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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1999
----------------------------------------
or
[ ] 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: 1-13069
CHOICEPOINT INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-2309650
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1000 Alderman Drive Alpharetta, Georgia 30005
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(Address of principal executive offices) (Zip Code)
(770) 752-6000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
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. 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 April 30, 1999
----- -----------------------------
Common Stock, $.10 Par Value 14,710,440
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CHOICEPOINT INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page No.
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<S> <C>
Item 1. Financial Statements
Consolidated Statements of Income --
Three Months Ended March 31, 1999 and 1998................................ 3
Consolidated Balance Sheets --
March 31, 1999 and December 31, 1998...................................... 4
Consolidated Statement of Shareholders' Equity -
Three months Ended March 31, 1999......................................... 5
Consolidated Statements of Cash Flows --
Three months Ended March 31, 1999 and 1998............................... 6
Notes to Consolidated Financial Statements.................................. 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition...................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk............ 14
Part II. OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings..................................................... 15
Item 2. Changes in Securities and Use of Proceeds............................. 15
Item 3. Defaults Upon Senior Securities....................................... 15
Item 4. Submission of Matters to a Vote of Security Holders................... 15
Item 5. Other Information..................................................... 15
Item 6. Exhibits and Reports on Form 8-K...................................... 15
Signatures.................................................................... 16
Exhibit Index................................................................. 17
</TABLE>
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CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED
MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1999 1998
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<S> <C> <C>
Operating revenue.................................. $ 99,684 $ 94,550
Costs and expenses:
Cost of services................................. 64,570 59,624
Selling, general, and administrative............. 17,694 19,916
Unusual items.................................... 1,583 --
-------- --------
Total costs and expenses..................... 83,847 79,540
Operating income................................... 15,837 15,010
Gain on sale of businesses, net.................... 2,513 --
Interest expense................................... 2,556 1,645
-------- --------
Income before income taxes......................... 15,794 13,365
Provision for income taxes......................... 6,839 5,787
-------- --------
Net income......................................... $ 8,955 $ 7,578
======== ========
Earnings per share - basic......................... $ .62 $ .52
======== ========
Weighted average shares - basic.................. 14,437 14,641
======== ========
Earnings per share - diluted....................... $ .60 $ .50
======== ========
Weighted average shares - diluted............... 14,805 15,129
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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CHOICEPOINT INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
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MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PAR VALUES) 1999 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 13,121 $ 18,883
Accounts receivable, net of allowance for doubtful accounts
of $3,498 at March 31, 1999 and $3,286 at
December 31,1998................................................ 110,899 103,191
Deferred income tax assets........................................ 8,810 8,372
Other current assets.............................................. 12,850 13,160
-------- --------
Total current assets.......................................... 145,680 143,606
Property and equipment, net......................................... 52,740 55,279
Goodwill, net....................................................... 251,509 253,140
Deferred income tax assets.......................................... 18,343 19,010
Other............................................................... 45,125 63,164
-------- --------
Total Assets........................................................ $513,397 $534,199
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt.......... $ 492 $ 5,623
Notes payable for acquisitions.................................... -- 22,701
Accounts payable.................................................. 23,784 24,645
Accrued salaries and bonuses...................................... 10,580 17,537
Other current liabilities......................................... 52,594 54,454
-------- --------
Total current liabilities....................................... 87,450 124,960
Long-term debt, less current maturities............................. 201,592 191,697
Postretirement benefit obligations.................................. 52,469 53,251
