10-Q 1 efx10q20170930.htm 10-Q Document
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2017
 
OR

TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                      to                                      .
 
Commission File Number: 001-06605
 
 
  
EQUIFAX INC.
(Exact name of registrant as specified in its charter)
 
Georgia
58-0401110
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
 
1550 Peachtree Street, N.W., Atlanta, Georgia
30309
(Address of principal executive offices)
(Zip Code)
 
404-885-8000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes        No   
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes        No   
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
 
 
(Do not check if a smaller reporting company)
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. Yes       No  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No  
 
On October 31, 2017, there were 120,079,376 shares of the registrant’s common stock outstanding.



EQUIFAX INC.
 
QUARTERLY REPORT ON FORM 10-Q
 
QUARTER ENDED September 30, 2017
 
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 





2


FORWARD-LOOKING STATEMENTS
 
This report contains information that may constitute “forward-looking statements.” Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may” and similar expressions identify forward-looking statements, which generally are not historical in nature. All statements that address operating performance, events or developments that we expect or anticipate will occur in the future, including statements relating to future operating results and statements related to the cybersecurity incident reported in the third quarter of 2017, are forward-looking statements. Management believes that these forward-looking statements are reasonable as and when made. However, forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not limited to, those described in Part II, “Item 1A. Risk Factors,” and elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2016, and those described from time to time in our future reports filed with the Securities and Exchange Commission. As a result of such risks and uncertainties, we urge you not to place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

 



3


PART I.  FINANCIAL INFORMATION
 
ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)
 
EQUIFAX INC.
 
CONSOLIDATED STATEMENTS OF INCOME 
 
(Unaudited)

 
 
Three Months Ended
September 30,
 
 
2017
 
2016
(In millions, except per share amounts)
 
 
Operating revenue
 
$
834.8

 
$
804.1

Operating expenses:
 
 

 
 

Cost of services (exclusive of depreciation and amortization below)
 
297.3

 
288.0

Selling, general and administrative expenses
 
312.2

 
233.4

Depreciation and amortization
 
72.4

 
70.6

Total operating expenses
 
681.9

 
592.0

Operating income
 
152.9

 
212.1

Interest expense
 
(21.4
)
 
(24.3
)
Other income, net
 
4.5

 
2.4

Consolidated income before income taxes
 
136.0

 
190.2

Provision for income taxes
 
(35.5
)
 
(55.3
)
Consolidated net income
 
100.5

 
134.9

Less: Net income attributable to noncontrolling interests including redeemable noncontrolling interests
 
(4.2
)
 
(2.1
)
Net income attributable to Equifax
 
$
96.3

 
$
132.8

Basic earnings per common share:
 
 

 
 

Net income attributable to Equifax
 
$
0.80

 
$
1.11

Weighted-average shares used in computing basic earnings per share
 
120.1

 
119.5

Diluted earnings per common share:
 
 

 
 

Net income attributable to Equifax
 
$
0.79

 
$
1.09

Weighted-average shares used in computing diluted earnings per share
 
121.4

 
121.3

Dividends per common share
 
$
0.39

 
$
0.33




See Notes to Consolidated Financial Statements.















4

EQUIFAX INC.



CONSOLIDATED STATEMENTS OF INCOME 
 
(Unaudited)

 
 
 
 
 
 
 
Nine Months Ended 
 September 30,
 
 
2017
 
2016
(In millions, except per share amounts)
 
 
Operating revenue
 
$
2,523.8

 
$
2,343.8

Operating expenses:
 
 
 
 
Cost of services (exclusive of depreciation and amortization below)
 
891.9

 
827.1

Selling, general and administrative expenses
 
783.9

 
708.2

Depreciation and amortization
 
214.2

 
194.5

Total operating expenses
 
1,890.0

 
1,729.8

Operating income
 
633.8

 
614.0

Interest expense
 
(70.1
)
 
(68.0
)
Other income (expense), net
 
10.6

 
(0.4
)
Consolidated income before income taxes
 
574.3

 
545.6

Provision for income taxes
 
(150.8
)
 
(175.3
)
Consolidated net income
 
423.5

 
370.3

Less: Net income attributable to noncontrolling interests including redeemable noncontrolling interests
 
(8.5
)
 
(4.5
)
Net income attributable to Equifax
 
$
415.0

 
$
365.8

Basic earnings per common share:
 
 
 
 
Net income attributable to Equifax
 
$
3.45

 
$
3.07

Weighted-average shares used in computing basic earnings per share
 
120.1

 
119.2

Diluted earnings per common share:
 
 
 
 
Net income attributable to Equifax
 
$
3.41

 
$
3.02

Weighted-average shares used in computing diluted earnings per share
 
121.6

 
121.1

Dividends per common share
 
$
1.17

 
$
0.99




See Notes to Consolidated Financial Statements.






5

EQUIFAX INC.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
(Unaudited)
 
 
 
Three Months Ended September 30,
 
 
2017
 
2016
 
 
Equifax
Shareholders
 
Noncontrolling
Interests
 
Total
 
Equifax
Shareholders
 
Noncontrolling
Interests
 
Total
 
 
(In millions)
Net income
 
$
96.3

 
$
4.2

 
$
100.5

 
$
132.8

 
$
2.1

 
$
134.9

Other comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment
 
91.1

 
1.2

 
92.3

 
82.2

 

 
82.2

Change in unrecognized prior service cost and actuarial losses related to our pension and other postretirement benefit plans, net
 
2.6

 

 
2.6

 
2.3

 

 
2.3

Change in cumulative loss from cash flow hedging transactions, net
 

 

 

 

 

 

Comprehensive income
 
$
190.0

 
$
5.4

 
$
195.4

 
$
217.3

 
$
2.1

 
$
219.4



 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
Equifax
Shareholders
 
Noncontrolling
Interests
 
Total
 
Equifax
Shareholders
 
Noncontrolling
Interests
 
Total
 
 
(In millions)
Net income
 
$
415.0

 
$
8.5

 
$
423.5

 
$
365.8

 
$
4.5

 
$
370.3

Other comprehensive income (loss):
 
 

 
 

 
 

 
 

 
 

 
 

Foreign currency translation adjustment
 
209.7

 
3.4

 
213.1

 
114.1

 
(1.3
)
 
112.8

Change in unrecognized prior service cost and actuarial losses related to our pension and other postretirement benefit plans, net
 
7.6

 

 
7.6

 
6.8

 

 
6.8

Change in cumulative loss from cash flow hedging transactions, net
 
(0.2
)
 

 
(0.2
)
 
0.6

 

 
0.6

Comprehensive income
 
$
632.1

 
$
11.9

 
$
644.0

 
$
487.3

 
$
3.2

 
$
490.5



 

See Notes to Consolidated Financial Statements.
 


6

EQUIFAX INC.


CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
September 30, 2017
 
December 31, 2016
(In millions, except par values)
 
 
 
 
ASSETS
 
 

 
 

Current assets:
 
 

 
 

Cash and cash equivalents
 
$
315.4

 
$
129.3

Trade accounts receivable, net of allowance for doubtful accounts of $10.2 and $7.8 at September 30, 2017 and December 31, 2016, respectively
 
458.3

 
433.3

Prepaid expenses
 
76.9

 
60.2

Other current assets
 
48.7

 
50.1

Total current assets
 
899.3

 
672.9

Property and equipment:
 
 

 
 

Capitalized internal-use software and system costs
 
388.0

 
307.0

Data processing equipment and furniture
 
294.3

 
273.2

Land, buildings and improvements
 
214.5

 
203.8

Total property and equipment
 
896.8

 
784.0

Less accumulated depreciation and amortization
 
(368.1
)
 
(317.1
)
Total property and equipment, net
 
528.7

 
466.9

Goodwill
 
4,178.4

 
3,974.3

Indefinite-lived intangible assets
 
95.0

 
94.8

Purchased intangible assets, net
 
1,276.8

 
1,323.8

Other assets, net
 
137.5

 
131.3

Total assets
 
$
7,115.7

 
$
6,664.0

LIABILITIES AND EQUITY
 
 

 
 

Current liabilities:
 
 

 
 

Short-term debt and current maturities of long-term debt
 
$
667.8

 
$
585.4

Accounts payable
 
82.5

 
81.0

Accrued expenses
 
135.7

 
149.3

Accrued salaries and bonuses
 
92.9

 
158.8

Deferred revenue
 
117.4

 
110.7

Other current liabilities
 
240.0

 
174.4

Total current liabilities
 
1,336.3

 
1,259.6

Long-term debt
 
2,038.7

 
2,086.8

Deferred income tax liabilities, net
 
303.5

 
325.4

Long-term pension and other postretirement benefit liabilities
 
175.6

 
184.4

Other long-term liabilities
 
95.9

 
86.5

Total liabilities
 
3,950.0

 
3,942.7

Commitments and Contingencies (see Note 5)
 


 


Equifax shareholders' equity:
 
 

 
 

Preferred stock, $0.01 par value: Authorized shares - 10.0; Issued shares - none
 

 

Common stock, $1.25 par value: Authorized shares - 300.0;
Issued shares - 189.3 at September 30, 2017 and December 31, 2016;
Outstanding shares - 120.0 and 119.9 at September 30, 2017 and December 31, 2016, respectively
 
236.6

 
236.6

Paid-in capital
 
1,335.0

 
1,313.3

Retained earnings
 
4,424.7

 
4,153.2

Accumulated other comprehensive loss
 
(311.8
)
 
(528.9
)
Treasury stock, at cost, 68.7 shares and 68.8 shares at September 30, 2017 and December 31, 2016, respectively
 
(2,578.2
)
 
(2,505.6
)
Stock held by employee benefit trusts, at cost, 0.6 shares at September 30, 2017 and December 31, 2016
 
(5.9
)
 
(5.9
)
Total Equifax shareholders' equity
 
3,100.4

 
2,662.7

Noncontrolling interests including redeemable noncontrolling interests
 
65.3

 
58.6

Total equity
 
3,165.7

 
2,721.3

Total liabilities and equity
 
$
7,115.7

 
$
6,664.0


 See Notes to Consolidated Financial Statements.

