EQUIFAX INC. As used herein, the terms Equifax, the Company, we, our and us refer to
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
Equifax Inc. is a global data, analytics and technology company. We provide information solutions and human resources business process outsourcing services for businesses, governments and consumers. We have a large and diversified group of clients, including financial institutions, corporations, governments and individuals. Our services are based on comprehensive databases of consumer and business information derived from numerous sources including credit, financial assets, telecommunications and utility payments, employment, income, demographic and marketing data. We use advanced statistical techniques, machine learning and proprietary software tools to analyze available data to create customized insights, decision-making solutions and processing services for our clients. 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 inthe United States of America , orU.S. For consumers, we provide products and services to help people understand, manage and protect their personal information and make more informed financial decisions. We currently operate in four global regions:North America (U.S. andCanada ),Asia Pacific (Australia ,New Zealand andIndia ),Europe (theUnited Kingdom , orU.K. ,Spain andPortugal ) andLatin America (Argentina ,Chile ,Costa Rica ,Ecuador ,El Salvador ,Honduras ,Mexico ,Paraguay ,Peru andUruguay ). We maintain support operations in theRepublic of Ireland ,Chile ,Costa Rica andIndia . We also offer Equifax branded credit services inRussia through a joint venture, have investments in consumer and/or commercial credit information companies through joint ventures inCambodia ,Malaysia ,Singapore and theUnited Arab Emirates , have an investment in a consumer and commercial credit information company inBrazil and have an investment in an identity authentication company inCanada . 2017 Cybersecurity Incident In 2017, we experienced a cybersecurity incident following a criminal attack on our systems that involved the theft of certain personally identifiable information ofU.S. , Canadian andU.K. consumers. Criminals exploited a software vulnerability in aU.S. website application to gain unauthorized access to our network. InMarch 2017 , theU.S. Department of Homeland Security distributed a notice concerning the software vulnerability. We undertook efforts to identify and remediate vulnerable systems; however, the vulnerability in the website application that was exploited was not identified by our security processes. We discovered unusual network activity inlate-July 2017 and upon discovery promptly investigated the activity. Once the activity was identified as potential unauthorized access, we acted to stop the intrusion and engaged a leading, independent cybersecurity firm to conduct a forensic investigation to determine the scope of the unauthorized access, including the specific information impacted. Based on our forensic investigation, the unauthorized access occurred frommid-May 2017 throughJuly 2017 . No evidence was found that the Company's core consumer, employment and income, or commercial reporting databases were accessed. We continue to cooperate with law enforcement in connection with the criminal investigation into the actors responsible for the 2017 cybersecurity incident. OnFebruary 10, 2020 , theU.S. Department of Justice announced that four members of theChinese People's Liberation Army were indicted on criminal charges for their involvement in the 2017 cybersecurity incident. Product Liability. As a result of the 2017 cybersecurity incident, we offered TrustedID® Premier, a credit file monitoring and identity theft protection product, for free to all eligibleU.S. consumers who signed up throughJanuary 31, 2018 . In late 2018, the Company extended the free credit monitoring services for an additional twelve months for eligible consumers impacted by the 2017 cybersecurity incident by providing them the opportunity to enroll in Experian® IDNotify™ at no cost. We also provided free credit reports and scores, credit monitoring and identity theft protection for twenty four months to impacted consumers inCanada and theU.K. We have recorded the expenses necessary to provide this service to those who signed up. The remaining product liability balance atDecember 31, 2019 and 2018 was not material to the Consolidated Financial Statements. 34 -------------------------------------------------------------------------------- Litigation, Claims and Government Investigations. As a result of the 2017 cybersecurity incident, we were subject to a significant number of proceedings and investigations as described in Part I, "Item 3. Legal Proceedings" in this Form 10-K. 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 (Loss) Income, respectively, as of and for the twelve months endedDecember 31, 2019 , 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. 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 related to these initiatives. We expect to continue to incur significant expenses and capital expenditures in 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, we expect that the level of legal and professional service expenses related to these matters will be significantly lower in 2020 due to the settlement of all of the significant matters in theU.S.
We will recognize the expenses and capital expenditures referenced herein as they are incurred.
Insurance Coverage. At the time of the 2017 cybersecurity incident, we had$125.0 million of cybersecurity insurance coverage, above a$7.5 million deductible, to limit our exposure to losses such as those related to this incident. Since the announcement of the 2017 cybersecurity incident inSeptember 2017 , we have received the maximum reimbursement under the insurance policy of$125.0 million . We also maintained a directors and officers insurance policy of which we have recorded our estimated maximum recoveries as ofDecember 31, 2019 .
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 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 revenue is derived from our provision of certain human resources business process outsourcing services 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. The International segment consists ofAsia Pacific ,Europe ,Latin America andCanada .Canada's services are similar to our USIS offerings.Asia Pacific ,Europe andLatin America are made up of varying mixes of service lines that are generally 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. 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 theU.S. ,Canada , and theU.K. 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 2017 cybersecurity incident, we ceased advertising our consumer business in theU.S. inSeptember 2017 . We resumed advertising ourU.S. paid products in the fourth quarter of 2018. Geographic Information. We currently have operations in the following countries:Argentina ,Australia ,Canada ,Chile ,Costa Rica ,Ecuador ,El Salvador ,Honduras ,India ,Mexico ,New Zealand ,Paraguay ,Peru ,Portugal , theRepublic of Ireland ,Spain , theU.K. ,Uruguay and theU.S. We also offer Equifax branded credit services inRussia through a joint venture, have investments in consumer and/or commercial credit information companies through joint ventures inCambodia ,Malaysia , 35 --------------------------------------------------------------------------------Singapore and theUnited Arab Emirates , have an investment in a consumer and commercial credit information company inBrazil and have an investment in an identity authentication company inCanada . Approximately 73% and 71% our revenue was generated in theU.S. during both of the twelve months endedDecember 31, 2019 and 2018, respectively. Key Performance Indicators. Management focuses on a variety of key indicators to monitor operating and financial performance. 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. Key performance indicators for the twelve months endedDecember 31, 2019 , 2018 and 2017, include the following: Key Performance Indicators Twelve Months Ended December 31, 2019 2018 2017 (In millions, except per share data) Operating revenue$ 3,507.6 $ 3,412.1 $ 3,362.2 Operating revenue change 3 % 1 % 7 % Operating (loss) income$ (335.4) $ 448.0 $ 831.7 Operating margin (9.6) % 13.1 % 24.7 % Net (loss) income attributable to Equifax$ (398.8) $ 299.8 $ 587.3 Diluted earnings per share$ (3.27) $ 2.47 $ 4.83 Cash provided by operating activities$ 313.8 $ 672.2 $ 816.0 Capital expenditures*$ (375.9) $ (368.1) $ (214.0)
*Amounts above include accruals for capital expenditures.
