Edgar Filing: EQUIFAX INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-06605

EQUIFAX INC.

(Exact name of registrant as specified in its charter)

Georgia		58-0401110
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)
1550 Peachtree Street, N.W.,
Atlanta, Georgia		30309
(Address of principal executive offices)		(Zip Code)

404-885-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one)

Large accelerated filer x

Accelerated filer o

Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes x No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 31, 2006
Common Stock, $1.25 Par Value		126,629,022

EQUIFAX INC.

QUARTERLY REPORT ON FORM 10-Q

QUARTER ENDED JUNE 30, 2006

INDEX

		Page
PART I	Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Statements of Income—Three Months Ended June 30, 2006 and 2005	3
	Consolidated Statements of Income—Six Months Ended June 30, 2006 and 2005	4
	Consolidated Balance Sheets—June 30, 2006 and December 31, 2005	5
	Consolidated Statements of Cash Flows—Six Months Ended June 30, 2006 and 2005	6
	Consolidated Statements of Shareholders’ Equity and Other Comprehensive Income—Six Months Ended June 30, 2006	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39
PART II	Other Information	40
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 4.	Submission of Matters to a Vote of Security Holders	43
Item 6.	Exhibits	44
Signatures		45
Index to Exhibits		46

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

EQUIFAX INC.

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended June 30,
	2006			2005
(In millions, except per share amounts)	(Unaudited)
Operating revenue	$	387.7		$	363.4
Operating expenses:
Cost of services (exclusive of depreciation and amortization below)	161.8			147.8
Selling, general and administrative expenses	109.0			88.8
Depreciation and amortization	20.5			20.1
Total operating expenses	291.3			256.7
Operating income	96.4			106.7
Interest expense	(8.2		)	(9.8		)
Minority interests in earnings, net of tax	(1.1		)	(1.3		)
Other income, net	15.0			2.4
Income before income taxes	102.1			98.0
Provision for income taxes	(32.5		)	(35.4		)
Net income	$	69.6		$	62.6
Basic earnings per common share	$	0.54		$	0.48
Shares used in computing basic earnings per share	128.1			129.8
Diluted earnings per common share	$	0.53		$	0.47
Shares used in computing diluted earnings per share	130.4			132.7
Dividends per common share	$	0.04		$	0.04

See Notes to Consolidated Financial Statements.

EQUIFAX INC.

CONSOLIDATED STATEMENTS OF INCOME

	Six Months Ended June 30,
	2006			2005
(In millions, except per share amounts)	(Unaudited)
Operating revenue	$	761.7		$	706.8
Operating expenses:
Cost of services (exclusive of depreciation and amortization below)	311.7			290.3
Selling, general and administrative expenses	202.8			167.8
Depreciation and amortization	41.6			40.0
Total operating expenses	556.1			498.1
Operating income	205.6			208.7
Interest expense	(16.1		)	(18.9		)
Minority interests in earnings, net of tax	(2.0		)	(2.6		)
Other income, net	15.5			5.1
Income before income taxes	203.0			192.3
Provision for income taxes	(70.5		)	(71.1		)
Net income	$	132.5		$	121.2
Basic earnings per common share	$	1.03		$	0.93
Shares used in computing basic earnings per share	128.6			129.8
Diluted earnings per common share	$	1.01		$	0.91
Shares used in computing diluted earnings per share	131.0			132.6
Dividends per common share	$	0.08		$	0.07

See Notes to Consolidated Financial Statements.

EQUIFAX INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2006				December 31, 2005
(In millions, except par values)	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	48.2			$	37.5
Trade accounts receivable, net of allowance for doubtful accounts of $10.6 at June 30, 2006 and $9.6 at December 31, 2005		239.0				216.0
Prepaid expenses		24.9				17.9
Other current assets		10.4				9.0
Total current assets		322.5				280.4
Property and equipment:
Capitalized internal-use software and system costs		225.3				205.9
Data processing equipment and furniture		131.4				124.5
Land, buildings and improvements		29.2				29.1
Total property and equipment		385.9				359.5
Less accumulated depreciation and amortization		(227.6		)		(202.7		)
Total property and equipment, net		158.3				156.8
Goodwill		804.8				791.2
Indefinite-lived intangible assets		95.3				95.0
Purchased intangible assets, net		250.2				263.4
Prepaid pension asset		191.5				183.7
Other assets, net		61.1				61.0
Total assets		$	1,883.7			$	1,831.5
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term debt and current maturities		$	95.6			$	92.3
Accounts payable		16.8				5.9
Accrued expenses		51.4				54.0
Accrued salaries and bonuses		26.1				40.7
Deferred revenue		63.9				49.2
Accrued legal expenses		20.0				6.1
Other current liabilities		38.8				46.3
Total current liabilities		312.6				294.5
Long-term debt		433.8				463.8
Deferred income tax liabilities, net		129.8				126.1
Other long-term liabilities		114.8				126.8
Total liabilities		991.0				1,011.2
Commitments and contingencies (see Note 5)
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—185.9 at June 30, 2006 and 185.2 at December 31, 2005; Outstanding shares—127.3 at June 30, 2006 and 129.2 at December 31, 2005		232.4				231.5
Paid-in capital		587.5				559.0
Retained earnings		1,647.0				1,525.1
Accumulated other comprehensive loss		(138.3		)		(157.8		)
Treasury stock, at cost, 54.4 shares at June 30, 2006 and 51.7 shares at December 31, 2005		(1,374.2		)		(1,274.6		)
Stock held by employee benefit trusts, at cost, 4.2 shares at June 30, 2006 and 4.3 shares at December 31, 2005		(61.7		)		(62.9		)
Total shareholders’ equity		892.7				820.3
Total liabilities and shareholders’ equity		$	1,883.7			$	1,831.5

See Notes to Consolidated Financial Statements.