Other long-term liabilities......................................... 5,169 4,719
-------- --------
Total liabilities............................................... 346,680 374,627
Shareholders' equity:
Preferred stock, $.01 par value; shares
authorized - 10,000; no shares issued or outstanding........... -- --
Common stock, $.10 par value; shares authorized -
100,000; shares issued and outstanding -
14,637 in 1999 and 14,660 in 1998 1,464 1,466
Paid-in capital................................................... 117,340 119,037
Retained earnings................................................. 58,118 49,163
Cumulative translation adjustments................................ (287) (176)
Stock held by employee benefit trusts, at cost, 203 shares (9,918) (9,918)
-------- --------
Total shareholders' equity...................................... 166,717 159,572
-------- --------
Total Liabilities and Shareholders' Equity.......................... $513,397 $534,199
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
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CHOICEPOINT INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
CUMULATIVE STOCK HELD
(IN THOUSANDS) COMPREHENSIVE COMMON PAID-IN RETAINED TRANSLATION BY BENEFIT
INCOME STOCK CAPITAL EARNINGS ADJUSTMENTS TRUSTS TOTAL
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998............ $1,466 $119,037 $49,163 $ (176) $(9,918) $159,572
Net income......................... $8,955 -- -- 8,955 -- -- 8,955
Restricted stock plans, net........ -- (4) (2,358) -- -- -- (2,362)
Stock options exercised............ -- 2 661 -- -- -- 663
Translation adjustments............ (111) -- -- -- (111) -- (111)
------ ------ -------- ------- ------ ------- --------
Comprehensive income................. $8,844
======
Balance March 31, 1999............... $1,464 $117,340 $58,118 $ (287) $(9,918) $166,717
====== ======== ======= ====== ======= ========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
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CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
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THREE MONTHS ENDED
MARCH 31,
--------------------------
(IN THOUSANDS) 1999 1998
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<S> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 8,955 $ 7,578
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization......................... 9,784 6,994
Provision for unusual items........................... 1,583 --
Gain on sale of businesses............................ (2,513) --
Compensation recognized under employee stock plans.... (133) 872
Payment on employee stock plans....................... (3,378) --
Changes in assets and liabilities,
excluding effects of acquisitions:
Accounts receivable, net............................ (7,748) (3,858)
Other current assets................................ (102) (1,798)
Current liabilities, excluding debt................. (9,715) (5,017)
Deferred income taxes............................... 229 2,362
Other long-term liabilities, excluding debt......... (332) (362)
-------- --------
Net cash (used) provided by operating activities...... (3,370) 6,771
-------- --------
Cash flows from investing activities:
Acquisitions, net of cash acquired...................... (769) (24,135)
Payment of notes payable for acquisitions............... (22,701) --
Cash proceeds from sale of business unit................ 22,000 --
Additions to property and equipment..................... (3,267) (4,050)
Additions to other assets, net.......................... (2,968) (1,319)
-------- --------
Net cash flows used in investing activities............. (7,705) (29,504)
-------- --------
Cash flows from financing activities:
Proceeds from long-term debt............................ 30,000 25,043
Payments on long-term debt.............................. (20,105) (21,049)
Net short-term borrowings............................... (5,131) 6,660
Proceeds from exercise of stock options................. 663 252
-------- --------
Net cash flows provided by financing activities......... 5,427 10,906
-------- --------
Effect of foreign currency exchange rates on cash......... (114) 40
-------- --------
Net decrease in cash...................................... (5,762) (11,787)
Cash and cash equivalents, beginning of period............ 18,883 26,858
-------- --------
Cash and cash equivalents, end of period.................. $ 13,121 $ 15,071
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
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CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
1. ORGANIZATION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company") is a
provider of actionable intelligence that helps businesses, governments and
individuals make better, more timely and more informed business decisions.
ChoicePoint's businesses are focused on two primary markets - Insurance
Services and Business and Government Services.
The Insurance Services group provides information products and services
used in the underwriting, claims, and marketing processes by property and
casualty and life insurers. Major offerings to the personal lines property
and casualty market include claims history databases, motor vehicle
records, credit information, and modeling services. Additionally,
ChoicePoint provides customized policy rating and issuance software and
property inspections and audits to the commercial insurance market, and
laboratory testing services and related technology solutions to the life
and health insurance market.
