Delaware | 001-37470 | 61-1678417 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
555 West Adams Street, Chicago, Illinois | 60661 | |
(Address of Principal Executive Offices) | (Zip Code) |
⃞ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
⃞ | Soliciting material pursuant to Rule 14a−12 under the Exchange Act (17 CFR 240.14a−12) |
⃞ | Pre−commencement communications pursuant to Rule 14d−2(b) under the Exchange Act (17 CFR 240.14d−2(b)) |
⃞ | Pre−commencement communications pursuant to Rule 13e−4(c) under the Exchange Act (17 CFR 240.13e− 4(c)) |
Exhibit No. | Description | ||
Press release of TransUnion dated October 23, 2018, announcing results for the quarter ended September 30, 2018. | |||
Callcredit schedule of Adjusted Revenue and Adjusted EBITDA for the three and nine months ended September 30, 2018 |
• | Total revenue was $604 million, an increase of 21 percent compared with the third quarter of 2017 (22 percent on a constant currency basis, 11 percent on an organic constant currency basis). |
• | Adjusted Revenue, which removes the impact of deferred revenue purchase accounting reductions and other adjustments to revenue for our recently acquired entities, was $621 million, an increase of 25 percent compared with the third quarter of 2017 (26 percent on a constant currency basis, 11 percent on an organic constant currency basis). |
• | Net income attributable to TransUnion was $46 million, compared with $69 million in the third quarter of 2017. The decrease in net income attributable to TransUnion was due to incremental amortization and interest expense and integration-related costs resulting from our recent business acquisitions. As a result, diluted earnings per share was $0.24, compared with $0.36 in the third quarter of 2017. |
• | Adjusted Net Income was $125 million, compared with $93 million in the third quarter of 2017. Adjusted Diluted Earnings per Share was $0.65, compared with $0.49 in the third quarter of 2017. |
• | Adjusted EBITDA was $245 million, an increase of 26 percent compared with the third quarter of 2017 (28 percent on a constant currency basis). Adjusted EBITDA margin was 39.4 percent, compared with 39.0 percent in the third quarter of 2017. |
• | Online Data Services revenue was $235 million, an increase of 17 percent compared with the third quarter of 2017 (11 percent on an organic basis). |
• | Marketing Services revenue was $60 million, an increase of 23 percent compared with the third quarter of 2017 |
• | Decision Services revenue was $80 million, an increase of 26 percent compared with the third quarter of 2017 (3 percent on an organic basis). Adjusted Revenue was $81 million. |
• | Developed markets revenue was $64 million, an increase of 89 percent (92 percent on a constant currency basis, 9 percent on an organic constant currency basis) compared with the third quarter of 2017. Adjusted Revenue was $80 million. |
• | Emerging markets revenue was $65 million, an increase of 6 percent compared with the third quarter of 2017 (14 percent on a constant currency basis). |
E-mail: | Investor.Relations@transunion.com |
Telephone: | 312.985.2860 |
September 30, 2018 | December 31, 2017 | ||||||
Unaudited | |||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 226.6 | $ | 115.8 | |||
Trade accounts receivable, net of allowance of $13.7 and $9.9 | 426.1 | 326.7 | |||||
Other current assets | 160.6 | 146.2 | |||||
Current assets of discontinued operations | 72.7 | — | |||||
Total current assets | 886.0 | 588.7 | |||||
Property, plant and equipment, net of accumulated depreciation and amortization of $351.6 and $299.3 | 198.2 | 198.6 | |||||
Goodwill, net | 3,339.0 | 2,368.8 | |||||
Other intangibles, net of accumulated amortization of $1,141.4 and $993.6 | 2,570.1 | 1,825.8 | |||||
Other assets | 148.0 | 136.6 | |||||
Total assets | $ | 7,141.3 | $ | 5,118.5 | |||
Liabilities and stockholders’ equity | |||||||
Current liabilities: | |||||||
Trade accounts payable | $ | 159.1 | $ | 131.3 | |||
Short-term debt and current portion of long-term debt | 64.2 | 119.3 | |||||
Other current liabilities | 301.1 | 207.8 | |||||
Current liabilities of discontinued operations | 21.3 | — | |||||
Total current liabilities | 545.7 | 458.4 | |||||
Long-term debt | 4,057.6 | 2,345.3 | |||||
Deferred taxes | 529.6 | 419.4 | |||||
Other liabilities | 44.3 | 70.8 | |||||
Total liabilities | 5,177.2 | 3,293.9 | |||||
Stockholders’ equity: | |||||||
Common stock, $0.01 par value; 1.0 billion shares authorized at September 30, 2018 and December 31, 2017, 189.5 million and 187.4 million shares issued at September 30, 2018 and December 31, 2017, respectively, and 185.3 million shares and 183.2 million shares outstanding as of September 30, 2018 and December 31, 2017, respectively | 1.9 | 1.9 | |||||
Additional paid-in capital | 1,923.9 | 1,863.5 | |||||
Treasury stock at cost; 4.2 million shares at September 30, 2018 and December 31, 2017, respectively | (139.5 | ) | (138.8 | ) | |||
Retained earnings | 275.2 | 137.4 | |||||
Accumulated other comprehensive loss | (193.9 | ) | (135.3 | ) | |||
Total TransUnion stockholders’ equity | 1,867.6 | 1,728.7 | |||||
Noncontrolling interests | 96.5 | 95.9 | |||||
Total stockholders’ equity | 1,964.1 | 1,824.6 | |||||
Total liabilities and stockholders’ equity | $ | 7,141.3 | $ | 5,118.5 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Revenue | $ | 603.6 | $ | 498.0 | $ | 1,704.1 | $ | 1,427.7 | ||||||||
Operating expenses | ||||||||||||||||
Cost of services (exclusive of depreciation and amortization below) | 207.5 | 169.3 | 579.0 | 472.3 | ||||||||||||
Selling, general and administrative | 189.8 | 142.2 | 524.6 | 436.0 | ||||||||||||
