EQUIFAX INC (EFX) FY 2022 MD&A

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

The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the results of operations and financial condition of Equifax Inc. MD&A is provided as a supplement to and should be read in conjunction with our consolidated financial statements and the accompanying Notes to Financial Statements in Item 8 of this Form 10-K. This section discusses the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021 and the year ended December 31, 2021 compared to the year ended December 31, 2020. All percentages have been calculated using unrounded amounts for each of the periods presented.

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

BUSINESS OVERVIEW

Equifax Inc. is a global data, analytics and technology company. We provide information solutions for businesses, governments and consumers, and we provide human resources business process automation and outsourcing services for employers. We have a large and diversified group of clients, including financial institutions, corporations, government agencies and individuals. Our services are based on comprehensive databases of consumer and business information derived from numerous sources including credit, financial assets, telecommunications and utility payments, employment, income, educational history, criminal history, healthcare professional licensure and sanctions, demographic and marketing data. We use advanced statistical techniques, machine learning and proprietary software tools to analyze available data to create customized insights, decision-making and process automation solutions and processing services for our clients. We are a leading provider of e-commerce fraud and charge back protection services in North America as well as information and solutions used in payroll-related and human resource management business process services in the U.S. For consumers, we provide products and services to help people understand, manage and protect their personal information and make more informed financial decisions. Additionally, we also provide information, technology and services to support debt collections and recovery management.

We currently operate in four global regions: North America (U.S. and Canada), Asia Pacific (Australia, New Zealand and India), Europe (the United Kingdom (“U.K.”), Spain and Portugal) and Latin America (Argentina, Chile, Costa Rica, Dominican Republic, Ecuador, El Salvador, Honduras, Mexico, Paraguay, Peru and Uruguay). We maintain support operations in the Republic of Ireland, Chile, Costa Rica and India. We also have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia and Singapore and have an investment in a consumer and commercial credit information company in Brazil. We previously had a joint venture in Russia that offered consumer credit services; however, during the third quarter of 2022, we completed the sale of this equity method investment.

Recent Events and Company Outlook

As further described above, we operate in the U.S., which represented 78% of our revenue in 2022, and internationally in 24 countries. Our products and services span a wide variety of vertical markets including financial services, mortgage, talent solutions, federal, state and local governments, automotive, telecommunications, e-commerce and many others.

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, identity and fraud, and employee hiring and onboarding activity. Demand is also enhanced by our initiatives to expand our products, capabilities and markets served.

For 2023, our planning assumes that U.S. economic activity, as measured by GDP, is expected to grow but at a slower rate of growth than experienced in 2022. Our plan assumes the U.S. mortgage market, as measured by originations, is expected to decline by about 30% in 2023 versus 2022. The U.S. mortgage market, particularly the mortgage refinance portion of the U.S. mortgage market, can be significantly impacted by U.S. interest rates and therefore mortgage rates. In the International markets in which we operate, in particular in Australia, the U.K. and Canada, our planning also assumes economic activity, as measured by GDP, to grow in 2023 but at slower rates than in 2022. The slowdown in economic activity in the U.K. is expected to be more significant than in Australia or Canada.

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Segment and Geographic Information

Segments. 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, as well as criminal justice data. Employer Services revenue is derived from our provision of certain human resources business process outsourcing services that include both transaction and subscription based product offerings. These include services that assist employers in complying with and automating certain payroll-related and human resource management processes throughout the entire cycle of the employment relationship, including unemployment cost management, employee screening, employee onboarding, tax credits and incentives, I-9 management and compliance, immigration case management, tax form management services and Affordable Care Act management services. Workforce Solutions has established operations in Canada, Australia and most recently in the U.K.

The USIS segment 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, modeling services and consumer credit monitoring services. USIS also markets certain decisioning software services which facilitate and automate a variety of consumer and commercial credit-oriented decisions. Online Information Solutions also includes the U.S. consumer credit monitoring solutions business previously part of the Global Consumer Services segment. Financial Marketing Services revenue is principally project and subscription based and is derived from our sales of batch credit, identity and consumer wealth information such as those that assist clients in acquiring new customers, cross-selling to existing customers and managing portfolio risk. USIS operates in the United States.

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 consistent with those 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.

Geographic Information. We currently have operations in the following countries: Argentina, Australia, Canada, Chile, Costa Rica, Dominican Republic, 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 have investments in consumer and/or commercial credit information companies through joint ventures in Cambodia, Malaysia and Singapore and have an investment in a consumer and commercial credit information company in Brazil. We previously had a joint venture in Russia that offered consumer credit services; however, during the third quarter of 2022, we completed the sale of this equity method investment. Approximately 78% of our revenue was generated in the U.S. during both the twelve months ended December 31, 2022 and 2021.

Seasonality. We experience seasonality in certain of our revenue streams. Revenue generated by the online consumer information services component of our USIS operating segment is typically the lowest during the first quarter, when consumer lending activity is at a seasonal low. Revenue generated from the Employer Services business unit within the Workforce Solutions operating segment is generally higher in the first quarter due primarily to the provision of Form W-2 and 1095-C services that occur in the first quarter each year. Revenue generated from our financial wealth asset products and data management services in our Financial Marketing Services business is generally higher in the fourth quarter each year due to the significant portion of our annual renewals and deliveries which occur then. Mortgage related revenue is generally higher in the second and third quarters of the year due to the increase in consumer home purchasing during the summer in the U.S. Any change in the U.S. mortgage market could have a corresponding impact on revenue and operating profit for our business, primarily within the Workforce Solutions and USIS operating segments. Although in recent years activity has been directly related to changes in interest rates, and this trend has been less observed.

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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, 2022, 2021 and 2020 include the following:

*Amounts above include accruals for capital expenditures.

RESULTS OF OPERATIONS —

TWELVE MONTHS ENDED DECEMBER 31, 2022, 2021 AND 2020

Consolidated Financial Results

Operating Revenue

Revenue for 2022 increased by 4% compared to 2021. The increase was primarily due to growth in Workforce Solutions and International, partially offset by a decline in USIS. The significant decline in U.S. mortgage originations negatively impacted the growth in Workforce Solutions and caused the decline in USIS revenue. The effect of foreign exchange rates decreased revenue by $94.9 million, or 2%, in 2022 compared to 2021.