The Business and Government Services group provides direct marketing and
information products and services to Fortune 1000 corporations, consumer
finance companies, asset-based lenders, legal and professional service
providers, health care service providers and federal, state and local
government agencies. Major offerings include pre-employment background and
drug screenings, public record searches, credential verification, due
diligence information, uniform commercial code searches and filings, and
people and shareholder locator searches.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ChoicePoint Inc.
and its wholly-owned subsidiaries. All material transactions between entities
included in the consolidated financial statements have been eliminated. The
consolidated financial statements have been prepared on the historical cost
basis, and reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the financial position of ChoicePoint as of
March 31, 1999 and the results of operations and cash flows for the three
months ended March 31, 1999 and 1998. The adjustments have been of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the notes to the financial
statements included in ChoicePoint's Consolidated Financial Statements for the
year ended December 31, 1998 as filed with the Securities and Exchange
Commission in the Annual Report on Form 10-K (File No. 1-13069). The current
period's results are not necessarily indicative of results to be expected for a
full year.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the
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reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements as well as reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
4. REVENUE AND COSTS OF SERVICES PRESENTATION
Motor vehicle records registry revenue, the fee charged by states for motor
vehicle records which is passed on by ChoicePoint to its customers, is excluded
from revenue and is recorded as a reduction to cost of services in the
consolidated financial statements. Registry revenue was $87,460,000 and
$68,572,000 for the three months ended March 31, 1999 and 1998, respectively.
Customer Development Corporation, a business acquired in the fourth quarter of
1998, passes on material, shipping and postage charges to their customers.
These charges are excluded from revenue and are recorded as a reduction to cost
of services in the consolidated financial statements. Charges passed through to
customers for the three months ended March 31, 1999 were $9,873,000.
5. EARNINGS PER SHARE
The income amount used in the numerator of the Company's earnings per share
calculations is the same for both basic and diluted earnings per share. The
average outstanding shares used in the denominator of the calculation for
earnings per share - diluted includes the dilutive effect of stock options.
6. DEBT
In August 1997, ChoicePoint entered into a $250 million unsecured revolving
credit facility (the "Credit Facility") with a group of banks. The Credit
Facility bears interest at variable rates and is expandable to $300 million,
subject to approval of the lenders. The commitment termination date and final
maturity of the Credit Facility will occur in August 2002. Total borrowings
under the Credit Facility were $199.0 million at March 31, 1999. In addition,
there was $3.1 million of other long-term debt outstanding at March 31, 1999.
There were no short-term borrowings outstanding at March 31, 1999.
7. STOCK OPTIONS
During the first quarter of 1999, stock options to purchase approximately
644,000 shares of ChoicePoint common stock were granted at fair market value
under the ChoicePoint Inc. 1997 Omnibus Stock Incentive Plan.
8. GAIN ON SALE OF BUSINESSES
In December 1998, the Company sold its life and health insurance field
underwriting services and insurance claims investigation services to PMSI
Services, Inc. and recorded a gain on the sale. The proceeds from the sale
included $12.0 million in warrants and $10.0 million in a note receivable. The
warrants were discounted by $4.6 million at December 31, 1998. In March 1999,
ChoicePoint received $22.0 million plus interest from PMSI Services, Inc. for
the prepayment of the note receivable and the repurchase of the warrants. As a
result, ChoicePoint recognized an additional net pretax gain on the sale of
$2.5 million. The net pretax gain includes the unamortized discount of $4.3
million less transaction-related costs including lease termination, additional
asset write-offs and personnel-related costs of $1.8 million.
In December 1998, the net pretax gain was also net of transaction-related
costs, including lease termination and personnel-related costs of $5.9 million
that were accrued at the time of the divestiture.
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As of March 31, 1999, approximately $1.1 million has been charged against the
total $7.7 million accrued transaction-related costs.
9. UNUSUAL ITEMS
Operating income for the first quarter of 1999 includes $1.6 million of unusual
expense items. The unusual expense items relate primarily to asset impairments
($732,000), severance costs ($451,000) and other one-time costs ($400,000).
