based on our
audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing
and evaluating the design and operating effectiveness of internal control based
on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain
to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company’s assets that could have a material effect on the
financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our
opinion, Equifax Inc. maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2009, based on
the COSO criteria.
We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets as of
December 31, 2009 and 2008, and the related consolidated statements of
income, shareholders’ equity and comprehensive income, and cash flows for each
of the three years in the period ended December 31, 2009 of
Equifax Inc. and our report dated February 23, 2010 expressed an
unqualified opinion thereon.
/s/
Ernst & Young LLP
|
Atlanta,
Georgia
|
February
23, 2010
|
2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders of Equifax Inc.:
We have
audited the accompanying consolidated balance sheets of Equifax Inc. as of
December 31, 2009 and 2008, and the related consolidated statements of income,
shareholders' equity and comprehensive income, and cash flows for each of
the three years in the period ended December 31, 2009. These financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Equifax Inc. at
December 31, 2009 and 2008, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended
December 31, 2009, 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), Equifax Inc.'s internal control over financial
reporting as of December 31, 2009, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission and our report dated February 23, 2010 expressed an
unqualified opinion thereon.
/s/
Ernst & Young LLP
|
Atlanta,
Georgia
|
February
23, 2010, except for the “Segments”, “Advertising”, “Trade Accounts
Receivable and Allowance for Doubtful Accounts”, and “Long Lived Assets”
sections of Note 1, paragraphs 2 and 3 of the “Purchased Intangible
Assets” section of Note 3, paragraph 3 of the “Leases” section of Note 5,
paragraphs 2, 3, and 4 of Note 6, paragraph 5 of Note 10, the amounts in
the operating revenue, operating income, depreciation and amortization
expense schedules of Note 12, and Note 14, as to which the date is July
30, 2010
|
3
CONSOLIDATED
STATEMENTS OF INCOME
Twelve Months Ended
December 31,
|
||||||||||||
(In millions, except per share amounts)
|
2009
|
2008
|
2007
|
|||||||||
Operating
revenue
|
$ | 1,716.0 | $ | 1,813.6 | $ | 1,706.7 | ||||||
Operating
expenses:
|
||||||||||||
Cost
of services (exclusive of depreciation and amortization
below)
|
718.8 | 741.8 | 702.6 | |||||||||
Selling,
general and administrative expenses
|
470.2 | 490.6 | 445.6 | |||||||||
Depreciation
and amortization
|
145.2 | 142.2 | 113.5 | |||||||||
Total
operating expenses
|
1,334.2 | 1,374.6 | 1,261.7 | |||||||||
Operating
income
|
381.8 | 439.0 | 445.0 | |||||||||
Interest
expense
|
(57.0 | ) | (71.3 | ) | (58.5 | ) | ||||||
Other
income, net
|
6.2 | 6.2 | 2.9 | |||||||||
Consolidated
income from continuing operations before income taxes
|
331.0 | 373.9 | 389.4 | |||||||||
Provision
for income taxes
|
(106.6 | ) | (119.0 | ) | (136.7 | ) | ||||||
Consolidated
income from continuing operations
|
224.4 | 254.9 | 252.7 | |||||||||
Income
from discontinued operations, net of tax
|
16.1 | 24.1 | 26.1 | |||||||||
Consolidated
net income
|
240.5 | 279.0 | 278.8 | |||||||||
Less:
Net income attributable to noncontrolling interests
|
(6.6 | ) | (6.2 | ) | (6.1 | ) | ||||||
Net
income attributable to Equifax
|
$ | 233.9 | $ | 272.8 | $ | 272.7 | ||||||
Basic
earnings per common share
|
||||||||||||
Income
from continuing operations attributable to Equifax
|
$ | 1.72 | $ | 1.94 | $ | 1.87 | ||||||
Discontinued
operations
|
0.13 | 0.19 | 0.20 | |||||||||
Net
income attributable to Equifax
|
$ | 1.85 | $ | 2.13 | $ | 2.07 | ||||||
Weighted-average
shares used in computing basic earnings per share
|
126.3 | 128.1 | 132.0 | |||||||||
Diluted
earnings per common share
|
||||||||||||
Income
from continuing operations attributable to Equifax
|
$ | 1.70 | $ | 1.91 | $ | 1.83 | ||||||
Discontinued
operations
|
0.13 | 0.18 | 0.19 | |||||||||
Net
income attributable to Equifax
|
$ | 1.83 | $ | 2.09 | $ | 2.02 | ||||||
Weighted-average
shares used in computing diluted earnings per share
|
127.9 | 130.4 | 135.1 | |||||||||
Dividends
per common share
|
$ | 0.16 | $ | 0.16 | $ | 0.16 |
See Notes
to Consolidated Financial Statements.
4
CONSOLIDATED
BALANCE SHEETS
December 31,
|
||||||||
(In millions, except par values)
|
2009
|
2008
|
||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 103.1 | $ | 58.2 | ||||
Trade
accounts receivable, net of allowance for doubtful accounts of $15.1 and
$14.5 at December 31, 2009 and 2008, respectively
|
258.7 | 253.4 | ||||||
Prepaid
expenses
|
27.6 | 22.9 | ||||||
Other
current assets
|
27.4 | 19.3 | ||||||
Total
current assets
|
416.8 | 353.8 | ||||||
Property
and equipment:
|
||||||||
Capitalized
internal-use software and system costs
|
316.6 | 313.9 | ||||||
Data
processing equipment and furniture
|
184.2 | 176.6 | ||||||
Land,
buildings and improvements
|
164.5 | 124.0 | ||||||
Total
property and equipment
|
665.3 | 614.5 | ||||||
Less
accumulated depreciation and amortization
|
(346.0 | ) | (328.2 | ) | ||||
Total
property and equipment, net
|
319.3 | 286.3 | ||||||
Goodwill
|
1,943.2 | 1,760.0 | ||||||
Indefinite-lived
intangible assets
|
95.5 | 95.1 | ||||||
Purchased
intangible assets, net
|
687.0 | 682.2 | ||||||
Other
assets, net
|
88.7 | 82.9 | ||||||
Total
assets
|
$ | 3,550.5 | $ | 3,260.3 | ||||
LIABILITIES
AND EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Short-term
debt and current maturities
|
$ | 154.2 | $ | 31.9 | ||||
Capitalized
lease obligation
|
29.0 | — | ||||||
Accounts
payable
|
35.9 | 29.9 | ||||||
Accrued
expenses
|
67.7 | 57.6 | ||||||
Accrued
salaries and bonuses
|
58.1 | 54.2 | ||||||
Deferred
revenue
|
69.8 | 65.7 | ||||||
Other
current liabilities
|
77.5 | 78.7 | ||||||
Total
current liabilities
|
492.2 | 318.0 | ||||||
Long-term
debt
|
990.9 | 1,187.4 | ||||||
Deferred
income tax liabilities, net
|
249.3 | 215.3 | ||||||
Long-term
pension and other postretirement benefit liabilities
|
142.5 | 166.0 | ||||||
Other
long-term liabilities
|
60.6 | 50.1 | ||||||
Total
liabilities
|
1,935.5 | 1,936.8 | ||||||
Commitments
and Contingencies (see Note 5)
|
||||||||
Equifax
shareholders’ equity:
|
||||||||
Preferred
stock, $0.01 par value: Authorized shares — 10.0; Issued
shares — none
|
— | — | ||||||
Common
stock, $1.25 par value: Authorized shares — 300.0; Issued
shares — 189.3 and 189.2 at December 31, 2009 and 2008,
respectively; Outstanding shares — 126.2 and 126.3 at
December 31, 2009 and 2008, respectively
|
236.6 | 236.5 | ||||||
Paid-in
capital
|
1,102.0 | 1,075.2 | ||||||
Retained
earnings
|
2,494.2 | 2,281.0 | ||||||
Accumulated
other comprehensive loss
|
(318.7 | ) | (390.6 | ) | ||||
Treasury
stock, at cost, 61.0 shares and 59.7 shares at December 31, 2009 and
2008, respectively
|
(1,871.7 | ) | (1,837.9 | ) | ||||
Stock
held by employee benefits trusts, at cost, 2.1 shares and 3.2 shares at
December 31, 2009 and 2008, respectively
|
(41.2 | ) | (51.8 | ) | ||||
Total
Equifax shareholders’ equity
|
1,601.2 | 1,312.4 | ||||||
Noncontrolling
interests
|
13.8 | 11.1 | ||||||
Total
equity
|
1,615.0 | 1,323.5 | ||||||
Total
liabilities and equity
|
$ | 3,550.5 | $ | 3,260.3 |
See Notes
to Consolidated Financial Statements.
5
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Twelve Months Ended
December 31,
|
||||||||||||
(In millions)
|
2009
|
2008
|
2007
|
|||||||||
Operating
activities:
|
||||||||||||
Consolidated
net income
|
$ | 240.5 | $ | 279.0 | $ | 278.8 | ||||||
Adjustments
to reconcile consolidated net income to net cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
158.8 | 155.4 | 127.7 | |||||||||
Stock-based
compensation expense
|
19.6 | 19.9 | 17.6 | |||||||||
Tax
effects of stock-based compensation plans
|
0.9 | 2.9 | 6.6 | |||||||||
Excess
tax benefits from stock-based compensation plans
|
(1.3 | ) | (2.1 | ) | (7.0 | ) | ||||||
Deferred
income taxes
|
14.7 | 7.7 | 7.9 | |||||||||
Changes
in assets and liabilities, excluding effects of
acquisitions:
|
||||||||||||
Accounts
receivable, net
|
12.8 | 24.2 | (1.6 | ) | ||||||||
Prepaid
expenses and other current assets
|
(1.4 | ) | 3.5 | (5.3 | ) | |||||||
Other
assets
|
(6.9 | ) | (2.2 | ) | (18.7 | ) | ||||||
Current
liabilities, excluding debt
|
3.3 | (23.4 | ) | 38.9 | ||||||||
Other
long-term liabilities, excluding debt
|
(22.6 | ) | (16.8 | ) | 8.6 | |||||||
Cash
provided by operating activities
|
418.4 | 448.1 | 453.5 | |||||||||
Investing
activities:
|
||||||||||||
Capital
expenditures
|
(70.7 | ) | (110.5 | ) | (118.5 | ) | ||||||
Acquisitions,
net of cash acquired
|
(196.0 | ) | (27.4 | ) | (303.8 | ) | ||||||
Investment
in unconsolidated affiliates
|
(3.4 | ) | (3.7 | ) | — | |||||||
Cash
used in investing activities
|
(270.1 | ) | (141.6 | ) | (422.3 | ) | ||||||
Financing
activities:
|
||||||||||||
Net
short-term borrowings (repayments)
|
101.8 | (184.8 | ) | 139.7 | ||||||||
Net
(repayments) borrowings under long-term revolving credit
facilities
|
(415.2 | ) | 45.0 | 253.4 | ||||||||
Payments
on long-term debt
|
(31.8 | ) | (17.8 | ) | (250.0 | ) | ||||||
Proceeds
from issuance of long-term debt
|
274.4 | 2.3 | 545.7 | |||||||||
Treasury
stock purchases
|
(23.8 | ) | (155.7 | ) | (718.7 | ) | ||||||
Dividends
paid to Equifax shareholders
|
(20.2 | ) | (20.5 | ) | (20.7 | ) | ||||||
Dividends
paid to noncontrolling interests
|
(4.0 | ) | (3.4 | ) | (3.6 | ) | ||||||
Proceeds
from exercise of stock options
|
10.2 | 14.7 | 31.6 | |||||||||
Excess
tax benefits from stock-based compensation plans
|
1.3 | 2.1 | 7.0 | |||||||||
Other
|
(1.0 | ) | (1.0 | ) | (5.6 | ) | ||||||
Cash
used in financing activities
|
(108.3 | ) | (319.1 | ) | (21.2 | ) | ||||||
Effect
of foreign currency exchange rates on cash and cash
equivalents
|
4.9 | (10.8 | ) | 3.8 | ||||||||
Increase
(decrease) in cash and cash equivalents
|
44.9 | (23.4 | ) | 13.8 | ||||||||
Cash
and cash equivalents, beginning of period
|
58.2 | 81.6 | 67.8 | |||||||||
Cash
and cash equivalents, end of period
|
$ | 103.1 | $ | 58.2 | $ | 81.6 |
See Notes
to Consolidated Financial Statements.
6
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
|
||||||||||||||||||||||||||||||||||||
Equifax Shareholders
|
||||||||||||||||||||||||||||||||||||
Common Stock
|
||||||||||||||||||||||||||||||||||||
(In millions, except per share values)
|
Shares
Outstanding
|
Amount
|
Paid-In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
Loss
|
Treasury
Stock
|
Stock
Held By
Employee
Benefits Trusts
|
Noncontrolling
Interests
|
Total
Shareholders’
Equity
|
|||||||||||||||||||||||||||
Balance,
December 31, 2006
|
124.7 | $ | 232.9 | $ | 609.2 | $ | 1,778.6 | $ | (232.2 | ) | $ | (1,490.9 | ) | $ | (59.5 | ) | $ | 6.1 | $ | 844.2 | ||||||||||||||||
Net
income
|
— | — | — | 272.7 | — | — | — | 6.1 | 278.8 | |||||||||||||||||||||||||||
Other
comprehensive income
|
— | — | — | — | 61.7 | — | — | 0.2 | 61.9 | |||||||||||||||||||||||||||
Shares
issued under stock and benefit plans, net of minimum tax
withholdings
|
2.3 | 2.7 | 28.9 | — | — | (2.3 | ) | 1.8 | — | 31.1 | ||||||||||||||||||||||||||
Equity
consideration issued for TALX acquisition
|
20.6 | — | 372.4 | — | — | 532.9 | — | — | 905.3 | |||||||||||||||||||||||||||
Treasury
stock purchased under share repurchase program ($40.12 per
share)*
|
(17.9 | ) | — | — | — | — | (718.7 | ) | — | — | (718.7 | ) | ||||||||||||||||||||||||
Cash
dividends ($0.16 per share)
|
— | — | — | (21.3 | ) | — | — | — | — | (21.3 | ) | |||||||||||||||||||||||||
Reclassification
of director deferred compensation plan from liabilities to shareholders’
equity based on plan amendments
|
— | — | 5.5 | — | — | — | — | — | 5.5 | |||||||||||||||||||||||||||
Stock-based
compensation expense
|
— | — | 17.6 | — | — | — | — | — | 17.6 | |||||||||||||||||||||||||||
Tax
effects of stock-based compensation plans
|
— | — | 6.6 | — | — | — | — | — | 6.6 | |||||||||||||||||||||||||||
Dividends
paid to employee benefits trusts
|
— | — | 0.6 | — | — | — | — | — | 0.6 | |||||||||||||||||||||||||||
Dividends
paid to noncontrolling interests
|
— | — | — | — | — | — | — | (3.6 | ) | (3.6 | ) | |||||||||||||||||||||||||
Balance,
December 31, 2007
|
129.7 | $ | 235.6 | $ | 1,040.8 | $ | 2,030.0 | $ | (170.5 | ) | $ | (1,679.0 | ) | $ | (57.7 | ) | $ | 8.8 | $ | 1,408.0 | ||||||||||||||||
Net
income
|
— | — | — | 272.8 | — | — | — | 6.2 | 279.0 | |||||||||||||||||||||||||||
Other
comprehensive income
|
— | — | — | — | (220.1 | ) | — | — | (0.5 | ) | (220.6 | ) | ||||||||||||||||||||||||
Shares
issued under stock and benefit plans, net of minimum tax
withholdings
|
1.1 | 0.9 | 11.1 | — | — | (3.2 | ) | 5.9 | — | 14.7 | ||||||||||||||||||||||||||
Treasury
stock purchased under share repurchase program ($34.41 per
share)*
|
(4.5 | ) | — | — | — | — | (155.7 | ) | — | — | (155.7 | ) | ||||||||||||||||||||||||
Cash
dividends ($0.16 per share)
|
— | — | — | (21.0 | ) | — | — | — | — | (21.0 | ) | |||||||||||||||||||||||||
Dividends
paid to employee benefits trusts
|
— | — | 0.5 | — | — | — | — | — | 0.5 | |||||||||||||||||||||||||||
Stock-based
compensation expense
|
— | — | 19.9 | — | — | — | — | — | 19.9 | |||||||||||||||||||||||||||
Tax
effects of stock-based compensation plans
|
— | — | 2.9 | — | — | — | — | — | 2.9 | |||||||||||||||||||||||||||
Dividends
paid to noncontrolling interests
|
— | — | — | — | — | — | — | (3.4 | ) | (3.4 | ) | |||||||||||||||||||||||||
Adjustment
to initially apply EITF 06-04 and EITF 06-10
|
— | — | — | (0.8 | ) | — | — | — | — | (0.8 | ) | |||||||||||||||||||||||||
Balance,
December 31, 2008
|
126.3 | $ | 236.5 | $ | 1,075.2 | $ | 2,281.0 | $ | (390.6 | ) | $ | (1,837.9 | ) | $ | (51.8 | ) | $ | 11.1 | $ | 1,323.5 | ||||||||||||||||
Net
income
|
— | — | — | 233.9 | — | — | — | 6.6 | 240.5 | |||||||||||||||||||||||||||
Other
comprehensive income
|
— | — | — | — | 71.9 | — | — | 0.1 | 72.0 | |||||||||||||||||||||||||||
Shares
issued under stock and benefit plans, net of minimum tax
withholdings
|
0.8 | 0.1 | (0.6 | ) | — | — | 2.5 | 6.4 | — | 8.4 | ||||||||||||||||||||||||||
Treasury
stock purchased under share repurchase program
($26.41 per share)*
|
(0.9 | ) | — | — | — | — | (23.8 | ) | — | — | (23.8 | ) | ||||||||||||||||||||||||
Treasury
stock purchased from the Equifax Employee Stock Benefits Trust ($29.29 per
share)**
|
— | — | 8.3 | — | — | (12.5 | ) | 4.2 | — | — | ||||||||||||||||||||||||||
Cash
dividends ($0.16 per share)
|
— | — | — | (20.7 | ) | — | — | — | — | (20.7 | ) | |||||||||||||||||||||||||
Dividends
paid to employee benefits trusts
|
— | — | 0.5 | — | — | — | — | — | 0.5 | |||||||||||||||||||||||||||
Stock-based
compensation expense
|
— | — | 19.6 | — | — | — | — | — | 19.6 | |||||||||||||||||||||||||||
Tax
effects of stock-based compensation plans
|
— | — | 0.9 | — | — | — | — | — | 0.9 | |||||||||||||||||||||||||||
Dividends
paid to noncontrolling interests
|
— | — | — | — | — | — | — | (4.0 | ) | (4.0 | ) | |||||||||||||||||||||||||
Other
|
— | — | (1.9 | ) | — | — | — | — | — | (1.9 | ) | |||||||||||||||||||||||||
Balance,
December 31, 2009
|
126.2 | $ | 236.6 | $ | 1,102.0 | $ | 2,494.2 | $ | (318.7 | ) | $ | (1,871.7 | ) | $ | (41.2 | ) | $ | 13.8 | $ | 1,615.0 |
*
|
At
December 31, 2009, $121.9 million was authorized for future
repurchases of our common stock.
|
**
|
426,533
shares were reclassified from Stock Held by Employee Benefits Trusts to
Treasury Stock on our Consolidated Balance Sheets as a result of this
transaction.
|
See Notes
to Consolidated Financial Statements.