7

EQUIFAX INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(Unaudited)

 
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
 
(In millions)
Operating activities:
 
 

 
 

Consolidated net income
 
$
423.5

 
$
370.3

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
216.7

 
195.4

Stock-based compensation expense
 
34.6

 
30.2

Excess tax benefits from stock-based compensation plans
 

 
(29.6
)
Deferred income taxes
 
(40.6
)
 
(10.4
)
Changes in assets and liabilities, excluding effects of acquisitions:
 
 
 
 

Accounts receivable, net
 
(14.9
)
 
(54.5
)
Other assets, current and long-term
 
(24.4
)
 
(0.9
)
Current and long term liabilities, excluding debt
 
13.8

 
43.7

Cash provided by operating activities
 
608.7

 
544.2

Investing activities:
 
 
 
 

Capital expenditures
 
(157.5
)
 
(131.0
)
Acquisitions, net of cash acquired
 
(77.3
)
 
(1,792.4
)
Economic hedges
 

 
(10.8
)
Cash received from sale of asset
 
8.6

 

Cash used in investing activities
 
(226.2
)
 
(1,934.2
)
Financing activities:
 
 
 
 

Net short-term borrowings
 
354.9

 
194.2

Payments on long-term debt
 
(322.5
)
 
(300.0
)
Borrowings on long-term debt
 

 
1,574.7

Treasury stock purchases
 
(77.1
)
 

Dividends paid to Equifax shareholders
 
(140.7
)
 
(118.1
)
Dividends paid to noncontrolling interests
 
(8.2
)
 
(5.8
)
Proceeds from exercise of stock options
 
18.8

 
26.8

Payment of taxes related to settlement of equity awards
 
(28.0
)
 
(19.7
)
Excess tax benefits from stock-based compensation plans
 

 
29.6

Purchase of redeemable noncontrolling interests
 

 
(3.6
)
Other
 

 
(5.4
)
Cash (used in) provided by financing activities
 
(202.8
)
 
1,372.7

Effect of foreign currency exchange rates on cash and cash equivalents
 
6.4

 
35.5

Increase in cash and cash equivalents
 
186.1

 
18.2

Cash and cash equivalents, beginning of period
 
129.3

 
93.3

Cash and cash equivalents, end of period
 
$
315.4

 
$
111.5

 
See Notes to Consolidated Financial Statements.
 


8


EQUIFAX INC.
 
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY AND OTHER COMPREHENSIVE INCOME
 
For the Nine Months Ended September 30, 2017
 
(Unaudited)
 
 
 
Equifax Shareholders
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accumulated Other Comprehensive Loss
 
 
 
Stock
Held By Employee Benefits Trusts
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shares
Outstanding
 
Amount
 
Paid-In
Capital
 
Retained
Earnings
 
 
Treasury
Stock
 
 
Noncontrolling
Interests
 
Total
Equity
 
 
(In millions, except per share amounts)
Balance, December 31, 2016
 
119.9

 
$
236.6

 
$
1,313.3

 
$
4,153.2

 
$
(528.9
)
 
$
(2,505.6
)
 
$
(5.9
)
 
$
58.6

 
$
2,721.3

Net income
 

 

 

 
415.0

 

 

 

 
8.5

 
423.5

Other comprehensive income
 

 

 

 

 
217.1

 

 

 
3.4

 
220.5

Shares issued under stock and benefit plans,
net of minimum tax withholdings
 
0.6

 

 
(13.4
)
 

 

 
4.5

 

 

 
(8.9
)
 Treasury stock purchased under share repurchase program*
 
(0.5
)
 

 

 

 

 
(77.1
)
 

 

 
(77.1
)
Cash dividends ($1.17 per share)
 

 

 

 
(141.3
)
 

 

 

 

 
(141.3
)
Dividends paid to employee benefits trusts
 

 

 
0.7

 

 

 

 

 

 
0.7

Stock-based compensation expense
 

 

 
34.6

 

 

 

 

 

 
34.6

Redeemable noncontrolling interest adjustment
 

 

 

 
(2.3
)
 

 

 

 
2.3

 

Dividends paid to noncontrolling interests
 

 

 

 

 

 

 

 
(8.2
)
 
(8.2
)
Other
 

 

 
(0.2
)
 
0.1

 

 

 

 
0.7

 
0.6

Balance, September 30, 2017
 
120.0

 
$
236.6

 
$
1,335.0

 
$
4,424.7

 
$
(311.8
)
 
$
(2,578.2
)
 
$
(5.9
)
 
$
65.3

 
$
3,165.7


* At September 30, 2017, $590.1 million was available for future purchases of common stock under our share repurchase authorization.

Accumulated Other Comprehensive Loss consists of the following components:
 
 
 
September 30, 2017
 
December 31, 2016
 
 
(In millions)
Foreign currency translation              
 
$
(52.3
)
 
$
(262.0
)
Unrecognized actuarial losses and prior service cost related to our pension and other postretirement benefit plans, net of accumulated tax of $146.4 and $150.6 at September 30, 2017 and December 31, 2016, respectively
 
(258.3
)
 
(265.9
)
Cash flow hedging transactions, net of accumulated tax of $0.8 and $0.9 at September 30, 2017 and December 31, 2016, respectively
 
(1.2
)
 
(1.0
)
Accumulated other comprehensive loss
 
$
(311.8
)
 
$
(528.9
)
 

See Notes to Consolidated Financial Statements.


9


EQUIFAX INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
September 30, 2017
 
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
As used herein, the terms Equifax, the Company, we, our and us refer to Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Equifax Inc.

Nature of Operations.   We collect, organize and manage various types of financial, demographic, employment and marketing information. Our services enable businesses to make credit and service decisions, manage their portfolio risk, automate or outsource certain human resources, employment tax and payroll-related business processes, and develop marketing strategies concerning consumers and commercial enterprises. We serve customers across a wide range of industries, including the financial services, mortgage, retail, telecommunications, utilities, automotive, brokerage, healthcare and insurance industries, as well as government agencies. We also enable consumers to manage and protect their financial health through a portfolio of products offered directly to consumers. We also provide information, technology and services to support debt collections and recovery management. As of September 30, 2017, we operated in the following countries: Argentina, Australia, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, India, Ireland, Mexico, New Zealand, Paraguay, Peru, Portugal, Spain, the United Kingdom, or U.K., Uruguay, and the United States of America, or U.S. We also offer Equifax branded credit services in India and Russia through joint ventures, we have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia and Singapore, and have an investment in a consumer and commercial credit information company in Brazil.
 
We develop, maintain and enhance secured proprietary information databases through the compilation of consumer specific data, including credit, income, employment, asset, liquidity, net worth and spending activity, and business data, including credit and business demographics, that we obtain from a variety of sources, such as credit granting institutions, public record information, income and tax information primarily from large to mid-sized companies in the U.S., and survey-based marketing information.  We process this information utilizing our proprietary information management systems.
 
Basis of Presentation.   The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, the instructions to Form 10-Q and applicable sections of SEC Regulation S-X. To understand our complete financial position and results, as defined by GAAP, this Form 10-Q should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in our annual report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”).
 
Our unaudited Consolidated Financial Statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the periods presented and are of a normal recurring nature.
 