10. SEGMENT DISCLOSURES
As a result of the recent divestitures of certain field businesses in December
1998 (Note 8) and changes in the Company's internal organization structure,
ChoicePoint now operates in two reportable segments: Insurance Services
("Insurance") and Business and Government Services ("B&G"). See Note 1 for a
description of each segment. Revenues and operating income for the three months
ended March 31, 1999 and 1998 for the two segments and the divested and
discontinued lines were as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
----------------------------------- ------------------------------------
Operating Operating
Income Income
before before
Operating Acquisition Operating Acquisition
(In Thousands) Revenue Income Amortization Revenue Income Amortization
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insurance $63,318 $21,552 $22,317 $58,274 $20,370 $21,051
B&G 36,213 1,484 4,481 21,678 (10) 1,820
Divested & Discontinued 153 34 34 14,598 (382) (382)
Corporate -- (5,650) (5,650) -- (4,968) (4,968)
Unusual items (Note 9) -- (1,583) (1,583) -- -- --
------- ------- ------- ------- ------- -------
Total $99,684 $15,837 $19,599 $94,550 $15,010 $17,521
======= ======= ======= ====== ======= =======
</TABLE>
Corporate expenses represent costs of support functions, incentives and profit
sharing that benefit both segments. Acquisition amortization includes goodwill
and other intangible amortization related to acquisitions.
Depreciation and amortization for the three months ended March 31, 1999 and
1998 were as follows:
<TABLE>
<CAPTION>
------------------------------------------------
Three Months Ended
March 31,
(In Thousands) 1999 1998
------------------------------------------------
<S> <C> <C>
Insurance $3,973 $3,276
B&G 5,243 3,081
Divested & Discontinued 31 213
Corporate 537 424
------ ------
Total $9,784 $6,994
====== ======
</TABLE>
ChoicePoint's balance sheets are generally managed on a consolidated basis and
therefore it is impracticable to report assets by segment. Substantially all of
the Company's operations are located in the United States and no customer
represents more than 10% of total operating revenue.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company") is a
provider of actionable intelligence that helps businesses, governments and
individuals make better, more timely and more informed business decisions.
ChoicePoint's businesses are focused on two primary markets - Insurance
Services and Business and Government Services. See Note 1 to the consolidated
financial statements for a description of each market.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
Consolidated revenue increased $5.1 million, or 5.4%, from $94.6 million for
the three months ended March 31, 1998 to $99.7 million for the three months
ended March 31, 1999. Comparable revenues, excluding the effect of the sale of
certain field businesses in December 1998, increased $19.6 million, or 24.5%,
from $79.9 million for the three months ended March 31, 1998 to $99.5 million
for the three months ended March 31, 1999. Consolidated operating income before
unusual items increased $2.4 million, or 16.1%, from $15.0 million for the
three months ended March 31, 1998 to $17.4 million for the three months ended
March 31, 1999, primarily as a result of strong revenue performance in
automated products and in new acquisitions. Operating margins (excluding the
effects of unusual items) increased from 15.9% for the three months ended March
31, 1998 to 17.5% for the three months ended March 31, 1999. Included in
operating results for the three months ended March 31, 1999 and 1998 were $2.1
million and $0.4 million, respectively, of expenses incurred to modify existing
computer systems and applications to address the Year 2000 issues.
Excluding the effect of the sale of the field businesses noted above, revenue
from Insurance Services grew $5.0 million, or 8.7%, from $58.3 million for the
three months ended March 31, 1998 to $63.3 million for the three months ended
March 31, 1999, driven by strong unit performance in personal lines products
and laboratory services. Operating income increased $1.2 million, or 5.7%, from
$20.4 million for the three months ended March 31, 1998 to $21.6 million for
the three months ended March 31, 1999, primarily as a result of strong revenue
performance in personal lines products. Acquisition amortization, which
includes goodwill and other intangible amortization related to acquisitions,
increased from $681,000 for the three months ended March 31, 1998 to $765,000
for the three months ended March 31, 1999 due to acquisitions made in 1998.