Business Environment and Company Outlook
Demand for our services tends to be correlated to general levels of economic activity and to consumer credit activity, small commercial credit and marketing activity. Demand is also enhanced by our initiatives to expand our products, capabilities, and markets served. Inthe United States , we expect 2020 economic activity, as measured by GDP, to be down from 2019. We expect modest growth in consumer credit, excluding mortgage, over the course of 2020.U.S. mortgage market inquiries are expected to be approximately flat in 2020 versus 2019, with strong growth in inquiries in the first half of 2020, offset by a decline in inquiries in the second half of 2020. We anticipate 2020 economic activity, as measured by GDP, inCanada to be slightly below 2019. InAustralia , we anticipate 2020 economic activity, as measured by GDP, to be up from 2019. In the European markets we serve, theU.K. ,Spain andPortugal , we are expecting 2020 economic activity, as measured by GDP, to be down or slightly below 2019. InLatin America , our two largest markets areArgentina andChile . InArgentina , the market continued to weaken in 2019. We are expecting continued weakness in 2020 but at lower levels than in 2019. InChile , we are expecting economic activity in 2020 to be down slightly compared to 2019. Additional uncertainty exists inArgentina due to the Argentinean political environment and in theU.K. due to the impact of Brexit in theU.K. In 2019 and beyond, we have incurred and will continue to incur increased costs and capital expenditures related to our technology transformation, which includes costs for enhanced data security. In 2019 and beyond, we had and will continue to have increases in the ongoing run-rate of technology and security spending. We also expect to continue to incur increased expenses for insurance, finance, compliance activities, and to meet increased legal and regulatory requirements. The ultimate amount of these increases is expected to be significant. As a result of the 2017 cybersecurity incident, we were subject to a significant number of proceedings and investigations as described in "Item 3. Legal Proceedings" in this Form 10-K. 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 (Loss) Income, respectively, as of and for the twelve months endedDecember 31, 2019 , 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 in "Item 3. Legal Proceedings" in this Form 10-K 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 36 -------------------------------------------------------------------------------- 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. As such, as of any given date, we could have exposure to losses as to which no liability has been accrued or as to which the accrued liability is inadequate. 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. RESULTS OF OPERATIONS - TWELVE MONTHS ENDEDDECEMBER 31, 2019 , 2018 AND 2017
Consolidated Financial Results
Operating Revenue
Twelve Months Ended
December 31, Change
2019 vs. 2018 2018 vs. 2017
Operating Revenue 2019 2018 2017 $ % $ %
(In millions)U.S. Information Solutions$ 1,277.4 $ 1,247.3 $ 1,262.7 $ 30.1 2 %$ (15.4) (1) % Workforce Solutions 949.7 826.8 764.2 122.9 15 % 62.6 8 % International 920.6 966.2 932.3 (45.6) (5) % 33.9 4 % Global Consumer Solutions 359.9 371.8 403.0 (11.9) (3) % (31.2) (8) % Consolidated operating revenue$ 3,507.6 $ 3,412.1 $ 3,362.2 $ 95.5 3 %$ 49.9 1 % Revenue for 2019 increased by 3% compared to 2018. The growth was driven by our Workforce Solutions and USIS segments which was partially offset by declines in International and Global Consumer Solutions. Workforce Solutions saw strong growth driven by Verification Services. USIS growth was primarily driven by increases in core credit decisioning volumes and revenue from acquisitions. International had local currency growth acrossLatin America andCanada . The effect of foreign exchange rates reduced revenue by$74.7 million , or 2%, in 2019 compared to 2018. Global Consumer Solutions revenue decreased primarily due to decreases in consumer direct revenue in theU.S. and theU.K. Revenue for 2018 increased by 1% compared to 2017. The growth was driven by our Workforce Solutions and International segments which was partially offset by declines in USIS and Global Consumer Solutions which were negatively impacted by the 2017 cybersecurity incident. Workforce Solutions saw strong growth driven by Verification Services. International had local currency growth across all regions. The effect of foreign exchange rates reduced revenue by$28.3 million , or 1%, in 2018 compared to 2017. Operating Expenses Twelve Months Ended December 31, Change 2019 vs. 2018 2018 vs. 2017 Operating Expenses 2019 2018 2017 $ % $ % (In millions) Consolidated cost of services$ 1,521.7 $ 1,440.4 $ 1,210.7 $ 81.3 6 %$ 229.7 19 % Consolidated selling, general and administrative expenses 1,990.2 1,213.3 1,032.0 776.9 64 % 181.3 18 % Consolidated depreciation and amortization expense 331.1 310.4 287.8 20.7 7 % 22.6 8 % Consolidated operating expenses$ 3,843.0 $ 2,964.1 $ 2,530.5 $ 878.9 30 %$ 433.6 17 % Cost of Services. Cost of services increased$81.3 million in 2019 compared to 2018. The increase is due to increased royalty and technology costs. We also incurred increased incremental technology and data security costs of$20.3 million in 37 -------------------------------------------------------------------------------- 2019. These increased technology and security costs predominantly reflect the investments we are making in our technology transformation, which include costs for enhanced data security. We expect these incremental costs as well as increased ongoing technology and security costs to continue in 2020. The effect of changes in foreign exchange rates reduced cost of services by$33.2 million . Cost of services increased$229.7 million in 2018 compared to 2017. We incurred increased technology and data security costs of$146.5 million in 2018. These increased technology and security costs predominantly reflect the investments we are making in our technology transformation, which include costs for enhanced data security. The remaining increase is due to increased people and royalty costs. The effect of changes in foreign exchange rates reduced cost of services by$6.4 million .
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased
The increase in 2019 is primarily due to losses, net of insurance recoveries, of$800.9 million associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident. The impact of changes in foreign currency exchange rates decreased our selling, general and administrative expenses by$24.4 million .
Selling, general and administrative expenses increased
We incurred increased incremental technology and data security costs of$160.7 million in 2018. As was the case in cost of services, these increased technology and security costs predominately reflect the investments we are making in our technology transformation, which include costs for enhanced data security. The remaining changes were driven by increases due to the restructuring charge of$46.1 million , people, the public records litigation settlement of$18.5 million and insurance costs which were partially offset by decreased advertising costs. The impact of changes in foreign currency exchange rates decreased our selling, general and administrative expenses by$10.2 million . Depreciation and Amortization. Depreciation and amortization expense for 2019 and 2018 increased by$20.7 million and$22.6 million , respectively. The increase is due to amortization of capitalized internal-use software and systems costs and depreciation of production equipment, partially offset by a decrease in amortization of purchased intangibles.
Operating Income and Operating Margin
Twelve Months Ended
December 31, Change
Operating (Loss) Income and 2019 vs. 2018 2018 vs. 2017
Operating Margin 2019 2018 2017 $ % $ %
(In millions)
Consolidated operating revenue $ 3,507.6 $ 3,412.1 $ 3,362.2 $ 95.5 3 % $ 49.9 1 %
Consolidated operating expenses 3,843.0 2,964.1 2,530.5 878.9 30 % 433.6 17 %
Consolidated operating (loss) income $ (335.4) $ 448.0 $ 831.7 $ (783.4) (175) % $ (383.7) (46) %
Consolidated operating margin (9.6) % 13.1 % 24.7 % (22.7) pts (11.6) pts
Total company operating margin decreased in 2019 versus 2018, primarily due to
losses, net of insurance recoveries, of $800.9 million associated with certain
legal proceedings and government investigations related to the 2017
cybersecurity incident which are reflected in selling, general, and
administrative expenses in our Consolidated Statements of (Loss) Income.
Total company operating margin decreased in 2018 versus 2017, primarily due to
the aforementioned technology and data security spending by the Company after
the 2017 cybersecurity incident of $326.2 million reflected in costs of services
and selling, general, and administrative expenses in our Consolidated Statements
of (Loss) Income.
38
--------------------------------------------------------------------------------Interest Expense and Other Income (Expense), net
Twelve Months Ended
December 31, Change
2019 vs. 2018 2018 vs. 2017
Consolidated Interest and Other
Income (Expense), net 2019 2018 2017 $ % $ %
(In millions)
Consolidated interest expense $ (111.7) $ (103.5) $ (92.8) $ (8.2) 8 % $ (10.7) 12 %
Consolidated other income, net 14.1 11.8 7.7 2.3 19 % 4.1 53 %
Average cost of debt 3.8 % 3.8 % 3.4 %
Total consolidated debt, net, at
year end $ 3,382.6 $ 2,635.5 $ 2,704.3 $ 747.1 28 % $ (68.8) (3) %
Interest expense increased in 2019, when compared to 2018, due to an increase in
our overall debt outstanding during the year due to borrowings on our
Receivables Facility and under our commercial paper program. These borrowings
were paid down with the proceeds from the issuance of the $750.0 million Senior
Notes in November 2019 .
