<PAGE>
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 September 30, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period ended _________________________
Commission File Number 1-6605
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EQUIFAX INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-0401110
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1600 Peachtree Street, N.W. Atlanta, Georgia
P.O. Box 4081, Atlanta, Georgia 30302
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(Address of principal executive offices) (Zip Code)
404-885-8000
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(Registrant's telephone number, including area code)
None
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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 September 30, 1995
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Common Stock, $2.50 Par Value 78,377,212
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<PAGE>
INDEX
Page No.
-----------
Part I. Financial Information
Consolidated Balance Sheets --
September 30, 1995 and December 31, 1994 2 - 3
Consolidated Statements of Income --
Three Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Income --
Nine Months Ended September 30, 1995 and 1994 5
Consolidated Statement of Shareholders'
Equity -- Nine Months Ended September 30, 1995 6
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1995 and 1994 7
Notes to Consolidated Financial
Statements 8 - 10
Management's Discussion and Analysis
of Results of Operations and
Financial Condition 11 - 14
Review by Independent Public Accountants 14
Review Report by Independent Public Accountants 15
Part II. Other Information 16 - 17
Exhibit Index 18
Consent Letter Covering Review by Independent
Public Accountants 19
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<PAGE>
PART I. FINANCIAL INFORMATION
--------------------------------
CONSOLIDATED BALANCE SHEETS SEPTEMBER DECEMBER
30, 31,
(In thousands) 1995 1994
- -----------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 75,540 $ 79,409
Accounts receivable............................... 249,210 242,645
Deferred income tax assets........................ 22,014 26,472
Other current assets.............................. 37,561 27,353
----------- -----------
Total current assets............................. 384,325 375,879
----------- -----------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements.................. 13,964 13,841
Data processing equipment and furniture........... 218,253 203,189
----------- -----------
232,217 217,030
Less-Accumulated depreciation..................... 146,632 132,792
----------- -----------
85,585 84,238
----------- -----------
GOODWILL.......................................... 355,353 331,438
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PURCHASED DATA FILES.............................. 77,780 85,621
----------- -----------
OTHER............................................. 175,844 143,998
----------- -----------
$ 1,078,887 $ 1,021,174
=========== ===========
The notes on pages 8 through 10 are an integral part of these balance sheets.
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<PAGE>
CONSOLIDATED BALANCE SHEETS SEPTEMBER DECEMBER
30, 31,
(In thousands, except par value) 1995 1994
- -----------------------------------------------------------------------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities............ $ 84,959 $ 63,713
Accounts payable.................................. 58,721 53,561
Accrued salaries and bonuses...................... 28,303 29,410
Income taxes payable.............................. -- 21,204
Other current liabilities......................... 124,828 132,158
----------- -----------
Total current liabilities....................... 296,811 300,046
----------- -----------
LONG-TERM DEBT, LESS CURRENT MATURITIES........... 258,286 211,967
----------- -----------
POSTRETIREMENT BENEFIT OBLIGATION................. 82,851 83,029
----------- -----------
OTHER LONG-TERM LIABILITIES....................... 59,922 64,273
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
SHAREHOLDERS' EQUITY:
Common stock, $2.50 par value; shares
authorized - 125,000; issued - 84,287 in 1995
and 83,389 in 1994; outstanding - 75,017
in 1995 and 75,895 in 1994...................... 210,718 208,471
Paid-in capital................................... 163,091 145,859
Retained earnings................................. 242,006 175,894
Cumulative foreign currency translation
adjustment...................................... (10,791) (13,386)
Treasury stock, at cost, 5,910 shares in 1995
and 4,094 shares in 1994........................ (157,798) (87,975)
Stock held by employee benefits trusts, at cost,
3,360 shares in 1995 and 3,400 shares in 1994... (66,209) (67,004)
----------- -----------
Total shareholders' equity...................... 381,017 361,859
----------- -----------
$ 1,078,887 $ 1,021,174
=========== ===========
The notes on pages 8 through 10 are an integral part of these balance sheets.
