<PAGE>
-------------------------------------------------------------------------------
FORM 10-Q/A
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, 1998
---------------------------------------
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, 1998
----- ---------------------------------
Common Stock, $1.25 Par Value 147,446,368
<PAGE>
EXPLANATORY NOTE
----------------
This Form 10-Q/A Quarterly Report for the period ending September 30,
1998 is being filed to amend the original Form 10-Q Quarterly Report filed
November 16, 1998 to reflect the resolution of Confidential Treatment
Requests ("CTRs") filed by Equifax Inc. with the Securities and Exchange
Commission ("SEC") on November 16, 1998 and November 19, 1998. These CTRs
were filed in accordance with SEC rules, pursuant to which Equifax Inc.
requested confidential, non-public treatment for certain portions of the
agreements attached hereto as Exhibit 2.1 and Exhibit 10.1. Apart from
disclosing previously redacted terms of these agreements, there are no other
substantive changes to the Form 10-Q Quarterly Report as originally filed.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
September 30, 1998 and December 31, 1997 2 - 3
Consolidated Statements of Income --
Three Months Ended September 30, 1998 and 1997 4
Consolidated Statements of Income --
Nine Months Ended September 30, 1998 and 1997 5
Consolidated Statement of Shareholders'
Equity -- Nine Months Ended September 30, 1998 6
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8 - 12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13 - 19
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 20
(Exhibit 10.1 contains information redacted
pursuant to a Request for Confidential
Treatment filed with the Securities and
Exchange Commission pursuant to Rule 406
under the Securities Act of 1933).
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
(IN THOUSANDS) 1998 1997
-----------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 85,935 $ 52,251
Accounts receivable 330,541 270,665
Deferred income tax assets 34,670 39,221
Other current assets 67,061 38,795
---------- ----------
Total current assets 518,207 400,932
---------- ----------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements 30,267 24,870
Data processing equipment and furniture 237,329 194,553
---------- ----------
267,596 219,423
Less accumulated depreciation 146,225 124,689
---------- ----------
121,371 94,734
---------- ----------
GOODWILL 741,361 365,427
---------- ----------
PURCHASED DATA FILES 176,834 103,282
---------- ----------
OTHER ASSETS 272,904 212,729
---------- ----------
$1,830,677 $1,177,104
========== ==========
</TABLE>
The notes on pages 8 through 12 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) 1998 1997
----------------------------------------------------------------------------------------------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term debt $ 50,367 $ 12,984
Accounts payable 106,043 94,682
Accrued salaries and bonuses 35,536 26,404
Income taxes payable 24,680 13,827
Other current liabilities 204,610 179,712
---------- ----------
Total current liabilities 421,236 327,609
---------- ----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 849,039 339,301
---------- ----------
LONG-TERM DEFERRED REVENUE 34,999 42,848
---------- ----------
OTHER LONG-TERM LIABILITIES 126,738 117,949
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 7)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par value; shares authorized - 300,000;
issued - 173,422 in 1998 and 172,465 in 1997;
outstanding - 141,461 in 1998 and 142,609 in 1997 216,778 215,581
Preferred stock, $0.01 par value; shares authorized -
10,000; issued and outstanding - none in 1998 or 1997 -- --
Paid-in capital 274,862 244,496
Retained earnings 531,564 421,541
Accumulated other comprehensive income (Note 6) (23,821) (20,076)
Treasury stock, at cost, 25,976 shares in 1998
and 23,304 shares in 1997 (541,741) (447,578)
Stock held by employee benefits trusts, at cost,
5,985 shares in 1998 and 6,553 shares in 1997 (58,977) (64,567)
---------- ----------
Total shareholders' equity 398,665 349,397
---------- ----------
$1,830,677 $1,177,104
========== ==========
</TABLE>
The notes on pages 8 through 12 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) 1998 1997
--------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $425,414 $344,086
-------- --------
Costs of services 246,509 200,986
Selling, general and administrative expenses 79,258 60,363
-------- --------
Total operating expenses 325,767 261,349
-------- --------
Operating income 99,647 82,737
Other income, net 3,384 1,489
Interest expense (12,719) (5,229)
-------- --------
Income before income taxes 90,312 78,997
Provision for income taxes 36,783 31,757
-------- --------
Net income $ 53,529 $ 47,240
======== ========
Per common share (basic):
Net income $ 0.38 $ 0.33
======== ========
Shares used in computing basic earnings per share 141,794 144,226
======== ========
Per common share (diluted):
Net income $ 0.37 $ 0.32
======== ========
Shares used in computing diluted earnings per share 144,863 147,637
======== ========
Dividends per common share $ 0.0875 $ 0.0875
======== ========
