EXHIBIT 13.2
Management's Discussion & Analysis Of Results
Of Operations & Financial Condition
Overview
This discussion and analysis should be read in conjunction with the consolidated
financial statements and accompanying notes. The following table summarizes the
consolidated results for each of the three years ended December 31, 2000.
Year Ended December 31,
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2000 1999 1998
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(millions, except per share amounts)
Revenue $1,965.9 $1,772.7 $1,621.0
Operating income $ 455.4 $ 414.5 $ 365.7
Other income, net $ 5.9 $ 12.4 $ 4.3
Interest expense $ (76.0) $ (61.0) $ (42.7)
Net income $ 228.0 $ 215.9 $ 193.4
Diluted earnings per share $ 1.68 $ 1.55 $ 1.34
Revenue
Revenue in 2000 of $1.97 billion was an increase of $193.2 million, or 10.9%,
over 1999. Revenue increased $151.7 million in 1999, 9.4% over 1998. North
American Information Services revenue grew 6.3% in 2000, driven largely by an
increase in Marketing Services. Payment Services revenue increased 14.2% in 2000
from growth in both Check Solutions and Card Solutions.
The growth in 2000 revenue was also influenced by the acquisition of Consumer
Information Services ("CIS") on May 1, 2000, the dispositions of the global risk
management businesses on October 1, 2000, and the vehicle information business
in the U.K. on December 22, 2000 ("Divested Operations"), and the effects of
changes in foreign exchange rates. CIS generated revenue of $110.5 million
during 2000. In total, the Divested Operations generated revenue of $132.5
million prior to disposition in 2000 compared with $175.0 million for full year
1999. The strengthening of the U.S. dollar against foreign currencies during
2000, particularly the British pound and Spanish peseta, reduced 2000 revenue
growth by approximately $23 million as compared with 1999.
The increase in revenue during 1999 was driven by growth in the U.S. Card and
Check operations as well as international acquisitions in Equifax Europe,
Equifax Latin America and Card Solutions. The strengthening of the U.S. dollar
against foreign currencies during 1999, particularly the Brazilian real, reduced
1999 revenue growth by approximately $36 million as compared with 1998.
Operating Income
Operating income of $455.4 million in 2000 increased $40.9 million, or 9.9%,
over 1999. In 1999, operating income increased $48.9 million, or 13.4%, over
1998. Consolidated operating margins were 23.2% in 2000, 23.4% in 1999 and 22.6%
in 1998.
Increased operating income in 2000 and 1999 resulted from revenue growth as well
as cost reduction initiatives throughout the Company. Cost reduction
achievements in both years included headcount reductions, the outsourcing of
certain administrative functions, improved pricing from service providers in
data processing and telecommunications, and lower benefit costs.
During 1999 and 1998, expense amounting to $26.4 million and $24.2 million,
respectively, was incurred in connection with assessment, remediation planning,
remediation, testing and contingency planning activities for application
software and host environments of the Company's information technology systems
associated with preparation for year 2000. Minimal costs were incurred during
2000 as the Company did not experience any discernable interruptions related to
this matter. Approximately half of this annual cost was from internal resources
that have been redeployed to manage ongoing system maintenance and development
throughout the Company.
Other Income, Net
Other income includes interest income of $9.2 million in 2000, $6.5 million in
1999 and $4.8 million in 1998.
During 2000, sales of the Divested Operations and the sale of an investment in a
card processing operation in India resulted in a net pretax loss of $2.0
million. In 1999, the Company sold its investment in Proceda S.A. in Brazil and
three risk management offices located in the U.S. that resulted in a $7.1
million pretax gain. These amounts were recorded in other income.
Interest Expense
Interest expense increased $15 million in 2000 and $18.3 million in 1999 as
compared with prior years. The increase in both years resulted from higher
average debt outstanding associated with acquisition activity in 2000 and 1998
and treasury stock purchases in 1999 and 1998. Average total debt outstanding
was $1,101.3 million in 2000, $975.8 million in 1999 and $633.9 million in 1998.
