Notes to Consolidated Financial Statements
Years Ended December 31, 2022, 2021 and 2020
1. Significant Accounting and Reporting Policies
Description of Business
TransUnion is a leading global information and insights company that makes trust possible between businesses and consumers, working to help people around the world access opportunities that can lead to a higher quality of life. That trust is built on TransUnion’s ability to deliver safe, innovative solutions with credibility and consistency. We call this Information for Good.
Grounded in our heritage as a credit reporting agency, we have built robust and accurate databases of information for a large portion of the adult population in the markets we serve. We use our data fusion methodology to link and match an increasing set of disparate data to further enrich our database. We use this enriched data, combined with our expertise, to continuously develop more insightful solutions for our customers, all in accordance with global laws and regulations. Because of our work, organizations can better understand consumers in order to make more informed decisions, and earn consumer trust through great, personalized experiences, and the proactive extension of the right opportunities, tools and offers. In turn, we believe consumers can be confident that their data identities will result in better offers and opportunities.
We provide solutions that enable businesses to manage and measure credit risk, market to new and existing customers, verify consumer identities, mitigate fraud, and effectively manage call center operations. Businesses embed our solutions into their process workflows to deliver critical insights and enable effective actions. Consumers use our solutions to view their credit profiles and access analytical tools that help them understand and manage their personal financial information and take precautions against identity theft. Our solutions are based on a foundation of data assets across financial, credit, alternative credit, identity, phone activity, digital device information, marketing, bankruptcy, lien, judgment, insurance claims, automotive and other relevant information obtained from thousands of sources including financial institutions, private databases and public records repositories.
Our addressable market includes the global data and analytics market, which continues to grow as companies around the world increasingly recognize the benefits of data and analytics-based decision making, and as consumers recognize the important role that their data identities play in their ability to procure goods and services. We leverage our differentiated capabilities in order to serve a global customer base across multiple geographies and industry verticals.
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. As a result of displaying amounts in millions, rounding differences may exist in the financial statements and footnote tables. We have recast certain items, including the prior year’s revenue disaggregation disclosures in Note 20, “Reportable Segments,” to conform to the current year presentation.
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 Holdings. Inc.
Principles of Consolidation
The consolidated financial statements of TransUnion include the accounts of TransUnion and all of its controlled subsidiaries. Investments in nonmarketable unconsolidated entities in which the Company is able to exercise significant influence are accounted for using the equity method. Investments in nonmarketable unconsolidated entities in which the Company is not able to exercise significant influence, our “Cost Method Investments,” are accounted for at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
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.
Impact of COVID-19 on Our Financial Statements
During 2020, the economic effect of the COVID-19 pandemic had a material and adverse impact on numerous aspects of our business, including customer demand for our services and solutions in all of our segments.
Segments
Operating segments are businesses for which separate financial information is available and evaluated regularly by our chief operating decision maker (“CODM”) deciding how to allocate resources and assess performance. We have three operating and reportable segments; U.S. Markets, 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 20, “Reportable Segments.”
Revenue Recognition and Deferred Revenue
All of our revenue is derived from contracts with our customers and is reported as revenue in the Consolidated Statements of Income generally as or at the point in time our performance obligations are satisfied. A performance obligation is a promise in a contract to transfer a distinct good or service to a customer. We have contracts with two general groups of performance obligations; those that require us to stand ready to provide goods and services to a customer to use as and when requested (“Stand Ready Performance Obligations”) and those that do not require us to stand ready (“Other Performance Obligations”). Our Stand Ready Performance Obligations include obligations to stand ready to provide data, process transactions, access our databases, software-as-a-service and direct-to-consumer products, rights to use our intellectual property and other services. Our Other Performance Obligations include the sale of certain batch data sets and various professional and other services.
Deferred revenue generally consists of amounts billed in excess of revenue recognized for the sale of data services, subscriptions and set up fees. The current and long-term portions of deferred revenue are included in other current liabilities and other liabilities.
See Note 15, “Revenue,” for a further discussion about our revenue recognition policies.
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, which include commissions we pay to our partners to promote our products online, for the years ended December 31, 2022, 2021 and 2020 were $87.7 million, $92.9 million and $89.8 million, respectively.
Stock-Based Compensation
Compensation expense for all stock-based compensation awards is determined using the grant date fair value. For all equity-based plan, we record the impact of forfeitures when they happen. 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 18, “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 17, “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 losses for the years ended December 31, 2022, 2021 and 2020 were not material.
Cash and Cash Equivalents
We consider investments in highly liquid debt instruments with original maturities of three months or less to be cash equivalents. The carrying value of our cash and cash equivalents approximate their fair value.
Trade Accounts Receivable
We base our allowance for doubtful accounts estimate on our historical loss experience, our current expectations of future losses, current economic conditions, an analysis of the aging of outstanding receivables and customer payment patterns, and specific reserves for customers in adverse financial condition or for existing contractual disputes.
The following is a roll-forward of the allowance for doubtful accounts for the periods presented:
| | | | | | | | | | | | | | | | | |
| | Twelve months ended December 31, |
| 2022 | | 2021 | | 2020 |
| Beginning Balance | $ | 10.7 | | | $ | 17.1 | | | $ | 13.4 | |
| Provision for losses on trade accounts receivable | 5.9 | | | (2.6) | | | 9.8 | |
| Write-offs, net of recovered accounts | (5.6) | | | (3.8) | | | (6.1) | |
| Ending balance | $ | 11.0 | | | $ | 10.7 | | | $ | 17.1 | |
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 20 years. Computer equipment and purchased software are depreciated over 3 to 7 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 5 to 7 years. Intangibles, other than indefinite-lived intangibles, are amortized using the straight-line method, which approximates the pattern of usage, over their economic life, generally 3 to 40 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 5, “Property, Plant and Equipment,” and Note 7, “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 3 to 10 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 2022, 2021 and 2020.
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 if any, are carried at fair market value, with the unrealized gains and losses, net of tax, included in accumulated other comprehensive income.
At December 31, 2022 and 2021, the Company’s marketable securities consisted of available-for-sale securities. 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 19, “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 2022, 2021 or 2020.
Goodwill
Goodwill is allocated to our reporting units, which are an operating segment or one level below an operating segment. We have no indefinite-lived intangible assets other than goodwill. We conduct an impairment test in the fourth quarter of each year, or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired.
We have the option to first perform a qualitative analysis to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the qualitative analysis indicates that an impairment is more likely than not for any reporting unit, we perform a quantitative impairment test for that reporting unit. We have the option to bypass the qualitative analysis for any reporting unit and proceed directly to performing a quantitative impairment test.
When we perform a quantitative impairment test, we use a combination of an income approach, using the discounted cash flow method, and a market approach, using the guideline public company method, to determine the fair value of each reporting unit. For each reporting unit, we compare the fair value to its carrying value including goodwill. If the fair value of the reporting unit is less than its carrying value, we record an impairment charge based on that difference, up to the amount of goodwill recorded in that reporting unit.
The quantitative impairment test requires the application of a number of significant assumptions, including estimates of future revenue growth rates, EBITDA margins, discount rates, and market multiples. The projected future revenue growth rates and EBITDA margins, and the resulting projected cash flows of each reporting unit are based on historical experience and internal operating plans reviewed by management, extrapolated over the forecast period. Discount rates are determined using a weighted average cost of capital adjusted for risk factors specific to each reporting unit. Market multiples are based on the guideline public company method using comparable publicly traded company multiples of EBITDA for a group of benchmark companies.
See Note 6, “Goodwill,” for additional information about our 2022 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, 2022, 2021 and 2020 were $32.9 million, $34.5 million and $27.2 million, respectively.
Recently Adopted Accounting Pronouncements
There are no recent accounting pronouncements that have been adopted by TransUnion in 2022.
Recent Accounting Pronouncements Not Yet Adopted
There are no pending recent accounting pronouncements that apply to TransUnion that have not been adopted.
2. Business Acquisitions
The following transactions were accounted for as business combinations under the acquisition method of accounting. The acquisition method requires, among other things, that assets acquired and liabilities assumed in a business combination generally be recognized at their fair values as of the acquisition date. The determination of fair value requires management to make significant estimates and assumptions. The excess of the purchase price over the fair value of the acquired net assets has been recorded as goodwill. The results of operations of these acquisitions are included in our consolidated financial statements from the respective dates of acquisition.
2022 Acquisitions
Verisk Financial Services
On April 8, 2022, we completed our acquisition of Verisk Financial Services (“VF”), the financial services business unit of Verisk Analytics, Inc. (“Verisk”). We acquired 100% of the outstanding equity interest of the entities that comprise VF for $505.7 million in cash, including a decrease of $2.3 million recorded subsequent to the acquisition date for certain customary purchase price adjustments. We have retained the leading core businesses of Argus Information and Advisory Services, Inc. and Commerce Signals, Inc. (collectively, “Argus”), and identified several non-core businesses that we classified as held-for-sale as of the acquisition date that we have subsequently divested. See Note 3, “Discontinued Operations,” for a further discussion.
Argus is relied upon by leading financial institutions, payments providers, and retailers worldwide for competitive studies, predictive analytics, models, and advisory services to provide a clear perspective on where their business stands today and to best position them for success in the future. We leverage the data provider consortium and proprietary and differentiated benchmarking datasets of these entities to provide more enhanced and holistic solution capabilities to our customers to make better and faster decisions that will help them increase financial inclusion, acquire new accounts, and improve fraud prevention, risk management, and other solutions.
We engaged in business activities with VF prior to the acquisition that were not material. The results of operations of Argus subsequent to the acquisition date are included in the U.S. Markets segment, including revenue of $71.5 million and net income of $2.8 million in 2022. The pro forma effects of this acquisition are not significant to the Company's reported financial results for any period presented. Accordingly, no pro forma financial statements have been presented herein.
Acquisition Costs
We recognized transaction costs related to the acquisition of $11.7 million for twelve months ended December 31, 2022, which we have recorded within other income and expense, net.
Purchase Price Allocation
The purchase price for this acquisition has been finalized. As of December 31, 2022, the valuation of the assets acquired and liabilities assumed is substantially complete, and we expect to complete this analysis within one year from the acquisition date.
The fair values assigned to assets acquired and liabilities assumed as of December 31, 2022, are based on management’s best estimates and assumptions as of the reporting date. The acquired assets and assumed liabilities, including the preliminary allocation of goodwill and intangible assets, are included in the U.S. Markets segment.
The table below summarizes the preliminary allocation of fair value of assets acquired and liabilities assumed as of April 8, 2022, the date of acquisition, inclusive of measurement period adjustments:
| | | | | |
| April 8, 2022 |
| (in millions) | VF |
Purchase price1: | $ | 505.7 | |
| |
| Assets acquired: | |
| Cash and cash equivalents | $ | 4.1 | |
| Trade accounts receivable | 26.0 | |
| Other current assets | 3.3 | |
| Current assets of discontinued operations | 16.5 | |
| Right of use lease assets | 6.6 | |
| Property, plant and equipment | 2.1 | |
Goodwill1,2 | 167.5 | |
Other intangibles1 | 195.0 | |
| Other assets | 29.0 | |
| Other assets of discontinued operations | 126.9 | |
| Total assets acquired | $ | 577.0 | |
| |
| Liabilities assumed: | |
| Trade accounts payable | $ | 4.0 | |
| Other current liabilities | 7.6 | |
| Current liabilities of discontinued operations | 7.8 | |
| Deferred revenue | 4.6 | |
| Lease liabilities | 6.5 | |
Deferred taxes1 | 40.2 | |
| Other liabilities | 0.1 | |
| Other liabilities of discontinued operations | 0.6 | |
| Total liabilities assumed | $ | 71.4 | |
| |
| Net assets acquired | $ | 505.7 | |
1.Since the date of acquisition, we decreased the purchase price for VF by $2.3 million to reflect the final purchase price adjustments. Additionally, we recorded other measurement period adjustments impacting intangibles, goodwill, and deferred taxes. The impact of these adjustments resulted in a decrease to other intangibles of $25.0 million, an increase to goodwill of $18.3 million, a decrease in deferred taxes of $4.5 million and other insignificant changes.
2.We estimate that $46.8 million of the goodwill, which originated from previous acquisitions of VF, is tax deductible.
2021 Acquisitions
Neustar
On December 1, 2021, we completed the acquisition of Neustar, Inc. (“Neustar”). We acquired 100% of the equity of Neustar for $3,100.1 million in cash, including final purchase price adjustments as set forth in the purchase agreement. The acquisition was funded primarily with the proceeds from the issuance of our Incremental Term B-6 Loan, which closed concurrently with the closing of the transaction. See Note 10, “Debt,” for additional information about our Incremental Term B-6 Loan. There was no contingent consideration resulting from this transaction.
