易速傳真 (EFX) 2002 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by.

Welcome to the Equifax third quarter earnings release conference call.

At this time all participants are on a listen only mode.

Later we will have an opportunity for questions and answers with instructions given a that time.

If you should require assistance during the conference call please press zero followed by star.

As a reminder today's conference call is being recorded.

I would like now to turn the conference call over to our friends at Equifax.

Please go ahead.

Good morning.

Welcome to today's conference call and thanks for joining us for a third quarter earnings announcement.

I'm Jeff Dodds Senior Vice President of Investor Relations.

With me on the call today is Tom Chapman our Chairman and CEO.

Mark Miller President and COO who joins us for the first time.

Phil Mazzilli our Chief Financial Officer and Denis Story our Corporate Controller.

During the call we'll be making certain predictive and forward-looking statements to assist you in understanding Equifax and it's business environment.

These statements including any comments regarding our expectations for '03 are forward looking under the securities act as subject to inherit risks.

Please review our 2001 10K second quarter '02 10Q and other FUC filings that describe our company in it's risks in more detail.

Today's call is being recorded in addition to being web cast live over the Internet.

The replay will be available on our web site at www.equifax.com.

Now I'd like to turn it over to Chairman and CEO Tom Chapman.

Thanks Jeff and good morning ladies and gentlemen.

Equifax delivered another strong quarter in Q3.

We launched unique and promising business initiatives and outstanding financial performance in a rough and unpredictable economy.

The theme of last year's annual report was

cover

company performance and

including some strategic

.

Mark Miller will detail the businesses.

Phil will address Q3 financials and our outlook for the year all right.

Then I'll talk briefly about our corporate government's initiatives and then as usual we'll go to Q&A.

The third quarter of Equifax was our strongest quarter for the year.

Revenues were 290 million up six percent.

Net income 50 million up nine percent and operating margins were 31 percent.

EPS grew nine percent to 36 cents.

We continue to execute on our established strategies.

We continue to dry up profitable revenue with less head count.

Better use of technology, the utilization of creating and extending the quality partnerships all at a lower cost base thus driving enhanced productivity and profits, thus driving increased shareholder value.

Let's move some of the strategic highlights of the quarter.

The Equifax brand is curing us to significant growth opportunities as we apply our unique blend of data assets, data management technological expertise and our solution platforms to drive further revenue by adding solutions to an ever-expanding customer set.

For instance, our homeland defense business is getting traction and on target to deliver solid revenue results as we move into '03.

On October 26 all financial institutions must comply with an U.S.A patriot act which was signed last October by President Bush.

Every financial institution must know who their customers are that's the law.

As you would recall we're managing RDCs that's the Regulatory Data Course, Global Regulatory Information Database known as grid.

We're utilizing our data assets along with unique software to deliver alerts to customers for their new account due diligence process.

In our view this system represents the most comprehensive solution set available for patriot at compliance and it was developed and installed a head of schedule.

We are now generating revenue by processing in qualities from Goldman Sachs and we have eight more customers coming on line this quarter.

And for '03 we expect revenue to be between $10 and $20 million in this endeavor.

Turning to the U.K for a second, the passport office there will utilize our decision power and ID verification service in their passport

processes.

The power begins this quarter and we expect this opportunity to generate between $10 and $15 million in revenues over the five-year term of this contract.

As you know we've have built a strong consumer direct business from scratch and we've become the leader in this arena thus providing material growth and profitable growth for Equifax.

Our partnership with

continues strong and growing.

Our partnership with Microsoft continues to grow as well and perhaps you've seen our logo on the packaging of Money 2003 on retail shelves.

In addition a new agreement with Car Point the car shopping web site will deliver over a 180 million impressions for the potential sale of consumer direct products from Equifax.

Our relationship with Car Point should deliver between $4 and $6 million in revenue in '03.

In August we signed

a premier consumer orient web site as an Internet Marketing partner for their Radio print and web site services.

Once again consumers will be able to link directly to our web site through integrated links within all of

content.

In '03 we expect this growing consumer direct business to generate $60 to $70 million in revenue driven by additional market penetration, expanded distribution channels and new product offence.

In fact we see some products introduced in our consumer direct business in this quarter.

