EFX

Equifax Inc. 10-Q Summary: Quarter Ended March 31, 1998

Business Context and Reporting Period

This is a quarterly report (Form 10-Q) for Equifax Inc. covering the three months ended March 31, 1998. The company provides information services to assist businesses in granting credit and processing transactions, primarily serving retailers, banks, and financial institutions. Operations are predominantly in the United States, with significant presence in Canada, the United Kingdom, and Latin America. The reporting period reflects the company's continuing operations following the August 1997 spinoff of its Insurance Services segment into ChoicePoint Inc.

Key Financial Metrics

Note: Debt figures calculated as Short-term debt ($5.8M) plus Long-term debt ($428.2M) for 1998, and Short-term debt ($13.0M) plus Long-term debt ($339.3M) for 1997.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenue increased 13.1% year-over-year. Adjusted for the May 1997 divestiture of National Decision Systems, revenue grew 16.2%, with approximately 7.2 percentage points driven by acquisitions.
• Profitability: Operating income rose 18.2% to $81.0 million, driven by revenue growth and operating leverage. Net income from continuing operations increased 16.1% to $44.7 million.
• Segment Performance:
  • North American Information Services: Revenue up 5.3% (10.6% excluding divestiture impact).
  • Payment Services: Revenue up 8.4%, with Card Services up 12.5%.
  • Equifax Europe: Revenue up 20.3%, aided by a UK acquisition.
  • Equifax Latin America: Revenue surged due to the consolidation of operations in Chile and Argentina, which were previously accounted for under the equity method.
• Debt and Liquidity: Total debt increased by approximately $81.7 million to fund acquisitions and share repurchases. Cash and cash equivalents increased by $32.1 million.

Guidance, Outlook, and Risks

• Year 2000 (Y2K) Compliance: The company expensed approximately $3.1 million ($0.01 per share) in Q1 1998 for Y2K software modifications. Management expects total 1998 Y2K expenses to be approximately $0.08 per share. Most remaining costs for critical systems are expected to be expensed in 1998.
• Capital Expenditures: Projected capital expenditures for the remainder of 1998 are approximately $100 million, exclusive of acquisitions.
• Share Repurchases: The company repurchased approximately 1.88 million shares for $63.3 million in Q1 1998. Approximately $160 million remains authorized under the repurchase program.
• Contingencies and Options:
  • CSC Agreement: Equifax has an option to purchase Computer Sciences Corporation's (CSC) credit reporting businesses. The estimated option price is approximately $375 million. The company also agreed to purchase CSC's collection businesses for approximately $38 million, finalized in Q2 1998.
  • Valuation Charge: A $25 million pre-tax charge was recorded in Q4 1997 regarding the CSC collection business acquisition due to a contract non-renewal.
• Liquidity: Management states liquidity remains strong, with $535 million available under a $750 million revolving credit facility.

Investor Verification Checklist

• Verify the impact of the consolidation of Equifax Latin America (Chile and Argentina) on revenue and operating income growth.
• Confirm the status and estimated costs of the Year 2000 remediation program against the $0.08 per share guidance.
• Review the terms and valuation of the option to acquire CSC's credit reporting businesses ($375 million estimate).
• Monitor the execution of the $100 million capital expenditure plan for the remainder of 1998.
• Assess the sustainability of operating leverage in the Payment Services segment following the integration of CSG-Madison.