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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
 
FORM 10-Q
 
 
 
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
- OR -
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission file numbers:
TransUnion Holding Company, Inc. 333-182948
 
 
TRANSUNION HOLDING COMPANY, INC.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
61-1678417
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
 
555 West Adams, Chicago, IL
 
60661
(Address of principal executive offices)
 
(Zip code)
312-985-2000
(Registrants’ telephone number, including area code)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
 
Yes      ¨
No  x
 
 
 
(Note: TransUnion Holding Company, Inc.'s obligation to file periodic reports pursuant to Section 15(d) of the Securities Exchange Act of 1934 resumed on August 1, 2014, the effective date of its Post-effective Amendment No. 1 to the Registration Statement on Form S-1 filed July 31, 2014. TransUnion Holding Company, Inc. has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant would have been required to file such reports) either pursuant to its obligation under Section 15(d) of the Securities Exchange Act of 1934 or as a “voluntary filer” in compliance with the indentures governing its senior indebtedness.)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
 
Yes  x    No  ¨
 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
 
 
Large accelerated filer
 
¨
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
 
 
Non-accelerated filer
 
x  
 
Smaller reporting company
 
¨
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
 
Yes  ¨    No  x
 
 
The number of shares of registrants’ common stock outstanding as of October 31, 2014, was 110,873,844.





TRANSUNION HOLDING COMPANY, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2014
TABLE OF CONTENTS
 
 
Page

2


PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
TRANSUNION HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in millions, except per share data)
 
 
September 30,
2014
 
December 31,
2013
 
Unaudited
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
103.1

 
$
111.2

Trade accounts receivable, net of allowance of $1.0 and $0.7
196.3

 
165.0

Other current assets
66.1

 
73.5

Total current assets
365.5

 
349.7

Property, plant and equipment, net of accumulated depreciation and amortization of $109.1 and $70.2
170.0

 
150.4

Goodwill
1,994.3

 
1,909.7

Other intangibles, net of accumulated amortization of $356.8 and $227.5
1,929.8

 
1,934.0

Other assets
119.8

 
148.5

Total assets
$
4,579.4

 
$
4,492.3

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Trade accounts payable
$
92.7

 
$
100.3

Short-term debt and current portion of long-term debt
27.7

 
13.8

Other current liabilities
128.1

 
133.5

Total current liabilities
248.5

 
247.6

Long-term debt
2,869.5

 
2,853.1

Deferred taxes
651.0

 
636.9

Other liabilities
23.7

 
22.6

Total liabilities
3,792.7

 
3,760.2

Redeemable noncontrolling interests
16.1

 
17.6

Stockholders’ equity:
 
 
 
Common stock, $0.01 par value; 200.0 million shares authorized at September 30, 2014 and December 31, 2013, 111.0 million and 110.7 shares issued at September 30, 2014 and December 31, 2013, respectively, and 110.5 million shares and 110.2 million shares outstanding as of September 30, 2014 and December 31, 2013, respectively
1.1

 
1.1

Additional paid-in capital
1,128.5

 
1,121.8

Treasury stock at cost; 0.5 million shares at September 30, 2014 and December 31, 2013, respectively
(4.3
)
 
(4.1
)
Accumulated deficit
(417.1
)
 
(417.7
)
Accumulated other comprehensive loss
(104.0
)
 
(73.2
)
Total TransUnion Holding Company, Inc. stockholders’ equity
604.2

 
627.9

Noncontrolling interests
166.4

 
86.6

Total stockholders’ equity
770.6

 
714.5

Total liabilities and stockholders’ equity
$
4,579.4

 
$
4,492.3

See accompanying notes to unaudited consolidated financial statements.

3


TRANSUNION HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Loss) (Unaudited)
(in millions)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Revenue
$
338.2

 
$
299.5

 
$
969.1

 
$
890.8

Operating expenses
 
 
 
 
 
 
 
Cost of services (exclusive of depreciation and amortization below)
124.7

 
115.9

 
378.0

 
354.9

Selling, general and administrative
105.4

 
86.3

 
309.1

 
264.5

Depreciation and amortization
67.3

 
48.0

 
174.1

 
138.5

Total operating expenses
297.4

 
250.2

 
861.2

 
757.9

Operating income
40.8

 
49.3

 
107.9

 
132.9

Non-operating income and expense
 
 
 
 
 
 
 
Interest expense
(44.7
)
 
(49.0
)
 
(145.4
)
 
(148.1
)
Interest income
1.1

 
0.8

 
2.3

 
1.3

Earnings from equity method investments
3.3

 
3.0

 
10.0

 
10.3

Other income and (expense), net
(0.4
)
 
(1.6
)
 
45.9

 
(7.8
)
Total non-operating income and expense
(40.7
)
 
(46.8
)
 
(87.2
)
 
(144.3
)
Income (loss) before income taxes
0.1

 
2.5

 
20.7

 
(11.4
)
(Provision) benefit for income taxes
(0.2
)
 
(3.9
)
 
(14.4
)
 
(1.1
)
Net income (loss)
(0.1
)
 
(1.4
)
 
6.3

 
(12.5
)
Less: net income attributable to the noncontrolling interests
(2.5
)
 
(2.0
)
 
(5.7
)
 
(5.0
)
Net income (loss) attributable to TransUnion Holding Company, Inc.
$
(2.6
)
 
$
(3.4
)
 
$
0.6

 
$
(17.5
)
See accompanying notes to unaudited consolidated financial statements.


4


TRANSUNION HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(in millions)
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2014
 
2013
 
2014
 
2013
Net income (loss)
$
(0.1
)
 
$
(1.4
)
 
$
6.3

 
$
(12.5
)
Other comprehensive income (loss)
 
 
 
 
 
 
 
Foreign currency translation adjustment
(29.5
)
 
(2.4
)
 
(36.8
)
 
(46.1
)
Net unrealized gain (loss) on hedges (net of tax at 37%)

 
(0.5
)
 
(0.4
)
 
2.6

Amortization of accumulated loss on hedges (net of tax at 37%)

 

 
0.1

 

Total other comprehensive loss, net of tax
(29.5
)
 
(2.9
)
 
(37.1
)
 
(43.5
)
Comprehensive income (loss)
(29.6
)
 
(4.3
)
 
(30.8
)
 
(56.0
)
Less: comprehensive income attributable to noncontrolling interests
1.9

 
(1.8
)
 
0.6

 
(1.5
)
Comprehensive income (loss) attributable to TransUnion Holding Company, Inc.
$
(27.7
)
 
$
(6.1
)
 
$
(30.2
)
 
$
(57.5
)
See accompanying notes to unaudited consolidated financial statements.


5


TRANSUNION HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(in millions)
 
 
Nine Months Ended 
 September 30,
 
2014
 
2013
Cash flows from operating activities:
 
 
 
Net income (loss)
$
6.3

 
$
(12.5
)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
174.1

 
138.5

Net gain on 2014 Refinancing Transaction
(33.1
)
 

Gain on fair value adjustment of equity method investment
(21.7
)
 

Impairment of cost method investment
4.1

 

Loss on fair value of interest rate swaps
(0.3
)
 

Amortization of deferred financing fees
5.4

 
6.7

Stock-based compensation
6.3

 
4.8

Provision for losses on trade accounts receivable
1.4

 
0.7

Equity in net income of affiliates, net of dividends
(1.0
)
 
(0.9
)
Deferred taxes
(2.8
)
 
(12.1
)
Amortization of senior notes purchase accounting fair value adjustment and note discount
(6.0
)
 
(12.7
)
Gain on sale of other assets

 
(1.2
)
Other
0.6

 
(0.4
)
Changes in assets and liabilities:
 
 
 
Trade accounts receivable
(30.4
)
 
(14.7
)
Other current and long-term assets
10.6

 
3.2

Trade accounts payable
2.9

 
(1.4
)
Other current and long-term liabilities
(6.3
)
 
13.1

Cash provided by operating activities
110.1

 
111.1

Cash flows from investing activities:
 
 
 
Capital expenditures
(117.7
)
 
