Company Quick10K Filing
Quick10K
CoreLogic
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$39.61 81 $3,200
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2013-12-31 Quarter: 2013-12-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-06-21 Officers, Exhibits
8-K 2019-05-31 Enter Agreement, Off-BS Arrangement, Exhibits
8-K 2019-05-23 Officers
8-K 2019-05-14 Exit Costs, Impairments, Regulation FD
8-K 2019-05-03 Shareholder Vote
8-K 2019-04-24 Earnings, Exhibits
8-K 2019-02-26 Earnings, Exhibits
8-K 2018-12-20 Other Events, Exhibits
8-K 2018-10-24 Earnings, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-05-01 Shareholder Vote, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-02-26 Earnings, Exhibits
8-K 2018-02-06 Earnings, Exhibits
TEL TE Connectivity 30,620
SWI Solarwinds 5,870
PII Polaris Industries 5,490
SKYW Skywest 3,090
PLOW Douglas Dynamics 843
CASA Casa Systems 574
REI Ring Energy 304
NCSM NCS Multistage Holdings 159
EPSN Epsilon Energy 108
NOVC Novation Companies 0
CLGX 2019-03-31
Part I: Financial Information
Item 1. Financial Statements.
Note 1 - Basis of Condensed Consolidated Financial Statements
Note 2 - Property and Equipment, Net
Note 3 - Goodwill, Net
Note 4 - Other Intangible Assets, Net
Note 5 - Long-Term Debt
Note 6 - Leases
Note 7 - Fair Value of Financial Instruments
Note 8 - Operating Revenues
Note 9 - Share-Based Compensation
Note 10 - Litigation and Regulatory Contingencies
Note 11 - Income Taxes
Note 12 - Earnings per Share
Note 13 - Acquisitions
Note 14 - Segment Information
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. None.
Item 4. Mine Safety Disclosures. Not Applicable.
Item 5. Other Information. Not Applicable.
Item 6. Exhibits.
EX-31.1 clgx-33119xex31110q.htm
EX-31.2 clgx-33119xex31210q.htm
EX-32.1 clgx-33119xex32110q.htm
EX-32.2 clgx-33119xex32210q.htm

CoreLogic Earnings 2019-03-31

CLGX 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
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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, 2019

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 every Interactive Data File required to be submitted 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 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  
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 April 22, 2019 there were 80,687,453 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 March 31, 2019 and December 31, 2018
 
 
 
 
B. Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018
 
 
 
 
C. Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018
 
 
 
 
D. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018
 
 
 
 
E. Condensed Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2019 and 2018
 
 
 
 
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
2019

2018
Current assets:
 
 
 
Cash and cash equivalents
$
86,828

 
$
85,271

Accounts receivable (less allowance for doubtful accounts of $6,302 and $5,742 as of March 31, 2019 and December 31, 2018, respectively)
246,329

 
242,814

Prepaid expenses and other current assets
49,211

 
50,136

Income tax receivable
13,971

 
25,299

Total current assets
396,339

 
403,520

Property and equipment, net
459,478

 
456,497

Operating lease assets
64,606

 

Goodwill, net
2,395,765

 
2,391,954

Other intangible assets, net
452,124

 
468,405

Capitalized data and database costs, net
324,116

 
324,049

Investment in affiliates, net
21,867

 
22,429

Other assets
99,701

 
102,136

Total assets
$
4,213,996

 
$
4,168,990

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and other accrued expenses
$
162,045

 
$
166,258

Accrued salaries and benefits
75,861

 
84,940

Contract liabilities, current
312,322

 
308,959

Current portion of long-term debt
47,465

 
26,935

Operating lease liabilities, current
16,709

 

Total current liabilities
614,402

 
587,092

Long-term debt, net of current
1,709,501

 
1,752,241

Contract liabilities, net of current
520,845

 
524,069

Deferred income tax liabilities
125,064

 
124,968

Operating lease liabilities, net of current
82,851

 

Other liabilities
162,062

 
180,122

Total liabilities
3,214,725

 
3,168,492

 
 
 
 
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; 80,633 and 80,092 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively
1

