EFX

Equifax Inc. 10-Q Summary: Quarter Ended September 30, 2006

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for Equifax Inc., a provider of consumer and commercial credit information, marketing data, and identity protection services. The report covers the three and nine months ended September 30, 2006. Equifax operates in three reportable segments: North America, Europe, and Latin America, serving customers across financial services, retail, telecommunications, and government sectors in 13 countries.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Consolidated revenue increased 5% in Q3 and 7% for the nine months ended September 30, 2006. Growth was driven by the Personal Solutions, Europe, and Latin America segments, partially offset by a decline in Mortgage Solutions due to higher interest rates and lower refinancing activity.
• Profitability: Net income rose 26% in Q3 and 15% for the nine-month period. Operating margins improved in Q3 (30.6% vs 28.6%) but declined slightly for the nine-month period (28.2% vs 29.2%) due to legal contingencies and stock-based compensation adoption.
• Legal Contingencies: The company recorded a net reversal of $9.0 million in loss contingencies in Q3 2006 following favorable court rulings, significantly boosting operating income. Conversely, a $4.0 million loss contingency was recorded in Q3 for the North America Information Services segment.
• Accounting Changes: The adoption of SFAS No. 123R (Share-Based Payment) on January 1, 2006, resulted in an incremental negative impact of $0.8 million (Q3) and $6.6 million (9M) on pre-tax income.
• Debt Reduction: Total debt decreased by approximately $47.6 million year-to-date, primarily due to net repayments under long-term revolving credit facilities.

Guidance, Outlook, and Risks

• Outlook: Management notes a softening U.S. economy impacting customer demand. The company continues to pursue a growth strategy through product innovation, organic growth in commercial information, and disciplined acquisitions.
• Recent Acquisition: On October 6, 2006 (subsequent to the period end), Equifax acquired Austin-Tetra for $34.4 million in cash to enhance commercial data management services.
• Share Repurchases: The company repurchased 4.6 million shares for $162.0 million during the nine months ended September 30, 2006. An additional $183.4 million remained authorized for future repurchases as of period end.
• Risks: Key risks include changes in economic conditions affecting consumer debt, regulatory changes regarding privacy and data use, potential litigation outcomes (including antitrust and class actions), and the impact of pension funding requirements under new legislation (Pension Protection Act of 2006).
• Contingencies: The company faces a potential obligation to purchase Computer Sciences Corporation's (CSC) credit reporting business if CSC exercises its option, estimated at $650 million to $700 million.

Investor Verification Checklist

• Legal Exposure: Verify the status of the Naviant arbitration and the CROA class-action litigation, as outcomes could materially impact future earnings.
• Mortgage Segment: Monitor the Mortgage Solutions segment for continued weakness due to high interest rates and changes in customer business models.
• Stock-Based Compensation: Review the ongoing impact of SFAS No. 123R on future operating margins and cash flow classifications.
• Foreign Currency: Assess the sustainability of revenue growth in Europe and Latin America, which benefited significantly from favorable currency fluctuations in 2006.
• CSC Option: Evaluate the likelihood and financial impact of the potential $650M-$700M acquisition of CSC's credit reporting business.