<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, 1997
-------------------------
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
------
EQUIFAX INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0401110
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
404-885-8000
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(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, 1997
----- ---------------------------------
Common Stock, $1.25 Par Value 150,173,436
---------------------------------
<PAGE>
INDEX
Page No.
-------
Part I. Financial Information
Consolidated Balance Sheets --
September 30, 1997 and December 31, 1996 2 - 3
Consolidated Statements of Income --
Three Months Ended September 30, 1997 and 1996 4
Consolidated Statements of Income --
Nine Months Ended September 30, 1997 and 1996 5
Consolidated Statement of Shareholders'
Equity -- Nine Months Ended September 30, 1997 6
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1997 and 1996 7
Notes to Consolidated Financial Statements 8 - 11
Management's Discussion and Analysis of Results of
Operations and Financial Condition 12 - 15
Part II. Other Information 16 - 17
-1-
<PAGE>
PART 1. FINANCIAL INFORMATION
- -----------------------------
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 58,071 $ 48,160
Accounts receivable 263,500 227,540
Deferred income tax assets 23,737 33,016
Other current assets 46,191 36,392
----------------------- --------------------
Total current assets 391,499 345,108
----------------------- --------------------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements 24,768 18,739
Data processing equipment and furniture 191,539 191,302
----------------------- --------------------
216,307 210,041
Less accumulated depreciation 122,848 123,177
----------------------- --------------------
93,459 86,864
----------------------- --------------------
GOODWILL 333,646 313,760
----------------------- --------------------
PURCHASED DATA FILES 101,873 84,025
----------------------- --------------------
OTHER ASSETS 197,812 181,347
----------------------- --------------------
NET ASSETS OF DISCONTINUED OPERATIONS -- 196,414
----------------------- --------------------
$ 1,118,289 $ 1,207,518
======================= ====================
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
balance sheets.
-2-
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(In thousands, except par value) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term debt $ 21,408 $ 59,563
Accounts payable 108,071 71,801
Accrued salaries and bonuses 24,693 27,682
Income taxes payable 7,489 18,321
Other current liabilities 164,341 152,348
------------------ ------------------
Total current liabilities 326,002 329,715
------------------ ------------------
LONG-TERM DEBT, LESS CURRENT MATURITIES 273,544 304,942
------------------ ------------------
POSTRETIREMENT BENEFIT OBLIGATIONS 24,529 23,778
------------------ ------------------
LONG-TERM DEFERRED REVENUE 45,737 42,964
------------------ ------------------
OTHER LONG-TERM LIABILITIES 88,730 81,169
------------------ ------------------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par value; shares authorized - 300,000; issued - 172,237 in
1997 and 170,859 in 1996;
outstanding - 143,620 in 1997 and 144,876 in 1996 215,296 213,573
Preferred stock, $0.01 par value; shares authorized -
10,000; issued and outstanding - none in 1997 or 1996 -- --
Paid-in capital 227,435 207,142
Retained earnings 394,361 396,340
Cumulative foreign currency translation adjustment (9,728) (3,913)
Treasury stock, at cost, 22,064 shares in 1997
and 19,430 shares in 1996 (403,050) (323,625)
Stock held by employee benefits trusts, at cost,
6,553 shares in 1997 and 1996 (64,567) (64,567)
------------------ ------------------
Total shareholders' equity 359,747 424,950
------------------ ------------------
$ 1,118,289 $ 1,207,518
================== ==================
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
balance sheets.
