What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-10-22 compared with 2020-07-23 · 228 added, 154 removed, 320 unchanged (54% of the section changed)

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We also provide information, technology and services to support debt collections and recovery management.

Additionally, we are a leading provider of payroll-related and human resource management business process outsourcing services in the United States of America, or U.S.

Additionally, we are a leading provider of payroll-related and human

resource management business process outsourcing services in the United States of America, or U.S.

For consumers, we provide products and services to help people understand, manage and protect their personal information and make more informed financial decisions.

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On March 11, 2020, the World Health Organization designated the novel coronavirus disease (“COVID-19”) as a global pandemic.

As previously disclosed in March 2020, the impact of COVID-19 and related actions to attempt to control its spread began to impact our consolidated operating results in March 2020.

The impact of COVID-19 and related actions to attempt to control its spread began to impact our consolidated operating results in March 2020.

The impact on the operating results in each country in which we operate differed based on the conditions and the vertical markets we serve in that country.

In the United States, consolidated revenue grew during the three months ended June 30, 2020, compared to the three months ended June 30 2019, reflecting very strong mortgage market related revenue in both USIS and Workforce Solutions, and very strong revenue growth in our Workforce Solutions unemployment claims management business.

However, in the US, we experienced year-over-year revenue declines in most other vertical markets including commercial, financial services and telecommunications.

In the United States, consolidated revenue grew during the three months ended September 30, 2020, compared to the three months ended September 30, 2019, reflecting very strong mortgage market related revenue in both USIS and Workforce Solutions, and, to a lesser degree than we experienced in the three months ended June 30, 2020, higher revenue growth in our Workforce Solutions unemployment claims management business.

However, in the U.S., we experienced year-over-year revenue declines in most other vertical markets including commercial, financial services and telecommunications.

Internationally, all countries in which we operate experienced revenue declines, across most vertical markets.

The year-over-year reductions in countries and vertical markets referenced were most pronounced in April, and generally lessened in May and June.

Due to the strong revenue growth in the U.S., total Equifax consolidated operating results improved in the second quarter of 2020, as compared to both the first quarter of 2020 and the second quarter of 2019.

The year-over-year reductions in countries and vertical markets referenced were most pronounced in the second quarter.

Although most countries continue to show year-over-year declines, performance in the third quarter of 2020 has improved from the levels seen in the second quarter.

Due to the strong revenue growth in the U.S., total Equifax consolidated operating results improved in the third quarter of 2020 compared to both the first and second quarters of 2020 and the third quarter of 2019.

We are unable to determine the severity or duration of the impact of the COVID-19 pandemic on Equifax or how the impact on the individual markets in the countries we serve will change with time.

Although consolidated revenue has grown during the first half of 2020 when compared to 2019, due to the uncertain effects of the global economy caused by the impact of COVID-19, there can be no assurances that revenues will continue to grow in the second half of 2020.

Although consolidated revenue has grown during the first nine months of 2020 when compared to 2019, due to the uncertain effects of the global economy caused by the impact of COVID-19, there can be no assurances that revenues will continue to grow in the fourth quarter of 2020.

We expect that the global COVID-19 pandemic will continue to adversely impact our business and results of operations.

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Centers for Disease Control and the World Health Organization , and s tate and local governments.

If public health authorities dictate further measures to limit further spread of the virus, we may need to reinstate our business continuity plans in certain countries or regions in which we operate.

If public health authorities dictate further measures to limit further spread of the

virus, we may need to reinstate our business continuity plans in certain countries or regions in which we operate.

As of the date of this filing, we do not believe our work from home and return to office protocol have materially adversely impacted our internal controls, financial reporting systems or our operations.

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Our technology teams continue to execute on our EFX2020 cloud technology, data and security transformation, including the continued migration of our technology to cloud native environments.

To date, the change in working environment has not caused material disruptions in the execution of this plan.

To date, the change in working environment has not caused material disruptions in the execution of these plans.

As a response to the ongoing COVID-19 pandemic, we have implemented plans to manage our costs.

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Any future asset impairment charges, increase in allowance for doubtful accounts, or restructuring charges could be more likely and will be dependent on the severity and duration of this crisis.

At June 30, 2020, we had approximately $1.3 billion in cash and $1.3 billion available to borrow under our revolving credit facility that matures in September 2023 and receivables funding facility that matures in December 2022.

At September 30, 2020, we had approximately $1.5 billion in cash and $1.3 billion available to borrow under our revolving credit facility that matures in September 2023 and receivables funding facility.

In the second quarter of 2020, we amended our revolving credit facility to increase the maximum leverage ratio through 2021 to provide us with additional financial flexibility.

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For more information, see “Item 1A.

Risk Factors— Our business has been and will continue to be negatively impacted by the recent COVID-19 outbreak, ” in our March 31, 2020 Form 10-Q.

Risk Factors— Our business has been and will continue to be negatively impacted by the recent COVID-19 outbreak, ” in our June 30, 2020 Form 10-Q.

2017 Cybersecurity Incident

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Legal Proceedings” in this Form 10-Q.

We believe it is probable that we will incur losses associated with certain of the proceedings and investigations related to the 2017 cybersecurity incident.

In 2019, we recorded expenses, net of insurance recoveries, of $800.9 million in other current liabilities and selling, general, and administrative expenses in our Consolidated Balance Sheets and Statements of Income (Loss), respectively, exclusive of our legal and professional services expenses.

The amount accrued represents our best estimate of the liability related to these matters.

The Company will continue to evaluate information as it becomes known and

adjust accruals for new information and further developments in accordance with ASC 450-20-25.

While it is reasonably possible that losses exceeding the amount accrued may be incurred, it is not possible at this time to estimate the additional possible loss in excess of the amount already accrued that might result from adverse judgments, settlements, penalties or other resolution of the proceedings and investigations described below based on a number of factors, such as the various stages of these proceedings and investigations, including matters on appeal, that alleged damages have not been specified or are uncertain, the uncertainty as to the certification of a class or classes and the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues.

The Company will continue to evaluate information as it becomes known and adjust accruals for new information and further developments in accordance with ASC 450-20-25.

The ultimate amount paid on these actions, claims and investigations in excess of the amount already accrued could be material to the Company’s consolidated financial condition, results of operations, or cash flows in future periods.

Future Costs.

We are currently executing substantial initiatives in security and consumer support, and a company-wide transformation of our technology infrastructure, which we refer to as our technology transformation, and incurred substantial increased expenses and capital expenditures in 2019 and the first half of 2020 related to these initiatives.