7
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
Accumulated
Other Comprehensive Loss consists of the following components:
December 31,
|
||||||||||||
(In millions)
|
2009
|
2008
|
2007
|
|||||||||
Foreign
currency translation
|
$ | (99.9 | ) | $ | (178.4 | ) | $ | (60.1 | ) | |||
Unrecognized
actuarial losses and prior service cost related to our pension and other
postretirement benefit plans, net of accumulated tax of $124.9, $119.2 and
$61.3 in 2009, 2008 and 2007, respectively
|
(216.2 | ) | (208.5 | ) | (106.5 | ) | ||||||
Cash
flow hedging transactions, net of tax of $1.7, $2.1 and $2.2 in 2009, 2008
and 2007, respectively
|
(2.6 | ) | (3.7 | ) | (3.9 | ) | ||||||
Accumulated
other comprehensive loss
|
$ | (318.7 | ) | $ | (390.6 | ) | $ | (170.5 | ) |
Comprehensive
Income is as follows:
Twelve Months Ended December 31,
|
||||||||||||||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||||||||||||||
(In millions)
|
Equifax
Shareholders
|
Noncontrolling
Interests
|
Total
|
Equifax
Shareholders
|
Noncontrolling
Interests
|
Total
|
Equifax
Shareholders
|
Noncontrolling
Interests
|
Total
|
|||||||||||||||||||||||||||
Net
income
|
$ | 233.9 | $ | 6.6 | $ | 240.5 | $ | 272.8 | $ | 6.2 | $ | 279.0 | $ | 272.7 | $ | 6.1 | $ | 278.8 | ||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
Foreign
currency translation adjustment
|
78.5 | 0.1 | 78.6 | (118.3 | ) | (0.5 | ) | (118.8 | ) | 53.1 | 0.2 | 53.3 | ||||||||||||||||||||||||
Recognition
of prior service cost and actuarial gains (losses) related to our pension
and other postretirement benefit plans
|
(7.7 | ) | — | (7.7 | ) | (102.0 | ) | — | (102.0 | ) | 11.9 | — | 11.9 | |||||||||||||||||||||||
Change
in cumulative loss from cash flow hedging transactions
|
1.1 | — | 1.1 | 0.2 | — | 0.2 | (3.3 | ) | — | (3.3 | ) | |||||||||||||||||||||||||
Comprehensive
income
|
$ | 305.8 | $ | 6.7 | $ | 312.5 | $ | 52.7 | $ | 5.7 | $ | 58.4 | $ | 334.4 | $ | 6.3 | $ | 340.7 |
See Notes
to Consolidated Financial Statements.
8
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
As used
herein, the terms Equifax, the Company, we, our and us refer to
Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a
combined entity, except where it is clear that the terms mean only
Equifax Inc.
Nature of
Operations. We collect, organize and manage various types of
financial, demographic, 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 enterprises. We serve customers across a wide range of industries,
including the financial services, mortgage, retail, telecommunications,
utilities, automotive, brokerage, healthcare and insurance industries, as well
as government agencies. We also enable consumers to manage and protect their
financial health through a portfolio of products offered directly to consumers.
As of December 31, 2009, we operated in the following countries: Argentina,
Brazil, Canada, Chile, Ecuador, El Salvador, Honduras, Peru, Portugal, Spain,
the United Kingdom, or U.K., Uruguay, and the United States of America, or U.S.
We also maintain support operations in Costa Rica and the Republic of Ireland.
We own an equity interest in a consumer credit information company in Russia.
During 2009, we formed a joint venture, pending regulatory approval, to provide
a broad range of credit data and information solutions in India.
We
develop, maintain and enhance secured proprietary information databases through
the compilation of actual consumer data, including credit, employment, asset,
liquidity, net worth and spending activity, and business data, including credit
and business demographics, that we obtain from a variety of sources, such as
credit granting institutions, public record information (including bankruptcies,
liens and judgments), income and tax information primarily from large to
mid-sized companies in the U.S., and marketing information from surveys and
warranty cards. We process this information utilizing our proprietary
information management systems.
We
acquired Rapid Reporting Verification Company, a provider of IRS tax transcript
information and social security number authentication services, on
November 2, 2009. On October 27, 2009, we acquired IXI Corporation, a
provider of consumer wealth and asset data. Additionally, we acquired TALX
Corporation, a leading provider of employment and income verification and human
resources business process outsourcing services, on May 15, 2007. The
results of these acquisitions are included in our consolidated results
subsequent to the acquisition dates.
Basis of
Consolidation. Our Consolidated Financial Statements and the
accompanying notes, which are prepared in accordance with U.S. generally
accepted accounting principles, or GAAP, include Equifax and all its
subsidiaries. We consolidate all majority-owned and controlled subsidiaries as
well as variable interest entities in which we are the primary beneficiary.
Other parties’ interests in consolidated entities are reported as noncontrolling
interests. We use the equity method of accounting for investments in which we
are able to exercise significant influence and use the cost method for all other
investments. All significant intercompany transactions and balances are
eliminated.
Our
Consolidated Financial Statements reflect all adjustments which are, in the
opinion of management, necessary for a fair presentation of the periods
presented therein. Certain prior year amounts have been reclassified to conform
to current year presentation, including selling, general and administrative
expense of $13.2 million and $5.4 million, respectively, for the
twelve months ended December 31, 2008 and 2007, which was reclassified to
cost of services and the results of businesses reclassified as a
discontinued operation, which is more fully described in Note 14 of the Notes to
Consolidated Financial Statements.
Segments. We manage
our business and report our financial results through the following five
reportable segments, which are the same as operating segments:
•
|
U.S.
Consumer Information Solutions, or
USCIS
|
•
|
International
|
•
|
TALX
|
9
•
|
North
America Personal Solutions
|
•
|
North
America Commercial Solutions
|
USCIS is
our largest reportable segment, with 42% of total operating revenue during 2009.
Our most significant foreign operations are located in Canada, the U.K. and
Brazil.
Use of
Estimates. The preparation of our Consolidated Financial
Statements requires us to make estimates and assumptions in accordance with
GAAP. Accordingly, we make these estimates and assumptions after exercising
judgment. We believe that the estimates and assumptions inherent in our
Consolidated Financial Statements are reasonable, based upon information
available to us at the time they are made including the consideration of events
that have occurred up until the point these Statements have been filed. These
estimates and assumptions affect the reported amounts of assets, liabilities,
revenues and expenses, and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as reported amounts of revenues
and expenses during the reporting period. Actual results could differ materially
from these estimates.
Revenue Recognition and Deferred
Revenue. Revenue is recognized when persuasive evidence of an
arrangement exists, collectibility of arrangement consideration is reasonably
assured, the arrangement fees are fixed or determinable and delivery of the
product or service has been completed. A significant portion of our revenue is
derived from our processing of transactions related to the provision of
information services to our customers, in which case revenue is recognized,
assuming all other revenue recognition criteria are met, when the services are
provided. A smaller portion of our revenues relate to subscription-based
contracts under which a customer pays a preset fee for a predetermined or
unlimited number of transactions or services provided during the subscription
period, generally one year. Revenue related to subscription-based contracts
having a preset number of transactions is recognized as the services are
provided, using an effective transaction rate as the actual transactions are
completed. Any remaining revenue related to unfulfilled units is not recognized
until the end of the related contract’s subscription period. Revenue related to
subscription-based contracts having an unlimited volume is recognized ratably
during the contract term. Revenue is recorded net of sales taxes.
If at the
outset of an arrangement, we determine that collectibility is not reasonably
assured, revenue is deferred until the earlier of when collectibility becomes
probable or the receipt of payment. If there is uncertainty as to the customer’s
acceptance of our deliverables, revenue is not recognized until the earlier of
receipt of customer acceptance or expiration of the acceptance period. If at the
outset of an arrangement, we determine that the arrangement fee is not fixed or
determinable, revenue is deferred until the arrangement fee becomes estimable,
assuming all other revenue recognition criteria have been met.
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 arrears. In these instances, we estimate
transaction volumes based on average actual reported volumes reported in the
past. Differences between our estimates and actual final volumes reported are
recorded in the period in which actual volumes are reported. We have not
experienced significant variances between our estimates and actual reported
volumes in the past. We monitor actual volumes to ensure that we will continue
to make reasonable estimates in the future. If we determine that we are unable
to make reasonable future estimates, revenue may be deferred until actual
customer data is obtained. Also within our TALX operating segment, the fees for
certain of our tax credits and incentives revenue are based on a portion of the
credit delivered to our clients. Revenue for these arrangements is recognized
based on the achievement of milestones, upon calculation of the credit, or when
the credit is utilized by our client, depending on the provisions of the client
contract.
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
decisioning technologies personnel, training services, statistical models and
other services. To account for each of these elements separately, the delivered
elements must have stand-alone value to our customer, and there must exist
objective and reliable evidence of the fair value for any undelivered elements.
For certain customer contracts, the total arrangement fee is allocated to the
undelivered elements based on their fair values and to the initial delivered
elements using the residual method. If we are unable to unbundle the arrangement
into separate units of accounting, we apply one of the accounting policies
described above. This may lead to the arrangement consideration being recognized
as the final contract element is delivered to our customer.
10
Many of
our multiple element arrangements involve the delivery of services generated by
a combination of services provided by one or more of our operating segments. No
individual information service impacts the value or usage of other information
services included in an arrangement and each service can be sold alone or, in
most cases, purchased from another vendor without affecting the quality of use
or value to the customer of the other information services included in the
arrangement. Some of our products require the development of interfaces or
platforms by our decisioning technologies personnel that allow our customers to
interact with our proprietary information databases. These development services
do not meet the requirement for having stand-alone value, thus any related
development fees are deferred when billed and are recognized over the expected
period that the customer will benefit from the related decisioning technologies
service. Revenue from the provision of statistical models is recognized as the
service is provided and accepted, assuming all other revenue recognition
criteria are met.
We record
revenue on a net basis for those sales in which we have in substance acted as an
agent or broker in the transaction. The direct costs of set up of a customer are
capitalized and amortized as a cost of service during the term of the related
customer contract.
Deferred
revenue consists of amounts billed in excess of revenue recognized on sales of
our information services relating generally to the deferral of subscription fees
and arrangement consideration from elements not meeting the criteria for having
stand-alone value discussed above. Deferred revenues are subsequently recognized
as revenue in accordance with our revenue recognition policies.
Cost of
Services. Cost of services consist primarily of (1) 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 associated
with transaction processing systems; (4) telecommunication and computer
network expense; and (5) occupancy costs associated with facilities where
these functions are performed by Equifax employees.
Selling, General and Administrative
Expenses. Selling, general and administrative expenses consist
primarily of personnel-related costs, restructuring costs, corporate costs, fees
for professional and consulting services, advertising costs, and other costs of
administration.
Advertising. Advertising
costs from continuing operations, which are expensed as incurred, totaled
$31.9 million, $28.4 million and $26.8 million during 2009, 2008
and 2007, respectively.
Stock-Based
Compensation. We recognize the cost of stock-based payment
transactions in the financial statements over the period services are rendered
according to the fair value of the stock-based awards issued. All of our stock-
based awards, which are stock options and nonvested stock, are classified as
equity instruments.
Income Taxes. We
account for income taxes under the liability method. Deferred income tax assets
and liabilities are determined based on the estimated future tax effects of
temporary differences between the financial statement and tax bases of assets
and liabilities, as measured by current enacted tax rates. We periodically
assess whether it is more likely than not that we will generate sufficient
taxable income to realize our deferred tax assets. We record a valuation
allowance, as necessary, to reduce our deferred tax assets to the amount of
future tax benefit that we estimate is more likely than not to be
realized.
We record
tax benefits for positions that we believe are more likely than not of being
sustained under audit examinations. Regularly, we assess the potential outcome
of such examinations to determine the adequacy of our income tax accruals. We
adjust our income tax provision during the period in which we determine that the
actual results of the examinations may differ from our estimates or when
statutory terms expire. Changes in tax laws and rates are reflected in our
income tax provision in the period in which they occur.
Earnings Per
Share. Our basic earnings per share, or EPS, is calculated as
net income divided by the weighted-average number of common shares outstanding
during the reporting period. Diluted EPS is calculated to reflect the potential
dilution that would occur if stock options or other contracts to issue common
stock were exercised and resulted in additional common shares outstanding. The
net income amounts used in both our basic and diluted EPS calculations are the
same. A reconciliation of the weighted-average outstanding shares used in the
two calculations is as follows:
11
Twelve Months Ended
December 31,
|
||||||||||||
(In millions)
|
2009
|
2008
|
2007
|
|||||||||
Weighted-average
shares outstanding (basic)
|
126.3 | 128.1 | 132.0 | |||||||||
Effect
of dilutive securities:
|
||||||||||||
Stock
options and restricted stock units
|
1.4 | 2.2 | 2.9 | |||||||||
Long-term
incentive plans
|
0.2 | 0.1 | 0.2 | |||||||||
Weighted-average
shares outstanding (diluted)
|
127.9 | 130.4 | 135.1 |
For the
twelve months ended December 31, 2009, 2008 and 2007, 3.3 million,
2.1 million and 0.6 million stock options, respectively, were
anti-dilutive and therefore excluded from this calculation.
Cash
Equivalents. We consider all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Trade Accounts Receivable and
Allowance for Doubtful Accounts. We do not recognize interest
income on our trade accounts receivable. Additionally, we generally do not
require collateral from our customers related to our trade accounts
receivable.
The
allowance for doubtful accounts for estimated losses on trade accounts
receivable is based on historical write-off experience, an analysis of the aging
of outstanding receivables, customer payment patterns and the establishment of
specific reserves for customers in an adverse financial condition. We reassess
the adequacy of the allowance for doubtful accounts each reporting period.
Increases to the allowance for doubtful accounts are recorded as bad debt
expense, which are included in selling, general and administrative expenses on
the accompanying Consolidated Statements of Income. Bad debt expense from
continuing operations was $6.6 million, $10.0 million and
$8.0 million during the twelve months ended December 31, 2009, 2008,
and 2007, respectively.
Long-Lived
Assets. Property and equipment are stated at cost less
accumulated depreciation and amortization. The cost of additions is capitalized.
Property and equipment are depreciated primarily on a straight-line basis over
assets’ estimated useful lives, which are generally three to five 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 reasonably assured. Buildings are
depreciated over a forty-year period. Other fixed assets are depreciated over
three to seven years. Upon sale or retirement of an asset, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss is
recognized and included in income from operations on the Consolidated Statements
of Income, with the classification of any gain or loss dependent on the
characteristics of the asset sold or retired.
Certain
internal-use software and system development costs are deferred and capitalized.
Accordingly, the specifically identified costs incurred to develop or obtain
software which is intended for internal use are not capitalized until the
determination is made as to the availability of a technically feasible solution
to solve the predefined user and operating performance requirements as
established during the preliminary stage of an internal-use software development
project. Costs incurred during a software development project’s preliminary
stage and post-implementation stage are expensed. Application development
activities which are eligible for capitalization include software design and
configuration, development of interfaces, coding, testing, and installation.
Capitalized internal-use software and systems costs are subsequently amortized
on a straight-line basis over a three- to ten-year period after project
completion and when the related software or system is ready for its intended
use.
Depreciation
and amortization expense from continuing operations related to property and
equipment was $65.0 million, $59.5 million and $54.7 million
during the twelve months ended December 31, 2009, 2008, and 2007,
respectively.
Industrial Revenue
Bonds. Pursuant to the terms of the industrial revenue bonds,
we transferred title to certain of our fixed assets with costs of
$35.7 million and $28.4 million as of December 31, 2009 and 2008,
respectively, to a local governmental authority in the U.S. to receive a
property tax abatement related to economic development. The title to these
assets will revert back to us upon retirement or cancellation of the applicable
bonds. These fixed assets are still recognized in the Company’s Consolidated
Balance Sheets as all risks and rewards remain with the
Company.
12
Impairment of Long-Lived
Assets. We monitor the status of our long-lived assets in
order to determine if conditions exist or events and circumstances indicate that
an asset group may be impaired in that its carrying amount may not be
recoverable. Significant factors that are considered that could be indicative of
an impairment include: changes in business strategy, market conditions or the
manner in which an asset group is used; underperformance relative to historical
or expected future operating results; and negative industry or economic trends.
If potential indicators of impairment exist, we estimate recoverability based on
the asset group’s ability to generate cash flows greater than the carrying value
of the asset group. We estimate the undiscounted future cash flows arising from
the use and eventual disposition of the related long-lived asset group. If the
carrying value of the long-lived asset group exceeds the estimated future
undiscounted cash flows, an impairment loss is recorded based on the amount by
which the asset group’s carrying amount exceeds its fair value. We utilize
estimates of discounted future cash flows to determine the asset group’s fair
value. During 2008, we recorded a $2.4 million impairment loss, included in
depreciation 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. Goodwill is not
amortized. We are required to test goodwill for impairment at the reporting unit
level on an annual basis or on an interim basis if an event occurs or
circumstances change that would reduce the fair value of a reporting unit below
its carrying value. We perform our annual goodwill impairment test as of
September 30 each year. In analyzing goodwill for potential impairment, we
use a combination of the income and market approaches to estimate the reporting
unit’s fair value. Under the income approach, we calculate the fair value of a
reporting unit based on estimated future discounted cash flows. The assumptions
we use are based on what we believe a hypothetical marketplace participant would
use in estimating fair value. Under the market approach, we estimate the fair
value based on market multiples of revenue or earnings for benchmark companies.