(54.1
)
Proceeds from sale of trading securities
1.1

 
2.2

Purchases of trading securities
(2.0
)
 
(1.7
)
Proceeds from sale of other investments
6.2

 

Purchases of other investments
(7.4
)
 

Acquisitions and purchases of noncontrolling interests, net of cash acquired
(54.8
)
 
(134.2
)
Proceeds from sale of other assets
1.0

 
4.2

Acquisition-related deposits
8.8

 
(8.9
)
Cash used in investing activities
(164.8
)
 
(192.5
)
Cash flows from financing activities:
 
 
 
Proceeds from senior secured term loan
1,895.3

 
923.4

Extinguishment of senior secured term loan
(1,120.5
)
 
(923.4
)
Extinguishment of 11.375% senior unsecured notes
(645.0
)
 

Proceeds from revolving line of credit
28.5

 
65.0

Repayment of revolving line of credit
(28.5
)
 

Repayments of debt
(16.7
)
 
(8.7
)
Proceeds from issuance of common stock and exercise of stock options
1.8

 
1.5

Debt financing fees (2014 fees include prepayment premium on early termination of 11.375% notes)
(61.5
)
 
(4.1
)
Treasury stock purchases
(0.2
)
 
(3.0
)
Distributions to noncontrolling interests
(4.4
)
 
(2.8
)
Other
0.2

 
2.0

Cash provided by financing activities
49.0

 
49.9

Effect of exchange rate changes on cash and cash equivalents
(2.4
)
 
(5.3
)
Net change in cash and cash equivalents
(8.1
)
 
(36.8
)
Cash and cash equivalents, beginning of period
111.2

 
154.3

Cash and cash equivalents, end of period
$
103.1

 
$
117.5

See accompanying notes to unaudited consolidated financial statements.

6


TRANSUNION HOLDING COMPANY, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders’ Equity (Unaudited)
(in millions)
 
 
Common Stock
 
Paid-In Capital
 
Treasury Stock
 
Accumulated Deficit
 
Accumulated
Other Comprehensive Loss
 
Non-controlling Interests
 
Total
 
Redeemable
Non-
controlling
Interests
 
Shares
 
Amount
 
 
 
 
 
 
 
Balance December 31, 2013
110.2

 
$
1.1

 
$
1,121.8

 
$
(4.1
)
 
$
(417.7
)
 
$
(73.2
)
 
$
86.6

 
$
714.5

 
$
17.6

Net income (loss)

 

 

 

 
0.6

 

 
5.8

 
6.4

 
(0.1
)
Other comprehensive income (loss)

 

 

 

 

 
(30.8
)
 
(5.2
)
 
(36.0
)
 
(1.1
)
Establishment of noncontrolling interests

 

 

 

 

 

 
85.1

 
85.1

 

Distributions to noncontrolling interests

 

 

 

 

 

 
(4.1
)
 
(4.1
)
 
(0.3
)
Purchase of noncontrolling interests

 

 
(1.4
)
 

 

 

 
(1.9
)
 
(3.3
)
 

Stockholder contribution from noncontrolling interests

 

 

 

 

 

 
0.1

 
0.1

 

Stock-based compensation

 

 
6.3

 

 

 

 

 
6.3

 

Issuance of stock
0.1

 

 
0.9

 

 

 

 

 
0.9

 

Exercise of stock options
0.2

 

 
0.9

 

 

 

 

 
0.9

 

Treasury stock purchased

 

 

 
(0.2
)
 

 

 

 
(0.2
)
 

Balance September 30, 2014
110.5

 
$
1.1

 
$
1,128.5

 
$
(4.3
)
 
$
(417.1
)
 
$
(104.0
)
 
$
166.4

 
$
770.6

 
$
16.1

See accompanying notes to unaudited consolidated financial statements.


7


TRANSUNION HOLDING COMPANY, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
1. Significant Accounting and Reporting Policies
Basis of Presentation
Any reference in this report to "TransUnion," "TransUnion Holding," the “Company,” “we,” “us,” and “our” refers to TransUnion Holding Company, Inc. and its direct and indirect subsidiaries.

The accompanying unaudited consolidated financial statements of TransUnion have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. In the opinion of management, all adjustments, including normal recurring adjustments, considered necessary for a fair presentation have been included. All significant intercompany transactions and balances have been eliminated. The operating results of TransUnion for the periods presented are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014. These unaudited consolidated financial statements should be read in conjunction with our audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission (“SEC”) on February 27, 2014.

Principles of Consolidation
The consolidated financial statements of TransUnion include the accounts of all of its majority-owned or controlled subsidiaries. Investments in unconsolidated entities in which the Company has at least a 20% ownership interest, or where it is able to exercise significant influence, are accounted for using the equity method. Nonmarketable investments in unconsolidated entities in which the Company has less than a 20% ownership interest, or where it is not able to exercise significant influence, are accounted for using the cost method and are periodically reviewed for impairment.

Change in Accounting Estimate
During the third quarter of 2014, we revised the remaining useful lives of certain internal use software, equipment, leasehold improvement and corporate headquarters facility assets to align with the expected completion dates of our strategic initiatives to upgrade out technology platform and corporate headquarters facility. As a result, depreciation and amortization expense increased by $9.7 million in the three- and nine-month periods.

Reclassification
We have reclassified certain items presented on our prior period consolidated financial statements to conform to the current year’s presentation.

Subsequent Events
Events and transactions occurring through the date of issuance of the financial statements have been evaluated by management and, when appropriate, recognized or disclosed in the financial statements or notes to the consolidated financial statements.

Recently Adopted Accounting Pronouncements
On July 18, 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exist. ASU 2013-11 provides guidance on the presentation of unrecognized tax benefits to better reflect the manner in which an entity would settle at the reporting date any income taxes that would result from the disallowance of a tax position when net operating loss carryforwards, similar tax losses or tax credit carryforwards exist. ASU 2013-11 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. This guidance was adopted by the Company effective January 1, 2014, and did not result in a material change in the Company’s consolidated financial statements. See Note 10, "Income Taxes," for further details regarding the impact of this adoption.

Recent Accounting Pronouncement Not Yet Adopted
On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This comprehensive guidance will replace all existing revenue recognition guidance and is effective for annual reporting periods beginning after December 15, 2016, and interim periods therein. We are currently assessing the impact this guidance will have on our consolidated financial statements once it is adopted.


8


On June 19, 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This update clarifies the accounting for share-based awards with performance targets. We are currently assessing the impact this guidance will have on our consolidated financial statements.
2. Business Combinations
TLO
On December 16, 2013, we acquired a 100% ownership interest in certain net assets of TLO, LLC ("TLO") for $153.4 million in cash. TLO provides data solutions for identity authentication, fraud prevention, and debt recovery. The Company established a newly incorporated entity, TransUnion Risk and Alternative Data Solutions, Inc. ("Alternative Data"), to purchase the net assets of TLO. The results of operations of this business have been included as part of the USIS segment in the accompanying consolidated statements of income since the date of acquisition.

Purchase Price Allocation
The fair value of the assets acquired and liabilities assumed consisted of the following:
(in millions)
 
Fair Value
Other current assets
 
$
0.3

Property and equipment
 
6.8

Identifiable intangible assets
 
83.1

Goodwill(1)
 
69.2

Total assets acquired
 
$
159.4

Total liabilities assumed
 
(6.0
)
Net assets of acquired company
 
$
153.4

(1) 
All of the goodwill is deductible for tax purposes.

The excess of the purchase price over the fair value of the net assets acquired was recorded as goodwill. The purchase price of TLO exceeded the fair value of the net assets acquired due primarily to growth opportunities, synergies associated with its internal use software and our existing customer base and brand name, and other technological and operational synergies. Goodwill has been allocated to the USIS segment.
Identifiable Intangible Assets
The fair values of the intangible assets acquired consisted of the following:
(in millions)
 
Fair Value
 
Estimated Useful Life
Technology and software
 
$
45.8

 
7 years
Trade names and trademarks
 
13.2

 
20 years
Customer relationships
 
24.1

 
15 years
Total identifiable intangible assets
 
$
83.1

 
 
The weighted-average useful life of identifiable intangible assets is approximately 11.4 years.

