ChoicePoint Inc.

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ChoicePoint Inc.

1000 Alderman Drive
Alpharetta, Georgia 30005
U.S.A.
Telephone: (770) 752-6000
Toll Free: (800) 342-5339
Fax: (770) 752-6005
Web site: http://www.choicepoint.com

Public Company
Incorporated: 1997
Employees: 4,500
Sales: $750.4 million (2003)
Stock Exchanges: New York
Ticker Symbol: CPS
NAIC: 511140 Database and Directory Publishers; 524298 All Other Insurance Related Activities

Spun off from Equifax Inc. in 1997, ChoicePoint Inc. serves the insurance industry, government, and businesses through a variety of information services it provides. After numerous acquisitions during its short history, the company has streamlined itself around the core areas of data collection and information brokering. Background checks, motor vehicle reports, property inspections, and drug screening are just a few of the services ChoicePoint provides to many of the nation's leading businesses.

In the Beginning: Early and Middle 1990s to 1997

The ChoicePoint story begins with credit report giant Equifax Inc., based in Atlanta, Georgia. The publicly traded billion-dollar company compiled and maintained credit information on more than 350 million credit cardholders around the globe by the late 1990s. Originally founded at the end of the 19th century by brothers Cator and Guy Woolford to gather information for their Merchants Guide, the firm officially became Equifax in 1976. Equifax, which stood for "equitability in the gathering and presentation of facts," grew exponentially in the remaining years of the 1970s and into the 1980s. By the late 1980s Equifax ruled the information-compilation industry, but was not without its detractors.

While gathering information had always riled privacy rights proponents, Equifax did make some questionable moves in its stellar climb to the top of the information industry. Its Insurance Information Services group, which assisted health, life, property, and casualty insurers in the investigation of potential clients, was losing its way, and Derek V. Smith, who had been with the company since 1981, took over the ailing division in 1993. In Smith's capable hands, the division returned to profitability and by 1996 Equifax was prepared to spin the insurance group (which had sales of around $365 million for the year and represented about 30 percent of Equifax's revenues) off on its own.

By this time in its corporate life, Equifax was no stranger to controversy and had decided to divest itself of any noncore or nonfinancial assets. It had already negotiated to sell its healthcare and direct marketing units, skirmished with California lottery officials, faced multiple lawsuits over privacy rights, and run into trouble with a new acquisition called CDB Infotek Inc. Once the decision was made to spin off the insurance group, Equifax approached New York-based Kroll Associates in early 1997 to become part of the spinoff and merge into the new ChoicePoint.

The privately held Kroll was the nation's largest private detecting and risk assessment firm, had sales of $70 million by 1996, and had let it be known that it was looking for growth opportunities. Unfortunately for both parties, executives could not agree on several salient points. Merger talks fell through with Kroll but Equifax bought Advanced HR Solutions Inc. in June and spun off ChoicePoint on July 31, 1997. ChoicePoint began trading on the New York Stock Exchange on August 8, 1997; Kroll went on to merge with Ohio-based armored car manufacturer O'Gara-Hess & Eisenhardt to become Kroll-O'Gara.

Growth and Acquisitions: 1997–2000

Newly minted ChoicePoint, headed by Smith as president and CEO, hit the ground running by acquiring Medical Information Network, LLC in October and Drug Free, Inc. in November 1997. ChoicePoint had also inherited the Equifax/CDB Infotek imbroglio. CDB had been accused of violating privacy protection rights in early 1997 for allegedly selling voter registration lists to bill collectors (it is illegal to sell voter registration information commercially). The lawsuit was filed by Aristotle Publishing Inc., a voter registration collection firm with whom CDB had done business. CDB countersued and Equifax washed its hands of it all by spinning CDB off with ChoicePoint. In early 1998 ChoicePoint bought the remaining 30 percent interest of CDB and announced that it would "review" CDB's information selling practices.

