EFX

Equifax Inc. 10-Q Summary: Period Ended June 30, 1999

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Equifax Inc., filed for the period ended June 30, 1999. Equifax provides information services to assist businesses in granting credit and processing transactions, operating primarily in the United States with significant foreign operations in Canada, the U.K., and Brazil. The company operates through four main segments: North American Information Services, Payment Services, Equifax Europe, and Equifax Latin America.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Operating revenue increased 12.5% in Q2 and 15.7% YTD compared to 1998. Excluding the prior year sale of the CSC collections business, growth was 13.6% (Q2) and 16.3% (YTD), with acquisitions contributing approximately 10 percentage points to the YTD increase.
• Segment Performance:
  • Payment Services: Strong growth with operating income up 27.7% in Q2 and 37.1% YTD, driven by U.S. Card and Check Solutions.
  • North American Information Services: Revenue up 1.4% in Q2; operating income up 5.3%, aided by mortgage refinancing activity.
  • Equifax Europe: Reported an operating loss of $1.3 million in Q2 (vs. $4.7 million profit in 1998) due to a U.K. economic slowdown and higher expense base.
  • Equifax Latin America: Revenue increased significantly due to the August 1998 acquisition of SCI in Brazil, though local currency revenue in Argentina and Chile faced headwinds.
• One-Time Items: The company recorded a $7.1 million gain (pre-tax) from the sale of its 34% interest in Proceda S.A. (Brazil) and three U.S. risk management offices. This contributed $0.02 to diluted EPS.
• Share Repurchases: The company repurchased 2.66 million shares for $94.0 million during the first six months of 1999.

Guidance, Outlook, and Risks

• Year 2000 (Y2K) Program: Management estimates total Y2K costs at $56 million, with $46 million incurred through June 30, 1999. The company expects to expense approximately $0.10 per share in 1999. Remediation and testing for critical systems are largely complete, with final testing scheduled for Q3 and Q4 1999. Management believes the company is prepared to avoid material adverse impacts.
• Liquidity and Capital: Capital expenditures for 1999 are estimated at $120 million. The company has $430 million remaining on its $750 million revolving credit facility and $217 million remaining authorized for share repurchases.
• Outlook: Equifax Europe is expected to return to profitability in the third quarter of 1999. Management anticipates continued revenue growth in Payment Services and North American Information Services, tempered by pricing pressures in credit reporting and the U.K. economic environment.
• Risks: Key risks include the potential failure of internal or external systems to be Y2K ready, integration risks from acquisitions, and economic conditions affecting consumer spending and credit demand.

Investor Verification Checklist

• Verify the status of Y2K remediation testing for the Canadian off-line consumer credit system and U.S. check services business, which were not fully complete as of the filing date.
• Monitor the performance of Equifax Europe to confirm the projected return to profitability in Q3 1999.
• Assess the impact of currency fluctuations on Latin American and European segment results, given the significant asset value declines noted in Brazil and the U.K.
• Review the integration progress of the recent Brazilian acquisition (SCI) and its contribution to the Latin America segment's operating income.
• Confirm the execution of the share repurchase program and the utilization of the revolving credit facility for future acquisitions or capital needs.