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 March 31, 2001
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period ended _________________________
Commission File Number 1-6605
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EQUIFAX INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0401110
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1550 Peachtree Street, N.W. Atlanta, Georgia 30309
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(Address of principal executive offices) (Zip Code)
404-885-8000
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(Registrant's telephone number, including area code)
None
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 31, 2001
----- -----------------------------
Common Stock, $1.25 Par Value 143,186,261
INDEX
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets --
March 31, 2001 and December 31, 2000 2 - 3
Consolidated Statements of Income --
Three Months Ended March 31, 2001 and 2000 4
Consolidated Statement of Shareholders'
Equity -- Three Months Ended March 31, 2001 5
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 2001 and 2000 6
Notes to Consolidated Financial Statements 7 - 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 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 16
1
PART I. FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
(In thousands) 2001 2000
- -------------------------------------------------------------------------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 50,158 $ 89,413
Trade accounts receivable, net 313,811 325,444
Settlement receivables 74,948 48,173
Other receivables 75,821 75,827
Deferred income tax assets 23,172 23,236
Other current assets 43,682 42,816
---------- ----------
Total current assets 581,592 604,909
---------- ----------
PROPERTY AND EQUIPMENT:
Land, buildings and improvements 41,688 40,220
Data processing equipment and furniture 234,577 235,296
---------- ----------
276,265 275,516
Less accumulated depreciation 182,053 176,705
---------- ----------
94,212 98,811
---------- ----------
GOODWILL 690,064 717,939
---------- ----------
PURCHASED DATA FILES 213,855 209,379
---------- ----------
OTHER ASSETS 448,926 438,599
---------- ----------
$2,028,649 $2,069,637
========== ==========
The notes on pages 7 through 11 are an integral part of these consolidated
balance sheets.
2
CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
(In thousands, except par values) 2001 2000
- -----------------------------------------------------------------------------------------------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities of long-term debt $ 60,233 $ 54,609
Accounts payable 36,435 35,262
Settlement payables 81,614 77,213
Accrued salaries and bonuses 22,892 36,961
Income taxes payable 24,265 22,404
Other current liabilities 175,625 199,775
---------- ----------
Total current liabilities 401,064 426,224
---------- ----------
LONG-TERM DEBT, LESS CURRENT MATURITIES 979,057 993,569
---------- ----------
LONG-TERM DEFERRED REVENUE 28,027 32,864
---------- ----------
DEFERRED INCOME TAX LIABILITIES 91,949 90,198
---------- ----------
OTHER LONG-TERM LIABILITIES 140,066 143,204
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' EQUITY:
Common stock, $1.25 par value; shares authorized -
300,000; issued - 176,396 in 2001 and 175,991 in 2000;
outstanding - 136,243 in 2001 and 135,835 in 2000 220,495 219,989
Preferred stock, $0.01 par value; shares authorized -
10,000; issued and outstanding - none in 2001 or 2000 -- --
Paid-in capital 342,026 336,527
Retained earnings 937,339 902,475
Accumulated other comprehensive loss (Note 4) (242,191) (206,163)
Treasury stock, at cost, 33,075 shares in 2001
and 33,078 shares in 2000 (778,901) (778,955)
Stock held by employee benefits trusts, at cost,
7,077 shares in 2001 and 7,079 shares in 2000 (90,282) (90,295)
---------- ----------
Total shareholders' equity 388,486 383,578
---------- ----------
$2,028,649 $2,069,637
========== ==========
The notes on pages 7 through 11 are an integral part of these consolidated
balance sheets.
3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
(In thousands, except per share amounts) 2001 2000
- -----------------------------------------------------------------------------------------
Operating revenue $479,742 $451,081
-------- --------
Costs of services 273,063 269,224
Selling, general and administrative expenses 107,701 93,390
-------- --------
Total operating expenses 380,764 362,614
-------- --------
Operating income 98,978 88,467
Other income, net 1,090 953
Interest expense (17,672) (16,374)
-------- --------
Income before income taxes and minority interests 82,396 73,046
Provision for income taxes 32,742 29,956
Minority interests in earnings, net of tax (1,552) (863)
-------- --------
Net income $ 48,102 $ 42,227
======== ========
Per common share (basic):
Net income $ 0.35 $ 0.32
======== ========
Shares used in computing basic earnings per share 136,007 133,917
======== ========
Per common share (diluted):
Net income $ 0.35 $ 0.31
======== ========
Shares used in computing diluted earnings per share 137,612 135,150
======== ========
Dividends per common share $ 0.0925 $ 0.0925
======== ========
The notes on pages 7 through 11 are an integral part of these consolidated
statements.