Not long after buying the remainder of CDB, ChoicePoint merged Attest National Drug Testing Inc. into its medical services unit and also bought Application Profiles Inc., Informus Corp., Customer Development Corp., Tyler-McLennon Inc., EquiSearch Services Inc., and DATEQ Information Network Inc. Year-end operating revenues for 1998 had fallen short of the previous year's $417.3 million (still part of Equifax for half the year) at $406.5 million, but operating income in 1998 rose to $61.4 million, a significant climb from 1997's $46.1 million.

ChoicePoint continued its flurry of acquisitions in 1999, buying six companies and landing several lucrative contracts as well. Through its Business & Government Services division, which had become the largest provider of background and screening services for employers in the United States, as well as the leading provider of online research gathering, ChoicePoint handled work for the U.S. Federal Marshals, Federal Bureau of Investigation, Drug Enforcement Administration, Internal Revenue Service, Department of Justice, and corporate clients including First Union and GTE. ChoicePoint's other division, the Insurance Services group, topped competitors as the leading underwriter and information products provider to property and casualty companies nationwide, with the second largest insurance testing facility in the industry. The Insurance unit also had won lucrative contracts with Progressive Insurance, Kemper, and CNA. Revenues for 1999 surpassed $430 million with operating income increasing from the previous year's $61.4 million to more than $78 million.

In 2000 ChoicePoint celebrated the new year by initiating another buying spree. Within the next several months ChoicePoint bought seven companies and then merged with Florida-based competitor DBT (Database Technologies) Online Inc. DBT specialized in court-related documents and the two companies merged operations (under the ChoicePoint banner) for a stock swap said to be worth $440 million. Yet, as with the CDB purchase, ChoicePoint was once again embroiled in controversy. This one stemmed from DBT's $4 million contract with the state of Florida. Hired in 1998 to clean up Florida's voter registration lists after a fraudulent 1997 mayoral election, DBT was supposed to "purge" the lists of deceased citizens, duplicates, and convicted felons. DBT ended up purging more than 170,000 of the state's 8.6 million voters in error, and ChoicePoint was caught in the crossfire as DBT's owner.

Emerging Victorious in 2001 and Beyond

The new century brought a myriad of new opportunities for ChoicePoint and further friction. By the spring of 2001, the furor over Florida's now infamous voter registration flaws had reached a fever pitch since thousands of citizens had been told they were ineligible to vote. The improbably close race between presidential nominees George W. Bush and Al Gore only added fuel to the fire. In its defense, DBT told investigators they had been given very broad information to input into the firm's computer system, which in turn led to mistakes over similarly spelled names, those with the same middle initials, and a host of smaller errors causing thousands to be "scrubbed" from voter registration lists. Although DBT maintained that it had told Florida officials the list of those removed from the voter lists needed to be verified, Florida pointed the finger at DBT and registration officials, and several lawsuits were filed over the fiasco. Many ultimately held DBT responsible for the voting debacles, including the NAACP (National Association for the Advancement of Colored People), which filed a lawsuit over African Americans who were denied votes in the presidential election of 2000.

For every complaint or negative view, however, ChoicePoint had a multitude of satisfied customers. The firm's expertise in background checks and screening services continued to evolve, with new programs and even lower costs. One such advance was ScreenNow, a prospective employee screening program for smaller companies. Whereas large corporations could easily afford ChoicePoint's premium services, smaller businesses needed the same services but could not afford the price. Screen-Now provided much of the same data, was web-based, and even the smallest employers with workforces of less than 50 could afford to use it.

After the terrorist attacks of September 11, 2001, ChoicePoint gained new business as companies of all sizes were more concerned about security and exactly who might be working for them. One such commission was from the Transportation Safety Administration (TSA) to screen job applicants for the thousands of airport baggage screeners needed to beef up airport security in the wake of 9/11. ChoicePoint was hired for $19 million to do background and criminal records checks on more than 55,000 applicants. ChoicePoint devised a system of flagging applicants with colors. Prospective workers were assigned a color based on suitability for the job: green for go (meaning a clean record or no infractions found); red for those who had committed what was deemed a "serious" crime or a felony; and yellow for those whose records either could not be verified for one reason or another, or who had committed a "less serious" crime or misdemeanor.