If the fair value of a reporting unit exceeds its carrying value, then no
further testing is required. However, if a reporting unit’s fair value were to
be less than its carrying value, we would then determine the amount of the
impairment charge, if any, which would be the amount that the carrying value of
the reporting unit’s goodwill exceeded its implied value.
13
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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. Our contractual/territorial rights are
perpetual in nature and, therefore, the useful lives are considered indefinite.
Indefinite-lived intangible assets are not amortized. We are required to test
indefinite-lived intangible assets for impairment annually or whenever events
and circumstances indicate that there may be an impairment of the asset value.
Our annual impairment test date is September 30. We perform the impairment
test for our indefinite-lived intangible assets by comparing the asset’s fair
value to its carrying value. We estimate the fair value based on projected
discounted future cash flows. An impairment charge is recognized if the asset’s
estimated fair value is less than its carrying value.
We
completed our annual impairment testing for goodwill and indefinite-lived
intangible assets during the twelve months ended December 31, 2009, 2008,
and 2007, and we determined that there was no impairment in any of these
years.
Purchased Intangible
Assets. Purchased intangible assets represent the estimated
fair value of acquired intangible assets used in our business. Purchased data
files represent the estimated fair value of consumer credit files acquired
primarily through the purchase of independent credit reporting agencies in the
U.S. and Canada. We expense the cost of modifying and updating credit files in
the period such costs are incurred. We amortize purchased data files, which
primarily consist of acquired credit files, on a straight-line basis. Primarily
all of our other purchased intangible assets are also amortized on a
straight-line basis.
Asset
|
Useful Life
(in years)
|
Purchased
data files
|
2
to 15
|
Acquired
software and technology
|
1
to 10
|
Non-compete
agreements
|
1
to 10
|
Proprietary
database
|
6
to 10
|
Customer
relationships
|
2
to 25
|
Trade
names
|
5
to 15
|
Other Assets. Other
assets on our Consolidated Balance Sheets primarily represents our investment in
unconsolidated affiliates, assets related to life insurance policies covering
certain officers of the Company, employee benefit trust assets, a
statutorily-required tax deposit and data purchases, net of related
amortization.
Benefit Plans. We
sponsor various pension and defined contribution plans. We also maintain certain
healthcare and life insurance benefit plans for eligible retired U.S. employees.
Benefits under the pension and other postretirement benefit plans are generally
based on age at retirement and years of service and for some pension plans,
benefits are also based on the employee’s annual earnings. The net periodic cost
of our pension and other postretirement plans is determined using several
actuarial assumptions, the most significant of which are the discount rate and
the expected return on plan assets. Our Consolidated Balance Sheets reflect the
funded status of the pension and postretirement plans.
Foreign Currency
Translation. The functional currency of each of our foreign
subsidiaries is that subsidiary’s local currency. We translate the assets and
liabilities of foreign subsidiaries at the year-end rate of exchange and revenue
and expenses at the monthly average rates during the year. We record the
resulting translation adjustment in other comprehensive income, a component of
shareholders’ equity. We also record gains and losses resulting from the
translation of intercompany balances of a long-term investment nature in
accumulated other comprehensive loss.
Financial
Instruments. Our financial instruments consist primarily of
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. The fair value of our fixed-rate debt is determined
using quoted market prices for publicly traded instruments, and for non-publicly
traded instruments through valuation techniques depending on the specific
characteristics of the debt instrument, taking into account credit risk. As of
December 31, 2009 and 2008, the fair value of our fixed-rate debt was
$1.02 billion and $597.7 million, respectively, compared to its
carrying value of $1.00 billion and $767.1 million,
respectively.
14
Derivatives and Hedging
Activities. Although derivative financial instruments are not
utilized for speculative purposes or as the Company’s primary risk management
tool, derivatives have been used as a risk management tool to hedge the
Company’s exposure to changes in interest rates and foreign exchange rates. We
have used interest rate swaps and interest rate lock agreements to manage
interest rate risk associated with our fixed and floating-rate borrowings.
Forward contracts on various foreign currencies have been used to manage the
foreign currency exchange rate risk of certain firm commitments denominated in
foreign currencies. We recognize all derivatives on the balance sheet at fair
value. Derivative valuations reflect the value of the instrument including the
value associated with counterparty risk.
Fair Value
Hedges. In conjunction with our fourth quarter 2009 sale of
five-year Senior Notes, we entered into five-year interest rate swaps,
designated as fair value hedges, which convert the debt’s fixed interest rate to
a variable rate. These swaps involve the receipt of fixed rate amounts for
floating interest rate payments over the life of the swaps without exchange of
the underlying principal amount. Changes in the fair value of the interest rate
swaps offset changes in the fair value of the fixed-rate Senior Notes they hedge
due to changes in the designated benchmark interest rate and are recorded in
interest expense. The fair value liability of these interest rate swaps at
December 31, 2009, was $3.3 million and was recorded in other
long-term liabilities on our Consolidated Balance Sheets.
Cash Flow
Hedges. Changes in the fair value of highly effective
derivatives designated as cash flow hedges are initially recorded in accumulated
other comprehensive income and are reclassified into the line item in the
Consolidated Statements of Income in which the hedged item is recorded in the
same period the hedged item impacts earnings. Any ineffective portion is
recorded in current period earnings.
Our
inventory of cash flow hedges at December 31, 2009, consisted of an
interest rate swap that expires February 2010 and forward purchase contracts,
with an aggregate notional amount of 0.8 million euros, to hedge the
exposure of certain firm commitments of our U.K. subsidiary that are denominated
in euros. The fair value liability of our unsettled cash flow hedges was not
material at December 31, 2009.
We
entered into interest rate lock agreements in conjunction with our 2007 sale of
6.3% senior notes due 2017 and 7.0% senior notes due 2037. These cash flow
hedges were settled on June 25 and June 26, 2007, the respective dates
the ten- and thirty-year senior notes were sold, requiring payment of
$1.9 million and $3.0 million, respectively. The impact of these
settlements has been recorded in other comprehensive income and is amortized
with interest expense over the respective terms of the senior
notes.
Fair Value
Measurements. Fair value is determined based on the
assumptions marketplace participants use in pricing the asset or liability. We
use a three level fair value hierarchy to prioritize the inputs used in
valuation techniques between observable inputs that reflect quoted prices in
active markets, inputs other than quoted prices with observable market data and
unobservable data (e.g., a company’s own data). The adoption of fair value
guidance for nonfinancial assets and nonfinancial liabilities on January 1,
2009 did not have a material impact on our Consolidated Financial
Statements.
The
following table presents liabilities measured at fair value on a recurring
basis:
Fair Value Measurements at Reporting
Date Using:
|
||||||||||||||||
Description
|
Fair Value at
December 31,
2009
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
(In millions)
|
||||||||||||||||
Liabilities:
|
||||||||||||||||
Deferred
Compensation Plan(1)
|
$ | 11.5 | $ | 11.5 | $ | — | $ | — | ||||||||
Fair
Value Interest Rate Swaps(2)
|
3.3 | — | 3.3 | — | ||||||||||||
Total
liabilities
|
$ | 14.8 | $ | 11.5 | $ | 3.3 | $ | — |
(1)
|
We
maintain deferred compensation plans that allow for certain management
employees to defer the receipt of compensation (such as salary, incentive
compensation and commissions) until a later date based on the terms of the
plans. The liability representing benefits accrued for plan participants
is valued at the quoted market prices of the participants’ elections for
investments in variable life insurance policies. Identical instruments are
traded in active markets that we have access to as of December 31,
2009. As such, we have classified this liability as Level 1 within
the fair value hierarchy.
|
15
(2)
|
The
fair value of our interest rate swaps, designated as fair value hedges, is
based on the present value of expected future cash flows using zero coupon
rates and is classified within Level 2 of the fair value
hierarchy.
|
Recent Accounting
Pronouncements. Noncontrolling Interests. In
December 2007, the FASB issued guidance which established accounting and
reporting standards for noncontrolling interests and for the deconsolidation of
a subsidiary. This guidance was effective prospectively, except for certain
retrospective disclosure requirements. Our adoption of this guidance on
January 1, 2009, did not have a material impact on our Consolidated
Financial Statements.
Fair Value
Disclosures. In December 2008, the FASB issued guidance
requiring entities to disclose more information about pension asset valuations,
investment allocation decisions, and major categories of plan assets. These
disclosure requirements are effective for years ending after December 15,
2009. Our adoption did not have a material impact on our Consolidated Financial
Statements.
In
September 2009, the FASB issued guidance regarding use of the net asset value
per share provided by an investee to estimate the fair value of an alternative
investment when the fair value is not readily determinable. This guidance
affects certain investments that are held by our pension plans and is effective
for interim and annual periods ending after December 15, 2009. Our adoption
did not have a material impact on our Consolidated Financial
Statements.
In
January 2010, the FASB issued guidance requiring additional fair value
disclosures for significant transfers between levels of the fair value hierarchy
and gross presentation of items within the Level 3 reconciliation. This
guidance also clarifies that entities need to disclose fair value information
for each class of asset and liability measured at fair value and that valuation
techniques need to be provided for all non-market observable measurements. Our
adoption of this guidance on January 1, 2010, is not expected to have a
material impact on our Consolidated Financial Statements.
Subsequent
Events. In May 2009, the FASB issued guidance which
established standards for accounting and disclosure of events that occur after
the balance sheet date, but before financial statements are issued. This
guidance was effective for interim and annual periods ending after June 15,
2009. Our adoption did not have a material impact on our Consolidated Financial
Statements. We evaluated subsequent events occurring through February 23,
2010, which is the date our financial statements were issued.
Variable Interest
Entities. In June 2009, the FASB amended the consolidation
guidance for variable-interest entities and expanded disclosure requirements.
The new guidance requires an enterprise to perform an analysis to determine
whether the enterprise’s variable interests give it a controlling financial
interest in the variable interest entity. The adoption of this guidance on
January 1, 2010, is not expected to have a material impact on our
Consolidated Financial Statements.
Revenue Arrangements with Multiple
Deliverables. In October 2009, the FASB issued revenue
guidance for multiple-deliverable arrangements which addresses how to separate
deliverables and how to measure and allocate arrangement consideration. This
guidance requires vendors to develop the best estimate of selling price for each
deliverable and to allocate arrangement consideration using this selling price.
The guidance is effective prospectively for revenue arrangements entered into or
materially modified in annual periods beginning after June 15, 2010. We are
currently evaluating the impact of adoption on our Consolidated Financial
Statements.
2. ACQUISITIONS
AND INVESTMENTS
2009 Acquisitions and
Investments. On December 23, 2009, as a part of our
long-term growth strategy of expanding into emerging markets, we formed a joint
venture, Equifax Credit Information Services Private Limited, or ECIS, to
provide a broad range of credit data and information solutions in India. This
joint venture is pending regulatory approval. We paid cash consideration of
$5.2 million for our 49 percent equity interest in ECIS.
On
November 2, 2009, to further enhance our income and identity verification
service offerings, we acquired Rapid Reporting Verification Company, or Rapid, a
provider of IRS tax transcript information and social security number
authentication services, for $72.5 million. The results of this acquisition
have been included in our TALX operating segment subsequent to the
acquisition.
16
On
October 27, 2009, we acquired IXI Corporation, or IXI, a provider of
consumer wealth and asset data, for $124.0 million. This acquisition
enables us to offer more differentiated and in-depth consumer income, wealth and
other data to help our clients improve their marketing, collections, portfolio
management and customer management efforts across different product segments.
The results of this acquisition have been included in our U.S. Consumer
Information Solutions operating segment subsequent to the acquisition
date.
We
financed these purchases through borrowings under our Senior Credit Facility,
which were subsequently refinanced through the issuance in November 2009 of our
4.45%, five-year unsecured Senior Notes. The 4.45% Senior Notes are further
described in Note 4 of the Notes to the Consolidated Financial Statements
in this report.
On
August 12, 2009, in order to enhance our Mortgage Solutions business market
share, we acquired certain assets and specified liabilities of a small mortgage
credit reporting reseller for cash consideration of $3.8 million. The
results of this acquisition have been included in our U.S. Consumer Information
Solutions segment subsequent to the acquisition date.
2008 Acquisitions and
Investments. To further enhance our market share and grow our
credit data business, during the twelve months ended December 31, 2008, we
completed nine acquisitions and investments in a number of small businesses
totaling $27.4 million, net of cash acquired. Six of the transactions were
in our International segment, two within our U.S. Consumer Information Solutions
segment and one within our TALX segment. We recorded a $6.0 million
liability at December 31, 2009, with a corresponding adjustment to
goodwill, for the contingent earn-out payment associated with the acquired
company within the TALX segment. The earn-out payment was measured on the
completion of 2009 revenue targets and will be paid in 2010.
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,
for cash consideration of $4.4 million, which is now doing business as
Equifax Credit Services, LLC in Russia. Under our shareholders’ agreement,
we have the option to acquire up to an additional 22 percent interest
in GPCS between 2011 and 2013 for cash consideration based on a formula for
determining equity value of the business and the assumption of certain debt,
subject to satisfaction of certain conditions.
17
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
2007
Acquisitions. On October 19, 2007, in order to continue
to grow our credit data business, our Peruvian subsidiary, which is reported in
our International operating segment, purchased 100% of the stock of a credit
reporting business located in Peru for cash consideration of
$8.0 million.
On
May 15, 2007, we completed the acquisition of all of the outstanding shares
of TALX, a leading provider of employment and income verification and human
resources business process outsourcing services. The acquisition aligned with
our long-term growth strategy of expanding into new markets with unique data.
Under the terms of the transaction, we issued 20.6 million shares of
Equifax common stock from treasury, issued 1.9 million fully-vested options
to purchase Equifax common stock and paid approximately $288.1 million in
cash, net of cash acquired. The value of the shares issued was
$844.2 million determined using an average share price over a reasonable
period of time before and after the acquisition terms were announced. The fair
value of options issued was $61.1 million determined using the
Black-Scholes-Merton valuation model. The fair value of the vested options is
included in the total purchase price. We also assumed TALX’s outstanding debt,
which had a fair value totaling $177.6 million at May 15, 2007. We
financed the cash portion of the acquisition cost and $96.6 million
outstanding on the TALX revolving credit facility at the date of acquisition
initially with borrowings under our $850.0 million senior unsecured credit
facility, which we refer to as the Senior Credit Facility, and subsequently
refinanced this debt in the second quarter of 2007 with ten- and thirty-year
notes. The results of TALX’s operations are included in our Consolidated
Financial Statements beginning on May 15, 2007. TALX is reported as a
separate operating segment. Subsequent to the date of the acquisition in 2007,
we paid $4.1 million to the former owners of a company purchased by TALX
pursuant to an earn-out agreement.
We also
acquired the assets of three mortgage solutions affiliates for cash paid of
$3.8 million during the first quarter of 2007.
Purchase Price
Allocation. The following table summarizes the estimated fair
value of the net assets acquired and the liabilities assumed at the acquisition
dates. These 2009 allocations are considered final, except for the resolution of
certain contingencies all of which existed at the acquisition date, primarily
related to sales tax exposures and income tax accounts, which will be resolved
when final returns are filed related to the acquired entities. Estimates for
these items have been included in the purchase price allocations and will be
finalized prior to the one year anniversary date of the
acquisitions.
December 31,
|
||||||||
(In millions)
|
2009
|
2008
|
||||||
Current
assets
|
$ | 13.1 | $ | 3.0 | ||||
Property
and equipment
|
1.9 | 0.3 | ||||||
Other
assets
|
3.0 | 0.1 | ||||||
Identifiable
intangible assets(1)
|
83.9 | 16.2 | ||||||
Goodwill(2)
|
116.7 | 18.3 | ||||||
Total
assets acquired
|
218.6 | 37.9 | ||||||
Total
liabilities assumed
|
(18.3 | ) | (9.6 | ) | ||||
Net
assets acquired
|
$ | 200.3 | $ | 28.3 |
(1)
|
Identifiable
intangible assets are further disaggregated in the table
below.
|
(2)
|
Of
the goodwill resulting from 2009 and 2008 acquisitions, $39.6 million
and $4.4 million, respectively, is tax
deductible.
|
The
primary reasons the purchase price of certain of these acquisitions exceeded the
fair value of the net assets acquired, which resulted in the recognition of
goodwill, were expanded growth opportunities from new or enhanced product
offerings, cost savings from the elimination of duplicative activities, and the
acquisition of intellectual property and workforce that are not recognized as
assets apart from goodwill.
18
December 31,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
Intangible asset category
|
Fair value
|
Weighted-average
useful life
|
Fair value
|
Weighted-average
useful life
|
||||||||||||
(in millions)
|
(in years)
|
(in millions)
|
(in years)
|
|||||||||||||
Customer
relationships
|
$ | 61.7 | 13.2 | $ | 12.2 | 9.2 | ||||||||||
Proprietary
database
|
7.4 | 5.9 | — | — | ||||||||||||
Purchased
data files
|
— | — | 0.4 | 12.5 | ||||||||||||
Acquired
software and technology
|
7.1 | 5.6 | 0.9 | 3.4 | ||||||||||||
Non-compete
agreements
|
2.2 | 5.0 | 0.3 | 6.9 | ||||||||||||
Trade
names and other intangible assets
|
5.5 | 8.1 | 2.4 | 5.9 | ||||||||||||
Total
acquired intangibles
|
$ | 83.9 | 11.4 | $ | 16.2 | 8.5 |
Since the
dates of acquisition, IXI contributed approximately $6 million of revenue
and Rapid contributed approximately $5 million of revenue, which are
included in the Company’s Consolidated Statement of Income. The impact of the
2009 and 2008 acquisitions would not have significantly changed our Consolidated
Statements of Income if they had occurred at the beginning of the earliest year
presented as revenue, consolidated net income, net income attributable to
Equifax and diluted earnings per share would not have changed by more than
3%.
3. GOODWILL
AND OTHER INTANGIBLE ASSETS
Goodwill. Goodwill
represents the cost in excess of the fair value of the net assets acquired in a
business combination. As discussed in Note 1, goodwill is tested for
impairment at the reporting unit level on an annual basis and on an interim
basis if an event occurs or circumstances change that would reduce the fair
value of a reporting unit below its carrying value. We perform our annual
goodwill impairment tests as of September 30 each year. The fair value
estimates for our reporting units were determined using a combination of the
income and market approaches in accordance with the Company’s methodology. Our
annual impairment tests as of September 30, 2009, 2008 and 2007 resulted in
no impairment of goodwill. We have undertaken reasonable efforts to determine
that we do not have an accumulated impairment loss.
