ITEM 1. BUSINESS.
Arthur J. Gallagher & Co. (the "Registrant") and its subsidiaries (the Registrant and its subsidiaries are collectively referred to as the "Company" unless the context otherwise requires) are engaged in providing insurance brokerage, risk management and employee benefit services and other related services to clients in the United States and abroad. The Company's principal activity is the negotiation and placement of insurance for its clients. The Company also specializes in furnishing risk management services. Risk management involves assisting clients in analyzing risks and determining whether proper protection is best obtained through the purchase of insurance or through retention of all or a portion of those risks and the adoption of corporate risk management policies and cost-effective loss control and prevention programs. Risk management services also include claims management, loss control consulting and property appraisals. The Company believes that its ability to deliver a comprehensively structured risk management and brokerage service is one of its major strengths.
The Company operates through a network of approximately 150 offices located throughout the United States and six countries abroad. Some of these offices are fully staffed with sales, marketing, claims and other service personnel; others function as servicing offices for the brokerage and risk management service operations of the Company. The Company's international operations include a Lloyd's broker and affiliated companies in London and facilities in Argentina, Australia, Bermuda, Canada, United Kingdom ("U.K.") and Scotland.
The Company was founded in 1927 and was reincorporated as a Delaware corporation in 1972. The Company's executive offices are located at Two Pierce Place, Itasca, Illinois 60143-3141, and its telephone number is (630) 773- 3800.
The Company has not presented industry segment information as its operations are predominantly those of insurance brokerage and risk management, employee benefits and other related insurance services.
BROKERAGE OPERATIONS
The Company places insurance for and services commercial, industrial, institutional, governmental, religious and personal accounts throughout the United States and abroad. The Company acts as an agent in soliciting, negotiating and effecting contracts of insurance through insurance companies world-wide, and also as a broker in procuring contracts of insurance on behalf of insureds. Specific coverages include all forms of property and casualty, marine, employee benefits, pension and life insurance products.
The Company places surplus lines coverages (coverages not available from insurance companies licensed by the states in which the risks are located) for various specialized risks. The Company also provides reinsurance services to its clients.
RISK MANAGEMENT SERVICES
Through its wholly-owned subsidiary, Gallagher Bassett Services, Inc., the Company provides a variety of professional consulting services to assist clients in analyzing risks and in determining whether proper protection is best obtained through the purchase of insurance or through retention of all or a portion of those risks and the adoption of risk management policies and cost-effective loss control and prevention programs. A full range of risk management services is offered including claims management, risk control consulting services, information management and property appraisals on a totally integrated or select, stand-alone basis. Gallagher Bassett Services, Inc. provides these services for the Company's clients through a network of over 100 offices throughout the United States.
The Company believes that its risk management services are an important factor in securing new brokerage business and retaining brokerage clients. The Company also markets these services directly to the client on an unbundled basis independently of brokerage services in order to capitalize on the interest in self-insurance created by market conditions. These services include consulting on a wide range of risk management needs such as toxic waste disposal, handling of dangerous cargo, workers' compensation, medical cost containment, substance abuse, employment-related background investigations, loss prevention, property appraisals, and liability reserve reviews.
In connection with its risk management services, the Company provides self- insurance programs for large institutions, risk sharing pools and associations, and large commercial and industrial customers. Self-insurance, as administered by the Company, is a program in which the client assumes a manageable portion of its insurance risks, usually (although not always) placing the less predictable and larger loss exposures with an excess carrier. The Company's offices are staffed to provide services relating to claims, property appraisals, loss control consulting and computerized record keeping in administering the clients' programs.
The Company's Gallagher Benefit Services Division specializes in risk management of human resources through fully insured and self-insured programs. This division provides employee benefit services in connection with the design, financing, implementation, administration and communication of compensation and employee benefit programs (including pension and profit-sharing plans, group life, health, accident and disability insurance programs and tax deferral plans), and provides other professional services in connection therewith. Services are supported by an on-line data processing system provided by an outside vendor.
MARKETS AND MARKETING
A substantial portion of the commission and fee business of the Company is derived from institutions, not-for-profit organizations, municipal and other governmental entities and associations. In addition, the Company's clients include large United States and multinational corporations engaged in a broad range of commercial and industrial businesses. The Company also places insurance for individuals. The Company services its clients through its network of approximately 150 offices in the United States and six countries abroad. No material part of the Company's business is dependent upon a single customer or on a few customers, the loss of any one or more of which would have a materially adverse effect on the Company. In 1996, the largest single customer represented approximately 1% of total revenues.
The Company believes that its ability to deliver comprehensively structured risk management and brokerage services, including the placement of reinsurance, is one of its major strengths. The Company also believes that its risk management business enhances and attracts other brokerage business due to the nature and strength of business relationships which it forms with clients when providing a variety of risk management services on an on-going basis.
The Company requires its employees serving in a sales or marketing capacity, including certain executive officers of the Company, to enter into agreements with the Company restricting disclosure of confidential information and solicitation of clients and prospects of the Company upon their termination of employment. The confidentiality and non-solicitation provisions of such agreements terminate in the event of a hostile change in control of the Company, as defined therein.
COMPETITION
The Company believes it is the seventh largest insurance broker in the United States and in the top eight worldwide in terms of total revenues. The insurance brokerage and service business is highly competitive and there are many insurance brokerage and service organizations as well as individuals throughout the world who actively compete with the Company in every area of its business. A number of competing firms are significantly larger and some have many times the commission and/or fee revenues of the Company. There are firms in a particular region or locality which are as large or larger than the particular local office of the Company. The Company believes that the primary factors determining its competitive position with other organizations in its industry are the overall cost and the quality of services rendered.
The Company is also in competition with certain insurance companies which write insurance directly for their customers. Government benefits relating to health, disability, and retirement are also alternatives to private insurance and hence indirectly compete with the business of the Company. To date, such direct writing and government benefits have had, in the opinion of the Company, relatively little effect on its business and operations, but the Company can make no prediction as to their effect in the future.
REGULATION
In every state and foreign jurisdiction in which the Company does business, the Company or an employee is required to be licensed or receive regulatory approval in order for the Company to conduct business. In addition to licensing requirements applicable to the Company, most jurisdictions require that individuals who engage in brokerage and certain insurance service activities be personally licensed.
The Company's operations depend on its continued good standing under the licenses and approvals pursuant to which it operates. Licensing laws and regulations vary from jurisdiction to jurisdiction. In all jurisdictions the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities, and generally such authorities are vested with relatively broad and general discretion as to the granting, renewing and revoking of licenses and approvals.
INTERNATIONAL OPERATIONS
Arthur J. Gallagher (UK) Limited, is a wholly-owned Lloyd's brokerage subsidiary of the Company. This subsidiary is a London based insurance broker which provides brokerage services to clientele primarily located outside of the U.K. The principal activity of Arthur J. Gallagher (UK) Limited is to negotiate and place insurance and reinsurance with Lloyd's underwriters and insurance companies worldwide. Its brokerage services encompass four major categories: aviation, direct marine hull and cargo, reinsurance (marine and non-marine) and overseas property and casualty (predominantly North America).
Although Arthur J. Gallagher (UK) Limited is located in London, the thrust of its business development has been with non-U.K. brokers, agents and insurers rather than domestic U.K. retail business. Its clients are primarily insurance and reinsurance companies, underwriters at Lloyd's, the Company and its non-U.K. subsidiaries, other independent agents and brokers, and major business corporations requiring direct insurance and reinsurance placement.
Arthur J. Gallagher & Co. (Bermuda) Limited provides clients with direct access to the risk-taking capacity of Bermuda-based insurers for both direct and reinsurance placements. It also acts as a wholesaler to the Company's marketing efforts by accessing foreign insurance and reinsurance companies in the placing of U.S. and foreign risks. In addition, it provides services relating to the formation and management of offshore captive insurance companies.
A Company subsidiary, Arthur J. Gallagher International, Inc., located in Rhode Island, provides brokerage services to and arranges overseas risk management and loss control services for multinational organizations.
Gallagher Bassett International LTD. ("GBI"), a subsidiary of Gallagher Bassett Services, Inc., provides risk management services for foreign operations, as well as U.S. operations that are foreign-controlled. Headquartered in London, GBI works with insurance companies, reinsurance companies, overseas brokers, and risk managers of overseas organizations. Services are offered on an unbundled basis wherever applicable and include consulting, claims management, information management, loss control, and property valuations. GBI's service network includes over 120 associate offices throughout the world. The combination of Gallagher Bassett offices and affiliated locations provides one of the most comprehensive worldwide service networks available.
Additional information relating to the Company's foreign operations is contained in Note 12 of Notes to Consolidated Financial Statements.
