<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, 2000
--------------------------------
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.)
1550 Peachtree Street, N.W. Atlanta, Georgia 30309
--------------------------------------------------------------------------------
(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, 2000
----- -------------------------------------
Common Stock, $1.25 Par Value 141,626,120
<PAGE>
INDEX
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 2000 and December 31, 1999 2-3
Consolidated Statements of Income --
Three Months Ended September 30, 2000 and 1999 4
Consolidated Statements of Income --
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statement of Shareholders' Equity --
Nine Months Ended September 30, 2000 6
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 2000 and 1999 7
Notes to Consolidated Financial Statements 8-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
1
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
(In thousands) 2000 1999
--------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 123,811 $ 136,596
Trade accounts receivable, net 329,944 302,809
Other receivables 78,677 87,873
Deferred income tax assets 25,681 28,015
Other current assets 67,581 54,140
---------- ----------
Total current assets 625,694 609,433
---------- ----------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements 36,830 39,140
Data processing equipment and furniture 272,916 258,314
---------- ----------
309,746 297,454
Less accumulated depreciation 201,967 181,964
---------- ----------
107,779 115,490
---------- ----------
GOODWILL 761,261 612,551
---------- ----------
PURCHASED DATA FILES 197,694 157,701
---------- ----------
OTHER ASSETS 371,088 344,606
---------- ----------
$2,063,516 $1,839,781
========== ==========
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) 2000 1999
-------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term debt $ 73,425 $ 79,866
Accounts payable 121,532 177,427
Accrued salaries and bonuses 35,623 38,203
Income taxes payable 20,779 12,005
Other current liabilities 172,649 197,294
---------- ----------
Total current liabilities 424,008 504,795
---------- ----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 1,145,025 933,708
---------- ----------
LONG-TERM DEFERRED REVENUE 14,498 22,547
---------- ----------
DEFERRED INCOME TAX LIABILITIES 79,806 73,132
---------- ----------
OTHER LONG-TERM LIABILITIES 93,444 89,974
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par value; shares authorized -
300,000; issued - 175,053 in 2000 and 174,259 in 1999;
outstanding - 134,530 in 2000 and 134,001 in 1999 218,816 217,824
Preferred stock, $0.01 par value; shares authorized -
10,000; issued and outstanding - none in 2000 or 1999 -- --
Paid-in capital 314,632 304,532
Retained earnings 847,249 726,827
Accumulated other comprehensive loss (Note 4) (196,687) (161,982)
Treasury stock, at cost, 33,418 shares in 2000
and 34,640 shares in 1999 (786,974) (816,213)
Stock held by employee benefits trusts, at cost,
7,104 shares in 2000 and 5,619 shares in 1999 (90,301) (55,363)
---------- ----------
Total shareholders' equity 306,735 215,625
---------- ----------
$2,063,516 $1,839,781
========== ==========
</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) 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $517,906 $444,365
-------- --------
Costs of services 281,611 252,126
Selling, general and administrative expenses 110,362 80,070
-------- --------
Total operating expenses 391,973 332,196
-------- --------
Operating income 125,933 112,169
Other income, net 2,167 1,109
Interest expense (21,244) (15,140)
-------- --------
Income before income taxes 106,856 98,138
Provision for income taxes 42,539 40,040
-------- --------
Net income $ 64,317 $ 58,098
======== ========
Per common share (basic):
Net income $ 0.48 $ 0.42
======== ========
Shares used in computing basic earnings per share 134,355 137,268
======== ========
Per common share (diluted):
Net income $ 0.47 $ 0.42
======== ========
Shares used in computing diluted earnings per share 135,796 139,303
======== ========
Dividends per common share $ 0.0925 $ 0.0900
======== ========
</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) 2000 1999
------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $1,467,200 $1,308,455
---------- ----------
Costs of services 828,700 757,614
Selling, general and administrative expenses 315,997 252,982
---------- ----------
Total operating expenses 1,144,697 1,010,596
---------- ----------
Operating income 322,503 297,859
Other income, net 4,741 10,131
Interest expense (57,474) (45,566)
---------- ----------
Income before income taxes 269,770 262,424
Provision for income taxes 110,148 108,319
---------- ----------
Net income $ 159,622 $ 154,105
========== ==========
Per common share (basic):
Net income $ 1.19 $ 1.12
========== ==========
Shares used in computing basic earnings per share 134,121 138,167
========== ==========
Per common share (diluted):
Net income $ 1.18 $ 1.10
========== ==========
Shares used in computing diluted earnings per share 135,540 140,468
========== ==========
Dividends per common share $ 0.2775 $ 0.2700
========== ==========
</TABLE>
The notes on pages 8 through 11 are an integral part of these consolidated
statements.
