Equifax Inc. — Q1 2011 Form 10-Q
Reporting period: Three months ended March 31, 2011; comparative period is Q1 2010. Unaudited consolidated financial statements. Equifax provides consumer and commercial information solutions, employment and income verification, and related services through five reportable segments.
Financial performance and position
| Metric | Q1 2011 | Q1 2010 / comparison |
|---|---|---|
| Operating revenue | $472.6 million | $443.0 million; up 7% |
| Operating income / margin | $109.1 million / 23.1% | $104.3 million / 23.5% |
| Income from continuing operations attributable to Equifax | $57.3 million | $54.0 million |
| Net income attributable to Equifax | $57.3 million | $56.7 million |
| Diluted EPS | $0.46 | $0.44; continuing-operations EPS was $0.42 |
| Operating cash flow | $23.1 million | $37.7 million |
| Capital expenditures | $26.2 million | $50.0 million |
| Cash and cash equivalents | $86.9 million | $119.4 million at December 31, 2010 |
| Debt | $1,008.3 million total debt; $1,015.5 million reported as consolidated debt net in MD&A | $990.2 million total debt at December 31, 2010 |
Q1 2011 operating cash flow less capital expenditures was negative $3.1 million. Cash declined $32.5 million during the quarter. The effective tax rate was 37.9%, versus 37.6% a year earlier. Quarterly dividend was $0.16 per share, compared with $0.04 in Q1 2010.
Material changes and segment results
- Revenue increased in all five segments. U.S. Consumer Information Solutions (USCIS) revenue was $181.0 million, up 5%; International $127.2 million, up 9%; TALX $99.4 million, up 4%; North America Personal Solutions $44.4 million, up 12%; and North America Commercial Solutions $20.6 million, up 10%.
- Operating margin declined 0.4 percentage points as expenses grew with sales-force expansion and acquisition-related amortization. SG&A rose 16%, principally due to higher salary and incentive costs, advertising, and professional fees.
- Continuing-operations income rose 6%, but reported net income increased only 1% because Q1 2010 included $2.7 million of after-tax income from businesses later divested. Diluted EPS growth also benefited from lower weighted-average shares.
- Operating cash flow fell 39%, primarily reflecting payment of prior-year incentive compensation and higher receivables; lower pension contributions partly offset these uses.
- Q1 2011 acquisition spending was $30.7 million for businesses in the U.K. and Latin America; Equifax also invested $2.7 million in an unconsolidated India affiliate. The 2010 capital-spending comparison included a $29.1 million headquarters purchase.
Liquidity, outlook, risks and contingencies
- Equifax extended its senior revolving credit facility maturity to February 18, 2015, and reduced its commitment from $850 million to $500 million. At quarter-end, $475.4 million was available; $23.0 million of commercial paper was outstanding. The commercial paper program was also reduced to $500 million.
- Management said operating cash generation and available facilities were expected to cover anticipated working capital and other cash requirements for the foreseeable future. The company was in compliance with debt covenants; its reported leverage ratio was 1.71 against a maximum of 3.5.
- Management expected 2011 credit-economy improvement to be very modest and not materially contribute to organic growth. It anticipated organic growth from newer products and momentum from 2010, while noting traditional products would face a challenging environment. No quantified earnings or revenue guidance was provided.
- Key business risks include subdued consumer and small-business lending, mortgage-market variability, regulatory changes, foreign-exchange movements, competition, and execution of new products and acquisitions. International revenue benefited from currency translation by $4.6 million overall.
- Equifax disclosed ordinary-course litigation, including California bankruptcy-related class actions; management did not expect other litigation matters, individually or in aggregate, to materially affect results, though outcomes are uncertain.
- A Canadian tax reassessment for 1995–2000 asserted $8.8 million to $19.5 million, plus interest and penalties. Equifax said it intended to contest the claims and believed exposure was lower and not material; an additional provincial claim could arise if the outcome is unfavorable.
- A CSC agreement includes options concerning CSC’s credit reporting business. Equifax’s internal estimate of a possible purchase price, if exercised at December 31, 2010, was approximately $625 million to $700 million; the actual price could differ materially. No exercise was reported.
Important facts for investors to verify
- Reconcile the filing’s debt presentations: $1,008.3 million total debt in the debt note versus $1,015.5 million “total consolidated debt, net” in MD&A, and assess cash and facility availability.
- Track whether operating cash flow recovers after incentive payments and working-capital outflows, particularly as it was below quarterly capital expenditures.
- Monitor expense growth and margin trends, including sales-force investment and acquisition-related amortization.
- Assess whether expected product-led growth offsets weak lending conditions and mortgage-market volatility; the filing provides no quantified forward guidance.
- Follow developments in the Canadian tax matter, litigation, and the CSC contractual options, whose potential financial outcomes are uncertain.