XNYS:CLGX CoreLogic, Inc. Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

XNYS:CLGX (CoreLogic, Inc.): Fair Value Estimate
Premium
XNYS:CLGX (CoreLogic, Inc.): Consider Buying
Premium
XNYS:CLGX (CoreLogic, Inc.): Consider Selling
Premium
XNYS:CLGX (CoreLogic, Inc.): Fair Value Uncertainty
Premium
XNYS:CLGX (CoreLogic, Inc.): Economic Moat
Premium
XNYS:CLGX (CoreLogic, Inc.): Stewardship
Premium
 


 

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, 2012

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.)
 
4 First American Way, Santa Ana, California
92707-5913
(Address of principal executive offices)
(Zip Code)
 
(714) 250-6400
(Registrant’s telephone number, including area code)
 
 
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes  x     No   o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
x
Accelerated filer
o
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting  company
o

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

Yes  o    No   x

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

On July 20, 2012 there were 105,337,666 shares of common stock outstanding.

1



CoreLogic, Inc.
INFORMATION INCLUDED IN REPORT
 
 
Part  I:
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Part II:
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.


2



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
2012
 
2011
Current assets:
 
 
 
Cash and cash equivalents
$
259,673

 
$
259,266

Marketable securities
22,683

 
20,884

Accounts receivable (less allowance for doubtful accounts of $23,370 and $17,365 as of June 30, 2012 and December 31, 2011, respectively)
238,943

 
213,339

Prepaid expenses and other current assets
50,670

 
51,659

Income tax receivable

 
15,110

Deferred income tax assets, current
39,584

 
39,584

Due from First American Financial Corporation ("FAFC"), net
540

 
621

Assets of discontinued operations
35,574

 
55,516

Total current assets
647,667

 
655,979

Property and equipment, net
203,186

 
214,237

Goodwill, net
1,473,146

 
1,472,206

Other intangible assets, net
151,174

 
164,365

Capitalized data and database costs, net
306,248

 
304,006

Investment in affiliates, net
110,078

 
113,809

Deferred income tax assets, long-term
36,553

 
38,305

Restricted cash
22,034

 
22,044

Other assets
128,831

 
125,120

Total assets
$
3,078,917

 
$
3,110,071

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
128,130

 
$
122,859

Accrued salaries and benefits
83,938

 
86,444

Income taxes payable
33,794

 

Deferred revenue, current
224,017

 
201,689

Current portion of long-term debt
955

 
62,268

Liabilities of discontinued operations
25,354

 
27,399

Total current liabilities
496,188

 
500,659

Long-term debt, net of current
793,660

 
846,027

Deferred revenue, net of current
314,579

 
338,799

Deferred income tax liabilities, long term
17,761

 
18,383

Other liabilities
167,158

 
161,382

Total liabilities
1,789,346

 
1,865,250


 
 
 
Equity:
 

 
 

CoreLogic stockholders' equity:
 

 
 

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

 

Common stock, $0.00001 par value; 180,000 shares authorized; 105,265 and 106,544 shares issued and outstanding as of June 30, 2012 and December 31, 2011, respectively
1

 
1

Additional paid-in capital
1,040,908

 
1,053,447

Retained earnings
265,474

 
209,389

Accumulated other comprehensive loss
(18,943
)
 
(20,316
)
Total CoreLogic stockholders' equity
1,287,440

 
1,242,521

Noncontrolling interests
2,131

 
2,300

Total equity
1,289,571

 
1,244,821

Total liabilities and equity
$
3,078,917

 
$
3,110,071

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

3



CoreLogic, Inc.
Condensed Consolidated Statements of Income
(unaudited)

 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
(in thousands, except per share amounts)
2012

2011
 
2012
 
2011
Operating revenues
$
389,361


$
328,421

 
$
747,462

 
$
644,703

External cost of revenues
93,216


69,337

 
173,597

 
133,278

Salaries and benefits
134,510


142,027

 
272,252

 
283,023

Other operating expenses
63,168


71,946

 
128,428

 
133,678

Depreciation and amortization
30,905


26,278

 
60,396

 
49,315

Total operating expenses
321,799


309,588

 
634,673

 
599,294

Income from continuing operations
67,562


18,833

 
112,789

 
45,409

Interest expense:
 


 

 
 

 
 

Interest income
761


1,221

 
1,462

 
3,188

Interest expense
14,095


23,030

 
28,938

 
32,547

Total interest expense, net
(13,334
)

