<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 June 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 June 30, 1997
----- ----------------------------
Common Stock, $1.25 Par Value 150,887,403
-----------------------------
<PAGE>
INDEX
Page No.
--------
Part I. Financial Information
Consolidated Balance Sheets --
June 30, 1997 and December 31, 1996 2 - 3
Consolidated Statements of Income --
Three Months Ended June 30, 1997 and 1996 4
Consolidated Statements of Income --
Six Months Ended June 30, 1997 and 1996 5
Consolidated Statement of Shareholders'
Equity -- Six Months Ended June 30, 1996 6
Consolidated Statements of Cash Flows --
Six Months Ended June 30, 1997 and 1996 7
Notes to Consolidated Financial Statement 8 - 11
Management's Discussion and Analysis of Results of
Operations and Financial Condition 12 - 14
Part II. Other Information 15 - 16
1
<PAGE>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 61,915 $ 48,160
Accounts receivable 238,373 227,540
Deferred income tax assets 28,019 33,016
Other current assets 47,483 36,392
----------- -----------
Total current assets 375,790 345,108
----------- -----------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements 23,792 18,739
Data processing equipment and furniture 188,696 191,302
----------- -----------
212,488 210,041
Less accumulated depreciation 118,507 123,177
----------- -----------
93,981 86,864
----------- -----------
GOODWILL 336,586 313,760
----------- -----------
PURCHASED DATA FILES 98,858 84,025
----------- -----------
OTHER ASSETS 195,585 181,347
----------- -----------
NET ASSETS OF DISCONTINUED OPERATIONS 215,067 196,414
----------- -----------
$ 1,315,867 $ 1,207,518
=========== ===========
The notes on pages 8 through 11 are an integral part of these consolidated
balance sheets.
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
JUNE 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 $ 6,647 $ 59,563
Accounts payable 76,981 71,801
Accrued salaries and bonuses 14,071 27,682
Income taxes payable 24,976 18,321
Other current liabilities 189,926 152,348
---------- -----------
Total current liabilities 312,601 329,715
---------- -----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 382,786 304,942
---------- -----------
POSTRETIREMENT BENEFIT OBLIGATIONS 24,153 23,778
---------- -----------
LONG-TERM DEFERRED REVENUE 48,146 42,964
---------- -----------
OTHER LONG-TERM LIABILITIES 83,359 81,169
---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par value; shares authorized -
300,000; issued - 172,046 in 1997 and 170,859 in 1996;
outstanding - 144,334 in 1997 and 144,876 in 1996 215,058 213,573
Preferred stock, $0.01 par value; shares authorized -
10,000; issued and outstanding - none in 1997 or 1996 -- --
Paid-in capital 224,639 207,142
Retained earnings 471,790 396,340
Cumulative foreign currency translation adjustment (7,039) (3,913)
Treasury stock, at cost, 21,159 shares in 1997
and 19,430 shares in 1996 (375,059) (323,625)
Stock held by employee benefits trusts, at cost,
6,553 shares in 1997 and 1996 (64,567) (64,567)
---------- -----------
Total shareholders' equity 464,822 424,950
---------- -----------
$ 1,315,867 $ 1,207,518
=========== ===========
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
balance sheets.
3
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
(In thousands, except per share amounts) 1997 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $ 342,966 $ 300,812
---------- -----------
Costs of services 196,028 172,028
Selling, general and administrative expenses 69,174 66,629
Asset impairment (Note 8) -- 10,313
---------- -----------
Total operating expenses 265,202 248,970
---------- -----------
Operating income 77,764 51,842
Other income, net 42,791 9,036
Interest expense (5,335) (3,571)
---------- -----------
Income from continuing operations before income taxes 115,220 57,307
Provision for income taxes 54,030 22,722
---------- -----------
Income from continuing operations 61,190 34,585
---------- -----------
Discontinued operations:
Income from discontinued operations, net of income
taxes of $5,776 in 1997 and $4,391 in 1996 8,160 6,545
Costs associated with effecting the spinoff, net of
income tax benefit of $2,154 (12,887) --
---------- -----------
Total discontinued operations (4,727) 6,545
---------- -----------
Net income $ 56,463 $ 41,130
========== ===========
Weighted average common shares outstanding 144,575 145,923
Per common share:
Income from continuing operations $ 0.42 $ 0.24
Income from discontinued operations 0.06 0.04
Costs associated with effecting the spinoff (0.09) --
---------- -----------
Net income $ 0.39 $ 0.28
========== ===========
Dividends $ 0.088 $ 0.083
========== ===========
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
statements.