 
1

Additional paid-in capital
164,969

 
160,870

Retained earnings
977,062

 
975,375

Accumulated other comprehensive loss
(142,761
)
 
(135,748
)
Total stockholders' equity
999,271

 
1,000,498

Total liabilities and equity
$
4,213,996

 
$
4,168,990

 
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)
2019

2018
Operating revenues
$
417,708

 
$
444,900

Cost of services (excluding depreciation and amortization shown below)
219,061

 
239,389

Selling, general and administrative expenses
128,224

 
114,952

Depreciation and amortization
49,219

 
46,140

Total operating expenses
396,504


400,481

Operating income
21,204


44,419

Interest expense:
 


 

Interest income
978

 
530

Interest expense
19,703

 
17,692

Total interest expense, net
(18,725
)

(17,162
)
Gain on investments and other, net
734

 
161

Income from continuing operations before equity in (losses)/earnings of affiliates and income taxes
3,213


27,418

Provision/(benefit) for income taxes
1,058

 
(711
)
Income from continuing operations before equity in (losses)/earnings of affiliates
2,155


28,129

Equity in (losses)/earnings of affiliates, net of tax
(422
)
 
233

Net income from continuing operations
1,733


28,362

Loss from discontinued operations, net of tax
(46
)
 
(75
)
Net income
$
1,687


$
28,287

Basic income per share:





Net income from continuing operations
$
0.02


$
0.35

Loss from discontinued operations, net of tax



Net income
$
0.02

 
$
0.35

Diluted income per share:
 


 

Net income from continuing operations
$
0.02


$
0.34

Loss from discontinued operations, net of tax



Net income
$
0.02

 
$
0.34

Weighted-average common shares outstanding:
 


 

Basic
80,179


81,254

Diluted
81,277


82,820


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)
2019
 
2018
Net income
$
1,687

 
$
28,287

Other comprehensive (loss)/income
 

 
 

Adoption of new accounting standards

 
408

Market value adjustments on interest rate swaps, net of tax
(12,206
)
 
4,137

Foreign currency translation adjustments
5,342

 
(4,114
)
Supplemental benefit plans adjustments, net of tax
(149
)
 
(124
)
Total other comprehensive (loss)/income
(7,013
)
 
307

Comprehensive (loss)/income
$
(5,326
)
 
$
28,594

 
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)
2019

2018
Cash flows from operating activities:
 

 
Net income
$
1,687


$
28,287

Less: Loss from discontinued operations, net of tax
(46
)

(75
)
Net income from continuing operations
1,733


28,362

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


 

Depreciation and amortization
49,219


46,140

Amortization of debt issuance costs
1,302


1,376

Amortization of operating lease assets
4,036

 

Provision for bad debt and claim losses
3,788


2,847

Share-based compensation
9,892


8,677

Equity in losses/(earnings) of affiliates, net of taxes
422


(233
)
Deferred income tax
4,346


6,250

Gain on investment and other, net
(734
)

(161
)
Change in operating assets and liabilities, net of acquisitions:
 


 

Accounts receivable
(5,489
)

12,745

Prepaid expenses and other current assets
(2,778
)

(764
)
Accounts payable and other accrued expenses
(7,665
)

4,987

Contract liabilities
173


(2,756
)
Income taxes
10,966


(482
)
Dividends received from investments in affiliates


776

Other assets and other liabilities
(4,630
)

(7,556
)
Net cash provided by operating activities - continuing operations
64,581


100,208

Net cash provided by operating activities - discontinued operations


2

Total cash provided by operating activities
$
64,581


$
100,210

Cash flows from investing activities:
 


 

Purchases of property and equipment
$
(24,020
)

$
(9,940
)
Purchases of capitalized data and other intangible assets
(8,947
)

(9,544
)
Cash paid for acquisitions, net of cash acquired


(20,533
)
Cash received from sale of business-line
1,082

 

Proceeds from sale of property and equipment


100

Proceeds from investments
1,157


980

Net cash used in investing activities - continuing operations
(30,728
)

(38,937
)
Net cash provided by investing activities - discontinued operations



Total cash used in investing activities
$
(30,728
)

$
(38,937
)
Cash flows from financing activities:
 


 

