Equifax 2002 Annual Report Download - page 24

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Divested Operations in 2001 and 2000. In October 2001, we sold
our City Directory business and, in the fourth quarter of 2000, we
sold our risk management collections businesses in the United
States, Canada, and the United Kingdom, our vehicle information
businesses in the United Kingdom, and a direct marketing business
in Canada. Combined revenues for these businesses in 2001 and
2000 were $29.2 million and $162.0 million, respectively, with a
2001 operating loss of $3.6 million and 2000 operating income of
$9.0 million.
The operating results of these businesses are classified in
Divested Operations for segment reporting purposes and are
included in our income from continuing operations. See Note 4
to the Consolidated Financial Statements.
Restructuring and Impairment Charges in 2001. In the fourth
quarter of 2001, we recorded restructuring and impairment charges
of $60.4 million ($35.3 million after tax or $0.25 per diluted share).
The restructuring charges, which total $37.2 million, are associated
with the reconfiguration of our business after the spin-off of Certegy
and the realignment of our cost structure in our international oper-
ations, and consist of severance costs and reserves to reflect our
estimated exposure on facilities to be vacated or consolidated.
The asset impairment charges, which total $23.2 million, reflect
our write-down of several technology investments. See Note 5 to
the Consolidated Financial Statements.
COMPONENTS OF INCOME STATEMENT
Revenues from our three operating segments, Equifax North
America, Equifax Europe and Equifax Latin America, are generated
from a variety of products and services categorized into three
groups: Information Services, Marketing Services, and Consumer
Direct. In 2002, our Equifax North America segment generated
81% of our worldwide revenues and 91% of our operating profit
before corporate expense.
Information Services revenues are principally transaction related,
and are derived from our sales of the following products, many of
which are delivered electronically: credit reporting and scoring,
mortgage reporting, identity verification, fraud detection, decision-
ing and modeling services and credit marketing services. Revenues
from our Marketing Services are derived from our sales of products
that help customers acquire new customers. Consumer Direct
revenues are transaction related, and are derived from our sales of
credit reporting products and identity theft monitoring services,
which we deliver to consumers electronically via the Internet and
via mail. Our revenues are sensitive to a variety of factors, such as
demand for, and price of, our services, technological competitive-
ness, our reputation for providing timely and reliable service, com-
petition within our industry, federal, state, foreign and regulatory
requirements governing privacy and use of data, and general eco-
nomic conditions. See “Forward-Looking Statements,” below.
Our operating expenses include costs of services and selling, gen-
eral, and administrative expense. Costs of services consist primar-
ily of data acquisition and royalties; customer service costs, which
include: personnel costs to collect, maintain and update our pro-
prietary databases, to develop and maintain software application
platforms, and to provide consumer and customer call center sup-
port; hardware and software expense associated with transaction
processing systems; telecommunication and computer network
expense; and occupancy costs associated with facilities where
these functions are performed. Selling, general, and administra-
tive, or SG&A expenses consist primarily of personnel costs for
compensation paid to sales and administrative employees and
management. Depreciation and amortization expense includes
amortization of acquired intangible assets.
ADOPTION OF SFAS 142
Beginning January 1, 2002, we adopted Statement of Financial
Accounting Standards No. 142, “Goodwill and Other Intangible
Assets,” or SFAS 142. SFAS 142 modifies the accounting for busi-
ness combinations, goodwill, and identifiable intangible assets. As
of January 1, 2002 all goodwill amortization ceased. SFAS 142
requires an initial impairment test of goodwill and certain other
intangibles to be completed in the year of adoption and annually
thereafter. In 2002, we completed our goodwill impairment testing
required by SFAS 142, which resulted in no adjustment to the car-
rying amount of goodwill. Although the adoption of the impairment
provisions of SFAS No. 142 did not have a material impact on our
financial position, we cannot assure you that additional impairment
tests will not require an impairment charge during future periods
should circumstances indicate that our goodwill balances are
impaired. Income from continuing operations for the years ended
December 31, 2001 and 2000 included after tax goodwill amortiza-
tion of $18.5 million ($0.13 per diluted share), and $19.6 million
($0.14 per diluted share), respectively.
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