</TABLE>
The notes on pages 8 through 12 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) 1998 1997
----------------------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $1,171,972 $999,114
---------- --------
Costs of services 680,509 579,717
Selling, general and administrative expenses 218,639 190,349
---------- --------
Total operating expenses 899,148 770,066
---------- --------
Operating income 272,824 229,048
Other income, net 4,754 44,652
Interest expense (27,973) (15,033)
---------- --------
Income from continuing operations before income taxes 249,605 258,667
Provision for income taxes 100,709 111,696
---------- --------
Income from continuing operations 148,896 146,971
---------- --------
Discontinued operations:
Income from discontinued operations, net of income
taxes of $10,179 -- 14,336
Costs associated with effecting the spinoff, net of
income tax benefit of $2,154 -- (12,887)
---------- --------
Total discontinued operations -- 1,449
---------- --------
Net income $ 148,896 $148,420
========== ========
Per common share (basic):
Income from continuing operations $ 1.05 $ 1.02
Discontinued operations -- 0.01
---------- --------
Net income $ 1.05 $ 1.03
========== ========
Shares used in computing basic earnings per share 141,621 144,659
========== ========
Per common share (diluted):
Income from continuing operations $ 1.03 $ 0.99
Discontinued operations -- 0.01
---------- --------
Net income $ 1.03 $ 1.00
========== ========
Shares used in computing diluted earnings per share 144,651 148,274
========== ========
Dividends per common share $ 0.2625 $ 0.2575
========== ========
</TABLE>
The notes on pages 8 through 12 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, 1998
----------------------------------------------------------------------------------------
<S> <C>
COMMON STOCK:
Balance at beginning of period $ 215,581
Shares issued under stock plans 1,197
---------
Balance at end of period $ 216,778
=========
PAID-IN CAPITAL:
Balance at beginning of period $ 244,496
Shares issued under stock plans 15,926
Adjustment for treasury shares reissued for an acquisition 2,666
Adjustment for benefits trust shares reissued for benefit plans 10,392
Other 1,382
---------
Balance at end of period $ 274,862
=========
RETAINED EARNINGS:
Balance at beginning of period $ 421,541
Net income 148,896
Cash dividends paid (38,873)
---------
Balance at end of period $ 531,564
=========
ACCUMULATED OTHER COMPREHENSIVE INCOME (Note 6):
Balance at beginning of period $ (20,076)
Adjustment during period (3,745)
---------
Balance at end of period $ (23,821)
=========
TREASURY STOCK:
Balance at beginning of period $(447,578)
Cost of shares repurchased (97,447)
Cost of shares reissued for an acquisition 3,334
Cost of shares reissued under stock plans 279
Other (329)
---------
Balance at end of period $(541,741)
=========
STOCK HELD BY EMPLOYEE BENEFITS TRUSTS:
Balance at beginning of period $ (64,567)
Cost of shares reissued for benefit plans 3,843
Cost of shares reissued under stock plans 1,747
---------
Balance at end of period $ (58,977)
=========
</TABLE>
The notes on pages 8 through 12 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) 1998 1997
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148,896 $ 148,420
Less income from discontinued operations -- (1,449)
--------- ---------
Income from continuing operations 148,896 146,971
Adjustments to reconcile income from continuing operations to
net cash provided by operating activities of continuing operations:
Depreciation and amortization 72,343 56,208
Gain from sale of business -- (42,798)
Changes in assets and liabilities:
Accounts receivable, net (27,104) (38,648)
Current liabilities, excluding debt 44,092 7,426
Other current assets (11,679) (7,850)
Deferred income taxes 10,950 14,526
Other long-term liabilities, excluding debt (14,023) 4,002
Other assets (17,010) (10,227)
--------- ---------
Net cash provided by operating activities of continuing operations 206,465 129,610
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (35,026) (25,387)
Additions to other assets, net (49,146) (28,571)
Acquisitions, net of cash acquired (474,655) (75,038)
Proceeds from sale of business -- 80,998
Investments in unconsolidated affiliates (18,778) --
--------- ---------
Net cash used in investing activities of continuing operations (577,605) (47,998)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings 32,220 17,330
Net additions (payments) to long-term debt 499,216 (89,452)
Dividends paid (38,873) (38,933)
Treasury stock purchases (97,447) (79,425)
Proceeds from exercise of stock options 9,009 15,583
Other 2,571 1,687
--------- ---------
Net cash provided (used) by financing activities of continuing operations 406,696 (173,210)
--------- ---------
Effect of foreign currency exchange rates on cash (1,872) 1,361
Net cash provided by discontinued operations -- 100,148
--------- ---------
Net cash provided 33,684 9,911
Cash and cash equivalents, beginning of period 52,251 48,160
--------- ---------
Cash and cash equivalents, end of period $ 85,935 $ 58,071
========= =========
</TABLE>
The notes on pages 8 through 12 are an integral part of these consolidated
statements.