-3-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
(In thousands, except per share amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $ 344,086 $ 302,712
-------------------- --------------------
Costs of services 200,986 172,252
Selling, general and administrative expenses 60,363 63,160
Asset impairment (Note 8) -- --
-------------------- --------------------
Total operating expenses 261,349 235,412
-------------------- --------------------
Operating income 82,737 67,300
Other income, net 1,489 754
Interest expense (5,229) (4,191)
-------------------- --------------------
Income from continuing operations before income taxes 78,997 63,863
Provision for income taxes 31,757 25,322
-------------------- --------------------
Income from continuing operations 47,240 38,541
-------------------- --------------------
Discontinued operations:
Income from discontinued operations, net of income
taxes of $4,872 in 1996 -- 7,263
Costs associated with effecting the spinoff, net of
income tax benefit -- --
-------------------- --------------------
Total discontinued operations -- 7,263
-------------------- --------------------
Net income $ 47,240 $ 45,804
==================== ====================
Weighted average common shares outstanding 144,226 144,752
==================== ====================
Per common share:
Income from continuing operations $ 0.33 $ 0.27
Income from discontinued operations - 0.05
Costs associated with effecting the spinoff - --
-------------------- --------------------
Net income $ 0.33 $ 0.32
==================== ====================
Dividends $ 0.088 $ 0.083
==================== ====================
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
statements.
-4-
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(In thousands, except per share amounts) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $ 999,114 $ 890,661
-------------------- --------------------
Costs of services 579,717 512,566
Selling, general and administrative expenses 190,349 191,650
Asset impairment (Note 8) -- 10,313
-------------------- --------------------
Total operating expenses 770,066 714,529
-------------------- --------------------
Operating income 229,048 176,132
Other income, net 44,652 10,166
Interest expense (15,033) (11,426)
-------------------- --------------------
Income from continuing operations before income taxes 258,667 174,872
Provision for income taxes 111,696 69,337
-------------------- --------------------
Income from continuing operations 146,971 105,535
-------------------- --------------------
Discontinued operations:
Income from discontinued operations, net of income
taxes of $10,179 in 1997 and $12,258 in 1996 14,336 18,244
Costs associated with effecting the spinoff, net of
income tax benefit of $2,154 (12,887) --
-------------------- --------------------
Total discontinued operations 1,449 18,244
-------------------- --------------------
Net income $ 148,420 $ 123,779
==================== ====================
Weighted average common shares outstanding 144,659 145,781
==================== ====================
Per common share:
Income from continuing operations $ 1.02 $ 0.72
Income from discontinued operations 0.10 0.13
Costs associated with effecting the spinoff (0.09) --
-------------------- --------------------
Net income $ 1.03 $ 0.85
==================== ====================
Dividends $ 0.258 $ 0.248
==================== ====================
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
statements.
-5-
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(In thousands) SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK:
Balance at beginning of period $ 213,573
Shares issued under stock plans 1,723
--------------------
Balance at end of period $ 215,296
====================
PAID-IN CAPITAL:
Balance at beginning of period $ 207,142
Shares issued under stock plans 18,606
Other 1,687
--------------------
Balance at end of period $ 227,435
====================
RETAINED EARNINGS:
Balance at beginning of period $ 396,340
Net income 148,420
Cash dividends paid (38,933)
ChoicePoint spinoff dividend (111,466)
--------------------
Balance at end of period $ 394,361
====================
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT:
Balance at beginning of period $ (3,913)
Adjustment during period (5,815)
--------------------
Balance at end of period $ (9,728)
====================
TREASURY STOCK:
Balance at beginning of period $ (323,625)
Cost of shares repurchased (79,425)
--------------------
Balance at end of period $ (403,050)
====================
STOCK HELD BY EMPLOYEE BENEFITS TRUSTS:
Balance at beginning of period $ (64,567)
Cost of shares reissued under stock plans --
--------------------
Balance at end of period $ (64,567)
====================
</TABLE>
The notes on pages 8 through 11 are an integral part of this consolidated
statement.
