1
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, 1995
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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.)
1600 Peachtree Street, N.W. Atlanta, Georgia
P.O. Box 4081, Atlanta, Georgia 30302
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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
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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, 1995
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Common Stock, $2.50 Par Value 79,849,418
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INDEX
Page No.
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Part I. Financial Information
Consolidated Balance Sheets --
March 31, 1995 and December 31, 1994 2 - 3
Consolidated Statements of Income --
Three Months Ended March 31, 1995 and 1994 4
Consolidated Statement of Shareholders'
Equity -- Three Months Ended March 31, 1995 5
Consolidated Statements of Cash Flows --
Three Months Ended March 31, 1995 and 1994 6
Notes to Consolidated Financial
Statements 7 - 8
Management's Discussion and Analysis
of Results of Operations and
Financial Condition 9 - 12
Review by Independent Public Accountants 12
Review Report by Independent Public Accountants 13
Part II. Other Information 14 - 15
Exhibit Index 16
Consent Letter Covering Review by Independent
Public Accountants 17
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PART I. FINANCIAL INFORMATION
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CONSOLIDATED BALANCE SHEETS MARCH DECEMBER
31, 31,
1995 1994
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(Unaudited)
(In thousands)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ 96,188 $ 79,409
Accounts receivable............................... 236,149 242,645
Deferred income tax assets........................ 24,968 26,472
Other current assets.............................. 31,918 27,353
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Total current assets............................. 389,223 375,879
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PROPERTY AND EQUIPMENT:
Land, buildings and improvements.................. 14,436 13,841
Data processing equipment and furniture........... 203,518 203,189
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217,954 217,030
Less-Accumulated depreciation..................... 132,705 132,792
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85,249 84,238
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GOODWILL.......................................... 336,974 331,438
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PURCHASED DATA FILES.............................. 83,330 85,621
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OTHER............................................. 157,802 143,998
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$ 1,052,578 $ 1,021,174
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The notes on pages 7 and 8 are an integral part of these statements.
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CONSOLIDATED BALANCE SHEETS MARCH DECEMBER
31, 31,
1995 1994
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(Unaudited)
(In thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt and current maturities............ $ 96,459 $ 63,713
Accounts payable.................................. 59,837 53,561
Accrued salaries and bonuses...................... 20,443 29,410
Income taxes payable.............................. 14,043 21,204
Other current liabilities......................... 114,338 132,158
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Total current liabilities....................... 305,120 300,046
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LONG-TERM DEBT, LESS CURRENT MATURITIES........... 211,476 211,967
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POSTRETIREMENT BENEFIT OBLIGATION................. 82,845 83,029
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OTHER LONG-TERM LIABILITIES....................... 61,160 64,273
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COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
SHAREHOLDERS' EQUITY:
Common stock, $2.50 par value; shares
authorized - 125,000; issued - 83,883 in 1995
and 83,389 in 1994; outstanding - 76,493
in 1995 and 75,895 in 1994...................... 209,708 208,471
Paid-in capital................................... 154,000 145,859
Retained earnings................................. 193,032 175,894
Cumulative foreign currency translation
adjustment...................................... (11,935) (13,386)
Treasury stock, at cost, 4,031 shares in 1995
and 4,094 shares in 1994........................ (86,619) (87,975)
Stock held by employee benefits trusts, at cost,
3,360 shares in 1995 and 3,400 shares in 1994... (66,209) (67,004)
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Total shareholders' equity...................... 391,977 361,859
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$ 1,052,578 $ 1,021,174
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The notes on pages 7 and 8 are an integral part of these statements.
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
1995 1994
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(In thousands, except per share amounts)
Operating revenue................................. $ 384,193 $ 319,359
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Costs of services................................. 252,123 205,155
Selling, general and administrative expenses...... 78,835 70,263
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Total operating expenses......................... 330,958 275,418
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Operating income.................................. 53,235 43,941
Other income, net................................. 2,256 1,093
Interest expense.................................. (4,999) (3,493)
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Income before income taxes........................ 50,492 41,541
Provision for income taxes........................ 21,020 17,239
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Net income........................................ $ 29,472 $ 24,302
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Weighted average common shares outstanding........ 76,162 74,084
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Per common share:
Net income...................................... $ 0.39 $ 0.33
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Dividends....................................... $ 0.155 $ 0.14
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The notes on pages 7 and 8 are an integral part of these statements.
