10-Q


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
  
x          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

o           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to

Commission file number 001-13585
  
CoreLogic, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
95-1068610
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
40 Pacifica, Irvine, California
92618-7471
(Address of principal executive offices)
(Zip Code)
 
(949) 214-1000
(Registrant’s telephone number, including area code)
 
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
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  x    No   o
 
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   o
 
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
x
Accelerated filer
o
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting  company
o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  o    No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

On April 18, 2016 there were 88,855,310 shares of common stock outstanding.



CoreLogic, Inc.
INFORMATION INCLUDED IN REPORT
 
 
Part  I:
Financial Information
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
A. Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015
 
 
 
 
B. Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015
 
 
 
 
C. Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015
 
 
 
 
D. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015
 
 
 
 
E. Condensed Consolidated Statement of Equity for the three months ended March 31, 2016
 
 
 
 
F. Notes to Condensed Consolidated Financial Statements
 
 
 
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
 
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
 
 
 
Item 4.
Controls and Procedures
 
 
 
Part II:
Other Information
 
 
 
Item 1.
Legal Proceedings
 
 
 
Item 1A.
Risk Factors
 
 
 
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
 
 
 
Item 3.
Defaults upon Senior Securities
 
 
 
Item 4.
Mine Safety Disclosures
 
 
 
Item 5.
Other Information
 
 
 
Item 6.
Exhibits




PART I: FINANCIAL INFORMATION
Item 1.  Financial Statements.
CoreLogic, Inc.
Condensed Consolidated Balance Sheets
(Unaudited) 
(in thousands, except par value)
March 31,

December 31,
Assets
2016

2015
Current assets:
 
 
 
Cash and cash equivalents
$
133,104

 
$
99,090

Marketable securities
23,346

 
22,709

Accounts receivable (less allowance for doubtful accounts of $6,981 and $6,212 as of March 31, 2016 and December 31, 2015, respectively)
245,110

 
240,988

Prepaid expenses and other current assets
47,214

 
45,882

Income tax receivable
27,138

 
37,029

Deferred income tax assets, current
—

 
95,887

Assets of discontinued operations
681

 
681

Total current assets
476,593

 
542,266

Property and equipment, net
370,025

 
375,654

Goodwill, net
1,890,181

 
1,881,547

Other intangible assets, net
341,840

 
352,148

Capitalized data and database costs, net
331,382

 
327,841

Investment in affiliates, net
64,563

 
69,205

Deferred income tax assets, long-term
12,455

 
2,219

Restricted cash
11,043

 
10,926

Other assets
108,563

 
111,910

Total assets
$
3,606,645

 
$
3,673,716

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
188,350

 
$
158,213

Accrued salaries and benefits
77,256

 
117,187

Deferred revenue, current
273,932

 
269,071

Mandatorily redeemable noncontrolling interests
—

 
18,981

Current portion of long-term debt
43,640

 
48,497

Liabilities of discontinued operations
2,612

 
2,527

Total current liabilities
585,790

 
614,476

Long-term debt, net of current
1,278,941

 
1,288,177

Deferred revenue, net of current
452,449

 
448,819

Deferred income tax liabilities, long term
25,308

 
107,249

Other liabilities
169,243

 
165,505

Total liabilities
2,511,731

 
2,624,226

 
 
 
 
Equity:
 

 
 

CoreLogic stockholders' equity:
 

 
 

Preferred stock, $0.00001 par value; 500 shares authorized, no shares issued or outstanding
—

 
—

Common stock, $0.00001 par value; 180,000 shares authorized; 88,843 and 88,228 shares issued and outstanding as of March 31, 2016 and December 31, 2015, respectively
1

 
1

Additional paid-in capital
559,867

 
551,206

Retained earnings
645,879

 
618,399

Accumulated other comprehensive loss
(110,833
)
 
(120,116
)
Total CoreLogic stockholders' equity
1,094,914

 
1,049,490

Total liabilities and equity
$
3,606,645

 
$
3,673,716

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

1


CoreLogic, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
 
For the Three Months Ended
 
March 31,
(in thousands, except per share amounts)
2016

2015
Operating revenues
$
453,543

 
$
364,772

Cost of services (excluding depreciation and amortization shown below)
245,377

 
185,543

Selling, general and administrative expenses
111,211

 
93,986

Depreciation and amortization
39,644

 
35,978

Total operating expenses
396,232


315,507

Operating income
57,311


49,265

Interest expense:
 


 

Interest income
627

 
1,458

Interest expense
14,280

 
13,835

Total interest expense, net
(13,653
)

(12,377
)
(Loss)/gain on investments and other, net
(251
)
 
309

Income from continuing operations before equity in earnings of affiliates and income taxes
43,407


37,197

Provision for income taxes
15,779

 
11,465

Income from continuing operations before equity in earnings of affiliates
27,628


25,732

Equity in (losses)/earnings of affiliates, net of tax
(90
)
 
3,766

Net income from continuing operations
27,538


29,498

Loss from discontinued operations, net of tax
(58
)
 
(111
)
Net income
27,480


29,387

Less: Net income attributable to noncontrolling interests
—

 
208

Net income attributable to CoreLogic
$
27,480


$
29,179

Amounts attributable to CoreLogic stockholders:
 


 

Net income from continuing operations
$
27,538


$
29,290

Loss from discontinued operations, net of tax
(58
)

(111
)
Net income attributable to CoreLogic
$
27,480


$
29,179

Basic income per share:





Net income from continuing operations
$
0.31


$
0.33

Loss from discontinued operations, net of tax
—


—

Net income attributable to CoreLogic
$
0.31

 
$
0.33

Diluted income per share:
 


 

Net income from continuing operations
$
0.31


$
0.32

Loss from discontinued operations, net of tax
—


—

Net income attributable to CoreLogic
$
0.31

 
$
0.32

Weighted-average common shares outstanding:
 


 

Basic
88,310


89,751

Diluted
89,919


91,117


The accompanying notes are an integral part of these condensed consolidated financial statements.

2


CoreLogic, Inc.
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)

 
For the Three Months Ended
 
March 31,
(in thousands)
2016
 
2015
Net income
$
27,480

 
$
29,387

Other comprehensive income/(loss)
 

 
 

Market value adjustments to marketable securities, net of tax
393

 
(194
)
Market value adjustments on interest rate swap, net of tax
(2,600
)
 
(2,180
)
Foreign currency translation adjustments
11,597

 
(21,776
)
Supplemental benefit plans adjustments, net of tax
(107
)
 
(98
)
Total other comprehensive income/(loss)
9,283

 
(24,248
)
Comprehensive income
36,763

 
5,139

Less: Comprehensive income attributable to the noncontrolling interests
—

 
208

Comprehensive income attributable to CoreLogic
$
36,763

 
$
4,931

 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3


CoreLogic, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

For the Three Months Ended

March 31,
(in thousands)
2016
 
2015
Cash flows from operating activities:
 
 
 
Net income
$
27,480

 
$
29,387

Less: Loss from discontinued operations, net of tax
(58
)
 
(111
)
Net income from continuing operations
27,538

 
29,498

Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
 

 
 

Depreciation and amortization
39,644

 
35,978

Amortization of debt issuance costs
1,485

 
1,466

Provision for bad debt and claim losses
2,895

 
2,612

Share-based compensation
9,543

 
8,732

Excess tax benefit related to stock options
(1,265
)
 
