September 13, 2011

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

 

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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.  

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