Proceeds from long-term debt
$


$
95

Repayment of long-term debt
(25,563
)

(45,722
)
Proceeds from issuance of shares in connection with share-based compensation
2,758


15,473

Payment of tax withholdings related to net share settlements
(8,551
)

(10,532
)
Shares repurchased and retired


(18,479
)
Contingent consideration payments subsequent to acquisitions
(600
)
 

Net cash used in financing activities - continuing operations
(31,956
)

(59,165
)
Net cash provided by financing activities - discontinued operations



Total cash used in financing activities
$
(31,956
)

$
(59,165
)
Effect of exchange rate on cash, cash equivalents and restricted cash
(200
)

311

Net change in cash, cash equivalents and restricted cash
1,697


2,419

Cash, cash equivalents and restricted cash at beginning of period
98,250


132,154

Less: Change in cash, cash equivalents and restricted cash - discontinued operations


2

Plus: Cash swept from discontinued operations


2

Cash, cash equivalents and restricted cash at end of period
$
99,947


$
134,573



 

Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
17,351

 
$
15,553

Cash paid for income taxes
$
1,958

 
$
988

Cash refunds from income taxes
$
15,950

 
$
2,917

Non-cash investing activities:
 
 
 
Capital expenditures included in accounts payable and other accrued expenses
$
14,469

 
$
6,267


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

4



CoreLogic, Inc.
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)

 
 
Common Stock Shares
 
Common Stock Amount
 
Additional Paid-in Capital
 
Retained Earnings
 
Accumulated Other Comprehensive Loss
 
Total
(in thousands)
 
 
 
 
 
 
For the Three Months Ended March 31, 2019
 
 
 
 
 
 
Balance as of December 31, 2018
 
80,092

 
$
1

 
$
160,870

 
$
975,375

 
$
(135,748
)
 
$
1,000,498

Net income
 

 

 

 
$
1,687

 

 
1,687

Shares issued in connection with share-based compensation
 
541

 

 
2,758

 

 

 
2,758

Payment of tax withholdings related to net share settlements
 

 

 
(8,551
)
 

 

 
(8,551
)
Share-based compensation
 

 

 
9,892

 

 

 
9,892

Other comprehensive loss
 

 

 

 

 
(7,013
)
 
(7,013
)
Balance as of March 31, 2019
 
80,633

 
$
1

 
$
164,969

 
$
977,062

 
$
(142,761
)
 
$
999,271

 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
 
80,885

 
$
1

 
$
224,455

 
$
877,111

 
$
(93,691
)
 
1,007,876

Adoption of new accounting standards
 

 

 

 
(23,600
)
 
408

 
(23,192
)
Net income
 

 

 

 
28,287

 

 
28,287

Shares issued in connection with share-based compensation
 
1,151

 

 
15,473

 

 

 
15,473

Payment of tax withholdings related to net share settlements
 

 

 
(10,532
)
 

 

 
(10,532
)
Share-based compensation
 

 

 
8,677

 

 

 
8,677

Shares repurchased and retired
 
(400
)
 

 
(18,479
)
 

 

 
(18,479
)
Other comprehensive loss
 

 

 

 

 
(101
)
 
(101
)
Balance as of March 31, 2018
 
81,636

 
$
1

 
$
219,594

 
$
881,798

 
$
(93,384
)
 
$
1,008,009


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 (“GAAP”) in the United States ("US") 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 2018 year-end condensed consolidated balance sheet was derived from the Company's audited financial statements for the year ended December 31, 2018. 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, 2018.

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 operating revenues from clients with operations in the US residential real estate, mortgage origination and mortgage servicing markets. Approximately 29% and 34% of our operating revenues for the three months ended March 31, 2019 and 2018, respectively, were generated from our top ten clients, who consist of the largest U.S. mortgage originators and servicers. None of our clients individually accounted for greater than 10% of our operating revenues for the three months ended March 31, 2019 nor 2018.