-6-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(In thousands) 1997 1996
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,420 $ 123,779
Exclude: Income from discontinued operations (14,336) (18,244)
Costs associated with effecting the spinoff 12,887 --
---------- -------------
Income from continuing operations 146,971 105,535
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities of continuing operations:
Depreciation and amortization 56,208 50,046
Gain from sale of business (42,798) --
Asset impairment write-off -- 10,313
Gain from sale of long-term investments -- (8,232)
Changes in assets and liabilities:
Accounts receivable, net (38,648) (5,631)
Current liabilities, excluding debt 7,426 46,732
Other current assets (7,850) 5,174
Deferred income taxes 14,526 (24,077)
Other long-term liabilities, excluding debt 4,002 50,817
Other assets (10,227) (7,644)
---------- -------------
Net cash provided by operating activities of continuing operations 129,610 223,033
---------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (25,387) (34,379)
Additions to other assets, net (28,571) (25,430)
Acquisitions, net of cash acquired (75,038) (50,963)
Proceeds from sale of business 80,998 --
Proceeds from sale of long-term investments -- 18,356
---------- -------------
Net cash used in investing activities of continuing operations (47,998) (92,416)
---------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 17,330 35,449
Net borrowings (payments) of long-term debt (89,452) 56,214
Dividends paid (38,933) (37,378)
Treasury stock purchases (79,425) (105,550)
Proceeds from exercise of stock options 15,583 21,421
Other 1,687 2,044
---------- -------------
Net cash used in financing activities of continuing operations (173,210) (27,800)
---------- -------------
Effect of foreign currency exchange rates on cash 1,361 258
Net cash provided by (used in) discontinued operations 100,148 (76,889)
---------- -------------
Net cash provided 9,911 26,186
Cash and cash equivalents, beginning of period 48,160 25,491
---------- -------------
Cash and cash equivalents, end of period $ 58,071 $ 51,677
========== =============
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
statements.
-7-
<PAGE>
EQUIFAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1997
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, 1997 and the results of operations for the three and
nine months ended September 30, 1997 and 1996, and the cash flows for the nine
months ended September 30, 1997 and 1996. 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, 1996.
2. NATURE OF OPERATIONS:
The Company principally provides information services to businesses that help
them grant credit and authorize and process credit card and check transactions.
The principal lines of business are credit services and payment services. The
principal markets for both credit and payment services include retailers, banks
and financial institutions, with credit services also serving the
telecommunication and utility industries. The Company's operations are
predominately located within the United States.
3. DISCONTINUED OPERATIONS:
On December 9, 1996, the Company announced its intention to split into two
independent, publicly traded companies by spinning off its Insurance Services
industry segment, contingent on receiving a favorable ruling from the IRS
regarding the tax-free status of the dividend for U.S. shareholders. In July
1997 the Company received the favorable IRS ruling and on August 7, 1997,
completed the spinoff of its Insurance Services industry segment. The spinoff
was accomplished by the Company's contribution of the business units that
comprised the Insurance Services segment into one wholly owned subsidiary,
ChoicePoint Inc. All of the common stock of ChoicePoint was then distributed to
Equifax shareholders as a dividend, with one share of ChoicePoint common stock
distributed for each ten shares of Equifax common stock held.
As a result of the spinoff, the Company's September 30, 1997 financial
statements have been prepared with the Insurance Services segment results of
operations and cash flows isolated and shown as "discontinued operations". All
historical financial statements presented have been restated to conform to this
presentation, with the historical assets and liabilities of that segment
isolated on the balance sheet as "Net assets of discontinued operations". During
the second quarter, 1997, the Company recorded an expense of $15,041,000 to
reflect the net costs associated with effecting the spinoff ($12,887,000 after
tax, or $.09 per share). These costs include duplicate software licenses,
severance, legal and investment banker fees, and other related costs, partially
offset by a $17.1 million curtailment gain related to the U.S. retirement plan
caused by the spinoff and a $4.5 million credit representing the estimated
pretax earnings of ChoicePoint for July.
