EXHIBIT 13.3
CONSOLIDATED BALANCE SHEETS
(In thousands)
- ----------------------------------------------------------------------------------
December 31 2000 1999
- ----------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 89,413 $ 136,596
Trade accounts receivable, net of allowance for doubtful
accounts of $18,650 in 2000 and $14,057 in 1999 325,444 302,809
Settlement receivables 48,173 67,963
Other receivables 75,827 19,910
Deferred income tax assets 23,236 28,015
Other current assets 42,816 54,140
---------- ----------
Total current assets 604,909 609,433
---------- ----------
Property and Equipment:
Land, buildings and improvements 40,220 39,140
Data processing equipment and furniture 235,296 258,314
---------- ----------
275,516 297,454
Less accumulated depreciation 176,705 181,964
---------- ----------
98,811 115,490
---------- ----------
Goodwill 717,939 612,551
---------- ----------
Purchased Data Files 209,379 157,701
---------- ----------
Other Assets 438,599 344,606
---------- ----------
$2,069,637 $1,839,781
========== ==========
The accompanying notes are an integral part
of these consolidated balance sheets.
CONSOLIDATED BALANCE SHEETS (continued)
(In thousands, except par values)
- ----------------------------------------------------------------------------------------
December 31 2000 1999
- ----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current maturities of long-term debt $ 54,609 $ 79,866
Accounts payable, trade 35,262 59,071
Settlement payables 77,213 118,356
Accrued salaries and bonuses 36,961 38,203
Income taxes payable 22,404 12,005
Other current liabilities 199,775 197,294
---------- ----------
Total current liabilities 426,224 504,795
---------- ----------
Long-Term Debt, Less Current Maturities 993,569 933,708
---------- ----------
Long-Term Deferred Revenue 32,864 22,547
---------- ----------
Deferred Income Tax Liabilities 90,198 73,132
---------- ----------
Other Long-Term Liabilities 143,204 89,974
---------- ----------
Commitments and Contingencies (Note 8)
Shareholders' Equity:
Common stock, $1.25 par value; shares authorized - 300,000;
issued - 175,991 in 2000 and 174,259 in 1999;
outstanding - 135,835 in 2000 and 134,001 in 1999 219,989 217,824
Preferred stock, $0.01 par value; shares authorized - 10,000;
issued and outstanding - none in 2000 or 1999 - -
Paid-in capital 336,527 304,532
Retained earnings 902,475 726,827
Accumulated other comprehensive income (206,163) (161,982)
Treasury stock, at cost, 33,078 shares in 2000
and 34,640 shares in 1999 (Note 6) (778,955) (816,213)
Stock held by employee benefits trusts, at cost,
7,079 shares in 2000 and 5,619 shares in 1999 (Note 6) (90,295) (55,363)
---------- ----------
Total shareholders' equity 383,578 215,625
---------- ----------
$2,069,637 $1,839,781
========== ==========
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
- ------------------------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- ------------------------------------------------------------------------------------------
Operating revenue $1,965,881 $1,772,694 $1,620,978
---------- ---------- ----------
Costs and expenses:
Costs of services 1,119,148 1,032,389 943,833
Selling, general and administrative expenses 391,318 325,766 311,493
---------- ---------- ----------
Total costs and expenses 1,510,466 1,358,155 1,255,326
---------- ---------- ----------
Operating income 455,415 414,539 365,652
Other income, net 5,905 12,356 4,294
Interest expense 75,951 60,971 42,701
---------- ---------- ----------
Income before income taxes 385,369 365,924 327,245
Provision for income taxes 157,347 150,047 133,812
---------- ---------- ----------
Net income $ 228,022 $ 215,877 $ 193,433
========== ========== ==========
Net income per common share (basic) $ 1.70 $ 1.57 $ 1.37
========== ========== ==========
Shares used in computing basic earnings per share 134,400 137,457 141,397
========== ========== ==========
Net income per common share (diluted) $ 1.68 $ 1.55 $ 1.34
========== ========== ==========
Shares used in computing diluted earnings per share 136,016 139,603 144,403
========== ========== ==========
Dividends per common share $ 0.370 $ 0.363 $ 0.353
========== ========== ==========
The accompanying notes are an integral part
of these consolidated statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- ---------------------------------------------------------------------------------------
Year Ended December 31 2000 1999 1998
- ---------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 228,022 $ 215,877 $ 193,433
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 148,783 125,263 103,825
Income tax benefit from stock plans 5,638 2,046 8,085
Loss (gain) from sale of businesses 2,044 (7,095) -
Changes in assets and liabilities,
excluding effects of acquisitions:
Accounts receivable, net (27,562) (22,754) (19,012)
Current liabilities, excluding debt (17,934) 4,499 39,078
Settlement receivables and payables, net (21,353) 25,020 (18,583)
Other current assets (13,364) 5,369 (3,049)
Deferred income taxes 16,691 20,885 34,595
Other long-term liabilities, excluding debt (12,062) (3,609) (16,831)
Other assets (24,738) (38,743) (24,328)
--------- --------- ---------
Net cash provided by operating activities 284,165 326,758 297,213
--------- --------- ---------
Cash flows from investing activities:
Additions to property and equipment (37,132) (39,033) (44,921)
Additions to other assets, net (73,530) (81,838) (74,411)
Acquisitions, net of cash acquired (382,831) (22,162) (478,463)
Investments in unconsolidated affiliates (10,248) (700) (22,752)
Proceeds from sale of businesses 156,001 25,957 12,874
Proceeds from sale of assets 8,299 - -
--------- --------- ---------
Net cash used by investing activities (339,441) (117,776) (607,673)
--------- --------- ---------
Cash flows from financing activities:
Net short-term borrowings (21,026) 33,114 28,988
Additions to long-term debt 92,170 70,244 524,068
Payments on long-term debt (22,983) (6,256) (3,692)
Treasury stock purchases (6,517) (210,175) (161,797)
Dividends paid (52,374) (51,961) (52,063)
Proceeds from exercise of stock options 23,165 6,996 12,245
Other 3,538 2,965 3,619
--------- --------- ---------
Net cash provided (used) by financing activities 15,973 (155,073) 351,368
--------- --------- ---------
Effect of foreign currency exchange rates on cash (7,880) (7,930) (2,542)
--------- --------- ---------
Net cash (used) provided (47,183) 45,979 38,366
Cash and cash equivalents, beginning of year 136,596 90,617 52,251
--------- --------- ---------
Cash and cash equivalents, end of year $ 89,413 $ 136,596 $ 90,617
========= ========= =========
The accompanying notes are an integral part
of these consolidated statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Common Stock:
-------------
Shares Paid-In Retained
(In thousands) Outstanding Amount Capital Earnings
- -------------------------------------------------------------------------------------------
Balance, December 31, 1997 142,609 $215,581 $244,496 $421,541
1998 changes:
Net income - - - 193,433
Foreign currency translation adjustment - - - -
Adjustment for minimum liability under
supplemental retirement plan - - - -
Shares issued under stock plans 1,451 1,572 18,952 -
Shares contributed to U.S. retirement plan 390 - 10,392 -
Treasury stock purchased (4,555) - - -
Treasury stock reissued for acquisitions 147 - 2,346 -
Cash dividends - - - (52,063)
Income tax benefit from stock plans - - 8,085 -
Dividends from employee benefits trusts - - 2,240 -
- -------------------------------------------------------------------------------------------
Balance, December 31, 1998 140,042 217,153 286,511 562,911
1999 changes:
Net income - - - 215,877
Foreign currency translation adjustment - - - -
