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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Annual Report pursuant to Section 13 or 15(d)of the Securities
Exchange Act of 1934 for the fiscal year ended 12-31-01 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
_______________________ to _______________________
Commission file number 1-6605
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EQUIFAX INC.
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Exact name of Registrant as specified in its Charter)
GEORGIA 58-0401110
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1550 Peachtree St., N.W., Atlanta, GA 30309
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(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (404) 885-8000
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock
($1.25 Par Value) New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K (SECTION 229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND
WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES (WHICH FOR
PURPOSES HEREOF ARE ALL HOLDERS OTHER THAN CURRENT EXECUTIVE OFFICERS, DIRECTORS
AND HOLDERS OF 5% OR MORE OF THE OUTSTANDING COMMON STOCK) OF THE REGISTRANT,
AS OF FEBRUARY 20, 2002 WAS $3,427,302,969 BASED ON THE CLOSING SALES PRICE OF
THE COMMON STOCK AS REPORTED BY THE NEW YORK STOCK EXCHANGE ON SUCH DATE. SEE
ITEM 12.
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
Class Outstanding at February 20, 2002
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COMMON STOCK, $1.25 PAR VALUE 143,813,683
DOCUMENTS INCORPORATED BY REFERENCE THE PROXY STATEMENT FOR THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD ON MAY 1, 2002, TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, IS INCORPORATED BY REFERENCE, TO THE EXTENT INDICATED UNDER
ITEMS 10, 11, 12, 13 AND 14, INTO PARTS III AND IV OF THIS FORM 10-K.
Equifax Inc.
2001 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I. .....................................................................2
ITEM 1. BUSINESS .........................................................2
ITEM 2. PROPERTIES .......................................................6
ITEM 3. LEGAL PROCEEDINGS ................................................6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ..............6
PART II. ....................................................................6
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY ........................6
ITEM 6. SELECTED FINANCIAL DATA ..........................................7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS .............................8
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS ..................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK .......16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .....................17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ...................39
PART III. ..................................................................39
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ..............39
ITEM 11. EXECUTIVE COMPENSATION ..........................................39
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ..39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ..................39
PART IV. ...................................................................40
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K .40
SIGNATURES ............................................................43
INDEX TO EXHIBITS .....................................................45
PART I.
ITEM 1. BUSINESS
Equifax Inc. is a leading source of consumer and commercial credit information
worldwide. The Company provides to a wide range of customers information
management, consumer credit information, marketing, business information, and
identity verification services to enable credit and business decisions. The
Company, through its Consumer Direct business, provides credit reporting and
identity theft monitoring services direct to consumers enabling them to
proactively manage their credit health and safeguard against identity theft. The
Company is the market leader for credit information services in North America.
The Company operates in 13 countries: North America (the United States and
Canada), Europe (the United Kingdom, Ireland, Spain, Italy, and Portugal) and
Latin America (Argentina, Brazil, Chile, El Salvador, Peru, and Uruguay).
2001 HIGHLIGHTS
In 2001, Equifax continued to refocus and realign its businesses to drive
shareholder value. Mid-year, the Company completed the spin-off of its Payment
Services division. Excluding discontinued operations and divested businesses,
Equifax reported record operating results, which were largely attributable to
performance in our North American Information Services segment. Other 2001
financial highlights include the following (excluding divested and discontinued
operations):
. Consolidated revenues increased 8% to $1.1 billion.
. Diluted earnings per share increased 5% to $1.15, before restructuring and
other charges of $60 million (pre-tax).
. Consolidated operating margins were 29%.
. North American revenues increased 13% and operating income increased 14%.
. U.S. consumer reporting volumes grew 20%.
. The Consumer Direct business more than tripled revenues.
. Free cash flow grew to $208 million, a 72% increase over 2000.
DESCRIPTION OF BUSINESS
The Company was founded as a credit reporting agency under the name "Retail
Credit Company" in Atlanta, Georgia, in 1899 and soon expanded into
investigation of applicants for insurance. The company has continued to expand
on a domestic and international basis and to diversify by means of internal
development and strategic acquisitions. We have been publicly owned since 1965,
listed on the New York Stock Exchange since 1971, and are a member of the S&P
500. In 1975, the Company changed its name from "Retail Credit Company" to
"Equifax Inc."
The Company expanded operations into credit card services with the acquisition
of Telecredit in 1990 and into direct marketing in 2000 with the purchase of the
Consumer Information Solutions Group of R.L. Polk & Co. During the last five
years, the Company has redefined and sharpened its business focus with the goal
of creating additional shareholder value. In 1997, the Company divested its
insurance services operations through the spin-off of a subsidiary company to
shareholders. In 2000, the Company sold its risk management collections
businesses in the United States, Canada and the U.K. And in July 2001, the
Company completed the spin-off of its Payment Services segment (the acquired
Telecredit business) by distributing to its shareholders the common stock of
Certegy Inc. ("Certegy"), as a tax free dividend.
Equifax is a holding company that conducts its business operations through
subsidiary companies. The Company's business areas are divided into separate
groups and are conducted on a "profit center" basis with self-contained
functional integrity. Equifax supplies centralized overall financial, legal,
communications, media relations, tax and similar services.
Equifax is not dependent on any single customer, and the Company's largest
customer provides less than 3% of the Company's total revenues.
The Company reports its financial results in five segments -- North American
Information Services, Equifax Europe, Equifax Latin America, Other, and Divested
Operations. Detailed financial results and segment information are provided
under the heading "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and in Note 12 of Notes to Consolidated Financial
Statements.
A description of the Company's products and services by line of business is
provided below:
2
INFORMATION SERVICES
Information Services, which is our largest line of business, maintains
value-added information on more than 400 million consumers and businesses, and
is the market leader in credit information services in North America.
Information Services encompasses a number of businesses, all of which derive
their products and services from our proprietary databases and expert knowledge.
We will seek continued growth by developing innovative products and services,
maintaining the quality of our databases, and delivering superior service.
For financial reporting purposes, the Information Services business is reported
geographically in North American Information Services, Equifax Europe and
Equifax Latin America segments. The principle lines of business are:
Consumer Services. Our consumer reporting business maintains files on over 300
million individuals worldwide with information updated constantly. Our consumer
products provide information about individuals in a variety of services that
include credit reporting, credit scoring, risk management, fraud detection,
identity verification, modeling and analytics. Customers access our products
largely through electronic distribution, including direct real-time access,
which facilitates instant decisions.
Customers include banks, mortgage lenders, retailers, financial institutions,
automotive manufacturers and dealers, telecommunications and utility companies,
brokerage firms, insurance companies, and government. Our customers utilize the
information we provide to make decisions for a wide range of credit and business
purposes, such as mortgage or auto loans, credit card applications, identity
verification and similar business uses.
Marketing Services. This line of business includes our credit marketing, risk
management and decisioning, and direct marketing services businesses. Credit
marketing offers prescreening services, which facilitate pre-approved offers of
credit by banks and financial institutions. Equifax risk management and fraud
detection and prevention services enable banks and financial institutions to
minimize their default rates by proactively managing their existing credit card
accounts. Our decisioning analytics and platforms enable customers to make
credit, cross-selling, and other business decisions instantaneously while
streamlining application processing.
Our direct marketing services business provides consumer, demographic and
lifestyle information. Direct marketing products include data capture, database
management and registration card programs for consumer durable goods
manufacturers. Our products enable customers to target specifically defined
market segments and design more effective and economically efficient marketing
campaigns. Customers include financial institutions, insurers, catalogers,
publishers, technology companies, and manufacturers.
Commercial Services. Our commercial business consists of selling products and
services based on information that we maintain about businesses. Consistent with
our strategy of expanding markets, in 2001 we continued to develop our
commercial business in the United States by growing our Small Business Financial
Exchange, a facility which brings together more than 20 of the leading financial
institutions and small business lenders to report and maintain comprehensive
trade line data on small businesses. We also operate the proprietary National
Telecommunication Data Exchange, which includes default commercial account
information from 72 telecommunications companies.
Our subsidiaries in Canada, the U.K., and Spain also sell commercial information
to a wide variety of customers, and our subsidiary in Brazil is the leading
commercial credit information vendor in that country.
CONSUMER DIRECT SERVICES
In 2000, the Company began offering credit information direct to consumers in
the United States via the Internet at www.equifax.com. Equifax Credit
Profile(R),our first product, provides secure online access to a user-friendly
credit report. In 2001, the Company introduced Equifax Credit Watch(TM), our
credit monitoring service, which is a subscription service that provides the
consumer with several Equifax Credit Profiles and e-mail alerts whenever there
has been an inquiry to his/her credit file. Once alerted, the consumer can view
the details of the inquiry on-line and protect against identity fraud. In 2001,
Equifax Credit Watch(TM) was named one of the 25 "Best Products of 2001" by
Business Week Magazine.
Also in 2001, we introduced ScorePower(TM), the only on-line service that allows
consumers access to their BEACON(TM) score. ScorePower purchasers receive their
Equifax Credit Profile, the Beacon Score calculated from that profile, together
with an explanation regarding their score and suggestions on how to favorably
affect it.
3
Consumer Direct more than tripled its revenues in 2001 and offers strong growth
potential for the Company. We intend to continue to prudently expand the product
offerings, expand geographically, and develop creative marketing strategies for
profitable growth. Customers of Consumer Direct include consumers, as well as
businesses that offer Consumer Direct products to their employees or customers.
Consumer Direct is reported in the North American Information Services segment.
PRODUCTS
Our businesses offer a variety of products that enable customers to operate
their businesses with efficiency. We are constantly seeking to expand our
product and service offerings. Generally, we expand product offerings through
internal development or by acquisition. Recent new products generated through
internal development include our patented eIDverifier(R) Internet identity
verification products and our decisioning platforms. We may also partner with a
third party to provide a product. The recent acquisition of our Direct Marketing
Services business provided us with a range of proven marketing products. We
continue to leverage our investments in our proprietary databases to develop and
deliver progressively more value-added products across all our businesses.
Distribution of products and services to customers is made primarily through
electronic data interfaces. We seek to manage costs and provide superior
customer service through technological innovation. Our web-based initiative
Equifax ePORT(TM), which enables delivery of information to customers via a
secured Internet connection, is an example of our creative use of technology.
We will continue to capitalize on the most efficient and effective means of
delivering products and services.
DATA SOURCES
We rely extensively upon data from external sources to maintain our proprietary
and non-proprietary databases, including data received from customers and
various government and public record services. Additionally, we also rely on
certain contractual relationships with certain affiliated third party-credit
reporting agencies to provide us data in certain geographic areas.
Our Direct Marketing Services business provides us with a proprietary database
consisting of consumer, lifestyle and demographic information. This database
provides us the opportunity to develop new products and to explore cross-selling
synergies with our existing data businesses. Similarly, through our acquisition
in October 2000 of Compliance Data Center, Inc., we acquired the leading
database for customer information services to the brokerage industry.
We are committed to enhancing, expanding and maintaining the integrity of our
proprietary databases.
COMPETITION
Equifax operates in a number of geographic, product and service markets, which
are highly competitive. We primarily compete with two global consumer credit
reporting companies, Experian Information Solutions, Inc. and Trans Union LLC,
which offer credit-reporting products that are similar to those we offer. We
also compete with these and other companies that offer marketing information
products and services, including Acxiom Corporation and InfoUSA, Inc. In
commercial reporting, our primary competitor is D&B.
EMPLOYEES
The Company had approximately 5,200 employees in 13 countries as of December 31,
2001. None of our employees are subject to a collective bargaining agreement.
REGULATORY
Because our business involves the collection of consumer and business data and
distribution of such information to businesses making credit and marketing
decisions, certain of our activities and services are subject to regulation
under various U. S. federal laws including the Fair Credit Reporting Act and the
Gramm-Leach-Bliley Act, as well as similar state laws. We are also subject to
privacy and consumer credit laws and regulations in foreign countries where we
do business. It is the Company's policy to treat all information with a high
degree of security reflecting our recognition of individuals' privacy concerns.
Certain of our businesses, notably our Direct Marketing Services business, are
less regulated than the credit-based portions of our business.
4
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's officers as of February 28, 2002 are listed below:
Officer
Name Position With Company Age Since
- ---- --------------------- --- -------
Thomas F. Chapman Chairman and Chief Executive Officer 58 1991
William V. Catucci Executive Vice President - Global Operations 63 1999
John Chandler Vice President, Financial Administration 54 2002
Virgil P. Gardaya Corporate Vice President and General Manager, Consumer 55 2000
Direct
Karen H. Gaston Corporate Vice President and Chief Administrative Officer 49 1998
Mitchell J. Haws Vice President of Investor Relations & Public Relations 38 2001
Kent E. Mast Corporate Vice President, General Counsel and Secretary 58 2000
Philip J. Mazzilli Executive Vice President and Chief Financial Officer 61 2000
Michael G. Schirk Vice President and Treasurer 52 1999
Dennis B. Story Vice President and Corporate Controller 38 2001
There are no family relationships among the officers of the Company, nor are
there any arrangements or understandings between any of the officers and any
other persons pursuant to which they were selected as officers.
Mr. Chapman also serves as a Director. Messrs Chapman, Chandler, Schirk, and Ms.
Gaston have all been employed with the Company in executive positions for the
previous five years.
Mr. Catucci joined the Company in October 1999 as Group Executive, North America
Information Services and was promoted to his current position in October 2000.
Prior to joining the Company, Mr. Catucci served as President and Chief
Executive Officer of Unitel/AT&T Canada Long Distance Services from 1996 to
1999.
Mr. Gardaya joined the Company in November 1998 as Senior Vice President, Global
Communications Micro/LAN Services. Prior to being named to his current position
in September 2001, Mr. Gardaya also served as Corporate Vice President and Chief
Technology Officer. Prior to that, Mr. Gardaya served as Vice President and
Chief Information Officer for GTE Wireless and GTE Airfone, and in various
executive positions with GTE for more than five years.
Mr. Haws joined the Company as Vice President of Investor Relations in April
2001 and assumed responsibility for public relations in February 2002. Prior to
joining the Company, since 1996, he served as Vice President, Investor Relations
for the Reynolds & Reynolds Co., which provides a full range of retail and
enterprise management systems and related services for automobile retailers and
manufacturers.
Mr. Mast joined the Company in November 2000, and prior to that was a Senior
Partner of Kilpatrick Stockton LLP, an international law firm, from 1990.