4
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
(In thousands, except per share amounts) 1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $ 655,028 $ 587,949
-------- --------
Costs of services 378,731 340,314
Selling, general and administrative expenses 129,986 128,490
Asset impairment (Note 8) -- 10,313
-------- --------
Total operating expenses 508,717 479,117
-------- --------
Operating income 146,311 108,832
Other income, net 43,163 9,412
Interest expense (9,804) (7,235)
-------- --------
Income from continuing operations before income taxes 179,670 111,009
Provision for income taxes 79,939 44,015
-------- --------
Income from continuing operations 99,731 66,994
-------- --------
Discontinued operations:
Income from discontinued operations, net of income
taxes of $10,179 in 1997 and $7,386 in 1996 14,336 10,981
Costs associated with effecting the spinoff, net of
income tax benefit of $2,154 (12,887) --
-------- --------
Total discontinued operations 1,449 10,981
-------- --------
Net income $ 101,180 $ 77,975
======= =======
Weighted average common shares outstanding 144,875 146,296
======= =======
Per common share:
Income from continuing operations $ 0.69 $ 0.46
Income from discontinued operations 0.10 0.08
Costs associated with effecting the spinoff (0.09) --
-------- --------
Net income $ 0.70 $ 0.53
======== =======
Dividends $ 0.170 $ 0.165
======= =======
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
statements.
5
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED
(In thousands) June 30, 1997
- ------------------------------------------------------------
<S> <C>
COMMON STOCK:
Balance at beginning of period $ 213,573
Shares issued under stock plans 1,485
---------
Balance at end of period $ 215,058
========
PAID-IN CAPITAL:
Balance at beginning of period $ 207,142
Shares issued under stock plans 16,383
Other 1,114
---------
Balance at end of period $ 224,639
========
RETAINED EARNINGS:
Balance at beginning of period $ 396,340
Net income 101,180
Cash dividends paid (25,730)
---------
Balance at end of period $ 471,790
========
CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT:
Balance at beginning of period $ (3,913)
Adjustment during period (3,126)
---------
Balance at end of period $ (7,039)
========
TREASURY STOCK:
Balance at beginning of period $ (323,625)
Cost of shares repurchased (51,434)
---------
Balance at end of period $ (375,059)
========
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>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED
JUNE 30,
(In thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 101,180 $ 77,975
Exclude: Income from discontinued operations (14,336) (10,981)
Costs associated with effecting the spinoff 12,887 --
--------- --------
Income from continuing operations 99,731 66,994
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities of continuing operations:
Depreciation and amortization 36,669 33,134
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 (12,599) (2,880)
Current liabilities, excluding debt 9,391 12,489
Other current assets (9,764) 12,018
Deferred income taxes 5,711 (2,545)
Other long-term liabilities, excluding debt 5,112 51,534
Other assets 2,222 (4,820)
--------- --------
Net cash provided by operating activities of continuing operations 93,675 168,005
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (18,647) (19,964)
Additions to other assets, net (32,407) (12,805)
Acquisitions, net of cash acquired (63,684) (23,725)
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 (33,740) (38,138)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 2,400 24,075
Additions to long-term debt 18,641 244
Payments on long-term debt (991) (38,207)
Dividends paid (25,730) (25,381)
Treasury stock purchases (51,434) (77,259)
Proceeds from exercise of stock options 13,225 17,985
Other 1,114 1,081
--------- --------
Net cash used in financing activities of continuing operations (42,775) (97,462)
--------- --------
Effect of foreign currency exchange rates on cash 1,109 124
Net cash used in discontinued operations (4,514) (8,191)
--------- --------
Net cash provided 13,755 24,338
Cash and cash equivalents, beginning of period 48,160 25,491
--------- --------
Cash and cash equivalents, end of period $ 61,915 $ 49,829
========= ========
</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)
JUNE 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 June 30, 1997 and the results of operations for the three and six
months ended June 30, 1997 and 1996, and the cash flows for the six months ended
June 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
comprise 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 June 30, 1997 financial statements
have been prepared with the Insurance Services segment net assets, results of
operations, and cash flows isolated and shown as "discontinued operations", and
all historical financial statements presented have been restated to conform to
this presentation. 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.