In
conjunction with the finalization of the TALX purchase price allocation in 2008,
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, 2009 and 2008, are as
follows:
(in millions)
|
U.S. Consumer
Information
Solutions
|
International
|
TALX
|
North America
Personal
Solutions
|
North America
Commercial
Solutions
|
Total
|
||||||||||||||||||
Balance,
December 31, 2007
|
$ | 491.2 | $ | 351.6 | $ | 952.3 | $ | 1.8 | $ | 37.7 | $ | 1,834.6 | ||||||||||||
Acquisitions
|
2.7 | 8.8 | 1.2 | — | — | 12.7 | ||||||||||||||||||
Adjustments
to initial purchase price allocation
|
— | — | 2.7 | — | — | 2.7 | ||||||||||||||||||
Foreign
currency translation
|
— | (85.1 | ) | — | — | (1.2 | ) | (86.3 | ) | |||||||||||||||
Tax
benefits of options exercised
|
— | — | (3.7 | ) | — | — | (3.7 | ) | ||||||||||||||||
Reallocation
of goodwill
|
96.0 | — | (96.0 | ) | — | — | — | |||||||||||||||||
Balance,
December 31, 2008
|
$ | 589.9 | $ | 275.3 | $ | 856.5 | $ | 1.8 | $ | 36.5 | $ | 1,760.0 | ||||||||||||
Acquisitions
|
78.4 | — | 38.3 | — | — | 116.7 | ||||||||||||||||||
Adjustments
to initial purchase price allocation
|
(0.5 | ) | 0.1 | 6.0 | — | — | 5.6 | |||||||||||||||||
Foreign
currency translation
|
— | 60.3 | — | — | 0.8 | 61.1 | ||||||||||||||||||
Tax
benefits of options exercised
|
— | — | (0.2 | ) | — | — | (0.2 | ) | ||||||||||||||||
Balance,
December 31, 2009
|
$ | 667.8 | $ | 335.7 | $ | 900.6 | $ | 1.8 | $ | 37.3 | $ | 1,943.2 |
19
Indefinite-Lived
Intangible Assets. Indefinite-lived intangible assets consist
of contractual/territorial rights representing 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. 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 1, we are required to test indefinite-
lived intangible assets for impairment annually and whenever events or
circumstances indicate that there may be an impairment of the asset value. We
perform our annual indefinite-lived intangible asset impairment test as of
September 30 each year. Our annual impairment tests as of
September 30, 2009, 2008 and 2007 resulted in no impairment of our
indefinite-lived intangible assets. Our contractual/territorial rights carrying
amounts did not change materially during the twelve months ended
December 31, 2009 and 2008.
Purchased
Intangible Assets. Purchased intangible assets net, recorded
on our Consolidated Balance Sheets at December 31, 2009 and 2008, are as
follows:
December 31, 2009
|
December 31, 2008
|
|||||||||||||||||||||||
(In millions)
|
Gross
|
Accumulated
Amortization
|
Net
|
Gross
|
Accumulated
Amortization
|
Net
|
||||||||||||||||||
Definite-lived
intangible assets:
|
||||||||||||||||||||||||
Purchased
data files
|
$ | 373.8 | $ | (240.6 | ) | $ | 133.2 | $ | 375.3 | $ | (225.7 | ) | $ | 149.6 | ||||||||||
Acquired
software and technology
|
70.3 | (37.1 | ) | 33.2 | 72.2 | (34.2 | ) | 38.0 | ||||||||||||||||
Customer
relationships
|
488.0 | (70.8 | ) | 417.2 | 426.1 | (43.8 | ) | 382.3 | ||||||||||||||||
Proprietary
database
|
125.0 | (52.2 | ) | 72.8 | 117.6 | (32.0 | ) | 85.6 | ||||||||||||||||
Non-compete
agreements
|
3.3 | (0.5 | ) | 2.8 | 6.6 | (5.7 | ) | 0.9 | ||||||||||||||||
Trade
names and other intangible assets
|
36.0 | (8.2 | ) | 27.8 | 34.1 | (8.3 | ) | 25.8 | ||||||||||||||||
Total
definite-lived intangible assets
|
$ | 1,096.4 | $ | (409.4 | ) | $ | 687.0 | $ | 1,031.9 | $ | (349.7 | ) | $ | 682.2 |
Amortization
expense from continuing operations related to purchased intangible assets was
$80.3 million, $80.2 million and $58.8 million for the twelve months ended
December 31, 2009, 2008 and 2007, respectively.
Estimated
future amortization expense from continuing operations related to definite-lived
purchased intangible assets at December 31, 2009 is as
follows:
Years ending December 31,
|
||||
(In millions)
|
Amount
|
|||
2010
|
$ | 88.6 | ||
2011
|
81.3 | |||
2012
|
75.6 | |||
2013
|
56.8 | |||
2014
|
45.1 | |||
Thereafter
|
304.6 | |||
$ | 652.0 |
20
4. DEBT
Debt
outstanding at December 31, 2009 and 2008 was as follows:
December 31,
|
||||||||
(In millions)
|
2009
|
2008
|
||||||
Commercial
paper
|
$ | 135.0 | $ | 3.0 | ||||
Borrowings
under Canadian short-term revolving credit facility, weighted-average rate
of 3.5% in 2008
|
— | 25.8 | ||||||
Notes,
4.25%, due in installments through May 2012
|
7.6 | 10.1 | ||||||
Notes,
7.34%, due in installments through May 2014
|
75.0 | 75.0 | ||||||
Notes,
4.45%, due December 2014
|
275.0 | — | ||||||
Notes,
6.30%, due July 2017
|
272.5 | 280.0 | ||||||
Debentures,
6.90%, due July 2028
|
125.0 | 150.0 | ||||||
Notes,
7.00%, due July 2037
|
250.0 | 250.0 | ||||||
Borrowings
under long-term revolving credit facilities, weighted-average rate of 0.9%
and 2.8% in 2009 and 2008, respectively
|
4.8 | 420.0 | ||||||
Capitalized
lease obligation
|
29.0 | — | ||||||
Other
|
3.1 | 3.4 | ||||||
Total
debt
|
1,177.0 | 1,217.3 | ||||||
Less
short-term debt and current maturities
|
(154.2 | ) | (31.9 | ) | ||||
Less
capitalized lease obligation
|
(29.0 | ) | — | |||||
Less
unamortized discounts
|
(2.4 | ) | (2.1 | ) | ||||
Plus
fair value adjustments
|
(0.5 | ) | 4.1 | |||||
Total
long-term debt, net of discount
|
$ | 990.9 | $ | 1,187.4 |
Scheduled
future maturities of debt at December 31, 2009, are as
follows:
Years ending December 31,
|
||||
(In millions)
|
Amount
|
|||
2010
|
$ | 182.5 | ||
2011
|
25.4 | |||
2012
|
16.6 | |||
2013
|
15.0 | |||
2014
|
290.0 | |||
Thereafter
|
647.5 | |||
Total
debt
|
$ | 1,177.0 |
Senior Credit
Facility. We are party to an $850.0 million senior
unsecured revolving credit facility, which we refer to as the Senior Credit
Facility, with a group of financial institutions. Borrowings may be used for
general corporate purposes, including working capital, capital expenditures,
acquisitions and share repurchase programs. The Senior Credit Facility is
scheduled to expire in July 2011. Availability of the Senior Credit Facility for
borrowings is reduced by the outstanding face amount of any letters of credit
issued under the facility and, pursuant to our existing Board of Directors
authorization, by the outstanding principal amount of our commercial paper, or
CP, notes.
Under our
Amended Credit Agreement, we must comply with various financial and
non-financial covenants. The financial covenants require us to maintain a
maximum leverage ratio, defined as consolidated funded debt divided by
consolidated EBITDA (as set forth in the Amended Credit Agreement) for the
preceding four quarters, of not more than 3.5 to 1.0. Compliance with this
financial covenant is tested quarterly. The non-financial covenants include
limitations on liens, cross defaults, subsidiary debt, mergers, liquidations,
asset dispositions and acquisitions. As of December 31, 2009, we were in
compliance with our covenants under the Amended Credit Agreement. Our borrowings
under this facility, which have not been guaranteed by any of our subsidiaries,
are unsecured and will rank on parity in right of payment with all of our other
unsecured and unsubordinated indebtedness from time to time
outstanding.
At
December 31, 2009, interest was payable on borrowings under the existing
credit facility at the base rate or London Interbank Offered Rate, or LIBOR,
plus a specified margin. The annual facility fee, which we pay regardless of
borrowings, and interest rate are subject to adjustment based on our debt
ratings. As of December 31, 2009, $707.5 million was available for
borrowings and there were outstanding borrowings of $4.8 million under the
Senior Credit Facility, which is included in long-term debt on our Consolidated
Balance Sheet.
While the
underlying final maturity date of this facility is July 2011, it is structured
to provide borrowings under short-term loans. Since these borrowings primarily
have a maturity of thirty days, the borrowings and repayments are presented on a
net basis within the financing activities portion of our Consolidated Statements
of Cash Flows as net (repayments) borrowings under long-term revolving credit
facilities.
21
CP
Program. Our $850.0 million CP program has been
established through the private placement of CP notes from time-to-time, in
which borrowings bear interest at either a variable rate (based on LIBOR or
other benchmarks) or a fixed rate, with the applicable rate and margin.
Maturities of CP can range from overnight to 397 days. Since the CP program
is backstopped by our Senior Credit Facility, the amount of CP which may be
issued under the program is reduced by the outstanding face amount of any
letters of credit issued under the facility and, pursuant to our existing Board
of Directors authorization, by the outstanding borrowings under our Senior
Credit Facility. At December 31, 2009, $135.0 million in CP notes were
outstanding, at a weighted-average fixed interest rate of 0.4% per annum, all
with maturities of less than 90 days.
4.25%
Notes. Upon our July 26, 2007 acquisition of 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 in May 2007, we
assumed $75.0 million in 7.34% Senior Guaranteed Notes, or TALX Notes,
privately placed by TALX with several institutional investors in May 2006 and
$96.6 million outstanding under TALX’s revolving credit facility.
Subsequent to the TALX acquisition, we repaid and terminated the TALX revolving
credit facility with borrowings under our Senior Credit Facility. We are
required to repay the principal amount of the TALX Notes in five equal annual
installments commencing on May 25, 2010 with a final maturity date of
May 25, 2014. We may prepay the TALX Notes subject to certain restrictions
and the payment of a make-whole amount. Under certain circumstances, we may be
required to use proceeds of certain asset dispositions to prepay a portion of
the TALX Notes. Interest on the TALX Notes is payable semi-annually until the
principal becomes due and payable. We identified a fair value adjustment related
to the TALX Notes in applying purchase accounting; this amount will be amortized
against interest expense over the remainder of the term of the TALX Notes. At
December 31, 2009, the remaining balance of this adjustment is
$2.8 million and is included in long-term debt on the Consolidated Balance
Sheet.
4.45% Senior
Notes. On November 4, 2009, we issued $275.0 million
principal amount of 4.45%, five-year senior notes in an underwritten public
offering. Interest is payable semi-annually in arrears on December 1 and
June 1 of each year. We used the net proceeds from the sale of the senior
notes to repay outstanding borrowings under our CP program, a portion of which
was used to finance our fourth quarter 2009 acquisitions. The senior notes are
unsecured and rank equally with all of our other unsecured and unsubordinated
indebtedness. In conjunction with the senior notes, we entered into five-year
interest rate swaps, designated as fair value hedges, which convert the fixed
interest rate to a variable rate. The long-term debt fair value adjustment
related to these interest rate swaps was a reduction of $3.3 million at
December 31, 2009.
6.3% and 7.0%
Senior Notes. On June 28, 2007, we issued
$300.0 million principal amount of 6.3%, ten-year senior notes and
$250.0 million principal amount of 7.0%, thirty-year senior notes in
underwritten public offerings. Interest is payable semi-annually in arrears on
January 1 and July 1 of each year. The net proceeds of the financing
were used to repay short-term indebtedness, a substantial portion of which was
incurred in connection with our acquisition of TALX. We must comply with various
non-financial covenants, including certain limitations on liens, additional debt
and mortgages, mergers, asset dispositions and sale-leaseback arrangements. The
senior notes are unsecured and rank equally with all of our other unsecured and
unsubordinated indebtedness. During 2009 and 2008, we purchased
$7.5 million and $20.0 million, respectively, principal amount of the
ten-year senior notes for $6.3 million and $14.3 million,
respectively.
In
conjunction with the sale of the senior notes, we entered into cash flow hedges
on $200.0 million and $250.0 million notional amount of ten-year and
thirty-year Treasury notes, respectively. These hedges were settled on
June 25 and June 26, 2007, the respective dates on which the Notes
were sold, requiring payment of $1.9 million and $3.0 million,
respectively. The impact of these settlements has been recorded in other
comprehensive income and will be amortized with interest expense over the
respective terms of the Notes.
6.9%
Debentures. During 2009, we purchased $25.0 million
principal amount of the debentures for $25.1 million.
22
Canadian Credit
Facility. We are a party to a credit agreement with a Canadian
financial institution that provides for a C$20.0 million (denominated in
Canadian dollars), 364-day revolving credit agreement. We reduced the borrowing
limit from C$40.0 million to C$20.0 million during the second quarter
of 2009 and extended the maturity date until June 2010. As of December 31,
2009, there were no outstanding borrowings under this facility.
Cash paid
for interest, net of capitalized interest, was $56.7 million,
$71.7 million and $42.6 million during the twelve months ended
December 31, 2009, 2008 and 2007, respectively.
5. COMMITMENTS
AND CONTINGENCIES
Leases. On
February 27, 2009, we notified the lessor of our headquarters building in
Atlanta, Georgia, that we intend to exercise our purchase option in accordance
with the lease terms. Under the terms of the $29.0 million synthetic lease
for this facility, which commenced in 1998 and expires in March 2010, we
guaranteed the residual value of the building at the end of the lease. We were
responsible for any shortfall of sales proceeds, up to a maximum amount of
$23.2 million, which equaled 80% of the value of the property at the
beginning of the lease term. A residual guarantee value of $1.9 million was
recorded related to this contingency.
By making
notification of our intent to purchase, we committed to purchase the building
for $29.0 million on February 26, 2010. The exercise of our purchase
option caused us to account for this lease obligation as a capital lease. We
have recorded the building and the related obligation on our Consolidated
Balance Sheets at December 31, 2009, based on the difference between the
purchase price and our residual guarantee of fair value, or
$27.1 million.
Our
operating leases principally involve office space and office equipment. Rental
expense from continuing operations for operating leases, which is recognized on
a straight-line basis over the lease term, was $20.9 million,
$20.6 million and $17.4 million for the twelve months ended
December 31, 2009, 2008 and 2007, respectively. Our headquarters building
ground lease has purchase options exercisable beginning in 2019, renewal options
exercisable in 2048 and escalation clauses that began in 2009. Expected future
minimum payment obligations for non-cancelable operating leases exceeding one
year are as follows as of December 31, 2009:
Years ending December 31,
|
||||
(In millions)
|
Amount
|
|||
2010
|
$ | 19.2 | ||
2011
|
14.3 | |||
2012
|
11.8 | |||
2013
|
9.2 | |||
2014
|
6.2 | |||
Thereafter
|
48.1 | |||
$ | 108.8 |
One of
our sublease agreements was amended during 2009. As a result, the amount of
sublease income we expect to receive is not material at December 31, 2009.
Expected sublease income is not reflected as a reduction in the total minimum
rental obligations under operating leases in the table above.
Data Processing, Outsourcing Services
and Other Agreements. We have separate agreements with IBM,
Acxiom, TCS and others to outsource portions of our computer data processing
operations, applications development, maintenance and related functions and to
provide certain other administrative and operational services. The agreements
expire between 2010 and 2014. The estimated aggregate minimum contractual
obligation remaining under these agreements is approximately $175 million
as of December 31, 2009, with no future year’s minimum contractual
obligation expected to exceed approximately $55 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; or the general rate of inflation. 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.
23
During
2009, we amended our data processing outsourcing agreement with IBM. The amended
agreement extends the term six months through December 2013 and allows for a
reduction in the scope of services provided by IBM, as well as financial savings
to the Company. Under this agreement (which covers our operations 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. The estimated future minimum contractual obligation under the revised
agreement is approximately $120 million for the remaining term, with no
individual year’s minimum expected to exceed approximately $31 million. We
may terminate certain portions of this agreement without penalty in the event
that IBM is in material breach of the terms of the agreement. During 2009, 2008
and 2007, we paid $87.3 million, $124.0 million and
$115.0 million, respectively, for these services.
Agreement with Computer Sciences
Corporation. We have an agreement with Computer Sciences
Corporation, or CSC, and certain of its affiliates, collectively CSC, under
which CSC-owned credit reporting agencies utilize our computerized credit
database services. CSC retains ownership of its credit files and the revenues
generated by its credit reporting activities. We receive a processing fee for
maintaining the database and for each report supplied. The agreement will expire
on July 31, 2018 and is renewable at the option of CSC for successive
ten-year periods. The agreement provides us with an option to purchase CSC’s
credit reporting business if it 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 December 31, 2009, the price range would
approximate $600 million to $675 million. This estimate is based
solely on our internal analysis of the value of the business, 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.
Change in Control
Agreements. We have entered into change in control severance
agreements with certain key executives. The agreements provide for, among other
things, certain payments and benefits in the event of a qualifying termination
of employment (i.e., termination of employment by the executive for “good
reason” or termination of employment by the Company without “cause,” each as
defined in the agreements) following a change in control of the Company. In the
event of a qualifying termination, the executive will become entitled to
continuation of group health, dental, vision, life, disability, 401(k) and
similar benefits for three years, as well as a lump sum severance payment, all
of which differs by executive.
24
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
change in control agreements have a five-year term and automatically renew for
another five years unless we elect not to renew the agreements. Change in
control events potentially triggering benefits under the agreements would occur,
subject to certain exceptions, if (1) any person acquires 20% or more of
our voting stock; (2) upon a merger or other business combination, our
shareholders receive less than two-thirds of the common stock and combined
voting power of the new company; (3) we sell or otherwise dispose of all or
substantially all of our assets; or (4) we liquidate or
dissolve.