5
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED
(In thousands) SEPTEMBER 30, 2000
----------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of period $ 217,824
Shares issued under stock plans 992
---------
Balance at end of period $ 218,816
=========
PAID-IN CAPITAL:
Balance at beginning of period $ 304,532
Shares issued under stock plans 8,054
Company dividends received by employee benefits trusts 2,046
---------
Balance at end of period $ 314,632
=========
RETAINED EARNINGS:
Balance at beginning of period $ 726,827
Net income 159,622
Cash dividends paid (39,200)
---------
Balance at end of period $ 847,249
=========
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 4):
Balance at beginning of period $(161,982)
Adjustment during period (34,705)
---------
Balance at end of period $(196,687)
=========
TREASURY STOCK:
Balance at beginning of period $(816,213)
Cost of shares repurchased (6,517)
Shares issued under stock plans 432
Cost of shares transferred to employee benefits trust 35,324
---------
Balance at end of period $(786,974)
=========
STOCK HELD BY EMPLOYEE BENEFITS TRUSTS:
Balance at beginning of period $ (55,363)
Cost of shares transferred from treasury stock (35,324)
Shares issued under stock plans 386
---------
Balance at end of period $ (90,301)
=========
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) 2000 1999
-----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 159,622 $ 154,105
Adjustments to reconcile net income to net cash
cash provided by operating activities:
Depreciation and amortization 112,413 93,106
Gain from sale of businesses (556) (7,095)
Changes in assets and liabilities:
Trade and other receivables, net 9,399 17,619
Current liabilities, excluding debt (72,617) (9,698)
Other current assets (9,600) 3,535
Deferred income taxes 6,538 11,754
Other long-term liabilities, excluding debt (3,084) (165)
Other assets (14,163) (5,438)
--------- ---------
Net cash provided by operating activities 187,952 257,723
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (21,007) (22,859)
Additions to other assets, net (50,831) (63,305)
Acquisitions, net of cash acquired (311,844) (12,859)
Proceeds from sale of businesses 6,850 25,957
Investments in unconsolidated affiliates (4,748) --
--------- ---------
Net cash used in investing activities (381,580) (73,066)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings (1,777) (728)
Net additions to long-term debt 221,772 67,378
Dividends paid (39,200) (38,917)
Treasury stock purchases (6,517) (165,618)
Proceeds from exercise of stock options 9,030 6,396
Other 2,649 2,280
--------- ---------
Net cash (used in) provided by financing activities 185,957 (129,209)
--------- ---------
Effect of foreign currency exchange rates on cash (5,114) (8,956)
--------- ---------
Net cash (used) provided (12,785) 46,492
Cash and cash equivalents, beginning of period 136,596 90,617
--------- ---------
Cash and cash equivalents, end of period $ 123,811 $ 137,109
========= =========
</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, 2000
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 presentation of the statement of financial
position of the Company as of September 30, 2000, the results of operations for
the three and nine months ending September 30, 2000 and 1999, and the cash flows
for the nine months ended September 30, 2000 and 1999. 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 the 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,
1999.
2. NATURE OF OPERATIONS:
The Company principally provides information services to businesses to help them
grant credit, authorize and process credit card and check transactions, and
market to their customers. The principal lines of business are information
services, payment services, and direct marketing services (see Note 7 for
segment information). The principal markets for all lines of business are
retailers, banks, and other financial institutions, with information services
and direct marketing services also serving the transportation,
telecommunications and utility industries, and direct marketing services also
serving the manufacturing and media industries. The Company's operations are
predominately located within the United States, with foreign operations
principally located within Canada, the United Kingdom and Brazil. On October 2,
2000, the Company announced its intention to split into two independent publicly
traded companies by spinning off its Payment Services industry segment. The
spinoff would be effected through a tax-free dividend of stock in the new
company to existing Equifax shareholders, and is contingent on receiving a
favorable ruling from the IRS regarding the tax-free nature of the dividend,
among other things. The timing of the distribution has not yet been finalized,
but is expected to occur mid-year 2001.
3. USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
4. SHAREHOLDERS' EQUITY:
Treasury Stock. During the first three months of 2000, the Company repurchased
296,000 of its common shares through open market transactions at an aggregate
cost of $6,517,000. No shares were repurchased during the second or third
quarters. As of September 30, 2000, approximately $94 million remained
authorized for future share repurchases.
8
<PAGE>
Stock Held by Employee Benefits Trusts. During the first quarter of 2000, the
Company established its third employee benefits trust and transferred 1.5
million treasury shares into that trust. The shares were transferred at the
average cost of shares in treasury and totaled $35,324,000.
Comprehensive Income. For the nine-month periods ending September 30, 2000 and
1999, comprehensive income is as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30
(in thousands) 2000 1999
-------------- -------- ---------
<S> <C> <C>
Net income $159,622 $ 154,105
Change in cumulative foreign
currency translation adjustment (34,705) (137,449)
-------- ---------
Comprehensive income $124,917 $ 16,656
======== =========
</TABLE>
Accumulated other comprehensive loss at September 30, 2000 and December 31, 1999
consists of the following components:
<TABLE>
<CAPTION>
(in thousands) September 30, 2000 December 31, 1999
-------------- ------------------ -----------------
<S> <C> <C>
Cumulative foreign currency
translation adjustment $(191,985) $(157,280)
Adjustment for minimum liability
under supplemental retirement plan (4,702) (4,702)
--------- ---------
Accumulated other comprehensive loss $(196,687) $(161,982)
========= =========
</TABLE>
5. 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 initial term of the agreement
expired in July 1998, and was renewable at the option of CSC for successive ten-
year periods. CSC has renewed the agreement for the ten-year period beginning
August 1, 1998. The agreement provides CSC with an option to sell its credit
reporting businesses to the Company, and provides the Company with an option to
purchase CSC's credit reporting businesses if CSC does not elect to renew the
agreement or if there is a change in control of CSC while the agreement is in
effect. Both options expire in 2013. The option price is determined by
appraisal.
6. ACQUISITIONS AND DIVESTITURES:
During the first nine months of 2000, the Company acquired the credit files of
four affiliates located in the United States and twelve affiliates in Canada, as
well as a card processing business in Chile and the remaining 49% of a card
processing business in the U.K. On May 1, 2000, the Company also acquired the
Consumer Information Services group from R.L. Polk & Co. These acquisitions
were accounted for as purchases, had a total purchase price of $311.7 million,
and were acquired for cash. They resulted in $204.1 million of goodwill, $57.8
million of purchased data files, and $16.0 million of other assets (primarily
software). Their results of operations have been included in the consolidated
statements of income from their respective dates of acquisition and were not
material.
9
<PAGE>
In September 2000, the Company sold its 50% interest in a card processing
operation in India for a modest pre-tax gain, and in October 2000, the Company
sold its global risk management businesses located in the U.S., Canada, and the
U.K. for a small pre-tax loss. The resulting net pre-tax gain of these
September and October transactions totaled $.6 million and was included in the
consolidated statement of income as "other income, net" in September.
7. SEGMENT INFORMATION:
Operating revenue and operating income by segment for the third quarter and
first nine months of 2000 and 1999 are as follows (in thousands). The Consumer
Information Services group acquired on May 1, 2000 (Note 6) is included below as
a separate segment.
