| EQUIFAX INC ITEM 1A RISK FACTORS The following risk factors and other information included in this Form 10-K should be carefully considered |
| The risks and uncertainties described below are not the only risks we face |
| Additional risks and uncertainties not currently known to us or that we currently deem to be less significant may also impair our business operations |
| If any of the following risks actually were to occur, our business, financial condition or results of operations could be materially and adversely affected |
| Risks Related to Our Business Since our revenues depend to a large extent on our customers’ demand for consumer credit information, deterioration of current economic conditions may harm our results of operations |
| Consumer credit reports constitute our core product |
| In general, our customers use our credit information and related services to process applications for new credit cards, automobile loans, home mortgages and refinancing and other consumer loans |
| They also use our credit information and services to monitor existing credit relationships |
| Consumer demand for credit, ie, rates of spending and levels of indebtedness, tends to grow more slowly or decline during periods of economic contraction or slow economic growth |
| Rising rates of interest may reduce consumer demand for mortgage loans |
| A decline in consumer demand for credit may reduce our customers’ demand for our consumer credit information |
| Consequently, our revenues from consumer credit information products and services could be negatively affected and our results of operations harmed if consumer demand for credit decreases |
| The loss of access to credit and other data from external sources could harm our ability to provide our products and services |
| We rely extensively upon data from external sources to maintain our proprietary and non-proprietary databases, including data received from customers and various government and public record services |
| Our data sources could withdraw their data from us for a variety of reasons, including legislatively or judicially imposed restrictions on use |
| If a substantial number of data sources were to withdraw their data, or if we were to lose access to data due to government regulation, our ability to provide products and services to our clients could be materially adversely impacted, which could result in decreased revenues, net income and earnings per share |
| 12 ______________________________________________________________________ Our markets are highly competitive and new product introductions and pricing strategies being offered by our competitors could decrease our sales and market share, or require us to reduce our prices in a manner that reduces our gross margins |
| We operate in a number of geographic, product and service markets that are highly competitive |
| In consumer credit reporting services, we compete primarily with two global consumer credit reporting companies, Experian and TransUnion |
| We also compete with these and other companies, including Acxiom Corporation, Harte-Hanks, Inc |
| and InfoUSA, Inc |
| with respect to our direct marketing services, Fair Issac Corporation, Experian and TransUnion with respect to our analytical tools and a variety of software companies with respect to our enabling technologies |
| Competitors may develop products and services that are superior to or that achieve greater market acceptance than our products and services |
| The sizes of our competitors vary across market segments, as do the resources we have allocated to the segments we target |
| Therefore, some of our competitors may have significantly greater financial, technical, marketing or other resources than we do in each of our market segments or overall |
| As a result, our competitors may be in a position to respond more quickly than we can to new or emerging technologies and changes in customer requirements, or may devote greater resources than we can to the development, promotion, sale and support of products and services |
| Moreover, new competitors or alliances among our competitors may emerge and potentially reduce our market share |
| If we are unable to respond as quickly or effectively to changes in customer requirements as our competition, our ability to expand our business and sell our products and services will be negatively affected |
| Some of our competitors may also be able to sell products competitive to ours at lower prices given proprietary ownership of data, technical superiority or economies of scale |
| Price reductions by our competitors could negatively impact our margins and results of operations, and could also harm our ability to obtain new commercial relationships on favorable terms |
| Our ability to increase our revenues will depend to some extent upon introducing new products and services, and if the marketplace does not accept these new products and services, our revenues may decline |
| To increase our revenues, we must enhance and improve existing products and continue to introduce new products and new versions of existing products that keep pace with technological developments, satisfy increasingly sophisticated customer requirements and achieve market acceptance |
| We believe much of our future growth prospects will rest on our ability to continue to expand into newer products and services |
| Products that we plan to market in the future are in various stages of development |
| We cannot assure that the marketplace will accept these products |
| If our current or potential customers are not willing to switch to or adopt our new products and services, our ability to increase revenues will be impaired |