Cash, Cash Equivalents and Restricted Cash

We deem the carrying value of cash, cash equivalents and restricted cash to be a reasonable estimate of fair value due to the nature of these instruments. Restricted cash is comprised of certificates of deposit that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures as well as short-term investments within our deferred compensation plan trust. The following table provides a reconciliation of cash, cash equivalents and restricted cash to amounts shown in the statement of cash flows:

(in thousands)
March 31, 2019
 
March 31, 2018
Cash and cash equivalents
$
86,828

 
$
123,698

Restricted cash included in other assets
11,134

 
9,806

Restricted cash included in prepaid expenses and other current assets
1,985

 
1,069

Total cash, cash equivalents and restricted cash
$
99,947

 
$
134,573




6



Operating Revenue Recognition

We derive our operating revenues primarily from US mortgage lenders, servicers and insurance companies with good creditworthiness. Operating revenue arrangements are written and specify the products or services to be delivered, pricing and payment terms. Operating revenue is recognized when the distinct good, service, or performance obligation, is delivered and control has been transferred to the client. Generally, clients contract with us to provide products and services that are highly interrelated and not separately identifiable. Therefore, the entire contract is accounted for as one performance obligation. At times, some of our contracts have multiple performance obligations where we allocate the total price to each performance obligation based on the estimated relative standalone selling price using observable sales or the cost-plus-margin approach.

For products or services where delivery occurs at a point in time, we recognize operating revenue when the client obtains control of the products upon delivery. When delivery occurs over time, we generally recognize operating revenue ratably over the service period, once initial delivery has occurred. For certain of our products or services, clients may also pay upfront fees, which we defer and recognize as operating revenue over the longer of the contractual term or the expected client relationship period.

Licensing arrangements that provide our clients with the right to access or use our intellectual property are considered functional licenses for which we generally recognize operating revenue based on usage. For arrangements that provide a stand-ready obligation or substantive updates to the intellectual property which the client is contractually or practically required to use, we recognize operating revenue ratably over the contractual term.

Client payment terms are standard with no significant financing components or extended payment terms granted. In limited cases we allow for client cancellations for which we estimate a reserve.

See further discussion in Note 8 - Operating Revenues.

Comprehensive Loss

Comprehensive loss includes all changes in equity except those resulting from investments by shareholders and distributions to shareholders. Specifically, foreign currency translation adjustments, amounts related to supplemental benefit plans, unrealized gains and losses on interest rate swap transactions and investments are recorded in other comprehensive (loss)/income. The following table shows the components of accumulated other comprehensive loss, net of taxes, as of March 31, 2019 and December 31, 2018:

(in thousands)
2019
 
2018
Cumulative foreign currency translation
$
(124,064
)
 
$
(129,406
)
Cumulative supplemental benefit plans
(5,107
)
 
(4,958
)
Net unrecognized losses on interest rate swaps
(13,590
)
 
(1,384
)
Accumulated other comprehensive loss
$
(142,761
)
 
$
(135,748
)


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 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 $0.4 million and equity in earnings of affiliates, net of tax, of $0.2 million for the three months ended March 31, 2019 and 2018, respectively. For the three months ended March 31, 2019, we did not have any operating revenues related to our investment in affiliates and for the three months ended March 31, 2018 we recorded $0.3 million. We recorded operating expenses of $0.2 million and $3.3 million related to our investment in affiliates for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019 and December 31, 2018, we had insignificant accounts payable and accounts receivable with these affiliates.


7



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. In September 2012, we completed the wind down of our consumer services business and our appraisal management company business. In September 2011, we closed our marketing services business. In December 2010, we completed the sale of our Employer and Litigation Services businesses.

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 indemnification exposure up to $25.0 million, including interest. We do not consider this outcome to be probable and are pursuing an appeal of the verdict 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.

As of March 31, 2019 and December 31, 2018, we recorded assets of discontinued operations of $0.7 million and $0.6 million, respectively, within prepaid expenses and other current assets within our condensed consolidated balance sheets. Additionally, as of March 31, 2019 and December 31, 2018, we recorded liabilities of $2.1 million and $2.2 million, respectively, within accounts payable and other accrued expenses mainly consisting of legal related accruals.

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 and totaled $5.7 billion and $696.0 million as of March 31, 2019 and December 31, 2018, respectively. 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 record earnings credits from these activities as a reduction to related administrative expenses, including the cost of bank fees and other administration costs.