Depreciation and amortization | 84.2 | 59.9 | 218.8 | 176.2 | ||||||||||||
Total operating expenses | 481.5 | 371.4 | 1,322.3 | 1,084.5 | ||||||||||||
Operating income | 122.1 | 126.6 | 381.7 | 343.2 | ||||||||||||
Non-operating income and (expense) | ||||||||||||||||
Interest expense | (44.0 | ) | (21.7 | ) | (92.5 | ) | (65.8 | ) | ||||||||
Interest income | 1.3 | 1.5 | 3.5 | 4.2 | ||||||||||||
Earnings from equity method investments | 3.2 | 2.6 | 8.4 | 6.3 | ||||||||||||
Other income and (expense), net | (3.2 | ) | (4.8 | ) | (45.6 | ) | (15.6 | ) | ||||||||
Total non-operating income and (expense) | (42.7 | ) | (22.4 | ) | (126.1 | ) | (70.9 | ) | ||||||||
Income from continuing operations before income taxes | 79.4 | 104.2 | 255.6 | 272.3 | ||||||||||||
Provision for income taxes | (28.6 | ) | (32.3 | ) | (72.1 | ) | (68.7 | ) | ||||||||
Income from continuing operations | 50.8 | 71.9 | 183.5 | 203.6 | ||||||||||||
Discontinued operations, net of tax | (1.4 | ) | — | (1.4 | ) | — | ||||||||||
Net income | 49.4 | 71.9 | 182.0 | 203.6 | ||||||||||||
Less: net income attributable to the noncontrolling interests | (3.1 | ) | (3.1 | ) | (7.6 | ) | (7.6 | ) | ||||||||
Net income attributable to TransUnion | $ | 46.3 | $ | 68.8 | $ | 174.4 | $ | 196.0 | ||||||||
Income from continuing operations | 50.8 | 71.9 | 183.5 | 203.6 | ||||||||||||
Less: income from continuing operations attributable to noncontrolling interests | (3.1 | ) | (3.1 | ) | (7.6 | ) | (7.6 | ) | ||||||||
Income from continuing operations attributable to TransUnion | 47.7 | 68.8 | 175.9 | 196.0 | ||||||||||||
Discontinued operations, net of tax | (1.4 | ) | — | (1.4 | ) | — | ||||||||||
Net income attributable to TransUnion | $ | 46.3 | $ | 68.8 | $ | 174.4 | $ | 196.0 | ||||||||
Basic earnings per common share from: | ||||||||||||||||
Income from continuing operations attributable to TransUnion | $ | 0.26 | $ | 0.38 | $ | 0.95 | $ | 1.08 | ||||||||
Discontinued operations, net of tax | (0.01 | ) | — | (0.01 | ) | — | ||||||||||
Net Income attributable to TransUnion | $ | 0.25 | $ | 0.38 | $ | 0.95 | $ | 1.08 | ||||||||
Diluted earnings per common share from: | ||||||||||||||||
Income from continuing operations attributable to TransUnion | $ | 0.25 | $ | 0.36 | $ | 0.92 | $ | 1.03 | ||||||||
Discontinued operations, net of tax | (0.01 | ) | — | (0.01 | ) | — | ||||||||||
Net Income attributable to TransUnion | $ | 0.24 | $ | 0.36 | $ | 0.91 | $ | 1.03 | ||||||||
Weighted-average shares outstanding: | ||||||||||||||||
Basic | 185.1 | 182.2 | 184.4 | 182.3 | ||||||||||||
Diluted | 191.2 | 189.2 | 190.8 | 189.8 |
Nine Months Ended September 30, | |||||||
2018 | 2017 | ||||||
Cash flows from operating activities: | |||||||
Net income | $ | 182.0 | $ | 203.6 | |||
Add: loss from discontinued operations, net of tax | 1.4 | — | |||||
Income from continuing operations | 183.5 | 203.6 | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 218.8 | 176.2 | |||||
Loss on debt financing transactions | 12.0 | 10.5 | |||||
Amortization and (gain) loss on fair value of hedge instrument | (0.7 | ) | 0.5 | ||||
Impairment of Cost Method Investment, net | 1.5 | — | |||||
Equity in net income of affiliates, net of dividends | (3.1 | ) | (5.5 | ) | |||
Deferred taxes | (17.9 | ) | (14.1 | ) | |||
Amortization of discount and deferred financing fees | 3.2 | 2.0 | |||||
Stock-based compensation | 36.9 | 23.1 | |||||
Payment of contingent obligation | (0.2 | ) | (2.2 | ) | |||
Provision for losses on trade accounts receivable | 6.3 | 3.3 | |||||
Other | 3.0 | (2.1 | ) | ||||
Changes in assets and liabilities: | |||||||
Trade accounts receivable | (79.4 | ) | (40.1 | ) | |||
Other current and long-term assets | (5.5 | ) | (37.8 | ) | |||
Trade accounts payable | 8.3 | 10.2 | |||||
Other current and long-term liabilities | 43.6 | 19.1 | |||||
Cash provided by operating activities of continuing operations | 410.3 | 346.7 | |||||
Cash used in operating activities of discontinued operations | (0.9 | ) | — | ||||
Cash provided by operating activities | 409.4 | 346.7 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (118.3 | ) | (91.0 | ) | |||
Proceeds from sale of trading securities | 1.8 | 2.5 | |||||
Purchases of trading securities | (2.0 | ) | (1.6 | ) | |||
Proceeds from sale of other investments | 15.9 | 54.4 | |||||
Purchases of other investments | (22.7 | ) | (42.1 | ) | |||
Acquisitions and purchases of noncontrolling interests, net of cash acquired | (1,800.4 | ) | (70.7 | ) | |||
Acquisition-related deposits | — | (1.0 | ) | ||||
Other | (1.4 | ) | 0.3 | ||||
Cash used in investing activities of continuing operations | (1,927.1 | ) | (149.2 | ) | |||
Cash used in investing activities of discontinued operations | (0.1 | ) | — | ||||
Cash used in investing activities | (1,927.2 | ) | (149.2 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from Senior Secured Term Loan B-4 | 1,000.0 | — | |||||
Proceeds from Senior Secured Term Loan A-2 | 800.0 | 33.4 | |||||
Proceeds from senior secured revolving line of credit | 125.0 | 105.0 | |||||
Payments of senior secured revolving line of credit | (210.0 | ) | (105.0 | ) | |||
Repayments of debt | (39.3 | ) | (25.0 | ) | |||
Debt financing fees | (33.8 | ) | (12.6 | ) | |||
Proceeds from issuance of common stock and exercise of stock options | 23.3 | 22.1 | |||||
Dividends to shareholders | (27.7 | ) | — | ||||
Treasury stock purchased | — | (133.5 | ) | ||||
Distributions to noncontrolling interests | (2.8 | ) | (3.1 | ) | |||
Payment of contingent obligation | — | (8.2 | ) | ||||
Other | (0.8 | ) | — | ||||
Cash provided by (used in) financing activities | 1,633.9 | (126.9 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents | (5.3 | ) | 0.5 | ||||