8
<PAGE>
Summarized financial information for the discontinued operation is as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------- -------------------------------------
(In thousands) 1997 1996 1997 1996
- ----------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue $174,331 $144,958 $341,028 $280,713
Income before income taxes 13,936 10,936 24,515 18,367
Net income 8,160 6,545 14,336 10,981
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
(In thousands) 1997 1996
- --------------------------------------------------------------- ------------------- -------------------
<S> <C> <C>
Current assets $111,799 $ 91,931
Total assets 325,635 301,824
Current liabilities 50,666 44,965
Total liabilities 110,568 105,410
Net assets of discontinued operations 215,067 196,414
</TABLE>
The net assets of discontinued operations include the Company's intercompany
receivable from ChoicePoint, which totaled $89.8 million at June 30, 1997 and
$84.0 million at December 31, 1996. The balance of this intercompany receivable
at July 31, 1997 will be repaid to the Company by ChoicePoint in August 1997.
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:
COMMON AND PREFERRED STOCK. In May 1996, the Company's shareholders approved a
Board of Directors resolution which increased the authorized Common Stock of the
Company from 250 million to 300 million shares. The shareholders also approved
another Board of Directors resolution to authorize 10 million shares of "blank
check" preferred stock.
TREASURY STOCK. During the first six months of 1997, the Company repurchased
approximately 1,728,000 of its common shares through open market transactions at
an aggregate cost of $51,434,000. In April 1997, the Company's Board of
Directors authorized an additional $100 million for future share repurchases,
and as of June 30, 1997, approximately $100 million remained available for
future share repurchases.
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 June 30, 1997, the fair value of these businesses is
not less than their potential purchase price.
7. ACQUISITIONS:
During the first six months of 1997, the Company acquired two risk management
services businesses and the credit files of ten 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 $75,572,000, with $52.7 million
allocated to goodwill, $21.5 million allocated to purchased data files, and
$13.9 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
FINANCIAL CONDITION
Results of Operations - (second quarter and first six months of 1997 compared to
the second quarter and first six 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 second quarter and first six months increased 14% and 11%
respectively over the comparable periods of 1996. Excluding the effects of
divestitures (Note 8), revenue increased 22% in the second quarter with about 13
percentage points attributable to acquisitions and increased 19% in the first
six months with about 11 percentage points due to acquisitions. Operating income
grew 25% for the quarter and 23% year-to-date due to revenue growth in higher
margin businesses and improvement in the International Operations segment.