Earnings Per Share.   Our basic earnings per share, or EPS, is calculated as net income attributable to Equifax divided by the weighted-average number of common shares outstanding during the period. Diluted EPS is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding. The net income amounts used in both our basic and diluted EPS calculations are the same. A reconciliation of the weighted-average outstanding shares used in the two calculations is as follows: 
 
 
Three Months Ended September 30,
Nine Months Ended September 30,
 
 
2017
 
2016
2017
 
2016
 
 
(In millions)
Weighted-average shares outstanding (basic)
 
120.1

 
119.5

120.1

 
119.2

Effect of dilutive securities:
 
 
 
 

 

 
 

Stock options and restricted stock units
 
1.3

 
1.8

1.5

 
1.9

Weighted-average shares outstanding (diluted)
 
121.4

 
121.3

121.6

 
121.1

 

For the three and nine months ended September 30, 2017 and 2016, stock options that were anti-dilutive were not material. 
 
Financial Instruments.   Our financial instruments consist of cash and cash equivalents, accounts and notes receivable, accounts payable and short- and long-term debt. The carrying amounts of these items, other than long-term debt,

10




approximate their fair market values due to the short-term nature of these instruments. The fair value of our fixed-rate debt is determined using Level 2 inputs such as quoted market prices for similar publicly traded instruments, and for non-publicly traded instruments through valuation techniques involving observable inputs based on the specific characteristics of the debt instrument. As of September 30, 2017 and December 31, 2016, the fair value of our long-term debt, including the current portion, was $2.1 billion and $2.4 billion compared to its carrying value of $2.0 billion and $2.4 billion, respectively.
 
Derivatives and Hedging Activities.   Although derivative financial instruments are not utilized for speculative purposes or as the Company’s primary risk management tool, derivatives have been used as a risk management tool to hedge the Company’s exposure to changes in interest rates and foreign exchange rates. We have used interest rate swaps and interest rate lock agreements to manage interest rate risk associated with our fixed and floating-rate borrowings. Forward contracts on various foreign currencies have been used to manage the foreign currency exchange rate risk of certain firm commitments denominated in foreign currencies. We recognize all derivatives on the balance sheet at fair value. Derivative valuations reflect the value of the instrument including the value associated with any material counterparty risk. 

Economic Hedges.   In December 2015, in anticipation of the acquisition of Veda Group Limited ("Veda"), we purchased foreign currency options to buy Australian dollars with a weighted average strike price of $0.7225 and a notional value of 1.0 billion Australian dollars. These foreign currency options ("options") were designed to act as economic hedges for the pending Veda acquisition and were marked to market. The options had an expiry date of February 18, 2016. In January 2016, we purchased additional options for a notional amount of 1.0 billion Australian dollars, with a weighted average strike price of $0.7091, with expiry dates of February 11, 2016 and February 16, 2016. We settled all of the options on the respective settlement dates in February 2016. We recognized a net loss of $15.4 million related to the options in the first quarter of 2016, which was recorded in other income (expense), net.

Fair Value Measurements.   Fair value is determined based on the assumptions marketplace participants use in pricing the asset or liability. We use a three level fair value hierarchy to prioritize the inputs used in valuation techniques between observable inputs that reflect quoted prices in active markets, inputs other than quoted prices with observable market data and unobservable data (e.g., a company’s own data).
 
The following table presents items measured at fair value on a recurring basis:
 
 
 
 
Fair Value Measurements at Reporting Date Using:
Description
 
Fair Value of Assets
(Liabilities) at
September 30, 2017
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
 
(In millions)
Deferred Compensation Plan Assets(1)
 
$
33.3

 
$
33.3

 
$

 
$

Deferred Compensation Plan Liability(1)
 
(33.3
)
 

 
(33.3
)
 

Total
 
$

 
$
33.3

 
$
(33.3
)
 
$

 
(1)        We maintain deferred compensation plans that allow for certain management employees to defer the receipt of compensation (such as salary, incentive compensation and commissions) until a later date based on the terms of the plan. The liability representing benefits accrued for plan participants is valued at the quoted market prices of the participants’ investment elections. The asset consists of mutual funds reflective of the participants’ investment selections and is valued at daily quoted market prices.
    
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis. As disclosed in Note 2, we completed various acquisitions during the nine months ended September 30, 2017 and the year ended December 31, 2016. The values of net assets acquired and the resulting goodwill were recorded at fair value using Level 3 inputs. The majority of the related current assets acquired and liabilities assumed were recorded at their carrying values as of the date of acquisition, as their carrying values approximated their fair values due to their short-term nature. The fair values of goodwill and definite-lived intangible assets acquired in this acquisition were internally estimated primarily based on the income approach. The income approach estimates fair value based on the present value of the cash flows that the assets are expected to generate in the future. We developed internal estimates for the expected cash flows and discount rates in the present value calculations. The fair value of the equity method investment assets acquired were internally estimated based on the market approach. Under the market approach, we estimated fair value based on market multiples of comparable companies.

Other Current Assets. Other current assets on our Consolidated Balance Sheets primarily represent amounts in specifically designated accounts that hold the funds that are due to customers from our debt collection and recovery

11




management services. As of September 30, 2017, these assets were approximately $24.3 million, with a corresponding balance in other current liabilities. These amounts are restricted as to their current use, and will be released according to the specific customer agreements. Other current assets also include certain current tax accounts.
 
Variable Interest Entities.  We hold interests in certain entities, including credit data, information solutions and debt collections and recovery management ventures that are considered variable interest entities, or VIEs.  These variable interests relate to ownership interests that require financial support for these entities.  Our investments related to these VIEs totaled $13.8 million at September 30, 2017, representing our maximum exposure to loss, with the exception of the guarantees referenced in Note 5.  We are not the primary beneficiary and are not required to consolidate any of these VIEs, with the exception of a debt collections and recovery management venture, for which we meet the consolidation criteria under Accounting Standards Codification ("ASC") 810, Consolidation. In regards to that consolidated VIE, we have a 75% equity ownership interest and control of the activities that most significantly impact the VIE's economic performance. The assets and liabilities of the VIE for which we are the primary beneficiary were not significant to the Company’s Consolidated Financial Statements, and no gain or loss was recognized because of its consolidation.

In evaluating whether we have the power to direct the activities of a VIE that most significantly impact its economic performance, we consider the purpose for which the VIE was created, the importance of each of the activities in which it is engaged and our decision-making role, if any, in those activities that significantly determine the entity's economic performance as compared to other economic interest holders. This evaluation requires consideration of all facts and circumstances relevant to decision-making that affects the entity's future performance and the exercise of professional judgment in deciding which decision-making rights are most important.

In determining whether we have the right to receive benefits or the obligation to absorb losses that could potentially be significant to the VIE, we evaluate all of our economic interests in the entity, regardless of form (debt, equity, management and servicing fees, and other contractual arrangements). This evaluation considers all relevant factors of the entity's design, including: the entity's capital structure, contractual rights to earnings (losses), subordination of our interests relative to those of other investors, contingent payments, as well as other contractual arrangements that have the potential to be economically significant. The evaluation of each of these factors in reaching a conclusion about the potential significance of our economic interests is a matter that requires the exercise of professional judgment.
Certain of our VIEs have redeemable noncontrolling interests that are subject to classification outside of permanent equity on the Company's Consolidated Balance Sheet. The redeemable noncontrolling interests are reflected using the redemption method as of the balance sheet date. Redeemable noncontrolling interest adjustments to the redemption values are reflected in retained earnings. The adjustment of redemption value at the period end that reflects a redemption value in excess of fair value is included as an adjustment to net income attributable to Equifax stockholders for the purposes of the calculation of earnings per share. None of the current period adjustments reflect a redemption in excess of fair value. Additionally, due to the immaterial balance of the redeemable noncontrolling interest, we have elected to maintain the noncontrolling interest in permanent equity, rather than temporary equity, within our Consolidated Balance Sheet.

Other Assets.  Other assets on our Consolidated Balance Sheets primarily represents our investment in unconsolidated affiliates, our cost method investment in Brazil, assets related to life insurance policies covering certain officers of the Company, and employee benefit trust assets.
 
Cost Method Investment.   We monitor the status of our cost method investment in order to determine if conditions exist or events and circumstances indicate that it may be impaired in that its carrying amount may exceed the fair value of the investment. Significant factors that are considered that could be indicative of an impairment include: changes in business strategy, market conditions, underperformance relative to historical or expected future operating results; and negative industry or economic trends. If potential indicators of impairment exist, we estimate the fair value of the investment using a combination of a discounted cash flow analysis and an evaluation of EBITDA multiples for comparable companies. If the carrying value of the investment exceeds the estimated fair value, an impairment loss is recorded based on the amount by which the investment’s carrying amount exceeds its fair value. As of September 30, 2017, our investment in Brazil, recorded at 44 million Reais ($14.0 million), approximated the fair value.