EQUIFAX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	June 30,
(In millions)	2006			2005
	(Unaudited)
Operating activities:
Net income	$	132.5		$	121.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	41.6			40.0
Stock-based compensation expense	10.8			3.8
Tax effects of stock-based compensation plans	4.2			7.4
Excess tax benefits from stock-based compensation plans	(2.9		)	—
Deferred income taxes	0.3			13.3
Changes in assets and liabilities, excluding effects of acquisitions:
Accounts receivable, net	(20.5		)	(16.8		)
Prepaid expenses and other current assets	(6.6		)	0.2
Other assets	(4.7		)	(13.6		)
Current liabilities, excluding debt	14.3			(15.2		)
Other long-term liabilities, excluding debt	(13.0		)	(8.0		)
Cash provided by operating activities	156.0			132.3
Investing activities:
Capital expenditures	(26.5		)	(22.1		)
Acquisitions, net of cash acquired	—			(104.5		)
Other	(0.1		)	10.1
Cash used in investing activities	(26.6		)	(116.5		)
Financing activities:
Net short-term borrowings	3.3			11.4
Net repayments under long-term revolving credit facilities	(30.0		)	—
Treasury stock purchases	(98.6		)	(55.0		)
Dividends paid	(10.3		)	(9.4		)
Proceeds from exercise of stock options	13.4			31.0
Excess tax benefits from stock-based compensation plans	2.9			—
Other	0.1			0.5
Cash used in financing activities	(119.2		)	(21.5		)
Effect of foreign currency exchange rates on cash and cash equivalents	0.5			(1.7		)
Increase (decrease) in cash and cash equivalents	10.7			(7.4		)
Cash and cash equivalents, beginning of period	37.5			52.1
Cash and cash equivalents, end of period	$	48.2		$	44.7

See Notes to Consolidated Financial Statements.

EQUIFAX INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY
AND COMPREHENSIVE INCOME
(UNAUDITED)

																					Stock
														Accumulated							Held By
	Common Stock													Other							Employee				Total
	Outstanding						Paid-In			Retained				Comprehensive				Treasury			Benefit				Shareholders’
	Shares			Amount			Capital			Earnings				Loss				Stock			Trusts				Equity
	(In millions)
Balance, December 31, 2005		129.2			$	231.5		$	559.0		$	1,525.1			$	(157.8	)	$	(1,274.6	)		$	(62.9	)		$	820.3
Net income		—			—			—			132.5				—			—				—				132.5
Other comprehensive income		—			—			—			—				19.5			—				—				19.5
Shares issued under stock plans		0.6			0.7			10.6			—				—			—				—				11.3
Shares issued under benefits plans		0.1			—			1.5			—				—			—				1.2				2.7
Treasury stock traded for minimum tax withholdings		—			—			—			—				—			(1.6		)		—				(1.6		)
Treasury stock traded for option price		—			—			0.2			—				—			(1.0		)		—				(0.8		)
Treasury stock purchased ($36.75 per share)*		(2.6	)		—			—			—				—			(97.0		)		—				(97.0		)
Cash dividends ($0.08 per share)		—			—			—			(10.6		)		—			—				—				(10.6		)
Stock-based compensation expense		—			—			10.8			—				—			—				—				10.8
Tax effects of stock-based compensation plans		—			—			4.2			—				—			—				—				4.2
Dividends paid to employee benefits trusts		—			—			0.3			—				—			—				—				0.3
Other		—			0.2			0.9			—				—			—				—				1.1
Balance, June 30, 2006		127.3			$	232.4		$	587.5		$	1,647.0			$	(138.3	)	$	(1,374.2	)		$	(61.7	)		$	892.7

*At June 30, 2006, $248.4 million was authorized for future repurchases of our common stock.

Accumulated Other Comprehensive Loss consists of the following components:

	June 30, 2006				December 31, 2005
	(In millions)
Foreign currency translation		$	(121.2	)		$	(140.1	)
Minimum pension liability, net of accumulated tax of $10.0 at June 30, 2006 and December 31, 2005		(16.7		)		(16.7		)
Cash flow hedging transactions, net of tax of $0.3 and $0.6 at June 30, 2006 and December 31, 2005, respectively		(0.4		)		(1.0		)
Accumulated other comprehensive loss		$	(138.3	)		$	(157.8	)

Comprehensive Income is as follows:

	Three Months Ended June 30,					Six Months Ended June 30,
	2006		2005			2006		2005
	(In millions)
Net income	$	69.6	$	62.6		$	132.5	$	121.2
Other comprehensive income (loss):
Foreign currency translation adjustment	10.5		7.8			18.9		1.1
Change in cumulative loss from cash flow hedging transactions	0.2		(0.3		)	0.6		0.2
Minimum pension liability adjustment	—		—			—		(1.0		)
Comprehensive income	$	80.3	$	70.1		$	152.0	$	121.5

See Notes to Consolidated Financial Statements.

EQUIFAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2006

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.

