易速傳真 (EFX) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Equifax fourth quarter earnings release investor relations call. (Operator instructions) As a reminder, today’s conference is being recorded.

I would now like to turn the conference over to our host, Jeff Dodge, investor relations.

Please go ahead.

Good morning.

Welcome to today’s conference call.

I am Jeff Dodge, investor relations, and with me today are Tom Chapman, our Chairman and CEO;

Don Heroman, CFO; and Dave Gunter, Corporate Controller.

The financial information that will be discussed during this call and the reconciling information relating to certain non-GAAP measures are included in a press release that we issued this morning.

The press release and the GAAP reconciliation information may also be found in the investor center on our website at www.equifax.com.

During this call, we will be presenting our financial performance excluding the adverse impact of charges which were detailed in a press release that we issued on December 19th.

This charge impacts the earnings per share by 17 cents and reported earnings by $23m.

We will be making certain forward-looking statements to help you understand Equifax and its business environment.

These statements, including comments regarding our expectations for 2004 are forward-looking under the Securities Act and subject to inherent risks which are discussed in detail in our 2002 10-K, 2003 10-Qs and an 8-K report filed with this release.

Today’s call is also being recorded in addition to being webcast live over the Internet.

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

Now I would like to turn it over to Tom.

Thanks, Jeff, and good morning, everyone and a belated Happy new Year to all of you.

By now I’m sure that you’ve read our press release and results for the quarter and for the entire year.

I am very proud of our company’s strong performance for the year, and I am really proud that we took the decisive and courageous action on e-marketing in the fourth quarter, which better prepares us for a great 2004 and beyond.

The hard work and dedication of over 4,600 Equifax employees around the world resulted in record revenues for Equifax, and we continue to produce record levels of cash flow, a critical component to our long-term financial health.

Before we get started, as I do at this time every year, I want to pause here for a moment and provide some strategic context about Equifax and our over arching goals.

Equifax plays a vital role in facilitating commerce, providing the information and intelligence for business and consumers to make better decisions.

We provide vital information and services that allows our customers to react quickly and effectively to new issues in the marketplace, whether that be a consumer combating ID theft or a lender lending credit to a small business.

And lastly, our dedicated pursuit of this strategy has made us the leader in turning information into vital intelligence.

Intelligence facilitates commerce, safeguards businesses and individuals, and ultimately generates strong returns for Equifax and our shareholders.

So it is within this context that I would like to review the fourth quarter and the year.

Our agenda will go as usual, I will briefly cover the corporate results and strategic highlights for the year, and I want you to know that I will do so including our current thinking on the Fact Act, or the amendments to the Fair Credit Reporting Act.

Then Don will, as he always does, drill down on the financial details for the quarter and for the full year as well as provide you with an outlook for 2004.

And then as usual we will come back to you for your questions.

In 2003, revenue was a record $1.2b, up 10 percent.

Earnings from continuing operations were $201m, up 5 percent, and EPS was $1.48, excluding in each case the charge which was detailed on our December 19th press release.

Free cash flow was exceptional, at $236m, up 22 percent.

2003, with one exception, was a blockbuster year with some very significant accomplishments.

I’m going to cover the incredible growth of our global information businesses.

Then I am going to address the investment in technology which continues to undoubtedly driving competitive advantage.

And then thirdly talk just a moment before I turn it over to Don about some of the areas of new revenue growth in the future.

Last year our global information businesses delivered outstanding growth in revenues and earnings.

We realigned into six key units.

That’s information services in North America, Latin America and Europe; consumer direct marketing services; and, predictive sciences.

All led, we believe, by experienced, competent and engaged executives.

John Healy rejoined us to lead our marketing services businesses recently, and John’s an experienced pro and we’re excited to have him back on the team.

Our North American information businesses continue to grow and increase share, particularly with some of our largest customers.

Although many mistakenly view our information business as a commodity, let me assure you that this growth was driven by several clear differentiators when compared to our competitors.

Our superior system uptime averaged 99.94 percent and delivered over $1.2b real time decisions.

I will assure you, this is tracked data by our customers, and this represents a huge competitive differentiator.

Our credit database was expanded with 36 new data elements on each file.

In the first quarter, we’ll be adding an additional 30 data elements to this database, and we believe ours is the most robust database in the industry, which will significantly enhance our ability to build superior scoring models through predictive sciences and drive further share gains with our customers.