(21,809
)
 
(27,476
)
 
(29,359
)
(Loss)/gain on investments and other, net
(1,252
)

60,041

 
389

 
90,901

Income from continuing operations before equity in earnings of affiliates and income taxes
52,976


57,065

 
85,702

 
106,951

Provision for income taxes
23,578


22,495

 
36,816

 
56,294

Income from continuing operations before equity in earnings of affiliates
29,398


34,570

 
48,886

 
50,657

Equity in earnings of affiliates, net of tax
11,745


5,719

 
21,215


12,053

Net income from continuing operations
41,143


40,289

 
70,101

 
62,710

Gain/(loss) from discontinued operations, net of tax
983


(8,556
)
 
(7,985
)
 
(6,905
)
Gain/(loss) from sale of discontinued operations, net of tax
466



 
(2,987
)
 

Net income
42,592


31,733

 
59,129

 
55,805

Less: Net (loss)/income attributable to noncontrolling interests
(65
)

248

 
(158
)
 
1,065

Net income attributable to CoreLogic
$
42,657


$
31,485

 
$
59,287

 
$
54,740

Amounts attributable to CoreLogic stockholders:
 


 

 
 

 
 

Net income from continuing operations
$
41,208


$
40,041

 
$
70,259

 
$
61,645

Gain/(loss) from discontinued operations, net of tax
983


(8,556
)
 
(7,985
)
 
(6,905
)
Gain/(loss) from sale of discontinued operations, net of tax
466



 
(2,987
)
 

Net income attributable to CoreLogic
$
42,657


$
31,485

 
$
59,287

 
$
54,740

Basic income/(loss) per share:





 
 
 
 
Net income from continuing operations
$
0.39


$
0.37

 
$
0.66

 
$
0.55

Gain/(loss) from discontinued operations, net of tax
0.01


(0.08
)
 
(0.08
)
 
(0.06
)
Gain/(loss) from sale of discontinued operations, net of tax



 
(0.03
)
 

Net income attributable to CoreLogic
$
0.40


$
0.29

 
$
0.55

 
$
0.49

Diluted income/(loss) per share:
 


 

 
 

 
 

Net income from continuing operations
$
0.39


$
0.37

 
$
0.66

 
$
0.55

Gain/(loss) from discontinued operations, net of tax
0.01


(0.08
)
 
(0.07
)
 
(0.06
)
Gain/(loss) from sale of discontinued operations, net of tax



 
(0.03
)
 

Net income attributable to CoreLogic
$
0.40


$
0.29

 
$
0.56

 
$
0.49

Weighted-average common shares outstanding:
 


 

 
 

 
 

Basic
105,895


108,018

 
106,245

 
111,781

Diluted
106,468


108,641

 
106,886

 
112,486


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

4



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)
2012
 
2011
 
2012
 
2011
Net income attributable to CoreLogic
$
42,657

 
$
31,485

 
$
59,287

 
$
54,740

Other comprehensive income/(loss):
 

 
 

 
 

 
 

Unrealized gain/(loss) on marketable securities, net of tax
1,051

 
272

 
1,099

 
(93
)
Unrealized loss on interest rate swap, net of tax
(690
)
 
(3,541
)
 
(765
)
 
(2,704
)
Foreign currency translation adjustments
(3,152
)
 
1,023

 
1,015

 
1,291

Supplemental benefit plans gain/(loss) adjustment, net of tax
29

 
(17
)
 
24

 
(78
)
Investment gain reclassified to net income, net of tax

 
(246
)
 

 
(15,022
)
Total other comprehensive (loss)/income
(2,762
)
 
(2,509
)
 
1,373

 
(16,606
)
Comprehensive income attributable to CoreLogic
$
39,895

 
$
28,976

 
$
60,660

 
$
38,134

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

5



CoreLogic, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
 
For the Six Months Ended
 
June 30,
(in thousands)
2012
 
2011
Cash flows from operating activities:
 
 
 
Net income
$
59,129

 
$
55,805

Less: Loss from discontinued operations, net of tax
(7,985
)
 
(6,905
)
Less: Loss from sale of discontinued operations, net of tax
(2,987
)
 

Net income from continuing operations
70,101

 
62,710

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

 
 

Depreciation and amortization
60,396

 
49,315

Provision for bad debt and claim losses
11,205

 
11,380

Share-based compensation
9,031

 
5,978

Equity in earnings of affiliates, net of taxes
(21,215
)
 