Net change in cash and cash equivalents | 110.8 | 71.1 | |||||
Cash and cash equivalents, beginning of period | 115.8 | 182.2 | |||||
Cash and cash equivalents, end of period | $ | 226.6 | $ | 253.3 |
For the Three Months Ended September 30, 2018 Compared with the Three Months Ended September 30, 2017 | |||||||||||||||
Reported | CC Growth(1) | Inorganic(2) | Organic Growth(3) | Organic CC Growth(4) | |||||||||||
Revenue: | |||||||||||||||
Consolidated | 21.2 | % | 22.4 | % | 11.2 | % | 10.0 | % | 11.2 | % | |||||
USIS | 20.1 | % | 20.1 | % | 8.8 | % | 11.3 | % | 11.3 | % | |||||
Online | 17.5 | % | 17.5 | % | 6.5 | % | 11.0 | % | 11.0 | % | |||||
Credit Marketing | 22.8 | % | 22.8 | % | — | % | 22.8 | % | 22.8 | % | |||||
Decision Services | 26.4 | % | 26.4 | % | 23.0 | % | 3.4 | % | 3.4 | % | |||||
International | 35.6 | % | 41.7 | % | 29.7 | % | 5.8 | % | 12.0 | % | |||||
Developed Markets | 89.1 | % | 92.3 | % | 83.6 | % | 5.5 | % | 8.7 | % | |||||
Emerging Markets | 6.0 | % | 13.8 | % | — | % | 6.0 | % | 13.8 | % | |||||
Consumer Interactive | 11.3 | % | 11.3 | % | — | % | 11.3 | % | 11.3 | % | |||||
Adjusted Revenue: | |||||||||||||||
Consolidated | 24.8 | % | 25.9 | % | 14.8 | % | 10.0 | % | 11.2 | % | |||||
USIS | 20.5 | % | 20.5 | % | 9.2 | % | 11.3 | % | 11.3 | % | |||||
Online | 17.5 | % | 17.5 | % | 6.5 | % | 11.0 | % | 11.0 | % | |||||
Credit Marketing | 22.8 | % | 22.8 | % | — | % | 22.8 | % | 22.8 | % | |||||
Decision Services | 28.1 | % | 28.1 | % | 24.7 | % | 3.4 | % | 3.4 | % | |||||
International | 53.1 | % | 59.3 | % | 47.2 | % | 5.8 | % | 12.0 | % | |||||
Developed Markets | 138.3 | % | 141.5 | % | 132.8 | % | 5.5 | % | 8.7 | % | |||||
Emerging Markets | 6.0 | % | 13.8 | % | — | % | 6.0 | % | 13.8 | % | |||||
Consumer Interactive | 11.3 | % | 11.3 | % | — | % | 11.3 | % | 11.3 | % | |||||
Operating Income: | |||||||||||||||
Consolidated | (3.6 | )% | (2.0 | )% | (21.2 | )% | 17.6 | % | 19.2 | % | |||||
USIS | 12.4 | % | 12.3 | % | (8.2 | )% | 20.6 | % | 20.6 | % | |||||
International | (80.4 | )% | (70.5 | )% | (100.6 | )% | 20.2 | % | 30.2 | % | |||||
Consumer Interactive | 21.7 | % | 21.7 | % | — | % | 21.7 | % | 21.7 | % | |||||
Adjusted Operating Income: | |||||||||||||||
Consolidated | 26.3 | % | 27.7 | % | 11.5 | % | 14.9 | % | 16.3 | % | |||||
USIS | 19.2 | % | 19.2 | % | 4.6 | % | 14.6 | % | 14.6 | % | |||||
International | 54.4 | % | 61.8 | % | 44.0 | % | 10.4 | % | 17.8 | % | |||||
Consumer Interactive | 21.5 | % | 21.5 | % | — | % | 21.5 | % | 21.5 | % | |||||
Adjusted EBITDA: | |||||||||||||||
Consolidated | 26.1 | % | 27.6 | % |
(1) | CC (constant currency) growth rates assume foreign currency exchange rates are consistent between years. This allows financial results to be evaluated without the impact of fluctuations in foreign currency exchange rates. |
(2) | Inorganic growth rate represents growth attributable to the first twelve months of activity for recent business acquisitions. |
(3) | Organic growth rate is the GAAP growth rate less the inorganic growth rate. |
(4) | Organic CC growth rate is the CC growth rate less inorganic growth rate. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue as reported | $ | 603.6 | $ | 498.0 | $ | 1,704.1 | $ | 1,427.7 | |||||||
Acquisitions revenue-related adjustment (1) | 17.7 | — | 17.7 | — | |||||||||||
Adjusted Revenue | $ | 621.3 | $ | 498.0 | $ | 1,721.8 | $ | 1,427.7 | |||||||
Reconciliation of net income attributable to TransUnion to Adjusted EBITDA: | |||||||||||||||
Net income attributable to TransUnion | $ | 46.3 | $ | 68.8 | $ | 174.4 | $ | 196.0 | |||||||
Discontinued operations | 1.4 | — | 1.4 | — | |||||||||||
Net income from continuing operations attributable to TransUnion | 47.7 | 68.8 | 175.9 | 196.0 | |||||||||||
Net interest expense | 42.6 | 20.2 | 89.0 | 61.6 | |||||||||||
Provision for income taxes | 28.6 | 32.3 | 72.1 | 68.7 | |||||||||||
Depreciation and amortization | 84.2 | 59.9 | 218.8 | 176.2 | |||||||||||
EBITDA | 203.2 | 181.3 | 555.8 | 502.6 | |||||||||||
Adjustments to EBITDA: | |||||||||||||||
Acquisitions revenue-related adjustment (1) | 17.7 | — | 17.7 | — | |||||||||||
Stock-based compensation(2) | 16.3 | 9.5 | 43.2 | 34.3 | |||||||||||
Mergers and acquisitions, divestitures and business optimization(3) | 6.2 | (1.7 | ) | 35.3 | 5.2 | ||||||||||
Other(4) | 1.5 | 5.0 | 16.1 | 9.8 | |||||||||||
Total adjustments to EBITDA | 41.7 | 12.9 | 112.4 | 49.3 | |||||||||||
Adjusted EBITDA | $ | 244.9 | $ | 194.1 | $ | 668.1 | $ | 551.9 | |||||||
EBITDA margin | 33.7 | % | 36.4 | % | 32.6 | % | 35.2 | % | |||||||
Adjusted EBITDA Margin | 39.4 | % | 39.0 | % | 38.8 | % | 38.7 | % |
(1) | This adjustment represents certain non-cash adjustments related to acquired entities, predominantly adjustments to increase revenue resulting from purchase accounting reductions to deferred revenue we record on the opening balance sheets of acquired entities. Deferred revenue results when a company receives payment in advance of fulfilling their performance obligations under contracts. Business combination accounting rules require us to record deferred revenue of acquired entities at fair value if we are obligated to perform any future services under these contracts. The fair value of this deferred revenue is determined based on the direct and indirect incremental costs of fulfilling our performance obligations under these contracts, plus a normal profit margin. Generally, this fair value calculation results in a reduction to the purchased deferred revenue balance. The above adjustment includes an estimate for the increase in revenue equal to the difference