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 total claim reserves relating to incorrect disposition of assets of $20.4 million and $21.2 million as of March 31, 2019, and December 31, 2018, respectively. Within these amounts, $9.2 million, for both periods, are short-term and are reflected within accounts payable and other accrued expenses within our accompanying condensed consolidated balance sheets. The remaining reserves are reflected within other liabilities.

Recent Accounting Pronouncements

In August 2017, the Financial Accounting Standards Board ("FASB") issued guidance to amend and improve the accounting for hedging activities. The amendment eliminates the requirement to separately measure and report hedge ineffectiveness. An initial quantitative assessment to establish that the hedge is highly effective is still required but the amendment allows until the end of the first quarter it is designated to perform the assessment. After initial qualification, a qualitative assessment can be performed if the hedge is highly effective and the documentation at inception can reasonably support an expectation of high effectiveness throughout the hedge’s term. The amendment requires companies to present all hedged accounting elements that affect earnings in the same income statement line as the hedged item. For highly effective cash flow hedges, fair value changes will be recorded in other comprehensive loss and reclassified to earnings when the hedged item impacts earnings. The guidance is effective prospectively for fiscal years beginning after December 15, 2018. In October 2018, the FASB issued incremental guidance to this update to permit the Overnight Index Swap Rate and the Secured Overnight Financing Rate to be utilized as US benchmark interest rates for hedge accounting purposes. We have adopted this guidance in the current year as required, which has not had a material impact on our consolidated financial statements.

In February 2016, the FASB issued guidance on lease accounting which requires leases, regardless of classification, to be recognized on the balance sheet as lease assets and liabilities. The objective of this standard is to provide greater transparency on the amount, timing and uncertainty of cash flows arising from leasing arrangements. The recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee depends upon its classification as a finance or operating lease. On January 1, 2019, we adopted the new lease accounting standard, and all related amendments, using the modified retrospective approach. Comparative information has not been restated and continues to be reported under the standards in effect for those prior periods as allowed by the guidance. As part of our adoption we elected the package of

8



practical expedients permitted under the transition guidance which allows us to carry forward our historical lease classification of pre-existing leases, treatment of pre-existing indirect costs, as well as our conclusions of whether a pre-existing contract contains a lease. We have implemented internal controls to enable the preparation of financial information upon our adoption this quarter.

Adoption of the new lease accounting standard resulted in the recording of operating lease assets and lease liabilities of approximately $67.7 million and $103.9 million, respectively, as of January 1, 2019. There was no impact to opening equity as a result of adoption as the difference between the asset and liability balance is attributable to reclasses of pre-existing balances, such as deferred and prepaid rent, into the lease asset balance. The standard has not materially impacted our consolidated statement of operations or presentation of cash flows and we do not anticipate a material impact in the future based on our current operations. See below for our accounting policy reflecting the updated guidance.

Leases

We determine if an arrangement contains a lease at inception and determine the classification of the lease, as either operating or finance, at commencement.

Operating and finance lease assets and liabilities are recorded based on the present value of future lease payments which factors in certain qualifying initial direct costs incurred as well as any lease incentives received. If an implicit rate is not readily determinable, we utilize our incremental borrowing rate and inputs from third-party lenders to determine the appropriate discount rate. Lease expense for operating lease payments are recognized on a straight-line basis over the lease term. Finance leases incur interest expense using the effective interest method in addition to amortization of the leased asset on straight-line basis, both over the applicable lease term. Lease terms may factor in options to extend or terminate the lease.

We adhere to the short-term lease recognition exemption for all classes of assets (i.e. facilities and equipment). As a result, leases with an initial term of twelve months or less are not recorded on the balance sheet and are recognized on a straight-line basis over the lease term. In addition, for certain equipment leases, we account for lease and non-lease components, such as services, as a single lease component as permitted.