We expect to continue to incur significant expenses and capital expenditures in the second half of 2020 related to these initiatives, at similar levels as those incurred in 2019.

We expect to continue to incur significant expenses and capital expenditures in the remainder of 2020 related to these initiatives, at similar levels as those incurred in 2019.

We incurred significant legal and professional services expenses related to the lawsuits, claims and government investigations to which we were a party in 2019, and expect to continue to incur these expenses until all matters are fully resolved.

However, due to the settlement of all significant matters in the U.S.

in 2019, the level of legal and professional service expenses related to these matters was significantly lower in the first half of 2020 compared to the same period in 2019, and we expect that these expenses will continue to be significantly lower in the second half of 2020.

in 2019, the level of legal and professional service expenses related to these matters was significantly lower in the first nine months of 2020 compared to the same period in 2019, and we expect that these expenses will continue to be significantly lower in the remainder of 2020.

We will recognize the expenses and capital expenditures referenced herein as they are incurred.

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Approximately 78% and 72% of our revenue was generated in the U.S.

during the three months ended June 30, 2020 and 2019, respectively.

during the three months ended September 30, 2020 and 2019, respectively.

Approximately 78% and 72% of our revenue was generated in the U.S.

during the six months ended June 30, 2020 and 2019, respectively.

during the nine months ended September 30, 2020 and 2019, respectively.

Key Performance Indicators.

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These performance indicators include measurements of operating revenue, change in operating revenue, operating income, operating margin, net income, diluted earnings per share, cash provided by operating activities and capital expenditures.

The key performance indicators for the three and six months ended June 30, 2020 and 2019 were as follows:

The key performance indicators for the three and nine months ended September 30, 2020 and 2019 were as follows:

Key Performance Indicators

Three Months Ended June 30, Six months ended June 30,

Three Months Ended September 30, Nine months ended September 30,

2020 2019 2020 2019

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Diluted earnings (loss) per share $ 1.82 $ 0.66 $ 3.53 $ (3.35)

Cash provided by operating activities $ 251.2 $ 217.0 $ 282.0 $ 248.0

Cash provided by (used in) operating activities $ 367.0 $ (164.9) $ 649.0 $ 83.1

Capital expenditures* $ (112.3) $ (87.8) $ (309.6) $ (285.9)

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Operational and Financial Highlights

• We did not repurchase shares of our common stock during the first six months of 2020.

At June 30, 2020, $590.1 million was available for future purchases of common stock under our share repurchase authorization.

• We paid out $94.6 million or $0.78 per share in dividends to our shareholders during the first six months of 2020.

RESULTS OF OPERATIONS—THREE MONTHS ENDED JUNE 30, 2020 AND 2019

• We did not repurchase shares of our common stock during the first nine months of 2020.

At September 30, 2020, $590.1 million was available for future purchases of common stock under our share repurchase authorization.

• We paid out $142.1 million or $1.17 per share in dividends to our shareholders during the first nine months of 2020.

RESULTS OF OPERATIONS—THREE MONTHS ENDED SEPTEMBER 30, 2020 AND 2019

Consolidated Financial Results

Operating Revenue

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Consolidated Operating Revenue 2020 2019 $ % 2020 2019 $ %

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Consolidated operating revenue $ 1,068.3 $ 875.7 $ 192.6 22 % $ 3,009.1 $ 2,601.8 $ 407.3 16 %

Revenue increased by $102.8 million, or 12%, and by $214.7 million, or 12%, in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

Total revenue was negatively impacted by foreign exchange rates, which decreased revenue by $13.7 million and $29.6 million, or 2%, for the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

Revenue in the second quarter and first six months of 2020 increased due to growth in our Workforce Solutions and USIS, primarily due to strong U.S.

mortgage volume.

Revenue growth was negatively impacted due to a significant decline beginning in the second half of March across International and GCS, due to the economic impact of COVID-19.

Revenue increased by $192.6 million, or 22%, and by $407.3 million, or 16%, in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

Total revenue was not materially impacted by foreign exchange rates in the third quarter of 2020 but was negatively impacted in the first nine months of 2020, which decreased revenue by $30.1 million, or 1%, compared to the same periods in 2019.

Revenue in the third quarter and first nine months of 2020 increased due to growth in our Workforce Solutions and USIS businesses, primarily due to strong U.S.

mortgage volume as well as growth in our Workforce Solutions unemployment claims business.

Revenue growth was negatively impacted due to a significant decline beginning in the second half of March across International and GCS, due to the economic impact of the COVID-19 pandemic.

Operating Expenses

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Consolidated Operating Expenses 2020 2019 $ % 2020 2019 $ %

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Consolidated operating expenses $ 863.9 $ 754.1 $ 109.8 15 % $ 2,501.9 $ 2,984.3 $ (482.4) (16) %

Cost of services increased $32.4 million and $59.0 million in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

Cost of services increased $58.7 million and $117.6 million in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increases were due to an increase in royalty and production costs, as well as incremental technology and data security costs related to our ongoing technology transformation.

The impact of changes in foreign exchange rates on costs of services was a decrease of $7.0 million and $14.0 million in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

Selling, general and administrative expenses increased $3.1 million and decreased $679.6 million in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The slight increase in the second quarter was due to an increase in people and technology costs, partially offset by a decrease in legal expense due to a prior year legal accrual that did not recur, and lower business travel costs.

For the six months ended June 30, 2020, the decrease is due to $701.3 million in legal accruals associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident recorded in the first six months of 2019 that did not recur in 2020, partially offset by an increase in people costs.

The impact of changes in foreign currency exchange rates decreased selling, general and administrative expenses by $4.9 million and $9.9 million for the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

Depreciation and amortization expense increased $14.3 million and $28.6 million for the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The impact of changes in foreign exchange rates on costs of services led to an increase of $0.6 million in the third quarter of 2020 and a decrease of $13.4 million for the first nine months of 2020, compared to the same periods in 2019.

Selling, general and administrative expenses increased $34.5 million and decreased $645.3 million in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increase in the third quarter was due to an increase in people costs, partially offset by a decrease in legal expenses and lower business travel costs.

For the nine months ended September 30, 2020, the decrease is due to $701.3 million in legal accruals associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident recorded in the first nine months of 2019 that did not recur in 2020, partially offset by an increase in people costs.

The impact of changes in foreign currency exchange rates decreased selling, general and administrative expenses by $0.9 million and $10.8 million for the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

Depreciation and amortization expense increased $16.6 million and $45.3 million for the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increases are due to the higher amortization of capitalized internal-use software and system costs.