4
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED
(In thousands) MARCH 31, 2001
- ----------------------------------------------------------------------------
COMMON STOCK:
Balance at beginning of period $ 219,989
Shares issued under stock plans 506
---------
Balance at end of period $ 220,495
=========
PAID-IN CAPITAL:
Balance at beginning of period $ 336,527
Shares issued under stock plans 4,845
Dividends from employee benefits trusts 654
---------
Balance at end of period $ 342,026
=========
RETAINED EARNINGS:
Balance at beginning of period $ 902,475
Net income 48,102
Cash dividends (13,238)
---------
Balance at end of period $ 937,339
=========
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 4):
Balance at beginning of period $(206,163)
Adjustments during period (36,028)
---------
Balance at end of period $(242,191)
=========
TREASURY STOCK:
Balance at beginning of period $(778,955)
Shares issued under stock plans 54
---------
Balance at end of period $(778,901)
=========
STOCK HELD BY EMPLOYEE BENEFITS TRUSTS:
Balance at beginning of period $ (90,295)
Shares issued under stock plans 13
---------
Balance at end of period $ (90,282)
=========
The notes on pages 7 through 11 are an integral part of this consolidated
statement.
5
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
(In thousands) 2001 2000
- ---------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 48,102 $ 42,227
Adjustments to reconcile net income to net cash
cash provided by operating activities:
Depreciation and amortization 37,152 35,230
Changes in assets and liabilities:
Accounts receivable, net 5,608 3,501
Current liabilities, excluding debt (31,115) (22,065)
Settlement receivables and payables, net (22,374) 9,511
Other current assets (1,936) (5,401)
Deferred income taxes 2,786 2,406
Other long-term liabilities, excluding debt (2,794) (5,229)
Other assets (8,954) (689)
-------- --------
Net cash provided by operating activities 26,475 59,491
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,959) (5,558)
Additions to other assets, net (20,402) (15,787)
Acquisitions, net of cash acquired (21,614) (35,951)
Investments in unconsolidated affiliates (5,000) (4,000)
-------- --------
Net cash used in investing activities (52,975) (61,296)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net additions (payments) on short-term debt 8,802 (58)
Net payments on long-term debt (11,792) (11,424)
Dividends paid (13,238) (13,043)
Treasury stock purchases -- (6,517)
Proceeds from exercise of stock options 5,545 3,586
Other 871 718
-------- --------
Net cash used in financing activities (9,812) (26,738)
-------- --------
Effect of foreign currency exchange rates on cash (2,943) 489
-------- --------
Net cash used (39,255) (28,054)
Cash and cash equivalents, beginning of period 89,413 136,596
-------- --------
Cash and cash equivalents, end of period $ 50,158 $108,542
======== ========
The notes on pages 7 through 11 are an integral part of these consolidated
statements.
6
EQUIFAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2001
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 March 31, 2001, and the results of operations and
cash flows for the three-month periods ending March 31, 2001 and 2000. 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, 2000.
2. NATURE OF OPERATIONS AND SPIN-OFF:
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 and payment services (see Note 7 for segment information). The
principal markets for both information and payment services are retailers,
banks, and other financial institutions, with information services also serving
the transportation, telecommunication, utility, and manufacturing industries, as
well as consumers and government. The Company's operations are predominantly
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 spin-off would be effected through a tax-free dividend of
stock in the new company to existing Equifax shareholders, and the IRS has
recently issued a ruling to this effect. The transaction is also contingent on
satisfactory completion of SEC filings, among other things. The timing of the
distribution has not yet been finalized, but is expected to occur third quarter
2001.
3. USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles
generally accepted in the U.S. 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. No shares were repurchased during the first quarter of 2001,
and as of March 31, 2001, approximately $94 million remained authorized for
future share repurchases.