Interest expense increased in 2018, when compared to 2017, due to an increase in
our overall average cost of debt resulting from the issuance of the 3.60%,
Floating Rate and 3.95% Senior Notes in
The increase in other income, net in 2019 is primarily due to higher earnings on
certain equity method investments and partially offset by an increased loss
related to the foreign exchange impact of remeasuring the peso denominated
monetary assets and liabilities as a result of
The increase in other income, net in 2018 is primarily due to higher earnings on certain equity method investments, an increase in interest income, and the release of a liability from a past acquisition. These increases were partially offset by increased pension expense and the foreign exchange impact of remeasuring the peso denominated monetary assets and liabilities as a result ofArgentina becoming a highly inflationary economy for accounting purposes in 2018. Income Taxes Twelve Months Ended December 31, Change 2019 vs. 2018 2018 vs. 2017 Provision for Income Taxes 2019 2018 2017 $ % $ % (In millions) Consolidated provision for (benefit from) income taxes$ 40.2 $ (50.0) $ (148.6) $ 90.2 (180) %$ 98.6 (66) % Effective income tax rate 9.3 % 14.0 % 19.9 % Our effective tax rate was 9.3% for 2019, down from 14.0% for the same period in 2018. Our effective tax rate is lower for the year endedDecember 31, 2019 compared to 2018 due to the operating loss of the Company in 2019 and permanent tax differences resulting from certain non-deductible amounts related to the accrual for losses associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident. Our effective tax rate was 14.0% for 2018, down from 19.9% for the same period in 2017. The decrease in our effective income tax rate is due to the decrease in the statutoryU.S. tax rate as a result of the Tax Act enacted in the fourth quarter of 2017 and the increase in the benefit received from the reversal of uncertain tax positions. These changes were offset by an increase in the impact of equity compensation, an increase in the foreign rate differential impact, and the deferred tax benefit recorded in the fourth quarter of 2017 to reflect the impact of the Tax Act. 39 --------------------------------------------------------------------------------
Net (Loss) Income
Twelve Months Ended
December 31, Change
2019 vs. 2018 2018 vs. 2017
Net (Loss) Income 2019 2018 2017 $ % $ %
(In millions, except per share amounts)
Consolidated operating (loss) income $ (335.4) $ 448.0 $ 831.7 $ (783.4) (175) % $ (383.7) (46) %
Consolidated other expense, net (97.6) (91.7) (85.1) (5.9) 6 % (6.6) 8 %
Consolidated provision for (benefit
from) income taxes 40.2 (50.0) (148.6) 90.2 (180) % 98.6 (66) %
Consolidated net (loss) income (392.8) 306.3 598.0 (699.1) (228) % (291.7) (49) %
Net (loss) income attributable to noncontrolling interests (6.0) (6.5) (10.7) 0.5 (8) % 4.2 (39) % Net (loss) income attributable to Equifax$ (398.8) $ 299.8 $ 587.3 $ (698.6) (233) %$ (287.5) (49) % Diluted earnings per share: Net (loss) income attributable to Equifax$ (3.27) $ 2.47 $ 4.83 $ (5.74) (232) %$ (2.36) (49) % Weighted-average shares used in computing diluted earnings per share 122.0 121.4
121.5
Consolidated net (loss) income decreased by$699.1 million in 2019 compared to 2018 due to decreased operating income primarily driven by losses, net of insurance recoveries, associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident of$800.9 million . Consolidated net (loss) income decreased by$291.7 million , or 49%, in 2018 compared to 2017 due to decreased operating income primarily driven by the$326.2 million of aforementioned incremental technology and data security costs. Net income was benefitted by the decrease in the statutoryU.S. tax rate as a result of the Tax Act enacted in the fourth quarter of 2017. Segment Financial ResultsU.S. Information Solutions Twelve Months Ended December 31, Change 2019 vs. 2018 2018 vs. 2017 U.S. Information Solutions 2019 2018 2017 $ % $ % (In millions) Operating revenue: Online Information Solutions$ 924.1 $ 877.5 $ 889.6 $ 46.6 5 %$ (12.1) (1) % Mortgage Solutions 136.9 153.6 148.9 (16.7) (11) % 4.7 3 % Financial Marketing Services 216.4 216.2 224.2 0.2 - % (8.0) (4) % Total operating revenue$ 1,277.4 $ 1,247.3 $ 1,262.7 $ 30.1 2 %$ (15.4) (1) % % of consolidated revenue 37 % 37 % 37 % Total operating income$ 423.4 $ 441.7 $ 539.1 $ (18.3) (4) %$ (97.4) (18) % Operating margin 33.1 % 35.4 % 42.7 % (2.3) pts (7.3) ptsU.S. Information Solutions revenue increased 2% in 2019 compared to 2018 due to increases in our core credit decisioning services volumes and revenue from acquisitions, partially offset by$20.0 million in settlements with commercial customers and declines in Mortgage Solutions.
40
--------------------------------------------------------------------------------These declines were partially offset by revenue from a 2018 acquisition, growth in core mortgage, and revenue from mortgage channel partners.
Online Information Solutions. Revenue for 2019 increased 5% compared to 2018, due to increases in core credit decisioning services volumes, revenue from acquisitions and our identity and fraud solutions business. These increases were partially offset by a$15.0 million settlement with a commercial customer.
Revenue for 2018 decreased 1% compared to 2017, due to declines in our core credit decisioning services and identity and fraud solutions revenue. These declines were partially offset by growth from a 2018 acquisition and revenue from mortgage, auto, and direct to consumer channel partners.
Mortgage Solutions. Revenue decreased 11% in 2019 compared to 2018, primarily due to channel shift between our Mortgage Solutions and Online Information Solutions businesses, partially offset by an increase in mortgage market transaction volumes.
Revenue increased 3% in 2018 compared to 2017, primarily due to a new product offering. This growth was partially offset by declines in the mortgage market and our other mortgage product offerings. Financial Marketing Services. Revenue remained flat in 2019 compared to 2018 due to an increase in project related revenue, offset by a$5.0 million settlement with a commercial customer.
Revenue decreased 4% in 2018 compared to 2017 due to a reduction in projects delivered.
U.S. Information Solutions Operating Margin. USIS operating margin decreased to 33.1% in 2019 compared to 35.4% in 2018, primarily due to increases in royalties, technology, data security and people costs and settlements with commercial customers. These increases were partially offset by the public records litigation settlement of$18.5 million in 2018 that did not recur in 2019. USIS operating margin decreased to 35.4% in 2018 compared to 42.7% in 2017, primarily due to the decrease in revenue and increases in incremental technology and data security costs, royalties, and the public records litigation settlement. Workforce Solutions Twelve Months Ended December 31, Change 2019 vs. 2018 2018 vs. 2017 Workforce Solutions 2019 2018 2017 $ % $ % (In millions) Operating Revenue: Verification Services$ 700.1 $ 567.0 $ 501.5 $ 133.1 23 %$ 65.5 13 % Employer Services 249.6 259.8 262.7 (10.2) (4) % (2.9) (1) % Total operating revenue$ 949.7 $ 826.8 $ 764.2 $ 122.9 15 %$ 62.6 8 % % of consolidated revenue 27 % 24 % 23 % Total operating income$ 389.7 $ 332.7 $ 331.9 $ 57.0 17 %$ 0.8 - % Operating margin 41.0 % 40.2 % 43.4 % 0.8 pts (3.2) pts Workforce Solutions revenue increased by 15% in 2019 compared to 2018 due to strong growth in Verification Services which was partially offset by decreased revenue in our tax management services and our Affordable Care Act compliance services.
Workforce Solutions revenue increased by 8% in 2018 compared to 2017 due to strong growth in Verification Services, partially offset by decreased revenue in unemployment claims.
Verification Services. Revenue increased 23% in 2019 compared to 2018, due to
strong growth in mortgage, government, financial, healthcare and talent
solutions verticals, and continued addition of new records to The Work Number
database.
41
--------------------------------------------------------------------------------Revenue increased 13% in 2018 compared to 2017, due to strong growth in government, mortgage, talent solutions, and healthcare verticals, and continued addition of new records to The Work Number database.
Employer Services. Revenue decreased 4% in 2019 compared to 2018 due to declines in our tax management services and Affordable Care Act compliance services. These declines were partially offset by revenue from acquisitions.
Revenue decreased 1% in 2018 compared to 2017 due to declines in our unemployment claims services, workforce analytics and our other employer services. These declines were partially offset by growth from our 2018 acquisitions.
Workforce Solutions Operating Margin. Operating margin increased to 41.0% in
2019 compared to 40.2% in 2018 primarily due to the increase in revenue.
Operating margin decreased to 40.2% in 2018 compared to 43.4% in 2017 due to
increases in people, incremental technology and data security, and royalty
costs.