Revenue for 2021 increased by 19% compared to 2020. The growth was driven by increases in our Workforce Solutions segment, across mortgage and non-mortgage related revenue, growth in our International segment and growth in non-mortgage related revenue in the USIS segment. The effect of foreign exchange rates reduced revenue by $50.4 million, or 1%, in 2021 compared to 2020.

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Operating Expenses

Cost of Services.  Cost of services increased $196.3 million in 2022 compared to 2021. The increase is due to higher royalty costs, production costs, which include third party cloud usage fees, and people costs. The effect of changes in foreign exchange rates decreased cost of services by $50.5 million.

Cost of services increased $243.5 million in 2021 compared to 2020. The increase is due to increased royalty costs, production costs, which include third party cloud usage fees, and people costs, partially offset by a decrease in incremental technology and data security costs related to our technology transformation. The effect of changes in foreign exchange rates increased cost of services by $27.5 million.

Selling, General and Administrative Expenses.  Selling, general and administrative expenses increased $4.3 million in 2022 compared to 2021. The increase in 2022 is primarily driven by companies acquired in 2022 and 2021, with the total increase in expenses partially offset by a decrease in incentive plan costs. The impact of changes in foreign currency exchange rates decreased our selling, general and administrative expenses by $25.6 million.

Selling, general and administrative expenses increased $2.1 million in 2021 compared to 2020. The slight increase in 2021 is due to an increase in people costs, offset by a decrease in incremental technology and data security costs related to our ongoing technology transformation. The impact of changes in foreign currency exchange rates increased our selling, general and administrative expenses by $9.7 million.

Depreciation and Amortization.  Depreciation and amortization expense for 2022 and 2021 increased by $79.7 million and $89.4 million, respectively. These increases are due to higher amortization of purchased intangible assets related to recent acquisitions, as well as amortization of capitalized internal-use software and systems costs from technology transformation capital spending incurred previously. The impact of changes in foreign currency exchange rates led to a decrease in depreciation and amortization expense of $11.6 million and an increase of $10.6 million in 2022 and 2021, respectively.

Operating Income and Operating Margin

Total company operating margin decreased by 2.5 percentage points in 2022 versus 2021. The margin decrease was due to the aforementioned increased operating expenses and amortization expense that outpaced revenue growth during the period.

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Total company operating margin increased by 6.7 percentage points in 2021 versus 2020, due to higher operating income generated by the increased revenue and decreased incremental technology and data security costs, partially offset by the increased people costs and aforementioned increase in depreciation and amortization expense.

Interest Expense and Other Income (Expense), net

Interest expense increased in 2022, when compared to 2021, due to a higher weighted average outstanding amount of debt and higher interest costs attributable to debt agreements entered into during 2022.

Interest expense increased in 2021, when compared to 2020, due to a higher weighted average outstanding amount of debt in 2021 when compared to 2020, offset by a slightly lower cost of debt.

The increase in other income (expense), net in 2022 is driven by changes in our fair value adjustments of our investments, gains on the sale of multiple equity investments and mark-to-market adjustments for our pension assets. We recorded a $13.3 million gain on the fair value adjustment of our Brazil investment in 2022, compared to a $64.0 million loss in 2021. During 2022, we recorded a gain of $19.1 million as a result of the sale of multiple equity investments, including the sale of our equity method investment in Russia during the third quarter of 2022. For 2022 and 2021, we recorded a $1.4 million gain and $20.2 million loss, respectively, on the mark-to-market adjustment of our pension plan assets.

The decrease in other income (expense), net in 2021 is driven by the changes in our fair value adjustments of our investments and mark-to-market adjustments for our pension assets. We recorded a $64.0 million loss on the fair value adjustment of our Brazil investment in 2021, compared to a $149.5 million gain on the fair value adjustment of our Brazil and India investments in 2020. For 2021 and 2020, we recorded a $20.2 million and $32.2 million loss, respectively, on the mark-to-market adjustment of our pension plan assets. These impacts were partially offset by positive impacts of foreign currency exchange in 2021.

Income Taxes

Our effective tax rate was 24.7% for 2022, up from 21.2% for the same period in 2021. Our effective tax rate is higher for the year ended December 31, 2022 compared to 2021 due to a higher foreign rate differential, primarily due to the changes in the fair value of our investment in Brazil.

Our effective tax rate was 21.2% for 2021, down from 23.2% for the same period in 2020. Our effective tax rate was lower for the year ended December 31, 2021 compared to 2020 due to a lower foreign rate differential due to the changes in the fair value of our investment in Brazil.

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Net Income

Consolidated net income decreased by $48.3 million in 2022 compared to 2021 due to a decrease in operating income and an increase income tax expense, partially offset by the increase in other income, net.

Consolidated net income increased by $222.3 million in 2021 compared to 2020 due to increased operating income, partially offset by the decrease in other income, net and increase in income tax expense.

Segment Financial Results

Workforce Solutions

Workforce Solutions revenue increased by 14% in 2022 compared to 2021, due to growth in Verification Services driven by growth in non-mortgage verticals, including government, talent, consumer finance and Employer Services verticals, as well as acquisition revenue in both Verification Services and Employer Services.

Workforce Solutions revenue increased by 39% in 2021 compared to 2020, due to strong growth in Verification Services driven by growth in mortgage, talent solutions, government and other verticals. Employer Services revenue also increased due to acquisition related growth and employee services, partially offset by a decline in our unemployment claims business.

Verification Services.  Revenue increased 16% in 2022 compared to 2021. The increase in revenue was due to growth in government, talent solutions, and consumer finance verticals, along with growth from the full year impact of the Insights

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acquisition, offset by a decline in the mortgage vertical due to significantly slower U.S. mortgage origination activity in 2022 due to higher interest rates. Verification Services benefited across all verticals from the continued growth of employment and income records in The Work Number database.