Other Current Liabilities. Other current liabilities on our Consolidated Balance Sheets consist of corresponding amounts of other current assets, related to amounts in specifically designated accounts that hold the funds that are due to customers from our debt collection and recovery management services. As of September 30, 2017, these funds were approximately $24.3 million. These amounts are restricted as to their current use, and will be released according to the specific customer agreements. Other current liabilities also include various accrued liabilities such as costs related to the cybersecurity

12




incident as described more fully in Note 5, interest expense, accrued employee benefits, accrued taxes, accrued payroll, and accrued legal expenses.

Change in Accounting Principle. In March 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-09 "Compensation - Stock Compensation (Topic 718)." This standard requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools. The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting. The new guidance requires the related payments to taxing authorities to be retrospectively presented as a cash outflow from financing activities. As a result, we reclassified $19.7 million of cash outflows from operating activities in the first nine months of 2016 to a cash outflow from financing activities. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. The adoption of this guidance resulted in the recognition of $4.8 million, or $0.04 per diluted common share, and $24.5 million and $0.20 per diluted common share, of tax benefits in our Consolidated Statement of Income for the three and nine months ended September 30, 2017, respectively. We also prospectively applied the provisions of the new guidance related to the presentation of windfall tax benefits as cash flows from operating activities which resulted in classifying $4.8 million and $24.5 million of cash flows from financing activities to operating activities for the third quarter and first nine months ended September 30, 2017. We have elected to continue to estimate forfeitures expected to occur to determine the amount of compensation cost to be recognized each period.

Recent Accounting Pronouncements.  Derivatives and Hedging. In August 2017, the FASB issued ASU 2017-12, “Targeted Improvements to Accounting for Hedging Activities (Topic 815).” The amendments in ASU 2017-12 provide targeted improvements to the accounting for hedging activities to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The adoption of ASU 2017-12 will become effective for annual periods beginning after December 15, 2018, although early adoption is permitted. This guidance must be applied on a prospective basis. We do not expect the adoption of this ASU will have a material impact on our financial position, results of operations or cash flows.

Stock Compensation. In May 2017, the FASB issued ASU 2017-09, "Compensation - Stock Compensation (Topic 718) Scope of Modification Accounting." The amendments in ASU 2017-09 require entities to apply modification accounting in Topic 718 only when changes to the terms or conditions of a share-based payment award result in changes to fair value, vesting conditions or the classification of the award as equity or liability. The adoption of ASU 2017-09 will become effective for annual periods beginning after December 15, 2017. Based on historical modifications we do not believe the adoption of this guidance will have a material impact on our financial position, results of operations or cash flows.

Pension Costs. In March 2017, the FASB issued ASU 2017-07 "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (Topic 715)." This new guidance changes how employers that sponsor defined benefit pension plans and other postretirement plans present the net periodic benefit cost in the income statement. An employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. Other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. The amendment also allows only the service cost component to be eligible for capitalization, when applicable. This new guidance will be effective for the Company for the first reporting period beginning after December 15, 2017, with early adoption permitted in the first quarter of 2017. The amendment will be applied retrospectively for the presentation requirements and prospectively for the capitalization of the service cost component requirements. We do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

Goodwill. In January 2017, the FASB issued ASU 2017-04 "Simplifying the Test for Goodwill Impairment (Topic 350)." This standard eliminates Step 2 from the current goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019 with early adoption permitted. This guidance must be applied on a prospective basis. We do not expect the adoption of this guidance to have a material impact on our financial position, results of operations or cash flows.

Definition of a business. In January 2017, the FASB issued ASU 2017-01 "Clarifying the Definition of a Business (Topic 805)." This standard provides criteria to determine when an asset acquired or group of assets acquired is not a business. When substantially all of the fair value of the gross assets acquired (or disposed of) is concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This reduces the number of transactions that need to be further evaluated. The guidance is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2017

13




with early adoption permitted. We are currently evaluating the impact of the adoption of this guidance on our financial position, results of operations and cash flows.

Leases. In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” This standard requires lessees to record most leases on their balance sheets and expenses on their income statements in a manner similar to current lease accounting. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. All entities will classify leases to determine how to recognize lease-related revenue and expense. The guidance becomes effective for fiscal years and interim reporting periods beginning after December 15, 2018. The Company is evaluating the potential effects of the adoption of this standard on its Consolidated Financial Statements.

Revenue Recognition. In May 2014, the FASB issued ASU No. 2014-9, "Revenue from Contracts with Customers." ASU 2014-9 is a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-9 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-9 was originally effective for annual reporting periods, and interim periods within that period, beginning after December 15, 2016 and early adoption was not permitted. On July 9, 2015, the FASB voted to defer the effective date by one year to December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. Companies may use either a full retrospective or a modified retrospective approach to adopt ASU 2014-9.

Based on our current assessment, we anticipate adopting the standard using the modified retrospective method in the first quarter of fiscal 2018. The new standard will impact our contracts that have a known quantity over a defined term with price increases or decreases over the contract life. Under the current standard, the revenue related to these contracts are limited by billings in a period. Under the new standard the total contract value will be recognized ratably over the defined term or by using a transactional standalone selling price resulting in the creation of a contract asset or contract liability as transactions are delivered. Based upon analysis performed to date, we have preliminarily determined that we do not expect the revenue recognition aspects of the new standard will materially affect our consolidated net earnings, financial position, or cash flow based on the application of the guidance to our contracts with customers. We will continue to review and evaluate our contracts under the new revenue recognition model to ascertain whether additional contract types or future contracts will be affected by the new standard. Additionally, the new guidance specifies that all incremental costs of obtaining a contract and the direct costs of fulfilling a contract with customers should be deferred and recognized over the contract period or expected customer life. Based on our current assessment, we do not anticipate a significant change in our cost capitalization practices resulting from the application of the guidance. Finally, we continue to review the additional disclosures required by the new standard.

2. ACQUISITIONS AND INVESTMENTS

2017 Acquisitions and Investments. On August 10, 2017, the Company completed the acquisition of 100% of the outstanding stock of ID Watchdog, Inc., an identity theft protection and resolution company providing solutions to the employee benefits marketplace.

2016 Acquisitions and Investments. On February 24, 2016, the Company completed the acquisition of 100% of the ordinary voting shares of Veda for cash consideration of approximately $1.7 billion (2.4 billion Australian dollars) and debt assumed of approximately $189.5 million (261.9 million Australian dollars). The acquisition provides a strong platform for Equifax to offer data and analytic services and further broaden the Company's geographic footprint. Veda stockholders received 2.825 Australian dollars in cash for each share of Veda common stock they owned. The Company financed the transaction with $1.7 billion of debt, consisting of commercial paper, an $800 million 364-day revolving credit facility (the "364-day Revolver"), and an $800 million three-year delayed draw term loan facility (the "Term Loan"). Refer to Note 4 for further discussion on debt. Additionally, on August 23, 2016, the Company completed the acquisition of 100% of the assets and certain liabilities of unemployment tax and claims management specialists Barnett & Associates ("Barnett"), as well as the verifications business, Computersoft, LLC ("Computersoft").

Pro Forma Financial Information. The following table presents unaudited consolidated pro forma information as if our acquisition of Veda had occurred at the beginning of the earliest period presented. The pro forma amounts may not be necessarily indicative of the operating revenues and results of operations had the acquisition actually taken place at the beginning of the earliest period presented. Furthermore, the pro forma information may not be indicative of future performance.


14




 
 
Nine months ended September 30,
 
 
2016
 
 
As Reported
 
Pro Forma
 
 
(In millions, except per share data)
Operating revenues
 
$
2,343.8

 
$
2,383.2

Net income attributable to Equifax
 
365.8

 
368.4

Net income per share (basic)
 
3.07

 
3.09

Net income per share (diluted)
 
3.02

 
3.04



The unaudited pro forma financial information presented in the table above has been adjusted to give effect to adjustments that are (1) directly related to the business combination; (2) factually supportable; and (3) expected to have a continuing impact. These adjustments include, but are not limited to, the application of our accounting policies and depreciation and amortization related to fair value adjustments and intangible assets.

3. GOODWILL AND INTANGIBLE ASSETS
 
Goodwill.   Goodwill represents the cost in excess of the fair value of the net assets acquired in a business combination. Goodwill is tested for impairment at the reporting unit level on an annual basis and on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. We perform our annual goodwill impairment tests as of September 30.

Our annual goodwill impairment testing was completed during the third quarter of 2017. The estimated fair value for all reporting units exceeded the carrying value of those units as of September 30, 2017. As a result, no goodwill impairment was recorded. Refer to our methodology of fair value estimates as discussed in the "Application of Critical Accounting Policies" section in this Form 10-Q.