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<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
(In thousands, except per share amounts) 1995 1994
- -----------------------------------------------------------------------------
Operating revenue................................. $ 412,027 $ 359,287
----------- -----------
Costs of services................................. 264,444 228,043
Selling, general and administrative expenses...... 81,483 75,665
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Total operating expenses......................... 345,927 303,708
----------- -----------
Operating income.................................. 66,100 55,579
Other income, net................................. 2,233 2,029
Interest expense.................................. (5,398) (3,884)
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Income before income taxes........................ 62,935 53,724
Provision for income taxes........................ 24,954 22,768
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Net income........................................ $ 37,981 $ 30,956
=========== ===========
Weighted average common shares outstanding........ 75,809 74,161
=========== ===========
Per common share:
Net income...................................... $ 0.50 $ 0.42
=========== ===========
Dividends....................................... $ 0.155 $ 0.155
=========== ===========
The notes on pages 8 through 10 are an integral part of these statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
(In thousands, except per share amounts) 1995 1994
- -----------------------------------------------------------------------------
Operating revenue................................. $ 1,203,626 $ 1,021,333
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Costs of services................................. 779,377 655,585
Selling, general and administrative expenses...... 241,396 215,359
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Total operating expenses......................... 1,020,773 870,944
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Operating income.................................. 182,853 150,389
Other income, net................................. 6,479 4,922
Interest expense.................................. (15,319) (10,958)
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Income before income taxes........................ 174,013 144,353
Provision for income taxes........................ 70,746 60,379
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Net income........................................ $ 103,267 $ 83,974
=========== ===========
Weighted average common shares outstanding........ 76,153 73,876
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Per common share:
Net income...................................... $ 1.36 $ 1.14
=========== ===========
Dividends....................................... $ 0.465 $ 0.45
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The notes on pages 8 through 10 are an integral part of these statements.
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<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED
(In thousands) SEPTEMBER 30, 1995
- -----------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of period........................... $ 208,471
Shares issued under stock plans.......................... 2,247
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Balance at end of period................................. $ 210,718
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PAID-IN CAPITAL:
Balance at beginning of period........................... $ 145,859
Shares issued under stock plans.......................... 14,784
Other.................................................... 2,448
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Balance at end of period................................. $ 163,091
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RETAINED EARNINGS:
Balance at beginning of period........................... $ 175,894
Net income............................................... 103,267
Cash dividends paid...................................... (37,155)
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Balance at end of period................................. $ 242,006
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CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT:
Balance at beginning of period........................... $ (13,386)
Adjustment during period................................. 2,595
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Balance at end of period................................. $ (10,791)
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TREASURY STOCK:
Balance at beginning of period........................... $ (87,975)
Cost of shares repurchased............................... (71,853)
Cost of shares reissued for prior year acquisitions...... 2,030
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Balance at end of period................................. $ (157,798)
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STOCK HELD BY EMPLOYEE BENEFITS TRUSTS:
Balance at beginning of period........................... $ (67,004)
Cost of shares reissued under stock plans................ 795
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Balance at end of period................................. $ (66,209)
===========
The notes on pages 8 through 10 are an integral part of these statements.