Effective Tax Rate
The effective tax rates were 40.8%, 41.0% and 40.9% in 2000, 1999 and 1998,
respectively. The effective rate in 2001 is expected to decline to approximately
40.5%, due to the effects of tax planning strategies and a higher level of
foreign earnings in lower tax rate jurisdictions.
Net Income and Diluted Earnings per Share
The percentage growth in diluted earnings per share of 8.4% in 2000 and 15.7% in
1999 exceeded the comparable growth rates in net income of 5.6% and 11.6%,
respectively, due to the accretive effects of treasury stock purchases in 1999
and 1998. Average diluted shares outstanding were 136.0 million in 2000, 139.6
million in 1999 and 144.4 million in 1998.
Segment Results
The following table summarizes the segment results for each of the three years
ended December 31, 2000. The results of businesses sold in the fourth quarter of
2000, which include the Company's risk management businesses located in the
U.S., Canada, and the U.K., as well as the vehicle information business in the
U.K., have been classified as Divested Operations. Prior year information has
been restated to conform to the current year presentation.
Year Ended December 31,
--------------------------------------------------------
Revenue Operating Income (Loss)
---------------------------- ----------------------------
2000 1999 1998 2000 1999 1998
(In millions)
Information Services
North American Information Services $ 673.4 $ 633.2 $ 616.8 $274.5 $261.0 $248.0
Consumer Information Services 110.5 - - 7.9 - -
Equifax Europe 143.4 148.7 127.0 13.0 3.3 (6.9)
Equifax Latin America 119.5 125.5 103.9 25.0 22.9 21.4
Divested Operations 132.5 175.0 197.6 13.8 18.9 22.8
Other 9.6 9.6 9.6 8.9 8.9 8.9
-------- -------- -------- ------ ------ ------
Total Information Services 1,188.9 1,092.0 1,054.9 343.1 315.0 294.2
-------- -------- -------- ------ ------ ------
Payment Services
Card Solutions 517.5 443.4 357.0 109.7 96.9 78.4
Check Solutions 259.5 237.3 209.1 44.4 38.6 30.9
-------- -------- -------- ------ ------ ------
Total Payment Services 777.0 680.7 566.1 154.1 135.5 109.3
-------- -------- -------- ------ ------ ------
(41.8) (36.0) (37.8)
-------- -------- -------- ------ ------ ------
General Corporate Expense $1,965.9 $1,772.7 $1,621.0 $455.4 $414.5 $365.7
======== ======== ======== ====== ====== ======
Information Services
North American Information Services
North American Information Services includes U.S. Credit Information and
Marketing Services, Mortgage Services, Canadian Operations, Knowledge
Engineering, Consumer Direct and Equifax Secure. Revenue in this segment
increased 6.3% in 2000 and 2.7% in 1999.
U.S. Credit Information and Marketing Services' revenue increased 7.7% in 2000
and 3.2% in 1999. Credit information volume growth of approximately 11.5% in
2000 and 7% in 1999 were partially offset by average price declines of about 9%
and 4%, respectively. Average pricing has been impacted by mix of business, with
many of our largest customers driving increasing volumes at lower than average
unit prices. Many of these customers are also large customers of the Company's
marketing services, which include prescreening, portfolio review, database and
other marketing products. Revenue in Marketing Services grew 28.4% in 2000,
compared with 3.2% in 1999.
During 2000, declining demand for information from mortgage industry customers,
caused by an increasing interest rate environment, resulted in a 21% contraction
in Mortgage Services' revenue, compared with a 6.7% increase in 1999. The growth
in 1999 was achieved despite an 18% decline during the last half of the year, as
compared to the last half of 1998, as rising interest rates began to
significantly curtail refinancing activity. A return to revenue growth is
anticipated in 2001, if interest rates continue to decline.
Canadian revenue increased 0.8% in 2000 after declining 2.7% in 1999. The 1999
decline was driven by increased competition in the consumer information
business.
Revenue in the Company's developing businesses of Knowledge Engineering,
Consumer Direct and Equifax Secure totaled $20.6 million in 2000, $14.0 million
in 1999, and $13.6 million in 1998. Consumer Direct generated approximately 75%
of the revenue growth in 2000.