Revenue increased 46% in 2021 compared to 2020. Verification Services revenue experienced growth in the mortgage, talent solutions and government verticals as well as from the acquisition of Appriss Insights, which took place in the fourth quarter of 2021. Verification Services benefited across all verticals from the continued growth of employment and income records in The Work Number database.

Employer Services.  Revenue increased 7% in 2022, compared to 2021 due to growth in employee services, partially offset by a decrease in unemployment claims management revenue as the number of unemployment claims returned to pre-COVID-19 levels in 2022 after having been significantly higher in 2021 due to the economic impact of COVID-19 on the U.S. economy. Employer Services also benefited from acquisition revenue in 2022.

Revenue increased 19% in 2021 compared to 2020 due to growth in employee services, partially offset by a decrease in unemployment claims revenue as the number of claims greatly reduced in 2021 after having been significantly higher in 2020 due to the economic impact of COVID-19 on the U.S. economy. Employer Services also benefited from acquisition revenue in 2021.

Workforce Solutions Operating Margin.  Operating margin decreased to 43.3% in 2022 compared to 49.2% in 2021 due to increased royalty costs, people costs, purchased intangible asset amortization and production costs, which altogether grew faster than the increase in revenue. Operating margin increased to 49.2% in 2021 compared to 48.2% in 2020 primarily due to the increase in revenue, partially offset by increases in royalty, production and people costs.

U.S. Information Solutions

U.S. Information Solutions revenue decreased 7% in 2022 compared to 2021 due to the negative impact of declining mortgage inquiry volumes on both online services and mortgage solutions, as well as a decline in marketing solutions, partially offset by growth in non-mortgage online services and acquisition-related revenue. The decline in mortgage related online revenue and mortgage solutions revenue in 2022 is due to declining mortgage credit inquiry volumes caused by declines in mortgage industry originations reflecting higher interest rates during 2022.

U.S. Information Solutions revenue increased 4% in 2021 compared to 2020 due to overall improvements in our core credit decisioning services, acquisition-related revenue and financial marketing services, partially offset by decreases in Mortgage Solutions.

Online Information Solutions.  Revenue for 2022 decreased 4% compared to 2021, due to declining mortgage inquiry volumes compared to the prior year, partially offset by continued growth of non-mortgage online services and revenue from acquisitions.

Revenue for 2021 increased 4% compared to 2020, due to continued growth in non-mortgage online services and revenue related to acquisitions, partially offset by a decrease in U.S. consumer and mortgage online services.

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Mortgage Solutions.  Revenue decreased 27% and 5% in 2022 and 2021, respectively, due to declining mortgage inquiry volumes, as compared to the prior year.

Financial Marketing Services.  Revenue decreased 9% in 2022 compared to 2021, driven by lower fraud, risk management and other data services revenue.

Revenue increased 15% in 2021 compared to 2020, due to increased marketing activities by customers as the U.S. economy continued its recovery from the economic impact of COVID-19.

U.S. Information Solutions Operating Margin.  USIS operating margin decreased to 24.3% in 2022 compared to 30.9% in 2021, due to the decrease in revenue and increases in depreciation expense related to increased capitalized software development spending and cloud production costs, partially offset by lower production costs. USIS operating margin increased to 30.9% in 2021 compared to 30.1% in 2020, due to increased revenue and lower selling, general and administrative expenses, partially offset by increased depreciation expense, royalty costs and production costs.

International

International revenue increased by 3% in 2022 as compared to 2021. Local currency revenue increased 12% in 2022, driven by increases in Latin America, Europe, Canada and Asia Pacific. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $94.8 million, or 9%.

International revenue increased by 15% in 2021 as compared to 2020. Local currency revenue increased 10% in 2021, driven by increases in all geographies as local economies continued to recover from negative impacts of COVID-19 despite the impact of measures to limit its spread in many regions during the year. Local currency fluctuations against the U.S. dollar positively impacted revenue by $50.4 million, or 5%.

Asia Pacific. Local currency revenue increased 6% in 2022 as compared to 2021 driven by stronger volumes within consumer, commercial and identity and fraud, as well as growth in India due to higher consumer volumes, partially offset by a consumer direct business decline in Australia. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $29.2 million, or 8%. Reported revenue decreased 2% in 2022 as compared to 2021.

Local currency revenue increased 11% in 2021 as compared to 2020 driven by growth in our commercial, consumer, background check verifications and identity and fraud businesses in Australia, partially offset by declines in recovery management. Additionally, the increase in revenue for 2021 was also attributable to organic growth in India due to higher consumer volumes related to economic recovery from the impacts of COVID-19. Local currency fluctuations against the U.S. dollar positively impacted revenue by $27.7 million, or 9%. Reported revenue increased 20% in 2021 as compared to 2020.

Europe.  Local currency revenue increased 14% in 2022 as compared to 2021, driven by growth in the debt services business and core credit decisioning, identity and fraud, partially offset by a decline in the consumer direct business. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $37.4 million, or 12%, for 2022. Reported revenue increased 2% in 2022 as compared to 2021.

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Local currency revenue increased 6% in 2021 as compared to 2020, driven by growth in the consumer vertical for the U.K. due to improving economic conditions, as well as growth in the debt management vertical driven by higher volumes within both the private and public sector. Local currency fluctuations against the U.S. dollar positively impacted revenue by $18.4 million, or 6%, for 2021. Reported revenue increased 12% in 2021 as compared to 2020.

Latin America. Local currency revenue increased 29% in 2022 as compared to 2021 reflecting local currency growth across most countries driven by price increases mainly in Argentina and Chile, stronger online consumer growth, as well as growth due to acquisition revenue. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $20.3 million, or 11%, in 2021, primarily from Argentina and Chile. Reported revenue increased 18% in 2022 as compared to 2021.

Local currency revenue increased 15% in 2021 as compared to 2020 reflecting growth broadly across the region as it recovered from the impacts of COVID-19. Local currency growth rates were strongest in Argentina, Central America, Mexico and Peru, with growth also in Chile and other countries. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $8.4 million, or 5%, in 2021, primarily from Argentina. Reported revenue increased 10% in 2021 as compared to 2020.