Changes in the amount of goodwill for the nine months ended September 30, 2017, are as follows:
 
 
 
U.S.
Information
Solutions
 
International
 
Workforce
Solutions
 
Global Consumer Solutions
 
Total
 
 
(In millions)
Balance, December 31, 2016
 
$
1,071.3

 
$
1,814.6

 
$
952.1

 
$
136.3

 
$
3,974.3

Acquisitions
 

 
3.4

 

 
48.5

 
51.9

Adjustments to initial purchase price allocation
 

 
(1.1
)
 

 

 
(1.1
)
Foreign currency translation
 

 
146.5

 

 
6.8

 
153.3

Balance, September 30, 2017
 
$
1,071.3

 
$
1,963.4

 
$
952.1

 
$
191.6

 
$
4,178.4


Indefinite-Lived Intangible Assets.   Indefinite-lived intangible assets consist of indefinite-lived reacquired rights representing the value of rights which we had granted to various affiliate credit reporting agencies that were reacquired in the U.S. and Canada. At the time we acquired these agreements, they were considered perpetual in nature under the accounting guidance in place at that time and, therefore, the useful lives are considered indefinite. Indefinite-lived intangible assets are not amortized. We are required to test indefinite-lived intangible assets for impairment annually and whenever events or circumstances indicate that there may be an impairment of the asset value. We perform our annual indefinite-lived intangible asset impairment test as of September 30. The estimated fair value of our indefinite-lived intangible assets exceeded the carrying value as of September 30, 2017. As a result, no impairment was recorded. Our indefinite-lived intangible asset carrying amounts did not change materially during the nine months ended September 30, 2017.  
 
Purchased Intangible Assets.   Purchased intangible assets represent the estimated acquisition date fair value of acquired intangible assets used in our business. Purchased data files represent the estimated acquisition date fair value of consumer credit files acquired primarily through the purchase of independent credit reporting agencies in the U.S. and Canada and the Veda acquisition. We expense the cost of modifying and updating credit files in the period such costs are incurred. Our reacquired rights represent the value of rights which we had granted to Computer Sciences Corporation that were reacquired in connection with the acquisition of certain assets of CSC Credit Services (“CSC Credit Services Acquisition”) in the fourth quarter of 2012. These reacquired rights are being amortized over the remaining term of the affiliation agreement on a straight-

15



line basis until August 1, 2018. We amortize all of our purchased intangible assets on a straight-line basis. For additional information about the useful lives related to our purchased intangible assets, see Note 1 of the Notes to Consolidated Financial Statements in our 2016 Form 10-K.

Purchased intangible assets at September 30, 2017 and December 31, 2016 consisted of the following:
 
 
September 30, 2017
 
December 31, 2016
 
 
Gross
 
Accumulated
Amortization
 
Net
 
Gross
 
Accumulated
Amortization
 
Net
Definite-lived intangible assets:
 
(In millions)
Purchased data files
 
$
1,029.2

 
$
(310.6
)
 
$
718.6

 
$
1,012.7

 
$
(276.0
)
 
$
736.7

Acquired software and technology
 
139.6

 
(59.6
)
 
80.0

 
131.5

 
(36.1
)
 
95.4

Customer relationships
 
756.9

 
(313.9
)
 
443.0

 
712.7

 
(273.0
)
 
439.7

Reacquired rights
 
73.3

 
(62.4
)
 
10.9

 
73.3

 
(52.5
)
 
20.8

Proprietary database
 
22.1

 
(8.1
)
 
14.0

 
21.5

 
(6.7
)
 
14.8

Non-compete agreements
 
14.1

 
(12.1
)
 
2.0

 
26.8

 
(22.2
)
 
4.6

Trade names and other intangible assets
 
18.9

 
(10.6
)
 
8.3

 
54.1

 
(42.3
)
 
11.8

Total definite-lived intangible assets
 
$
2,054.1

 
$
(777.3
)
 
$
1,276.8

 
$
2,032.6

 
$
(708.8
)
 
$
1,323.8

 
Amortization expense related to purchased intangible assets was $43.0 million and $47.5 million during the three months ended September 30, 2017 and 2016, respectively. Amortization expense related to purchased intangible assets was $129.8 million and $130.3 million during the nine months ended September 30, 2017 and 2016, respectively.

Estimated future amortization expense related to definite-lived purchased intangible assets at September 30, 2017 is as follows:
Years ending December 31,
 
Amount
 
 
(In millions)
2017
 
$
43.0

2018
 
148.5

2019
 
129.2

2020
 
122.7

2021
 
105.1

Thereafter
 
728.3

 
 
$
1,276.8




16


4. DEBT
 
Debt outstanding at September 30, 2017 and December 31, 2016 was as follows:
 
 
 
September 30, 2017
 
December 31, 2016
 
 
(In millions)
Commercial paper
 
$
665.3

 
$
310.3

Notes, 6.30%, due July 2017
 

 
272.5

Term Loan, due Nov 2018
 
400.0

 
450.0

Notes, 2.30%, due June 2021
 
500.0

 
500.0

Notes, 3.30%, due Dec 2022
 
500.0

 
500.0

Notes, 3.25%, due June 2026
 
275.0

 
275.0

Debentures, 6.90%, due July 2028
 
125.0

 
125.0

Notes, 7.00%, due July 2037
 
250.0

 
250.0

Other
 
2.5

 
2.6

Total debt
 
2,717.8

 
2,685.4

Less short-term debt and current maturities
 
(667.8
)
 
(585.4
)
Less unamortized discounts and debt issuance costs
 
(11.3
)
 
(13.2
)
Total long-term debt, net
 
$
2,038.7

 
$
2,086.8

 
Senior Credit Facilities.   We are party to a $900.0 million five-year unsecured revolving credit facility (the "Revolver") and the previously described Term Loan (the Revolver and the Term Loan collectively, the "Senior Credit Facilities"), with a group of financial institutions.  The Revolver also has an accordion feature that allows us to request an increase in the total commitment to $1.2 billion.  Borrowings may be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchase programs. The Revolver and the Term Loan are scheduled to expire in November 2020 and November 2018, respectively. The Revolver includes an option to request a maximum of two one-year extensions of the maturity date. Availability of the Revolver for borrowings is reduced by the outstanding principal balance of our commercial paper notes and by any letters of credit issued under the facility. As of September 30, 2017, there were $0.5 million of letters of credit outstanding. As of September 30, 2017, there were no outstanding borrowings under the Revolver and $234.2 million was available for borrowing. On July 3, 2017 we repaid our July 2017 Senior Notes using the proceeds of commercial paper issued prior to September 30, 2017. On October 12, 2017, we borrowed $100 million on our Revolver.
 
Commercial Paper Program.   Our $900.0 million commercial paper program has been established through the private placement of commercial paper notes from time-to-time, in which borrowings bear interest at either a floating rate (based on LIBOR or other benchmarks), or a fixed rate, plus the applicable margin. Maturities of commercial paper can range from overnight to 397 days. Because the commercial paper ("CP") is backstopped by our Senior Credit Facilities, the amount of CP which may be issued under the program is reduced by the outstanding face amount of any letters of credit issued under the facility and, pursuant to our existing Board of Directors authorization, by the outstanding borrowings under our Revolver. At September 30, 2017, $665.3 million in commercial paper notes was outstanding.

For additional information about our debt agreements, see Note 5 of the Notes to Consolidated Financial Statements in our 2016 Form 10-K.
 
5. COMMITMENTS AND CONTINGENCIES
 
Cybersecurity Incident. In the third quarter of fiscal 2017, we announced a cybersecurity incident potentially impacting approximately 145.5 million U.S. consumers. Criminals exploited a U.S. website application vulnerability to gain access to certain files. Based on our forensic investigation, the unauthorized access occurred from mid-May through July 2017. The information accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. In addition, credit card numbers for approximately 209,000 U.S. and Canadian consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. The investigation also determined that personal information of approximately 8,000 Canadian consumers was impacted and

17




approximately 690,000 potentially affected U.K. consumers will be contacted regarding access to personal information in the cybersecurity incident.

Upon discovery of the unauthorized access, we acted immediately to stop the intrusion and promptly engaged a leading, independent cybersecurity firm to conduct a comprehensive forensic review to determine the scope of the intrusion, including the specific data impacted. The forensic analysis of the consumers potentially impacted by the cybersecurity incident is now complete. We also reported the criminal access to law enforcement and continue to cooperate with law enforcement in connection with the criminal investigation into the actors responsible for the cybersecurity incident.