Acquisition Costs
During 2013, the Company incurred $3.7 million of acquisition-related costs for TLO, including banking fees, legal fees, due diligence and other external costs, which were expensed and recorded in other income and expense in the fourth quarter of 2013. Additional TLO acquisition-related costs of $0.2 million were incurred and expensed during 2014.


9


CIBIL
During the first quarter of 2014, we increased our equity interest in Credit Information Bureau (India) Limited (“CIBIL”), which was an unconsolidated equity method investment, from 27.5% to 47.5%. On May 21, 2014, we acquired an additional 7.5% ownership interest, which raised our total ownership interest in CIBIL to 55.0%. The additional purchase resulted in us acquiring control and we began consolidating CIBIL on the acquisition date. CIBIL is not material to our results of operations or financial position. See note 6, "Investments in Affiliated Companies," for additional information.
3. Fair Value
The following table summarizes financial instruments measured at fair value, on a recurring basis, as of September 30, 2014:
(in millions)
 
Total
 
Level 1
 
Level 2
 
Level 3
Assets
 
 
 
 
 
 
 
 
Trading securities
 
$
10.9

 
$
6.5

 
$
4.4

 
$

Available for sale securities
 
2.9

 

 
2.9

 

Total
 
$
13.8

 
$
6.5

 
$
7.3

 
$

 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
Contingent obligation
 
$
(3.7
)
 
$

 
$

 
$
(3.7
)
Interest rate swaps
 
(1.3
)
 

 
(1.3
)
 

Total
 
$
(5.0
)
 
$

 
$
(1.3
)
 
$
(3.7
)

Level 1 instruments consist of exchange-traded mutual funds. Exchange-traded mutual funds are trading securities valued at their current market prices. These securities relate to a nonqualified deferred compensation plan held in trust for the benefit of plan participants.

Level 2 instruments consist of pooled separate accounts, foreign exchange-traded corporate bonds and interest rate swaps. Pooled separate accounts are designated as trading securities valued at net asset values. These securities relate to the nonqualified deferred compensation plan held in trust for the benefit of plan participants. Foreign exchange-traded corporate bonds are available for sale securities valued at their current quoted prices. These securities mature between 2027 and 2033. Interest rate swaps fair values are determined using standard valuation models with market-based observable inputs including forward and spot exchange rates and interest rate curves. See Note 9, “Debt” for additional information regarding interest rate swaps.

Unrealized gains and losses on trading securities are included in net income, while unrealized gains and losses on available for sale securities are included in other comprehensive income. There were no significant realized or unrealized gains or losses on our securities for any of the periods presented.

Level 3 instruments consist of contingent obligations owed to the sellers of e-Scan Data Systems, Inc. (“eScan”), an entity we acquired in 2013. The fair value was determined based on an income approach, using our current expectation of the future earnings of eScan, and is assessed each reporting period. The obligation has a maximum payout of $17.0 million, contingent upon eScan meeting certain performance requirements in 2015 and 2016, and is currently valued at $3.7 million. The increase in the fair value during the third quarter of 2014 of $1.5 million was the result of changes in our expectation of the future performance of eScan and was recorded as an expense in selling, general and administrative expenses in the consolidated statements of income. Any future remeasurements of the fair value prior to payout will result in a gain or loss reflected in our consolidated statements of income.


10


4. Other Current Assets
Other current assets consisted of the following:
 
(in millions)
 
September 30, 2014
 
December 31, 2013
Prepaid expenses
 
$
37.1

 
$
34.9

Other investments
 
8.9

 

Deferred financing fees
 
8.0

 
6.8

Marketable securities
 
2.9

 

Deferred income tax assets
 
2.8

 
22.1

Income taxes receivable
 
2.1

 
6.8

Other
 
4.3

 
2.9

Total other current assets
 
$
66.1

 
$
73.5


The decrease in deferred income tax assets of $19.3 million was due primarily to a reclassification of a portion of our net operating loss carryforward deferred tax asset from current to noncurrent. Other investments are non-negotiable certificates of deposit that we acquired with CIBIL. As of September 30, 2014, these investments are recorded at their carrying value.
5. Other Assets
Other assets consisted of the following:
 
(in millions)
 
September 30, 2014
 
December 31, 2013
Investments in affiliated companies
 
$
58.2

 
$
92.4

Deferred financing fees
 
27.9

 
29.7

Other investments
 
15.4

 

Marketable securities
 
10.9

 
9.9

Deposits
 
7.1

 
15.8

Other
 
0.3

 
0.7

Total other assets
 
$
119.8

 
$
148.5


The decrease in investments in affiliated companies was primarily due to our acquisition of an additional equity interest in CIBIL, resulting in our consolidation of CIBIL. The decrease in deposits was due to a deposit being used in the purchase of the additional equity in CIBIL. Other investments are non-negotiable certificates of deposit that we acquired with CIBIL. As of September 30, 2014, these investments are recorded at their carrying value. See Note 2, "Business Combination," and Note 6, "Investment in Affiliated Companies," for additional information regarding the CIBIL acquisition.
6. Investments in Affiliated Companies
Investments in affiliated companies represent our investment in non-consolidated domestic and foreign entities. These entities are in businesses similar to ours, such as credit reporting, credit scoring and credit monitoring services. These investments are included in other assets in the consolidated balance sheets.

We use the equity method to account for investments in affiliates where we have at least a 20% ownership interest or where we are able to exercise significant influence. For these investments, we adjust the carrying value for our proportionate share of the affiliates’ earnings, losses and distributions, as well as for purchases and sales of our ownership interest.

We use the cost method to account for nonmarketable investments in affiliates where we have less than a 20% ownership interest or where we are not able to exercise significant influence. For these investments, we adjust the carrying value for purchases and sales of our ownership interests.

For all investments, we adjust the carrying value if we determine that an other-than-temporary impairment has occurred. During the second quarter of 2014, we incurred an other-than-temporary impairment of $4.5 million on a cost method investment that

11


was recorded in our USIS segment. This investment was liquidated in the third quarter of 2014 at which time we recognized a gain of $0.4 million. The net loss of $4.1 million is included in other income and expense in the consolidated statements of income. We had no impairments of investments in affiliated companies during the nine months ended September 30, 2013.

Investments in affiliated companies consisted of the following:
 
(in millions)
 
September 30, 2014
 
December 31, 2013
Total equity method investments
 
$
55.3

 
$
84.5

Total cost method investments
 
2.9

 
7.9

Total investments in affiliated companies
 
$
58.2

 
$
92.4


During the first quarter of 2014, we increased our equity interest in CIBIL from 27.5% to 47.5% and entered into agreements to acquire an additional 7.5% equity stake. On May 21, 2014, we acquired the additional 7.5% equity interest, obtained control and began to consolidate CIBIL as part of our International segment. From May 21, 2014 forward, CIBIL is no longer an equity method investment.

We remeasured our previously held equity interest in CIBIL at fair value as of the date we obtained control in accordance with the accounting guidance for acquisitions achieved in stages (ASC 805-10-25-10). As a result, we recognized a gain of $21.7 million in other income and expense in the second quarter of 2014.