Canada.  Local currency revenue increased 6% in 2022 as compared to 2021 primarily driven by strong identity and fraud revenue and higher analytical batch credit services and decisioning online volumes, partially offset by declines in consumer direct services volumes and mortgage related products due to interest rate increases. Local currency fluctuations against the U.S. dollar negatively impacted revenue by $8.0 million, or 4%, in 2022. Reported revenue increased 2% in 2022 as compared to 2021.

Local currency revenue increased 12% in 2021 as compared to 2020 primarily due to growth in the consumer, commercial, identity and fraud, and analytics businesses, mainly within the mortgage and fintech verticals, as Canada recovered from the negative impacts of COVID-19 despite continued lockdown measures during the year in several Canadian provinces. Local currency fluctuations against the U.S. dollar positively impacted revenue by $12.7 million, or 6%, in 2021. Reported revenue increased 18% in 2021 as compared to 2020.

International Operating Margin.  Operating margin was 12.9% in both 2022 and 2021. The 2022 margin is driven by higher revenue, lower purchased intangible asset amortization costs, and lower incentives, partially offset by higher cloud production costs and depreciation expense related to technology transformation project spending. Operating margin increased to 12.9% in 2021 as compared to 7.9% in 2020. The increase in margin is due to increased revenue, lower purchased intangible asset amortization costs and discretionary expense control, partially offset by increased people costs, royalty costs, production costs and depreciation of capitalized internal-use software and systems costs.

General Corporate Expense

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 decreased $57.3 million in 2022. The decrease in 2022 as compared to 2021 is due to reduced people costs, primarily incentive plans, and professional fees.

General corporate expense decreased $61.9 million in 2021. The decrease in 2021 as compared to 2020 is due to a decrease in incremental technology and data security costs associated with our technology transformation, partially offset by increased people costs and amortization expense.

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LIQUIDITY AND FINANCIAL CONDITION

Management assesses liquidity in terms of our ability to generate cash to fund operating, investing and financing activities. We continue to generate substantial cash from operating activities, remain in a strong financial position and manage our capital structure to meet short- and long-term objectives including reinvestment in existing businesses and completing strategic acquisitions.

Funds generated by operating activities, our Revolver and related commercial paper (“CP”) program, more fully described below, are our most significant sources of liquidity. At December 31, 2022, we had $285.2 million in cash balances, as well as $932.8 million available to borrow under our Revolver.

Sources and Uses of Cash

Our financing activities in 2022, more fully described below, were designed to create additional liquidity through the issuance of senior notes and the pay down of our CP program to increase future borrowing capacity which was used to fund 2022 acquisitions. We had higher cash balances in 2022 versus 2021 and we intend to use this additional capacity, together with cash from operating activities, to meet our current obligations. This included the $345.0 million consumer class action settlement payment that was made in January 2022 related to the U.S. Consumer MDL Litigation settlement that became effective on January 11, 2022. In addition, during October 2022, we paid off the $500.0 million Senior Notes due December 2022 with the proceeds from the $750.0 million 5.1% Senior Notes issued in September 2022 and commercial paper borrowings.

In December 2019, the Compensation Committee of our Board of Directors approved the termination of the Canadian Retirement Income Plan (“CRIP”), the defined benefit pension plan offered to certain employees in Canada, as more fully described in Note 9 of the Notes to Consolidated Financial Statements in Item 8 of this report. As such, during the third quarter of 2022, we settled the liabilities under the CRIP.

Fund Transfer Limitations.  The ability of certain of our subsidiaries and associated companies to transfer funds to the U.S may be limited, in some cases, by certain restrictions imposed by foreign governments. These restrictions do not, individually or in the aggregate, materially limit our ability to service our indebtedness, meet our current obligations or pay dividends. As of December 31, 2022, we held $202.1 million of cash in our foreign subsidiaries.

Information about our cash flows, by category, is presented in the Consolidated Statements of Cash Flows. The following table summarizes our cash flows for the twelve months ended December 31, 2022, 2021 and 2020:

Operating Activities

Cash provided by operating activities for 2022 decreased by $577.7 million compared to 2021 due to decreased net income and the $345.0 million consumer class action settlement payment that was made in January 2022 related to the U.S. Consumer MDL Litigation settlement that became effective on January 11, 2022.

Cash provided by operating activities for 2021 increased by $388.6 million compared to 2020 due to increased net income.

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Investing Activities

*Amounts above are total cash outflows for capital expenditures.

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

Capital expenditures increased in 2022 and 2021 from 2021 and 2020, respectively, as we are continuing to invest in enhanced technology systems and infrastructure as part of our technology transformation.

Acquisitions, Divestitures and Investments

2022 Acquisitions and Investments. During 2022, we acquired Efficient Hire and LawLogix within the Workforce Solutions operating segment. We acquired Midigator within the USIS operating segment. We acquired Data Crédito within the International operating segment. During 2022, we sold multiple equity investments.

2021 Acquisitions and Investments. During 2021, we acquired Appriss Insights, HIREtech, i2Verify and Health e(fx) within the Workforce Solutions operating segment. We acquired Kount and Teletrack within the USIS operating segment. We acquired AccountScore, as well as the remaining noncontrolling interest of businesses within our International segment.

2020 Acquisitions and Investments. During 2020, we acquired the remaining interest in our India joint venture in our International operating segment and completed an additional acquisition in our USIS operating segment.

For additional information about our acquisitions, see Note 3 of the Notes to Consolidated Financial Statements in Item 8 of this report.

Financing Activities

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

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The decrease in short-term borrowings in 2022 is due to lower net short-term borrowings on our CP notes during the year as compared to 2021. The increase in short-term borrowings in 2021 is due to net short-term borrowings of our CP notes. The decrease in net short-term repayments in 2020 primarily relates to the net repayments of our CP notes.