Mr. Mazzilli served as Corporate Vice President, Treasurer and Controller of the
Company from 1992 through June 1999. In 1999, he became Executive Vice President
and Chief Financial Officer of Nova Corporation, which provides transaction
processing and related software application products to small merchants. He
rejoined the Company in his current position in February 2000.
Mr. Story joined the Company in March 2000 and was Vice President and Group
Controller for Global Technology and Equifax Internet Solutions before being
promoted to his current position in August 2001. Prior to joining Equifax, Mr.
Story served as Chief Financial Officer, Zep Manufacturing Company from 1999 to
2000, and prior to that he was Vice President of Finance for Alumax Inc. from
1994 to 1998.
5
ITEM 2. PROPERTIES
The Company ordinarily leases office space for conducting its business and is
obligated under approximately 146 leases and other rental arrangements for its
headquarters and field locations. The Company's operating leases involve
principally office space.
The Company owns three office buildings, one of which is located in Wexford,
Ireland; one in Sao Paolo, Brazil; and one in Santiago, Chile. The Company owns
approximately 23.5 acres in Windward Office Park located in Alpharetta, Georgia,
adjacent to office space currently under lease by the Company.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 10 of the Notes to Consolidated Financial Statements
(Commitments and Contingencies - Litigation).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 2001 to a vote of
security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed and traded on the New York Stock Exchange
under the ticker symbol "EFX".
The high and low sales prices and dividends declared per share of the Company's
common stock for each quarter during the last two fiscal years are below. The
amount of our quarterly dividend was reduced in the third quarter of 2001 due to
the spin-off of Certegy Inc. While we have historically paid dividends to common
shareholders, the declaration and payment of future dividends will depend on
many factors, including our earnings, financial condition, business development
needs, and regulatory considerations and is at the discretion of our Board of
Directors.
DIVIDENDS PER SHARE
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Quarter 2000 2001
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First $0.093 $0.093
Second 0.093 0.093
Third 0.093 0.020
Fourth 0.093 0.020
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Year $0.370 $0.225
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On July 7, 2001, we completed the spin-off of Certegy Inc., and the Company's
shareholders received .5 share of Certegy stock for each share of common stock
held as of June 27, 2001, the record date. The high and low sales prices of the
Company's common stock shown below have been adjusted to reflect the spin-off.
STOCK PRICE
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(In Dollars) 2000 2001
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High Low High Low
First Quarter 15.10 11.77 19.58 16.24
Second Quarter 17.57 13.84 22.94 17.52
Third Quarter 16.13 13.76 27.41 18.60
Fourth Quarter 21.61 15.39 25.33 21.45
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Year 21.61 11.77 27.41 16.24
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As of February 20, 2002, there were approximately 10,268 holders of record of
the Company's common stock.
6
ITEM 6. SELECTED FINANCIAL DATA
The table below summarizes selected historical financial information of Equifax
Inc. for each of the last five years. Certain historical financial information
for 1997 through 2000 has been restated to reflect the spin-off of Certegy (see
Note 2 of Notes to Consolidated Financial Statements).
(In millions, except per share amounts and number of employees)
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Year ended December 31 2001 2000 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Operating revenue $1,139.0 $1,189.2 $1,092.7 $1,055.8 $ 880.8
Operating expenses before restructuring and other charges 824.8 880.6 806.4 793.9 640.1
Restructuring and other charges (1) (60.4) - - - (25.0)
--------------------------------------------------------
Operating income $ 253.8 $ 308.6 $ 286.3 $ 261.9 $ 215.7
========================================================
Income from continuing operations (1) $ 117.3 $ 141.1 $ 147.7 $ 135.2 $ 136.2
Dividends paid $ 32.3 $ 52.3 $ 52.0 $ 52.1 $ 52.0
PER COMMON SHARE (diluted)
Income from continuing operations (1) $ 0.84 $ 1.04 $ 1.06 $ 0.94 $ 0.92
Dividends $ 0.225 $ 0.370 $ 0.363 $ 0.353 $ 0.345
Weighted average common shares outstanding (diluted) 139.0 136.0 139.6 144.4 147.8
BALANCE SHEET DATA (at December 31)
Total assets $1,422.6 $1,893.1 $1,607.9 $1,675.6 $1,053.3
Long-term debt $ 693.6 $ 993.4 $ 933.4 $ 868.8 $ 338.5
Shareholders' equity $ 243.5 $ 383.6 $ 215.6 $ 366.5 $ 349.4
Common shares outstanding 136.2 135.8 134.0 140.0 142.6
OTHER INFORMATION (at December 31)
Stock price per share (2) $ 24.15 $ 16.98 $ 13.95 $ 20.24 $ 20.98
Market capitalization (2) $3,288.4 $2,306.9 $1,869.0 $2,834.2 $2,991.6
Employees - continuing operations 5,200 6,500 7,800 9,500 7,200
- ----------
(1) In 2001, the Company recorded restructuring and other charges of $60.4
million ($35.3 million after tax, or $0.25 per share) for employee
severance, facilities consolidation, and the write down of certain
technology investments (see Note 5 of Notes to Consolidated Financial
Statements). In 1997, the Company recorded a charge of $25 million ($14.9
million after tax, or $0.10 per share) related to a pending acquisition.
(2) Stock price and market capitalization prior to 2001 have been adjusted to
reflect the spin-off of Certegy.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
For an understanding of the significant factors that influenced the Company's
results, the following discussion should be read in conjunction with the
consolidated financial statements and related notes.
Equifax Inc. is a leading source of consumer and commercial credit information
worldwide. The Company provides to a wide range of customers information
management, consumer credit information, marketing, business information, and
identity verification services to enable credit and business decisions. The
Company, through its Consumer Direct business, provides credit reporting and
identity theft monitoring services direct to consumers enabling them to
proactively manage their credit health and safeguard against identity theft. The
Company is the market leader for credit information services in North America.
Equifax Inc.'s 2001 financial reporting was significantly impacted by the
spin-off of its Payment Services business ("Certegy"), divestitures of non-core
businesses ("Divested Operations"), and restructuring and other charges recorded
in the fourth quarter of 2001. Excluding these transactions, Equifax reported
record revenues, earnings and cash flow for its core business, largely
attributable to performance in its North American Information Services
businesses. Significant 2001 financial highlights were:
- Consolidated revenues increased 8% to $1.1 billion.
- Diluted earnings per share increased 5% to $1.15, before restructuring
and other charges of $60 million (pre-tax).
- Consolidated operating margins were 29%.
- North American revenues increased 13% and operating income increased 14%.
- U.S. consumer reporting volumes grew 20%.
- The Consumer Direct business more than tripled revenues.
- Free cash flow grew to $208 million, a 72% increase over 2000.
Significant Transactions
On July 7, 2001, Equifax completed the spin-off of Certegy into a separate,
publicly traded company. The spin-off permitted both companies to focus on
growth in their core businesses with dedicated resources, and the continued
creation of shareholder value. As a result of the spin-off, the Company's
financial statements have been prepared with Certegy's net assets, results of
operations and cash flows classified as "discontinued operations," with all
historical financial statements restated to conform to this presentation.
In October 2001, the Company divested its City Directory business and, in the
fourth quarter of 2000, sold its global risk management and U.K. vehicle
information businesses. Combined revenues for these businesses in 2001 and 2000
were $29 million and $162 million, respectively, with a 2001 operating loss of
$3.6 million and 2000 operating income of $9.0 million. The operating results of
these businesses are classified in Divested Operations for segment reporting
purposes.
In the fourth quarter of 2001, restructuring and other charges were recorded in
connection with efforts to properly size and configure our post-spin business
and to align our cost structure in our international operations. The charge
totaled $60 million ($35 million after tax or $0.25 per diluted share) and
consisted of approximately $37 million for employee severance and facilities
consolidation and $23 million to write down several technology investments.
8
Financial Results
The following table summarizes Equifax's Core Business and As Reported results
from continuing operations for each of the three years in the period ended
December 31, 2001.
Core Business As Reported
---------------------------- --------------------------------
(In millions, except per share) 2001 2000 1999 2001 2000 1999
- --------------------------------------------------------------------------------- --------------------------------
Revenue $1,109.8 $1,027.2 $917.0 $1,139.0 $1,189.2 $1,092.7
Operating income $ 317.8 $ 299.6 $267.4 $ 253.8 $ 308.6 $ 286.3
Other income (expense), net $ 4.7 $ 11.1 $ 11.0 $ (1.2) $ 3.7 $ 10.8
Interest expense $ (47.8) $ (48.3) $(32.9) $ (47.8) $ (55.8) $ (42.2)
Income from continuing operations $ 159.7 $ 150.2 $140.1 $ 117.3 $ 141.1 $ 147.7
Diluted earnings per share
from continuing operations $ 1.15 $ 1.10 $ 1.00 $ 0.84 $ 1.04 $ 1.06
Management believes the Core Business results are more useful in analyzing the
underlying business by providing a consistent comparison of the Company's
historical operating performance. Adjustments to reconcile the As Reported
results for each of the three years in the period ended December 31, 2001 to the
Core Business results and the associated impact on diluted earnings per share
are as follows:
- Exclude the operating results and disposition gains and losses of Divested
Operations
- Exclude the 2001 restructuring and other charges
- Adjust other income and interest expense to reflect the impact of the
proceeds from Divested Operations
- Adjust the effective income tax rate, which reflects the above adjustments
See Exhibit 99.8 to this report for a more detailed analysis of the reconciling
adjustments for Core Business results of operations.
Earnings Per Share (Diluted): 2001 2000 1999
- ----------------------------------------------------------------------------------
Continuing operations, As Reported $0.84 $1.04 $ 1.06
Adjustments:
- -Exclude the 2001 restructuring and other charges 0.25 - -
- -Adjust for the impacts of Divested Operations 0.05 0.03 (0.05)
- -Adjust income taxes - 0.04 (0.01)
-----------------------------
Continuing operations, Core Business $1.15 $1.10 $ 1.00
-----------------------------
The following discussion of revenue, operating income, and segment results is on
a Core Business basis (as previously described). The discussion of other income
(expense), net, interest expense, and effective tax rates is on an As Reported
basis.
Revenue
Revenues of $1.1 billion in 2001 increased 8% over 2000, driven by our
North American Information Services segment's record consumer credit reporting
volumes and growth in our Consumer Direct business. In 2001, North America
accounted for 77% of the Company's total revenue and 90% of the operating income
before corporate expense. Revenue growth in North America was 13%. The
strengthening of the U.S. dollar against foreign currencies, particularly in
Latin America, negatively impacted revenue $27 million or 3%. Incremental
revenues from our acquisitions in 2000 positively impacted revenue growth
approximately 4%.
Revenues of $1.0 billion in 2000 increased 12% over 1999. Revenue growth was
significantly influenced by the May 2000 acquisition of our Direct Marketing
Services business, formerly the Consumer Information Solutions Group ("CIS")
from R.L. Polk & Co. Excluding the impact of the CIS acquisition, revenue growth
was 3%. The strengthening of the U.S. dollar against foreign currencies during
2000, particularly the British pound and Spanish peseta, reduced 2000 revenue by
approximately $15 million or 2%.
9
Operating Income
Operating income in 2001 increased 6% to $317.8 million on operating
margins of 29%. North America's operating income growth of 14% and 40 basis
point margin improvement driven by consumer reporting and Consumer Direct offset
margin deterioration in our international operations, particularly in Europe.
Operating income in 2000 grew 12% to $299.6 million with operating margins
of 29%. Excluding the CIS acquisition, profit growth was 7%. Operating income
growth in our traditional U.S. credit marketing services business, Canada's
consumer reporting business and improved operating expenses drove 2000
performance.
Other Income (Expense), Net
Other income (expense), net includes interest income on cash balances of
$3.2 million in 2001, $7.5 million in 2000, and $5.8 million in 1999. Lower cash
balances in foreign operations combined with lower interest rates accounted for
the decline in 2001. Other income (expense), net in 2001 and 2000 includes
losses associated with the disposition of Divested Operations. In October 2001,
the Company sold its City Directory business, which generated a pre-tax loss of
$5.8 million. The sale of the risk management and vehicle information businesses
generated pre-tax losses of $4.2 million in 2000. In 1999, the Company sold
three risk management offices located in the U.S. that resulted in a pre-tax
gain of $4.1 million.
Interest Expense
Interest expense decreased $8.0 million in 2001 and increased $13.6 million
in 2000, as compared with prior years. The decrease in 2001 from 2000 was due to
lower average debt outstanding and lower effective borrowing rates. The increase
in 2000 resulted from higher average debt outstanding associated with 2000
acquisition activity and 1999 treasury stock purchases. After adjusting for the
$275 million debt reduction related to the spin-off of Certegy, average total
debt outstanding was $775.4 million in 2001, $824.8 million in 2000 and $699.0
million in 1999.
Effective Tax Rates
The effective tax rates from continuing operations were 42.1%, 43.4% and
40.3% in 2001, 2000 and 1999, respectively. Changes in the levels of
non-deductible goodwill associated with divestitures and in the levels of
foreign earnings accounted for the changes in effective tax rates between
periods. The effective rate in 2002 is expected to decline to approximately 40%,
due to the elimination of goodwill amortization and the effects of tax planning
strategies.
Segment Results
The following table summarizes the segment results for each of the three years
in the period ended December 31, 2001. The results of businesses sold in October
2001 and in the fourth quarter of 2000 are classified as Divested Operations.
The Company's previous Consumer Information Services segment results are now
reported in the North American Information Services segment.
Revenue Operating Income (Loss)
------------------------------ ------------------------------
(In millions) 2001 2000 1999 2001 2000 1999
- -------------------------------------------------------------------------------- ------------------------------
North American Information Services $ 852.4 $ 755.2 $ 633.1 $327.5 $287.2 $261.0
Equifax Europe 141.1 142.9 148.7 1.8 13.7 4.7
Equifax Latin America 106.7 119.5 125.5 24.4 31.5 28.8
Other 9.6 9.6 9.6 8.9 8.9 8.9
General Corporate Expense - - - (44.8) (41.7) (36.0)
------------------------------- ------------------------------
Core Business 1,109.8 1,027.2 917.0 317.8 299.6 267.4
Divested Operations 29.2 162.0 175.7 (3.6) 9.0 18.9
Restructuring and Other Charges (Note 5) - - - (60.4) - -
------------------------------- ------------------------------
As Reported $1,139.0 $1,189.2 $1,092.7 $253.8 $308.6 $286.3
=============================== ==============================
10
North American Information Services
North American Information Services accounted for $852.4 million, or 77% of
the Company's revenues in 2001 and $327.5 million, or 90% of the operating
income, before corporate expense. This segment includes U.S. Credit Information
Services, Mortgage Services, Credit Marketing Services, Direct Marketing
Services, Canadian Operations and Consumer Direct. Segment revenues increased
13% in 2001 and 19% in 2000. Excluding the impact of the May 2000 CIS
acquisition, North America's revenue increased 8% in 2001 and 6% in 2000.
