10-Q 1 transunion-20180930x10q.htm 10-Q Document

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
 
 
  
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
- OR -
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file number:
001-37470

 
 
TransUnion
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
61-1678417
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
555 West Adams, Chicago, IL
 
60661
(Address of principal executive offices)
 
(Zip code)
312-985-2000
(Registrants’ telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
x  YES
 
o  NO
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
 
 
x  YES
 
o  NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
 
x  Large accelerated filer
 
¨ Accelerated filer
 
 
¨  Non-accelerated filer
 
¨ Smaller reporting company
 
 
 
 
¨ Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 
o  YES
 
x  NO
 
As of September 30, 2018, there were 185.3 million shares of TransUnion common stock outstanding.






TRANSUNION
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2018
TABLE OF CONTENTS
 

2


PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRANSUNION AND SUBSIDIARIES
Consolidated Balance Sheets
(in millions, except per share data)
 
September 30,
2018
 
December 31,
2017
 
Unaudited
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
226.6

 
$
115.8

Trade accounts receivable, net of allowance of $13.7 and $9.9
426.1

 
326.7

Other current assets
160.6

 
146.2

Current assets of discontinued operations
72.7

 

Total current assets
886.0

 
588.7

Property, plant and equipment, net of accumulated depreciation and amortization of $351.6 and $299.3
198.2

 
198.6

Goodwill, net
3,339.0

 
2,368.8

Other intangibles, net of accumulated amortization of $1,141.4 and $993.6
2,570.1

 
1,825.8

Other assets
148.0

 
136.6

Total assets
$
7,141.3

 
$
5,118.5

Liabilities and stockholders’ equity
 
 

Current liabilities:
 
 

Trade accounts payable
$
159.1

 
$
131.3

Short-term debt and current portion of long-term debt
64.2

 
119.3

Other current liabilities
301.1

 
207.8

Current liabilities of discontinued operations
21.3

 

Total current liabilities
545.7

 
458.4

Long-term debt
4,057.6

 
2,345.3

Deferred taxes
529.6

 
419.4

Other liabilities
44.3

 
70.8

Total liabilities
5,177.2

 
3,293.9

Stockholders’ equity:
 
 

Common stock, $0.01 par value; 1.0 billion shares authorized at September 30, 2018 and December 31, 2017, 189.5 million and 187.4 million shares issued at September 30, 2018 and December 31, 2017, respectively, and 185.3 million shares and 183.2 million shares outstanding as of September 30, 2018 and December 31, 2017, respectively
1.9

 
1.9

Additional paid-in capital
1,923.9

 
1,863.5

Treasury stock at cost; 4.2 million shares at September 30, 2018 and December 31, 2017, respectively
(139.5
)
 
(138.8
)
Retained earnings
275.2

 
137.4

Accumulated other comprehensive loss
(193.9
)
 
(135.3
)
Total TransUnion stockholders’ equity
1,867.6

 
1,728.7

Noncontrolling interests
96.5

 
95.9

Total stockholders’ equity
1,964.1

 
1,824.6

Total liabilities and stockholders’ equity
$
7,141.3

 
$
5,118.5


See accompanying notes to unaudited consolidated financial statements.

3


TRANSUNION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
(in millions, except per share data)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 

2018

2017
 
2018
 
2017
Revenue

$
603.6


$
498.0

 
$
1,704.1

 
$
1,427.7

Operating expenses

 

 
 
 
 
 
Cost of services (exclusive of depreciation and amortization below)

207.5


169.3

 
579.0

 
472.3

Selling, general and administrative

189.8


142.2

 
524.6

 
436.0

Depreciation and amortization

84.2


59.9

 
218.8

 
176.2

Total operating expenses

481.5


371.4

 
1,322.3

 
1,084.5

Operating income

122.1


126.6

 
381.7

 
343.2

Non-operating income and (expense)

 


 
 
 
 
Interest expense

(44.0
)

(21.7
)
 
(92.5
)
 
(65.8
)
Interest income

1.3


1.5

 
3.5

 
4.2

Earnings from equity method investments

3.2


2.6

 
8.4

 
6.3

Other income and (expense), net

(3.2
)

(4.8
)
 
(45.6
)
 
(15.6
)
Total non-operating income and (expense)

(42.7
)

(22.4
)
 
(126.1
)
 
(70.9
)
Income from continuing operations before income taxes

79.4


104.2

 
255.6

 
272.3

Provision for income taxes

(28.6
)

(32.3
)
 
(72.1
)
 
(68.7
)
Income from continuing operations
 
50.8

 
71.9

 
183.5

 
203.6

Discontinued operations, net of tax
 
(1.4
)
 

 
(1.4
)
 

Net income

49.4


71.9

 
182.0

 
203.6

Less: net income attributable to the noncontrolling interests

(3.1
)

(3.1
)
 
(7.6
)
 
(7.6
)
Net income attributable to TransUnion

$
46.3


$
68.8

 
$
174.4

 
$
196.0

 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
50.8

 
$
71.9

 
$
183.5

 
$
203.6

Less: income from continuing operations attributable to noncontrolling interests
 
(3.1
)
 
(3.1
)
 
(7.6
)
 
(7.6
)
Income from continuing operations attributable to TransUnion
 
47.7

 
68.8

 
175.9

 
196.0

Discontinued operations, net of tax
 
(1.4
)
 

 
(1.4
)
 

Net income attributable to TransUnion
 
$
46.3

 
$
68.8

 
$
174.4

 
$
196.0

 
 
 
 
 
 
 
 
 
Basic earnings per common share from:






 
 
 
 
Income from continuing operations attributable to TransUnion
 
$
0.26

 
$
0.38

 
$
0.95

 
$
1.08

Discontinued operations, net of tax
 
(0.01
)
 

 
(0.01
)
 

Net Income attributable to TransUnion
 
$
0.25

 
$
0.38

 
$
0.95

 
$
1.08

Diluted earnings per common share from:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to TransUnion
 
$
0.25

 
$
0.36

 
$
0.92

 
$
1.03

Discontinued operations, net of tax
 
(0.01
)
 

 
(0.01
)
 

Net Income attributable to TransUnion
 
$
0.24

 
$
0.36

 
$
0.91

 
$
1.03

Weighted-average shares outstanding:






 
 
 
 
Basic

185.1

 
182.2

 
184.4

 
182.3

Diluted

191.2

 
189.2

 
190.8

 
189.8

As a result of displaying amounts in millions, rounding differences may exist in the table above.
See accompanying notes to unaudited consolidated financial statements.

4


TRANSUNION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
(in millions)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2018
 
2017
 
2018
 
2017
Net income
$
49.4

 
$
71.9

 
$
182.0

 
$
203.6

Other comprehensive income (loss):
 
 
 
 
 
 
 
         Foreign currency translation:
 
 
 
 
 
 
 
               Foreign currency translation adjustment
(7.7
)
 
1.8

 
(73.6
)
 
28.2

               Expense for income taxes
(0.5
)
 
(0.2
)
 
(0.4
)
 
(0.6
)
         Foreign currency translation, net
(8.2
)
 
1.6

 
(74.0
)
 
27.6

         Hedge instruments:
 
 
 
 
 
 
 
               Net change on interest rate cap
1.5

 
0.8

 
15.6

 
0.7

               Amortization of accumulated loss

 
0.1

 

 
0.3

               Expense for income taxes
(0.4
)
 
(0.4
)
 
(3.9
)
 
(0.4
)
         Hedge instruments, net
1.1

 
0.5

 
11.7

 
0.6

         Available-for-sale debt securities:
 
 
 
 
 
 
 
              Net unrealized loss

 

 
(0.1
)
 
(0.2
)
              Benefit for income taxes
0.1

 

 
0.1

 
0.1

         Available-for-sale debt securities, net
0.1

 

 

 
(0.1
)
Total other comprehensive income (loss), net of tax
(7.0
)
 
2.1

 
(62.3
)
 
28.1

Comprehensive income
42.4

 
74.0

 
119.7

 
231.7

Less: comprehensive income attributable to noncontrolling interests
(2.5
)
 
(2.0
)
 
(3.9
)
 
(8.8
)
Comprehensive income attributable to TransUnion
$
39.9

 
$
72.0

 
$
115.8

 
$
222.9

See accompanying notes to unaudited consolidated financial statements.


5


TRANSUNION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in millions)
 
Nine Months Ended September 30,
 
2018

2017
Cash flows from operating activities:



Net income
$
182.0


$
203.6

Add: loss from discontinued operations, net of tax
1.4



Income from continuing operations
183.5


203.6

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



Depreciation and amortization
218.8


176.2

Loss on debt financing transactions
12.0


10.5

Amortization and (gain) loss on fair value of hedge instrument
(0.7
)

0.5

Impairment of Cost Method Investment, net
1.5

 

Equity in net income of affiliates, net of dividends
(3.1
)

(5.5
)
Deferred taxes
(17.9
)

(14.1
)
Amortization of discount and deferred financing fees
3.2


2.0

Stock-based compensation
36.9


23.1

Payment of contingent obligation
(0.2
)
 
(2.2
)
Provision for losses on trade accounts receivable
6.3


3.3

Other
3.0


(2.1
)
Changes in assets and liabilities:



Trade accounts receivable
(79.4
)

(40.1
)
Other current and long-term assets
(5.5
)

(37.8
)
Trade accounts payable
8.3


10.2

Other current and long-term liabilities
43.6


19.1

Cash provided by operating activities of continuing operations
410.3


346.7

Cash used in operating activities of discontinued operations
(0.9
)


Cash provided by operating activities
409.4


346.7

Cash flows from investing activities:



Capital expenditures
(118.3
)

(91.0
)
Proceeds from sale of trading securities
1.8


2.5

Purchases of trading securities
(2.0
)