If these
change in control agreements had been triggered as of December 31, 2009,
payments of approximately $54.6 million would have been made (excluding tax
gross-up amounts of $12.8 million). Under the Company’s existing director
and employee stock benefit plans, a change in control generally would result in
the immediate vesting of all outstanding stock options and satisfaction of the
restrictions on any outstanding nonvested stock awards.
Guarantees. We will
from time to time issue standby letters of credit, performance bonds or other
guarantees in the normal course of business. The aggregate notional amount of
all performance bonds and standby letters of credit is not material at
December 31, 2009, and all have a remaining maturity of one year or less.
The maximum potential future payments we could be required to make under the
guarantees is not material at December 31, 2009.
General
Indemnifications. We are the lessee under many real estate
leases. It is common in these commercial lease transactions for us, as the
lessee, to agree to indemnify the lessor and other related third parties for
tort, environmental and other liabilities that arise out of or relate to our use
or occupancy of the leased premises. This type of indemnity would typically make
us responsible to indemnified parties for liabilities arising out of the conduct
of, among others, contractors, licensees and invitees at or in connection with
the use or occupancy of the leased premises. This indemnity often extends to
related liabilities arising from the negligence of the indemnified parties, but
usually excludes any liabilities caused by either their sole or gross negligence
and their willful misconduct.
Certain
of our credit agreements include provisions which require us to make payments to
preserve an expected economic return to the lenders if that economic return is
diminished due to certain changes in law or regulations. In certain 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 disposition of
certain assets or businesses, we sometimes provide routine indemnifications, the
terms of which range in duration and sometimes are not limited.
The
Company has entered into indemnification agreements with its directors and
executive officers. Under these agreements, the Company has agreed to indemnify
such individuals to the fullest extent permitted by law against liabilities that
arise by reason of their status as directors or officers and to advance expenses
incurred by such individuals in connection with the related legal proceedings.
The Company maintains directors and officers liability insurance coverage to
reduce its exposure to such obligations.
We cannot
reasonably estimate our potential future payments under the indemnities and
related provisions described above because we cannot predict when and under what
circumstances these provisions may be triggered. We have no accrual related to
indemnifications on our Consolidated Balance Sheets at December 31, 2009
and 2008.
Subsidiary Dividend and Fund Transfer
Limitations. The ability of some of our subsidiaries 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. 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 which is available. We have recorded accruals in our
Consolidated Financial Statements for those matters in which it is probable that
we have incurred a loss and the amount of the loss, or range of loss, can be
reasonably estimated.
25
During
2006, we recorded a $4.0 million, pretax, loss contingency
($2.5 million, net of tax) associated with certain litigation matters
within our USCIS operating segment on our Consolidated Balance Sheet. In 2009,
we entered into a preliminary settlement which, net of insurance, required less
than the full amount reserved. We also reached a settlement on another class
action litigation matter within our USCIS operating segment during 2009 and
recorded a loss contingency in selling, general and administrative expense on
our Consolidated Balance Sheet for the estimated amount of our liability. The
combined impact of these matters was a net reversal of $0.8 million of
expense in 2009. The remaining accrual related to these matters at
December 31, 2009, was not material. The liability at December 31,
2008, was $4.0 million.
For other
legal proceedings, claims and litigation, we have recorded loss contingencies
that are immaterial, or we cannot reasonably estimate the potential loss because
of uncertainties about the outcome of the matter and the amount of the loss or
range of loss. We also accrue for unpaid legal fees for services performed to
date. Although the final outcome of these other matters cannot be predicted with
certainty, any possible adverse outcome arising from these matters is not
expected to have a material impact on our Consolidated Financial Statements,
either individually or in the aggregate. However, our evaluation of the likely
impact of these matters may change in the future.
Tax Matters. In
2003, the Canada Revenue Agency, or CRA, issued Notices of Reassessment
asserting that Acrofax, Inc., our wholly-owned Canadian subsidiary, is
liable for additional tax for the 1995 through 2000 tax years, related to
certain intercompany capital contributions and loans. The additional tax sought
by the CRA for these periods ranges, based on alternative theories, from
$8.2 million (8.5 million in Canadian dollars) to $18.2 million
(19.0 million in Canadian dollars) plus interest and penalties.
Subsequently in 2003, we made a statutorily-required deposit for a portion of
the claim. We intend to vigorously contest these reassessments and do not
believe we have violated any statutory provision or rule. While we believe our
potential exposure is less than the asserted claims and not material to our
Consolidated Financial Statements, if the final outcome of this matter was
unfavorable to us, an additional claim may be filed by the local province. The
likelihood and potential amount of such claim is unknown at this time. We cannot
predict when this tax matter will be resolved.
6. INCOME
TAXES
We record
deferred income taxes using enacted tax laws and rates for the years in which
the taxes are expected to be paid. Deferred income tax assets and liabilities
are recorded based on the differences between 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
December 31,
|
||||||||||||
(In millions)
|
2009
|
2008
|
2007
|
|||||||||
Current:
|
||||||||||||
Federal
|
$ | 65.8 | $ | 59.7 | $ | 82.3 | ||||||
State
|
6.9 | 8.8 | 7.6 | |||||||||
Foreign
|
38.8 | 49.2 | 48.1 | |||||||||
111.5 | 117.7 | 138.0 | ||||||||||
Deferred:
|
||||||||||||
Federal
|
(5.0 | ) | (1.4 | ) | (1.1 | ) | ||||||
State
|
0.1 | 1.3 | (0.9 | ) | ||||||||
Foreign
|
— | 1.4 | 0.7 | |||||||||
(4.9 | ) | 1.3 | (1.3 | ) | ||||||||
Provision
for income taxes
|
$ | 106.6 | $ | 119.0 | $ | 136.7 |
Domestic
and foreign income from continuing operations before income taxes was as
follows:
Twelve Months Ended
December 31,
|
||||||||||||
(In millions)
|
2009
|
2008
|
2007
|
|||||||||
U.S.
|
$ | 166.5 | $ | 173.7 | $ | 220.1 | ||||||
Foreign
|
164.5 | 200.2 | 169.3 | |||||||||
$ | 331.0 | $ | 373.9 | $ | 389.4 |
26
The
provision for income taxes was reconciled with the U.S. federal statutory rate,
as follows:
Twelve Months Ended
December 31,
|
||||||||||||
(In millions)
|
2009
|
2008
|
2007
|
|||||||||
Federal
statutory rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
Provision
computed at federal statutory rate
|
$ | 115.9 | $ | 130.9 | $ | 136.3 | ||||||
State
and local taxes, net of federal tax benefit
|
4.8 | 6.0 | 2.8 | |||||||||
Foreign(2)
|
(3.2 | ) | 1.3 | 3.9 | ||||||||
Valuation
allowance(2)
|
(8.3 | ) | (8.7 | ) | (2.6 | ) | ||||||
Tax
reserves(1)(2)
|
1.0 | (12.2 | ) | 1.7 | ||||||||
Other(3)
|
(3.6 | ) | 1.7 | (5.4 | ) | |||||||
Provision
for income taxes
|
$ | 106.6 | $ | 119.0 | $ | 136.7 | ||||||
Effective
income tax rate
|
32.2 | % | 31.8 | % | 35.1 | % |
(1)
|
During
the third quarter of 2008, the applicable statute of limitations related
to uncertain tax positions expired, resulting in the reversal of the
related income tax reserve. The reversal of this reserve resulted in an
income tax benefit of $14.6 million. These are reflected in tax
reserves on the effective tax reconciliation and reduced our 2008
effective tax rates by 3.5%.
|
(2)
|
During
the fourth quarter of 2009, we recognized a $7.3 million income tax
benefit related to our ability to utilize foreign tax credits beyond 2009.
This reduced our 2009 effective tax rate by
2.1%.
|
(3)
|
Includes
the benefit related to an investment loss in a subsidiary recognized
during the third quarter of 2009.
|
Components
of the deferred income tax assets and liabilities at December 31, 2009 and
2008, were as follows:
December 31,
|
||||||||
(In millions)
|
2009
|
2008
|
||||||
Deferred
income tax assets:
|
||||||||
Employee
pension benefits
|
$ | 124.1 | $ | 118.9 | ||||
Net
operating and capital loss carryforwards
|
44.8 | 37.4 | ||||||
Unrealized
foreign exchange loss
|
27.4 | 55.9 | ||||||
Foreign
tax credits
|
20.8 | 11.2 | ||||||
Employee
compensation programs
|
33.6 | 28.5 | ||||||
Reserves
and accrued expenses
|
12.5 | 14.6 | ||||||
Deferred
revenue
|
9.2 | 9.1 | ||||||
Other
|
9.2 | 9.5 | ||||||
Gross
deferred income tax assets
|
281.6 | 285.1 | ||||||
Valuation
allowance
|
(59.1 | ) | (93.7 | ) | ||||
Total
deferred income tax assets, net
|
$ | 222.5 | $ | 191.4 | ||||
Deferred
income tax liabilities:
|
||||||||
Goodwill
and intangible assets
|
(330.5 | ) | (298.3 | ) | ||||
Pension
expense
|
(94.2 | ) | (79.9 | ) | ||||
Undistributed
earnings of foreign subsidiaries
|
(18.9 | ) | (7.7 | ) | ||||
Depreciation
|
(8.6 | ) | (4.0 | ) | ||||
Other
|
(5.1 | ) | (7.0 | ) | ||||
Total
deferred income tax liability
|
(457.3 | ) | (396.9 | ) | ||||
Net
deferred income tax liability
|
$ | (234.8 | ) | $ | (205.5 | ) |
Our
deferred income tax assets, included in other current assets, and liabilities at
December 31, 2009 and 2008, are included in the accompanying Consolidated
Balance Sheets as follows:
December 31,
|
||||||||
(In millions)
|
2009
|
2008
|
||||||
Current
deferred income tax assets, included in other current
assets
|
$ | 14.5 | $ | 9.8 | ||||
Long-term
deferred income tax liabilities
|
(249.3 | ) | (215.3 | ) | ||||
Net
deferred income tax liability
|
$ | (234.8 | ) | $ | (205.5 | ) |
27
We record
deferred income taxes on the temporary differences of our foreign subsidiaries
and branches, except for the temporary differences related to undistributed
earnings of subsidiaries which we consider indefinitely invested. We have
indefinitely invested $85.7 million attributable to pre-2004 undistributed
earnings of our Canadian and Chilean subsidiaries. If the pre-2004 earnings were
not considered indefinitely invested, $6.4 million of deferred U.S. income
taxes would have been provided. Such taxes, if ultimately paid, may be
recoverable as U.S. foreign tax credits.
As of
December 31, 2009, we had a deferred tax asset of $27.4 million
related to accumulated foreign currency translation losses for foreign
locations, excluding adjustments for pre-2004 Canadian and Chilean earnings. A
full valuation allowance, included in accumulated other comprehensive loss, has
been provided due to uncertainty of future realization of this deferred tax
asset.
At
December 31, 2009, we had U.S. federal and state net operating loss
carryforwards of $73.9 million which will expire at various times between
2012 and 2029. We also had foreign net operating loss carryforwards totaling
$97.7 million of which $44.4 million will expire between 2013 and 2017
and the remaining $53.3 million will carryforward indefinitely. U.S.
federal and state capital loss carryforwards total $1.6 million at
December 31, 2009, all of which will expire by 2011. Foreign capital loss
carryforwards of $21.0 million may be carried forward indefinitely.
Additionally, we had foreign tax credit carryforwards of $20.8 million, of
which $3.2 million will begin to expire between 2010 and 2015 and the
remaining $17.6 million will be available to be utilized upon repatriation
of foreign earnings. We also had state credit carryforwards of $1.5 million
which will begin expiring in 2017. Tax-effected state and foreign net operating
losses and capital losses of $31.7 million have been fully reserved in the
deferred tax asset valuation allowance.
Cash paid
for income taxes, net of amounts refunded, was $103.2 million,
$128.7 million and $139.9 million during the twelve months ended
December 31, 2009, 2008 and 2007, respectively.
We
recognize interest and penalties accrued related to unrecognized tax benefits in
the provision for income taxes on our Consolidated Statements of
Income.
A
reconciliation of the beginning and ending amount of unrecognized tax benefits
is as follows:
(In millions)
|
2009
|
2008
|
||||||
Beginning
balance (January 1)
|
$ | 15.8 | $ | 29.4 | ||||
Increases
related to prior year tax positions
|
0.6 | 1.7 | ||||||
Decreases
related to prior year tax positions
|
(1.2 | ) | (1.8 | ) | ||||
Increases
related to current year tax positions
|
3.7 | 2.0 | ||||||
Decreases
related to settlements
|
(0.3 | ) | (0.4 | ) | ||||
Expiration
of the statute of limitations for the assessment of taxes
|
(1.1 | ) | (13.3 | ) | ||||
Purchase
accounting
|
— | 0.9 | ||||||
Currency
translation adjustment
|
1.9 | (2.7 | ) | |||||
Ending
balance (December 31)
|
$ | 19.4 | $ | 15.8 |
We
recorded liabilities of $26.8 million and $22.3 million for
unrecognized tax benefits as of December 31, 2009 and 2008, respectively,
which included interest and penalties of $7.4 million and
$6.5 million, respectively. As of December 31, 2009 and 2008, the
total amount of unrecognized benefits that, if recognized, would have affected
the effective tax rate was $20.5 million and $17.8 million,
respectively, which included interest and penalties of $5.7 million and
$5.0 million, respectively. The accruals for potential interest and
penalties during 2009 and 2008 were not material.
Equifax
and its subsidiaries are subject to U.S. federal, state and international income
taxes. We are generally no longer subject to federal, state or international
income tax examinations by tax authorities for years before 2003, with few
exceptions including those discussed below for Canada and the U.K. In Canada, we
are under audit by the Canada Revenue Agency for the 1995 through 2002 tax years
(see Note 5 of the Notes to Consolidated Financial Statements). For the
U.K., tax years after 1999 are open for examination. Due to the potential for
resolution of state and foreign examinations, and the expiration of various
statutes of limitations, it is reasonably possible that Equifax’s gross
unrecognized tax benefit balance may change within the next twelve months by a
range of zero to $6.4 million, related primarily to issues involving U.K.
operations.
28
7. STOCK-BASED
COMPENSATION
We have
one active share-based award plan, the 2008 Omnibus Incentive Plan which was
approved by our shareholders in 2008, that provides our directors, officers and
certain employees with stock options and nonvested stock. The plan is described
below. We expect to issue common shares held by treasury stock upon the exercise
of stock options or once nonvested shares vest. Total stock-based compensation
expense in our Consolidated Statements of Income during the twelve months ended
December 31, 2009, 2008 and 2007, was as follows:
Twelve Months Ended
December 31,
|
||||||||||||
(in millions)
|
2009
|
2008
|
2007
|
|||||||||
Cost
of services
|
$ | 2.6 | $ | 2.4 | $ | 1.9 | ||||||
Selling,
general and administrative expenses
|
17.0 | 17.5 | 15.7 | |||||||||
Stock-based
compensation expense, before income taxes
|
$ | 19.6 | $ | 19.9 | $ | 17.6 |
The total
income tax benefit recognized for stock-based compensation expense was
$6.9 million, $7.1 million and $6.3 million for the twelve months
ended December 31, 2009, 2008 and 2007, respectively.
Benefits
of tax deductions in excess of recognized compensation cost are reported as a
financing cash flow, rather than as an operating cash flow. This requirement
reduced operating cash flows and increased financing cash flows by
$1.3 million, $2.1 million and $7.0 million during the twelve
months ended December 31, 2009, 2008 and 2007, respectively.
Stock
Options. The 2008 Omnibus Incentive Plan provides that
qualified and nonqualified stock options may be granted to officers and other
employees. In conjunction with our acquisition of TALX, we assumed options
outstanding under the legacy TALX stock option plan, which was approved by TALX
shareholders. In addition, stock options remain outstanding under three
shareholder-approved plans and three non-shareholder-approved plans from which
no new grants may be made. The 2008 Omnibus Incentive Plan requires that stock
options be granted at exercise prices not less than market value on the date of
grant. Generally, stock options are subject to graded vesting for periods of up
to three years based on service, with 33% vesting for each year of completed
service, and expire ten years from the grant date.
We use
the binomial model to calculate the fair value of stock options granted on or
after January 1, 2006. The binomial model incorporates assumptions
regarding anticipated employee exercise behavior, expected stock price
volatility, dividend yield and risk-free interest rate. Anticipated employee
exercise behavior and expected post-vesting cancellations over the contractual
term used in the binomial model were primarily based on historical exercise
patterns. These historical exercise patterns indicated there was not
significantly different exercise behavior between employee groups. For our
expected stock price volatility assumption, we weighted historical volatility
and implied volatility. We used daily observations for historical volatility,
while our implied volatility assumption was based on actively traded options
related to our common stock. The expected term is derived from the binomial
model, based on assumptions incorporated into the binomial model as described
above.
The fair
value for stock options granted during the twelve months ended December 31,
2009, 2008 and 2007, was estimated at the date of grant, using the binomial
model with the following weighted-average assumptions:
Twelve Months Ended
December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Dividend
yield
|
0.6 | % | 0.4 | % | 0.5 | % | ||||||
Expected
volatility
|
32.3 | % | 27.1 | % | 22.4 | % | ||||||
Risk-free
interest rate
|
2.0 | % | 2.6 | % | 4.6 | % | ||||||
Expected
term (in years)
|
4.6 | 4.6 | 4.6 | |||||||||
Weighted-average
fair value of stock options granted
|
$ | 7.90 | $ | 9.09 | $ | 10.52 |
The
following table summarizes changes in outstanding stock options during the
twelve months ended December 31, 2009, as well as stock options that are
vested and expected to vest and stock options exercisable at December 31,
2009:
29
Shares
|
Weighted-Average
Exercise Price
|
Weighted-Average
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||||||
(in thousands)
|
(in years)
|
(in millions)
|
||||||||||||||
Outstanding
at December 31, 2008
|
6,422 | $ | 27.84 | |||||||||||||
Granted
(all at market price)
|
1,198 | $ | 28.49 | |||||||||||||
Exercised
|
(589 | ) | $ | 17.35 | ||||||||||||
Forfeited
and cancelled
|
(186 | ) | $ | 33.70 | ||||||||||||
Outstanding
at December 31, 2009
|
6,845 | $ | 28.68 | 5.1 | $ | 30.8 | ||||||||||
Vested
and expected to vest at December 31, 2009
|
6,541 | $ | 28.40 | 5.3 | $ | 30.5 | ||||||||||
Exercisable
at December 31, 2009
|
4,780 | $ | 27.21 | 3.9 | $ | 27.9 |
The
aggregate intrinsic value amounts in the table above represent the difference
between the closing price of Equifax’s common stock on December 31, 2009
and the exercise price, multiplied by the number of in-the-money stock options
as of the same date. This represents the amount that would have been received by
the stock option holders if they had all exercised their stock options on
December 31, 2009. In future periods, this amount will change depending on
fluctuations in Equifax’s stock price. The total intrinsic value of stock
options exercised during the twelve months ended December 31, 2009, 2008
and 2007, was $5.1 million, $14.4 million and $48.6 million,
respectively. At December 31, 2009, our total unrecognized compensation
cost related to stock options was $6.3 million with a weighted- average
recognition period of 1.5 years.