Excluding the effect of the sale of its payroll verification business and other
discontinued product lines, revenue from Business and Government Services
increased $14.5 million, or 67.0%, from $21.7 million for the three months
ended March 31, 1998 to $36.2 million for the three months ended March 31,
1999. Acquisitions completed since the first quarter of 1998 contributed $13.7
million of the increase in Business and Government Services' first quarter 1999
revenue. Operating income increased $1.5 million from an operating loss of
$10,000 for the three months ended March 31, 1998 to an operating profit of
$1.5 million for the three months ended March 31, 1999, primarily as a result
of new acquisitions. Acquisition amortization, which includes goodwill and
other intangible amortization related to acquisitions, increased from $1.8
million for the three months ended March 31, 1998 to $3.0 million for the three
months ended March 31, 1999 due to acquisitions made in 1998.
Divested and discontinued operations include the operating results from the
field businesses sold in December 1998, the payroll verification business sold
in May of 1999, the discontinued medical device
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registry business and from the shutdown of certain remaining business and
government field offices where revenue did not justify sustained physical
presence.
Corporate expenses represent costs of support functions, incentives and profit
sharing that benefit both segments. The increase from $5.0 million for the
three months ended March 31, 1998 to $5.7 million for the three months ended
March 31, 1999 is primarily due to the increase in incentives partially offset
by the decrease in compensation expense recognized under employee stock plans.
Unusual items of $1.6 million in the first quarter of 1999 relate primarily to
asset impairments ($732,000), severance costs ($451,000) and other one-time
costs ($400,000).
In the first quarter of 1999, an additional gain on the sale of certain field
businesses of $2.5 million was recorded in connection with the prepayment of a
note receivable and the repurchase of warrants issued by PMSI Services, Inc. in
the transaction. See Note 8 to the consolidated financial statements.
Operating income after unusual items increased $0.8 million, or 5.5%, from
$15.0 million for the three months ended March 31, 1998 to $15.8 million for
the three months ended March 31, 1999.
Interest expense was $2.6 million and $1.6 million for the three months ended
March 31, 1999 and 1998, respectively. Interest expense for the first quarter
of 1999 is net of $431,000 of interest income from the PMSI Services, Inc. note
receivable and warrants prior to the prepayment and repurchase made in March
1999.
Net income increased $1.4 million, or 18.2%, from $7.6 million for the three
months ended March 31, 1998 to $9.0 million for the three months ended March
31, 1999. The effective tax rate remained unchanged at 43.3%.
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FINANCIAL CONDITION AND LIQUIDITY
Cash used by operations was $3.4 million in the first three months of 1999 as
increased net income and depreciation and amortization were offset by
reductions in current liabilities and an increase in accounts receivable.
During the first three months of 1998, cash provided by operations was $6.8
million. During the first three months of 1999, ChoicePoint used $7.7 million
for investing activities, primarily $3.3 million for additions to property and
equipment and $3.0 million for additions to other assets. Additions to property
and equipment were primarily system upgrades while additions to other assets
were primarily software, purchased data files, and software developed for
external use. During the first three months of 1998, ChoicePoint used $29.5
million for investing activities, primarily the acquisition of the remaining
27.4% interest in CDB Infotek and $4.1 million for additions to property and
equipment. Net cash provided by financing activities was $5.4 million in the
first three months of 1999, as the $10.1 million net increase in the Credit
Facility was used to paydown $5.1 million in short-term borrowings. During the
first three months of 1998, net cash provided by financing activities was $10.9
million, as the proceeds from the Credit Facility were used to fund the CDB
acquisition.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased $6.1 million, or 27.9%, from $22.0 million for the three months ended
March 31, 1998 to $28.1 million for the three months ended March 31, 1999.
EBITDA is presented not as a substitute for income from operations, net income
or cash flows from operating activities. The Company has included EBITDA data
(which is not a measure of financial performance under generally accepted
accounting principles) because such data is used by certain investors to
analyze and compare companies on the basis of operating performance, leverage
and liquidity, and to determine a company's ability to service debt.
The Company's short-term and long-term liquidity depends primarily upon its
level of net income, accounts receivable, accounts payable and accrued
expenses. In order to meet its working capital needs, ChoicePoint entered into
a five-year $250 million revolving credit facility ("Credit Facility") with a
group of banks in August 1997. The Credit Facility bears interest at variable
rates and is expandable to $300 million, subject to approval of the lenders.
