10-QPeriod: Q1 FY2002

EQUIFAX INC Quarterly Report for Q1 Ended Mar 31, 2002

Filed May 15, 2002For Securities:EFX

Summary

Equifax Inc. reported its first-quarter 2002 financial results, showcasing resilience amidst challenging economic conditions. The company's core business demonstrated a revenue decline of 4% (2% excluding currency fluctuations) to $261.4 million, but operating income saw a 4% increase to $78.7 million, with operating margins improving to 30% from 28% year-over-year. This improvement was driven by effective expense control initiatives and cost savings from prior restructuring. Diluted earnings per share from continuing operations rose to $0.30, up from $0.25 in the prior year's comparable period, benefiting from the cessation of goodwill amortization effective January 1, 2002, under SFAS 142. Financially, Equifax maintained a strong liquidity position with $37.6 million in cash provided by operating activities, doubling free cash flow to $32.2 million. The company continued its capital allocation strategy by repurchasing $22.8 million of its common shares and investing $22.5 million in acquisitions. While the North American segment remained largely flat in revenue, Europe and Latin America experienced revenue declines, primarily due to economic conditions and currency impacts. Management is focused on cost efficiency and operational improvements to navigate the current economic landscape.

Key Highlights

  • 1Consolidated revenues for Q1 2002 were $261.4 million, a 4% decrease compared to $285.2 million in Q1 2001, with a 2% decrease when excluding foreign currency impacts.
  • 2Operating income increased by 4% to $78.7 million in Q1 2002 from $70.3 million in Q1 2001, with operating margins improving to 30% from 28%.
  • 3Diluted earnings per share from continuing operations were $0.30 in Q1 2002, an increase from $0.25 in Q1 2001, partly due to the adoption of SFAS 142 eliminating goodwill amortization.
  • 4Cash provided by operating activities for Q1 2002 was $37.6 million, up from $30.0 million in Q1 2001, and free cash flow doubled to $32.2 million.
  • 5The company repurchased approximately $22.8 million in treasury stock during the quarter and acquired new credit files for $22.5 million.
  • 6North American Information Services revenue was flat year-over-year, while Equifax Europe and Equifax Latin America experienced revenue declines due to economic and currency factors.
  • 7The company reported $29.6 million in cash and cash equivalents at the end of Q1 2002, a decrease from $33.2 million at the end of 2001.

Frequently Asked Questions

The increase in operating income, despite a revenue decline, was primarily driven by effective expense control initiatives and cost savings resulting from a restructuring program implemented in late 2001. Additionally, the cessation of goodwill amortization as of January 1, 2002, under SFAS 142, also contributed positively to operating income and net income.

The spin-off of the Payment Services business (Certegy) in July 2001 and the sale of the City Directory business in October 2001 have resulted in their historical results being presented as 'discontinued operations' or 'divested operations' in the financial statements. This allows for a clearer view of the ongoing 'Core Business' performance by excluding these past activities.

Equifax's policy is generally not to hedge translational foreign currency exchange risks. However, the company does hedge material transactional foreign currency exchange risks. At March 31, 2002, this involved denominating a portion of borrowings under its revolving credit facility in currencies related to its UK and Italy operations to mitigate exchange risks on intercompany advances and funding.

Effective January 1, 2002, Equifax adopted SFAS 142, which eliminates the amortization of goodwill and certain other intangible assets. This change means that goodwill is no longer amortized but will be tested annually for impairment. The adoption of this standard positively impacted the company's results by removing prior goodwill amortization expenses and also led to a lower effective tax rate in the first quarter of 2002.