International
Twelve Months Ended
December 31, Change
2019 vs. 2018 2018 vs. 2017
International 2019 2018 2017 $ % $ %
(In millions)
Operating revenue:
Asia Pacific $ 300.1 $ 325.6 $ 308.9 $ (25.5) (8) % $ 16.7 5 %
Europe 275.6 287.3 273.8 (11.7) (4) % 13.5 5 %
Latin America 190.5 206.6 213.6 (16.1) (8) % (7.0) (3) %
Canada 154.4 146.7 136.0 7.7 5 % 10.7 8 %
Total operating revenue $ 920.6 $ 966.2 $ 932.3 $ (45.6) (5) % $ 33.9 4 %
% of consolidated revenue 26 % 28 % 28 %
Total operating income $ 96.1 $ 108.6 $ 169.4 $ (12.5) (11) % $ (60.8) (36) %
Operating margin 10.4 % 11.2 % 18.2 % (0.8) pts (7.0) pts
International revenue decreased by 5% in 2019 as compared to 2018. Local
currency revenue growth for 2019 was 3%, driven by growth in the
International revenue increased by 4% in 2018 as compared to 2017. Local currency revenue growth for 2018 was 7%, driven by growth across all regions. Local currency fluctuations against theU.S. dollar negatively impacted revenue by$29.5 million , or 3%.Asia Pacific . Local currency revenue decreased 1% in 2019 as compared to 2018 primarily driven by weak consumer and commercial lending markets inAustralia resulting in declines in consumer lending and direct-to-consumer related revenue. Local currency fluctuations against theU.S. dollar negatively impacted revenue by$21.5 million , or 7%, in 2019. Reported revenue decreased 8% in 2019 as compared to 2018. Local currency revenue growth was 8% in 2018 primarily due to the Mercury acquisition and growth in our commercial business. Local currency fluctuations against theU.S. dollar negatively impacted revenue by$8.8 million , or 3%, in 2018 as compared to 2017. Reported revenue increased 5% in 2018 as compared to 2017.Europe . Local currency revenue was flat in 2019 as compared to 2018 primarily due to growth in credit operations revenue inU.K. andSpain offset by a decline in our debt management services. Local currency fluctuations against theU.S. dollar negatively impacted revenue by$12.9 million , or 4%, for 2019. Reported revenue decreased 4% in 2019 as compared to 2018. Local currency revenue growth was 1% in 2018 as compared to 2017 primarily due to growth inU.K. andSpain credit operations revenue and was partially offset by a decline in our debt management services. Local currency fluctuations against theU.S. dollar positively impacted revenue by$10.0 million , or 4%, for 2018. Reported revenue increased 5% in 2018 as compared to 2017. 42 --------------------------------------------------------------------------------Latin America . Local currency revenue increased 9% in 2019 as compared to 2018 driven by core growth primarily inArgentina ,Chile andEcuador . Local currency fluctuations against theU.S. dollar negatively impacted revenue by$35.0 million , or 17%, in 2019, primarily fromArgentina andChile . Reported revenue decreased 8% in 2019 as compared to 2018. Local currency revenue increased 11% in 2018 as compared to 2017 driven by core growth primarily inArgentina ,Chile andEcuador . Local currency fluctuations against theU.S. dollar negatively impacted revenue by$30.8 million , or 14%, in 2018, most notably due to depreciation in the foreign exchange rate of the Argentine peso. Reported revenue increased 3% in 2018 as compared to 2017.Canada . Local currency revenue increased 8% in 2019 as compared to 2018 primarily due to broad based revenue growth including growth from acquisitions. Local currency fluctuations against theU.S. dollar negatively impacted revenue by$3.7 million , or 3%, in 2019. Reported revenue increased 5% in 2019 as compared to 2018. Local currency revenue increased 8% in 2018 as compared to 2017 primarily due to broad based revenue growth. Local currency fluctuations against theU.S. dollar negatively impacted revenue by$0.1 million in 2018. Reported revenue increased 8% in 2018 as compared to 2017. International Operating Margin. Operating margin decreased to 10.4% in 2019 as compared to 11.2% in 2018. The reduced margin is due to increased production costs and negative impacts from foreign currency exchange rates. Operating margin decreased to 11.2% in 2018 as compared to 18.2% in 2017. The reduced margin is due to an increase in incremental technology and data security, people, and production costs as well as depreciation and amortization. These increased costs were positively impacted by foreign currency fluctuations during the year. Global Consumer Solutions Twelve Months Ended December 31, Change 2019 vs. 2018 2018 vs. 2017 Global Consumer Solutions 2019 2018 2017 $ % $ % (In millions) Total operating revenue$ 359.9 $ 371.8 $ 403.0 $ (11.9) (3) %$ (31.2) (8) % % of consolidated revenue 10 % 11 % 12 % Total operating income$ 48.4 $ 68.6 $ 106.2 $ (20.2) (29) %$ (37.6) (35) % Operating margin 13.4 % 18.4 % 26.4 % (5.0) pts (8.0) pts Revenue decreased 3% for 2019 in reported and local currency revenue, as compared to 2018. The decrease in revenue is primarily due to a decrease in our consumer direct revenue in theU.S. as we ceased advertising our consumer paid products in theU.S. inSeptember 2017 following the 2017 cybersecurity incident. We resumed advertising ourU.S. consumer paid products in the fourth quarter of 2018. These decreases were partially offset by an increase in our partner revenue. Local currency fluctuations against theU.S. dollar negatively impacted revenue inCanada and theU.K. by$1.6 million for 2019. Operating margin decreased in 2019 to 13.4% compared to 18.4% in 2018, due to the decreased revenue and an increase in advertising and production costs which were partially offset by decreased people costs. Revenue decreased 8% for 2018 in reported and local currency revenue, as compared to 2017. The decrease in revenue is due to a decrease in our consumer direct revenue in theU.S. as we ceased advertising our consumer paid products in theU.S. inSeptember 2017 following the 2017 cybersecurity incident and theU.K. as we were impacted by the Global Data Protection Regulations in theU.K. These decreases were partially offset by an increase in our partner revenue, which includes revenue from the ID Watchdog acquisition. We resumed advertising ourU.S. consumer paid products in the fourth quarter of 2018. Local currency fluctuations against theU.S. dollar positively impacted revenue by$1.2 million for 2018.
Operating margin decreased in 2018 to 18.4% compared to 26.4% in 2017, due to the decreased revenue and an increase in incremental technology and data security costs which were partially offset by decreased advertising costs.
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General Corporate Expense
Twelve Months Ended
December 31, Change
2019 vs. 2018 2018 vs. 2017
General Corporate Expense 2019 2018 2017 $ % $ %
(In millions)
General corporate expense $ 1,293.0 $ 503.6 $ 314.8 $ 789.4 157 % $ 188.8 60 %
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, administrative, legal, restructuring, and
the portion of management incentive compensation determined by total
company-wide performance.
General corporate expense increased $789.4 million in 2019. The increase in 2019
as compared to 2018 is primarily due to losses, net of insurance recoveries, of
$800.9 million associated with certain legal proceedings and government
investigations related to the 2017 cybersecurity incident.
General corporate expense increased $188.8 million in 2018. We incurred
increased incremental technology and data security costs following the
announcement of the 2017 cybersecurity incident of $186.7 million in 2018. This
was partially offset by a decrease in legal and investigative fees and the costs
to fulfill and support the free credit monitoring service provided to eligible
consumers of $75.2 million in 2018. Further, we benefited from an increase in
the recognition of insurance proceeds of $75.0 million to offset these costs in
2018, versus the $50.0 million of insurance proceeds recorded in 2017.
Additionally, we recorded $46.1 million of restructuring charges in 2018 which
primarily relate to a reduction of headcount. The remaining increase is due to
people and insurance costs.
44
--------------------------------------------------------------------------------LIQUIDITY AND FINANCIAL CONDITION
Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We continue to generate substantial cash from operating activities, remain in a strong financial position, and manage our capital structure to meet short- and long-term objectives including reinvestment in existing businesses and strategic acquisitions.