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CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
THREE MONTHS ENDED
MARCH 31, 1995
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(In thousands)
COMMON STOCK:
Balance at beginning of period............................. $ 208,471
Shares issued under stock plans............................ 1,237
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Balance at end of period................................... $ 209,708
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PAID-IN CAPITAL:
Balance at beginning of period............................. $ 145,859
Shares issued under stock plans............................ 7,061
Other...................................................... 1,080
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Balance at end of period................................... $ 154,000
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RETAINED EARNINGS:
Balance at beginning of period............................. $ 175,894
Net income................................................. 29,472
Cash dividends paid........................................ (12,334)
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Balance at end of period................................... $ 193,032
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CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT:
Balance at beginning of period............................. $ (13,386)
Adjustment during period................................... 1,451
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Balance at end of period................................... $ (11,935)
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TREASURY STOCK:
Balance at beginning of period............................. $ (87,975)
Cost of shares reissued for prior year acquisitions........ 1,356
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Balance at end of period................................... $ (86,619)
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STOCK HELD BY EMPLOYEE BENEFITS TRUSTS:
Balance at beginning of period............................. $ (67,004)
Cost of shares reissued under stock plans.................. 795
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Balance at end of period................................... $ (66,209)
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The notes on pages 7 and 8 are an integral part of this statement.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) THREE MONTHS ENDED
MARCH 31,
1995 1994
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(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 29,472 $ 24,302
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization................. 18,885 14,569
Changes in assets and liabilities:
Accounts receivable, net.................... 7,722 (1,040)
Current liabilities, excluding debt......... (19,888) (6,217)
Other current assets........................ (4,226) (3,987)
Deferred income taxes....................... (812) (853)
Other long-term liabilities, excluding debt. (1,922) (3,082)
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Net cash provided by operating activities....... 29,231 23,692
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment............. (7,829) (4,340)
Change in short-term investments................ -- (4,531)
Additions to other assets, net.................. (13,547) (1,054)
Acquisitions, net of cash acquired.............. (5,883) (16,135)
Deferred payments on prior year acquisitions.... (8,743) --
Proceeds from sale of land and buildings........ -- 55,077
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Net cash (used) provided by investing activities (36,002) 29,017
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net short-term borrowings....................... 30,243 --
Payments on debt................................ (913) (1,297)
Dividends paid.................................. (12,334) (10,913)
Treasury stock purchases........................ -- (39,263)
Proceeds from exercise of stock options......... 5,789 2,727
Other........................................... 521 476
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Net cash provided (used) by financing activities 23,306 (48,270)
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Effect of foreign currency exchange rates on cash. 244 (2,230)
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Net cash provided................................. 16,779 2,209
Cash at beginning of period....................... 79,409 85,604
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Cash at end of period............................. $ 96,188 $ 87,813
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The notes on pages 7 and 8 are an integral part of these statements.
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EQUIFAX INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1995
1. BASIS OF PRESENTATION:
The financial statements included herein have been prepared by the Company
pursuant to the rules and regulations of the Securities and Exchange
Commission. This information reflects all adjustments which are, in the
opinion of management, necessary for a fair statement of the financial position
of the company as of March 31, 1995 and the results of operation and cash flows
for the three months ended March 31, 1995 and 1994. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The Company believes that disclosures are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
2. TREASURY STOCK:
During the first quarter of 1995, the Company reissued approximately 63,000
treasury shares in connection with payments due on a prior year acquisition.
Also during the first quarter, the Company distributed approximately 40,000
shares of stock held by the employee benefits trusts, with the shares used for
stock option exercises and restricted stock awards.