Our sales and customer support professionals are a critical and important differentiator with our customers.

We continue to enhance our sales teams and industry specialists who know and understand our customers and the industries that they serve.

Revenues from our unique decisioning solutions platform exceeded $75m, growing 32 percent, and is a primary reason why many customers continue to reward us with 100 percent share of their transaction volume.

In Europe, we delivered a 20 percent margin in the fourth quarter, the highest margin in the history of our presence in Europe.

During the quarter we signed in Europe a three-year, multi-million dollar contract with the Royal Bank of Scotland, ensuring their exclusive use of Equifax information in decision support solutions.

This agreement renewal extends our 13-year exclusive relationship with the world’s fifth largest bank.

We recently announced an important partnership with our friends at [Axiam] that will strengthen our marketing services business in the U.K.

This partnership, to give you a quick synopsis, will shift Equifax marketing data and project production to accent state-of-the-art technology platforms.

Secondly, it will improve speed to market for new and existing products, critical to today’s marketing needs.

And thirdly, maximize joint data solutions that we believe will surpass all of the competitors in this part of the world.

Latin America had an outstanding year.

As economies continued to improve, all of our major business units grew revenue in local currency.

Revenue from [Experto], our patented decision platform technology, and scoring products were almost $5m in revenue for the year, up 73 percent, continuing to drive share gains as well as winning new customer relationships.

Operating margins in our Latin American operations were a strong 25 percent.

This 25 percent significantly exceeds almost any other U.S. company doing business in Latin America.

And finally, our global agreement with IBM is expected to drive cost savings of $9m this year and growing to over $20m by 2006.

Next I’d like to hit on some of our investments in technology that we’ve talked to you about throughout the year.

These investments are focused on exceeding our customers expectations, and of course, out pacing competitors solutions and offerings.

Let’s look at predictive sciences, which currently provides the market with decisioning systems, modeling and analytical services, and we will soon launch a new patent-pending technology branded Equifax Interconnect, which provides a full range of transaction-related services, including application processing, point of sale decisioning, decision workflow, transaction archiving, and compliance tools.

Interconnect will enable many of our customers to significantly improve their internal business processes.

We believe this technology has no peer.

In marketing services, we will redefine our credit marketing product offering with the launch of a new, supercomputing technology.

This technology is based on patent-pending software which will first drive increased system responsiveness and reduce processing time by as much as 50 percent.

And all of you know that in the marketing business, time is golden.

When you begin to look at a 50 percent reduction in enhancing the time that our customers go to market, that’s a big win and a huge differentiator.

Secondly, this new technology will provide innovative tools for managing decision rules and predicting consumer behavior.

Thirdly, deliver better decisions through easier integration of multiple databases.

Fourthly, it will also facilitate the extension into other industries, including telecommunications, the mid market, insurance and mortgage where there is growing demand for pre-screened services.

Combined with prior investments in our direct marketing technology, we can now provide in this space instantaneous access to multiple databases for cross-selling and up selling and host prospecting databases for our customers.

In consumer direct, we launched a new delivery technology which enhances our consumer solutions in Canada and the U.K. and enables us to provide our customers with products they can offer directly to their customers or companies offer directly to their employees.

And, it will also facilitate the introduction of our consumer product suite in Latin America this year.

We have some very exciting opportunities for revenue growth.

Through consumer direct, small business credit reporting, and our predictive sciences solutions.

For the year, consumer direct achieved revenue growth of 76 percent, increasing to $70m from $39m in 2002.

In Q4, 34 percent of our customers purchased two or more products from us, compared to 28 percent in Q3.

We like this kind of momentum in consumer direct.

Renewal rates for Credit Watch, our ID theft alert product, exceeded 50 percent and continues to exceed the market, driven primarily by superior product quality.

We are very encouraged by the initial success of our consumer direct product offerings in the U.K. which are exceeding their original targets in profitability and consumer direct continues to increase as operating margins improve.

Small business credit products delivered $5m of revenue, as we told you in 2003, providing services to many of the largest institutions for small business lending, including Wells Fargo, American Express, Bank of America, Wachovia, Hibernia and others.

Here’s what we have in this unique database today that we’ve been building over the last two years.

Twenty-four months of loan payment performance on these businesses.

Seven years of public record data, and 12 months of trade credit performance.

This quarter we will expand the information we store on the profiles of the companies in this database.

There are now over 22m small businesses in this database with over 280 data providers, who of course are also our customers.