Operating Income and Operating Margin

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Consolidated Operating Income (Loss) 2020 2019 $ % 2020 2019 $ %

(In millions)

(In millions) (In millions)

Consolidated operating revenue $ 1,068.3 $ 875.7 $ 192.6 22 % $ 3,009.1 $ 2,601.8 $ 407.3 16 %

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Consolidated operating margin 19.1 % 13.9 % 5.2 pts 16.9 % (14.7) % 31.6 pts

Total company operating margin increased by 4.1 percentage points and 44.8 percentage points in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The increased margins are primarily due to increased revenue and the prior year accrual for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident that did not recur in 2020, partially offset by increased people, royalty and technology costs.

Total company operating margin increased by 5.2 percentage points and 31.6 percentage points in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The margin increase in the third quarter of 2020 is due to increased revenue, partially offset by increased people, royalty and technology costs.

The margin increase for the first nine months of 2020 is due to increased revenue and the prior year accrual for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident that did not recur in 2020, partially offset by increased people, royalty and technology costs.

Interest Expense and Other (Expense) Income, net

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Consolidated Interest Expense and Other Income, net 2020 2019 $ % 2020 2019 $ %

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Consolidated interest expense $ (37.4) $ (28.0) $ (9.4) 34 % $ (104.7) $ (82.3) $ (22.4) 27 %

Consolidated other (expense) income, net (7.5) 2.8 (10.3) nm 37.8 4.9 32.9 nm

Consolidated other income, net 133.4 2.9 130.5 nm 171.1 7.9 163.2 nm

Average cost of debt 3.4 % 3.7 % 3.5 % 3.9 %

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nm - not meaningful

Interest expense increased by $9.0 million and $13.0 million for the second quarter and first six months of 2020, respectively, compared to the same period in 2019.

The increase is due to the issuance of $1.0 billion senior notes in April 2020 and $750.0 million senior notes issued in November 2019.

Other (expense) income, net, decreased by $10.3 million in the second quarter of 2020 and increased by $32.9 million in the first six months of 2020, compared to the same periods in 2019.

The decrease in the second quarter of 2020 is primarily due to the foreign currency impact of certain intercompany loans.

The increase in the first six months of 2020 is due to a $32.9 million gain recorded related to a fair value adjustment of our equity investment in India, for which we completed the acquisition of the remaining shareholder interests in the first quarter of 2020.

Three Months Ended June 30, Change Six Months Ended June 30, Change

Interest expense increased by $9.4 million and $22.4 million for the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increase is due to the issuance of $1.0 billion senior notes in April 2020 and $750.0 million senior notes issued in November 2019, partially offset by Commercial Paper and Receivables Funding Facility balances that were outstanding in 2019, but not in 2020.

Other income, net, increased by $130.5 million and $163.2 million in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increase in the third quarter of 2020 is due to a $129.9 million gain recorded related to a fair value adjustment of our investment in Brazil, due to its initial public offering during the quarter.

The increase in the first nine months of 2020 also benefited from a $32.9 million gain recorded related to a fair value adjustment of the equity investment in India, for which we completed the acquisition of the remaining shareholder interests in the first quarter of 2020.

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Consolidated (Provision) Benefit for Income Taxes 2020 2019 $ % 2020 2019 $ %

(In millions)

(In millions) (In millions)

Consolidated (provision) benefit for income taxes $ (75.4) $ (14.0) $ (61.4) 439 % $ (138.0) $ 53.3 $ (191.3) (359) %

Effective income tax rate 25.1 % 14.5 % 24.1 % (11.7) %

Our effective income tax rate was 21.7% for the three months ended June 30, 2020, compared to 23.3% for the three months ended June 30, 2019.

Our second quarter effective 2020 tax rate was favorably impacted by a more favorable foreign rate differential.

Our effective income tax rate was 22.9% for the six months ended June 30, 2020, compared to a 12.2% benefit for the six months ended June 30, 2019.

Our effective tax rate was higher year-to-date for 2020 as compared to 2019 due to permanent tax differences resulting from the accrual for losses associated with certain legal proceedings and investigations related to the

2017 cybersecurity incident included in the 2019 effective tax rate.

The 2020 year-to-date rate has been adversely impacted by valuation allowances against the deferred tax assets of certain international operations, however this impact was partially offset by favorable adjustments related to accruals for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident.

Our effective income tax rate was 25.1% for the three months ended September 30, 2020, compared to 14.5% for the three months ended September 30, 2019.

Our third quarter effective 2020 tax rate was adversely impacted by the tax treatment associated with the gain on the fair value adjustment of the Brazil investment.

Our effective income tax rate was 24.1% for the nine months ended September 30, 2020, compared to an 11.7% benefit for the nine months ended September 30, 2019.

The 2020 year-to-date rate has been adversely impacted by valuation allowances against the deferred tax assets of certain international operations as well as the tax treatment associated with the gain on the fair value adjustment of the Brazil investment.

However, these impacts were partially offset by favorable adjustments related to the 2019 legal proceedings.

2019 income taxes were calculated using the discrete method, applying the actual year-to-date effective tax rate to our pre-tax loss.

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Consolidated Net Income (Loss) 2020 2019 $ % 2020 2019 $ %

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Consolidated operating income (loss) $ 204.4 $ 121.6 $ 82.8 68 % $ 507.2 $ (382.5) $ 889.7 233 %

Consolidated other expense, net (44.1) (24.8) (19.3) 78 % (29.5) (49.4) 19.9 (40) %

Consolidated other income (expense), net 96.0 (25.1) 121.1 483 % 66.4 (74.4) 140.8 (189) %

Consolidated (provision) benefit for income taxes (75.4) (14.0) (61.4) 437 % (138.0) 53.3 (191.3) (359) %

Consolidated net income (loss) 225.0 82.5 142.5 173 % 435.6 (403.6) 839.2 208 %

Net income attributable to noncontrolling interests (0.2) (1.5) 1.3 87 % (2.1) (3.0) 0.9 30 %

Net income (loss) attributable to noncontrolling interests (0.8) (1.4) 0.6 40 % (2.9) (4.4) 1.5 33 %

Net income (loss) attributable to Equifax $ 224.2 $ 81.1 $ 143.1 177 % $ 432.7 $ (408.0) $ 840.7 206 %

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Weighted-average shares used in computing diluted earnings per share 123.0 122.3 122.7 122.0

Consolidated net income (loss) increased by $27.8 million and $696.7 million in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The increase for the second quarter of 2020 is due to increased operating income resulting from the increase in revenue and the prior year legal accrual related to the 2017 cybersecurity incident that did not recur, partially offset by the increase in people costs, royalty costs, technology costs, and depreciation of capitalized projects.