(1.6
)
Proceeds from sale of other investments
15.9


54.4

Purchases of other investments
(22.7
)

(42.1
)
Acquisitions and purchases of noncontrolling interests, net of cash acquired
(1,800.4
)

(70.7
)
Acquisition-related deposits

 
(1.0
)
Other
(1.4
)

0.3

Cash used in investing activities of continuing operations
(1,927.1
)

(149.2
)
Cash used in investing activities of discontinued operations
(0.1
)
 

Cash used in investing activities
(1,927.2
)
 
(149.2
)
Cash flows from financing activities:



Proceeds from Senior Secured Term Loan B-4
1,000.0



Proceeds from Senior Secured Term Loan A-2
800.0


33.4

Proceeds from senior secured revolving line of credit
125.0


105.0

Payments of senior secured revolving line of credit
(210.0
)

(105.0
)
Repayments of debt
(39.3
)

(25.0
)
Debt financing fees
(33.8
)

(12.6
)
Proceeds from issuance of common stock and exercise of stock options
23.3


22.1

Dividends to shareholders
(27.7
)


Treasury stock purchased


(133.5
)
Distributions to noncontrolling interests
(2.8
)

(3.1
)
Payment of contingent obligation

 
(8.2
)
Other
(0.8
)


Cash provided by (used in) financing activities
1,633.9


(126.9
)
Effect of exchange rate changes on cash and cash equivalents
(5.3
)

0.5

Net change in cash and cash equivalents
110.8


71.1

Cash and cash equivalents, beginning of period
115.8


182.2

Cash and cash equivalents, end of period
$
226.6


$
253.3

See accompanying notes to unaudited consolidated financial statements.

6


TRANSUNION AND SUBSIDIARIES
Consolidated Statement of Stockholders’ Equity (Unaudited)
(in millions)
 
 
Common Stock
 
Paid-In
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Noncontrolling
Interests
 
Total
 
 
Shares
 
Amount
 
 
 
 
 
 
Balance, December 31, 2017
 
183.2

 
$
1.9

 
$
1,863.5

 
$
(138.8
)
 
$
137.4

 
$
(135.3
)
 
$
95.9

 
$
1,824.6

Net income
 

 

 

 

 
174.4

 

 
7.6

 
182.0

Other comprehensive income
 

 

 

 

 

 
(58.6
)
 
(3.7
)
 
(62.3
)
Distributions to noncontrolling
interests
 

 

 

 

 

 

 
(3.5
)
 
(3.5
)
Noncontrolling interests of acquired businesses
 

 

 

 

 

 

 
0.3

 
0.3

Stock-based compensation
 

 

 
35.3

 

 

 

 

 
35.3

Employee share purchase plan
 
0.2

 

 
11.3

 

 

 

 

 
11.3

Exercise of stock options
 
1.9

 

 
13.7

 

 

 

 

 
13.7

Treasury stock purchased
 

 

 

 
(0.8
)
 

 

 

 
(0.8
)
Dividends to shareholders
 

 

 

 

 
(28.4
)
 

 

 
(28.4
)
Cumulative effect of adopting
Topic 606, net of tax
 

 

 

 

 
(6.0
)
 

 
(0.1
)
 
(6.1
)
Cumulative effect of adopting
ASC 2016-16
 

 

 

 

 
(2.2
)
 

 

 
(2.2
)
Other
 

 

 
0.1

 
0.1

 

 

 

 
0.2

Balance, September 30, 2018
 
185.3

 
$
1.9

 
$
1,923.9

 
$
(139.5
)
 
$
275.2

 
$
(193.9
)
 
$
96.5

 
$
1,964.1

See accompanying notes to unaudited consolidated financial statements.


7


TRANSUNION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. Significant Accounting and Reporting Policies
Basis of Presentation
Any reference in this report to “the Company,” “we,” “our,” “us,” and “its’” are to TransUnion and its consolidated subsidiaries, collectively.
The accompanying unaudited consolidated financial statements of TransUnion and subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation have been included. All significant intercompany transactions and balances have been eliminated. The operating results of TransUnion for the periods presented are not necessarily indicative of the results that may be expected for the full year ending December 31, 2018. These unaudited consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission (“SEC”) on February 13, 2018.
Principles of Consolidation
The consolidated financial statements of TransUnion include the accounts of TransUnion and all of its controlled subsidiaries. Investments in nonmarketable unconsolidated entities in which the Company is able to exercise significant influence are accounted for using the equity method. Investments in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence, our “Cost Method Investments,” are accounted for at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
Subsequent Events
Events and transactions occurring through the date of issuance of the financial statements have been evaluated by management and, when appropriate, recognized or disclosed in the financial statements or notes to the consolidated financial statements.
Recently Adopted Accounting Pronouncements
On May 28, 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), with several subsequent updates. This series of comprehensive guidance has replaced all existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein. Under the new guidance, there is a five-step model to apply to revenue recognition. The five-steps consist of: (1) determination of whether a contract, an agreement between two or more parties that creates legally enforceable rights and obligations, exists; (2) identification of the performance obligations in the contract; (3) determination of the transaction price; (4) allocation of the transaction price to the performance obligations in the contract; and (5) recognition of revenue when (or as) the performance obligation is satisfied.
We adopted this standard as of January 1, 2018, and used the modified retrospective approach applied to reflect the aggregate effect of all modifications of those contracts that were not completed as of that date. Under the modified retrospective approach, we recognized the cumulative effect of adopting ASC Topic 606 in the opening balance of retained earnings to reflect deferred revenue related to certain contracts where we satisfy performance obligations over time. There was no material impact on our consolidated financial statements or on how we recognize revenue upon adoption. Prior period amounts were not adjusted and the prior period amounts continue to be reported in accordance with previous accounting guidance. These financial statements include enhanced disclosures, particularly around contract assets and liabilities and the disaggregation of revenue. See Note 11, “Revenue,” and Note 14, “Reportable Segments,” for these enhanced disclosures.
On January 5, 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The FASB issued technical corrections to this guidance in February 2018. This ASU is intended to improve the recognition and measurement of financial instruments. Among other things, the ASU requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value, if fair value is readily determinable, with changes in fair value recognized in net income. If fair value is not readily determinable, an entity may elect to measure equity investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. On January 1, 2018, we adopted this guidance and have availed ourselves of this measurement election for all currently held equity investments that do not have readily determinable fair values. See Note 6, “Investments in Affiliated Companies,” for the impact on our current financial statements, which was not material.

8


On August 26, 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. This ASU addresses the diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted this guidance on January 1, 2018, and are required to apply it on a retrospective basis. Accordingly, we have reclassified certain payments made in 2017 in satisfaction of contingent obligations from financing activities to operating activities on our statement of cash flows. The reclassification was not material for the nine months ended September 30, 2018, and will not be material for the full year.
On October 16, 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. This ASU requires companies to recognize the income tax effects of intercompany sales and transfers of assets other than inventory in the income statement in the period in which the transfer occurs. Intercompany transactions are generally eliminated in consolidation, however there may be income tax consequences of such transactions that do not eliminate. Prior to adoption, any income tax resulting from these transactions were deferred on the balance sheet as a prepaid asset until the asset leaves the consolidated group. The new guidance requires the income tax resulting from these transactions to be recognized in the income statement in the period in which the sale or transfer of the asset occurs. Further, the new guidance requires a modified retrospective approach upon adoption, with any previously established prepaid assets resulting from past intercompany sales or transfers to be reversed with an offset to retained earnings. On January 1, 2018, we adopted this guidance and reclassified our previously established prepaid assets, which were not material, to retained earnings.
Recent Accounting Pronouncements Not Yet Adopted
On February 25, 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). During 2018, the FASB issued additional update improvements related to lease accounting. This series of comprehensive guidance, among other things, will require us to record the future discounted present value of all future lease payments as a liability on our balance sheet, as well as a corresponding “right-to-use” asset, which is an asset that represents the right to use or control the use of a specified asset for the lease term, for all long-term leases. This guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are in the final stages of assessing the impact this guidance will have on our consolidated financial statements, including quantitative and qualitative disclosures that will be required. We are also in the processes of implementing enhancements that will be utilized to support our calculations and disclosures going forward. We are on track to adopts this guidance on January 1, 2019, on a prospective basis, and plan to adopt the package of transition practical expedients available per paragraph 842-10-65-1(f).
On June 16, 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. In addition, these amendments require the measurement of all expected credit losses for financial assets, including trade accounts receivable, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods therein. We are currently assessing the impact this guidance will have on our consolidated financial statements.
On August 28, 2017, the FASB issued ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The new standard is intended to improve and simplify accounting rules around hedge accounting. The guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods therein. We are currently assessing the impact this guidance will have on our consolidated financial statements.
On February 14, 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. These amendments provide an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recorded. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. We are currently assessing the impact this guidance will have on our consolidated financial statements.
On August 27, 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. These amendments modify the disclosure requirements in Topic 820 by removing, adding or modifying certain fair value measurement disclosures. This guidance is effective for fiscal years beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. While we are currently assessing the guidance, we do not expect it to impact our financial statements other than our fair value disclosures.

