Attached files

file filename
EX-32.2 - EXHIBIT 32.2 - CORELOGIC, INC.clgx-63017xex32210q.htm
EX-32.1 - EXHIBIT 32.1 - CORELOGIC, INC.clgx-63017xex32110q.htm
EX-31.2 - EXHIBIT 31.2 - CORELOGIC, INC.clgx-63017xex31210q.htm
EX-31.1 - EXHIBIT 31.1 - CORELOGIC, INC.clgx-63017xex31110q.htm
EX-10.1 - EXHIBIT 10.1 - CORELOGIC, INC.clgx-63017xex10110q.htm


 

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 June 30, 2017

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,” “smaller reporting company,” and "emerging growth 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
 
 
Emerging growth company
o

o If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 July 21, 2017 there were 84,308,696 shares of common stock outstanding.




CoreLogic, Inc.
Table of Contents
 
 
Part  I:
Financial Information
 
 
 
Item 1.
Financial Statements (unaudited)
 
 
 
 
 
A. Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016
 
 
 
 
B. Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016
 
 
 
 
C. Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016
 
 
 
 
D. Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016
 
 
 
 
E. Condensed Consolidated Statement of Stockholder's Equity for the six months ended June 30, 2017
 
 
 
 
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)
June 30,

December 31,
Assets
2017

2016
Current assets:
 
 
 
Cash and cash equivalents
$
89,422

 
$
72,031

Accounts receivable (less allowance for doubtful accounts of $7,913 and $8,857 as of June 30, 2017 and December 31, 2016, respectively)
270,636

 
269,229

Prepaid expenses and other current assets
51,849

 
43,060

Income tax receivable
20,971

 
6,905

Assets of discontinued operations
806

 
662

Total current assets
433,684

 
391,887

Property and equipment, net
433,393

 
449,199

Goodwill, net
2,112,692

 
2,107,255

Other intangible assets, net
453,171

 
478,913

Capitalized data and database costs, net
331,803

 
327,921

Investment in affiliates, net
103,460

 
40,809

Deferred income tax assets, long-term
1,382

 
1,516

Restricted cash
17,435

 
17,943

Other assets
90,084

 
92,091

Total assets
$
3,977,104

 
$
3,907,534

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
144,902

 
$
168,284

Accrued salaries and benefits
61,453

 
107,234

Deferred revenue, current
298,138

 
284,622

Current portion of long-term debt
140,018

 
105,158

Liabilities of discontinued operations
1,982

 
3,123

Total current liabilities
646,493

 
668,421

Long-term debt, net of current
1,501,048

 
1,496,889

Deferred revenue, net of current
498,292

 
487,134

Deferred income tax liabilities, long term
123,106

 
120,063

Other liabilities
157,522

 
132,043

Total liabilities
2,926,461

 
2,904,550

 
 
 
 
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; 84,303 and 84,368 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively
1

 
1

Additional paid-in capital
371,525

 
400,452

Retained earnings
781,647

 
724,949

Accumulated other comprehensive loss
(102,530
)
 
(122,418
)
Total stockholders' equity
1,050,643

 
1,002,984

Total liabilities and equity
$
3,977,104

 
$
3,907,534

 
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
 
For the Six Months Ended
 
June 30,
 
June 30,
(in thousands, except per share amounts)
2017

2016
 
2017
 
2016
Operating revenues
$
473,978

 
$
500,204

 
$
913,829

 
$
953,747

Cost of services (excluding depreciation and amortization shown below)
249,162

 
264,731

 
501,128

 
510,110

Selling, general and administrative expenses
103,552

 
115,784

 
215,400

 
226,081

Depreciation and amortization
42,871

 
43,291

 
86,343

 
82,935

Total operating expenses
395,585


423,806

 
802,871

 
819,126

Operating income
78,393


76,398

 
110,958

 
134,621

Interest expense:
 


 

 
 

 
 

Interest income
592

 
557

 
930

 
1,186

Interest expense
14,535

 
19,030

 
28,666

 
33,954

Total interest expense, net
(13,943
)

(18,473
)
 
(27,736
)
 
(32,768
)
(Loss)/gain on investments and other, net
(4,353
)
 
2,704

 
(3,418
)
 
2,184

Income from continuing operations before equity in (losses)/earnings of affiliates and income taxes
60,097


60,629

 
79,804

 
104,037

Provision for income taxes
18,635

 
20,283

 
24,909

 
36,062

Income from continuing operations before equity in (losses)/earnings of affiliates
41,462


40,346

 
54,895

 
67,975

Equity in (losses)/earnings of affiliates, net of tax
(280
)
 
78

 
(1,004
)

(11
)
Net income from continuing operations
41,182


40,424

 
53,891

 
67,964

Gain/(loss) from discontinued operations, net of tax
78

 
(4
)
 
2,495

 
(62
)
Gain from sale of discontinued operations, net of tax

 

 
312

 

Net income
$
41,260


$
40,420

 
$
56,698

 
$
67,902

Basic income per share:





 
 
 
 
Net income from continuing operations
$
0.49


$
0.46

 
$
0.64

 
$
0.77

Gain/(loss) from discontinued operations, net of tax



 
0.03

 

Gain from sale of discontinued operations, net of tax



 

 

Net income
$
0.49

 
$
0.46

 
$
0.67

 
$
0.77

Diluted income per share:
 


 

 
 

 
 

Net income from continuing operations
$
0.48


$
0.45

 
$
0.63

 
$
0.76

Gain/(loss) from discontinued operations, net of tax



 
0.03

 

Gain from sale of discontinued operations, net of tax



 

 

Net income
$
0.48

 
$
0.45

 
$
0.66

 
$
0.76

Weighted-average common shares outstanding:
 


 

 
 

 
 