(4,575
)
Equity in losses/(earnings) of affiliates, net of taxes
90

 
(3,766
)
Gain on sale of property and equipment
(8
)
 
—

Deferred income tax
5,143

 
1,978

Loss/(gain) on investments and other, net
251

 
(309
)
Change in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable
(4,767
)
 
(12,070
)
Prepaid expenses and other current assets
(1,332
)
 
(3,662
)
Accounts payable and accrued expenses
(15,992
)
 
(19,570
)
Deferred revenue
8,491

 
4,264

Income taxes
9,736

 
(2,359
)
Dividends received from investments in affiliates
5,183

 
8,420

Other assets and other liabilities
65

 
(5,393
)
Net cash provided by operating activities - continuing operations
86,700

 
41,244

Net cash provided by/(used in) operating activities - discontinued operations
27

 
(1,010
)
Total cash provided by operating activities
$
86,727

 
$
40,234

Cash flows from investing activities:
 

 
 

Purchase of subsidiary shares from and other decreases in noncontrolling interests
$
(18,023
)
 
$
—

Purchases of property and equipment
(9,810
)
 
(11,397
)
Purchases of capitalized data and other intangible assets
(9,021
)
 
(11,244
)
Purchases of investments
(440
)
 
(388
)
Proceeds from sale of property and equipment
8

 
—

Change in restricted cash
(117
)
 
146

Net cash used in investing activities - continuing operations
(37,403
)
 
(22,883
)
Net cash provided by investing activities - discontinued operations
—

 
—

Total cash used in investing activities
$
(37,403
)
 
$
(22,883
)
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
$
—

 
$
135

Repayment of long-term debt
(15,830
)
 
(35,551
)
Proceeds from issuance of shares in connection with share-based compensation
6,296

 
10,701

Tax withholdings related to net share settlements
(7,178
)
 
(11,792
)
Excess tax benefit related to stock options
1,265

 
4,575

Net cash used in financing activities - continuing operations
(15,447
)
 
(31,932
)
Net cash provided by financing activities - discontinued operations
—

 
—

Total cash used in financing activities
$
(15,447
)
 
$
(31,932
)
Effect of exchange rate on cash
137

 
67

Net change in cash and cash equivalents
34,014

 
(14,514
)
Cash and cash equivalents at beginning of period
99,090

 
104,677

Less: Change in cash and cash equivalents - discontinued operations
27

 
(1,010
)
Plus: Cash swept from/(to) discontinued operations
27

 
(1,467
)
Cash and cash equivalents at end of period
$
133,104

 
$
89,706



 

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
6,272

 
$
9,834

Cash paid for income taxes
$
992

 
$
8,947

Cash refunds from income taxes
$
275

 
$
2,147

Non-cash investing activities:
 
 
 
Capital expenditures included in accounts payable and accrued liabilities
$
8,584

 
$
3,402


The accompanying notes are an integral part of these condensed consolidated financial statements.

4


CoreLogic, Inc.
Condensed Consolidated Statement of Equity
(Unaudited)
 
(in thousands)
Common Stock Shares
 
Common Stock Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
Balance as of December 31, 2015
88,228

 
$
1

 
$
551,206

 
$
618,399

 
$
(120,116
)
 
$
1,049,490

Net income
—

 
—

 
—

 
27,480

 
—

 
27,480

Shares issued in connection with share-based compensation
615

 
—

 
6,296

 
—

 
—

 
6,296

Tax withholdings related to net share settlements
—

 
—

 
(7,178
)
 
—

 
—

 
(7,178
)
Share-based compensation
—

 
—

 
9,543

 
—

 
—

 
9,543

Other comprehensive income
—

 
—

 
—

 
—

 
9,283

 
9,283

Balance as of March 31, 2016
88,843

 
$
1

 
$
559,867

 
$
645,879

 
$
(110,833
)
 
$
1,094,914


The accompanying notes are an integral part of these condensed consolidated financial statements.

5



Note 1 – Basis of Condensed Consolidated Financial Statements

CoreLogic, Inc., together with its subsidiaries (collectively "we", "us" or "our"), is a leading global property information, analytics and data-enabled services provider operating in North America, Western Europe and Asia Pacific. Our combined data from public, contributory and proprietary sources provides detailed coverage of property, mortgages and other encumbrances, property risk and replacement cost, consumer credit, tenancy, location, hazard risk and related performance information. The markets we serve include real estate and mortgage finance, insurance, capital markets and the public sector. We deliver value to clients through unique data, analytics, workflow technology, advisory and managed services. Clients rely on us to help identify and manage growth opportunities, improve performance and mitigate risk. We are also a party to several joint ventures both domestically and abroad.

Our condensed consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and accompanying notes. Actual amounts may differ from these estimated amounts. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The 2015 year-end condensed consolidated balance sheet was derived from the Company's audited financial statements for the year ended December 31, 2015. Interim financial information does not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2015.

The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring items which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future periods.

Client Concentration

We generate the majority of our revenues from clients with operations in the U.S. residential real estate, mortgage origination and mortgage servicing markets. Approximately 43.0% and 20.0% of our operating revenues for the three months ended March 31, 2016 and 2015, respectively, were generated from our ten largest clients, who consist of the largest U.S. mortgage originators and servicers. Two of our clients accounted for 14.0% and 12.0% of our operating revenues for the three months ended March 31, 2016. No client accounted for 10.0% or more of our operating revenues for the three months ended March 31, 2015.

Out-of-Period Adjustment

During the first quarter of 2015, we identified an error which overstated our interest expense by $5.2 million ($3.1 million, net of tax), reflected within continuing operations, for the year ended December 31, 2014. We recorded an out-of-period adjustment to correct the error in the quarter ended March 31, 2015, which increased basic and diluted net income per share by $0.03. We assessed the materiality of this error and concluded the error was not material to the results of operations or financial condition for the prior annual or interim periods.

Comprehensive Income

Comprehensive income includes all changes in equity except those resulting from investments by owners and distributions to owners. Specifically, foreign currency translation adjustments, amounts related to supplemental benefit plans, unrealized gains and losses on interest rate swap transactions and unrealized gains and losses on investment are recorded in other comprehensive income.


6


The following table shows the components of accumulated other comprehensive loss, net of taxes as of March 31, 2016 and December 31, 2015:

 
2016
 
2015
Cumulative foreign currency translation
$
(102,831
)
 
$
(114,427
)
Cumulative supplemental benefit plans
(3,647
)
 
(3,540
)
Net unrecognized losses on interest rate swap
(5,298
)
 
(2,699
)
Net unrealized gains on marketable securities
943

 
550

Accumulated other comprehensive loss
$
(110,833
)
 
$
(120,116
)

Marketable Securities

Debt securities are carried at fair value and consist primarily of investments in obligations of various corporations and mortgage-backed securities. Equity securities are carried at fair value and consist primarily of investments in marketable common and preferred stock. We classify our publicly traded debt and equity securities as available-for-sale and carry them at fair value with unrealized gains or losses classified as a component of accumulated other comprehensive loss. As of March 31, 2016 and December 31, 2015, our marketable securities consisted primarily of investments in preferred stock of $23.3 million and $22.7 million, respectively. There were no gains or losses recognized on sales of marketable securities for the three months ended March 31, 2016 and 2015.