9


2. Callcredit Acquisition
On June 19, 2018, we acquired 100% of the equity of Callcredit Information Group, Ltd. (“Callcredit”) for $1,408.2 million in cash, funded primarily by additional borrowings against our Senior Secured Credit Facility. See Note 9, “Debt,” for additional information about our Senior Secured Credit Facility. There was no contingent consideration resulting from this transaction. Callcredit, founded in 2000, is an U.K.-based information solutions company that, like TransUnion, provides data, analytics and technology solutions to help businesses and consumers make informed decisions. International expansion is a key growth strategy for TransUnion, and we expect to leverage strong synergies across TransUnion’s and Callcredit’s business models and solutions.
We have included Callcredit revenue of $35.9 million and an operating loss of $18.9 million since the date of acquisition as part of the International segment in the accompanying consolidated statements of income.
For the nine months ended September 30, 2018 and 2017, on a pro-forma basis assuming the transaction occurred on January 1, 2017, combined pro-forma revenue of TransUnion and Callcredit was $1,791.8 million and $1,516.5 million, respectively, and combined pro-forma net income from continuing operations was $165.8 million and $50.7 million, respectively. For nine months ended September 30, 2018, combined pro-forma net income from continuing operations was adjusted to exclude $19.1 million of acquisition-related costs and $9.4 million of financing costs expensed in 2018. For the nine months ended September 30, 2017, combined pro-forma net income from continuing operations was adjusted to include these charges, as well as $0.5 million of acquisition-related costs incurred in the fourth quarter of 2017.
We have identified and categorized certain operations of Callcredit that we do not consider core to our business as discontinued operations of our International segment as of the date of acquisition. These discontinued operations consist of businesses that do not align with our stated strategic objectives. We expect to sell these businesses within a year, and we do not expect to have a significant continuing involvement with any of these operations after the date of disposal. We have categorized the assets and liabilities of these discontinued operations on separate lines on the face of our balance sheet and in the table below. These amounts are based on estimates that will be refined as we complete the fair-value allocation of the purchase price of Callcredit.
Purchase Price Allocation
The allocation of the purchase price to the identifiable assets acquired and liabilities assumed is preliminary pending finalizing our fair value assessment, which we expect to complete within one year. The preliminary fair value of the assets acquired and liabilities assumed as of September 30, 2018, consisted of the following:
(in millions)
 
Fair Value
Trade accounts receivable
 
$
19.7

Property and equipment
 
3.2

Goodwill(1)
 
761.2

Identifiable intangible assets
 
684.8

All other assets
 
53.7

Assets of discontinued operations(2)
 
71.1

Total assets acquired
 
1,593.7

 
 
 
Existing debt
 

All other liabilities
 
(167.6
)
Liabilities of discontinued operations(2)
 
(17.9
)
Net assets of the acquired company
 
$
1,408.2

(1)
For tax purposes, we estimate that none of goodwill is tax deductible.
(2)
We have categorized certain businesses of Callcredit as discontinued operations in our consolidated financial statements. The preliminary fair value of assets and liabilities of these discontinued operations include an estimate of the fair value of the identifiable intangible assets and goodwill acquired. We will revise these estimates as we finalize our analysis of these discontinued operations and purchase price allocation.

We recorded the excess of the purchase price over the preliminary fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed as goodwill in a new reportable unit in our International segment. The purchase price of Callcredit exceeded the preliminary fair value of the net assets acquired primarily due to growth opportunities, the assembled workforce, synergies associated with internal use software and other technological and operational efficiencies.

10


Identifiable Amortizable Intangible Assets
The preliminary fair values of the amortizable intangible assets acquired consisted of the following as of September 30, 2018:
(in millions)
 
Estimated Useful Life
 
Fair Value
Database and credit files
 
15 years
 
$
463.0

Customer relationships
 
15 years
 
155.0

Technology and software
 
5 years
 
66.1

Trademarks
 
2 years
 
0.7

Total identifiable assets
 
 
 
$
684.8

We estimate the preliminary weighted-average useful life of the identifiable intangible assets to be approximately 14 years, resulting in an approximate amortization of $48.9 million per year.
Acquisition Costs
As of September 30, 2018, we have incurred approximately $19.6 million of related-acquisition costs, including $0.5 million incurred in 2017. These costs include investment banker fees, legal fees, due diligence and other external costs that we have recorded in other income and expense. The Company will incur additional acquisition-related costs, including legal fees, valuation fees and other professional fees in the next several quarters that we will record in other income and expense.
iovation and Healthcare Payment Specialists, LLC Acquisitions
During the second quarter of 2018, we acquired 100% of the equity of iovation, Inc. (“iovation”) and Healthcare Payment Specialists, LLC (“HPS”). iovation is a provider of advanced device identity and consumer authentication services that helps businesses and consumers safely transact in a digital world. The results of operations of iovation, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition. HPS provides expertise and technology solutions to help medical care providers maximize Medicare reimbursements. The results of operations of HPS, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition. The allocation of the purchase price to the identifiable assets acquired and liabilities assumed for these acquisitions is preliminary pending full fair value assessments, which we expect to complete within one year.
Based on the preliminary purchase price allocations for these acquisitions, we recorded approximately $215.5 million of goodwill and $228.5 million of amortizable intangible assets in addition to what we recorded for Callcredit as discussed above. We estimate the weighted-average useful lives of the iovation and HPS amortizable intangible assets to be approximately 15 years.

11


3. Fair Value
The following table summarizes financial instruments measured at fair value, on a recurring basis, as of September 30, 2018:
(in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
Interest rate caps
 
$
25.3

 
$

 
$
25.3

 
$

Trading securities
 
13.4

 
8.9

 
4.5

 

Available-for-sale debt securities
 
2.8

 

 
2.8

 

Total
 
$
41.5

 
$
8.9

 
$
32.6

 
$

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Contingent consideration
 
$
(0.4
)
 
$

 
$

 
$
(0.4
)
Total
 
$
(0.4
)
 
$

 
$

 
$
(0.4
)
Level 1 instruments consist of exchange-traded mutual funds. Exchange-traded mutual funds are trading securities valued at their current market prices. These securities relate to the nonqualified deferred compensation plan held in trust for the benefit of plan participants.
Level 2 instruments consist of pooled separate accounts, foreign exchange-traded corporate bonds and interest rate caps. Pooled separate accounts are designated as trading securities valued at net asset values. These securities relate to the nonqualified deferred compensation plan held in trust for the benefit of plan participants. Foreign exchange-traded corporate bonds are available-for-sale debt securities valued at their current quoted prices. These securities mature between 2027 and 2033. The interest rate caps fair values are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps in conjunction with the cash payments related to financing the premium of the interest rate caps. The variable interest rates used in the calculation of projected receipts on the caps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. See Note 9, “Debt,” for additional information regarding interest rate caps.
All unrealized gains and losses on trading securities are included in net income, while unrealized gains and losses on available-for-sale securities are included in other comprehensive income. There were no other-than-temporary gains or losses on available-for-sale securities and there were no significant realized or unrealized gains or losses on any of our securities for any of the periods presented.
Level 3 instruments consist of contingent obligations related to companies we have acquired with remaining maximum payouts totaling $14.7 million. These obligations are contingent upon meeting certain quantitative or qualitative performance metrics through 2018, and are included in other current liabilities on our balance sheet. The fair values of the obligations are determined based on an income approach, using our expectations of the future expected earnings of the acquired entities. We assess the fair value of these obligations each reporting period with any changes reflected as gains or losses in selling, general and administrative expenses in the consolidated statements of income. During the three months ended September 30, 2018, there were no significant gains or losses as a result of changes to the fair value of these obligations. During the nine months ended September 30, 2018, we recorded expenses of $0.1 million as a result of changes to the fair value of these obligations.

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4. Other Current Assets
Other current assets consisted of the following:
(in millions)
 
September 30, 
 2018
 
December 31,
2017
Prepaid expenses
 
$
78.5

 
$
59.0

Other receivables
 
27.1

 
16.5

Other investments
 
21.7

 
18.3

Income taxes receivable
 
16.8

 
23.7

Available-for-sale debt securities
 
2.8

 
3.3

Deferred financing fees
 
0.6

 
0.6

CFPB escrow deposit
 

 
13.9

Other
 
13.1

 
10.9

Total other current assets
 
$
160.6

 
$
146.2

The increase in prepaid expenses is due primarily to prepaid assets of the businesses we acquired in 2018. Other receivables include amounts recoverable under insurance policies for certain litigation costs. Other investments include non-negotiable certificates of deposit that are recorded at their carrying value. Upon adoption of ASC Topic 606, we have recorded contract assets, which are not significant and are included in the “other” line above. See Note 11, “Revenue,” for a further discussion about our contract assets.
5. Other Assets
Other assets consisted of the following:
(in millions)
 
September 30, 
 2018
 
December 31,
2017
Investments in affiliated companies
 
$
83.8

 
$
79.2

Interest rate caps
 
25.3

 
9.4

Trading securities
 
13.4

 
12.7

Other investments
 
12.6

 
13.5

Deposits
 
3.4

 
14.6

Deferred financing fees
 
1.8

 
2.0

Other
 
7.7

 
5.2

Total other assets
 
$
148.0

 
$
136.6

Other investments include non-negotiable certificates of deposit that are recorded at their carrying value. See Note 6, “Investments in Affiliated Companies,” for additional information about investment in affiliated companies. See Note 9, “Debt,” for additional information about the interest rate caps.
6. Investments in Affiliated Companies
Investments in affiliated companies represent our investment in non-consolidated domestic and foreign entities. These entities are in businesses similar to ours, such as credit reporting, credit-scoring and credit-monitoring services.
We use the equity method to account for nonmarketable investments in affiliates where we are able to exercise significant influence. For these investments, we adjust the carrying value for our proportionate share of the affiliates’ earnings, losses and distributions, any impairments, as well as for purchases and sales of our ownership interest.
We account for nonmarketable investments in equity securities in which we are not able to exercise significant influence, our Cost Method Investments, at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. For these investments, we adjust the carrying value for any purchases or sales of our ownership interests. We record any dividends received from these investments as other income in non-operating income and expense.