Earnings from equity method investments, which are included in other income and expense, and dividends received from equity method investments consisted of the following:
 
(in millions)
 
Nine Months
Ended
September 30, 2014
 
Nine Months
Ended
September 30, 2013
Earnings from equity method investments
 
$
10.0

 
$
10.3

Dividends received from equity method investments
 
$
9.0

 
$
9.4


Dividends received from cost method investments were $0.5 million for the nine months ended September 30, 2014 and 2013. These dividends have been included in other income and expense.
7. Other Current Liabilities
Other current liabilities consisted of the following:

(in millions)
 
September 30, 2014
 
December 31, 2013
Accrued payroll
 
$
67.1

 
$
63.7

Accrued interest
 
14.4

 
23.1

Deferred revenue
 
11.5

 
9.1

Accrued employee benefits
 
10.4

 
9.6

Accrued litigation
 
8.9

 
13.8

Other
 
15.8

 
14.2

Total other current liabilities
 
$
128.1

 
$
133.5


12


8. Other Liabilities
Other liabilities consisted of the following:
 
(in millions)
 
September 30, 2014
 
December 31, 2013
Retirement benefits
 
$
10.7

 
$
10.4

Unrecognized tax benefits
 
3.0

 
4.6

Other
 
10.0

 
7.6

Total other liabilities
 
$
23.7

 
$
22.6

9. Debt
Debt outstanding consisted of the following:
(in millions)
 
September 30, 2014
 
December 31, 2013
Senior secured term loan, payable in quarterly installments through April 9, 2021, including variable interest (4.00% at September 30, 2014) at LIBOR or alternate base rate, plus applicable margin, including original discount (premium) of $4.5 million and $(0.2) million at September 30, 2014, and December 31, 2013, respectively
 
$
1,886.0

 
$
1,123.5

Senior secured revolving line of credit, due on April 9, 2019, variable interest (3.75% at September 30, 2014) at LIBOR or alternate base rate, plus applicable margin
 

 

11.375% notes - Senior notes, principal due June 15, 2018, (paid in full in May 2014)semi-annual interest payments, 11.375% fixed interest per annum, including unamortized fair value adjustment of $95.9 million as of December 31, 2013
 

 
740.9

9.625% notes - Senior unsecured PIK toggle notes, principal due June 15, 2018, semi-annual interest payments, 9.625% fixed interest per annum
 
600.0

 
600.0

8.125% notes - Senior unsecured PIK toggle notes, principal due June 15, 2018, semi-annual interest payments, 8.125% fixed interest per annum, including original issuance discount of $1.4 million and $1.7 million at September 30, 2014 and December 31, 2013, respectively
 
398.6

 
398.3

Capital lease obligations
 
2.4

 
4.2

Other notes payable
 
10.2

 

Total debt
 
$
2,897.2

 
$
2,866.9

Less short-term debt and current portion of long-term debt
 
(27.7
)
 
(13.8
)
Total long-term debt
 
$
2,869.5

 
$
2,853.1

Excluding potential additional principal payments due on the senior secured credit facility based on excess cash flows of the prior year, scheduled future maturities of total debt at September 30, 2014, were as follows: 
(in millions)
September 30, 2014
2014
$
8.6

2015
23.9

2016
22.3

2017
19.5

2018
1,019.0

Thereafter
1,809.8

Unamortized discounts on notes
(5.9
)
Total
$
2,897.2


Senior Secured Credit Facility
On June 15, 2010, the Company entered into a senior secured credit facility ("credit facility") with various lenders. The credit facility consists of a senior secured term loan ("term loan") and a senior secured revolving line of credit ("revolving line of credit").

13


On April 9, 2014, we refinanced and amended the credit facility. The refinancing resulted in an increase in the outstanding term loan from $1,120.5 million to $1,900.0 million. The amendment, among other things, reduced the interest rate floor and margins, reduced the amount available under the revolving line of credit from $210.0 million to $190.0 million, extended the maturity dates, and changed certain covenant requirements. The additional borrowings were used in part to repay all amounts outstanding under the existing revolving line of credit and pay fees and expenses associated with the refinancing transaction. On May 9, 2014, the remaining borrowings were used to redeem the entire $645.0 million outstanding balance of the 11.375% notes issued by TransUnion LLC and its wholly-owned subsidiary, TransUnion Financing Corporation, including a prepayment premium and unpaid accrued interest through June 15, 2014. We refer to these transactions collectively as the "2014 Refinancing Transaction." The early redemption of the 11.375% notes resulted in a net gain of $45.8 million recorded in other income and expense in the consolidated statements of income consisting of the unamortized 2012 Change in Control Transaction fair value increase in the notes of $89.4 million less an early redemption premium and other costs totaling $43.6 million. The credit facility refinancing resulted in $12.7 million of refinancing fees and other net costs expensed and recorded in other income and expense in the consolidated statements of income.
Interest rates on the refinanced term loan are based on the London Interbank Offered Rate ("LIBOR") unless otherwise elected, and subject to a floor of 1.00%, plus a margin of 2.75% or 3.00% depending on our senior secured net leverage ratio. Under the refinanced term loan, the Company is required to make principal payments of 0.25% of the refinanced original principal balance at the end of each quarter, with the remaining balance due April 9, 2021. The Company will also be required to make additional payments beginning in 2015 based on excess cash flows of the prior year. Depending on the senior secured net leverage ratio for the year, a principal payment of between zero and fifty percent of the excess cash flows will be due the following year.
Interest rates on the refinanced revolving line of credit are based on LIBOR unless otherwise elected, and subject to a floor of 1.00%, plus a margin of 2.50% or 2.75% depending on our senior secured net leverage ratio. There is a 0.375% or 0.50% annual commitment fee, depending on our senior secured net leverage ratio, payable quarterly based on the undrawn portion of the revolving line of credit. The commitment under the revolving line of credit expires on April 9, 2019.
With certain exceptions, the 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 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. We are in compliance with all of the loan covenants.
On April 30, 2012, we entered into swap agreements that effectively fixed the interest payments on a portion of the existing term loan at 2.033%, plus the applicable margin, beginning March 28, 2013. Under the swap agreements, which we had designated as cash flow hedges, we pay a fixed rate of interest of 2.033% and receive a variable rate of interest equal to the greater of 1.50% or the three month LIBOR. The net amount paid or received was recorded as an adjustment to interest expense. As a result of the April 9, 2014, credit facility amendment, the hedges were no longer expected to be highly effective and no longer qualify for hedge accounting. The total fair value of the swap instruments as of April 9, 2014, of $1.6 million was recorded in other liabilities in the consolidated balance sheet. The corresponding net of tax loss of $1.0 million was recorded in accumulated other comprehensive income and is being amortized to interest expense on a straight-line basis through December 29, 2017, the remaining life of the swaps. Changes in the fair value of the swaps after April 9, 2014, are being recorded in other income and expense. The change in the fair value of the swaps resulted in a gain of $1.1 million and $0.3 million for the three-months ended September 30, 2014, and from April 9, 2014 through September 30, 2014, respectively.
11.375% Notes
Trans Union LLC and its wholly-owned subsidiary TransUnion Financing Corporation issued $645.0 million principal amount of 11.375% senior unsecured notes due June 15, 2018. On May 9, 2014, the 11.375% notes were fully repaid and redeemed using proceeds received on the new term loan.

9.625% Notes
On March 21, 2012, the Company issued $600.0 million principal amount of 9.625%/10.375% senior unsecured PIK toggle notes (“9.625% notes”) due June 15, 2018, in a private placement to certain investors. Pursuant to an exchange offer completed in October 2012, these notes were subsequently registered with the SEC. The Company is required to pay interest on the 9.625% notes in cash unless certain conditions described in the indenture governing the notes are satisfied, in which case the Company will be entitled to pay interest for such period by increasing the principal amount of the notes or by issuing new notes (such increase being referred to as “PIK,” or paid-in-kind interest) to the extent described in the indenture.
The indenture governing the 9.625% notes contains nonfinancial covenants that include restrictions on our ability to pay dividends or distributions, repurchase equity, prepay junior debt, make certain investments, incur additional debt, issue certain stock, incur

14


liens on property, merge, consolidate or sell certain assets, enter into transactions with affiliates, and allow to exist certain restrictions on the ability of subsidiaries to pay dividends or make other payments to TransUnion Holding. We are in compliance with all covenants under the indenture.

8.125% Notes
On November 1, 2012, the Company issued $400.0 million principal amount of 8.125%/8.875% senior unsecured PIK toggle notes (“8.125% notes”) due June 15, 2018, at an offering price of 99.5% in a private placement to certain investors. Pursuant to an exchange offer completed in August 2013, these notes were subsequently registered with the SEC. The Company is required to pay interest on the 8.125% notes in cash unless certain conditions described in the indenture governing the notes are satisfied, in which case the Company will be entitled to pay interest for such period by increasing the principal amount of the notes or by issuing new notes to the extent described in the indenture.
The indenture governing the 8.125% notes and the nonfinancial covenants are substantially identical to those governing the 9.625% notes. We are in compliance with all covenants under the indenture.