COMMISSIONS AND FEES
The two major sources of operating revenues are commissions from brokerage and risk management operations and service fees from risk management operations. Information with respect to these two major sources as well as investment income and other revenue for each of the three years in the period ended December 31, 1996 are set forth below:
- - -------- *Restated for poolings of interests
The primary source of the Company's compensation for its brokerage services is commissions paid by insurance companies which are usually based upon a percentage of the premium paid by the insured. Commission rates are dependent on a number of factors including the type of insurance, the particular insurance company and the capacity in which the Company acts. In some cases the Company is compensated for brokerage or advisory services directly by a fee from a client, particularly when insurers do not pay commissions. The Company may also receive contingent commissions which are based on the profit the insurance company makes on the overall volume of business placed by the Company in a given period of time. Occasionally, the Company shares commissions with other brokers who have participated with the Company in placing insurance or servicing insureds.
The Company's compensation for risk management services is in the form of fees and commissions. The Company typically negotiates fees in advance with its risk management clients on an annual basis based upon the estimated value of the services to be performed. In some cases the Company receives a fee for acting in the capacity of advisor and administrator with respect to employee benefit programs and receives commissions in connection with the placement of insurance under such programs.
The Company's revenues vary significantly from quarter to quarter as a result of the timing of policy renewals and the net effect of new and lost business, whereas expenses are fairly uniform throughout the year. See Note 13 of Notes to Consolidated Financial Statements for unaudited quarterly operating results for 1996 and 1995.
ACQUISITIONS
Since January 1, 1992 through December 31, 1996, the Company has acquired twenty-eight insurance services businesses, and disposed of two insurance services businesses. See Note 2 of Notes to Consolidated Financial Statements for further information concerning acquisitions in 1996 and 1995.
The following acquisitions have occurred since December 31, 1996:
On January 1, 1997, a wholly owned subsidiary of the Company acquired substantially all of the assets of Byerly & Company, Inc., a Colorado corporation engaged in the employee benefits business, in exchange for 164,370 shares of the Company's Common Stock. The acquisition was accounted for as a pooling of interests. Four principals entered into two year employment agreements with the Company.
On January 2, 1997, a wholly owned subsidiary of the Company acquired substantially all of the assets of Arnold & Company, Inc., a Michigan corporation engaged in the retirement planning and actuarial services business, in exchange for 41,080 shares of the Company's Common Stock. The acquisition was accounted for as a pooling of interests. One principal entered into a two year employment agreement with the Company.
The Company believes that the net effect of these acquisitions has been and will be to expand significantly the volume of general services rendered by the Company and the geographical markets in which the Company renders such services and not to change substantially the nature of the services performed by the Company.
The Company is considering and intends to consider from time to time acquisitions and divestitures on terms it deems advantageous. The Company has had preliminary discussions with a number of other candidates for possible future acquisitions. No assurances can be given that any additional acquisitions or divestitures will be consummated, or, if consummated, will be advantageous to the Company.
EMPLOYEES
As of December 31, 1996, the Company and its subsidiaries employed approximately 3,900 employees, none of whom is represented by a labor union. The Company continuously reviews benefits and other matters of interest to its employees. The Company considers its relations with its employees to be satisfactory.
ITEM 2.

ITEM 2. PROPERTIES.
The Company's executive offices and certain subsidiary and branch facilities are located at Two Pierce Place, Itasca, Illinois where the Company leases approximately 200,000 square feet of space. The lease commitment on the above mentioned property expires February 28, 2006. The Company operates all of its branch and service offices in leased premises. Certain of these leases for office space have options permitting renewals for additional periods. In addition to minimum fixed rentals, a number of leases contain escalation clauses related to increases in the cost of living in future years. See Note 10 of Notes to Consolidated Financial Statements for information with respect to the Company's lease commitments at December 31, 1996.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
The Company and its subsidiaries are involved in litigation on a number of matters and are subject to certain other claims arising in the normal course of business, none of which, individually or in the aggregate, in the opinion of management, is expected to have a material adverse effect on the Company's consolidated financial position or results of operations.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the Company's fourth fiscal quarter ended December 31, 1996.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company are as follows:
Each such person has been principally employed by the Company in management capacities for more than the past five years. All executive officers are elected annually and serve at the pleasure of the Board of Directors.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock is listed on the New York Stock Exchange, trading under the symbol "AJG". The following table sets forth information as to the price range of the Company's common stock for the two-year period January 1, 1995 through December 31, 1996 and the dividends declared per share for such period. The table reflects the range of high and low sales prices per share as reported on the Consolidated Transaction Reporting System for securities listed on the New York Stock Exchange.
As of February 1, 1997, there were approximately 700 holders of record of the Company's common stock.
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ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
ARTHUR J. GALLAGHER & CO.
GROWTH RECORD: 1987-1996
NOTES: (a) The financial information for all periods prior to 1996 has been restated for acquisitions accounted for using the pooling of interests method. (b) Based on the weighted average number of common and common equivalent shares, if any, outstanding during the year. (c) Based on the number of employees at year end. (d) Based on the total dividends on a share of common stock outstanding during the entire year.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Fluctuations in premiums charged by insurance companies have a material effect on the insurance brokerage industry. Commission revenues are based on a percentage of the premiums paid by the insured and generally follow premium levels. Lower premium rates and excess capacity prevail among property and casualty insurance carriers resulting in heavy competition for market share. This "soft market" (i.e., lower premium rates) has generally resulted in flat or reduced renewal commissions during the period.
During the past three years, several catastrophes have caused billions of dollars of insured losses domestically and abroad. According to some estimates, 1996 will rank as the fifth most expensive year on record with over $7 billion in insured property losses. Consolidation in the form of substantial mergers, both in the United States and internationally, continues within the insurance industry resulting in fewer companies writing risks. Financial services reform is likely in the near future. Proposed federal legislation seeks to allow affiliations between banks and insurance entities. A recent report claims the property/casualty insurance industry began to materially weaken its core loss reserves in 1996 which reverses several years of favorable reserving trends. In spite of forces which would reduce competition and weaken profits, there is still little change in property/casualty rates. Sufficient capacity remains and the sharply competitive environment continues. Management believes insurance pricing will not change significantly in 1997.
Along with the soft market conditions, the growth of the alternative insurance market has slowed during the past year. Although the property/casualty pricing environment has resulted in some buyers returning to first dollar coverage, the Company still believes a move from the traditional approach of purchasing insurance will continue. The Company anticipates new sales in the risk management, benefits and self-insurance services areas will again be a major factor in fee revenue growth in 1997.
Historically, inflation has contributed to increased property replacement costs and higher litigation awards causing some clients to seek higher levels of insurance coverage. These factors have the effect of generating higher premiums to customers and higher commissions to the Company. More recently, the United States and other parts of the world have experienced low rates of inflation along with business downsizing, reduced sales and lower payrolls. These events have resulted in lower levels of exposures to insure. In general, premium rates have had a greater effect on the Company's revenues than inflation.
Although the Company reported record net earnings in 1996, it is looking to the future and exploring not only the core businesses of brokering insurance and risk management services, but also expanding within the fields of insurance captives and financial and related investment services. These are areas which may hold opportunities for future profit growth.
RESULTS OF OPERATIONS
The Company's results of operations for all periods prior to December 31, 1996 have been restated to include the results of Morgan, Read & Coleman Ltd., Lamberson Koster & Company and The Levitt/Kristan Company on a combined basis as if they had operated as part of the Company. The Company continues to search for merger partners which complement existing business and provide entry into new market niches and new geographic areas. For the effect of such restatements in the aggregate on year-to-year comparisons, see Note 2 of the Notes to Consolidated Financial Statements. In January, 1997, the Company acquired two benefit consulting firms, Byerly & Company, Inc., and Arnold & Company, Inc. These acquisitions will be accounted for as poolings of interests and were neither singly nor in the aggregate material to the Company.
Commission revenues increased by $5.6 million or 2% in 1996. This increase is the result of new business partially offset by lost business and modest renewal rate reductions. Commission revenues increased by $18.8 million or 8% in 1995. This increase is the result of new business production and, to a lesser extent, modest renewal rate increases partially offset by lost business.
Fee revenues increased by $9.6 million or 6% in 1996. This increase, generated primarily by Gallagher Bassett Services, Inc., resulted from new business production and modest increases in existing business partially offset by lost business. The rate of increase from 1995 to 1996 has been adversely affected by strong price competition in the insurance industry, causing some buyers to choose first dollar converge over self-funded plans. Fee revenues increased by $18.6 million or 13% in 1995. This increase, again generated primarily by Gallagher Bassett Services, Inc., resulted from strong new business production of $19.2 million and increases in existing business partially offset by lost business.
Investment income and other increased by $1.9 million or 9% in 1996. This increase is due primarily to an increase in unrealized gains on investment strategies accounted for on a trading basis, which are invested with outside fund managers. Investment income and other increased by $8.2 million or 60% in 1995. This increase is due primarily to a combination of significantly higher returns on funds invested with outside fund managers and a gain of $2.0 million recorded on the sale of a subsidiary in the fourth quarter of 1995. This increase is partially offset by a gain of $656,000 realized in closing out interest exchange agreements related to the retirement of the Company's debt agreement in the fourth quarter of 1994 and by a gain of $800,000 from the sale of two personal lines books of business also recorded in the fourth quarter of 1994.