U.S. Credit Information Services 2001 revenue increased 13% compared to 1%
growth in 2000, with 2001 growth driven by a record credit reporting volume
increase of 20%. The key industry growth drivers were: mortgage,
telecommunications, financial services and automotive. Lower interest rates
helped generate record volumes in mortgage refinancing, cellular usage
increased, and automakers' zero rate financing incentives drove consolidated
volumes with consecutive quarterly growth in 2001. In 2000, volumes increased
11%. Volume growth was partially offset by average unit price declines of 6% in
2001 and 9% in 2000. Average pricing is impacted by mix of business, with many
of our large customers driving increased volumes at lower average unit prices.
U.S. Credit Information Services compounded annual volume growth since 1990 is
approximately 13%. In 2002, we expect volume growth to return to levels more
indicative of historical performance. Canadian revenue increased 14% in 2001 on
strong consumer credit volume growth compared to almost flat growth in 2000.
During 2001, increasing demand for information from mortgage industry
customers, caused by a declining interest rate environment, resulted in 73%
growth in Mortgage Services revenue to $44.4 million, compared with a 21%
decrease in 2000. In 2002, we expect this business to decline from 2001 levels,
as refinancing activity moderates.
Our Credit Marketing Services and Direct Marketing Services businesses
generated combined revenue of $259.3 million, or 2% growth, compared to $253.6
million in 2000. Excluding the Direct Marketing Services incremental revenues of
$33.2 million from the May 2000 acquisition, 2001 revenues declined 11% largely
due to the economic impact of companies reducing advertising and marketing
expenditures. In Credit Marketing Services, which includes pre-screening,
portfolio review, database and other marketing products, 2001 revenues declined
6% versus a 2000 record year of 28% growth. Lower revenues in 2001 were
principally due to product mix shifts to lower priced risk management products,
some price compression due to customer consolidation, and fewer marketing
campaigns. Our Direct Marketing Services business experienced a 22% sales
decline in comparable sales in 2001 versus 2000, principally driven by a
significant contraction in advertising and marketing expenditures by its
customers due to the slowing U.S. economy.
Consumer Direct more than tripled revenues to $21.9 million in 2001 largely
due to $10 million of incremental sales from the new ScorePower(TM) credit score
product launched in March 2001 and increased sales of the Equifax Credit
Profile(R) credit report and Equifax Credit Watch(TM) credit monitoring
service. Consumer Direct sales in 2000 totaled $5.5 million.
Operating income for North American Information Services increased 14% in
2001 compared to 10% in 2000. Excluding the impact of the CIS acquisition,
operating income growth for 2001 and 2000 was 13% and 5%, respectively.
Operating margins were 38% in 2001 and 2000, compared to 41% in 1999. Lower
margins in 2001 and 2000 are attributable to the Company's investment in its
marketing services businesses, Consumer Direct and identity authentication
services.
Equifax Europe
Revenue in Equifax Europe, which consists of operations in the United
Kingdom, Ireland, Spain, Portugal and Italy, grew 3% and 4% in 2001 and 2000,
respectively, on a local currency basis. The local currency growth in 2001 is
attributable to the November 2000 acquisition of SEK in Italy. The strengthening
of the U.S. dollar against the British pound and Spanish peseta reduced Equifax
Europe's revenue by approximately $6.0 million in 2001 and $12.5 million in
2000.
Operating income in 2001 of $1.8 million declined $11.9 million from 2000 on
lower revenues in the United Kingdom and Spain primarily due to slower economic
growth. In 2000, operating income improved $9.0 million over 1999, substantially
driven by expense reductions. We continue to focus on driving operational
efficiencies in our European businesses and expect improved margins in 2002.
Equifax Latin America
Equifax Latin America generated revenue of $106.7 million and an operating
margin of 23% in 2001. The Company has operations in Brazil, Argentina, Chile,
Peru, Uruguay and El Salvador. In local currency, revenues increased 3% in 2001
while declining 3% in 2000. The strengthening of the U.S. dollar against the
Brazilian real and the Chilean peso reduced this segment's revenue by
approximately $17.5 million and $2.3 million in 2001 and 2000, respectively.
11
Operating income in 2001 decreased $7.1 million mainly due to weak
currencies and economic conditions in the region compared to a $2.7 million
increase in 2000. Cost containment measures have helped stabilize and maintain
attractive margins of 23% in 2001 and 26% in 2000.
This segment's operating results will be adversely affected in 2002 by the
recent economic events in Argentina. These events have impacted both the
conversion rates of the Argentine peso to the U.S. dollar and also the general
business conditions in Argentina. 2001 revenue and operating income for our
business in Argentina totaled $26.0 million and $9.1 million, respectively, and
the Company's investment in that business totaled approximately $26 million at
December 31, 2001.
Other
Other consists solely of a subcontract, which expires at the end of May
2002, relating to the Company's lottery subsidiary. Revenue and operating income
remained comparable at $9.6 million and $8.9 million, respectively, in all
periods.
General Corporate
General corporate expense in 2001 increased $3.1 million on higher incentive
plan expense and increased $5.7 million in 2000 primarily due to higher
technology costs and one-time expenses associated with our headquarters
relocation.
Financial Condition
Cash provided by operations increased 32% to $255.1 million in 2001, and
free cash flow (operating cash flow less capital expenditures) increased 72% to
$208 million. The improvement over 2000 was largely influenced by higher
operating income from Core Businesses, aggressive management of receivables
(days sales outstanding declined from 75 days in 2000 to 63 days in 2001), and a
$24.8 million reduction in capital expenditures. Cash provided by operations in
2000 was $192.8 million. Operating cash flow has been sufficient to fund capital
expenditures, dividend payments and scheduled maturities of long-term debt.
During 2001, the Company's cash used in investing activities totaled $106.5
million compared to $263.0 million in 2000. The Company was less acquisitive in
2001 versus 2000 as its major focus was the spin-off of Certegy. Capital
expenditures, exclusive of acquisitions and investments, amounted to $47.1
million in 2001 compared to $71.9 million in 2000. Total capital expenditures in
2002 are expected to approximate $50 million. Acquisitions and investments, net
of cash acquired, declined from $346.8 million in 2000 to $68.7 million in 2001,
largely due to the May 2000 CIS acquisition. Cash proceeds generated from the
sale of businesses and other assets amounted to $12.4 million in 2001 and $157.5
million in 2000, and are principally associated with the City Directory sale in
2001 and the sales of our risk management and vehicle information businesses in
2000.
In 2001, cash used by financing activities totaled $325.5 million compared
to $16.4 million of cash generated in 2000. In 2001, the Company reduced its
long-term debt $298.9 million through the repayment of borrowings under its
revolving credit facility. Debt repayments were funded through operating cash
flows and the cash dividend received from Certegy in conjunction with the
spin-off. During the year, the Company acquired 2.15 million shares of stock at
an investment of $49.5 million. Stock repurchases in 2000 amounted to $6.5
million, down from $210.2 million in 1999. The repurchases were temporarily
suspended in 2000 to enable the Company to apply available cash to the repayment
of debt incurred in connection with the CIS acquisition. At December 31, 2001,
the Company's remaining authorization for share repurchases was approximately
$45 million, and in February 2002, the Company's Board of Directors approved an
additional $250 million for share repurchases. The Company continued its 89-year
history of paying dividends, which totaled $32.3 million in 2001. Dividends were
$20.0 million lower than 2000 as the Company reduced its quarterly dividend
after the Certegy spin-off from $0.093 to $0.02 per share.
At December 31, 2001, $367.5 million was available to the Company under its
new $465 million revolving credit facility. Should CSC exercise its option to
sell its credit reporting business to the Company (Note 10), additional sources
of financing would be required. However, management believes the Company has
sufficiently broad access to the capital markets to enable it to arrange
alternative sources of financing. Alternative sources of funding available would
include the public debt markets and additional bank lines of credit.
Inflation
We do not believe that the rate of inflation has had a material effect on
our operating results. However, inflation could adversely affect our future
operating results if it were to result in a substantial weakening in economic
conditions.
12
Critical Accounting Policies and Estimates
The Company's consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires management to make
estimates and assumptions that affect: the reported amounts of assets and
liabilities at the date of the financial statements; the disclosure of
contingent assets and liabilities at the date of the financial statements; and
the reported amounts of revenues and expenses during the reporting period.
Management regularly evaluates its estimates and assumptions. These estimates
and assumptions are based on historical experience and on various other factors
that are believed to be reasonable under the circumstances, and form the basis
for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
The Company's significant accounting policies are described in Note 1 of
Notes to Consolidated Financial Statements. Management believes that the
following accounting policies involve a higher degree of complexity and warrant
specific description.
Valuation of Long-Lived Assets
The Company regularly evaluates whether events or circumstances have occurred
which indicate that the carrying amounts of long-lived assets (principally
goodwill, purchased data files, systems development and other deferred costs,
and investments in unconsolidated subsidiaries) may be impaired or not
recoverable. The significant factors that are considered that could trigger an
impairment review include: changes in business strategy, market conditions, or
the manner of use of an asset; underperformance relative to historical or
expected future operating results; and negative industry or economic trends. In
evaluating an asset for possible impairment, management estimates that asset's
future undiscounted cash flows to measure whether the asset is recoverable. If
it is determined that the asset is not recoverable, the Company measures the
impairment based on the projected discounted cash flows of the asset over its
remaining life. While the Company believes that its estimates of future cash
flows are reasonable, different assumptions regarding such cash flows could
materially affect these evaluations. In 2001, the FASB issued Statement No. 142,
"Goodwill and Other Intangible Assets," which among other things, eliminates the
amortization of goodwill and certain other intangible assets and requires that
goodwill be evaluated annually for impairment by applying a fair value-based
test. The Company adopted the standard effective January 1, 2002 for
acquisitions prior to June 30, 2001, and, in accordance with the standard, will
complete its first fair value-based impairment tests by June 30, 2002.
Deferred Tax Assets
The Company estimates levels of future taxable income and utilizes prudent
and feasible tax planning strategies in establishing and maintaining deferred
tax assets (see Note 7 of Notes to Consolidated Financial Statements). If the
Company is unable to realize all or part of its deferred tax assets in the
future, the Company's effective tax rate could increase.
13
CERTAIN FACTORS AFFECTING FORWARD LOOKING STATEMENTS
The management's discussion and analysis, and other portions of this Form
10-K, include "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and the Securities Exchange Act of
1934. These forward-looking statements may include, among others, statements
concerning the Company's outlook for 2002, volume and pricing trends, cost
control measures and their results, effective income tax rates, the Company's
expectations as to funding its capital expenditures and operations, and other
statements relative to future plans and strategies. These statements are based
on a number of assumptions that are inherently subject to significant
uncertainties, many of which are beyond Equifax's control.
Important factors that either individually or in the aggregate could cause
actual results to differ materially from those expressed in the forward-looking
statements include, but are not limited to, the following: a change in the
growth rate of the economies within which the Company conducts business,
particularly in the U.S., such that consumer spending and related consumer debt
are impacted; a decline or change in the marketing techniques of credit card
issuers; unexpected pricing pressures above and beyond the levels experienced in
the past; U.S. and international regulatory or legislative changes which may
adversely affect the businesses conducted by the Company; successful integration
of acquisitions; risks associated with investments and operations in foreign
countries, including regulatory environments, exchange rate fluctuations, and
local political, social and economic factors; successful development and
marketing of new products and services to existing and new industries;
protection and validity of patent and other intellectual property rights;
successful incorporation of technological change; control and reduction of cost
and expense; interest rate fluctuations; changes in U.S. and global financial
and equity markets, including market disruptions and significant interest rate
fluctuations, which may impede the Company's access to, or increase the cost of,
external financing; increased competitive pressures both domestically and
internationally; and other risks or unforeseen factors including those described
below.
We depend on our customers' requirements for consumer credit information. If
these requirements decrease, our business might be adversely affected.
Our core product is our consumer credit reports. In general, the usage of credit
reports and related services is driven by consumer demand for credit via new
credit cards, automobile loans, home mortgages and refinancings and other
consumer loans and lenders' efforts to develop new, and monitor existing, credit
relationships. Consumer demand for credit tends to increase during periods of
economic expansion. On the other hand, lenders' efforts to monitor existing
credit relationships tend to increase during periods of economic contraction.
Consequently, revenue from consumer credit information products is influenced by
cyclical economic trends related to consumer spending and debt.
We rely on demand for consumer information services. Our business might be
negatively affected by a decline in demand.
We provide value-added consumer information services including direct marketing
products and services to our traditional customers, as well as to catalog,
publishing, high-tech, travel and manufacturing clients. Direct marketing
products also include data capture, database management, and registration card
programs for consumer durable goods manufacturers. In the event that consumers
begin to buy fewer of the types of products and services that have in the past
been marketed and sold through direct marketing, or if direct marketing loses
effectiveness in comparison to other methods of advertising, use of our direct
marketing products and services could lessen and, consequently, our revenues and
profits could decline.
We rely on external data sources. Loss of access to credit and other data from
external sources could negatively impact our business.
We rely extensively upon data from external sources to maintain our proprietary
and non-proprietary databases, including data received from customers and
various government and public record services. The continued availability of
such data sources cannot be assured. Although we have no reason to believe that
access to current data sources will become restricted, loss of access to, or the
availability of, data in the future due to government regulation or otherwise
could have a material adverse effect on our business, financial condition and
results of operations.
Changes in government regulation could increase our costs or otherwise affect
our profits.
Our business involves collection of consumer and business data and distribution
of such information to businesses making credit and marketing decisions.
Consequently, certain of our activities and services are subject to regulation
under various federal laws, including the Fair Credit Reporting Act and the
Gramm-Leach-Bliley Act, as well as similar state laws. We are also subject to
privacy and consumer credit laws and regulations in foreign countries where we
do business.
14
We have no reason to believe that additional regulations will be imposed that
will have a material adverse effect on our business. However, further federal,
state and local data use regulations may affect our operations with increased
compliance requirements and potential loss of revenue or decrease in profits.