<TABLE>
<CAPTION>
Third Quarter Nine Months
-------------------------------- --------------------------------
Operating Revenue: 2000 1999 2000 1999
------------------ -------- -------- ---------- ----------
<S> <C> <C> <C> <C>
North American Information Services $204,801 $189,253 $ 606,508 $ 578,080
Payment Services 194,163 175,084 564,272 489,815
Consumer Information Services 42,918 -- 67,232 --
Equifax Europe 42,900 45,038 132,607 138,311
Equifax Latin America 30,715 32,581 89,354 95,022
Other 2,409 2,409 7,227 7,227
-------- -------- ---------- ----------
$517,906 $444,365 $1,467,200 $1,308,455
======== ======== ========== ==========
Operating Income (Loss):
------------------------
North American Information Services $ 77,857 $ 71,721 $ 219,367 $ 209,096
Payment Services 42,118 34,756 107,690 94,000
Consumer Information Services 3,298 -- 1,325 --
Equifax Europe 2,191 242 4,193 (2,735)
Equifax Latin America 7,842 7,447 18,050 16,681
Other 2,217 2,217 6,651 6,651
-------- -------- ---------- ----------
Operating Contribution 135,523 116,383 357,276 323,693
General Corporate Expense (9,590) (4,214) (34,773) (25,834)
-------- -------- ---------- ----------
$125,933 $112,169 $ 322,503 $ 297,859
======== ======== ========== ==========
</TABLE>
Total assets by segment at September 30, 2000 and December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 2000 1999
-------------- ------------ ------------
<S> <C> <C>
North American Information Services $ 636,828 $ 612,002
Payment Services 470,884 499,646
Consumer Information Services 275,405 --
Equifax Europe 253,648 297,048
Equifax Latin America 248,959 277,015
Other 4,177 3,951
Corporate 173,615 150,119
---------- ----------
$2,063,516 $1,839,781
========== ==========
</TABLE>
10
<PAGE>
The 14.6% decline in total assets within the Equifax Europe segment was due
primarily to declines in the U.K. and Spain currency exchange rates between
periods and a reduction in cash from the payment of an inter-company debt to
Equifax Inc. The 10.1% decline in total assets within the Equifax Latin America
segment was due primarily to currency exchange rate declines in Chile and Brazil
and dividend payments.
8. EARNINGS PER SHARE (EPS):
The income amount used in the numerator of the Company's EPS calculations is the
same for both basic and diluted EPS. A reconciliation of the average
outstanding shares used in the denominator of the calculations is as follows:
<TABLE>
<CAPTION>
Third Quarter Nine Months
--------------------------- ---------------------------
(in thousands) 2000 1999 2000 1999
-------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares
Outstanding (basic) 134,355 137,268 134,121 138,167
Effect of dilutive securities:
Stock options 1,264 1,769 1,242 2,035
Performance share plan 177 266 177 266
------- ------- ------- -------
Weighted average shares
outstanding (diluted) 135,796 139,303 135,540 140,468
======= ======= ======= =======
</TABLE>
9. RECENT ACCOUNTING PRONOUNCEMENT:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments and hedging activities, and is
effective (as amended by SFAS No. 137) on January 1, 2001 for the Company.
Based on its current level of derivative instruments and hedging activities, the
Company does not believe the adoption of SFAS 133 will have a significant impact
on its financial statements or reported earnings.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations - (third quarter and first nine months of 2000 compared to
the third quarter and first nine months of 1999)
Revenue for the third quarter and first nine months of 2000 increased 16.5% and
12.1% respectively over the prior year. These increases were driven by higher
revenue in U.S. Credit Marketing Services in the North American segment; higher
revenues in both U.S. and International Card Solutions in the Payment Services
segment; and the May 2000 acquisition of R.L. Polk & Co.'s Consumer Information
Services businesses (Note 6). Operating income of $125.9 million for the
quarter and $322.5 million for the first nine months increased 12.3% and 8.3%
respectively over the prior year periods. The operating income improvements
were driven by the revenue increases in the North American and Payment Services
segments, along with continued costs control efforts in Equifax Europe.
Net income increased $6.2 million in the third quarter and $5.5 million in the
first nine months, while diluted earning per share increased $0.05 in quarter
and $0.08 year-to-date. Dilution from the Consumer Information Services
acquisition totaled approximately $0.01 per share in the third quarter and $0.03
per share year-to-date. Average outstanding diluted shares declined 2.5% in the
quarter and 3.5% for the first nine months as the result of 1999 share
repurchases.
The following discussion analyzes operating results for the Company's reportable
segments, general corporate expense, and consolidated other income, interest
expense, and provision for income taxes.
North American Information Services
-----------------------------------
North American Information Services includes U.S. Credit Information and
Marketing Services, U.S. Risk Management Services, Mortgage Information
Services, Canadian Operations, and emerging businesses. Revenue in this segment
increased 8.2% in the third quarter compared to a 3.3% increase in the first
half of 2000. For the first nine months, this segment's revenue increased 4.9%.
U.S. Credit Information and Marketing Services revenue was up 9.1% in the third
quarter and 7.8% in the first nine months. Revenue growth in both periods
benefited from a strong performance in U.S. Credit Marketing Services, where
revenue increased 35.3% in the quarter and 30.6% year-to-date. These increases
were due to growth in market share through further penetration and expansion of
our relationships with our largest customers. Within U.S. Credit Information
Services, unit volumes increased 13.6% in the quarter and 11.7% year-to-date,
while average prices declined approximately 11% in the quarter and 9% year-to-
date. The decline in average prices in both periods resulted from a change in
the mix of customer business, as the majority of unit growth was generated by
large volume customers at lower than average unit prices.