Basic
84,548


88,572

 
84,490

 
88,441

Diluted
86,097


89,968

 
86,224

 
89,947


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
 
For the Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2017
 
2016
 
2017
 
2016
Net income
$
41,260

 
$
40,420

 
$
56,698

 
$
67,902

Other comprehensive income/(loss)
 

 
 

 
 

 
 

Market value adjustments to marketable securities, net of tax

 
(480
)
 

 
(86
)
Market value adjustments on interest rate swaps, net of tax
50

 
(439
)
 
1,580

 
(3,038
)
Foreign currency translation adjustments
3,135

 
(6,285
)
 
16,683

 
5,309

Supplemental benefit plans adjustments, net of tax
1,731

 
(107
)
 
1,625

 
(213
)
Total other comprehensive income/(loss)
4,916

 
(7,311
)
 
19,888

 
1,972

Comprehensive income
$
46,176

 
$
33,109

 
$
76,586

 
$
69,874

 
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 Six Months Ended

June 30,
(in thousands)
2017
 
2016
Cash flows from operating activities:
 
 
 
Net income
$
56,698

 
$
67,902

Less: Income/(loss) from discontinued operations, net of tax
2,495

 
(62
)
Less: Gain from sale of discontinued operations, net of tax
312

 

Net income from continuing operations
53,891

 
67,964

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

 
 

Depreciation and amortization
86,343

 
82,935

Amortization of debt issuance costs
2,870

 
2,966

Provision for bad debt and claim losses
7,939

 
6,927

Share-based compensation
20,939

 
19,318

Excess tax benefit related to stock options

 
(1,816
)
Equity in losses of affiliates, net of taxes
1,004

 
11

Gain on sale of property and equipment
(231
)
 
(16
)
Deferred income tax
6,193

 
9,048

Loss/(gain) on investments and other, net
3,418

 
(2,184
)
Change in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable
(2,070
)
 
(20,473
)
Prepaid expenses and other current assets
(4,161
)
 
(18,126
)
Accounts payable and accrued expenses
(74,371
)
 
(21,620
)
Deferred revenue
24,675

 
22,147

Income taxes
(13,445
)
 
27,461

Dividends received from investments in affiliates
1,097

 
6,921

Other assets and other liabilities
22,357

 
(8,135
)
Net cash provided by operating activities - continuing operations
136,448

 
173,328

Net cash provided by/(used in) operating activities - discontinued operations
3,663

 
(84
)
Total cash provided by operating activities
$
140,111

 
$
173,244

Cash flows from investing activities:
 

 
 

Purchase of subsidiary shares from noncontrolling interests
$

 
$
(18,023
)
Purchases of property and equipment
(20,237
)
 
(27,858
)
Purchases of capitalized data and other intangible assets
(17,202
)
 
(17,927
)
Cash paid for acquisitions, net of cash acquired

 
(396,816
)
Purchases of investments
(70,000
)
 
(615
)
Proceeds from sale of property and equipment
304

 
16

Change in restricted cash
508

 
(83
)
Net cash used in investing activities - continuing operations
(106,627
)
 
(461,306
)
Net cash provided by investing activities - discontinued operations

 

Total cash used in investing activities
$
(106,627
)
 
$
(461,306
)
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt
$
70,000

 
$
390,000

Repayment of long-term debt
(35,234
)
 
(101,665
)
Proceeds from issuance of shares in connection with share-based compensation
4,504

 
9,801

Payment of tax withholdings related to net share settlements
(13,420
)
 
(9,098
)
Shares repurchased and retired
(40,950
)
 
(29,126
)
Excess tax benefit related to stock options

 
1,816

Net cash (used in)/provided by financing activities - continuing operations
(15,100
)
 
261,728

Net cash provided by financing activities - discontinued operations

 

Total cash (used in)/provided by financing activities
$
(15,100
)
 
$
261,728

Effect of exchange rate on cash
(993
)
 
(389
)
Net change in cash and cash equivalents
17,391

 
(26,723
)
Cash and cash equivalents at beginning of period
72,031

 
99,090

Less: Change in cash and cash equivalents - discontinued operations
3,663

 
(84
)
Plus: Cash swept from/(to) discontinued operations
3,663

 
(84
)
Cash and cash equivalents at end of period
$
89,422

 
$
72,367



 

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
24,076

 
$
31,180

Cash paid for income taxes
$
35,009

 
$
3,438

Cash refunds from income taxes
$
507

 
$
415

Non-cash investing activities:
 
 
 
Capital expenditures included in accounts payable and accrued liabilities
$
5,304

 
$
3,775


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

4



CoreLogic, Inc.
Condensed Consolidated Statement of Stockholder's 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, 2016
84,368

 
$
1

 
$
400,452

 
$
724,949

 
$
(122,418
)
 
$
1,002,984

Net income

 

 

 
56,698

 

 
56,698

Shares issued in connection with share-based compensation
935

 

 
4,504

 

 

 
4,504

Payment of tax withholdings related to net share settlements

 

 
(13,420
)
 

 

 
(13,420
)
Share-based compensation

 

 
20,939

 

 

 
20,939

Shares repurchased and retired
(1,000
)
 

 
(40,950
)
 

 

 
(40,950
)
Other comprehensive income

 

 

 

 
19,888

 
19,888

Balance as of June 30, 2017
84,303

 
$
1

 
$
371,525

 
$
781,647

 
$
(102,530
)
 
$
1,050,643


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, insight, analytics and data-enabled solutions 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, 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 solutions. Clients rely on us to help identify and manage growth opportunities, improve performance and mitigate risk.

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 2016 year-end condensed consolidated balance sheet was derived from the Company's audited financial statements for the year ended December 31, 2016. 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, 2016.