Competition could hurt our business.
Equifax operates in a number of geographic, product and service markets, which
are highly competitive. We primarily compete with two global consumer credit
reporting companies, Experian Information Solutions, Inc. and Trans Union LLC,
which offer credit reporting products that are similar to those we offer. We
also compete with these and other companies that offer marketing information
products and services, including Acxiom Corporation and InfoUSA, Inc.
In each of our markets, we compete on the basis of responsiveness to customer
needs as well as the quality and range of products and services offered.
Although we believe that we offer a broader range of products and services in
more geographic markets than our competitors, we face strong competition in
certain geographic, product and service markets which, if successful, may have
adverse effects on our operations.
The above factors that may affect future performance and the accuracy of
forward-looking statements are illustrative and by no means exhaustive. All
forward-looking statements should be evaluated with the understanding of their
inherent uncertainty.
15
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk, primarily from changes in foreign
currency exchange rates and changes in interest rates.
In the normal course of business, the balance sheets and results of operations
of the Company's foreign subsidiaries can be impacted by changes in foreign
currency exchange rates. The Company's position is to not hedge translational
foreign currency exchange risks. However, the Company does hedge material
transactional foreign currency exchange risks, and at December 31, 2001, the
exchange risks associated with the Company's intercompany advances to its U.K.
operations, as well as the intercompany balances associated with funding its
Italy acquisition were hedged by having a portion of the borrowings under its
revolving credit facility denominated in those respective currencies.
The Company manages its exposure to changes in interest rates by (1) maintaining
an appropriate weighted average debt maturity and (2) controlling the mix of
fixed and variable rate debt, in part by using interest rate swap agreements.
The Company's earnings can be affected by the impact that changes in interest
rates have on its variable-rate obligations. At December 31, 2001, approximately
$358 million (47%) of the Company's short-term and long-term debt was in
variable-rate facilities. At this level, if market interest rates increased 1%,
interest expense would increase approximately $3.6 million per year (pre-tax).
16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements
Consolidated Statements of Income for each of the three years ended
December 31, 2001 18
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 2001 19
Consolidated Balance Sheets at December 31, 2001 and 2000 20
Consolidated Statements of Shareholders' Equity and Comprehensive Income
for each of the three years ended December 31, 2001 21
Notes to Consolidated Financial Statements 22
Report of Independent Public Accountants 38
17
EQUIFAX INC.
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
- -------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- -------------------------------------------------------------------------------------------
Operating revenue $1,139.0 $1,189.2 $1,092.7
-------- -------- --------
Costs and expenses:
Costs of services 488.7 562.3 559.9
Selling, general and administrative expenses 336.1 318.3 246.5
Restructuring and other charges (Note 5) 60.4 - -
-------- -------- --------
Total costs and expenses 885.2 880.6 806.4
-------- -------- --------
Operating income 253.8 308.6 286.3
Other income (expense), net (1.2) 3.7 10.8
Interest expense (47.8) (55.8) (42.2)
Minority interests in earnings (2.2) (7.1) (7.3)
-------- -------- --------
Income from continuing operations before income taxes 202.6 249.4 247.6
Provision for income taxes (85.3) (108.3) (99.9)
-------- -------- --------
Income from continuing operations 117.3 141.1 147.7
-------- -------- --------
Discontinued operations (Note 2):
Income from discontinued operations, net of income
taxes of $21.4, $49.1, and $50.2, respectively 33.6 86.9 68.2
Costs associated with effecting the spin-off, net of
income tax benefit of $8.1 (28.4) - -
-------- -------- --------
Total discontinued operations 5.2 86.9 68.2
-------- -------- --------
Net income $ 122.5 $ 228.0 $ 215.9
======== ======== ========
Per common share (basic):
Income from continuing operations $ 0.86 $ 1.05 $ 1.07
Discontinued operations 0.04 0.65 0.50
-------- -------- --------
Net income $ 0.90 $ 1.70 $ 1.57
======== ======== ========
Shares used in computing basic earnings per share 136.8 134.4 137.5
======== ======== ========
Per common share (diluted):
Income from continuing operations $ 0.84 $ 1.04 $ 1.06
Discontinued operations 0.04 0.64 0.49
-------- -------- --------
Net income $ 0.88 $ 1.68 $ 1.55
======== ======== ========
Shares used in computing diluted earnings per share 139.0 136.0 139.6
======== ======== ========
Dividends per common share $ 0.225 $ 0.370 $ 0.363
======== ======== ========
See notes to consolidated financial statements.
18
EQUIFAX INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
- -------------------------------------------------------------------------------------------------------------
Year Ended December 31 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 122.5 $ 228.0 $ 215.9
Adjustments to reconcile net income to net cash provided
by operating activities of continuing operations:
Income from discontinued operations (33.6) (86.9) (68.2)
Costs associated with effecting the spin-off 28.4 - -
Depreciation and amortization 106.2 106.2 89.6
Restructuring and other charges 60.4 - -
Income tax benefit from stock plans 4.5 5.6 2.0
Loss (gain) from sale of businesses 5.8 4.2 (4.1)
Changes in assets and liabilities, excluding effects of
acquisitions:
Accounts receivable, net 16.1 (33.4) (5.4)
Current liabilities, excluding debt (31.3) (7.3) (22.2)
Other current assets (0.6) (13.0) 5.0
Deferred income taxes 8.2 19.6 18.2
Other long-term liabilities, excluding debt (17.4) (13.0) (5.4)
Other assets (14.1) (17.2) (36.8)
------- ------- -------
Cash provided by operating activities 255.1 192.8 188.6
------- ------- -------
Investing activities:
Additions to property and equipment (13.0) (26.0) (29.6)
Additions to other assets, net (34.1) (45.9) (41.1)
Acquisitions, net of cash acquired (43.5) (336.6) (24.2)
Investments in unconsolidated affiliates (25.2) (10.2) -
Proceeds from sale of businesses 5.4 149.2 8.1
Proceeds from sale of assets 7.0 8.3 -
Deferred payments on prior year acquisitions (3.1) (1.8) -
------- ------- -------
Cash used by investing activities (106.5) (263.0) (86.8)
------- ------- -------
Financing activities:
Net short-term borrowings 9.3 (21.0) 33.1
Additions to long-term debt - 73.0 70.2
Payments on long-term debt (298.9) (3.3) (5.4)
Treasury stock purchases (42.3) (6.5) (210.2)
Dividends paid (32.3) (52.3) (52.0)
Proceeds from exercise of stock options 36.4 23.2 7.0
Other 2.3 3.3 3.1
------- ------- -------
Cash (used) provided by financing activities (325.5) 16.4 (154.2)
------- ------- -------
Effect of foreign currency exchange rates on cash (5.6) (5.3) (7.2)
Cash provided by discontinued operations 156.1 15.7 94.8
------- ------- -------
(Decrease) increase in cash and cash equivalents (26.4) (43.4) 35.2
Cash and cash equivalents, beginning of year 59.6 103.0 67.8
------- ------- -------
Cash and cash equivalents, end of year $ 33.2 $ 59.6 $ 103.0
======= ======= =======
See notes to consolidated financial statements.
19
EQUIFAX INC.
CONSOLIDATED BALANCE SHEETS
(In millions, except par values)
- --------------------------------------------------------------------------------------------------
December 31 2001 2000
- --------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 33.2 $ 59.6
Trade accounts receivable, net of allowance for doubtful
accounts of $14.0 in 2001 and $16.5 in 2000 197.0 226.0
Other receivables 69.2 66.2
Deferred income tax assets 26.4 18.4
Other current assets 32.2 33.6
-------- --------
Total current assets 358.0 403.8
-------- --------
Property and Equipment:
Land, buildings and improvements 32.3 31.0
Data processing equipment and furniture 134.9 150.5
-------- --------
167.2 181.5
Less accumulated depreciation 112.0 115.5
-------- --------
55.2 66.0
-------- --------
Goodwill 516.5 557.0
Purchased Data Files 207.0 209.4
Other Assets 285.9 329.1
Net Assets of Discontinued Operations - 327.8
-------- --------
$1,422.6 $1,893.1
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current maturities $ 62.0 $ 54.2
Accounts payable 13.2 16.8
Accrued salaries and bonuses 26.5 24.5
Income taxes payable 4.0 16.4
Other current liabilities 170.2 155.2
-------- --------
Total current liabilities 275.9 267.1
Long-Term Debt 693.6 993.4
Deferred Revenue 17.2 32.9
Deferred Income Tax Liabilities 88.6 80.1
Other Long-Term Liabilities 103.8 136.0
-------- --------
Total liabilities 1,179.1 1,509.5
-------- --------
Commitments and Contingencies (Note 10)
Shareholders' Equity:
Preferred stock, $0.01 par value: Authorized - 10.0; Issued - none - -
Common stock, $1.25 par value:
Authorized shares - 300.0
Issued shares - 178.4 in 2001 and 176.0 in 2000
Outstanding shares - 136.2 in 2001 and 135.8 in 2000 223.0 220.0
Paid-in capital 376.7 336.5
Retained earnings 758.8 902.5
Accumulated other comprehensive income (197.2) (206.1)
Treasury stock, at cost, 35.2 shares in 2001
and 33.1 shares in 2000 (Note 8) (828.0) (779.0)
Stock held by employee benefits trusts, at cost,
7.0 shares in 2001 and 7.1 shares in 2000 (Note 8) (89.8) (90.3)
-------- --------
Total shareholders' equity 243.5 383.6
-------- --------
$1,422.6 $1,893.1
======== ========
See notes to consolidated financial statements.
20
EQUIFAX INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Common Stock: Accumulative Stock Held Total
------------------- Other By Employee Share-
Shares Paid-In Retained Comprehensive Treasury Benefits holders'
(In millions) Outstanding Amount Capital Earnings Income Stock Trusts Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 140.0 $ 217.2 $ 286.5 $562.9 $ (35.1) $(606.1) $ (59.0) $ 366.4
Net income - - - 215.9 - - - 215.9
Other comprehensive income - - - - (126.9) - - (126.9)
Shares issued under stock plans 0.6 0.6 6.9 - - 0.1 0.6 8.2
Shares contributed to U.S.
retirement plan 0.3 - 7.0 - - - 3.0 10.0
Treasury stock purchased (6.9) - - - - (210.2) - (210.2)
Cash dividends - - - (52.0) - - - (52.0)
Income tax benefit from stock plans - - 2.1 - - - - 2.1
Dividends from employee benefits trusts - - 2.0 - - - - 2.0
---------------------------------------------------------------------------------------
Balance, December 31, 1999 134.0 217.8 304.5 726.8 (162.0) (816.2) (55.4) 215.5
Net income - - - 228.0 - - - 228.0
Other comprehensive income - - - - (44.1) - - (44.1)
Shares issued under stock plans 1.8 2.2 21.1 - - 0.4 0.4 24.1
Treasury stock purchased (0.3) - - - - (6.5) - (6.5)
Treasury stock reissued for
acquisitions 0.3 - 2.6 - - 8.0 - 10.6
Cost of treasury stock transferred to
employee benefits trust - - - - - 35.3 (35.3) -
Cash dividends - - - (52.3) - - - (52.3)
Income tax benefit from stock plans - - 5.6 - - - - 5.6
Dividends from employee benefits trusts - - 2.7 - - - - 2.7
---------------------------------------------------------------------------------------
Balance, December 31, 2000 135.8 220.0 336.5 902.5 (206.1) (779.0) (90.3) 383.6
Net income - - - 122.5 - - - 122.5
Other comprehensive income - - - - (67.3) - - (67.3)
Shares issued under stock plans 2.5 3.0 33.7 - - 0.5 0.5 37.7
Treasury stock purchased (2.1) - - - - (49.5) - (49.5)
Cash dividends - - - (32.3) - - - (32.3)
Spin-off of Certegy Inc. - - - (233.9) 76.2 - - (157.7)
Income tax benefit from stock plans - - 4.9 - - - - 4.9
Dividends from employee benefits trusts - - 1.6 - - - - 1.6
---------------------------------------------------------------------------------------
Balance, December 31, 2001 136.2 $ 223.0 $ 376.7 $ 758.8 $(197.2) $(828.0) $ (89.8) $ 243.5
=======================================================================================
Accumulated Other Comprehensive Income consists of the following components at December 31:
2001 2000 1999 1998
------------------------------------
Foreign currency translation $(191.8) $(202.8) $(157.3) $(29.0)
Minimum liability under supplemental
retirement plan (4.6) (3.3) (4.7) (6.1)
Cash flow hedging transactions (0.8) - - -
------------------------------------
$(197.2) $(206.1) $(162.0) $(35.1)
====================================
Comprehensive Income is as follows:
2001 2000 1999
----------------------------
Net income $ 122.5 $ 228.0 $ 215.9
Other comprehensive income:
Foreign currency translation adjustment (65.2) (45.5) (128.3)
Adjustment for minimum liability under
supplemental retirement plan (1.3) 1.4 1.4
Change in cumulative loss from
cash flow hedging transactions (0.8) - -
----------------------------
$ 55.2 $ 183.9 $ 89.0
============================
See notes to consolidated financial statements.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Principles of Consolidation The consolidated financial statements include the
accounts of the Company and its majority-owned and controlled subsidiaries. All
significant intercompany transactions and balances have been eliminated. Certain
prior year amounts have been reclassified to conform with the current year
presentation. The historical financial statements presented have been restated
to reflect the spin-off of Certegy Inc. (Note 2).
Nature of Operations The Company principally provides information services to
businesses to help them grant credit and market to their customers (see Note 12
for segment information). The primary markets include retailers, banks and other
financial institutions, the transportation, telecommunications, utility, and
manufacturing industries, as well as consumers and government. The Company's
operations are predominantly located within the United States, with foreign
operations principally located in Canada, the United Kingdom, and Brazil.
Use of Estimates The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements as
well as reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Revenue Recognition and Deferred Revenue Revenues from the delivery of
consumer and commercial credit information and related products and services are
recognized at the time of delivery based on a fixed unit price or, in the case
of subscription contracts, which provide credit reports or products to customers
for a specified period of time, revenues are recognized over the subscription
term. Revenues from credit marketing services are based on the number of records
sold and are recognized as data is delivered and accepted by the customer.
Revenues from direct marketing products and services are based on the number of
records processed or delivered and are recognized when products are delivered or
services are performed. The Company also licenses its direct marketing data to
customers and recognizes revenues when the data is delivered. For arrangements
that include ongoing data updates and other significant obligations throughout
the license term, revenues are recognized over the license term.