Sources and Uses of Cash
Funds generated by operating activities, our Revolver and related commercial paper program and our Receivables Facility, more fully described below, are our most significant sources of liquidity. 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 "Item 3. Legal Proceedings" in this Form 10-K. In 2019, the Company made payments of$341.5 million principally related to the Consumer Settlement comprised of$180.5 million to theMSAG Group ,$100.0 million to theCFPB ,$25.2 million to theConsumer Restitution Fund and$10.0 million to the NYDFS. The remaining$355.3 million to be paid to theConsumer Restitution Fund will be made after a final adjudication affirming theU.S. Consumer MDL Litigation Settlement or dismissal of the pending appeals. Although we expect this payment and the remaining settlement payments to be made in 2020, we can give no assurance that these payments will occur in 2020 due to pending approvals or appeals. As a result of the possible payments that could be made in 2020 related to the losses associated with certain legal proceedings and government investigations related to the 2017 cybersecurity incident, funds generated by operating activities are not expected to be sufficient to fund working capital and other cash requirements throughout 2020. Our plan is to finance the payments with existing borrowing capacity, including under our Revolver. AtDecember 31, 2019 ,$1.10 billion was available to borrow under our Revolver. As ofDecember 31, 2019 ,$221.7 million was available to borrow under our Receivables Facility. In the event that additional financing is needed, we would finance using the public and private corporate bond markets and/or syndicated loan markets, if available. Fund Transfer Limitations. The ability of certain of our subsidiaries and associated companies to transfer funds to theU.S may be limited, in some cases, by certain restrictions imposed by foreign governments. 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 ofDecember 31, 2019 , we held$154.6 million of cash in our foreign subsidiaries. Information about our cash flows, by category, is presented in the Consolidated Statements of Cash Flows. The following table summarizes our cash flows for the twelve months endedDecember 31, 2019 , 2018 and 2017: Twelve Months Ended December 31, Change Net cash provided by (used in): 2019 2018 2017 2019 vs. 2018 2018 vs. 2017 (In millions) Operating activities$ 313.8 $ 672.2 $ 816.0 $ (358.4) $ (143.8) Investing activities$ (697.5) $ (461.5) $ (349.5) $ (236.0) $ (112.0) Financing activities$ 557.9 $ (311.0) $ (263.7) $ 868.9 $ (47.3) Operating Activities Cash provided by operating activities for 2019 decreased by$358.4 million compared to 2018. The decrease is due to partial payment of the losses associated with certain legal proceedings and investigations related to the 2017 cybersecurity incident as well as having received$110.0 million in insurance proceeds in 2018. Cash provided by operating activities for 2018 decreased by$143.8 million compared to 2017, due to the decrease in net income, adjusted for depreciation and amortization. This decrease was partially offset by an improvement in our working capital and the change in deferred income taxes. 45 --------------------------------------------------------------------------------
Investing Activities
Twelve Months Ended
December 31, Change
Net cash used in: 2019 2018 2017 2019 vs. 2018 2018 vs. 2017
(In millions)
Capital expenditures* $ (399.6) $ (321.9) $ (218.2) $ (77.7) $ (103.7) *Amounts above are total cash outflows for capital expenditures.
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, licensing of standard software applications, investing in system reliability, security and disaster recovery enhancements, and updating or expanding our office facilities.
Capital expenditures increased in 2019 and 2018 from 2018 and 2017, respectively, due to our ongoing technology transformation.
Acquisitions, Divestitures and Investments
Twelve Months Ended
December 31, Change
Net cash provided by (used in): 2019 2018 2017 2019 vs. 2018 2018 vs. 2017
(In millions)
Acquisitions, net of cash acquired $ (272.9) 1.6
Cash received from sale of asset $ -
Investment in unconsolidated affiliates, net$ (25.0) $ (6.9) $ -$ (18.1) $ (6.9) 2019 Acquisitions and Investments. During 2019, we completed the acquisition of PayNet in our USIS and International operating segments and completed additional acquisitions in our Workforce Solutions segment.
2018 Acquisitions and Investments. During 2018, we completed acquisitions in our
Workforce Solutions and International segments as well as
2017 Acquisitions and Investments. During the fourth quarter of 2017, we acquired 100% of the outstanding stock ofMercury Group of Companies Pty Ltd ("Mercury"), an Australian-owned workforce management company. During the third quarter of 2017, we completed the acquisition of 100% of the outstanding stock ofID Watchdog, Inc.
For additional information about our acquisitions, see Note 3 of the Notes to Consolidated Financial Statements in this report.
Financing Activities
Twelve Months Ended
December 31, Change
Net cash provided by (used in): 2019 2018 2017 2019 vs. 2018 2018 vs. 2017
(In millions)
Net short-term (repayments) borrowings $
(1.8)
(1,211.6)
Proceeds from issuance of long-term debt$ 998.3 $ 994.5 $ 100.0 $ 3.8$ 894.5 Payments on long-term debt$ (250.0) $ (100.0) $ (322.5) $ (150.0) $ 222.5 Borrowing and Repayment Activity. Net short-term (repayments) borrowings primarily represent repayments or borrowings of outstanding amounts under our commercial paper ("CP") program. We primarily borrow under our CP program as needed and as availability allows.
The decrease in net short-term (repayments) borrowings in 2019 and 2018 and the increase in 2017 primarily relates to the net activity of CP notes.
46
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The increase in proceeds from long-term debt in 2019 relates to the issuance of
$750.0 million in senior notes in November 2019 and draw downs on our Receivable
Facility during the year.
In November 2019 , we issued $750.0 million aggregate principal amount of 2.6%
Senior Notes due 2024 (the "2024 Notes") in an underwritten public offering.
Interest on the 2024 Notes accrue at a rate of 2.6% per year and will be payable
semi-annually in arrears on June 1 and December 1 of each year, beginning on
June 1, 2020 . The net proceeds of the sale of the notes were used to repay
borrowings under our Receivables Facility and our CP program and for general
corporate purposes.
The increase in proceeds from long-term debt in 2018 relates to the issuance of
InMay 2018 , we issued$300.0 million aggregate principal amount of 3.6% Senior Notes due 2021 (the "2021 Notes"),$400.0 million aggregate principal amount of 3.95% Senior Notes due 2023 (the "2023 Notes"), and$300.0 million aggregate principal amount Floating Rate Notes due 2021 (the "Floating Rate Notes") in an underwritten public offering. The net proceeds of the sale of the notes were used to repay borrowings under our Revolver, our prior$800.0 million three-year delayed draw term loan facility ("Term Loan") and our CP program.
The increase in proceeds from long-term debt in 2017 is due to borrowings on our Revolver.
Payments on long-term debt in 2019 reflect payments on our Receivable Facility using proceeds from the issuance of the senior notes in 2019. Payments on long-term debt in 2018 reflect$100.0 million of payments on the Revolver using proceeds from the issuance of 3.60%, Floating Rate and 3.95% senior notes in 2018. Payments on long-term debt in 2017 reflect$272.5 million of payments related to senior notes, as well as$50.0 million of payments on the Term Loan. Credit Facility Availability. InSeptember 2018 , the Company entered into the$1.10 billion five-year unsecured revolving credit facility with a group of financial institutions, which will mature inSeptember 2023 (the "Revolver"). The Revolver replaced the Company's previous$900.0 million unsecured revolving credit facility that was scheduled to mature inNovember 2020 . Borrowings under the Revolver may be used for general corporate purposes, including working capital, capital expenditures, acquisitions and share repurchase programs. The Revolver has an accordion feature that allows us to request an increase in the total commitment to$1.60 billion . The Revolver includes an option to request a maximum of two one-year extensions of the maturity date, any time after the first anniversary of the Revolver closing. We believe we are currently in compliance with all representations and warranties necessary as a condition for borrowing under the Revolver, but we cannot assure that we will be able to comply with all such conditions to borrowing in the future. Availability of the Revolver is reduced by the outstanding principal balance of our commercial paper notes and by any letters of credit issued under the facility. Our$1.10 billion CP program has been established to allow for borrowing through the private placement of CP with maturities ranging from overnight to 397 days. We may use the proceeds of CP for general corporate purposes. 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. AtDecember 31, 2019 , the Company had no borrowings outstanding of CP,$0.7 million of letters of credit outstanding and no borrowings outstanding under the Revolver. AtDecember 31, 2019 , a total of$1.10 billion was available under the Revolver. AtDecember 31, 2019 , approximately 91% of our debt was fixed rate and 9% was variable rate. Our variable-rate debt consists of the Floating Rate Notes. The interest rate resets periodically, based on the terms of the respective financing arrangement. AtDecember 31, 2019 , the interest rate on our variable-rate debt was 2.8%. InDecember 2019 , we amended our$225.0 million receivables funding facility (the "Receivables Facility") to extend the maturity toDecember 2022 . In the fourth quarter of 2017, Equifax entered into the Receivables Facility which had an original maturity in 2019 and was amended inNovember 2018 to extend the maturity toNovember 2020 . Under the Receivables Facility, Equifax and certain of itsU.S. subsidiaries sell the eligible third-party receivables of itsU.S. based business, toEquifax Receivables Funding LLC , a consolidated, wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer, without recourse, an undivided interest in these accounts receivable to investors. The investors have no recourse to the Company's other assets except for customary repurchase, warranty and indemnity claims. Creditors of Equifax do not have recourse to the assets ofEquifax Receivables Funding LLC . 