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<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED
SEPTEMBER 30,
(In thousands) 1995 1994
- -----------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 103,267 $ 83,974
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................. 58,027 46,209
Gain on sale of businesses.................... (847) --
Changes in assets and liabilities:
Accounts receivable, net.................... (11,007) (11,623)
Current liabilities, excluding debt......... (40,150) (4,705)
Other current assets........................ (8,422) (3,503)
Deferred income taxes....................... (3,498) (3,482)
Other long-term liabilities, excluding debt. (1,941) (2,351)
----------- -----------
Net cash provided by operating activities....... 95,429 104,519
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............. (19,626) (14,411)
Additions to other assets, net.................. (25,369) (5,427)
Acquisitions, net of cash acquired.............. (14,583) (62,084)
Investments in unconsolidated subsidiaries...... -- (15,099)
Deferred payments on prior year acquisitions.... (8,743) --
Proceeds from sale of businesses................ 14,868 --
Proceeds from sale of land and buildings........ -- 57,079
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Net cash used by investing activities........... (53,453) (39,942)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings....................... 18,401 21,300
Net long-term borrowings....................... 27,810 (1,358)
Dividends paid.................................. (37,155) (34,812)
Treasury stock purchases........................ (71,853) (48,103)
Proceeds from exercise of stock options......... 14,091 10,360
Other........................................... 1,563 1,530
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Net cash used by financing activities........... (47,143) (51,083)
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Effect of foreign currency exchange rates on cash. 1,298 (609)
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Net cash (used) provided.......................... (3,869) 12,885
Cash at beginning of period....................... 79,409 85,604
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Cash at end of period............................. $ 75,540 $ 98,489
=========== ===========
The notes on pages 8 through 10 are an integral part of these statements.
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<PAGE>
EQUIFAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1995
1. BASIS OF PRESENTATION:
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange Commission.
This information reflects all adjustments which are, in the opinion of
management, necessary for a fair statement of the financial position of the
Company as of September 30, 1995 and the results of operation for the three and
nine months ended September 30, 1995 and 1994 and the cash flows for the nine
months ended September 30, 1995 and 1994. All adjustments made 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. The Company believes that
disclosures are adequate to make the information presented not misleading. It
is suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1994.
2. TREASURY STOCK:
During the first nine months of 1995, the Company repurchased approximately
1,910,000 of its common shares through open market transactions at an aggregate
cost of $71,853,000, and also reissued approximately 93,000 shares in
conjunction with payments due on prior year acquisitions. In July and October
1995, the Company's Board of Directors authorized additional share repurchases
of $50,000,000 and $200,000,000 respectively.
3. AGREEMENT WITH COMPUTER SCIENCES CORPORATION:
The Company has an agreement with Computer Sciences Corporation (CSC) under
which CSC-owned credit bureaus and certain CSC affiliate bureaus utilize the
Company's credit database service. CSC and these affiliates retain ownership of
their respective credit files and the revenues generated by their credit
reporting activity. The Company receives a processing fee for maintaining the
database and for each report supplied. The agreement expires in 1998, is
renewable at the option of CSC for successive ten-year periods, and provides CSC
with an option to sell its collection and credit reporting businesses to the
Company. The option is currently exercisable and expires in 2013. In the event
CSC does not exercise its option to sell and does not renew the agreement, or if
there is a change in control of CSC, the Company has the option to purchase
CSC's collection and credit reporting businesses. The option price is
determined, for all purposes, in accordance with the following schedule: on or
before July 31, 1998, at a price determined by certain financial formulas
(currently estimated at approximately $400,000,000); and after July 31, 1998, at
appraised value.
4. LOTTERY CONTRACT DISPUTE AND LITIGATION:
High Integrity Systems, Inc. (HISI), a Company subsidiary, entered into a
contract in July 1992 to provide lottery services to the state of California.
Under this contract, HISI agreed to provide a system to automate the processing
of instant lottery tickets and a system to sell on-line game tickets through
10,000 low-volume terminals.
On April 26, 1993, the California State Lottery (CSL) filed suit against HISI in
Superior Court, Sacramento County, California, and on May 7, 1993, the CSL filed
its first amended complaint naming Equifax Inc., et al. and Federal Insurance
Company as additional defendants. The CSL is seeking unspecified damages for
alleged breach of contract and injunctive relief and is asserting a claim
against Federal Insurance Company for $18.5 million, which represents the face
amount of a performance bond delivered to the CSL in July 1992 on behalf of
HISI. The CSL alleges that HISI failed to perform its obligations under this
contract by failing to timely deliver a fully operational
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<PAGE>
system in accordance with the contract requirements and seeks an injunction for
the return of certain goods and confidential and proprietary data.