Revenue in U.S. Risk Management Services increased 13.1% in the quarter and
declined 2.4% year to date. After adjusting for the June 1999 sale of three
offices, year-to-date revenue increased 1.2% over the comparable prior year
period. Mortgage Information Services revenue declined 21.9% in the quarter and
24.2% year-to-date largely due to higher interest rates, which adversely
impacted refinancing activity. Canadian revenues were up 1.9% (1.6% in local
currency) in the quarter and 2.7% (1.4% in local currency) in the first nine
months, with gains in the core information business partially offset by lower
revenue from the risk management business.
Emerging business revenue increased $1.7 million in the quarter and $4.6 million
year-to-date, with the majority of the growth in both periods coming from the
Internet related activities of Consumer Direct.
Operating income for North American Information Services increased 8.6% in the
quarter and 4.9% in the first nine months. Absent developmental cost within the
emerging businesses, this segment's operating income increased 8.9% in the
quarter and 8.3% in the first nine months, driven by the revenue growth in U.S.
Credit Information and Marketing Services as well as improved performance within
the Canadian information business.
12
<PAGE>
Payment Services
----------------
Revenue in Payment Services, comprising the operations of Card Solutions and
Check Solutions worldwide, increased 10.9% in the third quarter and 15.2% in the
first nine months. The increases in both periods were driven by growth in U.S.
and International Card Solutions.
Revenue in U.S. Card Solutions increased 9.4% in the quarter and 14.8% in the
first nine months due to continued growth in both cardholder and merchant
activity. The revenue growth rate was tempered by the annualization of additions
to this segment's merchant processing customer base which occurred in the last
half of 1999.
Revenue in International Card Solutions was up 30.6% in the quarter and 28.3%
year-to-date, with the January 2000 acquisition of the a card processing
operation in Chile accounting for 5.6 percentage points and 5.9 percentage
points of the respective increases. The remainder of these increases was driven
by growth in the cardholder account base in the U.K. and Brazil as well as a
price increase in the U.K.
Revenue in U.S. Check Solutions was up 7.6% in the quarter and 12.7% in the
first nine months due primarily to volume increases in both periods.
Approximately 5.4 percentage points of the year-to-date increase was due to new
on-going business from Sears, Roebuck and Co. resulting from a 1999 agreement to
provide check authorization services at the retailer's U.S. locations. This
contract became comparable on a year-to-year basis during the third quarter of
2000.
Revenue in International Check Solutions was up 4.6% in the quarter and 7.0%
year-to-date on a local currency basis, 4.4% and 6.8%, respectively, in the U.K.
and 6.7% and 9.5%, respectively, in Canada. On a U.S. dollar basis, revenue
from the U.K. operations declined 3.7% in the quarter and increased 1.8% year-
to-date, being adversely impacted by unfavorable exchange rates. The fuel
crisis in the U.K. also tempered this operation's revenue growth in the third
quarter.
Payment Services operating income increased 21.2% in the quarter due primarily
to the revenue growth in U.S. and International Card Solutions. Operating income
in U.S. Card Solutions increased 30.8% in the quarter and the U.K. card
business, which began operations in June 1999, turned profitable in the third
quarter. Revenue growth in U.S. Card Solutions drove the year-to-date increase
in this segment's operating income.
Consumer Information Services
-----------------------------
This segment consists of the businesses acquired from R.L. Polk & Co. on May 1,
2000, and includes direct marketing, data information, and city directory
services. During the third quarter and five months of Equifax ownership year-
to-date, revenues totaled $42.9 million and $67.2 million respectively, with
operating income of $3.3 million in the quarter and $1.3 million year-to-date.
Operating income is expected to improve in the fourth quarter of 2000 and the
first quarter of 2001 due primarily to seasonality in the City Directory
business.
Equifax Europe
--------------
Equifax Europe consists of operations primarily in the United Kingdom and Spain.
Third quarter and first nine months revenue increased 4.7% and 2.3% respectively
in local currency over the prior year periods, 3.6% and 0.3%, respectively, in
the U.K. and 10.1% and 11.1%, respectively, in Spain. Including the impact of
unfavorable exchange rates, Europe's revenue declined 4.7% in the quarter and
4.1% for the first nine months. In local currency, revenue for our strategic
U.K. consumer, commercial, and marketing information services increased 6.8% in
the quarter and 5.6% year-to-date. This growth was tempered by lower U.K. auto
lien and risk management revenue. The decline in auto lien services resulted
from both increased competition within that market and a slowdown in used car
financing.