Neustar, a premier identity resolution company with leading solutions in Marketing, Risk and Communications, enables customers to build connected consumer experiences by combining decision analytics with real-time identity resolution services driven by its OneID platform. The acquisition of Neustar provides immediate scale to our identity resolution services through Neustar’s large, well-established customer base, accelerates the future growth of our identity-based solutions and expands our powerful digital identity capabilities through the addition of distinctive data and analytics, enabling consumers and businesses to transact online with greater confidence.
We engaged in business activities with Neustar prior to the acquisition that were not material. The results of operations of Neustar subsequent to the acquisition date and the acquired assets and assumed liabilities are included in the U.S. Markets segment.
Sontiq
On December 1, 2021, we completed the acquisition of Sontiq, Inc. (“Sontiq”). We acquired 100% of the equity of Sontiq for $642.6 million in cash, including final purchase price adjustments as set forth in the purchase agreement. The acquisition was funded primarily with the proceeds from the issuance of our Second Lien Term Loan, which closed concurrently with the closing of the transaction. The Second Lien Term Loan was repaid in full prior to December 31, 2021.
Sontiq provides solutions including identity monitoring, restoration, and response products and services to help empower consumers and businesses to proactively protect against identity theft and cyber threats. The acquisition of Sontiq provides access to an attractive new base of customers and consumers through a highly recurring subscription-based revenue model and also complements and expands our Consumer Interactive solutions portfolio by providing valuable identity protection services for consumers. Sontiq’s identity security monitoring products incorporate our credit data, are highly complementary to our capabilities and are expected to significantly increase our opportunities for growth.
The results of operations of Sontiq subsequent to the acquisition date are included within the Consumer Interactive segment, and together with the acquired assets and assumed liabilities, including the allocation of goodwill and intangible assets, are included in the Consumer Interactive segment. The pro forma effects of this acquisition are not significant to the Company's reported financial results for any period presented. Accordingly, no pro forma financial statements have been presented herein.
Purchase Price Allocations
The purchase price and valuations of the assets acquired and liabilities assumed for the Neustar and Sontiq acquisitions have been finalized as of December 31, 2022. The table below summarizes the allocation of fair value of assets acquired and liabilities assumed, inclusive of measurement period adjustments:
| | | | | | | | | | | | | | | | | |
| December 1, 2021 |
| (in millions) | Neustar | | Sontiq | | Total |
Purchase price1: | $ | 3,100.1 | | | $ | 642.6 | | | $ | 3,742.7 | |
| | | | | |
| Assets acquired: | | | | | |
| Cash and cash equivalents | $ | 122.7 | | | $ | 17.8 | | | $ | 140.4 | |
| Trade accounts receivable | 118.7 | | | 10.0 | | | 128.7 | |
| Other current assets | 24.6 | | | 1.6 | | | 26.2 | |
| Right of use lease assets | 83.2 | | | 2.4 | | | 85.6 | |
Property, plant and equipment1 | 42.1 | | | 1.8 | | | 43.9 | |
Goodwill1,2 | 1,882.2 | | | 437.8 | | | 2,320.0 | |
| Other intangibles | 1,510.0 | | | 237.2 | | | 1,747.2 | |
| Other assets | 5.4 | | | 0.2 | | | 5.6 | |
| Total assets acquired | $ | 3,788.9 | | | $ | 708.7 | | | $ | 4,497.6 | |
| | | | | |
| Liabilities assumed: | | | | | |
| Accounts payable | $ | 29.1 | | | $ | 7.3 | | | $ | 36.4 | |
| Other current liabilities | 154.7 | | | 4.8 | | | 159.6 | |
| Deferred revenue | 49.3 | | | 19.1 | | | 68.5 | |
| Operating lease liabilities | 87.8 | | | 2.4 | | | 90.1 | |
| Other liabilities | 13.4 | | | 0.1 | | | 13.5 | |
Deferred tax liabilities1 | 354.4 | | | 32.4 | | | 386.8 | |
| Total liabilities assumed | $ | 688.8 | | | $ | 66.1 | | | $ | 754.9 | |
| | | | | |
| Net assets acquired: | $ | 3,100.1 | | | $ | 642.6 | | | $ | 3,742.7 | |
1.During the twelve months ended December 31, 2022, the purchase price for Neustar was reduced by $6.5 million to reflect the final purchase price adjustments. Measurement period adjustments for Neustar included a decrease to
goodwill of $18.1 million, a decrease in deferred tax liabilities of $10.7 million, and other insignificant changes. Purchase price adjustments for Sontiq were insignificant for the twelve months ended December 31, 2022. Measurement period adjustments in 2022 for Sontiq included a $7.9 million decrease in Goodwill, a $3.4 million decrease in property, plant and equipment, and a $11.8 million decrease in deferred income tax liabilities, and other insignificant changes.
2.For tax purposes, we estimate that $285.9 million of the goodwill, which originated from previous acquisitions of Neustar and Sontiq, is tax deductible.
Identifiable Intangible Assets and Goodwill
Identifiable Intangible Assets
The following table sets forth the components of identifiable intangible assets acquired and the weighted average amortization period as of the acquisition date:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| April 8, 2022 | | December 1, 2021 |
| Argus1 | | Neustar1 | | Sontiq1 |
| (dollars in millions) | Preliminary Fair Value | | Weighted-Average Amortization Period | | Fair Value | | Weighted-Average Amortization Period | | Fair Value | | Weighted-Average Amortization Period |
| Customer related assets | $ | 171.0 | | | 18 years | | $ | 1,180.0 | | | 18 years | | $ | 183.3 | | | 17 years |
| Technology and software | 22.0 | | | 7 years | | 320.0 | | | 10 years | | 49.7 | | | 10 years |
| Trade names and trademarks | 2.0 | | | 1 year | | 10.0 | | | 1 year | | 1.5 | | | 1 year |
| Non-compete agreements | — | | | 0 | | — | | | 0 | | 2.7 | | | 2 years |
| Total identifiable intangible assets | $ | 195.0 | | | 16 years | | $ | 1,510.0 | | | 16 years | | $ | 237.2 | | | 15 years |
(1)As of December 31, 2022, the valuation of intangible assets is substantially complete for Argus, and final for Neustar and Sontiq.
In determining the fair value of the identifiable intangible assets, we utilized various forms of the income approach, depending on the asset being valued. The estimation of fair value requires significant judgment related to cash flow forecasts, discount rates reflecting the risk inherent in each cash flow stream, competitive trends, market comparables and other factors. Other inputs included historical data, current and anticipated market conditions, and growth rates.
The intangible assets were valued using the following valuation approaches:
Customer Relationships
For each acquisition, a customer related asset was deemed to be the primary asset, which we valued using the multi-period excess-earnings method, a form of the income approach, which required the application of judgment for significant assumptions. Significant assumptions include customer attrition rates, EBITDA margins, and discount rates.
For Argus, we also identified another customer related asset that met the criteria to be recognized separately from the primary asset, which we valued using the lost income method, a form of the income approach, which required the application of judgment for significant assumptions. Significant assumptions include the expected length of time to recreate the customer relationships, EBITDA margins, and discount rates.
Technology and software
We valued the developed technology using the relief-from-royalty method, a form of the income approach, which required the application of judgment for significant assumptions. Significant assumptions include the royalty rate, economic depreciation factors, and discount rates.
Other identifiable intangible assets
Other identifiable intangible assets include trade names and trademarks and non-compete agreements for key employees, which are not material. Trade names and trademarks were valued using the relief from royalty method, and non-compete agreements were valued using the lost income method.
Goodwill
We recorded the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired and liabilities assumed as goodwill. The purchase price of each acquisition exceeded the fair value of the net assets acquired due primarily to expected future revenue growth opportunities, synergies, operating efficiencies, and the assembled workforce. The acquisition of Argus provides proprietary competitive portfolio performance insights sourced from a consortium of financial institutions that, when combined with TransUnion’s authoritative datasets, is expected to allow us to better serve our customers by providing enhanced insights and solutions. The acquisition of Neustar is expected to accelerate growth through both material revenue synergies and increased participation in the fast-growing digital marketing and identity verification marketplaces. The acquisition of Sontiq is expected to result in a more comprehensive set of offerings which are expected to significantly increase growth opportunities for the Company.
Unaudited pro-forma financial information
The supplemental pro-forma financial information has been prepared using the acquisition method of accounting and is based on the historical financial information of TransUnion and Neustar, assuming the transaction occurred on January 1, 2020. The pro-forma revenues and results of operations of Sontiq and Argus are not included because the impact on our consolidated financial statements is immaterial. The supplemental pro-forma financial information does not necessarily represent what the combined companies' revenue or results of operations would have been had the acquisition of Neustar been completed on January 1, 2020, nor is it intended to be a projection of future operating results of the combined company. It also does not reflect any operating efficiencies or potential cost savings that might be achieved from synergies of combining TransUnion and Neustar.
The unaudited supplemental pro-forma financial information has been calculated after applying TransUnion’s accounting policies and adjusting the results of the combined company to reflect incremental amortization expense resulting from the fair value adjustments for acquired intangible assets as well as the net decrease to interest expense resulting from the elimination of the historical interest expense on Neustar debt that was paid off at closing partially offset by incremental interest expense resulting from the external debt borrowed by TransUnion to fund the acquisition, and the corresponding income tax impact of these adjustments.
Also, during the year ended December 31, 2021, TransUnion and Neustar incurred $29.7 million and $88.2 million of acquisition-related costs, respectively. These expenses are reflected in pro-forma net income from continuing operations attributable to TransUnion for the year ended December 31, 2020, in the table below and the acquisition related expenses incurred by TransUnion are included in other income (expense), net, in our consolidated statement of income for the year ended December 31, 2021.
There are no other material non-recurring pro-forma adjustments directly attributable to the Neustar acquisition included in the reported pro-forma revenue and pro-forma net income.
| | | | | | | | | | | |
| (Unaudited) |
| TransUnion and Neustar combined |
| For the Year Ended |
| (in millions) | December 31,
2021 | | December 31,
2020 |
| Pro-forma revenue | $ | 3,493.2 | | | $ | 3,064.5 | |
| Pro-forma net income from continuing operations attributable to TransUnion | $ | 247.6 | | | $ | 72.9 | |
2020 Acquisitions
During 2020, we acquired 100% of the equity of Tru Optik Data Corp (“Tru Optik”) and Signal Digital, Inc. (“Signal”). The results of operations of Tru Optik and Signal, which are not material to our consolidated financial statements, have been included as part of our U.S. Markets reportable segment in our consolidated statements of income since the date of each of the acquisitions. During 2021, we finalized the purchase accounting for Tru Optik and Signal, with no material changes to our previous estimates.
3. Discontinued Operations
Non-core businesses from the VF acquisition
As discussed in Note 2, “Business Acquisitions,” on April 8, 2022, we completed the acquisition of VF, which included Argus and several non-core businesses that we classified as held-for-sale as of the acquisition date. We classified the results of operations of the non-core businesses as discontinued operations, net of tax, in the consolidated statements of income for the year ended December 31, 2022. In the fourth quarter, we classified additional assets of Argus as held-for-sale. On December
30, 2022, we divested the non-core businesses, including the assets we classified as held-for-sale in the fourth quarter. As we sold these businesses on December 30, 2022, there are no assets or liabilities of these businesses on our consolidated balance sheet as of December 31, 2022.
We received total proceeds of $173.9 million, consisting of $103.6 million in cash, and a note receivable with a face value of $72.0 million and a fair value of $70.3 million. The purchase price is subject to certain customary adjustments. We recognized a $7.5 million gain on the sale of these businesses, which is included in discontinued operations, net of tax.
Healthcare business
On December 17, 2021, we completed the sale of our Healthcare business for total consideration of $1,706.4 million in cash, including a $0.5 million true-up to our estimate of net working capital recorded in the twelve months ended December 31, 2022. The after-tax net proceeds were approximately $1.4 billion. The terms and conditions of the transaction are set forth in the Stock Purchase Agreement dated as of October 26, 2021, by and between Trans Union LLC and nThrive, Inc. (“nThrive”). We also entered into a transition services agreement (“TSA”) that requires Trans Union LLC to provide certain administrative and operational services to nThrive on a transitional basis for generally up to 24 months. This agreement is not material and does not confer upon us the ability to influence the operating or financial policies of nThrive subsequent to the closing date. Income generated from the services provided under the TSA has been recorded in other income and (expense), net in the consolidated statements of income.
As the transaction closed on December 17, 2021, there are no assets or liabilities of the Healthcare business on our consolidated balance sheet as of December 31, 2022 and December 31, 2021. We classified the results of operations of our Healthcare business as discontinued operations, net of tax, in our consolidated statements of income. We recognized gains on the sale of our Healthcare business within discontinued operations, net of tax, of $0.5 million and $982.5 million, in the consolidated statements of income for the twelve months ended December 31, 2022 and 2021, respectively, with respect to this sale.