In September 2022, we issued $750.0 million aggregate principal amount of 5.1% five-year Senior Notes due 2027 (the "2027 Notes") in an underwritten public offering. Interest on the 2027 Notes accrues at a rate of 5.1% per year and is payable semi-annually in arrears on June 15 and December 15 of each year. The net proceeds of the sale of the 2027 Notes were ultimately used to repay, in October 2022, our then-outstanding $500.0 million 3.30% Senior Notes due December 2022. The remaining proceeds were used for general corporate purposes, including the repayment of borrowings under our commercial paper program. 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 2027 Notes are unsecured and rank equally with all of our other unsecured and unsubordinated indebtedness.

In August 2021, we issued $1.0 billion aggregate principal amount of 2.35% ten-year Senior Notes due 2031 (the “2031 Notes”) in an underwritten public offering. Interest on the 2031 Notes accrues at a rate of 2.35% per year and is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on March 15, 2022. The net proceeds of the sale of the 2031 Notes were used to repay the $300.0 million 3.6% Senior Notes due 2021 and $300.0 million Floating Rate Notes due 2021. The remaining proceeds were used for general corporate purposes, including the repayment of borrowings under our CP program and the funding of acquisitions, including the Company’s $1.825 billion acquisition of Appriss Insights. In addition, we also entered into a new $700.0 million delayed draw term loan facility during August 2021.

In April 2020, we issued $400.0 million aggregate principal amount of 2.6% five-year Senior Notes due 2025 (the "2025 Notes") and $600.0 million aggregate principal amount of 3.1% ten-year Senior Notes due 2030 (the "2030 Notes") in an underwritten public offering. Interest on the 2025 Notes accrues at a rate of 2.6% per year and is payable semi-annually in arrears on June 15 and December 15 of each year. Interest on the 2030 Notes accrues at a rate of 3.1% per year and is payable semi-annually in arrears on May 15 and November 15 of each year. The net proceeds of the sale of the notes were used to repay borrowings under our Receivables Facility and Revolver, while the remaining funds were used for general corporate purposes.

Payments on long-term debt in 2022 reflect the October 2022 repayment of the $500.0 million Senior Notes due December 2022 with the proceeds from the $750.0 million 5.1% Senior Notes issued in September 2022 and commercial paper borrowings. Payments on long-term debt in 2021 reflect payments on the 2.3% Senior Notes, 3.6% Senior Notes and Floating Rate Notes that were due in 2021 using proceeds from the issuance of Senior Notes and the new term loan. Payments on long-term debt in 2020 reflect payments on our Receivable Facility using proceeds from the issuance of the senior notes.

Credit Facility Availability.  In August 2021, the Company refinanced the existing unsecured revolving credit facility of $1.1 billion set to expire September 2023, and entered into a new $1.5 billion five-year unsecured revolving credit facility (the “Revolver”) and a new $700.0 million delayed draw term loan (“Term Loan”), collectively known as the “Senior Credit Facilities,” both which mature in August 2026. Borrowings under the Senior Credit Facilities may be used for working capital, for capital expenditures, to refinance existing debt, to finance acquisitions and for other general corporate purposes. The Revolver includes an option to request a maximum of three one-year extensions of the maturity date, any time after the first anniversary of the closing date of the Revolver. We believe we are currently in compliance with all representations and warranties necessary as a condition for borrowing under the Revolver, but we cannot assure that we will be able to comply with all such conditions for borrowing in the future. Availability of the Revolver is reduced by the outstanding principal balance of our CP notes and by any letters of credit issued under the Revolver.

In the third quarter of 2021, we increased the size of our CP program from $1.1 billion to $1.5 billion, consistent with the increase in our Revolver. Our $1.5 billion CP program has been established to allow for borrowing through the private placement of CP with maturities ranging from overnight to 397 days. We may use the proceeds of CP for general corporate purposes. The CP program is supported by our Revolver and the total amount of CP which may be issued is reduced by the amount of any outstanding borrowings under our Revolver and by any letters of credit issued under the facility.

As of December 31, 2022, there were $566.8 million of outstanding CP notes, $0.4 million of letters of credit outstanding, no outstanding borrowings under the Revolver and $700.0 million outstanding under the Term Loan. Availability under the Revolver was $932.8 million at December 31, 2022.

At December 31, 2022, approximately 78% of our debt was fixed rate and 22% was variable rate. Our variable-rate debt consists of CP and term loan borrowings. The interest rate resets periodically, based on the terms of the respective financing arrangement. At December 31, 2022, the interest rate on our variable-rate debt ranged from 4.55% to 5.63%.

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In November 2020, we terminated our $225.0 million receivables funding facility (the “Receivables Facility”).

Debt Covenants.  A downgrade in credit ratings would increase the cost of borrowings under our CP program, Revolver and Term Loan, and could limit or, in the case of a significant downgrade, preclude our ability to issue CP. Our outstanding indentures and comparable instruments also contain customary covenants including, for example, limits on mortgages, liens, sale/leaseback transactions, mergers and sales of assets.

In August 2021, we entered into our new Senior Credit Facilities as noted above in anticipation of the Appriss Insights acquisition. The Senior Credit Facilities include a maximum leverage ratio, defined as consolidated funded debt divided by consolidated EBITDA for the preceding four quarters, of (i) 3.75 to 1.0 initially, (ii) 4.25 to 1.0 for the first fiscal quarter ending after the consummation of the Appriss Insights acquisition on October 1, 2021, through the third quarter of 2022, (iii) 4.0 to 1.0 for the fourth quarter of 2022 through the first quarter of 2023 and (iv) 3.75 to 1.0 for the second quarter of 2023 through the remaining term of the Revolver. We may also elect to increase the maximum leverage ratio by 0.5 to 1.0 (subject to a maximum leverage ratio of 4.75 to 1.0) in connection with certain material acquisitions if we satisfy certain requirements. The Senior Credit Facilities also permit cash in excess of $175 million to be netted against debt in the calculation of the leverage ratio, subject to certain restrictions.

None of these covenants are considered restrictive to our operations. As of December 31, 2022, we were in compliance with all of our debt covenants.