Adjustment for minimum liability under
supplemental retirement plan - - - -
Shares issued under stock plans 599 671 6,945 -
Shares contributed to U.S. retirement plan 304 - 7,003 -
Treasury stock purchased (6,944) - - -
Cash dividends - - - (51,961)
Income tax benefit from stock plans - - 2,046 -
Dividends from employee benefits trusts - - 2,027 -
- -------------------------------------------------------------------------------------------
Balance, December 31, 1999 134,001 217,824 304,532 726,827
2000 changes:
Net income - - - 228,022
Foreign currency translation adjustment - - - -
Adjustment for minimum liability under
supplemental retirement plan - - - -
Shares issued under stock plans 1,789 2,165 21,051 -
Treasury stock purchased (296) - - -
Treasury stock reissued for acquisitions 341 - 2,605 -
Cost of treasury stock transferred to
employee benefits trust - - - -
Cash dividends - - - (52,374)
Income tax benefit from stock plans - - 5,638 -
Dividends from employee benefits trusts - - 2,701 -
- -------------------------------------------------------------------------------------------
Balance, December 31, 2000 135,835 $219,989 $336,527 $902,475
===========================================================================================
The accompanying notes are an integral part of these consolidated statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME (CONTINUED)
Accumulated Other Comprehensive Income:
Minimum Stock Held
Foreign Liability Under By Employee Total
Currency Supplemental Treasury Benefits Shareholders' Comprehensive
Translation Retirement Plan Total Stock Trust Equity Income
- --------------------------------------------------------------------------------------------------------------------
$(13,684) $(6,392) $ (20,076) $(447,578) $(64,567) $ 349,397
- - - - - 193,433 $ 193,433
(15,313) - (15,313) - - (15,313) (15,313)
- 326 326 - - 326 326
- - - 279 1,770 22,573 -
- - - - 3,843 14,235 -
- - - (161,797) - (161,797) -
- - - 3,004 - 5,350 -
- - - - - (52,063) -
- - - - - 8,085 -
- - - - - 2,240 -
- --------------------------------------------------------------------------------------------------------------------
(28,997) (6,066) (35,063) (606,092) (58,954) 366,466 $ 178,446
=========
- - - - - 215,877 $ 215,877
(128,283) - (128,283) - - (128,283) (128,283)
- 1,364 1,364 - - 1,364 1,364
- - - 54 594 8,264 -
- - - - 2,997 10,000 -
- - - (210,175) - (210,175) -
- - - - - (51,961) -
- - - - - 2,046 -
- - - - - 2,027 -
- --------------------------------------------------------------------------------------------------------------------
(157,280) (4,702) (161,982) (816,213) (55,363) 215,625 $ 88,958
=========
- - - - - 228,022 $ 228,022
(45,549) - (45,549) - - (45,549) (45,549)
- 1,368 1,368 - - 1,368 1,368
- - - 431 392 24,039 -
- - - (6,517) - (6,517) -
- - - 8,020 - 10,625 -
- - - 35,324 (35,324) - -
- - - - - (52,374) -
- - - - - 5,638 -
- - - - - 2,701 -
- --------------------------------------------------------------------------------------------------------------------
$(202,829) $(3,334) $(206,163) $(778,955) $(90,295) $ 383,578 $ 183,841
====================================================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting and Reporting Policies
Principles of Consolidation The consolidated financial statements include the
accounts of the Company and its majority-owned and controlled subsidiaries. All
significant intercompany transactions and balances have been eliminated. Certain
prior year amounts have been reclassified to conform with the current year
presentation.
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 10 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, manufacturing, and media industries. 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 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 third quarter 2001.
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.
Revenue Recognition Revenue is recognized principally as services and products
are provided to and accepted by customers. Amounts billed in advance are
recorded as current or long-term deferred revenue on the balance sheet, with
current deferred revenue reflecting services expected to be provided within the
next twelve months. Current deferred revenue is included with other current
liabilities in the accompanying consolidated balance sheets, and as of December
31, 2000 and 1999, totaled $34,256,000 and $31,523,000, respectively. In 1996,
the Company received a one-time payment of $58,000,000 related to a lottery
subcontract and recognized $5,400,000 in revenue. The remaining balance is being
recognized as revenue over the term of the contract, with $9,636,000 per year
recognized in 1997 through 2000. The unrecognized balance at December 31, 2000,
totaled $14,056,000, with $4,420,000 included in long-term deferred revenue in
the accompanying consolidated balance sheets. In conjunction with the
divestiture of the Company's U.S. risk management and Canadian risk management
businesses in October 2000 (Note 3), certain of the proceeds received related to
contracts to provide credit information products and services to the buyers over
the next five to six years and was recorded in current and long-term deferred
revenue. At December 31, 2000, $25,527,000 remained unrecognized, with
$21,195,000 included in long-term deferred revenue in the accompanying
consolidated balance sheets. This deferred revenue will be recognized as the
contracted products and services are provided.
Earnings Per Share Basic EPS is calculated as income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted EPS is calculated to reflect the potential dilution
that would occur if stock options or other contracts to issue common stock were
exercised and resulted in additional common shares outstanding. The income
amount used in the Company's EPS calculations is the same for both basic and
diluted EPS. A reconciliation of the average outstanding shares used in the two
calculations is as follows:
(In thousands) 2000 1999 1998
- -----------------------------------------------------------
Weighted average shares
outstanding (basic) 134,400 137,457 141,397
Effect of dilutive securities:
Stock options 1,439 1,880 2,714
Performance share plan 177 266 292
- -----------------------------------------------------------
Weighted average shares
outstanding (diluted) 136,016 139,603 144,403
===========================================================
Settlement Receivables and Payables Settlement receivables and payables result
from timing differences in the Company's settlement process with merchants,
financial institutions, and credit card associations related to merchant and
card transaction processing. Cash balances associated with the clearing system
amounted to $29.0 million, $50.4 million and $25.4 million at December 31, 2000,
1999 and 1998, respectively.
Property and Equipment The cost of property and equipment is depreciated
primarily on the straight-line basis over estimated asset lives of 30 to 50
years for buildings; useful lives, not to exceed lease terms, for leasehold
improvements; 3 to 5 years for data processing equipment; and 8 to 20 years for
other fixed assets.
Goodwill Goodwill is amortized on a straight-line basis predominantly over
periods from 20 to 40 years. Amortization expense was $32,382,000 in 2000,
$26,926,000 in 1999, and $21,536,000 in 1998. As of December 31, 2000 and 1999,
accumulated amortization balances were $99,681,000 and $87,533,000,
respectively.
Purchased Data Files Purchased data files are amortized on a straight-line
basis primarily over 15 years. Amortization expense was $20,167,000 in 2000,
$17,566,000 in 1999, and $14,982,000 in 1998. As of December 31, 2000 and 1999,
accumulated amortization balances were $118,005,000 and $109,269,000,
respectively.