Operating income for North American Information Services increased 5.2% in both
2000 and 1999. Operating margins were 40.8% in 2000, 41.2% in 1999 and 40.2% in
1998. During 2000, operating losses in the Company's developing businesses
increased approximately $8.5 million. Absent this increased investment in
developing businesses, operating income in 2000 would have grown 8.4% over 1999
and the 2000 operating margin would have approximated 42%.
Consumer Information Services
Consumer Information Services includes Direct Marketing Solutions and City
Directory, which were acquired on May 1, 2000. Total revenue for this eight-
month period amounted to $110.5 million and includes $8.4 million of revenue
generated by Canadian operations that have been subsequently exited by the
Company.
Equifax Europe
Revenue in Equifax Europe, which consists of operations in the United Kingdom,
Spain, Portugal and Italy, declined 3.6% in 2000 and increased 17.1% in 1999.
During the second quarter of 1998, the Company increased its ownership to 58% in
the Spanish operation. Gaining the control necessary for financial reporting
consolidation in Spain accounted for approximately $14.1 million of the 1999
revenue growth.
The strengthening of the U.S. dollar in 2000 and 1999 against the British pound
and Spanish peseta reduced Equifax Europe's revenue growth by approximately
$12.5 million in 2000 and $4.9 million in 1999. On a local currency basis, this
segment's revenue grew 4.8% in 2000.
Operating income for Equifax Europe improved $9.7 million in 2000 and $10.2
million in 1999. Over the past two years this segment has made significant
progress in achieving operational efficiencies through cost reduction efforts,
improving operating margins to 9.1% in 2000 from 2.2% in 1999 and a loss in
1998.
Equifax Latin America
Equifax Latin America includes operations in Brazil, Argentina, Chile, Peru and
El Salvador. Revenue declined 4.8% in 2000 and increased 20.8% in 1999. The
strengthening of the U.S. dollar in 2000 and 1999 against the Brazilian real and
the Chilean peso reduced this segment's revenue growth by approximately $2.5
million in 2000 and $16.9 million in 1999. In August 1998, the Company acquired
an 80% interest in the Brazilian operation. This acquisition generated $38.3
million of the 1999 growth in revenue.
Operating income for Equifax Latin America increased 8.9% in 2000 and 7.2% in
1999. Cost reductions have contributed to an increase in operating margins to
20.9% in 2000 from 18.3% in 1999.
Divested Operations
The Company sold its risk management businesses in the U.S., Canada, and the
U.K. on October 1, 2000, and also sold its vehicle information business in the
U.K. on December 22, 2000. These information services businesses, which were
divested because they no longer fit the Company's ongoing business strategy,
have been classified as Divested Operations and prior year segment information
has been reclassified to conform with this presentation. Revenue declined $42.5
million in 2000 and $22.6 million in 1999. The decline in 2000 revenue is
primarily caused by the disposition of the risk management businesses at the
beginning of the fourth quarter.
Other
Other consists solely of a lottery contract, which expires at the end of May
2002, with the State of California that was subcontracted to GTECH Corporation.
Revenue and operating income remained comparable at $9.6 million and $8.9
million, respectively, for 2000, 1999 and 1998. Revenue and operating income
will remain comparable until the contract's expiration.
Payment Services
Card Solutions
Card Solutions includes card processing operations in the U.S., U.K., Brazil and
Chile and a card software business principally supporting the international
operations. Over the past three years, Card Solutions has focused its efforts
upon growth in international markets. In September 1998, Card Solutions expanded
its operations into Latin America by acquiring a 59.3% interest in UNNISA, a
card services business in Brazil. In June 1999, start-up of the U.K. operation
commenced. In January 2000, the Company acquired Procard, Chile's second-largest
credit card processor. Also in 2000, the Company signed a five-year agreement
with the National Australia Bank to process cards in Australia, New Zealand,
U.K. and Ireland, starting in the second quarter of 2001. This customer will be
serviced from a new card processing operation being established in Australia.
Card Solutions plans to utilize this Australian operation to pursue further card
processing opportunities in the Asian and Pacific Rim markets.