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 41% and 43% of our operating revenues for the three and six months ended June 30, 2017 and 2016, respectively, were generated from our top ten clients, who consist of the largest U.S. mortgage originators and servicers. Two of our clients accounted for approximately 14% and 10% of our operating revenues for the three months ended June 30, 2017 and 15% and 11% of our operating revenues for the three months ended June 30, 2016. Two of our clients accounted for approximately 13% and 10% of our operating revenues for the six months ended June 30, 2017 and 14% and 12% of our operating revenues for the six months ended June 30, 2016.

Classification Correction

During the second quarter of 2017, we identified a balance sheet misclassification related to certain liability balances, which overstated our accounts payable and accrued expenses and understated other liabilities by approximately $32.0 million as of December 31, 2016. We corrected the balance sheet misclassification error on a prospective basis during the second quarter of 2017 as we determined the error was not material to the current financial condition or 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/(loss).


6



The following table shows the components of accumulated other comprehensive loss, net of taxes as of June 30, 2017 and December 31, 2016:

 
2017
 
2016
Cumulative foreign currency translation
$
(101,387
)
 
$
(118,071
)
Cumulative supplemental benefit plans
(4,642
)
 
(6,267
)
Net unrecognized gains on interest rate swaps
3,499

 
1,920

Accumulated other comprehensive loss
$
(102,530
)
 
$
(122,418
)

Investment in Affiliates

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 impairments, capital contributions and loans from us, plus our equity in undistributed earnings or losses since inception of the investment.

We recorded equity in losses of affiliates, net of tax of $0.3 million and equity in earnings of affiliates, net of tax of $0.1 million for the three months ended June 30, 2017 and 2016, respectively, and equity in losses of affiliates, net of tax of $1.0 million and less than $0.1 million for the six months ended June 30, 2017 and 2016, respectively. For the three months ended June 30, 2017 and 2016, we recorded $1.9 million and $2.7 million, respectively, of operating revenues and $2.9 million for both the three months ended June 30, 2017 and 2016, of operating expenses related to our investment in affiliates. For the six months ended June 30, 2017 and 2016, we recorded $4.1 million and $5.2 million, respectively, of operating revenues and $5.7 million and $5.5 million, respectively, of operating expenses related to our investment in affiliates.

In June 2017, we acquired a 45.0% interest in Mercury Network, LLC ("Mercury") for $70.0 million, which included a call option to purchase the remaining 55.0% interest within the next nine-month period. This investment rolls into our Property Information ("PI") segment. We fair-valued the call option using the Black-Scholes model and preliminarily recorded $4.6 million. See Note 8 - Fair Value of Financial Instruments for further discussion. The purchase of the remaining 55.0% ownership of Mercury Network is expected to close in the third quarter of 2017, subject to customary closing conditions. Mercury is a technology company servicing small and medium-sized mortgage lenders and appraisal management companies to manage their collateral valuation operations. As Mercury's stand-alone financial statements reflect a net deficient equity position, we preliminarily recorded $87.0 million of basis difference between the purchase price and our interest in the net assets of Mercury, which is comprised of an indefinite-lived component of $57.7 million and a finite-lived component of $29.3 million with an estimated weighted-average life of 15 years.

Tax Escrow Disbursement Arrangements

We administer tax escrow disbursements as a service to our clients in connection with our property tax processing solutions. These deposits are maintained in segregated accounts for the benefit of our clients. Tax escrow deposits totaled $1.0 billion as of June 30, 2017 and $619.4 million as of December 31, 2016. 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. We earn interest income or earnings credits from these deposits and bear the cost of bank-related fees.

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 $21.1 million and $22.2 million as of June 30, 2017 and December 31, 2016, respectively, which is reflected in our accompanying condensed consolidated balance sheets as a component of other liabilities.

Pension Plan Buyout

We currently offer a variety of employee benefit plans, including a defined benefit pension plan incorporated with the acquisition of RELS (the "RELS Pension Plan"). The RELS Pension Plan offers participants annuity payments based on a number of factors and will offer an alternative lump sum distribution to certain participants. In October 2016, RELS voted to terminate the RELS Pension Plan effective October 31, 2016.

7




In June 2017, we made a contribution of $13.5 million to settle the defined benefit pension plan incorporated with the acquisition of RELS. We recorded a loss of $6.1 million within (loss)/gain on investments and other, net in our condensed consolidated statement of operations and cleared the corresponding RELS Pension Plan liability of $9.2 million and corresponding accumulated other comprehensive loss of $1.8 million within our condensed consolidated balance sheets and condensed consolidated statements of comprehensive income.

Recent Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board (“FASB”), issued guidance to amend the terms or conditions to apply modification accounting for share-based payment awards. The amendment clarifies that modification accounting will be applied if the value, vesting conditions or classification of the award changes. An entity must disclose that compensation expense hasn’t changed, if that is the case. The guidance is effective prospectively in fiscal years beginning after December 15, 2017. Early adoption is permitted and we elected early adoption of this guidance which did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued updated guidance on revenue recognition in order to i) remove inconsistencies in revenue requirements, ii) provide a better framework for addressing revenue issues, iii) improve comparability across entities, industries, jurisdictions, and capital markets, iv) provide more useful information through improved disclosures, and v) simplify the preparation of financial statements by reducing the number of requirements to which an entity must refer. Under the amendment, an entity should recognize revenue to depict the transfer of promised goods or services to clients in the amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting treatment for the incremental costs of obtaining a contract, which would not have been incurred had the contract not been obtained. Further, an entity is required to disclose sufficient information to enable the user of the financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows from contracts with clients. The updated guidance provides two methods of adoption: i) retrospective application to each prior reporting period presented, or ii) recognition of the cumulative effect from the retrospective application at the date of initial application. We elected the modified retrospective approach. As updated by FASB in August 2015, the guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Earlier adoption was permitted for annual reporting periods beginning after December 15, 2016 but we did not elect early adoption.