(12,053
)
Loss on sale of property and equipment
960

 

Loss on early extinguishment of debt
353

 
10,190

Deferred income tax
903

 
25,538

Gain on investments and other, net
(389
)
 
(90,901
)
Change in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts receivable
(26,658
)
 
8,728

Prepaid expenses and other current assets
878

 
(13,491
)
Accounts payable and accrued expenses
2,257

 
(11,989
)
Deferred revenue
(1,892
)
 
(23,554
)
Due to/from FAFC
471

 
(15,092
)
Income taxes
47,153

 
7,354

Dividends received from investments in affiliates
37,219

 
23,144

Other assets and other liabilities
(7,706
)
 
(1,353
)
Net cash provided by operating activities - continuing operations
183,067

 
35,904

Net cash provided by operating activities - discontinued operations
9,490

 
5,557

Total cash provided by operating activities
$
192,557

 
$
41,461

Cash flows from investing activities:
 

 
 

Purchase of redeemable noncontrolling interests

 
(72,000
)
Purchases of capitalized data and other intangible assets
(15,397
)
 
(13,158
)
Purchases of property and equipment
(24,939
)
 
(22,674
)
Cash paid for acquisitions, net of cash acquired

 
(184,220
)
Purchases of investments

 
(28,721
)
Proceeds from sale of property and equipment
1,832

 

Proceeds from sale of investments

 
53,847

Change in restricted cash
123

 

Net cash used in investing activities - continuing operations
(38,381
)
 
(266,926
)
Net cash used in investing activities - discontinued operations
(4,745
)
 
(2,999
)
Total cash used in investing activities
$
(43,126
)
 
$
(269,925
)
Cash flows from financing activities:
 

 
 

Proceeds from long-term debt

 
857,646

Debt issuance costs

 
(21,636
)
Repayment of long-term debt
(113,825
)
 
(704,619
)
Proceeds from issuance of stock related to stock options and employee benefit plans
768

 
3,420

Minimum tax withholding paid on behalf of employees for restricted stock units
(2,577
)
 
(1,844
)
Shares repurchased and retired
(28,744
)
 
(176,512
)
Distribution to noncontrolling interests
(10
)
 
(4,615
)
Tax benefit related to stock options
109

 
367

Net cash used in financing activities - continuing operations
(144,279
)
 
(47,793
)
Net cash provided by financing activities - discontinued operations
2

 

Total cash used in financing activities
$
(144,277
)
 
$
(47,793
)
Net increase/(decrease) in cash and cash equivalents
5,154

 
(276,257
)
Cash and cash equivalents at beginning of period
259,266

 
426,212

Less: Change in cash and cash equivalents  - discontinued operations
4,747

 
2,558

Cash and cash equivalents at end of period
$
259,673

 
$
147,397

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
27,632

 
$
19,421

Cash paid for income taxes
$
8,708

 
$
19,569

Cash refunds from income taxes
$
14,394

 
$
6,088

Non-cash financing activities:
 
 
 
Adjustment of carrying value of mandatorily redeemable noncontrolling interest
$

 
$
(3,800
)
Non-cash investing activities:
 
 
 
Note payable issued for investment in affiliate
$

 
$
12,700


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

6



CoreLogic, Inc.
Condensed Consolidated Statement of Equity
(unaudited)
 
(in thousands)
Common
Stock
Shares
 
Common
Stock
Amount
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Noncontrolling
Interests
 
Total
Balance as of December 31, 2011
106,544

 
$
1

 
$
1,053,447

 
$
209,389

 
$
(20,316
)
 
$
2,300

 
$
1,244,821

Net income/(loss)

 

 

 
59,287

 

 
(158
)
 
59,129

Shares issued in connection with share-based compensation
405

 

 
768

 

 

 

 
768

Tax withholdings related to net share settlements of restricted stock units

 

 
(2,577
)
 

 

 

 
(2,577
)
Share-based compensation

 

 
9,082

 

 

 

 
9,082

Shares repurchased and retired
(1,684
)
 

 
(28,744
)
 

 

 

 
(28,744
)
Distributions to noncontrolling interests

 

 

 

 

 
(11
)
 
(11
)
Additional Separation distribution of FAFC

 

 
8,932

 
(3,202
)
 

 

 
5,730

Other comprehensive income

 

 

 

 
1,373

 

 
1,373

Balance as of June 30, 2012
105,265

 
$
1

 
$
1,040,908

 
$
265,474

 
$
(18,943
)
 
$
2,131

 
$
1,289,571

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

7




Note 1 – Basis of Condensed Consolidated Financial Statements

CoreLogic, Inc. and its subsidiaries (collectively "we", "us" or "our") is a leading provider of information, analytics and business services to mortgage originators and servicers, financial institutions and other businesses, government and government-sponsored enterprises.