This database is unique and customized, which we believe makes us the premiere provider of small business information and decisioning solutions.

Through predictive sciences, our small business unit will launch two new industry scoring systems, specifically for small business risk decisioning, utilizing our unique technology.

In addition to having 18 of the top 20 small business lenders using this service, we are now gaining acceptance from other industries who serve the small business market.

In Q4 we signed two of the largest U.S. telco providers, including MCI as customers and data contributors.

And in this quarter, customers will be able to access a business principal report from our consumer credit file, in addition to the small business credit report.

All through one single enquiry.

We’ve been in the predictive sciences business for more than a decade, providing our customers with an extensive range of risk management and marketing tools, and our solutions are created by our experienced scientists using large volumes of data, sophisticated analytical tools and advanced technology.

This widespread customer acceptance of our capabilities supports long-term profitable growth for these solutions.

During Q1 we released a new version of the Equifax Generic Risk Score.

This score will compete head on with other scores in the marketplace.

This is a powerful risk assessment tool that incorporates recent business cycles as well.

Additionally, the score is data agnostic and can be operationalized from data from other information companies, and of course the data and information of our customers.

In 2003, the reauthorization of the Fair Credit Reporting Act was critically important to our company.

We took a leadership role in shaping the legislation, and while we were not completely pleased with its overall outcome, and I am talking specifically about providing free credit reports, we continue to work closely with the FTC to ensure its provisions are implemented in a balanced way.

Now here’s what we know as of this moment.

State law preemption has been extended permanently, and that’s very important, and a victory for our industry, so we can operate across all state lines.

The effective date for the free credit report is tentatively scheduled for December of this year.

All of that is still being worked on.

And we are working closely with the FTC as they craft the implementation rules that we’ll roll out during the year.

And we really do very much appreciate the FTC’s hard work and open communications with us on all of these matters.

We are beginning to see the world with a free credit report more clearly, and feel much better about it.

Our implementation of various operational activities will generate internal savings.

Heightened consumer interest and awareness about the importance of fiscal responsibility will generate significant marketing opportunities for our consumer direct products.

Throughout our discussions with the FTC we are identifying new ways to reduce the potential cost of compliance, and clearly our customers will have to bear their fair share of the cost burden that is being imposed.

At this point we can’t predict the outcome absolutely, since negotiations with the FTC are ongoing.

However, we’re beginning to solve this puzzle and are optimistic about its impact on our company.

Now I will turn it over to Don for a more detailed financial update, then I will come back and take your questions.

Donald.

Thanks, Tom, and good morning.

In looking at the performance of Equifax in 2003, I believe two things should be kept in mind.

First, what events occurred that affected the year’s results; and second, what actions were taken to position the company for 2004 and beyond.

As I review the financials, I will incorporate this perspective into my discussion.

Major events affecting the year include a record mortgage financing year; economic stabilization and recovery in Latin America; record performance and market share gains in our Canadian operations; solid underlying performance in our U.S. information business; continued growth in consumer direct products; record free cash flow for our company; and a charge to correct the problems in our e-marketing business.

For comparison purposes in my review, I will be reporting earnings and margins excluding the charge detailed in our December 19th press release.

The reconciliation of the non-GAAP numbers are attached to the press release and are also available on our web site.

Fourth quarter performance, consolidated revenues were $297m, up 2 percent.

Reported earnings from continuing operations were $31m, and earnings as adjusted were $54m.

EPS as adjusted was 40 cents per share, up 5 percent.

Cash flow was $97m for the quarter.

We used this cash to further enhance our competitive position with capital investments of $17m, primarily in predictive sciences, credit marketing, and consumer direct.

Of the remaining $80m of free cash flow, we bought back 1.2m shares of our stock, totaling $30m.

DSOs have benefited from improvements in our billing systems, and reached an all-time low of 53 days, compared to 55 days at this time last year.

Now I’ll look at the business units.

In the border, North American revenues grew by 5 percent, excluding e-marketing.

Within North America, our mortgage reporting services unit significantly outperformed market trends, with revenue down only 7 percent in contrast to the Mortgage Bankers Association Application Index, which was down 39 percent.

This is a reflection of the success our sales team has had in getting market share, which we have discussed with you previously.

In marketing services, revenue from our suite of postal marketing products grew 14 percent for the quarter.

This marks four straight quarters of growth for these services.