Salaries and employee benefits increased by $7.7 million or 3% in 1996 due principally to salary increases and the annualized effect of prior year hires along with a corresponding increase in employee benefit expenses. These increases were mitigated by a wage freeze for certain management employees. Salaries and employee benefits increased by $21.7 million or 10% in 1995 due principally to salary increases and the annualized effect of prior year hires along with a corresponding increase in employee benefit expenses and changes in certain benefit plan actuarial assumptions. In 1996, 1995 and 1994, salaries and employee benefits have represented 52%, 53% and 53%, respectively, as a percentage of total revenues.
Other operating expenses increased by $8.4 million or 6% in 1996. This increase is due primarily to an increase in professional fees related to the outsourcing of certain distribution functions, increased performance fees for funds invested with professional money fund managers, an increase in brokerage expenses due to increased business with other brokers, additional rent and utility expenses resulting from leasing new office space and expanding and upgrading existing office facilities and increased bad debt write-offs. Other operating expenses increased by $14.4 million or 11% in 1995. This increase is due primarily to additional office facilities (rent and utilities, miscellaneous office and supply expenses) resulting from leasing new office space and expanding and upgrading existing facilities, and significantly higher business insurance costs.
The Company's overall tax rate of 34% in 1996 is less than the statutory federal rate. For 1996, the net effects of state and foreign taxes are substantially offset by the tax benefits of certain investments. The Company's overall tax rate of 38% in 1995 is greater than the statutory federal rate due primarily to the net effects of state and foreign taxes which are partially offset by the tax benefits generated by certain investments and by pre- acquisition income of pooled entities which was taxed to the previous owners. The Company's overall tax rate of 37% in 1994 is greater than the statutory federal rate, due primarily to the net effects of state and foreign taxes which are partially offset by the tax benefits generated by certain investments and by pre-acquisition income of pooled entities which was taxed to the previous owners. See Note 11 of the Notes to Consolidated Financial Statements.
The Company's foreign operations recorded operating earnings before income taxes of $4.2 million, $3.4 million, and $2.2 million in 1996, 1995, and 1994, respectively. The 1996 increase is due primarily to a decrease in compensation related costs at the Company's London subsidiaries. The 1995 increase is due primarily to stronger investment income. See Notes 11 and 12 of the Notes to Consolidated Financial Statements.
The Company's total revenues vary from quarter to quarter as a result of the timing of policy renewals and net new/lost business production, whereas expenses are fairly uniform throughout the year. See Note 13 of the Notes to Consolidated Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
The insurance brokerage industry is not capital intensive. The Company has historically been profitable and positive cash flow from operations and funds available under various loan agreements have been sufficient to finance the operations and capital expenditures of the Company. Cash generated from operating activities was $33.6 million and $43.5 million for the years ended December 31, 1996 and 1995, respectively. Funds restricted as to the Company's use (primarily premiums held as fiduciary funds) have not been included in determining the Company's liquidity.
In February, 1993, the Company entered into a $20 million unsecured revolving credit agreement (the "Credit Agreement") with two banks. As provided for in an amendment effective in October, 1996, the loan maturity date has been extended and loans under the Credit Agreement are repayable no later than June 30, 2001, and bear floating interest rates over the term of the loan. The Company recognized a gain of $656,000 in closing out the interest rate exchange agreements related to the repayment of a loan under the agreement in 1994. The Credit Agreement remains in effect and as of December 31, 1996, there are no borrowings currently existing under this agreement.
The Company also has two term loan agreements (the "Term Loan Agreements") that have outstanding balances of $1.3 million and $1.0 million at December 31, 1996. Loans under the Term Loan Agreements are repayable in equal annual installments no later than January 11, 1998, and June 15, 1998, respectively, and bear interest rates over the terms of the loans of 6.64% and 6.30%, respectively.
The Credit Agreement and Term Loan Agreements require the maintenance of certain financial requirements. The Company is currently in compliance with these requirements.
The Company has line of credit facilities of $27.5 million which expire on April 30, 1997. As of December 31, 1996, $10.0 million in short-term borrowings existed under these facilities. These borrowings were used to finance expanded investment activity. No borrowings existed at December 31, 1995.
The Company paid $17.5 million in cash dividends on its common stock in 1996. The Company's dividend policy is determined by the Board of Directors and payments are fixed after considering the Company's available cash from earnings and its known or anticipated cash needs. In each quarter of 1996, the Company's Board of Directors declared a dividend of $ .29 per share which is $.04 or 16% greater than each quarterly dividend in 1995. In January, 1997, the Company announced a first quarter dividend of $.31 per share, a 7% increase over the quarterly dividend in 1996.
Net capital expenditures for fixed assets amounted to $10.1 million, $10.3 million and $7.5 million in 1996, 1995 and 1994, respectively. In 1997, the Company intends to make additional capital improvements of approximately $11.0 million to upgrade and modernize existing space, furniture and equipment.
In 1988, the Company adopted a plan, which has been extended through June 30, 1997, to repurchase its common stock. Under the plan, the Company repurchased 645,000 shares at a cost of $21.3 million, 437,000 shares at a cost of $15.1 million and 1.4 million shares at a cost of $43.8 million in 1996, 1995 and 1994, respectively. The repurchases were funded entirely by internally generated funds and are held for reissuance in connection with exercises of options under its stock option plans. Under the provisions of the plan, the Company is authorized to repurchase approximately 290,000 additional shares through June 30, 1997. The Company is under no commitment or obligation to repurchase any particular amount of common stock and at its discretion may suspend the repurchase plan at any time.
The Company believes that internally generated funds will continue to be sufficient to meet the Company's foreseeable cash needs, including non- operating cash disbursements such as anticipated dividends, capital expenditures and repayment of borrowings if the Company so determines.
Due to changes in the United States federal income tax laws effective in 1994, the Company began providing for U.S. income taxes on the undistributed earnings of its foreign subsidiaries. The Company has not provided for U.S. income taxes on these undistributed earnings accumulated prior to 1994 ($19.2 million), which are considered permanently invested outside the United States. See Note 11 of the Notes to Consolidated Financial Statements. Although not available for domestic needs, the undistributed earnings generated by certain foreign subsidiaries referred to above may be used to finance foreign operations and acquisitions.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED STATEMENT OF EARNINGS
See accompanying notes.
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED BALANCE SHEET
See accompanying notes.
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS
See accompanying notes.
ARTHUR J. GALLAGHER & CO.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
See accompanying notes.
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of operations
Arthur J. Gallagher & Co. (the Company) provides insurance broker and risk management services to a wide variety of commercial, industrial, institutional and governmental organizations. Commission revenue is principally generated through the negotiation and placement of insurance for its clients. Fee revenue is generated by providing other risk management services including claims management, information management, risk control services and appraisals in either the property/casualty market or human resource, employee benefit market. The Company operates through approximately 150 offices throughout the United States and six countries abroad.
Basis of presentation
The accompanying consolidated financial statements include the accounts of the Company and all subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to the prior years' financial statements in order to conform to the current year presentation.
Revenue recognition
Commission income is generally recognized as of the effective date of insurance policies except for commissions on installment premiums which are recognized periodically as billed. Contingent commissions are recognized when received. Fee income is recognized ratably as services are rendered. The income effects of subsequent premium and fee adjustments are recorded when the adjustments become known. Premiums and fees receivable are net of allowance for doubtful accounts of $889,000 and $729,000 at December 31, 1996 and 1995, respectively.
Use of estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known which could impact the amounts reported and disclosed herein.
Consolidated statement of cash flows
Short-term investments, consisting principally of commercial paper and certificates of deposit which have a maturity of ninety days or less at date of purchase, are considered cash equivalents.
Premium trust funds
Premiums collected from insureds but not yet remitted to insurance carriers are restricted as to use by laws in certain states and foreign jurisdictions in which the Company's subsidiaries operate. Additionally, the Company's United Kingdom subsidiaries are required by Lloyd's of London to meet certain liquidity requirements.
Marketable securities
In 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115 (SFAS 115), "Accounting for Certain Investments in Debt and Equity Securities." The standard requires that securities designated as available for sale be carried at fair value, with unrealized gains and losses, less
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) related deferred income taxes, excluded from earnings and reported as a separate component of stockholders' equity. In addition, securities designated as trading are required to be carried at fair value, with unrealized gains and losses included in the statement of earnings. Previously, the Company carried these investments at either the lower of cost or fair value, or at amortized cost. As of January 1, 1994, the Company adopted the provisions of the standard for investments held as of or acquired after that date. In accordance with SFAS 115, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect as of January 1, 1994 of adopting SFAS 115 increased the opening balance of stockholders' equity by $1,456,000 (net of deferred income taxes of $970,000) to reflect the net unrealized holding gains on securities classified as available for sale previously carried at the lower of cost or fair value, or at amortized cost. There was no cumulative effect on net earnings as a result of the adoption of SFAS 115 because the securities classified as trading were carried as a current asset and had a fair value below cost at January 1, 1994. Accordingly, such unrealized losses were recorded in prior period earnings.
Marketable securities are considered available for sale and consist primarily of preferred and common stocks. Gains and losses are recognized in income when realized using the specific identification method. The fair value for marketable securities is based on quoted market prices.