Card Solutions' revenue increased 16.7% in 2000 and 24.2% in 1999, as
approximately 15% growth in U.S. revenue in each year was complemented with
international revenue growth of 24.9% in 2000 and 75.8% in 1999.
Revenue in the U.S. of $304.8 million in 1998 has grown to $351.7 million in
1999 and $402.9 million in 2000, driven by year-over-year increases in card
issuing transactions and merchant volumes.
International revenue of $52.2 million in 1998 has grown to $114.5 million in
2000, as a focused investment in these markets has grown the number of cards
from none at the beginning of 1998 to approximately 13.3 million at year-end
2000. Total international cards are expected to increase to approximately 16.4
million with commencement of the Australian operation in 2001. International
revenue includes card software revenue, which has declined from $27.1 million in
1998 to $23.2 million in 1999 and $13.0 million in 2000. Card Solutions has de-
emphasized card software sales as it grows its global processing operations,
which will utilize this proprietary software to service its customers. Partially
offsetting international revenue growth was the strengthening of the U.S. dollar
in 2000 and 1999. Exchange rate changes of the Brazilian real and the British
pound reduced revenue growth by approximately $3.0 million in 2000 and $11.5
million in 1999.
Card Solutions' operating income increased 13.1% in 2000 and 23.6% in 1999,
principally driven by the U.S. operations. Reduction of card software sales and
start-up costs of the international operations have tempered the growth in
operating income in 2000. Operating margins were 21.2% in 2000, 21.9% in 1999
and 22.0% in 1998.
Check Solutions
Check Solutions, which consists of operations in the U.S., Canada, U.K.,
Ireland, France, Australia and New Zealand grew revenue 9.4% in 2000 and 13.5%
in 1999.
The U.S. check operations increased revenue to $209.2 million in 2000 from
$187.1 million in 1999 and $161.1 million in 1998. Growth in U.S. revenue has
been driven by increased volume, largely resulting from the addition of new
customers. The face amount of checks authorized in the U.S. totaled $25.7
billion in 2000, $23.5 billion in 1999 and $19.8 billion in 1998. International
revenue of $50.3 million in 2000 approximated 1999 revenue of $50.2 million
after growing 4.6% in 1999 from $48.0 million in 1998. The face amount of checks
authorized in the international operations totaled $3.2 billion in 2000, $2.9
billion in 1999 and $3.0 billion in 1998. The strengthening of the U.S. dollar
against the British pound reduced international check revenue growth by $3.2
million in 2000 and $1.1 million in 1999. On a local currency basis,
international revenue increased approximately 6.6% in 2000 and 6.9% in 1999.
Check Solutions' operating income increased 15.0% in 2000 and 24.8% in 1999.
Increased operating cost efficiencies in both the U.S. and international
operations contributed to growth in profitability as operating margins improved
each year. Margins were 17.1% in 2000, 16.3% in 1999 and 14.8% in 1998.
General Corporate
General corporate expense increased $5.8 million in 2000 due primarily to higher
technology costs and one-time expenses associated with headquarters relocation.
General corporate expense declined $1.8 million in 1999 from 1998 due primarily
to lower performance share plan expense. The decline in performance share
expense was driven by the Company's lower stock price, as these plans have
certain measurement criteria based on both the period end stock price and the
average price during the last year of their measurement periods.
Financial Condition
Net cash provided by operating activities amounted to $284.2 million in 2000 as
compared with $326.8 million in 1999. This decline is due primarily to the
timing of cash receipts and disbursements related to Payment Services'
settlement receivable and payable accounts, which accounted for $46.4 million of
the change in operating cash flow in 2000 versus 1999. Operating activities
provided cash of $305.5 million in 2000, $301.7 million in 1999 and $315.8
million in 1998 before the effect of this settlement activity. Cash balances
associated with the clearing system amounted to $29.0 million, $50.4 million and
$25.4 million at December 31, 2000, 1999 and 1998, respectively. Operating cash
flow has been sufficient to fund capital expenditures, dividend payments and
scheduled maturities of long-term debt.