between what the acquired entities would have recorded as revenue and the lower revenue we record as a result of the reduced deferred revenue balance. This increase is partially offset by an estimated decrease to revenue for certain acquired non-core customer contracts that are not classified as discontinued operations that will expire within approximately one year. We present Adjusted Revenue as a supplemental measure of our revenue because we believe it provides meaningful information regarding our revenue and provides a basis to compare revenue between periods. In addition, our board of directors and executive management team use Adjusted Revenue as a compensation measure under our incentive compensation plan. The table above provides a reconciliation for revenue to Adjusted Revenue. The estimated adjustments to revenue are subject to change as we finalize the fair value assessments of the deferred revenue acquired with recent acquisitions and as we complete our assessment of the non-core customer contracts. |
(2) | Consisted of stock-based compensation and cash-settled stock-based compensation. |
(3) | For the three months ended September 30, 2018, consisted of the following adjustments to operating income: $4.2 million of Callcredit integration costs; a $0.2 million loss on the divestiture of a small business operation; and a $0.1 million |
(4) | For the three months ended September 30, 2018, consisted of the following adjustments to non-operating income and expense: a $1.0 million loss from currency remeasurement of our foreign operations; $0.5 million of loan fees; $0.1 million of fees related to new financing under our senior secured credit facility; and $(0.1) million of miscellaneous. For the nine months ended September 30, 2018, consisted of the following adjustments to non-operating income and expense: $12.0 million of fees related to new financing under our senior secured credit facility; a $3.3 million loss from currency remeasurement of our foreign operations; $1.1 million of loan fees; $0.5 million of fees incurred in connection with a secondary offering of shares of TransUnion common stock by certain of our stockholders; a $(0.7) million mark-to-market gain related to ineffectiveness of our interest rate hedge; and $(0.1) million of miscellaneous. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Net income attributable to TransUnion | $ | 46.3 | $ | 68.8 | $ | 174.4 | $ | 196.0 | |||||||
Discontinued operations | 1.4 | — | 1.4 | — | |||||||||||
Net income from continuing operations attributable to TransUnion | 47.7 | 68.8 | 175.9 | 196.0 | |||||||||||
Adjustments before income tax items: | |||||||||||||||
Acquisitions revenue-related adjustment (1) | 17.7 | — | 17.7 | — | |||||||||||
Stock-based compensation(2) | 16.3 | 9.5 | 43.2 | 34.3 | |||||||||||
Mergers and acquisitions, divestitures and business optimization(3) | 6.2 | (1.7 | ) | 35.3 | 5.2 | ||||||||||
Other(4) | 1.0 | 4.8 | 15.0 | 9.2 | |||||||||||
Amortization of certain intangible assets(5) | 52.1 | 33.7 | 127.0 | 100.8 | |||||||||||
Total adjustments before income tax items | 93.4 | 46.3 | 238.2 | 149.5 | |||||||||||
Change in provision for income taxes per schedule 4 | (16.4 | ) | (22.4 | ) | (63.1 | ) | (84.4 | ) | |||||||
Adjusted Net Income | $ | 124.7 | $ | 92.7 | $ | 351.0 | $ | 261.1 | |||||||
Adjusted Earnings per Share: | |||||||||||||||
Basic | $ | 0.67 | $ | 0.51 | $ | 1.90 | $ | 1.43 | |||||||
Diluted(6) | $ | 0.65 | $ | 0.49 | $ | 1.84 | $ | 1.38 | |||||||
Weighted-average shares outstanding: | |||||||||||||||
Basic | 185.1 | 182.2 | 184.4 | 182.3 | |||||||||||
Diluted(6) | 191.2 | 189.2 | 190.8 | 189.8 |
(1) | This adjustment represents certain non-cash adjustments related to acquired entities, predominantly adjustments to increase revenue resulting from purchase accounting reductions to deferred revenue we record on the opening balance sheets of acquired entities. Deferred revenue results when a company receives payment in advance of fulfilling their performance obligations under contracts. Business combination accounting rules require us to record deferred revenue of acquired entities at fair value if we are obligated to perform any future services under these contracts. The fair value of this deferred revenue is determined based on the direct and indirect incremental costs of fulfilling our performance obligations under these contracts, plus a normal profit margin. Generally, this fair value calculation results in a reduction to the purchased deferred revenue balance. The above adjustment includes an estimate for the increase in revenue equal to the difference between what the acquired entities would have recorded as revenue and the lower revenue we record as a result of the reduced deferred revenue balance. This increase is partially offset by an estimated decrease to revenue for certain acquired non-core customer contracts that are not classified as discontinued operations that will expire within approximately one year. We present Adjusted Revenue as a supplemental measure of our revenue because we believe it provides meaningful information regarding our revenue and provides a basis to compare revenue between periods. In addition, our board of directors and executive management team use Adjusted Revenue as a compensation measure under our incentive compensation plan. The table above provides a reconciliation for revenue to Adjusted Revenue. The estimated adjustments to revenue are subject to change as we finalize the fair value assessments of the deferred revenue acquired with recent acquisitions and as we complete our assessment of the non-core customer contracts. |