On May 7, 1993, HISI filed a cross-complaint against the CSL seeking
compensatory and general damages in an amount not less than $65 million and
special and consequential damages in an amount not less than $100 million. HISI
alleges that the CSL breached the contract by its failure to act in good faith
and according to the contract terms, breached an express and implied warranty
regarding the contract scope of work, breached the express and implied covenant
of good faith and fair dealing under the contract, and seeks recovery of the
reasonable value of the labor and materials expended on behalf of the CSL based
on the theory of quantum meruit and unjust enrichment. HISI also seeks a
judicial determination of its rights and duties under the contract and
California law.
On July 14, 1995, the CSL and HISI jointly announced a renewed business
agreement which allows the litigation between the parties to be
settled pending execution of the terms of the contract. On November 9, 1995, the
CSL and HISI finalized the terms of the reinstated contract. The final
settlement and reinstated contract are conditioned upon the trial court's
approval, which the parties are currently seeking.
The contract to be reinstated calls for HISI to install its system to automate
the processing of instant lottery tickets. The CSL will purchase 6,700
terminals, related security hardware and various software applications developed
to support the system, at a cost of $25,000,000. The Company will record the
financial impact of this settlement, less related legal expenses and the
additional costs to be incurred by the Company to complete and install the
terminals, in the quarter in which the settlement is approved by the court. The
CSL will initially install a minimum of 6,000 terminals with HISI retaining an
option to install up to 4,000 additional terminals, with CSL approval. HISI is
also guaranteed to receive 66 months of revenue for each of the 6,000 terminals
at the rate of 5% on each dollar of lottery ticket sales occurring from each
terminal. If HISI completes the system and acceptance testing within specified
dates, an incentive payment of up to $4,000,000 may be earned. HISI and the CSL
have established an oversight committee and engaged an independent technical
advisor who will consult in the design and implementation of acceptance testing
and start-up activities.
In September 1993, the Company recorded a provision of $48,438,000 ($30,939,000
after tax, or $.41 per share) related to the lottery contract to write down data
processing equipment and other assets to their estimated net realizable value
and to accrue for estimated costs related to litigation of the CSL. In
management's opinion, this provision is adequate and the ultimate resolution of
the CSL litigation will not have a materially adverse impact on the Company's
financial position or results of operations.
5. ACQUISITIONS AND DIVESTITURES:
During the first nine months, the Company acquired substantially all of the
assets and business operations of five businesses: Vallance and Associates, Inc.
(in the Insurance Services segment); Medical Review Systems, L.P. (in the
General Services segment); UCB Services, Inc. (in the Credit Services segment);
TecniCob S.A. (in the Payment Services segment); and The Infocheck Group (in the
International segment). These acquisitions had an aggregate purchase price of
$28,045,000, and the Company also assumed liabilities of approximately
$32,765,000 associated with these transactions. They were accounted for as
purchases, with $31,126,000 allocated to goodwill and $14,494,000 to other
assets (primarily software). They were purchased using a combination of cash
totaling $14,676,000 and long-term financing from sellers of $13,369,000. Their
results of operation have been included in the consolidated statement of income
from their respective dates of acquisition and were not material to the results
of operation of the Company for the quarter or nine months ended September 30,
1995.
The Company also invested $10.0 million to provide financing to Physician
Computer Network, Inc. (PCN), a national network of medical practice management
systems. The PCN financing is in the form of a note, convertible into shares of
PCN common stock at a conversion premium. The note is recorded in other assets.
In conjunction with the financing, the Company entered into an exclusive
marketing agreement with PCN, whereby PCN will integrate certain of the
Company's healthcare services into its product line and promote the Company as
its exclusive
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<PAGE>
claims clearing house for PCN customers.