7
<PAGE>
EQUIFAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
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, 1998 and the results of operations
for the three and nine months ended September 30, 1998 and 1997, and the cash
flows for the nine months ended September 30, 1998 and 1997. 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,
1997.
2. NATURE OF OPERATIONS:
The Company principally provides information services to businesses to help them
grant credit and authorize and process credit card and check transactions. The
principal lines of business are information services and payment services (see
Note 9 for industry segment information). The principal markets for both
information and payment services are retailers, banks and other financial
institutions, with information services also serving the telecommunications and
utility industries. The Company's operations are predominately located within
the United States, with foreign operations principally located within Canada,
the United Kingdom, Chile, Brazil and Argentina.
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. 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 consolidated statements of income and consolidated
statement of cash flows for the nine months ended September 30, 1997 have been
prepared with the Insurance Services segment results of operations and cash
flows shown as "discontinued operations". During the third quarter of 1997, the
Company recorded an expense of $15,041,000 ($12,887,000 after tax, or $.09 per
share) to reflect the net costs associated with effecting the spinoff.
8
<PAGE>
5. LONG-TERM DEBT:
In June 1998, the Company issued new 6.3% seven-year notes with a face value of
$250,000,000 in a public offering. The notes were sold at a discount of
$1,172,500. In July 1998, the Company issued new 6.9% thirty-year debentures
with a face value of $150,000,000 in a public offering. The debentures were sold
at a discount of $1,500,000. The discounts and related issuance costs will be
amortized on a straight-line basis over the respective term of the notes and
debentures.
6. SHAREHOLDERS' EQUITY:
TREASURY STOCK. During the first nine months of 1998, the Company repurchased
approximately 2,443,000 of its common shares through open market transactions at
an aggregate cost of $83,212,000. In September 1998, the Company also
repurchased 390,000 shares from an employee benefit trust for $14,235,000, which
the trust contributed to the Company's U.S. Retirement Plan. As of September 30,
1998, approximately $125 million remained authorized for future share
repurchases.
During the third quarter of 1998, the Company reissued approximately 164,000
shares valued at $6.0 million for an acquisition (note 8).
COMPREHENSIVE INCOME. Effective with the first quarter, 1998 the Company
adopted FASB Statement No. 130, "Reporting Comprehensive Income". For the nine
month periods ending September 30, 1998 and 1997, comprehensive income is as
follows:
<TABLE>
NINE MONTHS ENDED
SEPTEMBER 30
(IN THOUSANDS) 1998 1997
-------------- -------- --------
<S> <C> <C>
Net Income $148,896 $148,420
Change in cumulative foreign
currency translation adjustment (3,745) (1,902)
-------- --------
Comprehensive income $145,151 $146,518
======== ========
</TABLE>
Accumulated other comprehensive income at September 30, 1998 and December 31,
1997 consists of the following components:
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, 1998 DECEMBER 31, 1997
-------------- ------------------ -----------------
<S> <C> <C>
Cumulative foreign currency
translation adjustment $17,429 $13,684
Adjustment for minimum liability
under supplemental retirement plan 6,392 6,392
------- -------
$23,821 $20,076
======= =======
</TABLE>
9
<PAGE>
7. 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. As of August 1, 1998, the option price is determined by
appraisal.
On November 25, 1997, CSC exercised an option, also contained in the agreement,
to sell its collection businesses to the Company at a purchase price of
approximately $38 million. This transaction was finalized in the second quarter
of 1998. Subsequent to November 25, 1997, the Company determined that the fair
value of the business being sold (based on its estimated discounted cash flows)
was less than the contractual purchase price because a major contract expiring
in 1998 would not be renewed. Accordingly, in the fourth quarter of 1997, the
Company recorded a $25,000,000 charge ($14,950,000 after tax, or $.10 per share)
to reflect a valuation loss on this acquisition, with a corresponding
$25,000,000 liability included in other current liabilities. As of September 30,
1998, the $25,000,000 liability has been reclassified to reduce the amount of
goodwill recorded with this acquisition. In October 1998, this business was sold
for approximately the carrying amount of its net assets.
8. ACQUISITIONS, EQUITY INVESTMENTS AND DIVESTITURE:
During the first nine months of 1998, the Company:
- Acquired a risk management services business in the U.S. (Note 7) and a risk
management services business in the U.K.
- Acquired the credit files of twelve affiliates located in the United States
and one affiliate located in Canada.
- Acquired The Decisioneering Group, Inc., a consulting services business in the
U.S.
- Increased its ownership to greater than 50% in two foreign affiliates in Spain
and Peru and began consolidating their operations.
- Increased the ownership in its Canadian operations to 100%.