Note 2 - Property and Equipment, Net

Property and equipment, net as of March 31, 2019 and December 31, 2018 consists of the following:

(in thousands)
2019
 
2018
Land
$
7,476

 
$
7,476

Buildings
6,487

 
6,487

Furniture and equipment
71,559

 
68,851

Capitalized software
925,752

 
902,482

Leasehold improvements
43,607

 
43,476

Construction in progress
1,218

 
669

 
1,056,099

 
1,029,441

Less accumulated depreciation
(596,621
)
 
(572,944
)
Property and equipment, net
$
459,478

 
$
456,497



Depreciation expense for property and equipment was approximately $23.4 million and $21.8 million, for the three months ended March 31, 2019 and 2018, respectively.


9



Note 3 – Goodwill, Net

A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the three months ended March 31, 2019 is as follows:
 
(in thousands)
PIRM
 
UWS
 
Consolidated
Balance as of January 1, 2019
 
 
 
 
 
Goodwill
$
1,107,466

 
$
1,292,013

 
$
2,399,479

Accumulated impairment losses
(600
)
 
(6,925
)
 
(7,525
)
Goodwill, net
1,106,866

 
1,285,088

 
2,391,954

Measurement period adjustments
192

 

 
192

Translation adjustments
3,619

 

 
3,619

Balance as of March 31, 2019
 
 
 
 
 
Goodwill, net
$
1,110,677

 
$
1,285,088

 
$
2,395,765


See Note 13 - Acquisitions for further discussion over measurement period adjustments.

Note 4 – Other Intangible Assets, Net

Other intangible assets, net consist of the following:

 
March 31, 2019
 
December 31, 2018
(in thousands)
Gross
 
Accumulated Amortization
 
Net
 
Gross
 
Accumulated Amortization
 
Net
Client lists
$
706,819

 
$
(339,748
)
 
$
367,071

 
$
706,253

 
$
(327,201
)
 
$
379,052

Non-compete agreements
35,227

 
(21,465
)
 
13,762

 
35,224

 
(20,156
)
 
15,068

Tradenames and licenses
131,233

 
(59,942
)
 
71,291

 
131,130

 
(56,845
)
 
74,285

 
$
873,279

 
$
(421,155
)
 
$
452,124

 
$
872,607

 
$
(404,202
)
 
$
468,405



Amortization expense for other intangible assets, net was $16.6 million and $15.2 million for the three months ended March 31, 2019 and 2018, respectively.

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

(in thousands)
 
Remainder of 2019
$
47,668

2020
61,947

2021
58,795

2022
56,927

2023
49,311

Thereafter
177,476

 
$
452,124




10



Note 5 – Long-Term Debt

Our long-term debt consists of the following:

 
 
March 31, 2019
 
December 31, 2018
(in thousands)
Gross
 
Debt Issuance Costs
 
Net
 
Gross
 
Debt Issuance Costs
 
Net
Bank debt:
 
 
 
 
 
 
 
 
 
 


 
Term loan facility borrowings due August 2022, weighted-average interest rate of 4.25% and 4.05% as of March 31, 2019 and December 31, 2018, respectively
$
1,575,000

 
$
(12,105
)
 
$
1,562,895

 
$
1,597,500

 
$
(13,043
)
 
$
1,584,457

 
Revolving line of credit borrowings due August 2022, weighted-average interest rate of 4.24% and 4.06% as of March 31, 2019 and December 31, 2018, respectively
178,323

 
(4,852
)
 
173,471

 
178,146

 
(5,216
)
 
172,930

Notes:
 

 
 

 
 
 
 

 
 

 
 
 
7.55% senior debentures due April 2028
14,645

 
(44
)
 
14,601

 
14,645

 
(44
)
 
14,601

Other debt:
 

 
 

 
 
 
 

 
 

 


 
Various debt instruments with maturities through 2024
5,999

 

 
5,999

 
7,188

 

 
7,188

Total long-term debt
1,773,967


(17,001
)
 
1,756,966

 
1,797,479


(18,303
)
 
1,779,176

Less current portion of long-term debt
47,465

 

 
47,465

 
26,935

 

 
26,935

Long-term debt, net of current portion
$
1,726,502

 
$
(17,001
)
 
$
1,709,501

 
$
1,770,544


$
(18,303
)

$
1,752,241



As of March 31, 2019, and December 31, 2018, we have recorded $1.4 million and $0.7 million of accrued interest expense, respectively, on our debt-related instruments within accounts payable and other accrued expenses.