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations. We collect, organize and manage various types of financial, demographic and marketing information. Our products and services enable businesses to make credit and service decisions, manage their portfolio risk 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 state and federal governments. We also enable consumers to manage and protect their financial health through a portfolio of products offered directly to individuals. We operate in 13 countries: North America (the U.S., Canada and Costa Rica), Europe (the United Kingdom, Ireland, Spain and Portugal) and Latin America (Brazil, Argentina Chile, El Salvador, Peru and Uruguay). For information about our operating segments, including product and service offerings, see Note 8 of the Notes to Consolidated Financial Statements.

Basis of Presentation. The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. As a result, these Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our annual report on Form 10-K for the fiscal year ended December 31, 2005 (“2005 Form 10-K”).

We believe that the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting of normal recurring items, considered necessary for a fair statement of results for the interim periods presented.

We have reclassified certain prior period amounts in our Consolidated Financial Statements to conform to the current period presentation, including the reclassification of prior year amounts related to the presentation of purchased software from other assets, net to capitalized internal-use software and system costs on our Consolidated Balance Sheets. The purchased software balance and related accumulated amortization was $53.0 million and $28.3 million, respectively, at June 30, 2006, and $43.5 million and $23.7 million, respectively, at December 31, 2005.

Earnings Per Share. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, “Earnings per Share,” our basic earnings per share (“EPS”) is calculated as net income divided by the weighted-average number of common shares outstanding during the 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 income amount used in our EPS calculations is the same for both basic and diluted EPS. A reconciliation of the weighted-average outstanding shares used in the two calculations is as follows:

Three Months Ended

Six Months Ended

June 30,

2006

2005

2006

2005

(In millions)

Weighted-average shares outstanding (basic)

128.1

129.8

128.6

129.8

Effect of dilutive securities:

Stock options

1.8

2.3

1.9

2.2

Long-term incentive plans

0.5

0.6

0.5

0.6

Weighted-average shares outstanding (diluted)

130.4

132.7

131.0

132.6

Between July 1, 2006 and August 1, 2006, we purchased 0.8 million shares of our common stock for $25.7 million under the stock repurchase program authorized by our Board of Directors.

Recent Accounting Pronouncements. In July 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109” (“FIN 48”), which provides clarification related to the process associated with accounting for uncertain tax positions recognized in the Company’s Consolidated Financial Statements. FIN 48 prescribes a more likely than not threshold for financial statement recognition and measurement of a tax position taken, or expected to be taken, in a tax return. FIN 48 also provides guidance related to, among other things, classification, accounting for interest and penalties associated with tax positions, and disclosure requirements. We are required to adopt FIN 48 on January 1, 2007. We are currently evaluating the impact of adopting FIN 48 on our Consolidated Financial Statements.

2. STOCK-BASED COMPENSATION

On January 1, 2006, we adopted SFAS No. 123R, “Share-Based Payment,” (“SFAS No. 123R”), which replaced SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”), and superseded Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB No. 25”). SFAS No. 123R requires that the cost relating to share-based payment transactions in which an entity exchanges its equity instruments for goods or services from either employees or non-employees be recognized in the financial statements as the goods are received or services are rendered. That cost is measured based on the fair value of the equity or liability instruments issued. We are no longer permitted to follow the intrinsic value accounting method of APB No. 25, which resulted in no expense being recorded for stock option grants for which the exercise price was equal to the fair value of the underlying stock on the date of grant. Prior to the adoption of SFAS No. 123R, we recognized compensation expense for nonvested stock over the stated vesting period in accordance with APB No. 25.

SFAS No. 123R applies to all of our outstanding unvested share-based payment awards as of January 1, 2006 and all prospective awards. All of our stock-based awards, which are stock options and nonvested stock, are classified as equity instruments. In accordance with SFAS No. 123R, we elected to use the modified prospective transition method as opposed to the modified retrospective transition method. Under the modified prospective transition method, financial statements prior to adoption remain unchanged. The following discusses several other elections we made as a result of adopting SFAS No. 123R:

· For our pro forma disclosures under SFAS No. 123, we used the Black-Scholes option pricing model. Upon the adoption of SFAS No. 123R, we compute the fair value of options granted on or after January 1, 2006 using the binomial model. Additionally, based on the guidance in Securities and Exchange Commission Staff Accounting Bulletin No. 107, “Share-Based Payment”, we changed our expected volatility assumption used in the binomial model. We will revisit all assumptions at each grant date. The fair value of stock options granted prior to the adoption of SFAS No. 123R, calculated using the Black-Scholes model, remains unchanged.

· Forfeitures under SFAS No. 123 were recognized when they occurred. SFAS No. 123R, however, requires forfeitures to be estimated at the grant date. Accordingly, compensation cost is recognized based on the number of awards expected to vest. There may be adjustments in future periods if actual forfeitures differ from our estimates. For nonvested shares granted prior to our adoption of SFAS No. 123R, we recorded a cumulative catch-up adjustment in January 2006 related to estimated forfeitures. This positive adjustment was not material to our Consolidated Financial Statements. Our forfeiture rate is based upon historical experience as well as anticipated employee turnover considering certain qualitative factors.

· Generally, our stock options are subject to graded vesting, while our nonvested shares are subject to cliff vesting. SFAS No. 123R permits entities to elect between the accelerated recognition method or straight-line recognition method for recognizing compensation cost related to awards subject to graded vesting based on a service condition. Consistent with our prior practice, we continue to apply the accelerated recognition method related to awards subject to graded vesting, which results in more compensation cost early in the vesting period.

