10-QPeriod: Q2 FY2002

EQUIFAX INC Quarterly Report for Q2 Ended Jun 30, 2002

Filed August 8, 2002For Securities:EFX

Summary

Equifax Inc. reported its financial results for the second quarter and the first six months of 2002. The company experienced a decline in revenue, primarily attributed to a weaker global economy and unfavorable foreign currency fluctuations, particularly in Latin America. Despite the revenue challenges, Equifax demonstrated strong cost management, leading to an increase in operating income and improved operating margins for both the quarter and year-to-date periods. The company continued its strategic growth initiatives through acquisitions, primarily in the credit reporting agencies sector in the US and Canada, which contributed to an increase in goodwill on the balance sheet. While managing its debt levels and investing in its business, Equifax also returned capital to shareholders through dividends and share repurchases, with a significant authorization remaining for future buybacks. The company remains confident in its financial condition and its ability to secure financing for potential future strategic opportunities, such as the option to acquire CSC's credit reporting businesses.

Key Highlights

  • 1Revenue decreased by 4% for both the second quarter and the first six months of 2002 compared to the prior year, impacted by global economic weakness and currency fluctuations.
  • 2Operating income increased by 1% for the quarter and 3% for the six months, driven by a disciplined approach to expense reduction.
  • 3Operating margins improved to 32% in Q2 2002 and 31% year-to-date, up from 30% and 29% respectively in the prior year.
  • 4The company made strategic acquisitions totaling $88.4 million in the first six months of 2002, primarily in credit reporting agencies, adding $56.2 million in goodwill.
  • 5Shareholders' equity increased to $283.3 million from $243.5 million, largely due to retained earnings.
  • 6Free cash flow increased by 12% to $75.2 million for the first six months of 2002.
  • 7The company repurchased $48.7 million of its common shares in the first six months of 2002, with approximately $246 million remaining under its authorization for future repurchases.

Frequently Asked Questions

Revenue declined due to a combination of a weaker global economy and unfavorable foreign currency fluctuations, particularly impacting the Latin America segment. Specific factors included continued weakness in the marketing services business and lower U.S. credit reporting volumes compared to the record levels in 2001.

Equifax focused on optimizing its cost structure, resulting in significant reductions in operating expenses. These cost savings more than offset the revenue decline, allowing for sustained profit growth and improved operating margins. For example, operating expenses were reduced by $12 million in the second quarter and $27 million in the first six months.

A class of plaintiffs was certified in this lawsuit, which alleges violations of the Federal Credit Reporting Act regarding the reporting of accounts included in a bankruptcy. Equifax is pursuing an appeal of the class certification and management believes the claims lack merit. The company does not anticipate a materially adverse effect on its financial position, liquidity, or results of operations from this litigation.

Effective January 1, 2002, Equifax adopted SFAS 142, which eliminated the amortization of goodwill. This change means goodwill is now tested for impairment annually rather than amortized. This resulted in no goodwill amortization for the six-month period ended June 30, 2002, and contributed to a lower effective tax rate compared to the prior year when goodwill amortization was expensed.