Amounts billed in advance are recorded as current or long-term deferred revenue
on the balance sheet, with current deferred revenue reflecting services expected
to be provided within the next twelve months. Current deferred revenue is
included with other current liabilities in the accompanying consolidated balance
sheets, and as of December 31, 2001 and 2000, totaled $21.8 million and $32.2
million, respectively. In 1996, the Company received a one-time payment of $58
million related to a lottery subcontract and recognized $5.4 million in revenue.
The remaining balance is being recognized as revenue over the term of the
contract, with $9.6 million per year recognized in 1997 through 2001. The
unrecognized balance at December 31, 2001, totaled $4.4 million. In conjunction
with the divestiture of the Company's U.S. risk management and Canadian risk
management businesses in October 2000 (Note 4), certain of the proceeds received
related to contracts to provide credit information products and services to the
buyers over the next five to six years and were recorded in current and
long-term deferred revenue. At December 31, 2001, $19.0 million remained
unrecognized, with $14.7 million included in long-term deferred revenue in the
accompanying consolidated balance sheets. This deferred revenue will be
recognized as the contracted products and services are provided.
Earnings Per Share Basic EPS is calculated as income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted EPS is calculated to reflect the potential dilution
that would occur if stock options or other contracts to issue common stock were
exercised and resulted in additional common shares outstanding. The income
amount used in the Company's EPS calculations is the same for both basic and
diluted EPS. A reconciliation of the average outstanding shares used in the two
calculations is as follows:
(In millions) 2001 2000 1999
- ------------------------------------------------------------------------
Weighted average shares outstanding (basic) 136.8 134.4 137.5
Effect of dilutive securities:
Stock options 2.1 1.4 1.9
Long-term incentive plans 0.1 0.2 0.2
- ------------------------------------------------------------------------
Weighted average shares outstanding (diluted) 139.0 136.0 139.6
========================================================================
22
Property and Equipment The cost of property and equipment is depreciated
primarily on the straight-line basis over estimated asset lives of 30 to 50
years for buildings; useful lives, not to exceed lease terms, for leasehold
improvements; three to five years for data processing equipment; and eight to 20
years for other fixed assets.
Goodwill Goodwill is amortized on a straight-line basis predominantly over
periods from 20 to 40 years. Amortization expense was $25.4 million in 2001,
$24.4 million in 2000, and $19.7 million in 1999. As of December 31, 2001 and
2000, accumulated amortization balances were $94.5 million and $75.8 million,
respectively.
In 2001, the FASB issued Statement No. 141, "Business Combinations" (SFAS 141)
and Statement No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS
141 eliminates pooling-of-interests accounting and requires all business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method. SFAS 142 eliminates the amortization of goodwill and certain
other intangible assets and requires that goodwill be evaluated for impairment
by applying a fair value-based test. The Company adopted the standard effective
June 30, 2001 for all subsequent acquisitions, and adopted the standard
effective January 1, 2002 for all acquisitions that occurred prior to June 30,
2001. The Company expects to complete its first fair value-based impairment
tests by June 30, 2002.
Purchased Data Files Purchased data files are amortized on a straight-line
basis primarily over 15 years. Amortization expense was $21.8 million in 2001,
$20.2 million in 2000, and $17.6 million in 1999. As of December 31, 2001 and
2000, accumulated amortization balances were $136.6 million and $118.0 million,
respectively.
Other Assets Other assets at December 31, 2001 and 2000 consist of the
following:
(In millions) 2001 2000
- --------------------------------------------------------------------------
Systems development and other deferred costs $81.5 $86.3
Purchased software 28.6 49.3
Prepaid pension cost 97.3 98.2
Risk management purchased paper (Note 4) 31.2 59.1
Investments in unconsolidated companies 26.3 12.4
Other 21.0 23.8
- --------------------------------------------------------------------------
$285.9 $329.1
==========================================================================
Purchased software and systems development and other deferred costs are being
amortized on a straight-line basis over five to ten years. Amortization expense
for other assets was $38.7 million in 2001, $36.7 million in 2000, and $27.9
million in 1999. As of December 31, 2001 and 2000, accumulated amortization
balances were $117.6 million and $121.5 million, respectively. The Company has
entered into several strategic investments in privately held companies totaling
$26.3 million and $12.4 million at December 31, 2001 and 2000, respectively.
These investments are accounted for under either the cost method or the equity
method, depending on the level of influence the Company has over the investment
entity. The Company regularly reviews these investments for impairment issues,
and in the fourth quarter 2001, the Company wrote off investments totaling $6.9
million (Note 5). The Company believes that these investments are appropriately
valued at December 31, 2001.
Long-Lived Assets Long-lived assets include property and equipment, goodwill,
purchased data files, and other assets. The Company regularly evaluates whether
events and circumstances have occurred which indicate that the carrying amount
of long-lived assets may warrant revision or may not be recoverable. When
factors indicate that long-lived assets should be evaluated for possible
impairment, the Company uses an estimate of the future undiscounted net cash
flows of the related business over the remaining life of the asset in measuring
whether the asset is recoverable.
Foreign Currency Translation The functional currency of the Company's foreign
subsidiaries are those subsidiaries' local currencies. The assets and
liabilities of foreign subsidiaries are translated at the year-end rate of
exchange, and income statement items are translated at the average rates
prevailing during the year. The resulting translation adjustment is recorded as
a component of shareholders' equity. Gains and losses resulting from the
translation of intercompany balances of a long-term investment nature are also
recorded as a component of shareholders' equity. Other foreign currency
translation gains and losses, which are not material, are recorded in the
consolidated statements of income.
23
Consolidated Statements of Cash Flows The Company considers cash equivalents
to be short-term cash investments with original maturities of three months or
less.
Cash paid for income taxes and interest from continuing operations is as
follows:
(In millions) 2001 2000 1999
- ----------------------------------------------------------------------------
Income taxes, net of amounts refunded $78.4 $81.7 $93.7
Interest 49.7 56.0 41.6
In 2001, 2000, and 1999, the Company acquired various businesses that were
accounted for as purchases (Note 3). In conjunction with these transactions,
liabilities were recorded as follows:
(In millions) 2001 2000 1999
- ---------------------------------------------------------------------------
Fair value of assets acquired $50.4 $368.2 $24.8
Cash paid for acquisitions 44.4 334.8 22.2
Value of treasury stock reissued for acquisitions -- 10.6 --
- ---------------------------------------------------------------------------
Liabilities recorded $ 6.0 $ 22.8 $ 2.6
===========================================================================
Financial Instruments The Company's financial instruments consist primarily of
cash and cash equivalents, accounts and notes receivable, accounts payable, and
short-term and long-term debt. The carrying amounts of these items, other than
long-term debt, approximate their fair market values due to their short
maturity. As of December 31, 2001, the fair value of the Company's long-term
debt (determined primarily by broker quotes) was $686.7 million compared to its
carrying value of $693.6 million.
Derivative Instruments and Hedging Activities Effective January 1, 2001, the
Company adopted FASB Statement No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (SFAS 133). SFAS 133 requires that a company recognize
derivatives as assets or liabilities on its balance sheet, and also requires
that the gain or loss related to the effective portion of derivatives designated
as cash flow hedges be recorded as a component of other comprehensive income.
At December 31, 2001, the Company has an interest rate swap agreement in effect
that fixes the interest rate for one of its variable rate obligations through
its duration in 2010. This derivative has been designated as a cash flow hedge,
was documented as fully effective, and at December 31, 2001, was valued as a
liability totaling $1.4 million. This liability is included with other current
liabilities in the accompanying consolidated balance sheets, and the related
loss was recorded, net of income tax, as a component of accumulated other
comprehensive loss.
At December 31, 2001, the Company also has interest rate swap agreements in
place to float the interest rate on $200 million of its fixed rate senior notes
through their maturity date in 2005. These derivatives have been designated as
fair value hedges and are fully effective. The value of these swaps was $1.7
million at December 31, 2001, and was recorded as an asset along with a
corresponding increase in long-term debt.
2. DISCONTINUED OPERATIONS
On July 7, 2001, the Company completed the spin-off of its Payment Services
business segment (Certegy Inc. or Certegy) through a tax free dividend of all of
its Certegy stock to Equifax shareholders. Shareholders received a dividend of
one share of Certegy stock for each two shares of Equifax stock owned. This
non-cash dividend totaled $233.9 million. Also in connection with the spin-off,
the Company reduced debt by $275 million in July 2001 following Certegy's cash
dividend of that amount to the Company.
As a result of the spin-off, the Company's financial statements have been
prepared with Certegy's net assets, results of operations, and cash flows
isolated and shown as "discontinued operations." All historical statements have
been restated to conform with this presentation. Also as a result of the
spin-off, during the second quarter of 2001 the Company recorded an expense of
$36.5 million ($28.4 million after tax, or $0.21 per share) to accrue the costs
associated with effecting the spin-off. These costs include fees for investment
bankers, legal and accounting services, duplicate software licenses, and various
other directly related expenses. This expense has been included as a component
of discontinued operations in the accompanying statements of income and cash
flows. In 2001, charges to this reserve totaled $33.5 million, and the remaining
reserve of $3.0 million at December 31, 2001 is included in other current
liabilities in the accompanying consolidated balance sheets.
24
Summarized financial information for the discontinued operation is as follows:
(In millions) 2001 2000 1999
- -----------------------------------------------------------------------
Revenue $398.3 $776.7 $680.0
Income before income taxes 56.0 137.1 118.3
Net Income 33.6 86.9 68.2
(In millions) December 31, 2000
- ------------------------------------------------------------------------------
Current assets $201.2
Total assets 504.4
Current liabilities 159.1
Total liabilities 176.6
Net assets of discontinued operations 327.8
3. ACQUISITIONS
In 2001, the Company acquired the credit files of five affiliated credit
reporting agencies located in the United States and 13 agencies in Canada, as
well as an information services business in Uruguay. These acquisitions were
accounted for as purchases and had a total purchase price of $48.9 million. They
were acquired for cash of $44.4 million and notes payable of $4.5 million. They
resulted in $20.5 million of goodwill and $27.2 million of purchased data files.
Their results of operations have been included in the consolidated statements of
income from their respective dates of acquisition and were not material. During
the first quarter of 2002, the Company expects to complete the purchase of the
remaining 20% of its 80% owned information services company in Brazil. The
purchase price is currently estimated to be approximately $36 million.
During 2000, the Company acquired or increased its ownership in the following
businesses:
Month Industry Percentage
Business Acquired Segment Ownership
- --------------------------------------------------------------------------------------------------------
Organizacion Veraz S.A. (Argentina) December Latin America 79.5% 1
SEK S.r.l. and AIF Gruppo Securitas S.r.l. (Italy) November Europe 100.0%
Compliance Data Center, Inc. October North America 100.0%
Consumer Information Solutions (CIS) Group
of R.L. Polk & Co. May North America 100.0%
Propago, S.A. (Chile) January Latin America 100.0%
1 Increased to 79.5% from 66.7% acquired in 1997 and 1994
In 2000, in addition to the businesses above, the Company acquired the credit
files of 12 credit affiliates located in the United States and 14 affiliates in
Canada. All of the 2000 acquisitions were accounted for as purchases and had an
aggregate purchase price of $348.4 million, with $218.1 million allocated to
goodwill and $78.8 million allocated to purchased data files. They were
purchased with a combination of cash totaling $334.8 million, the re-issuance of
treasury stock with a fair market value of $10.6 million, and notes payable of
$3.0 million. Their results of operations have been included in the consolidated
statements of income from the dates of acquisition and were not material.
In 1999, the Company acquired the credit files of 14 credit affiliates located
in the United States and three credit affiliates in Canada. They were accounted
for as purchases and had an aggregate purchase price of $24.2 million, with $7.5
million allocated to goodwill and $16.0 million allocated to purchased data
files. Their results of operations have been included in the consolidated
statements of income from the dates of acquisition and were not material.
4. DIVESTITURES
In October 2001, the Company sold its City Directory business which had been
acquired from R.L. Polk & Co. in May 2000. The resulting pre-tax loss of $5.8
million ($4.9 million after tax, or $0.035 per share) was recorded in the
consolidated statement of income as a charge to other income in September 2001.
In October 2000, the Company sold its risk management businesses located in the
U.S., Canada, and the U.K., and in December 2000, sold its vehicle information
business in the U.K., as well as a direct marketing business in Canada that was
a small component of the CIS group acquired earlier in the year from R.L. Polk &
Co. Proceeds from these sales included cash of $149.2 million (net of cash sold)
and a $41 million note receivable from one of the buyers, and resulted in a
pre-tax loss of $4.2 million recorded in other income. Approximately $25.5
million of the proceeds received in the U.S. and Canadian risk management sales
related to exclusive contracts to
25
provide the buyers with credit information products and services over several
years, and was recorded in current and long-term deferred revenue. In
conjunction with the U.S. risk management sale, the Company guaranteed
approximately $60 million of the buyer's third-party acquisition financing which
related to a portfolio of purchased paper. Since this purchased paper financing
was entirely guaranteed by the Company, the amount guaranteed has been recorded
in other assets and other long-term liabilities in the accompanying consolidated
balance sheets. These corresponding asset and liability balances will be reduced
as the buyer makes principal payments on their loan and the Company's guarantee
is reduced. The balances totaled $59.1 million at December 31, 2000, and $31.2
million at December 31, 2001.
In June 1999, the Company sold three risk management offices located in the U.S.
Proceeds from these sales totaled $8.1 million and resulted in a gain of $4.1
million recorded in other income ($1.7 million after tax, or $.01 per share).
5. RESTRUCTURING AND OTHER CHARGES
In the fourth quarter of 2001, the Company recorded restructuring and other
charges (discussed below) of $60.4 million ($35.3 million after tax, or $0.25
per share).
The Company implemented a restructuring plan to align the Company's cost
structure with changing market conditions, reduce expenses and improve
efficiencies, particularly in international operations. The plan includes
headcount reductions of approximately 700 employees, primarily located in the
Company's international operations. The restructuring charge totaled $37.2
million, and consists of severance costs associated with headcount reductions
and other related costs, including reserves to reflect the Company's estimated
exposure on facilities to be vacated or consolidated. In 2001, charges to the
restructuring reserve totaled $8.8 million, and the remaining reserve of $28.4
million at December 31, 2001 is included in other current liabilities in the
accompanying consolidated balance sheets. The majority of the remaining
severance and related charges are expected to be incurred in 2002, with charges
related to real estate rental obligations being incurred over the next several
years.