The increase for the first six months of 2020 is due to increased operating income resulting from the increase in revenue, the prior year accrual for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident that did not recur in 2020 and an increase in Other Income resulting from the fair value adjustment of the India equity investment, partially offset by an increase in tax expense, people costs, royalty costs, technology costs and depreciation of capitalized projects.

Consolidated net income (loss) increased by $142.5 million and $839.2 million in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increase for the third quarter of 2020 is due to increased operating income resulting from the increase in revenue as well as the gain recorded on the fair value adjustment of the Brazil investment, partially offset by the increase in tax expense, people costs, royalty costs and technology costs.

The increase for the first nine months of 2020 is due to increased operating income resulting from the increase in revenue, the prior year accrual for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident that did not recur in 2020 and an increase in Other Income resulting from the fair value adjustments of the Brazil and India investments, partially offset by an increase in tax expense, people costs, royalty costs, technology costs, depreciation of capitalized projects and higher interest expense.

Segment Financial Results

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Information Solutions 2020 2019 $ % 2020 2019 $ %

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Operating margin 33.3 % 31.1 % 2.2 pts 31.9 % 33.0 % (1.1) pts

USIS revenue increased by 10% and 12% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The increases are due to improvements in our core credit decisioning services volumes related to improvement in the mortgage market.

USIS revenue increased by 22% and 16% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increases are due to improvements in our core credit decisioning services and mortgage solutions volumes related to the strength of the U.S.

mortgage market in 2020.

Online Information Solutions

Revenue increased by 7% and 11% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

Revenue increased by 22% and 15% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increases in both periods are due to improved core credit decisioning services volumes related to improvements in the mortgage market.

Starting in the latter half of March, non-mortgage online revenue declined due to the economic impact of COVID-19.

2019 revenue was negatively impacted by a $15.0 million settlement with a commercial customer.

We continue to see a reduction year over year related to non-mortgage online revenue that has declined due to the economic impact of COVID-19, which began in the latter half of March 2020.

Mortgage Solutions

Revenue increased by 44% and 39% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

Revenue increased by 51% and 43% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increases are due to increased mortgage market transaction volumes.

Financial Marketing Services

Revenue increased by 1% and was flat in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019 due to the timing of project related revenue.

Revenue increased 1% and was flat in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019 due to the timing of project related revenue.

2019 revenue was negatively impacted by a $5.0 million settlement with a commercial customer.

We also continue to see a reduction year over year in Financial Marketing Services due to the economic impact of COVID-19.

USIS Operating Margin

USIS operating margin decreased from 35.4% in the second quarter of 2019 to 30.9% in the second quarter of 2020, and decreased from 33.9% in the first six months of 2019 to 31.1% in the first six months of 2020.

The margin decrease during the second quarter and first six months of 2020 was due to increased people, royalty, technology and depreciation costs, as well as incremental technology and data security costs, partially offset by the increase in revenue.

USIS operating margin increased from 31.1% in the third quarter of 2019 to 33.3% in the third quarter of 2020, and decreased from 33.0% in the first nine months of 2019 to 31.9% in the first nine months of 2020.

The margin increase during the third quarter of 2020 was due to an increase of revenue, partially offset by the increase in people, incremental technology and data security, royalty and depreciation costs.

The margin decrease for the first nine months of 2020 was due to increased people, royalty, technology and depreciation costs, as well as incremental technology and data security costs, partially offset by the increase in revenue.

Workforce Solutions

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Workforce Solutions 2020 2019 $ % 2020 2019 $ %

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Operating margin 51.3 % 41.4 % 9.9 pts 48.6 % 41.7 % 6.9 pts

Workforce Solutions revenue increased by 53% and 43% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The increases were due to strong growth in both Verification Services and Employer Services, driven by growth in mortgage during the first six months of 2020 and unemployment claims management starting in March.

Workforce Solutions revenue increased by 57% and 48% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increases were due to strong growth in both Verification Services and Employer Services, driven by growth in mortgage and unemployment claims management during the first nine months of 2020.

Verification Services

Revenue increased by 46% and 47% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019 due to strong growth in the mortgage vertical and continued addition of new records to The Work Number database.

Starting in the second half of March, revenue from the commercial non-mortgage segment of Verification Services, including the talent acquisition, debt management and auto segments, began to see declines versus the same period in 2019 due to the economic impact of COVID-19.

Revenue increased by 63% and 53% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019 due to strong growth in the mortgage vertical and continued addition of new records to The Work Number database.

Starting in the second half of March, revenue from the commercial non-mortgage segment of Verification Services, including the talent solutions, debt management and auto segments, have experienced declines versus the same period in 2019 due to the economic impact of COVID-19.

Employer Services

Revenue increased by 75% and 33% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The increase is due to increases in our unemployment claims management services that occurred during the second quarter of 2020, as U.S.

unemployment claims increased substantially due to the economic impact of COVID-19.

Revenue increased by 37% and 34% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The increase for both periods is due to increases in our unemployment claims management services, as U.S.

unemployment claims increased substantially due to the economic impact of COVID-19 on the U.S.

Workforce Solutions Operating Margin

Operating margin increased to 49.4% for the second quarter of 2020 from 41.6% for the second quarter of 2019 and to 47.0% for the first six months of 2020 from 41.8% in 2019.

The increased margins in both periods were due to an increase in revenue, partially offset by increases in royalty, people, and technology costs.

Operating margin increased to 51.3% for the third quarter of 2020 from 41.4% for the third quarter of 2019 and to 48.6% for the first nine months of 2020 from 41.7% in 2019.

The increased margins in both periods were due to an increase in revenue, partially offset by increases in royalty, people, technology and depreciation costs.

International

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

International 2020 2019 $ % 2020 2019 $ %

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Operating margin 11.6 % 11.3 % 0.3 pts 5.6 % 8.7 % (3.1) pts

International revenue decreased by 21% and 13% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

On a local currency basis, revenue decreased by 15% and 6% in the second quarter and first six months of 2020, respectively, driven by declines in all geographies.

International revenue decreased by 5% and 10% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

On a local currency basis, revenue decreased by 5% and 6% in the third quarter and first nine months of 2020, respectively, driven by declines in Latin America and Europe in the third quarter of 2020 and declines across all geographies for the nine month period.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $13.3 million, or 6%, during the second quarter of 2020 and by $29.0 million, or 6%, for the first six months of 2020.