Other Assets Other assets at December 31, 2000 and 1999 consist of the
following:
(In thousands) 2000 1999
- ---------------------------------------------------
Systems development
and other deferred costs $163,225 $154,301
Purchased software 57,107 55,013
Purchased merchant contracts 23,667 -
Prepaid pension cost 98,215 86,764
Risk management purchased
paper (Note 3) 59,073 29,619
Investments in unconsolidated
companies 12,800 5,558
Other 24,512 13,351
- ---------------------------------------------------
$438,599 $344,606
===================================================
Purchased software, purchased merchant contracts, and systems development and
other deferred costs are being amortized on a straight-line basis over five to
eleven years. Amortization expense for other assets was $57,432,000 in 2000,
$43,156,000 in 1999, and $32,078,000 in 1998. As of December 31, 2000 and 1999,
accumulated amortization balances were $176,759,000 and $159,840,000,
respectively.
Long-Lived Assets Long-lived assets include property and equipment, goodwill,
purchased data files, and other assets. The Company regularly evaluates whether
events and circumstances have occurred which indicate that the carrying amount
of long-lived assets may warrant revision or may not be recoverable. When
factors indicate that long-lived assets should be evaluated for possible
impairment, the Company uses an estimate of the future undiscounted net cash
flows of the related business over the remaining life of the asset in measuring
whether the asset is recoverable.
Foreign Currency Translation The functional currency of the Company's foreign
subsidiaries are those subsidiaries' local currencies. The assets and
liabilities of foreign subsidiaries are translated at the year-end rate of
exchange, and income statement items are translated at the average rates
prevailing during the year. The resulting translation adjustment is recorded as
a component of shareholders' equity. Gains and losses resulting from the
translation of intercompany balances of a long-term investment nature are also
recorded as a component of shareholders' equity. Other foreign currency
translation gains and losses, which are not material, are recorded in the
consolidated statements of income.
Consolidated Statements of Cash Flows The Company considers cash equivalents to
be short-term cash investments with original maturities of three months or less.
Cash paid for income taxes and interest is as follows:
(In thousands) 2000 1999 1998
- ---------------------------------------------------
Income taxes, net of
amounts refunded $124,717 $127,611 $98,905
Interest 76,177 60,379 28,885
In 2000, 1999, and 1998, the Company acquired various businesses that were
accounted for as purchases (Note 2). In conjunction with these transactions,
liabilities were assumed as follows:
(In thousands) 2000 1999 1998
- -----------------------------------------------------------
Fair value of assets
acquired $415,657 $24,783 $540,078
Cash paid for acquisitions 383,938 24,182 485,076
Value of treasury stock
reissued for acquisitions 10,625 - 6,000
- -----------------------------------------------------------
Liabilities assumed $ 21,094 $ 601 $ 49,002
===========================================================
Financial Instruments The Company's financial instruments consist primarily of
cash and cash equivalents, accounts and notes receivable, accounts payable, and
short-term and long-term debt. The carrying amounts of these items, other than
long-term debt, approximate their fair market values due to their short
maturity. As of December 31, 2000, the fair value of the Company's long-term
debt (determined primarily by broker quotes) was $981,953,000 compared to its
carrying value of $993,569,000. During 2000, the Company's derivative financial
instruments consisted of several interest rate swap agreements used to fix
portions of the Company's floating rate obligations.
Recent Accounting Pronouncements and Accounting Change In June 1998, the FASB
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 that the adoption of SFAS 133
will have a significant impact on its financial statements or reported earnings.
2. ACQUISITIONS AND INVESTMENTS IN UNCONSOLIDATED AFFILIATES
During 2000, the Company acquired or increased its ownership in the following
businesses:
Month Industry Percentage
Business Acquired Segment Ownership
- ----------------------------------------------------------------------------------------------
Organizacion Veraz S.A. (Argentina) December Latin America 79.5% 1
SEK S.r.l. and AIF Gruppo Securitas S.r.l. (Italy) November Europe 100.0%
Compliance Data Center, Inc. October North America 100.0%
Equifax Card Solutions Limited (U.K.) September Card Solutions 100.0% 2
Consumer Information Solutions (CIS)
Group of R.L. Polk & Co. May Consumer Services 100.0%
Check-A-Cheque Ltd. (U.K.) March Check Solutions 100.0%
Procard, S.A. (Chile) January Card Solutions 100.0%
Propago, S.A. (Chile) January Latin America 100.0%
1 Increased to 79.5% from 66.7% acquired in 1997 and 1994
2 Increased from 51.0% ownership started in 1999
In 2000, in addition to the businesses above, the Company acquired the credit
files of 12 credit affiliates located in the United States and 14 affiliates in
Canada, as well as a portfolio of credit card merchant contracts from Heartland
Payment Systems. These acquisitions were accounted for as purchases and had an
aggregate purchase price of $394,563,000, with $242,873,000 allocated to
goodwill and $78,770,000 allocated to purchased data files. They were purchased
with a combination of cash totaling $383,938,000 and the reissuance of treasury
stock with a fair market value of $10,625,000. Their results of operations have
been included in the consolidated statements of income from the dates of
acquisition and were not material.
In 1999, the Company acquired the credit files of 14 credit affiliates located
in the United States and three credit affiliates in Canada. They were accounted
for as purchases and had an aggregate purchase price of $24,182,000, with
$7,508,000 allocated to goodwill and $15,954,000 allocated to purchased data
files. Their results of operations have been included in the consolidated
statements of income from the dates of acquisition and were not material.
During 1998, the Company acquired, made equity investments, or increased its
ownership in the following businesses:
Month Industry Percentage
Business Acquired Segment Ownership
- -----------------------------------------------------------------------------------------
Unnisa Ltda. (Brazil) September Card Solutions 59.3%
Proceda S.A. (Brazil) September Card Solutions 34.0%
Seguranca ao Credito e Informacoes (SCI-Brazil) August Latin America 80.0%
Credit Bureau of Vancouver (Canada) July North America 100.0%
Equifax Canada Inc. July North America 100.0% 1
Decisioneering Group, Inc. July North America 100.0%
ASNEF-Equifax Servicios de Informacion
de Credito, S.L. (Spain) May Europe 58.0% 2
Infocorp (Peru) April Latin America 51.0% 3
CCI Group Plc (U.K.) March Europe 100.0%
1 Increased to 100.0% from 84.4%
2 Increased from 49.0% acquired in 1994
3 Increased from 35.0% acquired with DICOM S.A. in 1994
In 1998, in addition to the businesses above, the Company acquired the credit
files of 14 credit affiliates located in the United States and the collection
businesses of Computer Sciences Corporation (CSC), which was subsequently sold
(Note 8). Also, during the first quarter of 1998, the Company obtained the
control necessary and began to consolidate the operations of its 66.7% owned
investment in Organizacion Veraz S.A. in Argentina. The investment in Proceda
S.A., along with increases in certain other equity investments, totaled $22.8
million and were accounted for under the equity method. They were purchased with
cash and recorded as other assets. The remaining 1998 business and credit file
acquisitions were accounted for as purchases and had an aggregate purchase price
of $491,076,000. They were purchased with a combination of cash totaling
$485,076,000 and the reissuance of treasury stock with a fair market value of
$6,000,000. These acquisitions and the consolidation of Veraz resulted in
$389,013,000 of goodwill, $86,259,000 of purchased data files, and $22,170,000
of other assets (primarily software and deferred systems costs). These
allocations include $26.0 million reallocated from other assets related to
investments in companies 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, 1998. The information is based on the historical results of the separate
companies, and may not necessarily be indicative of the results that could have
been achieved, or of results that may occur in the future.