Investment strategies are considered trading securities and consist primarily of limited partnerships which invest in common stocks. Fair value is determined by reference to the fair value of the underlying common stocks which is based on quoted market prices.
Fixed assets
Fixed assets are carried at cost. Furniture and equipment with a cost of $71,108,000 at December 31, 1996 ($64,414,000 at December 31, 1995) are depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements with a cost of $8,177,000 at December 31, 1996 ($7,938,000 at December 31, 1995) are amortized using the straight-line method over the shorter of the estimated useful lives of the assets or the lease terms.
Intangible assets
Intangible assets consist primarily of the excess of cost over the value of net tangible assets of acquired businesses and are amortized principally over forty years using the straight-line method. Accumulated amortization at December 31, 1996 was $6,316,000 ($7,234,000 at December 31, 1995).
Earnings per share
Earnings per share are computed based on the weighted average number of common and common equivalent shares outstanding during the respective period. Common equivalent shares include incremental shares from dilutive stock options since the date of grant using the treasury stock method. There is no material difference between primary and fully diluted per share amounts.
Stock based compensation
The Company grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for the stock options granted to employees.
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 2. ACQUISITIONS
Poolings of interests
In 1996, the Company acquired substantially all the net assets of five insurance brokerage firms and one investigative services company in exchange for 1,115,000 shares of its common stock. In 1995, the Company acquired substantially all the net assets of nine insurance brokerage firms in exchange for 723,000 shares of its common stock. These acquisitions were accounted for as poolings of interests and, except for three of the 1996 acquisitions and seven of the 1995 acquisitions whose results were not significant, the financial statements for all periods prior to the acquisition dates have been restated to include the operations of these companies.
The following summarizes the restatement to reflect the 1996 acquisitions:
In 1996, the Company also acquired a majority equity interest in a risk management company, which was accounted for as a purchase.
3. MARKETABLE SECURITIES
The following is a summary of available for sale marketable securities:
The gross realized gains on sales of marketable securities totaled $1,652,000, $1,079,000 and $2,004,000 for the years ended December 31, 1996, 1995, and 1994, respectively. The gross realized losses totaled $881,000, $1,918,000 and $312,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
Substantially all fixed maturity securities mature in 2000 or later. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to call or prepay obligations.
The net unrealized gains (losses) on investment strategies included in income amounted to $3,928,000 in 1996, ($171,000) in 1995, and $83,000 in 1994.
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
At December 31, 1996, securities sold under agreements to repurchase the identical securities are collateralized by government backed small business administration loans and government securities with a carrying value of $23,034,000 and a fair value of $23,262,000. The securities collateralizing the agreements were held by two primary dealers. At December 31, 1995, these securities had a carrying value of $20,071,000 and a fair value of $20,253,000.
5. LONG-TERM DEBT
Long-term debt consists of the following:
Terms of the loan agreements include various covenants which require the Company to maintain specified levels of tangible net worth and restrict the amount of payments on certain expenditures.
Maturities of long-term debt total $1,130,000 for 1997 and $1,130,000 for 1998.
In 1994, the Company retired its $20 million variable-rate (based on LIBOR plus .4%) unsecured revolving credit agreement that was due in 1998. In connection with the retirement, the Company also recognized a gain of $656,000 on the settlement of interest rate exchange agreements that had been entered into in 1993 to fix the rate of interest payable on the revolving credit agreement. The credit agreement remains in effect and expires on June 30, 2001. As of December 31, 1996, there were no borrowings outstanding under this agreement.
The Company also has line of credit facilities of $27,500,000 which expire on April 30, 1997. Short-term borrowings under these facilities totaled $10,000,000 at December 31, 1996. No borrowings existed under these facilities at December 31, 1995. The weighted average interest rate on short-term borrowings during 1996 was 6.875%.
6. CAPITAL STOCK AND STOCKHOLDERS' RIGHTS PLAN
Capital Stock
The table below summarizes certain information about the Company's capital stock at December 31:
Stockholders' Rights Plan
Non-voting Rights, authorized by the Board of Directors on March 10, 1987 and approved by stockholders on May 12, 1987, were distributed May 12, 1987 as a dividend to holders of the Company's common stock at the rate of one Right for each common share held. Under certain conditions, each Right may be exercised to
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) purchase one share of common stock at an exercise price of $100. The Rights become exercisable and transferable apart from the common stock after a public announcement that a person or group has acquired 20% or more of the common stock or after commencement or public announcement of a tender offer for 30% or more of the common stock. If the Company is acquired in a merger or business combination, each Right may be exercised to purchase the common stock of the surviving company having a market value of twice the exercise price of each Right. The Rights Plan was amended in 1996 to extend the expiration of the Rights to May 12, 2007. The Rights may be redeemed by the Company at 5 cents per Right at any time prior to the public announcement of the acquisition of 20% of the common stock. At December 31, 1996, 25,000,000 shares of common stock were reserved for potential exercise of the Rights.
7. STOCK OPTION PLANS
The Company has incentive and nonqualified stock option plans for officers and key employees of the Company and its subsidiaries. The options are granted at the fair market value of the underlying shares at the date of grant. Options granted under the nonqualified plan become exercisable at the rate of 10% per year beginning the calendar year after the date of grant or earlier in the event of death, disability or retirement. Options expire ten years from the date of grant, or earlier in the event of termination of the employee. No options may be granted under the plan ten years after its inception.
In addition, the Company has a non-employee director's stock option plan which currently authorizes 200,000 shares for grant, with Discretionary Options granted at the direction of the Option Committee and Retainer Options granted in lieu of their annual retainer. Discretionary Options shall be exercisable at such rates as shall be determined by the Committee on the date of grant. Retainer Options shall be cumulatively exercisable at the rate of 25% of the total Retainer Option at the end of each full fiscal quarter succeeding the date of grant. The excess of fair market value at the date of grant over the option price for these nonqualified stock options is considered compensation and is charged against earnings ratably over the vesting period.
The Company also has an incentive stock option plan for its officers and key employees resident in the United Kingdom. The United Kingdom plan is essentially the same as the Company's domestic employee stock option plans, with certain modifications to comply with United Kingdom law and to provide potentially favorable tax treatment for grantees resident in the United Kingdom.
The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, recognizes no compensation expense for stock options granted to employees. Statement of Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based Compensation," requires disclosure of pro forma information regarding net earnings and earnings per share, using pricing models to estimate the fair value of stock option grants. Had compensation expense for the Company's stock option plans been determined based on the estimated fair value at the date of grant consistent with the methodology prescribed under SFAS 123, approximate net earnings and earnings per share would have been as follows:
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) For purposes of the pro forma disclosures, the estimated fair values of the option grants are amortized to expense over the options' expected lives. The fair value of options at the date of grant was estimated using the Black- Scholes option pricing model with the following weighted-average assumptions:
Transactions related to all stock options are as follows:
Options with respect to 1,500,000 shares were available for grant at December 31, 1996.
Information regarding options outstanding and exercisable at December 31, 1996 is summarized as follows:
8. RETIREMENT PLANS
The Company has a noncontributory defined benefit pension plan which covers substantially all domestic employees who have attained a specified age and one year of employment. Benefits under the plan are based on years of service and salary history. The Company's contributions to the plan satisfy the minimum funding requirements of ERISA. Plan assets consist primarily of common stocks and bonds invested under the terms of a group annuity contract managed by a life insurance company.
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company accounts for the defined benefit pension plan in accordance with Statement of Financial Accounting Standards No. 87 (SFAS 87), "Employers' Accounting for Pensions." The difference beteween the present value of the projected benefit obligation at the date of adoption of SFAS 87 and the fair value of plan assets at that date is being amortized on a straight-line basis over the average remaining service period of employees expected to receive benefits.
The following table sets forth the plan's estimated funded status and amounts recognized in the Company's consolidated financial statements:
Pension expense for the plan consists of the following:
The following assumptions were used in determining the actuarial present value of the plan's projected benefit obligation:
The Company has a contributory savings and thrift plan covering the majority of its employees. Company contributions are at the discretion of the Company's Board of Directors and may not exceed the maximum amount deductible for federal income tax purposes. The Company contributed $2,396,000, $1,035,000, and $879,000 in 1996, 1995 and 1994, respectively.
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company also has a foreign defined contribution plan which provides for basic contributions by the Company and voluntary contributions by employees which are matched 100% by the Company, up to a maximum of 5% of salary, as defined. Net expense for foreign retirement plans amounted to $1,383,000 in 1996, $1,703,000 in 1995 and $1,611,000 in 1994.
9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In 1992, the Company amended its health benefits plan to eliminate retiree coverage, except for current retirees and those employees who had already attained a specified age and length of service. The retiree health plan is contributory, with contributions adjusted annually, and is funded on a pay-as- you-go basis.
The components of the net periodic postretirement benefit cost include the following:
The following table sets forth the estimated funded status and amounts recognized in the Company's consolidated financial statements:
The assumed healthcare cost trend rate used for the next year is 8.5%, scaling down to 4.5% after 12 years. A 1% increase in the assumed healthcare cost trend rate would increase the accumulated postretirement benefit obligation by $1,341,000 at December 31, 1996 and would increase the net periodic postretirement benefit cost for 1996 by $93,000.