We believe our notes to the consolidated financial statements related to revenue recognition will be significantly expanded and are still assessing the quantitative impact to our consolidated financial statements. Also, we are in process of implementing changes to accounting policies, business processes, contract-management processes, systems and financial controls to support the new accounting and disclosure requirements. Once our evaluation is complete, we will disclose the quantitative impact of adopting the updated guidance.

Note 2 - Property, Equipment and Software Net

Property and equipment, net as of June 30, 2017 and December 31, 2016 consists of the following:

(in thousands)
2017
 
2016
Land
$
7,476

 
$
7,476

Buildings
6,487

 
6,293

Furniture and equipment
63,881

 
61,582

Capitalized software
884,880

 
866,398

Leasehold improvements
40,847

 
29,420

Construction in progress
1,322

 
20,613

 
1,004,893

 
991,782

Less accumulated depreciation
(571,500
)
 
(542,583
)
Property and equipment, net
$
433,393

 
$
449,199


Depreciation expense for property and equipment was approximately $20.1 million and $21.4 million for the three months ended June 30, 2017 and 2016, respectively, and $40.7 million and $40.6 million for the six months ended June 30, 2017 and 2016, respectively.

8




Note 3 – 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 six months ended June 30, 2017, is as follows:
 
(in thousands)
PI
 
RMW
 
Consolidated
Balance as of January 1, 2017
 
 
 
 
 
Goodwill
$
1,189,388

 
$
925,392

 
$
2,114,780

Accumulated impairment losses
(600
)
 
(6,925
)
 
(7,525
)
Goodwill, net
1,188,788

 
918,467

 
2,107,255

Acquisitions
(5,681
)
 

 
(5,681
)
Translation adjustments
11,118

 

 
11,118

Balance as of June 30, 2017
 
 
 
 
 
Goodwill, net
$
1,194,225

 
$
918,467

 
$
2,112,692


For the six months ended June 30, 2017, we recorded an adjustment of $5.4 million to goodwill within our Property Intelligence ("PI") reporting unit related to the finalization of our FNC, Inc. ("FNC") acquisition purchase price allocation. See Note 11 - Acquisitions for additional information. Additionally, we recorded an adjustment of $0.2 million to goodwill within our PI reporting unit related to another acquisition that was not significant.

Note 4 – Other Intangible Assets, Net

Other intangible assets, net consist of the following:
 
 
June 30, 2017
 
December 31, 2016
(in thousands)
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Client lists
$
643,645

 
$
(280,449
)
 
$
363,196

 
$
637,053

 
$
(257,787
)
 
$
379,266

Non-compete agreements
28,112

 
(13,332
)
 
14,780

 
28,106

 
(11,136
)
 
16,970

Trade names and licenses
118,854

 
(43,659
)
 
75,195

 
121,086

 
(38,409
)
 
82,677

 
$
790,611

 
$
(337,440
)
 
$
453,171

 
$
786,245

 
$
(307,332
)
 
$
478,913


Amortization expense for other intangible assets, net was $13.9 million and $13.2 million for the three months ended June 30, 2017 and 2016, respectively, and $27.9 million and $24.9 million for the six months ended June 30, 2017 and 2016, respectively.

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

(in thousands)
 
Remainder of 2017
$
27,890

2018
55,119

2019
52,692

2020
50,490

2021
47,342

Thereafter
219,638

 
$
453,171



9



Note 5 – Long-Term Debt

Our long-term debt consists of the following:

 
 
June 30, 2017
 
December 31, 2016
(in thousands)
Gross
 
Debt Issuance Costs
 
Net
 
Gross
 
Debt Issuance Costs
 
Net
Bank debt:
 
 
 
 
 
 
 
 
 
 


 
Term loan facility borrowings due April 2020, weighted-average interest rate of 2.76% and 2.31% as of June 30, 2017 and December 31, 2016, respectively
$
1,263,750

 
$
(10,329
)
 
$
1,253,421

 
$
1,298,125

 
$
(12,419
)
 
$
1,285,706

 
Revolving line of credit borrowings due April 2020, weighted-average interest rate of 2.76% and 2.31% as of June 30, 2017 and December 31, 2016, respectively
372,000

 
(3,981
)
 
368,019

 
302,000

 
(4,761
)
 
297,239

Notes:
 

 
 

 
 
 
 

 
 

 
 
 
7.55% senior debentures due April 2028
14,645

 
(50
)
 
14,595

 
14,645

 
(52
)
 
14,593

Other debt:
 

 
 

 
 
 
 

 
 

 


 
Various debt instruments with maturities through 2020
5,031

 

 
5,031

 
4,509

 

 
4,509

Total long-term debt
1,655,426


(14,360
)
 
1,641,066

 
1,619,279


(17,232
)
 
1,602,047

Less current portion of long-term debt
140,018

 

 
140,018

 
105,158

 

 
105,158

Long-term debt, net of current portion
$
1,515,408

 
$
(14,360
)
 
$
1,501,048

 
$
1,514,121


$
(17,232
)

$
1,496,889


As of June 30, 2017 and December 31, 2016, we have recorded $0.6 million and $0.8 million of accrued interest expense, respectively, on our debt-related instruments.

Credit Agreement

In July 2016, we amended and restated our senior secured credit facility, dated as of April 21, 2015 (the "Credit Agreement") with Bank of America, N.A., as administrative agent, and other financial institutions. The Credit Agreement provides for a $1.3 billion term loan facility (the "Term Facility") and a $550.0 million revolving credit facility (the "Revolving Facility"). The Term Facility matures and the Revolving Facility expires in April 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 request that the lenders increase the Term Facility by up to $225.0 million in the aggregate; however, the lenders are not obligated to do so. As of June 30, 2017, we had borrowing capacity under the Revolving Facility of $178.0 million and we were in compliance with all of our covenants under the Credit Agreement.