During the third quarter of 1995, the Company divested of two market research
businesses from the General Information Services segment, Elrick & Lavidge and
Quick Test. Cash proceeds from these sales totalled $14,868,000 and resulted in
a gain of $847,000, recorded in other income.
6. SUBSEQUENT EVENTS:
In addition to the $200 million share repurchase authorization discussed in Note
2, in October 1995, the Company's Board of Directors approved a two-for-one
stock split effective November 24, 1995 and also adopted a Share Repurchase
Rights Plan ("Rights Plan").
The Rights Plan contains provisions to protect the Company's shareholders in the
event of an unsolicited offer to acquire the Company, including offers that do
not treat all shareholders equally, the acquisition in the open market of shares
constituting control without offering fair value to all shareholders, and other
coercive, unfair or inadequate takeover bids and practices that could impair the
ability of the Board of Directors to represent shareholders' interests fully.
Pursuant to the Rights Plan, the Board of Directors declared a dividend of one
share purchase right (a "Right") for each outstanding share of the Company's
Common Stock, with distribution to be made to shareholders of record as of
November 24, 1995. The Rights, which will expire in November 2005, initially
will be represented by, and trade together with, the Company's common stock.
The Rights are not currently exercisable and do not become exercisable unless
certain triggering events occur. Among the triggering events is the acquisition
of 20% or more of the Company's common stock by a person or group of affiliated
or associated persons. Unless previously redeemed, upon the occurrence of one
of the specified triggering events, each Right that is not held by the 20% or
more shareholder will entitle its holder to purchase one share of common stock
or, under certain circumstances, additional shares of common stock at a
discounted price.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations - (third quarter and first nine months of 1995 compared to
the third quarter and first nine months of 1994)
Revenue for the third quarter and first nine months increased 15% and 18%
respectively over the comparable periods of 1994. Excluding the effects of
noncomparable items (acquisitions, divestitures, and the sale of certain
insurance related product lines within Canada) revenue increased 9% in both
periods. Operating income increased in the third quarter and first nine months
by 19% and 22% respectively, primarily the result of continued revenue growth in
higher margin business units and on-going expense controls throughout the
organization. Acquisitions accounted for six percentage points of the third
quarter increase and four percentage points of the year-to-date increase in
operating income but were slightly dilutive to net income and net income per
share in both periods due to increased interest expense and average shares
outstanding.
Operating revenue and operating income by industry segment for the third quarter
and first nine months of 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
(In thousands) Third Quarter Nine months
-------------------- ------------------------
<S> <C> <C> <C> <C>
Operating Revenue: 1995 1994 1995 1994
- ------------------ -------- -------- ---------- ----------
Credit Information Services $122,275 $112,878 $ 354,684 $ 333,421
Payment Services 72,645 62,599 202,354 169,340
Insurance Information Services 130,362 113,603 389,900 334,723
International Operations 55,532 37,563 154,663 92,757
General Information Services 31,213 32,644 102,025 91,092
-------- -------- ---------- ----------
$412,027 $359,287 $1,203,626 $1,021,333
======== ======== ========== ==========
Operating Income (Loss):
- ------------------------
Credit Information Services $ 45,367 $ 39,742 $ 129,926 $ 112,727
Payment Services 16,090 13,913 42,753 37,388
Insurance Information Services 11,353 5,569 32,052 15,154
International Operations 7,939 4,169 14,726 12,880
General Information Services (3,858) (1,174) (9,435) (5,041)
-------- -------- ---------- ----------
Operating Contribution 76,891 62,219 210,022 173,108
General Corporate Expense (10,791) (6,640) (27,169) (22,719)
-------- -------- ---------- ----------
$ 66,100 $ 55,579 $ 182,853 $ 150,389
======== ======== ========== ==========
</TABLE>
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<PAGE>
The following discussion analyzes operating results by industry segment, general
corporate expense and consolidated other income, interest expense and effective
income tax rates.