Our condensed consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) including the instructions to Form 10-Q and Article 10 of SEC Regulation S-X. 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 U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. The principles for interim financial information do 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, 2011, as amended.

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.

Reclassifications

Our previously issued interim financial statements have been recast to present our marketing services, consumer services, transportation services and appraisal management company businesses as discontinued operations, as described in Note 12 - Discontinued Operations.
 
Separation Transaction

On June 1, 2010, we completed the separation transactions (the "Separation") under which we spun off our financial services businesses into a new, publicly-traded, New York Stock Exchange-listed company called First American Financial Corporation (“FAFC”) through a distribution (the “Distribution”) of all of the outstanding shares of FAFC, to the holders of our common shares, par value $1.00 per share, as of May 26, 2010. After the Distribution, we retained the information solutions businesses.

To effect the Separation, we entered into a Separation and Distribution Agreement (the “Separation and Distribution Agreement”) that governs the rights and obligations of the Company and FAFC regarding the Distribution. It also governs the on-going relationship between the Company and FAFC subsequent to the completion of the Separation and provides for the allocation of assets and liabilities between FAFC and the Company. In addition, we also entered into a Restrictive Covenants Agreement and a Tax Sharing Agreement (the “Tax Sharing Agreement”) as described in Note 7 – Income Taxes.

While we are a party to the Separation and Distribution Agreement and various other agreements relating to the Separation, we have determined that we have no material continuing involvement in the operations of FAFC. 

In connection with the Separation, we issued approximately $250.0 million, in value, or 12,933,265 shares of our common stock to FAFC. Based on the closing price of our stock on June 1, 2010, the value of the equity issued to FAFC was $242.6 million. As a result, we made a cash payment to FAFC of $7.4 million to arrive at the full value of $250.0 million. FAFC has agreed to dispose of the shares five years after the Separation or to bear any adverse tax consequences arising out of holding the shares for longer than that period. On April 11, 2011, we purchased 4.0 million shares of our common stock from a wholly-owned subsidiary of FAFC for total consideration of $75.8 million based on a spot market price of our common stock on April 5, 2011 of $18.95 per share. The price per share was agreed upon by the parties during the trading day on April 5, 2011. See further discussion at Note 13 - Transactions with FAFC.

Prior to the Separation, we operated primarily as a title insurance company regulated under Article 7 of Regulation S-X and were not subject to the requirements of Article 5 of Regulation S-X. Rule 5-03 of Regulation S-X requires Article 5 companies, such as us, to classify expenses in a functional manner. We intend to classify external cost of revenues, salaries and benefits and other operating expenses into cost of revenues and selling, general and administrative ("SG&A") expenses, and

8



expect to present our income statement under this classification with our annual report on Form 10-K for the year ended December 31, 2012 and all periods presented therein. We believe classifying these expenses on a functional basis will not be material to the financial statements as a whole, as there will be no impact to total expenses previously reported, nor will it impact the statement of operations in terms of overall revenues, operating income, net income or earnings per share. In addition, there will be no impact on our balance sheets or statements of cash flow.

Escrow Administration Arrangements

We administer escrow deposits as a service to our customers in connection with our tax services business. These deposits are maintained in segregated accounts for the benefit of our customers. Escrow deposits totaled $538.0 million as of June 30, 2012 and $593.9 million at December 31, 2011. Escrow deposits held on behalf of our customers are not our funds and, therefore, are not included in the accompanying consolidated balance sheets.

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

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (“FASB”) issued updated guidance related to the presentation of offsetting (netting) assets and liabilities in the financial statements. The guidance requires the disclosure of both gross information and net information on instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities lending arrangements. The updated guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Management does not expect the adoption of this guidance to have a material impact on our consolidated financial statements.

