Equifax 2003 Annual Report Download - page 20

EQUIFAX. INFORMATION THAT EMPOWERS. 17
M ANAGEM ENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS OF OPERATIONS
Our consolidated results of operations for each of the three years in
the periods ended December 31, were as follows:
(in millions, except per share data) 2003 2002 2001
Revenue $1,225.4 $1,109.3 $1,139.0
Total Costs and Expenses $913.4 $758.0 $ 885.2
Operating Income $312.0 $351.3 $ 253.8
Income from Continuing
Operations $178.5 $191.3 $ 117.3
Net Income $164.9 $178.0 $ 122.5
Diluted EPS:
Income from Continuing
Operations $1.31 $1.38 $ 0.84
Net Income $1.21 $1.29 $ 0.88
Note: All references to earnings per share data in this M D&A are to
diluted earnings per share unless otherwise noted.
YEAR 2003 COM PARED W ITH 2002
Our revenues of $1.2 billion in 2003 increased 10% from 2002.
In 2003, Equifax North America accounted for 83% of our total rev-
enue and 89% of our operating income before corporate expense.
Equifax North America revenues grew 13% in 2003, delivering an
additional $112.8 million in revenue, compared to 6% growth in
2002. This growth was provided primarily by our Equifax North
America reporting segment and driven by volume increases across
our Information Services and Consumer Direct operating segments.
Information Services growth was fueled by 12% growth in our U.S.
consumer and commercial services business primarily due to higher
volumes and market share primarily from our financial services and
telecommunications customers and by 30% growth in our M ort-
gage Services due to higher refinancing volumes when compared
to 2002. M arketing Services was flat when compared to 2002.
Consumer Direct revenues grew 76% and accounted for 27% of our
2003 growth, when compared to 2002 due to continued growth in
consumer subscriptions and number of transactions. International
revenues increased $7.7 million, or 4%, driven by currency fluctua-
tions and growth in the United Kingdom and Brazil. The weakening
of the U.S. dollar against foreign currencies, particularly in Europe,
positively impacted consolidated revenue by $20.4 million or 2%.
Consolidated operating expenses in 2003 of $913.4 million increased
$155.4 million, or 21%, over 2002. This increase is primarily the result
of volume increases in correlation to revenue growth, expenditures
(including a 4th quarter 2003 charge) related to the integration of our
eMarketing business into our Direct Marketing Services product line,
operations of our eM arketing business and new growth initiatives.
Volume growth in our Information Services and Consumer Direct
operating segments accounted for $53.4 million, or 34%, of our
expense growth. Expenses associated with our eM arketing busi-
ness accounted for $37.5 million, or 24%, of our total expense
growth. In the second quarter of 2003 in our eM arketing business,
$4.3 million in purchased data that was determined to be of no value
and $4.2 million in receivables that were determined to be uncol-
lectible were written off. We severed our relationship with those
members responsible for these write-offs. In the fourth quarter of
2003, to bring eMarketing costs in line with eMarketing revenue, we
recorded a $25.8 million asset impairment and restructuring charge
(see Note 6 in “Notes to Consolidated Financial Statements”) to
complete the consolidation of eMarketing services into Direct M arket-
ing Services. Of this $25.8 million charge, $22.6 million related to the
write-down of eM arketing assets and $3.2 million related to restruc-
turing costs. We believe that these asset write-downs, personnel
reductions and facility consolidations provide an efficient operating
structure for future periods. When combined, the $37.5 million associ-
ated with incremental eMarketing operating expenses and the
$25.8 million in eMarketing asset write-downs and restructuring
costs, accounted for $63.3 million or 41% of our total expense growth.
Small Business Services and Direct M arketing Services combine for
the predominate source of remaining expense growth for the year.
Compared to 2002, we reduced consolidated headcount by 244 full-
time equivalents across business units in a continuing drive to gener-
ate incremental operating efficiencies on a consolidated basis.
Cost of services in 2003 of $512.9 million increased $85.3 million
or 20%. Costs of services as a percent of total operating revenue
were 42% in 2003 versus 39% in 2002. Higher unit volumes in
our U.S. Consumer and Commercial Services, M ortgage Services
and Consumer Direct businesses were the primary causes of this
increase. Additionally, there were incremental eMarketing costs
which were exacerbated by acquisition integration costs. Excluding
eMarketing’s contribution to cost of services as a percent of total
revenue, the percentage decreases from 42% to 39%, more in line
with historical patterns.
SG&A expenses of $274.6 million increased 10% over 2002, driven
primarily by eMarketing SG&A. As a percent of total operating
revenues, SG&A decreased to 22% for the year from 23% last year.
Excluding incremental eMarketing SG&A of $15.2 million, the
percent of total SG&A to revenue decreases to 21%.
In addition to the $25.8 million in charges related to eM arketing
that were recorded in December 2003, there was an additional
$4.8 million that related to the write-down of capitalized assets
tied to other software development investments, for a combined
$30.6 million in asset impairment and restructuring charges.
Operating income for 2003 decreased by $39.3 million, or 11%,
to $312.0 million, as the $30.6 million in asset impairment and
restructuring charges and $33.8 million in eMarketing operating
losses produced an operating margin of 25% compared to 32%
in 2002. Excluding these items, operating income would have
increased by $25.1 million and margins would have been 31%,
or more in line with historical results.