The discount rate used to measure the accumulated postretirement benefit obligation was 7.5% at December 31, 1996 and 1995. The transition obligation is being amortized over 20 years.
10. COMMITMENTS AND CONTINGENCIES
The Company is engaged in various legal actions incident to the nature of its business. Management is of the opinion that none of the litigation will have a material effect on the Company's financial position or operating results.
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company generally operates in leased premises. Certain office space leases have options permitting renewals for additional periods. In addition to minimum fixed rentals, a number of leases contain escalation clauses related to increases in the cost of living in future years.
Minimum aggregate rental commitments at December 31, 1996 under noncancelable operating leases having an initial term of more than one year are as follows:
Total rent expense, including rent relating to cancelable leases and leases with initial terms of less than one year, amounted to $28,236,000 in 1996, $27,520,000 in 1995 and $26,112,000 in 1994.
11. INCOME TAXES
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31 are as follows:
A reconciliation of the provision for income taxes with the U.S. federal income tax rate is as follows:
Due to changes in the U.S. federal income tax laws effective in 1994, the Company began providing for U.S. income taxes on the undistributed earnings of its foreign subsidiaries. Prior to 1994, the Company did not provide for U.S. income taxes on the undistributed earnings ($19,200,000 at December 31, 1996) of certain foreign subsidiaries which are considered permanently invested outside of the U.S. The amount of unrecognized deferred tax liability on these undistributed earnings is $5,000,000.
ARTHUR J. GALLAGHER & CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED) 12. FOREIGN OPERATIONS
Financial data by geographic area of operations are as follows:
The consolidated financial statements include liabilities of $107,053,000 at December 31, 1996 ($116,866,000 at December 31, 1995) after elimination of intercompany balances applicable to foreign operations.
Exchange gains (losses) were approximately $253,000 in 1996, $85,000 in 1995 and ($81,000) in 1994.
13. QUARTERLY OPERATING RESULTS (UNAUDITED)
Quarterly operating results for 1996 and 1995 were as follows:
MANAGEMENT'S REPORT
The Management of Arthur J. Gallagher & Co. is responsible for the preparation and integrity of the consolidated financial statements and the related financial comments appearing in this annual report. The financial statements were prepared in accordance with generally accepted accounting principles and include certain amounts based on management's best estimates and judgments. Other financial information presented in the annual report is consistent with the financial statements.
The Company maintains a system of internal accounting controls designed to provide reasonable assurance that assets are safeguarded and that transactions are executed as authorized and are recorded and reported properly. This system of controls is based upon written policies and procedures, appropriate divisions of responsibility and authority, careful selection and training of personnel and the utilization of an internal audit program and staff. Policies and procedures prescribe that the Company and all employees are to maintain the highest ethical standards and that business practices throughout the world are to be conducted in a manner which is above reproach.
Ernst & Young LLP, independent auditors, has audited the Company's financial statements and their report is presented herein.
The Board of Directors has an Audit Committee composed entirely of outside Directors. Ernst & Young LLP has direct access to the Audit Committee and periodically meets with the Committee to discuss accounting, auditing and financial reporting matters.
Arthur J. Gallagher & Co.
Itasca, Illinois January 21, 1997
/s/ J. Patrick Gallagher, Jr. ------------------------------------- J. Patrick Gallagher, Jr. President and Chief Executive Officer
/s/ Michael J. Cloherty ------------------------------------- Michael J. Cloherty Executive Vice President and Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders Arthur J. Gallagher & Co.
We have audited the accompanying consolidated balance sheet of Arthur J. Gallagher & Co. as of December 31, 1996 and 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1996. 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 generally accepted auditing standards. 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 consolidated financial position of Arthur J. Gallagher & Co. at December 31, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994, the Company changed its method of accounting for certain investments in debt and equity securities.
/s/ Ernst & Young LLP ------------------------------------- ERNST & YOUNG LLP
Chicago, Illinois January 21, 1997
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding directors and nominees for directors of the Company is included under the caption entitled "Election of Directors" in the Proxy Statement dated March 28, 1997 and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation of the Company's directors and executive officers is included in the Proxy Statement dated March 28, 1997 under the caption entitled "Compensation of Executive Officers and Directors," and is incorporated herein by reference; provided, however, the report of the Compensation Committee on executive compensation and the stock performance graph shall not be deemed to be incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding beneficial ownership of the Common Stock by certain beneficial owners and by management of the Company is included under the caption entitled "Principal Holders of Securities" in the Proxy Statement dated March 28, 1997 and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Consolidated Financial Statements of Arthur J. Gallagher & Co. consisting of:
(a) Consolidated Statement of Earnings for each of the three years in the period ended December 31, 1996.
(b) Consolidated Balance Sheet as of December 31, 1996 and 1995.
(c) Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1996.
(d) Consolidated Statement of Stockholders' Equity for each of the three years in the period ended December 31, 1996.
(e) Notes to Consolidated Financial Statements.
(f) Report of Independent Auditors.
2. Consolidated Financial Statement Schedules consisting of:
(a) Schedule II--Valuation and Qualifying Accounts.
All other schedules are omitted because they are not applicable, or not required, or because the required information is included in the Consolidated Financial Statements or the Notes thereto.
3. Exhibits:
- - -------- *Filed as exhibits to this Form 10-K with the Securities and Exchange Commission; only Exhibits 11.0, 21.0 and 23.1 are included in this book. **Such exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to item 601 of Regulation S-K.
(b) Reports on Form 8-K
Not applicable
(c) Safe harbor statement under the private securities litigation reform act of 1995.
This annual report contains forward looking statements. Forward looking statements made by or on behalf of the Company are subject to risks and uncertainties, including but not limited to the following: the Company's commission revenues are highly dependent on premiums charged by insurers, which are subject to fluctuation; the property and casualty insurance industry continues to experience a prolonged soft market despite high losses; continued low interest rates will reduce income earned on invested funds; the insurance brokerage and service businesses are extremely competitive with a number of competitors being substantially larger than the Company; the alternative insurance market continues to grow; the Company's revenues vary significantly from quarter to quarter as a result of the timing of policy renewals and the net effect of new and lost business production; the general level of economic activity can have a substantial impact on the Company's renewal business. The Company's ability to grow has been enhanced through acquisitions, which may or may not be available on acceptable terms in the future, and which, if consummated, may or may not be advantageous to the Company. Accordingly, actual results may differ materially from those set forth in the forward looking statements. Attention is also directed to other risk factors set forth in documents filed by the Company with the Securities and Exchange Commission.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON THE 21ST DAY OF MARCH, 1997.
Arthur J. Gallagher & Co.
/s/ J. Patrick Gallagher, Jr. By___________________________________ J. Patrick Gallagher, Jr. President and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW ON THE 21ST DAY OF MARCH, 1997 BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN THE CAPACITIES INDICATED.
/s/ Carl E. Fasig *By: ________________________________ Carl E. Fasig, Attorney-in-Fact
SCHEDULE II
ARTHUR J. GALLAGHER & CO.
VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
- - -------- (1) Bad debt write-offs net of recoveries. (2) Reversal of fully amortized expiration lists. (3) 1994 acquisitions accounted for as poolings of interests whose results were not significant and financial statements for all prior periods were not restated. (4)Reversal of full amortized goodwill.
EXHIBIT INDEX
- - -------- *Filed herewith. **Such exhibit is a management contract or compensatory plan or arrangement required to be filed as an exhibit to this form pursuant to item 601 of Regulation S-K.


ITEM 1. BUSINESS - ------- --------
Equifax Inc. is a holding company which conducts its actual business operations through the use of 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, although Equifax Inc. continues to supply centralized overall financial, legal, public relations, tax and similar services.
The Company was founded as a credit reporting agency under the name "Retail Credit Company" in Atlanta, Georgia, in 1899. Over the next several years, the Company established itself in the area of investigation of applicants for insurance. The business grew, and by 1920, the Company had numerous branch offices throughout the United States and Canada. Since that time, the Company has continued to expand and diversify by means of internal development and strategic acquisitions. In late 1975, the Company changed its name from "Retail Credit Company" to "Equifax Inc." The specific products and services presently offered by the Company are described below under the respective Company segment headings.
Since January 1993, the Company has had an open market stock repurchase program. During 1996, the Company repurchased 4,614,000 shares at a cost of $105,550,000.
Reference is made to acquisitions and investments in unconsolidated affiliates reported in Note 2 of the Notes to Consolidated Financial Statements, included as Exhibit 13.3 in Part IV, Item 14 of this report, which is hereby incorporated by reference. During the fourth quarter of 1996, the Company divested its healthcare information business operations.
In October 1996, the Company announced international expansion developments including activity in India, Thailand and Mexico, as well as agreements to provide services in Asia, the Pacific Rim, Hungary and Hong Kong.
In December 1996, the Company announced its intention to divest its Insurance Services Group through the issuance of a special stock dividend to its shareholders. Distribution of this dividend is contingent upon, among other things, the receipt of a ruling by the Internal Revenue Service that such distribution constitutes a tax-free dividend to shareholders. Assuming a favorable response is received, this spinoff is anticipated to occur in mid-year 1997.