Revenue growth was negatively impacted by a significant decline in volume beginning in the second half of March in each of the four regions within our International business, due to the impact of COVID-19 on their local economies.

On a local currency basis, revenue decreased by 9% and 3% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The negative impact was driven by decreases in our consumer and commercial businesses, and marketing services and personal solutions related revenue, primarily driven by the economic recession in Australia and New Zealand due to COVID-19, partly offset by an increase in offline transactions.

Local currency fluctuations negatively impacted revenue by $3.9 million, or 5%, and $9.6 million, or 6%, for the second quarter and first six months of 2020, respectively.

Reported revenue decreased by 14% and 9% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

On a local currency basis, revenue decreased by 25% and 13% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

dollar had minimal impact on revenue during the third quarter of 2020 and negatively impacted revenue by $29.8 million, or 4%, for the first nine months of 2020.

On a local currency basis, revenue was flat and decreased by 2% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

For the third quarter of 2020, the negative impacts of COVID-19 on the consumer business were offset by non-recurring projects within the recovery management business.

The decrease in revenue for the first nine months of 2020 was driven by decreases in our consumer and commercial businesses, marketing services and personal solutions related revenue, primarily driven by the economic recession in Australia and New Zealand due to COVID-19, partly offset by an increase in offline transactions within recovery management.

Local currency fluctuations positively impacted revenue by $2.7 million, or 4%, in the third quarter of 2020 and negatively impacted revenue by $6.8 million, or 3%, for the first nine months of 2020.

Reported revenue increased by 4% and decreased by 5% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

On a local currency basis, revenue decreased by 13% in both the third quarter and first nine months of 2020, compared to the same periods in 2019.

The decreases are primarily in the U.K.

consumer and commercial businesses, driven by the impacts related to COVID-19 and debt services which experienced double digit declines in the first six months of 2020.

consumer and commercial businesses and debt services which experienced double digit declines in the third quarter and first nine months of 2020, due to the impact the COVID-19 pandemic has had on local economies.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $1.5 million, or 2%, and $2.9 million, or 2%, for the second quarter and first six months of 2020, respectively.

Reported revenue decreased by 27% and 15% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

dollar positively impacted revenue by $2.7 million, or 4%, for the third quarter and did not have a material impact on revenue for the first nine months of 2020.

Reported revenue decreased by 9% and 13% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

Latin America

On a local currency basis, revenue decreased by 14% and 2% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

On a local currency basis, revenue decreased by 6% and 4% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The decrease was driven by COVID-19, which negatively impacted consumer credit operations in all Latin America countries in which Equifax operates.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $6.8 million, or 14%, and $15.1 million, or 16%, in the second quarter and first six months of 2020, respectively, primarily from Argentina and Chile.

Reported revenue decreased by 28% and 18% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

On a local currency basis, revenue decreased by 13% and 6% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The decrease is due to declines in consumer and commercial online volumes and offline analytics revenue, driven by the impacts of COVID-19.

dollar negatively impacted revenue by $5.8 million, or 12%, and $20.9 million, or 14%, in the third quarter and first nine months of 2020, respectively, primarily from Argentina and Chile.

Reported revenue decreased by 18% in both the third quarter and first nine months of 2020, compared to the same periods in 2019.

On a local currency basis, revenue was flat and decreased by 4% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The decrease in the first nine months of 2020 is due to declines in consumer and commercial online volumes and offline analytics revenue, driven by the impacts of COVID-19.

Local currency fluctuations against the U.S.

dollar negatively impacted revenue by $1.1 million, or 3%, and $1.5, million, or 2%, in the second quarter and first six months of 2020, respectively.

Reported revenue decreased by 16% and 8% in the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

dollar negatively impacted revenue by $0.3 million, or 1%, and $1.9 million, or 2%, in the third quarter and first nine months of 2020, respectively.

Reported revenue decreased by 1% and 6% in the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

International Operating Margin

Operating margin decreased to a 3.4% loss in the second quarter of 2020 from 9.9% in the second quarter of 2019 and to 2.3% in the first six months of 2020, down from 7.5% in the first six months of 2019.

The decreased margin in the second quarter and first six months of 2020 was primarily due to the negative effects of COVID-19 on the countries' revenue where Equifax operates, as well as incremental technology costs related to the ongoing technology transformation, partially offset by discretionary expense control across local geographies.

Operating margin increased to 11.6% in the third quarter of 2020 from 11.3% in the third quarter of 2019 and decreased to 5.6% in the first nine months of 2020, down from 8.7% in the first nine months of 2019.

The increased margin in the third quarter of 2020 is due to a decline in people costs and discretionary expense control across all geographies, offset by the negative effects of COVID-19 on the countries' revenue where Equifax operates.

The decreased margin in first nine months of 2020 was primarily due to the negative effects of COVID-19 on revenue, as well as an increase in depreciation costs and incremental technology costs related to the ongoing technology transformation, partially offset by discretionary expense control across the regions.

Global Consumer Solutions

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

Global Consumer Solutions 2020 2019 $ % 2020 2019 $ %

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Operating margin 14.4 % 13.4 % 1.0 pts 12.5 % 13.3 % (0.8) pts

Revenue decreased 5% and 1% for the second quarter and first six months of 2020, respectively, compared to the same periods in 2019.

The decreases in the second quarter and first six months of 2020 were driven by decreases in U.S.

direct to consumer and partner revenue due to the impact of COVID-19, partially offset by increases in event based business and benefits revenue.

Local currency fluctuations had minimal impact on the second quarter and first six months of 2020.

Revenue decreased 2% and 1% for the third quarter and first nine months of 2020, respectively, compared to the same periods in 2019.

The decreases in the third quarter and first nine months of 2020 were driven by decreases in partner revenue, partially offset by increases in event based business, benefits revenue and in the third quarter of 2020 in the direct to consumer business due to strong consumer subscription performance in North America.

Local currency fluctuations had minimal impact on the third quarter and first nine months of 2020.

Global Consumer Solutions Operating Margin

Operating margin decreased to 9.3% in the second quarter of 2020 from 14.5% in the second quarter of 2019 and to 11.5% in the first six months of 2020 from 13.3% in the first six months of 2019.

The decreased margin in both periods is driven by lower revenue and increased customer support and marketing costs.