Fair Value of Debt
The estimated fair values of our 9.625% and 8.125% notes as of September 30, 2014, were $622.5 million and $416.0 million, respectively, compared with book values of $600.0 million and $398.6 million, respectively. The fair values of these fixed-rate notes, as determined under Level 2 of the fair-value hierarchy, are measured using quoted market prices of these publicly traded securities. The book value of our variable-rate debt approximates its fair value. The estimated fair value of our debt may not represent the actual settlement value due to redemption premiums and prepayment penalties that we may incur in connection with extinguishing our debt before its stated maturity.

10. Income Taxes
A tax law known as the “look-through rule” that expired in 2012 was retroactively reinstated in 2013 and expired again this year. These tax law changes have impacted TransUnion’s effective tax rate. U.S. tax law generally requires U.S. corporate shareholders to recognize current U.S. taxable income from passive income, including dividends, earned by certain foreign subsidiaries, regardless of whether that income is remitted to the U.S. The look-through rule grants an exception to this recognition for subsidiary passive income attributable to an active business. When it is not in effect, we are required to accrue a tax liability for certain foreign earnings as if those earnings were distributed to the U.S.
For the three months ended September 30, 2014, the effective tax rate of 401.3% was higher than the 35% U.S. federal statutory rate due primarily to an increase in deferred tax expense due to an increase in the state income tax rate as well as a valuation allowance related to the disposition of our Adchemy investment. For the three months ended September 30, 2013, the effective tax rate of 156.0% was higher than the 35% U.S. federal statutory rate due primarily to calculating the provision under the guidance of interim tax expense accounting.

For the nine months ended September 30, 2014, the effective tax rate of 69.6% was higher than the 35% U.S. federal statutory rate due primarily to the expiration of the look-through rule, the remeasurement of our deferred tax liability relating to our increased investment in CIBIL, an increase in deferred tax expense due to an increase in the state income tax rate and a valuation allowance related to the disposition of our Adchemy investment, partially offset by the impact of lower foreign tax rates. For the nine months ended September 30, 2013, the effective tax rate was not meaningful as we recognized tax expense on a loss from operations.

The total amount of unrecognized tax benefits was $4.6 million as of both September 30, 2014, and December 31, 2013, and these same amounts would affect the effective tax rate, if recognized. As of September 30, 2014, most of the unrecognized tax benefit in the balance sheet was presented as a reduction in a deferred tax asset for a net operating loss carry-forward in connection with ASU 2013-11, which we adopted effective January 1, 2014. The accrued interest payable for taxes as of September 30, 2014, and December 31, 2013, was $0.9 million and $0.7 million, respectively. There was no significant liability for tax penalties as of September 30, 2014, or December 31, 2013. 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.
11. Operating Segments
Operating segments are businesses for which separate financial information is available and evaluated regularly by the chief operating decision maker in deciding how to allocate resources. This segment financial information is reported on the basis that is used for the internal evaluation of operating performance. The accounting policies of the segments are the same as described in Note 1, “Significant Accounting and Reporting Policies.”

15



We evaluate the performance of segments based on revenue and operating income. Intersegment sales and transfers have been eliminated and were not material.

The following is a more detailed description of the three operating segments and the Corporate unit, which provides support services to each operating segment:

U.S. Information Services
U.S. Information Services (“USIS”) provides consumer reports, credit scores, identity authentication and verification services, analytical services and decisioning technology to businesses in the United States through both direct and indirect channels. These services are offered to customers in the financial services, insurance, healthcare and other markets. These business customers use our products and services to acquire new customers, identify cross-selling opportunities, measure and manage debt portfolio risk, collect debt, manage fraud and determine and collect healthcare payments. This segment also provides mandated consumer services, including dispute investigations, free annual credit reports and other requirements of the United States Fair Credit Reporting Act (“FCRA”), the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”), and other credit-related legislation.

International
The International segment provides services similar to our USIS segment to business customers outside the United States and automotive information and commercial data services to customers in select geographies. Depending on the maturity of the credit economy in each location, services may include credit reports, analytical and decision services, and risk management services. 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 in our Interactive segment, such as credit reports, credit scores and credit monitoring services. The two market groups in the International segment are developed markets, which includes Canada, Hong Kong and Puerto Rico, and emerging markets, which includes Africa, Latin America, India and other emerging markets in Asia Pacific.

Interactive
Interactive provides services to consumers, including credit reports, scores and credit and identity monitoring services, primarily through the internet. The majority of revenue is derived from both direct and indirect subscribers who pay a monthly fee for access to their credit report and score, and for alerts related to changes in their credit reports.

Corporate
Corporate provides shared services for the Company and conducts enterprise functions. Certain costs incurred in Corporate that are not directly attributable to one or more of the operating segments remain in Corporate. These costs are typically for enterprise-level functions and are primarily administrative in nature.

Selected financial information consisted of the following:
  
 
Three Months Ended 
 September 30, 2014
 
Three Months Ended 
 September 30, 2013
 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 30, 2013
(in millions)
 
Revenue
 
Operating
income
(loss)
 
Revenue
 
Operating
income
(loss)
 
Revenue
 
Operating
income
(loss)
 
Revenue
 
Operating
income
(loss)
USIS
 
$
211.7

 
$
33.4

 
$
188.3

 
$
41.9

 
$
612.5

 
$
92.1

 
$
560.0

 
$
122.2

International
 
68.1

 
8.3

 
60.6

 
9.0

 
185.5

 
15.2

 
177.5

 
15.4

Interactive
 
58.4

 
21.3

 
50.6

 
16.7

 
171.1

 
60.8

 
153.3

 
48.0

Corporate
 

 
(22.2
)
 

 
(18.3
)
 

 
(60.2
)
 

 
(52.7
)
Total
 
$
338.2

 
$
40.8

 
$
299.5

 
$
49.3

 
$
969.1

 
$
107.9

 
$
890.8

 
$
132.9



16


A reconciliation of operating income to income (loss) before income taxes for the periods ended as presented was as follows:
(in millions)
 
Three Months Ended September 30, 2014
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 30, 2013
Operating income from segments
 
$
40.8

 
$
49.3

 
$
107.9

 
$
132.9

Non-operating income and expense
 
(40.7
)
 
(46.8
)
 
(87.2
)
 
(144.3
)
Income (loss) before income taxes
 
$
0.1

 
$
2.5

 
$
20.7

 
$
(11.4
)

Earnings from equity method investments included in other income and expense, net, for the periods presented were as follows:
 
(in millions)
 
Three Months Ended September 30, 2014
 
Three Months Ended September 30, 2013
 
Nine Months Ended September 30, 2014
 
Nine Months Ended September 30, 2013
USIS
 
$
0.3

 
$
0.3

 
$
1.0

 
$
1.1

International
 
3.0

 
2.7

 
9.0

 
9.2

Interactive
 

 

 

 

Total
 
$
3.3

 
$
3.0

 
$
10.0

 
$
10.3


17


ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this discussion and analysis to “TransUnion,” "TransUnion Holding," the “Company,” “we,” “our,” “us” and “its” are to TransUnion Holding Company, Inc. and its consolidated subsidiaries, collectively.
The following discussion and analysis of TransUnion's financial condition and results of operations is provided as a supplement to, and should be read in conjunction with, TransUnion Holding Company, Inc's audited consolidated financial statements, the accompanying notes, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2013, as well as the unaudited consolidated financial statements and the related notes presented in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Overview
We are a leading global provider of information and risk management solutions. We provide these solutions to businesses across multiple industries and to individual consumers. Our technology and services enable businesses to make more timely and informed credit granting, risk management, underwriting, fraud protection and customer acquisition decisions by delivering high quality data, integrated with analytics and decision-making capabilities. Our interactive website provides consumers with real-time access to their personal credit information and analytical tools that help them understand and proactively manage their personal finances. Over a million unique consumers visit our website each month. We have operations in the United States, Africa, Canada, Latin America, Asia Pacific and India and provide services in 33 countries. Since our founding in 1968, we have built a diversified and stable customer base of approximately 45,000 businesses in multiple industries, including financial services, insurance, healthcare, automotive, retail and communications.