Discontinued operations, net of tax
Discontinued operations, net of tax, for the twelve months ended December 31, 2022 as reflect in the table below is related to the non-core businesses of our VF acquisition, as well as an incremental gain on sale of discontinued operations resulting from the final net working capital adjustment related to our Healthcare business. The results reflected for the twelve months ended December 31, 2021 and December 31, 2020, are exclusively attributed to the Healthcare business that we disposed of in December 2021:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended
December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| Revenue | $ | 36.7 | | | $ | 184.8 | | | $ | 185.9 | |
| Operating expenses | | | | | |
| Cost of services (exclusive of depreciation and amortization below) | 11.7 | | | 65.6 | | | 66.5 | |
| Selling, general and administrative | 14.9 | | | 39.1 | | | 30.6 | |
| Depreciation and amortization | — | | | 16.5 | | | 21.1 | |
| Total operating expenses | 26.6 | | | 121.2 | | | 118.2 | |
| Operating income of discontinued operations | 10.1 | | | 63.6 | | | 67.7 | |
| Non-operating income and (expense) | (0.5) | | | 1.9 | | | (1.4) | |
| Income before income taxes from discontinued operations | 9.6 | | | 65.5 | | | 66.3 | |
| Provision for income taxes | (0.1) | | | (16.3) | | | (16.5) | |
| Gain on sale of discontinued operations, net of tax | 8.0 | | | 982.5 | | | — | |
| Discontinued operations, net of tax | $ | 17.4 | | | $ | 1,031.7 | | | $ | 49.8 | |
4. Other Current Assets
Other current assets consisted of the following: | | | | | | | | | | | |
| (in millions) | December 31,
2022 | | December 31,
2021 |
| Prepaid expenses | $ | 145.1 | | | $ | 136.2 | |
| Contract assets (Note 15) | 11.4 | | | 5.2 | |
| Marketable securities (Note 19) | 2.6 | | | 3.1 | |
| Other | 103.6 | | | 87.1 | |
| Total other current assets | $ | 262.7 | | | $ | 231.6 | |
Other includes other investments in non-negotiable certificates of deposit that are recorded at their carrying value which approximates fair value.
5. Property, Plant and Equipment
Property, plant and equipment, including those acquired by finance lease, consisted of the following:
| | | | | | | | | | | |
| (in millions) | December 31,
2022 | | December 31,
2021 |
| Computer equipment and furniture | $ | 555.7 | | | $ | 511.8 | |
| Purchased software | 227.6 | | | 218.3 | |
| Building and building improvements | 143.1 | | | 139.9 | |
| Land | 3.2 | | | 3.2 | |
| Total cost of property, plant and equipment | 929.6 | | | 873.1 | |
| Less: accumulated depreciation | (711.3) | | | (625.4) | |
| Total property, plant and equipment, net of accumulated depreciation | $ | 218.2 | | | $ | 247.7 | |
Depreciation expense, including depreciation of assets recorded under finance leases, for the years ended December 31, 2022, 2021 and 2020, was $105.9 million, $98.8 million and $94.0 million, respectively.
6. Goodwill
Our reporting units consist of U.S. Markets, Consumer Interactive, and the geographic regions of the United Kingdom, Africa, Canada, Latin America, India, and Asia Pacific within our International reportable segment.
We perform our annual goodwill impairment tests as of October 31. In 2022, 2021 and 2020 we elected to bypass the qualitative goodwill impairment analysis, and instead performed a quantitative goodwill impairment test for all reporting units. We compared the fair value of each reporting unit to its carrying value including goodwill. For each of our reporting units, the fair value exceeded the carrying value and no impairment loss was recorded. For our United Kingdom reporting unit, we had $681.2 million of goodwill as of December 31, 2022. The calculated excess fair value over carrying value was less than 10% of its carrying value as of October 31, 2022, our annual assessment date. Therefore, we concluded no impairment existed for this reporting unit. As of December 31, 2022, there was no accumulated goodwill impairment loss for any reporting unit.
Goodwill allocated to our reportable segments as of December 31, 2022, and 2021, and the changes in the carrying amount of goodwill during the periods, consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | U.S. Markets | | International | | Consumer
Interactive | | Total |
| Balance, December 31, 2020 | $ | 1,562.3 | | | $ | 1,423.1 | | | $ | 241.2 | | | $ | 3,226.6 | |
| 2021 Acquisitions | 1,900.2 | | | — | | | 445.8 | | | 2,346.0 | |
| Purchase accounting measurement period adjustments | (7.9) | | | — | | | — | | | (7.9) | |
| Foreign exchange rate adjustment | — | | | (39.0) | | | — | | | (39.0) | |
| Balance, December 31, 2021 | $ | 3,454.6 | | | $ | 1,384.1 | | | $ | 687.0 | | | $ | 5,525.7 | |
| 2022 Acquisitions | 167.5 | | | — | | | — | | | 167.5 | |
| Purchase accounting measurement period adjustments | (18.1) | | | — | | | (7.9) | | | (26.0) | |
| Foreign exchange rate adjustment | (1.3) | | | (114.5) | | | — | | | (115.8) | |
| Balance, December 31, 2022 | $ | 3,602.7 | | | $ | 1,269.6 | | | $ | 679.1 | | | $ | 5,551.4 | |
7. 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. Intangible assets consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| (in millions) | Gross | | Accumulated
Amortization | | Net | | Gross | | Accumulated
Amortization | | Net |
| Customer relationships | $ | 2,048.6 | | | $ | (330.9) | | | $ | 1,717.7 | | | $ | 1,918.1 | | | $ | (225.3) | | | $ | 1,692.8 | |
| Internal use software | 1,959.8 | | | (1,029.8) | | | 930.0 | | | 1,765.9 | | | (874.5) | | | 891.4 | |
| Database and credit files | 1,337.7 | | | (725.6) | | | 612.1 | | | 1,403.3 | | | (655.0) | | | 748.3 | |
| Trademarks, copyrights and patents | 587.7 | | | (173.2) | | | 414.5 | | | 581.9 | | | (146.7) | | | 435.2 | |
| Noncompete and other agreements | 10.5 | | | (9.1) | | | 1.4 | | | 10.3 | | | (7.4) | | | 2.9 | |
| Total intangible assets | $ | 5,944.1 | | | $ | (2,268.6) | | | $ | 3,675.5 | | | $ | 5,679.5 | | | $ | (1,908.9) | | | $ | 3,770.6 | |
Changes in the carrying amount of intangible assets between periods consisted of the following:
| | | | | | | | | | | | | | | | | |
| (in millions) | Gross | | Accumulated Amortization | | Net |
| Balance, December 31, 2021 | $ | 5,679.5 | | | $ | (1,908.9) | | | $ | 3,770.6 | |
| Business acquisitions | 193.4 | | | — | | | 193.4 | |
| Developed internal use software | 214.4 | | | — | | | 214.4 | |
| Amortization | — | | | (413.1) | | | (413.1) | |
| Reclassified to assets-held-for-sale | (13.8) | | | — | | | (13.8) | |
| Disposals | (15.9) | | | 14.7 | | | (1.2) | |
| Foreign exchange rate adjustment | (113.5) | | | 38.7 | | | (74.8) | |
| Balance, December 31, 2022 | $ | 5,944.1 | | | $ | (2,268.6) | | | $ | 3,675.5 | |
All amortizable intangible assets are amortized on a straight-line basis, which approximates the pattern of benefit, over their estimated useful lives. Database and credit files are generally amortized over a 12 to 15 year period. Internal use software is generally amortized over 3 to 10 year period. Customer relationships are amortized over a 10 to 20 year period. Trademarks primarily consist of the TransUnion trade name, which is being amortized over a 40 year useful life, and the remaining trademark assets are generally amortized over a shorter period based on their estimated useful life, which ranges between 1 and 20 years. Copyrights, patents, noncompete and other agreements are amortized over varying periods based on their estimated useful lives. The weighted average lives of our intangibles is approximately 15 years.
Amortization expense related to intangible assets for the years ended December 31, 2022, 2021 and 2020, was $413.1 million, $278.2 million and $252.7 million, respectively. Estimated future amortization expense related to intangible assets at December 31, 2022, is as follows:
| | | | | |
| (in millions) | Annual
Amortization
Expense |
| 2023 | $ | 417.8 | |
| 2024 | 390.4 | |
| 2025 | 369.3 | |
| 2026 | 347.4 | |
| 2027 | 288.6 | |
| Thereafter | 1,862.0 | |
| Total future amortization expense | $ | 3,675.5 | |
8. Other Assets
Other assets consisted of the following:
| | | | | | | | | | | |
| (in millions) | December 31,
2022 | | December 31,
2021 |
| Investments in affiliated companies (Note 9) | $ | 265.9 | | | $ | 240.5 | |
| Right-of-use lease assets (Note 2 and 13) | 127.4 | | | 145.1 | |
| Interest rate swaps (Notes 12 and 19) | 237.7 | | | 12.1 | |
| Note Receivable (Note 3 and 19) | 70.3 | | | — | |
| Deferred Income Tax Asset (Note 17) | 8.2 | | | 10.0 | |
| Other | 61.5 | | | 51.3 | |
| Total other assets | $ | 771.0 | | | $ | 459.0 | |
The increase in investments in affiliated companies was due primarily to a cost method investment acquired as part of our acquisition of Argus. The increase in the interest rate swaps asset was due primarily to changes in the forward LIBOR curve during the period. Note receivable relates to the sale of our discontinued operations businesses in December 2022.
9. 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.
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 account for nonmarketable investments in equity securities in which we are not able to exercise significant influence, our “Cost Method Investments”, at our initial cost, minus any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. For these investments, we adjust the carrying value for any purchases or sales of our ownership interests. We record any dividends received from these investments as other income in non-operating income and expense.
We have elected to account for our investment in a limited partnership, which is not material, using the net asset value fair value practical expedient. Gains and losses on this investment, which are not material, are included in other income and expense in the consolidated statements of income.
Investments in affiliated companies consisted of the following:
| | | | | | | | | | | |
| (in millions) | December 31,
2022 | | December 31,
2021 |
| Cost Method Investments | $ | 213.1 | | | $ | 192.6 | |
| Equity Method investments | 49.8 | | | 46.1 | |
| Limited Partnership investment | 3.0 | | | 1.8 | |
| Total investments in affiliated companies (Note 8) | $ | 265.9 | | | $ | 240.5 | |
These balances are included in other assets in the consolidated balance sheets. During 2022, we acquired a Cost Method investment as part of our VF acquisition which has a carrying value of $25.1 million as of December 31, 2022. We also recorded an impairment of $4.8 million of another Cost Method Investment. During 2021, we recorded a $12.5 million gain on a Cost Method Investment resulting from an observable price change for a similar investment of the same issuer. During 2020, we recorded a $4.8 million impairment loss of a Cost Method investment, partially offset by a $2.5 million gain on a Cost Method investment resulting from an observable price change for a similar investment of the same issuer. These gains and losses are included in other income and expense in the consolidated statements of income.
For one of these costs method investments, under the terms of the purchase agreement, there are call and put options associated with the investment that are exercisable in 2024 and 2025, subject to certain restrictions. The fair value of the call option is included in other assets on our balance sheet. The fair value of the put option is included in other liabilities on our balance sheet, and will be adjusted to fair value at each reporting date. See Note 11, “Other Liabilities,” and Note 19, “Fair Value,” for additional information about the contingent consideration and put option.
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) | | 2022 | | 2021 | | 2020 |
| Earnings from equity method investments (Note 20) | | $ | 13.0 | | | $ | 12.0 | | | $ | 8.9 | |
| Dividends received from equity method investments | | 11.6 | | | 11.0 | | | 8.2 | |
10. Other Current Liabilities
Other current liabilities consisted of the following:
| | | | | | | | | | | |
| (in millions) | December 31,
2022 | | December 31,
2021 |
| Accrued payroll and employee benefits | $ | 208.5 | | | $ | 279.9 | |
| Accrued legal and regulatory matters (Note 22) | 125.0 | | | 85.6 | |
| Deferred revenue (Note 15) | 111.9 | | | 133.6 | |
| Operating lease liabilities (Note 13) | 33.7 | | | 38.4 | |
| Income taxes payable (Note 3 and Note 17) | 8.0 | | | 351.1 | |
| Contingent consideration (Note 19) | — | | | 16.8 | |
| Other | 53.5 | | | 66.8 | |
| Total other current liabilities | $ | 540.5 | | | $ | 972.2 | |
The decrease in accrued payroll and employee benefits is due primarily to lower accrued bonus payments in 2022 compared to 2021. The increase in accrued legal and regulatory was due primarily to an increase of our estimated liabilities for certain legal and regulatory matters. The decrease in income taxes payable was due primarily to the taxes due on the gain on the sale of our Healthcare business that were paid in 2022.