(In thousands, except per share amounts) 1998
- ------------------------------------------------------
Revenue $1,751,184
Net income 181,598
Net income per common share (diluted) 1.26
3. Divestitures
In September 2000, the Company sold its 50% interest in a credit card processing
operation in India. In October 2000, the Company sold its risk management
businesses located in the U.S., Canada, and the U.K., and in December 2000 sold
its vehicle information business in the U.K. as well as a direct marketing
business in Canada that was a small component of the CIS group acquired earlier
in the year from R.L. Polk & Co. Proceeds from these sales included cash of
$156,001,000 (net of cash sold) and a $41 million note receivable from one of
the buyers, and resulted in a pretax loss of $2,044,000 recorded in other
income. Approximately $25.5 million of the proceeds received in the U.S. and
Canadian risk management sales related to exclusive contracts to provide the
buyers with credit information products and services over several years, and was
recorded in current and long-term deferred revenue. In conjunction with the U.S.
risk management sale, the Company guaranteed approximately $60 million of the
buyer's third-party acquisition financing which related to a portfolio of
purchased paper. Since this purchased paper financing was entirely guaranteed by
the Company, the amount guaranteed (approximately $59.1 million at December 31,
2000) has been recorded in other assets and other long-term liabilities in the
accompanying consolidated balance sheets. These corresponding asset and
liability balances will be reduced as the buyer makes principal payments on
their loan and the Company's guarantee is reduced. At December 31, 1999, the
U.S. risk management business had approximately $51.5 million in purchased
paper, with $21.9 million included in other current assets and $29.6 million
included in other assets in the accompanying consolidated balance sheets.
In April 1999, the Company sold its 34% equity interest in Proceda S.A. in
Brazil, and in June 1999 also sold three risk management offices located in the
U.S. Proceeds from these sales totaled $25,957,000 and resulted in a gain of
$7,095,000 recorded in other income ($2,888,000 after tax, or $.02 per share).
In October 1998, the Company sold the collection businesses it had purchased
from CSC earlier in the year (Note 8).
4. LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt at December 31, 2000 and 1999 was as follows:
(In thousands) 2000 1999
- ----------------------------------------------------------
Senior Notes, 6.5%, due 2003,
net of unamortized discount of
$255 in 2000 and $357 in 1999 $199,745 $199,643
Senior Notes, 6.3%, due 2005,
net of unamortized discount of
$754 in 2000 and $921 in 1999 249,246 249,079
Senior Debentures, 6.9%, due 2028,
net of unamortized discount of
$1,375 in 2000 and $1,425 in 1999 148,625 148,575
Borrowings under $750 million
revolving credit facility, weighted
average rate of 6.8% at
December 31, 2000 390,533 318,000
Other 8,513 22,581
- ----------------------------------------------------------
996,662 937,878
Less current maturities 3,093 4,170
- ----------------------------------------------------------
$993,569 $933,708
==========================================================
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% 30-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 are being
amortized on a straight-line basis over the respective term of the notes and
debentures.
In November 1997, the Company replaced its $550 million revolving credit
facility with a new, committed $750 million revolving credit facility with a
group of commercial banks. The new facility expires November 2002. The agreement
provides interest rate options tied to Base Rate, LIBOR, or Money Market indexes
and contains certain financial covenants related to interest coverage, funded
debt to cash flow, and limitations on subsidiary indebtedness. At December 31,
2000, $34,533,000 of the revolving credit facility's outstanding balance was
denominated in foreign currencies. These foreign denominated obligations are
used to hedge the impacts of foreign exchange rate fluctuations related to
intercompany advances between the Company and several of its foreign
subsidiaries.
Scheduled maturities of long-term debt during the five years subsequent to
December 31, 2000, are as follows:
(In thousands) Amount
- --------------------------
2001 $ 3,093
2002 395,387
2003 200,311
2004 -
2005 249,246
The Company's short-term borrowings at December 31, 2000 and 1999, totaled
$51,516,000 and $75,696,000, respectively, and consisted primarily of notes
payable to banks. These notes had a weighted average interest rate of 6.25% at
December 31, 2000 and 5.20% at December 31, 1999. In October 1999, a Canadian
subsidiary of the Company entered into a C$100,000,000 loan, renewable annually,
with a group of banks. The loan agreement provides interest rate options tied to
Prime, Base Rate, LIBOR, and Canadian Banker's Acceptances, and contains
financial covenants related to interest coverage, funded debt to cash flow, and
limitations on subsidiary indebtedness. Borrowings under this loan (which are
included in the short-term borrowings totals above) at December 31, 2000 and
1999 were C$69,000,000 and C$100,000,000 respectively.
5. Income Taxes
The Company records deferred income taxes using enacted tax laws and rates for
the years in which the taxes are expected to be paid. Deferred income tax assets
and liabilities are recorded based on the differences between the financial
reporting and income tax bases of assets and liabilities.
The provision for income taxes consists of the following:
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------
Current:
Federal $105,383 $ 96,342 $ 74,769
State 7,925 15,855 10,854
Foreign 26,766 16,355 17,020
- --------------------------------------------------------------------------
140,074 128,552 102,643
- --------------------------------------------------------------------------
Deferred:
Federal 9,544 11,467 26,309
State 1,906 2,596 4,952
Foreign 5,823 7,432 (92)
- --------------------------------------------------------------------------
17,273 21,495 31,169
- --------------------------------------------------------------------------
$157,347 $150,047 $133,812
==========================================================================
The provision for income taxes is based on income before income taxes as follows:
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------
United States $346,491 $322,782 $299,815
Foreign 38,878 43,142 27,430
- --------------------------------------------------------------------------
$385,369 $365,924 $327,245
==========================================================================
The provision for income taxes is reconciled with the federal statutory rate as follows:
(In thousands) 2000 1999 1998
- --------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
=========================================================================
Provision computed at
federal statutory rate $134,879 $128,073 $114,536
State and local taxes,
net of federal tax benefit 6,390 11,993 10,274
Nondeductible
goodwill (including
amounts related
to divestitures) 9,396 2,236 5,357
Other 6,682 7,745 3,645
- --------------------------------------------------------------------------
$157,347 $150,047 $133,812
==========================================================================
Components of the Company's deferred income tax assets and liabilities at
December 31, 2000 and 1999 are as follows:
(In thousands) 2000 1999
- ------------------------------------------------------------
Deferred income tax assets:
Reserves and accrued expenses $ 21,597 $ 26,067
Postretirement benefits 9,695 9,515
Employee compensation programs 13,476 15,890
Deferred revenue 9,929 11,517
Net operating loss carryforwards
of subsidiaries 5,494 11,066
Foreign tax credit carryforwards 26,614 18,629
Other 8,380 8,318
- ------------------------------------------------------------
95,185 101,002
- ------------------------------------------------------------
Deferred income tax liabilities:
Data files and other assets (74,807) (71,163)
Depreciation (2,933) (2,940)
Pension expense (38,250) (34,236)
Undistributed earnings
of foreign subsidiaries (33,649) (28,891)
Other (12,508) (8,889)
- ------------------------------------------------------------
(162,147) (146,119)
- ------------------------------------------------------------
Net deferred income tax liability $ (66,962) $ (45,117)
============================================================
The Company's deferred income tax assets and liabilities at December 31, 2000
and 1999 are included in the accompanying consolidated balance sheets as
follows:
(In thousands) 2000 1999
- ----------------------------------------------------------
Deferred income tax assets $ 23,236 $ 28,015
Deferred income tax liabilities (90,198) (73,132)
- ----------------------------------------------------------
Net deferred income tax liability $(66,962) $(45,117)
==========================================================
Accumulated undistributed retained earnings of Canadian subsidiaries amounted to
approximately $29,121,000 at December 31, 2000. No provision for Canadian
withholding taxes or United States federal income taxes is made on these
earnings because they are considered by management to be permanently invested in
those subsidiaries and, under the tax laws, are not subject to such taxes until
distributed as dividends. If the earnings were not considered permanently
invested, approximately $1,456,000 of deferred income taxes would have been
provided. Such taxes, if ultimately paid, may be recoverable as foreign tax
credits in the United States.