We generate revenues primarily from the sale of credit reports, credit marketing services, portfolio reviews and other credit-related services to qualified businesses both in the U.S. and internationally through direct and indirect channels. We maintain long-standing relationships with many of our largest customers, including relationships of over ten years with each of our top ten global financial services customers. We attribute the length of our customer relationships to the critical nature of the services we provide, our consistency and reliability, and our innovative and collaborative approach to developing integrated solutions that meet our customers’ continually changing needs. We also generate revenues by providing subscription-based interactive services to consumers that help them understand and manage their personal finances and that protect them from identity theft.

Recent Developments
On April 9, 2014, the Company refinanced and amended its senior secured credit facility. The refinancing resulted in an increase of the outstanding term loan from $1,120.5 million to $1,900.0 million. The excess proceeds were used to redeem the outstanding 11.375% notes including a prepayment premium and to pay an original issue discount and transaction fees. We refer to these transactions collectively as the 2014 Refinancing Transaction. The redemption of the 11.375% notes resulted in a net gain of $45.8 million recorded the second quarter of 2014 in other income and expense in the consolidated statements of income consisting of the unamortized 2012 Change in Control Transaction fair value increase in the notes of $89.4 million less an early redemption premium and other costs totaling $43.6 million. The refinancing of the senior secured credit facility resulted in $12.7 million of refinancing fees and other net costs expensed and recorded in other income and expense in the second quarter of 2014, in the consolidated statements of income. We also incurred $5.0 million of new deferred financing fees that were recorded in other current assets and other assets in the consolidated balance sheets. See Part I, Item 1, Note 9, "Debt," and the Liquidity and Capital Resources discussion below for additional information.
Segments
We manage our business and report our financial results in three operating segments: U.S. Information Services (“USIS”), International and Interactive.
USIS provides credit reports, credit scores, identity authentication and verification services, analytical services, decisioning technology and other services to businesses in the United States through both direct and indirect channels. USIS also provides healthcare insurance-related information to medical care providers, facilities and insurers. In addition, USIS fulfills mandated consumer services such as dispute investigations and free annual credit reports as required by the FCRA and other credit-related legislation. In this segment, we intend to continue to focus on expansion into underpenetrated and growth industries, such as insurance, healthcare, and alternative data, and introduce innovative and differentiated solutions in the financial services and other industries.
International provides services similar to our USIS and Interactive segments in many countries outside the United States. We believe our International segment represents a significant opportunity for growth as several of the countries in which

18


we operate, such as India, Mexico and Brazil, continue to develop their economies and credit markets. We also seek to enter into and develop our business in new geographies.
Interactive provides primarily subscription-based services to consumers, including credit reports, credit scores and credit and identity monitoring, through both direct and indirect channels. As consumers become increasingly aware of their credit profiles and show heightened concerns over identity theft, we expect the Interactive segment to grow and represent an increasing portion of our overall revenue.
In addition, Corporate provides shared services for the Company and conducts enterprise functions. Certain costs incurred in Corporate that are not directly attributable to one or more of the operating segments remain in Corporate. These costs are typically for enterprise-level functions and are primarily administrative in nature.
Factors Affecting Our Results of Operations
Macroeconomic and Industry Trends
Our revenues are significantly influenced by general macroeconomic conditions, including the availability of affordable credit and capital, interest rates, inflation, employment levels, consumer confidence and housing demand. For the last few years, economic conditions have remained relatively stable, however confidence about economic conditions continues to be a concern that has limited consumer spending. Mortgage rates in the United States have increased since the first quarter of 2013, resulting in fewer mortgage refinancings year-over-year and restrained growth in our USIS segment. In addition, the continued strengthening of the U.S. dollar has diminished the operating results of our International segment.
Our revenues are also significantly influenced by industry trends, including the demand for information services in the financial services, insurance, healthcare and other industries we serve. Companies increasingly rely on data and analytics to make more informed decisions, operate their businesses more effectively and manage risk. Similarly, consumers seek information to help them understand and proactively manage their personal finances and to better protect themselves against identity theft. We expect that increased demand for targeted data and sophisticated analytical tools will drive revenue growth in all of our segments.
Recent Acquisitions and Partnerships
We selectively evaluate acquisitions and partnerships as a means to expand our business, increase our international footprint and enter into new markets.
During the first quarter of 2014, we increased our equity interest in Credit Information Bureau (India) Limited (“CIBIL”), from 27.5% to 47.5% and entered into agreements to acquire an additional 7.5% equity interest. On May 21, 2014, we acquired the additional 7.5% equity interest, obtained control and began to consolidate the results of operations of CIBIL as part of our International segment in our consolidated statements of income.
Effective January 1, 2014, we acquired the remaining 30% equity interest in our Guatemala subsidiary, Trans Union Guatemala, S.A. (TransUnion Guatemala) from the minority shareholders. As a result of this acquisition, the Company no longer records net income attributable to noncontrolling interests for this subsidiary.
On December 16, 2013, we acquired a 100% ownership interest in certain assets of TLO, LLC ("TLO"). TLO provides data solutions for due diligence, threat assessment, identity authentication, fraud prevention, and debt recovery. The results of operations of TLO have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On September 4, 2013, we acquired a 100% equity interest in e-Scan Data Systems, Inc. ("eScan"). eScan provides services to hospitals and healthcare providers to efficiently capture uncompensated care costs in their revenue management cycle programs. The results of operations of eScan have been included as part of our USIS segment in our consolidated statements of income since the date of the acquisition.
On March 1, 2013, we acquired an 80% equity interest in Data Solutions Serviços de Informática Ltda. (“ZipCode”). ZipCode provides data enrichment and registry information to companies in Brazil’s information management, financial services, marketing and telecommunications segments. The results of operations of ZipCode have been included as part of our International segment in our consolidated statements of income since the date of the acquisition.

19


Key Components of Our Results of Operations
Revenue
We derive our USIS segment revenue from three operating platforms: Online Data Services, Credit Marketing Services and Decision Services. Revenue in Online Data Services is driven primarily by the volume of credit reports that our customers purchase. Revenue in Credit Marketing Services is driven primarily by demand for customer acquisition and portfolio review services. Revenue in Decision Services is driven primarily by demand for services that provide our customers with online, real-time, automated decisions at the point of consumer interaction.

We report our International segment revenue in two categories: developed markets and emerging markets. Our developed markets are Canada, Hong Kong and Puerto Rico. Our emerging markets include Africa, Latin America, Asia Pacific and India.

We derive our Interactive segment revenue from both direct and indirect channels. Our Interactive revenue is primarily subscription based.

Cost of Services
Costs of services include data acquisition and royalty fees, costs related to our databases and software applications, consumer and call center support costs, hardware and software maintenance costs, telecommunication expenses and occupancy costs associated with the facilities where these functions are performed.

Selling, General and Administrative
Selling, general and administrative expenses include personnel-related costs for sales, administrative and management employees, costs for professional and consulting services, advertising and the occupancy and facilities expenses of these functions.