Our nonvested stock has accelerated vesting features upon retirement, while our stock options continue to vest over the same vesting schedule even though no additional service is required by the employee after retirement. Upon the adoption of SFAS No. 123R, we began recognizing compensation cost related to new stock-based awards from the grant date through the date the employee is eligible to receive the award without further service, such as when the employee becomes retirement eligible, which may be shorter than the stated vesting period. For stock-based awards granted prior to the adoption of SFAS No. 123R, we recognized compensation cost over the stated vesting period and recognized the impact, if any, upon retirement; this recognition policy will continue for any such awards that were unvested at the time of adoption.

Stock-Based Award Plans.

Stock Options. Our shareholders have approved a stock option plan which provides that qualified and nonqualified stock options may be granted to officers and employees. In addition, stock options remain outstanding under two plans from which no new grants may be made. Authorized stock option grants can only be made from shareholder approved plans. The 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 25% vesting immediately upon grant, and expire ten years from the grant date. The following table summarizes changes in outstanding stock

options during the six months ended June 30, 2006, as well as stock options that are vested and expected to vest and stock options exercisable at June 30, 2006:

							Weighted-Average
				Weighted-Average			Remaining		Aggregate
	Shares			Exercise Price			Contractual Term		Intrinsic Value
	(in thousands)						(in years)		(in millions)
Outstanding at December 31, 2005		6,453			$	22.68
Granted (all at market price)		751			$	36.56
Exercised		(693	)		$	20.60
Forfeited and cancelled		(71	)		$	30.87
Outstanding at June 30, 2006		6,440			$	24.44		6.2		$	65.5
Vested and expected to vest at June 30, 2006		6,312			$	24.31		6.1		$	65.0
Exercisable at June 30, 2006		5,360			$	22.75		5.7		$	62.6

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of Equifax’s common stock on June 30, 2006 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 June 30, 2006. 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 three and six months ended June 30, 2006 was $4.2 million and $11.9 million, respectively.

Nonvested Stock. Our 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 three to five years based on service. The following table summarizes changes in our nonvested stock during the six months ended June 30, 2006 and the related weighted-average grant date fair value:

	Shares			Weighted-Average Grant Date Fair Value
	(in thousands)
Nonvested at December 31, 2005		689			$	28.74
Granted		232			$	37.15
Vested		(111	)		$	27.12
Forfeited		(10	)		$	28.34
Nonvested at June 30, 2006		800			$	31.40

The total fair value of nonvested stock that vested during the three and six months ended June 30, 2006, was $2.8 million and $4.1 million, respectively, based on the weighted-average fair value on the vesting date and $2.3 million and $3.0 million, respectively, based on the weighted-average fair value on the date of grant.

We expect to issue new shares of common stock or common shares held by our employee benefits trust upon the exercise of stock options or once nonvested shares vest. We do not expect to change our policies related to stock-based awards, such as the quantity or type of instruments issued, as a result of adopting SFAS No. 123R, nor do we plan on changing the terms of our stock-based awards. At June 30, 2006, there were 2.4 million shares available for future stock option grants and nonvested stock awards.

Measurement of Fair Value.

Stock Options. 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 three and six months ended June 30, 2006 and 2005, was estimated at the date of grant using the binomial model and the Black-Scholes model, respectively, with the following weighted-average assumptions:

	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2006				2005				2006				2005
Dividend yield		0.5		%		0.5		%		0.5		%		0.5		%
Expected volatility		23.9		%		31.4		%		24.1		%		31.4		%
Risk-free interest rate		4.9		%		3.7		%		4.8		%		3.7		%
Expected term (in years)		4.4				4.5				4.4				4.5
Weighted-average fair value of stock options granted		$	8.27			$	9.86			$	8.32			$	9.76

Nonvested Stock. 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).

Financial Statement Impact. Total stock-based compensation expense was $6.6 million and $2.1 million, for the three months ended June 30, 2006 and 2005, respectively, of which $6.2 million and $2.1 million, respectively, was included in selling, general and administrative expenses in our Consolidated Statements of Income. The income tax benefit related to stock-based compensation expense was $2.3 million and $0.8 million for the three months ended June 30, 2006 and 2005, respectively.

Total stock-based compensation expense was $10.8 million and $3.8 million, for the six months ended June 30, 2006 and 2005, respectively, of which $10.1 million and $3.8 million, respectively, was included in selling, general and administrative expenses in our Consolidated Statements of Income. The income tax benefit related to stock-based compensation expense was $3.8 million and $1.4 million for the six months ended June 30, 2006 and 2005, respectively.

For the three months ended June 30, 2006, the incremental negative impact of adopting SFAS No. 123R was $3.5 million, pretax, and $2.3 million, net of tax, with a $0.02 impact on basic and diluted EPS. For the six months ended June 30, 2006, the incremental negative impact of adopting SFAS No. 123R was $5.8 million, pretax, and $3.9 million, net of tax, with a $0.03 impact on basic and diluted EPS. The incremental impact of SFAS No. 123R during the three and six months ended June 30, 2006 represents (1) the stock option expense related to stock options unvested at the time of adoption and those granted during the six months ended June 30, 2006, (2) the accelerated expense recognition for nonvested shares that were granted during the six months ended June 30, 2006, to employees that are retirement eligible prior to the expiration of the stated vesting period, and (3) the impact of estimating forfeitures related to nonvested shares.