47 -------------------------------------------------------------------------------- Debt Covenants. A downgrade in credit ratings would increase the cost of borrowings under our CP program and Revolver, and could limit or, in the case of a significant downgrade, preclude our ability to issue CP. The outstanding indentures and comparable instruments contain customary covenants including, for example, limits on mortgages, liens and sale/leaseback transactions. In addition, the Revolver requires us to maintain a maximum leverage ratio of not more than 3.5 to 1.0. As permitted under the terms of the Revolver, we made the election to increase the covenant to 4.0 to 1.0, effective for four consecutive quarters, beginning in the second quarter of 2019 and continuing through the first quarter of 2020. None of these covenants are considered restrictive to our operations and, as ofDecember 31, 2019 , the Company was in compliance with all of our debt covenants. The Company does not have any credit rating triggers that would accelerate the maturity of a material amount of the outstanding debt; however, the 2.3% senior notes due 2021, 3.6% senior notes due 2021, the Floating Rate Notes, 3.3% senior notes due 2022, 3.95% senior notes due 2023, 2.6% senior notes due 2024, 3.25% senior notes due 2026, and 7.0% senior notes due 2037 (together, the "Senior Notes") contain change in control provisions. If the Company experiences a change of control or publicly announces the Company's intention to effect a change of control and the rating on the Senior Notes is lowered byStandard & Poor's ("S&P") and Moody's Investors Service ("Moody's") below an investment grade rating within 60 days of such change of control or notice thereof, then the Company 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. Credit Ratings. Credit ratings reflect an independent agency's judgment on the likelihood that a borrower will repay a debt obligation at maturity. The ratings reflect many considerations, such as the nature of the borrower's industry and its competitive position, the size of the company, its liquidity and access to capital and the sensitivity of a company's cash flows to changes in the economy. The two largest rating agencies, S&P and Moody's, use alphanumeric codes to designate their ratings. The highest quality rating for long-term credit obligations isAAA and Aaa for S&P and Moody's, respectively. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating agency. Long-term ratings of BBB- and Baa3 or better by S&P and Moody's, respectively, reflect ratings on debt obligations that fall within a band of credit quality considered to be "investment grade." AtDecember 31, 2019 , the long-term ratings for our obligations were BBB with a negative outlook for S&P and Baa1 with a negative outlook for Moody's. A downgrade in our credit rating would increase the cost of borrowings under our CP program and Revolver, and could limit, or in the case of a significant downgrade, preclude our ability to issue CP. If our credit ratings were to decline to lower levels, we could experience increases in the interest cost for any new debt. In addition, the market's demand for, and thus our ability to readily issue, new debt could become further affected by the economic and credit market environment. These ratings are subject to change as events and circumstances change. For additional information about our debt, including the terms of our financing arrangements, basis for variable interest rates and debt covenants, see Note 5 of the Notes to Consolidated Financial Statements in this report. Equity Transactions Twelve Months Ended December 31, Change Net cash provided by (used in): 2019 2018 2017 2019 vs. 2018 2018
vs. 2017
(In millions)
Treasury stock purchases $ -
$ -
$ (188.7)
$ (6.6)
$ 22.3
Purchase of redeemable noncontrolling interests $ -$ (30.9) $ (2.6) $ 30.9 $ (28.3) 48
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Sources and uses of cash related to equity during the twelve months ended
•We did not repurchase any shares in 2019 and 2018. Under share repurchase programs authorized by our Board of Directors, we repurchased 0.5 million common shares during the twelve months endedDecember 31, 2017 , for$77.1 million , at an average price per common share of$143.88 . As ofDecember 31, 2019 , under the existing board authorization, the Company is approved for additional stock repurchases of$590.1 million . •During the twelve months endedDecember 31, 2019 , 2018 and 2017, we paid cash dividends to Equifax shareholders of$188.7 million ,$187.9 million and$187.4 million , respectively, at$1.56 per share for 2019, 2018 and 2017. We anticipate continuing the payment of quarterly cash dividends. The actual amount of such dividends is subject to declaration by our Board of Directors and will depend upon future earnings, results of operations, capital requirements, our financial condition and other relevant factors. There can be no assurance that the Company will continue to pay quarterly cash dividends at current levels or at all.
Contractual Obligations and Commercial Commitments
The following table summarizes our significant contractual obligations and
commitments as of
Payments due by
Total Less than 1 year 1 to 3 years 3 to 5 years Thereafter
(In millions)
Debt (including capitalized lease
obligation) (1) $ 3,403.1 $ 3.1
138.4 29.6 48.0 32.2 28.6
Data processing, outsourcing
agreements and other purchase
obligations (3) 322.7 113.1 139.0 60.6 10.0
Other long-term liabilities (4) (5) 156.5 14.6 24.7 21.2 96.0
Interest payments (6) 686.3 119.8 189.9 115.0 261.6
$ 4,707.0 $ 280.2 $ 2,001.6 $ 1,379.0 $ 1,046.2 (1)The amounts are gross of unamortized discounts totaling
(2)Our operating lease obligations principally involve office space and equipment.
(3)These agreements primarily represent our minimum contractual obligations for services that we outsource associated with our computer data processing operations and related functions, and certain administrative functions. These agreements expire between 2020 and 2026. (4)These long-term liabilities primarily relate to obligations associated with certain pension, postretirement and other compensation-related plans, some of which are discounted in accordance withU.S. generally accepted accounting principles, or GAAP. We made certain assumptions about the timing of such future payments. In the table above, we have not included amounts related to future pension plan obligations, as such required funding amounts beyond 2019 have not been deemed necessary due to our current expectations regarding future plan asset performance. (5)This table excludes$24.6 million of unrecognized tax benefits, including interest and penalties, as we cannot make a reasonably reliable estimate of the period of cash settlement with the respective taxing authorities. 49 -------------------------------------------------------------------------------- (6)For future interest payments on variable-rate debt, which bears a rate equal to three-month LIBOR on the interest determination date plus 0.87% per annum, we used the variable rate in effect atDecember 31, 2019 to calculate these payments. Our outstanding variable rate debt atDecember 31, 2019 consisted of the Floating Rate Notes. The variable rate atDecember 31, 2019 was 2.8%. Future interest payments may be different depending on future borrowing activity and interest rates.
Off-Balance Sheet Transactions
We do not engage in off-balance sheet financing activities.
Pursuant to the terms of certain industrial revenue bonds, we have transferred title to certain of our fixed assets with total costs of$156.4 million as ofDecember 31, 2019 and 2018 to a local governmental authority in theU.S. to receive a property tax abatement related to economic development. The title to these assets will revert back to us upon retirement or cancellation of the applicable bonds. These fixed assets are still recognized on the Company's Consolidated Balance Sheets as all risks and rewards related to the assets remain with the Company.
Letters of Credit and Guarantees
We will from time to time issue standby letters of credit, performance or surety bonds or other guarantees in the normal course of business. The aggregate notional amount of all performance and surety bonds and standby letters of credit was not material atDecember 31, 2019 , and generally have a remaining maturity of one year or less. Guarantees are issued from time to time to support the needs of our operating units. The maximum potential future payments we could be required to make under the guarantees is not material atDecember 31, 2019 .
Benefit Plans
We sponsor a qualified defined benefit retirement plan, theU.S. Retirement Income Plan ("USRIP"), that covers approximately 11% of currentU.S. salaried employees who were hired on or beforeJune 30, 2007 , the last date on which an individual could be hired and enter the plan before the USRIP was closed to new participation atDecember 31, 2008 . This plan also covers retirees as well as certain terminated but vested individuals not yet in retirement status. We also sponsor a retirement plan with both defined benefit and defined contribution components that cover most salaried and hourly employees inCanada , the Canadian Retirement Income Plan ("CRIP"); the defined benefit component was also closed to new hires onOctober 1, 2011 . During the twelve months endedDecember 31, 2019 , we made no voluntary contributions to the USRIP and made contributions of$0.2 million to the CRIP. During the twelve months endedDecember 31, 2018 , we made voluntary contributions of$30.0 million to the USRIP and made contributions of$0.4 million to the CRIP. AtDecember 31, 2019 , the USRIP met or exceeded ERISA's minimum funding requirements. In the future, we will make minimum funding contributions as required and may make discretionary contributions, depending on certain circumstances, including market conditions and liquidity needs. We believe additional funding contributions, if any, would not prevent us from continuing to meet our liquidity needs, which are primarily funded from cash flows generated by operating activities, available cash and cash equivalents, and our credit facilities. For our non-U.S. , tax-qualified retirement plans, we fund an amount sufficient to meet minimum funding requirements but no more than allowed as a tax deduction pursuant to applicable tax regulations. For the non-qualified supplementary retirement plans, we fund the benefits as they are paid to retired participants, but accrue the associated expense and liabilities in accordance with GAAP.