Non-Operating Income and Expense
Non-operating income and expense includes interest expense, interest income, earnings from equity-method investments, dividends from cost-method investments and other non-operating income and expenses.
Results of Operations

Key Performance Measures
Management, including our chief operating decision maker, evaluates the financial performance of our businesses based on a variety of key indicators. These indicators include the non-GAAP measures Adjusted Operating Income and Adjusted EBITDA, and the GAAP measures of revenue, cash provided by operating activities and capital expenditures. For the three and nine months ended September 30, 2014 and 2013, these indicators were as follows:

20


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2014
 
2013
 
$
Change
 
%
Change
 
2014
 
2013
 
$
Change
 
%
Change
Revenue
 
$
338.2

 
$
299.5

 
$
38.7

 
12.9
 %
 
$
969.1

 
$
890.8

 
$
78.3

 
8.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of operating income to Adjusted Operating Income(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
$
40.8

 
$
49.3

 
$
(8.5
)
 
(17.2
)%
 
$
107.9

 
$
132.9

 
$
(25.0
)
 
(18.8
)%
Adjustments affecting operating income:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Acceleration of technology agreement(2)
 

 

 

 
nm

 
10.2

 

 
10.2

 
nm

  Tax-related expenses(3)
 
0.2

 

 
0.2

 
nm

 
0.2

 
2.9

 
(2.7
)
 
(93.1
)%
  Acquisitions and divestitures(4)
 
1.5

 

 
1.5

 
nm

 
1.5

 
1.2

 
0.3

 
25.0
 %
Total Adjustments
 
1.7

 

 
1.7

 
nm

 
11.9

 
4.1

 
7.8

 
190.2
 %
Adjusted Operating Income(1)
 
$
42.5

 
$
49.3

 
$
(6.8
)
 
(13.8
)%
 
$
119.8

 
$
137.0

 
$
(17.2
)
 
(12.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (loss) attributable to the Company to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) attributable to the Company
 
$
(2.6
)
 
$
(3.4
)
 
$
0.8

 
23.5
 %
 
$
0.6

 
$
(17.5
)
 
$
18.1

 
103.4
 %
  Net interest expense
 
43.6

 
48.2

 
(4.6
)
 
(9.5
)%
 
143.2

 
146.8

 
(3.6
)
 
(2.5
)%
  Income tax (benefit) provision
 
0.2

 
3.9

 
(3.7
)
 
(94.9
)%
 
14.4

 
1.1

 
13.3

 
nm

  Depreciation and amortization
 
67.3

 
48.0

 
19.3

 
40.2
 %
 
174.1

 
138.5

 
35.6

 
25.7
 %
EBITDA
 
108.5

 
96.7

 
11.8

 
12.2
 %
 
332.3

 
268.9

 
63.4

 
23.6
 %
  Stock-based compensation
 
2.1

 
1.2

 
0.9

 
75.0
 %
 
6.3

 
4.8

 
1.5

 
31.3
 %
EBITDA excluding stock-based compensation
 
110.6

 
97.9

 
12.7

 
13.0
 %
 
338.6

 
273.7

 
64.9

 
23.7
 %
Adjustments affecting operating income(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Acceleration of technology agreement(2)
 

 

 

 
nm

 
10.2

 

 
10.2

 
nm

  Tax-related expenses(3)
 
0.2

 

 
0.2

 
nm

 
0.2

 
2.9

 
(2.7
)
 
(93.1
)%
   Acquisitions and divestitures(4)
 
1.5

 

 
1.5

 
nm

 
1.5

 
1.2

 
0.3

 
25.0
 %
Total adjustments affecting operating income
 
1.7

 

 
1.7

 
nm

 
11.9

 
4.1

 
7.8

 
190.2
 %
Adjustments affecting non-operating income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Debt refinancing(5)
 
(0.4
)
 

 
(0.4
)
 
nm

 
(33.1
)
 

 
(33.1
)
 
nm

  Acquisitions and divestitures(6)
 

 

 

 
nm

 
(21.7
)
 

 
(21.7
)
 
nm

  Impairment expense(7)
 
(0.4
)
 

 
(0.4
)
 
nm

 
4.1

 

 
4.1

 
nm

  Acquisition-related expenses(8)
 
0.8

 
0.8

 

 
 %
 
2.1

 
6.4

 
(4.3
)
 
(67.2
)%
  Other non-operating(9)
 
0.4

 
0.8

 
(0.4
)
 
(50.0
)%
 
3.1

 
1.9

 
1.2

 
63.2
 %
Total adjustments affecting non-operating income (expense)
 
0.4

 
1.6

 
(1.2
)
 
(75.0
)%
 
(45.5
)
 
8.3

 
(53.8
)
 
nm

Total Adjustments
 
2.1

 
1.6

 
0.5

 
31.3
 %
 
(33.6
)
 
12.4

 
(46.0
)
 
nm

Adjusted EBITDA(1)
 
$
112.7

 
$
99.5

 
$
13.2

 
13.3
 %
 
$
305.0

 
$
286.1

 
$
18.9

 
6.6
 %
Other metrics:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash provided by operating activities
 
$
64.5

 
$
63.8

 
$
0.7

 
1.1
 %
 
$
110.1

 
$
111.1

 
$
(1.0
)
 
(0.9
)%
Capital expenditures
 
$
43.4

 
$
23.9

 
$
19.5

 
81.6
 %
 
$
117.7

 
$
54.1

 
$
63.6

 
117.6
 %
nm: not meaningful

21


(1)
Adjusted Operating Income and Adjusted EBITDA are non-GAAP measures. We present Adjusted Operating Income and Adjusted EBITDA as supplemental measures of our operating performance because they eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. In addition to its use as a measure of our operating performance, our board of directors and executive management team use Adjusted EBITDA as a compensation measure. Adjusted Operating Income does not reflect certain other income and expense. Adjusted EBITDA does not reflect our capital expenditures, interest, income tax, depreciation, amortization, stock-based compensation and certain other income and expense. Other companies in our industry may calculate Adjusted Operating Income and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures. Because of these limitations, Adjusted Operating Income and Adjusted EBITDA should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Adjusted Operating Income and Adjusted EBITDA are not measures of financial condition or profitability under GAAP and should not be considered alternatives to cash flow from operating activities, as measures of liquidity or as alternatives to operating income or net income as indicators of operating performance. We believe that the most directly comparable GAAP measure to Adjusted Operating Income is operating income and the most directly comparable GAAP measure to Adjusted EBITDA is net income attributable to the Company. The reconciliations of Adjusted Operating Income and Adjusted EBITDA to their nearest GAAP measures are included in the table above.
(2)
Represents accelerated fees for a data matching service contract that we have terminated and in-sourced as part of the upgrade to our technology platform.
(3)
Represents adjustments for operating tax expense reserves for prior years' activity.
(4)
Represents gains and losses on acquisitions and disposals of businesses and product lines.
(5)
Represents 2014 debt refinancing activity consisting of a gain on the prepayment of debt, net of prepayment premium and expenses.
(6)
Represents the remeasurement gain of our previously held equity interest in CIBIL upon consolidation.
(7)
Represents an impairment charge for a cost-method investment that sold its assets and liquidated.
(8)
Represents costs for acquisition-related efforts
(9)
Includes hedge mark-to-market, unused line fees, loan fees, currency remeasurement and other miscellaneous.

Revenue
Total revenue increased $38.7 million and $78.3 million in the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013, due to revenue from our recent acquisitions of TLO, eScan, CIBIL and ZipCode in our USIS and International segments and strong organic growth in all of our segments, partially offset by the impact of weakening foreign currencies on the 2014 revenue of our International segment. Acquisitions accounted for an increase in revenue of 7.7% and 6.6% in each respective period. The impact of weakening foreign currencies accounted for a decrease in revenue of 0.8% and 1.4% in each respective period. Excluding revenue from the recent acquisitions and the impact of weakening foreign currencies, consolidated revenues grew 6.0% and 3.6% in each respective period. Revenue by segment in the three- and nine-month periods was as follows:

22


 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2014
 
2013
 
$ Change
 
% Change
 
2014
 
2013
 
$ Change
 
% Change
USIS
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Online Data Services
 
$
140.8

 
$
129.3

 
$
11.5

 
8.9
%
 
$
411.9

 
$
388.5

 
$
23.4

 
6.0
%
Credit Marketing Services
 
35.4

 
31.5

 
3.9

 
12.4
%
 
98.6

 
94.2

 
4.4

 
4.7
%
Decision Services
 
35.5

 
27.5

 
8.0

 
29.1
%
 
102.0

 
77.3

 
24.7

 
32.0
%
Total USIS
 
211.7

 
188.3

 
23.4

 
12.4
%
 
612.5

 
560.0

 
52.5

 
9.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
International:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Developed Markets
 
26.0

 
24.6

 
1.4

 
5.7
%
 
72.6

 
71.1

 
1.5

 
2.1
%
Emerging Markets
 
42.1

 
36.0

 
6.1

 
16.9
%
 
112.9

 
106.4

 
6.5

 
6.1
%
Total International
 
68.1

 
60.6

 
7.5

 
12.4
%
 
185.5

 
177.5

 
8.0

 
4.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interactive
 
58.4

 
50.6

 
7.8

 
15.4
%
 
171.1

 
153.3

 
17.8

 
11.6
%
Total revenue
 
$
338.2

 
$
299.5

 
$
38.7

 
12.9
%
 
$
969.1

 
$
890.8

 
$
78.3

 
8.8
%

USIS Segment
USIS revenue increased $23.4 million and $52.5 million for the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013, with increases in revenue in all platforms.