7.55% Senior Debentures

In April 1998, we issued $100.0 million in aggregate principal amount of 7.55% senior debentures due 2028. The indentures governing these debentures, as amended, contain limited restrictions on the Company.

Interest Rate Swaps

We have entered into amortizing interest rate swaps ("Swaps") in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. In June 2017, we entered into Swaps which become effective in March 2018 and terminate in March 2021. The Swaps entered in June 2017 are for an initial notional balance of $275.0 million, with a notional step up of $200.0 million in March 2019 and a fixed interest rate of 1.83%. In August 2016, we entered into Swaps which became effective in September 2016 and terminate in April 2020. The Swaps entered in August 2016 are for an initial notional balance of $500.0 million, with a fixed interest rate of 1.03%, and amortize quarterly by $25.0 million through December 2018, with a notional step up of $100.0 million in March 2019, continued quarterly amortization of $25.0 million through April 2020, and a remaining notional amount of $275.0 million. In May 2014, we entered into Swaps which became effective in December 2014 and terminate in March 2019. The Swaps entered in May

10



2014 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.

We have designated the Swaps as cash flow hedges. The estimated fair value of these cash flow hedges is recorded in other assets and/or other liabilities in the accompanying condensed consolidated balance sheets. The estimated fair value of these cash flow hedges resulted in an asset of $6.3 million and a liability of $0.6 million as of June 30, 2017. We recorded an asset of $5.4 million and a liability of $2.3 million as of December 31, 2016.

Unrealized gains of $0.1 million (net of less than $0.1 million in deferred taxes) and unrealized losses of $0.4 million (net of $0.3 million in deferred taxes) for the three months ended June 30, 2017 and 2016, respectively, and unrealized gains of $1.6 million (net of $1.0 million in deferred taxes) and unrealized losses of $3.0 million (net of $1.9 million in deferred taxes for the six months ended June 30, 2017 and 2016, respectively, were recognized in other comprehensive income/(loss) related to the Swaps.

Note 6 – Income Taxes

The effective income tax rate for income taxes as a percentage of income from continuing operations before equity in losses of affiliates and income taxes was 31.0% and 33.5% for the three months ended June 30, 2017 and 2016, respectively, and 31.2% and 34.7% for the six months ended June 30, 2017 and 2016, respectively.

For the three months ended June 30, 2017, when compared to 2016, the decrease in the effective income tax rate was primarily attributable to favorable tax benefits due to nonrecurring favorable adjustments related to prior year foreign deferred taxes, partially offset by nonrecurring prior year favorable release of reserves for foreign uncertain tax benefits.

For the six months ended June 30, 2017 when compared to 2016, the decrease in the effective tax rate was primarily attributable to favorable tax benefits related to the adoption of the stock based compensation accounting guidance and state tax benefit due to closure of the IRS exam for 2006-2009, partially offset by a nonrecurring prior year favorable release of reserves for foreign uncertain tax benefits.

Income taxes included in equity in losses of affiliates were a benefit of $0.2 million and expense of $0.3 million for the three months ended June 30, 2017 and 2016, respectively, and a benefit of $0.6 million and expense of $0.4 million for the six months ended June 30, 2017 and 2016, 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 2006-2011, by the US, our primary taxing jurisdiction, and various taxing authorities. It is reasonably possible the amount of the unrecognized benefits with respect to unrecognized tax positions could change within the next twelve months. The portion of uncertain tax benefits that are not subject to the First American Financial Corporation (“FAFC”) indemnification could significantly increase or decrease and have an impact on net income. The FAFC indemnification could change by up to $14.0 million due to statutory requirements and would have no impact on net income.


11



Note 7 – Earnings Per Share
 
The following is a reconciliation of net income per share:
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
(in thousands, except per share amounts)
 
 
 
 
 
 
 
Numerator for basic and diluted net income per share:
 
 
 
 
 
 
 
Net income from continuing operations
$
41,182

 
$
40,424

 
$
53,891

 
$
67,964

Gain/(loss) from discontinued operations, net of tax
78

 
(4
)
 
2,495

 
(62
)
Gain from sale of discontinued operations, net of tax

 

 
312

 

Net income attributable to CoreLogic
$
41,260

 
$
40,420

 
$
56,698

 
$
67,902

Denominator:
 

 
 

 
 

 
 

Weighted-average shares for basic income per share
84,548

 
88,572

 
84,490

 
88,441

Dilutive effect of stock options and restricted stock units
1,549

 
1,396

 
1,734

 
1,506

Weighted-average shares for diluted income per share
86,097

 
89,968

 
86,224

 
89,947

Income per share
 

 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

Net income from continuing operations
$
0.49

 
$
0.46

 
$
0.64

 
$
0.77

Gain/(loss) from discontinued operations, net of tax

 

 
0.03

 

Gain from sale of discontinued operations, net of tax



 

 

Net income attributable to CoreLogic
$
0.49

 
$
0.46

 
$
0.67

 
$
0.77

Diluted:
 

 
 
 
 
 
 
Net income from continuing operations
$
0.48

 
$
0.45

 
$
0.63

 
$
0.76

Gain/(loss) from discontinued operations, net of tax

 

 
0.03

 

Gain from sale of discontinued operations, net of tax



 

 

Net income attributable to CoreLogic
$
0.48

 
$
0.45

 
$
0.66

 
$
0.76


The dilutive effect of stock-based compensation awards has been calculated using the treasury-stock method. For the three months ended June 30, 2017 and 2016, an aggregate of less than 0.1 million restricted stock units ("RSUs") and an aggregate of less than 0.1 million RSUs, performance-based restricted stock units ("PBRSUs") and stock options, respectively, were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect. For the six months ended June 30, 2017 and 2016, an aggregate of less than 0.1 million RSUs and an aggregate of less than 0.1 million RSUs, PBRSUs, and stock options, respectively, were excluded from the weighted-average diluted common shares outstanding due to their anti-dilutive effect.
 