Due to changes in market conditions and the Company's technology strategy, the
Company recorded an impairment charge of $23.2 million to write down certain
technology investments, including $6.9 million of investments in several third
party technology companies.
6. LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt at December 31, 2001 and 2000 was as follows:
(In millions) 2001 2000
- --------------------------------------------------------------------------------------
Senior Notes, 6.5%, due 2003, net of unamortized
discount of $0.2 million in 2001 and $0.3 million in 2000 $199.8 $199.7
Senior Notes, 6.3%, due 2005, net of unamortized
discount of $0.6 million in 2001 and $0.8 million in 2000 249.4 249.2
Senior Debentures, 6.9%, due 2028, net of unamortized
discount of $1.3 million in 2001 and $1.4 million in 2000 148.7 148.6
Borrowings under revolving credit facilities,
weighted average rate of 3.0% at December 31, 2001 90.9 390.5
Other 8.7 8.1
- --------------------------------------------------------------------------------------
697.5 996.1
Less current maturities 3.9 2.7
- --------------------------------------------------------------------------------------
$693.6 $993.4
======================================================================================
In October 2001, the Company replaced its $750 million revolving credit facility
with a new, committed $465 million revolving credit facility with a group of
commercial and investment banks. The new facility is composed of a $160 million,
364-day portion and a $305 million, multi-year portion. The multi-year portion
expires in October 2004. The agreement provides for borrowings tied to Base
Rate, LIBOR and competitive bid interest rate options and contains certain
financial covenants related to interest coverage, funded debt to cash flow, and
limitations on subsidiary indebtedness. At December 31, 2001, $27.5 million of
the revolving credit facility's outstanding balance was denominated in foreign
currencies. Portions of these foreign denominated obligations are used to hedge
the impacts of foreign exchange rate fluctuations related to inter-company
advances between the Company and several of its foreign subsidiaries.
26
Scheduled maturities of long-term debt during the five years subsequent to
December 31, 2001, are as follows:
(In millions) Amount
----------------------------------------
2002 $ 3.9
2003 201.1
2004 92.4
2005 251.2
2006 0.1
The Company's short-term borrowings at December 31, 2001 and 2000, totaled $58.1
million and $51.5 million, respectively, and consisted primarily of notes
payable to banks. These notes had a weighted average interest rate of 3.30% at
December 31, 2001 and 6.25% at December 31, 2000. In October 2001, a Canadian
subsidiary of the Company entered into a C$100 million loan, renewable annually,
with a bank. The loan agreement provides interest rate options tied to Prime,
Base Rate, LIBOR, and Canadian Banker's Acceptances, and contains financial
covenants related to interest coverage, funded debt to cash flow, and
limitations on subsidiary indebtedness. Borrowings under this loan (which are
included in the short-term borrowings totals above) at December 31, 2001 and
2000 were C$76.0 million and C$69.0 million, respectively.
7. INCOME TAXES
The Company records deferred income taxes using enacted tax laws and rates for
the years in which the taxes are expected to be paid. Deferred income tax assets
and liabilities are recorded based on the differences between the financial
reporting and income tax bases of assets and liabilities.
The provision for income taxes from continuing operations consists of the
following:
(In millions) 2001 2000 1999
- ------------------------------------------------------------------------
Current:
Federal $65.7 $60.6 $58.6
State 8.4 2.9 8.9
Foreign 5.7 25.6 16.8
- ------------------------------------------------------------------------
79.8 89.1 84.3
- ------------------------------------------------------------------------
Deferred:
Federal 5.7 10.8 6.5
State (2.5) 2.2 1.7
Foreign 2.3 6.2 7.4
- ------------------------------------------------------------------------
5.5 19.2 15.6
- ------------------------------------------------------------------------
$85.3 $108.3 $99.9
========================================================================
The provision for income taxes from continuing operations is based on income
from continuing operations before income taxes, as follows:
(In millions) 2001 2000 1999
- --------------------------------------------------------------------------
United States $197.6 $216.3 $211.7
Foreign 5.0 33.1 35.9
- --------------------------------------------------------------------------
$202.6 $249.4 $247.6
==========================================================================
The provision for income taxes from continuing operations is reconciled with the
federal statutory rate, as follows:
(In millions) 2001 2000 1999
- -------------------------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
- -------------------------------------------------------------------------------------------------
Provision computed at federal statutory rate $70.9 $ 87.3 $86.7
State and local taxes, net of federal tax benefit 3.8 3.3 6.9
Nondeductible goodwill (including amounts related to divestitures) 6.7 8.8 4.4
Foreign 1.3 4.0 2.1
Other 2.6 4.9 (0.2)
- -------------------------------------------------------------------------------------------------
$85.3 $108.3 $99.9
=================================================================================================
27
Components of the Company's deferred income tax assets and liabilities at
December 31, 2001 and 2000 are as follows:
(In millions) 2001 2000
- -------------------------------------------------------------------------------
Deferred income tax assets:
Reserves and accrued expenses $ 30.0 $ 15.5
Postretirement benefits 10.0 9.7
Employee compensation programs 9.9 13.5
Deferred revenue 4.7 9.9
Net operating loss carryforwards of subsidiaries 1.3 1.4
Foreign tax credit carryforwards 28.5 26.6
Other 4.6 8.0
- -------------------------------------------------------------------------------
89.0 84.6
===============================================================================
Deferred income tax liabilities:
Data files and other assets (54.4) (60.6)
Depreciation (0.5) (2.0)
Pension expense (40.8) (38.3)
Undistributed earnings of foreign subsidiaries (36.3) (33.6)
Other (19.2) (11.8)
- -------------------------------------------------------------------------------
(151.2) (146.3)
- -------------------------------------------------------------------------------
Net deferred income tax liability $ (62.2) $ (61.7)
===============================================================================
The Company's deferred income tax assets and liabilities at December 31, 2001
and 2000, are included in the accompanying consolidated balance sheets as
follows:
(In millions) 2001 2000
- ----------------------------------------------------------------------
Deferred income tax assets $ 26.4 $ 18.4
Deferred income tax liabilities (88.6) (80.1)
- ----------------------------------------------------------------------
Net deferred income tax liability $(62.2) $(61.7)
======================================================================
Accumulated undistributed retained earnings of Canadian subsidiaries amounted to
approximately $38.8 million at December 31, 2001. No provision for Canadian
withholding taxes or United States federal income taxes is made on these
earnings, because they are considered by management to be permanently invested
in those subsidiaries and, under the tax laws, are not subject to such taxes
until distributed as dividends. If the earnings were not considered permanently
invested, approximately $1.9 million of deferred income taxes would have been
provided. Such taxes, if ultimately paid, may be recoverable as foreign tax
credits in the United States.
28
8. SHAREHOLDERS' EQUITY
Rights Plan In 1995, the Company's Board of Directors adopted a Shareholder
Rights Plan (Rights Plan). The Rights Plan contains provisions to protect the
Company's shareholders in the event of an unsolicited offer to acquire the
Company, including offers that do not treat all shareholders equally, the
acquisition in the open market of shares constituting control without offering
fair value to all shareholders, and other coercive, unfair or inadequate
takeover bids and practices that could impair the ability of the Board to
represent shareholders' interests fully. Pursuant to the Rights Plan, the Board
declared a dividend of one Share Purchase Right (a Right) for each outstanding
share of the Company's common stock, with distribution to be made to
shareholders of record as of November 24, 1995. The Rights, which will expire in
November 2005, initially will be represented by, and traded together with, the
Company's common stock. The Rights are not currently exercisable and do not
become exercisable unless certain triggering events occur. Among the triggering
events is the acquisition of 20% or more of the Company's common stock by a
person or group of affiliated or associated persons. Unless previously redeemed,
upon the occurrence of one of the specified triggering events, each Right that
is not held by the 20% or more shareholder will entitle its holder to purchase
one share of common stock or, under certain circumstances, additional shares of
common stock at a discounted price.
Treasury Stock and Employee Benefits Trusts During 2001, 2000, and 1999, the
Company repurchased 2.15 million, 0.3 million, and 6.9 million of its own common
shares through open market transactions at an aggregate investment of $49.5
million, $6.5 million, and $210.2 million, respectively. At December 31, 2001,
approximately $45 million remained available for future purchases, and at its
February 2002 meeting, the Company's Board of Directors authorized an additional
$250 million for share repurchases. During 2000, the Company reissued 0.3
million treasury shares in connection with an acquisition (Note 3).
In 1993, the Company established the Equifax Inc. Employee Stock Benefits Trust
to fund various employee benefit plans and compensation programs and transferred
6.2 million treasury shares to the Trust. In 1994 and 2000, the Company
transferred 0.6 million and 1.5 million treasury shares, respectively, to two
other employee benefits trusts. Shares held by the trusts are not considered
outstanding for earnings per share calculations until released to the employee
benefit plans or programs. During 2001 and 2000, 48,593 shares and 39,830
shares, respectively, were used for various employee incentive programs. In
1999, 364,354 shares were used, with 304,183 shares contributed to the Company's
U.S. Retirement Plan and 60,171 shares used for various employee incentive
programs.
Stock Options The Company's shareholders have approved several stock option
plans which provide that qualified and nonqualified options may be granted to
officers and employees. The Company's Board of Directors has also approved a
nonqualified stock option plan that cannot be used to grant shares to directors
or executive officers. All plans require that options be granted at exercise
prices not less than market value on the date of grant. Generally, options vest
over periods of up to four years and are exercisable for ten years from grant
date. Certain of the plans also provide for awards of restricted shares of the
Company's common stock. At December 31, 2001, there were 5.5 million shares
available for future option grants and restricted stock awards.
The number of options outstanding and their exercise prices were adjusted in
July 2001 pursuant to a formula as a result of the spin-off of Certegy. The
adjustment increased the number of options outstanding in 2001 by approximately
2.1 million shares. A summary of changes in outstanding options and the related
weighted average exercise price per share is shown in the following table:
2001 2000 1999
----------------- ------------------ ----------------
Average Average Average
(Shares in thousands) Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------
Balance, beginning of year 9,698 $25.22 10,563 $24.14 7,820 $22.40
Adjustment due to spin-off 2,055 -- -- -- -- --
Granted (all at market price) 2,680 $28.27 1,841 $22.39 3,924 $27.62
Canceled (1,171) $22.25 (924) $28.75 (591) $34.42
Exercised (2,353) $16.91 (1,782) $13.70 (590) $13.39
- -----------------------------------------------------------------------------------------------------
Balance, end of year 10,909 $16.37 9,698 $25.22 10,563 $24.14
=====================================================================================================
Exercisable at end of year 7,743 $15.66 6,069 $22.13 5,165 $17.95
=====================================================================================================
29
The following table summarizes information about stock options outstanding at
December 31, 2001 (shares in thousands):
Options Outstanding Options Exercisable
------------------------------------------------ ------------------------------
Weighted Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Shares Life in Years Price Shares Price
- --------------------------------------------------------------------------------------------------------------------
$4.20 to $13.62 3,656 5.9 $11.41 3,134 $11.10
$14.44 to $17.21 3,910 8.0 $16.14 2,475 $15.88
$17.39 to $24.18 3,026 6.1 $21.43 1,844 $21.15
$25.15 to $37.25 317 6.1 $28.00 290 $28.16
- --------------------------------------------------------------------------------------------------------------------
10,909 6.7 $16.37 7,743 $15.66
====================================================================================================================
The weighted-average grant-date fair value per share of options granted in 2001,
2000, and 1999 is as follows:
2001 2000 1999
- -------------------------------------------------------------------------------
Grants (all at market price) $8.80 $6.14 $9.95
The fair value of options granted in 2001, 2000, and 1999 is estimated on the
date of grant using the Black-Scholes option pricing model based on the
following weighted average assumptions:
2001 2000 1999
- -------------------------------------------------------------------------------
Dividend yield 0.5% 1.7% 1.4%
Expected volatility 41.0% 42.0% 42.4%
Risk-free interest rate 4.2% 6.5% 5.6%
Expected life in years 2.6 2.3 4.0
Long-Term Incentive Plans The Company has key management long-term incentive
plans for certain key officers that provide for cash awards at the end of
various length measurement periods based on the growth in earnings per share
and/or various other criteria over the measurement period. For certain awards,
the employee may elect to receive some or all of their distribution as an equity
interest in the Company.
Expense for these plans can vary between years due to revisions of estimates of
future distributions under the plans, which are based on the likelihood that the
performance criteria will be met. The total expense under these plans was $4.5
million in 2001, and credits to expense of $3.1 million in 2000 and $0.9 million
in 1999.
Pro Forma Information In accordance with the provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), the Company has elected to apply APB Opinion No.
25 and related interpretations in accounting for its stock option and
performance share plans. Accordingly, the Company does not recognize
compensation cost in connection with its stock option plans and records
compensation expense related to its performance share plan based on the current
market price of the Company's common stock and the extent to which performance
criteria are being met. If the Company had elected to recognize compensation
cost for these plans based on the fair value at grant date as prescribed by SFAS
No. 123, net income and net income per share would have been reduced to the pro
forma amounts indicated in the table below (in millions, except per share
amounts):
2001 2000 1999
--------------------- ---------------------- ----------------------
Reported Pro forma Reported Pro forma Reported Pro forma
- --------------------------------------------------------------------------------------------------------------------
Net income $122.5 $102.6 $228.0 $211.9 $215.9 $201.0
====================================================================================================================
Net income per share (basic) $0.90 $0.75 $1.70 $1.58 $1.57 $1.46
====================================================================================================================
Net income per share (diluted) $0.88 $0.74 $1.68 $1.56 $1.55 $1.44
====================================================================================================================
30
9. EMPLOYEE BENEFITS
In 1998, the Company adopted Statement of Financial Accounting Standards No.
132, "Employers' Disclosures about Pensions and Other Postretirement Benefits."
This statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement or recognition
of these plans.