13


There were no material gain or loss adjustments to our investments in affiliated companies during the three and nine months ended September 30, 2018 or 2017.
Investments in affiliated companies consisted of the following:
(in millions)
 
September 30, 
 2018
 
December 31,
2017
Equity method investments
 
$
45.9

 
$
42.8

Cost Method Investments
 
37.9

 
36.4

Total investments in affiliated companies
 
$
83.8

 
$
79.2

These balances are included in other assets in the consolidated balance sheets.
Earnings from equity method investments, which are included in non-operating income and expense, and dividends received from equity method investments consisted of the following:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Earnings from equity method investments
 
$
3.2

 
$
2.6

 
$
8.4

 
$
6.3

Dividends received from equity method investments
 
$
0.3

 
$
0.3

 
$
5.3

 
$
0.8

Dividends received from Cost Method Investments for the three months ended September 30, 2018, was $0.1 million. There were no dividends received from cost method investments for the three months ended September 30, 2017. Dividends received from cost method investments for the nine months ended September 30, 2018 and 2017, were $0.8 million and $0.7 million, respectively.
7. Other Current Liabilities
Other current liabilities consisted of the following:

(in millions)
 
September 30, 
 2018
 
December 31,
2017
Accrued payroll
 
$
105.8

 
$
84.6

Deferred revenue
 
70.1

 
13.2

Accrued legal and regulatory
 
50.0

 
46.3

Accrued employee benefits
 
34.4

 
34.1

Income taxes payable
 
20.6

 
8.5

Accrued interest
 
2.9

 
1.5

Contingent consideration
 
0.4

 
1.1

Other
 
16.9

 
18.5

Total other current liabilities
 
$
301.1

 
$
207.8

The increase in deferred revenue includes the deferred revenue of businesses acquired in 2018 and the impact of adopting ASC Topic 606. See Note 11, “Revenue,” for additional information about our deferred revenue. See Note 3, “Fair Value,” for additional information related to our contingent consideration obligations.

14


8. Other Liabilities
Other liabilities consisted of the following:
(in millions)
 
September 30, 
 2018
 
December 31,
2017
Unrecognized tax benefits
 
$
19.3

 
$
12.3

Retirement benefits
 
10.9

 
12.2

Deferred revenue
 
0.7

 

Income tax payable
 
5.0

 
25.6

Purchase consideration payable
 

 
12.2

Other
 
8.4

 
8.5

Total other liabilities
 
$
44.3

 
$
70.8

9. Debt
Debt outstanding consisted of the following:
(in millions)
 
September 30, 
 2018
 
December 31,
2017
Senior Secured Term Loan B-3, payable in quarterly installments through April 9, 2023, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (4.24% at September 30, 2018, and 3.57% at December 31, 2017), net of original issue discount and deferred financing fees of $5.2 million and $4.9 million, respectively, at September 30, 2018, and original issue discount and deferred financing fees of $6.2 million and $3.7 million, respectively, at December 31, 2017
 
$
1,956.4

 
$
1,971.5

Senior Secured Term Loan A-2, payable in quarterly installments through August 9, 2022, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (3.99% at September 30, 2018, and 3.07% at December 31, 2017), net of original issue discount and deferred financing fees of $3.0 million and $3.9 million, respectively, at September 30, 2018, and original issue discount and deferred financing fees of $1.4 million and $0.3 million, respectively, at December 31, 2017
 
1,173.1

 
395.8

Senior Secured Term Loan B-4, payable in quarterly installments through June 19, 2025, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (4.24% at September 30, 2018), net of original issue discount and deferred financing fees of $2.4 million and $11.1 million, respectively, at September 30, 2018
 
984.0

 

Senior Secured Revolving Line of Credit
 

 
85.0

Other notes payable
 
7.3

 
11.0

Capital lease obligations
 
1.0

 
1.3

Total debt
 
4,121.8

 
2,464.6

Less short-term debt and current portion of long-term debt
 
(64.2
)
 
(119.3
)
Total long-term debt
 
$
4,057.6

 
$
2,345.3


15


Excluding potential additional principal payments due on the senior secured credit facility based on excess cash flows of the prior year, scheduled future maturities of total debt at September 30, 2018, were as follows:
(in millions)
 
September 30,
2018
2018
 
$
15.2

2019
 
71.7

2020
 
93.5

2021
 
89.9

2022
 
1,044.9

Thereafter
 
2,837.1

Unamortized original issue discounts and deferred financing fees
 
(30.5
)
Total debt
 
$
4,121.8

Senior Secured Credit Facility
On June 15, 2010, we entered into a senior secured credit facility with various lenders. This facility has been amended several times and currently consists of the Senior Secured Term Loan A-2, the Senior Secured Term Loan B-3, the Senior Secured Term Loan B-4 and the Senior Secured Revolving Line of Credit.
On May 2, 2018, we amended certain provisions of our senior secured credit facility. This amendment among other things, allowed us the option to elect between two testing dates for the calculation of ratio requirements to enter into certain transactions. This amendment resulted in $0.1 million of fees expensed and recorded in other income and expense in the consolidated statements of income for the nine months ended September 30, 2018, and $2.6 million of refinancing fees deferred on the balance sheet to be amortized into interest expense over the life of the loans.
During the first quarter of 2018, we repaid $30.0 million of the outstanding borrowings under the Senior Secured Revolving Line of Credit. During the second quarter of 2018, we borrowed a total of $125.0 million under the Senior Secured Revolving Line of Credit to fund an acquisition and for general corporate purposes. On June 19, 2018, we borrowed an additional $800.0 million against our Senior Secured Term Loan A-2 and $600.0 million against a new tranche 4 of our Senior Secured Term Loan B (“Senior Secured Term Loan B-4”) to fund the acquisition of Callcredit. On June 29, 2018, we borrowed an additional $400.0 million of our Senior Secured Term Loan B-4 to fund another acquisition and to repay a portion of our Senior Secured Revolving Line of Credit.
The new financing resulted in $0.1 million and $12.0 million of fees expensed and recorded in other income and expense in the consolidated statements of income for the three and nine months ended September 30, 2018, respectively, and $19.7 million of financing fees deferred on the balance sheet to be amortized into interest expense over the life of the loans.
During the third quarter, we repaid the $75.0 million outstanding balance on the Senior Secured Revolving Line of Credit. As of September 30, 2018, we could have borrowed up to the entire $300.0 million available.
The terms of the additional borrowings in the second quarter of 2018 on our Senior Secured Term Loan A-2 are the same as the terms of the other outstanding borrowings under the Senior Secured Term Loan A-2. Interest rates on the new Senior Secured Term Loan B-4 are based on LIBOR, unless otherwise elected, plus a margin of 2.00%. We are required to make principal payments on the Senior Secured Term Loan B-4 at the end of each quarter of 0.25% starting in the third quarter of 2018, with the remaining balance due June 19, 2025.
On January 31, 2017, we refinanced and amended certain provisions of our Senior Secured Term Loan B-3. On August 9, 2017, we refinanced and amended certain provisions of our senior secured credit facility. These refinancings resulted in $5.6 million and $10.5 million of refinancing fees and other net costs expensed and recorded in other income and expense in the consolidated statements of income for the three and nine months ended September 30, 2017, respectively.
TransUnion also has the ability to request incremental loans on the same terms under the existing senior secured credit facility up to the greater of an additional $675.0 million and 100% of Consolidated EBITDA. Consolidated EBITDA is reduced to the extent that the senior secured net leverage ratio is above 4.25-to-1. In addition, so long as the senior secured net leverage ratio does not exceed 4.25-to-1.0, we may incur additional incremental loans, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings. 
With certain exceptions, the senior secured credit facility obligations are secured by a first-priority security interest in substantially all of the assets of Trans Union LLC, including its investment in subsidiaries. The senior secured credit facility contains various

16


restrictions and nonfinancial covenants, along with a senior secured net leverage ratio test. The nonfinancial covenants include restrictions on dividends, investments, dispositions, future borrowings and other specified payments, as well as additional reporting and disclosure requirements. The senior secured net leverage test must be met as a condition to incur additional indebtedness, make certain investments, and may be required to make certain restricted payments. The senior secured net leverage ratio must not exceed 5.5-to-1 at any such test date. TransUnion may make dividend payments up to an unlimited amount under the terms of the senior secured credit facility provided that no default or event of default exists and so long as the total net leverage ratio does not exceed 4.75-to-1. As of September 30, 2018, we were in compliance with all debt covenants.
On December 18, 2015, we entered into interest rate cap agreements with various counter-parties that effectively cap our LIBOR exposure on a portion of our existing senior secured term loans or similar replacement debt at 0.75% beginning June 30, 2016. We have designated these cap agreements as cash flow hedges. The current aggregate notional amount under these agreements is $1,459.8 million and will decrease each quarter until the agreement terminates on June 30, 2020. In July 2016, we began to pay the various counter-parties a fixed rate on the outstanding notional amounts of between 0.98% and 0.994% and receive payments to the extent LIBOR exceeds 0.75%.
The interest rate caps are recorded on the balance sheet at fair value. The effective portion of changes in the fair value of the interest rate cap agreements is recorded in other comprehensive income (loss). The ineffective portion of changes in the fair value of the caps, which is due to, and will continue to result from, the cost of financing the cap premium, is recorded in other income and expense. The effective portion of the change in the fair value of the caps resulted in an unrealized gain of $1.1 million and $11.7 million, net of tax, recorded in other comprehensive income for the three and nine months ended September 30, 2018, respectively. The effective portion of the change in the fair value of the caps resulted in an unrealized gain of $0.5 million and $0.4 million, net of tax, recorded in other comprehensive income for three and nine months ended September 30, 2017, respectively. The ineffective portion of the change in the fair value of the caps resulted in no gain or loss recorded in other income and expense for the three months ended September 30, 2018. The ineffective portion of the change in the fair value of the caps resulted in a gain of $0.7 million recorded in other income and expense for the nine months ended September 30, 2018. The ineffective portion of the change in the fair value of the caps resulted in a loss of $0.1 million and $0.2 million recorded in other income and expense for three and nine months ended September 30, 2017, respectively.
In accordance with ASC 815, the fair value of the interest rate caps at inception is reclassified from other comprehensive income to interest expense in the same period the interest expense on the underlying hedged debt impacts earnings. Based on how the fair value of interest rate caps are determined, the earlier interest periods have lower fair values at inception than the later interest periods, resulting in less interest expense being recognized in the earlier periods compared with the later periods. Any payments we receive to the extent LIBOR exceeds 0.75% is also reclassified from other comprehensive income to interest expense in the period received. Interest income reclassified from other comprehensive income to interest expense related to the fair value of the portion of the caps expiring in the three and nine months ended September 30, 2018, was $0.8 million and $1.1 million, respectively. Interest expense reclassified from other comprehensive income to interest expense related to the fair value of the portion of the caps expiring in the three and nine months ended September 30, 2017, was $0.8 million and $3.3 million, respectively. We expect to reclassify approximately $8.3 million from other comprehensive income to interest expense related to the fair value of the portion of the caps expiring and payments received to the extent LIBOR exceeds 0.75% in the next twelve months.
Fair Value of Debt
As of September 30, 2018, the fair value of our variable-rate Senior Secured Term Loan A-2 and Senior Secured Revolving Line of Credit, excluding original issue discounts and deferred fees, approximates the carrying value. As of September 30, 2018, the fair value of our Senior Secured Term Loan B-3 and B-4, excluding original issue discounts and deferred fees, was $1,973.9 million and $1,000.0 million, respectively. The fair values of our variable-rate term loans are determined using Level 2 inputs, and quoted market prices for the publicly traded instruments.