6. Shareholders' Equity
Rights Plan In 1995, the Company's Board of Directors adopted a Shareholder
Rights Plan (Rights Plan). The Rights Plan contains provisions to protect the
Company's shareholders in the event of an unsolicited offer to acquire the
Company, including offers that do not treat all shareholders equally, the
acquisition in the open market of shares constituting control without offering
fair value to all shareholders, and other coercive, unfair or inadequate
takeover bids and practices that could impair the ability of the Board of
Directors to represent shareholders' interests fully. Pursuant to the Rights
Plan, the Board of Directors declared a dividend of one Share Purchase Right (a
Right) for each outstanding share of the Company's common stock, with
distribution to be made to shareholders of record as of November 24, 1995. The
Rights, which will expire in November 2005, initially will be represented by,
and traded together with, the Company's common stock. The Rights are not
currently exercisable and do not become exercisable unless certain triggering
events occur. Among the triggering events is the acquisition of 20% or more of
the Company's common stock by a person or group of affiliated or associated
persons. Unless previously redeemed, upon the occurrence of one of the specified
triggering events, each Right that is not held by the 20% or more shareholder
will entitle its holder to purchase one share of common stock or, under certain
circumstances, additional shares of common stock at a discounted price.
Treasury Stock and Employee Benefits Trusts During 2000, 1999, and 1998, the
Company repurchased 296,000, 6,944,000, and 4,555,000 of its own common shares
through open market transactions at an aggregate cost of $6,517,000,
$210,175,000, and $161,797,000, respectively. At its January 1999 meeting, the
Company's Board of Directors authorized an additional $250,000,000 in share
repurchases, and at December 31, 2000, approximately $94 million remained
available for future purchases. During 2000 and 1998, the Company reissued
341,000 and 164,000 treasury shares, respectively, in connection with
acquisitions (Note 2). Also in 1998, the Company received 17,000 treasury shares
in conjunction with the final settlement of a prior year acquisition.
In 1993, the Company established the Equifax Inc. Employee Stock Benefits Trust
to fund various employee benefit plans and compensation programs and transferred
6,200,000 treasury shares to the Trust. In 1994 and 2000, the Company
transferred 600,000 and 1,500,000 treasury shares, respectively, to two other
employee benefits trusts. Shares held by the trusts are not considered
outstanding for earnings per share calculations until released to the employee
benefit plans or programs. During 2000, 39,830 shares were used for various
employee incentive programs. In 1999, 364,354 shares were used, with 304,183
shares contributed to the Company's U.S. Retirement Plan and 60,171 shares used
for various employee incentive programs. In 1998, 569,655 shares were used for a
contribution to the Company's U.S. Retirement Plan, an employee stock purchase
plan, and an employee bonus plan. The shares contributed to the U.S. Retirement
Plan in 1998 (390,000 shares) were repurchased by the Company at the current
market price and recorded as treasury stock.
Stock Options The Company's shareholders have approved several stock option
plans which provide that qualified and nonqualified options may be granted to
officers and employees at exercise prices not less than market value on the date
of grant. Generally, options vest proportionately over a four-year period and
are exercisable for ten years from grant date. Certain of the plans also provide
for awards of restricted shares of the Company's common stock. At December 31,
2000, there were 1,311,000 shares available for future option grants and
restricted stock awards.
A summary of changes in outstanding options and the related weighted average
exercise price per share is shown in the following table:
2000 1999 1998
- ---------------------------------------------------------------------------------------
Average Average Average
(Shares in thousands) Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------
Balance, beginning of year 10,563 $24.14 7,820 $22.40 6,582 $14.89
Granted:
At market price 1,841 $22.39 3,924 $27.62 2,581 $34.90
In excess of market price - - - - 271 $45.97
Canceled (924) $28.75 (591) $34.42 (388) $28.61
Exercised (1,782) $13.70 (590) $13.39 (1,226) $11.20
- ---------------------------------------------------------------------------------------
Balance, end of year 9,698 $25.22 10,563 $24.14 7,820 $22.40
=======================================================================================
Exercisable at end of year 6,069 $22.13 5,165 $17.95 4,230 $15.35
=======================================================================================
The following table summarizes information about stock options outstanding at
December 31, 2000 (shares in thousands):
Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------------------------------------
Weighted Average Remaining Weighted Average Weighted Average
Range of Exercise Prices Shares Contractual Life in Years Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------
$7.09 to $21.50 3,244 5.4 $16.45 3,141 $16.30
$22.76 to $24.44 2,619 8.2 $23.49 1,467 $23.50
$24.63 to $36.88 3,280 6.2 $32.63 1,201 $30.97
$37.00 to $49.03 555 6.9 $40.94 260 $43.94
- ----------------------------------------------------------------------------------------------------------------
9,698 6.5 $25.22 6,069 $22.13
================================================================================================================
The weighted-average grant-date fair value per share of options granted in 2000,
1999, and 1998 is as follows:
2000 1999 1998
- -------------------------------------------------------------------------------
Grants at market price $ 6.14 $9.95 $13.27
Grants in excess of market price - - $ 6.63
The fair value of options granted in 2000, 1999, and 1998 is estimated on the
date of grant using the Black-Scholes option-pricing model based on the
following weighted average assumptions:
2000 1999 1998
- ----------------------------------------------
Dividend yield 1.7% 1.4% 1.1%
Expected volatility 42.0% 42.4% 41.9%
Risk-free interest rate 6.5% 5.6% 5.6%
Expected life in years 2.3 4.0 4.3
Performance Share and Long-Term Incentive Plans The Company has a performance
share plan for certain key officers that provides for distribution of the
Company's common stock at the end of three-year measurement periods based on the
growth in earnings per share and certain other criteria. Recipients may elect to
receive up to 50% of their distribution in cash based on the Company's common
stock price at the end of the measurement period. No share units may be awarded
under the plan after January 31, 2000. Units awarded during the year were none
in 2000, 177,000 in 1999, and 187,000 in 1998. Award-date fair value per unit
was $36.88 in 1999, and $32.69 in 1998. Units outstanding at December 31 were
294,778 in 2000, 443,412 in 1999, and 489,753 in 1998.
In 2000, the Company implemented a key management long-term incentive plan for
certain key officers that provides for cash awards at the end of various length
measurement periods based on the growth in earnings per share and/or various
other criteria over the measurement period. For certain awards, the employee may
elect to receive some or all of their distribution as an equity interest in the
Company. Expense for these plans can vary between years due to revisions of
estimates of future distributions under the plans, which are based on the
likelihood that the performance criteria will be met. The total expense under
these plans was a credit to expense of $3,130,000 in 2000 and $900,000 in 1999,
and a charge to expense of $4,213,000 in 1998.