Credit Information Services
- ---------------------------
Revenue in Credit Information Services, which includes Credit Reporting
Services, Mortgage Information Services, and Risk Management Services, increased
8% in the third quarter and 6% in the first nine months. Credit Reporting
Services revenue was up 7% in the quarter and 8% year-to-date. The increases in
both periods were driven by prescreening business for credit card issuers and
increased business in the automotive and utilities industries. Business from
the national credit card industry, which was down slightly in the third quarter,
also contributed to the year-to-date revenue increase. Pricing pressures
continue within Credit Reporting Services but volume growth also continues to
more than offset the price declines. Revenue in Risk Management increased 14%
in the quarter and 10% year-to-date, while Mortgage Information Services
revenue, exclusive of a 1995 acquisition, declined 16% in the quarter and 33% in
the first nine months.
Operating income increased 14% in the third quarter and 15% year-to-date. These
increases were primarily attributable to the revenue growth within Credit
Reporting Services and continued expense management.
Payment Services
- ----------------
Revenue increased 16% in the quarter and 19% in the first nine months, with the
third quarter 1994 acquisitions of First Security Processing Services (FSPS) and
FBS Software accounting for five percentage points of the year-to-date increase.
Within Card Services, revenue was up 22% in the quarter and 27% in the first
nine months, with the FSPS acquisition accounting for seven percentage points of
the year-to-date increase. Revenue growth within Card Services was due
primarily to increased processing of cardholder and merchant transactions.
Within Check Services, revenue increased 7% in the quarter and 8% year-to-date,
due to increases in the volume of checks guaranteed. At the end of the third
quarter 1995, one of Check Services larger customers began authorizing its own
checks in-house, and another large customer gave notification that it will begin
authorizing its own checks beginning January 1996. Consequently, Check Services
fourth quarter 1995 revenue is expected to be flat versus 1994, and 1996 annual
revenue is expected to decline slightly from 1995.
Excluding the effects of noncomparable acquisitions, Payment Services operating
income increased 16% in the quarter and 13% in the first nine months. These
increases were driven by profit growth within Card Services totaling 29% in the
quarter and 26% year-to-date due to the operating leverage achieved with the
revenue growth. Within Check Services operating income declined 10% in the
quarter and 2% year-to-date, due primarily to higher third quarter 1995 labor
expenses associated with the check approval process and increased selling
expenses.
Insurance Information Services
- ------------------------------
Third quarter and year-to-date revenue increased 15% and 16% respectively, with
motor vehicle registry revenue (the fee charged by states for their records,
which the Company passes on to its customers) accounting for about four
percentage points of each period's increase. Acquisitions accounted for another
six percentage points of the third quarter revenue increase and seven points of
the year-to-date increase. Data Services revenue increased 7% in the third
quarter and 10% year-to-date as unit gains in most product lines were partially
offset by lower average prices. Field Services revenue increased 3% in the
third quarter and 4% year-to-date, primarily the result of unit volume growth in
several products. Commercial Specialist revenue (excluding the Valance
acquisition) improved 14% in the quarter and 8% year-to-date, while CUE U.K., a
database product for the U.K. insurance industry introduced late in the fourth
quarter of 1994, had modest revenues in each of the first three quarters of
1995.
Operating income improved $5.8 million in the quarter and $16.9 million year-to-
date, with acquisitions contributing $1.6 million and $5.5 million to the
respective period's increase. The remaining increase was due primarily from
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<PAGE>
operating leverage achieved within Data Services, cost controls within Field
Services, and improvement in CUE U.K.