As a performance driven company dedicated to maximizing shareholder value, you know that we constantly revenue and scrutinize our businesses.

Therefore we decided that the commercial business in Spain is not an investable business.

The market is too small and simply will not support the number of players in it.

The impact to our EPS represents a one-time charge of eight cents and is reported under discontinued operations.

Finally our acquisition on

positions us as the leading provider of Email based marketing services.

You should know that when ours within hours of the closing the integration team was on location to ensure that we maximize all of those energies all of the opportunities.

As result

has been integrated in record time.

We expect

to contribute between $80 and $90 million of revenue in '03.

To form up even more powerful force in marketing services, we have combined our DMS business with

.

This combination represents the broadest and most expensive product line in the area.

We believe a significant competitive advantage to Equifax.

So that's a great over view of some very promised initiatives contributing to our Q3 performance and given us additionally momentum going into this quarter and into next year.

Before I turn it over to Mark though I'd like to make a couple of comments.

Mark joined Equifax on August 6th.

He has truly kept the ground running.

He has visited all of our key operations in Europe and the U.S. and will be in Latin America next week.

He has meet with scores of key customers and prospects.

He has refocused our sales and technology organization for strong solid long-term growth.

He has driven the integration of

and has orchestrated the consolidation with our direct marketing services, which he'll speak to in a moment.

He is working very closely with Phil and me on the development of our '03 plan.

Mark has acquired a strong and unique knowledge of our business and our industry and he has done so very quickly.

Some of you have all ready met Mark and the rest of you shall do so very soon.

We're delighted to have him on the team.

Mark now I'll turn it over to you to drill down on the business operations.

Well thank you very much Tom, I'm happy to be here and I'm pleased this morning to report a number of significant businesses highlights for the quarter.

Let's start in North America where we derived 84 percent of our revenue and 94 percent of our profits.

North American credit reporting services continues to leverage its number one market position and strong customer relationships to win in the market place.

U.S.

Credit reporting volume was up nine percent for the quarter with unit pricing up one percent driven primarily by mortgage and our success in the middle market and we continue to take share from our competitors, for instance in the

base we've won seven out of seven proposals this year, reinforcing the point that in difficult business cycles our clients look to Equifax for more solutions.

We've also increased shares significantly in three of our top 10 accounts, yet have had no losses within our top 50 accounts.

as Tom mentioned is a big opportunity for us.

In nine short days the

will require a broad range of firms, including financial institutions, to monitor their customers transactions.

Many of these firms are Equifax customers, and we're leveraging our existing products and developing new ones to address their compliance needs.

While a lot of company's are talking about their

initiatives we're uniquely suited to deliver these solutions as we're simply leveraging an existing core competency.

Nineteen of the largest financial institutions in the world are on the board of the

, our partner on this project.

In addition to the sales resources of the

, our North American sales force have now been trained to sell the capabilities of

to our broad customer base.

And we are getting excellent feedback and interest in this new suite of compliance products.

Another key growth platform is

.

It's currently a $40 million

support service, and it's growing over 10 percent annually.

Now we're taking it to the Healthcare industry where in hospitals alone the exposure to insurance and ID fraud is estimated at $36 billion annually.

It's a very big problem in and industry under pressure.

And again, we're uniquely suited to help.

In addition to

we've signed several other hospital software providers such as

and

, which will add additional core revenue growth in '03.

In total we expect our expansion into Healthcare to generate between five and seven million in '03.

Quite frankly we see huge potential going forward.

also driving opportunities with full service and discount brokerage firms.

We've added three of the top five-brokerage companies to our client list during the quarter by integrating

with ID verification for their account openings.

Equifax now has relationships with over 200 brokerage companies.

Our small business exchange continues to grow as we ramp up the business.

Last quarter we reported over 20 million trade lines loaded, or in the process of being loaded, into the database.

We now have another 26 million trade records committed to the database by over 50 providers.

I'm also happy to report that we have a very full pipeline of sales prospects who are keenly interested in the service.

And we expect between $5 and $10 million in revenues in '03, from the small business exchange.

Mortgage services continues to deliver strong growth, up 54 percent with no signs of slowing at this time.

