Equifax 2006 Annual Report Download - page 33

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EQUIFAX 2006 ANNUAL REPORT 31
Europe
Europe revenue for the twelve months ended December 31,
2006, was $153.6 million, an increase of $11.6 million, or
8%, as compared to the same period in 2005. Revenue
increases were primarily due to higher consumer activity
associated with new business and increased volumes from
existing customers, as well as increased volumes related to
our commercial services business. Local currency fl uctuation
against the U.S. dollar favorably impacted our European rev-
enue by $2.2 million, or 1%, as revenue was up 7% in local
currency. Operating income for the twelve months ended
December 31, 2006, was $35.4 million, an increase of $2.0
million, or 6%, when compared to the same period a year
ago. The increase in operating income was driven by higher
sales volume and continued focus on controlling expenses,
including certain vendor price reductions received during
the six months ended June 30, 2006. This was offset by
higher production costs from rising sales volumes related to
our consumer and commercial businesses and increased
investment in the business. Europe’s operating margin
was 23.1% for the twelve months ended December 31,
2006, versus 23.5% for the same period in 2005.
Latin America
Latin America revenue for the twelve months ended
December 31, 2006, totaled $154.0 million, an increase
of $27.3 million, or 21%, as compared to the same period
in 2005. The change was primarily due to broad-based
pricing increases in core information products, higher
pricing for high-value products, new product introduc-
tions and favorable foreign currency impact. The pro-
gram to price for value is approaching a more mature
stage, which may impact the rate of revenue growth,
although inherent market growth and the potential for
share gain remains attractive.
During the twelve months ended December 31, 2006,
all six countries in Latin America experienced double digit
revenue growth in U.S. dollars and fi ve of the six countries
had double-digit growth in local currency. Local currency
fl uctuation against the U.S. dollar favorably impacted our
Latin America revenue by $8.9 million, or 7%. Revenue
grew 14% in local currency in 2006.
Operating income for the twelve months ended
December 31, 2006, totaled $45.9 million, an increase of
$12.6 million, or 38%, as compared to same period in 2005.
This increase was primarily the result of revenue growth, as
well as favorable currency impact. Latin America operat-
ing margin was 29.8% for the twelve months ended
December 31, 2006, versus 26.3% for the same period in
2005. The increase in operating margin was primarily
driven by higher pricing for selected high-value products.
General Corporate Expense
Our general corporate expenses are costs that are incurred
at the corporate level and are not directly associated with
activities of a particular operating segment. These expenses
include shared services, and administrative and legal
expenses. General corporate expense was $101.2 million for
the twelve months ended December 31, 2006, an increase
of $12.3 million, or 14%, compared to $88.9 million for the
same period in 2005. This increase was primarily driven by
the $7.6 million incremental negative impact from our
adoption of SFAS 123R; the $6.4 million severance charge
related to the organizational realignment; the $3.2 million
negative impact of our former CFO’s and CAO’s decisions
during 2006 to retire; plus normal growth in ongoing cor-
porate expenses due to infl ation. These increases were par-
tially offset by higher salary and incentive costs during the
twelve months ended December 31, 2005 related to our
CEO transition. For additional information about the
impact of SFAS 123R, see Note 2 of the Notes to
Consolidated Financial Statements.
RESULTS OF OPERATIONS—YEARS ENDED
DECEMBER 31, 2005 AND 2004
Consolidated Financial Results
Operating Revenue
Consolidated operating revenue increased $170.6 million,
or 13%, to $1,443.4 million for the twelve months ended
December 31, 2005, as compared to $1,272.8 million dur-
ing the same period in 2004. This increase was due to
growth in all of our reporting segments, except Europe
which was fl at. Our regulatory recovery fee revenue related
to the FACT Act contributed $38.0 million for the twelve
months ended December 31, 2005. Regulatory recovery fee
revenue was not material during the twelve months ended
December 31, 2004. Local currency fl uctuation against the
U.S. dollar favorably impacted our operating revenue by
$21.7 million.
Operating Expenses and Operating Margin
Consolidated operating expenses increased $124.4 mil-
lion, or 14%, to $1,021.4 million for the twelve months
ended December 31, 2005, as compared to $897.0 million
in the same period in 2004. Cost of services for the twelve
months ended December 31, 2005 increased $62.7 mil-
lion, or 12%, to $594.2 million when compared to the
same period in 2004, primarily due to sales growth as well
as higher benefi ts and incentive costs mainly associated
with our annual incentive program. During the twelve
months ended December 31, 2004, we recorded a $2.4
million asset impairment charge related to Marketing
Services, mostly for purchased data fi les and other assets.
During 2005 and 2004, we also incurred signifi cant com-
pliance costs, including operating expenses and capital
investment, to implement the FACT Act requirements.