- Made equity investments in information services companies in India and the
U.K.
- Acquired 59.3% of a credit card services company in Brazil.
- Acquired 80% of an information services company in Brazil.
- Made an equity investment in 34% of a data processing services company in
Brazil.
The businesses and increased equity interests in companies of greater than 50%
ownership were accounted for as purchases, and had a total purchase price of
$487.2 million. They were acquired for cash of $481.2 million and the reissuance
of treasury stock with a market value of $6.0 million. The equity investments
totaled $18.8 million, were acquired for cash, and were accounted for under the
equity method. The total invested in Brazilian companies was approximately $350
million. The Company expects these Brazilian investments to dilute earnings per
share approximately $.04 in 1998 and $.07 in 1999 due to increased goodwill
amortization, interest expense and expense associated with our "year 2000
program". Also, during the first quarter of 1998, the Company obtained the
control necessary and began to consolidate the operations of its 66.7%
investment in Organizacion VERAZ S.A. in Argentina which was acquired in 1997
and 1994. These acquisitions and the consolidation of VERAZ resulted in $386.0
million of goodwill and $84.4 million of purchased data files. These allocations
include $26.0 million reallocated from other assets related to the Company's
investment in VERAZ and two other foreign affiliates previously accounted for
under the equity method. Their results of operations have been included in the
consolidated statements of income from the dates of acquisition. The following
unaudited pro forma information has been prepared as if these acquisitions had
occurred on January 1, 1997. The
10
<PAGE>
information is based on historical results of the separate companies and may not
necessarily be indicative of the results that could have been achieved or, of
results which may occur in the future.
<TABLE>
<CAPTION>
NINE NINE
(IN THOUSANDS, EXCEPT PER SHARE MONTHS ENDED MONTHS ENDED
AMOUNTS) SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------- ------------------ ------------------
<S> <C> <C>
Revenue $1,301,233 $1,167,831
Net income 136,777 137,193
Net income per common share (diluted) 0.94 0.92
</TABLE>
During the third quarter of 1997, the company sold its National Decision Systems
business unit from its North American Information 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).
9. INDUSTRY SEGMENT INFORMATION:
Effective with the first quarter, 1998, the Company adopted FASB Statement No.
131, "Disclosures About Segments of an Enterprise and Related Information".
Operating revenue and operating income by industry segment for the third quarter
and first nine months of 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
THIRD QUARTER NINE MONTHS
----------------------------- -------------------------------
OPERATING REVENUE: 1998 1997 1998 1997
------------------ -------- -------- ---------- --------
<S> <C> <C> <C> <C>
North American Information Services $201,579 $178,670 $ 578,454 $533,206
Payment Services 130,369 108,612 358,493 312,951
Equifax Europe 61,559 45,547 164,665 127,257
Equifax Latin America 29,498 8,848 63,133 18,474
Other 2,409 2,409 7,227 7,226
-------- -------- ---------- --------
$425,414 $344,086 $1,171,972 $999,114
======== ======== ========== ========
Operating Income:
-----------------
North American Information Services $ 70,525 $ 63,064 $ 202,242 $182,702
Payment Services 26,501 18,223 68,370 52,782
Equifax Europe 7,578 7,240 16,646 13,905
Equifax Latin America 6,046 1,785 14,578 4,917
Other 2,217 2,217 6,649 6,651
-------- -------- ---------- --------
Operating Contribution 112,867 92,529 308,485 260,957
General Corporate Expense (13,220) (9,792) (35,661) (31,909)
-------- -------- ---------- --------
$ 99,647 $ 82,737 $ 272,824 $229,048
======== ======== ========== ========
</TABLE>
11
<PAGE>
10. 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) 1998 1997 1998 1997
-------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average shares
outstanding (basic) 141,794 144,226 141,621 144,659
Effect of dilutive securities:
Stock options 2,776 2,914 2,737 3,118
Performance share plan 293 497 293 497
------- ------- ------- -------
Weighted average shares
outstanding (diluted) 144,863 147,637 144,651 148,274
======= ======= ======= =======
</TABLE>
11. 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 January 1, 2000 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.
12
<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 1998 compared to the third
quarter and first nine months of 1997)
On August 7, 1997, the Company completed the spinoff of its Insurance Services
industry segment (Note 4). 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 23.6% and 17.3%
respectively over the comparable periods of 1997. After adjusting for the May
1997 divestiture of National Decision Systems, revenue was up 23.6% in the
quarter and 18.8% in the first nine months, with approximately 13.8 and 9.4
percentage points of the respective increases attributable to acquisitions.
Operating income of $99.6 million in the quarter and $272.8 million in the first
nine months increased 20.4% and 19.1% respectively, over the prior year. These
increases are primarily the result of revenue growth and continued operating
leverage across all operating groups.