Net cash used by investing activities amounted to $339.4 million in 2000, $117.8
million in 1999 and $607.7 million in 1998. Capital expenditures, exclusive of
acquisitions and investments, amounted to $110.7 million in 2000, $120.9 million
in 1999 and $119.3 million in 1998. Total capital expenditures are anticipated
to approximate $100 million in 2001. Acquisitions, net of cash acquired, and
other investments totaled $393.1 million in 2000, $22.9 million in 1999 and
$501.2 million in 1998 (Note 2).
Cash proceeds from the sale of businesses and other assets amounted to $164.3
million in 2000 (primarily the Divested Operations), $26.0 million in 1999 and
$12.9 million in 1998.
Financing activities provided $16.0 million of cash in 2000, used $155.1 million
in 1999 and provided $351.4 million in 1998. Treasury stock repurchases amounted
to $6.5 million in 2000, $210.2 million in 1999 and $161.8 million in 1998.
Treasury stock repurchases were temporarily suspended in 2000 to enable the
Company to apply available cash to the repayment of debt incurred in connection
with the CIS acquisition. Net addition to debt amounted to $48.2 million in
2000, as much of the CIS acquisition indebtedness has been repaid. Net additions
to debt amounted to $97.1 million in 1999 and $549.4 million in 1998. Net
borrowings were driven by treasury stock repurchases in 1999 and 1998, as well
as acquisitions in 1998. Dividend payments approximated $52 million in each
year. Other activity, primarily proceeds from the exercise of stock options,
provided cash of $26.7 million, $10.0 million and $15.9 million in 2000, 1999
and 1998, respectively.
At December 31, 2000, $359.5 million was available to the Company under its $750
million revolving credit facility. Should CSC exercise its option to sell its
credit reporting business to the Company (Note 8), additional sources of
financing would be required. However, the agreement with CSC requires a six-
month notice period, and management believes the Company could arrange
alternative sources of financing within that time to fund this potential
purchase, including public debt markets and additional lines of bank credit.
Forward-Looking Information
Spin-off of Payment Services
On October 2, 2000, the Company announced that its Board of Directors approved a
plan to separate the Company into two independent public companies. The Company
intends to accomplish the separation through a spin-off of Payment Services to
its shareholders in the form of a tax-free stock dividend. The Information
Services businesses will retain the Equifax Inc. corporate identity. Separating
Payment Services from Equifax Inc. will create two companies, each with its own
management and Board of Directors focused on taking advantage of growth
opportunities in their respective markets. As independent companies, each will
set its own strategy for acquisitions, alliances, resource allocation and
marketing more effectively for its individual needs. Management expects this
transaction, which is subject to a favorable tax ruling and certain regulatory
approvals, to be completed during the third quarter of 2001.
General
This Management's Discussion and Analysis, and other portions of this Annual
Report, include forward-looking statements which are based upon management's
beliefs and assumptions, as well as current expectations, estimates, and
projections. Forward-looking statements are not guarantees, but involve risks,
uncertainties and assumptions which may prove to be incorrect and may cause the
Company's results to differ materially from those implied or indicated by such
statements. All statements other than statements of historical fact are forward-
looking statements. Forward-looking statements may be identified by the use of
words such as "believe", "continue", "may", "will", or the negative of these or
similar terms, and include statements concerning expectations or goals, possible
or assumed future results of operations, competitive position, financing,
economic conditions, business strategies, projections of earnings, revenues or
financial results, and statements of belief or assumptions regarding any of the
foregoing. Except as required by law, the Company has no intention or obligation
to update forward-looking statements. Some of the risks and uncertainties that
may affect our performance include economic changes in countries where the
Company conducts business; changes in demand for credit and consumer debt;
change in marketing plans or techniques of customers; U.S. and international
regulatory or legislative changes which may adversely affect the businesses
conducted by the Company; retaining and hiring employees; the successful spin-
off of the Payment Services Division; successful development and marketing of
new products and services; protection and validity of patent and other
intellectual property rights; successful incorporation of technological change;
control and reduction of cost and expense; interest rate and currency exchange
rate fluctuations; and, other risks or unforeseen factors including those
described from time to time in the reports which the Company files with the
Securities and Exchange Commission, including, but not limited to, the Annual
Report on Form 10-K for the years ending December 31, 2000 and 1999.