(2) | Consisted of stock-based compensation and cash-settled stock-based compensation. |
(3) | For the three months ended September 30, 2018, consisted of the following adjustments to operating income: $4.2 million of Callcredit integration costs; a $0.2 million loss on the divestiture of a small business operation; and a $0.1 million adjustment to contingent consideration expense from previous acquisitions. For the three months ended September 30, 2018, consisted of the following adjustments to non-operating income and expense: $1.7 million of acquisition expenses; a $0.2 million loss from a fair value remeasurement of an investment in a nonconsolidated affiliate; a $(0.1) million offset to the loss included in operating income adjustments on the divestiture of a small business operation for the portion that |
(4) | For the three months ended September 30, 2018, consisted of the following adjustments to non-operating income and expense: a $1.0 million loss from currency remeasurement of our foreign operations; $0.1 million of fees related to new financing under our senior secured credit facility; and $(0.1) million of miscellaneous. For the nine months ended September 30, 2018, consisted of the following adjustments to non-operating income and expense: $12.0 million of fees related to new financing under our senior secured credit facility; a $3.3 million loss from currency remeasurement of our foreign operations; $0.5 million of fees incurred in connection with a secondary offering of shares of TransUnion common stock by certain of our stockholders; a $(0.7) million mark-to-market gain related to ineffectiveness of our interest rate hedge; and $(0.1) million of miscellaneous. |
(5) | Consisted of amortization of intangible assets from our 2012 change in control and amortization of intangible assets established in business acquisitions after our 2012 change in control. |
(6) | For the three and nine months ended September 30, 2018, there were less than 0.1 million anti-dilutive weighted stock-based awards outstanding for each respective period. In addition, there were less than 1.1 million contingently issuable stock-based awards outstanding that were excluded from the diluted earnings per share calculation because the contingencies had not been met. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Income before income taxes | $ | 79.4 | $ | 104.2 | $ | 255.6 | $ | 272.3 | |||||||
Total adjustments before income taxes per Schedule 3 | 93.4 | 46.3 | 238.2 | 149.5 | |||||||||||
Adjusted income before income taxes | $ | 172.8 | $ | 150.5 | $ | 493.8 | $ | 421.8 | |||||||
Provision for income taxes | $ | (28.6 | ) | $ | (32.3 | ) | $ | (72.1 | ) | $ | (68.7 | ) | |||
Adjustments for income taxes: | |||||||||||||||
Tax effect of above adjustments(1) | (16.1 | ) | (16.0 | ) | (50.2 | ) | (50.7 | ) | |||||||
Eliminate impact of adjustments for unremitted foreign earnings(2) | — | (0.9 | ) | — | (5.2 | ) | |||||||||
Eliminate impact of excess tax benefits for share compensation(3) | (7.6 | ) | (5.0 | ) | (25.7 | ) | (28.1 | ) | |||||||
Eliminate one-time impact of U.S. tax reform items(4) | 5.6 | — | 5.6 | — | |||||||||||
Other(5) | 1.8 | (0.4 | ) | 7.2 | (0.5 | ) | |||||||||
Total adjustments for income taxes | (16.4 | ) | (22.4 | ) | (63.1 | ) | (84.4 | ) | |||||||
Adjusted provision for income taxes | $ | (45.0 | ) | $ | (54.7 | ) | $ | (135.2 | ) | $ | (153.1 | ) | |||
Effective tax rate | 36.0 | % | 31.0 | % | 28.2 | % | 25.2 | % | |||||||
Adjusted Effective Tax Rate | 26.0 | % | 36.4 | % | 27.4 | % | 36.3 | % |
(1) | Tax rates used to calculate the tax expense impact are based on the nature of each item. |
(2) | Eliminates impact of certain adjustments related to our deferred tax liability for unremitted earnings. |
(3) | Eliminates the impact of excess tax benefits for share compensation resulting from adoption of ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. |
(4) | Eliminates the one-time impacts of U.S. tax reform, including remeasurement of acquisition-related domestic deferred tax balances at the new 21% tax rate and mandatory repatriation of unremitted earnings net of previously recorded reserves |
(5) | Eliminates the impact of state tax rate changes on deferred taxes, valuation allowances on foreign net operating losses, and valuation allowances on capital losses and other discrete adjustments. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Revenue: | |||||||||||||||
Online Data Services | $ | 235.2 | $ | 200.2 | $ | 698.4 | $ | 573.2 | |||||||
Marketing Services | 59.6 | 48.5 | 167.4 | 137.0 | |||||||||||
Decision Services | 80.1 | 63.3 | 209.5 | 182.0 | |||||||||||
Total USIS | 374.8 | 312.0 | 1,075.3 | 892.1 | |||||||||||
Developed Markets | 63.9 | 33.8 | 138.4 | 92.8 | |||||||||||
Emerging Markets | 64.8 | 61.2 | 192.5 | 172.8 | |||||||||||
Total International | 128.7 | 94.9 | 330.9 | 265.6 | |||||||||||
Consumer Interactive | 119.1 | 107.0 | 354.6 | 317.3 | |||||||||||
Total revenue, gross | $ | 622.6 | $ | 513.9 | $ | 1,760.8 | $ | 1,475.1 | |||||||
Intersegment revenue eliminations: | |||||||||||||||
USIS Online | $ | (17.5 | ) | $ | (14.6 | ) | $ | (52.4 | ) | $ | (43.8 | ) | |||
International Developed Markets | (1.3 | ) | (1.3 | ) | (3.7 | ) | (3.4 | ) | |||||||
International Emerging Markets | — | — | (0.2 | ) | (0.1 | ) | |||||||||
Consumer Interactive | (0.2 | ) | (0.1 | ) | (0.5 | ) | (0.1 | ) | |||||||
Total intersegment revenue eliminations | (19.0 | ) | (16.0 | ) | (56.8 | ) | (47.4 | ) | |||||||
Total revenue as reported | $ | 603.6 | $ | 498.0 | $ | 1,704.1 | $ | 1,427.7 | |||||||
Acquisition revenue-related adjustments(1): | |||||||||||||||
USIS - Decision Services | $ | 1.1 | $ | — | $ | 1.1 | $ | — | |||||||
