Notes to Consolidated Financial Statements
Years Ended December 31,
2017
,
2016
and
2015
1. Significant Accounting and Reporting Policies
Description of Business
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, sometimes referred 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, Africa, Latin America and Asia.
We believe that we have the capabilities and assets, including comprehensive and unique datasets, advanced technology and analytics to provide differentiated solutions to our customers. Our solutions are based on a foundation of financial, credit, alternative credit, identity, bankruptcy, lien, judgment, insurance claims, healthcare, automotive and other relevant information from
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 next-generation technology allows us to quickly and efficiently integrate our data with our analytics and decisioning capabilities to create and deliver innovative solutions to our customers and to quickly adapt to changing customer needs. 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 actions. 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, manage their personal information and take precautions against identity theft.
Basis of Presentation
The accompanying consolidated financial statements of TransUnion and subsidiaries have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Our consolidated financial statements reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the periods presented. All significant intercompany transactions and balances have been eliminated.
Unless the context indicates otherwise, any reference in this report to the “Company,” “we,” “our,” “us,” and “its” refers to TransUnion and its consolidated subsidiaries, collectively.
For the periods presented, TransUnion does not have any material assets, liabilities, revenues, expenses or operations of any kind other than its ownership investment in TransUnion Intermediate.
Initial Public Offering
On June 30, 2015, we completed our initial public offering (“IPO”) of our common stock. The proceeds, net of underwriter fees and commission and costs incurred in connection with the IPO, were recorded in additional paid-in capital. The IPO costs consisted primarily of legal fees, accounting fees and printing fees. See Note 11, “Stockholders’ Equity” for further discussion on the IPO.
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.
Principles of Consolidation
The consolidated financial statements of TransUnion include the accounts of TransUnion and all of its majority-owned or controlled subsidiaries. Investments in unconsolidated entities in which the Company is able to exercise significant influence, are accounted for using the equity method. Nonmarketable investments in unconsolidated entities in which the Company is not able to exercise significant influence are accounted for using the cost method and periodically reviewed for impairment.
Use of Estimates
The preparation of consolidated financial statements and related disclosures in accordance with GAAP requires management to make estimates and judgments that affect the amounts reported. We believe that the estimates used in preparation of the accompanying consolidated financial statements are reasonable, based upon information available to management at this time. These estimates and judgments affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities at the balance sheet date, as well as the amounts of revenue and expense during the reporting period. Estimates are inherently uncertain and actual results could differ materially from the estimated amounts.
Change in Accounting Estimate
Effective July 1, 2014, we revised the remaining useful lives of certain internal use software, equipment, leasehold improvement and corporate headquarters facility assets to align with the expected completion dates of our strategic initiatives to transform our technology infrastructure and corporate headquarters facility. As a result, depreciation and amortization expense increased by
$28.8 million
for the year ended December 31, 2015. The net of tax impact of this change decreased net income attributable to TransUnion by
$18.4 million
, or
$0.11
per share for the year ended December 31, 2015. The impact for the years ended December 31, 2016 and 2017 were not significant.
Segments
Operating segments are businesses for which separate financial information is available and evaluated regularly by the chief operating decision-maker in deciding how to allocate resources. We have
four
operating segments; USIS, Healthcare, International and Consumer Interactive. We aggregate our USIS and Healthcare operating segments into the USIS reportable segment. We manage our business and report our financial results in
three
reportable segments: U.S. Information Services (“USIS”); International; and Consumer Interactive. We also report expenses for Corporate, which provides support services to each segment. Details of our segment results are discussed in Note 16, “Reportable Segments.”
Revenue Recognition and Deferred Revenue
Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the pricing is fixed or determinable and the collectability is reasonably assured.
A significant portion of our revenue is derived from providing information services to our customers. This revenue is recognized when services are provided, assuming all criteria for revenue recognition are met. A smaller portion of our revenue relates to subscription-based contracts where a customer pays a predetermined fee for a predetermined, or unlimited, number of transactions or services during the subscription period. Revenue related to subscription-based contracts that have a preset number of transactions is recognized as the services are provided, using an effective transaction rate as the actual transactions are completed. Any remaining revenue related to unfulfilled units is not recognized until the end of the related contract subscription period. Revenue related to subscription-based contracts that have an unlimited volume is recognized straight-line over the contract term.
Deferred revenue generally consists of amounts billed in excess of revenue recognized for the sale of data services, subscriptions and set up fees. Deferred revenue is included in other current liabilities.
Costs 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 Expenses
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. Advertising costs are expensed as incurred. Advertising costs for the years ended December 31,
2017
,
2016
and
2015
were
$46.0 million
,
$50.8 million
and
$43.1 million
, respectively.
Stock-Based Compensation
Compensation expense for all stock-based compensation awards is determined using the grant date fair value and includes an estimate for expected forfeitures. Expense is recognized on a straight-line basis over the requisite service period of the award, which is generally equal to the vesting period. The details of our stock-based compensation program are discussed in Note 14, “Stock-Based Compensation.”
Income Taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of temporary differences between the financial statement and tax basis of assets and liabilities, as measured by current enacted tax rates. The effect of a tax rate change on deferred tax assets and liabilities is recognized in operations in the period that includes the enactment date of the change. We periodically assess the recoverability of our deferred tax assets, and a valuation allowance is recorded against deferred tax assets if it is more likely than not that some portion of the deferred tax assets will not be realized. See Note 13, “Income Taxes,” for additional information.
Foreign Currency Translation
The functional currency for each of our foreign subsidiaries is generally that subsidiary’s local currency. We translate the assets and liabilities of foreign subsidiaries at the year-end exchange rate, and translate revenues and expenses at the monthly average rates during the year. We record the resulting translation adjustment as a component of other comprehensive income in stockholders’ equity.
Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency of an entity are included in the results of operations as incurred. The exchange rate gains for the years ended December 31, 2017 and 2016 were
$2.2 million
and
$0.3 million
, respectively. The exchange rate loss for the year ended December 31, 2015, was
$3.6 million
.
Cash and Cash Equivalents
We consider investments in highly liquid debt instruments with original maturities of three months or less to be cash equivalents.
Trade Accounts Receivable
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is based on our historical write-off experience, analysis of the aging of outstanding receivables, customer payment patterns and the establishment of specific reserves for customers in adverse financial condition or for existing contractual disputes. Adjustments to the allowance are recorded as a bad debt expense in selling, general and administrative expenses. Trade accounts receivable are written off against the allowance when we determine that they are no longer collectible. We reassess the adequacy of the allowance for doubtful accounts each reporting period.
Long-Lived Assets
Property, Plant, Equipment and Intangibles
Property, plant and equipment is depreciated primarily using the straight-line method over the estimated useful lives of the assets. Buildings and building improvements are generally depreciated over
twenty years
. Computer equipment and purchased software are depreciated over
three
to
seven years
. Leasehold improvements are depreciated over the shorter of the estimated useful life of the asset or the lease term. Other assets are depreciated over
five
to
seven years
. Intangibles, other than indefinite-lived intangibles, are amortized using the straight-line method over their economic life, generally
three
to
forty years
. Assets to be disposed of, if any, are separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value, less costs to sell, and are no longer depreciated. See Note 3, “Property, Plant and Equipment,” and Note 5, “Intangible Assets,” for additional information about these assets.
Internal Use Software
We monitor the activities of each of our internal use software and system development projects and analyze the associated costs, making an appropriate distinction between costs to be expensed and costs to be capitalized. Costs incurred during the preliminary project stage are expensed as incurred. Many of the costs incurred during the application development stage are capitalized, including costs of software design and configuration, development of interfaces, coding, testing and installation of the software. Once the software is ready for its intended use, it is amortized on a straight-line basis over its useful life, generally
three
to
seven years
.
As our business continues to evolve, and in connection with the completion of our strategic initiative to transform our technology infrastructure, we reviewed the remaining estimated useful lives for all of our internally developed software assets during the fourth quarter of 2016. This review indicated that the estimated useful lives of certain assets were longer than the estimates initially used for amortization purposes. As a result, in the fourth quarter of 2016, we changed the estimated useful lives for a portion of these assets to better align with their estimated remaining economic useful lives. Subsequent to the completion of our review, we continue to amortize our internal use software assets on a straight-line basis over their estimated useful lives, generally
three
to
seven years
.
Impairment of Long-Lived Assets
We review long-lived asset groups that are subject to amortization for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. Recoverability of asset groups to be held and used is measured by a comparison of the carrying amount of an asset group to the estimated undiscounted future cash flows expected to be generated by the asset group. If the carrying amount of an asset group exceeds its estimated future cash flows, an impairment charge is recognized equal to the amount by which the carrying amount of the asset group exceeds the fair value of the asset group. There were
no
significant impairment charges recorded during 2017,
2016
and
2015
.
Marketable Securities
We classify our investments in debt and equity securities in accordance with our intent and ability to hold the investments. Held-to-maturity securities are carried at amortized cost, which approximates fair value, and are classified as either short-term or long-term investments based on the contractual maturity date. Earnings from these securities are reported as a component of interest income. Available-for-sale securities are carried at fair market value, with the unrealized gains and losses, net of tax, included in accumulated other comprehensive income. Trading securities are carried at fair value, with unrealized gains and losses included in income.
At December 31,
2017
and
2016
, the Company’s marketable securities consisted of trading securities and available-for-sale securities. The trading securities relate to a nonqualified deferred compensation plan held in trust for the benefit of plan participants. The available-for-sale securities relate to foreign exchange-traded corporate bonds. There were no significant realized or unrealized gains or losses for these securities for any of the periods presented. We follow fair value guidance to measure the fair value of our financial assets as further described in Note 15, “Fair Value”.
We periodically review our marketable securities to determine if there is an other-than-temporary impairment on any security. If it is determined that an other-than-temporary decline in value exists, we write down the investment to its market value and record the related impairment loss in other income. There were
no
other-than-temporary impairments of marketable securities in
2017
,
2016
or
2015
.
Goodwill and Other Indefinite-Lived Intangibles
Goodwill and any indefinite-lived intangible assets are allocated to the reporting units, which are an operating segment or one level below an operating segment, that will receive the related sales and income. We test goodwill and indefinite-lived intangible assets for impairment on an annual basis, in the fourth quarter, or on an interim basis if there is an indicator of impairment. We have the option to first consider qualitative factors to determine if it is more likely than not that the fair value of any reporting units is less than its carrying amount. If the qualitative assessment indicates that an impairment is more likely than not for any reporting unit, then we are required to perform a quantitative impairment test for that reporting unit.
For our qualitative goodwill impairment tests, we analyze actual and projected reporting unit growth trends for revenue and profits, as well as historical performance versus plans and prior quantitative tests performed. We also assess critical areas that may impact each reporting unit, including macroeconomic conditions and the expected related impacts, market-related exposures, cost factors, changes in the carrying amount of its net assets, any plans to dispose of all or part of the reporting unit, and other reporting-unit specific factors such as changes in key personnel, strategy, customers or competition.
For our quantitative goodwill impairment tests, we use discounted cash flow techniques to determine fair value, and compare the fair value of the reporting unit to its carrying amount to determine if there is a potential impairment. Beginning in the fourth quarter
of 2017, upon the adoption of ASU 2017-04, if a reporting unit’s fair value is less than its carrying amount, we will record an impairment charge based on that difference, up to the amount of goodwill allocated to that reporting unit.
For other indefinite-lived intangibles, if any, we use discounted cash flow techniques to determine fair value, and compare the fair value of the asset to its carrying amount to determine if there is an impairment. If the fair value of the asset is less than its carrying amount, we will record an impairment loss.
We believe the assumptions we use in our qualitative and quantitative analysis are reasonable and consistent with assumptions that would be used by other marketplace participants. Such assumptions are, however, inherently uncertain, and different assumptions could lead to a different assessment for a reporting unit that could adversely affect our results of operations.