U.S. Retirement Plan The Company has a non-contributory qualified retirement
plan covering most U.S. salaried employees. Benefits are primarily a function of
salary and years of service. A reconciliation of the benefit obligation, plan
assets, and funded status of the plan is as follows (in millions):
Change in benefit obligation 2001 2000
- -------------------------------------------------------------------------------
Benefit obligation at beginning of year $372.8 $387.0
Service cost 4.8 4.5
Interest cost 28.4 29.0
Actuarial loss (gain) 44.7 (17.2)
Curtailments (1.5) (1.3)
Spin-off of Certegy (27.3) --
Benefits paid (30.1) (29.2)
- -------------------------------------------------------------------------------
Benefit obligation at end of year $391.8 $372.8
===============================================================================
Change in plan assets 2001 2000
- -------------------------------------------------------------------------------
Fair value of plan assets at beginning of year $513.1 $500.6
Actual return on plan assets (34.9) 41.7
Employer contribution 10.0 --
Spin-off of Certegy (45.0) --
Benefits paid (30.1) (29.2)
- -------------------------------------------------------------------------------
Fair value of plan assets at end of year $413.1 $513.1
===============================================================================
Funded status $ 21.3 $140.3
Unrecognized actuarial loss (gain) 64.2 (54.9)
Unrecognized prior service cost -- 0.2
- -------------------------------------------------------------------------------
Prepaid pension cost $ 85.5 $ 85.6
===============================================================================
Assumptions used in accounting for the plan are as follows: 2001 2000
- -------------------------------------------------------------------------------
Discount rate 7.25% 8.00%
Expected return on plan assets 9.50% 9.50%
Rate of compensation increase 4.25% 4.25%
Net pension income for the plan includes the following (income) expense
components:
(In millions) 2001 2000 1999
- ----------------------------------------------------------------------------
Service cost $ 4.8 $ 4.5 $ 5.1
Interest cost 28.3 29.0 27.6
Expected return on plan assets (44.3) (43.3) (40.1)
Amortization of prior service cost 0.2 0.3 0.4
Recognized actuarial loss -- -- 0.4
Curtailment gain -- (1.3) (3.8)
- ----------------------------------------------------------------------------
Net pension income $(11.0) $(10.8) $(10.4)
============================================================================
The net pension income shown above includes income amounts allocated to
discontinued operations of $2.1 million in 2001, $3.3 million in 2000 and $3.4
million in 1999. The 2000 curtailment gain of $1.3 million related to the sale
of the U.S. risk management business (Note 4), and was included as a component
of the loss on sale of businesses recorded in other income. The 1999 curtailment
gain of $3.8 million resulted from workforce reductions related to outsourcing
certain administrative and data processing functions and the sale of three risk
management offices.
At December 31, 2001, the plan's assets included 1.76 million shares of the
Company's common stock with a market value of approximately $42.6 million.
31
Foreign Retirement Plans The Company maintains a defined benefit plan for most
salaried employees in Canada. The aggregate fair market value of the Canadian
plan assets approximates the plan's projected benefit obligation, which totaled
$23.6 million and $24.9 million at December 31, 2001 and 2000, respectively.
Prepaid pension cost for this plan was $11.8 million and $12.5 million at
December 31, 2001 and 2000, respectively. The Company also maintains defined
contribution plans for certain employees in the United Kingdom.
Supplemental Retirement Plan The Company maintains a supplemental executive
retirement program for certain key employees. The plan, which is unfunded,
provides supplemental retirement payments based on salary and years of service.
The expense for this plan was $2.4 million in 2001, $3.0 million in 2000, and
$3.1 million in 1999. The accrued liability for this plan at December 31, 2001
and 2000 was $26.3 million and $24.2 million, respectively, and is included in
other long-term liabilities in the accompanying consolidated balance sheets.
Employee Retirement Savings Plans The Company's retirement savings plans
provide for annual contributions, within specified ranges, determined at the
discretion of the Board of Directors for the benefit of eligible employees in
the form of cash or shares of the Company's common stock. Employees may sell
their Company stock, including shares contributed as the Company match, at any
time. Expense for these plans was $2.5 million in 2001, $2.4 million in 2000,
and $3.4 million in 1999.
Postretirement Benefits The Company maintains certain unfunded healthcare and
life insurance benefit plans for eligible retired employees. Substantially all
of the Company's U.S. employees may become eligible for these benefits if they
reach retirement age while working for the Company and satisfy certain years of
service requirements. The Company accrues the cost of providing these benefits
over the active service period of the employee. Expense for these plans was $1.5
million in 2001, $0.1 million in 2000, and $0.9 million in 1999. Expense in 2000
was reduced by a $0.8 million curtailment gain related to the sale of the U.S.
risk management business (Note 4). The curtailment gain was included as a
component of the loss on sale of businesses recorded in other income. The
accrued liability for these plans at December 31, 2001 and 2000, was $21.4
million and $24.0 million, respectively, and is included in other long-term
liabilities in the accompanying consolidated balance sheets.
10. COMMITMENTS AND CONTINGENCIES
Leases The Company's operating leases involve principally office space and
office equipment. Under the terms of its headquarters building operating lease,
which commenced in 1999, the Company has guaranteed a portion of the residual
value of the building at the end of the lease in 2010. The maximum exposure
under the guarantee is approximately $23 million.
Rental expense related to the Company's operating leases was $23.8 million in
2001, $28.4 in 2000, and $28.4 million in 1999. Future minimum payment
obligations for noncancelable operating leases exceeding one year are as follows
as of December 31, 2001:
(In millions) Amount
- -----------------------------------------------
2002 $ 16.3
2003 11.7
2004 9.2
2005 7.9
2006 7.8
Thereafter 76.7
- -----------------------------------------------
$129.6
===============================================
Agreement with Computer Sciences Corporation The Company has an agreement with
Computer Sciences Corporation and certain of its affiliates (CSC) under which
CSC-owned credit reporting agencies utilize the Company's computerized credit
database services. CSC retains ownership of its credit files and the revenues
generated by its credit reporting activity. The Company receives a processing
fee for maintaining the database and for each report supplied. The initial term
of the agreement expired in July 1998 and was renewed by CSC for the ten-year
period beginning August 1, 1998. The agreement provides CSC with an option to
sell its credit reporting businesses to the Company and provides the Company
with an option to purchase CSC's credit reporting businesses if CSC does not
elect to renew the agreement or if there is a change in control of CSC while the
agreement is in effect. Both options expire in 2013. The option price is
determined by appraisal.
Data Processing and Outsourcing Services Agreements The Company has separate
agreements with IBM, PwCES LLC, Polk/Acxiom, Seisint Inc., and Xerox Connect,
Inc. which outsource portions of its computer data processing operations and
related functions and certain administrative functions. The agreements expire
between 2003 and 2010. The aggregate contractual obligation remaining under
these agreements is currently estimated to be approximately $869 million as of
December 31, 2001, with no future
32
year expected to exceed $150 million. However, these amounts could be more or
less depending on various factors such as the inflation rate, the introduction
of significant new technologies, or changes in the Company's servicing needs as
a result of acquisitions or divestitures. Under certain circumstances (e.g., a
change in control of the Company, or for the Company's convenience), the Company
may terminate these agreements. However, some of the agreements provide that the
Company must pay a significant termination charge in the event of such a
termination.
Change in Control Agreements The Company has agreements with 15 of its
officers which provide certain severance pay and benefits in the event of a
termination of the officer's employment under certain circumstances following a
"change in control" of the Company. "Change in control" is defined as the
accumulation by any person, entity, or group of 20% or more of the combined
voting power of the Company's voting stock or the occurrence of certain other
specified events. In the event of a "change in control," the Company's
performance share plan provides that all shares designated for future
distribution will become fully vested and payable, subject to the achievement of
certain levels of growth in earnings per share and certain other criteria. At
December 31, 2001, the maximum contingent liability under the agreements and
plans was approximately $20.1 million.
Litigation A number of lawsuits seeking damages are brought against the
Company each year, primarily as a result of reports issued by the Company. Two
lawsuits, 1600 Peachtree, L.L.C. v. Equifax Inc. and SouthTrust Bank, f/k/a
South Trust Bank National Association v. Equifax Inc., allege breach of a
guaranty agreement relating to the Company's prior headquarters building, and
seek damages of approximately $43 million, substantially all of which represents
future rent contingencies. The Company contends that the guaranty is void.
The Company provides for estimated legal fees and settlements relating to
pending lawsuits. In the opinion of management, the ultimate resolution of these
matters will not have a materially adverse effect on the Company's financial
position, liquidity, or results of operations.
33
11. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for 2001 and 2000 are as follows (in millions, except
per share amounts):
2001 First Second Third Fourth
- ---------------------------------------------------------------------------------------
Operating revenue before divested operations $272.5 $281.4 $274.0 $281.9
Divested operations 12.7 8.1 8.4 -
- ---------------------------------------------------------------------------------------
Operating revenue, as reported $285.2 $289.5 $282.4 $281.9
=======================================================================================
Operating income before divested operations
and restructuring and other charges $ 69.4 $ 79.2 $ 82.0 $ 87.2
Divested operations 0.9 (3.0) (1.4) -
Restructuring and other charges - - - (60.4)
- ---------------------------------------------------------------------------------------
Operating income, as reported $ 70.3 $ 76.2 $ 80.5 $ 26.8
=======================================================================================
Income from continuing operations $ 34.1 $ 38.3 $ 35.8 $ 9.1
=======================================================================================
Net income $ 48.1 $ 29.5 $ 35.8 $ 9.1
=======================================================================================
Per common share (basic):
Income from continuing operations $ 0.25 $ 0.28 $ 0.26 $ 0.07
=======================================================================================
Net income $ 0.35 $ 0.22 $ 0.26 $ 0.07
=======================================================================================
Per common share (diluted):
Income from continuing operations $ 0.24 $ 0.28 $ 0.26 $ 0.07
=======================================================================================
Net income $ 0.35 $ 0.21 $ 0.26 $ 0.07
=======================================================================================
2000 First Second Third Fourth
- ---------------------------------------------------------------------------------------
Operating revenue before divested operations $230.9 $258.2 $270.1 $268.0
Divested operations 42.9 47.3 53.8 17.9
- ---------------------------------------------------------------------------------------
Operating revenue, as reported $273.8 $305.5 $323.9 $285.9
=======================================================================================
Operating income before divested operations $ 57.8 $ 70.2 $ 82.3 $ 89.3
Divested operations 4.7 1.2 3.4 (0.3)
- ---------------------------------------------------------------------------------------
Operating income, as reported $ 62.5 $ 71.4 $ 85.7 $ 89.0
=======================================================================================
Income from continuing operations $ 28.6 $ 32.0 $ 38.3 $ 42.2
=======================================================================================
Net income $ 42.2 $ 53.1 $ 64.3 $ 68.4
=======================================================================================
Per common share (basic):
Income from continuing operations $ 0.21 $ 0.24 $ 0.29 $ 0.31
=======================================================================================
Net income $ 0.32 $ 0.40 $ 0.48 $ 0.51
=======================================================================================
Per common share (diluted):
Income from continuing operations $ 0.21 $ 0.24 $ 0.28 $ 0.31
=======================================================================================
Net income $ 0.31 $ 0.39 $ 0.47 $ 0.50
=======================================================================================
34
12. SEGMENT INFORMATION
The Company's operations are primarily organized in five reportable segments,
with three segments based on credit and marketing related products within
geographic regions (North America, Europe, and Latin America), and two segments
based on other criteria (Other and Divested Operations). The accounting policies
of the segments are the same as those described in the Company's summary of
significant accounting and reporting policies (Note 1). The Company evaluates
the segment performance based on its operating income before unusual items (if
any). Intersegment sales and transfers are not material.
In the fourth quarter of 2001, the Company changed its segment reporting
structure to more closely match management's internal reporting of business
operations by merging the previous Consumer Information Services segment into
North American Information Services. The 2000 and 1999 segment data has been
restated to conform with the current year presentation.
A description of segment products and services is as follows:
North American Information Services Consumer credit information; credit card
marketing services; locate services; fraud detection and prevention services;
mortgage loan origination information; analytics and consulting; commercial
credit reporting in Canada; identity verification services; and consumer
demographic and lifestyle information.
Equifax Europe Consumer and commercial credit information and marketing
services, and credit scoring and modeling services.
Equifax Latin America Consumer and commercial credit information and other
commercial, financial, and consumer information.
Other Lottery services.
Divested Operations Includes businesses divested in the fourth quarter of 2001
and 2000 (City Directory, the risk management businesses in the U.S., Canada,
and the U.K., as well as the vehicle information business in the U.K.) (Note 4).
35
Segment information for 2001, 2000, and 1999 is as follows (in millions):
2001 2000 1999
------------ ------------ -----------
Operating Revenue:
North American Information Services $ 852.4 $ 755.2 $ 633.1
Equifax Europe 141.1 142.9 148.7
Equifax Latin America 106.7 119.5 125.5
Other 9.6 9.6 9.6
------------ ------------ -----------
1,109.8 1,027.2 917.0
Divested Operations 29.2 162.0 175.7
------------ ------------ -----------
$1,139.0 $1,189.2 $1,092.7
------------ ------------ -----------
Operating Income (Loss):
North American Information Services $327.5 $ 287.2 $ 261.0
Equifax Europe 1.8 13.7 4.7
Equifax Latin America 24.4 31.5 28.8
Other 8.9 8.9 8.9
General Corporate Expense (44.8) (41.7) (36.0)
------------ ------------ -----------
317.8 299.6 267.4
Divested Operations (3.6) 9.0 18.9
Restructuring and Other Charges (Note 5) (60.4) -- --
------------ ------------ -----------
$ 253.8 $ 308.6 $ 286.3
------------ ------------ -----------
Total Assets at December 31:
North American Information Services $ 825.5 $ 832.9 $ 490.3
Equifax Europe 192.4 225.0 224.9
Equifax Latin America 190.6 251.6 277.0
Other 3.7 2.9 4.0
Corporate 210.3 213.5 145.2
------------ ------------ -----------
1,422.6 1,525.9 1,141.4
Divested Operations -- 39.3 193.8
Net Assets of Discontinued Operations -- 327.8 272.7
------------ ------------ -----------
$1,422.6 $1,893.1 $1,607.9
------------ ------------ -----------
36
2001 2000 1999
------ ------ -----
Depreciation and Amortization:
North American Information Services $ 64.4 $ 57.2 $40.3
Equifax Europe 18.5 17.9 17.1
Equifax Latin America 14.4 15.7 16.4
Other 0.8 0.8 0.8
Corporate 6.9 5.5 5.2
------ ------ -----
105.0 97.0 79.8
Divested Operations 1.2 9.2 9.8
------ ------ -----
$106.2 $106.2 $89.6
------ ------ -----
2001 2000 1999
------ ------ -----
Capital Expenditures (excluding property and
equipment and other assets acquired in acquisitions):
North American Information Services $ 20.1 $ 40.3 $35.5
Equifax Europe 12.3 13.8 14.6
Equifax Latin America 8.6 12.3 10.1
Other -- -- --
Corporate 5.5 3.9 5.7
------ ------ -----
46.5 70.3 65.9
Divested Operations 0.6 1.6 4.8
------ ------ -----
$ 47.1 $ 71.9 $70.7
------ ------ -----
Financial information by geographic area is as follows:
2001 2000 1999
------------------- ------------------ --------------------
Amount % Amount % Amount %
------------ ----- ----------- ------ ------------ ------
Operating Revenue (based
on location of customer):
United States $ 813.8 71% $ 801.6 67% $ 687.0 63%
Canada 77.5 7 94.6 8 91.8 8
United Kingdom 97.6 9 137.7 12 151.1 14
Brazil 49.5 4 60.9 5 61.1 6
Other 100.6 9 94.4 8 101.7 9
------------ ----- ----------- ------ ------------ ------
$1,139.0 100% $1,189.2 100% $1,092.7 100%
------------ ----- ----------- ------ ------------ ------
Long-Lived Assets of Continuing
Operations at December 31:
United States $ 665.2 63% $ 717.1 62% $ 424.0 45%
Canada 100.8 9 96.7 8 107.6 11
United Kingdom 78.8 7 88.2 8 174.3 18
Brazil 97.3 9 119.3 10 126.1 13
Other 122.5 12 140.2 12 125.2 13
------------ ----- ----------- ------ ------------ ------
$1,064.6 100% $1,161.5 100% $ 957.2 100%
------------ ----- ----------- ------ ------------ ------
37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Equifax Inc.:
We have audited the accompanying consolidated balance sheets of Equifax Inc. (a
Georgia corporation) and subsidiaries as of December 31, 2001 and 2000 and the
related consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Equifax Inc. and subsidiaries
as of December 31, 2001 and 2000 and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
February 13, 2002
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 1, 2002, to be filed with the Securities and Exchange Commission, will
contain under the heading "Directors and Corporate Governance," information
relating to the Company's Directors and persons nominated to become Directors,
which is herein incorporated by reference. Information relating to the Executive
Officers of the Company is included in Item 1 of this Report.