Expenses Incurred. In the third quarter of fiscal 2017, the Company recorded $27.3 million of pretax expenses related to the cybersecurity incident. These expenses are included in Selling, General and Administrative expenses in the accompanying Consolidated Statements of Income for the three and nine months ended September 30, 2017. Expenses include costs to investigate and remediate the cybersecurity incident and legal and other professional services related thereto, all of which were expensed as incurred.
Contingent Liability. Additionally, as a result of the cybersecurity incident, we are offering free credit file monitoring and identity theft protection to all U.S. consumers. We have concluded that the costs associated with providing this service are a contingent liability that is probable and estimable. We have therefore recorded an estimate of the expenses necessary to provide this service to those who have signed up or will sign up by the January 31, 2018 deadline. We have incurred $4.7 million through September 30, 2017 and have estimated a range of additional costs between $56 million and $110 million. In accordance with Accounting Standards Codification section 450-20-30-1, we have recorded a liability for the low end in the range as we do not believe that any amount within the range is a better estimate than any other amount.
Litigation, Claims and Government Investigations. As a result of the cybersecurity incident, we are subject to a significant number of proceedings and investigations as described in Part II, "Item 1. Legal Proceedings." While we believe it is reasonably possible that we will incur losses associated with these proceedings and investigations, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements, penalties or other resolution of such proceedings and investigations based on the early stage of these proceedings and investigations, that alleged damages have not been specified, 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.
Future Costs. We expect to incur significant legal and other professional services expenses associated with the cybersecurity incident in future periods. We will recognize these expenses as services are received. Costs related to the cybersecurity incident that will be incurred in future periods will also include increased expenses and capital investments for IT and security. We expect to incur increased expenses for insurance, finance, compliance activities, and to meet increased legal and regulatory requirements. We will also incur increased costs to provide free services to consumers including increased customer support costs.
Insurance Coverage. We maintain insurance coverage to limit our exposure to losses such as those related to the cybersecurity incident. Our coverage has a $7.5 million deductible. As of September 30, 2017, the Company has not recorded a receivable for costs the Company has incurred to date as we have not yet concluded that the costs are reimbursable and probable of recovery under our insurance coverage.
Data Processing, Outsourcing Services and Other Agreements.  We have separate agreements with IBM, Tata Consultancy Services and others to outsource portions of our computer data processing operations, applications development, business continuity and recovery services, help desk service and desktop support functions, operation of our voice and data networks, maintenance and related functions and to provide certain other administrative and operational services. Annual payment obligations in regard to these agreements vary due to factors such as the volume of data processed; changes in our servicing needs as a result of new product offerings, acquisitions or divestitures; the introduction of significant new technologies; foreign currency; or the general rate of inflation. In certain circumstances (e.g., a change in control or for our convenience), we may terminate these data processing and outsourcing agreements and, in doing so, certain of these agreements require us to pay significant termination fees.

Guarantees and General Indemnifications.   We may issue standby letters of credit and performance bonds in the normal course of business. The aggregate notional amount of all performance bonds and standby letters of credit was not material at September 30, 2017, and all have a remaining maturity of one year or less. We may issue other guarantees in the ordinary course of business. The maximum potential future payments we could be required to make under the guarantees in the ordinary course of business is not material at September 30, 2017. We have agreed to guarantee the liabilities and performance

18




obligations (some of which have limitations) of a certain debt collections and recovery management VIE under its commercial agreements.

We have agreed to standard indemnification clauses in many of our lease agreements for office space, covering such things as tort, environmental and other liabilities that arise out of or relate to our use or occupancy of the leased premises. Certain of our credit agreements include provisions which require us to make payments to preserve an expected economic return to the lenders if that economic return is diminished due to certain changes in law or regulations. In conjunction with certain transactions, such as sales or purchases of operating assets or services in the ordinary course of business, or the disposition of certain assets or businesses, we sometimes provide routine indemnifications, the terms of which range in duration and sometimes are not limited. Additionally, the Company has entered into indemnification agreements with its directors and executive officers to indemnify such individuals to the fullest extent permitted by applicable law against liabilities that arise by reason of their status as directors or officers. The Company maintains directors and officers liability insurance coverage to reduce its exposure to such obligations.
 
We cannot reasonably estimate our potential future payments under the guarantees and indemnities and related provisions described above because we cannot predict when and under what circumstances these provisions may be triggered. We had no accruals related to guarantees and indemnities on our Consolidated Balance Sheets at September 30, 2017 or December 31, 2016.
 
Contingencies.   We are involved in legal and regulatory matters, government investigations, claims and litigation arising in the ordinary course of business. We periodically assess our exposure related to these matters based on the information which is available. We have recorded accruals in our Consolidated Financial Statements for those matters in which it is probable that we have incurred a loss and the amount of the loss, or range of loss, can be reasonably estimated.

For additional information about these and other commitments and contingencies, see Note 6 of the Notes to Consolidated Financial Statements in our 2016 Form 10-K.  

6. INCOME TAXES
 
We are subject to U.S. federal, state and international income taxes. We are generally no longer subject to federal, state, or international income tax examinations by tax authorities for years before 2014 with few exceptions. Due to the potential for resolution of state and foreign examinations, and the expiration of various statutes of limitations, it is reasonably possible that our gross unrecognized tax benefit balance may change within the next twelve months by a range of $0 to $3.6 million.
 
Effective Tax Rate.  Our effective income tax rate was 26.1% and 29.1% for the three months ended September 30, 2017 and September 30, 2016, respectively. Our effective income tax rate was 26.2% and 32.1% for the nine months ended September 30, 2017 and September 30, 2016, respectively. The decrease in our effective income tax rate is primarily attributable to the adoption of the new stock-based compensation guidance prospectively adopted in the first quarter of 2017 that requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled. These amounts were previously recognized in additional paid-in-capital. Additionally, for the first nine months of 2017, the rate is lower due to adjustments for uncertain tax positions related to the first quarter 2017 settlement of an income tax audit.


19


7. ACCUMULATED OTHER COMPREHENSIVE INCOME
 
Changes in accumulated other comprehensive income by component, after tax, for the nine months ended September 30, 2017, are as follows: 
 
 
Foreign
currency
 
Pension and other
postretirement
benefit plans
 
Cash flow
hedging
transactions
 
Total
 
 
(In millions)
Balance, December 31, 2016
 
$
(262.0
)
 
$
(265.9
)
 
$
(1.0
)
 
$
(528.9
)
Other comprehensive income before reclassifications
 
209.7

 

 
(0.2
)
 
209.5

Amounts reclassified from accumulated other comprehensive income
 

 
7.6

 

 
7.6

Net current-period other comprehensive income
 
209.7

 
7.6

 
(0.2
)
 
217.1

Balance, September 30, 2017
 
$
(52.3
)
 
$
(258.3
)
 
$
(1.2
)
 
$
(311.8
)
 
Reclassifications out of accumulated other comprehensive income for the nine months ended September 30, 2017, are as follows: 
Details about accumulated other
comprehensive income components
 
Amount reclassified
from accumulated other
comprehensive income
 
Affected line item in
the statement where
net income is presented
 
 
(In millions)
 
 
Amortization of pension and other postretirement plan items:
 
 

 
 
Prior service cost
 
$
0.3

 
(1)
Recognized actuarial loss
 
(12.6
)
 
(1)
 
 
(12.3
)
 
Total before tax
 
 
4.7

 
Tax benefit
 
 
$
(7.6
)
 
Net of tax
 
(1)These accumulated other comprehensive income components are included in the computation of net periodic pension cost (See Note 8 Benefit Plans for additional details).

Changes in accumulated other comprehensive income related to noncontrolling interests were not material as of September 30, 2017.


20


8. BENEFIT PLANS
 
We sponsor defined benefit pension plans and defined contribution plans. For additional information about our benefit plans, see Note 10 of the Notes to Consolidated Financial Statements in our 2016 Form 10-K.

The following table provides the components of net periodic benefit cost, included in selling, general and administrative expenses in the Consolidated Statements of Income, for the three and nine months ended September 30, 2017 and 2016:
 
 
 
Pension Benefits
 
Other Benefits
 
 
Three Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
Service cost
 
$
1.0

 
$
0.9

 
$
0.1

 
$
0.1

Interest cost
 
7.1

 
8.0

 
0.2

 
0.2

Expected return on plan assets
 
(9.3
)
 
(9.6
)
 
(0.3
)
 
(0.3
)
Amortization of prior service cost
 
0.2

 
0.2

 
(0.3
)
 
(0.3
)
Recognized actuarial loss
 
3.8

 
3.5

 
0.4

 
0.2

Total net periodic benefit cost
 
$
2.8

 
$
3.0

 
$
0.1

 
$
(0.1
)

 
 
Pension Benefits
 
Other Benefits
 
 
Nine months ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions)
Service cost
 
$
3.0

 
$
2.7

 
$
0.3

 
$
0.3

Interest cost
 
21.3

 
24.0

 
0.6

 
0.6

Expected return on plan assets
 
(27.9
)
 
(28.8
)
 
(0.9
)
 
(0.9
)
Amortization of prior service cost
 
0.6

 
0.6

 
(0.9
)
 
(0.9
)
Recognized actuarial loss
 
11.4

 
10.5

 
1.2

 
0.6

Total net periodic benefit cost
 
$
8.4

 
$
9.0

 
$
0.3

 
$
(0.3
)


9. SEGMENT INFORMATION
 
Reportable Segments.   We manage our business and report our financial results through the following four reportable segments, which are the same as our operating segments:

-    U.S. Information Solutions ("USIS")
-    International
-    Workforce Solutions
-    Global Consumer Solutions
 
The accounting policies of the reportable segments are the same as those described in our summary of significant accounting policies in Note 1 of the Notes to Consolidated Financial Statements in our 2016 Form 10-K. We evaluate the performance of these reportable segments based on their operating revenues, operating income and operating margins, excluding unusual or infrequent items, if any. Inter-segment sales and transfers are not material for all periods presented. The measurement criteria for segment profit or loss and segment assets are substantially the same for each reportable segment. All transactions between segments are accounted for at fair market value or cost depending on the nature of the transaction, and no timing differences occur between segments.
 