Pro Forma Information In accordance with the provisions of Statement of
Financial Accounting Standards, "Accounting for Stock-Based Compensation" (SFAS
No. 123), the Company has elected to apply APB Opinion No. 25 and related
interpretations in accounting for its stock option and performance share plans.
Accordingly, the Company does not recognize compensation cost in connection with
its stock option plans and records compensation expense related to its
performance share plan based on the current market price of the Company's common
stock and the extent to which performance criteria are being met. If the Company
had elected to recognize compensation cost for these plans based on the fair
value at grant date as prescribed by SFAS No. 123, net income and net income per
share would have been reduced to the pro forma amounts indicated in the table
below (in thousands, except per share amounts):
2000 1999 1998
- --------------------------------------------------------------------------------------------------
Reported Pro Forma Reported Pro Forma Reported Pro Forma
- --------------------------------------------------------------------------------------------------
Net income $228,022 $211,910 $215,877 $201,006 $193,433 $184,690
==================================================================================================
Net income per share (basic) $ 1.70 $ 1.58 $ 1.57 $ 1.46 $ 1.37 $ 1.31
==================================================================================================
Net income per share (diluted) $ 1.68 $ 1.56 $ 1.55 $ 1.44 $ 1.34 $ 1.28
==================================================================================================
Because the SFAS No. 123 fair value disclosure requirements apply only to
options and performance share units granted after December 31, 1994, the
resulting pro forma compensation cost may not be representative of that to be
expected in future years.
7. Employee Benefits
In 1998, the Company adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of these plans.
U.S. Retirement Plan The Company has a non-contributory qualified retirement
plan covering most U.S. salaried employees. Benefits are primarily a function of
salary and years of service. A reconciliation of the benefit obligation, plan
assets, and funded status of the plan is as follows (in thousands):
Change in benefit obligation 2000 1999
- --------------------------------------------------------
Benefit obligation at
beginning of year $387,099 $411,689
Service cost 4,494 5,089
Interest cost 29,016 27,587
Actuarial loss (gain) (17,263) (24,085)
Curtailments (1,344) (3,912)
Benefits paid (29,219) (29,269)
- --------------------------------------------------------
Benefit obligation at end of year $372,783 $387,099
========================================================
Change in plan assets 2000 1999
- -----------------------------------------------------------------------
Fair value of plan assets at
beginning of year $500,594 $455,727
Actual return on plan assets 41,703 64,137
Employer contribution - 10,000
Benefits paid (29,219) (29,270)
- -----------------------------------------------------------------------
Fair value of plan assets at
end of year $513,078 $500,594
========================================================================
Funded status $140,295 $113,495
Unrecognized actuarial (gain) loss (54,925) (39,300)
Unrecognized prior service cost 181 512
- -----------------------------------------------------------------------
Prepaid pension cost $ 85,551 $ 74,707
========================================================================
Assumptions used in accounting for the plan are as follows:
2000 1999
- ----------------------------------------------------------------------
Discount rate 8.00% 7.75%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 4.25% 4.25%
Net pension income for the plan includes the following (income) expense components:
(In thousands) 2000 1999 1998
- ----------------------------------------------------------------------
Service cost $ 4,494 $ 5,089 $ 4,351
Interest cost 29,016 27,587 27,562
Expected return on
plan assets (43,340) (40,066) (34,588)
Amortization of prior
service cost 266 429 846
Recognized actuarial loss - 407 1,517
Curtailment gain (1,280) (3,827) -
- ----------------------------------------------------------------------
Net pension income $(10,844) $(10,381) $ (312)
======================================================================
The 2000 curtailment gain of $1,280,000 related to the sale of the U.S. risk
management business (Note 3), and was included as a component of the loss on
sale of businesses recorded in other income. The 1999 curtailment gain of
$3,827,000 resulted from workforce reductions related to outsourcing certain
administrative and data processing functions and the sale of three risk
management offices.
At December 31, 2000, the plan's assets included 1,764,538 shares of the
Company's common stock with a market value of approximately $50,620,000.
Foreign Retirement Plans The Company maintains a defined benefits plan for most
salaried employees in Canada. The aggregate fair market value of the Canadian
plan assets approximates the plan's projected benefit obligation, which totaled
$24,922,000 and $25,701,000 at December 31, 2000 and 1999, respectively. Prepaid
pension cost for this plan was $12,521,000 and $12,027,000 at December 31, 2000
and 1999, respectively. The Company also maintains defined contribution plans
for certain employees in the United Kingdom.
Supplemental Retirement Plan The Company maintains a supplemental executive
retirement program for certain key employees. The plan, which is unfunded,
provides supplemental retirement payments based on salary and years of service.
The expense for this plan was $2,994,000 in 2000, $3,087,000 in 1999, and
$4,182,000 in 1998. The accrued liability for this plan at December 31, 2000 and
1999 was $24,185,000 and $26,371,000, respectively, and is included in other
long-term liabilities in the accompanying consolidated balance sheets.
Employee Retirement Savings Plan The Company's retirement savings plans provide
for annual contributions, within specified ranges, determined at the discretion
of the Board of Directors for the benefit of eligible employees in the form of
cash or shares of the Company's common stock. Expense for these plans was
$3,562,000 in 2000, $5,170,000 in 1999, and $3,346,000 in 1998.
Postretirement Benefits The Company maintains certain unfunded healthcare and
life insurance benefit plans for eligible retired employees. Substantially all
of the Company's U.S. employees may become eligible for these benefits if they
reach normal retirement age while working for the Company and satisfy certain
years of service requirements. The Company accrues the cost of providing these
benefits over the active service period of the employee. Expense for these plans
was $630,000 in 2000, $1,480,000 in 1999, and $1,969,000 in 1998. Expense in
2000 was reduced by an $843,000 curtailment gain related to the sale of the U.S.
risk management business (Note 3). The curtailment gain was included as a
component of the loss on sale of businesses recorded in other income. The
accrued liability for these plans at December 31, 2000 and 1999 was $24,007,000
and $24,386,000, respectively, and is included in other long-term liabilities in
the accompanying consolidated balance sheets.
8. Commitments and Contingencies
Leases The Company's operating leases involve principally office space and
office equipment. Rental expense relating to these leases was $41,287,000 in
2000, $40,232,000 in 1999, and $36,493,000 in 1998.
Future minimum payment obligations for noncancelable operating leases exceeding
one year are as follows as of December 31, 2000:
(In thousands) Amount
- --------------------------
2001 $ 34,038
2002 25,185
2003 18,936
2004 15,590
2005 13,982
Thereafter 100,865
- --------------------------
$208,596
==========================
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 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.
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. 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. This transaction was finalized in the second quarter of
1998, and the $25,000,000 liability was reclassified to reduce the amount of
goodwill recorded with the acquisition. In October 1998, this business was sold
for approximately the carrying amount of its net assets.
Data Processing Services Agreements The Company has separate agreements with
IBM, EDS, and Xerox Connect which outsource portions of its computer data
processing operations and related functions, and expire between 2004 and 2009.
The aggregate contractual obligation remaining under these agreements is
currently estimated to be approximately $1.105 billion as of December 31, 2000,
with no future year expected to exceed $150 million. However, these amounts
could be more or less depending on various factors such as the inflation rate,
the introduction of significant new technologies, or changes in the Company's
data processing needs as a result of acquisitions or divestitures. Under certain
circumstances (e.g., a change in control of the Company, or for the Company's
convenience), the Company may terminate these agreements. However, the
agreements provide that the Company must pay a significant termination charge in
the event of such a termination.