We do not have any credit rating triggers that would accelerate the maturity of a material amount of the outstanding debt; however, our 3.95% senior notes due 2023, 2.6% senior notes due 2024, 2.6% senior notes due 2025, 3.25% senior notes due 2026, 5.1% senior notes due 2027, 3.1% senior notes due 2030, 2.35% senior notes due 2031 and 7.0% senior notes due 2037 (together, the “Senior Notes”) contain change in control provisions. If we experience a change of control or publicly announces our intention to effect a change of control and the rating on the Senior Notes is lowered by Standard & Poor’s (“S&P”) and Moody’s Investors Service (“Moody’s”) below an investment grade rating within 60 days of such change of control or notice thereof, then we will be required to offer to repurchase the Senior Notes at a price equal to 101% of the aggregate principal amount of the Senior Notes plus accrued and unpaid interest.

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. 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.

A downgrade in our credit rating would increase the cost of borrowings under our CP program, Revolver and Term Loan, 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 Item 8 of this report.

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Equity Transactions

Sources and uses of cash related to equity during the twelve months ended December 31, 2022, 2021 and 2020 were as follows:

•We did not repurchase any shares from public market transactions in 2022. We repurchased 0.4 million of common shares from public market transactions in 2021. We did not repurchase any shares from public market transactions in 2020. As of December 31, 2022, under the existing board authorization, the Company is approved for additional stock repurchases of $520.2 million.

•During the twelve months ended December 31, 2022, 2021 and 2020, we paid cash dividends to Equifax shareholders of $191.1 million, $190.0 million and $189.5 million, respectively, at $1.56 per share for 2022, 2021 and 2020.

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 company's material cash requirements include the following contractual and other obligations. Our plan is to use existing cash balances and funds generated by operating activities to fund our obligations and commitments. If our cash requirements exceed our existing cash balances and funds generated by operations, we will finance future cash requirements with existing borrowing capacity, as necessary. In the event that additional financing is needed, we would finance using the public and private corporate bond markets and/or syndicated loan markets, if available. The following sections provide details of material cash requirements from known contractual and other obligations as of December 31, 2022.

Debt

As of December 31, 2022, we had outstanding variable and fixed rate notes with varying maturities for an aggregate principal amount of $5.3 billion, with $400.4 million payable within the next twelve months, as detailed further in Note 5 of the Notes to Consolidated Financial Statements in Item 8 of this report. Future interest payments associated with the outstanding variable and fixed rate notes totals $1,078.8 million, with $219.6 million payable within the next twelve months.

We also issue unsecured short-term promissory notes through our revolving credit facility and CP program, which is set to expire in August 2026. As of December 31, 2022, we had no amount outstanding under our unsecured revolving credit facility and $566.8 million outstanding under our CP program.

Data Processing, Outsourcing Agreements and Other Purchase Obligations

We utilize several outsourcing partners for services that we outsource associated with our computer data processing operations and related functions, cloud provider services and certain administrative functions. These agreements expire between 2023 and 2028. As of December 31, 2022 the estimated aggregate minimum contractual obligation remaining under these agreements is approximately $948.3 million, with $361.0 million payable within the next twelve months.

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Pension, Post-Retirement and Deferred Compensation Obligations

As detailed further in Note 9 of the Notes to Consolidated Financial Statements in Item 8 of this report, we have several pension, post-retirement benefit and deferred compensation plans. Our U.S. Retirement Plan is frozen and is supported by plan assets to fund future payments. During the third quarter of 2022, we settled the liabilities under our Canadian Retirement Income Plan. We have three supplemental retirement plans for certain key employees which are unfunded. As of December 31, 2022, the total gross obligation for the pension and post retirement plans was $513.9 million, with $44.2 million of benefits expected to be paid within the next twelve months.

We maintain deferred compensation plans for certain management employees and the Board of Directors to defer the receipt of compensation until a later date based on the terms of the plan. As of December 31, 2022, the total obligation for the deferred compensation plans was $39.9 million, with $3.8 million expected to be paid within the next twelve months. These obligations exclude those under our deferred stock compensation plans.

Payments to Resolve Certain Legal Proceedings and Investigations

The Company has made and expects to make payments to resolve certain legal proceedings and investigations related to the 2017 cybersecurity incident, described more fully in “Item 3. Legal Proceedings” in this Form 10-K. Through 2022, the Company has made payments of $788.6 million for legal settlements related to the 2017 cybersecurity incident. On January 11, 2022, the Consumer Settlement became effective, and on January 24, 2022, we deposited the $345.0 million remaining to be paid to the Consumer Restitution Fund.

Leases

As detailed further in Note 12 of the Notes to Consolidated Financial Statements in Item 8 of this report, our lease arrangements principally involve office space. As of December 31, 2022, our total fixed lease payment obligations were $105.1 million, with $29.7 million payable within the next twelve months.

Other Planned Uses of Capital

We will continue to invest in sales, marketing, new product development, security and our technology, as well as continue to make strategic acquisitions that align with our business strategy. Additions to property and equipment will continue in order to support growth in our technology transformation and new product development, although we expect spending related to capital expenditures for the next twelve months to be down from current levels.

Off-Balance Sheet Transactions

We do not engage in off-balance sheet financing activities.

Pursuant to the terms of certain industrial revenue bonds, we previously transferred title to certain of our fixed assets with total costs of $156.4 million as of December 31, 2021 to a local governmental authority in the U.S. to receive a property tax abatement related to economic development. As of December 31, 2022, the title to these assets had reverted back to us upon the retirement of the applicable bonds. These fixed assets are recognized in 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 or surety bonds or other guarantees in the normal course of business. The aggregate notional amount of all performance and surety bonds and standby letters of credit was not material at December 31, 2022, and generally have a remaining maturity of one year or less. Guarantees are issued from time to time to support the needs of our operating units. The maximum potential future payments we could be required to make under the guarantees is not material at December 31, 2022.