In September 2011, the FASB issued updated guidance related to the testing of goodwill for impairment. The guidance provides that an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. The updated guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In June 2011, the FASB issued updated guidance related to the presentation of comprehensive income. The guidance provides that an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The updated guidance is effective for annual financial reporting periods beginning after December 15, 2011 and for interim periods within the fiscal year. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In May 2011, the FASB issued updated guidance related to fair value measurements and disclosures. The update provides amendments to achieve common fair value measurements and disclosure requirements in GAAP and International Financial Reporting Standards. The amendments in this update explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The updated guidance is effective during interim and annual financial reporting periods beginning after December 15, 2011. The adoption of this guidance did not have a material impact on our consolidated financial statements.


9



Note 2 – Investment in Affiliates, net

Investments in affiliates are accounted for under the equity method of accounting as we are deemed to have significant influence over the affiliate but do not control or have a majority voting interest in the affiliate. Investments are carried at the cost of acquisition, including subsequent capital contributions and loans from us, plus our equity in undistributed earnings or losses since inception of investment. We recorded equity in earnings of affiliates net of tax of $11.7 million and $5.7 million for the three months ended June 30, 2012 and 2011, respectively, and $21.2 million and $12.1 million for the six months ended June 30, 2012 and 2011, respectively. Income tax expense of $7.5 million and $3.8 million was recorded on these earnings for the three months ended June 30, 2012 and 2011, respectively, and $13.5 million and $8.0 million for the six months ended June 30, 2012 and 2011, respectively.

One of our subsidiaries owns a 50.1% interest in a joint venture that provides products and services used in connection with loan originations. This investment in affiliate contributed 67.3% and 96.3% of our total equity in earnings of affiliates, net of tax, for the three months ended June 30, 2012 and 2011, respectively, and 73.3% and 88.3% for the six months ended June 30, 2012 and 2011, respectively. Based on the terms and conditions of the joint venture agreement, we have significant influence but do not have control of, nor a majority voting interest in, the joint venture. Accordingly, this investment is accounted for under the equity method. Summarized financial information for this investment (assuming a 100% ownership interest) is as follows: 
 
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2012
 
2011
 
2012
 
2011
Statement of operations
 
 
 
 
 
 
 
Net revenues
$
127,441

 
$
89,620

 
$
250,771

 
$
174,313

Expenses
101,014

 
71,160

 
198,735

 
138,626

Income before income taxes
$
26,427

 
$
18,460

 
$
52,036

 
$
35,687

Net income
$
26,291

 
$
18,314

 
$
51,759

 
$
35,392

CoreLogic equity in earnings of affiliate, pre-tax
$
13,172

 
$
9,175

 
$
25,931

 
$
17,731


In July 2012, we completed our acquisition of the remaining interest in RELS Reporting Services, LLC (dba RELS Credit) ("RELS Credit"), which resulted in a non-cash impairment charge of $1.2 million in our investments in affiliates, net for the three and six months ended of June 30, 2012. This non-cash impairment charge is included in gain/(loss) on investment and other, net in the accompanying condensed consolidated statements of income.

Note 3 – Marketable Securities
 
 
 
 
Our marketable securities consist primarily of investments in preferred stock of $22.7 million and $20.9 million as of June 30, 2012 and December 31, 2011, respectively. We classify our marketable securities as available-for-sale and carry them at fair value with unrealized gains or losses classified as a component of accumulated other comprehensive income. For the six months ended June 30, 2011, we sold marketable securities resulting in a realized pre-tax gain of $24.9 million. There were no gains or losses recognized on sales of marketable securities for the three months ended June 30, 2011 and the three and six months ended June 30, 2012.


10



Note 4 – Goodwill, net

A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the six months ended June 30, 2012, is as follows:
 
(in thousands)
Data and
Analytics
 
Mortgage Origination Services
 
Default Services
 
Consolidated
Balance at January 1, 2012
 
 
 
 
 
 
 
Goodwill
$
649,648

 
$
680,674

 
$
149,409

 
$
1,479,731

Accumulated impairment losses
(600
)
 
(6,925
)
 

 
(7,525
)
Goodwill, net
649,048

 
673,749

 
149,409

 
1,472,206

Translation adjustments
940

 

 

 
940

Balance at June 30, 2012
 
 
 
 
 
 
 
Goodwill, net
$
649,988

 
$
673,749

 
$
149,409

 
$
1,473,146


We have reclassified $1.6 million and $17.3 million of goodwill, net, to assets of discontinued operations as of June 30, 2012 and December 31, 2011, respectively.