8
<PAGE>
Summarized financial information for the discontinued operation is as follows:
<TABLE>
<CAPTION>
Three Months Ended Months Nine Months Ended
September 30, September 30,
------------------------- ---------------------------
(In thousands) 1997 1996 1997 1996
- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue $ - $151,593 $341,028 $432,306
Income before income taxes - 12,135 24,515 30,502
Net income - 7,263 14,336 18,244
</TABLE>
<TABLE>
<CAPTION>
December 31,
(In thousands) 1996
- -------------- ------------
<S> <C>
Current assets $ 91,931
Total assets 301,824
Current liabilities 44,965
Total liabilities 105,410
Net assets of discontinued operations 196,414
</TABLE>
The results of operation of ChoicePoint in the table above includes their
operations only through June 30, 1997. ChoicePoint's results after June 30, 1997
through the spinoff date (July 31, 1997 for accounting purposes) are included
with "Costs associated with effecting the spinoff" in the accompanying
consolidated statements of income. These July results totaled $4.5 million of
income before income taxes and $2.6 million of net income.
The net assets of discontinued operations include the Company's intercompany
receivable from ChoicePoint, which totaled $84.0 million at December 31, 1996.
The balance of this intercompany receivable was $85.6 million at July 31, 1997,
and was repaid to the Company by ChoicePoint in August 1997. Other significant
spinoff related transactions occurring near the date of the spinoff included
ChoicePoint's assumption of $29.0 million of the Company's long-term debt and a
$13.0 million capital contribution made by the Company to ChoicePoint. These
transactions have been included in the $100.1 million balance of "Net cash
provided by discontinued operations" in the accompanying consolidated statements
of cash flows.
4. 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 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.
5. SHAREHOLDERS' EQUITY:
Treasury Stock. During the first nine months of 1997, the Company repurchased
approximately 2,633,000 of its common shares through open market transactions at
an aggregate cost of $79,425,000. In April and October, 1997, the Company's
Board of Directors authorized an additional $100 million and $200 million,
respectively, for future share repurchases. Including the Board's October
authorization, as of September 30, 1997, approximately $272 million remained
available for future purchases.
9
<PAGE>
6. 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 the price determined by certain financial formulas; and
after July 31, 1998, at appraised value. The Company currently estimates the
option price determined by the financial formulas to be approximately $400
million. In its annual report for the fiscal year ended March 28, 1997, CSC
stated that the option price "approximated $538 million at March 28, 1997." The
Company periodically evaluates the estimated fair value of the CSC collection
and credit reporting businesses using estimates of their discounted cash flows.
Based on this analysis, at September 30, 1997, the fair value of these
businesses is not less than their potential purchase price.
7. ACQUISITIONS:
During the first nine months of 1997, the Company acquired two risk management
services businesses and the credit files of thirteen credit bureaus located in
the United States, and also acquired the remaining 50% interest in DICOM S.A. in
Chile. These business and credit file acquisitions were accounted for as
purchases and had an aggregate purchase price of $86,926,000, with $56.6 million
allocated to goodwill, $27.9 million allocated to purchased data files, and
$14.9 million allocated to other assets (primarily software). These allocations
included $25.2 million reallocated from other assets related to the Company's
first 50% equity investment in DICOM S.A. Their results of operations have been
included in the consolidated statement of income from their respective dates of
purchase and were not material to the results of operation of the Company.
8. ASSET IMPAIRMENT AND DIVESTITURES:
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," in June 1996 the Company recorded a pre-tax loss of $10,313,000
to write off certain intangible assets in the Healthcare Administrative Services
business unit in its General Information Services segment.
During the fourth quarter of 1996, the Company sold all of the healthcare
information business units from its General Information Services industry
segment. Cash proceeds, net of related divestiture costs, totaled $49,081,000
and resulted in an $11,564,000 gain recorded in other income ($1,631,000 after
tax, or $.01 per share).
During the second quarter of 1997, the Company sold its National Decision
Systems business unit from its Credit Services industry segment. Cash proceeds,
net of related divestiture expenses, totaled $80,998,000 and resulted in a gain
of $42,798,000 recorded in other income ($17,881,000 after tax, or $.12 per
share).