The
following table summarizes changes in outstanding options and the related
weighted-average exercise price per share for the twelve months ended
December 31, 2008 and 2007:
December 31,
|
||||||||||||||||
2008
|
2007
|
|||||||||||||||
(Shares in thousands)
|
Shares
|
Weighted-
Average Price
|
Shares
|
Weighted-
Average Price
|
||||||||||||
Outstanding
at the beginning of the year
|
6,484 | $ | 24.94 | 5,930 | $ | 24.95 | ||||||||||
Granted
(all at market price)
|
1,042 | $ | 35.35 | 2,742 | $ | 18.60 | ||||||||||
Exercised
|
(1,036 | ) | $ | 16.72 | (2,073 | ) | $ | 16.15 | ||||||||
Cancelled
|
(68 | ) | $ | 36.55 | (115 | ) | $ | 32.64 | ||||||||
Outstanding
at the end of the year
|
6,422 | $ | 27.84 | 6,484 | $ | 24.94 | ||||||||||
Exercisable
at end of year
|
4,699 | $ | 24.47 | 5,157 | $ | 21.52 |
Nonvested
Stock. Our 2008 Omnibus Incentive Plan also provides for
awards of nonvested shares of our common stock that can be granted to executive
officers, employees and directors. Nonvested stock awards are generally subject
to cliff vesting over a period between one to three years based on
service.
The fair
value of nonvested stock is based on the fair market value of our common stock
on the date of grant. However, since our nonvested stock does not pay dividends
during the vesting period, the fair value on the date of grant is reduced by the
present value of the expected dividends over the requisite service period
(discounted using the appropriate risk-free interest rate).
The
following table summarizes changes in our nonvested stock during the twelve
months ended December 31, 2009, 2008 and 2007 and the related
weighted-average grant date fair value:
(Shares in thousands)
|
Shares
|
Weighted-Average
Grant Date
Fair Value
|
||||||
Nonvested
at December 31, 2006
|
811 | $ | 31.64 | |||||
Granted
|
297 | $ | 40.49 | |||||
Vested
|
(257 | ) | $ | 40.29 | ||||
Forfeited
|
(28 | ) | $ | 34.29 | ||||
Nonvested
at December 31, 2007
|
823 | $ | 38.33 | |||||
Granted
|
407 | $ | 35.05 | |||||
Vested
|
(360 | ) | $ | 33.83 | ||||
Forfeited
|
(20 | ) | $ | 38.90 | ||||
Nonvested
at December 31, 2008
|
850 | $ | 36.33 | |||||
Granted
|
536 | $ | 28.41 | |||||
Vested
|
(230 | ) | $ | 34.40 | ||||
Forfeited
|
(46 | ) | $ | 31.75 | ||||
Nonvested
at December 31, 2009
|
1,110 | $ | 33.10 |
30
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The total
fair value of nonvested stock that vested during the twelve months ended
December 31, 2009, 2008 and 2007, was $6.5 million, $11.5 million
and $10.4 million, respectively, based on the weighted-average fair value
on the vesting date, and $7.9 million, $12.2 million and
$7.3 million, respectively, based on the weighted-average fair value on the
date of grant. At December 31, 2009, our total unrecognized compensation
cost related to nonvested stock was $14.5 million with a weighted-average
recognition period of 2.1 years.
8. SHAREHOLDER
RIGHTS PLAN
Our Board
of Directors has adopted a shareholder rights plan designed to protect our
shareholders against abusive takeover attempts and tactics. The rights plan
operates to dilute the interests of any person or group attempting to take
control of the Company if the attempt is not deemed by our Board of Directors to
be in the best interests of our shareholders. Under the rights agreement, as
originally adopted in October 1995 and amended and restated in October 2005,
holders of our common stock were granted one right to purchase common stock, or
Right, for each outstanding share of common stock held of record on
November 24, 1995. All newly issued shares of common stock since that date
have been accompanied by a Right. The Rights will become exercisable and trade
independently from our common stock if a person or group acquires or obtains the
right to acquire 20% or more of Equifax’s outstanding shares of common stock, or
commences a tender or exchange offer that would result in that person or group
acquiring 20% or more of the outstanding common stock, in each case without the
consent of our Board. In the event the Rights become exercisable, each holder
(other than the acquiring person or group) will be entitled to purchase that
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 having a
market value of two times the exercise price of the Right. In either case, our
Board may choose to redeem the Rights for $0.01 per Right before they become
exercisable. The Rights will expire on November 6, 2015, unless earlier
redeemed, exchanged or amended by the Board.
9. BENEFIT
PLANS
We have
defined benefit pension plans and defined contribution plans. We also maintain
certain healthcare and life insurance benefit plans for eligible retired
employees. The measurement date for our defined benefit pension plans and other
postretirement benefit plans is December 31 of each year.
Pension
Benefits. Pension benefits are provided through U.S. and
Canadian defined benefit pension plans and two supplemental executive defined
benefit pension plans.
U.S. and Canadian Retirement
Plans. Prior to December 31, 2009, we had one
non-contributory qualified retirement plan covering most U.S. salaried employees
(the Equifax Inc. Pension Plan, or EIPP), a qualified retirement plan that
covered U.S. salaried employees (the U.S. Retirement Income Plan, or USRIP) who
terminated or retired before January 1, 2005 and a defined benefit plan for
most salaried and hourly employees in Canada (the Canadian Retirement Income
Plan, or CRIP). On December 31, 2009, the plan assets and obligations of
the EIPP were merged with the USRIP. The USRIP remained as the sole U.S.
qualified retirement plan. There were no other plan amendments as a result of
this merger. Benefits from these plans are primarily a function of salary and
years of service.
On
September 15, 2008, we announced a redesign of our retirement plans for our
U.S. active employees effective January 1, 2009. The changes to our
retirement plans froze the EIPP, a qualified defined benefit pension plan, for
employees who did not meet certain grandfathering criteria related to
retirement- eligible employees. Under the plan amendments, the EIPP was closed
to new participants and the service credit for non-grandfathered participants
was frozen, but participants will continue to receive credit for salary
increases and vesting of service. Additionally, certain non-grandfathered
employees and certain other employees not eligible to participate in the EIPP
are able to participate in an enhanced 401(k) savings plan. As a result of these
changes to the EIPP, we completed a remeasurement of the plan during the third
quarter of 2008. The remeasurement did not materially impact our Consolidated
Financial Statements as of and for the twelve months ended December 31,
2008.
31
In
January 2010, we made a contribution of $20.0 million to the USRIP. During
the twelve months ended December 31, 2009, we made contributions of
$15.0 million to the EIPP and $1.8 million to the CRIP. Additionally,
the Equifax Employee Benefits Trust contributed $12.5 million to the EIPP
upon dissolution of the Trust in December 2009. During the twelve months ended
December 31, 2007, we made a discretionary contribution to the EIPP of
$12.0 million. We did not make a discretionary contribution during the
twelve months ended December 31, 2008. At December 31, 2009, the USRIP
met or exceeded ERISA’s minimum funding requirements.
The
annual report produced by our consulting actuaries specifies the funding
requirements for our plans, based on projected benefits for plan participants,
historical investment results on plan assets, current discount rates for
liabilities, assumptions for future demographic developments and recent changes
in statutory requirements. We may elect to make additional discretionary
contributions to our plans in excess 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 Benefits. We
maintain certain healthcare and life insurance benefit plans for eligible
retired employees. Substantially all of our U.S. employees may become eligible
for the healthcare benefits if they reach retirement age while working for us
and satisfy certain years of service requirements. The retiree life insurance
program covers employees who retired on or before December 31, 2003. We
accrue the cost of providing healthcare benefits over the active service period
of the employee.
Obligations and Funded
Status. A reconciliation of the benefit obligations, plan
assets and funded status of the plans is as follows:
Pension Benefits
|
Other Benefits
|
|||||||||||||||
(In millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Change
in benefit obligation
|
||||||||||||||||
Benefit
obligation at January 1,
|
$ | 577.8 | $ | 581.6 | $ | 31.0 | $ | 32.9 | ||||||||
Service
cost
|
5.3 | 11.0 | 0.5 | 0.5 | ||||||||||||
Interest
cost
|
35.1 | 34.8 | 1.8 | 1.9 | ||||||||||||
Plan
participants’ contributions
|
— | — | 1.0 | 1.3 | ||||||||||||
Amendments
|
— | (0.6 | ) | — | (4.3 | ) | ||||||||||
Actuarial
loss (gain)
|
41.5 | (1.4 | ) | 3.4 | 3.6 | |||||||||||
Foreign
currency exchange rate changes
|
5.4 | (7.8 | ) | — | — | |||||||||||
Special
termination benefits
|
0.1 | — | — | — | ||||||||||||
Retiree
drug subsidy paid
|
— | — | — | 0.3 | ||||||||||||
Benefits
paid
|
(41.0 | ) | (39.8 | ) | (4.2 | ) | (5.2 | ) | ||||||||
Benefit
obligation at December 31,
|
624.2 | 577.8 | 33.5 | 31.0 | ||||||||||||
Change
in plan assets
|
||||||||||||||||
Fair
value of plan assets at January 1,
|
440.8 | 606.6 | 15.0 | 19.0 | ||||||||||||
Actual
return on plan assets
|
66.3 | (119.9 | ) | 2.3 | (4.0 | ) | ||||||||||
Employer
contributions
|
32.9 | 3.7 | 3.2 | 3.9 | ||||||||||||
Plan
participants’ contributions
|
— | — | 1.0 | 1.3 | ||||||||||||
Foreign
currency exchange rate changes
|
6.4 | (9.8 | ) | — | — | |||||||||||
Benefits
paid
|
(41.0 | ) | (39.8 | ) | (4.2 | ) | (5.2 | ) | ||||||||
Fair
value of plan assets at December 31,
|
505.4 | 440.8 | 17.3 | 15.0 | ||||||||||||
Funded
status of plan
|
$ | (118.8 | ) | $ | (137.0 | ) | $ | (16.2 | ) | $ | (16.0 | ) |
The
accumulated benefit obligation for the USRIP, CRIP and Supplemental Retirement
Plans was $592.2 million at December 31, 2009. The accumulated benefit
obligation for the USRIP, EIPP, CRIP and Supplemental Retirement Plans was
$551.5 million at December 31, 2008.
At
December 31, 2009, the USRIP and Supplemental Retirement Plans had
projected benefit obligations and accumulated benefit obligations in excess of
those plans’ respective assets. The projected benefit obligation, accumulated
benefit obligation and fair value of plan assets for these plans in the
aggregate were $583.6 million, $557.9 million and $459.4 million,
respectively, at December 31, 2009.
32
At
December 31, 2008, the USRIP, EIPP and Supplemental Retirement Plans had
projected benefit obligations and accumulated benefit obligations in excess of
those plans’ respective assets. The projected benefit obligation, accumulated
benefit obligation and fair value of plan assets for these plans in the
aggregate were $550.3 million, $527.1 million and $405.0 million,
respectively, at December 31, 2008.
The
following table represents the net amounts recognized, or the funded status of
our pension and other postretirement benefit plans, in our Consolidated Balance
Sheets at December 31, 2009 and 2008:
Pension Benefits
|
Other Benefits
|
|||||||||||||||
(In millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Amounts
recognized in the statements of financial position consist
of:
|
||||||||||||||||
Prepaid
pension asset
|
$ | 5.3 | $ | 8.3 | $ | — | $ | — | ||||||||
Current
liabilities
|
(3.8 | ) | (3.7 | ) | — | — | ||||||||||
Long-term
liabilities
|
(120.3 | ) | (141.6 | ) | (16.2 | ) | (16.0 | ) | ||||||||
Net
amount recognized
|
$ | (118.8 | ) | $ | (137.0 | ) | $ | (16.2 | ) | $ | (16.0 | ) |
Included
in accumulated other comprehensive loss at December 31, 2009 and 2008, were
the following amounts that have not yet been recognized in net periodic pension
cost:
Pension Benefits
|
Other Benefits
|
|||||||||||||||
(In millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Prior
service cost (credit), net of accumulated taxes of $1.4 and $1.6 in 2009
and 2008, respectively, for pension benefits and $(0.5) and $(0.6) in 2009
and 2008, respectively, for other benefits
|
$ | 2.3 | $ | 2.9 | $ | (0.9 | ) | $ | (1.0 | ) | ||||||
Net
actuarial loss, net of accumulated taxes of $116.9 and $111.6 in 2009 and
2008, respectively, for pension benefits and $7.1 and $6.6, in 2009 and
2008, respectively, for other benefits
|
202.5 | 195.2 | 12.3 | 11.4 | ||||||||||||
Accumulated
other comprehensive loss
|
$ | 204.8 | $ | 198.1 | $ | 11.4 | $ | 10.4 |
The
following indicates amounts recognized in other comprehensive income during the
twelve months ended December 31, 2009 and 2008:
Pension Benefits
|
Other Benefits
|
|||||||||||||||
(In millions)
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Amounts
arising during the period:
|
||||||||||||||||
Net
actuarial loss, net of taxes of $8.1 and $59.7 in 2009 and 2008,
respectively, for pension benefits and $0.9 and $3.5 in 2009 and 2008,
respectively, for other benefits
|
$ | 11.7 | $ | 104.7 | $ | 1.6 | $ | 6.2 | ||||||||
Foreign
currency exchange rate loss (gain), net of taxes of $0.5 and $(0.6) in
2009 and 2008, respectively, for pension benefits
|
1.0 | (0.9 | ) | — | — | |||||||||||
Prior
service credit, net of taxes of $(0.2) for pension benefits and $(1.6) for
other benefits in 2008
|
— | (0.4 | ) | — | (2.7 | ) | ||||||||||
Amounts
recognized in net periodic benefit cost during the period:
|
||||||||||||||||
Recognized
actuarial loss, net of taxes of $(3.2) and $(2.0) in 2009 and 2008,
respectively, for pension benefits and $(0.4) and $(0.2) in 2009 and 2008,
respectively, for other benefits
|
(5.5 | ) | (3.6 | ) | (0.7 | ) | (0.4 | ) | ||||||||
Amortization
of prior service (cost) credit, net of taxes of $(0.3) in both 2009 and
2008 for pension benefits and $0.1 and $(0.1) in 2009 and 2008,
respectively, for other benefits
|
(0.5 | ) | (0.6 | ) | 0.1 | (0.3 | ) | |||||||||
Total
recognized in other comprehensive income
|
$ | 6.7 | $ | 99.2 | $ | 1.0 | $ | 2.8 |
Components
of Net Periodic Benefit Cost.
Pension Benefits
|
Other Benefits
|
|||||||||||||||||||||||
(In millions)
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||
Service
cost
|
$ | 5.3 | $ | 11.0 | $ | 10.8 | $ | 0.5 | $ | 0.5 | $ | 0.4 | ||||||||||||
Interest
cost
|
35.1 | 34.8 | 33.2 | 1.8 | 1.9 | 1.7 | ||||||||||||||||||
Expected
return on plan assets
|
(44.8 | ) | (45.2 | ) | (42.9 | ) | (1.5 | ) | (1.5 | ) | (1.5 | ) | ||||||||||||
Amortization
of prior service cost
|
0.8 | 0.9 | 1.0 | (0.2 | ) | 0.4 | 0.5 | |||||||||||||||||
Recognized
actuarial loss
|
8.7 | 5.6 | 8.9 | 1.1 | 0.6 | 0.3 | ||||||||||||||||||
Special
termination benefit
|
0.1 | — | — | — | — | — | ||||||||||||||||||
Total
net periodic benefit cost
|
$ | 5.2 | $ | 7.1 | $ | 11.0 | $ | 1.7 | $ | 1.9 | $ | 1.4 |
33
The
following represents the amount of prior service cost and actuarial loss
included in accumulated other comprehensive loss that is expected to be
recognized in net periodic benefit cost during the twelve months ending
December 31, 2010:
(In millions)
|
Pension Benefits
|
Other Benefits
|
||||||
Prior
service cost, net of taxes of $0.3 for pension benefits and $(0.1) for
other benefits
|
$ | 0.5 | $ | (0.1 | ) | |||
Actuarial
loss, net of taxes of $3.3 for pension benefits and $0.4 for other
benefits
|
$ | 5.6 | $ | 0.8 |
Weighted-Average
Assumptions.
Pension
Benefits
|
Other Benefits
|
|||||||||||||||
Weighted-average assumptions used to determine benefit obligations at December 31,
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
Discount
rate
|
5.77 | % | 6.27 | % | 5.45 | % | 6.22 | % | ||||||||
Rate
of compensation increase
|
4.37 | % | 4.38 | % | N/A | N/A |
Pension Benefits
|
Other Benefits
|
|||||||||||||||||||||||
Weighted-average assumptions used to determine net periodic benefit cost at
December 31,
|
2009
|
2008
|
2007
|
2009
|
2008
|
2007
|
||||||||||||||||||
Discount
rate
|
6.27 | % | 6.23 | % | 5.86 | % | 6.22 | % | 6.04 | % | 5.84 | % | ||||||||||||
Expected
return on plan assets
|
8.02 | % | 8.00 | % | 8.00 | % | 8.00 | % | 8.00 | % | 8.00 | % | ||||||||||||
Rate
of compensation increase
|
4.38 | % | 4.30 | % | 4.28 | % | N/A | N/A | N/A |
Discount Rates. We
determine our discount rates primarily based on high-quality, fixed-income
investments and yield-to-maturity 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 provides discount rates related to a dedicated high-quality bond
portfolio whose cash flows extend beyond the current period, from which we
choose a rate matched to the expected benefit payments required for each
plan.
Expected Return on Plan
Assets. The expected rate of return on plan assets is based on
both our historical returns and forecasted future investment returns by asset
class, as provided by our external investment advisor. In setting the long-term
expected rate of return, management considers capital markets future
expectations and the asset mix of the plan investments. Prior to 2008, the U.S.