See Note 4, “Goodwill,” for additional information about our 2017 impairment analysis.
Benefit Plans
We maintain a 401(k) defined-contribution profit sharing plan for eligible employees. We provide a partial matching contribution and a discretionary contribution based on a fixed percentage of a participant’s eligible compensation. Contributions to this plan for the years ended December 31,
2017
,
2016
and
2015
were
$22.0 million
,
$19.1 million
and
$17.0 million
, respectively. We also maintain a nonqualified deferred compensation plan for certain key employees. The deferred compensation plan contains both employee deferred compensation and company contributions. These investments are held in the TransUnion Rabbi Trust, and are included in marketable securities in the consolidated balance sheets. The assets held in the Rabbi Trust are for the benefit of the participants in the deferred compensation plan, but are available to our general creditors in the case of our insolvency. The liability for amounts due to these participants is included in other current liabilities and other liabilities in the consolidated balance sheets.
Recently Adopted Accounting Pronouncements
On January 26, 2017, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2017-04,
Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
This ASU eliminates the requirement to calculate the implied fair value of goodwill if there is an indication of impairment. Under existing guidance, if the fair value of a reporting units is lower than its carrying amount (Step 1), an entity calculates an impairment charge by comparing the implied fair value of goodwill with its carrying amount (Step 2). Under the new guidance, if a reporting unit’s carrying amount exceeds its fair value, an entity will record an impairment charge based on that difference, up to the amount of goodwill allocated to that reporting unit. The new standard eliminates the need to calculate a goodwill impairment charge using Step 2 as described above. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The standard is effective for annual and interim impairment tests performed in periods beginning after December 15, 2019, with early adoption permitted for annual and interim impairment tests performed after January 1, 2017. We have elected to early adopt this guidance beginning with our goodwill impairment tests performed during 2017. This guidance had no impact on our consolidated financial statements.
On March 30, 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.
This ASU simplifies several aspects of the accounting for share-based payment award transactions, including income tax consequences, classification of awards, and classification on the statement of cash flows. This guidance is effective for annual reporting periods beginning after December 15, 2016, including interim periods therein. The provisions in the new guidance related to income taxes that impacted us were adopted prospectively. As a result of this guidance, beginning January 1, 2017, we record excess tax benefits as a reduction to income tax expense and reflect excess tax benefits as operating cash flows. Depending on the exercise pattern of our remaining outstanding options, and the value of our stock on the exercise dates of our stock options and vest dates of our restricted stock units relative to the corresponding fair value of those awards on their grant dates, there could be a material impact on our future income tax expense. See Note 14, “Stock-Based Compensation,” for further information about the number and weighted-average grant-date fair values of our outstanding stock awards.
Recent Accounting Pronouncements Not Yet Adopted
On May 28, 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606)
. During 2016, the FASB issued several additional ASU’s related to revenue recognition. This series of comprehensive guidance will replace 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 have adopted this standard as of January 1, 2018, and will use the modified retrospective approach applied to those contracts that were not completed as of that date. Upon adoption, under the modified retrospective approach, the cumulative effect of adopting Topic 606, which is not material, will be recognized in the opening balance of retained earnings. There will not be a material impact on our consolidated financial statements or on how we recognize revenue. Our financial statements will include enhanced disclosures, particularly around the disaggregation of revenue and contract assets and liabilities. We have implemented new internal processes and controls that will enable us to comply with the requirements of the new standard.
On January 5, 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.
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. We will avail ourselves of this election for any qualifying equity investments that do not have readily determinable fair values. This guidance is effective for fiscal years beginning after December 15, 2017, and interim periods therein. This guidance did not have an impact on our consolidated financial statement upon adoption January 1, 2018, but could impact the future carrying value of our costs method investments. See Note 7, “Investment in Affiliated Companies” for additional information about our costs method investments.
On February 25, 2016, the FASB issued ASU 2016-02,
Leases (Topic 842)
. This ASU, among other things, will require lessee’s to record a lease liability, which is an obligation to make lease payments arising from a lease, and right-of-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 currently assessing the impact this guidance will have on our consolidated financial statements.
On June 16, 2016, the FASB issued ASU 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 period therein. We are currently assessing the impact this guidance will have on our consolidated financial statements.
On August 26, 2016 the FASB issued ASU 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. This guidance is effective for annual reporting periods beginning after December 15, 2017, including interim period therein. This guidance will not have a material impact on our consolidated statements of cash flows.
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.
2. Other Current Assets
Other current assets consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Prepaid expenses
|
$
|
59.0
|
|
|
$
|
43.9
|
|
Income taxes receivable
|
23.7
|
|
|
5.4
|
|
Other investments
|
18.3
|
|
|
29.5
|
|
Other receivables
|
16.5
|
|
|
0.1
|
|
CFPB escrow deposit
|
13.9
|
|
|
—
|
|
Marketable securities
|
3.3
|
|
|
3.3
|
|
Deferred financing fees
|
0.6
|
|
|
0.5
|
|
Other
|
10.9
|
|
|
7.2
|
|
Total other current assets
|
$
|
146.2
|
|
|
$
|
89.9
|
|
The increase in income taxes receivable is due primarily to estimated tax payments in excess of actual taxes due. Other investments include non-negotiable certificates of deposit that are recorded at their carrying value. Other receivables consist of amounts receivable from settlements of certain legal claims.
3. Property, Plant and Equipment
Property, plant and equipment, including those acquired by capital lease, consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Computer equipment and furniture
|
$
|
276.1
|
|
|
$
|
226.9
|
|
Purchased software
|
119.4
|
|
|
105.5
|
|
Building and building improvements
|
99.2
|
|
|
97.5
|
|
Land
|
3.2
|
|
|
3.2
|
|
Total cost of property, plant and equipment
|
497.9
|
|
|
433.1
|
|
Less: accumulated depreciation
|
(299.3
|
)
|
|
(235.6
|
)
|
Total property, plant and equipment, net of accumulated depreciation
|
$
|
198.6
|
|
|
$
|
197.5
|
|
Depreciation expense, including depreciation of assets recorded under capital leases, for the years ended December 31,
2017
,
2016
and
2015
, was
$67.9 million
,
$67.7 million
and
$60.3 million
, respectively.
4. Goodwill
Goodwill is tested for impairment at the reporting unit level on an annual basis, in the fourth quarter, or on an interim basis if changes in circumstances could reduce the fair value of a reporting unit below its carrying value. Our reporting units consist of USIS and Healthcare within the U.S. Information Services (“USIS”) reportable segment, Consumer Interactive, and the geographic regions of Africa, Canada, Latin America and Asia-Pacific within our International reportable segment.
For
2017
, we performed the qualitative test for each of our reporting units and the results of our tests indicated that it was not more likely than not that the goodwill in any reporting unit was impaired, with the exception of Africa. For Africa, we also performed the quantitative test and determined that no impairment existed. Further, a
10%
decrease in the estimated cash flows or a
10%
increase in the discount rate would not result in a material impairment. The goodwill impairment tests we performed during
2016
and
2015
also resulted in
no
impairment. At December 31,
2017
, there was
no
accumulated goodwill impairment loss.
Goodwill allocated to our segments as of December 31,
2017
,
2016
and
2015
, and the changes in the carrying amount of goodwill during those periods, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
USIS
|
|
International
|
|
Consumer
Interactive
|
|
Total
|
Balance, December 31, 2015
|
$
|
1,210.1
|
|
|
$
|
532.1
|
|
|
$
|
241.2
|
|
|
$
|
1,983.4
|
|
Purchase accounting adjustments
|
4.0
|
|
|
—
|
|
|
—
|
|
|
4.0
|
|
Acquisitions
|
31.6
|
|
|
131.6
|
|
|
—
|
|
|
163.2
|
|
Foreign exchange rate adjustment
|
—
|
|
|
23.3
|
|
|
—
|
|
|
23.3
|
|
Balance, December 31, 2016
|
$
|
1,245.7
|
|
|
$
|
687.0
|
|
|
$
|
241.2
|
|
|
$
|
2,173.9
|
|
Purchase accounting adjustments
|
14.2
|
|
|
—
|
|
|
—
|
|
|
14.2
|
|
Acquisitions
|
161.4
|
|
|
—
|
|
|
—
|
|
|
161.4
|
|
Foreign exchange rate adjustment
|
—
|
|
|
19.3
|
|
|
—
|
|
|
19.3
|
|
Balance, December 31, 2017
|
$
|
1,421.3
|
|
|
$
|
706.3
|
|
|
$
|
241.2
|
|
|
$
|
2,368.8
|
|
5. Intangible Assets
Intangible assets are initially recorded at their acquisition cost, or fair value if acquired as part of a business combination, and amortized over their estimated useful lives. Increases to the gross amount of intangible assets during
2017
included expenditures to develop internal use software, a
$149.7 million
increase due primarily to our 2017 business acquisitions of Datalink Services, Inc., xTech Holdings, Inc. and FT Holdings, Inc., and increases due to the impact of foreign exchange rate adjustments.
Intangible assets consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
December 31, 2016
|
(in millions)
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
Database and credit files
|
$
|
854.8
|
|
|
$
|
(302.0
|
)
|
|
$
|
552.8
|
|
|
$
|
844.4
|
|
|
$
|
(242.7
|
)
|
|
$
|
601.7
|
|
Internal use software
|
946.2
|
|
|
(489.4
|
)
|
|
456.8
|
|
|
739.0
|
|
|
(412.7
|
)
|
|
326.3
|
|
Customer relationships
|
439.5
|
|
|
(114.4
|
)
|
|
325.1
|
|
|
415.7
|
|
|
(89.3
|
)
|
|
326.4
|
|
Trademarks, copyrights and patents
|
572.1
|
|
|
(84.2
|
)
|
|
487.9
|
|
|
573.3
|
|
|
(69.2
|
)
|
|
504.1
|
|
Noncompete and other agreements
|
6.8
|
|
|
(3.6
|
)
|
|
3.2
|
|
|
5.7
|
|
|
(1.9
|
)
|
|
3.8
|
|
Total intangible assets
|
$
|
2,819.4
|
|
|
$
|
(993.6
|
)
|
|
$
|
1,825.8
|
|
|
$
|
2,578.1
|
|
|
$
|
(815.8
|
)
|
|
$
|
1,762.3
|
|
All amortizable intangibles are amortized on a straight-line basis over their estimated useful lives. Database and credit files are generally amortized over a
twelve
to
fifteen
year period. Internal use software is generally amortized over
three
to
seven
year period. Customer relationships are amortized over a
ten
to
twenty
year period. Trademarks are generally amortized over a
forty
year period. Copyrights, patents, noncompete and other agreements are amortized over varying periods based on their estimated economic life. The weighted average lives of our intangibles is approximately
sixteen
years.
Amortization expense related to intangible assets for the years ended December 31,
2017
,
2016
and
2015
, was
$170.1 million
,
$197.5 million
and
$218.1 million
, respectively. Estimated future amortization expense related to intangible assets at December 31,
2017
, is as follows:
|
|
|
|
|
(in millions)
|
Annual
Amortization
Expense
|
2018
|
$
|
192.5
|
|
2019
|
174.5
|
|
2020
|
155.3
|
|
2021
|
141.1
|
|
2022
|
132.3
|
|
Thereafter
|
1,030.1
|
|
Total future amortization expense
|
$
|
1,825.8
|
|
6. Other Assets
Other assets consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Investments in affiliated companies
|
$
|
79.2
|
|
|
$
|
62.6
|
|
Deposits
|
14.6
|
|
|
9.3
|
|
Other investments
|
13.5
|
|
|
9.5
|
|
Marketable securities
|
12.7
|
|
|
12.4
|
|
Interest rate caps
|
9.4
|
|
|
—
|
|
Deferred financing fees
|
2.0
|
|
|
1.2
|
|
Other
|
5.2
|
|
|
2.5
|
|
Total other assets
|
$
|
136.6
|
|
|
$
|
97.5
|
|
Other investments include non-negotiable certificates of deposit that are recorded at their carrying value. See Note 7, “Investments in Affiliated Companies,” for additional information about investment in affiliated companies. See Note 9, “Other Liabilities” and Note 10, “Debt,” for additional information about the interest rate caps.