Note 8 – 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 active markets for similar assets and liabilities, or, quoted prices in markets that are not active.

12




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, 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 secured by us and escrow accounts due to acquisitions and divestitures. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.

Call Option

The call option was estimated using the Black-Scholes model, which relies on significant assumption and estimates including discount rates and future market conditions, among others. We have recorded the call option within our prepaid expenses and other current assets in our condensed consolidated balance sheets.

Long-term debt

The fair value of 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.

Swaps

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

The fair values of our financial instruments as of June 30, 2017 are presented in the following table:

 
Fair Value Measurements Using
 
 
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
89,422

 
$

 
$

 
$
89,422

Restricted cash

 
17,435

 

 
17,435

Call option

 

 
4,628

 
4,628

Total Financial Assets
$
89,422

 
$
17,435

 
$
4,628

 
$
111,485

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
Total debt
$

 
$
1,659,268

 
$

 
$
1,659,268

 
 
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
 
Asset for swap
$

 
$
6,268

 
$

 
$
6,268

Liability for swap
$

 
$
601

 
$

 
$
601



13



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

 
Fair Value Measurements Using
 
 
(in thousands)
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
Cash and cash equivalents
$
72,031

 
$

 
$

 
$
72,031

Restricted cash

 
17,943

 

 
17,943

Total Financial Assets
$
72,031

 
$
17,943

 
$

 
$
89,974

 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
Total debt
$

 
$
1,622,811

 
$

 
$
1,622,811

 
 
 
 
 
 
 
 
Swaps:
 
 
 
 
 
 
 
Asset for swap
$

 
$
5,392

 
$

 
$
5,392

Liability for swap
$

 
$
2,283

 
$

 
$
2,283


There were no transfers between Level 1, Level 2 or Level 3 securities during the three and six months ended June 30, 2017.

Note 9 – 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, and a subsequent technical amendment by the Board in December 2016 (the “Plan”). The Plan includes the ability to grant RSUs, PBRSUs and stock options. Prior to the approval of the Plan, we issued share-based awards under the CoreLogic, Inc. 2006 Incentive Plan. The Plan provides for up to 21,909,000 shares of the Company's common stock to be available for award grants.

We primarily utilize 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.

Restricted Stock Units

For the six months ended June 30, 2017 and 2016, we awarded 646,774 and 942,973 RSUs, respectively, with an estimated grant-date fair value of $25.7 million and $32.7 million, respectively. The RSU awards will vest ratably over three years from their grant date.

RSU activity for the six months ended June 30, 2017 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, 2016
1,555

 
$
34.14

RSUs granted
647

 
$
39.76

RSUs vested
(840
)
 
$
34.24

RSUs forfeited
(40
)
 
$
35.60

Unvested RSUs outstanding at June 30, 2017
1,322

 
$
36.97



14



As of June 30, 2017, there was $38.3 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.1 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 six months ended June 30, 2017 and 2016, we awarded 288,331 and 278,799 PBRSUs, respectively, with an estimated grant-date fair value of $11.5 million and $9.8 million, respectively. These awards are subject to service-based, performance-based and market-based vesting conditions. For PBRSUs awarded during the six months ended June 30, 2017, the performance period is from January 1, 2017 to December 31, 2019 and the performance metrics are adjusted earnings per share and market-based conditions. Subject to satisfaction of the performance criteria, the 2017 awards will vest on December 31, 2019.

The performance period for the PBRSUs awarded during the six months ended June 30, 2016 is from January 1, 2016 to December 31, 2018 and the performance metrics are adjusted earnings per share and market-based conditions. Subject to satisfaction of the performance criteria, the 2016 awards will vest on December 31, 2018.

The fair values of the 2017 and 2016 awards were estimated using Monte-Carlo simulation with the following weighted-average assumptions:

 
For the Six Months Ended June 30,
 
2017
 
2016
 
 
 
 
Expected dividend yield
%
 
 %
Risk-free interest rate (1)
1.47
%
 
0.99
 %
Expected volatility (2)
27.83
%
 
25.12
 %
Average total stockholder return (2)
1.46
%
 
(1.23
)%

(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 are measures of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data.

PBRSU activity for the six months ended June 30, 2017 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, 2016
738

 
$
34.13

PBRSUs granted
288

 
$
39.79

PBRSUs vested
(227
)
 
$
31.90

PBRSUs forfeited
(121
)
 
$
36.72

Unvested PBRSUs outstanding at June 30, 2017
678

 
$
36.62


As of June 30, 2017, there was $12.7 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 1.9 years. The fair value of PBRSUs is based on the market value of our common stock on the date of grant.


15



Stock Options

Prior to 2015, we issued stock options as incentive compensation for certain employees. Option activity for the six months ended June 30, 2017 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, 2016
1,504

 
$
21.22

 
 
 
 
Options exercised
(195
)
 
$
24.84

 
 
 
 
Options outstanding at June 30, 2017
1,309

 
$
20.68

 
3.0
 
$
29,724

Options vested and expected to vest at June 30, 2017
1,309

 
$
20.68

 
3.0
 
$
29,724

Options exercisable at June 30, 2017
1,309

 
$
20.68

 
3.0
 
$
29,724


As of June 30, 2017, there was no unrecognized compensation cost related to unvested stock options.

The intrinsic value of options exercised was $2.8 million and $3.2 million for the six months ended June 30, 2017 and 2016, 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.

The following table sets forth the stock-based compensation expense recognized for the six months ended June 30, 2017 and 2016.