3. AGREEMENT WITH COMPUTER SCIENCES CORPORATION:
The Company has an agreement with Computer Sciences Corporation (CSC) under
which CSC-owned credit bureaus and certain CSC affiliate bureaus utilize the
Company's credit database service. CSC and these affiliates retain ownership
of their respective credit files and the revenues generated by their credit
reporting activity. The Company receives a processing fee for maintaining the
database and for each report supplied. The agreement expires in 1998, is
renewable at the option of CSC for successive ten-year periods, and provides
CSC with an option to sell its collection and credit reporting businesses to
the Company. The option is currently exercisable and expires in 2013. In the
event CSC does not exercise its option to sell and does not renew the
agreement, or if there is a change in control of CSC, the Company has the
option to purchase CSC's collection and credit reporting businesses. The
option price is determined, for all purposes, in accordance with the following
schedule: on or before July 31, 1995, at the higher of $365 million or a price
determined by certain financial formulas; after July 31, 1995 until July 31,
1998, at the price determined by such financial formulas; and after July 31,
1998, at appraised value.
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4. LOTTERY CONTRACT DISPUTE AND LITIGATION:
High Integrity Systems, Inc. (HISI), a Company subsidiary, entered into a
contract in July 1992 to provide lottery services to the state of California.
Under this contract, HISI agreed to provide a system to automate the processing
of instant lottery tickets and a system to sell on-line game tickets through
10,000 low-volume terminals.
On April 26, 1993, the California State Lottery (CSL) filed suit against HISI
in Superior Court, Sacramento County, California, and on May 7, 1993, the CSL
filed its first amended complaint naming Equifax Inc., et al. and Federal
Insurance Company as additional defendants. The CSL is seeking unspecified
damages for alleged breach of contract and injunctive relief and is asserting a
claim against Federal Insurance Company for $18.5 million, which represents the
face amount of a performance bond delivered to the CSL in July 1992 on behalf
of HISI.
On May 7, 1993, HISI filed a cross-complaint against the CSL seeking
compensatory and general damages in an amount not less than $65 million and
special and consequential damages in an amount not less than $100 million.
The Company believes HISI has a meritorious cross-complaint against the CSL for
wrongfully terminating the contract. The Company further believes that it has
well-founded and solid defenses against the CSL's claims. However, there can
be no assurance that the Company will succeed in its defense and
cross-complaint against the CSL. A revised litigation schedule has been
approved by the Court, including a tentative trial date in October 1995.
Substantial discovery activity has been undertaken by the Company and is
continuing.
In September 1993, the Company recorded a provision of $48,438,000 ($30,939,000
after tax, or $.41 per share) related to the lottery contract to write down
data processing equipment and other assets to their estimated net realizable
value and to accrue for estimated costs related to litigation with the CSL. In
management's opinion, this provision is adequate and the ultimate resolution of
the CSL litigation will not have a materially adverse impact on the Company's
financial position or results of operations.
5. ACQUISITIONS:
During the first quarter, the Company acquired substantially all of the assets
and business operations of two businesses, Vallance and Associates, Inc. (in
the Insurance segment) and Medical Review Systems, L.P. (in the General
segment). These acquisitions were accounted for as purchases and had an
aggregate purchase price of $5,921,000, of which $2,681,000 was allocated to
goodwill and $3,030,000 to other assets (primarily software). Their results of
operation have been included in the consolidated statement of income from their
respective dates of acquisition and were not material to the results of
operation of the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations - (first quarter of 1995 compared to the first quarter of
1994)
First quarter revenue increased 20% over 1994, with 13 percentage points
attributable to acquisitions. Operating income increased 21% over the prior
year with approximately three percentage points attributable to acquisitions.
The balance of the increase is a result of revenue growth in higher margin
business units, significant improvement in the Insurance segment, and
continuing expense controls throughout the organization.
Net income for the quarter increased 21% from $24.3 million to $29.5 million.
Net income per share was $.39 in 1995, an increase of 18% over the prior year.