This segment reported operating income of $2.2 million in the third quarter and
$4.2 million for the first nine months. These results are improvements of $1.9
million and $6.9 million from the respective prior year periods, and reflect a
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stabilization of this segment's revenue in conjunction with continuing cost
management. The third quarter operating income marks the fifth consecutive
quarter of profitable results in this segment, and profit dollars and profit
margins are expected to continue to improve in the fourth quarter and into 2001.
Equifax Latin America
---------------------
Equifax Latin America consists of information companies in Brazil, Chile and
Argentina, and majority interests in information companies in Peru and El
Salvador. This segment's third quarter and first nine months revenue declined
$1.9 million and $5.7 million respectively from the prior year, due primarily to
results in Chile and Argentina. About $2.0 million of the year-to-date decline
is attributable to average exchange rate declines in Brazil and Chile. The
effect of exchange rate changes on total segment revenue in the third quarter
was not significant. Revenue in Chile declined $2.1 million in the quarter and
$5.4 million year-to-date, driven by the slow recovery of the economy and an
approximate 6% decline in the currency exchange rate between periods. In local
currency, Brazil revenue declined 3.3% in the quarter and increased 1.5% year-
to-date, and revenue in Argentina continued to be negatively impacted by
weakness in the economy. Operations in Mexico were shut down during the first
quarter due to the poor outlook for future returns.
This segment's operating income increased 5.3% in the third quarter and 8.2%
year-to-date, as higher income from Brazil (due to year-to-date revenue gains
and cost controls in both periods) and lower losses from Mexico (resulting from
its first quarter 2000 shutdown) was partially offset by lower income in Chile
due to the declines in revenue in both periods.
Other
-----
This segment's revenue and operating income remained comparable between periods.
Its operations consist solely of a subcontract expiring in 2002 related to HISI,
the Company's lottery subsidiary.
General Corporate Expense
-------------------------
General corporate expense increased $5.4 million in the third quarter and $8.9
million in the first nine months versus the prior year. The third quarter
increase was due primarily to higher performance share expense, as the third
quarter 1999 included an adjustment to lower accrued performance share expense
due to the impact the Company's stock price had on the plan's measurement
criteria. The year-to-date increase resulted primarily from the increased third
quarter performance share plan expense along with higher administrative,
marketing and technology expenses.
Other Income, Interest Expense, and Provision for Income Taxes
--------------------------------------------------------------
Other income increased $1.1 million in the third quarter and declined $5.4
million in the first nine months versus the prior year. The third quarter
increase resulted primarily from a $.6 million gain on divestitures (Note 6) and
higher levels of interest income on invested funds. The year-to-date decline
resulted from a $7.1 million gain recorded in other income in the second quarter
of 1999 related to the sales of Proceda in Brazil and three Risk Management
offices in the U.S. The impact of the 1999 gain was partially offset by the $.6
million gain on divestitures mentioned above and higher levels of interest
income on invested funds (primarily in foreign countries). Interest expense
increased $6.1 million in the quarter and $11.9 million year-to-date due to the
higher level of borrowing associated with 1999 share repurchases and 2000
acquisitions. During the third quarter of 2000, the Company initiated tax-
planning strategies that lowered its effective income tax rate for 2000 from
41.5% to 40.8%. Accordingly, the Company reduced its effective income tax rate
in the third quarter of 2000 to 39.8% to true up its rate for the first nine
months to the expected 40.8% rate. The Company expects this new effective rate
of 40.8% to continue through 2001.
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FINANCIAL CONDITION
Net cash provided by operations for the first nine months of 2000 totaled $188.0
million. Dividend payments and capital expenditures, exclusive of acquisitions,
were met with these internally generated funds. Other significant outlays in
the first nine months of 2000 included $6.5 million of treasury stock purchases
(Note 4) and $316.6 million for acquisitions (Note 6) and investments in
unconsolidated affiliates. These items were principally financed by $221.8
million in net borrowings of long-term debt, excess cash from operations, and
the use of existing cash reserves.