 
For the Three Months Ended
For the Six Months Ended
 
June 30,
June 30,
(in thousands)
2017
 
2016
2017
 
2016
RSUs
$
6,596

 
$
6,560

$
16,378

 
$
13,578

PBRSUs
1,809

 
2,701

3,477

 
4,514

Stock options

 
217

144

 
601

Employee stock purchase plan
367

 
297

940

 
625

 
$
8,772

 
$
9,775

$
20,939

 
$
19,318


The above includes $1.8 million and $1.4 million of stock-based compensation expense within cost of services in the accompanying condensed consolidated statements of operations for the three months ended June 30, 2017 and 2016, respectively, and $3.1 million and $2.9 million for the six months ended June 30, 2017 and 2016, respectively.


16



Note 10 – Litigation and Regulatory Contingencies

We have been named in various lawsuits and 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.

Fair Credit Reporting Act Class Action

In February 2012, CoreLogic National Background Data, LLC (n/k/a CoreLogic Background Data, LLC) (“CBD”) was named as a defendant in a putative class action styled Tyrone Henderson, et. al., v. CoreLogic National Background Data, in the United States District Court for the Eastern District of Virginia.  Plaintiffs allege violation of the Fair Credit Reporting Act, and have pled a putative class claim relating to CBD’s return of criminal record data in response to search queries initiated by its consumer reporting agency customers, which then prepare and transmit employment background screening reports to their employer customers.  Plaintiffs contend that CBD failed to send notice letters to consumers each time search results were returned to CBD’s consumer reporting agency customers.  In February 2016, the court denied CBD’s motion for partial summary judgment.  Plaintiffs initially sought to represent a nationwide class of consumers who were the subject of searches conducted by CBD’s customers.  The court denied without prejudice Plaintiffs’ motion to certify a nationwide class on three separate occasions in April 2015, April 2016 and September 2016.  However, in September 2016, the court allowed Plaintiffs to seek certification of three subclasses and in March 2017, Plaintiffs filed a motion for class certification as to one of these subclasses, seeking to certify a class of consumers for whom sex offender records were returned that did not reflect a date of birth associated with the record.  That motion is fully briefed and remains pending.

In June 2015, a companion case, Witt v. CoreLogic National Background Data, et. al. was filed in the United States District Court for the Eastern District of Virginia by the same attorneys as in Henderson, alleging the same claim against CBD.  Witt also names as a defendant CoreLogic SafeRent, LLC (n/k/a CoreLogic Rental Property Solutions, LLC) (“RPS”)) on the theory that RPS provides criminal record “reports” to CBD at the same time that CBD delivers reports to CBD’s consumer reporting agency customers.  Witt is pending in the same court and before the same judge as Henderson, and the two cases have been deemed related by the Court.  In April 2017, Plaintiffs filed a motion for class certification, seeking to certify a class of consumers for whom Virginia criminal record data was returned that did not reflect a year of birth associated with the record. That motion is fully briefed and remains pending.

CBD has defended and will continue to defend against these claims vigorously; however, CBD may not be successful. At this time, CBD cannot predict the ultimate outcome of this claim or the potential range of damages, if any.

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 June 30, 2017, 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

17



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.

Note 11 – Acquisitions

In April 2016, we completed the acquisition of FNC for up to $475.0 million, with $400.0 million in cash paid at closing, subject to certain closing adjustments, and up to $75.0 million to be paid in cash in 2018, contingent upon the achievement of certain revenue targets in fiscal 2017. We fair-valued the contingent payment using the Monte Carlo simulation model and initially recorded $8.0 million as contingent consideration, which was fully reversed as of December 31, 2016. The contingent payment is fair-valued quarterly and changes are recorded within our condensed consolidated statement of operations. See Note 8 - Fair Value of Financial Instruments for further discussion. FNC is a leading provider of real estate collateral information technology and solutions that automates property appraisal ordering, tracking, documentation and review for lender compliance with government regulations and is included as a component of our PI reporting segment. The acquisition expands 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 unobservable inputs. We recorded a deferred tax liability of $85.4 million, property and equipment of $79.8 million with an estimated average life of 12 years, customer lists of $145.3 million with an estimated average life of 16 years, trade names of $15.9 million with an estimated average life of 19 years, non-compete agreements of $18.8 million with an estimated average life of 5 years, and goodwill of $220.2 million. For the three and six months ended June 30, 2017, goodwill was reduced by $5.4 million as a result of a change in the purchase price allocation for certain tax adjustments. This business combination did not have a material impact on our condensed consolidated statements of operations.

In January 2016, we completed the acquisition of the remaining 40% mandatorily redeemable noncontrolling interest in New Zealand-based Property IQ Ltd ("PIQ") for NZD $27.8 million, or $19.0 million, and settled the mandatorily redeemable noncontrolling interest. PIQ is included as a component of our PI reporting segment.

We incurred $7.3 million and $5.1 million of acquisition-related costs within selling, general and administrative expenses on our consolidated statements of operations for the three months ended June 30, 2017 and 2016, respectively, and $7.5 million and $6.1 million for the six months ended June 30, 2017 and 2016, respectively.

Note 12 – Discontinued Operations

In September 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"). In September 2012, we completed the wind down of our consumer services business and our appraisal management company business, which were included in our PI and Risk Management and Work Flow ("RMW") segments, respectively. In September 2011, we closed our marketing services business, which was included in our PI segment. In December 2010, we completed the sale of our Employer and Litigation Services businesses ("ELI").