International - Developed Markets | 16.6 | — | 16.6 | — | |||||||||||
Total acquisition revenue-related adjustments | 17.7 | — | 17.7 | — | |||||||||||
Total revenue as reported | 603.6 | 498.0 | 1,704.1 | 1,427.7 | |||||||||||
Total Adjusted Revenue | $ | 621.3 | $ | 498.0 | $ | 1,721.8 | $ | 1,427.7 | |||||||
Gross operating income by segment: | |||||||||||||||
USIS operating income | $ | 92.6 | $ | 82.4 | $ | 271.2 | $ | 238.4 | |||||||
International operating income | 3.9 | 19.9 | 33.9 | 41.5 | |||||||||||
Consumer Interactive operating income | 56.6 | 46.5 | 164.4 | 144.2 | |||||||||||
Corporate operating loss | (31.1 | ) | (22.3 | ) | (87.8 | ) | (80.9 | ) | |||||||
Total operating income | $ | 122.1 | $ | 126.6 | $ | 381.7 | $ | 343.2 | |||||||
Intersegment operating income eliminations: | |||||||||||||||
USIS | $ | (17.2 | ) | $ | (14.1 | ) | $ | (51.3 | ) | $ | (42.5 | ) | |||
International | (0.7 | ) | (1.0 | ) | (2.3 | ) | (2.6 | ) | |||||||
Consumer Interactive | 17.9 | 15.1 | 53.7 | 45.1 | |||||||||||
Corporate | — | — | — | — | |||||||||||
Total eliminations | $ | — | $ | — | $ | — | $ | — | |||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Reconciliation of operating income to Adjusted Operating Income: | |||||||||||||||
USIS gross operating income | $ | 92.6 | $ | 82.4 | $ | 271.2 | $ | 238.4 | |||||||
Acquisitions revenue-related adjustment(1) | 1.1 | — | 1.1 | — | |||||||||||
Stock-based compensation(2) | 9.1 | 4.8 | 20.3 | 12.7 | |||||||||||
Mergers and acquisitions, divestitures and business optimization(3) | 0.1 | 0.4 | 0.1 | 0.2 | |||||||||||
Other(4) | — | (0.6 | ) | — | (0.6 | ) | |||||||||
Amortization of certain intangible assets(5) | 28.2 | 22.9 | 80.1 | 68.5 | |||||||||||
Adjusted USIS Operating Income | 131.1 | 109.9 | 372.8 | 319.2 | |||||||||||
International gross operating income | 3.9 | 19.9 | 33.9 | 41.5 | |||||||||||
Acquisitions revenue-related adjustment(1) | 16.6 | — | 16.6 | — | |||||||||||
Stock-based compensation(2) | 2.5 | 2.9 | 9.9 | 12.8 | |||||||||||
Mergers and acquisitions, divestitures and business optimization(3) | 4.3 | — | 5.4 | 0.5 | |||||||||||
Amortization of certain intangible assets(5) | 22.7 | 9.5 | 43.1 | 28.6 | |||||||||||
Adjusted International Operating Income | 50.1 | 32.4 | 109.0 | 83.3 | |||||||||||
Consumer gross Interactive operating income | 56.6 | 46.5 | 164.4 | 144.2 | |||||||||||
Stock-based compensation(2) | 0.7 | 0.4 | 1.8 | 1.3 | |||||||||||
Amortization of certain intangible assets(5) | 1.3 | 1.3 | 3.8 | 3.8 | |||||||||||
Adjusted Consumer Interactive Operating Income | 58.5 | 48.2 | 170.0 | 149.2 | |||||||||||
Corporate gross operating loss | (31.1 | ) | (22.3 | ) | (87.8 | ) | (80.9 | ) | |||||||
Stock-based compensation(2) | 4.1 | 1.3 | 11.2 | 7.5 | |||||||||||
Other(4) | — | (1.3 | ) | — | (1.3 | ) | |||||||||
Adjusted Corporate Operating Income | (27.0 | ) | (22.2 | ) | (76.6 | ) | (74.7 | ) | |||||||
Total operating income | 122.1 | 126.6 | 381.7 | 343.2 | |||||||||||
Acquisitions revenue-related adjustment(1) | 17.7 | — | 17.7 | — | |||||||||||
Stock-based compensation(2) | 16.3 | 9.5 | 43.2 | 34.3 | |||||||||||
Mergers and acquisitions, divestitures and business optimization(3) | 4.4 | 0.4 | 5.5 | 0.7 | |||||||||||
Other(4) | — | (1.9 | ) | — | (1.9 | ) | |||||||||
Amortization of certain intangible assets(5) | 52.1 | 33.7 | 127.0 | 100.8 | |||||||||||
Total operating income adjustments | 90.6 | 41.7 | 193.4 | 133.9 | |||||||||||
Total Adjusted Operating Income | $ | 212.7 | $ | 168.3 | $ | 575.1 | $ | 477.1 | |||||||
Operating margin(6): | |||||||||||||||
USIS | 24.7 | % | 26.4 | % | 25.2 | % | 26.7 | % | |||||||
International | 3.0 | % | 21.0 | % | 10.2 | % | 15.6 | % | |||||||
Consumer Interactive | 47.5 | % | 43.5 | % | 46.4 | % | 45.4 | % | |||||||
Total operating margin | 20.2 | % | 25.4 | % | 22.4 | % | 24.0 | % | |||||||
Adjusted Operating Margin(6): | |||||||||||||||
USIS | 34.9 | % | 35.2 | % | 34.6 | % | 35.8 | % | |||||||
International | 34.4 | % | 34.2 | % | 31.4 | % | 31.4 | % | |||||||
Consumer Interactive | 49.1 | % | 45.0 | % | 47.9 | % | 47.0 | % | |||||||
Total Adjusted Operating Margin | 34.2 | % | 33.8 | % | 33.4 | % | 33.4 | % |
(1) | This adjustment represents certain non-cash adjustments related to acquired entities, predominantly adjustments to increase revenue resulting from purchase accounting reductions to deferred revenue we record on the opening balance sheets of acquired entities. Deferred revenue results when a company receives payment in advance of fulfilling their performance obligations under contracts. Business combination accounting rules require us to record deferred revenue of acquired entities at fair value if we are obligated to perform any future services under these contracts. The fair value of this deferred revenue is determined based on the direct and indirect incremental costs of fulfilling our performance obligations under these contracts, plus a normal profit margin. Generally, this fair value calculation results in a reduction to the purchased deferred revenue balance. The above adjustment includes an estimate for the increase in revenue equal to the difference between what the acquired entities would have recorded as revenue and the lower revenue we record as a result of the reduced deferred revenue balance. This increase is partially offset by an estimated decrease to revenue for certain acquired non-core customer contracts that are not classified as discontinued operations that will expire within approximately one year. We present Adjusted Revenue as a supplemental measure of our revenue because we believe it provides meaningful information regarding our revenue and provides a basis to compare revenue between periods. In addition, our board of directors and executive management team use Adjusted Revenue as a compensation measure under our incentive compensation plan. The table above provides a reconciliation for revenue to Adjusted Revenue. The estimated adjustments to revenue are subject to change as we finalize the fair value assessments of the deferred revenue acquired with recent acquisitions and as we complete our assessment of the non-core customer contracts. For the three- and nine-month periods the adjustment to revenue by segment were as follows: $1.1 million USIS; and $16.6 million International. |