| If we fail to keep up with rapidly changing technologies, our products and services could become less competitive or obsolete |
| In our markets, technology changes rapidly and there are continuous improvements in computer hardware, network operating systems, programming tools, programming languages, operating systems, database technology and the use of the Internet |
| Advances in technology may result in changing customer preferences for products and services and delivery formats |
| If we fail to enhance our current products and develop new products in response to changes in technology, industry standards or customer preferences, our products and services could rapidly become less competitive or obsolete |
| Our future success will depend, in part, upon our ability to internally develop new and competitive technologies; use leading third-party technologies effectively; continue to develop our technical expertise; anticipate and effectively respond to changing customer needs; and influence and respond to emerging industry standards and other technological changes |
| 13 ______________________________________________________________________ We may suffer adverse financial consequences if Computer Sciences Corporation requires us to purchase its credit reporting business when the public equity or debt markets or other financing conditions are unfavorable to us |
| In 1988, we entered into an agreement with Computer Sciences Corporation, or CSC, and certain of its affiliates under which CSC’s credit reporting agencies utilize our computerized credit database services |
| Under the agreement, CSC has an option, exercisable at any time, to sell its credit reporting business to us |
| The option expires in August 2013 |
| The option exercise price will be determined by an appraisal process and would be due in cash within 180 days after the exercise of the option |
| We estimate that if CSC were to exercise the option today, the option price would be approximately dlra650 million to dlra700 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 |
| If CSC were to exercise its option, we would have to obtain additional sources of funding |
| We believe that this funding would be available from sources such as additional bank lines of credit and the issuance of public debt and/or equity |
| However, the availability and terms of any such capital financing would be subject to a number of factors, including credit market conditions, the state of the equity markets, general economic conditions and our financial performance and condition |
| Because we do not control the timing of CSC’s exercise of its option, we could be required to seek such financing and increase our debt levels at a time when market or other conditions are unfavorable |
| Our international operations subject us to additional business risks that may reduce our profitability or revenues |
| We conduct business outside the US During the fiscal year ended December 31, 2005, we received approximately 26prca of our revenues from business outside the US As part of our growth strategy, we plan to continue to pursue opportunities outside the US As a result, our future operating results could be negatively affected by a variety of factors, many of which are beyond our control |
| The risks and potential costs of our international operations include: political and economic instability; changes in regulatory requirements and policy and the adoption of laws detrimental to our operations, such as legislation relating to the collection and use of personal data; negative impact of currency exchange rate fluctuations; potentially adverse tax consequences; increased restrictions on the repatriation of earnings; and general economic conditions in international markets |
| We may not be able to avoid significant expenditures in addressing these potential risks |
| Security is important to our business, and breaches of security, or the perception that e-commerce is not secure, could harm our business |
| Business-to-business and business-to-consumer electronic commerce, including that which is Internet-based, requires the secure transmission of confidential information over public networks |
| Several of our products are accessed through the Internet, including our consumer and commercial information services that are delivered via ePORT™, our Internet delivery channel and our Personal Solutions services accessible through the www |
| Security breaches in connection with the delivery of our products and services via ePORT™, our Personal Solutions website or well-publicized security breaches not involving the Internet that may affect us or our industry, such as database intrusion, could be detrimental to our business, operating results and financial condition |
| We cannot be certain that advances in criminal capabilities, new discoveries in the field of cryptography or other developments will not compromise or breach the technology protecting the networks that access our products, consumer services and proprietary database information |
| 14 ______________________________________________________________________ If we experience system failures, the delivery of our products and services to our customers could be delayed or interrupted, which could harm our business and reputation and result in the loss of customers |
| Our ability to provide reliable service largely depends on the efficient and uninterrupted operation of our computer network systems and data centers |
| Any significant interruptions could severely harm our business and reputation and result in a loss of customers |