While industry growth will obviously not be as robust as it's been, we've been out signing new customers and increasing our market share.

So we continue to expect solid performance from this business segment in '03.

Credit marketing continues to perform well, with revenues up three percent for the quarter.

While

products are down, we've seen strong growth in our portfolio review and analytical projects.

In a tough economy, this performance is a further demonstration of our strong market position and deep customer relationships.

Direct marketing services revenues were down 15 percent, consistent with the industry, which has been heavily impacted by the Internet and slow economic conditions which has forced a lot of clients to reduce their marketing budgets.

In order to generate probable growth, however, clients are increasingly looking for more efficient and effective marketing.

Now you've already heard Tom's comment on

.

performing better then we expected and is foolish to deliver strong growth in 03.

The combination of

and direct marketing services gives us quite simply the industries most comprehensive direct marketing tool kit.

And we'll produce more synergies then we originally expected.

As the industry recovers we'll be stronger and better positioned.

Tom also touched on a tremendous

revenues from third quarter last year.

And those all target to deliver over 40 million this year.

There's much more growth in the consumers space for Equifax.

We have the brand the expertise and the product

the market leader.

In Latin America we're performing well in a difficult economy.

Margins in the high 20s continue because of our strong position and seasoned management.

Based on the buying trend we're seeing it looks like Argentina has bottomed out.

Brazil continues to grow in local currency.

Four percent this quarter.

By delivering innovative products such as decision power and scoring models and aggressively signing new customers.

In Europe we continue to make that progress.

The U.K operation which represents 78 percent of Europe's revenues delivered another strong quarter with consumer reporting revenues of 18 percent.

Our decision power and risk management products have gotten share gains and competitive wins while helping mitigate price erosion.

And revenues from these two products alone has more then doubled from their levels of last year.

Based on the competitive advantage we've established we recently want to bid with the U.S card issuer that doubles our share.

Decision power and risk management services are also opening up new markets such as government and insurance in the U.K market.

So

tell me drew up all our businesses.

We diversified our revenue base, which positions us to perform consistently in good terms and bad.

We were first to market and feel strong sustainable competitive positions in new industries such as health care, home

defense and

.

Our solutions are increasingly embedded into the workload of our customers operations, which improves our customer attention and penetration, and finally we have a superior brand.

Best in class products and services like decision power,

databases and e-mail marketing services which are leveraging which were leveraging to create profitable new growth platforms.

Now

will cover the numbers in our datas for the fourth quarter.

mazzilli|Philip|Mazzilli|EVP and CFO|Equifax Inc.|cm: Thank you Mark and good morning.

Let's discuss the details on a solid third quarter.

(Audio Gap)

Our overall revenue increase of six percent demonstrates positive momentum and it versus the last two quarters of revenue decline.

You can just ... we need to note the mark.

As Mark said not the marker, which is 84 percent of our revenue, and 94 percent of our profit had great positive momentum in the quarter.

North America's organic revenue growth was eight percent driven by strong performance in the Corp credit reporting business, our mortgage business and our consumer direct business.

The accruing

total revenues were 239 million up 13 percent.

US credit information services generated record revenues of a 120 million.

Credit marketing posted its third consecutive quarter of revenue growth.

Market services grew 36 percent over '02 quarter second quarter with record revenues of 16 million.

And consumer direct generated record revenues of 11 million double last year.

Turning to Latin America.

Latin America delivered strong performance in local currency but positive results have been off set by a very unfavorable exchange rate environment.

However we delivered strong operating margins of 28 percent.

Both Brazil 33 percent versus 31 percent and Chile 30 percent versus 26 percent improved margins as compared to 3Q '01.

A testament to the strong management teams throughout Latin America.

Turning to Europe.

U.K. grew revenues nine percent with margins in the mid teens driven by continued strong performance in the U. K. we expect Europe's margins to be over 10 percent in the fourth quarter achieving the goal we set at the beginning of the year.

Free cash flow was 40 million bringing the year to date level to 115 million.

Days receivable outstanding were 62 days as compared to 70 days Q3 last year and we continue to

well in the challenging environment.

Capital expenditures for the quarter were 19 million up slightly as we continue to invest in growth initiatives previously discussed.