17


10. Stockholders’ Equity
Common Stock
On February 13, 2018, we announced that our board of directors has approved a dividend policy pursuant to which we intend to pay quarterly cash dividends on our common stock. On May 9, 2018, the board of directors declared a dividend for the first quarter of 2018 of $0.075 per share to holders of record as of the close of business on May 23, 2018. The total dividend declared was $14.1 million, of which $13.8 million was paid on June 7, 2018, with the remainder due as dividend equivalents to employees who hold restricted stock units when and if those units vest. On August 7, 2018, the board of directors declared a dividend for the second quarter of 2018 of $0.075 per share to holders of record as of the close of business on August 22, 2018. The total dividend declared was $14.2 million, of which $13.9 million was paid on September 6, 2018, with the remainder due as dividend equivalents to employees who hold restricted stock units when and if those units vest.
Preferred Stock
We have 100.0 million shares of preferred stock authorized. No preferred stock had been issued or was outstanding as of September 30, 2018.
11. Revenue
All of our revenue is derived from contracts with customers and is reported as revenue in the Consolidated Statement of Income. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer, and is the unit of account under ASC Topic 606. We have contracts with two general groups of performance obligations; those that require us to stand ready to provide goods and services to a customer to use as and when requested (“Stand Ready Performance Obligations”) and those that do not require us to stand ready (“Other Performance Obligations”). Our Stand Ready Performance Obligations include obligations to stand ready to provide data, process transactions, access our databases, software-as-a-service and direct-to-consumer products, rights to use our intellectual property and other services. Our Other Performance Obligations include the sale of certain batch data sets and various professional and other services.
Most of our Stand Ready Performance Obligations consist of a series of distinct goods and services that are substantially the same and have the same monthly pattern of transfer to our customers. We consider each month of service in this time series to be a distinct performance obligation and, accordingly, recognize revenue over time. For a majority of these Stand Ready Performance Obligations the total contractual price is variable because our obligation is to process an unknown quantity of transactions, as and when requested by our customers, over the contract period. We allocate the variable price to each month of service using the time-series concept and recognize revenue based on the most likely amount of consideration to which we will be entitled to, which is generally the amount we have the right to invoice. This monthly amount can be based on the actual volume of units delivered or any guaranteed minimum, if higher. Occasionally we have contracts where the amount we will be entitled to for the transactions processed is uncertain, in which case we estimate the revenue based on what we consider to be the most likely amount of consideration we will be entitled to, and true-up any estimates as facts and circumstances evolve.
Certain Stand Ready Performance Obligation fees result from contingent fee based contracts that require us to provide services before we have an enforceable right to payment. For these performance obligations, we recognize revenue at the point in time the contingency is met and we have an enforceable contract and right to payment.
Certain of our Stand Ready Performance Obligation contracts include non-recurring, non-refundable up-front fees to cover our costs of setting up files or configuring systems to enable our customers to access our services. These fees are not fees for distinct performance obligations. When these fees are insignificant in relation to the total contract value we recognize such fees as revenue when invoiced. If such fees are significant we recognize them as revenue over the duration of the contract, the period of time for which we have contractually enforceable rights and obligations. For contracts where such fees are for a distinct performance obligation, we recognize revenue as or when the performance obligation is satisfied.
Certain of our Other Performance Obligations, including certain batch data sets and certain professional and other services, are delivered at a point in time. Accordingly, we recognize revenue upon delivery, once we have satisfied that obligation. For certain Other Performance Obligations, including certain professional and other services, we recognize revenue over time, based on an estimate of progress towards completion of that obligation.
For all contracts that include a Stand Ready Performance Obligation with variable pricing, we are unable to estimate the variable price attributable to future performance obligations because the number of units to be purchased is not known. As a result, we use the exception available to forgo disclosures about revenue attributable to the future performance obligations where we recognize revenue using the time-series concept as discussed above, including those qualifying for the right to invoice practical expedient. We also use the exception available to forgo disclosures about revenue attributable to contracts with expected durations of one year or less.

18


During the nine-month period ending September 30, 2018, we recognized $18.7 million of revenue that was included in the balance of our deferred revenue at the beginning of the year as adjusted for the cumulative effect of adopting ASC Topic 606.
In certain circumstances we apply the guidance in ASC Topic 606 to a portfolio of contracts with similar characteristics. We use estimates and assumptions when accounting for a portfolio that reflect the size and composition of the portfolio of contracts.
Our contracts generally include standard commercial payment terms generally acceptable in each region, and do not include financing with extended payment terms. We have no significant obligations for refunds, warranties, or similar obligations. Our revenue does not include taxes collected from our customers.
Accounts receivable are shown separately on our balance sheet. Contract assets and liabilities result due to the timing of revenue recognition, billings and cash collections. Contract assets include our right to payment for goods and services already transferred to a customer when the right to payment is conditional on something other than the passage of time, for example contracts where we recognize revenue over time but do not have a contractual right to payment until we complete the contract. Contract assets are included in our other current assets and are not material as of September 30, 2018. Contract liabilities include current and long-term deferred revenue which are included in other current liabilities and other liabilities. The long-term portion is not significant.
For additional disclosures about the disaggregation of our revenue see Note 14, “Reportable Segments”.
12. Earnings Per Share
Basic earnings per share represents income available to common stockholders divided by the weighted-average number of common shares outstanding during the reported period. Diluted earnings per share reflects the effect of the increase in shares outstanding determined by using the treasury stock method for awards issued under our incentive stock plans.
For the three and nine months ended September 30, 2018, there were zero and less than 0.1 million anti-dilutive stock-based awards outstanding for each respective period. In addition, there were 1.1 million contingently-issuable stock-based awards outstanding that were excluded from the diluted earnings per share calculation because the contingencies had not been met. For the three and nine months ended September 30, 2017, there were less than 0.1 million anti-dilutive stock-based awards outstanding for each respective period. In addition, there were no contingently-issuable stock-based awards outstanding that were excluded from the diluted earnings per share calculation because the contingencies had not been met.

19


Basic and diluted weighted average shares outstanding and earnings per share were as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions, except per share data)
 
2018
 
2017
 
2018
 
2017
Income from continuing operations
 
$
50.8

 
$
71.9

 
$
183.5

 
$
203.6

Less: income from continuing operations attributable to noncontrolling interests
 
(3.1
)
 
(3.1
)
 
(7.6
)
 
(7.6
)
Income from continuing operations attributable to TransUnion
 
47.7

 
68.8

 
175.9

 
196.0

Discontinued operations, net of tax(1)
 
(1.4
)
 

 
(1.4
)
 

Net income attributable to TransUnion
 
$
46.3

 
$
68.8

 
$
174.4

 
$
196.0

 
 
 
 
 
 
 
 
 
Basic earnings per common share from:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to TransUnion
 
$
0.26

 
$
0.38

 
$
0.95

 
$
1.08

Discontinued operations, net of tax
 
(0.01
)
 

 
(0.01
)
 

Net Income attributable to TransUnion
 
$
0.25

 
$
0.38

 
$
0.95

 
$
1.08

Diluted earnings per common share from:
 
 
 
 
 
 
 
 
Income from continuing operations attributable to TransUnion
 
$
0.25

 
$
0.36

 
$
0.92

 
$
1.03

Discontinued operations, net of tax
 
(0.01
)
 

 
(0.01
)
 

Net Income attributable to TransUnion
 
$
0.24

 
$
0.36

 
$
0.91

 
$
1.03

Weighted-average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
185.1

 
182.2

 
184.4

 
182.3

Diluted
 
191.2

 
189.2

 
190.8

 
189.8

(1)
Discontinued operations for the three and nine months ended September 30, 2017 is zero.