Change in Control Agreements The Company has agreements with 21 of its officers
which provide severance pay and benefits in the event of a termination of the
officer's employment under certain circumstances following a "change in control"
of the Company. "Change in control" is defined as the accumulation by any
person, entity, or group of 20% or more of the combined voting power of the
Company's voting stock or the occurrence of certain other specified events. In
the event of a "change in control," the Company's performance share plan
provides that all shares designated for future distribution will become fully
vested and payable, subject to the achievement of certain levels of growth in
earnings per share and other criteria. At December 31, 2000, the maximum
contingent liability under the agreements and plans was approximately
$21,316,000.
Litigation A number of lawsuits seeking damages are brought against the Company
each year, largely as a result of reports issued by the Company. The Company
provides for estimated legal fees and settlements relating to pending lawsuits.
In the opinion of management, the ultimate resolution of these matters will not
have a materially adverse effect on the Company's financial position, liquidity,
or results of operations.
9. Quarterly Financial (Unaudited)
Quarterly operating revenue and operating income by reportable segment (Note 10)
and other summarized quarterly financial data for 2000 and 1999 are as follows
(in thousands, except per share amounts):
2000 First Second Third Fourth
- ---------------------------------------------------------------------------------------------------
Operating revenue:
Information Services:
North American Information Services $163,594 $170,470 $170,533 $168,718
Consumer Information Services - 24,314 42,918 43,300
Equifax Europe 36,054 36,013 34,749 36,542
Equifax Latin America 28,943 29,696 30,715 30,166
Divested Operations 42,697 42,586 42,419 4,842
Other 2,409 2,409 2,409 2,409
- ----------------------------------------------------------------------------------------------------
273,697 305,488 323,743 285,977
- ----------------------------------------------------------------------------------------------------
Payment Services:
Card Solutions 119,138 129,971 131,204 137,122
Check Solutions 58,246 62,754 62,959 75,582
- ---------------------------------------------------------------------------------------------------
177,384 192,725 194,163 212,704
- ---------------------------------------------------------------------------------------------------
$451,081 $498,213 $517,906 $498,681
===================================================================================================
Operating income (loss):
Information Services:
North American Information Services $ 60,048 $ 70,567 $ 71,737 $ 72,171
Consumer Information Services - (1,973) 3,298 6,577
Equifax Europe 893 2,697 3,124 6,302
Equifax Latin America 4,703 5,505 7,842 6,953
Divested Operations 4,749 4,558 5,187 (685)
Other 2,217 2,217 2,217 2,217
- ---------------------------------------------------------------------------------------------------
72,610 83,571 93,405 93,535
- ---------------------------------------------------------------------------------------------------
Payment Services:
Card Solutions 17,791 28,388 31,288 32,194
Check Solutions 8,694 10,699 10,830 14,134
- ---------------------------------------------------------------------------------------------------
26,485 39,087 42,118 46,328
- ---------------------------------------------------------------------------------------------------
General Corporate Expense (11,491) (13,692) (9,590) (6,951)
- ---------------------------------------------------------------------------------------------------
$ 87,604 $108,966 $125,933 $132,912
===================================================================================================
Net income $ 42,227 $ 53,078 $ 64,317 $ 68,400
===================================================================================================
Net income per common share (basic)1 $0.32 $0.40 $0.48 $0.51
===================================================================================================
Net income per common share (diluted)1 $0.31 $0.39 $0.47 $0.50
===================================================================================================
1 Quarterly per share amounts do not add to the amounts shown in the
consolidated statements of income due to rounding.
1999 First Second Third Fourth
- ----------------------------------------------------------------------------------
Operating revenue:
Information Services:
North American Information Services $154,880 $161,048 $157,911 $159,288
Consumer Information Services - - - -
Equifax Europe 34,409 36,644 35,503 42,155
Equifax Latin America 29,921 32,520 32,581 30,516
Divested Operations 48,756 46,363 40,877 39,034
Other 2,409 2,409 2,409 2,409
- ----------------------------------------------------------------------------------
270,375 278,984 269,281 273,402
- ----------------------------------------------------------------------------------
Payment Services:
Card Solutions 100,630 107,329 115,389 120,036
Check Solutions 50,499 56,273 59,695 70,801
- ----------------------------------------------------------------------------------
151,129 163,602 175,084 190,837
- ----------------------------------------------------------------------------------
$421,504 $442,586 $444,365 $464,239
==================================================================================
Operating income (loss):
Information Services:
North American Information Services $ 59,910 $ 65,941 $ 67,779 $ 67,396
Consumer Information Services - - - -
Equifax Europe (2,821) (1,326) 967 6,449
Equifax Latin America 4,187 5,047 7,447 6,273
Divested Operations 6,902 5,792 3,217 3,002
Other 2,217 2,217 2,217 2,217
- ----------------------------------------------------------------------------------
70,395 77,671 81,627 85,337
- ----------------------------------------------------------------------------------
Payment Services:
Card Solutions 22,674 21,659 24,072 28,550
Check Solutions 5,963 8,948 10,684 12,979
- ----------------------------------------------------------------------------------
28,637 30,607 34,756 41,529
- ----------------------------------------------------------------------------------
General Corporate Expense (10,222) (11,398) (4,214) (10,186)
- ----------------------------------------------------------------------------------
$ 88,810 $ 96,880 $112,169 $116,680
==================================================================================
Net income $ 43,901 $ 52,106 $ 58,098 $ 61,772
==================================================================================
Net income per common share (basic)1 $0.32 $0.38 $0.42 $0.46
==================================================================================
Net income per common share (diluted) $0.31 $0.37 $0.42 $0.45
==================================================================================
1 Quarterly per share amounts do not add to the amounts shown in the
consolidated statements of income due to rounding.
10. Segment Information
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures About Segments of an Enterprise and
Related Information." In the fourth quarter of 2000, the Company changed its
segment reporting structure to more closely match management's internal
reporting of business operations. Significant changes included grouping the
segments into the two major product groups (see below), reclassifying the
divested risk management and vehicle information operations (Note 3) out of
North America and Europe, and breaking out Card Solutions and Check Solutions
within Payment Services. The 1999 and 1998 segment data has been restated to
conform with the current year presentation.
The Company's operations are primarily organized by its two major product
groups, Information Services and Payment Services. Information Services are
organized in six reportable segments, with three segments based on credit
related products within geographic region (North America, Europe, and Latin
America), and three segments based on other criteria (Consumer Information
Services, Divested Operations, and Other). Payment Services are organized in two
reportable segments, Card Solutions and Check Solutions. The accounting policies
of the segments are the same as those described in the Company's summary of
significant accounting and reporting policies (Note 1). The Company evaluates
the segment performance based on its operating income before unusual items (if
any). Intersegment sales and transfers are not material.
A description of segment product and services is as follows:
North American Information Services Consumer credit information; credit card
marketing services; locate services; fraud detection and prevention services;
mortgage loan origination information; analytics and consulting; commercial
credit reporting in Canada; Internet identity verification and digital
certificate services; and through September 2000, risk management and collection
services.
Consumer Information Services Consumer demographic and lifestyle information,
and directories of residents and businesses.
Equifax Europe Consumer and commercial credit information and marketing
services, credit scoring and modeling services, and, through December 2000, auto
lien information.
Equifax Latin America Consumer and commercial credit information and other
commercial, financial, and consumer information.