Equifax we purchase one million and 63,000 shares for 23 million in the quarter.

Our remaining authorization is 223 million.

Ending death was 895 million up 91 million from 804 at the end of the second quarter.

The increase was for the 135 million purchase of

.

Looking forward we expect to deliver fourth quarter EPS of 38 cents due to momentum in our businesses including the

acquisition we expect to exceed our previous revenue guidance for '02 and will be flat to up to two percent on a year to year basis.

As usual we will provide guidance for '03 during our year-end call in January.

Now let me turn it back to Tom.

Thank you Mark and Phil.

Q3 was really a strong quarter for us in fact the strongest quarter of the year.

Momentum is building and we have many growth initiatives on the way, which will carry us into 2003, and beyond.

Now I'd like to address a very important subject and that's governments.

Strong corporate governments is a tradition at Equifax not new learning.

For a number of years the overwhelming majority of our board members have been independent.

Both our audit committee and our conversation HR committee that consisted only of independent directors.

For years we've had a published code of business conduct and ethics for all employees.

Our governments committee established in May consists of all independent directors.

Operates under it's own charter and needs at least quarterly.

More recently we've elected an independent lead director who also chairs our governments committee.

We adopted a mission statement and governments guidelines for the board and revise charters for all committees.

All of which are available by the way on our web site.

We reviewed and confirmed independence and qualifications of our board and committee members.

And insure our compliance was substantially all so

as well as the

New York stock exchange is proposed to

.

Our commitment to integrity is strong and long lasting.

On another note many of you have asked our opinions and intentions with respect to expensing stock options.

We're committed to expensing stock options once there is clarity on the appropriate accounting tree.

You are well aware that there are a host of factors that impact these estimates in many, many unanswered questions.

However based on today's perspective and as we see the guidelines we would ask to make the cost of next year's should be in the range of three to four cents per share.

That's the way we do it.

That's all we know at this moment on this subject.

Before I turn it over to you for questions I'd just like to

that we're proud of a fine quarter.

We've - moving appropriately with new inititatives.

We've got a solid management team that's focused in committed the

of optimizing shareholder values so with that that's our story and

let's open it up for questions please.

Absolutely.

Ladies and gentlemen if you do have any questions please press the one on your touch-tone phone at this time.

You will be

and you may remove yourself from queue by pressing the pound key.

If you're using a speakerphone we ask could you please pick up your handsets before pressing any numbers.

Also if you press one prior to this announcement please press the one again at this time.

Again if you have questions press the one on your touch tone phone.

We have a question here from the line of

of Jeffries and Company.

Please go ahead.

Good morning and nice quarter.

I had a question.

I appreciate the background of the diversification of the business.

Do you have a rough estimate for the amount of North America revenue that would come from the mortgage and auto sectors?

Yeah.

Phil will cover that and Good morning.

Hi Greg.

This is Phil.

Mortgage - Direct mortgage product as you'll see in a testament of press release is about five percent of our revenue worldwide.

If you had an indirect mortgage it's another five to 10 percent so in total it's about 10 to 15 percent.

Auto is much less than that probably in about the five percent ranges

.

OK.

And just as a follow up to your comments on the business in Spain.

Should we expect that business to sort of gradually be wound down or are there some

that we can expect?

we have two businesses's in Spain.

We have the consumer business and we the commercial business.

The commercial business as Tom so happily indicated was the smaller part of it and not relevant going forward for many reasons.

We will remain in the consumer business in Spain.

OK.

And just finally for modeling purposes going forward will you be arraying all of the homeland dispense businesses within the North America sector or are you going to break that out separately?

For the time

we'll be carrying it in North America as that whole area continues to grow and it becomes significant as we expect we will break ;it out in the future.

Thank you.

Thank you.

Have a good day.

For our next question we'll go to the line of

with Stephens.

Please go ahead.

Good morning Tom and Phil.

Good morning Brad.

A couple of questions.

One you talked a little bit about Europe in your comments.

In your comments, if I'm reading the press release correctly, and by the way thank you for the increased detail this quarter, but your operating profits were down sequentially over what we saw last quarter and can you talk a little bit about what happened there this quarter - if I'm reading that correct and

in the fourth quarter.