Mandatorily Redeemable Noncontrolling Interest

Mandatorily redeemable noncontrolling interests for which there is a contractual requirement for purchasing the interest are included as a liability of NZD$27.8 million, or $19.0 million, in our accompanying condensed consolidated balance sheet as of December 31, 2015. In January 2016 we acquired the remaining 40.0% interest in New Zealand-based Property IQ Ltd. ("PIQ") and settled the mandatorily redeemable noncontrolling interest as of March 31, 2016. See Note 12 - Acquisitions for further discussion.

Tax Escrow Disbursement Arrangements

We administer tax escrow disbursements as a service to our clients in connection with our tax services business. These deposits are maintained in segregated accounts for the benefit of our clients. Tax escrow deposits totaled $5.4 billion as of March 31, 2016 and $340.3 million as of December 31, 2015. Because these deposits are held on behalf of our clients, they are not our funds and, therefore, are not included in the accompanying condensed consolidated balance sheets.

These deposits generally remain in the accounts for a period of two to five business days and we invest the funds in a highly-rated, liquid investment, such as bank deposit products or AAA-rated money market funds. We earn interest income or earnings credits from these investments and bear the risk of any losses. However, we have not historically incurred any investment losses and do not anticipate incurring any future investment losses. As a result, we do not maintain any reserves for losses in value of these investments.

Under our contracts with our clients, if we make a payment in error or fail to pay a taxing authority when a payment is due, we could be held liable to our clients for all or part of the financial loss they suffer as a result of our act or omission. We maintained claim reserves relating to incorrect disposition of assets of $19.7 million and $21.2 million as of March 31, 2016 and December 31, 2015, respectively, which is reflected in our accompanying condensed consolidated balance sheets.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify some provisions in stock compensation accounting. The accounting for income taxes allows all excess tax benefits and tax deficiencies to be recognized through income tax expense. The statement of cash flows presentation of excess tax benefits should be classified with other income tax cash flows as an operating activity. An entity may also make an entity-wide election to either continue estimating the number of awards that are expected to vest or account for forfeitures as they occur. The requirements to qualify for equity classification permits tax withholding up to the maximum statutory tax rates in the applicable jurisdictions. Lastly, payments of cash by an employer for tax-withholding purposes, when directly withholding shares, are classified as a financing activity on the statement of cash flows. The guidance is effective for fiscal years beginning after December 15, 2016, and

7


interim periods within those fiscal years. Earlier adoption is permitted but we do not anticipate electing early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued guidance on equity method accounting related to joint venture investments. The standard eliminates the requirement to retroactively adopt the equity method of accounting as a result of an increase in the level of ownership or degree of influence related to an investment. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Earlier adoption is permitted but we do not anticipate electing early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued guidance on derivatives and hedging. The standard clarifies the four-step decision sequence required for assessing whether contingent put and call options that can speed up the payment for a debt instrument’s principal are clearly and closely related to the debt to which they are attached. The standard also clarifies that provided all other hedge accounting criteria continue to be met, a change in the counterparty to a derivative instrument does not in itself disqualify designation of the hedge. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Earlier adoption is permitted but we do not anticipate electing early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
    
In February 2016, the FASB issued guidance on lease accounting. The standard requires all leases in excess of 12-months will be recognized on the balance sheet as lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not changed significantly from prior GAAP. For operating leases, a lessee is required to 1) recognize a right-of-use asset and lease liability, initially measured at the present value of the lease payment, 2) recognize a single lease cost over the lease term generally on a straight-line basis, and 3) classify all cash payments within operating activities on the cash flow statement. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Earlier adoption is permitted but we do not anticipate electing early adoption. We are currently evaluating the impact of the adoption of this guidance on our consolidated financial statements.

In January 2016, the FASB issued guidance on accounting for equity investments and financial liabilities. The standard does not apply to equity method investments or investments in consolidated subsidiaries. The update provides that equity investments with readily determinable values be measured at fair value and changes in the fair value flow through net income. These changes historically have run through other comprehensive income. Equity investments without readily determinable fair values have the option to be measured at fair value or at cost adjusted for changes in observable prices minus impairment. Changes in either method are also recognized in net income. The standard requires a qualitative assessment of impairment indicators at each reporting period. For financial liabilities, entities that elect the fair value option must recognize the change in fair value attributable to instrument-specific credit risk in other comprehensive income rather than net income. Lastly, regarding deferred tax assets, the need for a valuation allowance on a deferred tax asset will need to be assessed related to available-for-sale debt securities. The guidance is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Earlier adoption is permitted but we do not anticipate electing early adoption. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In November 2015, the FASB issued guidance which requires all deferred tax assets and liabilities, as well as any related valuation allowance, to be classified as non-current on the balance sheet. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and earlier adoption is permitted. We have elected early adoption on a prospective basis and have presented $12.5 million of deferred income tax assets, long term and $25.3 million of deferred income tax liabilities, long term as of March 31, 2016 in the accompanying condensed consolidated balance sheet.

Note 2 – Investment in Affiliates, Net

Investments in affiliates are accounted for under the equity method of accounting when we are deemed to have significant influence over the affiliate but do not control or have a majority voting interest in the affiliate. Investments are carried at the cost of acquisition, including subsequent capital contributions and loans from us, plus our equity in undistributed earnings or losses since inception of the investment.

One of our subsidiaries previously owned a 50.1% interest in RELS LLC ("RELS"), a provider of appraisals and appraisal management services used in connection with mortgage loan originations. This investment contributed 81.3% of our total equity in earnings of affiliates, net of tax, for the three months ended March 31, 2015. We acquired the remaining interest

8


in RELS in December 2015. See Note 12 - Acquisitions for further discussion. The following summarizes the financial information for this investment (assuming 100% ownership interest):

 
For the Three Months Ended
(in thousands)
March 31, 2015
Statements of income
 
Total revenues
$
58,446

Expenses and other
48,262

Net income attributable to RELS LLC
$
10,184

CoreLogic equity in earnings of affiliate
$
5,102


We recorded equity in losses of affiliates, net of tax of $0.1 million and equity in earnings of affiliates, net of tax of $3.8 million for the three months ended March 31, 2016 and 2015, respectively. We recorded operating revenues related to our investment in affiliates of $2.5 million and $4.3 million for the three months ended March 31, 2016 and 2015, respectively. We also recorded operating expenses related to our investment in affiliates of $2.6 million and $3.4 million for the three months ended March 31, 2016 and 2015, respectively.

Note 3 - Property and Equipment, Net

Property and equipment, net as of March 31, 2016 and December 31, 2015 consists of the following:

(in thousands)
2016
 
2015
Land
$
4,000

 
$
4,000

Buildings
111

 
111

Furniture and equipment
61,451

 
62,140

Capitalized software
773,258

 
759,925

Leasehold improvements
29,453

 
29,038

 
868,273

 
855,214

Less accumulated depreciation
(498,248
)
 
(479,560
)
Property and equipment, net
$
370,025

 
$
375,654


Depreciation expense for property and equipment was approximately $19.2 million and $17.9 million for the three months ended March 31, 2016 and 2015, respectively.