7. 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 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, as well as for purchases and sales of our ownership interest.
We use the cost method to account for nonmarketable investments in affiliates where we are not able to exercise significant influence. For these investments, we adjust the carrying value for purchases and sales of our ownership interests.
For all investments, we adjust the carrying value if we determine that an other-than-temporary impairment has occurred. During
2016
, we incurred losses of
$2.0 million
on cost method investments recorded in our USIS segment. The losses were included in other income and expense in the consolidated statements of income. We had
no
impairments of investments in affiliated companies during 2017 and 2015.
Investments in affiliated companies consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Total equity method investments
|
$
|
42.8
|
|
|
$
|
39.4
|
|
Total cost method investments
|
36.4
|
|
|
23.2
|
|
Total investments in affiliated companies
|
$
|
79.2
|
|
|
$
|
62.6
|
|
These balances are included in other assets in the consolidated balance sheets. The increase in cost method investments is due to
two
acquisitions made in our USIS segment.
Earnings from equity method investments, which are included in other non-operating income and expense, and dividends received from equity method investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Earnings from equity method investments
|
|
$
|
9.1
|
|
|
$
|
8.6
|
|
|
$
|
8.8
|
|
Dividends received from equity method investments
|
|
$
|
7.4
|
|
|
$
|
8.0
|
|
|
$
|
8.7
|
|
Dividends received from cost method investments were
$1.0 million
,
$0.9 million
and
$0.8 million
in
2017
,
2016
and
2015
, respectively. Dividends received from cost method investments are included in other income and expense.
8. Other Current Liabilities
Other current liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Accrued payroll
|
$
|
84.6
|
|
|
$
|
79.3
|
|
Accrued legal and regulatory
|
46.3
|
|
|
35.9
|
|
Accrued employee benefits
|
34.1
|
|
|
31.8
|
|
Deferred revenue
|
13.2
|
|
|
12.0
|
|
Income taxes payable
|
8.5
|
|
|
11.5
|
|
Accrued interest
|
1.5
|
|
|
1.3
|
|
Contingent consideration
|
1.1
|
|
|
16.1
|
|
Other
|
18.5
|
|
|
20.8
|
|
Total other current liabilities
|
$
|
207.8
|
|
|
$
|
208.7
|
|
Contingent consideration decreased
$15.0 million
primarily due to payments made under various contingent consideration clauses of contracts we have entered into to acquire businesses. See Note 15, “Fair Value,” for additional information related to these contingent consideration obligations.
9. Other Liabilities
Other liabilities consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Income tax payable
|
$
|
25.6
|
|
|
$
|
—
|
|
Unrecognized tax benefits
|
12.3
|
|
|
4.8
|
|
Retirement benefits
|
12.2
|
|
|
10.9
|
|
Purchase consideration payable
|
12.2
|
|
|
—
|
|
Interest rate caps
|
—
|
|
|
6.1
|
|
Contingent consideration
|
—
|
|
|
1.5
|
|
Other
|
8.5
|
|
|
7.4
|
|
Total other liabilities
|
$
|
70.8
|
|
|
$
|
30.7
|
|
The increase in income taxes payable is due to the long-term portion of the deemed mandatory repatriation tax due as discussed in Note 13, “Income Tax.” The increase in unrecognized tax benefits is primarily due to an increase in reserves for foreign tax credits and certain tax credits claimed. Purchase consideration payable represents a hold back of purchase consideration for two business acquisitions made in 2017. See Note 6, “Other Assets” and Note 10, “Debt,” for additional information about the interest rate caps.
10. Debt
Debt outstanding consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Senior Secured Term Loan B, payable in quarterly installments through April 9, 2023, and periodic variable interest at LIBOR or alternate base rate, plus applicable margin (3.57% at December 31, 2017 and 3.52% at December 31, 2016), including original issue discount and deferred financing fees of $6.2 million and $3.7 million, respectively, at December 31, 2017, and original issue discount and deferred financing fees of $7.6 million and $4.4 million, respectively, at December 31, 2016
|
$
|
1,971.5
|
|
|
$
|
1,984.6
|
|
Senior Secured Term Loan A, payable in quarterly installments through August 9, 2022, and periodic variable interest at LIBOR or alternate base rate, plus applicable margin (3.07% at December 31, 2017 and 2.77% at December 31, 2016), including original issue discount and deferred financing fees of $1.4 million and $0.3 million, respectively, at December 31, 2017, and original issue discount and deferred financing fees of $0.7 million and $0.2 million, respectively, at December 31, 2016
|
395.8
|
|
|
375.7
|
|
Senior Secured Revolving Line of Credit
|
85.0
|
|
|
—
|
|
Other notes payable
|
11.0
|
|
|
14.2
|
|
Capital lease obligations
|
1.3
|
|
|
1.1
|
|
Total debt
|
2,464.6
|
|
|
2,375.6
|
|
Less short-term debt and current portion of long-term debt
|
(119.3
|
)
|
|
(50.4
|
)
|
Total long-term debt
|
$
|
2,345.3
|
|
|
$
|
2,325.2
|
|
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
December 31, 2017
, were as follows:
|
|
|
|
|
|
(in millions)
|
|
December 31,
2017
|
2018
|
|
$
|
119.3
|
|
2019
|
|
36.7
|
|
2020
|
|
43.3
|
|
2021
|
|
39.9
|
|
2022
|
|
354.9
|
|
Thereafter
|
|
1,882.1
|
|
Unamortized original issue discounts and deferred financing fees
|
|
(11.6
|
)
|
Total debt
|
|
$
|
2,464.6
|
|
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, the Senior Secured Term Loan B and the senior secured revolving line of credit.
On August 9, 2017, we refinanced and amended certain provisions of our senior secured credit facility. Amendments to the Senior Secured Term Loan B included a
0.50%
reduction in the applicable margin. Amendments to the Senior Secured Term Loan A included an extension of the maturity date from June 2020 to August 2022, a reduction in the applicable margin depending on our total net leverage ratio, an increase in borrowing to
$400.0 million
, and a reduction in the scheduled principal repayments. Amendments to the Senior Secured Revolving Line of Credit included an extension of the maturity date from June 2020 to August 2022, a reduction in the applicable margin depending on our total net leverage ratio, a reduction in the annual commitment fee on the unused borrowings, and an increase in the commitment amount to
$300.0 million
. Other key provisions include changes in incremental borrowing limits and a reduction in the financial covenant test not to exceed a senior secured net leverage ratio of
5.5
-to-1. On January 31, 2017, we refinanced and amended certain provisions of our Senior Secured Term Loan B. These refinancings resulted in
$10.5 million
of refinancing fees and other net costs expensed and recorded in other income and expense in the consolidated statements of income in 2017.
On July 15, 2015, w
e used t
he net proceeds from our IPO, along with
$350.0 million
of borrowings from the Senior Secured Term Loan A, to redeem all of our then outstanding
9.625%
and
8.125%
Senior Notes, including a prepayment premium, accrued interest
and certain transaction costs. Collectively the refinance and redemptions resulted in
$37.6 million
of expenses recorded in other income and expense in the consolidated statements of income in 2015.
Interest rates on the Senior Secured Term Loan B are based on the London Interbank Offered Rate (“LIBOR”), unless otherwise elected, plus a margin of
2.00%
. The Company is required to make principal payments at the end of each quarter of
0.25%
of the 2017 refinanced principal balance plus additional borrowings with the remaining balance due April 9, 2023. The Company is also required to make additional payments based on excess cash flows, as defined in the agreement, of the prior year. Depending on the senior secured net leverage ratio for the year, a principal payment of between
zero
and
fifty percent
of the excess cash flows will be due the following year. There were
no
excess cash flows for 2017 and therefore
no
payment is required in 2018.
Interest rates on Senior Secured Term Loan A are based on
LIBOR
, unless otherwise elected, plus a margin of
1.25%
,
1.50%
or
1.75%
depending on our total net leverage ratio. The Company is required to make principal payments of
0.625%
of the 2017 refinanced principal balance plus additional borrowings at the end of each quarter through September 2019, increasing to
1.25%
each quarter thereafter, with the remaining balance due August 9, 2022.
Interest rates on the Senior Secured Revolving Line of Credit are based on
LIBOR
, unless otherwise elected, plus a margin of
1.25%
,
1.50%
or
1.75%
depending on our total net leverage ratio. There is a
0.20%
,
0.25%
or
0.30%
annual commitment fee, depending on our total net leverage ratio, payable quarterly based on the undrawn portion of the Senior Secured Revolving Line of Credit. The commitment under the Senior Secured Revolving Line of Credit expires on August 9, 2022.
During 2017, we borrowed
$215.0 million
under the Senior Secured Revolving Line of Credit to partially fund various acquisitions and the repurchase of our common stock. See Note 11, “Stockholders’ Equity” for additional information regarding the common stock repurchase. During the year, we repaid
$130.0 million
of the borrowing on the Senior Secured Revolving Line of Credit. As of
December 31, 2017
, we had
$85.0 million
outstanding under the Senior Secured Revolving Line of Credit and could have borrowed up to the additional
$215.0 million
available.
TransUnion also has the ability to request incremental loans up to the greater of an additional
$675.0 million
and
100%
of Consolidated EBITDA on the same terms under the existing senior secured credit facility, and may incur additional incremental loans so long as the senior secured net leverage ratio does not exceed
4.25
-to-1.0, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings.
On March 31, 2016, we borrowed an additional
$150.0 million
of our Senior Secured Term Loan B, on the same terms as the original Senior Secured Term Loan B, to pay off the balance on our Senior Secured Revolving Line of Credit that we had drawn on in February 2016 to fund the acquisition of CIFIN and for general corporate purposes. On May 31, 2016, we borrowed an additional
$55.0 million
of our Senior Secured Term Loan A, on the same terms as the original Senior Secured Term Loan A, to fund an additional investment in CIFIN and for general corporate purposes.
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 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 net leverage ratio must not exceed
5.5
-to-1 at any such test date. As of
December 31, 2017
, 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
$1,483.5 million
and will continue to 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
$6.2 million
, an unrealized loss of
$7.5 million
, and an unrealized gain of
$0.3 million
, net of tax, for the years ended
December 31, 2017
, 2016 and 2015, respectively, recorded in other comprehensive income. The ineffective portion of the change in the fair value of the caps resulted in a loss of
$0.3 million
and
$0.5 million
, and a gain of
$0.1 million
for the years ended December 31, 2017, 2016 and 2015, respectively, recorded in other income and expense.
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 expense reclassified from other comprehensive income to interest expense related to the fair value of the portion of the caps expiring in the twelve-month period of 2017 and 2016 was
$4.3 million
(
$2.8 million
net of tax) and
$1.6 million
(
$1.0 million
net of tax), respectively. We expect to reclassify approximately
$0.7 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
December 31, 2017
, the fair value of our variable-rate Senior Secured Term Loan A and Senior Secured Revolving Line of Credit, excluding original issue discounts and deferred fees, approximates the carrying value. As of
December 31, 2017
, the fair value of our Senior Secured Term Loan B, excluding original issue discounts and deferred fees, was approximately
$1,993.8 million
. The fair values of our variable-rate term loans are determined using Level 2 inputs, quoted market prices for these publicly traded instruments.
11. Stockholders’ Equity
Stock Split
During 2015, we effected a
1.333
to 1 stock split of our common stock. All periods presented in these financial statements reflect this split. The impact of the split resulted in a reclassification of the beginning balance of additional paid-in capital to common stock to reflect the increase in par value.