Sure

if you look at previous years sequentially we're always down in the fourth quarter - Spain and Italy just candidly shut down for the month of August so sequentially the third quarter is always down.

The fourth quarter is always our strongest quarter and we expect to see that again this year.

OK

this quarter how much revenue did you receive from them.

Slightly over 10 million.

What do you expect to receive this year.

Well again that 10 million was for about 45 days so if you say we'll have 90 days in the fourth quarter it should be about double that.

So about 30 for the year.

Yes sir.

And then just to make sure on the new growth initiative if my math's are correct you're talking about somewhere between 100 and 150 million of new growth initiatives on the revenue line in '03 relative to '02.

Yes if you include consumer direct, if you look at some - those particular initiatives you look at homelands Secure ...

I'm just making sure we're doing the same lunch together, if you look at

and those particular initiatives and then the small business financial exchanges it gets some strategy so - I mean some traction, so I think you met it spot on.

OK thank you.

Yes sir.

For our next question we're going to go to the line of

from Budget Bank.

Go ahead please.

Hi

running for

.

I was just wondering if you could provide maybe a little bit more color on why the commercial market in Spain didn't work out.

Yeah, this is Tom and I about mentioned very

believe that it's a small market, there's a lot of players you know I think there's five competitors in that market place.

It's simply strategically business that doesn't make long term sense I think in this environment when you look to growth you look at return of shareholders value, you know there's high pricing pressure, with five competitors in the market place.

So you know it's just not profitable so this just doesn't make sense as we demonstrated you know in the past to stay in that business.

We've got a track record if you go back to the

if you go to our collections business, this company's had a track record of examining businesses which weren't providing the appropriate returns and then the

we've got to be able to extend limited resources in the future for growth initiatives that provide the shareholder value that we're expecting.

Thanks.

Thank you.

And for our next question we'll go to the line of

with Morgan Stanley.

Your line is open.

Thanks, just a couple of quick questions.

First if you could talk a little bit more about

and what the margin characteristics of the business are and what you expect them to be once you ... with direct marketing and then I have just one follow up.

OK I got - Hi David and by the way congratulations on your election to number one in the Institution Investor in your space.

The

margins going forward we look for them to be in the low to mid 20s.

Is that EBIT margins Phil?

That's operating margins.

OK, where are they now is that post integration with direct marketing?

Yes and it's lower it's much lower then that now.

OK.

And on the U.K. business?

Not much though it's about 10 percent - 18 percent in the quarter.

OK.

And just a quick question on the U.K.

Business you had you know pretty solid revenue growth there I believe for the first time in a while, what's driving that and do you think that's sustainable?

I'm sorry David I didn't hear the first part of your question.

Which had solid revenue growth?

In the U.K. business you indicated that you had eight- percent revenue growth in the quarter?

yes.

That seems like a significant change?

That's in our consumer reporting business as Mark said we've introduced a set of two new products, decision navigator and miss navigator.

We've gained a tremendous traction in those new products.

We've also have a new management team there headed by Michael

who's a long term Equifax veteran and those guys are really beginning to get the message so that there's are swimming in the right direction.

Thank you.

Thank you Dave.

We've a question in queue from the line of

with JP Morgan go a head please.

Good morning gentlemen.

A couple of questions, first is could you break out poke for us your direct marketing business on a like for like basis and talk about trends there and secondly it sounds like I mean the numbers from

are well above plan and are at leased what we had been looking for.

Any explanation of had you just been conservatively guiding us on that count and I guess finally you know Cap one again it's direct - it's marketing credit card marketing substantially this quarter do you have any comments or color on that?

Right

story the direct marketing revenues were 90 million in the quarter down 15 percent from prior year, that's been driven by the transition in the market place from Internet clients cutting marketing budgets.

was performing to our expectations.

At the best do I mean do you see any bottom here in direct marketing or is that going to continue to is it going to see an acceleration duration or?

We've been a lot of homework here we have done a very thorough assessment of the direct marketing space and how best to position our company to win.

Quite honestly in the I hate to use the term but in the old line direct market mellowing in it's business frankly it couldn't be a much more difficult environment then the one we've come through.

