Equifax 2002 Annual Report Download - page 26

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
– a $3.2 million pro forma increase in interest income
($1.9 million after tax; $0.02 income per share) from our
$41.0 million note receivable established as part of seller
financing with the divestiture of our risk management
collections business;
– lower income tax expense of $5.5 million ($0.04 income per
share) to adjust the income tax effective rate from 43.2% to
41.2% to reflect the effective rate for ongoing operations; and
– the $24.4 million elimination of goodwill amortization
expense ($19.6 million after tax; $0.14 income per share)
as if SFAS No. 142 had been effective on January 1, 2000.
HIGHLIGHTS FOR 2002 CONSOLIDATED
FINANCIAL RESULTS
•Our reported consolidated revenues of $1.1 billion
decreased 3%. As adjusted, our consolidated revenues
were even with 2001.
•Our reported income from continuing operations increased
63%. As adjusted, our income from continuing operations
increased 8%.
•Our operating margins improved to 32%.
•Our interest expense of $41.2 million declined 14%.
•Our reported operating income increased 38%. As adjusted,
our operating income grew 3%.
•Our reported earnings per share from continuing operations
increased 64%. As adjusted, our earnings per share from
continuing operations increased 8%.
•Our total debt outstanding at December 31, 2002 was
$924.5 million.
•Our cash provided by operations was $248.8 million and our free
cash flow, which is a non-GAAP measure of the amount of cash
provided by our operating activities less capital expenditures,
was $193.0 million.
•We repurchased 2.9 million shares of common stock for a total
investment of $72.5 million.
YEAR 2002 COMPARED WITH 2001
Our reported revenues of $1.1 billion in 2002 decreased 3%
from 2001. Our adjusted revenues were even with 2002. In 2002,
Equifax North America accounted for 81% of our total revenue
and 91% of our operating income before corporate expense. Our
revenue growth in 2002 was negatively impacted by a global econ-
omy that has continued to weaken. Equifax North America rev-
enues grew 6% in 2002, delivering an additional $49.8 million in
revenue, compared to 13% growth in 2001. Our 2002 revenue
growth is attributable to increases in revenues from our Consumer
Direct products, sales of Mortgage Services resulting from
increased refinancing activity, and our acquisition of Naviant.
International revenues declined $45.1 million or 18% driven by
currency fluctuations, the decision to exit our commercial reporting
business in Spain, and the decline of the Argentinean economy.
The strengthening of the U.S. dollar against foreign currencies,
particularly in Latin America, negatively impacted consolidated
revenue by $16.7 million or 2%.
Consolidated operating expenses in 2002 of $758.0 million
declined $127.2 million or 14% over 2001. Operating expense, as
adjusted, decreased 1%, or $9.3 million. Excluding incremental
operating expense from our Naviant acquisition, operating
expenses declined 5%, driven by our continued focus on productiv-
ity improvements, discretionary expense control and our restruc-
turing actions taken in 2001 after the Certegy spin-off. In the fourth
quarter of 2001, we reduced our worldwide workforce 11% to
approximately 5,200 employees, and in 2002, continued to drive
productivity, resulting in an additional 5% decrease.
Cost of services in 2002 of $427.6 million declined $23.4 million or
5%. The divestiture of our City Directory business in October 2001
accounted for $9.3 million of the reduction. As adjusted, cost of
services declined 3%, driven by our decision to exit our commercial
credit reporting business in Spain, lower personnel expense and pro-
fessional service fees partially offset with higher royalties and data
purchases expense on higher unit volumes in Equifax North America.
SG&A, expenses of $249.9 million declined nearly 7% over 2001,
driven by the divestiture of City Directory. As adjusted, SG&A
expense increased $4.5 million, or 2%, due to our Naviant acquisi-
tion. Our SG&A expense in 2002 was also negatively impacted by
an increase of $4.3 million in bad debt expense, with the WorldCom
bankruptcy representing the largest portion of such expense.
Operating income in 2002 increased 38%, to $351.3 million, with
operating margins of 32%. Operating income, as adjusted, grew
3%, driven by our focus on productivity and expense control.
Equifax North America’s ability to maintain strong operating mar-
gins while investing in key growth initiatives and Equifax Europe’s
improvement in margins from 4% to 10% in 2002, offset margin
erosion in our Marketing Services operations in the U.S., profit
deterioration in Equifax Latin America due to economic conditions
in Argentina, and the reduction in income from our former lottery
business. See “Segment Results – Other,” below.
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