20


13. Income Taxes
We are continuing to gather information and are waiting on further guidance from the IRS, the SEC and the FASB on the Tax Cuts and Jobs Act of 2017 (the “Act”). Effective January 1, 2018, the U.S. federal statutory rate was reduced from 35% to 21% as a result of the Act.
For the three months ended September 30, 2018, we reported an effective tax rate of 36.0%, which was higher than the 21% U.S. federal statutory rate due primarily to $19.5 million of tax expense related to the impact of the Act, foreign rate differential, unrecognized tax benefits, and non-deductible acquisition and other costs, partially offset by $7.6 million of excess tax benefits on stock-based compensation. Also during the quarter, we made revisions to our 2017 provisional estimates under SAB No. 118 and ASU No 2018-05. The revisions included adjustments to tax expense on the U.S. federal corporate rate reduction from 35% to 21%, the one-time mandatory repatriation tax and executive compensation. The impact of these changes to our effective rate was $5.6 million. We plan to finalize our 2017 provisional estimates during the fourth quarter 2018. For the nine months ended September 30, 2018, we reported an effective tax rate of 28.2%, which was higher than the 21% U.S. federal statutory rate due primarily to $44.1 million of tax expense related to the impact of the Act, foreign rate differential, unrecognized tax benefits and non-deductible acquisition and other costs, partially offset by $25.7 million of excess tax benefits on stock-based compensation.
For the three months ended September 30, 2017, we reported an effective tax rate of 31.0%, which was lower than the 35% U.S. federal statutory rate due primarily to $5.0 million of excess tax benefits on stock-based compensation, partially offset by an increase in state tax expense, including changes in state tax rates of $2.2 million. For the nine months ended September 30, 2017, we reported an effective tax rate of 25.2%, which was lower than the 35% U.S. federal statutory rate due primarily to the excess tax benefits on stock option exercises of $28.1 million, and the first quarter 2017 ownership structure change for certain international subsidiaries, which resulted in a decrease in income tax expense of $5.2 million, partially offset by an increase of $3.2 million in state tax expense, including changes in state tax rates.

The total amount of unrecognized tax benefits was $19.3 million as of September 30, 2018, and $12.3 million as of December 31, 2017. The amounts that would affect the effective tax rate if recognized are $12.6 million and $8.2 million, respectively. There were no significant liabilities for accrued interest for taxes or accrued tax penalties as of September 30, 2018, or December 31, 2017. We are regularly audited by federal, state and foreign taxing authorities. Given the uncertainties inherent in the audit process, it is reasonably possible that certain audits could result in a significant increase or decrease in the total amounts of unrecognized tax benefits. An estimate of the range of the increase or decrease in unrecognized tax benefits due to audit results cannot be made at this time. Generally, tax years 2010 and forward remain open for examination in some state and foreign jurisdictions, and tax years 2012 and forward remain open for examination for U.S. federal income tax purposes.
14. Reportable Segments
This segment financial information is reported on the basis that is used for the internal evaluation of operating performance. The accounting policies of the segments are the same as described in Note 1, “Significant Accounting and Reporting Policies,” included in our audited financial statements for the year ended December 31, 2017, of our Annual Report on Form 10-K filed with the SEC on February 13, 2018, as updated in Note 1, “Significant Accounting and Reporting Polices,” and Note 11, “Revenue,” above.
We evaluate the performance of segments based on revenue and operating income. The following is a more detailed description of the three reportable segments and the Corporate unit, which provides support services to each segment:
U.S. Information Services
U.S. Information Services (“USIS”) provides consumer reports, risk scores, analytical and decisioning services to businesses. These businesses use our services to acquire new customers, assess consumer ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud. The core capabilities and delivery platforms in our USIS segment allow us to serve a broad set of customers and business issues. We offer our services to customers in financial services, insurance, healthcare and other industries.
We derive our USIS segment revenue from three operating platforms: Online Data Services, Marketing Services and Decision Services. Online Data Services encompass services delivered in real-time using both credit and public record datasets. We also provide online reports that link public record datasets for qualified businesses seeking to locate consumers, specific assets or investigate relationships among consumers, businesses and locations. Collectively, the reports, characteristics and scores, with variations tailored for specific industries, form the basis of Online Data Services. We also provide online services to help businesses manage fraud and authenticate a consumer’s identity when they initiate a new business relationship. Additionally, we provide data to businesses to help them satisfy “know your customer” compliance requirements and to confirm an individual’s identity. Marketing Services help our customers develop marketing lists of prospects via direct mail, web and mobile. Our databases are used by our customers to contact individuals to extend firm offers of credit or insurance. We provide portfolio review services, which are

21


periodic reviews of our customers’ existing accounts, to help our customers develop cross-selling offers to their existing customers and monitor and manage risk in their existing consumer portfolios. We also provide trigger services, which are daily notifications of changes to a consumer profile. Decision Services, our software-as-a-service offerings, includes a number of platforms that help businesses interpret data and predictive model results and apply their customer-specific criteria to facilitate real-time automated decisions at the time of customer interaction. Decision Services also includes advanced device identity and consumer authentication services that help businesses and consumers safely transact in a digital world. Our customers use Decision Services to evaluate business risks and opportunities, including those associated with new consumer credit and checking accounts, insurance applications, optimizing accounts receivable management and collections, patient registrations and insurance coverages, and apartment rental requests.
International
The International segment provides services similar to our USIS segment to businesses in select regions outside the United States. Depending on the maturity of the credit economy in each country, services may include credit reports, analytics and decisioning services and other value-added risk management services. In addition, we have insurance, business and automotive databases in select geographies. These services are offered to customers in a number of industries including financial services, insurance, automotive, collections and communications, and are delivered through both direct and indirect channels. The International segment also provides consumer services similar to those offered by our Consumer Interactive segment that help consumers proactively manage their personal finances.
We report our International segment revenue in two categories, developed markets and emerging markets. Our developed markets are the United Kingdom, Canada, and Hong Kong. Our emerging markets are Africa, Latin America, Asia Pacific, and India.
Consumer Interactive
Consumer Interactive offers solutions that help consumers manage their personal finances and take precautions against identity theft. Services in this segment include credit reports and scores, credit monitoring, fraud protection, and resolution and financial management. Our products are provided through user-friendly online and mobile interfaces and are supported by educational content and customer support. Our Consumer Interactive segment serves consumers through both direct and indirect channels.
Corporate
In addition, Corporate provides support services for each of the segments, holds investments, and conducts enterprise functions. Certain costs incurred in Corporate that are not directly attributable to one or more of the segments remain in Corporate. These costs are typically enterprise-level costs and are primarily administrative in nature.

22


Selected segment financial information and disaggregated revenue consisted of the following:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Gross revenue:
 
 
 
 
 
 
 
 
U.S. Information Services:
 
 
 
 
 
 
 
 
  Online Data Services
 
$
235.2

 
$
200.2

 
$
698.4

 
$
573.2

  Marketing Services
 
59.6

 
48.5

 
167.4

 
137.0

  Decision Services
 
80.1

 
63.3

 
209.5

 
182.0

Total U.S. Information Services
 
374.8

 
312.0

 
1,075.3

 
892.1

 
 
 
 
 
 
 
 
 
International:
 
 
 
 
 
 
 
 
  Developed Markets
 
63.9

 
33.8

 
138.4

 
92.8

  Emerging Markets
 
64.8

 
61.2

 
192.5

 
172.8

Total International
 
128.7

 
94.9

 
330.9

 
265.6

 
 
 
 
 
 
 
 
 
Total Consumer Interactive
 
119.1

 
107.0

 
354.6

 
317.3

 
 
 
 
 
 
 
 
 
Total revenue, gross
 
622.6

 
513.9

 
1,760.8

 
1,475.1

 
 
 
 
 
 
 
 
 
Intersegment revenue eliminations:
 
 
 
 
 
 
 
 
   U.S. Information Services
 
(17.5
)
 
(14.6
)
 
(52.4
)
 
(43.8
)
   International Developed Markets
 
(1.3
)
 
(1.3
)
 
(3.7
)
 
(3.4
)
   International Emerging Markets
 

 

 
(0.2
)
 
(0.1
)
   Consumer Interactive
 
(0.2
)
 
(0.1
)
 
(0.5
)
 
(0.1
)
Total intersegment eliminations
 
(19.0
)
 
(16.0
)
 
(56.8
)
 
(47.4
)
Total revenue, net
 
$
603.6

 
$
498.0

 
$
1,704.1

 
$
1,427.7

 
 
 
 
 
 
 
 
 
Gross operating income:
 
 
 
 
 
 
 
 
U.S. Information Services
 
$
92.6

 
$
82.4

 
$
271.2

 
$
238.4

International
 
3.9

 
19.9

 
33.9

 
41.5

Consumer Interactive
 
56.6

 
46.5

 
164.4

 
144.2

Corporate
 
(31.1
)
 
(22.3
)
 
(87.8
)
 
(80.9
)
Total operating income
 
$
122.1

 
$
126.6

 
$
381.7

 
$
343.2

 
 
 
 
 
 
 
 
 
Intersegment operating income eliminations:
 
 
 
 
 
 
 
 
U.S. Information Services
 
$
(17.2
)
 
$
(14.1
)
 
$
(51.3
)
 
$
(42.5
)
International
 
(0.7
)
 
(1.0
)
 
(2.3
)
 
(2.6
)
Consumer Interactive
 
17.9

 
15.1

 
53.7

 
45.1

Corporate
 

 

 

 

Total intersegment eliminations
 
$

 
$

 
$

 
$

As a result of displaying amounts in millions, rounding differences may exist in the table above.