11. Other Liabilities
Other liabilities consisted of the following:
| | | | | | | | | | | |
| (in millions) | December 31,
2022 | | December 31,
2021 |
| Operating lease liabilities (Note 13) | $ | 102.0 | | | $ | 119.1 | |
| Unrecognized tax benefits, net of indirect tax effects (Note 17) | 40.1 | | | 40.7 | |
| Put option (Note 9 and 19) | 10.0 | | | 11.9 | |
| Deferred revenue (Note 15) | 5.3 | | | 6.5 | |
| Interest rate swaps (Notes 12 and 19) | — | | | 34.5 | |
| Other | 16.5 | | | 20.2 | |
| Total other liabilities | $ | 173.9 | | | $ | 232.9 | |
The decrease in the interest rate swaps liability was due primarily to changes in the forward LIBOR curve during the period.
12. Debt
Debt outstanding consisted of the following:
| | | | | | | | | | | |
| (in millions) | December 31,
2022 | | December 31,
2021 |
Senior Secured Term Loan B-6, payable in quarterly installments through December 1, 2028, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (6.63% at December 31, 2022, and 2.75% at December 31, 2021), net of original issue discount and deferred financing fees of $5.3 million and $29.9 million, respectively, at December 31, 2022, and original issue discount and deferred financing fees of $7.7 million and $43.1 million, respectively, at December 31, 2021 | $ | 2,433.7 | | | $ | 3,049.2 | |
Senior Secured Term Loan B-5, payable in quarterly installments through November 15, 2026, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (6.13% at December 31, 2022, and 1.85% at December 31, 2021), net of original issue discount and deferred financing fees of $2.5 million and $6.2 million, respectively, at December 31, 2022, and original issue discount and deferred financing fees of $3.2 million and $7.7 million, respectively, at December 31, 2021 | 2,203.3 | | | 2,227.1 | |
Senior Secured Term Loan A-3, payable in quarterly installments through December 10, 2024, with periodic variable interest at LIBOR or alternate base rate, plus applicable margin (6.13% at December 31, 2022 and 1.35% at December 31, 2021), net of original issue discount and deferred financing fees of $1.3 million and $0.8 million, respectively, at December 31, 2022, and original issue discount and deferred financing fees of $1.9 million and $1.2 million, respectively, at December 31,2021 | 1,033.0 | | | 1,089.4 | |
| Finance leases | 0.1 | | | 0.2 | |
| Senior Secured Revolving Credit Facility | — | | | — | |
| Total debt | 5,670.1 | | | 6,365.9 | |
| Less short-term debt and current portion of long-term debt | (114.6) | | | (114.6) | |
| Total long-term debt | $ | 5,555.5 | | | $ | 6,251.3 | |
Excluding any potential additional principal payments which may become 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, 2022, were as follows:
| | | | | | | | |
| (in millions) | | December 31,
2022 |
| 2023 | | $ | 114.6 | |
| 2024 | | 1,034.5 | |
| 2025 | | 57.0 | |
| 2026 | | 2,165.0 | |
| 2027 | | 31.0 | |
| Thereafter | | 2,314.0 | |
| Unamortized original issue discounts and deferred financing fees | | (46.0) | |
| Total debt | | $ | 5,670.1 | |
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 B-6, Senior Secured Term Loan B-5, Senior Secured Term Loan A-3 (collectively, the “Senior Secured Term Loans”), and the Senior Secured Revolving Credit Facility.
On December 1, 2021, we entered into an agreement to amend certain provisions of the Senior Secured Credit Facility and exercise our right to draw additional debt in an amount of $3,100.0 million, less original issue discount and deferred financing fees of $7.8 million and $43.6 million, respectively. Proceeds from the incremental loan on the Senior Secured Credit Facility were used to fund the acquisition of Neustar.
In addition, on December 1, 2021, we entered into a Second Lien Credit Agreement to obtain term loans (the “Second Lien Term Loan”) in an aggregate amount of $640.0 million, less original issue discount and deferred financing fees of $3.2 million and $14.3 million, respectively, used to fund the acquisition of Sontiq. On December 23, 2021, we fully repaid the Second Lien Term Loan using a portion of the proceeds from our sale of the Healthcare business. As a result of the prepayment, we
expensed $3.2 million and $14.2 million, respectively, of the unamortized original issue discount and deferred fees to other income and expense in the consolidated statement of income.
During 2022 and 2021, we prepaid $600.0 million and $85.0 million, respectively, of our Senior Secured Term Loans, funded from our cash on hand. As a result of these prepayments, we expensed $9.3 million and $0.5 million, respectively, of the unamortized original issue discount and deferred fees to other income and expense in the consolidated statement of income.
Interest rates on the Senior Secured Term Loan B-6 are based on the London Interbank Offered Rate (“LIBOR”) with a floor of 0.50%, unless otherwise elected, plus a margin of 2.25% or 2.00% depending on our total net leverage ratio. The Company is required to make principal payments at the end of each quarter of 0.25% of the 2021 incremental principal balance plus additional borrowings with the remaining balance due December 1, 2028.
Interest rates on the Senior Secured Term Loan B-5 are based on LIBOR, unless otherwise elected, plus a margin of 1.75%. The Company is required to make principal payments at the end of each quarter of 0.25% of the 2019 refinanced principal balance plus additional borrowings with the remaining balance due November 15, 2026.
Interest rates on Senior Secured Term Loan A-3 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 2019 refinanced principal balance plus additional borrowings, at the end of each quarter through December 2021, increasing to 1.25% each quarter thereafter, with the remaining balance due December 10, 2024.
Interest rates on the Senior Secured Revolving Credit Facility 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 Credit Facility. The commitment under the Senior Secured Revolving Line of Credit expires on December 10, 2024.
Interest rates on the Second Lien Term Loan were based on LIBOR, unless otherwise elected, plus a margin of 5.00%. The Company was required to repay the principal balance plus interest due December 1, 2029, however, the loan was repaid in full on December 23, 2021.
The Company may be required to make additional payments based on excess cash flows of the prior year, as defined in the agreement. 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 is no required excess cash flow payment due for 2022. Additional payments based on excess cash flows could be due in future years.
As of December 31, 2022, we had no outstanding balance under the Senior Secured Revolving Credit Facility and $0.1 million of outstanding letters of credit, and could have borrowed up to the remaining $299.9 million available.
TransUnion also has the ability to request incremental loans on the same terms under the Senior Secured Credit Facility up to the sum of the greater of $1,000.0 million and 100% of Consolidated EBITDA, minus the amount of secured indebtedness and the amount incurred prior to the incremental loan, and may incur additional incremental loans so long as the senior secured net leverage ratio does not exceed 4.25-to-1, subject to certain additional conditions and commitments by existing or new lenders to fund any additional borrowings.
With certain exceptions, the Senior Secured Credit Facility obligations are secured by a first-priority security interest in substantially all of the assets of Trans Union LLC, including its investment in subsidiaries. The Senior Secured Credit Facility contains various restrictions and nonfinancial covenants, along with a senior secured net leverage ratio test. The nonfinancial covenants include restrictions on dividends, investments, dispositions, future borrowings and other specified payments, as well as additional reporting and disclosure requirements. The senior secured net leverage test must be met as a condition to incur additional indebtedness, make certain investments, and may be required to make certain restricted payments. The senior secured net leverage ratio must not exceed 5.5-to-1 at any such measurement date. Under the terms of the Senior Secured Credit Facility, TransUnion may make dividend payments up to the greater of $100 million or 10.0% of Consolidated EBITDA per year, or an unlimited amount provided that no default or event of default exists and so long as the total net leverage ratio does not exceed 4.75-to-1. As of December 31, 2022, we were in compliance with all debt covenants.
Interest Rate Hedging
On November 16, 2022, we entered into interest rate swap agreements with various counterparties that effectively fix our LIBOR exposure on a portion of our Senior Secured Term Loan or similar replacement debt. The new swaps commenced on December 30, 2022, and expire on December 31, 2024, with a current aggregate notional amount of $1,320.0 million that amortizes each quarter. The new swaps require us to pay fixed rates varying between 4.4105% and 4.4465% in exchange for receiving a variable rate that matches the variable rate on our loans. We have designated these swap agreements as cash flow hedges.
On December 23, 2021, we entered into interest rate swap agreements with various counterparties that effectively fix our LIBOR exposure on a portion of our Senior Secured Term Loan or similar replacement debt. The new swaps commenced on December 31, 2021, and expire on December 31, 2026, with a current aggregate notional amount of $1,584.0 million that amortizes each quarter. The tranche requires us to pay fixed rates varying between 1.4280% and 1.4360% in exchange for receiving a variable rate that matches the variable rate on our loans. We have designated these swap agreements as cash flow hedges.
On March 10, 2020, we entered into two interest rate swap agreements with various counterparties that effectively fix our LIBOR exposure on a portion of our Senior Secured Term Loans or similar replacement debt. The first swap commenced on June 30, 2020, and expired on June 30, 2022. The second swap commences on June 30, 2022, and expires on June 30, 2025, with a current aggregate notional amount of $1,100.0 million that amortizes each quarter after it commences. The second swap requires us to pay fixed rates varying between 0.9125% and 0.9280% in exchange for receiving a variable rate that matches the variable rate on our loans. We have designated these swap agreements as cash flow hedges.
On December 17, 2018, we entered into interest rate swap agreements with various counterparties that effectively fixed our LIBOR exposure on a portion of our Senior Secured Term Loans or similar replacement debt at 2.702% and 2.706%. These swap agreements expired on December 30, 2022.
On December 18, 2015, we entered into interest rate cap agreements with various counterparties that effectively capped our LIBOR exposure on a portion of our Senior Secured Term Loans or similar replacement debt at 0.75% beginning June 30, 2016. These cap agreements expired on June 30, 2020, and were previously designated as cash flow hedges.
The change in the fair value of our hedging instruments, included in our assessment of hedge effectiveness, is recorded in other comprehensive income, and reclassified to interest expense when the corresponding hedged debt affects earnings.
The net change in the fair value of the swaps resulted in an unrealized gain of $260.1 million ($195.2 million, net of tax), an unrealized gain of $67.3 million ($50.5 million, net of tax), and an unrealized loss of $43.5 million ($32.7 million, net of tax) for the years ended December 31, 2022, 2021 and 2020, respectively, recorded in other comprehensive income. Interest income on the swaps in the twelve months ended December 31, 2022 was $8.3 million ($6.2 million, net of tax). Interest expense on the swaps in the twelve months ended December 31, 2021 and 2020 was $41.8 million ($31.4 million, net of tax) and $32.3 million ($23.3 million, net of tax), respectively. We expect to recognize a loss of approximately $102.4 million as interest expense due to our expectation that LIBOR will exceed the fixed rates of interest over the next twelve months.
Fair Value of Debt
As of December 31, 2022 and 2021, the fair value of our Senior Secured Term Loan B-6, excluding original issue discounts and deferred fees, was approximately $2,450.5 million and $3,096.1 million, respectively. As of December 31, 2022 and 2021, the fair value of our Senior Secured Term Loan B-5, excluding original issue discounts and deferred fees, was approximately $2,184.4 million and $2,217.0 million, respectively. As of December 31, 2022 and 2021, the fair value of our variable-rate Senior Secured Term Loan A-3, excluding original issue discounts and deferred fees was approximately $1,026.6 million and $1,076.1 million, respectively. The fair values of our variable-rate term loans are determined using Level 2 inputs, based on quoted market prices for the publicly traded instruments.
13. Leases
As a result of our acquisition of Argus, we acquired additional leases in 2022. Our lease obligations consist of operating leases for office space and data centers and a small number of finance leases for equipment. Our operating leases have remaining lease terms of up to 10.2 years. As of December 31, 2022 and 2021 the weighted-average remaining lease terms were 6.4 years and 6.6 years, respectively. We have options to extend many of our operating leases for an additional period of time and options to terminate several of our operating leases early. The lease term consists of the non-cancelable period of the lease, periods covered by options to extend the lease if we are reasonably certain to exercise the option, periods covered by an option to terminate the lease if we are reasonably certain not to exercise the option, and periods covered by an option to extend or not to terminate the lease in which the exercise of the option is controlled by the lessor.
On the commencement date of an operating lease, we record a right-of-use asset (“ROU asset”), which represents our right to use or control the use of the specified asset for the lease term, and an offsetting lease liability, which represents our obligation to make lease payments arising from the lease, based on the present value of the net fixed future lease payments due over the initial lease term. We use an estimate of the incremental borrowing rate for similarly rated debt issuers, at the inception of the lease or when the lease is assumed, as the discount rate to determine the present value of the net fixed future lease payments, except for leases where the interest rate implicit in the lease is readily determinable. As of December 31, 2022 and 2021, the weighted-average discount rate at lease inception used to calculate the present value of the fixed future lease payments were 4.2% and 4.1%, respectively.
Lease accounting guidance under Accounting Standards Codification 842 Leases (“ASC 842”) requires us to expense the net fixed payments of operating leases on a straight-line basis over the lease term. ASC 842 requires us to include any built up deferred or prepaid rent balance resulting from the difference between the straight-line expense and the cash payments as a component of our ROU asset. Also included in our ROU asset is any monthly prepayment of rent. Our rent expense is typically due on the first day of each month, and we typically pay rent several weeks before it is due, so at any given month end, we will have a prepaid rent balance that is included as a component of our ROU asset.
