Equifax 2002 Annual Report Download - page 29

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
influenced by higher mortgage activity. Mortgage Services deliv-
ered record revenues with 24% growth. With continued economic
weakness, we expect to see low to mid single digit revenue
growth percentages in 2003. Mortgage loan originations, a sig-
nificant contributor to our credit reporting volume growth in 2002
and 2001, are expected to slow during 2003.
Our Marketing Services product lines delivered $274.8 million in
revenues or 6% growth in 2002, driven by incremental revenues
from our Naviant acquisition. Revenues from our Credit Marketing
Services, which include pre-screening, portfolio review, database
and other marketing products, were down 1% for the year prin-
cipally due to the economic conditions. Revenues from Direct
Marketing Services were $110.5 million, or 19% above the prior
year, driven by incremental revenues from our Naviant acquisition.
Our Direct Marketing Services revenues continued to be negatively
impacted by the slow down in spending for advertising, mailings,
and promotions.
Consumer Direct services revenues grew 80% over the prior year.
All products continued strong growth including $6.6 million of
incremental sales from the launch of our Equifax 3-in-1 credit
report. We continue to expect strong revenue growth in 2003.
Equifax North America delivered record profit of $361.6 million
with 6% growth over adjusted operating income on solid revenue
growth and strong expense management. We maintained operat-
ing margins of 40% as we continue to invest in growth initiatives
such as our U.S. Small Business Credit Report and our Fraud, Safety
and Security Services.
YEAR 2001 COMPARED WITH 2000
U.S. Consumer and Commercial Services delivered revenue growth
of 14% in 2001 on a record credit reporting volume increase of
20%. The key industry growth drivers were mortgage, telecommu-
nications, financial services, and automotive. Lower interest rates
helped generate record volumes in mortgage refinancing, cellular
usage increased, and automakers’ zero rate financing incentives,
which combined to drive consolidated volumes with consecutive
quarterly growth in 2001. Volume growth was partially offset by
average unit price declines of 6% in 2001. Mortgage Services
revenues grew 73% in 2001 caused by a favorable interest rate
environment, compared with a 21% decrease in 2000. Canadian
operations revenues increased 14% in 2001 on strong consumer
credit volume growth.
Our Marketing Services product lines generated combined rev-
enues of $259.4 million, or almost even with $259.8 million in
2000. Revenues from our Credit Marketing Services declined 6%
in 2001 versus 2000. Lower revenues in 2001 were principally due
to product mix shifts to lower priced risk management products,
and price compression due to customer consolidation. Our 2001
revenues from Direct Marketing Services were $92.9 million,
a 13% increase over 2000. Excluding incremental revenues as a
result of the May 2000 acquisition from R.L. Polk & Co., revenues
declined 11%, principally driven by a significant slow down in
advertising and marketing expenditures by our customers due to
the slowing U.S. economy.
Consumer Direct revenues in 2001 more than doubled to $21.9 mil-
lion largely due to $9.7 million of incremental sales from the new
ScorePower®credit score product launched in March 2001 and
increased sales of the Equifax Credit ReportTM credit report and
Equifax Credit WatchTM credit monitoring service. Consumer Direct
sales in 2000 totaled $7.8 million.
Operating income for Equifax North America increased 15% in
2001 on record revenue and volume growth. Excluding the impact
of our May 2000 acquisition from R.L. Polk, operating income
growth for 2001 was 16%.
EQUIFAX EUROPE
YEAR 2002 COMPARED WITH 2001
Equifax Europe, which includes the results of our operations in the
United Kingdom, Spain, Portugal and Italy, and our support opera-
tions in Ireland, continued to improve its profit and operating mar-
gins through expense reductions and operating efficiencies, and
the decision to exit the commercial credit reporting business in
Spain. Revenues declined 14% on a local currency basis driven by
our decision to exit the commercial credit reporting business in
Spain, and lower revenues from our United Kingdom operations.
Our United Kingdom operations generated 77% of Equifax Europe’s
revenues in 2002. U.S. dollar revenue benefited $5.4 million from
the strengthening of local currencies, British pound and the euro.
Operating expenses in 2002 of $113.4 million declined 16%.
United Kingdom expenses decreased 11% driven by our fourth
quarter 2001 restructuring plan focused on rightsizing our United
Kingdom operations and driving productivity. During the third quar-
ter of 2002, we made the decision to exit the commercial credit
reporting business in Spain due to local market conditions, and this
business is now held for sale. See Note 2 to the Consolidated
Financial Statements. For 2002, the results of the Spanish com-
mercial business have been classified as discontinued operations.
2001 results were not material to our consolidated results and as
such have not been reclassified to discontinued operations.
Operating income of $12.7 million more than doubled over 2001
driven by United Kingdom expense reductions. We continue to
focus on driving operational efficiencies in our European
businesses and expect continued margin improvement in 2003.
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