Note 4 – Goodwill, Net

A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by operating segment and reporting unit, for the three months ended March 31, 2016, is as follows:
 
(in thousands)
PI
 
RMW
 
Consolidated
Balance as of January 1, 2016
 
 
 
 
 
Goodwill
$
963,680

 
$
925,392

 
$
1,889,072

Accumulated impairment losses
(600
)
 
(6,925
)
 
(7,525
)
Goodwill, net
963,080

 
918,467

 
1,881,547

Translation adjustments
8,634

 
—

 
8,634

Balance as of March 31, 2016
 
 
 
 
 
Goodwill, net
$
971,714

 
$
918,467

 
$
1,890,181



9


Note 5 – Other Intangible Assets, Net

Other intangible assets, net consist of the following:
 
 
March 31, 2016
 
December 31, 2015
(in thousands)
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Client lists
$
498,380

 
$
(229,879
)
 
$
268,501

 
$
496,192

 
$
(219,887
)
 
$
276,305

Non-compete agreements
9,312

 
(8,155
)
 
1,157

 
9,302

 
(7,983
)
 
1,319

Trade names and licenses
102,783

 
(30,601
)
 
72,182

 
102,297

 
(27,773
)
 
74,524

 
$
610,475

 
$
(268,635
)
 
$
341,840

 
$
607,791

 
$
(255,643
)
 
$
352,148


Amortization expense for other intangible assets, net was $11.7 million and $9.8 million for the three months ended March 31, 2016 and 2015, respectively.

Estimated amortization expense for other intangible assets, net is as follows:

(in thousands)
 
Remainder of 2016
$
28,700

2017
41,950

2018
41,146

2019
40,965

2020
37,173

Thereafter
151,906

 
$
341,840



10


Note 6 – Long-Term Debt, Net of Current

Our long-term debt consists of the following:

 
 
March 31, 2016
 
December 31, 2015
(in thousands)
Gross
 
Debt Issuance Costs
 
Net
 
Gross
 
Debt Issuance Costs
 
Net
Acquisition-related note:
 
 
 
 
 
 
 
 
 
 
 
 
Non-interest bearing acquisition note, $5.0 million installment due March 2016
$
—

 
$
—

 
$
—

 
$
4,924

 
$
—

 
$
4,924

Notes:
 

 
 

 
 
 
 

 
 

 


 
7.25% senior notes due June 2021
393,000

 
(10,655
)
 
382,345

 
393,000

 
(11,121
)
 
381,879

 
 
 
 
 
 
 
 
 
 
 
 


 
7.55% senior debentures due April 2028
59,645

 
(227
)
 
59,418

 
59,645

 
(231
)
 
59,414

 
 
 
 
 
 
 
 
 
 
 
 


Bank debt:
 

 
 

 
 
 
 

 
 

 


 
Term loan facility borrowings due April 2020, weighted-average interest rate of 2.18% and 1.96% as of March 31, 2016 and December 31, 2015, respectively
818,125

 
(9,073
)
 
809,052

 
828,750

 
(9,720
)
 
819,030

 
Revolving line of credit borrowings due April 2020, weighted-average interest rate of 2.18% and 1.96% as of March 31, 2016 and December 31, 2015, respectively
75,000

 
(5,894
)
 
69,106

 
75,000

 
(6,262
)
 
68,738

Other debt:
 

 
 

 
 
 
 

 
 

 


 
Various debt instruments with maturities through 2019
2,660

 
—

 
2,660

 
2,689

 
—

 
2,689

Total long-term debt
1,348,430


(25,849
)
 
1,322,581

 
1,364,008


(27,334
)
 
1,336,674

Less current portion of long-term debt
43,640

 
—

 
43,640

 
48,497

 
—

 
48,497

Long-term debt, net of current portion
$
1,304,790

 
$
(25,849
)
 
$
1,278,941

 
$
1,315,511


$
(27,334
)

$
1,288,177


As of March 31, 2016 and December 31, 2015, we have recorded $12.2 million and $3.6 million, respectively, of accrued interest expense on our debt-related instruments.

Senior Notes

In May 2011, we issued $400.0 million aggregate principal amount of 7.25% senior notes due 2021 (the "Notes"). The Notes are guaranteed on a senior unsecured basis by each of our existing and future direct and indirect subsidiaries that guarantee our Credit Agreement (defined below). Separate financial statements for each guarantor subsidiary are not included in this filing because each guarantor subsidiary is 100% owned and the guarantees of the Notes are joint and several and full and unconditional. The combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the combined consolidating adjustments and eliminations and the consolidated accounts for CoreLogic, Inc. (the "Parent") for the dates and periods indicated are included in Note 16 - Guarantor Subsidiaries. The guarantees are subject to release under certain customary circumstances. The indenture governing the Notes provides that the guarantees may be automatically and unconditionally released only upon the following circumstances: 1) the guarantor is sold or sells all of its assets in compliance with the terms of the indenture; 2) the guarantor is released from its guarantee obligations under the Credit Agreement; 3) the guarantor is properly designated as an “unrestricted subsidiary;” or 4) the requirements for legal or covenant defeasance or satisfaction and discharge have been satisfied. The maximum potential amounts that could be required to be paid under the guarantees are essentially equal to the outstanding principal and interest under the Notes. There are no significant restrictions on the ability of the Parent or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan. The Notes bear interest at 7.25% per annum and mature on June 1, 2021. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2011. As of March 31, 2016, we were in compliance with all of our covenants under the indenture.


11


Credit Agreement

In April 2015, we amended and restated our senior secured credit facility (the "Credit Agreement") with Bank of America, N.A. as administrative agent and other financial institutions. The Credit Agreement provides for an $850.0 million five-year term loan facility (the "Term Facility") and a $550.0 million revolving credit facility (the "Revolving Facility") and expires on April 21, 2020. The Revolving Facility includes a $100.0 million multicurrency revolving sub-facility and a $50.0 million letter of credit sub-facility. The Credit Agreement also provides for the ability to increase the Term Facility and Revolving Facility by up to $750.0 million in the aggregate. As of March 31, 2016, we were in compliance with all of our covenants under the Credit Agreement.

Debt Issuance Costs

In connection with the amendment and restatement of the Credit Agreement in 2015, we incurred approximately $6.5 million of debt issuance costs of which $0.4 million were expensed in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2015. We capitalized the remaining $6.1 million of debt issuance costs within long-term debt, net in the accompanying condensed consolidated balance sheets, and will amortize these costs over the term of the Credit Agreement.

When we amended and restated the Credit Agreement in 2015, we had unamortized costs of $14.8 million related to previously recorded debt issuance costs, which we will amortize over the term of the Credit Agreement. In connection with the amendment and restatement of the Credit Agreement, during the three months ended March 31, 2015, we wrote-off $1.6 million of unamortized debt issuance costs.

7.55% Senior Debentures

In April 1998, we issued $100.0 million in aggregate principal amount of 7.55% senior debentures due 2028. In April 2010, in anticipation of the spin-off of our financial services businesses into a new, publicly-traded, New York Stock Exchange-listed company called First American Financial Corporation ("FAFC") in June 2010 ("Separation"), we commenced a cash tender offer for these debentures and also solicited consent from the holders thereof to expressly affirm that the Separation would not conflict with the terms of the debentures. See Note 11 - Litigation and Regulatory Contingencies for further discussion on the Separation. In April 2010, we announced that valid consents were tendered representing over 50.0% of the outstanding debentures. Accordingly, we received the requisite approvals from debenture holders and amended the related indentures. The indentures governing these debentures, as amended, contain limited restrictions on the Company.