Reference is made to industry segment information reported in Note 12 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report, which is hereby incorporated by reference.
A description of the Company's products or services by industry segment follows:
Credit Services Segment - -----------------------
This segment includes Equifax Credit Information Services, Inc. and its wholly- owned subsidiaries Credit Northwest Corporation; Equifax Marketing Decision Systems, Inc.; Market Knowledge, Incorporated; and Rochester Credit Center.
The Company's principal class of service for this segment is informational services for consumer credit report purposes. Customers include retailers, banks, financial institutions, utilities, telecommunications companies, petroleum companies, travel and entertainment card companies, auto finance and leasing firms, automobile dealers and rental companies, hotels and motels, educational institutions and mortgage lenders. In 1996, this class of service accounted for 18.6% of the Company's total operating revenue, as compared with 19.0% in 1995, and 20.9% in 1994.
Companies in this segment primarily furnish consumer credit reporting services, but also provide decision support and credit management services designed to meet specific customer needs. This includes consumer credit reporting information, credit card marketing services, risk management, collection services, locate services, fraud detection and prevention services and mortgage loan origination information. Other services include PC-based marketing systems, psychographic and geo-demographic modeling systems, mapping tools, strategic consulting to database marketing and management systems and computer modeling and analytical services, both domestically and internationally. Distribution of information to customers is made primarily through electronic data interfaces.
The Company's consumer credit services operations, including non-owned affiliate bureaus, compete with two other large automated credit reporting organizations - Experian Corporation and Trans Union Corporation.
Payment Services Segment - ------------------------
This segment includes Equifax Payment Services, Inc. and its wholly-owned subsidiaries Equifax Check Services, Inc.; Equifax Card Services, Inc.; Equifax Card Services (Madison), Inc.; Credit Union Card Services, Inc.; Light Signatures, Inc.; Financial Insurance Marketing Group, Inc.; First Bankcard Systems, Inc.; and Tecnicob, S.A.
The Company's principal class of service for this segment is credit and debit card services, which includes credit and debit card authorization and processing, credit card marketing enhancements, and software products for credit card, merchant and collection processing. In 1996, this class of service accounted for 10.8% of the Company's total revenue, as compared with 9.0% in 1995 and 8.0% in 1994. Other services provided are check authorization services, which include on-line warranty or verification of checks written at the point of sale. Card Services customers include banks, credit unions and savings institutions. Card software product customers are diverse and include some of the world's largest financial institutions. Check Services customers include national and regional retail chains, hotels and motels, automobile dealers and rental car companies and other retail companies.
Companies in this segment are leading providers of their products and services in the United States although competition is considerable.
Business in this segment is seasonal to some extent. The volume of check payment services and credit and debit card processing is highest during the Christmas shopping season and during other periods of increased consumer spending.
International Operations Segment - --------------------------------
This segment consists of Acrofax Inc.; Equifax Canada Inc. and its wholly-owned subsidiaries Equifax Canada (AFX) Inc. and Telecredit Canada, Inc.; Equifax Europe (U.K.) Ltd.; Equifax Europe Ltd., UAPT-
Infolink plc; The Infocheck Group Ltd.; Equifax South America, Inc.; Transax plc.; Equifax India Private Ltd.; and Equifax Mauritius Private Limited. Also included in this segment are ASNEF-Equifax (49% owned); Organizacion Veraz (33.3% owned); and DICOM S.A. (50% owned).
The Company's principal class of service for this segment is consumer and commercial credit reporting outside the United States.
The companies in this segment primarily provide consumer and commercial credit services, but also provide other financial services. In Canada, financial services include consumer and business credit reporting information, accounts receivable and collection and check warranty services. In Europe (primarily the United Kingdom), consumer and business credit reporting and marketing services, credit scoring and modeling services, and check warranty and auto lien information services are provided. In South America, commercial, financial and medical information are provided in addition to consumer credit services.
Customers include retailers, banks, financial institutions, utilities and telecommunications companies, petroleum companies, travel and entertainment card companies, auto finance and leasing firms, automobile dealers and rental companies, hotels and motels, educational institutions and mortgage lenders.
Equifax Canada Inc. is clearly the market leader in providing consumer and commercial credit information in Canada. In the United Kingdom, Equifax has the largest share of the consumer and business credit information market, while Transax is the check warranty market share leader. ASNEF-Equifax is a leader in providing credit information services in Spain and Portugal. VERAZ is the leading information provider in Argentina, while DICOM is the leading provider in Chile.
Insurance Services Segment - --------------------------
This segment consists of various business units of Equifax Services Inc.; Osborn Laboratories, Inc.; Osborn Laboratories (Canada) Inc.; The Kit Factory, Inc.; Mid-American Technologies, Inc.; Programming Resources Company; and CDB Infotek (70%).
The Company's principal class of service for this segment is providing information for insurance underwriting purposes. In 1996, this class of service accounted for 27.2% of the Company's total operating revenue, as compared with 26.4% in 1995 and 25.9% in 1994.
Equifax Services Inc. provides most major domestic life and health insurance companies with various informational services for help in determining the classification of applicants as risks for life and health insurance and for assistance in settling claims. Services include life and health underwriting reports, paramedical exams, health measurements, medical history reports, specimen testing, drug screening collection services, claim investigations and employment background screenings. The Company also provides similar informational services to major property and casualty and commercial insurance companies including motor vehicle records, automated claim information for automobile and property insurers, and on-line access to public court records and business filings. Automated property and automobile claim information is also provided in the United Kingdom to property and casualty insurers. The Company also provides customized decision support and rule-based risk management services, including software rating applications for commercial and personal line insurers and commercial property evaluations. This information is used by insurance companies in evaluating applicants as risks and as
an aid in determining the applicable rates. Distribution of information to customers is primarily made through electronic data interfaces.
Insurance services customers include most major domestic life and health and property and casualty and commercial insurance companies as well as independent agents. Public record and employment and background screening services are offered to all major domestic companies. Major insurers in the United Kingdom use the automated databases.
The Company currently ranks as the leading provider of risk management information for insurance companies, while Osborn is the second largest domestic laboratory of its kind. Many smaller organizations, which focus on a limited number of services and which, in some cases, are concentrated in small geographic areas, provide fragmented competition. CDB Infotek is a leading provider of on-line public record information.
General Information Services Segment - ------------------------------------
In the fourth quarter of 1996, the Company divested its healthcare information businesses which included Medical Credentialing Verification Services; Equifax Healthcare EDI Services, Inc.; Equifax Healthcare Analytical Services, Inc. and Equifax Healthcare Administrative Services, Inc. Two non-healthcare information businesses, Equifax Government and Special Systems, Inc. and High Integrity Systems, Inc. were retained.
The Company's principal class of service for this segment was providing healthcare information services.
Companies in this segment provided healthcare information services and furnished a broad range of informational and administrative services which included electronic claims processing, physician profiling, claims auditing, claim analysis, administration and utilization management, electronic remittance, hospital bill audits and medical credentials verification.
Equifax Healthcare Information Services, Inc., Equifax Healthcare Analytical Services, Inc., Equifax Healthcare EDI Services, Inc., and Equifax Healthcare Administrative Services, Inc. provided services to health care providers (hospitals and physicians), managed care organizations, health plan managers, insurers, purchasers and payers of group health coverage and governmental agencies.
High Integrity Systems, Inc., which the Company retained, was originally formed to provide a lottery management system for the California State Lottery. Reference is made to Note 4 of the Notes to Consolidated Financial Statements, included in Part II, Item 3 of this report, for a more detailed discussion.
Competition is strong in all of the above areas. Companies offering healthcare services possess relatively small shares or compete in young and growing markets. Other than stated above, competition in these areas is difficult to describe and information concerning such conditions is not material to a general understanding of the Company's business.
- -------------------------------------------------
The principal methods of competition for the Company are price, scope, speed and ease of service and reliability of the information furnished.
None of the Company's segments is dependent on any single customer, and the Company's largest customer provides less than 10% of the Company's total revenues.
The Company had approximately 14,100 employees, as of December 31, 1996.
ITEM 2.

ITEM 2. PROPERTIES - ------- ----------
The Company is in a service industry and does not own any mines, extractive properties or manufacturing plants. Thus, an understanding of the Company's property holdings is not deemed to be material to an understanding to the Company's business taken as a whole.
The Company owns a total of three office buildings, one of which is located in La Habra, California, one in Wexford, Ireland and one in Salisbury, England. The company also owns two office/laboratory facilities located in Olathe, Kansas which are utilized by the Company's subsidiary, Osborn Laboratories, Inc. The Company also owns approximately 46 acres in Windward Office Park located in Alpharetta, Georgia adjacent to office space currently under lease by the Company.
The Company ordinarily leases office space of the general commercial type for conducting its business and is obligated under approximately 394 leases and other rental arrangements for its headquarters and field locations. The Company's operating leases involve principally office space and office equipment. Rental expense relating to these leases was $52,796,000 in 1996, $46,898,000 in 1995 and $46,534,000 in 1994. In March 1994, the company sold and leased back under operating leases certain land and buildings. The net sales price of $55.1 million approximated the net book value of the related assets.