Excluding an after-tax gain of $17.9 million or $.12 per share from the sale of
National Decision Systems in May 1997, net income from continuing operations
increased 13.3% in the quarter and 15.3% year-to-date, and diluted earnings per
share from continuing operations increased 15.6% in the quarter and 18.4%
year-to-date. During the third quarter and first nine months of 1998, the
Company expensed approximately $5.7 million ($3.4 million after tax or $.02 per
share) and $14.3 million ($8.6 million after tax or $.06 per share)
respectively, in costs related to the Company's "year 2000 program". The Company
expects that the total impact of the Company's year 2000 program expenses will
be approximately $.09 per share in 1998.
The following discussion analyzes operating results by industry segment (Note
9), general corporate expense, and consolidated other income, interest expense
and effective income tax rates.
NORTH AMERICAN INFORMATION SERVICES
-----------------------------------
Revenue in North American Information Services, which includes U.S. Reporting
Services, U.S. Risk Management Services, Mortgage Information Services, Canadian
Operations, as well as National Decision Systems (divested in May 1997)
increased 12.8% in the quarter and 8.5% year-to-date. Excluding the divestiture,
revenue increased 12.8% in the quarter and 11.2% in the first nine months with
5.6 and 4.1 percentage points of the respective increases attributable to
acquisitions. U.S. Reporting Services revenue was up 11.0% in both periods due
to increased demand from the finance and telecommunication/utility industries as
well as growth in marketing services. Although modest pricing pressures are
expected to continue, average prices for credit reports were up slightly in both
periods. Revenue in U.S. Risk Management Services was up 27.9% in the quarter
and 19.8% year-to-date due to the May 1998 acquisition of CSC's collection
business, which the company sold in October 1998 (Note 7) and continued growth
in receivables management outsourcing. Mortgage Information Services revenue
increased $2.6 million in the quarter and $6.2 million year-to-date due to the
favorable interest rate environment.
Canadian revenues declined 4.0% in the third quarter and 4.1% in the first nine
months due to unfavorable exchange rate movements. In local currency, revenues
were up 4.9% in the quarter and 1.9% year-to-date due to a third quarter 1998
acquisition. Excluding these acquisitions, revenues were about level with the
prior year in both periods as gains in Reporting Services were offset by
declines in Risk Management revenue.
13
<PAGE>
Operating income for North American Information Services increased 11.8% in the
quarter and 10.7% year-to-date due primarily to the revenue growth in U.S.
Reporting Services, U.S. Risk Management Services, and Mortgage Information
Services.
PAYMENT SERVICES
----------------
Revenue in Payment Services, which includes Card Services, Check Services, and
Card Software, increased 20.0% in the quarter and 14.6% in the first nine months
over the comparable prior year periods with the third quarter acquisition of a
card services business in Brazil accounting for 5.7 and 2.0 percentage points of
the respective increases. Exclusive of this acquisition, Card Services revenue
was up 10.8% in the quarter and 13.3% year-to-date with growth driven by
increases in processing of both cardholder and merchant transactions. Revenue
growth in Card Services was tempered by price reductions within the CSG-Madison
operations where certain cost savings achieved from converting these operations
to the Company's card processing system are being passed on to customers.
Excluding CSG-Madison, Card Services revenue increased approximately 15% in the
quarter and 19% in the first nine months. Third quarter and year-to-date revenue
in Check Services increased 7.4% and 6.9% respectively, due primarily to
increased volume. Card Software revenues were up in both periods due to timing
of license sales between years.
Operating income increased 45.4% in the quarter and 29.5% year-to-date driven by
the revenue growth within Card Services and the operating leverage achieved from
the integration of the CSG-Madison operations, acquired in the fourth quarter of
1996. The growth in this segment's third quarter operating income also benefited
from the performance in Card Software due to higher revenues in the period.
EQUIFAX EUROPE
--------------
Equifax Europe consists of operations primarily in the United Kingdom and Spain.
During the third quarter 1998, the Company increased its ownership in the
operations in Spain to 58% and obtained the control necessary to consolidate
these operations. Also, in the first quarter 1998, Equifax Europe acquired a
risk management services business in the U.K. Exclusive of these acquisitions,
revenue was up 11.5% in the quarter and 15.1% in the first nine months, driven
by volume increases in U.K. Consumer Information Services and improved
performance across almost all industry groups.
Operating income for Equifax Europe increased 4.7% in the quarter and 19.7%
year-to-date. The third quarter operating income growth for Equifax Europe was
tempered by higher expenses related to modification of computer software for
compliance with Year 2000 and start up expenses related to a third quarter 1998
joint venture. Excluding these expenses, operating income increased 24.1% in the
quarter and 41.0% year-to-date, driven by the operating leverage obtained from
the revenue growth and continued integration of acquisitions.