Company Perspectives:

The world is a risky place to live, work, and do business. People have critical needs for reliable and timely information to help make the decision that will lead to a safer, more secure world. ChoicePoint delivers this promise to thousands of people every day in business and government, nonprofit organizations, and to consumers. One event can change lives. ChoicePoint's compelling solutions can impact the future and help make the world a safer place.

Again ChoicePoint and its methods were criticized when it was learned that numerous airport baggage screeners had criminal records. It was with the TSA, however, where most of the blame rested since agency members admitted to hiring applicants from ChoicePoint's "red" and "yellow" lists because they had been under tremendous pressure to hire such a huge number of screeners to comply with the government's demands. Both ChoicePoint and the TSA further explained to Homeland Security investigators that many applicants did change "colors," simply because information was either verified or had been erroneously attributed to their records.

Amidst the finger pointing, ChoicePoint had carried on business as usual, which for the last several years had meant buying an increasing number of like-minded companies. In 2001 ChoicePoint acquired seven more firms, including the well-known Pinkerton's Inc. Pinkerton's was widely regarded as the country's first investigative agency, founded in 1849 by Allan Pinkerton to chase counterfeiters. It seemed a bit ironic for Pinkerton's—a forebear of Equifax, ChoicePoint, and the entire data collection and sleuthing industry—to come into the ChoicePoint fold. Yet however one chose to look at this and its many other acquisitions, ChoicePoint was becoming a powerhouse in the information industry with 2001 revenues of $693.4 million, up from 2000's $631 million and operating income of slightly less than $120 million, a hefty leap from the previous year's $90.1 million.

In 2002 ChoicePoint continued to augment its business units with more acquisitions (six), Smith added the title of chairman while passing COO Doug C. Curling the duties of president, and the company shifted from two divisions to three: Business & Government Services, Insurance Services, and Marketing Services (marketing previously had been part of the business group). Its numbers—in all facets—were impressive: ChoicePoint clients amounted to about 40 percent of the country's top 1,000 firms according to its estimates, and the company had furnished or worked with virtually "all major U.S. law enforcement and homeland security agencies" since its spinoff from Equifax (which, incidentally, it outperformed on a regular basis). Year-end numbers backed up the rhetoric, with revenue hitting $792 million for 2002 and operating income reaching $193.2 million.

Early in 2003 ChoicePoint bought two more companies, which brought the total of acquisitions since its incorporation as an independent company to 38. The firm then sold off CP Commercial Specialists, a property inspection service, to focus on its core businesses of data collection and informational services. In six years the company had transformed itself from an Equifax subsidiary to one of the most powerful and increasingly successful information brokers in the world. In CEO and Chairman Smith's words in the company's 2002 annual report, "ChoicePoint strives to create a safer and more secure society through the responsible use of information." While some civil libertarians argued with this assessment and likened ChoicePoint's methods to Big Brotherish tactics, its information services not only saved corporations, governmental agencies, and law enforcement officials time and money, but more important, undoubtedly saved many lives.

Principal Subsidiaries

ChoicePoint Asset Co.; ChoicePoint Public Records Inc.; ChoicePoint Services Inc.

Principal Divisions

Business & Government Services; Insurance Services; Marketing Services.

Key Dates:

1976:: Equifax is incorporated (company originally founded in 1899).
1992:: Equifax restructures its operations.
1993:: Derek V. Smith heads up Equifax's insurance services business.
1996:: Equifax withdraws from healthcare information services.
1997:: Equifax decides to spin off its insurance services unit and launches ChoicePoint Inc.
1998:: ChoicePoint begins an acquisition spree that includes the merger of Attest National Drug Testing Inc. into the firm.
1999:: ChoicePoint acquires six additional companies.
2000:: ChoicePoint acquires seven more companies and merges with DBT Online.
2001:: ChoicePoint buys seven more firms, including the famed Pinkerton Services Group.
2002:: Another six companies are purchased; the company changes from two divisions to three.
2003:: ChoicePoint divests its home inspection services and acquires two more data-driven firms.