7
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. Comprehensive income for the three-month periods ending
March 31, 2001 and 2000 is as follows:
Three Months Ended
March 31
(in thousands) 2001 2000
- --------------------------------------------- --------- -------
Net income $ 48,102 $42,227
Change in cumulative foreign
Currency translation adjustment (34,634) 7,818
Change in cumulative loss from
cash flow hedging transactions (Note 9) (1,394) --
-------- -------
Comprehensive income $ 12,074 $50,045
======== =======
Accumulated other comprehensive loss at March 31, 2001 and December 31, 2000
consists of the following components:
March 31, December 31,
(in thousands) 2001 2000
- ---------------------------------------------- ---------- -----------
Cumulative foreign currency
translation adjustment $(237,463) $(202,829)
Cumulative loss from cash flow
hedging transactions (Note 9) (1,394) --
Adjustment for minimum liability
under supplemental retirement plan (3,334) (3,334)
--------- ---------
Accumulated other comprehensive loss $(242,191) $(206,163)
========= =========
5. AGREEMENT WITH COMPUTER SCIENCES CORPORATION:
The Company has an agreement with Computer Sciences Corporation and certain of
its affiliates (CSC) under which CSC-owned credit reporting agencies utilize the
Company's computerized credit database services. CSC retains ownership of its
credit files and the revenues generated by its 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 is
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:
During the first three months of 2001, the Company acquired the credit files of
two affiliates located in the United States and six affiliates in Canada. These
acquisitions were accounted for as purchases, had a total purchase price of
$21.6 million, and were acquired for cash. They resulted in $7.6 million of
goodwill and $14.3 million of
8
purchased data files. Their results of operations have been included in the
consolidated statements of income from their respective dates of acquisition and
were not material.
7. SEGMENT INFORMATION:
Beginning in the first quarter of 2001, the Company reclassified its minority
interest expense in the net income of subsidiaries that are consolidated but not
fully owned. This expense was previously included in operating income and is
now shown separately on the income statement. The Company has also reclassified
a small check collections business from Equifax Europe to Check Solutions.
Operating revenue and operating income by segment for the first quarter of 2001
and 2000 (restated for the items discussed above) are as follows:
First Quarter
-------------------------------------
(in thousands) 2001 2000
- -------------------------------------------------- ----------- ----------
Operating Revenue:
- ------------------
Information Services:
North American Information Services $181,863 $163,594
Consumer Information Services 37,908 --
Equifax Europe 35,784 35,986
Equifax Latin America 27,182 28,943
Divested Operations -- 42,697
Other 2,409 2,409
-------- --------
285,146 273,629
-------- --------
Payment Services:
Card Solutions 130,859 119,138
Check Solutions 63,737 58,314
-------- --------
194,596 177,452
-------- --------
$479,742 $451,081
======== ========
Operating Income (Loss):
- -----------------------
Information Services:
North American Information Services $ 72,170 $ 60,048
Consumer Information Services 3,724 --
Equifax Europe (404) 969
Equifax Latin America 5,336 6,014
Divested Operations -- 4,749
Other 2,217 2,217
-------- --------
83,043 73,997
-------- --------
Payment Services:
Card Solutions 22,600 17,276
Check Solutions 6,105 8,685
-------- --------
28,705 25,961
-------- --------
General Corporate Expense (12,770) (11,491)
-------- --------
$ 98,978 $ 88,467
======== ========
9
Total assets by segment at March 31, 2001 and December 31, 2000 are as follows:
March 31, December 31,
(in thousands) 2001 2000
- ---------------------------------------------------- ------------------ ------------------
Information Services:
North American Information Services $ 605,374 $ 607,421
Consumer Information Services 265,344 264,759
Equifax Europe 209,807 225,353
Equifax Latin America 217,385 251,628
Divested Operations -- --
Other 4,207 2,948
--------- ----------
1,302,117 1,352,109
---------- ----------
Payment Services:
Card Solutions 425,134 415,843
Check Solutions 69,094 83,365
---------- ----------
494,228 499,208
---------- ----------
Corporate 232,304 218,320
---------- ----------
$2,028,649 $2,069,637
========== ==========
Asset declines in Europe and Latin America result primarily from declines in the
foreign currency exchange rates of the countries that comprise those segments.
The asset decline in Check Solutions is due primarily to a reduction in accounts
receivable reflecting the seasonal nature of that business as volumes decline
after the fourth quarter holiday season, as well as a decline in the U.K.
currency exchange rate.
The asset increase in Corporate results primarily from higher cash and
investments.