Treasury Stock
On February 13, 2017, our board of directors authorized the repurchase of up to
$300.0 million
of our common stock over the next
three
years. Our board of directors removed the three-year time limitation on February 8, 2018. On February 22, 2017, the Company purchased
1.85 million
shares of common stock for a total of
$68.3 million
from the underwriters of a secondary offering of shares of our common stock by certain of our stockholders. On May 2, 2017, the Company purchased an additional
1.65 million
shares of common stock for a total of
$65.2 million
from the underwriters of a secondary offering of shares of our common stock by certain of our stockholders.
Preferred Stock
As of
December 31, 2017
and
2016
, we had
100.0 million
shares of preferred stock authorized and
no
preferred stock issued or outstanding.
Redeemable Non-controlling Interest
During the first quarter of 2016, redeemable noncontrolling interest increased
$59.5 million
, due to our purchase of CIFIN and our exercise of our call rights on the Drivers History Information Sales, LLC (“DHI”) noncontrolling interest. During the second quarter of 2016, we redeemed all of our redeemable noncontrolling interest in CIFIN and DHI, resulting in
no
redeemable noncontrolling interest at December 31, 2017 and 2016.
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.
As of
December 31, 2017
, there were
0.1 million
anti-dilutive stock-based awards outstanding. In addition, there were
no
contingently issuable market-based stock awards outstanding that were excluded from the diluted earnings per share calculation because the contingencies had not been met. As of
December 31, 2016
, there were
0.1 million
anti-dilutive stock-based awards outstanding. In addition, there were
5.9 million
contingently issuable market-based stock awards outstanding that were excluded from the diluted earnings per share calculation because the contingencies had not been met. As of
December 31, 2015
, there were less than
0.1 million
anti-dilutive stock-based awards outstanding. In addition, there were
6.1 million
contingently issuable market-based stock awards outstanding that were excluded from the diluted earnings per share calculations because the contingencies had not been met.
Basic and diluted weighted average shares outstanding and earnings per share were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
Earnings per share - basic
|
|
|
|
|
|
|
Earnings available to common stockholders
|
|
$
|
441.2
|
|
|
$
|
120.6
|
|
|
$
|
5.9
|
|
Weighted average shares outstanding
|
|
182.4
|
|
|
182.6
|
|
|
165.3
|
|
Earnings per share - basic
|
|
$
|
2.42
|
|
|
$
|
0.66
|
|
|
$
|
0.04
|
|
|
|
|
|
|
|
|
Earnings per share - diluted
|
|
|
|
|
|
|
Earnings available to common stockholders
|
|
$
|
441.2
|
|
|
$
|
120.6
|
|
|
$
|
5.9
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
182.4
|
|
|
182.6
|
|
|
165.3
|
|
Dilutive impact of stock based awards
|
|
7.4
|
|
|
2.0
|
|
|
1.5
|
|
Weighted average dilutive shares outstanding
|
|
189.9
|
|
|
184.6
|
|
|
166.8
|
|
Earnings per share - diluted
|
|
$
|
2.32
|
|
|
$
|
0.65
|
|
|
$
|
0.04
|
|
13. Income Taxes
In accounting for the impacts of the Tax Cuts and Jobs Act (the “Act”), we followed the SEC guidance in Staff Accounting Bulletin (“SAB”) 118 issued in late December 2017. The SEC recognizes that companies may not have completed their accounting for the income tax effects of the Act in the period of enactment, and prescribes guidance to perform the accounting during a one-year measurement period and related disclosures. Specifically, SAB 118 prescribes guidance for reporting the income tax effects of the Act in the period of the enactment by classifying items into one of three separate categories: those for which the accounting is complete, those for which the accounting is incomplete but the company has a reasonable estimate, and those for which the accounting is incomplete and the company does not have a reasonable estimate.
Included in our 2017 tax provision was a
$175.3 million
net benefit to income tax expense for the effects of the Act. At December 31, 2017, we had not completed the accounting for the tax effects for certain aspects of the Act. However, we were able to calculate or make reasonable estimates of the effects on the existing deferred tax balances and the impact of the one-time transition tax, including the following:
|
|
•
|
The U.S. federal corporate tax rate reduction from
35%
to
21%
: We revalued all relevant domestic deferred tax assets and liabilities at the new
21%
rate, including related state amounts. We recorded a
$182.9 million
net deferred income tax benefit for this item. We also made a reasonable estimate of all the differences between the financial statement basis and tax basis in domestic assets and liabilities originating in 2017 and recorded a
$4.3 million
estimated deferred income tax expense for these items. This estimate is subject to change over the measurement period, as we perform additional analysis on them in connection with filing our 2017 tax returns.
|
|
|
•
|
The federal and state impacts of the one-time deemed mandatory repatriation tax: We recorded a
$33.5 million
estimated current income tax expense for this item. This estimate is subject to change over the measurement period, as the federal and state tax authorities issue clarifying guidance on this provision and as we finalize our estimates and documentation necessary for the calculations. Specifically, we need to further gather, verify and document the underlying earnings and profits, foreign taxes and other data required for all relevant historical years.
|
|
|
•
|
Our assertion for unremitted earnings and other outside basis differences in foreign subsidiaries taxed under the one-time deemed mandatory repatriation tax provision: Since all of these earnings have now been taxed under the Act, there is no longer a need for any federal and state reserves on unremitted earnings of certain foreign subsidiaries. As such, we released the reserves and recorded a
$31.5 million
estimated net deferred income tax benefit for this item. This estimate is also subject to change over the measurement period, as we finalize the impact of the Act on the outside basis differences in certain foreign subsidiaries.
|
We have not completed our analysis, nor could we establish a reasonable estimate to record a federal and state Global Intangible Low Taxed Income (“GILTI”) provision in 2017. Further, the FASB has indicated it will issue guidance clarifying an accounting policy election for the treatment of GILTI in 2018. Accordingly, we have not made an election. During 2018, we will consider any clarifying guidance from the FASB and taxing authorities and complete our analysis.
During 2018, we will continue to analyze other aspects of the Act, which we currently believe will not have a material impact, and will consider any clarifying guidance from the FASB and taxing authorities relative to all aspects of the Act. We will complete our analysis in 2018.
The provision (benefit) for income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
Federal
|
|
|
|
|
|
Current
|
$
|
82.3
|
|
|
$
|
53.9
|
|
|
$
|
3.8
|
|
Deferred
|
(221.8
|
)
|
|
(21.3
|
)
|
|
(8.2
|
)
|
State
|
|
|
|
|
|
Current
|
8.4
|
|
|
6.9
|
|
|
(0.3
|
)
|
Deferred
|
9.9
|
|
|
10.6
|
|
|
(5.5
|
)
|
Foreign
|
|
|
|
|
|
Current
|
43.0
|
|
|
35.4
|
|
|
25.1
|
|
Deferred
|
(0.9
|
)
|
|
(11.5
|
)
|
|
(3.6
|
)
|
Total (benefit) provision for income taxes
|
$
|
(79.1
|
)
|
|
$
|
74.0
|
|
|
$
|
11.3
|
|
The components of income before income taxes consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
Domestic
|
$
|
265.7
|
|
|
$
|
128.0
|
|
|
$
|
(30.5
|
)
|
Foreign
|
106.8
|
|
|
77.4
|
|
|
57.1
|
|
Income before income taxes
|
$
|
372.5
|
|
|
$
|
205.4
|
|
|
$
|
26.6
|
|
The effective income tax rate reconciliation consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
Income taxes at 35% statutory rate
|
$
|
130.4
|
|
|
35.0
|
%
|
|
$
|
71.9
|
|
|
35.0
|
%
|
|
$
|
9.3
|
|
|
35.0
|
%
|
Increase (decrease) resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
State taxes, net of federal benefit
|
5.6
|
|
|
1.5
|
%
|
|
15.4
|
|
|
7.5
|
%
|
|
(5.8
|
)
|
|
(21.8
|
)%
|
Foreign rate differential
|
(5.3
|
)
|
|
(1.4
|
)%
|
|
(1.8
|
)
|
|
(0.9
|
)%
|
|
(2.6
|
)
|
|
(9.9
|
)%
|
Current year tax impact of unremitted foreign earnings
|
9.3
|
|
|
2.5
|
%
|
|
7.7
|
|
|
3.7
|
%
|
|
11.1
|
|
|
41.8
|
%
|
Impact of foreign dividends
|
4.1
|
|
|
1.1
|
%
|
|
0.1
|
|
|
—
|
%
|
|
0.1
|
|
|
0.2
|
%
|
DPAD & R&D tax credit
|
(3.8
|
)
|
|
(1.0
|
)%
|
|
(5.0
|
)
|
|
(2.4
|
)%
|
|
—
|
|
|
—
|
%
|
International restructuring
|
(9.9
|
)
|
|
(2.7
|
)%
|
|
(13.6
|
)
|
|
(6.6
|
)%
|
|
—
|
|
|
—
|
%
|
Tax Reform Impact
|
(175.3
|
)
|
|
(47.1
|
)%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Excess Tax Benefit on stock-based compensation
|
(39.3
|
)
|
|
(10.5
|
)%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
Other
|
5.1
|
|
|
1.4
|
%
|
|
(0.7
|
)
|
|
(0.3
|
)%
|
|
(0.8
|
)
|
|
(2.9
|
)%
|
Total
|
$
|
(79.1
|
)
|
|
(21.2
|
)%
|
|
$
|
74.0
|
|
|
36.0
|
%
|
|
$
|
11.3
|
|
|
42.4
|
%
|
For 2017, we reported a negative
21.2%
effective tax rate, which is lower than the
35.0%
U.S. federal statutory rate due primarily to the one-time decreases resulting from enactment of the Act in December 2017 and the excess tax benefits on stock-based compensation that is now recorded to income tax expense due to our adoption of ASU 2016-09 on January 1, 2017.
For 2016, we reported a
36.0%
effective tax rate, which is higher than the
35.0%
U.S. federal statutory rate due primarily to increases resulting from changes to our state tax assumptions and tax on our foreign earnings that are not considered permanently reinvested outside the United States, partially offset by decreases resulting from the impact of international restructuring and Internal Revenue Code Section 199 Domestic Productions Activities Deduction (“DPAD”) and Research and Development (“R&D”) tax credits.
For
2015
, we reported a
42.4%
effective tax rate, which is higher than the
35.0%
U.S. federal statutory rate due primarily to tax on our foreign earnings that are not considered permanently reinvested outside the United States, partially offset by a favorable foreign tax rate differential and a credit to deferred state tax expense for changes in state tax rates.
As of December 31, 2017, in connection with the one-time mandatory deemed repatriation tax mandated under the Act, we recorded a
$33.5 million
estimated current income tax expense on our cumulative unremitted foreign earnings. We have recorded
$5.9 million
of foreign withholding taxes on unremitted earnings from foreign subsidiaries that are not permanently reinvested at the foreign operating subsidiary level that are payable once those earnings are remitted to the foreign parent, and foreign capital gains taxes of
$6.8 million
on the outside basis difference in excess of unremitted earnings for an investment in a non-consolidated foreign affiliate. No incremental foreign withholding tax liability has been made beyond the
$5.9 million
noted above. The company has not accrued a provision for any incremental U.S. tax due on unremitted earnings that are permanently reinvested outside of the U.S., which is subject to change as we finalize our analysis of the impact of the Act.