| Our systems and operations could be exposed to damage or interruption from fire, natural disaster, power loss, telecommunications failure, unauthorized entry and computer viruses |
| The steps we have taken to prevent a system failure, including backup disaster recovery systems, may not be successful and our property and business interruption insurance may not be adequate to compensate us for all losses or failures that may occur |
| We may incur risks related to acquisitions or significant investment in businesses |
| We have made in the past, and may make in the future, acquisitions of, or significant investments in, businesses that offer complementary products, services and technologies |
| Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses |
| Such risks include: · The financial and strategic goals for the acquired and combined business may not be achieved; · The possibility that we will pay more than the acquired companies or assets are worth; · Unexpected liabilities arising out of the acquired businesses; · The difficulty of assimilating the operations and personnel of the acquired businesses; · The potential disruption of our ongoing business; · The potential dilution of our existing shareholders and earnings per share; · Unanticipated liabilities, legal risks and costs; · The distraction of management from our ongoing business; and · The impairment of relationships with employees and customers as a result of any integration of new management personnel |
| These factors could harm our business, results of operations or financial position, particularly in the event of a significant acquisition |
| The acquisition of businesses having a significant presence outside the US will increase our relative exposure to the risks of conducting operations in international markets |
| The loss of key personnel, or the inability to attract and retain highly skilled personnel, could make it more difficult to run our business and reduce our likelihood of success |
| We are dependent on the principal members of our management and technical computer information systems staff |
| We do not have employment agreements with any of our executive officers other than Richard F Smith, Chairman and Chief Executive Officer, and Donald T Heroman, Chief Financial Officer |
| The loss of our management and key technical employees might slow the achievement of important business goals |
| It is also critical to our success that we recruit and retain qualified technical personnel to perform development work |
| We may not be able to attract and retain skilled and experienced technical personnel on acceptable terms because of intense competition |
| 15 ______________________________________________________________________ Risks Related to Our Common Stock We have the ability to issue additional equity securities, which would lead to dilution of our issued and outstanding common stock |
| The issuance of additional equity securities or securities convertible into equity securities would result in dilution of the then-existing shareholders’ equity interests in us |
| Our Board of Directors has the authority to issue, without vote or action of shareholders, up to 10cmam000cmam000 shares of preferred stock in one or more series, and has the ability to fix the rights, preferences, privileges and restrictions of any such series |
| Any such series of preferred stock could contain dividend rights, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences or other rights superior to the rights of holders of our common stock |
| If we issue convertible preferred stock, a subsequent conversion may dilute the current common shareholders’ interest |
| Our Board of Directors has no present intention of issuing any such preferred stock, but reserves the right to do so in the future |
| In addition, we are authorized to issue, without shareholder approval, up to 300cmam000cmam000 shares of common stock, of which 133cmam534cmam624 shares were outstanding as of December 31, 2005, including shares held by employee benefits trusts |
| Provisions in our articles of incorporation, bylaws, shareholder rights plan, other agreements and Georgia law may make it difficult for a third party to acquire us, even in situations that may be viewed as desirable by our shareholders |
| Our articles of incorporation, bylaws, shareholder rights plan, other agreements and the General Business Corporation Code of the State of Georgia, or Georgia Code, contain provisions that may delay or prevent an attempt by a third party to acquire control of our company |
| For example, our articles of incorporation: · Provide for classified terms for the members of our Board of Directors; · Authorize our Board of Directors to fill vacant directorships or to increase the size of the Board; · Do not authorize our shareholders to remove a director without cause; · Do not authorize our shareholders to cumulate voting in the election of directors; and · Authorize the issuance of preferred stock with such rights, powers and privileges as the Board of Directors deems appropriate |
| In addition, our bylaws limit the ability of shareholders to bring business before a meeting of shareholders and do not allow our shareholders to act by written consent |
| We are a Georgia corporation and have elected to be governed by the “business combination” and “fair price” provisions of the Georgia Code, that could be viewed as having the effect of discouraging an attempt to obtain control of us |