We believe the addition of John Healy further enhances the prospects of this business for 2004.

Consumer direct revenues continued their steady growth patterns.

They were $19m for the quarter, up 56 percent.

North American margins, as adjusted, were 36 percent, reflecting continued improvement from the second quarter.

Europe’s margins were 20 percent on revenues of $36m.

These margins reflect progressive improvements in profitability and project well on our 2004 performance.

Latin America grew revenue 7 percent in local currency, with a 27 percent operating margin for the quarter.

We expect continued improvements in the region for 2004.

Now for the year.

Revenue was a record $1.2b, up 10 percent.

Reported earnings from continuing operations was $179m, or $1.31 a share.

Earnings as adjusted were $202m and EPS was $1.48, up 7 percent from the $1.38 in 2002.

Free cash flow was a very strong $236m, up 22 percent.

We invested $54m in technology.

This investment, we believe, equips our sales force with next generation capabilities in our application, decisioning and marketing products that provide our customers with state-of-the-art technology, operates faster and more efficiently, and ultimately reduces our cost of delivery.

We repurchased 4.2m shares of our stock during the year, totaling $95m.

Now I will move to the business units.

North American revenue was up a very healthy 13 percent, driven by strong performance in information services and mortgage reporting services.

Our consumer and commercial information revenues were up 12 percent to $509m.

Mortgage reporting services revenue was up $16m or 30 percent.

Canada turned in a very strong performance with revenues of $91m, up 17 percent.

Total marketing services revenues were flat at $274m.

Within this unit, revenue from our direct marketing products were up 7 percent for the year, or $6m, well credit marketing was down 3 percent, or $6m.

Consumer direct revenues grew 76 percent to $70m, continuing their trend.

Europe’s margins were up significantly from 10 percent in 2002 to 16 percent in 2003, driven by cost control, productivity gains, and further penetration with market leading risk scores and ID authentication solutions.

Looking forward, we believe the actions taken in 2003 including investment in new products that will drive our competitive advantage; decisive action taken to correct the problems in e-marketing; productivity gains including the new IBM contracts;

Sustainable margin improvements in Europe; and use of our free cash flow to repurchase stock, coupled with improving economies in the U.S. and Latin America, positioned our company well for 2004.

Based on this, our outlook for EPS in 2004 is between $1.58 and $1.65 per share.

Revenue growth is expected to be 4 percent to 5 percent, but a more complete look at this would reveal that excluding mortgage-related revenues and e-marketing revenue, growth in 2004 is expected to be 8 percent to 10 percent.

Free cash flow is expected to be approximately $245m to $265m.

Capital expenditures are targeted at about $55m, comparable to 2003.

And we have $127m remaining under our authorized share repurchase program.

We are excited about the opportunities in 2004 and look forward to the continued progress of our company.

That concludes the financial report.

Now I’ll turn it back over to Tom.

Thanks, Don.

We really do look forward to this year.

We’re optimistic about our ability to continue growing our revenues in our new and existing businesses.

I think the performances of Dan Adam and his team in North America;

Bill Finney down in Latin America;

Michael Shannon in Europe;

Virgil Gardea in consumer direct;

Paul Springman in predictive sciences and now John Ely in marketing services, along with just our best technology year ever led by Owen Flynn and his people positions us so well for growing revenues, earnings and cash flow which we remain passionately committed to our strong heritage of creating shareholder value.

Now we’d be happy to take your questions.

Thank you. (Operator instructions) Your first question comes from Kertic Matah;

Midwest Research.

Please go ahead.

Good morning.

Good morning.

I wanted to ask you a couple more questions on the Fair Credit Reporting Act.

I understand, you know, you still have limited information, but if you look at states that already have a law which allows consumers to get free credit reports, is there any way to draw a conclusion as to what you might see in terms of percentage of consumers that might ask for a credit report?

Are there other implications, because you might see a little bit more media coverage on this law, and that could change that percentage?

I just wanted to get your feel from that standpoint.

Yes, we’re just – there’s just no way to tell.

I mean, we don’t know what the media coverage is going to be, where it might be, you know, stronger or weaker.

It’s just impossible for us to tell.

But you know, we think it, we think logically it may be up a bit, but to what level it’s just impossible to tell.

But I think our offsetting measures that are discussed make us feel pretty comfortable about the overall impact.

So are you able to say what you see in terms of other states that do allow for consumers to get free credit reports?