Components of net deferred income tax consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December
31, 2017
|
|
December
31, 2016
|
Deferred income tax assets:
|
|
|
|
Compensation
|
$
|
16.4
|
|
|
$
|
20.1
|
|
Employee benefits
|
2.5
|
|
|
4.9
|
|
Legal reserves and settlements
|
5.2
|
|
|
7.4
|
|
Hedge investments
|
1.1
|
|
|
4.8
|
|
Financing related costs
|
—
|
|
|
4.2
|
|
Loss and credit carryforwards
|
105.7
|
|
|
84.9
|
|
Other
|
7.7
|
|
|
10.0
|
|
Gross deferred income tax assets
|
138.6
|
|
|
136.3
|
|
Valuation allowance
|
(85.3
|
)
|
|
(59.2
|
)
|
Total deferred income tax assets, net
|
$
|
53.3
|
|
|
$
|
77.1
|
|
Deferred income tax liabilities:
|
|
|
|
Depreciation and amortization
|
$
|
(454.7
|
)
|
|
$
|
(604.5
|
)
|
Taxes on undistributed foreign earnings
|
(7.3
|
)
|
|
(49.7
|
)
|
Other
|
(8.8
|
)
|
|
(1.9
|
)
|
Total deferred income tax liability
|
(470.8
|
)
|
|
(656.1
|
)
|
Net deferred income tax liability
|
$
|
(417.5
|
)
|
|
$
|
(579.0
|
)
|
Deferred tax assets and liabilities result from temporary differences between tax and accounting policies. Our balance sheet includes a deferred tax asset of
$1.9 million
that is included in other assets.
If certain deferred tax assets are not likely to be recovered in future years, a valuation allowance is recorded. During 2017, our valuation allowance increased
$26.1 million
primarily due to the current year foreign tax credit carryforward. As of December 31, 2017 and 2016, a valuation allowance of
$85.3 million
and
$59.2 million
, respectively, reduced deferred tax assets generated by capital loss, U.S. federal net operating loss, foreign loss, foreign tax credit and certain state net operating loss carryforwards. Capital loss carryforwards over
two
to
four
years, U.S. federal net operating losses over
nine
to
nineteen
years, foreign loss carryforward over
six
to an indefinite numbers of years, foreign tax credit carryforward over the next
ten
years, state net operating loss carryforwards over the next
four
to
eighteen
years.
The total amount of unrecognized tax benefits as of December 31, 2017 and 2016, was
$12.3 million
and
$4.8 million
, respectively. The amounts that would affect the effective tax rate if recognized are
$8.2 million
and
$4.8 million
, respectively.
The total amount of unrecognized tax benefits consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
Balance as of beginning of period
|
$
|
4.8
|
|
|
$
|
1.9
|
|
Increase in tax positions of prior years
|
2.8
|
|
|
0.7
|
|
Increase for tax positions of current year
|
4.7
|
|
|
2.5
|
|
Decrease in tax positions due to settlement and lapse of statute
|
—
|
|
|
(0.3
|
)
|
Balance as of end of period
|
$
|
12.3
|
|
|
$
|
4.8
|
|
We classify interest on unrecognized tax benefits as interest expense and income tax penalties as other income or expense in the consolidated statements of income. We classify any interest or income tax penalties related to unrecognized tax benefits as other liabilities in the consolidated balance sheets. There was
no
significant interest expense related to taxes for the years ended December 31, 2017, 2016 or 2015, and
no
significant liability recorded for interest payable as of December 31, 2017 or 2016. There was
no
significant expense recognized for tax penalties for the years ended December 31, 2017, 2016 or 2015, and
no
significant liability recorded for tax penalties as of December 31, 2017 or 2016.
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. Tax years 2008 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 purposes.
14. Stock-Based Compensation
For the years ended
December 31, 2017
,
2016
and
2015
, we recognized stock-based compensation expense of
$47.7 million
,
$31.2 million
and
$22.3 million
, respectively, with related income tax benefits of approximately
$16.3 million
,
$11.3 million
and
$8.3 million
, respectively. Of the stock-based compensation expense recognized in
2017
,
2016
and
2015
,
$14.6 million
,
$6.8 million
and
$13.3 million
, respectively, was from cash-settleable awards.
On June 4, 2015, in anticipation of our IPO, our board of directors authorized and we effected a
1.333
to 1 stock split of our common stock. All periods presented in these financial statements reflect this split. See Note 11, “Stockholders’ Equity” for further discussion on the stock split.
Under the TransUnion Holding Company, Inc. 2012 Management Equity Plan (the “2012 Plan”), stock-based awards could be issued to executive officers, employees and independent directors of the Company. A total of
10.1 million
shares were authorized for grant under the 2012 Plan. Effective upon the closing of the IPO, the Company’s board of directors and its stockholders adopted the TransUnion 2015 Omnibus Incentive Plan (the “2015 Plan”) and
no
more shares can be issued under the 2012 Plan. A total of
5.4 million
shares have been authorized for grant under the 2015 Plan. The 2015 Plan provides for the granting of stock options, restricted stock and other stock-based or performance-based awards to key employees, directors or other persons having a service relationship with the Company and its affiliates. As of
December 31, 2017
, there were approximately
2.0 million
of unvested awards outstanding and approximately
0.1 million
of awards have vested under the 2015 Plan.
For all equity-based plans, we estimate expected forfeitures and make adjustments during the year for actual forfeitures. We review our estimates at least annually to determine if adjustments are needed to our estimate.
Effective upon the closing of the IPO, the Company’s board of directors and its stockholders adopted the TransUnion 2015 Employee Stock Purchase Plan (the “ESPP”). A total of
2.4 million
shares have been authorized to be issued under the ESPP. The ESPP provides certain employees of the Company with an opportunity to purchase the Company’s common stock at a discount. As of
December 31, 2017
, the Company has issued approximately
0.2 million
shares of common stock under the ESPP.
2012 Plan
Stock Options
Stock options granted under the 2012 Plan have a
ten
year term. For stock options granted to employees,
40%
generally vest based on the passage of time (service condition options), and
60%
generally vest based on the passage of time, subject to meeting certain stockholder return on investment conditions (market condition options). These stockholder return on investment conditions were satisfied in February 2017, and all remaining outstanding stock options now vest solely on the passage of time. All stock options granted to independent directors vest based on the passage of time.
Service condition options were valued using the Black-Scholes valuation model and vest over a
five
year service period, with
20%
generally vesting one year after the grant date, and
5%
vesting each quarter thereafter. Compensation costs for the service condition options are recognized on a straight-line basis over the requisite service period for the entire award. Market condition options were valued using a risk-neutral Monte Carlo valuation model, with assumptions similar to those used to value the service condition options, and now vest over a
five
year service period now that the market conditions have been satisfied. There were
no
stock options granted during 2017 and 2016. The assumptions used to value the service condition options and the weighted-average grant date fair value for market condition options granted during 2015 were as follows:
|
|
|
|
|
Twelve Months December 31, 2015
|
Service condition options:
|
|
Dividend yield
|
—
|
|
Expected volatility
|
40%-55%
|
|
Risk-free interest rate
|
1.7%-2.3%
|
|
Expected life, in years
|
6.4
|
|
Weighted-average grant date fair value
|
$7.40
|
|
|
Market condition options:
|
|
Weighted-average grant date fair value
|
$7.15
|
The dividend yield was estimated to be
zero
because at that time, we did not expect to pay dividends in the future. The expected volatility was estimated based on comparable company volatility. The risk-free interest rate was derived from the constant maturity treasury curve for terms matching the expected life of the award. The expected life was calculated using the simplified method described in SAB No. 110 because at the time the options were valued, we did not have sufficient historical data related to exercise behavior.
Stock option activity as of
December 31, 2017
and
2016
, and for the year ended
December 31, 2017
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Outstanding as of December 31, 2016
|
8,779,322
|
|
|
$
|
7.05
|
|
|
6.3
|
|
$
|
209.6
|
|
Granted
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
(3,246,977
|
)
|
|
6.38
|
|
|
|
|
|
Forfeited
|
(37,973
|
)
|
|
11.43
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
5,494,372
|
|
|
$
|
7.42
|
|
|
5.4
|
|
$
|
261.2
|
|
|
|
|
|
|
|
|
|
Expected to vest as of December 31, 2017
|
889,086
|
|
|
$
|
11.21
|
|
|
6.4
|
|
$
|
38.9
|
|
Exercisable as of December 31, 2017
|
4,577,822
|
|
|
$
|
6.65
|
|
|
5.2
|
|
$
|
221.1
|
|
As of
December 31, 2017
, stock-based compensation expense remaining to be recognized in future years related to options, excluding an estimate for forfeitures, was
$3.2 million
with a weighted-average recognition period of
1.9 years
. During
2017
, cash received from the exercise of stock options was
$20.7 million
and the tax benefit realized from exercise of stock options was
$43.8 million
.
The intrinsic value of options exercised and the fair value of options vested for the periods presented are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Intrinsic value of options exercised
|
|
$
|
120.3
|
|
|
$
|
19.4
|
|
|
$
|
5.2
|
|
Total fair value of options vested
|
|
$
|
14.0
|
|
|
$
|
3.9
|
|
|
$
|
3.8
|
|
Stock Appreciation Rights
The Company granted
no
stock appreciation rights (“SARs”) during the years ended
December 31, 2017
and
2016
. During the year ended December 31,
2015
, the Company granted
0.1 million
SARs with a weighted-average exercise price of
$21.00
. The SARs have a
ten
year term, with
40%
vesting over a
five
year service period and
60%
vesting over a
five
year service period, subject to meeting certain stockholder return on investment conditions. These stockholder return on investment conditions were satisfied in February 2017, and all remaining outstanding SARs now vest solely on the passage of time. The SARs are cash-settleable and are accounted for as liability awards, with expense recognized based on our stock price and the percentage of requisite service rendered at the end of each reporting period.
During the year ended
December 31, 2017
,
0.5 million
SARs vested, less than
0.1 million
SARs were forfeited, and
0.4 million
SARs were exercised. During years ended
December 31, 2017
,
2016
, and
2015
,
$13.5 million
,
$1.8 million
, and
$0.4 million
, respectively, of share-based liabilities were paid for SARs that were exercised during the year. Stock-based compensation expense remaining to be recognized in future years related to SARs was
$2.0 million
based on the fair value of the awards at
December 31, 2017
. As of
December 31, 2017
, there were
0.3 million
SARs outstanding.
Restricted Stock
During 2015, the Company granted
49,187
shares of restricted stock under the 2012 Plan that cliff vested on December 31, 2016. The weighted average grant date fair value was
$20.34
. As of
December 31, 2017
and 2016, there were
no
stock-based compensation expense remaining to be recognized in future years related to restricted stock granted under the 2012 Plan.
2015 Plan
Restricted Stock Units
During
2017
and
2016
, restricted stock units were granted under the 2015 Plan. Restricted stock units issued to date generally consist of:
50%
service-based restricted stock units that vest based on passage of time and
50%
performance awards consisting of performance restricted stock units that vest based on the passage of time, subject to meeting certain 3-year revenue and Adjusted EBITDA cumulative annual growth rate (“CAGR”) targets and market-based performance restricted stock units that vest based on the passage of time, subject to meeting certain relative total stockholder return (“TSR”) targets. For the performance awards, including the market-based performance awards, between
zero
and
200%
of the units granted may eventually vest, based upon the final CAGR and TSR achievement relative to the targets. Restricted stock units generally vest
three
years from the grant date, subject to meeting any performance and market conditions.
Service-based and performance-based restricted stock units are valued on the award grant date at the closing market price of our stock. Market-based awards are valued using a risk-neutral Monte-Carlo model, with assumptions similar to those used to value the 2012 Plan market-condition options, based on conditions that existed on the grant date of the award.