23


A reconciliation of operating income to income before income taxes for the periods presented is as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
Operating income from segments
 
$
122.1

 
$
126.6

 
$
381.7

 
$
343.2

Non-operating income and expense
 
(42.7
)
 
(22.4
)
 
(126.1
)
 
(70.9
)
Income from continuing operations before income taxes
 
$
79.4

 
$
104.2

 
$
255.6

 
$
272.3

Earnings from equity method investments included in non-operating income and expense for the periods presented were as follows:
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
(in millions)
 
2018
 
2017
 
2018
 
2017
U.S. Information Services
 
$
0.7

 
$
0.7

 
$
2.1

 
$
1.5

International
 
2.5

 
1.9

 
6.3

 
4.8

Total
 
$
3.2

 
$
2.6

 
$
8.4

 
$
6.3


24


15. Contingencies
Litigation
In view of the inherent unpredictability of litigation and regulatory matters, particularly where the damages sought are substantial or indeterminate or when the proceedings or investigations are in the early stages, we cannot determine with any degree of certainty the timing or ultimate resolution of litigation and regulatory matters or the eventual loss, fines, penalties or business impact, if any, that may result. We establish reserves for litigation and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. The actual costs of resolving litigation and regulatory matters, however, may be substantially higher than the amounts reserved for those matters, and an adverse outcome in certain of these matters could have a material adverse effect on our consolidated financial statements in particular quarterly or annual periods. The following discussion describes material developments in previously disclosed material legal proceedings that occurred in the three months ended September 30, 2018. Refer to Part I, Item 3, of our Annual Report on Form 10-K for the year ended December 31, 2017, for a full description of our material pending legal proceedings.
Public Records
On September 20, 2018, the Court granted final approval of the settlement of all of the pending public records matters, other than the Walsh matter, on terms that will not have a material impact on our financial condition or results of operations. We are in active discussions regarding a settlement of the individual claims asserted in the Walsh matter, which was stayed pending final approval of the broader settlement, and expect it will also be resolved on terms that will not have a material impact on our financial condition or results of operations. If a settlement is not ultimately reached, TransUnion believes it has valid defenses to this action and will continue to defend it vigorously.


25


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of TransUnion’s financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, TransUnion’s audited consolidated financial statements, the accompanying notes, “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2017, as well as the unaudited consolidated financial statements and the related notes presented in Part I, Item 1, of this Quarterly Report on Form 10-Q.
In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including but not limited to those discussed below in “Cautionary Notice Regarding Forward-Looking Statements,” and Part II, Item 1A, “Risk Factors.”
References in this discussion and analysis to “the Company,” “we,” “us” and “our” refer to TransUnion and its direct and indirect subsidiaries, including TransUnion Intermediate Holdings, Inc., collectively.
Overview
TransUnion is a leading global risk and information solutions provider to businesses and consumers. We provide consumer reports, risk scores, analytical services and decisioning capabilities to businesses. Businesses embed our solutions into their process workflows to acquire new customers, assess consumer ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud. Consumers use our solutions to view their credit profiles and access analytical tools that help them understand and manage their personal information and take precautions against identity theft. We are differentiated by our comprehensive and unique datasets, our next-generation technology and our analytics and decisioning capabilities, which enable us to deliver insights across the entire consumer lifecycle. We believe we are the largest provider of risk and information solutions in the United States to possess both nationwide consumer credit data and comprehensive, diverse public records data, which allows us to better predict behaviors, assess risk and address a broader set of business issues for our customers. We have deep domain expertise across a number of attractive industries, which we also refer to as verticals, including financial services, specialized risk, insurance, and healthcare. We have a global presence in over 30 countries and territories across North America, United Kingdom, Africa, Latin America, and Asia.
Our solutions are based on a foundation of financial, credit, alternative credit, identity, bankruptcy, lien, judgment, insurance claims, automotive, and other relevant information from approximately 90,000 data sources, including financial institutions, private databases, and public records repositories. We refine, standardize and enhance this data using sophisticated algorithms to create proprietary databases. Our deep analytics expertise, which includes our people as well as tools such as predictive modeling and scoring, customer segmentation, benchmarking and forecasting, enables businesses and consumers to gain better insights into their risk and financial data. Our decisioning capabilities, which are generally delivered on a software-as-a-service platform, allow businesses to interpret data and apply their specific qualifying criteria to make decisions and take action with respect to their customers. Collectively, our data, analytics and decisioning capabilities allow businesses to authenticate the identity of consumers, effectively determine the most relevant products for consumers, retain and cross-sell to existing consumers, identify and acquire new consumers and reduce loss from fraud. Similarly, our capabilities allow consumers to see how their credit profiles have changed over time, understand the impact of financial decisions on their credit scores and manage their personal information as well as to take precautions against identity theft.
Segments
We manage our business and report our financial results in three reportable segments: USIS, International and Consumer Interactive.
USIS provides consumer reports, risk scores, analytics and decisioning services to businesses. These businesses use our services to acquire new customers, assess consumer ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and investigate potential fraud. The core capabilities and delivery platforms in our USIS segment allow us to serve a broad set of customers and business issues. We offer our services to customers in financial services, insurance, healthcare and other industries.
The International segment provides services similar to our USIS segment to businesses in select regions outside the United States. Depending on the maturity of the credit economy in each country, services may include credit reports, analytics and decisioning services and other value-added risk management services. In addition, we have insurance, business and automotive databases in select geographies. These services are offered to customers in a number of industries including financial services, insurance, automotive, collections and communications, and are delivered through both direct and indirect channels. The International segment also provides consumer services similar to those offered by our Consumer Interactive segment that help consumers proactively manage their personal finances.

26


Consumer Interactive offers solutions that help consumers manage their personal finances and take precautions against identity theft. Services in this segment include credit reports and scores, credit monitoring, fraud protection and resolution and financial management. Our products are provided through user-friendly online and mobile interfaces and are supported by educational content and customer support. Our Consumer Interactive segment serves consumers through both direct and indirect channels.
In addition, Corporate provides shared services for each of the segments, holds investments, and conducts enterprise functions. Certain costs incurred in Corporate that are not directly attributable to one or more of the segments remain in Corporate. These costs are typically enterprise-level costs and are primarily administrative in nature.
Factors Affecting Our Results of Operations
The following are certain key factors that affect, or have recently affected, our results of operations:
Macroeconomic and Industry Trends
Our revenues can be significantly influenced by general macroeconomic conditions, including the availability of affordable credit and capital, interest rates, inflation, employment levels, consumer confidence and housing demand. In the markets where we compete, we have generally seen good economic conditions and increased market stabilization over the past few years. In the United States, we continue to see a healthy, well-functioning consumer lending market driven by the exceptionally strong labor market and consumer confidence that is near an all-time high. Rising interest rates continue to impact the housing refinance market, and the overall housing market has softened primarily due to a lack of inventory, especially at the entry level. We anticipate these headwinds will be partially offset by the increased availability of home equity and subsequent borrowing. We have also seen solid demand for our marketing services, and in our Consumer Interactive segment, strong demand for our credit and identity theft solutions. We continue to see strong growth in key international markets, tempered by ongoing headwinds in Africa. Also, weakening foreign currencies resulted in a slight decline in results in both the three- and nine-month periods of 2018 compared with the prior year periods.
Our revenues are also significantly influenced by industry trends, including the demand for information services in financial services, insurance, healthcare and other industries we serve. Companies are increasingly relying on business analytics and big-data technologies to help process this data in a cost-efficient manner. As customers have gained the ability to rapidly aggregate and analyze data generated by their own activities, they are increasingly expecting access to real-time data and analytics from their information providers as well as solutions that fully integrate into their workflows. As economies in emerging markets continue to develop and mature, we believe there will continue to be favorable socio-economic trends, such as an increase in the size of the middle class and a significant increase in the use of financial services by under-served and under-banked customers. Demand for consumer solutions is rising with higher consumer awareness of the importance and usage of their credit information, increased risk of identity theft due to data breaches and more readily available free credit information. The complexity of regulations, including from the Consumer Financial Protection Bureau (“CFPB”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act and new capital requirements, continue to make operations for businesses more challenging.
Effects of Inflation
We do not believe that inflation has had a material effect on our business, results of operations or financial condition.
Recent Developments
During the third quarter of 2018, we repaid the remaining outstanding Senior Secured Revolving Line of Credit balance of $75.0 million.
On February 13, 2018, we announced that our board of directors approved a dividend policy pursuant to which we intend to pay quarterly cash dividends on our common stock. On May 9, 2018, the board of directors declared a dividend for the first quarter of 2018 of $0.075 per share to holders of record as of the close of business on May 23, 2018. The total dividend declared was $14.1 million, of which $13.8 million was paid on June 7, 2018, with the remainder due to employees who hold restricted stock units when and if those units vest. On August 7, 2018, the board of directors declared a dividend for the second quarter of 2018 of $0.075 per share to holder of record as of the close of business on August 22, 2018. The total dividend declared was $14.2 million, of which $13.9 million was paid on September 6, 2018, with the remainder due to employees who hold restricted stock units when and if those units vest.
TransUnion may make dividend payments up to an unlimited amount under the terms of the senior secured credit facility provided than no default or event of default exists and so long as the total net leverage ratio does not exceed 4.75-to-1. Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend upon results of operations, financial conditions, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