EQUIFAX LATIN AMERICA
---------------------
Equifax Latin America consists of operations primarily in Chile, Argentina and
Brazil as well as a developing operation in Mexico. Revenue increases in both
periods were due primarily to an August 1998 acquisition in Brazil and the
consolidation of the operations in Argentina. The year-to-date revenue increase
also reflects the consolidation of the operation in Chile beginning in the
second quarter of 1997. In the first quarter of 1997, the Company owned 50% of
Chile and 33.3% of Argentina and accounted for these operations under the equity
method of accounting. In April 1997, the Company increased its ownership in
Chile to 100% and began consolidating this operation. In December 1997, the
Company increased its investment in Argentina to 66.7% and, in early 1998,
obtained the control necessary to consolidate this operation.
Operating income for Equifax Latin America was up $4.3 million in the quarter
and $9.7 million year-to-date. The third quarter and year-to-date increases were
due primarily to the ownership increase in Argentina and the acquisition in
Brazil, while the year-to-date increase also benefited from the ownership
increase in Chile.
14
<PAGE>
OTHER
-----
This segment's revenue and operating income remained comparable between periods.
Its operations consist solely of a subcontract related to the Company's lottery
subsidiary.
GENERAL CORPORATE EXPENSE
-------------------------
General Corporate Expense increased $3.4 million in the third quarter and $3.8
million year-to-date over the respective prior year periods. These increases
were primarily the result of higher Year 2000 expenses and costs related to the
development of digital certificate services. The third quarter was also
negatively impacted by higher stock plan expense.
OTHER INCOME
------------
The $1.9 million increase in other income from the third quarter of 1997 to the
third quarter of 1998 was primarily due to higher interest income resulting from
the temporary investment of loan proceeds prior to their use for acquisitions.
The $39.9 million decrease in year-to-date other income was due to the 1997
$42.8 million gain on the sale of National Decision Systems, partially offset by
the higher levels of interest income in 1998.
INTEREST EXPENSE
----------------
Interest expense increased $7.5 million in the quarter and $12.9 million
year-to-date due to the higher level of borrowings for acquisitions and share
repurchases.
EFFECTIVE INCOME TAX RATES
--------------------------
The increase in the effective tax rate in the third quarter was due primarily to
nondeductible goodwill and minority interest expense associated with certain of
the 1998 acquisitions. The decline in the year-to-date effective tax rate was
due primarily to the nondeductible goodwill related to the 1997 sale of National
Decision Systems.
FINANCIAL CONDITION
Net cash provided by operations for the first nine months increased from $129.6
million in 1997 to $206.5 million in 1998 and working capital increased $23.6
million between years. Normal capital expenditures and dividend payments were
met with these internally generated funds.
Other significant outlays in the first nine months included $97.4 million of
treasury stock purchases (Note 6), $474.7 million (net of $6.5 million cash
acquired) for acquisitions (Note 8) and $18.8 million for investments in
unconsolidated affiliates. These items were principally financed by an increase
in long-term debt and excess cash from operations. In September 1998, the
Company offered and sold $400 million in senior unsecured notes and debentures
(Note 5), with $250 million proceeds received in June and $150 million received
in July (before discounts and fees).
As of September 30, 1998, approximately $125 million remained authorized under
the Company's share repurchase program. Capital expenditures for the remainder
of 1998 are currently projected to be approximately $35 million, exclusive of
acquisitions. Additional expenditures are possible as opportunities arise. The
remaining 1998 capital expenditures, exclusive of acquisitions, should be met
with internally generated funds. At September 30, 1998, $522 million was
available under the Company's $750 million revolving credit facility to fund
future capital requirements, including the possible purchase of the CSC credit
reporting businesses (Note 7). 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>
YEAR 2000 INFORMATION
BACKGROUND
----------
The widespread use of computer software that relies on two digits, rather
than four digits, to define the applicable year may cause computers and
computer-controlled systems to malfunction or incorrectly process data as
we approach and enter the year 2000. In view of the potential adverse
impact of these "year 2000 problems" on our business, operations and
financial condition, we have implemented a central function to manage,
validate and report on a continuing basis to the Company's executive
management and Board of Directors with regard to our "year 2000 program."
Our year 2000 program process comprises five continuing activities: (a)
identification and assessment, (b) remediation planning, (c) remediation,
(d) testing, and (e) contingency planning for year 2000 problem failures.
THE COMPANY'S YEAR 2000 FOCUS
-----------------------------
We have focused our year 2000 program primarily in the following areas: (a)
our information technology systems, which include (i) internally developed
business applications software, (ii) software provided by vendors and (iii)
the computer and peripheral hardware used in our operations; (b) electronic
data interchange systems; (c) non-information technology systems (embedded
technology) including office business machines, and security, backup power
and other building systems; and (d) the flow of materials and non-
information technology services from our vendors.