Acquisitions were slightly dilutive to net income and net income per share in
the quarter due to increased interest expense and average shares outstanding.
Operating revenue and operating income by industry segment for the first
quarter of 1995 and 1994 are as follows (in thousands):
Operating Revenue: 1995 1994
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Credit Information Services $112,366 $110,185
Payment Services 60,878 50,557
Insurance Information Services 127,099 106,978
International Operations 48,932 22,458
General Information Services 34,918 29,181
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$384,193 $319,359
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Operating Income (Loss):
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Credit Information Services $40,630 $36,665
Payment Services 11,003 9,844
Insurance Information Services 9,558 3,517
International Operations 2,280 3,349
General Information Services (1,496) (1,220)
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Operating Contribution 61,975 52,155
General Corporate Expense (8,740) (8,214)
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$53,235 $43,941
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The following discussion analyzes operating results by industry segment,
general corporate expense and consolidated other income and interest expense.
Credit Information Services
Revenue growth of 2% in the first quarter was tempered by a 49% decline in
Mortgage Information Services revenue, as higher interest rates adversely
affected refinancing activity. Revenue in Credit Reporting Services was up
about 8% while Risk Management revenue increased 3%. The increase in Credit
Reporting Services revenue was driven by prescreening business for credit card
issuers and increased business in the national credit card and finance
industries.
Operating income increased 11% in the first quarter. This increase was driven
by the revenue growth in Credit Reporting Services and on-going expense
management.
Payment Services
Revenue increased 20% over 1994 with seven percentage points attributable to
the 1994 acquisitions of First Security Processing Services (FSPS) and FBS
Software. Check Services revenue was up 9% in the quarter while Card Services
revenue, excluding FSPS, increased 17%. Revenue growth within Check Services
was primarily due to an increase in the volume of checks guaranteed while
growth within Card Services was attributable to volume increases resulting from
growth in the cardholder account base and increased processing of cardholder
and merchant transactions.
Payment Services operating income increased 12% in 1995 with one percentage
point attributable to acquisitions. Within Check Services, operating income
declined 2% primarily as a result of a higher number of returned checks and a
lower collection rate on returned checks. Operating income in Card Services,
excluding FSPS, increased 27% due to the operating leverage achieved with the
revenue growth.
Insurance Information Services
First quarter revenue increased 19% over the prior year, with acquisitions
accounting for about half the increase, and motor vehicle registry revenue
accounting for another four percentage points, primarily from higher unit
sales. Other Data Services revenue increased 11%, led by unit growth of
CLUE products, partially offset by a decline in average prices. Field Services
revenue increased 7% over the prior year, primarily the result of unit volume
increases in several products. Commercial specialists revenue increased 4%,
while CUE U.K., a database product for the U.K. insurance industry introduced
late in the fourth quarter 1994, had modest revenues in the first quarter.
Operating income increased $6.0 million, with acquisitions contributing $1.9
million. The remainder of the increase was due to the higher revenue levels,
cost controls within Field
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Services, and the operating leverage achieved from the increased revenues
within Data Services.
International Operations
International operations revenue, exclusive of acquisitions, increased 5% in
1995, with Equifax Europe posting a 34% increase and Canadian revenue declining
4%. In local currencies Equifax Europe revenue was up 26% while Canadian
revenue increased 1%. Equifax Europe's revenue gain continued the trend of
revenue growth due to market share gains in Credit and Marketing Services. The
slowdown in the Canadian economy tempered revenue growth in that country.
Operating income for International operations was down $1.1 million in the
first quarter due primarily to integration costs associated with the 1994
acquisitions of Infolink and Canadian Bonded Credits.
General Information Services
First quarter revenue increased 20% with about half of the increase
attributable to acquisitions. Marketing Services revenue was up 8% while
Healthcare revenue, exclusive of acquisitions, increased 13%.