Our operating leases principally involve office space with fixed monthly lease payments that may also contain variable non-lease components consisting of common area maintenance, operating expenses, insurance and similar costs of the space that we occupy. We have adopted the practical expedient to not separate these non-lease components from the lease components and instead account for them as a single lease component for all of our leases. This practical expedient allows us to allocate the fixed lease components and the variable non-lease components based on the contractually stated amounts, with the fixed lease components included in our ROU assets and lease liability values. The variable payments are not included within the operating lease ROU assets or lease liabilities and are expensed in the period in which they are incurred.
We have no significant short-term operating leases, finance leases, or subleases.
ROU assets are included in Other Assets, and operating lease liabilities are included in Other Current Liabilities and Other Liabilities in our Consolidated Balance Sheet. Finance lease assets are included in Property, Plant and Equipment, and finance lease liabilities are included in the Current Portion of Long-term Debt and Long-term Debt in our Consolidated Balance Sheet. See Note 8, “Other Assets,” Note 10, “Other Current Liabilities,” Note 11, “Other Liabilities,” and Note 12, “Debt,” for additional information about these items.
For the years ended December 31, 2022, 2021, 2020 our operating lease costs, including fixed, variable and short-term lease costs, were $44.5 million, $30.4 million, $33.4 million, respectively. Cash paid for operating leases are included in operating cash flows, and were $36.5 million, $30.9 million, and $34.2 million, for the years ended December 31, 2022, 2021, and 2020, respectively. Our finance lease amortization expense, interest expense, and cash paid were not significant for the reported periods.
We have elected to use the portfolio approach to assess the discount rate we use to calculate the present value of our future lease payments. Using this approach does not result in a materially different outcome compared with applying separate discount rates to each lease in our portfolio.
We have adopted an accounting policy to recognize rent expense for short-term leases, those leases with initial lease terms of twelve months or less, on a straight-line basis in our income statement.
Future fixed payments for non-cancelable operating leases and finance leases in effect as of December 31, 2022, are payable as follows:
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Operating Leases | | Finance Leases | | Total |
| 2023 | | $ | 38.2 | | | $ | 0.1 | | | $ | 38.3 | |
| 2024 | | 29.4 | | | — | | | 29.4 | |
| 2025 | | 19.9 | | | — | | | 19.9 | |
| 2026 | | 15.6 | | | — | | | 15.6 | |
| 2027 | | 12.0 | | | — | | | 12.0 | |
| Thereafter | | 39.6 | | | — | | | 39.6 | |
| Less imputed interest | | (19.0) | | | — | | | (19.0) | |
| Totals | | $ | 135.7 | | | $ | 0.1 | | | $ | 135.8 | |
14. Stockholders’ Equity
The dividend rate was $0.105 per share in the third and fourth quarters of 2022, $0.095 per share per quarter from the second quarter 2021 to the second quarter 2022 and $0.075 per share per quarter from the first quarter 2020 to the first quarter 2021.
During 2022, 2021 and 2020, we paid dividends of $77.8 million, $69.8 million and $57.6 million, respectively. Dividends declared accrue to outstanding restricted stock units and are paid to employees as dividend equivalents when the restricted stock units vest.
Any determination to pay dividends in the future will be at the discretion of our board of directors and will depend on a number of factors, including our liquidity, results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems appropriate. We currently have capacity and intend to continue to pay a quarterly dividend, subject to approval by our board.
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 3 years. Our board of directors removed the three-year time limitation on February 8, 2018. To date, we have repurchased $133.5 million of our common stock and have the ability to repurchase the remaining $166.5 million.
We have no obligation to repurchase additional shares. Any determination to repurchase additional shares will be at the discretion of management and will depend on a number of factors, including our liquidity, results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law, market conditions, the cost of repurchasing shares, the availability of alternative investment opportunities and other factors management deems appropriate. Any repurchased shares will have the status of treasury shares and may be used, if and when needed, for general corporate purposes.
During 2022, 2021 and 2020, 0.8 million, 1.2 million and 1.1 million outstanding employee restricted stock units vested and became taxable to the employees. Employees satisfy their payroll tax withholding obligations in a net share settlement arrangement. During 2022, 2021 and 2020 we remitted cash to the respective governmental agencies equivalent to the value of the shares employees used to satisfy their withholding obligations of $32.5 million, $36.8 million and $36.1 million, respectively.
Preferred Stock
As of December 31, 2022 and 2021, we had 100.0 million shares of preferred stock authorized and no preferred stock issued or outstanding.
15. Revenue
We have contracts with two general groups of performance obligations, Stand Ready Performance Obligations and Other Performance Obligations. Our Stand Ready Performance Obligations include obligations to stand ready to provide data, process transactions, access our databases, software-as-a-service and direct-to-consumer products, provide rights to use our intellectual property and other services. Our Other Performance Obligations include the sale of certain batch data sets and various professional and other services.
Most of our Stand Ready Performance Obligations consist of a series of distinct goods and services that are substantially the same and have the same monthly pattern of transfer to our customers. We consider each month of service in this time series to be a distinct performance obligation and, accordingly, recognize revenue over time. For a majority of these Stand Ready Performance Obligations, the total contractual price is variable because our obligation is to process an unknown quantity of transactions, as and when requested by our customers, over the contract period. We allocate the variable price to each month of service using the time-series concept and recognize revenue based on the most likely amount of consideration to which we will be entitled, which is generally the amount we have the right to invoice. This monthly amount can be based on the actual volume of units delivered or a guaranteed minimum, if higher. Occasionally we have contracts where the amount we will be entitled to for the transactions processed is uncertain, in which case we estimate the revenue based on what we consider to be the most likely amount of consideration we will be entitled to, and adjust any estimates as facts and circumstances evolve.
For all contracts that include a Stand Ready Performance Obligation with variable pricing, we are unable to estimate the variable price attributable to future performance obligations because the number of units to be purchased is not known. As a result, we use the exception available to forgo disclosures about revenue attributable to the future performance obligations where we recognize revenue using the time-series concept as discussed above, including those qualifying for the right to invoice practical expedient. We also use the exception available to forgo disclosures about revenue attributable to contracts with expected durations of one year or less.
Certain of our Other Performance Obligations, including certain batch data sets and certain professional and other services, are delivered at a point in time. Accordingly, we recognize revenue upon delivery, once we have satisfied that obligation. For
certain Other Performance Obligations, including certain professional and other services, we recognize revenue over time, based on an estimate of progress towards completion of that obligation. These contracts are not material.
In certain circumstances we apply the revenue recognition guidance to a portfolio of contracts with similar characteristics. We use estimates and assumptions when accounting for a portfolio that reflect the size and composition of the portfolio of contracts.
Our contracts include standard commercial payment terms generally acceptable in each region, and do not include financing with extended payment terms. We have no significant obligations for refunds, warranties, or similar obligations. Our revenue does not include taxes collected from our customers.
Accounts receivable are shown separately on our balance sheet. Contract assets and liabilities result due to the timing of revenue recognition, billings and cash collections. Contract assets include our right to payment for goods and services already transferred to a customer when the right to payment is conditional on something other than the passage of time, for example, contracts pursuant to which we recognize revenue over time but do not have a contractual right to payment until we complete the contract. Contract assets are included in our other current assets and are not material as of December 31, 2022 and 2021.
As our contracts with customers generally have a duration of one year or less, our contract liabilities consist of deferred revenue that is primarily short-term in nature. Contract liabilities include current and long-term deferred revenue that is included in other current liabilities and other liabilities. We expect to recognize the December 31, 2022, current deferred revenue balance as revenue during 2023. The majority of our long-term deferred revenue, which is not material, is expected to be recognized in less than two years.
We have certain contracts that have a duration of more than one year. For these contracts, the transaction price allocable to the future performance obligations is primarily fixed but contains a variable component. There is one material fixed fee contract with a duration of more than one year, and for this contract, we expect to recognize revenue of approximately $117.0 million over the next two years and $78.0 million thereafter.
For additional disclosures about the disaggregation of our revenue see Note 20, “Reportable Segments.”
16. 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, 2022, 2021, and 2020 there were less than 1.0 million anti-dilutive weighted stock-based awards outstanding. As of December 31, 2022, 2021, and 2020, there were 0.2 million, 0.1 million and 1.3 million, respectively, of contingently issuable performance-based stock awards outstanding that were excluded from the diluted earnings per share calculation 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, except per share data) | | 2022 | | 2021 | | 2020 |
| Income from continuing operations | | $ | 267.3 | | | $ | 370.5 | | | $ | 305.7 | |
| Less: income from continuing operations attributable to noncontrolling interests | | (15.2) | | | (15.0) | | | (12.4) | |
| Income from continuing operations attributable to TransUnion | | $ | 252.1 | | | $ | 355.5 | | | $ | 293.4 | |
| Discontinued operations, net of tax | | 17.4 | | | 1,031.7 | | | 49.8 | |
| Net income attributable to TransUnion | | $ | 269.5 | | | $ | 1,387.1 | | | $ | 343.2 | |
| | | | | | |
| Basic earnings per common share from: | | | | | | |
Income from continuing operations attributable to TransUnion | | $ | 1.31 | | | $ | 1.86 | | | $ | 1.54 | |
| Discontinued operations, net of tax | | 0.09 | | | 5.39 | | | 0.26 | |
Net Income attributable to TransUnion | | $ | 1.40 | | | $ | 7.25 | | | $ | 1.81 | |
| | | | | | |
| Diluted earnings per common share from: | | | | | | |
Income from continuing operations attributable to TransUnion | | $ | 1.31 | | | $ | 1.84 | | | $ | 1.53 | |
| Discontinued operations, net of tax | | 0.09 | | | 5.35 | | | 0.26 | |
Net Income attributable to TransUnion | | $ | 1.40 | | | $ | 7.19 | | | $ | 1.79 | |
| | | | | | |
| Weighted-average shares outstanding: | | | | | | |
| Basic | | 192.5 | | | 191.4 | | | 189.9 | |
| Dilutive impact of stock based awards | | 0.7 | | | 1.6 | | | 2.3 | |
| Diluted | | 193.1 | | | 193.0 | | | 192.2 | |
17. Income Taxes
The provision for income taxes consisted of the following: | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Federal | | | | | |
Current | $ | 102.7 | | | $ | 62.0 | | | $ | 55.9 | |
Deferred | (55.9) | | | (9.3) | | | (8.0) | |
State | | | | | |
Current | 28.8 | | | 18.8 | | 11.6 |
Deferred | (14.6) | | | — | | | (4.4) | |
Foreign | | | | | |
Current | 77.3 | | 67.3 | | 52.4 |
Deferred | (18.4) | | | (7.9) | | | (23.7) | |
Provision for income taxes | $ | 119.9 | | | $ | 130.9 | | | $ | 83.7 | |
The components of income before income taxes consisted of the following: | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Domestic | $ | 155.7 | | | $ | 318.3 | | | $ | 258.5 | |
Foreign | 231.5 | | | 183.1 | | | 131.0 | |
| Income from continuing operations before income taxes | $ | 387.2 | | | $ | 501.4 | | | $ | 389.5 | |
The effective income tax rate reconciliation consisted of the following: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
(in millions) | 2022 | | 2021 | | 2020 |
Income taxes at statutory rate | $ | 81.3 | | | 21.0 | % | | $ | 105.3 | | | 21.0 | % | | $ | 81.8 | | | 21.0 | % |
Increase (decrease) resulting from: | | | | | | | | | | | |
State taxes, net of federal benefit | 8.1 | | | 2.1 | % | | 15.5 | | | 3.1 | % | | 8.4 | | | 2.2 | % |
Foreign rate differential | (4.6) | | | (1.2) | % | | (6.8) | | | (1.3) | % | | (9.4) | | | (2.4) | % |
Excess tax benefits on stock-based compensation | (5.0) | | | (1.3) | % | | (10.8) | | | (2.2) | % | | (25.3) | | | (6.5) | % |
Foreign tax law changes | (0.1) | | | — | % | | 22.7 | | | 4.5 | % | | (0.1) | | | — | % |
Uncertain tax positions | 5.7 | | | 1.5 | % | | 4.6 | | | 0.9 | % | | 8.3 | | | 2.1 | % |
Valuation allowances | 18.3 | | | 4.7 | % | | (5.0) | | | (1.0) | % | | 8.3 | | | 2.1 | % |
Foreign withholding taxes | 9.6 | | | 2.5 | % | | 6.5 | | | 1.3 | % | | 5.2 | | | 1.3 | % |
U.S. Federal tax on foreign earnings | (1.4) | | | (0.4) | % | | (15.1) | | | (3.0) | % | | 4.9 | | | 1.2 | % |
| U.S. Federal R&D tax credit | (9.7) | | | (2.5) | % | | (6.4) | | | (1.3) | % | | (4.4) | | | (1.1) | % |
| Nondeductible expenses | 14.0 | | | 3.6 | % | | 20.0 | | | 4.0 | % | | 2.6 | | | 0.7 | % |
Other | 3.7 | | | 1.0 | % | | 0.4 | | | 0.1 | % | | 3.3 | | | 0.9 | % |
Total | $ | 119.9 | | | 31.0 | % | | $ | 130.9 | | | 26.1 | % | | $ | 83.7 | | | 21.5 | % |
For 2022, we reported a 31.0% effective tax rate, which is higher than the 21.0% U.S. federal corporate statutory rate due primarily to increases in valuation allowances on foreign tax credit carryforwards, nondeductible expenses in connection with certain legal and regulatory matters and executive compensation limitations, and other rate-impacting items, partially offset by benefits from the research and development credit and excess tax benefits on stock-based compensation.