Restricted stock unit activity as of
December 31, 2017
and
2016
, and for the year ended
December 31, 2017
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Weighted
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Outstanding as of December 31, 2016
|
1,247,064
|
|
|
$
|
26.37
|
|
|
2.1
|
|
$
|
38.6
|
|
Granted
|
917,490
|
|
|
41.49
|
|
|
|
|
|
Vested
|
(2,940
|
)
|
|
33.64
|
|
|
|
|
|
Forfeited
|
(171,500
|
)
|
|
31.40
|
|
|
|
|
|
Expired
|
—
|
|
|
—
|
|
|
|
|
|
Outstanding as of December 31, 2017
|
1,990,114
|
|
|
$
|
32.89
|
|
|
1.5
|
|
$
|
109.4
|
|
|
|
|
|
|
|
|
|
Expected to vest as of December 31, 2017
|
2,465,566
|
|
|
$
|
31.87
|
|
|
1.5
|
|
$
|
135.5
|
|
The fair value and intrinsic value of restricted stock units that vested during the year ended
December 31, 2017
, was
$0.1 million
. As of
December 31, 2017
, stock-based compensation expense remaining to be recognized in future years related to restricted stock units, excluding an estimate for forfeitures, was
$47.8 million
, with weighted-average recognition periods of
1.8 years
.
Restricted Stock
During
2016
, the Company granted
24,800
shares of restricted stock under the 2015 Plan that vested during
2017
. The weighted average grant date fair value was
$30.24
. During
2017
, the Company granted
25,868
shares of restricted stock under the 2015 Plan that vest
one
year from the grant date. The weighted average grant date fair value was
$40.58
. As of
December 31, 2017
, stock-based compensation expense remaining to be recognized in future years related to these shares of restricted stock was
$0.4 million
, with a weighted average recognition period of
five months
.
Other
In connection with an acquisition we made in 2014, the Company issued equity awards to certain employees of the acquired company in exchange for stock awards they held prior to the acquisition. The new awards were for pre- and post-acquisition services. As a result, the Company recorded
$0.8 million
and
$4.3 million
of stock-based compensation expense in 2016 and 2015, respectively. During 2016, the entire cash-settleable award was paid in full.
In connection with an acquisition we made in 2015, the Company issued equity awards to certain employees for post-acquisition services. As a result, the Company recorded
$0.2 million
of stock-based compensation expense in 2016 that was reversed in 2017. These awards are cash-settleable and accounted for as liability awards, with the liability valued at the probability-weighted expected payout at the end of each period, which, at December 31, 2017, we estimate to be
zero
.
15. Fair Value
The following table summarizes financial instruments measured at fair value, on a recurring basis, as of December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Assets
|
|
|
|
|
|
|
|
Trading securities
|
$
|
12.7
|
|
|
$
|
10.0
|
|
|
$
|
2.7
|
|
|
$
|
—
|
|
Interest rate caps
|
9.4
|
|
|
—
|
|
|
9.4
|
|
|
—
|
|
Available-for-sale securities
|
3.3
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
Total
|
$
|
25.4
|
|
|
$
|
10.0
|
|
|
$
|
15.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
Contingent consideration
|
(1.1
|
)
|
|
—
|
|
|
—
|
|
|
(1.1
|
)
|
Total
|
$
|
(1.1
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1.1
|
)
|
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 a 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 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 10, “Debt” for additional information regarding interest rate caps.
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
significant realized or unrealized gains or losses on our securities for any of the periods presented.
Level 3 instruments consist of contingent consideration obligations related to companies we have acquired with remaining maximum payouts totaling
$15.6 million
. These obligations are contingent upon meeting certain quantitative or qualitative performance metrics through 2018 and are included in other current liabilities and other liabilities on our balance sheet. The fair values of the obligations are determined based on an income approach, using ours 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
2017
, we recorded a gain of
$0.3 million
as a result of changes to the fair value of these obligations.
16. 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.”
In the first quarter of 2016, we moved our direct-to-consumer reseller business and reallocated certain other costs related to our consumer facing business in the U.S. from our USIS segment to our Consumer Interactive segment. These changes better reflect the evolution of our consumer facing business in the U.S. and how we manage that business. As a result, we modified our segment reporting effective the first quarter of 2016. In conjunction with this change we also reclassified
$105.0 million
of goodwill from our USIS segment to our Consumer Interactive segment. The segment results below have been recast to reflect these changes for all periods presented. These changes do not impact our consolidated results.
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.
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.
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.
Selected segment financial information consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
Gross revenues
|
|
|
|
|
|
U.S. Information Services
|
$
|
1,204.1
|
|
|
$
|
1,045.1
|
|
|
$
|
924.5
|
|
International
|
361.9
|
|
|
313.9
|
|
|
269.6
|
|
Consumer Interactive
|
432.1
|
|
|
407.1
|
|
|
369.8
|
|
Total revenues, gross
|
$
|
1,998.1
|
|
|
$
|
1,766.0
|
|
|
$
|
1,563.9
|
|
|
|
|
|
|
|
Intersegment revenue eliminations:
|
|
|
|
|
|
U.S. Information Services
|
$
|
(59.3
|
)
|
|
$
|
(57.0
|
)
|
|
$
|
(53.9
|
)
|
International
|
(4.8
|
)
|
|
(4.0
|
)
|
|
(3.2
|
)
|
Consumer Interactive
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
Total intersegment eliminations
|
(64.2
|
)
|
|
(61.1
|
)
|
|
(57.1
|
)
|
Total revenues, net
|
$
|
1,933.8
|
|
|
$
|
1,704.9
|
|
|
$
|
1,506.8
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
U.S. Information Services
|
$
|
313.0
|
|
|
$
|
203.5
|
|
|
$
|
130.5
|
|
International
|
58.2
|
|
|
49.8
|
|
|
21.2
|
|
Consumer Interactive
|
198.4
|
|
|
168.9
|
|
|
137.2
|
|
Corporate
|
(104.9
|
)
|
|
(121.6
|
)
|
|
(91.8
|
)
|
Total operating income
|
$
|
464.7
|
|
|
$
|
300.5
|
|
|
$
|
197.1
|
|
|
|
|
|
|
|
Intersegment operating income eliminations:
|
|
|
|
|
|
U.S. Information Services
|
$
|
(57.6
|
)
|
|
$
|
(55.5
|
)
|
|
$
|
(52.4
|
)
|
International
|
(3.5
|
)
|
|
(3.0
|
)
|
|
(1.9
|
)
|
Consumer Interactive
|
61.1
|
|
|
58.5
|
|
|
54.4
|
|
Corporate
|
—
|
|
|
—
|
|
|
—
|
|
Total intersegment eliminations
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
As a result of displaying amounts in millions, rounding differences may exist in the tables above and below.
A reconciliation of operating income to income before income taxes for the periods presented is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
Operating income from segments
|
$
|
464.7
|
|
|
$
|
300.5
|
|
|
$
|
197.1
|
|
Non-operating income and expense
|
(92.2
|
)
|
|
(95.1
|
)
|
|
(170.5
|
)
|
Income before income tax
|
$
|
372.5
|
|
|
$
|
205.4
|
|
|
$
|
26.6
|
|
Earnings from equity method investments included in non-operating income and expense was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
U.S. Information Services
|
$
|
2.0
|
|
|
$
|
1.9
|
|
|
$
|
1.8
|
|
International
|
7.1
|
|
|
6.7
|
|
|
7.0
|
|
Total
|
$
|
9.1
|
|
|
$
|
8.6
|
|
|
$
|
8.8
|
|
Total assets, by segment, consisted of the following:
|
|
|
|
|
|
|
|
|
(in millions)
|
December 31,
2017
|
|
December 31,
2016
|
U.S. Information Services
|
$
|
3,070.9
|
|
|
$
|
2,762.8
|
|
International
|
1,538.0
|
|
|
1,460.1
|
|
Consumer Interactive
|
431.9
|
|
|
417.7
|
|
Corporate
|
77.7
|
|
|
140.6
|
|
Total
|
$
|
5,118.5
|
|
|
$
|
4,781.2
|
|
Cash paid for capital expenditures, by segment, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
U.S. Information Services
|
$
|
88.8
|
|
|
$
|
82.5
|
|
|
$
|
86.5
|
|
International
|
34.3
|
|
|
30.2
|
|
|
29.8
|
|
Consumer Interactive
|
9.6
|
|
|
9.1
|
|
|
7.9
|
|
Corporate
|
2.6
|
|
|
2.2
|
|
|
8.0
|
|
Total
|
$
|
135.3
|
|
|
$
|
124.0
|
|
|
$
|
132.2
|
|
Depreciation and amortization expense by segment was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
(in millions)
|
2017
|
|
2016
|
|
2015
|
U.S. Information Services
|
$
|
160.6
|
|
|
$
|
191.0
|
|
|
$
|
206.2
|
|
International
|
61.5
|
|
|
57.2
|
|
|
55.1
|
|
Consumer Interactive
|
10.7
|
|
|
11.7
|
|
|
11.8
|
|
Corporate
|
5.2
|
|
|
5.3
|
|
|
5.3
|
|
Total
|
$
|
238.0
|
|
|
$
|
265.2
|
|
|
$
|
278.4
|
|
Percentage of revenue based on where it was earned, was as follows:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31,
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
82
|
%
|
|
82
|
%
|
|
82
|
%
|
International
|
18
|
%
|
|
18
|
%
|
|
18
|
%
|
Percentage of long-lived assets, other than financial instruments and deferred tax assets, based on the location of the legal entity that owns the asset, was as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
2017
|
|
2016
|
|
2015
|
Domestic
|
78
|
%
|
|
78
|
%
|
|
83
|
%
|
International
|
22
|
%
|
|
22
|
%
|
|
17
|
%
|
17. Commitments
Future minimum payments for noncancelable operating leases, purchase obligations and other liabilities in effect as of
December 31, 2017
, are payable as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Operating
Leases
|
|
Purchase
Obligations and
Other
|
|
Total
|
2018
|
$
|
16.3
|
|
|
$
|
210.5
|
|
|
$
|
226.8
|
|
2019
|
14.2
|
|
|
35.3
|
|
|
49.5
|
|
2020
|
12.5
|
|
|
23.7
|
|
|
36.2
|
|
2021
|
10.3
|
|
|
12.6
|
|
|
22.9
|
|
2022
|
6.2
|
|
|
3.6
|
|
|
9.8
|
|
Thereafter
|
20.2
|
|
|
18.9
|
|
|
39.1
|
|
Totals
|
$
|
79.7
|
|
|
$
|
304.6
|
|
|
$
|
384.3
|
|
Purchase obligations include
$131.3 million
of trade accounts payable that were included in our balance sheet as of
December 31, 2017
. Purchase obligations include commitments for outsourcing services, royalties, data licenses, maintenance and other operating expenses, and the one-time deemed repatriation tax due over the next
eight
years as a result of the Act. Rental expense related to operating leases was
$15.7 million
,
$14.0 million
, and
$13.1 million
for the years ended
December 31, 2017
,
2016
and
2015
, respectively.
Licensing agreements
We have agreements with Fair Isaac Corporation to license credit-scoring algorithms and the right to sell credit scores derived from those algorithms. Payment obligations under these agreements vary due to factors such as the volume of credit scores we sell, what type of credit scores we sell, and how our customers use the credit scores. There are
no
minimum payments required under these licensing agreements. However, we do have a significant level of sales volume related to these credit scores.
18. Contingencies
Litigation
In addition to the matters described below, we are routinely named as defendants in, or parties to, various legal actions and proceedings relating to our current or past business operations. These actions generally assert claims for violations of federal or state credit reporting, consumer protection or privacy laws, or common law claims related to privacy, libel, slander or the unfair treatment of consumers, and may include claims for substantial or indeterminate compensatory or punitive damages, or injunctive relief, and may seek business practice changes. We believe that most of these claims are either without merit or we have valid defenses to the claims, and we vigorously defend these matters or seek non-monetary or small monetary settlements, if possible. However, due to the uncertainties inherent in litigation, we cannot predict the outcome of each claim in each instance.
In the ordinary course of business, we also are subject to governmental and regulatory examinations, information-gathering requests, investigations and proceedings (both formal and informal), certain of which may result in adverse judgments, settlements, fines, penalties, injunctions or other relief. In connection with formal and informal inquiries by these regulators, we routinely receive requests, subpoenas and orders seeking documents, testimony, and other information in connection with various aspects of our activities.
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.