10
<PAGE>
9. RECENT ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per
Share." SFAS 128 requires companies that have publicly held common stock or
common stock equivalents to present both basic and diluted earnings per share
(EPS) on the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated to
reflect the potential dilution that would occur if stock options or other
contracts to issue common stock were exercised and resulted in additional common
stock that would share in the earnings of the Company. This statement is
effective for financial statements issued for interim and annual periods ending
after December 15, 1997. The Company does not believe the adoption of SFAS 128
will have a significant impact on the Company's reported EPS.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income" (SFAS 130), which establishes standards
for displaying comprehensive income and its components in a full set of general-
purpose financial statements. SFAS 130 is effective for fiscal years beginning
after December 15, 1997.
Also in June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 establishes standards for reporting information about
operating segments in annual financial statements and requires reporting
selected information about operating segments in interim financial reports
issued to shareholders. SFAS 131 is effective for fiscal years beginning after
December 15, 1997.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
Results of Operations - (third quarter and first nine months of 1997 compared to
the third quarter and first nine months of 1996)
On August 7, 1997, the Company completed the spinoff of its Insurance Services
industry segment, "ChoicePoint" (Note 3). Accordingly, the results of operations
information presented below reflect only the continuing operations of the
Company.
Revenue for the third quarter and first nine months increased 14% and 12%
respectively over the comparable periods of 1996. Excluding the effects of
divestitures (Note 8), revenue increased 23% in the third quarter with about 13
percentage points attributable to acquisitions and increased 20% in the first
nine months with about 12 percentage points due to acquisitions. Excluding a
$10.3 million asset impairment in the second quarter, 1996 (Note 8), operating
income grew 23% for both the quarter and year-to-date due primarily to revenue
growth in higher margin businesses, improvement in the International Operations
segment, and the fourth quarter, 1996 divestiture of healthcare information
businesses.
Third quarter income from continuing operations increased 23% from $38.5 million
to $47.2 million, and income from continuing operations per share increased 22%
from $0.27 to $0.33. For the first nine months, excluding the gain from the sale
of a business (Note 8), income from continuing operations and income from
continuing operations per share increased 22% and 24% respectively over the
prior year.
Operating revenue and operating income from continuing operations by industry
segment for the third quarter and first nine months of 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
Third Quarter Nine Months
------------------------------------- -------------------------------------
Operating Revenue: 1997 1996 1997 1996
- ------------------ ----- ---- ---- ----
<S> <C> <C> <C> <C>
Credit Services $153,394 $145,394 $456,135 $431,957
Payment Services 108,612 84,732 312,951 235,582
International Operations 79,671 58,992 222,802 171,434
General Information Services 2,409 13,594 7,226 51,688
-------- -------- -------- --------
$344,086 $302,712 $999,114 $890,661
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Operating Income (Loss):
- ------------------------
<S> <C> <C> <C> <C>
Credit Services $58,484 $52,145 $167,396 $150,972
Payment Services 18,223 16,051 52,782 42,280
International Operations 13,141 10,764 32,597 22,677
General Information Services 2,217 (2,472) 6,651 (10,089)
------- ------- -------- --------
Operating Contribution 92,065 76,488 259,426 205,840
General Corporate Expense (9,328) (9,188) (30,378) (29,708)
------- ------- -------- --------
$82,737 $67,300 $229,048 $176,132
======= ======= ======== ========
</TABLE>
The following discussion analyzes operating results by industry segment, general
corporate expense, and consolidated other income, interest expense and effective
income tax rates.
12
<PAGE>
Credit Services
- ---------------
Revenue in Credit Services, which includes Credit Reporting Services, Mortgage
Information Services, Risk Management Services and, through May 1997, National
Decision Systems (Note 8) increased 6% in both periods. After adjusting for the
effect of the sale of National Decision Systems, revenue was up 12% in the third
quarter and 8% year-to-date with approximately three percentage points of the
third quarter and two percentages points of the year-to-date increases
attributable to acquisitions. Credit Reporting Services revenue increased 9% in
the quarter and 8% year-to-date primarily due to increased prescreening business
for credit card issuers and volume growth in the banking and telecommunications
industries. Although pricing pressures are expected to continue within Credit
Reporting Services, average prices for the third quarter of 1997 were up
slightly over those for the comparable period in 1996 while year-to-date average
prices were virtually the same as the prior year. Revenue in Risk Management
Services, excluding acquisitions, increased 18% in the quarter and 12% year-to-
date due to new business from customers outsourcing the accounts receivable
management function of their business. Revenue in Mortgage Information Services
was up 16% in the quarter while year-to-date revenue was down 18% from the prior
year.