Operating margin increased to 14.4% in the third quarter of 2020 from 13.4% in the third quarter of 2019 and decreased to 12.5% in the first nine months of 2020 from 13.3% in the first nine months of 2019.

The increased margin in the third quarter of 2020 was due to a reduction in royalty costs due to lower revenue, partially offset by increased advertising and technology costs.

The decreased margin in the first nine months of 2020 was driven by increased customer support and marketing costs, partially offset by lower royalty costs due to lower revenue.

General Corporate Expense

Three Months Ended June 30, Change Six Months Ended June 30, Change

Three Months Ended September 30, Change Nine Months Ended September 30, Change

General Corporate Expense 2020 2019 $ % 2020 2019 $ %

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Our general corporate expenses are unallocated costs that are incurred at the corporate level and include those expenses impacted by corporate direction, including shared services, technology, security, data and analytics, administrative, legal, restructuring, and the portion of management incentive compensation determined by total company-wide performance.

General corporate expense decreased $13.1 million and $712.3 million in the second quarter and first six months of 2020, respectively, compared to the prior year periods.

The slight decrease in the second quarter is primarily due to accruals for losses with certain legal proceedings and investigations related to the 2017 cybersecurity incident, which did not recur in 2020, partially offset by an increase in people costs.

The decrease for the first six months of 2020 is due to the legal accruals for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident of $701.3 million that were recorded in 2019 and did not recur in 2020.

General corporate expense increased $41.2 million and decreased $671.4 million in the third quarter and first nine months of 2020, respectively, compared to the prior year periods.

The increase in the third quarter is due to an increase in people costs, partially offset by lower technology and litigation expense.

The decrease for the first nine months of 2020 is due to the legal accruals for losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident of $701.3 million that were recorded in 2019 and did not recur in 2020 and lower technology costs, partially offset by increased people costs.

LIQUIDITY AND FINANCIAL CONDITION

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The net proceeds of the sale of the notes were used to repay borrowings under our Receivables Facility, while the remaining funds are intended for general corporate purposes.

At June 30, 2020, we had $1.3 billion in cash balances, as well as $1.1 billion was available to borrow under our Revolver.

As of June 30, 2020, $225.0 million was available to borrow under our Receivables Facility.

At September 30, 2020, we had $1.5 billion in cash balances, as well as $1.1 billion available to borrow under our Revolver.

As of September 30, 2020, $225.0 million was available to borrow under our Receivables Facility;

however, we intend to terminate this facility in the fourth quarter of 2020.

The Company has and expects to make payments to resolve certain legal proceedings and investigations related to the 2017 cybersecurity incident, described more fully in Part II, “Item 1.

Legal Proceedings” in this Form 10-Q.

Through June 30, 2020, the Company has made payments of $439.3 million for legal settlements related to the 2017 cybersecurity incident.

Through September 30, 2020, the Company has made payments of $439.3 million for legal settlements related to the 2017 cybersecurity incident.

The remaining $346.7 million to be paid to the Consumer Restitution Fund will be made after a final adjudication affirming the U.S.

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These restrictions do not, individually or in the aggregate, materially limit our ability to service our indebtedness, meet our current obligations or pay dividends.

As of June 30, 2020, we held $229.9 million of cash in our foreign subsidiaries.

As of September 30, 2020, we held $235.1 million of cash in our foreign subsidiaries.

Information about our cash flows, by category, is presented in the Consolidated Statements of Cash Flows.

The following table summarizes our cash flows for the six months ended June 30, 2020 and 2019:

Six Months Ended June 30, Change

The following table summarizes our cash flows for the nine months ended September 30, 2020 and 2019:

Nine Months Ended September 30, Change

Net cash provided by (used in):

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Operating Activities

Cash provided by operating activities in the six months ended June 30, 2020 increased by $34.0 million compared the prior year period.

The increase in cash from operations is due to increased net income offset by payments associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident in 2020 and other changes in net working capital.

Cash provided by operating activities in the nine months ended September 30, 2020 increased by $565.9 million compared the prior year period.

The increase in cash from operations is due to increased net income and additional payments made in 2019 associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident.

Investing Activities

Capital Expenditures

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Net cash used in:

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Our capital expenditures are used for developing, enhancing and deploying new and existing software in support of our expanding product set, replacing or adding equipment, updating systems for regulatory compliance, the licensing of standard software applications, investing in system reliability, security and disaster recovery enhancements, and updating or expanding our office facilities.

Capital expenditures paid in the first six months of 2020 decreased by $15.7 million from the same period in 2019.

Capital expenditures paid in the first nine months of 2020 increased by $3.8 million from the same period in 2019.

We are continuing to invest in enhanced technology systems, infrastructure and data security following the 2017 cybersecurity incident.

Acquisitions, Divestitures and Investments

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Net cash used in:

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Investment in unconsolidated affiliates, net $ (10.0) $ (25.0) $ 15.0

During the first six months of 2020, we acquired the remaining interest in our India joint venture, within the International segment.

During the first six months of 2019, we completed the acquisition of PayNet in our USIS and International operating segments and completed an additional acquisition in our Workforce Solutions segment.

During the first nine months of 2020 we acquired the remaining interest in our India joint venture within the International segment and a tuck-in acquisition within our USIS segment.

During the first nine months of 2019, we completed the acquisition of PayNet in our USIS and International operating segments and completed an additional acquisition in our Workforce Solutions segment.

Financing Activities

Borrowings and Credit Facility Availability

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Net cash provided by (used in):

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The CP program is supported by our Revolver and the total amount of CP which may be issued is reduced by the amount of any outstanding borrowings under our Revolver.

As of June 30, 2020, there were $0.7 million of letters of credit issued under the Revolver, no principal drawn amounts under the Revolver, and no commercial paper borrowings.

Availability under the Revolver was $1.1 billion at June 30, 2020.

At June 30, 2020, 93% of our debt was fixed-rate debt and 7% was effectively variable debt.

As of September 30, 2020, there were $0.7 million of letters of credit issued under the Revolver, no principal drawn amounts under the Revolver, and no commercial paper borrowings.

Availability under the Revolver was $1.1 billion at September 30, 2020.

At September 30, 2020, 93% of our debt was fixed-rate debt and 7% was effectively variable debt.

Our variable-rate debt consists of the Floating Rate Senior Notes, our commercial paper and our Receivables Facility.

The interest rates reset periodically, depending on the terms of the respective financing agreements.

At June 30, 2020, the interest rate on our variable-rate debt was 1.26%.

At September 30, 2020, the interest rate on our variable-rate debt was 1.15%.