At June 30, 2006, our total unrecognized compensation cost related to nonvested stock and stock options was $15.1 million with a weighted-average recognition period of 2.4 years and $5.0 million with a weighted-average recognition period of 1.3 years, respectively.

SFAS No. 123R requires that benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow as required under prior accounting standards. This requirement reduced operating cash flows and increased financing cash flows by $2.9 million during the six months ended June 30, 2006.

Prior to January 1, 2006, we accounted for stock-based compensation under APB No. 25 and related interpretations, as permitted by SFAS No. 123 and SFAS No. 148, “Accounting for Stock-Based Compensation—Transitional Disclosure.” Accordingly, by our use of the intrinsic value method to account for stock-based employee compensation, we did not recognize compensation cost in connection with our stock option plans during the three and six months ended June 30, 2005. If we had elected to recognize compensation cost for our stock options granted during the three and six months ended June 30, 2005 based on the grant date fair value as prescribed by SFAS No. 123, net income and EPS would have been reduced to the pro forma amounts indicated in the table below:

	Three Months Ended				Six Months Ended
(In millions, except per share amounts)	June 30, 2005				June 30, 2005
Net income, as reported		$	62.6			$	121.2
Add: Total stock-based employee compensation expense, net of related tax effect, included in reported net income		1.3				2.4
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards, net of related tax effects		(2.9		)		(5.5		)
Pro forma net income		$	61.0			$	118.1
Earnings per share:
Basic—as reported		$	0.48			$	0.93
Basic—pro forma		$	0.47			$	0.91
Diluted—as reported		$	0.47			$	0.91
Diluted—pro forma		$	0.46			$	0.89

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. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”), goodwill is tested 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. Goodwill allocated to our reporting units at December 31, 2005 and changes in the carrying amount of goodwill during the six months ended June 30, 2006 are as follows:

	Information			Marketing				Personal			European			Latin American
	Services			Services				Solutions			Operations			Operations			Corporate			Total
	(In millions)
Balance, December 31, 2005		$	232.8		$	289.5			$	1.8		$	105.4		$	155.8		$	5.9	$	791.2
Purchase price adjustment		—			(0.2		)		—			—			—			—		(0.2		)
Foreign currency translation		2.0			—				—			6.5			5.3			—		13.8
Balance, June 30, 2006		$	234.8		$	289.3			$	1.8		$	111.9		$	161.1		$	5.9	$	804.8

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. In accordance with SFAS No. 142, 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.

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 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 generally amortize purchased data files, which primarily consist of acquired credit files, over 15 years on a straight-line basis. Acquired software is amortized over a period of three to seven years and non-compete agreements are amortized over a period of two to three years. All of our purchased intangible assets are amortized on a straight-line basis. Purchased intangible assets at June 30, 2006 and December 31, 2005 consist of the following:

	June 30, 2006								December 31, 2005
			Accumulated								Accumulated
	Gross		Amortization				Net		Gross		Amortization				Net
	(In millions)
Definite-lived intangible assets:
Purchased data files	$	394.6		$	(181.1	)	$	213.5	$	398.9		$	(176.2	)		$	222.7
Acquired software	38.6			(13.9		)	24.7		38.7			(12.0		)		26.7
Non-compete agreements	11.9			(10.4		)	1.5		11.9			(9.2		)		2.7
Customer relationships	11.4			(1.4		)	10.0		11.4			(0.7		)		10.7
Purchased trademarks	0.8			(0.3		)	0.5		0.8			(0.2		)		0.6
Total definite-lived intangible assets	$	457.3		$	(207.1	)	$	250.2	$	461.7		$	(198.3	)		$	263.4

Amortization expense related to purchased intangible assets was $7.7 million and $6.4 million during the three months ended June 30, 2006 and 2005, respectively. Amortization expense related to purchased intangible assets was $16.0 million and $13.8 million during the six months ended June 30, 2006 and 2005, respectively. Estimated future amortization expense related to definite-lived purchased intangible assets at June 30, 2006 is as follows:

Years ending December 31,	Amount
	(In millions)
Six months ending December 31, 2006		$	15.3
2007		29.4
2008		28.3
2009		27.7
2010		27.4
Thereafter		122.1
		$	250.2

4. DEBT

Debt outstanding at June 30, 2006 and December 31, 2005 was as follows:

	June 30, 2006				December 31, 2005
	(In millions)
Notes, 4.95%, due November 2007		$	250.0			$	250.0
Debentures, 6.9%, due July 2028		150.0				150.0
Trade receivables-backed revolving credit facility		90.0				88.0
Borrowings under long-term revolving credit facilities		35.0				65.0
Other		5.6				4.4
Total debt		530.6				557.4
Less short-term debt and current maturities		(95.6		)		(92.3		)
Less unamortized discounts		(1.2		)		(1.3		)
Total long-term debt		$	433.8			$	463.8

On July 24, 2006, we amended and restated our existing five-year, $500 million senior unsecured revolving credit facility with SunTrust Bank, as Joint Lead and Administrative Agent, Banc of America Securities, LLC, as Joint Lead and Syndication Agent, and a number of other financial institutions. SunTrust Bank and Bank of America, N.A., of which Banc of America Securities, LLC is a subsidiary, are both considered related parties in accordance with SFAS No. 57, “Related Party Disclosures,” since members of our Board of Directors have affiliations with these companies. Under the Amended and Restated Credit Agreement (the “Amended Credit Agreement”), SunTrust Bank and Banc of America Securities, LLC have each committed $75.0 million. We believe that the terms of this transaction are at current market rates and would not have been any different had it been negotiated with an independent third party. For additional information about these related parties, see Note 12 of the Notes to Consolidated Financial Statements in our 2005 Form 10-K.