For additional information about our benefit plans, see Note 9 of the Notes to Consolidated Financial Statements in this report.
Effects of Inflation and Changes in Foreign Currency Exchange Rates
Equifax's operating results are not materially affected by inflation, although
inflation may result in increases in the Company's expenses, which may not be
readily recoverable in the price of services offered. To the extent inflation
results in rising interest rates and has other adverse effects upon the
securities markets and upon the value of financial instruments, it may adversely
affect the Company's financial position and profitability.
50
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A portion of the Company's business is conducted in currencies other than the
U.S. dollar and changes in foreign exchange rates relative to the U.S. dollar
can therefore affect the value of non-U.S. dollar net assets, revenues and
expenses. Potential exposures as a result of these fluctuations in currencies
are closely monitored. We generally do not mitigate the risks associated with
fluctuating exchange rates, although we may from time to time through forward
contracts or other derivative instruments hedge a portion of our translational
foreign currency exposure or exchange rate risks associated with material
transactions which are denominated in a foreign currency.
RECENT ACCOUNTING PRONOUNCEMENTS
For information about new accounting pronouncements and the potential impact on our Consolidated Financial Statements, see Note 1 of the Notes to Consolidated Financial Statements in this report.
APPLICATION OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's Consolidated Financial Statements are prepared in conformity withU.S. generally accepted accounting principles, or GAAP. This requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosures of contingent assets and liabilities in our Consolidated Financial Statements and the Notes to Consolidated Financial Statements. The following accounting policies involve critical accounting estimates because they are particularly dependent on estimates and assumptions made by management about matters that are uncertain at the time the accounting estimates are made. In addition, while we have used our best estimates based on facts and circumstances available to us at the time, different estimates reasonably could have been used in the current period, or changes in the accounting estimates that we used are reasonably likely to occur from period to period, either of which may have a material impact on the presentation of our Consolidated Balance Sheets, Statements of (Loss) Income, and Statements of Comprehensive (Loss) Income. We also have other significant accounting policies which involve the use of estimates, judgments and assumptions that are relevant to understanding our results. For additional information about these policies, see Note 1 of the Notes to Consolidated Financial Statements in this report. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information available at the time. Actual results may differ significantly from these estimates under different assumptions, judgments or conditions.
Revenue Recognition
In accordance with ASC 606, "Revenue from Contracts with Customers," we recognize revenue when a performance obligation has been satisfied by transferring a promised good or service to a customer and the customer obtains control of the good or service. In order to recognize revenue, we note that the two parties must have an agreement that creates enforceable rights, the performance obligations must be distinct and the transaction price can be determined. Our revenue is derived from the provision of information services to our customers on a transactional basis, in which distinct services are delivered over time as the customer simultaneously receives and consumes the benefits of the services delivered. To measure our performance over time, the output method is utilized to measure the value to the customer based on the transfer to date of the services promised, with no rights of return once consumed. In these cases, revenue on transactional contracts with a defined price but an undefined quantity is recognized utilizing the right to invoice expedient resulting in revenue being recognized when the service is provided and billed. Additionally, multi-year contracts with defined pricing but an undefined quantity that utilize tier pricing would be defined as a series of distinct performance obligations satisfied over time utilizing the same method of measurement, the output method, with no rights of return once consumed. This measurement method is applied on a monthly basis resulting in revenue being recognized when the service is provided and billed. Additionally, we recognize revenue from subscription-based contracts under which a customer pays a preset fee for a predetermined or unlimited number of transactions or services provided during the subscription period, generally one year. Revenue from subscription-based contracts having a preset number of transactions is recognized as the services are provided, using an effective transaction rate as the actual transactions are delivered. Any remaining revenue related to unfulfilled units is not recognized until the end of the related contract's subscription period. Revenue from subscription-based contracts having an unlimited volume is recognized ratably during the contract term. Multi-year subscription contracts are analyzed to determine the full contract transaction price over the term of the contract and the subsequent price is ratably recognized over the full term of the contract.
Revenue is recorded net of sales taxes.
If at the outset of an arrangement, we determine that collectibility is not reasonably assured, revenue is deferred until the earlier of when collectibility becomes probable or the receipt of payment from the customer. If there is uncertainty as to the
51
--------------------------------------------------------------------------------customer's acceptance of the performance obligation, revenue is not recognized until the earlier of receipt of customer acceptance or expiration of the acceptance period.
We sell certain offerings that contain multiple performance obligations. These obligations may include consumer or commercial information, file updates for certain solutions, services provided by our decisioning technologies personnel, training services, statistical models and other services. In order to account for each of these obligations separately, the delivered promises within our contracts must meet the criterion to be considered distinct performance obligations to our customer. If we determine that the arrangement does not contain separate distinct obligations, the performance obligations are bundled together until a distinct obligation is achieved. This may lead to the arrangement consideration being recognized as the final contract obligation is delivered to our customer or ratably over the term of the contract. Some of our arrangements with multiple performance obligations involve the delivery of services generated by a combination of services provided by one or more of our operating segments. No individual information service impacts the value or usage of other information services included in an arrangement and each service can be sold alone or, in most cases, purchased from another vendor without affecting the quality of use or value to the customer of the other information services included in the arrangement. Some of our products require the installation of interfaces or platforms by our technology personnel that allow our customers to interact with our proprietary information databases. These installation services do not meet the requirement for being distinct, thus any related installation fees are deferred when billed and are recognized over the expected period that the customer will benefit from the related services. Revenue from the delivery of one-time files and models is recognized as the service is provided and accepted, assuming all other revenue recognition criteria are met. The direct costs of installation of a customer are capitalized and amortized over the useful life of the identifiable asset.
We record revenue on a net basis for those sales in which we have in substance acted as an agent or broker in the transaction and therefore do not have control.
In certain instances within our debt collections and recovery management services in our International operating segment and certain tax management services within our Workforce Solutions operating segment, variable consideration is constrained due to the fact that the revenue is contingent on a particular outcome. Within our debt collections and recovery management businesses, revenue is calculated as a percentage of debt collected on behalf of the customer and, as such, is primarily recognized when the debt is collected assuming all other revenue recognition criteria are met. Within our Workforce Solutions operating segment, the fees for certain of our tax credits and incentives revenue are based on a percentage of the credit delivered to our clients. Revenue for these arrangements is recognized based on the achievement of milestones, upon calculation of the credit, approval from a regulatory agency or when the credit is utilized by our client, depending on the provisions of the client contract. Certain costs incurred prior to the satisfaction of a performance obligation are deferred as contract costs and are amortized on a systematic basis consistent with the pattern of transfer of the related goods and services. These costs generally consist of labor costs directly relating to the implementation and setup of the contract. Judgments and Uncertainties - Each performance obligation within a contract must be considered separately to ensure that appropriate accounting is performed for these distinct goods or services. These considerations include assessing the price at which the element is sold compared to its standalone selling price; concluding when the element will be delivered; evaluating collectability; and determining whether any contingencies exist in the related customer contract that impact the prices paid to us for the services. Contract Balances - The contract balances are generated when revenue recognized varies from billing in a given period. A contract asset is created when an entity transfers a good or service to a customer and recognizes more revenue than what has been billed. As ofDecember 31, 2019 , the contract asset balance was$8.1 million . A contract liability is created when an entity transfers a good or service to a customer and recognizes less than what has been billed. Deferred revenue is recognized when we have an obligation to transfer goods or services to a customer and have already received consideration from the customer. We generally expect to recognize our deferred revenue as revenue within twelve months of being recorded based on the terms of the contracts.
We review goodwill and indefinite lived intangible assets for impairment annually (as ofSeptember 30 ) and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance or trends, competition, or sale or disposition of a significant portion of a reporting unit. We have seven reporting units comprised of USIS 52 --------------------------------------------------------------------------------
(which includes Online Information Solutions, Mortgage Solutions and Financial
Marketing Services),
The goodwill balance atDecember 31, 2019 , for our seven reporting units was as follows: December 31, 2019 (In millions) U.S. Information Solutions 1,280.7 Asia Pacific 1,394.0 Europe 159.0 Latin America 224.3 Canada 51.9 Global Consumer Solutions 188.0 Workforce Solutions 1,010.4 Total goodwill$ 4,308.3 Valuation Techniques We performed a qualitative assessment to determine whether further impairment testing was necessary for our USIS,Europe ,Latin America ,Canada , GCS, and Workforce Solutions 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. We performed a quantitative assessment for ourAsia Pacific reporting unit to determine whether impairment exists as the Veda transaction, which comprises the majority of ourAsia Pacific reporting unit, was only completed approximately three years ago and due to the size of the cushion for the reporting unit 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 charges. 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 ourAsia Pacific reporting unit 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 Item 1 of this Form 10-K. Competition for ourAsia Pacific reporting unit 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.