Borrowing and Repayment Activity

We primarily borrow under our CP program, our Revolver or our Receivables Facility as needed and availability allows.

Net short-term borrowings primarily represent borrowings or repayments of outstanding amounts under our CP program in the first six months of 2019.

Payments on long-term debt reflect $125.0 million and $50.0 million payments made on our Receivables Facility in first six months of 2020 and 2019, respectively.

Borrowings on long-term debt represent the net proceeds received from issuance of the 2025 and 2030 senior notes in the first six months of 2020, as well as the net proceeds received from draw downs on our Receivables Facility in the first six months of 2020 and 2019.

There were no borrowings outstanding under the Receivables Facility as of June 30, 2020.

The Receivables Facility was supported by $308.2 million of accounts receivable as collateral at June 30, 2020 which, as a retained interest, is included in accounts receivable, net in our Consolidated Balance Sheets.

We primarily borrow under our CP program, our Revolver or our Receivables Facility as needed and as availability allows.

Net short-term borrowings primarily represent borrowings or repayments of outstanding amounts under our CP program in the first nine months of 2019.

Payments on long-term debt reflect $125.0 million and $50.0 million payments made on our Receivables Facility in the first nine months of 2020 and 2019, respectively.

Borrowings on long-term debt represent the net proceeds received from issuance of the 2025 and 2030 senior notes in the first nine months of 2020, as well as the net proceeds received from draw downs on our Receivables Facility in the first nine months of 2020 and 2019.

There were no borrowings outstanding under the Receivables Facility as of September 30, 2020.

The Receivables Facility was supported by $313.5 million of accounts receivable as collateral at September 30, 2020 which, as a retained interest, is included in accounts receivable, net in our Consolidated Balance Sheets.

Debt Covenants.

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The amendment also (i) permits cash in excess of $200 million to be netted against debt in the calculation of the leverage ratio through September 30, 2021, subject to certain restrictions and (ii) extends the add-back of certain expenses related to the 2017 cybersecurity incident to the definition of Consolidated EBITDA through December 31, 2021.

As of June 30, 2020, we were in compliance with all of our debt covenants.

As of September 30, 2020, we were in compliance with all of our debt covenants.

We do not have any credit rating triggers that would accelerate the maturity of a material amount of our outstanding debt;

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If we experience a change in control or publicly announce our intention to effect a change in control and the rating on the Senior Notes is lowered by each of Standard & Poor’s, or S&P, and Moody’s Investors Service, or Moody’s, below an investment grade rating within 60 days of such change in control or notice thereof, we will be required to offer to repurchase the Senior Notes at a price equal to 101% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest.

As of June 30, 2020, our S&P credit rating was BBB with a negative outlook and our Moody’s credit rating was Baa2 with a stable outlook.

As of September 30, 2020, our S&P credit rating was BBB with a negative outlook and our Moody’s credit rating was Baa2 with a stable outlook.

These ratings are subject to change as events and circumstances change.

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Equity Transactions

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Net cash provided by (used in):

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Dividends paid to noncontrolling interests $ (2.6) $ (4.8) $ 2.2

Proceeds from exercise of stock options $ 22.9 $ 6.1 $ 16.8

Sources and uses of cash related to equity during the six months ended June 30, 2020 and 2019 were as follows:

- During the first six months of 2020 and 2019, we did not repurchase any shares of our stock.

- We maintained our quarterly dividend of $0.39 per share in the second quarter of 2020.

We paid cash dividends to Equifax shareholders of $94.6 million and $94.2 million, or $0.39 per share, during the six months ended June 30, 2020 and 2019, respectively.

- We received cash of $22.9 million and $6.1 million during the first six months of 2020 and 2019, respectively, from the exercise of stock options.

At June 30, 2020, the Company had $590.1 million remaining for stock repurchases under the existing Board authorization.

Proceeds from exercise of stock options and employee stock purchase plan $ 29.9 $ 15.3 $ 14.6

Sources and uses of cash related to equity during the nine months ended September 30, 2020 and 2019 were as follows:

- During the first nine months of 2020 and 2019, we did not repurchase any shares of our stock.

- We maintained our quarterly dividend of $0.39 per share in the third quarter of 2020.

We paid cash dividends to Equifax shareholders of $142.1 million and $141.4 million, or $1.17 per share, during the nine months ended September 30, 2020 and 2019, respectively.

- We received cash of $29.9 million and $15.3 million during the first nine months of 2020 and 2019, respectively, from the exercise of stock options and the employee stock purchase plan.

At September 30, 2020, the Company had $590.1 million remaining for stock repurchases under the existing Board authorization.

Contractual Obligations, Commercial Commitments and Other Contingencies

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As such, Argentina has been deemed a highly inflationary economy by accounting policymakers.

Beginning in the third quarter of 2018, we have accounted for Argentina as highly inflationary which resulted in the recognition of a $0.2 million and $0.4 million foreign currency loss that was recorded in other income, net in our Consolidated Statements of Income (Loss) during the three and six months ended June 30, 2020, respectively.

Beginning in the third quarter of 2018, we have accounted for Argentina as highly inflationary which resulted in the recognition of a $0.1 million and $0.5 million foreign currency loss that was recorded in other income, net in our Consolidated Statements of Income (Loss) during the three and nine months ended September 30, 2020, respectively.

RECENT ACCOUNTING PRONOUNCEMENTS

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Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.

We review goodwill and indefinite lived intangible assets for impairment annually (as of September 30) and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable.

These events or circumstances could include a significant change in the business climate, legal factors, operating performance or trends, competition, or sale or disposition of a significant portion of a reporting unit.

We have seven reporting units comprised of USIS (which includes Online Information Solutions, Mortgage Solutions and Financial Marketing Services), Asia Pacific, Europe, Latin America, Canada, GCS, and Equifax Workforce Solutions (which includes Verification Services and Employer Services).

The goodwill balance at September 30, 2020, for our seven reporting units was as follows:

September 30,

(In millions)

Information Solutions $ 1,286.7

Workforce Solutions 1,010.7

Asia Pacific 1,457.0

Latin America 217.7

Global Consumer Solutions 186.6

Total goodwill $ 4,366.0

We performed a qualitative assessment to determine whether further impairment testing was necessary for our USIS, Workforce Solutions, Europe, Canada and GCS reporting units.

In this qualitative assessment, we considered the following items for each of the reporting units:

macroeconomic conditions, industry and market conditions, overall financial performance and other entity specific events.