For 2021, we reported a 26.1% effective tax rate, which is higher than the 21.0% U.S. federal corporate statutory rate due primarily to recording tax expense related to the remeasurement of our U.K. deferred taxes to reflect an increase in the U.K. corporate tax rate enacted in the second quarter 2021 and nondeductible transaction costs and penalties, partially offset by excess tax benefits on stock based compensation and a tax benefit related to electing the Global Intangible Low Tax Income (“GILTI”) high-tax exclusion retroactively for the 2018 and 2019 tax years. On July 20, 2020, the U.S. Treasury issued and enacted final regulations related to GILTI that allow certain U.S. taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available.
For 2020, we reported a 21.5% effective tax rate, which is higher than the 21.0% U.S. federal corporate statutory rate due primarily to an increase in state taxes, valuation allowances on foreign tax credit carryforwards, and uncertain tax positions including related interest and penalties, partially offset by excess tax benefits on stock based compensation and foreign taxes in jurisdictions which have tax rates lower than the U.S. federal corporate statutory rate.
Components of net deferred income tax consisted of the following:
| | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 |
Deferred income tax assets: | | | |
Compensation | $ | 19.5 | | | $ | 16.8 | |
Employee benefits | 25.5 | | | 22.5 | |
Legal reserves and settlements | 10.7 | | | 13.2 | |
Hedge investments | — | | | 5.6 | |
Loss and tax credit carryforwards | 179.2 | | | 169.0 | |
Leases | 38.4 | | | 41.5 | |
| Section 174 R&D Expense | 37.7 | | | — | |
Other | 36.7 | | | 38.4 | |
Gross deferred income tax assets | $ | 347.7 | | | $ | 307.0 | |
Valuation allowance | (98.9) | | | (70.8) | |
Total deferred income tax assets, net | $ | 248.8 | | | $ | 236.2 | |
| | | | | | | | | | | |
Deferred income tax liabilities: | | | |
Depreciation and amortization | (874.9) | | | (947.5) | |
Right of use asset | (36.0) | | | (38.9) | |
Taxes on unremitted foreign earnings | (14.6) | | | (10.0) | |
Financing related costs | — | | | (0.5) | |
Investment in affiliated companies | (7.3) | | | (8.9) | |
Hedge investments | (59.3) | | | — | |
Other | (10.5) | | | (8.1) | |
Total deferred income tax liability | (1,002.6) | | | (1,013.9) | |
Net deferred income tax liability | $ | (753.8) | | | $ | (777.8) | |
Deferred tax assets and liabilities result from temporary differences between tax and accounting methods. Our balance sheet includes a deferred tax asset of $8.2 million and $10.0 million at December 31, 2022 and 2021, respectively, which is included in other assets.
If certain deferred tax assets are not likely recoverable in future years a valuation allowance is recorded. As of December 31, 2022 and 2021, a valuation allowance of $98.9 million and $70.8 million, respectively, reduced deferred tax assets related to worldwide net operating losses and tax credit carryforwards. Our estimate of the amount of the deferred tax asset we can realize requires significant assumptions about projected revenues and income that are impacted by future market and economic conditions. Our carryforwards will expire as follows: U.S. federal net operating loss carryforwards over one year to an indefinite number of years, foreign loss carryforwards over one year to an indefinite number of years, foreign tax credit carryforwards over ten years, interest expense carryforwards over an indefinite number of years, state net operating loss carryforwards over one year to an indefinite number of years and state tax credit carryforwards over one year to an indefinite number of years. As of December 31, 2022, the deferred tax assets associated with U.S. foreign tax credit carryforwards and U.S. federal net operating loss carryforwards were $63.4 million and $7.3 million, respectively. Deferred tax assets associated with foreign net operating loss carryforwards and foreign interest expense carryforwards were $28.8 million and $41.1 million, respectively. Deferred tax assets associated with U.S. federal and state interest expense carryforwards is $17.6 million. Deferred tax assets associated with other loss and tax credit carryforwards were not significant.
The total amount of gross unrecognized tax benefits as of December 31, 2022, 2021 and 2020 are $45.1 million, $45.8 million and $36.9 million, respectively. The amounts that would affect the effective tax rate if recognized are $30.5 million, $28.3 million and $18.5 million, respectively.
The total amount of gross unrecognized tax benefits consisted of the following:
| | | | | | | | | | | | | | | | | |
(in millions) | December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
Balance as of beginning of period | $ | 45.8 | | | $ | 36.9 | | | $ | 32.8 | |
Increase (Decrease) in tax positions due to acquisition | (0.1) | | | 5.3 | | | — | |
Increase in tax positions of prior years | 0.3 | | | 5.6 | | | 6.2 | |
Decrease in tax positions of prior years | (3.7) | | | (4.5) | | | (3.6) | |
Increase in tax positions of current year | 3.2 | | | 2.8 | | | 1.6 | |
Reductions relating to settlement and lapse of statute | (0.4) | | | (0.4) | | | — | |
Balance as of end of period | $ | 45.1 | | | $ | 45.8 | | | $ | 36.9 | |
We classify interest and penalties as income tax expense in the consolidated statements of income and their associated liabilities as other liabilities in the consolidated balance sheets. Interest and penalties on unrecognized tax benefits were $10.1 million, $7.6 million and $4.8 million, respectively, for the years ended December 31, 2022, 2021 and 2020.
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 2009 and forward remain open for examination in some foreign jurisdictions, 2015 and forward in some state jurisdictions, and 2012 and forward for U.S. federal purposes.
18. Stock-Based Compensation
For the years ended December 31, 2022, 2021 and 2020, we recognized stock-based compensation expense of $81.1 million, $70.1 million and $45.9 million, respectively, with related income tax benefits of approximately $13.5 million, $10.0 million and $8.4 million, respectively. Stock-based compensation expense for cash-settleable awards was a benefit of $1.7 million in 2022 and an expense of $0.9 million and $1.6 million in 2021 and 2020, respectively.
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 our initial public offering, the Company’s board of directors and its stockholders adopted the TransUnion 2015 Omnibus Incentive Plan, which has since been amended and restated (the “2015 Plan”), and no more shares can be issued under the 2012 Plan. During 2020, we increased the authorized shares available under the 2015 plan to a total of 12.4 million shares. The 2015 Plan provides for the granting of stock options, restricted stock awards and restricted stock units to key employees, directors or other persons having a service relationship with the Company and its affiliates. As of December 31, 2022, there were approximately 2.3 million of unvested awards outstanding and approximately 5.0 million of awards have vested under the 2015 Plan.
Effective upon the closing of the initial public offering, the Company’s board of directors and its stockholders adopted the TransUnion 2015 Employee Stock Purchase Plan, which has since been amended and restated (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, 2022, the Company has issued approximately 1.3 million shares of common stock under the ESPP.
2012 Plan
Stock Options
Stock options granted under the 2012 Plan have a 10 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 non-employee directors vest based on the passage of time.
Service condition options were valued using the Black-Scholes valuation model and vest over a 5 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 vest over a 5 year service period now that the market conditions have been satisfied. There were no stock options granted during 2022, 2021, and 2020.
Stock option activity as of December 31, 2022 and 2021, and for the year ended December 31, 2022, 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, 2021 | 242,534 | | | $ | 8.05 | | | 1.5 | | $ | 26.8 | |
| Granted | — | | | — | | | | | |
| Exercised | (140,236) | | | 6.10 | | | | | |
| Forfeited | — | | | — | | | | | |
| Expired | — | | | — | | | | | |
| Outstanding as of December 31, 2022 | 102,298 | | | 10.71 | | | 1.3 | | $ | 4.7 | |
| | | | | | | |
| Expected to vest as of December 31, 2022 | — | | | $ | — | | | 0.0 | | $ | — | |
| Exercisable as of December 31, 2022 | 102,298 | | | $ | 10.71 | | | 1.3 | | $ | 4.7 | |
As of December 31, 2022, there was no stock-based compensation expense remaining to be recognized in future years related to options. During 2022, cash received from the exercise of stock options was $0.8 million and the tax benefit realized from the exercise of stock options was $2.7 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) | | 2022 | | 2021 | | 2020 |
| Intrinsic value of options exercised | | $ | 10.9 | | | $ | 31.4 | | | $ | 71.1 | |
| Total fair value of options vested | | $ | 0.6 | | | $ | 1.7 | | | $ | 4.5 | |
2015 Plan
Restricted Stock Units
During 2022, 2021 and 2020, 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-based awards consisting of performance-based restricted stock units that vest based on the passage of time, subject to meeting certain 3-year cumulative revenue and Adjusted EBITDA targets, and market-based 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 cumulative revenue and Adjusted EBITDA and TSR achievement relative to the targets over the 3-year measurement period. Restricted stock units granted prior to February 2022 generally vest 3 years from the grant date, subject to meeting any performance and market conditions. For restricted stock units granted in 2022, the service-based awards vest over 3.5 years, and the performance-based awards generally vest over 3 years, subject to meeting any performance and market conditions. We occasionally issue off-cycle or special grants that could have different performance measurements and vesting terms.
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, 2022 and 2021, and for the year ended December 31, 2022, 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, 2021 | 2,005,065 | | | $ | 90.79 | | | 1.0 | | $ | 237.8 | |
| Granted | 1,507,472 | | | 90.97 | | | | | |
| Vested | (972,892) | | | 78.13 | | | | | |
| Forfeited | (218,934) | | | 94.96 | | | | | |
| Outstanding as of December 31, 2022 | 2,320,711 | | | $ | 94.73 | | | 1.3 | | $ | 131.7 | |
| | | | | | | |
| Expected to vest as of December 31, 2022 | 1,920,050 | | | $ | 91.75 | | | 1.2 | | $ | 109.0 | |
The fair value and intrinsic value of restricted stock units that vested during the year ended December 31, 2022 was $76.0 million and $90.3 million, respectively. As of December 31, 2022, stock-based compensation expense remaining to be recognized in future years related to restricted stock units that we currently expect to vest was $120.6 million, with weighted-average recognition periods of 2.0 years. During 2022, the tax benefit realized from vested restricted stock units was $14.2 million.
19. Fair Value
The following table summarizes financial instruments measured at fair value, on a recurring basis, as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | |
| Interest rate swaps (Note 8 and 12) | $ | 237.7 | | | $ | — | | | $ | 237.7 | | | $ | — | |
| Note Receivable (Note 2 and 8) | 70.3 | | | — | | | 70.3 | | | — | |
| Available-for-sale debt securities (Note 4) | 2.6 | | | — | | | 2.6 | | | — | |
| Total | $ | 310.6 | | | $ | — | | | $ | 310.6 | | | $ | — | |
| | | | | | | |
| Liabilities | | | | | | | |
| Put option on Cost Method Investment (Note 9 and 11) | $ | 10.0 | | | $ | — | | | $ | — | | | $ | 10.0 | |
| Total | $ | 10.0 | | | $ | — | | | $ | — | | | $ | 10.0 | |
The following table summarizes financial instruments measured at fair value, on a recurring basis, as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | Total | | Level 1 | | Level 2 | | Level 3 |
| Assets | | | | | | | |
| Interest rate swaps (Note 8 and 12) | $ | 12.1 | | | $ | — | | | $ | 12.1 | | | $ | — | |
| Available-for-sale debt securities (Note 4) | 3.1 | | | — | | | 3.1 | | | — | |
| Total | $ | 15.2 | | | $ | — | | | $ | 15.2 | | | $ | — | |
| | | | | | | |
| Liabilities | | | | | | | |
| Interest rate swaps (Note 11 and 12) | $ | 34.5 | | | $ | — | | | $ | 34.5 | | | $ | — | |
| Put option on Cost Method Investment (Note 9 and 11) | 11.9 | | | — | | | — | | | 11.9 | |
| Contingent consideration (Note 9 and 10) | 16.8 | | | — | | | — | | | 16.8 | |
| Total | $ | 63.2 | | | $ | — | | | $ | 34.5 | | | $ | 28.7 | |
Level 2 instruments consist of foreign exchange-traded corporate bonds, interest rate swaps and note receivable. Foreign exchange-traded corporate bonds are available-for-sale debt securities valued at their current quoted prices. These securities mature between 2027 and 2033. Unrealized gains and losses on available-for-sale debt securities, which are not material, are included in other comprehensive income. The interest rate swaps fair values are determined using the market standard methodology of discounting the future expected net cash receipts or payments that would occur if variable interest rates rise above or fall below the fixed rates of the swaps. The variable interest rates used in the calculations of projected receipts on the swaps are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. As discussed in Note 12, “Debt,” there are two tranches of interest rate swaps that we entered into in 2020. In December 2022, we sold the non-core businesses of our VF acquisition. A portion of the consideration was in the form of a $72.0 million note receivable. The note receivable accrues interest semiannually at a per annum rate of 10.6% and is payable at maturity. The note matures on June 30, 2025, subject to an option of the note issuer to extend the maturity date for two successive terms of three months each, at an increased rate of interest at each extension. The note was recorded at fair value of $70.3 million using an income approach for fixed income securities, where contractual cash flows were discounted to present value at a risk-adjusted rate of return in a lattice model framework. The fair value of the note will be determined period to period by applying the same approach, considering changes to the risk-adjusted rate of return given observed changes to the interest rate environment, market pricing of credit risk, and issuer-specific credit risk.