On the other hand a lot of companies have been looking for alternatives and they've been turning towards the

business model.

The theme that

has done a phenomenal job of not only weathering a tough market condition

in top line growth and simply refusing to lose.

These guys really know how to sell and to service their clients so the synergies that we've discovered as we are combining these two businesses on revenue consumer study is a slow and steady improvement but not a dramatic growth in the market place but we're going to be positioned with competitive advantage.

And we're take market share.

And this is Tom.

I'll hit just a second on the you know on the Cap one thing but before I do so don't know why revenues were down with the old folk business margins were up so, we continue to refine as best we can in difficult times just like we've always done to create pretty much top flight margins.

The

thing is, you know, we saw the announcement of course, we're very close with them.

They're one of our important customers certainly.

We work very closely with them.

You know, our - we're seeing that some growth continued you know, in our business in the third quarter.

Keep in mind we've got a broad array of products and Mark mentioned this, not just

but we've account portfolio review becomes very important in being able to define and report losses for all these guys.

And I think you'll see our

business with it's new approaches to marketing, enabling

via these appended and free approved

lists add to the overall marketing portfolio.

So I think one of the things you're going to look forward to down the road is this risk segment that's been defined at a score

of 660 is really going to cause I think a very thorough examination of the appropriateness of that number.

And cause the marketers not just

, marketers in all financial enterprises at least to look deeper and broader into the database for suspects, look deeper and broader into technology to help know the right time, the right propensity concerned.

And that's going to call for more information.

And that's why we said we've got a robust array of information products that - you know, we provide a total solution in that space.

And that's what's so very much important to us.

So I think - I mean that's why, you know, we're concerned like the whole economy is.

the credit card, big marketers are slowing down, that's a reflection of what's going on in the economy.

But they will come back.

And I think, you know, the credit marketing business I think Mark said was up three percent for this quarter.

So I think we're - I'm

- I think we're doing very well in this space.

Well.

All things considered you're doing very well generally.

Pardon me?

You're doing well generally.

Thank you.

Thank you.

Very much appreciated.

Just one quick question, final one.

I know these things are always viewed through different lenses, but Experian was talking about share gains, you're talking about share gains is - I mean I don't talk to Trans Union but you know, are you taking share from Trans Union?

Or I mean, where are the share gains coming from?

There aren't a lot of other players out there so ...

Yes.

We - as I mentioned we have further penetrated some of our top accounts.

We certainly have expanded into new industry segments where we think we have a clear competitive advantage.

So as we further penetrate accounts that perhaps we're sharing now, clearly that's a market share gain for us.

We think it's coming - we're sort of hitting with all cylinders here.

And so I wouldn't want to talk about one of my competitors directly, but we feel pretty good about our position, we feel great about our momentum.

And our sales force is prime.

I'm feeling pretty good about life right now.

It's a tough fisted time - thank you Mark.

It's a tough time.

But I want to reiterate something that Mark mentioned.

I mean we've had no declines - share declines in our top 50 customers.

And you know, mid-market you know, there's a large part of the game whose revenue in it's own self - the smaller institutions up 18 percent.

So that's - it's a tough

you're right, to put apples and oranges for you and us, but all we know is what's reflected in the size of the business with those big players than with the smaller markets.

So ...

That is the way we pick this up

to remind the telephone participants if you do have a question press the one on your touch tone phone at this time.

We'll next go to the line of

with Jefferies & Company.

Go ahead please.

My question is answered thanks.

Thank you.

If you have a question you queue from the line of

with Highland Capital Management.

Your line is open.

Thank you and good morning guys.

Good morning.

Would you give a little bit of added depth the color in the mortgage services and how you talked about the percentage of total revenues.

Would you talk about what you see in that as far as new

and home purchases versus revive and the trend you see so far in the fourth quarter if you would.

Yes, we'll be glad to so I might throw that to Philip.

I see so ...

Good morning.

Willing to talk to you.

Thanks for your help this morning.

You're very welcome.

In the third quarter, 60 percent of mortgage origination are reply.

We've seen that momentum continue in the first 16 days of the fourth quarter.

Obviously you know we're well positioned then in all those markets and we've been doing very well.