Pension Plans investment returns were 10.9%, 13.0% and 7.5% over three, five and
ten years, respectively. The returns exceeded the S&P 500 returns for
similar periods of time primarily due to an asset allocation strategy where
large allocations to alternative asset classes (hedge fund of funds, private
equity, real estate and real assets) provided consistently higher returns with a
low correlation to equity market returns. These returns historically demonstrate
a long-term record of producing returns at or above the expected rate of return.
However, the dramatic adverse market conditions in 2008 skewed the traditional
measures of long-term performance, such as the ten-year average return. The
severity of the 2008 losses, approximately negative 20%, makes the historical
ten-year average return a less accurate predictor of future return expectations.
In 2009, the investment returns were approximately 16%, reflecting a partial
recovery of the 2008 losses. Our weighted-average expected rate of return
declined from 8.02% in 2009 to approximately 7.75% for 2010 primarily related to
the USRIP which declined due to our migration to a lower risk investment
strategy, with increased allocation to lower risk/lower return asset classes, as
well as the current forecast of expected future returns for our asset classes,
which is lower than the prior year.
The
calculation of the net periodic benefit cost for the USRIP 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.
Healthcare
Costs. An initial 8.5% annual rate of increase in the per
capita cost of covered healthcare benefits was assumed for 2010. The rate was
assumed to decrease gradually to an ultimate rate of 5.0% by 2015. Assumed
healthcare cost trend rates have a significant effect on the amounts reported
for the healthcare plan. A one-percentage point change in assumed healthcare
cost trend rates at December 31, 2009 would have had the following
effects:
34
(In millions)
|
1-Percentage
Point Increase
|
1-Percentage
Point Decrease
|
||||||
Effect
on total service and interest cost components
|
$ | 0.2 | $ | (0.2 | ) | |||
Effect
on accumulated postretirement benefit obligation
|
$ | 3.1 | $ | (2.7 | ) |
We
estimate that the future benefits payable for our retirement and postretirement
plans are as follows at December 31, 2009:
Years ending December 31,
|
U.S. Defined
Benefit Plans
|
Non-U.S. Defined
Benefit Plans
|
Other
Benefit Plans
|
|||||||||
(In millions)
|
||||||||||||
2010
|
$ | 39.2 | $ | 2.4 | $ | 3.2 | ||||||
2011
|
$ | 39.7 | $ | 2.4 | $ | 3.3 | ||||||
2012
|
$ | 40.0 | $ | 2.5 | $ | 3.2 | ||||||
2013
|
$ | 40.1 | $ | 2.5 | $ | 3.0 | ||||||
2014
|
$ | 40.1 | $ | 2.5 | $ | 3.0 | ||||||
Next
five fiscal years to December 31, 2019
|
$ | 201.7 | $ | 14.1 | $ | 12.8 |
Fair Value of Plan
Assets. The fair value of the pension assets at
December 31, 2009, is as follows:
Fair Value Measurements at Reporting
Date Using:
|
||||||||||||||||
Description
|
Fair Value at
December 31,
2009
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
(In millions)
|
||||||||||||||||
Large-Cap
Equity(1)
|
$ | 77.3 | $ | 77.3 | $ | — | $ | — | ||||||||
Small
and Mid-Cap Equity(1)
|
22.6 | 22.6 | — | — | ||||||||||||
International
Equity(1)
|
92.4 | 92.4 | — | — | ||||||||||||
Fixed
Income(1)
|
142.8 | 142.8 | — | — | ||||||||||||
Private
Equity(2)
|
25.6 | — | — | 25.6 | ||||||||||||
Hedge
Funds(3)
|
65.0 | — | — | 65.0 | ||||||||||||
Real
Assets(1)(4)
|
27.6 | 23.9 | — | 3.7 | ||||||||||||
Cash
and Cash Equivalents(1)
|
52.1 | 52.1 | — | — | ||||||||||||
Total
|
$ | 505.4 | $ | 411.1 | $ | — | $ | 94.3 |
(1)
|
Fair
value is based on observable market prices for the
assets.
|
(2)
|
Private
equity investments are initially valued at cost. Fund managers
periodically review the valuations utilizing subsequent company- specific
transactions or deterioration in the company’s financial performance to
determine if fair value adjustments are necessary. Private equity
investments are typically viewed as long term, less liquid investments
with return of capital coming via cash distributions from the sale of
underlying fund assets. The Plan intends to hold these investments through
each fund’s normal life cycle and wind down
period.
|
35
(3)
|
Fair
value is reported by the fund manager based on observable market prices
for actively traded assets within the funds, as well as financial models,
comparable financial transactions or other factors relevant to the
specific asset for assets with no observable
market.
|
(4)
|
For
the portion of this asset class categorized as Level 3, fair value is
reported by the fund manager based on a combination of the following
valuation approaches: current replacement cost less deterioration and
obsolescence, a discounted cash flow model of income streams and
comparable market sales.
|
The
following table shows a reconciliation of the beginning and ending balances for
assets valued using significant unobservable inputs:
(In millions)
|
Private Equity
|
Hedge Funds
|
Real Assets
|
|||||||||
Balance
at December 31, 2008
|
$ | 28.5 | $ | 66.2 | $ | 5.8 | ||||||
Return
on plan assets:
|
||||||||||||
Unrealized
|
(1.9 | ) | 9.7 | 0.1 | ||||||||
Realized
|
(2.9 | ) | (2.6 | ) | (2.0 | ) | ||||||
Purchases
|
2.5 | 6.6 | — | |||||||||
Sales
|
(0.6 | ) | (14.9 | ) | (0.2 | ) | ||||||
Balance
at December 31, 2009
|
$ | 25.6 | $ | 65.0 | $ | 3.7 |
The fair
value of the postretirement assets at December 31, 2009, is as
follows:
Fair Value Measurements at Reporting
Date Using:
|
||||||||||||||||
Description
|
Fair Value at
December 31,
2009
|
Quoted
Prices
in Active
Markets for
Identical
Assets
(Level 1)
|
Significant
Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
||||||||||||
(In millions)
|
||||||||||||||||
Large-Cap
Equity(1)
|
$ | 2.5 | $ | 2.5 | $ | — | $ | — | ||||||||
Small
and Mid-Cap Equity(1)
|
0.9 | 0.9 | — | — | ||||||||||||
International
Equity(1)
|
2.7 | 2.7 | — | — | ||||||||||||
Fixed
Income(1)
|
4.8 | 4.8 | — | — | ||||||||||||
Private
Equity(2)
|
1.0 | — | — | 1.0 | ||||||||||||
Hedge
Funds(3)
|
2.5 | — | — | 2.5 | ||||||||||||
Real
Assets(1)(4)
|
1.0 | 0.9 | — | 0.1 | ||||||||||||
Cash
and Cash Equivalents(1)
|
1.9 | 1.9 | — | — | ||||||||||||
Total
|
$ | 17.3 | $ | 13.7 | $ | — | $ | 3.6 |
(1)
|
Fair
value is based on observable market prices for the
assets.
|
(2)
|
Private
equity investments are initially valued at cost. Fund managers
periodically review the valuations utilizing subsequent company- specific
transactions or deterioration in the company’s financial performance to
determine if fair value adjustments are necessary. Private equity
investments are typically viewed as long term, less liquid investments
with return of capital coming via cash distributions from the sale of
underlying fund assets. The Plan intends to hold these investments through
each fund’s normal life cycle and wind down
period.
|
(3)
|
Fair
value is reported by the fund manager based on observable market prices
for actively traded assets within the funds, as well as financial models,
comparable financial transactions or other factors relevant to the
specific asset for assets with no observable
market.
|
(4)
|
For
the portion of this asset class categorized as Level 3, fair value is
reported by the fund manager based on a combination of the following
valuation approaches: current replacement cost less deterioration and
obsolescence, a discounted cash flow model of income streams and
comparable market sales.
|
Gross
realized and unrealized gains and losses, purchases and sales for Level 3
postretirement assets were not material for the twelve months ended
December 31, 2009.
36
USRIP and EIPP, or the Plans,
Investment and Asset Allocation Strategies. The primary goal
of the asset allocation strategy of the Plans is to produce a total investment
return which will satisfy future annual cash benefit payments to participants
and minimize future contributions from the Company. Additionally, this strategy
will diversify the plan assets to minimize nonsystemic risk and provide
reasonable assurance that no single security or class of security will have a
disproportionate impact on the Plans. Investment managers are required to abide
by the provisions of ERISA. Standards of performance for each manager include an
expected return versus an assigned benchmark, a measure of volatility, and a
time period of evaluation.
The asset
allocation strategy is determined by our external advisor forecasting investment
returns by asset class and providing allocation guidelines to maximize returns
while minimizing the volatility and correlation of those returns. Investment
recommendations are made by our external advisor, working in conjunction with
our in-house Investment Officer. The asset allocation and ranges are approved by
in-house Plan Administrators, who are Named Fiduciaries under
ERISA.
37
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Plans, in an effort to meet asset allocation objectives, utilize a variety of
asset classes which have historically produced returns which are relatively
uncorrelated to those of the S&P 500 in most environments. Asset
classes included in this category are alternative assets (hedge fund-of-funds),
private equity (including secondary private equity) and real estate. The primary
benefits of using these types of asset classes are: (1) their
non-correlated returns reduce the overall volatility of the Plans’ portfolio of
assets, and (2) their ability to produce superior risk-adjusted returns.
This has allowed the Plans’ average annual investment return to exceed the
S&P 500 index return over the last ten years. Additionally, the Plans
allow certain of their managers, subject to specific risk constraints, to
utilize derivative instruments, in order to enhance asset return, reduce
volatility or both. Derivatives are primarily employed by the Plans in their
fixed income portfolios and in the hedge fund-of-funds area. Derivatives can be
used for hedging purposes to reduce risk. During 2007, the Equifax Master Trust
entered into certain allowed derivative arrangements in order to minimize
potential losses in the Plans’ assets. These agreements were settled in 2008
resulting in payments received of $13.2 million in the USRIP and
$6.6 million in the EIPP.
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, 2009, the USRIP’s assets included
0.5 million shares of Equifax common stock, with a market value of
$15.3 million. At December 31, 2008, the USRIP and EIPP’s assets
included 0.8 million shares and 0.1 million shares, respectively, of
Equifax common stock, with a market value of $21.3 million and
$2.4 million, respectively. Not more than 5% of the portfolio (at cost)
shall be invested in the securities of any one issuer, with the exceptions of
Equifax common stock or other securities, and U.S. Treasury and government
agency securities.
The
following asset allocation ranges and actual allocations were in effect as of
December 31, 2009 and 2008:
2009
|
||||||||
USRIP
|
Range
|
Actual
|
||||||
Large-Cap
Equity
|
10%–35 | % | 14.7 | % | ||||
Small-
and Mid-Cap Equity
|
0%–15 | % | 4.9 | % | ||||
International
Equity
|
10%–30 | % | 15.5 | % | ||||
Private
Equity
|
2%–10 | % | 5.6 | % | ||||
Hedge
Funds
|
10%–30 | % | 14.2 | % | ||||
Real
Assets
|
2%–10 | % | 6.0 | % | ||||
Fixed
Income
|
15%–40 | % | 27.9 | % | ||||
Cash
|
0%–15 | % | 11.2 | % |
2008
|
||||||||||||||||
USRIP
|
EIPP
|
|||||||||||||||
Range
|
Actual
|
Range
|
Actual
|
|||||||||||||
Large-Cap
Equity
|
10%–35 | % | 14.3 | % | 10%–40 | % | 17.4 | % | ||||||||
Small-
and Mid-Cap Equity
|
0%–15 | % | 3.3 | % | 0%–15 | % | 8.2 | % | ||||||||
International
Equity
|
10%–30 | % | 12.0 | % | 10%–25 | % | 11.1 | % | ||||||||
Private
Equity
|
2%–10 | % | 7.5 | % | 2%–10 | % | 5.2 | % | ||||||||
Hedge
Funds
|
10%–30 | % | 19.0 | % | 10%–30 | % | 8.4 | % | ||||||||
Real
Assets
|
2%–10 | % | 6.3 | % | 5%–15 | % | 5.3 | % | ||||||||
Fixed
Income
|
15%–40 | % | 28.9 | % | 10%–35 | % | 19.0 | % | ||||||||
Cash
|
0%–15 | % | 8.7 | % | 0%–15 | % | 25.4 | % |
Due to
the timing of certain hedge fund redemptions and subsequent reinvestment, the
EIPP Plan was under allocated to hedge funds and over allocated to cash at
December 31, 2008.
CRIP Investment and Asset Allocation
Strategies. The Pension Committee of the CRIP has retained an
investment manager who has the discretion to invest in various asset classes
with the care, skill, and diligence expected of professional prudence. The CRIP
has a separate custodian of those assets, which are held in various segregated
pooled funds. The Pension Committee maintains an investment policy for the CRIP,
which imposes certain limitations and restrictions regarding allowable types of
investments. The 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 options, (5) private placements, and
(6) transactions which are “related-party” in nature as specified by the
Canadian Pension Benefits Standards Act and its regulations.
38
Each
pooled fund is associated with an asset classification, which has a primary
investment objective. The objective for each asset class is related to a
standard investment index and to a period of four-years. The following includes
the objectives for each of the current five asset classes:
Asset class
|
Four-Year Objective
|
Canadian
Equities
|
S&P/TSX
Composite Total Return Index plus 1.5%
|
U.S.
Equities
|
S&P 500
Total Return Index plus 1.5% (Canadian $)
|
International
Equities
|
MSCI
EAFE Total Return Index plus 1.5% (Canadian $)
|
Fixed
Income
|
Scotia
Capital Universe Bond Index plus 0.5%
|
Money
Market
|
Scotia
Capital 91-Day Treasury Bill Index plus
0.3%
|
The
following specifies the asset allocation ranges and actual allocation as of
December 31, 2009 and 2008:
Actual
|
||||||||||||
CRIP
|
Range
|
2009
|
2008
|
|||||||||
Canadian
Equities
|
30%–50 | % | 38.0 | % | 39.2 | % | ||||||
U.S.
Equities
|
9%–29 | % | 21.8 | % | 20.9 | % | ||||||
International
Equities
|
0%–19 | % | 7.9 | % | 9.5 | % | ||||||
Fixed
Income
|
20%–40 | % | 31.6 | % | 28.4 | % | ||||||
Money
Market
|
0%–10 | % | 0.7 | % | 2.0 | % |
The
investment goal is to achieve the composite return calculated based on the above
benchmark allocation plus 1% over successive four-year periods. An additional
objective is to provide a real rate of return of 3.0% when compared with the
Canadian Consumer Price Index, also over successive four-year
periods.
Equifax Retirement Savings
Plans. Equifax sponsored a tax qualified defined contribution
plan in 2009, the Equifax Inc. 401(k) Plan, or the Plan. The Company
assumed sponsorship of the TALX Corporation Savings and Retirement Plan, or TALX
Plan, upon the acquisition of TALX in 2007; however, the TALX Plan was
subsequently merged into the Plan on December 31, 2007. We provide a
discretionary match of participants’ contributions, up to six percent of
employee contributions. Company contributions for the Plan during the twelve
months ended December 31, 2009 and 2008 were $13.8 million and
$6.7 million, respectively. Company contributions for the Plan and TALX
Plan in 2007 were $5.6 million.
Foreign Retirement
Plans. We also maintain defined contribution plans for certain
employees in the U.K., Ireland and Canada. For the years ended December 31,
2009, 2008 and 2007, our expenses related to these plans were not
material.
Deferred Compensation
Plans. We maintain deferred compensation plans that allow for
certain management employees and the Board of Directors to defer the receipt of
compensation (such as salary, incentive compensation, commissions or vested
restricted stock units) until a later date based on the terms of the plans. The
benefits under our deferred compensation plans are guaranteed by the assets of a
grantor trust which, through our funding, purchased variable life insurance
policies on certain consenting individuals, with this trust as beneficiary. The
purpose of this trust is to ensure the distribution of benefits accrued by
participants of the deferred compensation plans in case of a change in control,
as defined in the trust agreement.
Long-Term Incentive
Plan. We have a shareholder-approved Key Management Incentive
Plan (Annual Incentive Plan) for certain key officers that provides for annual
or long-term cash awards at the end of various measurement periods, based on the
earnings per share and/or various other criteria over the measurement period.
Our total accrued incentive compensation for all incentive plans included in
accrued salaries and bonuses on our Consolidated Balance Sheets was
$49.4 million and $45.8 million at December 31, 2009 and 2008,
respectively.
Employee Benefit
Trusts. We maintain employee benefit trusts for the purpose of
satisfying obligations under certain benefit plans. These trusts held
2.1 million and 3.2 million shares of Equifax stock with a value, at
cost, of $41.2 million and $51.8 million at December 31, 2009 and
2008, respectively, as well as cash, which was not material for both periods
presented. The employee benefits trusts are as follows:
39
•
|
The
Employee Stock Benefits Trust, which constitutes a funding vehicle for a
variety of employee benefit programs. Prior to 2009, the trust released a
certain number of shares annually which were distributed to employees in
the course of share option exercises or nonvested share distributions upon
vesting. During 2009, we took certain steps to dissolve the trust,
including selling the remaining shares to Equifax. The $12.5 million
of cash the trust received from the sale was contributed to the EIPP in
December 2009.
|
•
|
The
Executive Life and Supplemental Retirement Benefit Plan Grantor Trust is
used to ensure that the insurance premiums due under the Executive Life
and Supplemental Retirement Benefit Plan are paid in case we fail to make
scheduled payments following a change in control, as defined in this trust
agreement.
|
•
|
The
Supplemental Executive Retirement Plans Grantor Trust’s assets are
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 which are recorded on our Consolidated Balance Sheets are
subject to creditors claims in case of insolvency of
Equifax Inc.
10. RESTRUCTURING
CHARGES
2009 Restructuring
Charges. In the fourth quarter of 2009, we recorded a
$16.4 million restructuring charge ($10.4 million, net of tax) in
selling, general and administrative expenses on our Consolidated Statements of
Income primarily related to headcount reductions of approximately 400 positions.
This charge resulted from our continuing efforts to align our business to better
support our strategic objectives. Generally, severance benefits for our U.S.
employees are paid through monthly payroll according to the number of weeks of
severance benefit provided to the employee, while our international employees
receive a lump sum severance payment for their benefit. Accordingly, we expect
the majority of the payments to be completed by December 2010. Payments related
to this charge totaled $1.7 million for the twelve months ended
December 31, 2009.