Credit Agreement

In August 2017, we amended and restated our credit agreement (“Credit Agreement”) with Bank of America, N.A. as the administrative agent, and other financial institutions. The Credit Agreement provides for a $1.8 billion five-year term loan A facility (“Term Facility”), and a $700.0 million five-year revolving credit facility ("Revolving Facility"). The Term Facility matures and the Revolving Facility expires in August 2022. 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/or Revolving Facility by up to $100.0 million in the aggregate; however the lenders are not obligated to do so. As of March 31, 2019, we had a remaining borrowing capacity of $521.7 million under the Revolving Facility and 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 August 2017, we incurred approximately $14.3 million of debt issuance costs of which $14.0 million were initially capitalized within long-term debt, net of current in the accompanying condensed consolidated balance sheets. In addition, when we amended and restated the Credit Agreement, we wrote-off previously unamortized debt issuance costs of $1.8 million within gain on investments and other, net in the accompanying consolidated statement of operations; resulting in a remaining $12.0 million of previously unamortized costs. We will amortize all of these costs over the term of the Credit Agreement. For the three months ended March 31, 2019 and 2018, $1.3 million and $1.4 million, respectively, were recognized in the accompanying condensed consolidated statement of operations related to the amortization of 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. The indentures governing these debentures, as amended, contain limited restrictions on us.


11



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. Under the Swaps, we agree to exchange floating rate for fixed rate interest payments periodically over the life of the agreement. The floating rates in our Swaps are based on the one-month London interbank offering rate. The notional balances, terms and maturities of our Swaps are designed to have at least 50% of our debt as fixed rate.

As of March 31, 2019, the Swaps have a combined remaining notional balance of $1.5 billion, a weighted average fixed interest rate of 2.05% (rates range from 1.03% to 2.98%), and scheduled terminations through December 2025. Notional balances under our Swaps are scheduled to increase and decrease based on our expectations of the level of variable rate debt to be in effect in future periods. Currently, we have scheduled notional amounts of between $1.3 billion and $1.5 billion through December 2020, then $1.0 billion and $1.2 billion through August 2022, and $400.0 million thereafter until December 2025. Approximate weighted average fixed interest rates for the aforementioned time intervals are 2.16%, 2.70%, and 2.98%, respectively.

We have designated the Swaps as cash flow hedges. The estimated fair value of these cash flow hedges is recorded in prepaid expenses and other current assets as well as other assets and other liabilities in the accompanying condensed consolidated balance sheets. As of March 31, 2019, the estimated fair value of these cash flow hedges resulted in an asset of $8.7 million as well as a liability of $26.9 million. As of December 31, 2018, the estimated fair value of these cash flow hedges resulted in an asset of $13.3 million, of which $0.6 million is classified within prepaid expenses and other current assets, as well as a liability of $15.2 million.

Unrealized losses of $12.2 million (net of $4.1 million in deferred taxes) and unrealized gains of $4.1 million (net $1.4 million in deferred taxes) for the three months ended March 31, 2019 and 2018, respectively, were recognized in other comprehensive loss/(income) related to the Swaps.


12



Note 6 – Leases

We have entered into renewable commitment agreements for certain real estate facilities and equipment, such as computers and printers, which we individually classify as either operating or finance leases. We possess contractual options to renew certain leases ranging from 6 months to 5 years at a time, as well as, in certain instances, contractual options to terminate leases with varying notification requirements and potential termination fees. As of March 31, 2019, our leases with initial terms greater than twelve months had remaining lease terms of up to 13 years.
    
The following table provides a breakdown of lease balances within our condensed consolidated balance sheet as of March 31, 2019 and December 31, 2018:

(in thousands)
 
 
 
 
 
 
Lease Type and Classification
 
Included Within
 
March 31, 2019
 
December 31, 2018 (1)
Assets
 
 
 
 
 
 
Operating
 
Operating lease assets
 
$
64,606

 
$

Finance
 
Property and equipment, net
 
5,895

 
5,002

Total
 
 
 
$
70,501

 
$
5,002

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
Current
 
 
 
 
 
 
Operating
 
Operating lease liabilities, current
 
$
16,709

 
$

Finance
 
Current portion of long-term debt
 
2,465

 
2,340

Long-term
 
 
 
 
 
 
Operating
 
Operating lease liabilities, net of current
 
82,851

 

Finance
 
Long-term debt, net of current
 
3,534

 
2,753

Total
 
 
 
$
105,559

 
$
5,093

 
 
 
 
 
 
 
(1) As permitted, December 31, 2018 is presented under prior GAAP in effect at that time. As such, prior year does not contain comparable operating assets and/or liabilities. See Note 1 - Basis for Condensed Consolidated Financial Statements for further details.