Under the Amended Credit Agreement, among other provisions, the term was extended from August 20, 2009 to July 24, 2011; the applicable margin for borrowings and the annual facility fee were lowered; the maximum leverage ratio (as defined in the Amended Credit Agreement) was increased from 3.0 to 1 to 3.50 to 1; and a minimum interest coverage ratio was deleted. The Amended Credit Agreement may be used for working capital and other general corporate purposes.

The Amended Credit Agreement also includes an “accordion” feature that will allow us to request an increase of up to $500 million in the maximum borrowing commitment, which cannot exceed $1.0 billion. Each member of the lending group may elect to participate or not participate in any request we make to increase the maximum borrowing commitment. In addition, any increase in the borrowing capacity pursuant to this accordion feature is subject to certain terms and conditions, including the absence of an event of default. The increased borrowing commitment may be used for general corporate purposes.

At June 30, 2006, interest was payable on borrowings under the existing credit facility at the base rate or London Interbank Offered Rate plus a specified margin or competitive bid option as selected by us from time to time. The annual facility fee and interest rate are subject to adjustment based on our debt ratings. As of June 30, 2006, $465.0 million was available and there were outstanding borrowings of $35.0 million under this facility.

5. COMMITMENTS AND CONTINGENCIES

Headquarters Lease. Other than facility leasing arrangements, we do not engage in off-balance sheet financing activities. We have entered into a synthetic lease on our Atlanta corporate headquarters building in order to provide us with favorable financing terms with regard to this facility. This $29.0 million lease

was entered into in 1998 and expires in 2010. Total lease payments for the remaining term total $6.9 million. Under this synthetic lease arrangement, we have also guaranteed the residual value of the leased property to the lessor. In the event that the property were to be sold by the lessor at the end of the lease term, we would be responsible for any shortfall of the sales proceeds, up to a maximum amount of $23.2 million, which equals 80% of the value of the property at the beginning of the lease term. A shortfall related to the residual value guarantee is being recognized as an expense ratably between January 1, 2005 through the end of the lease term. The liability for this shortfall, which was $4.0 million at June 30, 2006 and December 31, 2005, is recorded in other long-term liabilities on our Consolidated Balance Sheets.

Data Processing and Outsourcing Services Agreements. We have separate agreements with International Business Machines Corporation (“IBM”), R.L. Polk and Co., Acxiom Corporation and others with which we outsource portions of our computer data processing operations and related functions, and certain administrative functions. The agreements expire between 2006 and 2013. The estimated aggregate minimal contractual obligation remaining under these agreements is approximately $350 million as of December 31, 2005, with no future year expected to exceed approximately $70 million. Annual payment obligations in regards 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. Our data processing outsourcing agreement with IBM was renegotiated in 2003 for a ten-year term. Under this agreement (which covers our operations in North America, the U.K., Ireland, Spain, Brazil and Chile), we have outsourced our mainframe and midrange operations, help desk service and desktop support functions and the operation of our voice and data networks. The scope of such services varies by location. During the twelve months ended December 31, 2005, 2004 and 2003, we paid $120.8 million, $110.5 million and $100.3 million, respectively, for these services. The estimated future minimum contractual obligation at December 31, 2005 under this agreement is $312.0 million, with no year expected to exceed $48.5 million. 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. Additionally, we may terminate these agreements without penalty in the event that IBM is in material breach of the terms of the agreement.

Agreement with Computer Sciences Corporation. We have an agreement with Computer Sciences Corporation 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 activity. We receive a processing fee for maintaining the database and for each report supplied. The agreement expires July 31, 2008. The agreement provides us with an option to purchase CSC’s credit reporting business if CSC 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 agreement or 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 would have been exercised at December 31, 2005, the price range would approximate $650 million to $700 million. This estimate is based solely on our internal analysis of the value of the businesses, 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.

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 June 30, 2006. Guarantees are issued from time to time to support the needs of operating units. We also guarantee the operating lease payments of a lease between third parties. The operating lease, which expires December 31, 2011, has a remaining balance of $7.3 million based on the undiscounted value of remaining lease payments, including real estate taxes, at

June 30, 2006. We believe that the likelihood of demand for payment by us is minimal and expect no material losses to occur related to this guarantee. Accordingly, we do not have a liability on our Consolidated Balance Sheets at June 30, 2006 or December 31, 2005 related to this guarantee.

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.

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 June 30, 2006 and December 31, 2005.

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. In accordance with SFAS No. 5, “Accounting for Contingencies,” 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. During the second quarter of 2006, we recorded a $14.0 million loss contingency ($8.7 million, net of tax) related to certain legal matters. Of this $14.0 million loss, $11.5 million was recognized in selling, general and administrative expenses and $2.5 million was recognized in cost of services on our Consolidated Statements of Income during the three and six months ended June 30, 2006, and is included within our Personal Solutions segment financial results.

For other legal proceedings, claims and litigation, 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.