Operating income for this segment was up 12% in the quarter and 11% in the first
nine months due primarily to the revenue growth within Credit Reporting Services
and Risk Management Services.
Payment Services
- ----------------
Revenue in Payment Services, which includes Card Services, Check Services and
FBS Software increased 28% in the quarter and 33% in the first nine months with
19 percentage points of the quarterly increase and 21 percentage points of the
year-to-date increase due to the fourth quarter 1996 acquisition of CSG Card
Services. Exclusive of this acquisition, Card Services revenue was up 22% in the
quarter and 21% year-to-date, with growth driven by increases in processing of
both cardholder and merchant transactions. Check Services revenue was up 3% in
the quarter and 5% year-to-date while FBS Software revenues were down in both
periods due to lower license and consulting revenues.
Operating income increased 14% in the quarter and 25% in the first nine months
driven by the revenue growth within Card Services, partially offset by the
impact of lower FBS revenues. The CSG acquisition was immaterial to this
segment's operating income growth in both periods.
International Operations
- ------------------------
International Operations revenue increased 35% in the third quarter and 30% in
the first nine months, with 25 percentage points of the quarterly increase and
21 percentage points of the year-to-date increase attributable to the first
quarter, 1997 acquisition of the remaining 50% of DICOM S.A. in Chile and
several 1996 acquisitions in Canada. Revenue in Europe increased 15% in the
quarter and 14% year-to-date, while revenue in Canada increased in both periods
due primarily to the 1996 acquisitions.
The increase in this segment's operating income in both periods resulted from
improved performance within Europe due to the operating leverage obtained from
the integration of recent acquisitions and the acquisition of the remaining 50%
of DICOM.
13
<PAGE>
General Information Services
- ----------------------------
This segment includes HISI, the lottery services subsidiary, and the healthcare
information businesses which the Company divested in the fourth quarter 1996.
After adjusting for the effect of the healthcare divestitures, HISI's revenue
was up $2.4 million in the quarter, and $2.2 million year-to-date. The changes
in HISI's revenue resulted from the Company's recognition of $5.0 million in
revenue in the first quarter of 1996 in conjunction with its $58 million
subcontracting agreement with GTECH. The remaining $53 million was recorded as
deferred revenue on the balance sheet and beginning in December 1996 is being
recognized over a 66 month term, and resulted in $2.4 million in revenue in the
third quarter 1997 and $7.2 million year-to-date.
Excluding a $10.3 million second quarter 1996 expense related to asset
impairments (Note 8), operating income for this segment increased $4.7 million
in the third quarter and $6.4 million year-to-date. The improvement in both
periods was due to the divestiture of the healthcare information businesses and
the higher third quarter revenue in HISI.
General Corporate Expense
- -------------------------
General corporate expense increased $.1 million in the third quarter and $.7
million year-to-date. The year-to-date increase was due primarily to increased
performance share plan expense resulting from the Company's higher share price.
Other Income, Interest Expense and Effective Income Tax Rates
- -------------------------------------------------------------
The increase in other income in the first nine months was due to a $42.8 million
gain recorded in the second quarter of 1997 related to the sale of National
Decision Systems (Note 8). First nine months 1996 other income includes an $8.2
million gain related to the second quarter sale of the Company's investment in
Physician Computer Network, Inc.
The increase in interest expense in the third quarter and first nine months
reflects the higher levels of borrowings due to acquisitions and share
repurchases.
The increase in the effective income tax rate in the first nine months resulted
primarily from nondeductible goodwill related to the second quarter, 1997 sale
of National Decision Systems.
