Equifax Inc. 10-Q Summary: Period Ended September 30, 1998
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Equifax Inc., filed for the period ended September 30, 1998. The company provides information services to assist businesses in granting credit and processing transactions, with principal lines of business in information services and payment services. Operations are primarily in the United States, with significant international presence in Canada, the UK, Chile, Brazil, and Argentina. The reporting period excludes the Insurance Services segment, which was spun off as ChoicePoint Inc. in August 1997.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 1998 | Nine Months Ended Sep 30, 1998 |
|---|---|---|
| Operating Revenue | $425.4 million | $1,172.0 million |
| Net Income | $53.5 million | $148.9 million |
| Diluted EPS | $0.37 | $1.03 |
| Operating Income | $99.6 million | $272.8 million |
| Operating Margin | 23.4% | 23.3% |
| Cash from Operations (9mo) | $206.5 million | |
| Total Debt (Short + Long Term) | $899.4 million | |
| Cash and Equivalents | $85.9 million |
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 23.6% in the quarter and 17.3% year-to-date compared to 1997. Approximately 13.8 percentage points of the quarterly increase and 9.4 percentage points of the year-to-date increase were attributable to acquisitions.
- Profitability: Operating income rose 20.4% in the quarter and 19.1% year-to-date. Net income from continuing operations increased 13.3% in the quarter and 15.3% year-to-date (excluding a one-time gain in 1997 from the sale of National Decision Systems).
- Acquisitions: The company spent approximately $474.7 million net of cash acquired on acquisitions in the first nine months of 1998, including significant investments in Brazil (approx. $350 million) and the consolidation of operations in Argentina and Spain.
- Debt Levels: Long-term debt increased significantly to fund acquisitions and share repurchases. The company issued $250 million in 7-year notes and $150 million in 30-year debentures in mid-1998.
- Share Repurchases: The company repurchased approximately 2.44 million shares for $83.2 million in the first nine months of 1998.
Guidance, Outlook, and Risks
- Year 2000 Program: Management estimates total costs for Year 2000 compliance at $48 million. Approximately $21 million has been incurred through September 30, 1998. The company expects to expense approximately $0.09 per share in 1998 and $0.08 per share in 1999 related to these activities.
- Acquisition Impact: Brazilian investments are expected to dilute earnings per share by approximately $0.04 in 1998 and $0.07 in 1999 due to goodwill amortization, interest expense, and Year 2000 costs.
- Liquidity: Management states liquidity remains strong with $522 million available under a $750 million revolving credit facility. Capital expenditures for the remainder of 1998 are projected at $35 million, excluding acquisitions.
- Risks: Key risks include the potential failure of internal or external systems to be Year 2000 ready, which could materially impact operations. Other risks include integration of acquisitions, foreign currency fluctuations, and changes in demand for credit information services.
Investor Verification Checklist
- Verify the integration progress and financial performance of the $350 million Brazilian investments, specifically regarding the expected EPS dilution.
- Confirm the status of the Year 2000 remediation program, particularly for critical IT systems and vendor dependencies, given the $48 million total cost estimate.
- Review the details of the agreement with Computer Sciences Corporation (CSC) regarding the option to purchase CSC's credit reporting businesses.
- Assess the impact of the recent $400 million debt issuance on future interest expense and leverage ratios.
- Monitor the performance of the North American Information Services segment, which accounts for the majority of revenue, against pricing pressures in the credit reporting market.