This segment's operating loss increased $.3 million in 1995 due primarily to
higher expenses incurred to support Medical Credentials Verification Service
(MCVS), introduced in the fourth quarter of 1994. MCVS had minimal revenue in
the first quarter but significant revenue growth is anticipated in the last
half of the year.
General Corporate Expense
General corporate expense increased 6% over the prior year due primarily to
higher performance share plan expense.
Other Income and Interest Expense
The increase in other income resulted primarily from higher levels of interest
income in 1995.
The increase in interest expense reflects the higher levels of short-term
borrowings due to acquisition activity.
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FINANCIAL CONDITION
The Company's financial condition remained strong during the first quarter of
1995. Working capital increased $8.3 million since year-end, and net cash
provided by operations increased to $29.2 million, $5.5 million over the first
quarter of 1994. Normal capital expenditures, dividend payments, and working
capital needs were met with these internally generated funds.
Other significant first quarter outlays included $5.9 million for 1995
acquisitions (Note 5), $8.7 million in payments related to 1994 acquisitions,
and $10.0 million to provide financing to Physician Computer Network, Inc.
(PCN), a national network of medical practice management systems. The PCN
financing is in the form of a note, convertible into shares of PCN common stock
at a conversion premium. In conjunction with the financing, the Company entered
into an exclusive marketing agreement with PCN, whereby PCN will integrate
certain of the Company's healthcare services into its product line and promote
the Company as its exclusive claims clearing house for PCN customers. These
outlays were financed with short-term borrowings.
Capital expenditures for the remainder of 1995 are currently projected to be
approximately $36 million exclusive of acquisitions. Additional expenditures
are possible as opportunities arise. As of March 31, 1995, approximately $40
million remains authorized under the Company's share repurchase program.
The remaining 1995 capital expenditures should be met with internally generated
funds. The Company's $450 million credit facility remains available to fund
future capital requirements, including the possible purchase of the CSC
collection and credit reporting businesses (Note 3). Management feels the
Company has sufficient unused debt capacity to finance all of these
requirements, if necessary.
Limited Review By
Independent Public Accountants
Arthur Andersen LLP, independent public accountants, has performed a limited
review of the interim financial information contained herein in accordance with
established professional standards and procedures for such a review. Attached
hereto is a review report from Arthur Andersen LLP covering its limited review
of the interim financial information contained herein.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Equifax Inc.:
We have reviewed the accompanying interim consolidated balance sheet of EQUIFAX
INC. (a Georgia corporation) AND SUBSIDIARIES as of March 31, 1995 and the
related interim consolidated statements of income for the three-month periods
ended March 31, 1995 and 1994, shareholders' equity for the three-month period
ended March 31, 1995, and cash flows for the three-month periods ended March
31, 1995 and 1994. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the accompanying consolidated balance sheet of Equifax Inc. and
subsidiaries as of December 31, 1994, and in our report dated February 17,
1995, we expressed an unqualified opinion on that statement.
Arthur Andersen LLP
Atlanta, Georgia
May 11, 1995
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On April 26, 1993, the California State Lottery filed suit against High
Integrity Systems, Inc., a Company subsidiary, in the Superior Court of the
State of California, Sacramento County.
Reference is made to information reported in Note 4 of the Notes to
Consolidated Financial Statements, included in Part I of this report.
Item 5. Other Information
Reference is made to information reported in Notes 1, 2 and 5 of the Notes to
Consolidated Financial Statements, included in Part I of this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
15 Letter from Arthur Andersen LLP, dated May 11, 1995.
27 Financial Data Schedule (for SEC use only)
(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
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUIFAX INC.
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(Registrant)
Date: May 12, 1995 /s/C. B. Rogers, Jr.
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C. B. Rogers, Jr., Chairman
and Chief Executive Officer
Date: May 12, 1995 /s/P. J. Mazzilli
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P. J. Mazzilli
Chief Accounting Officer
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EXHIBIT INDEX
Exhibit Description of Exhibit
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[S] [C]
15 Arthur Andersen LLP
Letter dated May 11, 1995
27 Financial Data Schedule (for SEC use only)
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