Online Data Services
Online Data Services revenue increased $11.5 million and $23.4 million in the three- and nine-month periods, respectively, compared with the same periods in 2013, due to revenue from the acquisition of TLO and a 4.8% and 2.1% increase in online credit report unit volume in each respective period. Increases in credit report unit volume in the financial services, insurance, and other markets were partially offset by a decrease in volume in the resellers market, primarily in the first six months of 2014, due to higher mortgage interest rates and the resulting decline in refinancings. The change in mix of volume resulted in a slight decrease in average pricing for online credit reports in each period.

Credit Marketing Services
Credit Marketing Services revenue increased $3.9 million and $4.4 million in the three- and nine-month periods, respectively, compared with the same periods in 2013, due to an increase in custom data sets and archive information in the insurance market in the three-and nine-month periods and in the financial services market in the three-month period.

Decision Services
Decision Services revenue increased $8.0 million and $24.7 million in the three- and nine-month periods, respectively, compared with the same periods in 2013, due primarily to revenue from our acquisition of eScan.

International Segment
International revenue increased $7.5 million, or 12.4%, and $8.0 million, or 4.5%, in the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. Higher local currency revenue from increased volumes in all regions and the inclusion of revenue from our CIBIL and ZipCode acquisitions was partially offset by a 3.8% and 6.9% decrease in revenue in each respective period from the impact of weakening foreign currencies. Incremental revenue from our acquisition of CIBIL and ZipCode accounted for a 12.5% and 6.5% increase in International revenue in the three- and nine-month periods. Excluding the impact of foreign currencies and acquisitions, International revenue increased 3.6% and 5.0% in each respective period.

Developed Markets
Developed markets revenue increased $1.4 million, or 5.7%, and $1.5 million, or 2.1%, in the three- and nine-month periods, respectively, compared with the same periods in 2013, with higher local currency revenue in all regions partially offset by a 2.8%

23


and 4.1% decrease in revenue in each respective period from the impact of a weakening Canadian dollar. Excluding the impact of foreign currencies, developed markets revenue increased 8.5% and 6.2% in each respective period.

Emerging Markets
Emerging markets revenue increased $6.1 million, or 16.9%, and $6.5 million, or 6.1%, in the three- and nine-month periods, respectively, compared with the same periods in 2013. Higher local currency revenue in all regions and the inclusion of revenue from our CIBIL and ZipCode acquisitions was partially offset by a 4.4% and 8.8% decrease in revenue in each respective period from the impact of weakening foreign currencies, primarily the South African rand. Incremental revenue from our acquisition of CIBIL and ZipCode accounted for a 21.1% and 10.8% increase in emerging markets revenue in three- and nine-month periods. Excluding the impact of foreign currencies and acquisitions, emerging markets revenue increased 0.3% and 4.1% in each respective period.

Interactive Segment
Interactive revenue increased $7.8 million and $17.8 million in the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. This increase was due primarily to an increase in the average number of subscribers and volume in our indirect channel in both periods, and a small increase in direct subscribers in the thee-month period.

Operating Expenses
Total operating expenses increased $47.2 million and $103.3 million in the three and nine months ended September 30, 2014, respectively, compared with the same periods in 2013. The increases were due primarily to:
operating and integration costs associated with our CIBIL, TLO, eScan, and ZipCode acquisitions;
an increase in depreciation and amortization due to our strategic initiative to upgrade our technology platform and corporate headquarters facility;
an acceleration of $10.2 million of fees recorded in the second quarter of 2014 for a data matching service contract that we have terminated and in-sourced as part of the upgrade to our technology platform;
severance charges related to the consolidation and subsequent closure of our California-based contact center; and
an increase in labor costs recorded primarily in the second quarter of 2014 due to adjusting the fair value of our stock-based compensation liability awards in our International segment,
partially offset by:
the impact of weakening foreign currencies on the expenses of our International segment.

Operating expenses in the three- and nine-month periods were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2014
 
2013
 
$ Change
 
% Change
 
2014
 
2013
 
$ Change
 
% Change
Cost of services
 
$
124.7

 
$
115.9

 
$
8.8

 
7.6
%
 
$
378.0

 
$
354.9

 
$
23.1

 
6.5
%
Selling, general and administrative
 
105.4

 
86.3

 
19.1

 
22.1
%
 
309.1

 
264.5

 
44.6

 
16.9
%
Depreciation and amortization
 
67.3

 
48.0

 
19.3

 
40.2
%
 
174.1

 
138.5

 
35.6

 
25.7
%
Total operating expenses
 
$
297.4

 
$
250.2

 
$
47.2

 
18.9
%
 
$
861.2

 
$
757.9

 
$
103.3

 
13.6
%

Cost of Services
Cost of services increased $8.8 million and $23.1 million in the three- and nine-month periods, respectively, compared with the same periods in 2013. The increases were due primarily to:
operating and integration costs of our TLO, eScan, CIBIL and ZipCode acquisitions in our USIS and International segments;
an acceleration of $10.2 million of fees recorded in the second quarter of 2014 for a data matching service contract that we have terminated and in-sourced in our USIS segment; and
severance charges related to the consolidation and subsequent closure of our California-based contact center in our USIS segment,

24


partially offset by:
the impact of weakening foreign currencies on the expenses of our International segment.

Selling, General and Administrative
Selling, general and administrative expenses increased $19.1 million and $44.6 million in the three- and nine-month periods, respectively, compared with the same periods in 2013. The increases were due primarily to:
operating and integration costs from our TLO, eScan, CIBIL and ZipCode acquisitions in our USIS and International segments;
severance charges related to the consolidation and subsequent closure of our California-based contact center in our USIS segment and Corporate and increased headcount in Corporate; and
an increase in labor costs recorded primarily in the second quarter of 2014 due to adjusting the fair value of our stock-based compensation liability awards in our International segment,
partially offset by:
the impact of weakening foreign currencies on the expenses of our International segment.


Depreciation and Amortization
Depreciation and amortization increased $19.3 million and $35.6 million in the three- and nine-month periods, respectively, compared with the same periods in 2013. During the third quarter of 2014, we revised the remaining useful lives of certain internal use software, equipment, leasehold improvement and corporate headquarters facility assets to align with the expected completion dates of our strategic initiatives to upgrade our technology platform and corporate headquarters facility. As a result, depreciation and amortization increased by $9.7 million in the three- and nine-month periods. Depreciation and amortization also increased in both periods due to the recent business acquisitions and additional capital expenditures made in the fourth quarter of 2013 and first three quarters of 2014, primarily in our USIS and International segments. The shortened useful lives of the technology and facilities assets will result in additional depreciation and amortization of between approximately $6 million to $8 million per quarter through the second quarter fo 2016.

Operating Income and Operating Margins
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
(in millions)
 
2014
 
2013
 
$ Change
 
% Change
 
2014
 
2013
 
$ Change
 
% Change
Reconciliation of operating income to Adjusted Operating Income(1):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
USIS operating income
 
$
33.4

 
$
41.9

 
$
(8.5
)
 
(20.3
)%
 
$
92.1

 
$
122.2

 
$
(30.1
)
 
(24.6
)%
Acceleration of technology agreement(2)