(2) | Consisted of stock-based compensation and cash-settled stock-based compensation. |
(3) | For the three months ended September 30, 2018, consisted of the following adjustments to operating income: $4.2 million of Callcredit integration-related expenses (International); a $0.1 million loss on the divestiture of a small business operation (International); and a $0.1 million adjustment to contingent consideration expense from previous acquisitions (USIS). For the nine months ended September 30, 2018, consisted of the following adjustments to operating income: $4.2 million of Callcredit integration-related expenses (International); a $1.2 million loss on the divestiture of a small business operation (International); and a $0.1 million adjustment to contingent consideration expense from previous acquisitions (USIS). |
(4) | For the three months ended September 30, 2017, consisted of the following adjustments to operating income: a $(1.3) million reduction to expense for certain legal and regulatory matters (Corporate); and a $(0.6) million reduction to expense for sales and use tax matters (USIS). For the nine months ended September 30, 2017, consisted of the following adjustments to operating income: a $(1.3) million reduction to expense for certain legal and regulatory matters (Corporate); and a $(0.6) million reduction to expense for sales and use tax matters (USIS). |
(5) | Consisted of amortization of intangible assets from our 2012 change in control transaction and amortization intangible assets established in business acquisitions after our 2012 change in control. |
(6) | Segment operating margins are calculated using segment gross revenue and operating income. Segment Adjusted Operating Margins are calculated using segment gross Adjusted Revenue and segment Adjusted Operating Income. Consolidated operating margin is calculated using total revenue as reported and operating income as reported. Consolidated Adjusted Operating Margin is calculated using total Adjusted Revenue and total Adjusted Operating Income. |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2018 | 2017 | 2018 | 2017 | ||||||||||||
Depreciation and amortization: | |||||||||||||||
USIS | $ | 49.4 | $ | 40.0 | $ | 139.7 | $ | 118.7 | |||||||
International | 30.5 | 15.9 | 66.4 | 45.5 | |||||||||||
Consumer Interactive | 3.1 | 2.7 | 9.0 | 8.1 | |||||||||||
Corporate | 1.3 | 1.3 | 3.8 | 3.9 | |||||||||||
Total depreciation and amortization | $ | 84.2 | $ | 59.9 | $ | 218.8 | $ | 176.2 |
Three Months Ended December 30, 2018 | Twelve Months Ended December 31, 2018 | ||||||||||||||
Low | High | Low | High | ||||||||||||
Guidance reconciliation of revenue to Adjusted Revenue: | |||||||||||||||
GAAP revenue | $ | 610 | $ | 615 | $ | 2,314 | $ | 2,319 | |||||||
Acquisitions revenue-related adjustment(1) | 11 | 11 | 28 | 28 | |||||||||||
Adjusted Revenue | 620 | 625 | 2,342 | 2,347 | |||||||||||
Guidance reconciliation of net income attributable to TransUnion to Adjusted EBITDA: | |||||||||||||||
Net income (loss) attributable to TransUnion | 58 | 60 | 232 | 234 | |||||||||||
Discontinued operations, net of tax | (1 | ) | (1 | ) | — | — | |||||||||
Net income attributable to TransUnion from continuing operations | 57 | 59 | 233 | 235 | |||||||||||
Interest, taxes and depreciation and amortization | 152 | 152 | 531 | 532 | |||||||||||
EBITDA | 208 | 211 | 764 | 767 | |||||||||||
Acquisitions revenue-related adjustment(1) | 11 | 11 | 28 | 28 | |||||||||||
Stock-based compensation, mergers, acquisitions divestitures and business optimization-related expenses and other adjustments(2) | 25 | 25 | 119 | 119 | |||||||||||
Adjusted EBITDA | $ | 243 | $ | 246 | $ | 912 | $ | 915 | |||||||
Reconciliation of diluted earnings per share from continuing operations to Adjusted Diluted Earnings per Share from Continuing Operations: | |||||||||||||||
Diluted earnings per share from continuing operations | $ | 0.30 | $ | 0.31 | $ | 1.22 | $ | 1.23 | |||||||
Adjustments to diluted earnings per share(1)(2) | 0.32 | 0.32 | 1.24 | 1.24 | |||||||||||
Adjusted Diluted Earnings per Share from Continuing Operations | $ | 0.62 | $ | 0.63 | $ | 2.46 | $ | 2.47 |