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--------------------------------------------------------------------------------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 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 ourAsia Pacific reporting unit was 4.85% 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 2020 for ourAsia Pacific reporting unit in completing our 2019 impairment testing based on planned business initiatives and prevailing trends exhibited by this unit and not based on the assumption of meaningful acceleration in economic growth. The anticipated revenue growth in this reporting unit, 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.
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 2019 annual goodwill impairment evaluation, the discount rate used to develop the estimated fair value of theAsia Pacific reporting unit was 9.1%.
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. An indication of possible 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 reporting unit exceeded the related
carrying value as of September 30, 2019 . 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. Our Asia Pacific reporting unit
primarily represents our recently completed acquisition of Veda. Due to the
recency of this acquisition and its overall significance to the reporting unit,
Asia Pacific is 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 as of
September 30, 2019 was 14%.
Loss Contingencies
We are subject to various proceedings, lawsuits and claims arising in the normal course of our business. We determine whether to disclose and/or accrue for loss contingencies based on our assessment of whether the potential loss is estimable, probable, reasonably possible or remote. In the third quarter of 2017, we announced a cybersecurity incident potentially impactingU.S. , Canadian andU.K. consumers. As a result of the 2017 cybersecurity incident, we were subject to a significant number of proceedings and investigations as described in "Item 3. Legal Proceedings" in this Form 10-K. 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 (Loss) Income, respectively, as of and for the twelve months endedDecember 31, 2019 , 54 -------------------------------------------------------------------------------- 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 in "Item 3. Legal Proceedings" in this Form 10-K 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 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. Judgments and uncertainties - We periodically review claims and legal proceedings and assess whether we have potential financial exposure based on consultation with internal and outside legal counsel and other advisors. If the likelihood of an adverse outcome from any claim or legal proceeding is probable and the amount can be reasonably estimated, we record a liability on our Consolidated Balance Sheets for the estimated amount. If the likelihood of an adverse outcome is reasonably possible, but not probable, we provide disclosures related to the potential loss contingency. Our assumptions related to loss contingencies are inherently subjective. Effect if actual results differ from assumptions - With the exception of the 2017 cybersecurity incident, we do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine loss contingencies. However, if facts and circumstances change in the future that change our belief regarding assumptions used to determine our estimates, we may be exposed to a loss that could be material.
Income Taxes
We record deferred income taxes using enacted tax laws and rates for the years in which the taxes are expected to be paid. We assess the likelihood that our deferred tax assets will be recovered from future taxable income or other tax planning strategies. To the extent that we believe that recovery is not likely, we must establish a valuation allowance to reduce the deferred tax assets to the amount we estimate will be recoverable. Our income tax provisions are based on assumptions and calculations which will be subject to examination by various tax authorities. We record tax benefits for positions in which we believe are more likely than not of being sustained under such examinations. We assess the potential outcome of such examinations to determine the adequacy of our income tax accruals. Judgments and uncertainties - We consider accounting for income taxes critical because management is required to make significant judgments in determining our provision for income taxes, our deferred tax assets and liabilities, and our future taxable income for purposes of assessing our ability to realize any future benefit from our deferred tax assets. These judgments and estimates are affected by our expectations of future taxable income, mix of earnings among different taxing jurisdictions, and timing of the reversal of deferred tax assets and liabilities. We also use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We review our uncertain tax positions and adjust our unrecognized tax benefits in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our unrecognized tax benefits may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash. AtDecember 31, 2019 ,$24.6 million was recorded for uncertain tax benefits, including interest and penalties, of which it is reasonably possible that up to$5.0 million of our unrecognized tax benefit may change within the next twelve months. Effect if actual results differ from assumptions - Although management believes that the judgments and estimates discussed herein are reasonable, actual results could differ, and we may be exposed to increases or decreases in income tax expense that could be material.
Pension and Other Postretirement Plans
We consider accounting for ourU.S. and Canadian pension and other postretirement plans critical because management is required to make significant subjective judgments about a number of actuarial assumptions, which include discount rates, expected return on plan assets, interest cost and mortality and retirement rates. Actuarial valuations are used in determining our benefit obligation and net periodic benefit cost. 55 -------------------------------------------------------------------------------- During 2019, we adopted the new Pri-2012 mortality tables and MP-2019 mortality improvement projection scale in determining the liability for theU.S. plans. The updated mortality tables and projection scale, partially offset the decrease in the discount rates in 2019, the net of which resulted in the increase in the projected benefit obligation as ofDecember 31, 2019 . During 2018, we adopted the new MP-2018 mortality improvement projection scale in determining the liability for theU.S. plans. This updated scale, along with the change in the discount rates, contributed to a decrease in the projected benefit obligation as ofDecember 31, 2018 . During 2017, we adopted the new MP-2017 mortality improvement projection scale in determining the liability for theU.S. plans. This updated scale partially offset the decrease in the discount rates in 2017, the net of which resulted in the increase in the projected benefit obligation as ofDecember 31, 2017 . Judgments and uncertainties - We believe that the most significant assumptions related to our net periodic benefit cost are (1) the discount rate and (2) the expected return on plan assets, in each case as it relates to ourU.S. pension plan. Our Canadian plan is not significant, and the impact of changes in assumptions for that plan is not material. We determine our discount rates primarily based on high-quality, fixed-income investments and yield-to-maturity analyses specific to our estimated future benefit payments available as of the measurement date. Discount rates are reset annually on the measurement date to reflect current market conditions. To determine the discount rate for ourU.S. pension and postretirement benefit plans, we use a bond matching approach to select specific bonds that would satisfy our projected benefit payments. We believe the bond matching approach reflects the process we would employ to settle our pension and postretirement benefit obligations. For our Canadian plans we use a third-party yield curve to develop our discount rates. The yield curve provides discount rates related to a dedicated high-quality bond portfolio whose cash flows extend beyond the current period, from which we choose a rate matched to the expected benefit payments required for each plan.
In 2019, the Compensation Committee of the Board of Directors approved the
termination of the plan. The CRIP will be frozen effective
The expected rate of return on plan assets is based on both our historical returns and forecasted future investment returns by asset class, as provided by our external investment advisor. In 2019, ourU.S. pension plan investment earned 21.4%, which was above the expected return of 6.7%. The expected return for the USRIP for 2020 is 6.5% following asset allocation changes that resulted in higher allocation to fixed income securities. The CRIP investment earned 12.7% in 2019 versus the expected return of 6.0%. The expected return for the CRIP for 2020 is 6.0%. Our weighted-average expected rate of return for both plans for 2019 is 6.46% which is consistent with the 2019 expected rate. Annual differences, if any, between the expected and actual returns on plan assets are included in unrecognized net actuarial gain or loss, a component of other comprehensive income. In calculating the annual amortization of the unrecognized net actuarial gain or loss, we use a market-related value of assets that smooths actual investment gains and losses on plan assets over a period up to five years. The resulting unrecognized net actuarial gain or loss amount is recognized in net periodic pension expense over the average remaining life expectancy of the participant group since almost all participants are inactive. The market-related value of our assets was$563.7 million atDecember 31, 2019 . We do not expect our 2020 net periodic benefit cost, which includes the effect of the market-related value of assets, to be materially different than our 2019 cost. See Note 9 of the Notes to the Consolidated Financial Statements for details on changes in the pension benefit obligation and the fair value of plan assets. Effect if actual results differ from assumptions - We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions that are used in our actuarial valuations. Adjusting our weighted-average expected long-term rate of return (6.46% atDecember 31, 2019 ) by 50 basis points would change our estimated pension expense in 2019 by approximately$2.8 million . Adjusting our weighted-average discount rate (4.39% atDecember 31, 2019 ) by 50 basis points would change our estimated pension expense in 2019 by approximately$1.1 million . However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in pension expense, pension liability or unrecognized prior service cost and actuarial gains (losses) that could be material. 56
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