Second quarter income from continuing operations increased from $34.6 million to
$61.2 million, and income from continuing operations per share increased from
$0.24 to $0.42. Excluding a second quarter 1997 gain from the sale of a business
(Note 8), second quarter income from continuing operations and income from
continuing operations per share each increased 25% over the prior year. For the
first six months, excluding the gain from the sale of a business, 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 second quarter and first six months of 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
Second Quarter Six Months
------------------------------------- -------------------------------------
Operating Revenue: 1997 1996 1997 1996
- ------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Credit Services $155,532 $147,171 $302,741 $286,563
Payment Services 105,519 79,252 204,339 150,850
International Operations 79,511 57,796 143,131 112,442
General Information Services 2,404 16,593 4,817 38,094
-------- -------- -------- --------
$342,966 $300,812 $655,028 $587,949
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Operating Income (Loss):
- -------------------------------------
<S> <C> <C> <C> <C>
Credit Services $ 56,790 $ 51,288 $108,912 $ 98,827
Payment Services 18,476 14,414 34,559 26,229
International Operations 12,925 7,901 19,456 11,913
General Information Services 2,217 (10,700) 4,434 (7,617)
-------- -------- -------- --------
Operating Contribution 90,408 62,903 167,361 129,352
General Corporate Expense (12,644) (11,061) (21,050) (20,520)
-------- -------- -------- --------
$ 77,764 $ 51,842 $146,311 $108,832
======== ======== ======== ========
</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 May 1997 sale of National Decision Systems, revenue was up 8% in
the second quarter and 7% year-to-date with approximately three percentage
points of these increases attributable to acquisitions. Credit Reporting
Services revenue increased 7% in both periods primarily due to increased
prescreening business for credit card issuers and volume growth in the
telecommunications industry. Although pricing pressures continue within Credit
Reporting Services, average prices for the second quarter of 1997 were virtually
the same as those for the comparable period in 1996 while year-to-date average
prices were down slightly from the prior year. Revenue in Risk Management
Services, excluding acquisitions, increased 10% in both periods due to new
business from customers outsourcing the accounts receivable management function
of their business. Revenue in Mortgage Information Services was down 12% in the
quarter and 30% year-to-date.
Operating income for this segment was up 11% in the quarter and 10% in the first
six 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 33% in the quarter and 36% in the first six months with
21 percentage points of the quarterly increase and 23 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 20% in
both periods with growth driven by increases in processing of both cardholder
and merchant transactions. Check Services revenue was up 4% in the quarter and
6% year-to-date while FBS Software revenues were up slightly in both periods.
Operating income increased 28% in the quarter and 32% in the first six months
driven by the revenue growth within Card Services. The CSG acquisition was
immaterial to this segment's operating income growth in both periods.
International Operations
- ------------------------
International Operations revenue increased 38% in the second quarter and 27% in
the first six months, with 27 percentage points of the quarterly increase and 18
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 17% in the
quarter and 13% 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.
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, while year-to-date revenue was about even
with the prior year. 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 second quarter 1997 and $4.8 million
year-to-date.
13
<PAGE>
Excluding a $10.3 million second quarter 1996 expense related to asset
impairments (Note 8), operating income for this segment increased $2.6 million
in the second quarter and $1.7 million year-to-date. The improvement in both
periods was due to the divestiture of the healthcare information businesses.
General Corporate Expense
- -------------------------
The increase in general corporate expense in both periods 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 both periods 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). Second quarter 1996 other income includes an $8.2 million gain
related to the sale of the Company's investment in Physician Computer Network,
Inc.
The increase in interest expense in the second quarter and first six months
reflects the higher levels of borrowings due to acquisitions and share
repurchases.
The increase in the effective income tax rates in both periods resulted from
nondeductible goodwill related to the sale of National Decision Systems.
FINANCIAL CONDITION
The Company's financial condition remained strong during the first six months of
1997. Net cash provided by operations decreased from $168.0 million to $93.7
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 six months included $51.4 million of
treasury stock purchases (Note 5) and $63.7 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 combination short-term and long-term
debt increases totaling $20.1 million and excess cash from operations.
Capital expenditures for the remainder of 1997 are currently projected to be
approximately $48 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 at June
30, 1997, approximately $100 million remained available for future purchases.
Significant third quarter 1997 transactions with ChoicePoint related to the
spinoff (Note 3) that have occurred or will occur near the distribution date
include:
. The Company transferred $29 million of its long-term debt to ChoicePoint.