In 2003 as Mark said you know you can't predict but if it goes down we'd been gaining market share with our mortgage customers so we see you know that we have solid trends a place for 2003 also.

Ok can you also follow up if you would you mentioned the poor growth in the credit reporting services I believe 89 percent was volume and one percent positive on price.

So that's the first time I remember positive price in long term.

Again

this is Phil.

That's driven by the strong mortgage business which has a higher average price then some of our other vertical markets.

Ok.

Thank you very much.

You're welcome.

And next we will go to line of

with

.

Please go ahead.

I only have one.

Good morning

how are you?

I'm OK, thank you.

Good.

It's a question for you on the acquisition pipeline and how that's looking for you and whether you're looking to make additional acquisitions specific in the direct marketing space.

Yes I'll answer that so does Tom.

I think I believe we've added a great property and

we've very quickly consolidated and placed it onto one organization.

We'll make a big play next week.

It's a DNA conference in San Francisco and introduce our tool kit as Mark mentioned.

I think right now if you look at our focus as we called many times we required companies for four real purposes.

Number one for data.

New data, unique data that we don't have.

Number two for technology that sets us apart.

Three for markets and products that we don't have or can enhance what we have and then of course we're always hoping these moods that we get value added people in leadership at the same time.

As I look out I think in my crystal ball if as you see us doing differentiated things not only in the direct marketing business but in home

security and what we're doing with small business exchange.

We're going to continue to wound out the portfolio for a new growth I think with technology.

Technology type of companies that got approved business software for instance.

It can make a difference and believe it or not our portfolios and products differently data will become increasingly important whether it's regulated or not regulated so I think our products are pretty complete.

I don't think we have any significant gaps and I intend is to give the customers almost all they need but very quickly at a reasonable cost.

I think we've learned that this hugh platforms that used to be popular and is they talked about CRM or not popular and they've not been successful so we've got to focus on our poor business plus these extensions which I believe are real cor-confidencies for us.

Well all right thank you very much appreciate the insight.

Have a good day Bill.

We have a question a follow up question from Lionel

with Stevens.

Please go ahead.

Two questions.

Phil you made a comment about the pricing in North American credit, your being up one percent and being impacted by higher margins in mortgage.

Can you give us an idea just kind of relative, how much higher the margins are at the increment on that you know?

I didn't say margins I said prices and what I forgot to mention that we've had strong growth in the mid market and the smaller customers which obviously because of volume base pricing have higher pricing.

OK.

I mean x mortgage would that number still have been a positive number do you think or would have been close to break close to ...

You mean close to, close to break even ...

Close to neutral, OK.

Yes Sir

.

Expense savings in 2002 regional of 20 million been bumped up to 40 million.

As you look at '03 is there do you think there are additional opportunities to remove expense from the operations on any type of scale?

Yes

this is Tom.

We will I think you know we're sort of zealous about looking at operating expense in all fronts and we'll continue to look at better ways to deliver more productivity, productivity is a real important measure for us.

But we're going to make sure that we invest in these growth initiatives.

I know we can't, we can't save our way to prosperity.

We're not expecting to do.

We're going to invest in our consumer business.

We're going to invest in the direct marketing business.

We're going to invest in new technology.

We're going to invest in homeland security.

And we're going to stay tightly focused in doing that so we will always have our wasters out to get rid of expense that we do not need but we'll also balance that against investments for long turn return shareholders.

OK, thank you.

Thank you.

You're welcome.

And gentlemen we have no further questions in queue at this time.

Please proceed.

Thank you very much Alan and ladies and gentlemen for being with us.

We appreciate your interest in our company and we do very much appreciate you being with us this morning.

Have a great day and we look forward to seeing you all soon.

Bye bye.

Ladies and gentlemen this conference will be made available for replay beginning today October 17th 2002 at 4pm until October 24th 2002 at 11:59pm.

To access the AT&T executive playback service during that time please dial 1800 475 6701.

International participants may dial area code 320 365 3844 and enter the access code 652 755.

Those numbers again are 1800 475 6701 and area code 320 365 3844 the access code once again is 652 755.

That concludes your conference call for today.

Thank you for your participation and for using AT&T executive Teleconference service.

You may now disconnect.