Interest Rate Swaps

In May 2014, we entered into amortizing interest rate swap transactions ("Swaps"). The Swaps became effective in December 2014 and terminate in March 2019. The Swaps are for an initial notional balance of $500.0 million, with a fixed interest rate of 1.57%, and amortize quarterly by $12.5 million through December 31, 2017 and $25.0 million through December 31, 2018, with a remaining notional amount of $250.0 million. We entered into the Swaps in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. We have designated the Swaps as cash flow hedges. The estimated fair value of these cash flow hedges resulted in a liability of $8.6 million and $4.4 million as of March 31, 2016 and December 31, 2015, respectively, which is included in the accompanying condensed consolidated balance sheets as a component of other liabilities.

Unrealized losses of $2.6 million (net of $1.7 million in deferred taxes) and unrealized gains of $2.2 million (net of $1.4 million in deferred taxes) were recognized in other comprehensive loss related to the Swaps for the three months ended March 31, 2016 and 2015, respectively.

Note 7 – Income Taxes

The effective income tax rate for income taxes as a percentage of income from continuing operations before equity in earnings of affiliates and income taxes was 36.4% and 30.8% for the three months ended March 31, 2016 and 2015, respectively.

For the three months ended March 31, 2016 when compared to 2015, the increase in the effective income tax rates was primarily attributable to a prior year non-recurring favorable discrete item, which related to an audit settlement for an IRS exam associated with pre-acquisition exposures of Marshall & Swift/Boeckh and DataQuick Information Systems.

12



Income taxes included in equity in earnings of affiliates were $0.2 million and $2.4 million for the three months ended March 31, 2016 and 2015, respectively. For the purpose of segment reporting, these amounts are included in corporate and therefore not reflected in our reportable segments.

We are currently under examination for the years 2005 to 2011 by the U.S. federal and various state taxing authorities. It is reasonably possible the amount of unrecognized tax benefit with respect to certain unrecognized tax positions could significantly increase or decrease within the next twelve months. We estimate the unrecognized tax benefit could decrease by up to $23.7 million within the next twelve months. The estimated change is primarily related to IRS audits, subject to the FAFC indemnification, and will have no impact to net income. See Note 11 - Litigation and Regulatory Contingencies for further discussion on FAFC.

Note 8 – Earnings Per Share
 
The following is a reconciliation of net income per share:
 
For the Three Months Ended
 
March 31,
 
2016
 
2015
(in thousands, except per share amounts)
 
 
 
Numerator for basic and diluted net income per share:
 
 
 
Net income from continuing operations
$
27,538

 
$
29,290

Loss from discontinued operations, net of tax
(58
)
 
(111
)
Net income attributable to CoreLogic
$
27,480

 
$
29,179

Denominator:
 

 
 

Weighted-average shares for basic income per share
88,310

 
89,751

Dilutive effect of stock options and restricted stock units
1,609

 
1,366

Weighted-average shares for diluted income per share
89,919

 
91,117

Income per share
 

 
 

Basic:
 

 
 

Net income from continuing operations
$
0.31

 
$
0.33

Loss from discontinued operations, net of tax
—

 
—

Net income attributable to CoreLogic
$
0.31

 
$
0.33

Diluted:
 

 
 
Net income from continuing operations
$
0.31

 
$
0.32

Loss from discontinued operations, net of tax
—

 
—

Net income attributable to CoreLogic
$
0.31

 
$
0.32


The dilutive effect of stock-based compensation awards has been calculated using the treasury-stock method. For the three months ended March 31, 2016, an aggregate of 0.3 million restricted stock units ("RSUs") and stock options were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect. For the three months ended March 31, 2015, an aggregate of 0.3 million RSUs, performance-based restricted stock units ("PBRSUs") and stock options were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect.


13


Note 9 – Fair Value of Financial Instruments

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable.

The market approach is applied for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value balances are classified based on the observability of those inputs.

A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize observable inputs in markets other than active markets.

In estimating the fair value of the financial instruments presented, we used the following methods and assumptions:

Cash and cash equivalents

For cash and cash equivalents, we believe that the carrying value is a reasonable estimate of fair value due to the short-term nature of the instruments.

Restricted cash

Restricted cash is comprised of certificates of deposit that are pledged for various letters of credit. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.

Marketable securities

Marketable securities are classified as available-for-sale securities and are valued using quoted prices in active markets.

Long-term debt

The fair value of long-term debt was estimated based on the current rates available to us for similar debt of the same remaining maturities and consideration of our default and credit risk.

Interest rate swap agreements  

The fair value of the interest rate swap agreements was estimated based on market-value quotes received from the counterparties to the agreements.


14


The fair values of our financial instruments as of March 31, 2016 are presented in the following table:

 
Fair Value Measurements Using
 
 
(in thousands)
Level 1
 
Level 2
 
Fair Value
Financial Assets:
 
 
 
 
 
Cash and cash equivalents
$
133,104

 
$
—

 
$
133,104

Restricted cash
—

 
11,043

 
11,043

Marketable securities
23,346

 
—

 
23,346

Total Financial Assets
$
156,450

 
$
11,043

 
$
167,493

 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
Total debt
$
—

 
$
1,326,095

 
$
1,326,095

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Liability for interest rate swap agreements
$
—

 
$
8,580

 
$
8,580


The fair values of our financial instruments as of December 31, 2015 are presented in the following table:

 
Fair Value Measurements Using
 
 
(in thousands)
Level 1
 
Level 2
 
Fair Value
Financial Assets:
 
 
 
 
 
Cash and cash equivalents
$
99,090

 
$
—

 
$
99,090

Restricted cash
—

 
10,926

 
10,926

Marketable securities
22,709

 
—

 
22,709

Total Financial Assets
$
121,799

 
$
10,926

 
$
132,725

 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
Total debt
$
—

 
$
1,315,473

 
$
1,315,473

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Liability for interest rate swap agreements
$
—

 
$
4,370

 
$
4,370


There were no transfers between Level 1, Level 2 or Level 3 securities during the three months ended March 31, 2016.

Note 10 – Stock-Based Compensation

We currently issue equity awards under the Amended and Restated CoreLogic, Inc. 2011 Performance Incentive Plan, which was initially approved by our stockholders at our Annual Meeting held on May 19, 2011 with an amendment and restatement approved by our stockholders at our Annual Meeting held on July 29, 2014 (the “Plan”). The Plan includes the ability to grant RSUs, PBRSUs and stock options. The Plan provides for up to 21,909,000 shares of the Company's common stock to be available for award grants.  Prior to the approval of the Plan, we issued share-based awards under the CoreLogic, Inc. 2006 Incentive Plan.

We have primarily utilized RSUs and PBRSUs as our share-based compensation instruments for employees and directors. The fair value of any share-based compensation instrument grant is based on the market value of our shares on the date of grant and is recognized as compensation expense over its vesting period.


15


Restricted Stock Units

For the three months ended March 31, 2016 and 2015, we awarded 729,731 and 693,584 RSUs, respectively, with an estimated grant-date fair value of $24.7 million and $23.8 million, respectively. The majority of the RSU awards will vest ratably over three years from their grant date.