. The Company made a $13 million capital contribution to ChoicePoint.
. ChoicePoint will repay the July 31, 1997 balance of its intercompany
liability to the Company. The balance totaled $89.8 million at
June 30, 1997.
The cash generated from these transactions will be used by the Company to reduce
debt and/or increase short-term investments.
The remaining 1997 capital expenditures should be met with internally generated
funds. At June 30, 1997, $474.9 million was available under the Company's $550
million revolving credit facility 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.
14
<PAGE>
PART II. OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
(a) On April 30, 1997, the Company held its regular annual meeting of
Shareholders.
(b) Below is a brief description of each matter voted upon at the annual
meeting, each more fully described in that Definitive Proxy Statement,
dated March 26, 1997, as filed with the Commission on March 26, 1997, along
with the respective vote tabulations:
(i) Election of five Directors to serve terms of three years: Daniel W.
McGlaughlin (127,923,507 votes "for" and 797,575 votes withheld);
Larry L. Prince (127,995,013 votes "for" and 726,069 votes
withheld); C. B. Rogers, Jr. (128,018,097 votes "for" and 702,985
votes withheld); Derek V. Smith (127,877,853 votes "for" and 843,229
votes withheld) (resigned effective July 30, 1997, to join the Board
of Directors of ChoicePoint Inc., a newly formed company comprised
of the Company's former Insurance Services Group, which was spun off
to shareholders on August 7, 1997); and Louis W. Sullivan, M.D.
(127,984,170 votes "for" and 736,912 votes withheld). The names of
each other Director whose term of office as a Director continued
after this meeting are as follows: Lee A. Ault, III, Ron D. Barbaro
(resigned effective July 30, 1997, to join the Board of Directors of
ChoicePoint Inc.), Thomas F. Chapman, John L. Clendenin, A. W.
Dahlberg, Robert P. Forrestal, L. Phillip Humann, Tinsley H. Irvin
(resigned effective July 30, 1997, to join the Board of Directors of
ChoicePoint Inc.), D. Raymond Riddle, and Betty L. Siegel, Ph.D.
(ii) Approval of Appointment of Arthur Andersen LLP as independent public
accountants of the Company for the year 1997 (127,536,661 votes
"for"; 469,804 votes "against"; and 714,617 abstentions).
Item 5. Other Information
- ------- -----------------
Reference is made to information reported in Notes 1, 2, 3, 4, 5, 6, 7, and 8 of
the Notes to Consolidated Financial Statements, included in Part I of this
report.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter for
which this report is filed.
15
<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: August 14, 1997 /s/ D. W. McGlaughlin
----------------------------
D. W. McGlaughlin, Vice Chairman
and Chief Executive Officer
Date: August 14, 1997 /s/ P. J. Mazzilli
----------------------------
P. J. Mazzilli
Corporate Vice President,
Treasurer and Controller
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (Equifax
Inc. financial statements as of and for the six months ended June 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.$
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 61,915
<SECURITIES> 0
<RECEIVABLES> 244,023
<ALLOWANCES> 5,650
<INVENTORY> 0
<CURRENT-ASSETS> 375,790
<PP&E> 212,488
<DEPRECIATION> 118,507
<TOTAL-ASSETS> 1,315,867
<CURRENT-LIABILITIES> 312,601
<BONDS> 382,786
0
0
<COMMON> 215,058
<OTHER-SE> 696,429
<TOTAL-LIABILITY-AND-EQUITY> 1,315,867
<SALES> 655,028
<TOTAL-REVENUES> 655,028
<CGS> 378,731
<TOTAL-COSTS> 378,731
<OTHER-EXPENSES> 129,986
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,804
<INCOME-PRETAX> 179,670
<INCOME-TAX> 79,939
<INCOME-CONTINUING> 99,731
<DISCONTINUED> 1,449
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 101,180
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