READINESS AND PLANS
-------------------
This section describes the status of our year 2000 program activities,
excluding our recently acquired operations in Brazil. With regard to those
Brazilian operations, we currently are integrating the results of our year
2000 acquisition due diligence with our year 2000 program process; we plan
to complete that integration activity in the first quarter of 1999.
(a) INFORMATION TECHNOLOGY SYSTEMS
------------------------------
We have completed our year 2000 identification, assessment and
remediation planning activities for the application software and host
environments (operating systems software and hardware) of our critical
information technology systems, including our systems for North
American Information Services, Payment Services, Equifax Europe and
Equifax Latin America. We plan to complete the remediation and testing
of those elements by December 31, 1998.
We plan to complete the identification, assessment and remediation
planning activities with regard to the other elements of our critical
information technology systems (including our local area networks and
desktop computing environments) by March 31, 1999, and the remediation
and testing activities associated with those elements by August 31,
1999.
We concurrently are addressing year 2000 issues with respect to our
non-critical information technology systems, and believe their level
of readiness will be sufficient to avoid any material impact on the
Company's business, operations or financial condition.
The majority of our information technology systems for North American
Information Services and Equifax Europe are operated at data centers
managed by IBM Global Services. IBM is assisting us in achieving year
2000 readiness for our data processing operating environments in the
IBM Global Services data centers.
(b) ELECTRONIC DATA INTERCHANGE SYSTEMS
-----------------------------------
We are working with those others with whom we engage in electronic
data interchange (including vendors, customers and other data
suppliers), and with our network telecommunications service providers,
to identify,
16
<PAGE>
assess and test for potential year 2000 problem failures in our
electronic data interchange systems. Further, we are working with them
to identify, implement and test solutions for identified problems. We
believe that this process will be an ongoing one throughout 1999, as
we develop additional information regarding those systems. As part of
those efforts, we have been in contact with each of our critical
network telecommunications service providers to assess their state of
year 2000 readiness and determine the potential for year 2000 problem
failures resulting from their equipment and networks. In cases where
we determine that the risks associated with particular service
providers are not acceptable, we believe that we will be able to
timely migrate to satisfactory alternative delivery systems.
We have completed a substantial portion of our identification,
assessment and remediation planning activities for Company owned
hardware components of our critical network telecommunications
systems, and we are remediating those components as appropriate. We
believe that those identification, assessment and remediation planning
activities will be completed by March 31, 1999, and that remediation
and testing activities will be completed by August 31, 1999.
Overall, we believe that our electronic data interchange systems will
be year 2000 ready as necessary to avoid any material adverse impact
on the Company's business, operations or financial condition.
(c) NON-INFORMATION TECHNOLOGY SYSTEMS
----------------------------------
We have completed a substantial majority of our ongoing
identification, assessment and remediation planning for the year 2000
problem failures that may occur in our non-information technology
systems resulting from embedded technologies, including office
business machines, and security, backup power and other building
systems. We plan to complete the substantial majority of our
remediation and testing of such systems by March 31, 1999.
(d) MATERIALS AND SERVICES
----------------------
We have distributed surveys to our materials and non-information
technology services vendors that support our material operations
requesting disclosure of their year 2000 readiness status and their
plans for addressing year 2000 problems relating to those goods and
services and any applicable delivery systems. We have requested and
will request additional assurances (including in some instances audit
and test activities) from our critical vendors that their goods,
services and delivery systems will be appropriately and timely year
2000 ready to meet our continuing needs. If any vendor is unable or
unwilling to provide appropriate assurances, we believe that we will
be able to use alternative vendors. While we believe a substantial
majority of these activities will be completed by June 30, 1999, they
will continue throughout 1999.
COSTS TO ADDRESS
----------------
We estimate that the cost of our year 2000 program activities will be $48
million. Through September 30, 1998, we have incurred costs of
approximately $21 million related to those activities. Regarding our annual
per share charges, we expensed approximately one cent per share in 1996 and
two cents per share in 1997 in connection with our year 2000 program
activities, plan to expense approximately nine cents per share in 1998, and
plan to expense eight cents per share in 1999. The 1999 expense estimate
includes approximately two cents per share related to our recently acquired
operations in Brazil.