RSU activity for the three months ended March 31, 2016 is as follows:

 
Number of
 
Weighted-Average
Grant-Date
(in thousands, except weighted-average fair value prices)
Shares
 
Fair Value
Unvested RSUs outstanding at December 31, 2015
1,537

 
$
32.92

RSUs granted
730

 
$
33.83

RSUs vested
(525
)
 
$
31.29

RSUs forfeited
(30
)
 
$
35.14

Unvested RSUs outstanding at March 31, 2016
1,712

 
$
33.77


As of March 31, 2016, there was $43.0 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.3 years. The fair value of RSUs is based on the market value of our common stock on the date of grant.

Performance-Based Restricted Stock Units

For the three months ended March 31, 2016 and 2015, we awarded 174,213 and 219,378 PBRSUs, respectively, with an estimated grant-date fair value of $6.0 million and $7.4 million, respectively. These awards are subject to service-based, performance-based and market-based vesting conditions. For the PBRSUs awarded during the three months ended March 31, 2016, the performance period is from January 1, 2016 to December 31, 2018 and the performance metric is adjusted earnings per share and market-based conditions. Subject to satisfaction of the performance criteria, the majority of the 2016 awards will vest on December 31, 2018.

The performance period for the PBRSUs awarded during the three months ended March 31, 2015 is from January 1, 2015 to December 31, 2017 and the performance metric is adjusted earnings per share and market-based conditions. Subject to satisfaction of the performance criteria, the majority of the 2015 awards will vest on December 31, 2017.

The fair values of the 2016 and 2015 awards were estimated using Monte-Carlo simulation with the following weighted-average assumptions:

 
For the Three Months Ended March 31,
 
2016
 
2015
 
 
 
 
Expected dividend yield
—
%
 
—
%
Risk-free interest rate (1)
0.99
%
 
0.93
%
Expected volatility (2)
25.12
%
 
24.01
%
Average total stockholder return (2)
1.48
%
 
8.37
%

(1)
The risk-free interest rate for the periods within the contractual term of the PBRSUs is based on the U.S. Treasury yield curve in effect at the time of the grant.
(2)
The expected volatility and average total stockholder return is a measure of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data.


16


PBRSU activity for the three months ended March 31, 2016 is as follows:

 
Number of
 
Weighted-Average
Grant-Date
(in thousands, except weighted-average fair value prices)
Shares
 
Fair Value
Unvested PBRSUs outstanding at December 31, 2015
659

 
$
29.15

PBRSUs granted
174

 
$
34.29

PBRSUs vested
(88
)
 
$
26.04

PBRSUs forfeited
(91
)
 
$
19.50

Unvested PBRSUs outstanding at March 31, 2016
654

 
$
33.49


As of March 31, 2016, there was $19.7 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 2.2 years. The fair value of PBRSUs is based on the market value of our common stock on the date of grant.

Stock Options

Prior to 2015, we issued stock options as incentive compensation for certain employees. Option activity for the three months ended March 31, 2016 is as follows:

(in thousands, except weighted-average price)
Number of
Shares
 
Weighted-Average
Exercise Price
 
Weighted-Average
Remaining
Contractual Term
 
Aggregate
Intrinsic
Value
Options outstanding at December 31, 2015
1,826

 
$
21.33

 
 
 
 
Options exercised
(165
)
 
$
22.42

 
 
 
 
Options outstanding at March 31, 2016
1,661

 
$
21.22

 
5.3
 
$
22,358

Options vested and expected to vest at March 31, 2016
1,655

 
$
21.20

 
5.3
 
$
22,348

Options exercisable at March 31, 2016
1,575

 
$
20.70

 
5.2
 
$
22,052


As of March 31, 2016, there was $0.8 million of total unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted-average period of 1.0 years.

The intrinsic value of options exercised was $1.9 million and $2.5 million for the three months ended March 31, 2016 and 2015, respectively. This intrinsic value represents the difference between the fair market value of our common stock on the date of exercise and the exercise price of each option.

Employee Stock Purchase Plan

The employee stock purchase plan allows eligible employees to purchase our common stock at 85.0% of the lesser of the closing price on the first day or the last day of each quarter. Our employee stock purchase plan was approved by our stockholders at our 2012 annual meeting of stockholders and the first offering period commenced in October 2012. We recognized an expense for the amount equal to the estimated fair value of the discount during each offering period.


17


The following table sets forth the stock-based compensation expense recognized for the three months ended March 31, 2016 and 2015.

 
For the Three Months Ended
 
March 31,
(in thousands)
2016
 
2015
RSUs
$
7,019

 
$
6,015

PBRSUs
1,813

 
1,780

Stock options
383

 
563

Employee stock purchase plan
328

 
374

 
$
9,543

 
$
8,732


The above includes $1.5 million and $0.6 million of stock-based compensation expense within cost of services in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2016 and 2015, respectively.

Note 11 – Litigation and Regulatory Contingencies

We have been named in various lawsuits. Also, we may from time to time be subject to audit or investigation by governmental agencies. Currently, governmental agencies are auditing or investigating certain of our operations.

With respect to matters where we have determined that a loss is both probable and reasonably estimable, we have recorded a liability representing our best estimate of the financial exposure based on known facts. While the ultimate disposition of each such audit, investigation or lawsuit is not yet determinable, we do not believe that the ultimate resolution of these matters, either individually or in the aggregate, will have a material adverse effect on our financial condition, results of operations or cash flows. In addition, we do not believe there is a reasonable possibility that a material loss exceeding amounts already accrued may be incurred. The ability to predict the ultimate outcome of such matters involves judgments, estimates and inherent uncertainties. The actual outcome of such matters could differ materially from management’s estimates. We record expenses for legal fees as incurred.

Separation

Following the Separation, we are responsible for a portion of FAFC's contingent and other corporate liabilities. In the Separation and Distribution Agreement we entered into in connection with the Separation (the "Separation and Distribution Agreement"), we agreed with FAFC to share equally in the cost of resolution of a small number of corporate-level lawsuits, including certain consolidated securities litigation matters from which we have since been dropped. There were no liabilities incurred in connection with the consolidated securities matters. Responsibility to manage each case has been assigned to either FAFC or us, with the managing party required to update the other party regularly and consult with the other party prior to certain important decisions, such as settlement. The managing party will also have primary responsibility for determining the ultimate total liability, if any, related to the applicable case. We will record our share of any such liability when the responsible party determines a reserve is necessary. At March 31, 2016, no reserves were considered necessary.

In addition, the Separation and Distribution Agreement provides for cross-indemnities principally designed to place financial responsibility for the obligations and liabilities of our predecessor, The First American Corporation's ("FAC") financial services business, with FAFC and financial responsibility for the obligations and liabilities of FAC's information solutions business with us. Specifically, each party will, and will cause its subsidiaries and affiliates to, indemnify, defend and hold harmless the other party, its respective affiliates and subsidiaries and each of its respective officers, directors, employees and agents for any losses arising out of or otherwise in connection with the liabilities each such party assumed or retained pursuant to the Separation and Distribution Agreement; and any breach by such party of the Separation and Distribution Agreement.


18


Note 12 – Acquisitions

In January 2016, we completed the acquisition of the remaining 40% mandatorily redeemable noncontrolling interest in PIQ for NZD $27.8 million or $19.0 million. PIQ is included as a component of our Property Intelligence ("PI") reporting segment. As a result, we settled the mandatorily redeemable noncontrolling interest as of March 31, 2016.