On a regular basis, we accrue reserves for litigation and regulatory matters based on our historical experience and our ability to reasonably estimate and ascertain the probability of any liability. However, for certain of the matters described below, we are not able to reasonably estimate our exposure because damages have not been specified and (i) the proceedings are in early stages, (ii) there is uncertainty as to the likelihood of a class being certified or the ultimate size of the class, (iii) there is uncertainty as to the outcome of similar matters pending against our competitors, (iv) there are significant factual issues to be resolved, and/or (v) there are legal issues of a first impression being presented. However, for these matters we do not believe based on currently
available information that the outcomes will have a material adverse effect on our financial condition, though the outcomes could be material to our operating results for any particular period.
To reduce our exposure to an unexpected significant monetary award resulting from an adverse judicial decision, we maintain insurance that we believe is appropriate and adequate based on our historical experience. We regularly advise our insurance carriers of the claims (threatened or pending) against us in the course of litigation and generally receive a reservation of rights letter from the carriers when such claims exceed applicable deductibles. We are not aware of any significant monetary claim that has been asserted against us in the course of pending litigation that would not have some level of coverage by insurance after the relevant deductible, if any, is met.
As of
December 31, 2017
and
2016
, we accrued
$46.3 million
and
$35.9 million
, respectively, for anticipated claims. These amounts were recorded in other accrued liabilities in the consolidated balance sheets and the associated expenses were recorded in selling, general and administrative expenses in the consolidated statements of income. Legal fees incurred in connection with ongoing litigation are considered period costs and are expensed as incurred.
Bankruptcy Tradeline Litigation
In a matter captioned
White, et al, v. Experian Information Solutions, Inc.
(No. 05-cv-01070-DOC/MLG, filed in 2005 in the United States District Court for the Central District of California), plaintiffs sought class action status against Equifax, Experian and us in connection with the reporting of delinquent or charged-off consumer debt obligations on a consumer report after the consumer was discharged in a bankruptcy proceeding. The claims allege that each national consumer reporting company did not automatically update a consumer’s file after their discharge from bankruptcy and such non-action was a failure to employ reasonable procedures to assure maximum file accuracy, a requirement of the FCRA.
Without admitting any wrongdoing, we have agreed to a settlement of this matter. In August 2008, the Court approved an agreement whereby we and the other industry defendants voluntarily changed certain operational practices. These changes require us to update certain delinquent records when we learn, through the collection of public records, that the consumer has received an order of discharge in a bankruptcy proceeding. These business practice changes did not have a material adverse impact on our operations or those of our customers.
In 2009, we also agreed, with the other two defendants, to settle the monetary claims associated with this matter for
$17.0 million
each (
$51.0 million
in total), which amount will be distributed from a settlement fund to pay the class counsel’s attorney fees, all administration and notice costs of the fund to the purported class, and a variable damage amount to consumers within the class based on the level of harm the consumer is able to confirm. Our share of this settlement was fully covered by insurance. Final approval of this monetary settlement by the Court occurred in July 2011. Certain objecting plaintiffs appealed the Court’s final approval of the monetary settlement and, in April 2013, the United States Court of Appeals for the Ninth Circuit reversed the final approval order and remanded the matter to the District Court. The rationale provided by the Court of Appeals was not that the proposed settlement was unfair or defective, but that named class counsel and certain named plaintiffs did not adequately represent the interests of the class because of certain identified conflicts. Objecting counsel to the settlement has sought to become new class counsel and the District Court denied that request. The Court of Appeals affirmed the ruling on interlocutory appeal and in May 2016, denied plaintiffs’ petition for rehearing
en banc
. The U.S. Supreme Court has denied
certiorari
on objecting counsel’s challenge.
The parties re-engaged in settlement discussions as directed by the District Court. Pursuant to those discussions the parties agreed to modify the initial agreed settlement and resubmit a new proposed settlement for consideration and approval. The revised settlement is substantially similar to the original agreed settlement described above with the following modifications: 1) each defendant agreed to contribute an equal additional sum so that
$1.0 million
in additional funds would be added to the original settlement proposal; and 2) each defendant agreed to provide one free credit report and VantageScore® to each class member in lieu of any monetary award to that class member. Such modifications were not material to TransUnion or its businesses. The District Court held a fairness hearing and approved the settlement on December 11, 2017.
OFAC Alert Service
As a result of a decision by the United States Third Circuit Court of Appeals in 2010 (
Cortez v. Trans Union LLC
), we modified one of our add-on services we offer to our business customers that was designed to alert our customer that the consumer, who was seeking to establish a business relationship with the customer, may potentially be on the Office of Foreign Assets Control, Specifically Designated National and Blocked Persons alert list (the “OFAC Alert”). The OFAC Alert service is meant to assist our customers with their compliance obligations in connection with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001.
In
Ramirez v. Trans Union LLC
, (No. 3:12-cv-00632-JSC, United States District Court for the Northern District of California), filed in 2012, the plaintiff has alleged that: the OFAC Alert service does not comply with the
Cortez
ruling; we have willfully violated the Fair Credit Reporting Act (“FCRA”) and the corresponding California state-FCRA based on the
Cortez
ruling by continuing to offer the OFAC Alert service; and there are one or more classes of individuals who should be entitled to statutory
damages (i.e.,
$100
to
$5,000
per person) based on the allegedly willful violations. In addition to the
Ramirez
action, the same lawyers representing
Ramirez
(who also represented the plaintiff in
Cortez
) filed two additional alleged class actions in 2012 (
Miller v. Trans Union, LLC
, No. 12-1715-WJN, United States District Court for the Middle District of Pennsylvania; and
Larson v. Trans Union, LLC
, No. 12-5726-JSC, United States District Court for the Northern District of California) and one in 2014 (
Amit Patel, et al. v. TransUnion LLC, TransUnion Rental Screening Solutions, Inc. and TransUnion Background Data Solutions
, No. 14-cv-0522-LB, United States District Court for the Northern District of California) claiming that our process for disclosing OFAC information to consumers, or how we match OFAC information to a consumer’s name or other identifying information, violates the FCRA and, in some instances, the corresponding California state-FCRA. In addition to the OFAC allegations, the plaintiff in the
Patel
action seeks to collapse all TransUnion FCRA regulated entities into a single entity. In July 2014, the Court in
Ramirez
certified a class of approximately
8,000
individuals solely for purposes of statutory damages if TransUnion is ultimately found to have willfully violated the FCRA, and a sub-class of California residents solely for purposes of injunctive relief under the California Consumer Credit Reporting Agencies Act. While the Court noted that the plaintiff is not seeking any actual monetary damage, the class certification order was predicated on a disputed question of Ninth Circuit law (currently there is a conflict between the federal circuits) that is awaiting action by the United States Supreme Court. Our motions to stay the
Ramirez, Miller
and
Larson
proceedings were granted and the proceedings stayed pending action by the U.S. Supreme Court in
Spokeo v. Robins
. In June 2015, the Court in
Patel
certified a national class of approximately
11,000
individuals with respect to allegations that TransUnion willfully violated the FCRA by failing to maintain and follow reasonable procedures to ensure the maximum possible accuracy of their information, and a national subclass of approximately
3,000
individuals with respect to allegations that TransUnion willfully violated the FCRA by failing to provide consumers with all information in their files. In September 2015, our motion to stay the
Patel
proceedings was granted and the proceedings stayed pending action by the U.S. Supreme Court in
Spokeo v. Robins
.
On May 16, 2016, the U.S. Supreme Court issued its decision in
Spokeo v. Robins
, holding that the injury-in-fact requirement for standing under Article III of the United States Constitution requires a plaintiff to allege an injury that is both “concrete and particularized.” The Court held that the Ninth Circuit’s analysis failed to consider concreteness in its analysis and vacated the decision and remanded to the Ninth Circuit to consider both aspects of the injury-in-fact requirement. Following the U.S. Supreme Court’s decision, the stays in the
Ramirez, Miller, Larson
and
Patel
matters were lifted. In August 2016, the Court in
Larson
certified a class of approximately
18,000
California residents with respect to allegations that TransUnion failed to provide consumers with all information in their files in violation of the Fair Credit Reporting Act. In October 2016, the Court in
Larson
denied our petition for permission to appeal the class certification decision to the Ninth Circuit, and the Courts in
Ramirez
and
Patel
denied our motions to decertify the classes based on the implications of
Spokeo
. On January 17, 2017, the magistrate in
Miller
recommended that the Court find that the plaintiff has standing to bring suit in federal court, and that the motion for class certification should be granted. We intend to continue to defend these matters vigorously as we believe we have acted in a lawful manner.
As a result of mediation on May 15, 2017 and without admitting any wrongdoing, we agreed, with the consent of our insurance carrier, to the terms of an
$8.0 million
settlement of all class, subclass and individual claims in the
Patel
matter, which was primarily accrued in the prior year. On October 26, 2017, the Court granted preliminary approval of the settlement. The settlement administrator has mailed notice of the settlement to the class members who have until February 21, 2018 to file a claim for damages or object to the settlement. The final approval hearing is scheduled for March 8, 2018. If the settlement is not ultimately approved by the Court, we intend to continue to defend this matter vigorously.
On June 21, 2017, the jury in
Ramirez
returned a verdict in favor of a class of
8,185
individuals in the amount of approximately
$8.1 million
(
$984.22
per class member) in statutory damages and approximately
$52.0 million
(
$6,353.08
per class member) in punitive damages. Plaintiff’s counsel has not provided any estimate of attorneys’ fees and costs that they will seek in connection with this verdict as permitted by law. The timing and outcome of the ultimate resolution of this matter is uncertain.
We have posted a bond at nominal cost to stay the execution of the judgment pending resolution of post-judgment motions that were filed with the trial court and the subsequent appeal. In November 2017, the trial court denied our post-trial motions for judgment as a matter of law, a new trial and a reduction on the jury verdict, and we appealed the
Ramirez
ruling to the United States Court of Appeals for the Ninth Circuit. Despite the jury verdict, we continue to believe that we have not willfully violated any law and have meritorious grounds for seeking modification of the judgment at the trial court or on appeal. Given the complexity and uncertainties associated with the outcome of the current and any subsequent appeals, there is a wide range of potential results, from vacating the judgment in its entirety to upholding some or all aspects of the judgment. As of December 31, 2017, we have recorded a charge for this matter equal to our current estimate of probable losses for statutory damages, net of amounts we expect to receive from our insurance carriers, the impact of which is not material to our financial condition or results of operations. We have not, however, recorded an accrual with respect to the punitive damages awarded by the jury since it is not probable, based on current legal precedent, that an award for punitive damages in conjunction with statutory damages for the alleged conduct will survive the post-judgment actions. We currently estimate, however, that the reasonably possible loss in future periods for punitive damages falls within a range from
zero
to something less than the amount of the statutory damages awarded by the jury. This estimate is based on currently available information. As available information changes, our estimates may change as well. We believe we will have some level of insurance coverage for the damage award and the legal fees and expenses we have incurred
and will incur for defending this matter should this matter be unfavorably resolved against us after exhaustion of our post-judgment options.
The
Ramirez
matter involved facts that are not related to the other OFAC Alert Service matters. As a result, we do not believe the jury verdict in
Ramirez
will have any bearing on
Miller
or
Larson
, which are still pending before different courts.
Public Records
In connection with the settlements agreed to by the industry with the various State Attorneys General in 2014, 2015 and 2016, TransUnion and the other nationwide consumer reporting agencies agreed to implement enhanced public record collection, matching and reporting standards that are to be phased in over a 3-year period. The industry reminded all users of consumer reports in 2017 that, as a result of these enhanced standards, a significant number of civil judgments and tax liens would be expunged from files and fewer civil judgments and tax liens would be reported in the future until federal, state or county offices created compliant programs.
