Equifax Inc. 10-Q Summary: Period Ended September 30, 1997
Business Context and Reporting Period
This Quarterly Report (Form 10-Q) covers the three and nine months ended September 30, 1997. Equifax Inc. provides information services, primarily credit and payment services, to retailers, banks, and financial institutions. A material event during this period was the completion of the spinoff of its Insurance Services segment into a new independent company, ChoicePoint Inc., on August 7, 1997. Consequently, financial results for the Insurance Services segment are presented as discontinued operations.
Key Financial Metrics
| Metric (in thousands) | Q3 1997 | Q3 1996 | 9 Months 1997 | 9 Months 1996 |
|---|---|---|---|---|
| Operating Revenue | $344,086 | $302,712 | $999,114 | $890,661 |
| Operating Income | $82,737 | $67,300 | $229,048 | $176,132 |
| Net Income (Continuing Ops) | $47,240 | $38,541 | $146,971 | $105,535 |
| Net Income (Total) | $47,240 | $45,804 | $148,420 | $123,779 |
| Diluted EPS (Continuing Ops) | $0.33 | $0.27 | $1.02 | $0.72 |
| Cash from Operations (9mo) | $129,610 (1997) vs $223,033 (1996) | |||
| Debt (Short-term + Long-term) | $294,952 (Sep 30, 1997) vs $364,505 (Dec 31, 1996) | |||
| Cash and Equivalents | $58,071 (Sep 30, 1997) |
Material Changes vs. Prior Period
- Revenue Growth: Operating revenue increased 14% in Q3 and 12% for the nine months ended September 30, 1997, compared to 1996. Excluding divestitures, organic growth was driven by acquisitions (approx. 13 percentage points in Q3) and volume increases in Credit Reporting and Risk Management services.
- Profitability: Operating income grew 23% in both the quarter and year-to-date. This growth was aided by the divestiture of lower-margin healthcare businesses in late 1996 and the absence of a $10.3 million asset impairment charge recorded in Q2 1996.
- Discontinued Operations: The 1996 results included income from the Insurance Services segment ($7.3M in Q3, $18.2M for 9 months). In 1997, this segment was spun off, resulting in zero revenue from discontinued operations for the quarter and a net income of $1.4M for the nine months (after spinoff costs).
- One-Time Gains: Other income for the nine months of 1997 included a $42.8 million gain from the sale of the National Decision Systems business unit. This contrasts with 1996, which included an $8.2 million gain from the sale of an investment in Physician Computer Network, Inc.
- Cash Flow: Net cash provided by operating activities decreased significantly year-over-year ($129.6M vs $223.0M), primarily due to the timing of tax payments and the absence of a $58 million lottery subcontract receipt in Q1 1996.
Guidance, Outlook, and Risks
- Capital Allocation: The Board authorized an additional $200 million for share repurchases in October 1997. As of September 30, 1997, approximately $272 million remained available for future purchases. The company repurchased $79.4 million of stock in the first nine months of 1997.
- Acquisitions: The company spent $75.0 million on acquisitions in the first nine months of 1997. Capital expenditures for the remainder of 1997 are projected at $34 million, excluding acquisitions.
- Liquidity: Management states liquidity remains strong. The entire $550 million revolving credit facility was available as of September 30, 1997.
- Contingencies: Equifax holds an option to purchase Computer Sciences Corporation's (CSC) collection and credit reporting businesses. The estimated option price is approximately $400 million, exercisable through 2013. Management believes the fair value of these businesses is not less than the potential purchase price.
- Risks: Pricing pressures are expected to continue within Credit Reporting Services. The company also faces risks related to the integration of recent international acquisitions.
Investor Verification Checklist
- Spinoff Accounting: Verify the treatment of the ChoicePoint spinoff costs ($12.9M after-tax) and the classification of Insurance Services as discontinued operations.
- One-Time Gains: Assess the impact of the $42.8 million gain from the sale of National Decision Systems on the reported operating income and EPS for the nine-month period.
- Share Repurchases: Confirm the remaining authorization for share buybacks ($272M) and the impact of treasury stock purchases on cash flow.
- CSC Option: Review the terms of the option to purchase CSC's credit reporting business and the valuation assumptions used to determine the $400 million price.
- Cash Flow Variance: Investigate the reasons for the significant decline in operating cash flow compared to the prior year, specifically regarding the timing of tax payments and the lottery subcontract revenue.