In December 2015, we completed the acquisition of the remaining interest in RELS for approximately $65.0 million and recorded an investment gain of approximately $34.3 million due to the step-up in fair value on the previously held 50.1% interest, which is included in gain on investment and other, net in the accompanying consolidated statements of operations. RELS is included as a component of our PI reporting segment. The acquisition of RELS expands our real estate asset valuation and appraisal solutions in connection with loan originations. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. The purchase price allocation is subject to change based on our final determination of fair value in connection with intangible assets and working capital matters. We preliminarily recorded property and equipment of $27.0 million with an estimated average life of 10 years, customer lists of $48.4 million with an estimated average life of 10 years, other intangibles of $5.0 million with an estimated useful life of 10 years and goodwill of $23.1 million, of which $11.5 million is deductible for tax purposes. This business combination did not have a material impact on our consolidated financial statements.

In October 2015, we completed the acquisition of Cordell Information Pty Limited ("Cordell") for AUD$70.0 million, or $49.1 million, subject to working capital adjustments, which is included as a component of our PI reporting segment. The acquisition of Cordell further expands our property information capabilities in Australia. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservable inputs. The purchase price allocation is subject to change based on our final determination of fair value in connection with intangible assets and working capital matters. We preliminarily recorded property and equipment of $14.3 million with an estimated average life of 10 years, customer lists of $5.5 million with an estimated average life of 8 years, trade names of $0.6 million with an estimated useful life of 4 years and goodwill of $31.9 million, which is fully deductible for tax purposes. This business combination did not have a material impact on our consolidated financial statements.

In September 2015, we completed the acquisition of LandSafe Appraisal Services, Inc. for $122.0 million, subject to working capital adjustments, which is included as a component of our PI reporting segment. The acquisition builds on our longstanding strategic relationship with a key client and continues to expand our property valuation capabilities. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis, which included significant unobservables. The purchase price allocation is subject to change based on our final determination of fair value in connection with intangible assets and working capital matters. We preliminarily recorded customer lists of $53.4 million with an estimated average life of 10 years, other intangibles of $4.3 million with an estimated useful life of 10 years and goodwill of $64.6 million, which is fully deductible for tax purposes. This business combination did not have a material impact on our consolidated financial statements.

For the three months ended March 31, 2016 and 2015, we incurred $1.0 million and $0.1 million, respectively, of acquisition-related costs within selling, general and administrative expenses on our consolidated statements of operations.

Note 13 – Discontinued Operations

On September 30, 2014, we completed the sale of our collateral solutions and field services businesses, which were included in the former reporting segment Asset Management and Processing Solutions ("AMPS"), for total consideration of $29.1 million, subject to working capital adjustments. In September 2012, we completed the wind down of our consumer services business and our then-owned appraisal management company business which were included in our PI and Risk Management and Workflow ("RMW") segments, respectively. In September 2011, we closed our marketing services business which was included in our PI segment. Each of these businesses is reflected in our accompanying condensed consolidated financials statements as discontinued operations.


19


Summarized below are certain assets and liabilities classified as discontinued operations as of March 31, 2016 and December 31, 2015:

(in thousands)
 
 
 
 
 
 
 
 
As of March 31, 2016
 
PI
 
RMW
 
AMPS
 
Total
Deferred income tax asset and other current assets
 
$
326

 
$
(217
)
 
$
572

 
$
681

 
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other current liabilities
 
$
250

 
$
319

 
$
2,043

 
$
2,612

 
 
 
 
 
 
 
 
 
As of December 31, 2015
 
 
 
 
 
 
 
 
Deferred income tax asset and other current assets
 
$
326

 
$
(217
)
 
$
572

 
$
681

 
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other current liabilities
 
$
250

 
$
319

 
$
1,958

 
$
2,527


Summarized below are the components of our loss from discontinued operations for the three months ended March 31, 2016 and 2015:

(in thousands)
 

 

 
 
 
 
For the Three Months Ended March 31, 2016
 
PI
 
RMW
 
AMPS
 
Total
Operating revenue
 
$
—

 
$
—

 
$
—

 
$
—

Loss from discontinued operations before income taxes
 
—

 
—

 
(94
)
 
(94
)
Income tax benefit
 
—

 
—

 
(36
)
 
(36
)
Loss from discontinued operations, net of tax
 
$
—

 
$
—

 
$
(58
)
 
$
(58
)
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2015
 
 
 
 
 
 
 
 
Operating revenue
 
$
—

 
$
—

 
$
2

 
$
2

Loss from discontinued operations before income taxes
 
(85
)
 
(2
)
 
(94
)
 
(181
)
Income tax benefit
 
(33
)
 
(1
)
 
(36
)
 
(70
)
Loss from discontinued operations, net of tax
 
$
(52
)
 
$
(1
)
 
$
(58
)
 
$
(111
)
 
 
 
 
 
 
 
 
 
 
 

Note 14 – Segment Information

We have organized our reportable segments into two segments: PI and RMW.

Property Intelligence. Our PI segment owns or licenses real property information, mortgage information and consumer information, which includes loan information, property sales and characteristic information, property risk and replacement cost, natural hazard data, geospatial data, parcel maps and mortgage-backed securities information. We have also developed proprietary technology and software platforms to access, automate or track our data and assist our clients with compliance regulations. We deliver this information directly to our clients in a standard format over the web, through customizable software platforms or in bulk data form. Our products and services include data licensing and analytics, data-enabled advisory services, platform solutions and valuation solutions in North America, Western Europe and Asia Pacific. The segment's primary clients are commercial banks, mortgage lenders and brokers, investment banks, fixed-income investors, real estate agents, Multiple Listing Service ("MLS") companies, property and casualty insurance companies, title insurance companies, government agencies and government-sponsored enterprises.

The operating results of our PI segment included intercompany revenues of $1.2 million and $1.5 million for the three months ended March 31, 2016 and 2015, respectively, and included intercompany expenses of $1.7 million and $1.2 million for the three months ended March 31, 2016 and 2015, respectively.


20


Risk Management and Workflow. Our RMW segment owns or licenses real property information, mortgage information and consumer information, which includes loan information, property sales and characteristic information, natural hazard data, parcel maps, employment verification, criminal records and eviction records. We have also developed proprietary technology and software platforms to access, automate or track our data and assist our clients with compliance regulations. Our products and services include credit and screening solutions, property tax processing, flood data services and technology solutions in North America. The segment’s primary clients are large, national mortgage lenders and servicers, but we also serve regional mortgage lenders and brokers, credit unions, commercial banks, fixed-income investors, government agencies and casualty insurance companies.

The operating results of our RMW segment included intercompany revenues of $1.7 million and $1.2 million for the three months ended March 31, 2016 and 2015, respectively, and included intercompany expenses of $1.2 million and $1.5 million for the three months ended March 31, 2016 and 2015, respectively.

We also separately report on our corporate and eliminations. Corporate consists primarily of corporate personnel and other expenses associated with our corporate functions and facilities, investment gains and losses, equity in earnings of affiliates, net of tax, and interest expense.

It is impracticable to disclose revenues from external clients for each product and service offered.