27


Our board of directors also removed the three-year time limitation of our previously announced $300.0 million stock repurchase program. The remaining authorized $166.6 million of repurchases may be made from time to time at management’s discretion at prices management considers to be attractive through open market purchase or through privately negotiated transactions.
During the second quarter of 2018, we borrowed a significant amount of additional debt against our senior secured credit facility to fund the purchase of three acquisitions as discussed in “Recent Acquisitions and Partnerships” below. During the second quarter of 2018, we borrowed a total of $125.0 million under the Senior Secured Revolving Line of Credit to fund an acquisition and for general corporate purposes. On June 19, 2018, we borrowed an additional $800.0 million against our Senior Secured Term Loan A-2 and $600.0 million against a new tranche 4 of our Senior Secured Term Loan B (“Senior Secured Term Loan B-4”) to fund the acquisition of Callcredit. On June 29, 2018, we borrowed an additional $400.0 million of our Senior Secured Term Loan B-4 to fund another acquisition and to repay a portion of our Senior Secured Revolving Line of Credit. Our net incremental borrowings during the second quarter of 2018 was $20.0 million under the Senior Secured Revolving Line of Credit.
On March 12, 2018, we repaid $30.0 million of our outstanding Senior Secured Revolving Line of Credit.
On January 1, 2018, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (ASC Topic 606), using the modified retrospective approach. Under the modified retrospective approach, we recognized the cumulative effect of adopting ASC Topic 606 in the opening balance of retained earnings. There was no material impact on our consolidated financial statements or on how we recognize revenue upon adoption. See Part I, Item 1, Note 1, “Significant Accounting and Reporting Policies,” and Note 11, “Revenue,” for additional information about the adoption of Topic 606.
Recent Acquisitions and Partnerships
We selectively evaluate acquisitions and partnerships as a means to expand our business and international footprint, and to enter new markets. Since January 1, 2017, we completed the following acquisitions:
On June 29, 2018, we acquired 100% of the equity of iovation, Inc. (“iovation”). iovation is a provider of advanced device identity and consumer authentication services that help businesses and consumers safely transact in a digital world. The results of operations of iovation, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On June 22, 2018, we increased our noncontrolling interest investment in SavvyMoney, Inc. (“SavvyMoney”). Our initial investment in SavvyMoney was on August 30, 2016. SavvyMoney is a provider of credit information services for bank and credit union users. We measure our investment in SavvyMoney at our initial cost, minus any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments in SavvyMoney, with any adjustments recorded in other income and expense. We will record any future dividends in other income and expense when received.
On June 19, 2018, we acquired 100% of the equity of Callcredit Information Group, Ltd. (“Callcredit”). Callcredit is a U.K. based information solutions company founded in 2000 that provides data, analytics and technology solutions to help businesses and consumers make informed decisions. The results of operations of Callcredit, which are not material to our consolidated financial statements for the quarter, have been included as part of our International segment in our consolidated statements of income since the date of the acquisition.
On June 1, 2018, we acquired 100% of the equity of Healthcare Payment Specialists, LLC (“HPS”). HPS provides expertise and technology solutions to help medical care providers maximize Medicare reimbursements. The results of operations of HPS, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On November 30, 2017, we acquired a non-controlling, non-voting preferred stock equity interest in Throtle, Inc. (“Throtle”). Throtle is a second generation data onboarding company focused on deterministic matching, identity resolution and closed-loop enablement. We measure our investment in Throtle at our initial cost, minus any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments in Throtle, with any adjustments recorded in other income and expense. We will record any future dividends in other income and expense when received.
On November 14, 2017, we acquired 100% of the equity of FT Holdings, Inc. (“FactorTrust”). FactorTrust is a provider of alternative credit data, analytics and risk scoring information that empowers lenders to make more informed decisions, and increases financial inclusion to a wider population of consumers. The results of operations of FactorTrust, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On October 2, 2017, we acquired 100% of the equity of xTech Holdings, Inc. (“eBureau”). eBureau is a leading provider of custom-analytic solutions with both credit-risk and anti-fraud applications. The results of operations of eBureau, which

28


are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On August 18, 2017, we acquired 100% of the equity of Datalink Services, Inc. (“Datalink”). Datalink’s solutions provide enhanced data that identifies risks associated with an applicant’s driving behavior and provides insurers with a cost-competitive, timely and more detailed offering. The results of operations of Datalink, which are not material to our consolidated financial statements, have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On July 19, 2017, we acquired a non-controlling, non-voting preferred stock equity interest in Synthetic P2P Holdings Corporation (“PeerIQ”). Also, on November 10, 2016, we entered into an agreement with PeerIQ whereby we licensed data to PeerIQ and, in return, received warrants to purchase a noncontrolling interest in their common stock. PeerIQ is a credit risk analytics provider. We measure our investment in PeerIQ at our initial cost, minus any impairments, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investments in PeerIQ, with any adjustments recorded in other income and expense. We will record any future dividends in other income and expense when received.
During March 2017, we increased our equity interest in Credit Information Bureau (India) Limited (“CIBIL”) from 82.1% to 92.1% with additional purchases totaling 10%. CIBIL’s results of operations are included as part of our International segment in our consolidated statements of income.
Key Components of Our Results of Operations
Revenue
We derive our USIS segment revenue from three operating platforms: Online Data Services, Marketing Services and Decision Services. Online Data Services encompass services delivered in real-time using both credit and public record datasets. We also provide online reports that link public record datasets for qualified businesses seeking to locate consumers, specific assets or investigate relationships among consumers, businesses and locations. Collectively, the reports, characteristics and scores, with variations tailored for specific industries, form the basis of Online Data Services. We also provide online services to help businesses manage fraud and authenticate a consumer’s identity when they initiate a new business relationship. Additionally, we provide data to businesses to help them satisfy “know your customer” compliance requirements and to confirm an individual’s identity. Marketing Services help our customers develop marketing lists of prospects via direct mail, web and mobile. Our databases are used by our customers to contact individuals to extend firm offers of credit or insurance. We provide portfolio review services, which are periodic reviews of our customers’ existing accounts, to help our customers develop cross-selling offers to their existing customers and monitor and manage risk in their existing consumer portfolios. We also provide trigger services, which are daily notifications of changes to a consumer profile. Decision Services, our software-as-a-service offerings, includes a number of platforms that help businesses interpret data and predictive model results and apply their customer-specific criteria to facilitate real-time automated decisions at the time of customer interaction. Decision Services also includes advanced device identity and consumer authentication services that help businesses and consumers safely transact in a digital world. Our customers use Decision Services to evaluate business risks and opportunities, including those associated with new consumer credit and checking accounts, insurance applications, optimizing accounts receivable management and collections, patient registrations and insurance coverages, and apartment rental requests.
We report our International segment revenue in two categories, developed markets and emerging markets. Our developed markets are the United Kingdom, Canada and Hong Kong. Our emerging markets are Africa, Latin America, Asia Pacific and India.
Consumer Interactive offers solutions that help consumers manage their personal finances and take precautions against identity theft. Services in this segment include credit reports and scores, credit monitoring, fraud protection and resolution and financial management. Our products are provided through user friendly online and mobile interfaces and supported by educational content and customer support.
Cost of Services
Costs of services include data acquisition and royalty fees, personnel costs related to our databases and software applications, consumer and call center support costs, hardware and software maintenance costs, telecommunication expenses and occupancy costs associated with the facilities where these functions are performed.
Selling, General and Administrative
Selling, general and administrative expenses include personnel-related costs for sales, administrative and management employees, costs for professional and consulting services, advertising and occupancy and facilities expense of these functions.

29


Non-Operating Income and Expense
Non-operating income and expense includes interest expense, interest income, earnings from equity-method investments, dividends from cost-method investments, impairments of equity-method investments and impairments and any other adjustments of cost-method investments, expenses related to successful and unsuccessful business acquisitions, loan fees, debt refinancing expenses, certain acquisition-related gains and losses and other non-operating income and expenses.
Results of Operations
Key Performance Measures
Management, including our chief operating decision maker, evaluates the financial performance of our businesses based on a variety of key indicators. These indicators include the non-GAAP measures Adjusted Revenue and Adjusted EBITDA and the GAAP measures cash provided by operating activities of continuing operations and cash paid for capital expenditures. For the three and nine months ended September 30, 2018 and 2017, these key indicators were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2018
 
2017
 
$
Change
 
%
Change
 
2018
 
2017
 
$
Change
 
%
Change
Revenue as reported
 
$
603.6

 
$
498.0

 
$
105.6

 
21.2
 %
 
$
1,704.1

 
$
1,427.7

 
$
276.3

 
19.4
 %
Acquisitions revenue-related adjustment(1)
 
17.7

 

 
17.7

 
nm

 
17.7

 

 
17.7

 
nm

Adjusted Revenue
 
$
621.3

 
$
498.0

 
$
123.3

 
24.8
 %
 
$
1,721.8

 
$
1,427.7

 
$
294.1

 
20.6
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (loss)
    attributable to TransUnion to Adjusted
    EBITDA(2):
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
Net income attributable to TransUnion
 
$
46.3

 
$
68.8

 
$
(22.5
)
 
(32.7
)%
 
$
174.4

 
$
196.0

 
$
(21.6
)
 
(11.0
)%
Discontinued operations
 
1.4

 

 
1.4

 
 %
 
1.4

 

 
1.4

 
 %
Net income from continuing operations
    attributable to TransUnion
 
47.7

 
68.8

 
(21.1
)
 
(30.6
)%
 
175.9

 
196.0

 
(20.2
)
 
(10.3
)%
Net interest expense
 
42.6

 
20.2

 
22.5

 
111.4
 %
 
89.0

 
61.6

 
27.4

 
44.4
 %
Provision (benefit) for income taxes
 
28.6

 
32.3

 
(3.7
)
 
(11.5
)%
 
72.1

 
68.7

 
3.4

 
5.0
 %
Depreciation and amortization
 
84.2

 
59.9

 
24.3

 
40.5
 %
 
218.8

 
176.2

 
42.6

 
24.2
 %
EBITDA
 
203.2

 
181.3

 
21.9

 
12.1
 %
 
555.8

 
502.6

 
53.2

 
10.6
 %
Adjustments to EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Acquisitions revenue-related adjustment(1)
 
17.7

 

 
17.7

 
nm

 
17.7

 

 
17.7

 
nm

Stock-based compensation(3)
 
16.3

 
9.5

 
6.9

 
72.2
 %
 
43.2

 
34.3

 
9.0

 
26.2
 %
Mergers and acquisition, divestitures
    and business optimization(4)
 
6.2

 
(1.7
)
 
7.8

 
nm

 
35.3

 
5.2

 
30.1

 
nm

Other(5)
 
1.5