In June 2006, we consummated a $15.2 million cash settlement with certain former shareholder sellers of Naviant, Inc. In 2004, we served a demand for arbitration alleging, among other things, that the sellers had breached various representations and warranties concerning information furnished to us in connection with our acquisition of Naviant, Inc. in 2002. As a result of this settlement, we recognized a $14.1 million non-taxable gain in other income, net on our Consolidated Statements of Income for the three and six months ended June 30, 2006. Additionally, the $15.2 million cash settlement was recorded in cash provided by operating activities on our Consolidated Statement of Cash Flows for the six months ended June 30, 2006.

Tax Matters. In 2003, the Canada Revenue Agency (“CRA”) issued Notices of Reassessment asserting that Acrofax, Inc., a wholly-owned Canadian subsidiary of Equifax, 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 $7.7 million ($8.5 million Canadian dollars) to $17.1 million ($19.0 million Canadian dollars), plus interest and penalties. Acrofax has filed Notices of Objection in response to the Notices of Reassessment. On September 2, 2003, we made a statutorily-required deposit of $6.1 million ($6.8 million Canadian dollars) against the CRA’s primary assessment theory, which is recorded in our Consolidated Balance Sheet at June 30, 2006. We intend to vigorously contest these reassessments and do not believe we have violated any statutory provision or rule. 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

Effective Tax Rate. The income tax provisions for the three and six months ended June 30, 2006 and 2005 were based on the estimated effective tax rates applicable for the twelve months ended December 31, 2006 and 2005, after considering items specifically related to the interim periods. Our effective income tax rate was 34.7% for the six months ended June 30, 2006 down from 37.0% for the same period in 2005. The reduction was due primarily to the non-taxable litigation settlement with certain former selling shareholders of Naviant, Inc. (as discussed in Note 5 of the Notes to Consolidated Financial Statements) and lower state income taxes, partially offset by additional tax expense related to non-deductible executive compensation and a higher foreign tax rate. The effective income tax rate was 31.8% for the three months ended June 30, 2006 and 36.1% for the same period in 2005, due to the same factors discussed above.

7. BENEFIT PLANS

We have defined benefit pension plans and defined contribution plans. Substantially all U.S., Canadian and U.K. employees participate in one or more of these plans. We also maintain certain health care 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.

The following table provides the components of net periodic benefit cost for the three months ended June 30, 2006 and 2005:

	Pension Benefits						Other Benefits
	Three Months Ended June 30,
	2006			2005			2006			2005
	(In millions)
Service cost	$	2.4		$	2.0		$	0.1		$	0.1
Interest cost	8.0			7.9			0.4			0.4
Expected return on plan assets	(10.3		)	(10.1		)	(0.3		)	(0.3		)
Amortization of prior service cost	0.1			1.1			0.1			0.2
Recognized actuarial loss	2.5			2.1			—			—
Total net periodic benefit cost	$	2.7		$	3.0		$	0.3		$	0.4

The following table provides the components of net periodic benefit cost for the six months ended June 30, 2006 and 2005:

	Pension Benefits						Other Benefits
	Six Months Ended June 30,
	2006			2005			2006			2005
	(In millions)
Service cost	$	4.8		$	3.9		$	0.2		$	0.2
Interest cost	16.0			15.8			0.8			0.8
Expected return on plan assets	(20.5		)	(20.2		)	(0.6		)	(0.6		)
Amortization of prior service cost	0.3			2.2			0.2			0.4
Recognized actuarial loss	5.0			4.2			0.1			—
Total net periodic benefit cost	$	5.6		$	5.9		$	0.7		$	0.8

8. SEGMENT INFORMATION

We manage our business and report our financial results through the following three reportable segments:

· North America

· Europe

· Latin America

The North America reportable segment consists of three operating segments, which we have aggregated in determining our reportable segments:

· Information Services

· Marketing Services

· Personal Solutions

The Europe and Latin America reportable segments include similar product lines.

The accounting policies of the reportable segments are the same as those described in our summary of significant accounting policies (see Note 1 of the Notes to Consolidated Financial Statements in our 2005 Form 10-K). 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:

North America. Information Services, which includes consumer and commercial services (such as credit information and credit scoring, credit modeling services, locate services, fraud detection and prevention services, mortgage loan origination information services, identity verification services and other consulting services); Marketing Services, which includes credit card marketing services and consumer demographic and lifestyle information services; and Personal Solutions, which includes credit monitoring and identity theft protection products sold directly to individuals.

Europe. Information Services, which includes consumer and commercial services (such as credit and financial information, credit scoring and credit modeling services), Credit Marketing Services and Personal Solutions.

Latin America. Information Services, which includes consumer and commercial services (such as credit and financial information, credit scoring and credit modeling services), Credit Marketing Services and Personal Solutions.

Operating revenue, operating income and income before taxes by segment for the three and six months ended June 30, 2006 and 2005 are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
Operating revenue	2006		2005		2006		2005
	(In millions)
North America
Information Services	$	211.1	$	205.8	$	419.0	$	398.3
Marketing Services	69.3		62.8		134.9		121.6
Personal Solutions	31.2		29.3		61.8		59.1
North America	311.6		297.9		615.7		579.0
Europe	37.6		35.0		72.5		71.7
Latin America	38.5		30.5		73.5		56.1
Total operating revenue	$	387.7	$	363.4	$	761.7	$	706.8

Operating income	2006			2005			2006			2005
	(In millions)
North America
Information Services	$	88.4		$	88.1		$	177.5		$	172.4
Marketing Services	24.4			19.9			44.9			38.2
Personal Solutions	(11.3		)	4.3			(10.4		)	7.3
North America	101.5			112.3			212.0			217.9
Europe	9.5			7.7			18.3			15.7
Latin America	11.0			8.1			20.4			14.4
General Corporate Expense	(25.6		)	(21.4		)	(45.1		)	(39.3		)
Total operating income	$	96.4		$	106.7		$	205.6		$	208.7

Total assets at June 30, 2006 and December 31, 2005 are as follows:

Total assets	June 30, 2006		December 31, 2005
	(In millions)
North America	$	1,221.3		$	1,207.0
Europe	175.9			162.8
Latin America	245.7			239.4
General Corporate	240.8			222.3
Total assets	$	1,883.7		$	1,831.5

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

The following discussion of our financial condition and results of operations should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2005 (“2005 Form 10-K”) and our unaudited Consolidated Financial Statements and the related notes in Part I, Item 1—“Financial Statements,” above.