    
For the three months ended March 31, 2019, the components of lease cost are as follows:

(in thousands)
 
 
 
 
Lease Cost
 
Included Within
 
March 31, 2019
Finance lease cost
 
 
 
 
Amortization of lease assets
 
Depreciation and amortization
 
$
825

Interest on lease liabilities
 
Interest expense
 
$
30

 
 
 
 
 
Operating lease cost
 
SG&A
 
$
5,270

Operating lease cost
 
Cost of services
 
401

 
 
 
 
$
5,671



13



Other supplementary information for the three months ended March 31, 2019 are as follows:

(in thousands)
 
 
 
 
Other Information
 
Finance Leases
 
Operating Leases
Cash paid for amounts included in measurement of liabilities
 
 
 
 
Operating cash outflows
 
$
30

 
$
6,907

Financing cash outflows
 
$
822

 
$

 
 
 
 
 
Right-of-use assets obtained in exchange for lease liabilities
 
$
1,739

 
$
862

Weighted average remaining lease term (years)
 
2.9

 
8.5

Weighted average discount rate
 
3.78
%
 
6.49
%


Maturities of lease liabilities as of March 31, 2019 are as follows:

(in thousands)
 
Finance Leases
 
Operating Leases
2019
 
$
1,970

 
$
16,796

2020
 
2,141

 
22,898

2021
 
1,255

 
17,702

2022
 
634

 
10,823

2023
 
289

 
8,487

Thereafter
 
70

 
56,486

Total lease payments
 
6,359

 
133,192

Less imputed interest
 
(360
)
 
(33,632
)
Total
 
$
5,999

 
$
99,560



Future minimum lease commitments, undiscounted, as of December 31, 2018 were as follows:

(in thousands)
 
 
2019
 
$
26,738

2020
 
25,413

2021
 
19,214

2022
 
12,149

2023
 
8,908

Thereafter
 
57,179

Total
 
$
149,601



As of March 31, 2019, we have an operating lease for a facility that has not yet commenced with an initial lease liability of approximately $2.0 million and a seven-year term, which is not reflected within the 2019 maturity schedule above. Total lease cost for all operating leases, including month-month rentals, for the three months ended March 31, 2018, excluding taxes, was $5.9 million.


14



Note 7 – 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. 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.

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/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures and short-term investments within our deferred compensation plan trust. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.

Other Investments

Other investments is currently comprised of a minority equity investment in a foreign enterprise which we measure at cost and adjust to fair value on a quarterly basis when there are observable price changes in orderly transactions for the identical, or similar, investment. Changes in fair value are recorded within gain on investment and other, net in our condensed consolidated statement of operations.

Contingent Consideration

The fair value of the contingent consideration was estimated using the Monte-Carlo simulation model, which relies on significant assumption and estimates including discount rates and future market conditions, among others.

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.

Interest Rate Swaps

The fair values of the Swaps were estimated based on market-value quotes received from the counterparties to the agreements.


15



The fair values of our financial instruments as of March 31, 2019 are presented in the following table:

(in thousands)
 
Fair Value Measurements Using
 
 
As of March 31, 2019
 
Level 1
 
Level 2
 
Level 3
 
Fair Value
Financial Assets:
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
86,828

 
$

 
$

 
$
86,828

Restricted cash
 
2,513

 
10,606

 

 
13,119

Other investments
 

 

 
5,708

 
5,708

Total
 
$
89,341

 
$
10,606

 
$
5,708

 
$
105,655

 
 
 
 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
 
 
 
Contingent consideration
 
$

 
$

 
$
5,500

 
$