Equifax 2002 Annual Report Download - page 30

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2001 COMPARED WITH 2000
Equifax Europe achieved 2001 revenue growth of 3% in local cur-
rency. Our revenue growth was attributable to the November 2000
acquisition of two related Italian businesses named SEK S.r.l. and
AIF Gruppo Securitas S.r.l. The strengthening of the U.S. dollar
against the British pound and Spanish peseta reduced our revenue
in 2001 by approximately $6.0 million. Additionally, we experienced
revenue declines in our United Kingdom and Spain commercial
credit reporting services.
Operating income, as adjusted, in 2001 of $5.8 million declined
$11.4 million from 2000 on lower revenues in the United Kingdom
and Spain.
EQUIFAX LATIN AMERICA
YEAR 2002 COMPARED WITH 2001
Revenues of our Equifax Latin America segment, which includes
results of our operations in Brazil, Argentina, Chile, Peru, Uruguay
and El Salvador, declined by $30.1 million, or 28% from 2001,
driven by currency devaluation and the economic crisis in
Argentina. Currency devaluation negatively impacted our Latin
America revenues by $21.8 million, of which Brazil and Argentina
accounted for $18.3 million. Argentina’s operating revenue and
profit declined $21.8 million and $10.4 million, respectively.
In local currency, Brazil’s revenues grew 8% in 2002 driven by per-
formance in commercial reporting services.
Operating income, as adjusted, declined 37% to $20.3 million
compared to 2001 principally due to Argentina’s economic decline.
Despite the economic challenges, Equifax Latin America delivered
solid operating margins of 26% in 2002 versus 30% in 2001.
YEAR 2001 COMPARED WITH 2000
Equifax Latin America generated revenue of $106.7 million and
operating margins of 30% in 2001. In local currency, revenues
increased three percent in 2001. The strengthening of the U.S.
dollar against the Brazilian real and the Chilean peso reduced this
segment’s revenue by approximately $17.5 million in 2001.
Operating income, as adjusted, in 2001 decreased $8.0 million
mainly due to weak currencies and economic conditions in the
region. Cost containment measures helped deliver strong margins
of 30% in 2001.
OTHER
In our Other segment, we report information about our former lot-
tery business, which consists solely of an agreement between
a subsidiary of ours and GTECH Corporation. Pursuant to this sub-
contract, GTECH assumed obligations of our subsidiary under
a contract with the State of California to install a system to auto-
mate the processing of instant lottery tickets, provide terminals
and related security hardware, and license various software appli-
cations developed to support the system. We have exited the lot-
tery business, and all previously deferred revenue related to this
subcontract has now been recognized, and no further revenue or
operating income is expected to occur in this segment.
GENERAL CORPORATE
General corporate expense increased $2.9 million in 2002 based
on higher incentive compensation expense and one-time expenses
associated with the hiring of senior executive management. Our
2001 expense increase of $3.1 million was driven by higher incen-
tive compensation plan expense.
LIQUIDITY AND CAPITAL RESOURCES
OVERVIEW
Our principal sources of liquidity are cash flow provided by our
operating activities, our revolving credit facilities, and cash and
cash equivalents.
We believe that our ability to generate cash from our operations is
one of our fundamental financial strengths. In 2002 we generated
cash flow from operations of $248.8 million. Our free cash flow, the
cash flow provided by our operating activities less capital expendi-
tures, was $193.0 million in 2002. Our capital expenditures are used
for developing, enhancing and deploying new and existing technol-
ogy platforms, replacing or adding equipment, updating systems for
regulatory compliance, the licensing of software applications and
investing in disaster recovery systems. We use free cash flow, along
with borrowings, to make acquisitions, to retire outstanding indebt-
edness, to pay dividends, and to make share repurchases.
CASH FROM OPERATIONS
Our net cash provided by operating activities in 2002 was
$248.8 million compared to $255.1 million in 2001. Increased cash
flows generated from lower trade receivable balances were offset
by payments associated with our fourth quarter restructuring plan
in 2001, ongoing data purchases, and a $20.0 million contribution
to our U.S. defined benefit pension plan. Our operating cash flow
continues to be driven by operating margin performance and
aggressive working capital management (days sales outstanding
declined from 63 days in 2001 to 55 days in 2002).
Cash provided by operations in 2001 amounted to $255.1 million,
an increase of 32% from 2000. The improvement over 2000 was
largely influenced by three factors: higher operating income,
aggressive working capital management of receivables, and a
$24.8 million reduction in capital expenditures.
INVESTING ACTIVITIES
In 2002, net cash used in investing activities totaled $341.0 mil-
lion, an increase of $234.5 million compared to 2001. The increase
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