All references to earnings per share data in this MD&A are to diluted earnings per share unless otherwise noted.

OVERVIEW

Our business plan is focused on providing a comprehensive information database, analytical resources to transform information into value-add insight for our customers and technology platforms that deliver highly customized decisioning tools that enable our customers to make decisions about their customers in “real time” at the point of interaction. Our products and services include consumer credit information, information database management, marketing information, commercial credit information, decisioning and analytical tools and identity verification services which enable businesses to make informed decisions about extending credit or service, managing portfolio risk and developing strategies for marketing to consumers and businesses. We also enable consumers to manage and protect their financial affairs through a portfolio of products that we sell directly and indirectly via the Internet and other marketing channels of distribution.

Information. We collect, organize and manage numerous types of credit, financial, public record, demographic and marketing information regarding individuals and businesses. This information originates from a variety of sources including financial or credit granting institutions, which provide loan and accounts receivable information; governmental entities, which provide public records of bankruptcies, liens and judgments; and consumers who participate in surveys and submit warranty registration cards from which we gather demographic and marketing information. Our proprietary databases contain information on more than 400 million consumers and businesses worldwide. The original data is compiled and processed utilizing our proprietary software and systems and distributed to customers in a variety of user-friendly and value-add formats.

Analytics and Insights. We have developed analytical tools for customers to use in their consumer and commercial oriented decisioning activities. These decisioning activities include numerous types of consumer interactions including customer acquisition, relationship management (e.g., up-selling and cross-selling) and risk management.

Enabling Technologies. Our enabling technologies include products such as ePort, APPLY, Decision Power, ID Authentication, Accel CM, Accel DM and InterConnect. These platforms are generally distributed using the application service provider model to allow for ease of integration into customers’ in-house technology systems and to leverage our extensive technological systems and communication networks.

We are organized and report our business results in three reportable segments: North America, Europe and Latin America. The North America segment consists of three operating segments: Information Services, Marketing Services and Personal Solutions. The Europe and Latin America reportable segments are made up of varying mixes of three product lines: Information Services, Marketing Services and Personal Solutions. Information Services revenue is principally transaction-related and is

derived from our sales of the following products, a significant majority of which are delivered electronically: credit reporting and scoring, mortgage reporting, identity verification, fraud detection and modeling services, and certain of our decisioning products that facilitate and automate a variety of credit-oriented decisions. Marketing Services revenue is derived from sales of products that help customers acquire new customers, cross-sell to existing customers and manage portfolio risk. Personal Solutions revenue is transaction and subscription based, and is derived from sales of credit monitoring and identity theft protection products, which we deliver to consumers through the mail and electronically via the Internet. For additional information regarding our reportable and operating segments, including detailed financial results, see Note 8 of the Notes to Consolidated Financial Statements in this Form 10-Q as well as further discussion within MD&A.

We operate in 13 countries: North America (the U.S., Canada and Costa Rica), Europe (the United Kingdom, Ireland, Spain and Portugal) and Latin America (Brazil, Argentina, Chile, El Salvador, Peru and Uruguay). We serve customers across a wide range of industries, including the financial services, retail, telecommunications, utilities, automotive, brokerage, healthcare and insurance industries, as well as state and federal governments. Our revenue stream is highly diversified with our largest customer only providing slightly more than 2% of total revenues. Our revenues are sensitive to a variety of factors, such as demand for, and price of, our services, technological competitiveness, our reputation for providing timely and reliable service, competition within our industry, federal, state and foreign regulatory requirements governing privacy and use of data and general economic conditions.

Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include measurements of operating revenue, operating revenue growth, operating income, operating margin, net income, diluted earnings per share, cash provided by operating activities, capital expenditures and free cash flow. We monitor these indicators, and our corporate governance practices, to ensure that business vitality is maintained and effective control is exercised.

The key performance indicators for the three and six months ended June 30, 2006 and 2005, were as follows:

	Key Performance Indicators
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
	(Dollars in millions, except per share data)
Operating revenue	$	387.7		$	363.4		$	761.7		$	706.8
Operating revenue growth	7		%	15		%	8		%	13		%
Operating income	$	96.4		$	106.7		$	205.6		$	208.7
Operating margin	25		%	29		%	27		%	29		%
Net income	$	69.6		$	62.6		$	132.5		$	121.2
Diluted earnings per share	$	0.53		$	0.47		$	1.01		$	0.91
Cash provided by operating activities	$	90.7		$	90.5		$	156.0		$	132.3
Capital expenditures	$	15.8		$	12.3		$	26.5		$	22.1
Free cash flow*	$	74.9		$	78.2		$	129.5		$	110.2