During
the first quarter of 2009, we recorded in selling, general and administrative
expenses in our Consolidated Statements of Income an $8.4 million
restructuring charge ($5.4 million, net of tax) associated with headcount
reductions of approximately 300 positions. This charge resulted from our efforts
to reduce and manage our expenses and to maintain our financial results in the
face of a weak global economy and reduced revenues. We expect the majority of
the payments to be completed by the first quarter of 2010. Payments related to
this charge totaled $7.5 million during the twelve months ended
December 31, 2009.
2008 Restructuring and Asset
Write-down Charges. In the third quarter 2008, we realigned
our business to better support our strategic objectives and recorded a
$16.8 million restructuring and asset write-down charge
($10.5 million, net of tax) of which $14.4 million was recorded in
selling, general and administrative expenses and $2.4 million was recorded
in depreciation and amortization on our Consolidated Statements of Income. The
$2.4 million recorded in depreciation and amortization is related to the
write-down of certain internal-use software from which we will no longer derive
future benefit.
Of the
$14.4 million recorded in selling, general and administrative expenses,
$10.3 million was associated with headcount reductions of approximately 300
positions which was accrued for under existing severance plans or statutory
requirements, and $4.1 million was related to certain contractual costs.
Payments related to headcount reductions were substantially completed by
March 31, 2009. Substantially all of the certain contractual costs, which
primarily represents services we do not intend to utilize for which we are
contractually committed to future payments, are expected to be paid by 2011.
Payments related to headcount reductions and certain contractual costs totaled
$5.4 million for the twelve months ended December 31, 2009. Total
payments to date, through December 31, 2009, related to the third quarter
2008 restructuring charge were $11.9 million.
Restructuring
charges are recorded in general corporate expense. Restructuring charges
related to discontinued operations were $4.1 million and $0.8 million during
2009 and 2008, respectively.
40
11. RELATED
PARTY TRANSACTIONS
SunTrust
Banks, Inc., or SunTrust
We
considered SunTrust a related party until September 18, 2008, because Larry
L. Prince, a member of our Board of Directors until that date, was also a
director of SunTrust. L. Phillip Humann, a member of our Board of Directors, was
Executive Chairman of the Board of Directors of SunTrust from 2007 to April 2008
and prior thereto, Chairman and Chief Executive Officer from 2004 through 2006.
Our relationships with SunTrust are described more fully as
follows:
•
|
We
paid SunTrust $4.1 million and $4.2 million, respectively,
during the twelve months ended December 31, 2008 and 2007 for
services such as lending, foreign exchange, debt underwriting, cash
management, trust, investment management, acquisition valuation, and
shareholder services relationships.
|
•
|
We
also provide credit management services to SunTrust, as a customer, from
whom we recognized revenue of $6.6 million and $6.0 million,
respectively, during the twelve months ended December 31, 2008 and
2007.
|
•
|
SunTrust
is a dealer under our commercial paper program. Fees paid to the dealers
related to our issuance of commercial paper were immaterial during the
twelve months ended December 31, 2008 and
2007.
|
•
|
SunTrust
Robinson Humphrey served as an underwriter for our public offering of
$550.0 million of Notes in June 2007 for which they were paid
underwriting fees of approximately
$0.4 million.
|
Bank
of America, N.A., or B of A
We
considered B of A a related party until September 18, 2008, because
Jacquelyn M. Ward, a member of our Board of Directors until that date, was also
a director of B of A. Our relationships with B of A are described more fully as
follows:
•
|
We
provide credit management services to B of A, as a customer, from whom we
recognized revenue of $40.3 million and $35.3 million,
respectively, during the twelve months ended December 31, 2008 and
2007.
|
•
|
B
of A is a dealer under our commercial paper program. Fees paid to the
dealers related to our issuance of commercial paper were immaterial during
the twelve months ended December 31, 2008 and
2007.
|
•
|
B
of A Securities, LLC served as an underwriter for our public offering
of $550.0 million of Notes in June 2007 for which they were paid
underwriting fees of approximately
$1.4 million.
|
Fidelity
National Information Services, Inc., or FNIS
We
considered FNIS a related party until September 17, 2008, because Lee A.
Kennedy, one of our directors until that date was 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 and 2007. In addition, FNIS provides customer invoice and
disclosure notification printing and mailing services to us. Amounts paid to
FNIS for fulfillment services were $12.1 million and $11.5 million for
the twelve months ended December 31, 2008 and 2007,
respectively.
On
February 29, 2008, in order to enhance our mortgage solutions market share,
we acquired certain assets and specified liabilities of FIS Credit
Services, Inc., a related party mortgage credit reporting reseller, for
cash consideration of $6.0 million. This is considered a related party
transaction since FNIS is the parent company of FIS Credit
Services, Inc.
12. SEGMENT
INFORMATION
Reportable
Segments. We manage our business and report our financial
results through the following five reportable segments, which are the same as
our operating segments:
41
•
|
U.S.
Consumer Information Solutions
|
•
|
TALX
|
•
|
International
|
•
|
North
America Personal Solutions
|
•
|
North
America Commercial Solutions
|
The
accounting policies of the reportable segments are the same as those described
in our summary of significant accounting policies (see Note 1). We evaluate
the performance of these reportable segments based on their operating revenues,
operating income and operating margins, excluding any unusual or infrequent
items, if any. Inter-segment sales and transfers are not material for all
periods presented. The measurement criteria for segment profit or loss and
segment assets are substantially the same for each reportable segment. All
transactions between segments are accounted for at cost, and no timing
differences occur between segments.
A summary
of segment products and services is as follows:
U.S. Consumer
Information Solutions. This segment includes consumer
information services (such as credit information and credit scoring, credit
modeling services, locate services, fraud detection and prevention services,
identity verification services and other consulting services); mortgage loan
origination information, appraisal, title and closing services; and consumer
financial marketing services.
TALX. This
segment includes employment, income and social security number verification
services (known as The Work Number) and employment tax and talent management
services.
International. This
segment includes information services products, which includes 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,
credit monitoring and identity theft protection products sold directly to
consumers via the Internet and in various hard-copy formats.
North America
Commercial Solutions. This segment includes commercial
products and services such as business credit and demographic information,
credit scores and portfolio analytics (decisioning tools), which are derived
from our databases of business credit, financial and demographic
information.
Segment
information for the twelve months ended December 31, 2009, 2008 and 2007
and as of December 31, 2009 and 2008 is as follows:
Twelve Months Ended
December 31,
|
||||||||||||
(in millions)
|
2009
|
2008
|
2007
|
|||||||||
Operating
revenue:
|
||||||||||||
U.S.
Consumer Information Solutions
|
$ | 712.2 | $ | 768.7 | $ | 833.4 | ||||||
International
|
438.6 | 505.7 | 472.8 | |||||||||
TALX
|
346.4 | 305.1 | 179.4 | |||||||||
North
America Personal Solutions
|
149.0 | 162.6 | 153.5 | |||||||||
North
America Commercial Solutions
|
69.8 | 71.5 | 67.6 | |||||||||
Total
operating revenue
|
$ | 1,716.0 | $ | 1,813.6 | $ | 1,706.7 |
Twelve Months Ended
December 31,
|
||||||||||||
(in millions)
|
2009
|
2008
|
2007
|
|||||||||
Operating
income:
|
||||||||||||
U.S.
Consumer Information Solutions
|
$ | 259.4 | $ | 298.9 | $ | 342.3 | ||||||
International
|
118.9 | 149.9 | 141.1 | |||||||||
TALX
|
75.4 | 53.1 | 29.3 | |||||||||
North
America Personal Solutions
|
34.3 | 46.3 | 34.0 | |||||||||
North
America Commercial Solutions
|
15.1 | 13.6 | 12.0 | |||||||||
General
Corporate Expense
|
(121.3 | ) | (122.8 | ) | (113.7 | ) | ||||||
Total
operating income
|
$ | 381.8 | $ | 439.0 | $ | 445.0 |
42
December 31,
|
||||||||
(in millions)
|
2009
|
2008
|
||||||
Total
assets:
|
||||||||
U.S.
Consumer Information Solutions
|
$ | 1,145.8 | $ | 1,047.7 | ||||
International
|
604.3 | 512.7 | ||||||
TALX
|
1,450.7 | 1,415.8 | ||||||
North
America Personal Solutions
|
19.6 | 21.3 | ||||||
North
America Commercial Solutions
|
70.7 | 68.1 | ||||||
General
Corporate
|
259.4 | 194.7 | ||||||
Total
assets
|
$ | 3,550.5 | $ | 3,260.3 |
Twelve Months Ended
December 31,
|
||||||||||||
(in millions)
|
2009
|
2008
|
2007
|
|||||||||
Depreciation
and amortization expense:
|
||||||||||||
U.S.
Consumer Information Solutions
|
$ | 35.4 | $ | 33.0 | $ | 32.8 | ||||||
International
|
23.2 | 23.8 | 21.4 | |||||||||
TALX
|
62.6 | 62.6 | 38.3 | |||||||||
North
America Personal Solutions
|
4.8 | 3.1 | 2.9 | |||||||||
North
America Commercial Solutions
|
5.8 | 5.4 | 5.5 | |||||||||
General
Corporate
|
13.4 | 14.3 | 12.6 | |||||||||
Total
depreciation and amortization expense
|
$ | 145.2 | $ | 142.2 | $ | 113.5 |
Twelve Months Ended
December 31,
|
||||||||||||
(in millions)
|
2009
|
2008
|
2007
|
|||||||||
Capital
expenditures:
|
||||||||||||
U.S.
Consumer Information Solutions
|
$ | 16.8 | $ | 22.1 | $ | 23.3 | ||||||
International
|
11.9 | 22.8 | 23.0 | |||||||||
TALX
|
13.5 | 9.9 | 6.4 | |||||||||
North
America Personal Solutions
|
5.1 | 9.5 | 5.0 | |||||||||
North
America Commercial Solutions
|
2.6 | 4.3 | 1.0 | |||||||||
General
Corporate
|
20.8 | 41.9 | 59.8 | |||||||||
Total
capital expenditures
|
$ | 70.7 | $ | 110.5 | $ | 118.5 |
Financial
information by geographic area is as follows:
Twelve Months Ended December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
2007
|
||||||||||||||||||||||
(in millions)
|
Amount
|
%
|
Amount
|
%
|
Amount
|
%
|
||||||||||||||||||
Operating
revenue (based on location of customer):
|
||||||||||||||||||||||||
U.S.
|
$ | 1,254.6 | 73 | % | $ | 1,282.6 | 71 | % | $ | 1,208.2 | 71 | % | ||||||||||||
Canada
|
122.6 | 7 | % | 136.2 | 7 | % | 132.2 | 8 | % | |||||||||||||||
U.K.
|
104.9 | 6 | % | 141.0 | 8 | % | 158.0 | 9 | % | |||||||||||||||
Brazil
|
82.3 | 5 | % | 97.6 | 5 | % | 83.0 | 5 | % | |||||||||||||||
Other
|
151.6 | 9 | % | 156.2 | 9 | % | 125.3 | 7 | % | |||||||||||||||
Total
operating revenue
|
$ | 1,716.0 | 100 | % | $ | 1,813.6 | 100 | % | $ | 1,706.7 | 100 | % |
December 31,
|
||||||||||||||||
2009
|
2008
|
|||||||||||||||
(in millions)
|
Amount
|
%
|
Amount
|
%
|
||||||||||||
Long-lived
assets:
|
||||||||||||||||
U.S.
|
$ | 2,667.4 | 86 | % | $ | 2,504.5 | 87 | % | ||||||||
Brazil
|
168.3 | 5 | % | 123.6 | 4 | % | ||||||||||
Canada
|
100.0 | 3 | % | 95.2 | 3 | % | ||||||||||
U.K.
|
99.3 | 3 | % | 93.6 | 3 | % | ||||||||||
Other
|
98.7 | 3 | % | 89.6 | 3 | % | ||||||||||
Total
long-lived assets
|
$ | 3,133.7 | 100 | % | $ | 2,906.5 | 100 | % |
43
13. QUARTERLY
FINANCIAL DATA (UNAUDITED)
Quarterly
financial data for 2009 and 2008 was as follows:
Three Months Ended
|
||||||||||||||||
2009
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
||||||||||||
(In millions, except per share data)
|
||||||||||||||||
Operating
revenue
|
$ | 426.5 | $ | 429.1 | $ | 425.0 | $ | 435.4 | ||||||||
Operating
income
|
$ | 96.9 | $ | 102.0 | $ | 100.0 | $ | 82.9 | ||||||||
Consolidated
income from continuing operations
|
$ | 52.5 | $ | 57.9 | $ | 57.4 | $ | 56.6 | ||||||||
Discontinued
operations, net of tax
|
$ | 3.6 | $ | 3.2 | $ | 4.0 | $ | 5.3 | ||||||||
Consolidated
net income
|
$ | 56.1 | $ | 61.1 | $ | 61.4 | $ | 61.9 | ||||||||
Net
income attributable to Equifax
|
$ | 54.4 | $ | 59.6 | $ | 59.7 | $ | 60.2 | ||||||||
Basic
earnings per common share*
|
||||||||||||||||
Net
income from continuing operations attributable to Equifax
|
$ | 0.40 | $ | 0.44 | $ | 0.44 | $ | 0.44 | ||||||||
Discontinued
operations attributable to Equifax
|
$ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.04 | ||||||||
Net
income attributable to Equifax
|
$ | 0.43 | $ | 0.47 | $ | 0.47 | $ | 0.48 | ||||||||
Diluted
earnings per common share*
|
||||||||||||||||
Net
income from continuing operations attributable to Equifax
|
$ | 0.40 | $ | 0.44 | $ | 0.44 | $ | 0.43 | ||||||||
Discontinued
operations attributable to Equifax
|
$ | 0.03 | $ | 0.03 | $ | 0.03 | $ | 0.04 | ||||||||
Net
income attributable to Equifax
|
$ | 0.43 | $ | 0.47 | $ | 0.47 | $ | 0.47 |
Three Months Ended
|
||||||||||||||||
2008
|
March 31,
|
June 30,
|
September 30,
|
December 31,
|
||||||||||||
(In millions, except per share data)
|
||||||||||||||||
Operating
revenue
|
$ | 472.5 | $ | 471.3 | $ | 454.3 | $ | 415.5 | ||||||||
Operating
income
|
$ | 117.8 | $ | 118.8 | $ | 98.3 | $ | 104.1 | ||||||||
Consolidated
income from continuing operations
|
$ | 62.1 | $ | 67.0 | $ | 68.2 | $ | 57.6 | ||||||||
Discontinued
operations, net of tax
|
$ | 5.3 | $ | 5.6 | $ | 5.6 | $ | 7.6 | ||||||||
Consolidated
net income
|
$ | 67.4 | $ | 72.6 | $ | 73.8 | $ | 65.2 | ||||||||
Net
income attributable to Equifax
|
$ | 65.7 | $ | 70.8 | $ | 72.3 | $ | 64.0 | ||||||||
Basic
earnings per common share*
|
||||||||||||||||
Net
income from continuing operations attributable to Equifax
|
$ | 0.47 | $ | 0.51 | $ | 0.52 | $ | 0.45 | ||||||||
Discontinued
operations attributable to Equifax
|
$ | 0.04 | $ | 0.04 | $ | 0.05 | $ | 0.06 | ||||||||
Net
income attributable to Equifax
|
$ | 0.51 | $ | 0.55 | $ | 0.57 | $ | 0.51 | ||||||||
Diluted
earnings per common share*
|
||||||||||||||||
Net
income from continuing operations attributable to Equifax
|
$ | 0.46 | $ | 0.50 | $ | 0.51 | $ | 0.44 | ||||||||
Discontinued
operations attributable to Equifax
|
$ | 0.04 | $ | 0.04 | $ | 0.05 | $ | 0.06 | ||||||||
Net
income attributable to Equifax
|
$ | 0.50 | $ | 0.54 | $ | 0.56 | $ | 0.50 |
*
|
The
sum of the quarterly EPS does not equal the annual EPS due to changes in
the weighted-average shares between
periods.
|
The
comparability of our quarterly financial results during 2009 and 2008 was
impacted by certain events, as follows:
•
|
During
2009, we made several acquisitions, including IXI Corporation and Rapid
Reporting Verification Company during the fourth quarter of 2009. For
additional information about our acquisitions, see Note 2 of the
Notes to Consolidated Financial
Statements.
|
•
|
During
the first and fourth quarters of 2009 and the third quarter of 2008, we
recorded restructuring charges. For additional information about these
charges, see Note 10 of the Notes to Consolidated Financial
Statements.
|
•
|
During
the fourth quarter of 2009, we recorded a $7.3 million income tax
benefit related to our ability to utilize foreign tax credits beyond 2009.
During the third quarter of 2008, we recorded an income tax benefit of
$14.6 million related to uncertain tax positions for which the
statute of limitations expired. For additional information about these
benefits, see Note 6 of the Notes to the Consolidated Financial
Statements.
|
44
14.
Discontinued Operations
On April
23, 2010, we sold our Equifax Enabling Technologies LLC legal entity, consisting
of our APPRO loan origination software (“APPRO”), for approximately $72
million. On July 1, 2010, we sold substantially all the assets of our
Direct Marketing Services division (“DMS”) for approximately $117
million. Both of these businesses were reported in our U.S. Consumer
Information Solutions segment. The historical results of these
operations for the years ended December 31, 2009, 2008 and 2007 are classified
as discontinued operations in the Consolidated Statements of
Income. Revenue for these businesses for the years ended December 31,
2009, 2008 and 2007 was $108.5 million, $122.1 million and $136.3 million,
respectively. Pretax income was $25.6 million, $38.2 million and
$41.3 million for the years ended December 31, 2009, 2008 and 2007.
The assets and liabilities of the discontinued operations included in
the Consolidated Balance Sheets at December 31, 2009 and 2008 were as
follows:
December
31,
2009
|
December
31,
2008
|
|||||||
(In
millions)
|
(In
millions)
|
|||||||
Current assets | $ | 6.9 | $ | 7.8 | ||||
Noncurrent assets | 132.3 | 140.8 | ||||||
Current liabilities | (8.5 | ) | (14.6 | ) | ||||
Noncurrent liabilities | (1.6 | ) | — | |||||
Net assets | $ | 129.1 | $ | 134.0 | ||||
45