It’s really very difficult to compare, because those states vary, the type of compensation we get in those states varies.

There are certain processes that consumers have to go through that may not exist in this case.

Those are generally very, very small states and so they trend differently.

And there are different laws in each one of those states, so while we look at that, of course, to try to give us a harbinger of what may happen, we just really don’t believe that following those patterns would be an appropriate course to take.

No, that’s fair.

From a guidance standpoint, I am assuming you are expecting margin expansion in a couple of your businesses, and I was wondering if you could elaborate, maybe what businesses you would expect margin expansion and 2004, and if you’ve included any share repurchase in the guidance that as provided.

This is Don, I’ll be happy to answer that.

The places we assume margin expansion are across the board, quite honestly.

North America driven primarily by the correction in the e-marketing business.

We talked about Europe and we have said those were very sustainable margins, they do vary from quarter to quarter, but the trend is clearly positive.

And we are optimistic about some improvement in Latin America as well.

In addition to that, the critical volume that we’ve gained in the consumer direct business will also help margins.

This is Tom, and I think it’s further – you know, we’ll continue to look at share repurchase, which we’ve already talked about in our guidance, and I think that the new platforms are going to also be enhancers of margins, because that will not be just core bits of information, and I believe we’ll continue to generate not just from IBM’s deal, but savings from our efficient technology improvements.

And the thing about the new platforms that are so important to us strategically, and we’re gaining so much ground there against the most-known competitors, is new platforms lock in the customer, and we are proving that we can embed those customers at lower transaction costs for them, and also bundle the other products and services we had.

So we think all of those bode well for margin improvement as we move forward.

Thank you.

Thank you.

And one last question –

And we have a question from Brad Eichler;

Stephens Inc.

Please go ahead.

Good morning, Tom and Don.

Hey Brad, how are you doing, buddy?

Great.

You guys gave a lot of good information on the call, I just wanted to dive into a couple of the things you mentioned in a little bit more detail.

On consumer direct you talked about this new product you are rolling out in Canada and the U.K., it sounds like a reseller type product.

Could you elaborate on that a little bit, and is that something that you are going to be addressing in the U.S. as well?

Well it’s a similar product, it’s credit profiles, this is like where we started in the U.S. a long time ago.

First of all, to get those markets accustomed to looking at their credit report, and we’ve added to it in Canada a scoring piece.

So that’s very important.

And you know, so they are basic offshoots that the law and the culture facilitate.

We intend to add to those product lines, Brad, like our other suites of products as we move forward into 2004, and as I’ve said, it’s really a plan of mine to try to get us a Portuguese product in Brazil and other languages in Latin America.

And we will just begin to port those products that have been so significantly effective for us, we’ll begin to port them geographically, and our brand new system that I mentioned in the call allows us to do that globally, without starting a whole new development every time we go to a different geography.

Focus though on distributing direct to the consumer, or distributing through a third party, ultimately to the consumer?

Right now, we’re marketing ourselves on our website and direct to consumers, but as in the U.S., as that product begins to take hold, we are certainly looking for quality resellers, and we will certainly take full advantage of those opportunities.

The new risk score that you mentioned, what, you know, Fair Isaac obviously has a big share of that marketplace, and one of the big issues has always been the issue that it sounds like you’re addressing which is being agnostic from a data perspective.

But how do you guys strategically plan on getting into that market?

Is it through better pricing, is it through better results, is it through – what’s the competitive advantage?

Because I know Fair Isaac has had a hard time selling their better score to existing customers.

So what’s your plan?

Well first of all it won’t be by going and cutting prices.

We’re a value company, and I think there are several things.

I don’t know that their score is better or not.

The customers determine that, and there is all sorts of testing to go through.

The other thing is, we can bundle a whole range of products and services, from commercial to credit reporting to prescreening to direct marketing to our decision platforms, all of those are part of the Equifax total solution.

So our intent while introducing new scores, which we believe will out-test any in the market, is to continue to provide to our sales force and to our analysts a superior total offering, including analytics and predictive sciences.

And Interconnect is a key point of that.

I mean, this brand new piece of technology is a total decision solution that’s modular, and covers the entire process of decisioning.

Models is a small part of that.

A significant ingredient, but there are also different parts of that, of champion challenger, all sorts of parts that will be part of Interconnect, and our response to the marketplace as we beta tested this, and with its power has been just very, very pleasing to us.