21



Selected financial information by reportable segment is as follows:

(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2016
 
Operating Revenues
 
Depreciation and Amortization
 
Operating Income/(Loss)
 
Equity in Earnings/(Losses) of Affiliates, Net of Tax
 
Net Income/(Loss) From Continuing Operations
 
Capital Expenditures
PI
 
$
241,439

 
$
27,926

 
$
17,277

 
$
48

 
$
16,687

 
$
11,895

RMW
 
215,019

 
7,718

 
52,924

 
—

 
52,923

 
2,335

Corporate
 
(5
)
 
4,000

 
(12,890
)
 
(138
)
 
(42,072
)
 
4,601

Eliminations
 
(2,910
)
 
—

 
—

 
—

 
—

 
—

Consolidated (excluding discontinued operations)
 
$
453,543

 
$
39,644

 
$
57,311

 
$
(90
)
 
$
27,538

 
$
18,831

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2015
 
 

 
 

 
 
 
 
 
 

 
 

PI
 
$
153,393

 
$
24,192

 
$
19,619

 
$
6,141

 
$
25,666

 
$
15,025

RMW
 
214,011

 
8,241

 
50,965

 
—

 
50,943

 
3,346

Corporate
 
18

 
3,545

 
(21,319
)
 
(2,375
)
 
(47,111
)
 
4,270

Eliminations
 
(2,650
)
 
—

 
—

 
—

 
—

 
—

Consolidated (excluding discontinued operations)
 
$
364,772

 
$
35,978

 
$
49,265

 
$
3,766

 
$
29,498

 
$
22,641


(in thousands)
 
As of
 
As of
Assets
 
March 31, 2016
 
December 31, 2015
PI
 
$
2,023,717

 
$
2,058,412

RMW
 
1,330,014

 
1,316,785

Corporate
 
5,273,000

 
5,318,990

Eliminations
 
(5,020,767
)
 
(5,021,152
)
Consolidated (excluding assets of discontinued operations)
 
$
3,605,964

 
$
3,673,035


Note 15 - Guarantor Subsidiaries

As discussed in Note 6 - Long-Term Debt, the Notes are guaranteed on a senior unsecured basis by each of our existing and future direct and indirect subsidiaries that guarantee our Credit Agreement. These guarantees are required in support of the Notes, are coterminous with the terms of the Notes and would require performance upon certain events of default referred to in the respective guarantees. The indenture governing the Notes provides that the guarantees may be automatically and unconditionally released upon the following circumstances: 1) the guarantor is sold or sells all of its assets in compliance with the terms of the indenture; 2) the guarantor is released from its guarantee obligations under the Credit Agreement; 3) the guarantor is properly designated as an “unrestricted subsidiary;” or 4) the requirements for legal or covenant defeasance or satisfaction and discharge have been satisfied.

The maximum potential amounts that could be required to be paid under the guarantees are essentially equal to the outstanding principal and interest under the Notes. The following condensed consolidating financial information reflects the separate accounts of the Parent, the combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the combined consolidating adjustments and eliminations and the Parent's consolidated accounts for the dates and periods indicated.


22


 
 
Condensed Balance Sheet
 
 
As of March 31, 2016
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
78,600

 
$
19,702

 
$
34,802

 
$
—

 
$
133,104

Accounts receivable
 
—

 
215,710

 
29,400

 
—

 
245,110

Other current assets
 
55,028

 
38,534

 
4,817

 
—

 
98,379

Property and equipment, net
 
16,861

 
316,934

 
36,230

 
—

 
370,025

Goodwill, net
 
—

 
1,700,102

 
190,079

 
—

 
1,890,181

Other intangible assets, net
 
219

 
309,706

 
31,915

 
—

 
341,840

Capitalized data and database cost, net
 
—

 
259,097

 
72,285

 
—

 
331,382

Investments in affiliates, net
 
—

 
63,330

 
1,233

 
—

 
64,563

Deferred income tax assets, long-term
 
69,499

 
—

 
2,240

 
(59,284
)
 
12,455

Restricted cash
 
9,780

 
—

 
1,263

 
—

 
11,043

Investment in subsidiaries
 
2,550,226

 
—

 
—

 
(2,550,226
)
 
—

Intercompany receivable
 
146,818

 
363,317

 
—

 
(510,135
)
 
—

Other assets
 
74,522

 
32,632

 
1,409

 
—

 
108,563

Total assets
 
$
3,001,553

 
$
3,319,064

 
$
405,673

 
$
(3,119,645
)
 
$
3,606,645

 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$
132,628

 
$
403,752

 
$
49,410

 
$
—

 
$
585,790

Long-term debt, net of current
 
1,277,422

 
1,519

 
—

 
—

 
1,278,941

Deferred revenue, net of current
 
—

 
452,286

 
163

 
—

 
452,449

Deferred income taxes, long term
 
—

 
60,557

 
24,035

 
(59,284
)
 
25,308

Intercompany payable
 
363,317

 
22,325

 
124,493

 
(510,135
)
 
—

Other liabilities
 
133,272

 
34,149

 
1,822

 
—

 
169,243

Total CoreLogic stockholders' equity
 
1,094,914

 
2,344,476

 
205,750

 
(2,550,226
)
 
1,094,914

Total liabilities and equity
 
$
3,001,553

 
$
3,319,064

 
$
405,673

 
$
(3,119,645
)
 
$
3,606,645


23



 
 
Condensed Balance Sheet
 
 
As of December 31, 2015
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
28,259

 
$
33,186

 
$
37,645

 
$
—

 
$
99,090

Accounts receivable
 
—

 
211,943

 
29,045

 
—

 
240,988

Other current assets
 
80,110

 
117,008

 
5,070

 
—

 
202,188

Property and equipment, net
 
17,806

 
322,109

 
35,739

 
—

 
375,654

Goodwill, net
 
—

 
1,700,102

 
181,445

 
—

 
1,881,547

Other intangible assets, net
 
233

 
319,756

 
32,159

 
—

 
352,148

Capitalized data and database cost, net
 
—

 
258,425

 
69,416

 
—

 
327,841

Investments in affiliates, net
 
—

 
68,112

 
1,093

 
—

 
69,205

Deferred income tax assets, long-term
 
51,763

 
—

 
2,219

 
(51,763
)
 
2,219

Restricted cash
 
9,777

 
—

 
1,149

 
—

 
10,926

Investment in subsidiaries
 
2,539,614

 
—

 
—

 
(2,539,614
)
 
—

Intercompany receivable
 
128,222

 
329,847

 
—

 
(458,069
)
 
—

Other assets
 
102,148

 
8,420

 
1,342

 
—

 
111,910

Total assets
 
$
2,957,932

 
$
3,368,908

 
$
396,322

 
$
(3,049,446
)
 
$
3,673,716

 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$
136,863

 
$
410,538

 
$
67,075

 
$
—

 
$
614,476

Long-term debt, net of current
 
1,313,895

 
(25,718
)
 
—

 
—

 
1,288,177

Deferred revenue, net of current
 
—

 
448,654

 
165

 
—

 
448,819

Deferred income taxes, long term
 
—

 
132,228

 
26,784

 
(51,763
)
 
107,249

Intercompany payable
 
329,847

 
22,325

 
105,897

 
(458,069
)
 
—

Other liabilities
 
127,837

 
35,982

 
1,686

 
—

 
165,505

Total CoreLogic stockholders' equity
 
1,049,490

 
2,344,899

 
194,715

 
(2,539,614
)
 
1,049,490

Total liabilities and equity
 
$
2,957,932

 
$
3,368,908

 
$
396,322

 
$
(3,049,446
)
 
$
3,673,716



24


 
 
Condensed Statement of Operations
 
 
For