| The business combination provision generally would prohibit us from engaging in various business combination transactions with any interested shareholder for a period of five years after the date of the transaction in which the person became an interested shareholder unless certain designated conditions are met |
| The fair price provision generally requires that, absent Board or shareholder approval of an acquisition or merger, an interested shareholder seeking to engage in a business combination transaction with us must pay the remaining shareholders the same price for their shares as was paid by the interested shareholder to acquire beneficial ownership of 10prca or more of our outstanding voting shares |
| We have also implemented a shareholder rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire our company on a hostile basis |
| 16 ______________________________________________________________________ These provisions could also discourage or impede a tender offer, proxy contest or other similar transactions involving control of us, even if viewed favorably by shareholders |
| Risks Relating to Regulation and Litigation Compliance with recent amendments to the FCRA have increased our compliance costs |
| The FACT Act, which amended the FCRA, became law in December 2003 |
| Beginning on December 1, 2004, the FACT Act, among other things, required us on an annual basis to provide free credit reports to consumers upon request |
| These reports may be requested by Internet, telephone or mail through centralized request facilities which we and other nationwide credit reporting agencies must establish and support |
| In addition, subject to final regulations to be adopted by the FTC, consumers will be entitled to a free credit report upon request if a report results in the consumer obtaining credit terms less favorable than those provided to a majority of the credit provider’s customers (also known as risk-based pricing) |
| The FACT Act also requires us to provide credit scores to requesting consumers for a reasonable fee, as determined by the FTC The FTC has issued regulations to implement many of these requirements, including establishment of the centralized request facilities and development of procedures to phase-in such requests |
| The phase-in was completed on September 1, 2005 |
| Additional provisions of the FACT Act impose requirements designed to reduce consumer identity theft, limit provision of medical information and require reports to the FTC regarding consumer complaints |
| We have modified our procedures and systems to deal with these and other FACT Act provisions where applicable |
| We have incurred significant compliance costs to implement the FACT Act requirements, and we expect to continue incurring expenses to comply with the FTC’s regulations that could have a material adverse effect on our financial condition and results of operations |
| The net impact of the free report disclosure and other requirements of the FACT Act on our business will depend on numerous factors, including among others the actual demand of consumers for free credit reports; our ability to increase fees to customers to recover these regulatory costs; our experience marketing fee-generating products to consumers requesting free credit file disclosures; the FTC’s final determination of the fee we can charge for providing credit score disclosures to requesting consumers; the actual cost of resolving additional credit file and credit score reinvestigation requests from consumers; and approval of final FTC and Federal Reserve Board rules on risk-based pricing transactions and other matters |
| Changes in the legislative, regulatory and judicial environments may adversely affect our ability to collect, manage, aggregate and use data |
| Our business involves collection of consumer and business data and distribution of such information to businesses making credit and marketing decisions |
| Consequently, certain of our activities and services are subject to regulation by federal, state and local authorities in the US and Canada, and in those countries within Europe and Latin America where we do business |
| For instance, much of the data and services that we provide are subject to regulation under the FCRA which regulates the use of consumer credit information and, to a lesser extent, the Gramm-Leach-Bliley Act which regulates the use of non-public personal information held by financial institutions |
| We are also subject to the UK’s Data Protection Act of 1998, which regulates the manner in which we can use third-party data and recent regulatory limitations relating to use of the Electoral Roll, one of our key data sources in the UK In addition, public interest in individual privacy rights and the collection, distribution and use of information about individuals may result in the adoption of new federal, state, local and foreign laws and regulations that could include increased compliance requirements and restrictions on the purchase, sale and sharing of information about consumers for commercial purposes, and have a negative impact on our ability to collect such information provided by consumers voluntarily |
| Future 17 ______________________________________________________________________ international, federal, state and local laws and regulations with respect to the collection, management and use of data about individuals, and adverse publicity, judicial interpretations or potential litigation concerning the commercial use of such information, may result in substantial regulatory compliance costs, litigation expense or a loss of revenue |
| The outcome of litigation is inherently uncertain and adverse developments or outcomes can result in significant monetary damages, penalities or injunctive relief against us |