And maybe three quick numbers crossing this item.

First of all, the pricing volume trends in the North America credit business?

Very much what we said last quarter, Brad.

The mix in mortgage revenue shifted downward.

We had been talking about from the 15 percent to 20 percent range, it’s now back down in the 10 percent to 15 percent range, albeit at the upper end.

What we have seen the mix change there, within the verticals we are seeing some significant volume from some high volume customers which is affecting the mix.

And then finally, the core business, we are seeing very much traditional, its traditional decline in that pricing somewhere in the low double-digit kinds of numbers, so nothing new to report there.

I think it’s astounding – Brad, again this is Tom – to hitch hike on that, that the incredible volumes, incredible revenue growth in North America, despite that pricing pressure.

I further want to point out that our share gains are not just in credit reporting, but they are across the board in industries.

We all know that the big consolidating financial institutions and other giants are the major forces of that pressure, and they are concerned about, at some point, giving up I think price for quality.

Because actually, these are risk tools, so I believe that the mid-market becomes very important to us and even in our days with [Serge] we understand and know that mid-market very, very well.

Just like we’ve done, I think health care with some of our analytics is going to be important, and our new technology is really going to cause us, I think, to abate not tomorrow, but some of that pricing pressure and some of those big guys.

We are diversifying as quickly as we can in product offerings, in pricing presentations to ensure you know, our marketing services – we’re going into different markets.

I think we are, despite that pressure which I wish the industry didn’t have and we didn’t have, but I don’t know many that don’t.

But I think we’re still performing very, very well and delivering what we need to our shareholders.

So it’s a constant battle for us Brad, as you all know.

I understand.

And then finally, on FCR, just to follow up on the last question, have you all in your 2004 guidance assumed any cost with complying with the new act, getting a cost center geared up, anything like that?

No cost and no benefit in 2004.

I’m sorry, I didn’t hear you.

Neither a cost or a benefit are in our outlook for 2004 relative to SCRA or the fact data.

Thank you very much.

Thank you.

And we have a question from David Togut;

Morgan Stanley.

Please go ahead.

Thank you.

Could you provide a little bit more, I guess insight, into some of your 2004 comments?

Your revenue outlook calls for a pretty significant acceleration in growth.

You know, what units do you expect to see that from, and to what extent does your revenue outlook include a continued positive lift from the lower dollar.

I’ll handle that one, David.

The revenue growth, you would see continued growth in consumer direct, which you are accustomed to.

You would see pick up in Latin America, because those economies are improving.

You would see growth in Europe as well, more modest than in Latin America.

And then you would see in our core business here growth, if you exclude the mortgage, as we were talking about, if you exclude the mortgages and e-marketing, you see pretty solid growth in our North American operations, and that’s driven by financial and telco, mostly.

And can you give us a sense of your assumption for mortgage?

Clearly there is a bit of a debate about that for 2004.

Are you assuming further deterioration in that market?

We do assume declines in that business for 2004.

Okay, thank you very much.

We have a question from Craig Peckham;

Jefferies & Co. Please go ahead.

Good morning.

A couple of questions.

First I just wanted to clarify an earlier question asked about whether or not share repurchases are built into the guidance, I wasn’t clear on the answer to that question.

I’m sorry, repeat the question?

To what extent are stock repurchases factored into the 2004 guidance?

We haven’t disclosed a specific number there, but we would continue our stock buy back patterns.

Okay.

And looking at the direct marketing business, I think Don you said 14 percent growth on the Polk business.

That’s a year-on-year number, I assume.

And what’s the mix in direct marketing as a whole between e-marketing and the print business?

That excluded the e-marketing business, that was all direct marketing.

Okay.

So what is the mix then in dollar terms in the direct marketing segment right now, between the two?

We are not distinguishing them anymore, Craig.

They are combined, that was what was a result of the action we took in the fourth quarter.

Fully integrated.

Okay, but the growth rate for the more traditional business is 14 percent though, year-over-year?

That was for the fourth quarter.

Okay, just shifting gears a bit, I was curious.

We didn’t talk a whole lot about credit marketing.

What are you hearing from your customers on that side as it pertains to the 2004 outlook for outbound mailings, et cetera?

Well this is Tom.

I think we are beginning to see a bit more activity.

The marketing, I think, is still going to be driven by retention.

There’s still some interest in e-marketing.