During the first quarter of 1999, ChoicePoint used borrowings under the Credit
Facility for payment of notes payable for acquisitions and short-term
borrowings. Total debt outstanding under the Credit Facility was $199.0 million
at March 31, 1999 and $189.0 million at December 31, 1998. ChoicePoint may use
additional borrowings under the Credit Facility to finance acquisitions and
general corporate cash requirements.
No cash dividends have been paid. The Company does not anticipate paying any
cash dividends on its common stock in the near future.
YEAR 2000
The term "Year 2000 issue" is a general term used to describe the various
problems that may result from the improper processing of dates and
date-sensitive calculations by computers and other machinery as the year 2000
approaches. The Year 2000 issue exists because many currently installed
computer systems and software products are coded to accept only two digit
entries in the date code field. In order to distinguish 21st century dates from
20th century dates, these date code fields must be able to interpret four digit
entries.
The Company's State of Readiness - ChoicePoint has established a central Year
2000 department to coordinate and report, on a continuing basis, with regard to
the assessment, remediation planning, implementation, and contingency planning
processes directed toward addressing the Company's Year 2000 issues.
ChoicePoint is engaged in a continuous process of assessing the impact of the
Year 2000 issue on its reporting systems and operations. As part of that
process, certain computer systems and software programs used, and in some cases
developed, by ChoicePoint have been or will need to be upgraded in
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order to address Year 2000 requirements. The Company has assessed its
noninformation technology systems, which includes systems that contain embedded
technology. However, the Company has determined that these systems present less
of a risk to the Company's operations.
ChoicePoint is also continuing to supply and receive data and inquiries from
its vendors and customers. Current remediation efforts are in place to accept
and transmit data in both 2-digit and 4-digit formats within applicable
ChoicePoint applications.
ChoicePoint uses the Gartner Group's COMpliance Progress And REadiness
(COMPARE) Scale to measure its progress in addressing the Year 2000 issue. The
COMPARE scale has five levels:
Level One - PRELIMINARY ACTIVITY (problem not determined and risk is high)
Level Two - PROBLEM DETERMINATION (IT and non-IT inventories completed,
risk levels understood)
Level Three - PLAN COMPLETE/RESOURCES COMMITTED (estimated costs have been
determined, required resources have been committed, initial project plans
complete)
Level Four - OPERATIONAL SUSTAINABILITY (systems and key partners are
compliant and certified)
Level Five - FULLY COMPLIANT (all systems are compliant and the Year 2000
threat has been completely neutralized throughout the business process
chain)
At a minimum, all significant ChoicePoint applications have achieved level
three and many areas have reached level four. Final integration testing is
scheduled to be completed by the end of the third quarter of 1999.
The Costs to Address the Company's Year 2000 Issues - During the first quarter
of 1999, the Company incurred approximately $2.1 million to modify existing
computer systems and applications to address the Year 2000 issue and estimates
total 1999 expenditures to be approximately $7.0 to $8.0 million. The Company
has funded and expects to continue to fund, the costs of Year 2000 assessment
and remediation from available cash flows.
The Risks of the Company's Year 2000 Issues - ChoicePoint is continuously
identifying Year 2000 risks and developing contingency plans to address these
risks as they are identified. If the Company's remediation plan is not
successful, there would be a significant disruption of the Company's ability to
transact business with its major customers and suppliers and it could have a
material adverse effect on the Company's financial position and results of
operations. The Company has recently begun the systems integration testing
phase of its Year 2000 initiative. Until system integration testing is
substantially in process, the Company cannot completely determine the success
of its remediation plan. However, ChoicePoint believes it is devoting the
resources necessary to achieve a level of readiness that will meet its Year
2000 challenges in a timely manner. ChoicePoint believes its assessment,
remediation planning, and plan implementation processes will be effective to
achieve Year 2000 readiness.