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 1, 2002, to be filed with the Securities and Exchange Commission, will
contain under the heading "Stock Ownership Reporting Compliance" information
relating to the Company's Directors and Executive Officers who failed to file on
a timely basis reports required by Section 16(c) of the Exchange Act, which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 1, 2002, to be filed with the Securities and Exchange Commission, will
contain under the heading "Compensation of Directors," information relating to
compensation of Directors and under the heading "Executive Officer
Compensation," information relating to Executive Officer compensation, which is
incorporated herein by reference. In no event shall the information contained in
the Proxy Statement under the heading "Report of the Compensation and Human
Resources Committee on Executive Compensation" be deemed incorporated herein by
such reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 1, 2002, to be filed with the Securities and Exchange Commission, will
contain under the heading "Stock Ownership of Directors and Executive Officers,"
information relating to security ownership of certain beneficial owners and
management, which is incorporated herein by reference.
For purposes of determining the aggregate market value of the Company's voting
stock held by non-affiliates, shares held by all current directors, executive
officers and holders of more than 5% or more of the outstanding common stock of
the Company have been excluded. The exclusion of such shares is not intended to,
and shall not, constitute a determination as to which persons or entities may be
"affiliates" of the Company as defined by the Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 1, 2002, to be filed with the Securities and Exchange Commission, will
contain under the heading "Certain Relationships and Related Transactions,"
information relating to certain relationships and related transactions between
the Company and certain of its directors and executive officers, which is
incorporated herein by reference.
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED WITH THIS REPORT
(1) Financial Statements
The following financial statements are filed with this Report.
. Consolidated Balance Sheets - December 31, 2001 and 2000
. Consolidated Statements of Income for the Years Ended December 31, 2001,
2000 and 1999
. Consolidated Statements of Cash Flows for the Years Ended December 31,
2001, 2000 and 1999
. Consolidated Statements of Shareholders' Equity and Comprehensive
Income for the Years Ended December 31, 2001, 2000 and 1999
. Notes to Consolidated Financial Statements
. Report of Independent Public Accountants
(2) Financial Statement Schedules
All schedules have been omitted because they are not applicable or the required
information is included in the consolidated financial statements or notes to
these statements.
(3) Exhibits
The following is a complete list of exhibits included as part of this Report
including those incorporated by reference. A list of those documents filed with
this Report is set forth on the Index to Exhibits appearing elsewhere in this
Report and is incorporated by reference.
Exhibit No. Description
- ----------- -----------
2.1 Distribution Agreement, Plan of Reorganization and
Distribution dated as of June 30, 2001 by and between Equifax
Inc. and Certegy Inc. previously filed as an Exhibit to Form
8-K, filed July 20, 2001, and incorporated by reference.
3.1 Amended and Restated Articles of Incorporation previously
filed as an Exhibit on Schedule 14A, filed March 26, 1996,
and incorporated by reference.
3.2 Bylaws of Equifax Inc. as Amended and Restated on August 1,
2001 previously filed as an Exhibit on Form 10-Q filed
November 13, 2001, and incorporated by reference.
4.1 Loan Agreement dated October 4, 2001.
4.2 Portion of Prospectus and Trust Indenture previously filed
as pages 8 through 16 and Exhibit 4.1 on Amendment No. 1 to
Form S-3, Registration Statement No. 33-62820, filed June 17,
1993, and incorporated by reference.
4.3 Rights Agreement, dated October 25, 1995, between Equifax
Inc. and SunTrust Bank, Atlanta with Form of Right
Certificate attached as Exhibit "A" previously filed as an
Exhibit on Form 10-K, filed March 29, 2001, and incorporated
by reference.
40
4.3(a) Amendment to Rights Agreement, dated as of July 7, 2001,
amending the Rights Agreement dated October 25, 1995 between
the Company and SunTrust Bank, previously filed as an Exhibit
on Form 8-A/A (Amendment No. 1), filed July 9, 2002 and
incorporated by reference.
4.4 Indenture Relating to Debt Securities previously filed as an
Exhibit on Form 10-K, filed March 31, 1999, and incorporated
by reference.
10.1 Equifax Inc. 1988 Performance Share Plan for Officers, as
amended previously filed as an Exhibit on Form 10-K, filed
March 31, 1998, and incorporated by reference.(1)
10.2 Equifax Inc. Executive Incentive Plan previously filed as an
Exhibit on Form 10-K, filed March 31, 1998, and incorporated
by reference.(1)
10.3 Deferred Compensation Plan previously filed as an Exhibit on
Form 10-K, filed April 1, 1996, as amended on Form 10-K/A,
filed April 4, 1996, and incorporated by reference.(1)
10.4 Form of Change in Control Agreement previously filed as an
Exhibit to Form 10-K, filed March 31, 1998, and incorporated
by reference.(1)
10.5 Equifax Inc. Omnibus Stock Incentive Plan, as amended
previously filed as an Exhibit on Form 10-K, filed March 31,
1998, and incorporated by reference. (1)
10.6 Equifax Inc. Non-Employee Director Stock Option Plan and
Agreement previously filed as an Exhibit on Form 10-K, filed
March 31, 1999, and incorporated by reference.(1)
10.7 Equifax Inc. Supplemental Executive Retirement Plan and
subsequent Amendment previously filed as an Exhibit on Form
10-K, filed March 29, 2001, and incorporated by reference.(1)
10.8 Equifax Inc. Executive Life and Supplemental Retirement
Benefit Plan (U.S.) previously filed as an Exhibit on Form
10-K, filed March 29, 2001, and incorporated by reference.(1)
10.9 Agreement For Computerized Credit Reporting Services
previously filed as an Exhibit on Form 10-K filed March 30,
2000 and incorporated by reference.
10.10 Amendments to Agreement for Computerized Credit Reporting
Services and related documents previously filed as an Exhibit
on Form 10-K, filed March 31, 1997, and incorporated by
reference.
10.11 Amendment to Agreement for Computerized Credit Reporting
Services previously filed as pages 8 through 16 and Exhibit
4.1 on Amendment No. 1 to Form S-3, Registration Statement
No. 33-62820, filed June 17, 1993, and incorporated by
reference.
10.12 Fifth Amendment to Agreement for Computerized Credit
Reporting Services previously filed as an Exhibit on Form
10-K filed March 30, 2000 and incorporated by reference.
10.14 Computer and Network Operations Agreement (redacted version)
previously filed as an Exhibit on Form 10-Q, filed November
16, 1998, and incorporated by reference.(2)
10.15 Lease Agreement previously filed as an Exhibit on Form 10-K
filed March 30, 2000 and incorporated by reference.
10.16 Lease Agreement previously filed as an Exhibit on Form 10-K,
filed March 31, 1999, and incorporated by reference.
10.17 Transaction Document #1 previously filed as an Exhibit on
Form 10-K filed March 30, 2000 and incorporated by
reference.(2)
10.18 Master Agreement previously filed as an Exhibit on Form 10-K
filed March 30, 2000 and incorporated by reference.(2)
41
10.19 Human Resources Business Process and Support Services
Agreement with First Amendment and schedule of omitted
exhibits previously filed as an Exhibit on Form 10-K filed
March 30, 2000 and incorporated by reference.
10.20 Finance & Accounting Business Process and Support Services
Agreement, with First Amendment and schedule of omitted
exhibits previously filed as an Exhibit on Form 10-K filed
March 30, 2000 and incorporated by reference.
10.21 Employment Agreement previously filed as an Exhibit on
Form 10-K, filed March 29, 2001, and incorporated by
reference.(1)
10.22 Equifax Inc. Key Management Long-Term Incentive Plan
previously filed as an Exhibit on Form 10-K, filed March 29,
2001, and incorporated by reference.(1)
10.23 Equifax Inc. 2000 Stock Incentive Plan previously filed as
an Exhibit on Form 10-K, filed March 29, 2001, and
incorporated by reference.(1)
10.24 Bonus Exchange Program previously filed as an Exhibit on
Form 10-K, filed March 29, 2001, and incorporated by
reference.(1)
10.25 Bonus Deferral Arrangement.(1)
10.26 Amended and Restated Master Business Process and Support
Services Agreement.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants to incorporation
by reference.
24 Power of Attorney - Set forth on Signature Page.
99.1 Tax Sharing and Indemnification Agreement dated as of
June 30, 2001, by and between Equifax Inc. and Certegy Inc.,
previously filed as an Exhibit to Form 8-K, filed July 20,
2001 and incorporated by reference.
99.2 Employee Benefits Agreement dated as of June 30, 2001, by
and between Equifax Inc. and Certegy Inc., previously filed
as an Exhibit to Form 8-K, filed July 20, 2001 and
incorporated by reference.
99.3 Intercompany Data Purchase Agreement dated as of June 30,
2001, by and between Equifax Inc. and Certegy Inc.,
previously filed as an Exhibit to Form 8-K, filed July 20,
2001 and incorporated by reference.
99.4 Transition Support Agreement dated as of June 30, 2001, by
and between Equifax Inc. and Certegy Inc., previously filed
as an Exhibit to Form 8-K, filed July 20, 2001 and
incorporated by reference.
99.5 Intellectual Property Agreement dated as of June 30, 2001,
by and between Equifax Inc. and Certegy Inc., previously
filed as an Exhibit to Form 8-K, filed July 20, 2001 and
incorporated by reference.
99.6 Agreement regarding Leases dated as of June 30, 2001, by and
between Equifax Inc. and Certegy Inc., previously filed as an
Exhibit to Form 8-K, filed July 20, 2001 and incorporated by
reference.
99.7 Form of Proxy Statement for the Annual Meeting of
Shareholders to be held May 1, 2002, to be filed with the
Securities and Exchange Commission.
99.8 Core Business Results of Operations.
(b) REPORTS ON FORM 8-K - None have been filed during the last quarter of the
period covered by this Form 10-K.
- ----------------------------
(1)Management Contract or Compensatory Plan.
(2) Document omits information pursuant to a Request for Confidential Treatment
under Rule 406 of the Securities Act of 1933.
42
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer.
Date: March 12, 2002 /s/Kent E. Mast
----------------------------------------
By: Kent E. Mast
Corporate Vice President, General Counsel
And Secretary
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints Thomas F. Chapman, Kent E. Mast and Philip J. Mazzilli
and either of them, as attorneys-in-fact, with power of substitution, for him in
any and all capacities, to sign any amendments to this Report on Form 10-K, and
to file the same, with exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 12, 2002 /s/Thomas F. Chapman
--------------------------------------------
Thomas F. Chapman, Chairman of the Board
and Chief Executive Officer
Date: March 12, 2002 /s/Philip J. Mazzilli
--------------------------------------------
Philip J. Mazzilli, Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Date: March 12, 2002 /s/Dennis B. Story
--------------------------------------------
Dennis B. Story, Vice President and
Corporate Controller
(Principal Accounting Officer)
Date: March 6, 2002 /s/Lee A. Ault
--------------------------------------------
Lee A. Ault, III, Director
Date: March 4, 2002 /s/John L. Clendenin
--------------------------------------------
John L. Clendenin, Director
Date: March 4, 2002 /s/A. W. Dahlberg
--------------------------------------------
A. W. Dahlberg, Director
Date: March 4, 2002 /s/L. Phillip Humann
--------------------------------------------
L. Phillip Humann, Director
43
Date: March 4, 2002 /s/Larry L. Prince
--------------------------------------------
Larry L. Prince, Director
Date: March 5, 2002 /s/D. Raymond Riddle
--------------------------------------------
D. Raymond Riddle, Director
Date: March 2, 2002 /s/Louis W. Sullivan
--------------------------------------------
Dr. Louis W. Sullivan, Director
Date: March 5, 2002 /s/Jacquelyn M. Ward
--------------------------------------------
Jacquelyn M. Ward, Director
44
INDEX TO EXHIBITS
The following documents are being filed with this Report.
Exhibit No. Description
- ----------- ------------------------------------------------------------
4.1 Loan Agreement dated October 4, 2001.
10.25 Bonus Deferral Arrangement.(1)
10.26 Amended and Restated Master Business Process and Support
Services Agreement.
21 Subsidiaries of the Registrant.
23 Consent of Independent Public Accountants to incorporation by
reference.
99.8 Core Business Results of Operations.
- -------------------
(1) Management Contract or Compensatory Plan.
45