After all of this spam junk gets out of the way and the law is passed and it’s very clear what’s a legitimate solicitation and what’s not, but I think, you know, the large clients are sort of shrinking in the credit card business, but I think I am seeing a little bit of discussion in retailing.

The mid-market banks are very interested.

Telcos are very interested.

I mean, they are working so hard among their legislative stress to try to find a way to retain customers.

And then I think the mortgage market will continue to be a place where you will see a different kind of what we’ve known as prescreening, where they will want to get out and market and solicit to customers, rather than letting the market bring the customers to them.

So it’s not as bullish as I’d like to see it, but I do think that there are a lot of different markets talking about marketing as opposed to just the same large credit card marketers.

And I’ll tell you what.

There’s an article in the American Banker this morning, there is – rates are going to go up.

They are talking about deposits holding flat, and because they are going out of demand deposits into money market mutual funds.

I see a huge opportunity to use our decisioning platforms to cause, help those banks market to their DDA customers, their cheapest source of funding by helping them add value, to retain them and to solicit other customers.

Many of you know that that has been part of my background, and so we are moving from marketing opportunities, what we call to the other side of the house, if you will, not just credit.

Not just utilities, but also where deposit acquisition and maintenance is going to be key for all financial institutions.

And you’ll particularly see, I think, the mid-market guys be very, very aggressive there, and the credit union, as they’ve always been.

Craig, this is Dave.

I just want to clarify one thing.

You were looking for a year-over-year on the quarters for the postal business.

That quarterly growth over the same quarter a year ago was 14 percent for the entire year, compared to the last year, it’s 7 percent growth.

So again, that’s a good 14 percent quarter following 8 percent growth in the third.

Okay, thanks for the clarification.

We have time for a couple more questions.

We have a question from Fred Searby;

JP Morgan.

Please go ahead.

Good morning, gentlemen.

A couple of quick questions.

One, could you just prioritize free cash flow in terms of acquisitions and maybe, you know, the affiliate.

Obviously there is less chicken on the bone there now, and you know, where you think – are you comfortable with that, do you expect to return most of the capital through share repurchases, or do you also see small bolt-on acquisitions outside of traditional credit?

You know, buying your affiliates?

And just a second quick question, can you just give – I mean, I thought your guidance was very positive and looking at it, I mean, can you just give us some more detail on what your assumptions are for costs – pension, health care, and you know, what compensation, bonus compensation was this year in accruals and what you think, what you think on the cost side maybe some more color on that?

And I didn’t totally understand, when you answered the question I had the same question, share buy back.

You said you were going to buy back shares, but is it in the guidance for EPS growth or not?

I didn’t get quite the answer there.

This is Tom, Fred.

I’ll try to take the first one.

What did you say?

The chicken is off the bone?

Which I think is a pretty good analogy as it relates to affiliate acquisitions.

There’s still a couple more out there that we are viably interested in, but there are not those that we had to work with years ago.

I’ll let Don answer specifically the share buy back, but I think those of you know we’ve been very consistent year to year to year to year for a long time in buying back shares.

We haven’t “put it in” our guidance because it is always part of our operating methodology, and we’ve got plenty of authority left, well over 120m, so –

So it’s actually not in your guidance, then?

Yes it is in our guidance, in part.

Oh it is in your guidance, okay.

It’s part of our ongoing operations.

And of course, the free cash flow will be used you know, as we’ve talked about, in share buyback as we see that appropriate.

We think there’s some interesting value-added opportunities in the acquisition space.

We’ll continue to look at those as we have.

I think what we’ve said in the past still continues.

It will be for – to continue to perpetuate internal growth, we’ll look at acquisitions, we’ll buy back stock, we’ll pay down debt.

And I think those are really the four uses that we see for that.

And the second question, Fred, I’ll slide over that Don.

Okay, Fred, I think you asked about pensions.

The FAS 87 expense increase for 2004 versus 2003 is about $7m, so that’s the component there.

As you talked about on the share buyback, that is part of our guidance for the full year for next year.

You also asked about bonuses.

We have accruals there, but our comp committee has yet to meet, so I am not going to speculate on anything there.

A quick follow-up question.

Generally when you, you know, taking a bird’s eye view of things here, JP Morgan, Chase, acquired Bank One and obviously we had the Fleet transaction, we’ve had to sort of transformation, seminal transactions in the banking space.

Does that consolidation, I mean, can you address the specifics of those banks as from a customer, whether it’s downside or upside and then, isn’t that going to just increase pricing pressure, bank consolidation?