International Operations
- ------------------------
International Operations revenue, adjusted for noncomparables (acquisitions and
the second quarter 1995 sale of the Canadian field services insurance products
business), increased 1% in the quarter and 4% in the first nine months. In
local currency, excluding noncomparables, Equifax Europe's revenues were up 1%
in the quarter and 9% year-to-date, while Canadian revenues declined 1% in both
periods. Within Equifax Europe, a 6% increase in Credit and Marketing Services
third quarter revenue was partially offset by a 3% decline in check guarantee
revenue. For the first nine months, Credit and Marketing Services revenue
increased 13% while check guarantee revenue increased 5%. The decline in
Canadian revenue in both periods resulted from lower revenues within Credit
Services due primarily to the sluggish Canadian economy.
Operating income for this segment increased $3.8 million in the quarter and $1.8
million in the first nine months. The increase in the third quarter was due
primarily to improved profits within Equifax Europe as operating efficiencies
resulting from the integration of the Infolink acquisition began to be realized.
The second quarter 1995 sale of the Canadian field services insurance products
business, which posted a loss in the third quarter of 1994, also contributed to
this segment's operating income increase in the quarter. Year-to-date operating
income growth was tempered by higher integration costs incurred in the first six
months of 1995 related to the 1994 acquisitions of Infolink and Canadian Bonded
Credits. Lower profits from Canadian Credit Services resulting from the revenue
decline also tempered this segment's operating income growth in both periods.
General Information Services
- ----------------------------
Excluding the effects of noncomparable acquisitions and the divestitures of two
marketing companies during the third quarter of 1995 (see Note 5), General
Information Services revenue increased 12% in the third quarter and first nine
months, with both Healthcare Services and Marketing Services revenues increasing
approximately 12% in each period.
This segment's operating loss increased $2.7 million in the quarter and $4.4
million year-to-date, due primarily to higher expenses associated with
Healthcare acquisitions and Medical Credentials Verification Services (MCVS), a
database product introduced in the fourth quarter of 1994 which allows managed
care organizations and hospitals to verify physician credentials. Revenues
from MCVS have not met expectations in 1995 and this product will not be
profitable in 1995. The direction of MCVS is currently under review by
management.
General Corporate Expense
- -------------------------
The quarter and year-to-date increase in General Corporate Expense was due
primarily to higher performance share plan expense, driven by the Company's
higher share price.
Other Income, Interest Expense and Effective Income Tax Rates
- -------------------------------------------------------------
The increase in other income in the third quarter was attributable to the gain
from sale of businesses (Note 5) partially offset by lower investment income
within Canada. The year-to-date increase is due to the gain on sale of
businesses and several other non-recurring items.
The increase in interest expense reflects higher levels of borrowings due to
acquisitions and share repurchases.
The effective income tax rate declined from 42.4% to 39.7% in the third quarter,
and from 41.8% to 40.7% year-to-date. These declines were due primarily to a
change in the expected 1995 income tax rate based upon additional information
obtained from recently filed returns, and changes in assumptions related to
state income tax rates and estimated taxes related to foreign operations.
-13-
<PAGE>
FINANCIAL CONDITION
The Company's financial condition remained strong during the first nine months
of 1995. Working capital increased $11.7 million to $87.5 million, while net
cash provided by operations declined from $104.5 million to $95.4 million,
reflecting increased 1995 disbursements for accrued income taxes and other year-
end 1994 items. Normal capital expenditures and dividend payments were met with
these internally generated funds.
Other significant outlays in the first nine months included $71.9 million of
treasury stock purchases (Note 2), $14.6 million for 1995 acquisitions (Note 5),
$8.7 million in payments related to 1994 acquisitions, and $10.0 million to
provide financing to PCN (Note 5). These items were principally financed by an
increase in both short-term and long-term debt, proceeds from the sale of
businesses (Note 5), proceeds from the exercise of stock options, and excess
cash from operations.
Capital expenditures for the remainder of 1995 are currently projected to be
approximately $13 million, exclusive of acquisitions. Additional expenditures
are possible as opportunities arise. As of September 30, 1995, including the
Board of Directors additional authorizations in October 1995 (Note 2),
approximately $218 million remains authorized under the Company's share
repurchase program.