Benefit Plans

We sponsor a qualified defined benefit retirement plan, the U.S. Retirement Income Plan (“USRIP”), that covers approximately 6% 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 closed to new participation at December 31, 2008. This plan

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also covers retirees as well as certain terminated but vested individuals not yet in retirement status. We also sponsored a retirement plan with both defined benefit and defined contribution components that covered most salaried and hourly employees in Canada, the Canadian Retirement Income Plan (“CRIP”); the defined benefit component was also closed to new hires on October 1, 2011.

During the twelve months ended December 31, 2022, we made no voluntary contributions to the USRIP and made contributions of $15.5 million to the CRIP. During the twelve months ended December 31, 2021, we made no voluntary contributions to the USRIP and made contributions of $2.8 million to the CRIP. At December 31, 2022, the USRIP met or exceeded ERISA’s minimum funding requirements. In the future, we will make minimum funding contributions as required and may make discretionary contributions, depending on certain circumstances, including market conditions and liquidity needs. We believe additional funding contributions 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. During the third quarter of 2022, we settled the liabilities under the CRIP.

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 supplemental 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 Notes 1 and 9 of the Notes to Consolidated Financial Statements in Item 8 of this report.

Effects of Inflation and Changes in Foreign Currency Exchange Rates

Inflation in the countries in which we operate 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 U.S. interest rates and has other adverse effects upon the U.S. securities markets and upon the value of financial instruments, it may adversely affect the Company’s financial position and profitability. Increases in U.S. interest rates may also negatively impact the U.S. mortgage market, which may adversely affect the Company’s revenue, 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 Item 8 of this report.

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, Statements of Income, and Statements of Comprehensive 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 Item 8 of 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.

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Revenue Recognition

In accordance with ASC 606, “Revenue from Contracts with Customers,” we recognize revenue when a performance obligation has been satisfied by transferring a promised good or service to a customer and the customer obtains control of the good or service. In order to recognize revenue, we note that the two parties must have an agreement that creates enforceable rights, the performance obligations must be distinct and the transaction price can be determined. Our revenue is derived from the provision of information services to our customers on a transactional basis, in which distinct services are delivered over time as the customer simultaneously receives and consumes the benefits of the services delivered. To measure our performance over time, the output method is utilized to measure the value to the customer based on the transfer to date of the services promised, with no rights of return once consumed. In these cases, revenue on transactional contracts with a defined price but an undefined quantity is recognized utilizing the right to invoice expedient resulting in revenue being recognized when the service is provided and billed. Additionally, multi-year contracts with defined pricing but an undefined quantity that utilize tier pricing would be defined as a series of distinct performance obligations satisfied over time utilizing the same method of measurement, the output method, with no rights of return once consumed. This measurement method is applied on a monthly basis resulting in revenue being recognized when the service is provided and billed.

Additionally, we recognize revenue from subscription-based contracts under which a customer pays a preset fee for a predetermined or unlimited number of transactions or services provided during the subscription period, generally one year. Revenue from subscription-based contracts having a preset number of transactions is recognized as the services are provided, using an effective transaction rate as the actual transactions are delivered. Any remaining revenue related to unfulfilled units is not recognized until the end of the related contract’s subscription period. Revenue from subscription-based contracts having an unlimited volume is recognized ratably during the contract term. Multi-year subscription contracts are analyzed to determine the full contract transaction price over the term of the contract and the subsequent price is ratably recognized over the full term of the contract.

Revenue is recorded net of sales taxes.

If at the outset of an arrangement, we determine that collectability is not reasonably assured, revenue is deferred until the earlier of when collectability becomes probable or the receipt of payment from the customer. If there is uncertainty as to the customer’s acceptance of the performance obligation, revenue is not recognized until the earlier of receipt of customer acceptance or expiration of the acceptance period.

Certain costs incurred prior to the satisfaction of a performance obligation are deferred as contract costs and are amortized on a systematic basis consistent with the pattern of transfer of the related goods and services. These costs generally consist of labor costs directly relating to the implementation and setup of the contract.

Contract Balances – The contract balances are generated when revenue recognized varies from billing in a given period. A contract asset is created when an entity transfers a good or service to a customer and recognizes more revenue than what has been billed. As of December 31, 2022, the contract asset balance was $12.2 million. A contract liability is created when an entity transfers a good or service to a customer and recognizes less than what has been billed. Deferred revenue is recognized when we have an obligation to transfer goods or services to a customer and have already received consideration from the customer. We generally expect to recognize our deferred revenue as revenue within twelve months of being recorded based on the terms of the contracts.

Goodwill

We review goodwill 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 six reporting units: Workforce Solutions, USIS, Asia Pacific, Europe, Latin America and Canada.

We performed a qualitative assessment to determine whether further impairment testing was necessary for our Workforce Solutions, USIS, Latin America, Europe and Canada reporting units. In this qualitative assessment, we considered the following items for each of the reporting units: macroeconomic conditions, industry and market conditions, overall financial performance and other entity specific events. In addition, for each of these reporting units, the most recent fair value determination resulted in an amount that significantly exceeded the carrying amount of the reporting units. Based on these assessments, we determined the likelihood that a current fair value determination would be less than the current carrying

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amount of the reporting unit is not more likely than not. As a result of our conclusions, no further testing was required for these reporting units.

The goodwill balance at December 31, 2022, for our six reporting units was as follows:

Valuation Techniques

We performed a quantitative assessment for our Asia Pacific reporting unit to determine whether impairment exists from the most recent valuation date due to the size of the cushion and overall uncertainty in the reporting unit due to the negative impacts of the COVID-19 pandemic on the region. In determining the fair value of the reporting unit, we used a combination of the income and market approaches to estimate the reporting unit’s business enterprise value.

Under the income approach, we calculate the fair value of a reporting unit based on estimated future discounted cash flows which require assumptions about short and long-term revenue growth rates, operating margins for the reporting unit, discount rates, foreign currency exchange rates and estimates of capital expenditures. The assumptions we use are based on what we believe a hypothetical marketplace participant would use in estimating fair value. Under the market approach, we estimate the fair value based on market multiples of revenue or earnings before income taxes, depreciation and amortization, for benchmark companies or guideline transactions. We believe the benchmark companies used for our Asia Pacific reporting unit serves 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 and have not significantly changed since the date of our last annual impairment test. Competition for our Asia Pacific reporting unit generally includes global consumer credit reporting companies, such as Experian, which offer a product suite similar to the reporting unit's credit reporting solutions.