Level 3 instruments consist of contingent consideration related to a Cost Method investment we acquired in 2021, a put option on the same Cost Method investment, and a contingent consideration obligation of an acquisition made by Neustar prior to the date we acquired Neustar. The put option allows the owner of the other shares to compel TransUnion to purchase their remaining shares, subject to the fulfillment of certain conditions. The fair value of the put option is determined using a Monte Carlo analysis with assumptions that include revenue projections, volatility rates, discount rates and the option period, among others.
During 2022, we paid $14.8 million of contingent consideration obligation related to the Cost Method investment. We also recorded a $0.8 million measurement period adjustment related to the Neustar contingent consideration obligation and paid $2.8 million to fully settle the obligation. During 2021, we also adjusted the carrying value of the 2020 obligations to their fair values, with an offset to selling, general and administrative expenses, and paid $41.2 million to the sellers to settle these obligations in full and have no further obligations related to the 2020 contingent consideration obligations. In addition, during
2021, we assumed a contingent consideration obligation of $2.0 million when we acquired Neustar, and recorded a $14.8 million contingent consideration obligation related to a cost method investment we made in 2021, with no material changes to the fair value of either of these obligations in 2021.
We have elected to account for our investment in a limited partnership that we purchased in 2021, which is not material, using the net asset value fair value practical expedient. Gains and losses on this investment, which are not material, are included in other income and expense in the consolidated statements of income.
20. Reportable Segments
We have three reportable segments, U.S. Markets, International, and Consumer Interactive, and the Corporate unit, which provides support services to each of the segments. Our chief operating decision maker (“CODM”) uses the profit measure of Adjusted EBITDA, on both a consolidated and a segment basis, to allocate resources and assess performance of our businesses. We use Adjusted EBITDA as our profit measure because it eliminates the impact of certain items that we do not consider indicative of operating performance, which is useful to compare operating results between periods. Our board of directors and executive management team also use Adjusted EBITDA as a compensation measure for both segment and corporate management under our incentive compensation plans. Adjusted EBITDA is also a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies similar to ours.
We define Adjusted EBITDA as net income (loss) attributable to each segment plus (less) loss (income) from discontinued operations, plus net interest expense, plus (less) provision (benefit) for income taxes, plus depreciation and amortization, plus (less) certain acquisition-related deferred revenue adjustments, plus stock-based compensation, plus mergers, acquisitions, divestitures and business optimization-related expenses including certain integration-related expenses, plus certain accelerated technology investment expenses to migrate to the cloud, plus (less) certain other expenses (income).
The segment financial information below aligns with how we report information to our CODM to assess operating performance and how we manage the business. The accounting policies of the segments are the same as described in Note 1, “Significant Accounting and Reporting Policies” and Note 15, “Revenue.”
The following is a more detailed description of our reportable segments and the Corporate unit, which provides support services to each segment:
U.S. Markets
The U.S. Markets segment provides consumer reports, actionable insights and analytics to businesses. These businesses use our services to acquire customers, assess consumers’ ability to pay for services, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, verify consumer identities and mitigate fraud risk. The core capabilities and delivery methods in our U.S. Markets segment allow us to serve a broad set of customers across industries.
Since the acquisition of Neustar, Inc. (“Neustar”) on December 1, 2021, we have reflected all Neustar revenue in the Emerging Verticals within our U.S. Markets segment. Beginning in the fourth quarter 2022, we integrated the Neustar sales team into our legacy vertically-aligned sales teams, and a portion of the Neustar revenue is now included in the Financial Services vertical. We have recast the revenue reported for each vertical in U.S. Markets in the historical periods to be consistent with the fourth quarter 2022 presentation, which provides comparability among the periods. This recast has no net impact on our overall financial statements in 2022.
We report disaggregated revenue of our U.S. Markets segment for Financial Services and Emerging Verticals.
•Financial Services: The Financial Services vertical consists of our consumer lending, mortgage, auto and cards and payments lines of business. Our Financial Services clients consist of most banks, credit unions, finance companies, auto lenders, mortgage lenders, FinTechs, and other consumer lenders in the United States. We also distribute our solutions through most major resellers, secondary market players and sales agents. Beyond traditional lenders, we work with a variety of credit arrangers, such as auto dealers and peer-to-peer lenders. We provide solutions across every aspect of the lending lifecycle; customer acquisition and engagement, fraud and ID management, retention and recovery. Our products are focused on mitigating risk and include credit reporting, credit marketing, analytics and consulting, identity verification and authentication and debt recovery solutions. All of the revenue from our Argus acquisition and a portion of the revenue from our Neustar acquisition is included in Financial Services.
•Emerging Verticals: Emerging Verticals include Technology, Commerce & Communications, Insurance, Media, Services and Collections, Tenant and Employment, and Public Sector. Our solutions in these verticals are also data-driven and address the entire customer lifecycle. We offer onboarding and transaction processing products, scoring and analytic products, marketing solutions, fraud and identity management solutions and customer retention solutions. A portion of the revenue from our Neustar acquisition is included in Emerging Verticals.
International
The International segment provides services similar to our U.S. Markets 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 solutions 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 and take precautions against identity theft.
We report disaggregated revenue of our International segment for the following regions: Canada, Latin America, the United Kingdom, Africa, India, and Asia Pacific.
Consumer Interactive
The Consumer Interactive segment provides solutions that help consumers manage their personal finances and take precautions against identity theft. Services in this segment include paid and free credit reports, scores and freezes, credit monitoring, identity protection and resolution, and financial management for consumers. The segment also provides solutions that help businesses respond to data breach events. 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, as well as our Sontiq business. The results of operations of Sontiq are included in the Consumer Interactive segment in our consolidated statements of income since the date of the acquisition.
Corporate
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 and disaggregated revenue consisted of the following:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| Gross Revenue: | | | | | |
| U.S. Markets: | | | | | |
| Financial Services | $ | 1,255.1 | | | $ | 1,090.0 | | | $ | 939.6 | |
| Emerging Verticals | 1,192.1 | | | 701.0 | | | 571.1 | |
| Total U.S. Markets | 2,447.3 | | | 1,791.0 | | | 1,510.7 | |
| | | | | |
| International: | | | | | |
| Canada | 128.2 | | | 126.9 | | | 108.0 | |
Latin America | 112.9 | | | 103.2 | | | 86.5 | |
| United Kingdom | 203.0 | | | 216.5 | | | 183.1 | |
| Africa | 61.7 | | | 59.5 | | | 49.0 | |
| India | 174.2 | | | 133.1 | | | 100.0 | |
| Asia Pacific | 75.9 | | | 62.7 | | | 56.2 | |
| Total International | 755.9 | | | 701.9 | | | 582.7 | |
| | | | | |
| Total Consumer Interactive | 585.3 | | | 545.8 | | | 513.1 | |
| | | | | |
| Total revenue, gross | $ | 3,788.4 | | | $ | 3,038.7 | | | $ | 2,606.5 | |
| | | | | |
| Intersegment revenue eliminations: | | | | | |
| U.S. Markets | $ | (71.5) | | | $ | (70.5) | | | $ | (68.9) | |
| International | (6.0) | | | (5.9) | | | (5.2) | |
| Consumer Interactive | (1.1) | | | (2.0) | | | (1.7) | |
| Total intersegment eliminations | (78.6) | | | (78.4) | | | (75.9) | |
| Total revenue as reported | $ | 3,709.9 | | | $ | 2,960.2 | | | $ | 2,530.6 | |
A reconciliation of Segment Adjusted EBITDA to income from continuing operations before income taxes for the periods presented is as follows:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| U.S. Markets Adjusted EBITDA | $ | 870.6 | | | $ | 715.6 | | | $ | 593.9 | |
| International Adjusted EBITDA | 329.3 | | | 300.1 | | | 219.8 | |
Consumer Interactive Adjusted EBITDA | 282.3 | | | 263.1 | | | 247.6 | |
Total | $ | 1,482.3 | | | $ | 1,278.8 | | | $ | 1,061.2 | |
Adjustments to reconcile to income from continuing operations before income taxes: | | | | | |
Corporate expenses1 | (135.7) | | | (121.9) | | | (107.6) | |
Net interest expense | (226.2) | | | (109.2) | | | (120.6) | |
Depreciation and amortization | (519.0) | | | (377.0) | | | (346.8) | |
| | | | | |
Stock-based compensation2 | (81.1) | | | (70.1) | | | (45.9) | |
Mergers and acquisitions, divestitures and business optimization3 | (50.7) | | | (52.6) | | | (8.5) | |
Accelerated technology investment4 | (51.4) | | | (42.3) | | | (19.3) | |
Net other5 | (46.1) | | | (19.4) | | | (35.5) | |
| Net income attributable to non-controlling interests | 15.2 | | | 15.0 | | | 12.4 | |
Total adjustments | $ | (1,095.1) | | | $ | (777.4) | | | $ | (671.8) | |
Income from continuing operations before income taxes | $ | 387.2 | | | $ | 501.4 | | | $ | 389.5 | |
1.Certain costs 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.
2.Consisted of stock-based compensation and cash-settled stock-based compensation.
3.For the twelve months ended December 31, 2022, $(33.1) million of Neustar integration costs; $(23.7) million of acquisition expenses; $(4.6) million loss on the impairment of a Cost Method investment; $6.8 million of reimbursements for transition services related to divested businesses, net of separation expenses; a $3.4 million gain related to a government tax reimbursement from a recent business acquisition; and a $0.6 million adjustment to the fair value of a put option liability related to a minority investment.
For the twelve months ended December 31, 2021, consisted of the following adjustments: $(48.1) million of acquisition expenses; $(9.1) million of Neustar integration costs; $(8.4) million of adjustments to contingent consideration expense from previous acquisitions; a $(1.1) million gain reduction to notes receivable that were converted into equity upon acquisition and consolidation of an entity; a $12.5 million gain on a Cost Method investment resulting from an observable price change for a similar investment of the same issuer; a $1.1 million reimbursement for transition services related to divested businesses, net of separation expenses; and a $0.5 million gain on the sale of a Cost Method investment.
For the twelve months ended December 31, 2020, consisted of the following adjustments: $(7.5) million of Callcredit integration costs; $(7.0) million of acquisition expenses; a $(4.8) million loss on the impairment of a Cost Method investment; $(1.7) million of adjustments to contingent consideration expense from previous acquisitions; an $8.1 million remeasurement gain on notes receivable that were converted into equity upon acquisition and consolidation of an entity; a $2.5 million gain on a Cost Method investment resulting from an observable price change for a similar investment of the same issuer; a $1.8 million gain on the disposal of assets of a small business in our United Kingdom region; and a $0.1 million reimbursement for transition services provided to the buyers of certain of our discontinued operations.
4. Represents expenses associated with our accelerated technology investment to migrate to the cloud.
5. For the twelve months ended December 31, 2022, $(28.4) million for certain legal and regulatory expenses; $(9.3) million of deferred loan fees written off as a result of the prepayments on our debt; and a $(6.3) million net loss from currency remeasurement of our foreign operations; ($1.9) million of loan fees and other.
For the twelve months ended December 31, 2021, consisted of the following adjustments: $(17.9) million of deferred loan fees written off as a result of the prepayments on our debt; $(1.2) million in certain legal and regulatory expenses; a $3.5 million net recovery from a fraud incident that occurred in July 2019 in our Asia Pacific region; and a $(3.7) million net loss from currency remeasurement of our foreign operations, loan fees and other.
For the twelve months ended December 31, 2020, consisted of the following adjustments: $(34.7) million for certain legal expenses; $(0.9) million of deferred loan fees written off as a result of the prepayments on our debt; a
$1.5 million net recovery from a fraud incident that occurred in July 2019 in our Asia Pacific region; and a $(1.4) million net loss from currency remeasurement of our foreign operations, loan fees and other.