21





A summary of segment products and services is as follows:
 
U.S. Information Solutions.   This segment includes consumer and commercial information services (such as credit information and credit scoring, credit modeling services and portfolio analytics (decisioning tools), which are derived from our databases of business credit and financial information, locate services, fraud detection and prevention services, identity verification services and other consulting services); mortgage loan information; financial marketing services; and identity management.
 
International.   This segment includes information services products, which includes consumer and commercial services (such as credit and financial information, credit scoring and credit modeling services), credit and other marketing products and services. We also provide information, technology and services to support debt collections and recovery management.
 
Workforce Solutions.   This segment includes employment, income and social security number verification services as well as complementary payroll-based transaction services and employment tax management services.
 
Global Consumer Solutions.   This segment includes credit information, credit monitoring and identity theft protection products sold directly and indirectly to consumers via the internet and in various hard-copy formats in the U.S., Canada, and the U.K.
 
Operating revenue and operating income by operating segment during the three and nine months ended September 30, 2017 and 2016 are as follows:
 
 
 
Three Months Ended
 
Nine Months Ended
(In millions)
 
September 30,
 
September 30,
Operating revenue:
 
2017
 
2016
 
2017
 
2016
U.S. Information Solutions

$
307.7


$
317.4


$
949.7


$
920.2

International

239.8


214.3


687.5


591.2

Workforce Solutions

186.4


171.3


580.9


528.7

Global Consumer Solutions

100.9


101.1


305.7


303.7

Total operating revenue
 
$
834.8

 
$
804.1

 
$
2,523.8

 
$
2,343.8

 
 
 
Three Months Ended
 
Nine Months Ended
(In millions)
 
September 30,
 
September 30,
Operating income:
 
2017
 
2016
 
2017
 
2016
U.S. Information Solutions

$
129.5


$
139.5


$
408.9


$
396.3

International

52.9


26.3


128.8


79.3

Workforce Solutions

80.3


69.9


258.7


226.9

Global Consumer Solutions

24.7


28.0


82.9


80.7

General Corporate Expense

(134.5
)

(51.6
)

(245.5
)

(169.2
)
Total operating income

$
152.9


$
212.1


$
633.8


$
614.0


Total assets by operating segment at September 30, 2017 and December 31, 2016 are as follows:
 
 
September 30,
 
December 31,
(In millions)
 
2017
 
2016
Total assets:
 
 
 
 
U.S. Information Solutions
 
$
1,765.6

 
$
1,824.0

International
 
3,123.0

 
2,932.5

Workforce Solutions
 
1,346.0

 
1,337.0

Global Consumer Solutions
 
267.6

 
193.7

General Corporate
 
613.5

 
376.8

Total assets
 
$
7,115.7

 
$
6,664.0


22


ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
As used herein, the terms Equifax, the Company, we, our and us refer to Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Equifax Inc.
 
All references to earnings per share data in Management’s Discussion and Analysis, or MD&A, are to diluted earnings per share, or EPS, unless otherwise noted. Diluted EPS is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding.
 
BUSINESS OVERVIEW
 
We are a leading global provider of information solutions, employment and income verifications and human resources business process outsourcing services. We leverage some of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, to create customized insights which enable our business customers to grow faster, more efficiently and more profitably, and to inform and empower consumers.
 
Businesses rely on us for consumer and business credit intelligence, credit portfolio management, fraud detection, decisioning technology, marketing tools, debt management and human resources-related services. We also offer a portfolio of products that enable individual consumers to manage their financial affairs and protect their identity. Our revenue stream is diversified among businesses across a wide range of industries, international geographies and individual consumers.

In the third quarter of fiscal 2017, we announced a cybersecurity incident potentially impacting approximately 145.5 million U.S. consumers. Criminals exploited a U.S. website application vulnerability to gain access to certain files. Based on our forensic investigation, the unauthorized access occurred from mid-May through July 2017. The information accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. In addition, credit card numbers for approximately 209,000 U.S. and Canadian consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. The investigation also determined that personal information of approximately 8,000 Canadian consumers was impacted and approximately 690,000 potentially affected U.K. consumers will be contacted regarding access to personal information in the cybersecurity incident.

Upon discovery of the unauthorized access, we acted immediately to stop the intrusion and promptly engaged a leading, independent cybersecurity firm to conduct a comprehensive forensic review to determine the scope of the intrusion, including the specific data impacted. The forensic analysis of the consumers potentially impacted by the cybersecurity incident is now complete. We also reported the criminal access to law enforcement and continue to cooperate with law enforcement in connection with the criminal investigation into the actors responsible for the cybersecurity incident.

Segment and Geographic Information  

Segments.   The USIS segment, the largest of our four segments, consists of three service lines: Online Information Solutions; Mortgage Solutions; and Financial Marketing Services. Online Information Solutions and Mortgage Solutions revenue is principally transaction-based and is derived from our sales of products such as consumer and commercial credit reporting and scoring, identity management, fraud detection and modeling services. USIS also markets certain decisioning software services, which facilitate and automate a variety of consumer and commercial credit-oriented decisions. Financial Marketing Services revenue is principally project and subscription based and is derived from our sales of batch credit and consumer wealth information such as those that assist clients in acquiring new customers, cross selling to existing customers and managing portfolio risk.
 
The International segment consists of Canada, Europe, Asia Pacific and Latin America. Following the acquisition of Veda, we have created an Asia Pacific reporting unit which consists mainly of our Australia and New Zealand operations. Canada’s services are similar to our USIS offerings, while Europe, Asia Pacific and Latin America are made up of varying mixes of service lines that are in our USIS reportable segment. We also provide information and technology services to support lenders and other creditors in the collections and recovery management process. Asia Pacific also has various consumer direct product offerings.
 
The Workforce Solutions segment consists of the Verification Services and Employer Services business lines. Verification Services revenue is transaction-based and is derived primarily from employment and income verification. Employer Services revenues are derived from our provision of certain human resources business process outsourcing services

23


that include both transaction and subscription based product offerings. These services include unemployment claims management, employment-based tax credit services and other complementary employment-based transaction services.
 
Global Consumer Solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products, which we deliver electronically to consumers primarily via the internet in the U.S., Canada, and the U.K. We reach consumers directly and indirectly through partners. We also sell consumer and credit information to resellers who combine our information with other information to provide direct to consumer monitoring, reports and scores. Due to the cybersecurity incident we have ceased advertising for new business as it relates to our consumer direct business and have now provided a free product as mentioned in Note 5 of the Notes to Consolidated Financial Statements in this Form 10-Q.
  
Geographic Information.   We currently have significant operations in the following countries: Argentina, Australia, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, India, Mexico, New Zealand, Paraguay, Peru, Portugal, the Republic of Ireland, Spain, the U.K., Uruguay and the U.S. We also offer Equifax branded credit services in India and Russia through joint ventures, we have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia and Singapore, and have an investment in a consumer and commercial credit information company in Brazil.
 
Key Performance Indicators.    Management focuses on a variety of key indicators to monitor operating and financial performance. These performance indicators include operating revenue, change in operating revenue, operating income, operating margin, net income attributable to Equifax, diluted earnings per share, cash provided by operating activities and capital expenditures. The key performance indicators for the three and nine months ended September 30, 2017 and 2016 were as follows:
 
 
Key Performance Indicators
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2017
 
2016
 
2017
 
2016
 
 
(In millions, except per share data)
 
(In millions, except per share data)
Operating revenue
 
$
834.8

 
$
804.1

 
$
2,523.8

 
$
2,343.8

Operating revenue change
 
4
%
 
20
%
 
8
%
 
17
%
Operating income
 
$
152.9

 
$
212.1

 
$
633.8

 
$
614.0

Operating margin
 
18.3
%
 
26.4
%
 
25.1
%
 
26.2
%
Net income attributable to Equifax
 
$
96.3

 
$
132.8

 
$
415.0

 
$
365.8

Diluted earnings per share
 
$
0.79

 
$
1.09

 
$
3.41

 
$
3.02

Cash provided by operating activities
 
$
279.6

 
$
245.0

 
$
608.7

 
$
544.2

Capital expenditures*
 
$
(56.0
)
 
$
(48.2
)
 
$
(142.8
)
 
$
(131.0
)

*Amounts above exclude changes in accruals for capital expenditures.
 
