Equifax Inc.
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Equifax Total Debt & Leverage Ratio
$503.9
$1,387.3
$1,219.3
$1,174.1
$999.6
$981.5
2.3x
1.9x
2.1x
1.7x
1.6x
1.0x
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
2006
2007
2008
2009
2010
June 2011
0.0x
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
3.5x
4.0x
Total Debt
Leverage Ratio (Debt/EBITDA)
In February 2011, EFX extended the maturity date and reduced the borrowing limits of its existing
unsecured revolving credit facility (senior credit facility). The maturity date of the facility was extended to
February 2015 (from July 2011) while the size of the facility was reduced to $500 million (from $850 million).
EFX indicated that the changes were made in line with its liquidity needs and reflecting credit market
conditions, including higher upfront fees and fees for unused borrowing availability. It should be noted that the
new facility has an accordion feature allowing the Company to request an increase in the total commitment to
$750 million if it chooses to. At June 30, 2011, there were no borrowings under the senior credit facility with
borrowing capacity of $498.4 million.
At June 30, 2011, approximately 70% of the company’s debt was fixed rate debt while 30% was
effectively variable rate debt. The Company’s variable debt includes 5 year notes due 2014 (EFX has executed
interest rate swaps to convert interest expense from fixed rate to floating rates), and generally bears interest at
a specified margin plus a base rate (LIBOR). Equifax has just $320 million (out of a total of $963.9 million) of
debt maturing prior to 2014, with most of the debt maturing after 2017 including $125 million maturing in 2028
and $250 million maturing in 2037.
Free Cash Flow – Minimal Capex Allows Company to Generate Strong Free Cash Flow
Over the past 3 years, the Company has generated an average of $326 million in free cash flow. While
free cash flow declined in 2010 vs. 2009, we would note that capex included $29 million for the purchase of the
Company’s headquarters building in Atlanta. In addition, the Company made an additional $35 million in
pension contributions (pension plans were underfunded by $10 million) vs. 2009 and paid $42 million in taxes
in connection with the sale of two businesses (DMS and APPRO). Excluding these items, EFX’s free cash flow
would have been ~$10 million higher versus 2009 levels.
Free Cash Flow Summary ($MM)
2008 2009 2010 *
Cash Flow From Operations
488.1
418.4
352.6
Capital Expenditures 110.5 70.7 99.8
Free Cash Flow
377.6
347.7
252.8
* 2010 Capex Includes $29.0 million for purchase of Headquarters Building
Equifax Inc.
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Equifax expects its annual capex requirements to be in the $70 to $90 million (~4% of revenues) range
going forward with most of that amount spent on new product development. Based on our projection, we
believe the Company could generate $325-$350 million in free cash flow during 2011 (free cash flow yield: 9%)
and a total of $1.1 billion over the next three years (2011-2013), representing nearly 30% of the Company’s
current market cap.
Computer Sciences Put Could Require Debt/Capital Raise
EFX has an agreement with Computer Sciences Corporation (CSC) under which CSC-owned credit
reporting agencies utilize EFX’s computerized credit database services. CSC retains ownership of its credit
files and the revenues generated by its credit reporting activities. EFX receives a processing fee for
maintaining the database and for each report supplied. The agreement with CSC expires in 2018 and is
renewable at the option of CSC for 10-year periods. EFX has the option to purchase the business from CSC if
CSC does not elect to renew or if there is a change in control of CSC while the agreement is in effect. In
addition, CSC has an option to sell its credit reporting business to Equifax at any time through August 2013.
EFX estimates that if the option was exercised in December 2010 the value would have been $625 to
$700 million. The estimate is based on EFX’s internal analysis of the business and a number of other factors.
Dividends and Share Repurchases – Accelerating Returns to Shareholders
Equifax’s improved financial position and confidence in its business and growth prospects prompted
the Company to significantly increase its quarterly payout. In November 2010, Equifax boosted its quarterly
payout by a whopping 4-fold to $0.16 a share from $0.04 a share, representing a 2.1% dividend yield at current
prices. The dividend boost was the first increase in the Company’s payout since 2005. Going forward, Equifax
stated that it intends to pay out 25% to 35% of its net income in the form of dividends.
Share Repurchases 2006 to 2011 ($MM)
$138.0
$144.0
$212.7
$718.7
$155.7
$23.8
$167.5
$31.3
$0.0
$100.0
$200.0
$300.0
$400.0
$500.0
$600.0
$700.0
$800.0
2004
2005
2006
2007
2008
2009
2010
6 Mos.
2011
As
we noted above, the Company’s leverage has come down meaningfully in recent years as debt
reduction has been a capital allocation priority post the credit/financial crisis. With leverage at low levels, and
despite the prospect for future bolt on acquisitions in unique data assets, we believe that share repurchases
will likely play a large role in the Company’s future capital allocation. While Equifax has repurchased just
$31.3 million or 0.8 million shares (at an average cost of $37.32) during the first half of 2011, we would expect
share repurchases to accelerate during the second half of the year. We would note that the current share price
is 20% below the average share price realized for share repurchases during first half of 2011. In addition, the
Company’s leverage (Debt/EBITDA) now stands at just 1.6x, a level at which the Company has stated that it
intends to be more aggressive with repurchases (more repurchase when leverage is below 1.75x; more debt
reduction with leverage above 2.0x, subject to market conditions). At June 30, 2011, Equifax had $223.2 million
remaining under its authorization after having increased its share authorization by $150 million in May 2011.