Earnings from equity method investments included in non-operating income and expense was as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Twelve Months Ended December 31, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| U.S. Markets | | $ | 1.0 | | | $ | 2.4 | | | $ | 2.6 | |
| International | | 12.0 | | | 9.6 | | | 6.4 | |
| Total | | $ | 13.0 | | | $ | 12.0 | | | $ | 8.9 | |
Total assets, by segment, consisted of the following:
| | | | | | | | | | | |
| (in millions) | December 31, 2022 | | December 31, 2021 |
| U.S. Markets | $ | 7,180.9 | | | $ | 6,934.8 | |
| International | 2,675.7 | | | 2,921.2 | |
| Consumer Interactive | 1,202.9 | | | 1,222.3 | |
| Total segment assets | $ | 11,059.5 | | | $ | 11,078.2 | |
Corporate 1 | 606.8 | | | 1,556.8 | |
| | | |
| Total assets | $ | 11,666.3 | | | $ | 12,635.0 | |
1 At December 31, 2021 our Corporate assets included proceeds from the disposal of our Healthcare business.
Cash paid for capital expenditures, by segment, was as follows:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| U.S. Markets | $ | 181.0 | | | $ | 145.3 | | | $ | 119.1 | |
| International | 97.5 | | | 65.1 | | | 68.2 | |
| Consumer Interactive | 17.7 | | | 11.8 | | | 12.8 | |
| Corporate | 2.0 | | | 2.0 | | | 5.5 | |
| Total | $ | 298.2 | | | $ | 224.2 | | | $ | 205.6 | |
Depreciation and amortization expense by segment was as follows:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| (in millions) | 2022 | | 2021 | | 2020 |
| U.S. Markets | $ | 352.5 | | | $ | 222.0 | | | $ | 205.8 | |
| International | 126.9 | | | 132.4 | | | 120.6 | |
| Consumer Interactive | 34.8 | | | 16.8 | | | 14.6 | |
| Corporate | 4.9 | | | 5.7 | | | 5.7 | |
| Total | $ | 519.0 | | | $ | 377.0 | | | $ | 346.8 | |
Percentage of revenue based on where it was earned, was as follows:
| | | | | | | | | | | | | | | | | |
| Twelve Months Ended December 31, |
| 2022 | | 2021 | | 2020 |
| Domestic | 80 | % | | 76 | % | | 77 | % |
| International | 20 | % | | 24 | % | | 23 | % |
Percentage of long-lived assets, other than intangibles, financial assets, and deferred tax assets, based on the location of the legal entity that owns the asset, was as follows:
| | | | | | | | | | | |
| | As of December 31, |
| 2022 | | 2021 |
| Domestic | 78 | % | | 82 | % |
| International | 22 | % | | 18 | % |
21. Commitments
Future minimum payments for noncancelable operating leases, purchase obligations and other liabilities in effect as of December 31, 2022, are payable as follows:
| | | | | | | | | | | | | | | | | |
| (in millions) | Operating
Leases | | Purchase
Obligations and
Other | | Total |
| 2023 | $ | 38.2 | | | $ | 150.3 | | | $ | 188.5 | |
| 2024 | 29.4 | | | 88.6 | | | 118.0 | |
| 2025 | 19.9 | | | 59.4 | | | 79.3 | |
| 2026 | 15.6 | | | 29.7 | | | 45.3 | |
| 2027 | 12.0 | | | 20.4 | | | 32.4 | |
| Thereafter | 39.6 | | | 0.9 | | | 40.5 | |
| Totals | $ | 154.7 | | | $ | 349.3 | | | $ | 504.0 | |
Purchase obligations and other excludes trade accounts payable that are included in our balance sheet as of December 31, 2022. Purchase obligations and other include commitments for outsourcing services, royalties, data licenses, and maintenance and other operating expenses.
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.
22. Contingencies
Legal and Regulatory Matters
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 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 legal 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 legal and regulatory matters or the eventual loss, fines or penalties, if any, that may result from such matters. We establish reserves for legal and regulatory matters when those matters present loss contingencies that are both probable and can be reasonably estimated. However, for certain of the matters, 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. The actual costs of resolving legal 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. We accrue amounts for certain legal and regulatory matters for which losses were considered to be probable of occurring based on our best estimate of the most likely outcome. It is reasonably possible actual losses could be significantly different from our current estimates. In addition, there are some matters for which it is reasonably possible that a loss will occur, however we cannot estimate a range of the potential losses for these matters. Legal fees incurred in connection with ongoing legal and regulatory matters are considered a period cost and are expensed as incurred.
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 legal and regulatory matters 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 except for the lawsuit filed by the CFPB referenced below, that would not have some level of coverage by insurance after the relevant deductible, if any, is met.
As of December 31, 2022 and 2021, we accrued $125.0 million and $85.6 million, respectively, for legal and regulatory matters. 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.
Ramirez v. Trans Union LLC
In Ramirez v. Trans Union LLC (“Ramirez”) filed in 2012, the plaintiff alleged that we willfully violated the Fair Credit Reporting Act (“FCRA”) by continuing to offer the OFAC Alert service. In July 2014, the trial Court in Ramirez certified a class of 8,185 individuals solely for purposes of statutory damages if TransUnion was ultimately found to have willfully violated the FCRA.
On June 21, 2017, the jury in Ramirez returned a verdict in favor of a class of 8,185 individuals and awarded punitive and statutory damages totaling approximately $60 million. We appealed the Ramirez ruling to the United States Court of Appeals for the Ninth Circuit and on February 27, 2020, the Ninth Circuit affirmed in part and reversed and vacated in part the trial court’s judgment, holding that the punitive damages award was excessive in violation of constitutional due process. On September 2, 2020, we filed a Petition for Certiorari with the United States Supreme Court. On December 16, 2020, the United States Supreme Court granted the Petition for Certiorari with respect to whether Article III of the United States Constitution or Rule 23 of the Federal Rules of Civil Procedure permit a damages class action where the vast majority of the class suffered no actual injury, let alone an injury anything like what the class representative suffered.
On June 25, 2021, the United States Supreme Court’s decision reversed the Ninth Circuit opinion, and remanded the matter back to the lower courts for further proceedings consistent with its opinion. The United States Supreme Court’s opinion held that only plaintiffs who have suffered a concrete harm by a defendant’s statutory violation have Article III standing to seek damages against defendants in Federal court. Based on the ruling, only approximately 23% of the class was determined to have suffered concrete harm.
On January 24, 2022, we reached a tentative class settlement with the plaintiffs, which required court approval. Accordingly, we revised the amount of the probable loss that we previously estimated, resulting in a reduction of our estimated liability and partially offsetting insurance receivable, and a corresponding net reduction recorded in selling, general and administrative expense for the year-end December 31, 2021.
On December 19, 2022, the court entered final approval of the class settlement and we paid the settlement amount to the plaintiffs on January 20, 2023, resulting in a full resolution of this matter.
CFPB Matters
In June 2021, we received a Notice and Opportunity to Respond and Advise (“NORA”) letter from the Consumer Financial Protection Bureau (“CFPB”), informing us that the CFPB’s Enforcement Division was considering whether to recommend that the CFPB take legal action against us and certain of our executive officers. The NORA letter alleged that we failed to comply with and timely implement a Consent Order issued by the CFPB in January 2017 (the “Consent Order”), and further alleged additional violations related to Consumer Interactive’s marketing practices. On September 27, 2021, the Enforcement Division advised us that it had obtained authority to pursue an enforcement action. On April 12, 2022, after failed settlement negotiations with the CFPB related to the matter, the CFPB filed a lawsuit against us, Trans Union LLC, TransUnion Interactive, Inc. (collectively, the “TU Entities”) and the former President of Consumer Interactive, John Danaher, in the United States District Court for the Northern District of Illinois seeking restitution, civil money penalties, and injunctive relief, among other remedies, and alleging that the TU Entities violated the Consent Order, engaged in deceptive acts and practices in marketing the TransUnion Credit Monitoring product, failed to obtain signed written authorizations from consumers before debiting their
bank accounts for the TransUnion Credit Monitoring product and diverted consumers from their free annual file disclosure into paid subscription products. The CFPB further alleges that Mr. Danaher violated the Consent Order and that we and Trans Union LLC provided substantial assistance to TransUnion Interactive, Inc. in violating the Consent Order and the law. We continue to believe that our marketing practices are lawful and appropriate and that we have been, and remain, in compliance with the Consent Order, and we will vigorously defend against allegations to the contrary in such proceedings. On July 8, 2022, the TU Entities and Mr. Danaher each filed a motion to dismiss the lawsuit. The motions to dismiss were denied on November 18, 2022; active litigation on this matter has begun.
As of December 31, 2022, we have an accrued liability of $56.0 million, compared with $26.5 million as of December 31, 2021, in connection with this matter and there is a reasonable possibility that a loss in excess of the amount accrued may be incurred, and such an outcome could have a material adverse effect on our results of operations and financial condition. However, any possible loss or range of loss in excess of the amount accrued is not reasonably estimable at this time. In addition, we will incur increased costs litigating this matter.
In March 2022, we received a NORA letter from the CFPB, informing us that the CFPB’s Enforcement Division is considering whether to recommend that the CFPB take legal action against us related to our tenant and employment screening business, TransUnion Rental Screening Solutions, Inc. (“TURSS”). The NORA letter alleges that Trans Union LLC and TURSS violated the Fair Credit Reporting Act by failing to (i) follow reasonable procedures to assure maximum possible accuracy of information in consumer reports and (ii) disclose to consumers the sources of such information. On July 27, 2022, the CFPB’s Enforcement Division advised us that it had obtained authority to pursue an enforcement action jointly with the FTC. We are currently engaged in active settlement discussions with the CFPB and the FTC regarding this matter. If our ongoing discussions do not result in a negotiated resolution, we expect that the CFPB and the FTC will pursue litigation against Trans Union LLC and TURSS seeking redress, civil monetary penalties and injunctive relief. We continue to believe that our acts and practices are lawful and we intend to vigorously defend against any allegations to the contrary in such proceedings. We cannot provide assurance that the CFPB and the FTC will not ultimately commence a legal action against us in this matter, nor are we able to predict the likely outcome of any such action. As of December 31, 2022, we have recorded an accrued liability for an immaterial amount in connection with this matter. There is a reasonable possibility that a loss in excess of the amount accrued may be incurred, and such an outcome could have a material adverse effect on our results of operations and financial condition. However, any possible loss or range of loss in excess of the amount accrued is not reasonably estimable at this time.
In June 2022, the CFPB informed Trans Union LLC that it intended to issue a NORA letter following an investigation relating to potential violations of law in connection with the placement and lifting of security freezes resulting from certain system issues. In August 2022, the TransUnion Entities received a NORA letter from the CFPB, informing us that the CFPB’s Enforcement Division is considering whether to recommend that the CFPB take legal action against us. We are continuing to cooperate in the CFPB’s investigation of this matter. We have corrected associated system issues and have processes in place to monitor and address issues going forward. Should the CFPB commence an action against us, it may seek restitution, disgorgement, civil monetary penalties, injunctive relief or other corrective action. We cannot provide assurance that the CFPB will not ultimately commence a legal action against us in this matter, nor are we able to predict the likely outcome, which could have a material adverse effect on our results of operations and financial condition. As of December 31, 2022, we are not able to reasonably estimate our potential loss or range of loss related to this matter.
Department of Justice Matter
We are cooperating with an inquiry originating from the civil division of the United States Attorney’s Office for the Eastern District of Virginia related to Argus’s use of certain data it collected under certain government contracts. We acquired Argus in connection with our acquisition of VF in April 2022. This matter pertains to alleged conduct that commenced before we acquired Argus. This matter has expanded into a formal investigation, and we are cooperating with Verisk Analytics, Inc. to respond to the Department of Justice’s investigation. We cannot predict the timing, outcome, or potential impact of this matter, financial or otherwise. Under the stock purchase agreement Trans Union LLC entered into with Verisk Analytics, Inc. (the “Seller”) pursuant to which we acquired VF, including Argus, the Seller agreed to indemnify us for certain losses with respect to this matter, including all losses directly resulting from any settlement agreement in connection with this matter, including civil monetary penalties, remediation costs and fees and expenses.
23. 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, 2019 | $ | (214.6) | | | $ | (37.2) | | | $ | 0.2 | | | $ | (251.6) | |
| Change | 9.2 | | | (29.9) | | | 0.2 | | | (20.5) | |
| Balance, December 31, 2020 | $ | (205.4) | | | $ | (67.1) | | | $ | 0.4 | | | $ | (272.1) | |
| Change | (63.8) | | | 50.5 | | | — | | | (13.3) | |
| Balance, December 31, 2021 | $ | (269.2) | | | $ | (16.6) | | | $ | 0.4 | | | $ | (285.4) | |
| Change | (194.3) | | | 195.2 | | | (0.2) | | | 0.9 | |
| Balance, December 31, 2022 | $ | (463.5) | | | $ | 178.6 | | | $ | 0.2 | | | $ | (284.5) | |