Equifax 2002 Annual Report Download - page 27

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2001 COMPARED WITH 2000
Our reported revenues of $1.1 billion in 2001 decreased 4%, or
$50.2 million, driven by our divestiture of several businesses.
See Note 4 to the Consolidated Financial Statements. In the fourth
quarter of 2000, we sold the risk management collections business
that we conducted in the United States, Canada and the United
Kingdom, the vehicle information business that we conducted in
the United Kingdom, and a direct marketing business that we con-
ducted in Canada. On a combined basis these divested businesses
including City Directory, which was sold in 2001, generated rev-
enues of $162.0 million and operating profit of $9.0 million with
margins of 6%. Revenues, as adjusted, increased 8% over 2000
driven by Equifax North America’s record 13% growth on strong
credit reporting volumes and Consumer Direct revenue growth.
The strengthening of the U.S. dollar against foreign currencies,
particularly in Latin America, negatively impacted consolidated
revenue by $26.9 million, or 3%.
Consolidated operating expenses in 2001 of $885.2 million, includ-
ing a $60.4 million restructuring charge taken in the fourth quarter,
increased $4.6 million over 2000. Operating expenses in 2001, as
adjusted, were $767.3 compared to adjusted operating expenses
of $706.9 in 2000. The $60.4 million increase was driven by record
volumes in our North American operations and $22.8 million of
incremental operating expense added from our acquisition of the
Consumer Information Solutions Group from R.L. Polk & Co. in
May 2000, and the November 2000 acquisition of two related
Italian businesses named SEK S.r.l. and AIF Gruppo Securitas S.r.l.
The products and services of the Consumer Information Solutions
Group that we acquired from R.L. Polk & Co., which we had referred
to as our Consumer Information Services, are now categorized
within our Marketing Services product line, and reported in our
Equifax North America segment.
Cost of services in 2001 of $451.0 million declined $62.2 million or
12%, driven by the sale of our risk management collections busi-
ness in the United States, Canada and the United Kingdom, our
vehicle information business in the United Kingdom, and a direct
marketing business in Canada, which are classified as Divested
Operations. Partially offsetting this decline is a $43.3 million
increase in production and data processing expenses due to record
volumes in our Equifax North America operations. SG&A expenses
of $267.6 million increased 2% over 2000, driven by higher sales
incentive payouts on record sales, incremental expense from our
acquisition of the Consumer Information Solutions Group from
R.L. Polk & Co., and growth in our Consumer Direct product line.
Operating income in 2001 of $253.8 million decreased 18% over
2000 driven by our $60.4 million restructuring charge taken in the
fourth quarter of 2001. Operating income, as adjusted, increased
7% over 2000 driven by strong revenue growth in Equifax North
America more than offsetting margin deterioration in our interna-
tional operations.
OTHER INCOME (EXPENSE), NET
Other income (expense), net principally consists of interest income,
gains and losses from divested businesses, and gains and losses
on foreign currency. Interest income in 2002, 2001, and 2000
totaled $6.3 million, $8.3 million, and $7.9 million, respectively.
Included in Other income (expense), net is the sale of our City
Directory business in October 2001 and our risk management col-
lections business and vehicle information business in 2000, which
generated pre-tax losses of $5.8 million and $4.2 million, in 2001
and 2000, respectively.
INTEREST EXPENSE
Interest expense decreased $6.6 million and $8.0 million in 2002
and 2001, respectively. This reduction was driven by lower average
debt outstanding and lower interest rates. Our total debt outstand-
ing at December 31, 2002 was $924.5 million compared to $755.6
million at December 31, 2001. We expect interest expense to
increase in 2003 due to higher outstanding debt levels.
EFFECTIVE TAX RATES
Our effective tax rates from continuing operations were 39.3%,
42.1%, and 43.4% in 2002, 2001, and 2000, respectively. Our lower
effective rate in 2002 was driven by: the elimination of goodwill
amortization beginning January 1, 2002, as required by SFAS 142;
the tax basis of goodwill related to the loss on sale of City
Directory in the third quarter of 2001; and the implementation of
state tax planning strategies. Effective tax rate changes from 2000
to 2001 were mainly due to non-deductible goodwill associated
with divestitures and changes in levels of foreign earnings.
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