And you know, as it becomes more concentrated, doesn’t that make the playing field tougher?

And if you could just address that issue as well.

I’ll do the best I can.

I think this consolidation that continues is sort of nothing new.

Of course some times you gain share, sometimes you lose share.

In this case, we think because of our relationships with those institutions, we think it is going to be a net plus for us.

There’s no way to quantify it as they sort through and actually get the deals done, but in this case, because of our deep relationships with those customers that we’re encouraged it is going to be an upside for us.

You are saying specifically in terms of relationships with one of the banks where you see an expanded relationship, is that?

We think net, there is going to be a net gain of share.

Because you work with JP Morgan?

Because we work with the banks, we have relationships with those banks.

They are doing business with us.

So I just feel like our solutions will continue to help them by the way as they merge those portfolios.

Right.

So I feel pretty good about those that have been out so far.

And on Spain, I mean just one little quick question.

You know, I recall they were losing money.

I mean, you’ve had enormous success in Latin America and obviously Brazil and some of the markets there with the emerging consumer culture it looks like a great opportunity for a long time.

You know, Spain has not worked out that way.

What’s the dynamic in Europe, and can you hang onto this asset and turn it around?

Are you profitable there?

And clearly with what’s happened with the Euro vis-à-vis the dollar you would think if there is value here it actually would have been probably increased in value over the last year, but can you just address Spain and what –

This is Dave.

Fred, let me give that a shot.

In Spain, if you could see inside the numbers, you would see that we were running a significant operating loss in that commercial business a year ago.

We have trimmed that down to where in the fourth quarter that operating loss is down to just a half million dollars and I won’t say anything about the transaction, but we’re just about done with that episode.

On the rest of the continent, if you look at our consumer business, it’s running pretty well and that’s a part of the story that you see when we report to you that our margins are improved.

So our margin is at 20 percent in the U.K. or on the continent, or a record, and so we’ve been able to trim the bad part of Spain.

We keep going with commercial – with consumer, and consumer is doing very well in the U.K.

Okay, thank you very much gentlemen.

I appreciate it.

Thank you very much, Fred.

Have a good day.

We have a question from Brandon Delville;

Credit Suisse First Boston.

Please go ahead.

I’ll make it short in the interest of time.

One of the comments you made towards the end of the prepared remarks about the Fair Credit Act talk about having customers bearing some of the costs of implementing the new guidelines, either across the state or federal geography.

I just want to get a little more color on kind of what you mean with that statement.

In kind of a broader context, but also more of a narrower context, as you look at bank consolidation, how is that going to impact how you deal with customers from a Fair Credit Reporting Act standpoint.

Well I don’t – I’m not in the position, as I said, to deal specifically, Brandon, with what that means, but there are other industries – airlines, telcos, railways, others including financial institutions that pass along costs that are imposed by legislation.

I know of no reason why we should be any different.

There are a lot of benefits that are more to lenders by this process, and we’re studying very carefully, as I said, what is the fair share of some of that incremental to our customers.

And I think they understand that there is some incremental impact gross that we’re dealing with the net.

So we just have got a lot of studying to do, and that’s all I can tell you at this junction.

That’s fair enough, and then one final one on predictive sciences last quarter, you gave us some metrics in terms of contracts and size and numbers and things like that.

I wonder if you had anything similar this time around, to give us a little better idea on what the trends on that part of the business look like.

Very consistent with what we told you last quarter, $50,000 for the smaller stuff up to a half a million dollars for the major projects.

We think as Inter Connect comes out then you know, we’ll begin to look not at a software model in pricing, because we don’t like the software business, but this technology has been developed sort of to plug and play, and we think that once it begins to get entrenched that the range of sort of pricing that Don’s articulated is what we see the market receptive to.

Fair enough.

Thanks a lot.

Thanks, Brandon.

Well ladies and gentlemen, we very much appreciate your being with us this morning and being with us throughout the year and your interest in our company, and we look forward to seeing you all soon.

You know, we’ll be around as always to answer phone calls.

So have a great day and a safe weekend.

Bye, bye, everybody.

Ladies and gentlemen, this conference will be available for replay after 12 pm today through midnight January 29th.

You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 716878.

International participants dial 320-365-3844.

That does conclude our conference for today, thank you for your participation and for using AT&T Executive Teleconference.

You may now disconnect.