Future minimum payment obligations for noncancelable operating leases exceeding one year are as follows as of December 31, 1996:
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS - ------- -----------------
Reference is made to Lottery Contract Dispute, Litigation, and Settlement information reported in Note 4 of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of this report, which is hereby incorporated by reference.
EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------
The Company's executive officers, as of March 25, 1997, are listed below, with certain information relating to each of them:
*Also serves as a Director
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. The Board of Directors may elect an officer or officers at any meeting of the Board. Each elected officer is selected to serve until their successors have been elected and duly qualified. Election of officers occurs each year at the Board of Directors meeting held in conjunction with the Annual Meeting of the Shareholders.
Messrs. McGlaughlin, Chapman and Smith have each served as an officer of the Company for at least five years. Mr. Haygood has served in various executive capacities with the Company or its subsidiaries for more than five years before becoming an officer.
Ms. Zakas, prior to her election as Corporate Vice President and Secretary in October 1996, served as Corporate Vice President and Treasurer for the period January 1996 through October 1996 and as Corporate Vice President-Investor Relations for the period October 1995 through January 1996. Prior to that, she served as Vice President and Director of Investor Relations of the Company since September 1993. Prior to that, she served at Holiday Inn Worldwide, an international hotel chain, as Director-Strategic Planning and Analysis from 1992-1993 and as Director-Project Finance from 1991-1992. From 1984 until 1991, she worked at Morgan Stanley and Co., Incorporated, an investment banking firm, as a Vice President in the areas of capital market services and corporate finance.
Mr. Chandler, prior to his election as Corporate Vice President in October 1995, served as Vice President-Compensation and Benefits Administration. Before joining the Company in 1991, he served as vice president of executive compensation and benefits for C&S/Sovran Corporation, a national bank, now known as NationsBank, N.A., for a period of four years.
Mr. Mazzilli, prior to his election as Corporate Vice President and Controller in October 1995, served as Vice President and Controller of the Company since 1992. Before joining the Company in 1992, he served as Vice President, Management Services for the Equitable Life Insurance Company for a period of six years.
Mr. Richards, prior to his election as Corporate Vice President and General Counsel in October 1996, served as Senior Vice President and Group Counsel of the Company's Financial Services Group. Prior to joining the Company in 1991, Mr. Richards served as Vice President and General Counsel of Telecredit, Inc. which was acquired by the Company in 1990.
Mr. Post, elected in October 1996, serves as Corporate Vice President and Chief Financial Officer of the Company. Prior to this election, Mr. Post served as Senior Vice President and Group Chief Financial Officer of the Company's Financial Services Group since joining the Company in February 1992. Prior to joining the Company, Mr. Post served as Senior Vice President and Controller for Wachovia Corporation of Georgia since 1983.
Mr. Varga, who joined the Company in May 1995, serves as Corporate Vice President of the Company and is responsible for corporate development, strategic planning and management and quality systems. Prior to joining the Company, he served as Chief of Staff to U.S. Representative John Linder from Georgia from 1993 through 1995, having previously served as his campaign manager.
PART II -------
ITEM 5.

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, which is the principal market on which the stock is traded.
Dividends Per Share
Stock Prices
As of March 25, 1997, there were approximately 9,000 holders of record of the Company's common stock.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA - ------- -----------------------
Reference is made to Exhibit 13.1, included in Part IV, Item 14 of this report, which is hereby incorporated by reference.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ------- ------------------------------------------------- CONDITION AND RESULTS OF OPERATION ----------------------------------
Reference is made to Exhibit 13.2, included in Part IV, Item 14 of this report, which is hereby incorporated by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ------- -------------------------------------------
Reference is made to Exhibit 13.3, included in Part IV, Item 14 of this report, which is hereby incorporated by reference.
ITEM 9.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - -------- --------------------------------------------------
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 30, 1997, contains, on pages 2 through 5 and 18 thereof, information relating to the Company's Executive Officers, Directors and persons nominated to become Directors. This information is incorporated herein by reference and made a part hereof. See also information concerning the Company's Executive Officers in Part I, above.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION - -------- ----------------------
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 30, 1997, contains, on pages 8 through 16 thereof, information relating to executive compensation. This information is incorporated herein by reference and made a part hereof.
ITEM 12.

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 April 30, 1997, contains, on page 7, information relating to security ownership of certain beneficial owners and management. This information is incorporated herein by reference and made a part hereof.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - -------- ----------------------------------------------
The Company's Proxy Statement for the Annual Meeting of Shareholders to be held on April 30, 1997, contains, on pages 5 and 6 thereof, information relating to certain relationships and related transactions. This information is incorporated herein by reference and made a part hereof.
PART IV. --------
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K - -------- ---------------------------------------------------------------
The following documents are filed as part of this report:
(a)1. Financial Statements
. Consolidated Balance Sheets - December 31, 1996 and 1995
. Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994
. Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1996, 1995 and 1994
. Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994
. Notes to Consolidated Financial Statements
(a)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 thereto.
(a)3. Exhibits
Articles of Incorporation and By-laws
. Amended and Restated Articles of Incorporation (3 pages)/(7)/ . By-Laws (23 pages)
Instruments Defining the Rights of Security Holders, Including Indentures
. Loan Agreement (132 pages)/(6)/
. Portion of Prospectus and Trust Indenture (134 pages)/(1)/
. Rights Agreement, dated October 25, 1995, between Equifax Inc. and SunTrust Bank, Atlanta with Form of Right Certificate attached as Exhibit "A" (54 pages)/(5)/
Material Contracts and Compensation Plans
. Equifax Inc. 1988 Performance Share Plan for Officers, as amended (14 pages)/(7)(8)/
. Equifax Inc. 1996 Incentive Compensation Plan (6 pages)/(8)/
. Deferred Compensation Plan (22 pages)/(6)(8)/
. Change in Control Agreement (10 pages)/(6)(8)/
. Change in Control Agreement (10 pages)/(8)/
. Executive Employment Agreement, dated June 22, 1989 (7 pages)/(8)/
. Executive Employment Agreement, dated July 1, 1991 (3 pages)/(8)/
. Executive Employment Agreement, dated December 29, 1995/(6)(8)/
. Consulting Agreement, dated January 1, 1996/(6)(8)/
. Executive Agreement, dated January 31, 1997 (9 pages)/(8)/
. Executive Agreement, dated October 30, 1996 (9 pages)/(8)/
. Equifax Inc. Omnibus Stock Incentive Plan 1996 Incentive and Non-Qualified Stock Option Agreements (8 pages)/(8)/
. Equifax Inc. Omnibus Stock Incentive Plan, as amended (14 pages)/(6)(8)/
. Equifax Inc. Omnibus Stock Incentive Plan 1995 Incentive and Non-Qualified Stock Option Agreements (8 pages)/(4)(8)/
. Equifax Inc. Omnibus Stock Incentive Plan 1994 Incentive and Non-Qualified Stock Option Agreements (8 pages)/(3)(8)/
. Equifax Inc. Omnibus Stock Incentive Plan 1995 Non-Qualified Stock Option Agreement (4 pages)/(4)(8)/
. Equifax Inc. Omnibus Stock Incentive Plan 1994 Restricted Stock Award Agreement (4 pages)/(3)(8)/
. Equifax Inc. Omnibus Stock Incentive Plan 1995 Restricted Stock Award Agreement (3 pages)/(4)(8)/
. Equifax Inc. Omnibus Stock Incentive Plan 1996 Restricted Stock Award Agreement (3 pages)/(8)/
. Equifax Inc. Non-Employee Director Stock Option Plan and Agreement (10 pages)/(4)(8)/
. Equifax Inc. Supplemental Executive Retirement Plan (24 pages)/(4)(8)/
. Equifax Inc. Supplemental Executive Retirement Plan Amendments (26 pages)/(3)//(8)/
. Equifax Inc. Supplemental Executive Retirement Plan Amendment (2 pages)/(8)/
. Equifax Inc. Severance Pay Plan for Salaried Employees (18 pages)/(3)(8)/
. Agreement For Computerized Credit Reporting Services (204 pages)/(3)/
. Amendments to Agreement for Computerized Credit Reporting Services and related documents (66 pages)
. Amendment to Agreement for Computerized Credit Reporting Services (8 pages)/(2)/
. Amendment to Agreement for Computerized Credit Reporting Services (9 pages)/(3)/
. Amendment to Agreement for Computerized Credit Reporting Services (14 pages)/(4)/
. Computer and network operations agreement (redacted version) (31 pages)/(3)/
. Purchase and Lease Agreement (109 pages)/(3)/
. Headquarters Facility Lease (77 pages)/(3)/
. Participation Agreement (148 pages)/(3)/
. Lease Agreement (71 pages)/(3)/
. Compensation of Directors - The Company's by-laws, which are filed as an exhibit to this Form 10-K Annual Report, describe, on page 7 thereof, under Article Two, "Compensation of Directors," the fees paid to Directors of the Company. This information is hereby incorporated by reference.