In addition, for each of these reporting units, the most recent fair value determination resulted in an amount that significantly exceeded the carrying amount of the reporting units.

Based on these assessments, we determined the likelihood that a current fair value determination would be less than the current carrying amount of the reporting unit is not more likely than not.

As a result of our conclusions, no further testing was required for these reporting units.

Valuation Techniques

We performed a quantitative assessment for our Asia Pacific and Latin America reporting units to determine whether impairment exists from the most recent valuation dates due to the size of the cushion and lower current year forecasts than the 2020 projections from the most recent valuations in relation to our other reporting units.

In determining the fair value of the reporting unit, we used a combination of the income and market approaches to estimate the reporting unit’s business enterprise value.

Under the income approach, we calculate the fair value of a reporting unit based on estimated future discounted cash flows which require assumptions about short and long-term revenue growth rates, operating margins for each reporting unit, discount rates, foreign currency exchange rates and estimates of capital expenditures.

The assumptions we use are based on what we believe a hypothetical marketplace participant would use in estimating fair value.

Under the market approach, we estimate the fair value based on market multiples of revenue or earnings before income taxes, depreciation and amortization, for benchmark companies or guideline transactions.

We believe the benchmark companies used for our Asia Pacific and Latin America reporting units serve as an appropriate input for calculating a fair value for the reporting unit as those benchmark companies have similar risks, participate in similar markets, provide similar services for their customers and compete with us directly.

The companies we use as benchmarks are principally outlined in our discussion of Competition in our 2019 Form 10-K.

Competition for our Asia Pacific and Latin America reporting units generally includes global consumer credit reporting companies, such as Experian, which offer a product suite similar to the reporting unit's credit reporting solutions.

The values separately derived from each of the income and market approach valuation techniques were used to develop an overall estimate of a reporting unit’s fair value.

We use a consistent approach across all reporting units when considering the weight of the income and market approaches for calculating the fair value of each of our reporting units.

This approach relies more heavily on the calculated fair value derived from the income approach, with 70% of the value coming from the income approach.

We believe this approach is consistent with that of a market participant in valuing prospective

purchase business combinations.

The selection and weighting of the various fair value techniques may result in a higher or lower fair value.

Judgment is applied in determining the weightings that are most representative of fair value.

We have not made any material changes to the valuation methodology we use to assess goodwill impairment since the date of our last annual impairment test.

Growth Assumptions

The assumptions for our future cash flows begin with our historical operating performance, the details of which are described in our Management’s Discussion & Analysis of operating performance.

Additionally, we consider the impact that known economic, industry and market trends, including the potential impact of the COVID-19 global pandemic, will have on our future forecasts, as well as the impact that we expect from planned business initiatives including new product initiatives, client service and retention standards, and cost management programs.

At the end of the forecast period, the long-term growth rate we used to determine the terminal value of our Asia Pacific and Latin American reporting units were between 3.0% and 5.0% based on management’s assessment of the minimum expected terminal growth rate of the reporting unit, as well as broader economic considerations such as GDP, inflation and the maturity of the markets we serve.

We projected revenue growth in 2021 for our Asia Pacific and Latin America reporting units in completing our 2020 impairment testing based on expected economic recovery from the negative impact the COVID-19 pandemic has had on these regions in 2020, planned business initiatives and prevailing trends exhibited by these units and not based on the assumption of meaningful acceleration in economic growth.

The anticipated revenue growth in these reporting units, however, is partially offset by assumed increases in expenses for the reporting unit which reflects the additional level of investment needed in order to achieve the planned revenue growth and completion of our technology transformation initiatives.

Discount Rate Assumptions

We utilize a weighted average cost of capital, or WACC, in our impairment analysis that makes assumptions about the capital structure that we believe a market participant would make and include a risk premium based on an assessment of risks related to the projected cash flows for the reporting unit.

We believe this approach yields a discount rate that is consistent with an implied rate of return that a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed.

To calculate the WACC, the cost of equity and cost of debt are multiplied by the assumed capital structure of the reporting unit as compared to industry trends and relevant benchmark company structures.

The cost of equity was computed using the Capital Asset Pricing Model which considers the risk-free interest rate, beta, equity risk premium and specific company risk premium related to a particular reporting unit.

The cost of debt was computed using a benchmark rate and the Company’s tax rate.

For the 2020 annual goodwill impairment evaluation, the discount rates used to develop the estimated fair value of the Asia Pacific and Latin America reporting units were between 9.0% and 16.0%.

Estimated Fair Value and Sensitivities

The estimated fair value of the reporting units is derived from the valuation techniques described above, incorporating the related projections and assumptions.

Impairment occurs when the estimated fair value of the reporting unit is below the carrying value of its equity.

The estimated fair value for our Asia Pacific and Latin America reporting units exceeded their related carrying values as of September 30, 2020.

As a result, no goodwill impairment was recorded.

The estimated fair value of the reporting unit is highly sensitive to changes in these projections and assumptions;

therefore, in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its carrying value.

For example, an increase in the discount rate and decline in the projected cumulative cash flow of a reporting unit could cause the fair value of certain reporting units to be below its carrying value.

We perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values.

Ultimately, future potential changes in these assumptions may impact the estimated fair value of a reporting unit and cause the fair value of the reporting unit to be below its carrying value.

Due to the lower cushions when compared to other reporting units, Asia Pacific and Latin America are more sensitive to changes in the assumptions noted above that could result in a fair value that is less than its carrying value.

The excess of fair value over carrying value for the Asia Pacific reporting unit was less than 5% and the excess fair value over carrying value for the Latin America reporting unit was between 15% and 20% as of September 30, 2020.

Given the small excess of fair value over carrying value for the Asia Pacific reporting unit, we believe that it is at risk of a possible future goodwill impairment.

Although we experienced growth in this reporting unit for the three months ended

March 31, 2020 in comparison to the estimates used in the 2019 goodwill impairment testing, the COVID-19 pandemic has had a substantial negative impact on our results over the last six months.

Avoidance of a future impairment will be dependent on continued economic recovery from the negative impact caused by COVID-19 in 2020 and our ability to execute on initiatives to grow revenue and manage expenses prudently.

We will continue to monitor the performance of this reporting unit to ensure no interim indications of possible impairment have occurred before our next annual goodwill impairment assessment in September 2021.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures about Market Risk,” in Part II, Item 7A of our 2019 Form 10-K.

There were no material changes to our market risk exposure during the three and six months ended June 30, 2020.

There were no material changes to our market risk exposure during the three and nine months ended September 30, 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis