Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

As used herein, the terms Equifax, the Company, we, our and us refer to Equifax Inc., a Georgia corporation, and its consolidated subsidiaries as a combined entity, except where it is clear that the terms mean only Equifax Inc.

All references to earnings per share data in Management’s Discussion and Analysis, or MD&A, are to diluted earnings per share, or EPS, unless otherwise noted. Diluted EPS is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common shares outstanding.

BUSINESS OVERVIEW

We are a leading global provider of information solutions, employment and income verifications and human resources business process outsourcing services. We leverage some of the largest sources of consumer and commercial data, along with advanced analytics and proprietary technology, to create customized insights which enable our business customers to grow faster, more efficiently and more profitably, and to inform and empower consumers.

Businesses rely on us for consumer and business credit intelligence, credit portfolio management, fraud detection, decisioning technology, marketing tools, debt management and human resources-related services. We also offer a portfolio of products that enable individual consumers to manage their financial affairs and protect their identity. Our revenue stream is diversified among businesses across a wide range of industries, international geographies and individual consumers.

2017 Cybersecurity Incident

In fiscal 2017, we experienced a cybersecurity incident following a criminal attack on our systems that involved the theft of certain personally identifiable information of U.S., Canadian and U.K. consumers. Criminals exploited a U.S. website application vulnerability to gain unauthorized access to our network. Based on our forensic investigation, the unauthorized access of information occurred from mid-May through July 2017. The information accessed primarily includes names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. In addition, credit card numbers for approximately 209,000 U.S. and Canadian consumers, and certain dispute documents with personal identifying information for approximately 182,000 U.S. consumers, were accessed. The investigation determined that personal information of approximately 19,000 Canadian consumers was impacted and approximately 860,000 potentially affected U.K. consumers were contacted regarding access to personal information. The forensic investigation of the cybersecurity incident was, as previously disclosed, completed in the fourth quarter of fiscal 2017. No evidence was found that the Company's core consumer, employment and income, or commercial credit reporting databases were accessed.

The Company acted promptly to notify the approximately 145.5 million U.S. consumers whose personally identifiable information the Company had identified in 2017 as potentially accessed. As a result of an ongoing analysis of data stolen in the 2017 cybersecurity incident, the Company recently announced that it was able to identify approximately 2.4 million U.S. consumers whose name and partial driver’s license information were stolen, but who were not in the affected population of approximately 145.5 million consumers previously identified by the Company in 2017. The Company is in the process of notifying these additional consumers.

As a result of the 2017 cybersecurity incident, we are party to numerous lawsuits and governmental investigations. See Part I, Item 1A. Risk Factors and Part I, Item 3. Legal Proceedings for more information regarding these lawsuits and investigations. We continue to cooperate with law enforcement in connection with the criminal investigation into the actors responsible for the cybersecurity incident.

Expenses Incurred. Through December 31, 2017, the Company recorded $113.3 million of pretax expenses related to the cybersecurity incident. We have included $14.2 million of these expenses in Cost of services and $99.1 million in Selling, general and administrative expenses in the accompanying Consolidated Statements of Income for the year ended December 31, 2017. Expenses include costs to investigate and remediate the cybersecurity incident and legal and other professional services related thereto, all of which were expensed as incurred.

Product Liability. Additionally, as a result of the cybersecurity incident, we offered free credit file monitoring and identity theft protection to all U.S. consumers. We have recorded the expenses necessary to provide this service to those who signed up. We have recorded $50.7 million through December 31, 2017 included in Selling, general and administrative expenses in the accompanying Consolidated Statements of Income.

Litigation, Claims and Government Investigations. As a result of the cybersecurity incident, we are subject to a significant number of proceedings and investigations as described in Part I, "Item 3. Legal Proceedings." While we believe it is reasonably possible that we will incur losses associated with these proceedings and investigations, it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments, settlements, penalties or other resolution of such proceedings and investigations based on the early stage of these proceedings and investigations, that alleged damages have not been specified, the uncertainty as to the certification of a class or classes and the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues. The Company will continue to evaluate information as it becomes known and will record an estimate for losses at the time or times when it is both probable that a loss has been incurred and the amount of the loss is reasonably estimable. The Company believes that the ultimate amount paid on these actions, claims and investigations could be material to the Company’s consolidated financial condition, results of operations, or cash flows in future periods.

Future Costs. We expect to incur significant legal and other professional services expenses associated with the cybersecurity incident in future periods. We will recognize these expenses as services are received. Costs related to the cybersecurity incident that will be incurred in future periods will also include increased expenses and capital investments for IT and security. We expect to incur increased expenses for insurance, finance, compliance activities, and to meet increased legal and regulatory requirements. We will also incur increased costs to provide free services to consumers including increased customer support costs.

Insurance Coverage. We maintain $125 million of cybersecurity insurance coverage, above a $7.5 million deductible, to limit our exposure to losses such as those related to the cybersecurity incident. As of December 31, 2017, the Company has recorded a receivable of $35.0 million and received payments of $15 million for costs incurred to date that are reimbursable and probable of recovery under our insurance coverage.

Segment and Geographic Information

Segments. The USIS segment, the largest of our four segments, consists of three service lines: Online Information Solutions; Mortgage Solutions; and Financial Marketing Services. Online Information Solutions and Mortgage Solutions revenue is principally transaction-based and is derived from our sales of products such as consumer and commercial credit reporting and scoring, identity management, fraud detection and modeling services. USIS also markets certain decisioning software services, which facilitate and automate a variety of consumer and commercial credit-oriented decisions. Financial Marketing Services revenue is principally project and subscription based and is derived from our sales of batch credit and consumer wealth information such as those that assist clients in acquiring new customers, cross selling to existing customers and managing portfolio risk.

The International segment consists of Asia Pacific, Europe, Latin America and Canada. Canada’s services are similar to our USIS offerings. Asia Pacific, Europe and Latin 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.

The Workforce Solutions segment consists of the Verification Services and Employer Services business lines. Verification Services revenue is transaction-based and is derived primarily from employment and income verification. Employer Services revenues are derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings. These services include unemployment claims management, employment-based tax credit services and other complementary employment-based transaction services.

Global Consumer Solutions revenue is both transaction and subscription based and is derived from the sale of credit monitoring and identity theft protection products, which we deliver electronically to consumers primarily via the internet in the U.S., Canada, and the U.K. We reach consumers directly and indirectly through partners. We also sell consumer and credit information to resellers who combine our information with other information to provide direct to consumer monitoring, reports and scores. Due to the cybersecurity incident we ceased advertising our consumer business in the U.S. in September 2017. As part of our response to the cybersecurity incident announced in September 2017, we began offering in the U.S. our TrustedID Premier service, an identity theft protection and credit file monitoring product, for free to all consumers who signed up through January 31, 2018. Additionally, in January 2018, the Company introduced in the U.S., Lock & AlertTM, a new service that allows customers to quickly lock and unlock their Equifax credit report for free, for life. Equifax also will provide the ability for U.S. consumers to freeze and unfreeze their Equifax credit file for free through June 30, 2018. We provide U.S. consumers with a free annual credit report in accordance with the FACT Act. For consumers impacted by the cybersecurity incident in Canada and the U.K., we are providing free credit reports and scores, credit monitoring and identity theft protection for 12 months for those consumers who signed up by January 31, 2018.

Geographic Information. We currently have significant operations in the following countries: Argentina, Australia, Canada, Chile, Costa Rica, Ecuador, El Salvador, Honduras, India, Mexico, New Zealand, Paraguay, Peru, Portugal, the Republic of Ireland, Spain, the U.K., Uruguay and the U.S. We also offer Equifax branded credit services in India and Russia through joint ventures, we have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia, Singapore and Dubai, and have an investment in a consumer and commercial credit information company in Brazil. Approximately 71% of our revenue was generated in the U.S. during the twelve months ended December 31, 2017.

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 ended December 31, 2017, 2016 and 2015, include the following:

Key Performance Indicators Twelve Months Ended December 31,
201720162015
(In millions, except per share data)
Operating revenue$3,362.2$3,144.9$2,663.6
Operating revenue change7%18%9%
Operating income$824.6$817.9$693.9
Operating margin24.5%26.0%26.1%
Net income attributable to Equifax$587.3$488.8$429.1
Diluted earnings per share$4.83$4.04$3.55
Cash provided by operating activities$816.0$823.0$769.1
Capital expenditures*$(214.0)$(191.5)$(150.7)

*Amounts above exclude changes in 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. In the United States we expect 2018 economic activity, as measured by GDP, to be about flat with levels seen in the second half of 2017. We expect modest growth in consumer credit, excluding mortgage, over the course of 2018. U.S. Mortgage market originations are expected to be down for the full year of 2018 versus 2017. We anticipate 2018 economic activity, as measured by GDP, in Canada and Australia to be at or slightly below the levels seen in the second half of 2017. In the European markets we serve, the U.K. and Spain, we are expecting 2018 economic activity, as measured by GDP, to be at or slightly below the levels in calendar year 2017. In Argentina and Chile, our two largest markets in our Latin American Region, we are expecting 2018 economic activity, again as measured by GDP, to increase from the levels in calendar year 2017.

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

As a result of the cybersecurity incident, we are subject to a significant number of proceedings and investigations as described in Part I, "Item 3. Legal Proceedings." While we believe it is reasonably possible that we will incur losses associated

with these proceedings and investigations, it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments, settlements, penalties or other resolution of such proceedings and investigations based on the early stage of these proceedings and investigations, that alleged damages have not been specified, the uncertainty as to the certification of a class or classes and the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues.

The Tax Cuts and Jobs Act of 2017 (“Tax Act”), as signed by the President of the United States on December 22, 2017, significantly revises U.S. tax law. The legislation will positively impact the Company’s ongoing effective tax rate due to the reduction of the U.S. federal corporate tax rate from 35% to 21%. The Tax Act makes major changes to the U.S. international tax system. Under previous law, foreign earnings were subject to U.S. tax when repatriated to the U.S. Under the Tax Act, foreign earnings are generally exempt from U.S. tax. Additionally, there is a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”). The Tax Act imposes other U.S. taxes on “global intangible low taxed income” and “base erosion anti-abuse transactions.” Other significant changes include limitations on the deductibility of interest expense and executive compensation, and repeal of the deduction for domestic production activities. As a result of the current interpretation and estimated impact of the Tax Act, the Company recorded adjustments totaling a net tax benefit of $48.3 million in the fourth quarter of 2017 to provisionally account or the estimated impact. Refer to Note 7 of the Notes to the Consolidated Financial Statements in this Form 10-K for additional information.

RESULTS OF OPERATIONS —

TWELVE MONTHS ENDED DECEMBER 31, 2017, 2016 AND 2015

Consolidated Financial Results

Operating Revenue

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
Operating Revenue201720162015$%$%
(In millions)
U.S. Information Solutions$1,262.7$1,236.5$1,171.3$26.22%$65.26%
International932.3803.6568.5128.716%235.141%
Workforce Solutions764.2702.2577.762.09%124.522%
Global Consumer Solutions403.0402.6346.10.4—%56.516%
Consolidated operating revenue$3,362.2$3,144.9$2,663.6$217.37%$481.318%

Revenue for 2017 increased by 7% compared to 2016. The growth was driven by our International and Workforce Solutions segments. International had strong growth across all regions, which reflects broad based organic growth and the Veda acquisition. Workforce Solutions saw strong growth driven by Verification Services. USIS had an increase in revenue compared to 2016, reflecting growth in core credit decisioning, financial marketing services, mortgage and identity and fraud solutions. Revenue in our USIS, Global Consumer Solutions and Workforce Solutions segments were negatively impacted by the cybersecurity incident. The effect of foreign exchange rates reduced revenue by $6.0 million in 2017 compared to 2016.

Revenue for 2016 increased by 18% compared to 2015. The growth was driven by broad-based organic growth due to revenue increases in mortgage, government, healthcare, and direct to consumer reseller verticals as well as the Veda acquisition. The effect of foreign exchange rates reduced revenue by $75.2 million or 3% in 2016 compared to 2015.

Operating Expenses

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
Operating Expenses201720162015$%$%
(In millions)
Consolidated cost of services$1,210.7$1,113.4$887.4$97.39%$226.025%
Consolidated selling, general and administrative expenses1,039.1948.2884.390.910%63.97%
Consolidated depreciation and amortization expense287.8265.4198.022.48%67.434%
Consolidated operating expenses$2,537.6$2,327.0$1,969.7$210.69%$357.318%

Cost of Services. Cost of services increased $97.3 million in 2017 compared to 2016. The increase in cost of services, when compared to 2016, was due to the increase in production costs driven by higher revenues, as well as increases in professional services related to the cybersecurity incident and in people costs. The effect of changes in foreign exchange rates reduced cost of services by $2.1 million.

Cost of services increased $226.0 million in 2016 compared to 2015. The increase in cost of services, when compared to 2015, was due to the increase in production costs driven by higher revenues including the Veda acquisition, as well as increases in people costs, and to a lesser extent an increase in technology costs. The effect of changes in foreign exchange rates reduced cost of services by $21.4 million.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $90.9 million in 2017 as compared to 2016. The increase was due to costs related to the cybersecurity incident, higher occupancy and people costs, partially offset by a decline in Veda integration and transaction costs. The impact of changes in foreign currency exchange rates decreased our selling, general and administrative expenses by $2.2 million.

Selling, general and administrative expenses increased $63.9 million in 2016 as compared to 2015. The increase was due to Veda selling, general and administrative expense and integration and transaction costs and increases in people costs across the business. The increase was offset by a decline in costs related to the realignment of internal resources. The impact of changes in foreign currency exchange rates decreased our selling, general and administrative expenses by $23.7 million.

Depreciation and Amortization. Depreciation and amortization expense for 2017 increased by $22.4 million primarily due to increased depreciation due to increased capital expenditures.

Depreciation and amortization expense for 2016 increased by $67.4 million primarily due to the Veda acquisition.

Operating Income and Operating Margin

Twelve Months Ended December 31,Change
Operating Income and Operating Margin2017 vs. 20162016 vs. 2015
201720162015$%$%
(In millions)
Consolidated operating revenue$3,362.2$3,144.9$2,663.6$217.37%$481.318%
Consolidated operating expenses2,537.62,327.01,969.7210.69%357.318%
Consolidated operating income$824.6$817.9$693.9$6.71%$124.018%
Consolidated operating margin24.5%26.0%26.1%(1.5)pts(0.1)pts

Total company margin decreased in 2017 versus 2016, primarily due to the costs related to the cybersecurity incident, partially offset by increased margins in International and Equifax Workforce Solutions business segments and lower integration costs related to the acquisition of Veda.

Total company margin decreased slightly in 2016 versus 2015 due to transaction and integration costs as well as increased amortization of acquired intangibles related to the acquisition of Veda. This was partially offset by a decline in costs related to realignment of internal resources. Margins in our USIS, Workforce Solutions and Global Consumer businesses all increased in 2016, with these increases offset by lower margins in International, principally due to the Veda transaction and integration costs and related amortization of intangibles.

Interest Expense and Other Income (Expense), net

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
Consolidated Interest and Other Income (Expense), net201720162015$%$%
(In millions)
Consolidated interest expense$(92.8)$(92.1)$(63.8)$(0.7)1%$(28.3)44%
Consolidated other income, net14.82.46.512.4517%(4.1)(63)%
Average cost of debt3.4%3.5%4.5%
Total consolidated debt, net, at year end$2,704.3$2,672.2$1,187.7$32.11%$1,484.5125%

Interest expense increased in 2017, when compared to 2016, due to an increase in our average consolidated debt outstanding in 2017, reflecting debt incurred in the first quarter of 2016 to finance the acquisition of Veda. Our average cost of debt decreased in 2017 compared to 2016, due to the higher balance of low rate commercial paper outstanding and lower long-term rates due to the repayment on July 3, 2017 of $272.5 million in principal amount of our 6.3% senior notes.

Interest expense increased in 2016, when compared to 2015, due to an overall increase in our consolidated debt outstanding as of December 31, 2016 to fund the acquisition of Veda in 2016. Our average cost of debt decreased in 2016 compared to 2015, due to the higher balance of low rate commercial paper outstanding and lower long-term rates related to the issuance of 2.3% and 3.25% Senior Notes.

The increase in other income (expense), net, in 2017 is primarily due to a 2016 loss on the economic hedges, offset by a foreign currency gain on intercompany debt, both items related to the Veda transaction which did not recur in 2017. There were also higher earnings on certain equity method investments in 2017.

The decrease in other income (expense), net, in 2016 is due to 2016 foreign exchange losses related to the Veda acquisition and the 2015 income from the settlement of escrow amounts related to an acquisition from January 2014 which did not recur in 2016. These items were partially offset by the impairment of our cost method investment in Brazil in the second quarter of 2015 which did not recur in 2016.

Income Taxes

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
Provision for Income Taxes201720162015$%$%
(In millions)
Consolidated provision for income taxes$(148.6)$(233.1)$(201.8)$84.5(36)%$(31.3)16%
Effective income tax rate19.9%32.0%31.7%

Overall, our effective tax rate was 19.9% for 2017, down from 32.0% for the same period in 2016. The decrease in our effective income tax rate for 2017 is primarily attributable to recording the preliminary impact of the Tax Act enacted in the fourth quarter of 2017, and the adoption of the new stock-based compensation guidance we prospectively adopted in the first quarter of 2017. We recognized a $48.3 million and $26.7 million tax benefit related to the estimated impact of tax legislation enacted in 2017 and the accounting change for stock-based compensation guidance for the full year 2017, respectively.

Overall, our effective tax rate was 32.0% for 2016, up from 31.7% for the same period in 2015. The 2016 rate benefited by 2% due to international related items, specifically higher earnings in lower tax jurisdictions and the rationalization of the structure of foreign subsidiaries. This was offset by other non-recurring permanent items that benefited the 2015 tax rate including the settlement of escrow related to a past acquisition and state law changes, that did not recur in 2016.

Net Income

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
Net Income201720162015$%$%
(In millions, except per share amounts)
Consolidated operating income$824.6$817.9$693.9$6.71%$124.018%
Consolidated other expense, net(78.0)(89.7)(57.3)11.7(13)%(32.4)57%
Consolidated provision for income taxes(148.6)(233.1)(201.8)84.5(36)%(31.3)16%
Consolidated net income598.0495.1434.8102.921%60.314%
Net income attributable to noncontrolling interests(10.7)(6.3)(5.7)(4.4)70%(0.6)11%
Net income attributable to Equifax$587.3$488.8$429.1$98.520%$59.714%
Diluted earnings per share:
Net income attributable to Equifax$4.83$4.04$3.55$0.7920%$0.4914%
Weighted-average shares used in computing diluted earnings per share121.5121.1120.9

Consolidated net income increased by $102.9 million, or 21%, in 2017 compared to 2016 due to increased operating income, principally in our International, Workforce Solutions, and USIS businesses, partially offset by the cybersecurity costs and lower operating income in the Global Consumer Solutions business. There were also several income tax benefits, consisting principally of the fourth quarter tax benefit related to the Tax Act and the prospective adoption of the new stock-based compensation guidance in the first quarter of 2017. Additionally there was an increase in other income, primarily due to a 2016 loss on economic hedges, offset by a foreign currency gain on intercompany debt, both items related to the Veda transaction which did not recur in 2017.

Consolidated net income increased by $60.3 million, or 14%, in 2016 compared to 2015 due to increased operating income in our USIS and Workforce Solutions businesses. This increase was partially offset by declines due to foreign exchange rates that impacted the International operating segment, the increase in interest expense, as well as increased corporate expenses as described below.

Segment Financial Results

U.S. Information Solutions

Twelve Months Ended December 31,Change
U.S. Information Solutions2017 vs. 20162016 vs. 2015
201720162015$%$%
(In millions)
Operating revenue:
Online Information Solutions$889.6$879.3$842.1$10.31%$37.24%
Mortgage Solutions148.9142.2124.16.75%18.115%
Financial Marketing Services224.2215.0205.19.24%9.95%
Total operating revenue$1,262.7$1,236.5$1,171.3$26.22%$65.26%
% of consolidated revenue37%39%44%
Total operating income$539.1$537.0$491.2$2.1—%$45.89%
Operating margin42.7%43.4%41.9%(0.7)pts1.5pts

U.S. Information Solutions revenue increased 2% in 2017 compared to 2016 due to growth in the mortgage and financial verticals, partially offset by a decline in our auto vertical and the impact of the cybersecurity incident.

U.S. Information Solutions revenue increased 6% in 2016 compared to 2015. USIS realized solid growth from our mortgage business, as well as continued revenue growth in the automotive and financial services verticals.

Online Information Solutions. Revenue for 2017 increased 1% compared to 2016, due to growth in core credit decisioning and identity and fraud solutions.

Revenue for 2016 increased 4% compared to 2015, due to higher average revenue per unit and increased volumes to mortgage resellers, auto, and other resellers. Revenue also benefited from growth in identity and fraud solutions.

Mortgage Solutions. Revenue increased 5% in 2017 compared to 2016, driven by growth in core mortgage, as well as growth from other mortgage product offerings.

Revenue increased 15% in 2016 compared to 2015, driven by a strong market for refinancing and purchase activity, as well as growth from other mortgage product offerings.

Financial Marketing Services. Revenue increased 4% in 2017 compared to 2016 due to growth in credit marketing services and project related revenue.

Revenue increased 5% in 2016 compared to 2015 due to growth in credit marketing services, which resulted from increased demand from financial services customers.

U.S. Information Solutions Operating Margin. USIS operating margin decreased to 42.7% in 2017 compared to 2016 of 43.4% , primarily due to increased people costs, partially offset by product mix. USIS operating margin increased to 43.4% in 2016 as compared to 2015 of 41.9%. Margin expansion resulted from strong revenue growth and product mix.

International

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
International201720162015$%$%
(In millions)
Operating revenue:
Asia Pacific$308.9$244.2$9.0$64.726%$235.2nm
Europe273.8253.6237.520.28%16.17%
Latin America213.6183.9199.629.716%(15.7)(8)%
Canada136.0121.9122.414.112%(0.5)—%
Total operating revenue$932.3$803.6$568.5$128.716%$235.141%
% of consolidated revenue28%26%21%
Total operating income$169.4$111.4$113.5$58.052%$(2.1)(2)%
Operating margin18.2%13.9%20.0%4.3pts(6.1)pts

International revenue increased by 16% in 2017 as compared to 2016. Local currency organic revenue growth for 2017, excluding Veda, was 11%, driven by growth across all regions. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $4.3 million, or 1%.

International revenue increased by 41% in 2016 as compared to 2015. Local currency organic revenue growth for 2016, which excludes Veda, was 12%, primarily driven by strong growth in Europe and Latin America. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $69.8 million, or 12%.

Asia Pacific. Local currency growth was 24% in 2017 primarily due to the Veda acquisition. Local currency fluctuations against the U.S. dollar positively impacted revenue by $6.1 million, or 3%, in 2017. Reported revenue increased 26% in 2017.

Revenue growth of $235.2 million in 2016 was due to the Veda acquisition.

Europe. Local currency revenue growth was 12% in 2017 primarily due to growth in U.K. debt management services and other growth in the U.K. and Spain. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $9.1 million, or 4%, for 2017. Reported revenue increased 8% in 2017.

Local currency revenue growth was 18% in 2016 primarily due to growth in U.K. debt management services and analytical services in both the U.K. and Spain. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $25.9 million, or 11%, for 2016. Reported revenue increased 7% in 2016.

Latin America. Local currency revenue increased 18% in 2017 driven by growth primarily in Argentina and Chile. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $3.9 million, or 2%, in 2017, most notably due to depreciation in the foreign exchange rate of the Argentine peso, partially offset by appreciation of the Chilean peso. Reported revenue increased 16% in 2017.

Local currency revenue increased 12% in 2016 driven by core organic growth primarily in Argentina, Chile, and Paraguay. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $39.5 million, or 20%, in 2016, most notably due to depreciation in the foreign exchange rate of the Argentine peso. Reported revenue decreased 8% in 2016.

Canada. Local currency revenue increased 9% in 2017 compared to 2016, primarily due to organic growth. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $2.7 million, or 2%, in 2017. Reported revenue increased 12% in 2017.

Local currency revenue increased 3% in 2016 compared to 2015, primarily due to core organic growth. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $4.4 million, or 4%, in 2016. Reported revenue was flat in 2016.

International Operating Margin. Operating margin increased to 18.2% in 2017 as compared to 13.9% in 2016. The increase primarily resulted from a decrease in integration costs related to the Veda acquisition, lower growth in people costs, a gain on the sale of an asset, and a slight decrease in purchased intangibles amortization. Operating margin decreased to 13.9% in 2016 as compared to 20.0% in 2015. The decline primarily resulted from increased purchased intangibles amortization, integration costs related to the Veda acquisition and a decline in the margin of Latin America. The decline was partially offset by increased margins in Europe and Canada.

Workforce Solutions

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
Workforce Solutions201720162015$%$%
(In millions)
Operating Revenue:
Verification Services$501.5$437.3$364.4$64.215%$72.920%
Employer Services262.7264.9213.3(2.2)(1)%51.624%
Total operating revenue$764.2$702.2$577.7$62.09%$124.522%
% of consolidated revenue23%22%22%
Total operating income$331.9$295.5$218.8$36.412%$76.735%
Operating margin43.4%42.1%37.9%1.3pts4.2pts

Workforce Solutions revenue increased by 9% in 2017 compared to 2016 due to strong growth in the government, mortgage, financial and pre-employment screening verticals, partially offset by the impact of the cybersecurity incident.

Workforce Solutions revenue increased by 22% in 2016 compared to 2015 due to strong growth in the healthcare, mortgage, government, and financial verticals.

Verification Services. Revenue increased 15% in 2017 compared to 2016, due to strong growth in government, mortgage, financial, pre-employment screening and telecommunications verticals, and continued addition of new records to The Work Number database.

Revenue increased 20% in 2016 compared to 2015, due to strong growth in mortgage, government, financial, pre-employment screening and auto verticals, and continued addition of new records to The Work Number database.

Employer Services. Revenue decreased 1% in 2017 compared to 2016 due to a decline in our employment based tax credit services and workforce analytics offset by an increase in our on-boarding and unemployment claims services.

Revenue grew 24% in 2016 compared to 2015 due to growth in our workforce analytics and other employer services businesses.

Workforce Solutions Operating Margin. Operating margin increased 130 basis points to 43.4% in 2017 as compared to 42.1% in 2016 due to revenue growth and product mix, offset by increased people costs. Operating margin increased 420 basis points to 42.1% in 2016 as compared to 37.9% in 2015. Margin expansion in 2016 was driven by strong revenue growth in 2016.

Global Consumer Solutions

Twelve Months Ended December 31,Change
Global Consumer Solutions2017 vs. 20162016 vs. 2015
201720162015$%$%
(In millions)
Total operating revenue$403.0$402.6$346.1$0.4—%$56.516%
% of consolidated revenue12%13%13%
Total operating income$106.2$112.4$95.2$(6.2)(6)%$17.218%
Operating margin26.4%27.9%27.5%(1.5)pts0.4pts

Revenue was flat for 2017, as compared to prior year. Local currency revenue grew 1% in 2017, due to an increase in our partner revenue, which includes revenue from the ID Watchdog acquisition. The increase in revenue was offset by a decrease in our global consumer direct revenue which was primarily in the U.S. as we ceased advertising our consumer business in the U.S. in September 2017 following the cybersecurity incident. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $1.8 million for 2017. We do not intend to advertise our U.S. paid products in the first half of 2018 and expect a corresponding decline in revenue for 2018. Operating margin decreased in 2017 to 26.4% as compared to 27.9% in the prior year, due to higher technology costs, product mix, higher depreciation and acquisition costs, partially offset by lower marketing expenses.

Revenue increased 16% for 2016, as compared to prior year. Local currency revenue grew 18% in 2016, principally due to the growth of direct to consumer reseller revenue, and to a lesser extent, due to consumer direct revenue growth globally. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $5.4 million, or 2%, for 2016. Operating margin increased in 2016 to 27.9% as compared to 27.5% in the prior year, due to lower marketing expenses partially offset by higher production costs due to reseller product mix and increases in partner implementation costs

General Corporate Expense

Twelve Months Ended December 31,Change
2017 vs. 20162016 vs. 2015
General Corporate Expense201720162015$%$%
(In millions)
General corporate expense$322.0$238.4$224.8$83.635%$13.66%

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 $83.6 million in 2017 primarily due to costs related to the cybersecurity incident.

General corporate expense increased $13.6 million in 2016 due to Veda transaction and integration costs as well as other increases in people costs, offset by a decline in costs related to the realignment of internal resources.

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 and remain in a strong financial position managing 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 and our commercial paper program, credit facilities and Receivables Facility are our most significant sources of liquidity. We expect that funds generated by operating activities will be sufficient to finance our anticipated working capital and other cash requirements (such as ongoing capital expenditures associated with near-term actions to enhance IT systems and data security, interest payments, debt payments, potential pension funding contributions and dividend payments) for the foreseeable future. However, currently it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments, settlements, penalties, or other resolution of the proceedings and investigations resulting from the 2017 cybersecurity incident. Such potential payments, if great enough, could have an adverse effect on our liquidity. In this case, funds generated from operating activities and our credit facilities may not be sufficient to pay such damages, costs, penalties and fines. See Part I, Item 1A. Risk Factors "The government investigations and litigation resulting from the 2017 cybersecurity incident will continue to adversely impact our business and results of operations" and Part I, Item 3. Legal Proceedings. At December 31, 2017, $221.9 million was available to borrow under our Revolver. As of December 31, 2017, $204.3 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.

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 ended December 31, 2017, 2016 and 2015:

Twelve Months Ended December 31,Change
Net cash provided by (used in):2017201620152017 vs. 20162016 vs. 2015
(In millions)
Operating activities$816.0$823.0$769.1$(7.0)$53.9
Investing activities$(349.5)$(1,975.9)$(147.8)$1,626.4$(1,828.1)
Financing activities$(263.7)$1,160.3$(639.0)$(1,424.0)$1,799.3

Operating Activities

Cash provided by operating activities for 2017 decreased by $7.0 million compared to 2016, due to an increase in working capital mostly driven by an increase in other assets, current and long-term and slower growth in current and long-term liabilities, excluding debt. Additionally we incurred significant costs related to the cybersecurity incident. These decreases were partially offset by growth in net income, slower growth in accounts receivable, net and an increase in depreciation and amortization.

Cash provided by operating activities for 2016 increased by $53.9 million compared to 2015, due to $60.3 million growth in net income, partially offset by an increase in working capital mostly driven by an increase in accounts receivable, lower growth in other liabilities, current and long-term, excluding debt.

Fund Transfer Limitations. The ability of certain of our subsidiaries and associated companies to transfer funds to us 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. We currently hold $141.7 million of cash in our foreign subsidiaries.

Investing Activities

Twelve Months Ended December 31,Change
Net cash used in:2017201620152017 vs. 20162016 vs. 2015
(In millions)
Capital expenditures*$(218.2)$(173.5)$(146.2)$(44.7)$(27.3)

*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 in 2017 and 2016 increased from 2016 and 2015, respectively, as we are continuing to invest in new products and technology infrastructure.

Acquisitions, Divestitures and Investments

Twelve Months Ended December 31,Change
Net cash provided by (used in):2017201620152017 vs. 20162016 vs. 2015
(In millions)
Acquisitions, net of cash acquired$(139.9)$(1,791.6)$(4.4)$1,651.7$(1,787.2)
Cash received from sale of asset$8.6$—$—$8.6$—
Cash paid to settle economic hedges$—$(10.8)$—$10.8$(10.8)
Cash received from divestitures$—$—$2.9$—$(2.9)
Investment in unconsolidated affiliates, net$—$—$(0.1)$—$0.1

2017 Acquisitions and Investments. During the fourth quarter of 2017, we acquired 100% of the outstanding stock of Mercury 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 of ID Watchdog, Inc.

2016 Acquisitions and Investments. During the first quarter of 2016, the Company completed the acquisition of 100% of the ordinary voting shares of Veda for cash consideration of approximately $1.7 billion. During the first quarter of 2016, we settled all of the foreign currency options related to the Veda acquisition on the respective settlement dates for a net cash payment of $10.8 million. During the third quarter of 2016, the Company completed the acquisition of Barnett and Computersoft. Refer to Note 3 for more information on these acquisitions.

2015 Acquisitions and Investments. During the first quarter of 2015, we acquired a 75% equity interest investment in a debt collections and recovery management venture in the U.K., as more fully described in Note 1. During the third quarter of 2015, we received $2.9 million proceeds from the escrow related to a past disposition. We did not make significant investments in unconsolidated affiliates during 2015.

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):2017201620152017 vs. 20162016 vs. 2015
(In millions)
Net short-term borrowings (repayments)$252.4$73.0$(331.0)$179.4$404.0
Proceeds from issuance of long-term debt$100.0$1,574.7$—$(1,474.7)$1,574.7
Payments on long-term debt$(322.5)$(350.0)$—$27.5$(350.0)
Payment of contingent consideration$(3.5)$(4.4)$—$0.9$(4.4)
Debt issuance costs$(0.3)$(6.2)$(4.9)$5.9$(1.3)

Credit Facility Availability. Our principal unsecured revolving credit facility with a group of banks, which we refer to as the Revolver, permits us to borrow up to $900.0 million through November 2020. The Revolver may be used for general corporate purposes. Availability of the Revolver for borrowings is reduced by the outstanding face amount of any letters of credit issued under the facility and, pursuant to our existing Board of Directors authorization, by the outstanding principal amount of our commercial paper (CP) notes. As a condition to borrow under our Revolver, we are required to certify certain representations and warranties (as defined in the Revolver). We believe we are currently in compliance with all such

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. On October 12, 2017, we borrowed $100 million on our Revolver.

Our $900.0 million 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.

At December 31, 2017, the Company had $562.6 million of CP, $15.5 million of letters of credit outstanding and $100.0 million borrowings outstanding under the Revolver. At December 31, 2017, a total of $221.9 million was available under the Revolver.

At December 31, 2017, approximately 61% of our debt was fixed rate and 39% was effectively variable rate. Our variable-rate debt consists of our issued commercial paper, the Revolver and Term Loan, which bears short-term interest rates based on the CP market for investment grade issuers. The interest rates reset periodically, depending on the terms of the respective financing arrangements. At December 31, 2017, interest rates on our variable-rate debt ranged from 1.6% to 2.7%.

Borrowing and Repayment Activity. Net short-term borrowings (repayments) primarily represent borrowings or repayments of outstanding amounts under our CP program. We primarily borrow under our CP program, as needed and availability allows.

The increase in net short-term borrowings (repayments) primarily relates to the net activity of CP notes in 2017. The increase in net short-term borrowings (repayments) in 2016 primarily relates to the net activity of CP notes, as well as the draw down on the 364-Day Revolver during the second quarter of 2016.

On May 12, 2016, we issued $500.0 million principal amount of 2.3%, five-year senior notes and $275.0 million principal amount of 3.25%, ten-year senior notes in an underwritten public offering. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2016. The net proceeds of the sale of the notes were used to repay borrowings under our 364-Day Revolver and a portion of the borrowings under our commercial paper program incurred to finance the acquisition of Veda. We must comply with various non-financial covenants, including certain limitations on mortgages, liens and sale-leaseback transactions, as well as mergers and sales of substantially all of our assets. The senior notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness.

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. Borrowings on long-term debt reflect an $800.0 million draw down in the first quarter of 2016 on our Term Loan Facility and the issuance of $500.0 million of senior notes due 2021 and $275.0 million of senior notes due 2026 during the second quarter of 2016, as discussed above.

The decrease in payments on long-term debt in 2015 reflects the 2014 pay-off of our $15.0 million 7.34% Notes and $275.0 million 4.45% Senior Notes with borrowings under our CP program.

The debt issuance costs in 2016 and 2015 reflect the debt issuance costs paid in connection with the new Senior Credit Facilities entered into in May 2016 and November 2015, respectively.

In the fourth quarter of 2017, Equifax entered into a $225 million, 2-year receivables funding facility (the Receivables Facility), which matures in 2019. Under the Receivables Facility, Equifax sells the eligible third-party receivables of its U.S. based business, to Equifax Receivables Funding LLC, a consolidated, wholly-owned, bankruptcy-remote subsidiary that may subsequently transfer, without recourse, an undivided interest in accounts receivable to investors. The investors have no recourse to the Company’s other assets except for customary warranty and indemnity claims. Creditors of Equifax do not have recourse to the assets of Equifax Receivables Funding LLC. As a condition to borrow under the Receivables Facility, we are required to certify certain representations and warranties. We believe we are currently in compliance with all such representations and warranties necessary as a condition for borrowing under the Receivables Facility, but we cannot assure that we will be able to comply with all such conditions to borrowing in the future.

Debt Covenants. A downgrade in credit ratings would increase the cost of borrowings under our CP program and Senior Credit Facilities, 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 Senior Credit Facilities require us to maintain a maximum leverage ratio

of not more than 3.5 to 1.0. As permitted under the terms of the Senior Credit Facilities, we made the election to increase the covenant to 4.0 to 1.0, effective for four consecutive quarters, beginning with the first quarter of 2016 and continuing through the fourth quarter of 2016. None of these covenants are considered restrictive to our operations and, as of December 31, 2017, 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, 3.3% senior notes due 2022, 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 by Standard & Poor’s, or S&P, and Moody’s Investors Service, or Moody’s, below an investment grade rating within 60 days of such change 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 is AAA 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.” At December 31, 2017, the long-term ratings for our obligations were BBB+ with a negative outlook for S&P and Baa1 with a stable outlook for Moody's. A downgrade in our credit rating would increase the cost of borrowings under our CP program and credit facilities, 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):2017201620152017 vs. 20162016 vs. 2015
(In millions)
Treasury stock purchases$(77.1)$—$(196.3)$(77.1)$196.3
Dividends paid to Equifax shareholders$(187.4)$(157.6)$(137.8)$(29.8)$(19.8)
Dividends paid to noncontrolling interests$(8.4)$(5.8)$(6.4)$(2.6)$0.6
Proceeds from exercise of stock options$19.2$31.5$34.4$(12.3)$(2.9)
Excess tax benefits from stock-based compensation plans$—$35.9$30.0$(35.9)$5.9
Purchase of redeemable noncontrolling interests$(2.6)$(3.6)$—$1.0$(3.6)

Sources and uses of cash related to equity during the twelve months ended December 31, 2017, 2016 and 2015 were as follows:

•Under share repurchase programs authorized by our Board of Directors, we repurchased 0.5 million and 2.1 million common shares during the twelve months ended December 31, 2017 and 2015, respectively, for $77.1 million and $196.3 million, respectively, at an average price per common share of $143.88 and $94.97, respectively. We did not repurchase any shares in 2016. As of December 31, 2017, under the existing board authorization, the Company is approved for additional stock repurchases valued at $590.1 million.
•During the twelve months ended December 31, 2017, 2016 and 2015, we paid cash dividends to Equifax shareholders of $187.4 million, $157.6 million and $137.8 million, respectively, at $1.56 per share for 2017, $1.32 per share for 2016 and $1.16 per share for 2015.

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 December 31, 2017. The table excludes commitments that are contingent based on events or factors uncertain at this time. Some of the excluded commitments are discussed below the footnotes to the table.

Payments due by
TotalLess than 1 year1 to 3 years3 to 5 yearsThereafter
(In millions)
Debt (including capitalized lease obligation) (1)$2,715.3$965.3$100.0$1,000.0$650.0
Operating leases (2)150.027.338.928.655.2
Data processing, outsourcing agreements and other purchase obligations (3)157.185.441.314.016.4
Other long-term liabilities (4) (5)143.29.118.118.997.1
Product liability related to cybersecurity incident (6)27.127.1———
Interest payments (7)647.375.4131.2108.9331.8
$3,840.0$1,189.6$329.5$1,170.4$1,150.5
(1)The amounts are gross of unamortized discounts totaling $11.0 million at December 31, 2017. Total debt on our Consolidated Balance Sheets is net of the unamortized discounts and fair value adjustments. There were no fair value adjustments to our debt at December 31, 2017.
(2)Our operating lease obligations principally involve office space and equipment, which include the ground lease associated with our headquarters building that expires in 2048.
(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 2018 and 2022.
(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 with U.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 2018 have not been deemed necessary due to our current expectations regarding future plan asset performance.
(5)This table excludes $38.0 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.
(6)As a result of the cybersecurity incident, we offered free credit file monitoring and identity theft protection to all U.S. consumers. We have recorded the expenses necessary to provide this service to those who signed up by the January 31, 2018 deadline. The amount above represents the remaining obligation associated with these expenses.
(7)For future interest payments on variable-rate debt, which are generally based on a specified margin plus a base rate (LIBOR) or on CP, the Revolver and Term Loan rates for investment grade issuers, we used the variable rate in effect at December 31, 2017 to calculate these payments. Our variable rate debt at December 31, 2017, consisted of CP, the

Revolver and Term Loan. Future interest payments related to our Senior Credit Facilities and our CP program are based on the borrowings outstanding at December 31, 2017 through their respective maturity dates, assuming such borrowings are outstanding until that time. The variable portion of the rate at December 31, 2017 ranged from 1.6% to 2.7% for all of our variable-rate debt. 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 and $117.0 million, as of December 31, 2017 and 2016, respectively, to a local governmental authority in the U.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 remain with the Company.

Letters of Credit and Guarantees

We will from time to time issue standby letters of credit, performance bonds or other guarantees in the normal course of business. The aggregate notional amount of all performance bonds and standby letters of credit was not material at December 31, 2017, and all 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 at December 31, 2017.

Benefit Plans

We sponsor a qualified defined benefit retirement plan (the U.S. Retirement Income Plan, or USRIP) that covers approximately 15% of current U.S. salaried employees who were hired on or before June 30, 2007, the last date on which an individual could be hired and enter the plan before the USRIP was frozen to new participation at December 31, 2008. This plan also covers many retirees as well as certain terminated but vested individuals not yet in retirement status. We also sponsor a defined benefit plan that covers most salaried and hourly employees in Canada (the Canadian Retirement Income Plan, or CRIP). The CRIP was frozen to new participants entering the plan on or after October 1, 2011.

At December 31, 2017, the USRIP met or exceeded ERISA’s minimum funding requirements. During the twelve months ended December 31, 2017 and 2016, we did not make any contributions to the USRIP. We contributed $1.5 million and $0.8 million to the CRIP during the twelve months ended December 31, 2017 and 2016, respectively. 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 10 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.

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 with U.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 and Statements of 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

Revenue is recognized when persuasive evidence of an arrangement exists, collectibility of arrangement consideration is reasonably assured, the arrangement fees are fixed or determinable and delivery of the product or service has been completed. A significant portion of our revenue is derived from the provision of information services to our customers on a transaction basis, in which case revenue is recognized, assuming all other revenue recognition criteria are met, when the services are provided. A smaller portion of our revenues relate to 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 related to 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 completed. Any remaining revenue related to unfulfilled units is not recognized until the end of the related contract’s subscription period. Revenue related to subscription-based contracts having an unlimited volume is recognized ratably during the contract term. 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. If there is uncertainty as to the customer’s acceptance of our deliverables, revenue is not recognized until the earlier of receipt of customer acceptance or expiration of the acceptance period. If at the outset of an arrangement, we determine that the arrangement fee is not fixed or determinable, revenue is deferred until the arrangement fee becomes fixed or determinable, assuming all other revenue recognition criteria have been met.

The determination of certain of our tax management services revenue requires the use of estimates, principally related to transaction volumes in instances where these volumes are reported to us by our clients on a monthly basis in arrears. In these instances, we estimate transaction volumes based on average actual volumes reported in the past. Differences between our estimates and actual final volumes reported are recorded in the period in which actual volumes are reported. We have not experienced significant variances between our estimates and actual reported volumes in the past. We monitor actual volumes to ensure that we will continue to make reasonable estimates in the future. If we determine that we are unable to make reasonable future estimates, revenue may be deferred until actual customer data is obtained. Also 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, or when the credit is utilized by our client, depending on the provisions of the client contract.