Operational and Financial Highlights
 
We repurchased 0.5 million shares of our common stock on the open market for $77.1 million during the first nine months of 2017. At September 30, 2017, $590.1 million was available for future purchases of common stock under our share repurchase authorization.

We paid out $140.7 million or $1.17 per share in dividends to our shareholders during the first nine months of 2017.

 
Business Environment and Company Outlook
 
Demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity, both enhanced by our own initiatives to expand our products and markets served, and to small commercial credit and marketing activity. In the United States we expect modest growth in overall economic activity and consumer credit for the remainder of

24


the year. Mortgage market volumes are expected to be down for the full year. Similar to the U.S., we expect modest economic growth in the U.K., Australia, Canada, Argentina, Chile and Spain, with GDP growth in those markets in the low single digits in 2017. In addition, we expect that in the second half of the year that stronger foreign exchange rates compared to the prior year, will positively impact both growth in revenue and profit when reported in U.S. dollars.

The cybersecurity incident announced in the third quarter of 2017 is expected to negatively impact revenue, principally in our U.S. businesses, and to a lesser extent in Canada and the U.K., in 2017 and 2018. We will also incur, in 2017 and 2018, legal, consulting and other costs related to the analysis and response to the cybersecurity incident. We will incur costs and capital expenditures for providing the free credit file monitoring and identity theft protection to U.S. consumers, as well as services to U.K. and Canadian consumers, in 2017 and 2018. Additionally, in 2017 and 2018, we will incur increased information technology and security costs and capital expenditures to improve information technology security and resilience globally related to near-term actions, and ongoing increases in the run-rate of IT and security spending. We also expect to incur increased expenses for insurance, finance, compliance activities, and to meet increased legal and regulatory requirements. We also expect to incur increased costs to provide free services to consumers, including increased customer support costs.

As a result of the cybersecurity incident, we are subject to a significant number of proceedings and investigations as described in Part II, "Item 1. Legal Proceedings." While we believe it is reasonably possible that we will incur losses associated with these proceedings and investigations, it is not possible to estimate the amount of loss or range of possible loss, if any, that might result from adverse judgments, settlements, penalties or other resolution of such proceedings and investigations based on the early stage of these proceedings and investigations, that alleged damages have not been specified, 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.

25


RESULTS OF OPERATIONS—THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
 
Consolidated Financial Results
 
Operating Revenue 
 
 
Three Months Ended September 30,
 
Change
 
Nine Months Ended September 30,
 
Change
Consolidated Operating Revenue
 
2017
 
2016
 
$
 
%
 
2017
 
2016
 
$
 
%
 
 
(In millions)
 
(In millions)
U.S. Information Solutions
 
$
307.7

 
$
317.4

 
$
(9.7
)
 
(3
)%
 
$
949.7

 
$
920.2

 
$
29.5

 
3
%
International
 
239.8

 
214.3

 
25.5

 
12
 %
 
687.5

 
591.2

 
96.3

 
16
%
Workforce Solutions
 
186.4

 
171.3

 
15.1

 
9
 %
 
580.9

 
528.7

 
52.2

 
10
%
Global Consumer Solutions
 
100.9

 
101.1

 
(0.2
)
 
 %
 
305.7

 
303.7

 
2.0

 
1
%
Consolidated operating revenue
 
$
834.8

 
$
804.1

 
$
30.7

 
4
 %
 
$
2,523.8

 
$
2,343.8

 
$
180.0

 
8
%
 
Revenue increased by $30.7 million, or 4%, and $180.0 million, or 8%, in the third quarter and first nine months of 2017, respectively, compared to the same periods in 2016. The growth in the third quarter of 2017 was driven by our International and Workforce Solutions segments. International had strong growth across all regions. Workforce Solutions saw strong growth driven by Verification Services. USIS declined in the third quarter, reflecting the impact of the cybersecurity incident, and the weakened U.S. mortgage market. Revenue growth for the first nine months of 2017, is also driven by growth in International, reflecting broad based organic growth and the Veda acquisition, and Workforce Solutions. Growth in Workforce Solutions is driven by Verification Services. Additionally, USIS growth for the first nine months of 2017 reflects growth in core credit decisioning, mortgage, and identity and fraud solutions. Total revenue for third quarter was positively impacted by foreign exchange rates, which increased revenue, on a constant currency basis, by $3.2 million when compared to the third quarter of 2016. Total revenue for the first nine months of 2017 was negatively impacted by foreign exchange rates, which reduced revenue, on a constant currency basis, by $14.0 million, or 1% when compared to the first nine months of 2016.
 
Operating Expenses  
 

Three Months Ended September 30,

Change

Nine Months Ended September 30,

Change
Consolidated Operating Expenses

2017

2016

$

%

2017

2016

$

%
 

(In millions)

(In millions)
Consolidated cost of services

$
297.3


$
288.0


$
9.3


3
%

$
891.9


$
827.1


$
64.8


8
%
Consolidated selling, general and administrative expenses

312.2


233.4


78.8


34
%

783.9


708.2


75.7


11
%
Consolidated depreciation and amortization expense

72.4


70.6


1.8


3
%

214.2


194.5


19.7


10
%
Consolidated operating expenses

$
681.9


$
592.0


$
89.9


15
%

$
1,890.0


$
1,729.8


$
160.2


9
%
 
Cost of services increased $9.3 million and $64.8 million in the third quarter and first nine months of 2017, respectively, as compared to the same periods in 2016. The increase for the third quarter was due to higher production costs driven by higher revenues and higher technology costs, partially offset by a decrease in people costs. The increase for the first nine months was due to higher productions costs driven by higher revenues, higher people and technology costs, as well as the Veda acquisition. The impact of changes in foreign exchange rates increased cost of services by $1.8 million and reduced cost of services by $5.9 million in the third quarter and first nine months of 2017, respectively.
 
Selling, general and administrative expense increased $78.8 million and $75.7 million in the third quarter and first nine months of 2017, respectively, as compared to the same periods in 2016. The overall increase was due to the $87.5 million accrual of costs related to the cybersecurity incident and higher occupancy expenses, partially offset by a decline in Veda integration and transaction and people costs. The impact of changes in foreign currency exchange rates increased our selling, general and administrative expenses by $0.7 million and reduced our selling, general and administrative expenses by $4.5 million in the third quarter and first nine months of 2017, respectively.
 
Depreciation and amortization expense for the third quarter and first nine months of 2017 increased by $1.8 million and $19.7 million, respectively, compared to the same periods in 2016. These increases are primarily due to the Veda acquisition.


26


Operating Income and Operating Margin
 
 
Three Months Ended September 30,
 
Change
 
 
 
Nine Months Ended September 30,
 
Change
 
 
Consolidated Operating Income
 
2017
 
2016
 
$
 
%
 
 
 
2017
 
2016
 
$
 
%
 
 
 
 
(In millions)
 
 
 
 
 
(In millions)
 
 
 
 
Consolidated operating revenue
 
$
834.8

 
$
804.1

 
$
30.7

 
4
 %
 
 
 
$
2,523.8

 
$
2,343.8

 
$
180.0

 
8
 %
 
 
Consolidated operating expenses
 
681.9

 
592.0

 
89.9

 
15
 %
 
 
 
1,890.0

 
1,729.8

 
160.2

 
9
 %
 
 
Consolidated operating income
 
$
152.9

 
$
212.1

 
$
(59.2
)
 
(28
)%
 
 
 
$
633.8

 
$
614.0

 
$
19.8

 
3
 %
 
 
Consolidated operating margin
 
18.3
%
 
26.4
%
 
 

 
(8.1
)
 
% pts
 
25.1
%
 
26.2
%
 
 

 
(1.1
)
 
% pts

Total company operating margin decreased in the third quarter and first nine months of 2017, compared to the same periods in 2016, primarily due to the accrual of costs related to the cybersecurity incident, partially offset by increased margins in International and Equifax Workforce Solutions business segments. For the nine month period, the increased margin was partially offset by the increase in the amortization of intangibles from the Veda acquisition.
 
Interest Expense and Other Income (Expense), net 
 
 
Three Months Ended September 30,
 
Change
 
Nine Months Ended September 30,
 
Change
Consolidated Interest Expense and Other Income (Expense), net
 
 
 
 
 
2017
 
2016
 
$
 
%
 
2017
 
2016
 
$
 
%
 
 
(In millions)
 
 
 
(In millions)
 
 
Consolidated interest expense
 
$
(21.4
)
 
$
(24.3
)
 
$
2.9

 
(12
)%
 
$
(70.1
)
 
$
(68.0
)
 
$
(2.1
)
 
3
 %
Consolidated other income (expense), net
 
4.5