Capital expenditures for 2000 are currently estimated to be approximately $105
million, with $71.8 million spent in the first nine months. Additional
expenditures may occur as opportunities arise. The remaining 2000 capital
expenditures, exclusive of acquisitions, are expected to be met with internally
generated funds. At September 30, 2000, approximately $94 million remained
authorized under the Company's share repurchase program.
At September 30, 2000, $211 million remained available under the Company's $750
million revolving credit facility to fund future capital requirements. Should
CSC exercise its option to sell its credit reporting business to the Company
(Note 5), additional sources of financing would be required. However, the CSC
agreement calls for a six-month notice period, and management believes the
Company would have alternative sources of liquidity available to fund this
potential purchase through the public debt markets and bank lines of credit.
Management believes that the Company's liquidity will remain strong in both the
short and long term, and that the Company has sufficient sources of external
funding to finance all of its capital needs, if necessary.
In October 2000, the Company sold its global risk management businesses (Note 6)
in the U.S., Canada, and the U.K. for approximately $150 million. The Company
provided $40 million of acquisition financing to the U.S. buyer, and also
guaranteed approximately $60 million of financing for that buyer. As part of
the transactions, the Company entered into agreements to provide future credit
information services to the buyers, and deferred approximately $25 million of
the sales price for these future services. The Company intends to use the net
cash proceeds of about $100 million from the divestitures of these businesses to
pay down debt. Revenues for the twelve months ended September 30, 2000 for
these businesses were approximately $143 million, with $133 million in the North
American Information Services segment and $10 million in the Equifax Europe
segment. The sale of these businesses is expected to have a minimal impact on
earnings per share in the fourth quarter and thereafter.
FORWARD-LOOKING STATEMENTS
Statements in this report that relate to Equifax's future plans, objectives,
expectations, performance, events and the like are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
the Securities Exchange Act of 1934. Future events, risks and uncertainties,
individually or in the aggregate, could cause actual results to differ
materially from those expressed or implied in these statements. Those factors
could include changes in worldwide and U.S. economic conditions that materially
impact consumer spending and consumer debt, changes in demand for the Company's
products and services, risks associated with the integration of acquisitions and
other investments, and other factors discussed in the "Forward-looking
Information" and "Year 2000 Information" sections in the management's discussion
and analysis included in Part II, Item 7 in the Company's annual report on Form
10-K for the year ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk, primarily from changes in foreign
currency exchange rates and interest rates.
In the normal course of business, the balance sheets and results of operations
of foreign subsidiaries can be impacted by changes in exchange rates. The
Company's position is to not hedge against this risk due to the significant cost
involved. At September 30, 2000, the Company had no material intercompany
balances with foreign affiliates that were short-term in nature or material
obligations in a foreign currency, other than intercompany advances to its U.K.
operations. From time to time, as such balances or obligations arise, the
Company may consider hedging to minimize its exposure for these transactions.
At September 30, 2000, the exchange risk associated with the Company's
intercompany advances to its U.K. operations was partially hedged by having a
balance of pound sterling borrowed under its revolving credit facility.
The Company chooses to have a mix of fixed-rate and variable-rate debt in its
portfolio of debt obligations. Accordingly, the Company's earnings can be
affected by the impact that changes in interest rates have on its variable-rate
obligations. At September 30, 2000, approximately $421 million (35%) of the
Company's short-term and long-term debt was in variable-rate facilities. At
this level, if market interest rates increased 1%, interest expense would
increase approximately $4.2 million per year (pre-tax). In July 2000, the
Company entered into a six-month interest rate swap arrangement to fix the
interest rate for $200 million of its variable rate revolver debt. That portion
of the Company's revolver debt has been excluded from the $421 million amount
mentioned above.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
A list of exhibits included as part of this report is set forth in
the Exhibit Index appearing elsewhere in this report, and is
incorporated by reference.
(b) Reports on Form 8-K
On October 5, 2000, Registrant filed a report on Form 8-K
announcing that its Board of Directors had approved a plan to
separate the Company into two independent companies.
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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 duly authorized officers.
EQUIFAX INC.
------------
(Registrant)
Date: November 14, 2000 /s/Thomas F. Chapman
--------------------
Thomas F. Chapman, Chairman
and Chief Executive Officer
Date: November 14, 2000 /s/ Philip J. Mazzilli
----------------------
Philip J. Mazzilli
Executive Vice President and
Chief Financial Officer
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EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
-------------- ----------------------
27 Financial Data Schedule, submitted to the Securities
and Exchange Commission in electronic format