BUSINESS CONTINUITY AND CONTINGENCY PLANNING
--------------------------------------------
We are in the process of identifying the reasonably likely year 2000
problem failures that we could experience with the goal of revising, to the
extent practical, our existing business continuity and contingency plans to
address the
17
<PAGE>
internal and external issues specific to those problems. Those plans, which
are intended to enable us to continue to operate, include performing
certain processes manually; repairing or obtaining replacement systems;
changing suppliers; and reducing or suspending certain non-critical aspects
of our operations. However, we believe that, due to the widespread nature
of potential year 2000 problems, the contingency planning process is an
ongoing one requiring continuing plan development and modification as we
obtain additional information regarding (a) our internal systems and
equipment during the remediation and testing phases of our year 2000
program, and (b) the status and impact on the Company of the year 2000
readiness of others.
POSSIBLE CONSEQUENCES OF YEAR 2000 PROBLEMS
-------------------------------------------
We believe that we have put in place the processes and are devoting the
resources necessary to achieve a level of readiness to meet our year 2000
challenges in a timely and appropriate manner. However, there can be no
assurance that our internal systems or the systems of others on which we
rely will be year 2000 ready in a timely and appropriate manner or that our
contingency plans or the contingency plans of others on which we rely will
mitigate the effects of year 2000 problem failures. Currently, we believe
the most reasonably likely worst case scenario would be a sustained,
concurrent failure of multiple critical systems (internal and external)
that support our operations. While we do not expect that scenario to occur,
that scenario if it occurs could, even despite the successful execution of
our business continuity and contingency plans, result in the reduction or
suspension of a material portion of our operations and accordingly have a
material adverse effect on our business and financial condition.
The preceding "Year 2000 Information" discussion contains various forward-
looking statements that represent our beliefs or expectations regarding
future events. When used in the "Year 2000 Information" discussion, the
words "believes," "expects," "estimates," "plans", "goals" and similar
expressions are intended to identify forward-looking statements. Forward-
looking statements include, without limitation, our expectations as to when
we will complete the identification and assessment, remediation planning,
remediation and testing activities of our year 2000 program as well as our
year 2000 contingency planning; our estimated cost of achieving year 2000
readiness; and our belief that our internal systems and equipment will be
year 2000 ready in a timely and appropriate manner. Those forward-looking
statements involve a number of risks and uncertainties that, individually
or in the aggregate, could cause the actual results to differ materially
from the projected results. Factors that may cause those differences
include availability of information technology resources; customer demand
for our products and services; continued availability of materials,
services and data from our suppliers; the ability to identify and remediate
all date sensitive lines of computer code and to replace embedded computer
chips in affected systems and equipment; the failure of others to timely
achieve appropriate year 2000 readiness; and the actions or inaction of
governmental agencies and others with respect to year 2000 problems.
18
<PAGE>
FORWARD-LOOKING INFORMATION
Statements in this Form 10-Q that relate to 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 worldwide and U.S. economic conditions, 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" section in the Management's Discussion and Analysis
included in the Company's annual report on Form 10-K for the year ended December
31, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material change since the end of the fiscal year.
19
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Acquisition Agreement By and Among Equifax Inc., Equifax South
America, Inc., Equifax do Brasil Holdings Ltda., P.U.P.
Participacoes S.A., Andrade Gutierrez Telecomunicacoes Ltda.,
Construtora Andrade Gutierrez S.A., SOCMA Americana S.A. and
Partech Ltda., dated August 31, 1998. (Portions of this Exhibit
have been omitted and filed separately with the Commission under a
request for confidential treatment.)
10.1 Master Agreement for Operations Support Services between Equifax
Inc. and International Business Machines Corporation, dated July
7, 1998.
(Portions of this Exhibit have been omitted and filed separately
with the Commission under a request for confidential treatment.)
27.1 Financial Data Schedule, submitted to the Commission in electronic
format
(b) Reports on Form 8-K
Registrant filed two reports on Form 8-K during the quarter for which
this report is filed.
A report on Form 8-K, dated September 4, 1998 and filed September 4,
1998, announced the Company's purchase of eighty percent of the capital
stock of Seguranca ao Credito e Informacoes ("SCI"), a Brazilian
commercial and consumer information company.
A report on Form 8-K, dated September 25, 1998 and filed September 28,
1998, announced the Company's purchase of fifty-nine percent ownership
and control in UNNISA (Unnisa - Solucoes em Meios de Pagamento Ltda.),
a major provider of full service bankcard and private label card
processing, and an effective 34% economic ownership interest in PROCEDA
(Proceda Tecnologia e Informatica S.A), Brazil's second largest
information technology outsourcer.
20
<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)
<TABLE>
<S> <C>
Date: October 6, 2000 /s/ Thomas F. Chapman
-------------------------------------
Thomas F. Chapman
Chairman and Chief Executive Officer
Date: October 6, 2000 /s/ Philip J. Mazzilli
-------------------------------------
Philip J. Mazzilli
Executive Vice President and
Chief Financial Officer
(principal financial officer)
</TABLE>