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:
Three Months Ended March 31
---------------------------
(in thousands) 2001 2000
- ------------------------------------------------------------- --------- --------
Weighted average shares
outstanding (basic) 136,007 133,917
Effect of dilutive securities:
Stock options 1,516 1,043
Performance share plan 89 190
--------- --------
Weighted average shares
outstanding (diluted) 137,612 135,150
========= ========
10
9. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:
Effective January 1, 2001, the Company adopted FASB Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS
133 requires that a company recognize derivatives as assets or liabilities on
its balance sheet, and also requires that the gain or loss related to the
effective portion of derivatives designated as cash flow hedges be recorded as a
component of other comprehensive income.
At March 31, 2001, the Company has several interest rate swap arrangements in
effect that fix the interest rates for certain of its variable rate obligations.
These derivatives have been designated as cash flow hedges, were documented as
fully effective, and at March 31, 2001 were valued as a liability totaling
$2,324,000. This liability is included with "other current liabilities" in the
accompanying consolidated balance sheets, and the related loss was recorded, net
of income tax, as a component of accumulated other comprehensive loss.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations - (first quarter of 2001 compared to the first quarter of
2000)
Overview
Equifax Inc. is a leader in enabling global commerce by bringing buyers and
sellers together through information, transaction processing and knowledge-based
businesses. The Company's global operations include consumer and commercial
credit information services, credit card processing, check guarantee and
authorization, software, modeling, database management, analytics, consulting
and direct-to-consumer services.
The following discussion should be read in conjunction with the consolidated
financial statements and related notes.
Revenue
Revenue for the first quarter of 2001 increased 6.4% to $479.7 million. The
growth in revenue was positively impacted by the acquisition of Consumer
Information Services ("CIS") on May 1, 2000, and negatively impacted by the
dispositions of the global risk management businesses in October 2000 and the
U.K. vehicle information business in December 2000 ("Divested Operations"), and
the effects of changes in foreign exchange rates. CIS generated incremental
revenue of $37.9 million in the first quarter of 2001, and Divested Operations
generated revenue of $42.7 million in the first quarter of 2000. The
strengthening of the U.S. dollar against foreign currencies, in particular the
Brazilian real and the British Pound negatively impacted revenue by
approximately $10.9 million, or 2.4%.
Information Services revenue grew 4.2% to $285.1 million, driven by increases in
Credit Information Services, Mortgage Information Services and Consumer Direct.
Excluding the impacts of acquisitions, divestitures and changes in foreign
currencies, Information Services revenue grew 8.5%. Payment Services revenue
increased 9.7% (12.1% before impact of changes in foreign currencies) to $194.6
million due to growth in both Check Solutions and Card Solutions.
Operating Income
Operating income for the first quarter of 2001 increased 11.9% to $99.0 million.
Consolidated operating margins increased to 20.6% versus 19.6% in the first
quarter of 2000 as a result of improved product mix as well as productivity and
cost containment initiatives throughout the Company.
Other Income, Net
Other income, net was $1.1 million in 2001 versus $1.0 million in the first
quarter of 2000.
Interest Expense
Interest expense increased to $17.7 million compared to $16.4 million for the
first quarter of 2000. The increase resulted from higher average debt
outstanding associated with acquisition activity in 2000. Average total debt
outstanding was $1,043.7 million in the first quarter of 2001 versus $1,002.6
million in 2000.
Net Income and Diluted Earnings per Share
Net Income increased 13.9% to $48.1 million. Diluted earnings per share of
$0.35 increased 12.9%. Average diluted shares outstanding were 137.6 million,
an increase of 1.8% over 2000.
12
Segment Results
The following table summarizes the segment results for the three-month periods
ending March 31, 2001 and 2000. The results of businesses sold in the fourth
quarter of 2000, which include the Company's risk management businesses located
in the U.S., Canada, and the U.K., as well as the vehicle information business
in the U.K. have been classified as Divested Operations. Prior year information
has been restated to conform to the current year presentation (Note 7).
