Equifax 2003 Annual Report Download - page 21

M ANAGEM ENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
18 EQUIFAX. INFORMATION THAT EMPOWERS.
YEAR 2002 COM PARED W ITH 2001
Our reported revenues of $1.1 billion in 2002 decreased 3% from
2001. In 2002, Equifax North America accounted for 81% of our
total revenue and 91% of our operating income before corporate
expense. Our revenue growth in 2002 was negatively impacted by a
global economy that continued to weaken during the year. Equifax
North America revenues grew 6% in 2002, delivering an additional
$49.8 million in revenue, compared to 13% growth in 2001. Our
2002 revenue growth was attributable to increases in revenues
from our Consumer Direct products, sales of Mortgage Services
resulting from increased refinancing activity, and our acquisition of
Naviant. International revenues declined $45.1 million, or 18%,
driven by currency fluctuations, the decision to exit our commercial
reporting business in Spain, and the decline of the Argentinian
economy. The strengthening of the U.S. dollar against foreign
currencies, particularly in Latin America, negatively impacted
consolidated revenue by $16.7 million or 2%.
Consolidated operating expenses in 2002 of $758.0 million declined
$127.2 million or 14% over 2001. Excluding incremental operating
expense from our Naviant acquisition, operating expenses declined,
driven by our continued focus on productivity improvements, discre-
tionary expense control and our restructuring actions taken in 2001
after the Certegy spin-off. In the fourth quarter of 2001, we reduced
our worldwide workforce 11% to approximately 5,200 employees,
and in 2002, continued to drive productivity, resulting in an addi-
tional 5% decrease in workforce.
Cost of services in 2002 of $427.6 million declined $23.4 million
or 5%. The divestiture of our City Directory business in October
2001 accounted for $9.3 million of the reduction. Our lower cost of
services was driven by our decision to exit our commercial credit
reporting business in Spain, lower personnel expense and profes-
sional service fees partially offset with higher royalties and data
purchases expense on higher unit volumes in Equifax North America.
SG&A expenses of $249.9 million declined nearly 7% over 2001,
driven by the divestiture of City Directory. SG&A expense increased
$4.5 million due to our Naviant acquisition. Our SG&A expense in
2002 was also negatively impacted by an increase of $4.3 million
in bad debt expense, with the WorldCom bankruptcy representing
the largest portion of such expense.
Operating income in 2002 increased 38%, to $351.3 million, with
operating margins of 32%. This increase was driven by our focus on
productivity and expense control. Equifax North America’s ability to
maintain strong operating margins while investing in key growth
initiatives and Equifax Europe’s improvement in margins from 4%
to 10% in 2002, offset margin erosion in our Marketing Services
operations in the U.S., profit deterioration in Equifax Latin America
due to economic conditions in Argentina, and the reduction in
income from our former lottery business.
OTHER INCOM E (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 2003, 2002, and 2001 totaled
$14.0 million, $6.3 million, and $8.3 million, respectively. Included in
other income (expense), net is the sale of our City Directory business
in October 2001 and our risk management collections business and
vehicle information business in 2000, which generated pre-tax
losses of $5.8 million in 2001. The primary reason for the increase
in other income is the cash proceeds we are receiving on the pur-
chased paper, from the sale of our risk management business in
October 2000.
INTEREST EXPENSE
Interest expense decreased $1.6 million and $6.6 million in 2003
and 2002, respectively. This reduction was driven by lower average
debt outstanding and lower interest rates. Our total debt out-
standing at December 31, 2003 was $823.5 million compared to
$924.5 million at December 31, 2002. We expect interest expense
to decrease in 2004 due to lower outstanding debt levels.
EFFECTIVE TAX RATES
Our effective tax rates from continuing operations were 37.0%,
39.3%, and 42.1% in 2003, 2002, and 2001, respectively. Our lower
effective rate in 2003 was driven primarily by the implementation
of state tax planning strategies related to the apportionment of
state income taxes and franchise taxes. Effective tax rate changes
from 2001 to 2002 were mainly due to non-deductible goodwill
associated with divestitures and changes in levels of foreign earn-
ings. 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.