As a result of the voluntary actions being taken by the industry, plaintiff lawyers are now seeking to advance claims that are solely focused on public record collection. In particular, these claims allege two common legal theories in common and allege some form of class action status. The theories are: (1) the nationwide consumer reporting agency failed to disclose to consumers the sources of public record information contained in their consumer reports by failing to identify as a source the vendor(s) engaged by that consumer reporting agency to collect public record information from government entities; and (2) the nationwide consumer reporting agency failed to timely update civil judgment and tax lien records based on its obligation to have reasonable procedures to assure maximum file accuracy.
Cases currently pending that name TransUnion, allege a legal violation of this nature and assert a class claim are:
Olga Anderson, Kim Breeden and Brenda Walker v. Trans Union, LLC
(No.3:16-cv-558-MHL, United States District Court for the Eastern District of Virginia, filed 2016)
; Carolyn Clark v. Trans Union, LLC
(No. 3:15-cv-00391-MHL, United States District Court for the Eastern District of Virginia, filed 2015)
; Deidre Dennis v. Trans Union, LLC
(No. 2:14-cv-02865-MSG, United States District Court for the Eastern District of Pennsylvania, filed 2014)
; Brigitte A. Jakob v. Trans Union LLC
(No. 2:17-cv-01247, United States District Court for the Eastern District of Wisconsin, filed September 14, 2017);
Treva Sudell Jones v. Trans Union LLC
(No. 1:17-cv-01167, United States District Court for the Western District of Tennessee, filed August 31, 2017);
Herbert Lustig v. Trans Union, LLC
(No.2:17-cv-01175-GAM, Untied States District Court for the Eastern District of Pennsylvania, filed 2017);
David Matthews and Brenda Matthews v. Trans Union, LLC
(No. 2:17-cv-01825-JS, United States District Court for the Eastern District of Pennsylvania, filed 2017);
Paul K. Nair v. Trans Union LLC
(No. 1:17-cv-05496, United States District Court for the Southern District of New York, filed July 19, 2017);
Wendy Newcomb v. Trans Union LLC
(No. 1:17-cv-11797, United States District Court, District of Massachusetts, filed September 19, 2017);
Rebecca Anne Peters v. Trans Union LLC
(No. 2:17-cv-01273, United States District Court for the Northern District of Alabama, filed July 28, 2017); and
Juan De La Rosa v. TransUnion LLC
(No. 1:18-cv-00073, United States Court for the Southern District of New York, filed January 4, 2018). In the third quarter of 2017, we agreed to settle the
Florence Morris v. Trans Union, LLC
(No.3:17-cv-00511-BEN-AGS, United States District Court for the Southern District of California, filed 2017)
;
Jeffrey Andree v. Trans Union, LLC
(No.1:16-cv-01404-JTN-ESC, United States District Court for the Western District of Michigan, filed 2016)
;
and
Candace Anderson et al v. Trans Union, LLC
(No.2:16-cv-12873-DML-APP, United States District Court for the Eastern District of Michigan, filed 2016)
matters on terms that have not had and will not have a material impact on our financial condition or results of operations.
TransUnion believes it has valid defenses to each of these actions and intends to vigorously defend against the claims.
19. Related-Party Transactions
Stockholder Agreement
TransUnion was formed by affiliates of Advent International Corporation (“Advent”) and Goldman, Sachs & Co. (“GS”) on February 15, 2012. In connection with our IPO, TransUnion, Advent and GS amended the Major Stockholders’ Agreement. Among other things, the Major Stockholders’ Agreement provides that each Sponsor originally had the right to designate two directors to our Board of Directors, unless and until a Sponsor transfers a specified percentage of its initial ownership interest in the Company, measured as of the date of our IPO. The Major Stockholders’ Agreement provides that (a) if a Sponsor transfers more than
75%
of its initial ownership interest (measured as of the IPO), such Sponsor may only designate one director and the second Sponsor director designee must resign immediately and (b) if such Sponsor transfers more than
90%
of its initial ownership interest (measured as of the IPO), such Sponsor’s director designee or designees, as the case may be, must resign immediately, and such Sponsor would no longer have any right to designate any directors to our Board of Directors. Following the secondary offering that the Sponsors completed in May 2017, Advent fell below the threshold in (a) above and as a result one of its director designees, Steven M. Tadler, resigned from our Board of Directors. Pursuant to the terms of the Major Stockholders’ Agreement, following the secondary offering that the Sponsors completed in August 2017, Advent’s other director designee, Christopher Egan, would have been required to tender his resignation from our Board of Directors. However, our Board of Directors waived the requirement for
Mr. Egan’s resignation and we expect that Mr. Egan will serve until his term expires in May 2018. As of December 31, 2017, GS owned approximately
10.8%
of our outstanding stock and has the right to appoint two members to our Board of Directors.
Consulting Agreement
In connection with our consulting agreement with Advent and GS, we incurred fees from each of them for the year ended December 31,
2015
, of
$0.1 million
. This agreement terminated upon completion of our IPO.
In connection with his resignation as President and Chief Executive Officer of the Company, TransUnion and Siddharth N. (Bobby) Mehta, a director of the Company, entered into a consulting agreement, dated December 6, 2012, pursuant to which Mr. Mehta provided advice and consultation to assist Mr. Peck in the transition of duties as Chief Executive Officer and to Mr. Peck and the Board of Directors with respect to the Company’s strategic operating plan and strategic opportunities or transactions considered by the Company from time to time. Pursuant to the terms of the agreement, Mr. Mehta received a consulting fee of
$0.2 million
on or before January 10 of each year during the term of the agreement. This agreement terminated on December 31, 2015.
Data and Data Services
In 2017, 2016 and 2015, we entered into a series of transactions with affiliates of GS to license data and provide data services that we offer to all of our business customers. In connection with these transactions, we received aggregate fees of approximately
$5.0 million
,
$1.4 million
and
$0.2 million
in 2017, 2016 and 2015, respectively.
Debt and Hedge Activities
As of
December 31, 2017
and
2016
, interest accrued on our debt and hedge owed to related parties was less than
$0.1 million
for each period. As of
December 31, 2017
and
2016
, there was approximately
$57.1 million
and
$61.5 million
, respectively, of our Term Loan A owed to affiliates of GS. As of
December 31, 2017
there was
$12.0 million
of our senior secured revolving line of credit owed to affiliates of GS and
no
outstanding borrowings as of December 31, 2016. During 2015, we terminated our interest rate swap agreements, paying affiliates of GS
$1.7 million
, and entered into new interest rate cap agreements with various counter-parties including an affiliate of GS. As of
December 31, 2017
and
2016
, the GS proportion of the fair value of the cap was an asset of
$2.4 million
and a liability of
$1.5 million
, respectively. For the years ended
December 31, 2017
,
2016
and
2015
affiliates of GS were paid
$6.4 million
,
$3.9 million
and
$2.0 million
, respectively, of interest expense and fees related to debt and hedge instruments.
Financing Transactions
In connection with our 2015 refinancing transaction, affiliates of GS were paid
$0.1 million
of fees.
Investment in Affiliated Companies
During the normal course of business we enter into transactions with companies that we hold an equity interest in. These transactions include selling and purchasing software data and professional services.
Use of IPO Proceeds
In connection with our IPO, in 2015 we paid underwriting discounts and commissions of approximately
$8.8 million
to Goldman, Sachs & Co., affiliates of which owned approximately
39.7%
of our outstanding common stock at the time of our IPO. Gilbert Klemann and Sumit Rajpal, each of whom was a member of our Board of Directors at the time of our IPO, were both Managing Directors at Goldman, Sachs & Co. at the time of the IPO.
Directed Share Program
At our request, the underwriters reserved up to
1,477,273
shares of common stock, or approximately
5%
of our IPO shares, for sale at the IPO to our directors, officers, employees and certain other persons associated with us. Of these shares,
1,042,395
were sold to our directors, officers and employees and certain other persons associated with us.
Issuances of Common Stock
During
2015
, the Company sold an aggregate of
32,277
shares of common stock at a weighted-average purchase price of
$13.06
per share to an executive officer and director of the Company.
20. Quarterly Financial Data (Unaudited)
The quarterly financial data for
2017
and
2016
consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in millions)
|
December 31,
2017
(1)
|
|
September 30,
2017
|
|
June 30,
2017
|
|
March 31,
2017
|
Revenue
|
$
|
506.1
|
|
|
$
|
498.0
|
|
|
$
|
474.8
|
|
|
$
|
455.0
|
|
Operating income
|
121.5
|
|
|
126.6
|
|
|
115.5
|
|
|
101.1
|
|
Net income
|
247.9
|
|
|
71.9
|
|
|
67.3
|
|
|
64.5
|
|
Net income attributable to TransUnion
|
245.1
|
|
|
68.8
|
|
|
64.9
|
|
|
62.3
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
1.34
|
|
|
$
|
0.38
|
|
|
$
|
0.36
|
|
|
$
|
0.34
|
|
Diluted
|
$
|
1.29
|
|
|
$
|
0.36
|
|
|
$
|
0.34
|
|
|
$
|
0.33
|
|
(1) Net income, net income attributable to TransUnion, and basic and diluted earnings per share for the fourth quarter of 2017 included a significant tax provision benefit as a result of the impact of the Act. See Note 13, “Income Taxes,” for further information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
(in millions)
|
December 31,
2016
|
|
September 30,
2016
|
|
June 30,
2016
|
|
March 31,
2016
|
Revenue
|
$
|
435.9
|
|
|
$
|
437.6
|
|
|
$
|
425.7
|
|
|
$
|
405.7
|
|
Operating income
|
89.3
|
|
|
95.8
|
|
|
63.5
|
|
|
51.9
|
|
Net income
|
52.6
|
|
|
44.5
|
|
|
19.7
|
|
|
14.6
|
|
Net income attributable to TransUnion
|
49.5
|
|
|
41.2
|
|
|
17.3
|
|
|
12.6
|
|
Earnings per share:
|
|
|
|
|
|
|
|
Basic
|
$
|
0.27
|
|
|
$
|
0.23
|
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
Diluted
|
$
|
0.27
|
|
|
$
|
0.22
|
|
|
$
|
0.09
|
|
|
$
|
0.07
|
|
As a result of displaying amounts in millions, rounding differences compared to the annual totals may exist in the table above.
21. Accumulated Other Comprehensive Loss
The following table sets forth the changes in each component of accumulated other comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
Foreign Currency
Translation
Adjustment
|
|
Net Unrealized
Gain/(Loss)
On Hedges
|
|
Net Unrealized
Gain/(Loss) On
Available-for-sale
Securities
|
|
Accumulated Other
Comprehensive Loss
|
Balance, December 31, 2014
|
$
|
(116.8
|
)
|
|
$
|
(0.8
|
)
|
|
$
|
0.1
|
|
|
$
|
(117.5
|
)
|
Change
|
(74.8
|
)
|
|
0.5
|
|
|
—
|
|
|
(74.3
|
)
|
Balance, December 31, 2015
|
$
|
(191.6
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
0.1
|
|
|
$
|
(191.8
|
)
|
Change
|
24.0
|
|
|
(7.2
|
)
|
|
0.2
|
|
|
17.0
|
|
Balance, December 31, 2016
|
$
|
(167.6
|
)
|
|
$
|
(7.5
|
)
|
|
$
|
0.3
|
|
|
$
|
(174.8
|
)
|
Change
|
33.1
|
|
|
6.5
|
|
|
(0.1
|
)
|
|
39.5
|
|
Balance, December 31, 2017
|
$
|
(134.5
|
)
|
|
$
|
(1.0
|
)
|
|
$
|
0.2
|
|
|
$
|
(135.3
|
)
|
22. Subsequent Events
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. We expect to commence paying dividends pursuant to this policy in the second quarter of 2018. The terms of our senior secured credit facility impose certain limitations on our ability to pay dividends. We may, however, declare and pay cash dividends up to an unlimited amount unless a default or event of default exists under the senior secured credit facility. 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 condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
Our board of directors has 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.