Three Months Ending March 31
---------------------------------------
Operating revenue Operating income
----------------- ----------------
2001 2000 2001 2000
-------- -------- -------- --------
Information Services:
North American Information Services $181,863 $163,594 $ 72,170 $ 60,048
Consumer Information Services 37,908 - 3,724 -
Equifax Europe 35,784 35,986 (404) 969
Equifax Latin America 27,182 28,943 5,336 6,014
Divested Operations - 42,697 - 4,749
Other 2,409 2,409 2,217 2,217
-------- -------- -------- --------
285,146 273,629 83,043 73,997
-------- -------- -------- --------
Payment Services:
Card Solutions 130,859 119,138 22,600 17,276
Check Solutions 63,737 58,314 6,105 8,685
-------- -------- -------- --------
194,596 177,452 28,705 25,961
-------- -------- -------- --------
General Corporate Expense (12,770) (11,491)
-------- --------
$479,742 $451,081 $ 98,978 $ 88,467
======== ======== ======== ========
Information Services:
- ---------------------
North American Information Services
North American Information Services includes U.S. Credit Information and
Marketing Services, Mortgage Services, Canadian Operations, Consumer Direct and
Equifax Secure. Revenue in this segment increased 11.2% in 2001 and 5.6% in
2000.
U.S. Credit Information and Marketing Services' revenue increased 6.2% in 2001.
Credit Information revenue increased 9.0%, with volume growth of 17% partially
offset by average price declines of 5%. Volume growth was driven by increases
from customers in the financial services, telecommunication, and mortgage
industries. Average pricing has been impacted by mix of business, with many of
our largest customers driving increasing volumes at unit prices below the
previous year's average. Many of these customers are also large customers of
the Company's marketing services, which include pre-screening, portfolio review,
database and other marketing products. Marketing Services revenue declined 1.1%
as a result of the slowdown in the U.S. economy.
Mortgage Services revenue increased 62.2%, as interest rates continued to edge
downward fueling refinancing activity. Canadian Operations revenue increased
5.2%. Consumer Direct experienced revenue growth of $4.4 million in large part
due to contributions from two new products, Equifax CreditWatch(TM) and
ScorePower(TM), as well as higher volume from the Equifax Credit Profile(TM)
product.
Operating income for North American Information Services increased 20.2% to
$72.2 million in the first quarter of 2001, due primarily to the growth in
Credit Information revenue as well as continued cost management.
13
Consumer Information Services
Consumer Information Services includes Direct Marketing Services and City
Directory, which were acquired on May 1, 2000. Revenue and operating income
totaled $37.9 million and $3.7 million, respectively, for the first quarter.
Equifax Europe
Revenue in Equifax Europe, which consists of operations in the United Kingdom,
Spain, Portugal and Italy, declined 0.6% to $35.8 million. The fourth quarter
2000 acquisition of SEK in Italy generated $3.3 million of revenue. However,
unfavorable currency exchange rates in the U.K. and Spain negatively impacted
revenue by $3.1 million or 8.5%.
Operating income for Equifax Europe declined $1.4 million to a loss of $0.4
million, as a traditionally slow quarter for Europe was compounded by an
economic slowdown.
Equifax Latin America
Equifax Latin America includes operations in Brazil, Argentina, Chile, Peru and
El Salvador. Revenue declined 6.1% to $27.2 million. Weakening local
currencies negatively impacted revenue by $2.5 million or 8.7%. In local
currency, revenues increased 2.7%.
Operating income for Equifax Latin America decreased 11.3% to $5.3 million due
primarily to declining exchange rates.
Divested Operations
The Company sold its risk management businesses in the U.S., Canada, and the
U.K. in October 2000 and also sold its vehicle information business in the U.K.
in December 2000. These information services businesses, which were disposed
because they no longer fit the Company's ongoing business strategy, have been
classified as Divested Operations, and prior year segment information has been
reclassified to conform with this presentation. Revenue and operating income
generated in the prior year quarter totaled $42.7 million and $4.7 million
respectively.
Other
Other consists solely of a subcontract, which expires at the end of May 2002,
relating to the Company's lottery subsidiary. Revenue and operating income
remained comparable between years at $2.4 million and $2.2 million,
respectively. Revenue and operating income will remain comparable until the
subcontract's expiration.
Payment Services:
- -----------------
Card Solutions
Card Solutions includes card processing operations in the U.S., U.K., Brazil
and Chile and a card software business principally supporting the international
operations. Revenue for the first quarter increased 9.8% to $130.9 million.
U.S. Card revenues grew 12.2% in the first quarter driven by increases in
merchant and card processing. Excluding the card software business, Card
International revenue increased 7.3% (20.9% in local currency) due to growth in
the card processing operations in Brazil and the U.K.