The values separately derived from each of the income and market approach valuation techniques were used to develop an overall estimate of a reporting unit’s fair value. We use a consistent approach across all reporting units when considering the weight of the income and market approaches for calculating the fair value of each of our reporting units. This approach relies more heavily on the calculated fair value derived from the income approach with 70% of the value coming from the income approach. We believe this approach is consistent with that of a market participant in valuing prospective purchase business combinations. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings that are most representative of fair value.

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

Growth Assumptions

The assumptions for our future cash flows begin with our historical operating performance, the details of which are described in our Management’s Discussion & Analysis of operating performance. Additionally, we consider the impact that known economic, industry and market trends, including the impact of rising interest rates and inflation, will have on our future forecasts, as well as the impact that we expect from planned business initiatives including new product initiatives, client service and retention standards, and cost management programs. At the end of the forecast period, the long-term growth rate we used to determine the terminal value of our Asia Pacific reporting unit was between 3.0% and 4.0% based on management’s assessment of the minimum expected terminal growth rate of the reporting unit, as well as broader economic considerations such as GDP, inflation and the maturity of the markets we serve.

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We projected revenue growth in 2023 for our Asia Pacific reporting unit in completing our 2022 impairment testing based on expected continued economic recovery from the negative impact the COVID-19 pandemic had on these regions in previous years and planned business initiatives and prevailing trends exhibited by this reporting unit. The anticipated revenue growth in this reporting unit, however, is partially offset by assumed increases in expenses and capital expenditures for the reporting unit which reflects the additional level of investment needed in order to achieve the planned revenue growth and completion of our technology transformation initiatives.

Discount Rate Assumptions

We utilize a weighted average cost of capital, or WACC, in our impairment analysis that makes assumptions about the capital structure that we believe a market participant would make and include a risk premium based on an assessment of risks related to the projected cash flows for the reporting unit. We believe this approach yields a discount rate that is consistent with an implied rate of return that a market participant would require for an investment in a company having similar risks and business characteristics to the reporting unit being assessed. To calculate the WACC, the cost of equity and cost of debt are multiplied by the assumed capital structure of the reporting unit as compared to industry trends and relevant benchmark company structures. The cost of equity was computed using the Capital Asset Pricing Model which considers the risk-free interest rate, beta, equity risk premium and specific company risk premium related to a particular reporting unit. The cost of debt was computed using a benchmark rate and the Company’s tax rate. For the 2022 annual goodwill impairment evaluation, the discount rate used to develop the estimated fair value of the Asia Pacific reporting unit was between 9.5% and 11.0%.

Estimated Fair Value and Sensitivities

The estimated fair value of the reporting unit is derived from the valuation techniques described above incorporating the related projections and assumptions. Impairment occurs when the estimated fair value of the reporting unit is below the carrying value of its equity. The estimated fair value for our Asia Pacific reporting unit exceeded its related carrying value as of September 30, 2022. As a result, no goodwill impairment was recorded.

The estimated fair value of the reporting unit is highly sensitive to changes in these projections and assumptions; therefore, in some instances changes in these assumptions could impact whether the fair value of a reporting unit is greater than its carrying value. For example, an increase in the discount rate and decline in the projected cumulative cash flow of a reporting unit could cause the fair value of certain reporting units to be below its carrying value. We perform sensitivity analyses around these assumptions in order to assess the reasonableness of the assumptions and the resulting estimated fair values. Ultimately, future potential changes in these assumptions may impact the estimated fair value of a reporting unit and cause the fair value of the reporting unit to be below its carrying value. Due to the lower cushion when compared to other reporting units, Asia Pacific is more sensitive to changes in the assumptions noted above that could result in a fair value that is less than its carrying value. The excess of fair value over carrying value for the Asia Pacific reporting unit was greater than 5% and 10% as of September 30, 2022 and September 30, 2021, respectively.

Given the relatively smaller excess of fair value over carrying value for the Asia Pacific reporting unit, we believe that it is at risk of a possible future goodwill impairment. The excess of fair value for the Asia Pacific reporting unit is lower in 2022 than in 2021 primarily due to higher observed risk free interest rates and the loss of income from our joint venture in Russia which was formerly included in this reporting unit. The future impact of changes in economic conditions, including rising interest rates and inflation, remains uncertain. Avoidance of a future impairment will be dependent on continued growth during current economic conditions and our ability to execute on initiatives to grow revenue and manage expenses prudently. We will continue to monitor the performance of this reporting unit to ensure no interim indications of possible impairment have occurred before our next annual goodwill impairment assessment in September 2023.

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 2017, we experienced a cybersecurity incident following a criminal attack on our systems that involved the theft of personal information of consumers. As a result of the 2017 cybersecurity incident, we were subject to proceedings and investigations as described in “Item 3. Legal Proceedings” in this Form 10-K. We recorded estimated expenses, net of insurance recoveries, of $800.9 million in other current liabilities and selling, general, and administrative expenses in our Consolidated Statements of Income (Loss) for the twelve months ended December 31, 2019, exclusive of our legal and professional services expenses. The amount accrued represents our best estimate of the liability related to these matters. The Company will continue

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to evaluate information as it becomes known and adjust accruals for new information and further developments in accordance with ASC 450-20-25. While it is reasonably possible that losses exceeding the amount accrued may be incurred, it is not possible at this time to estimate the additional possible loss in excess of the amount already accrued that might result from adverse judgments, settlements, penalties or other resolution of the proceedings and investigations described in “Item 3. Legal Proceedings” in this Form 10-K.

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 — 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, 2022, $42.7 million was recorded for uncertain tax benefits, including interest and penalties, of which it is reasonably possible that up to $3.9 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.

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Purchase Accounting for Acquisitions

We account for acquisitions under Accounting Standards Codification 805, Business Combinations. In general, the acquisition method of accounting 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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