10-QPeriod: Q2 FY2006

EQUIFAX INC Quarterly Report for Q2 Ended Jun 30, 2006

Filed August 2, 2006For Securities:EFX

Summary

Equifax Inc. (EFX) reported solid revenue growth of 7% for the three months ended June 30, 2006, reaching $387.7 million, and an 8% increase to $761.7 million for the six-month period. This top-line growth was driven by strength across its operating segments, particularly in Latin America and Marketing Services. Despite revenue increases, operating income saw a decline due to a significant $14.0 million pre-tax loss contingency related to legal matters and the incremental impact of adopting SFAS No. 123R, which increased stock-based compensation expense. The company also benefited from a $14.1 million non-taxable gain from the settlement of claims related to the Naviant, Inc. acquisition, which positively impacted other income. Equifax maintained a strong liquidity position with $48.2 million in cash and cash equivalents and substantial availability under its revolving credit facilities, which were amended and extended. The company continues to focus on its core information, analytics, and technology services while managing operational challenges and legal contingencies.

Key Highlights

  • 1Revenue grew by 7% to $387.7 million for the quarter and 8% to $761.7 million for the six months ended June 30, 2006, driven by strong performance in Latin America and Marketing Services.
  • 2Operating income decreased by 10% for the quarter and 2% for the six months, impacted by a $14.0 million loss contingency related to legal matters and increased stock-based compensation expenses due to SFAS No. 123R adoption.
  • 3Net income increased to $69.6 million for the quarter and $132.5 million for the six months, aided by a $14.1 million non-taxable gain from a Naviant, Inc. acquisition-related settlement.
  • 4The company adopted SFAS No. 123R, leading to higher stock-based compensation expenses, with an incremental negative impact of $3.5 million (pre-tax) for the quarter and $5.8 million (pre-tax) for the six months.
  • 5Liquidity remains strong, with $48.2 million in cash and cash equivalents and $465.0 million available under its amended and restated senior unsecured revolving credit facility.
  • 6The company repurchased $97.0 million of its common stock during the six-month period and paid dividends of $10.3 million.
  • 7Latin America showed significant revenue growth of 26% for the quarter and 31% for the six months, demonstrating strong international expansion.

Frequently Asked Questions

The decrease in operating income was primarily driven by a $14.0 million pre-tax loss contingency related to certain legal matters and the incremental negative impact of adopting SFAS No. 123R, which increased stock-based compensation expense. These factors, along with a shift in product mix within Information Services, led to a lower operating margin.

The adoption of SFAS No. 123R on January 1, 2006, requires the expensing of stock-based awards at fair value. This led to a significant increase in stock-based compensation expense, more than doubling it compared to the prior year. The incremental negative impact was $3.5 million pre-tax for the quarter and $5.8 million pre-tax for the six months, impacting selling, general and administrative expenses.

Equifax maintains a strong liquidity position with $48.2 million in cash and significant availability under its $500 million senior unsecured revolving credit facility, which has been amended and extended. The company believes its operating cash flow, cash reserves, and credit facilities are sufficient to meet its projected cash requirements for the next twelve months and beyond. Management also highlighted the upcoming maturity of $250 million in notes in November 2007 and plans to address it through available cash, credit facilities, or refinancing.

The settlement of claims against former selling shareholders of Naviant, Inc. resulted in a $15.2 million cash payment to Equifax and a $14.1 million non-taxable gain. This gain positively impacted 'Other income, net' and contributed to the increase in net income for both the three and six-month periods.