We have certain offerings that are sold as multiple element arrangements. The multiple elements 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. To account for each of these elements separately, the delivered elements must have stand-alone value to our customer. If we are unable to unbundle the arrangement into separate units of accounting, we apply one of the accounting policies described above. This may lead to the arrangement consideration being recognized as the final contract element is delivered to our customer or ratably over the contract.

Many of our multiple element arrangements 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 development of interfaces or platforms by our decisioning technologies personnel that allow our customers to interact with our proprietary information databases. These development services do not meet the requirement for having stand-alone value, thus any related development fees are deferred when billed and are recognized over the expected period that the customer will benefit from the related decisioning technologies service. Revenue from the provision of statistical models is recognized as the service is provided and accepted, assuming all other revenue recognition criteria are met. The direct costs of set up of a customer are capitalized and amortized as a cost of service during the term of the related customer contract.

We have some multiple element arrangements that include software. We recognize the elements for which we have established vendor specific objective evidence at fair value upon delivery, in accordance with the applicable guidance.

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.

The debt collections and recovery management revenue is calculated as a percentage of debt collected on behalf of the customer and, as such, is primarily recognized when the cash is collected assuming all other revenue recognition criteria are met.

Deferred revenue consists of amounts billed and collected in excess of revenue recognized on sales relating generally to the deferral of subscription fees and arrangement consideration from elements not meeting the criteria for having stand-alone value discussed above. Deferred revenues are subsequently recognized as revenue in accordance with our revenue recognition policies.

Judgments and uncertainties — Each element of a multiple element arrangement must be considered separately to ensure that appropriate accounting is performed for these deliverables. These considerations include assessing the price at which the element is sold compared to its relative fair value; concluding when the element will be delivered; evaluating collectibility; and determining whether any contingencies exist in the related customer contract that impact the prices paid to us for the services.

In addition, as stated above, the determination of certain of our marketing information services and tax management services revenue requires the use of estimates, principally related to transaction volumes in instances where these volumes are reported to us by our clients on a monthly basis in arrears. In these instances, we estimate transaction volumes based on average actual volumes reported in the past. Differences between our estimates and actual final volumes reported are recorded in the period in which actual volumes are reported.

Effects if actual results differ from assumptions — We have not experienced significant variances between our estimates of marketing information services and tax management services revenues reported to us by our customers and actual reported volumes in the past. We monitor actual volumes to ensure that we will continue to make reasonable estimates in the future. If we determine that we are unable to make reasonable future estimates, revenue may be deferred until actual customer data is obtained. However, if actual results are not consistent with our estimates and assumptions, or if our customer arrangements become more complex or include more bundled offerings in the future, we may be required to recognize revenue differently in the future to account for these changes. 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 recognize revenue.

Goodwill and Indefinite-Lived Intangible Assets

We review goodwill and indefinite lived intangible assets for impairment annually (as of September 30) and whenever events or changes in circumstances indicate the carrying value of an asset may not be recoverable. These events or circumstances could include a significant change in the business climate, legal factors, operating performance or trends, competition, or sale or disposition of a significant portion of a reporting unit. We have eight reporting units comprised of USIS (which includes Online Information Solutions, Mortgage Solutions and Financial Marketing Services), Asia Pacific, Europe, Latin America, Canada, Global Consumer Solutions ("GCS"), Verification Services and Employer Services.

The goodwill balance at December 31, 2017, for our eight reporting units was as follows:

December 31,
2017
(In millions)
Asia Pacific1,534.2
U.S. Information Solutions1,071.3
Europe164.1
Latin America236.1
Canada35.0
Global Consumer Solutions191.2
Verification Services772.9
Employer Services179.2
Total goodwill$4,184.0

Valuation Techniques

We performed a quantitative assessment for each of our reporting units to determine whether impairment exists. In determining the fair value of the reporting units we used a combination of the income and market approaches to estimate the reporting unit’s business enterprise value. We engaged a third party specialist to assist in developing these estimates and valuation approaches.

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. We believe the benchmark companies used for each of the reporting units serve as an appropriate input for calculating a fair value for the reporting unit as those benchmark companies have similar risks, participate in similar markets, provide similar services for their customers and compete with us directly. The companies we use as benchmarks are principally outlined in our discussion of Competition in Item 1 of this Form 10-K. Data for the benchmark companies was obtained from publicly available information.

Competition for our USIS, Asia Pacific, Europe, Latin America, Canada, and GCS reporting units generally includes two global consumer credit reporting companies, Experian and TransUnion, both of which offer a product suite similar to our credit reporting solutions. Additionally, for our GCS reporting unit, competition includes LifeLock, a national provider of personal identity theft protection products. Competition for our Verification Services and Employer Services reporting units includes payroll processors such as ADP and Paychex. Valuation multiples were selected based on a financial benchmarking analysis that compared the reporting unit’s operating result with the comparable companies’ information. In addition to these financial considerations, qualitative factors such as variations in growth opportunities and overall risk among the benchmark companies were considered in the ultimate selection of the multiple.

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 the last annual impairment test.

Growth Assumptions

The assumptions for our future cash flows begin with our historical operating performance, the details of which are described in our Management’s Discussion & Analysis of operating performance. Additionally, we consider the impact that known economic, industry and market trends 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 each reporting unit was 3%, other than Asia Pacific and Latin America where we used a terminal growth rate of 5% and 5.5%, respectively, 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 2018 for our reporting units in completing our 2017 impairment testing based on planned business initiatives and prevailing trends exhibited by these units and not based on the assumption of meaningful acceleration in economic growth for all reporting units other than GCS. For GCS we expect revenue growth to decline in 2018 as compared to 2017 and then resume revenue growth in 2019. The anticipated revenue growth in our reporting units, however, is partially offset by assumed increases in expenses for a majority of our reporting units which reflect the additional level of investment needed in order to achieve the planned revenue growth. Additionally, we have factored in any estimable expected impacts of the cybersecurity incident as further discussed below.

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 of each 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 2017 annual goodwill impairment evaluation, the discount rates used to develop the estimated fair value of the reporting units evaluated were as follows for each reporting unit:

September 30,
2017
Discount rate
U.S. Information Solutions9.0%
Asia Pacific9.4%
Europe8.8%
Latin America15.5%
Canada8.9%
Global Consumer Solutions11.2%
Verification Services8.5%
Employer Services10.7%

Because of assigned market premiums, discount rates are lowest for reporting units whose cash flows are expected to be less volatile due to such factors as the maturity of the market they serve, their position in that market or other macroeconomic factors. Where there is the greatest volatility of cash flows due to competition, or participation in less stable geographic markets than the United States, such as our Latin America reporting unit, the discount rate selected is in the higher

portion of the range as there is more inherent risk in the expected cash flows of that reporting unit. Additionally, for our USIS and GCS reporting units we utilized a higher beta to account for the additional volatility following the disclosure of the cybersecurity incident.

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 reporting units exceeded their related carrying value as of September 30, 2017. As a result, no goodwill impairment was recorded. The percentage by which the fair value of the reporting unit exceeds the carrying value ("cushion") as of September 30, 2017, was as follows:

September 30,
2017
Cushion
U.S. Information Solutions395%
Asia Pacific5%
Europe155%
Latin America64%
Canada1,472%
Global Consumer Solutions141%
Verification Services405%
Employer Services58%

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 assumptions noted above that would result in a fair value that is less than its carrying value.

