Equifax Inc. 10-Q Summary: Quarter Ended September 30, 1999
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Equifax Inc., filed for the period ended September 30, 1999. Equifax principally provides information services to businesses to assist in granting credit and processing credit card and check transactions. Its principal lines of business are Information Services and Payment Services, with operations primarily in the United States, Canada, the United Kingdom, and Brazil.
Key Financial Metrics
Revenue and Profit (Nine Months Ended Sept 30, 1999):
- Operating Revenue: $1,308.5 million (up 11.6% vs. prior year).
- Operating Income: $297.9 million (up 9.2% vs. prior year).
- Net Income: $154.1 million (up 3.5% vs. prior year).
- Diluted Earnings Per Share (EPS): $1.10 (up 6.8% vs. prior year).
Cash Flow and Liquidity:
- Net Cash Provided by Operating Activities: $257.7 million.
- Cash and Cash Equivalents: $137.1 million (up from $90.6 million at year-end 1998).
- Debt: Total debt (short-term + long-term) was approximately $982.6 million ($43.6 million short-term + $939.0 million long-term).
- Revolving Credit Facility: $428 million remained available under a $750 million facility.
Margins:
- Operating Margin (9 months): Approximately 22.8%.
- Net Margin (9 months): Approximately 11.8%.
Material Changes vs. Prior Period
- Revenue Growth: Driven primarily by the Payment Services segment (up 16.6% in Q3 adjusted for acquisitions) and acquisitions. North American Information Services revenue declined 5.5% in Q3 due to pricing pressures and lower demand in mortgage services, though it grew 0.6% year-to-date.
- Segment Performance: Equifax Europe reported an operating loss of $2.7 million year-to-date compared to $14.6 million income in the prior year, attributed to revenue declines and a higher expense base. Equifax Latin America revenue declined in U.S. dollars due to unfavorable exchange rates in Brazil, despite local currency growth.
- Share Repurchases: The company repurchased 5.07 million shares for $165.6 million during the first nine months of 1999.
- Divestitures: Sold a 34% interest in Proceda S.A. (Brazil) and three U.S. risk management offices, resulting in a $7.1 million gain recorded in "Other income, net."
- Year 2000 Costs: Expensed $22.3 million ($13.4 million after-tax) related to Year 2000 compliance efforts for the nine-month period.
Guidance, Outlook, and Risks
Management Commentary: Management expects continued improvement in Equifax Europe's expense base and operating results in the fourth quarter. Capital expenditures for 1999 are estimated at $120 million. The company believes liquidity remains strong with sufficient debt capacity to fund future requirements, including the potential purchase of Computer Sciences Corporation (CSC) credit reporting businesses.
Year 2000 Program: The company estimates total Year 2000 costs at $58 million, with approximately $53 million incurred through September 30, 1999. Remediation and testing for critical systems are largely complete, though some testing continues. The company has contingency plans for potential system failures.
Risks and Contingencies:
- Year 2000 Failure: A sustained, concurrent failure of multiple critical systems could materially adversely affect operations.
- Market Conditions: Pricing pressures in credit information services and consolidation within the financial services industry.
- Foreign Exchange: Significant exposure to currency fluctuations, particularly in Brazil, impacting reported revenue and assets.
- Acquisition Integration: Risks associated with integrating recent acquisitions.
Investor Verification Checklist
- Verify the impact of foreign exchange rates on Equifax Latin America and Europe segments, as local currency performance differed significantly from U.S. dollar reporting.
- Confirm the status of Year 2000 remediation testing for critical systems and the adequacy of contingency plans.
- Review the details of the agreement with Computer Sciences Corporation (CSC) regarding the option to purchase their credit reporting businesses.
- Assess the sustainability of revenue growth in the Payment Services segment versus the decline in North American Information Services.
- Monitor the company's debt levels and interest expense, which increased due to borrowings for acquisitions and share repurchases.