Operating income increased 30.8% to $22.6 million as a result of a 21.8%
increase in U.S. Card profits and improved International operating margins.
Brazil operating income increased $1.2 million over first quarter 2000.
Check Solutions
Check Solutions, which consists of operations in the U.S., Canada, U.K.,
Ireland, France, Australia and New Zealand, grew revenue 9.3% (11.3% before
impact of changes in foreign currencies) to $63.7 million in the first quarter
of 2001.
Operating income decreased 29.7% to $6.1 million as check loss experience
negatively impacted the quarter.
14
General Corporate Expense:
- --------------------------
General corporate expense increased $1.3 million due primarily to higher costs
for long-term incentive plans.
Financial Condition
Net cash provided by operating activities amounted to $26.5 million in the first
quarter of 2001 compared to $59.5 million in 2000. This decline was due
primarily to the timing of cash receipts and disbursements related to Payment
Services settlement receivable and payable accounts, which accounted for $31.9
million of the change. Net cash used by investing activities amounted to $53.0
million versus $61.3 million in 2000. Capital expenditures, exclusive of
acquisitions and investments, amounted to $26.4 million versus $21.3 million in
the first quarter of 2000.
At March 31, 2001, approximately $374 million was available to the Company under
its $750 million revolving credit facility. 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 agreement with CSC requires a six-
month notice period, and management believes the Company could arrange
alternative sources of financing available within that time to fund this
potential purchase, including public debt markets and additional lines of bank
credit.
Forward-Looking Information
Spin-Off of Payment Services
On October 2, 2000, the Company announced that its Board of directors approved a
plan to separate the Company into two independent public companies. The Company
intends to accomplish the separation through a spin-off of Payment Services to
its shareholders in the form of a tax-free stock dividend. The Information
Services businesses will retain the Equifax Inc. corporate identity. Separating
Payment Services from Equifax Inc. will create two companies, each with its own
management and Board of Directors focused on taking advantage of growth
opportunities in their respective markets. As independent companies, each will
set its own strategy for acquisitions, alliances, resource allocation and
marketing more effectively for its individual needs. The transaction is subject
to regulatory approvals, including satisfactory completion of SEC filings. A
favorable ruling has been received from the IRS regarding the tax-free nature of
the dividend. Management expects this transaction to be completed during the
third quarter of 2001.
General
Statements in this Management's Discussion and Analysis, and other portions of
this Form 10-Q 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. These statements are based on a number of
assumptions that are inherently subject to significant uncertainties. Many of
the uncertainties are beyond Equifax's control. Factors that could cause actual
results to differ from those expressed or implied by forward-looking statements
include, but are not limited to customer demand for our services, the
availability and reliability of external data sources, changes in government
regulation, competition, and effects of the spinoff of Payment Services, as
further discussed under the heading "Certain Factors Affecting Forward Looking
Statements" included in Part I in the Company's annual report on Form 10-K for
the year ended December 31, 2000.
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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 the Company's foreign subsidiaries can be impacted by changes in foreign
currency exchange rates. The Company's position is to not hedge against this
risk due to the significant cost involved. At March 31, 2001, 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 and intercompany balances associated with
funding an acquisition in Italy and a startup operation in Australia. From time
to time, as such balances or obligations arise, the Company may consider hedging
to minimize its exposure for these transactions. At March 31, 2001, the
exchange risk associated with the Company's intercompany advances to its U.K.
operations, as well as the intercompany balances associated with funding the
Italy acquisition and startup operation in Australia were partially hedged by
having a portion of the borrowings under its revolving credit facility
denominated in those respective currencies.
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 March 31, 2001, approximately $241 million (23%) 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 $2.4 million per year (pre-tax). In January 2001, the
Company entered into an interest rate swap arrangement to fix the interest rate
for $200 million of its variable rate revolver debt through June 15, 2001. That
portion of the Company's revolver debt has been excluded from the $241 million
amount of variable rate debt mentioned above.
PART II. OTHER INFORMATION
--------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
No exhibits are included as part of this report.
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter for
which this report is filed.
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SIGNATURES
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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: May 14, 2001 /s/ Thomas F. Chapman
---------------------
Thomas F. Chapman, Chairman
and Chief Executive Officer
Date: May 14, 2001 /s/ Philip J. Mazzilli
----------------------
Philip J. Mazzilli
Executive Vice President and
Chief Financial Officer
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