(1) | This adjustment represents certain non-cash adjustments related to acquired entities, predominantly adjustments to increase revenue resulting from purchase accounting reductions to deferred revenue we record on the opening balance sheets of acquired entities. Deferred revenue results when a company receives payment in advance of fulfilling their performance obligations under contracts. Business combination accounting rules require us to record deferred revenue of acquired entities at fair value if we are obligated to perform any future services under these contracts. The fair value of this deferred revenue is determined based on the direct and indirect incremental costs of fulfilling our performance obligations under these contracts, plus a normal profit margin. Generally, this fair value calculation results in a reduction to the purchased deferred revenue balance. The above adjustment includes an estimate for the increase in revenue equal to the difference between what the acquired entities would have recorded as revenue and the lower revenue we record as a result of the reduced deferred revenue balance. This increase is partially offset by an estimated decrease to revenue for certain acquired non-core customer contracts that are not classified as discontinued operations that will expire within approximately one year. We present Adjusted Revenue as a supplemental measure of our revenue because we believe it provides meaningful information regarding our revenue and provides a basis to compare revenue between periods. In addition, our board of directors and executive management team use Adjusted Revenue as a compensation measure under our incentive compensation plan. The table above provides a reconciliation for revenue to Adjusted Revenue. The estimated adjustments to revenue are subject to change as we finalize the fair value assessments of the deferred revenue acquired with recent acquisitions and as we complete our assessment of the non-core customer contracts. |
(2) | This adjustment includes the same adjustments we make to our Adjusted EBITDA and Adjusted Net Income as discussed in the Non-GAAP Financial Measures section of our earnings release, which includes the Callcredit integration-related costs. |
Reconciliation of revenue to Adjusted Revenue: | YTD September 30, 2018 | |||
Callcredit revenue per Note 2 to the accompanying financial statements | $ | 35.9 | ||
Add-backs: | ||||
Deferred revenue fair value impact(1) | 17.7 | |||
Deductions: | ||||
Revenue from non-core customer contracts(2) | (1.1 | ) | ||
Callcredit Adjusted Revenue | $ | 52.5 |
(1) | Represents an adjustment to reflect the amount of revenue that would have been recognized, had deferred revenue not been reduced to estimated fair value in accordance with the acquisition method of accounting under U.S. GAAP. |
(2) | Represents an adjustment to reduce post-acquisition revenue from certain non-core customer contracts of Callcredit that are not classified as discontinued operations and that will expire within approximately one year. |
Reconciliation of operating income (loss) to Adjusted EBITDA: | YTD September 30, 2018 | |||
Callcredit operating income (loss) per Note 2 to the accompanying financial statements | $ | (18.9 | ) | |
Add-backs: | ||||
Deferred revenue fair value impact(1) | 16.6 | |||
Depreciation and amortization | 15.5 | |||
Integration costs(2) | 4.2 | |||
Adjusted EBITDA | $ | 17.4 | ||
Adjusted EBITDA margin | 33.1 | % |
(1) | Represents an adjustment to reflect the amount of revenue that would have been recognized, had deferred revenue not been reduced to estimated fair value in accordance with the acquisition method of accounting under U.S. GAAP, partially offset by a decrease to revenue for certain acquired non-core customer contracts that are not classified as discontinued operations that will expire within approximately one year. |
(2) | Represents an adjustment to add-back Callcredit integration costs and the operating costs of the non-core customer contracts. |
Reconciliation of Revenue to Adjusted pro forma revenue: | YTD September 30, 2018 | YTD September 30, 2017 | ||||||
Pro forma revenue per Note 2 to the accompanying financial statements | $ | 1,791.8 | $ | 1,516.5 | ||||
Adjustments: | ||||||||
Deferred revenue fair value impact(1) | 18.4 | 36.8 | ||||||
Revenue from non-core customer contracts(2) | (2.1 | ) | (3.1 | ) | ||||
Pro forma Adjusted Revenue | $ | 1,808.1 | $ | 1,550.2 |
(1) | Represents and adjustment for pre- and post-acquisition revenue that would have been recognized, had deferred revenue not been reduced to estimated fair value in accordance with the acquisition method of accounting under U.S. GAAP. |
(2) | Represents an adjustment to reduce pre- and post-acquisition revenue from certain non-core customer contracts of Callcredit that are not classified as discontinued operations and that will expire within approximately one year. |
Reconciliation of net income from continuing operations to pro forma Adjust Net Income from Continuing Operations: | YTD September 30, 2018 | YTD September 30, 2017 | ||||||
Pro forma net income from continuing operations per Note 2 to the accompanying financial statements | $ | 165.8 | $ | 50.7 | ||||
Net interest expense | 122.0 | 103.7 | ||||||
Provision for income taxes | 84.7 | 44.2 | ||||||
Depreciation and amortization | 245.1 | 216.0 | ||||||
Pro forma EBITDA | 617.6 | 414.6 | ||||||
Adjustments: | ||||||||
Deferred revenue fair value impact(1) | 18.5 | 36.8 | ||||||
Stock-based compensation(2) | 43.2 | 34.2 | ||||||
Mergers and acquisitions, divestitures and business optimization(3) | 3.5 | 84.9 | ||||||
Other(4) | 17.7 | 21.1 | ||||||
Total adjustments | 82.9 | 177.0 | ||||||
Pro forma Adjusted EBITDA | $ | 700.5 | $ | 591.6 | ||||
Pro forma Adjusted EBITDA margin | 38.7 | % | 38.2 | % |
(1) | Represents all of the pro forma adjustments as reflected in Exhibit 99.2 of our Form 8-K filed with the SEC on August 27, 2018, and similar adjustments for the second and third quarters of 2018. |
(2) | Consisted of stock-based compensation and cash-settled stock-based compensation. |
(3) | Consists of the adjustments included in footnote 3 of Schedule 2 of Exhibit 99.1 of this Form 8-K and additional similar adjustments of Callcredit prior to the date of acquisition. |
(4) | Consists of the adjustments included in footnote 4 of Schedule 2 of Exhibit 99.1 of this Form 8-K and additional similar adjustments of Callcredit prior to the date of acquisition. |