The remaining 1995 capital expenditures should be met with internally generated
funds. In August 1995, the Company structured a new revolving credit facility
with eight banks totaling $550 million, replacing its old $450 million facility.
At September 30, 1995 $470 million was available under the new facility; which
remains available to fund future capital requirements, including the possible
purchase of the CSC collections and credit reporting businesses (Note 3). The
Company is also beginning to investigate additional long-term notes to finance
the potential share repurchases associated with the Board of Directors
authorization in October 1995 (Note 2). Management feels that the Company's
liquidity will remain strong in both the short-term and long-term, and that the
Company has sufficient debt capacity to finance all of these requirements, if
necessary.
Limited Review By
Independent Public Accountants
Arthur Andersen LLP, independent public accountants, has performed a limited
review of the interim financial information contained herein in accordance with
established professional standards and procedures for such a review. Attached
hereto is a review report from Arthur Andersen LLP covering its limited review
of the interim financial information contained herein.
-14-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Equifax Inc.:
We have reviewed the accompanying interim consolidated balance sheet of EQUIFAX
INC. (a Georgia corporation) AND SUBSIDIARIES as of September 30, 1995 and the
related interim consolidated statements of income for the nine-month and three-
month periods ended September 30, 1995 and 1994, shareholders' equity for the
nine-month period ended September 30, 1995, and cash flows for the nine-month
periods ended September 30, 1995 and 1994. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the accompanying consolidated balance sheet of Equifax Inc. and
subsidiaries as of December 31, 1994, and in our report dated February 17, 1995,
we expressed an unqualified opinion on that statement.
Arthur Andersen LLP
Atlanta, Georgia
November 10, 1995
-15-
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
- ------- -----------------
On April 26, 1993, the California State Lottery filed suit against High
Integrity Systems, Inc., a Company subsidiary, in the Superior Court of the
State of California, Sacramento County.
Reference is made to information reported in Note 4 of the Notes to Consolidated
Financial Statements, included in Part I of this report.
Item 5. Other Information
- ------- -----------------
Reference is made to information reported in Notes 1, 2, 3, 5 and 6 of the Notes
to Consolidated Financial Statements, included in Part I of this report.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
15 Letter from Arthur Andersen LLP, dated November 10, 1995.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter for
which this report is filed.
-16-
<PAGE>
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.
EQUIFAX INC.
------------
(Registrant)
Date: November 13, 1995 /s/ C. B. Rogers, Jr.
----------------------- ----------------------------
C. B. Rogers, Jr., Chairman
and Chief Executive Officer
Date: November 13, 1995 /s/ P. J. Mazzilli
----------------------- ----------------------------
P. J. Mazzilli
Chief Accounting Officer
-17-
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description of Exhibit
- ------- ----------------------
15 Arthur Andersen LLP
Letter dated November 10, 1995
27 Financial Data Schedule
-18-
<PAGE>
EXHIBIT 15
To Equifax Inc.
We are aware that Equifax Inc. has incorporated by reference in its previously
filed Registration Statements on Form S-3 or Form S-8, File No. 33-40011, File
No. 33-58734, File No. 33-34640, File No. 33-71202, as amended, File No. 33-
66728, File No. 33-71200, File No. 33-82374, File No. 33-86018, File No. 33-
86978, File No. 33-58627 and File No. 33-63001 its Form 10-Q for the nine months
ended September 30, 1995, which includes our report dated November 10, 1995,
covering the unaudited interim financial information contained therein.
Pursuant to Regulation C of the Securities Act of 1933 (the "Act"), that report
is not considered a part of the Registration Statements prepared or certified by
our firm or a report prepared or certified by our firm within the meaning of
Sections 7 and 11 of the Act.
Arthur Andersen LLP
Atlanta, Georgia
November 10, 1995
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EQUIFAX INC. FINANCIAL STATEMENTS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER
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<FISCAL-YEAR-END> DEC-31-1995
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