In connection with previous divestitures, we retain the prospect of contingent liabilities for indemnification obligations or breaches of representations or warranties. With respect to one such divestiture, in September 2016, a jury returned an unfavorable verdict against a discontinued operating unit that, if upheld on appeal, could result in the reasonable possibility of indemnification exposure up to $25.0 million, including interest. We do not consider this outcome to be probable and intend to vigorously assert our contractual and other rights, including to pursue an appeal to eliminate or substantially reduce any potential post-divestiture contingency. Any actual liability that comes to fruition would be reflected in our results from discontinued operations.


18



Each of these businesses is reflected in our accompanying condensed consolidated financial statements as discontinued operations. For the six months ended June 30, 2017, we recorded a gain of $4.5 million related to a pre-tax legal settlement in AMPS within our discontinued operations. Summarized below are certain assets and liabilities classified as discontinued operations as of June 30, 2017 and December 31, 2016:

(in thousands)
 
 
 
 
 
 
 
 
 
 
As of June 30, 2017
 
PI
 
RMW
 
ELI
 
AMPS
 
Total
Deferred income tax asset and other current assets
 
$
325

 
$
(231
)
 
$
144

 
$
568

 
$
806

 
 
 
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other current liabilities
 
$
80

 
$
166

 
$
76

 
$
1,660

 
$
1,982

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2016
 
 
 
 
 
 
 
 
 
 
Deferred income tax asset and other current assets
 
$
325

 
$
(231
)
 
$

 
$
568

 
$
662

 
 
 
 
 
 
 
 
 
 
 
Accounts payable, accrued expenses and other current liabilities
 
$
202

 
$
167

 
$
624

 
$
2,130

 
$
3,123


Summarized below are the components of our gain/(loss) from discontinued operations for the three and six months ended June 30, 2017 and 2016:

(in thousands)
 

 

 
 
 
 
 
 
For the Three Months Ended June 30, 2017
 
PI
 
RMW
 
ELI
 
AMPS
 
Total
Operating revenue
 
$

 
$

 
$

 
$

 
$

Gain/(loss) from discontinued operations before income taxes
 
138

 

 
(131
)
 
120

 
127

Income tax expense/(benefit)
 
53

 

 
(50
)
 
46

 
49

Gain/(loss) from discontinued operations, net of tax
 
$
85

 
$

 
$
(81
)
 
$
74

 
$
78

 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$

 
$

 
$

 
$

 
$

Loss from discontinued operations before income taxes
 

 
(3
)
 

 
(3
)
 
(6
)
Income tax benefit
 

 
(1
)
 

 
(1
)
 
(2
)
Loss from discontinued operations, net of tax
 
$

 
$
(2
)
 
$

 
$
(2
)
 
$
(4
)

(in thousands)
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2017
 
PI
 
RMW
 
ELI
 
AMPS
 
Total
Operating revenue
 
$

 
$

 
$

 
$

 
$

Gain/(loss) from discontinued operations before income taxes
 
138

 

 
(253
)
 
4,155

 
4,040

Income tax expense/(benefit)
 
53

 

 
(97
)
 
1,589

 
1,545

Gain/(loss) from discontinued operations, net of tax
 
$
85

 
$

 
$
(156
)
 
$
2,566

 
$
2,495

 
 
 
 
 
 
 
 
 
 
 
For the Six Months Ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$

 
$

 
$

 
$

 
$

Loss from discontinued operations before income taxes
 

 
(4
)
 

 
(95
)
 
(99
)
Income tax benefit
 

 
(1
)
 

 
(36
)
 
(37
)
Loss from discontinued operations, net of tax
 
$

 
$
(3
)
 
$

 
$
(59
)
 
$
(62
)

19




Note 13 – 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 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 June 30, 2017 and 2016, respectively, and $2.1 million and $2.7 million for the six months ended June 30, 2017 and 2016, respectively. The segment also included intercompany expenses of $0.7 million and $1.2 million for the three months ended June 30, 2017 and 2016, respectively, and $1.4 million and $2.9 million for the six months ended June 30, 2017 and 2016, respectively.

Risk Management and Work Flow. 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 $0.7 million and $1.2 million for the three months ended June 30, 2017 and 2016, respectively, and $1.4 million and $2.9 million for the six months ended June 30, 2017 and 2016, respectively. The segment also included intercompany expenses of $1.2 million and $1.5 million for the three months ended June 30, 2017 and 2016, respectively, and $2.1 million and $2.7 million for the six months ended June 30, 2017 and 2016, 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.
    

20



Selected financial information by reportable segment is as follows:

(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended June 30, 2017
 
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
 
$
251,124

 
$
31,642

 
$
34,532

 
$
(340
)
 
$
27,786

 
$
12,524

RMW
 
224,773

 
6,095

 
64,163

 

 
64,154

 
4,701

Corporate
 

 
5,134

 
(20,302
)
 
60

 
(50,758
)
 
3,102

Eliminations
 
(1,919
)
 

 

 

 

 

Consolidated (excluding discontinued operations)
 
$
473,978

 
$
42,871

 
$
78,393

 
$
(280
)
 
$
41,182

 
$
20,327

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended June 30, 2016
 
 

 
 

 
 
 
 
 
 

 
 

PI
 
$
276,681

 
$
32,373

 
$
34,027

 
$
504

 
$
33,111

 
$
14,064

RMW
 
226,240

 
6,614

 
66,332

 

 
66,322

 
2,793

Corporate
 
7

 
4,304

 
(23,961
)
 
(426
)
 
(59,009
)
 
10,097

Eliminations
 
(2,724
)
 

 

 

 

 

Consolidated (excluding discontinued operations)
 
$
500,204

 
$
43,291

 
$
76,398

 
$
78

 
$
40,424

 
$
26,954


 


 


 


 


 


 


For the Six Months Ended June 30, 2017
 
 

 
 

 


 


 
 

 
 

PI
 
$
478,543

 
$
64,297

 
$
45,248

 
$
(1,426
)
 
$
36,642

 
$
23,695

RMW
 
438,878