Divested Operations Include the businesses divested in the fourth quarter of
2000, including the risk management businesses in the U.S., Canada, and the
U.K., as well as the vehicle information business in the U.K. (Note 3).
Other Lottery services.
Card Solutions Credit and debit card authorization and processing; credit card
marketing enhancement; and software products to manage credit card, merchant,
and collection processing.
Check Solutions Check guarantee and verification services.
Segment information for 2000, 1999, and 1998 is as follows (dollars in
thousands):
2000 1999 1998
- -----------------------------------------------------------------------------
Operating Revenue:
Information Services:
North American Information Services $ 673,315 $ 633,127 $ 616,708
Consumer Information Services 110,532 - -
Equifax Europe 143,358 148,711 127,001
Equifax Latin America 119,520 125,538 103,923
Divested Operations 132,544 175,030 197,589
Other 9,636 9,636 9,636
- -----------------------------------------------------------------------------
1,188,905 1,092,042 1,054,857
- -----------------------------------------------------------------------------
Payment Services:
Card Solutions 517,435 443,384 357,014
Check Solutions 259,541 237,268 209,107
- -----------------------------------------------------------------------------
776,976 680,652 566,121
- -----------------------------------------------------------------------------
$1,965,881 $1,772,694 $1,620,978
=============================================================================
Operating Income (loss):
Information Services:
North American Information Services $ 274,523 $ 261,026 $ 248,064
Consumer Information Services 7,902 - -
Equifax Europe 13,016 3,269 (6,977)
Equifax Latin America 25,003 22,954 21,408
Divested Operations 13,809 18,913 22,761
Other 8,868 8,868 8,866
- -----------------------------------------------------------------------------
343,121 315,030 294,122
- -----------------------------------------------------------------------------
Payment Services:
Card Solutions 109,661 96,955 78,412
Check Solutions 44,357 38,574 30,903
- -----------------------------------------------------------------------------
154,018 135,529 109,315
- -----------------------------------------------------------------------------
General Corporate Expense (41,724) (36,020) (37,785)
- -----------------------------------------------------------------------------
$ 455,415 $ 414,539 $ 365,652
=============================================================================
Total Assets at December 31:
Information Services:
North American Information Services $ 607,421 $ 490,339 $ 446,500
Consumer Information Services 264,759 - -
Equifax Europe 225,353 224,870 245,006
Equifax Latin America 251,628 277,015 341,834
Divested Operations - 193,841 183,224
Other 2,948 3,951 3,517
- -----------------------------------------------------------------------------
1,352,109 1,190,016 1,220,081
- -----------------------------------------------------------------------------
Payment Services:
Card Solutions 415,843 418,662 419,389
Check Solutions 83,365 80,984 78,376
- -----------------------------------------------------------------------------
499,208 499,646 497,765
- -----------------------------------------------------------------------------
Corporate 218,320 150,119 110,949
- -----------------------------------------------------------------------------
$2,069,637 $1,839,781 $1,828,795
=============================================================================
2000 1999 1998
- ------------------------------------------------------------------------------------------
Depreciation and Amortization:
Information Services:
North American Information Services $ 47,821 $ 40,328 $ 35,637
Consumer Information Services 10,840 - -
Equifax Europe 17,893 17,093 12,076
Equifax Latin America 15,680 16,430 12,513
Divested Operations 7,769 9,802 10,254
Other 768 768 768
- ------------------------------------------------------------------------------------------
100,771 84,421 71,248
- ------------------------------------------------------------------------------------------
Payment Services:
Card Solutions 35,907 28,362 20,752
Check Solutions 6,642 7,266 6,957
- ------------------------------------------------------------------------------------------
42,549 35,628 27,709
- ------------------------------------------------------------------------------------------
Corporate 5,463 5,214 4,868
- ------------------------------------------------------------------------------------------
$148,783 $125,263 $103,825
==========================================================================================
2000 1999 1998
- ------------------------------------------------------------------------------------------
Capital Expenditures (excluding property and equipment and
other assets acquired in acquisitions):
Information Services:
North American Information Services $ 35,232 $ 35,482 $ 34,120
Consumer Information Services 5,330 - -
Equifax Europe 13,761 14,595 20,147
Equifax Latin America 12,340 10,108 4,874
Divested Operations 1,388 4,799 3,321
Other - - -
- ------------------------------------------------------------------------------------------
68,051 64,984 62,462
- ------------------------------------------------------------------------------------------
Payment Services:
Card Solutions 35,478 47,502 37,053
Check Solutions 3,302 2,609 10,840
- ------------------------------------------------------------------------------------------
38,780 50,111 47,893
- ------------------------------------------------------------------------------------------
Corporate 3,831 5,776 8,977
- ------------------------------------------------------------------------------------------
$110,662 $120,871 $119,332
==========================================================================================
Financial information by geographic area is as follows:
2000 1999 1998
- ----------------------------------------------------------------------------------------
Amount % Amount % Amount %
- ----------------------------------------------------------------------------------------
Operating revenue
(based on location of customer):
United States $1,415,153 72% $1,233,983 70% $1,174,733 72%
Canada 99,849 5 97,251 5 96,628 6
United Kingdom 200,195 10 198,333 11 184,161 12
Brazil 127,367 6 115,985 7 62,253 4
Other 123,317 6 127,142 7 103,203 6
- ----------------------------------------------------------------------------------------
$1,965,881 100% $1,772,694 100% $1,620,978 100%
========================================================================================
Long-lived assets at December 31:
United States $ 859,569 59% $ 557,960 45% $ 511,482 39%
Canada 96,773 7 107,687 9 96,840 7
United Kingdom 138,832 9 212,651 17 215,254 16
Brazil 207,230 14 220,298 18 347,355 27
Other 162,324 11 131,752 11 137,499 11
- ----------------------------------------------------------------------------------------
$1,464,728 100% $1,230,348 100% $1,308,430 100%
========================================================================================
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
AND REPORT OF MANAGEMENT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Equifax Inc:
We have audited the accompanying consolidated balance sheets of Equifax Inc. (a
Georgia corporation) and subsidiaries as of December 31, 2000 and 1999 and the
related consolidated statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equifax Inc. and subsidiaries
as of December 31, 2000 and 1999 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
/s/Arthur Andersen LLP
Atlanta, Georgia
February 23, 2001
REPORT OF MANAGEMENT
The consolidated financial statements presented in this report, which were
prepared by the Company, are based on generally accepted accounting principles
applied on a consistent basis and are considered by management to reflect the
financial position of the Company at December 31, 2000 and 1999, and the results
of operations and cash flows for each of the three years in the period ended
December 31, 2000.
The integrity and objectivity of the data in these financial statements,
including estimates and judgments relating to matters not concluded by year-end,
are the responsibility of management. The Company and its subsidiaries maintain
accounting systems and related controls, including a detailed budget and
reporting system, to provide reasonable assurance that financial records are
reliable for preparing the consolidated financial statements and for maintaining
accountability of assets. The system of controls also provides assurance that
assets are safeguarded against loss from unauthorized use or disposition and
that transactions are executed in accordance with management's authorization.
Periodic reviews of the systems and controls are performed by the Company's
internal auditors.
The system of controls includes the careful selection of people, a division of
responsibility consistent with cost effectiveness, and the application of formal
policies and procedures that are consistent with good standards of accounting
and administrative practices.
/s/Philip J. Mazzilli
Philip J. Mazzilli
Executive Vice President
and Chief Financial Officer