. Life Insurance - Messrs. C. B. Rogers, Jr. and L. A. Ault, III each own a personal life insurance policy in the face amount of $1,000,000 and $2,000,000, respectively. The Company pays the annual premiums on these policies.
Annual Report to Security Holders
. Summary of Selected Financial Data (2 pages)
. Management's Discussion and Analysis of Financial Condition and Results of Operation (9 pages)
. Financial Statements and Supplementary Data (25 pages)
Subsidiaries of the Registrant (6 pages)
Consent of Independent Public Accountants to incorporation by reference (1 page)
Financial Data Schedule (1 page)
/(1)/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 hereby incorporated by reference.
/(2)/Previously filed as an exhibit on Form 10-K, filed March 30, 1993, and hereby incorporated by reference.
/(3)/Previously filed as an exhibit on Form 10-K, filed March 31, 1994, as amended on Form 10-K/A, filed October 14, 1994, and hereby incorporated by reference.
/(4)/Previously filed as an exhibit on Form 10-K, filed March 30, 1995, and hereby incorporated by reference.
/(5)/Previously filed as exhibits on Form 8-A, filed November 2, 1995, and hereby incorporated by reference.
/(6)/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 hereby incorporated by reference.
/(7)/Previously filed as an exhibit on Schedule 14A, filed March 26, 1996, and hereby incorporated by reference.
/(8)/Management Contract or Compensatory Plan
Copies of the Company's Form 10-K which are furnished pursuant to the written request of the Company's shareholders do not include the exhibits listed above. Any shareholder desiring copies of one or more such exhibits should write the Secretary of the Company at P.O. Box 4081, Atlanta, Georgia 30302, specifying the exhibit or exhibits and enclosing a check for the amount resulting from multiplying $.50 times the number of pages (as indicated above) of the exhibit(s) requested.
(b) Reports on Form 8-K
The Company filed one report on Form 8-K during the fourth quarter of the year ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EQUIFAX INC.
Date March 31, 1997 By /s/ Marietta Edmunds Zakas -------------------------------------- Marietta Edmunds Zakas, Corporate Vice President and Secretary
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 31, 1997 /s/ C. B. Rogers, Jr. ----------------------------------------- C. B. Rogers, Jr., Chairman of the Board
Date March 31, 1997 /s/ Daniel W. McGlaughlin ----------------------------------------- Daniel W. McGlaughlin, President, Chief Executive Officer and Director
Date March 31, 1997 /s/ Thomas F. Chapman ----------------------------------------- Thomas F. Chapman, Executive Vice President and Director
Date March 31, 1997 /s/ Derek V. Smith ----------------------------------------- Derek V. Smith, Executive Vice President and Director
Date March 31, 1997 /s/ Philip J. Mazzilli ----------------------------------------- Philip J. Mazzilli, Corporate Vice President, Treasurer and Controller (Principal Accounting Officer)
Date March 31, 1997 /s/ Lee A. Ault ----------------------------------------- Lee A. Ault, III, Director
Date March , 1997 ----------------------------------------- Ron D. Barbaro, Director
Date March 31, 1997 /s/ John L. Clendenin ----------------------------------------- John L. Clendenin, Director
Date March , 1997 ----------------------------------------- A. W. Dahlberg, Director
Date March , 1997 ----------------------------------------- Robert P. Forrestal, Director
Date March 31, 1997 /s/ L. Phillip Humann ----------------------------------------- L. Phillip Humann, Director
Date March 31, 1997 /s/ Tinsley H. Irvin ----------------------------------------- Tinsley H. Irvin, Director
Date March 31, 1997 /s/ Larry L. Prince ----------------------------------------- Larry L. Prince, Director
Date March 31, 1997 /s/ D. Raymond Riddle ----------------------------------------- D. Raymond Riddle, Director
Date March , 1997 ----------------------------------------- Dr. Betty L. Siegel, Director
Date March 31, 1997 /s/ Dr. Louis W. Sullivan ----------------------------------------- Dr. Louis W. Sullivan, Director
INDEX TO EXHIBITS
EXHIBIT NUMBER -------
Articles of Incorporation and By-laws
3.1 . Amended and Restated Articles of Incorporation/(7)/
3.2 . By-Laws
Instruments Defining the Rights of Security Holders, Including Indentures
4.1 . Loan Agreement/(6)/
4.2 . Portion of Prospectus and Trust Indenture /(1)/
4.3 . Rights Agreement, dated October 25, 1995, between Equifax Inc. and SunTrust Bank, Atlanta with Form of Right Certificate attached as Exhibit "A"/(5)/
Material Contracts and Compensation Plans
10.1 . Equifax Inc. 1988 Performance Share Plan for Officers, as amended/(7)(8)/
10.2 . Equifax Inc. 1996 Incentive Compensation Plan/(8)/
10.3 . Deferred Compensation Plan/(6)(8)/
10.4 . Change in Control Agreement/(6)(8)/
10.5 . Change in Control Agreement/(8)/
10.6 . Executive Employment Agreement, dated June 22, 1989/(8)/
10.7 . Executive Employment Agreement, dated July 1, 1991/(8)/
10.8 . Executive Employment Agreement, dated December 29, 1995/(6)(8)/
10.9 . Consulting Agreement, dated January 1, 1996/(6)(8)/
10.10 . Executive Agreement, dated January 31, 1997/(8)/
10.11 . Executive Agreement, dated October 30, 1996/(8)/
10.12 . Equifax Inc. Omnibus Stock Incentive Plan 1996 Incentive and Non-Qualified Stock Option Agreements/(8)/
10.13 . Equifax Inc. Omnibus Stock Incentive Plan, as amended/(6)(8)/
10.14 . Equifax Inc. Omnibus Stock Incentive Plan 1995 Incentive and Non-Qualified Stock Option Agreements/(4)(8)/
10.15 . Equifax Inc. Omnibus Stock Incentive Plan 1994 Incentive and Non-Qualified Stock Option Agreements/(3)(8)/
10.16 . Equifax Inc. Omnibus Stock Incentive Plan 1995 Non-Qualified Stock Option Agreement/(4)(8)/
10.17 . Equifax Inc. Omnibus Stock Incentive Plan 1994 Restricted Stock Award Agreement/(3)(8)/
10.18 . Equifax Inc. Omnibus Stock Incentive Plan 1995 Restricted Stock Award Agreement/(4)(8)/
10.19 . Equifax Inc. Omnibus Stock Incentive Plan 1996 Restricted Stock Award Agreement/(8)/
10.20 . Equifax Inc. Non-Employee Director Stock Option Plan and Agreement/(4)(8)/
10.21 . Equifax Inc. Supplemental Executive Retirement Plan/(4)(8)/
10.22 . Equifax Inc. Supplemental Executive Retirement Plan Amendments/(3)(8)/
10.23 . Equifax Inc. Supplemental Executive Retirement Plan Amendment/(8)/
10.24 . Equifax Inc. Severance Pay Plan for Salaried Employees/(3)(8)/
10.25 . Agreement For Computerized Credit Reporting Services/(3)/
10.26 . Amendments to Agreement for Computerized Credit Reporting Services and related documents
10.27 . Amendment to Agreement for Computerized Credit Reporting Services/(2)/
10.28 . Amendment to Agreement for Computerized Credit Reporting Services/(3)/
10.29 . Amendment to Agreement for Computerized Credit Reporting Services/(4)/
10.30 . Computer and network operations agreement (redacted version)/(3)/
10.31 . Purchase and Lease Agreement/(3)/
10.32 . Headquarters Facility Lease/(3)/
10.33 . Participation Agreement/(3)/
10.34 . Lease Agreement/(3)/
. Compensation of Directors - The Company's by-laws, which are filed as an exhibit to this Form 10-K Annual Report, describe, on page 7 thereof, under Article Two, "Compensation of Directors," the fees paid to Directors of the Company. Said information is hereby incorporated by reference.
. Life Insurance - Messrs. C. B. Rogers, Jr. and L. A. Ault, III each own a personal life insurance policy in the face amount of $1,000,000 and $2,000,000 respectively. The
Company pays the annual premiums on said policies.
13.1 . Summary of Selected Financial Data
13.2 . Management's Discussion and Analysis of Operation Financial Condition and Results of Operation
13.3 . Financial Statements and Supplementary Data
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants to incorporation by reference
27 Financial Data Schedule
/(1)/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 hereby incorporated by reference.
/(2)/Previously filed as an exhibit on Form 10-K, filed March 30, 1993, and hereby incorporated by reference.
/(3)/Previously filed as an exhibit on Form 10-K, filed March 31, 1994, as amended on Form 10-K/A, filed October 14, 1994, and hereby incorporated by reference.
/(4)/Previously filed as an exhibit on Form 10-K, filed March 30, 1995, and hereby incorporated by reference.
/(5)/Previously filed as exhibits on form 8-A, filed November 2, 1995, and hereby incorporated by reference.
/(6)/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 hereby incorporated by reference.
/(7)/Previously filed as an exhibit on Schedule 14A, filed, March 26, 1996, and hereby incorporated by reference.
/(8)/Management Contract or Compensatory Plan