We have incorporated updated forecasts following the cybersecurity incident that we disclosed during the third quarter of 2017. As we look forward, we expect our GCS reporting unit to be most impacted by the cybersecurity incident, reflecting the net reduction in U.S. subscribers as we discontinued marketing in the U.S. in September 2017. Our USIS and Workforce Solutions reporting units were also impacted by the cybersecurity incident, primarily a reduction in project revenue. Equifax will also incur costs related to the Lock & AlertTM free lifetime service being offered in the U.S. The impact of the cybersecurity incident continues to develop and could result in additional regulatory requirements that could further impact our U.S. based reporting units and could impact non-U.S. reporting units as well. We continue to monitor developments and their impact on our growth assumptions and future cash flows and will evaluate any significant changes in assumptions as they occur.

Additionally, a significant portion of the revenue for our Employer Services business relates to Affordable Care Act compliance services. As such, the fair value of this reporting unit would be impacted if the Affordable Care Act were to be repealed. We continue to monitor developments and their impact on our growth assumptions and future cash flows and will evaluate any significant changes in assumptions as they occur.

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 fiscal 2017, we announced a cybersecurity incident potentially impacting U.S., Canadian and U.K. consumers. As a result of the cybersecurity incident, we are subject to a significant number of proceedings and investigations as described in Part I, "Item 3. Legal Proceedings." While we believe it is reasonably possible that we will incur losses associated with these proceedings and investigations, it is not possible to estimate the amount of loss or range of possible loss that might result from adverse judgments, settlements, penalties or other resolution of such proceedings and investigations based on the early stage of these proceedings and investigations, that alleged damages have not been specified, the uncertainty as to the certification of a class or classes and the size of any certified class, as applicable, and the lack of resolution on significant factual and legal issues.

Additionally, as a result of the cybersecurity incident, we offered free credit file monitoring and identity theft protection to all U.S. consumers. We have concluded that the costs associated with providing this service are a contingent liability that is probable and estimable. We have therefore recorded an estimate of the expenses necessary to provide this service to those who signed up. We have recorded $50.7 million through December 31, 2017 included in Selling, General and Administrative expenses in the accompanying Consolidated Statements of Income. As of December 31, 2017, $27.1 million remains outstanding in other current liabilities in the accompanying Consolidated Balance Sheets. Refer to Note 6 of the Notes to Consolidated Financial Statements in this Form 10-K for more information on the cybersecurity incident.

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 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. At December 31, 2017, $38.0 million was recorded for uncertain tax benefits, including interest and penalties, of which it is reasonably possible that up to $18.3 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.

The Tax Cuts and Jobs Act of 2017 (“Tax Act”), as signed by the President of the United States on December 22, 2017, significantly revises U.S. tax law. The legislation will positively impact the Company’s ongoing effective tax rate due to the reduction of the U.S. federal corporate tax rate from 35% to 21%. The Tax Act makes major changes to the U.S. international tax system. Under previous law, foreign earnings were subject to U.S. tax when repatriated to the U.S. Under the Tax Act, foreign earnings are generally exempt from U.S. tax. Additionally, there is a one-time deemed repatriation tax on undistributed foreign earnings and profits (the “transition tax”). The Tax Act imposes other U.S. taxes on “global intangible low taxed income” and “base erosion anti-abuse transactions.” Other significant changes include limitations on the deductibility of interest expense and executive compensation, and repeal of the deduction for domestic production activities. As a result of the current interpretation and estimated impact of the Tax Act, the Company recorded adjustments totaling a net tax benefit of $48.3 million in the fourth quarter of 2017 to provisionally account for the estimated impact.

Our preliminary estimate of the tax rate change resulted in a remeasurement of our net deferred tax liabilities of $85.1 million and a corresponding deferred income tax benefit in 2017. Our federal income tax expense for periods beginning in 2018 will be based on the new rate.

As a result of the changes the Tax Act makes to the taxation of foreign earnings, we recorded a valuation allowance related to the foreign tax credit carryover in the amount of $17.6 million. Based on our initial estimates, the Company recorded zero transition tax related to the Tax Act. However, the Company recognized additional tax expense of $16.4 million due to the inability to claim foreign tax credits in the current year.

As permitted by Staff Accounting Bulletin No. 118, provisional amounts estimated based on information available as of December 31, 2017 have been made for the adjustments to deferred tax assets and liabilities, state taxes, equity compensation, the calculation of the transition tax, the valuation allowance related to the foreign tax credit carryover and the 2017 dividends. These amounts are subject to change as we obtain information necessary to complete the calculations and clarifications to the U.S. tax code as they occur. We will recognize any changes to the provisional amounts as we refine our estimates and our interpretations of the application of the 2017 Tax Act.

The Company has not yet made a policy election with respect to its treatment of potential global intangible low-taxed income (“GILTI”). Companies can either account for taxes on GILTI as incurred or recognize deferred taxes when basis differences exist that are expected to affect the amount of the GILTI inclusion upon reversal. The Company is still in the process of analyzing the provisions of the Act associated with GILTI and the expected impact of GILTI on the Company in the future. Refer to Note 7 of the Notes to Consolidated Financial Statements in this Form 10-K for additional information.

Pension and Other Postretirement Plans

We consider accounting for our U.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.

During 2017, we adopted the new MP-2017 mortality scale in determining the liability for the U.S. pension plan. This updated scale partially offset the decrease in the discount rate in 2017, the net of which resulted in the increase in the projected benefit obligation as of December 31, 2017.

During 2016, we adopted the new MP-2016 mortality scale in determining the liability for the U.S. pension plan. This updated scale partially offset the decrease in the discount rate in 2016, the net of which resulted in the increase in the projected benefit obligation as of December 31, 2016.

During 2015 we adopted the new MP-2015 in determining the liability for the U.S. pension plan. This updated scale, along with the change in the discount rate, contributed to the decrease in the projected benefit obligation as of December 31, 2015.

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 our U.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 analysis specific to our estimated future benefit payments available as of the measurement date. Discount rates are updated annually on the measurement date to reflect current market conditions. 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.

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 2017, our U.S. pension plan investment gain of 17.9% was above the expected return of 7.25% for the sixth time in nine years. The expected return for the USRIP for 2018 is 7.25%. The CRIP earned 7.8% in 2017 which was above its expected return of 6.0% for the seventh time in nine years. The expected return for the CRIP for 2018 is 6.0%. The CRIP has a lower expected return due to a higher asset allocation to fixed income securities. Our weighted-average expected rate of return for both plans for 2017 is 7.14% which is consistent with the 2016 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 $545.5 million at December 31, 2017. We do not expect our 2018 net periodic benefit cost, which includes the effect of the market-related value of assets, to be materially different than our 2017 cost. See Note 10 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 (7.14% at December 31, 2017) by 50 basis points would change our estimated pension expense in 2017 by approximately $2.7 million. Adjusting our weighted-average discount rate (3.73% at December 31, 2017) by 50 basis points would change our estimated pension expense in 2017 by approximately $1.6 million. However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in pension expense that could be material.

Purchase Accounting for Acquisitions

We account for acquisitions under Accounting Standards Codification 805, Business Combinations, which requires companies to record assets acquired and liabilities assumed at their respective fair market values at the date of acquisition. We primarily estimate fair value of identified intangible assets using discounted cash flow analyses based on market participant based inputs. Any amount of the purchase price paid that is in excess of the estimated fair values of net assets acquired is recorded in the line item Goodwill in our Consolidated Balance Sheets. Transaction costs, as well as costs to reorganize acquired companies, are expensed as incurred in our Consolidated Statements of Income.

Judgments and uncertainties — We consider accounting for business combinations critical because management's judgment is used to determine the estimated fair values assigned to assets acquired and liabilities assumed and amortization periods for intangible assets, which can materially affect our results of operations.

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 an impairment charge if we are unable to recover the value of the recorded net assets.

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