The Company's Contingency Plans - The Company is developing contingency plans
as business risks are identified to help mitigate the risk of a disruption in
operations resulting from a Year 2000-related event. The Company will
continuously reassess Year 2000 risks and develop contingency plans for
reasonably likely worst case scenarios.
FORWARD-LOOKING STATEMENTS
This report may contain certain information that constitutes forward-looking
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. Those statements, to the extent they are not historical facts,
should be considered forward-looking and subject to various risks and
uncertainties. Such forward-looking statements are made based upon management's
assessments of various risks and uncertainties, as well as assumptions made in
accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results could differ
materially from the
13
<PAGE> 14
results anticipated in these forward-looking statements as a result of such
risks and uncertainties, including those identified in the Company's Annual
Report on Form 10-K for the fiscal year ending December 31, 1998 and the other
filings made by the Company from time to time with the Securities and Exchange
Commission. The Company undertakes no obligation to publicly release any
revisions to any forward-looking statement contained herein to reflect events
or circumstances occurring after the date hereof or to reflect the occurrence
of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. The
information below summarizes the Company's market risk associated with its debt
obligations as of March 31, 1999. The information below should be read in
conjunction with Note 6 of the "Notes to Consolidated Financial Statements".
As of March 31, 1999, $199 million was outstanding under the Credit Facility.
The Company has also entered into six interest rate swap agreements (the "Swap
Agreements") to reduce the impact of changes in interest rates on its floating
rate obligation. The Swap Agreements have a combined notional amount of $175
million at March 31, 1999 and mature at various dates from 2000 to 2007. The
Swap Agreements involve the exchange of variable rate for fixed rate payments
and effectively change the Company's interest rate exposure to a weighted
average fixed rate of 5.43% plus a credit spread.
Based on the Company's overall interest rate exposure at March 31, 1999, a
near-term change in interest rates would not materially affect the consolidated
financial position, results of operations or cash flows of the Company.
14
<PAGE> 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ChoicePoint is involved in litigation from time to time in the ordinary course
of its business. The Company does not believe that the outcome of any pending
or threatened litigation will have a material adverse effect on the financial
position or results of operations of ChoicePoint. However, as is inherent in
legal proceedings where issues may be decided by finders of fact, there is a
risk that unpredictable decisions adverse to the Company could be reached.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.01 Financial Data Schedule
(b) Reports on Form 8-K
As previously disclosed in the Annual Report on Form 10-K filed on
March 31, 1999, on November 13, 1998, the Company filed a Current
Report on Form 8-K, which was subsequently amended by a Current Report
on Form 8-K/A, filed on January 12, 1999, reporting the acquisition of
Customer Development Corporation and its affiliated companies.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHOICEPOINT INC.
----------------------------------------
(Registrant)
May 13, 1999 /s/ Derek V. Smith
- ----------------------- ----------------------------------------
Date Derek V. Smith, Chairman and
Chief Executive Officer
May 13, 1999 /s/ David E. Trine
- ----------------------- ----------------------------------------
Date David E. Trine, Vice President and
Corporate Controller (Principal
Accounting Officer)
16
<PAGE> 17
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
27.01 Financial Data Schedule
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 13,121
<SECURITIES> 0
<RECEIVABLES> 114,397
<ALLOWANCES> 3,498
<INVENTORY> 0
<CURRENT-ASSETS> 145,680
<PP&E> 113,703
<DEPRECIATION> 60,963
<TOTAL-ASSETS> 513,397
<CURRENT-LIABILITIES> 87,450
<BONDS> 0
0
0
<COMMON> 1,464
<OTHER-SE> 165,253
<TOTAL-LIABILITY-AND-EQUITY> 513,397
<SALES> 99,684
<TOTAL-REVENUES> 99,684
<CGS> 64,570
<TOTAL-COSTS> 64,570
<OTHER-EXPENSES> 19,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,556
<INCOME-PRETAX> 15,794
<INCOME-TAX> 6,839
<INCOME-CONTINUING> 8,955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,955
<EPS-PRIMARY> .62
<EPS-DILUTED> .60
</TABLE>