FINANCIAL CONDITION
The Company's financial condition remained strong during the first nine months
of 1997. Net cash provided by operations decreased from $223.0 million to $129.6
million primarily due to the first quarter 1996 receipt of $58 million related
to a lottery subcontract and the timing of payments between years for income
taxes and certain other accrued expenses. Normal capital expenditures and
dividend payments were met with these internally generated funds.
Other significant outlays in the first nine months included $79.4 million of
treasury stock purchases (Note 5) and $75.0 million for acquisitions (Note 7).
These items were principally financed by the $81.0 million in net proceeds from
the sale of a business unit (Note 8), a $17.3 million increase in short-term
debt, and excess cash from operations. Significant third quarter 1997
transactions with ChoicePoint related to the spinoff (Note 3) included:
. The Company transferred $29 million of its long-term debt to ChoicePoint.
. The Company made a $13 million capital contribution to ChoicePoint.
. ChoicePoint repaid its July 31, 1997 intercompany liability to the Company
totaling $85.6 million.
The $101.6 million of net cash generated from these transactions was used
primarily for $89.5 million in repayments of long-term debt. Also during 1997,
the Company converted approximately $55 million of short-term pound sterling
denominated notes into long-term debt.
14
<PAGE>
Capital expenditures for the remainder of 1997 are currently projected to be
approximately $34 million, exclusive of acquisitions. Additional expenditures
are possible as opportunities arise. In April, the Company's Board of Directors
authorized an additional $100 million for future share repurchases, and in
October 1997 authorized an additional $200 million. Including the October
authorization, at September 30, 1997, approximately $272 million remained
available for future purchases.
The remaining 1997 capital expenditures should be met with internally generated
funds. At September 30, 1997, the entire balance of the Company's $550 million
revolving credit facility was available to fund future capital requirements,
including the possible purchase of the CSC collections and credit reporting
businesses (Note 6). 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.
15
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 5. Other Information
- ------- -----------------
Reference is made to information reported in the Notes 1, 2, 3, 4, 5, 6, 7, 8
and 9 to Consolidated Financial Statements, included in Part I of this report.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(b) Reports on Form 8-K
Registrant filed three reports on Form 8-K during the quarter for
which this report is filed.
A report on Form 8-K, dated July 17, 1997, and filed July 18, 1997,
announced the Company's plan to spin off its insurance related business.
A report on Form 8-K, dated July 31, 1997, and filed August 1, 1997,
announcing the spin-off of the Company's Insurance Services Group on August 7,
1997, through a special dividend of all shares of common stock of Choice Point,
Inc., a wholly-owned subsidiary, to Company shareholders of record on July 24,
1997. Financial Statements filed with this report include Company pro forma
consolidated financial data and restated historical consolidated statements of
income, including (i) unaudited pro forma consolidated statements of income for
the quarter ended March 31, 1997 and the year ended December 31, 1996, (ii)
unaudited pro forma consolidated balance sheet as of March 31, 1997, (iii) Notes
to unaudited pro forma consolidated financial data, and (iv) unaudited restated
historical consolidated statements of income for years ended December 31, 1996,
1995, 1994, 1993 and 1992, and for the three month periods ended March 31, 1997,
March 31, 1996, June 30, 1996, September 30, 1996, and December 31, 1996.
A report on Form 8-K, dated August 7, 1997, and filed August 13, 1997,
announced the successful completion of the spin off of Choice Point, Inc. to
Company shareholders on August 7, 1997. This report contained the financial
statements listed above which were incorporated by reference.
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 14, 1997 /s/Thomas F. Chapman
----------------------------
Thomas F. Chapman
President and
Chief Operating Officer
Date: November 14, 1997 /s/P. J. Mazzilli
----------------------------
P. J. Mazzilli
Corporate Vice President,
Treasurer and Controller
17
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EQUIFAX INC.
FINANCIAL STATEMENTS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> DEC-31-1997
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