Note 5 – Other Intangible Assets, net

Other intangible assets consist of the following:
 
 
June 30,
 
December 31,
(in thousands)
2012
 
2011
Customer lists
$
257,957

 
$
276,112

Noncompete agreements
6,359

 
7,898

Trade names and licenses
24,447

 
24,402

 
288,763

 
308,412

Less accumulated amortization
(137,589
)
 
(144,047
)
Other intangible assets, net
$
151,174

 
$
164,365


Amortization expense for other intangible assets was $6.7 million and $6.2 million for the three months ended June 30, 2012 and 2011, respectively, and $13.4 million and $11.0 million for the six months ended June 30, 2012 and 2011, respectively. We have reclassified $2.4 million and $2.6 million of other intangible assets, net, to assets of discontinued operations as of June 30, 2012 and December 31, 2011, respectively.
 
Estimated amortization expense for other intangible assets anticipated for the next five years is as follows:
 
(in thousands)                                     
 
Remainder of 2012
$
13,317

2013
24,687

2014
17,810

2015
16,329

2016
15,230

Thereafter
63,801

 
$
151,174



11



Note 6 – Long-Term Debt

Our long-term debt consists of the following:
 
 
 
June 30,
 
December 31,
(in thousands)
2012
 
2011
Acquisition related notes:
 
 
 
 
Non-interest bearing acquisition note due in $5.0 million installments March 2014 and 2016
$
8,503

 
$
13,209

Notes:
 
 

 
 

 
7.25% senior notes due June 2021
393,000

 
400,000

 
5.7% senior debentures due August 2014
1,175

 
1,175

 
7.55% senior debentures due April 2028
59,645

 
59,645

 
8.5% deferrable interest subordinated notes due April 2012

 
34,768

Bank debt:
 
 

 
 

 
Revolving line of credit borrowings due March 2016, weighted average interest rate of 6.8%
51,190

 
51,045

 
Term loan facility borrowings through March 2016, weighted average interest rate of 4.0%
280,000

 
341,250

Other debt:
 
 

 
 

 
Various interest rates with maturities through 2013
1,102

 
7,203

Total long-term debt
794,615

 
908,295

Less current portion of long-term debt
955

 
62,268

Long-term debt, net of current portion
$
793,660

 
$
846,027


Senior Notes

On May 20, 2011, we issued $400.0 million aggregate principal amount of 7.25% senior notes due 2021 (the "Notes"). Separate financial statements for each guarantor subsidiary are not included in this filing because each guarantor subsidiary is wholly-owned and the guarantees of the Notes are full and unconditional and joint and several. There are no significant restrictions on the ability of the parent company or any guarantor subsidiary to obtain funds from its subsidiaries by dividend or loan. The Notes bear interest at 7.25% per annum and mature on June 1, 2021. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2011. For the six months ended June 30, 2012, we repurchased $7.0 million of the Notes. As of June 30, 2012, we were in compliance with all of our covenants under the indenture.

Credit Agreement

On May 23, 2011, the Company, CoreLogic Australia Pty Limited and the guarantors named therein entered into a senior secured credit facility agreement (the "Credit Agreement") with Bank of America, N.A. as administrative agent and other financial institutions. The Credit Agreement provides for a $350.0 million five-year term loan facility (the "Term Facility") and a $550.0 million revolving credit facility (the "Revolving Facility"). The Revolving Facility includes a $100.0 million multicurrency revolving sub-facility and a $50.0 million letter of credit sub-facility. As of June 30, 2012, A$50.0 million, or $51.2 million, is outstanding under the multicurrency revolving sub-facility related to our acquisition of RP Data Limited ("RP Data"). The Credit Agreement also provides for the ability to increase the Term Facility and Revolving Facility commitments provided that the total credit exposure under the Credit Agreement does not exceed $1.4 billion in the aggregate. For the six months ended June 30, 2012, we paid $61.3 million of outstanding indebtedness under the Term Facility of which $43.8 million was a prepayment. This prepayment was applied to the most current portion of the term loan amortization schedule.

As of June 30, 2012 and December 31, 2011, we have recorded $3.7 million and $4.4 million, respectively, of accrued interest expense. For the six months ended June 30, 2012, debt prepayments resulted in $0.4 million of incremental interest expense in the accompanying condensed consolidated statements of income due to the write-off of unamortized debt issuance costs.


12



Acquisition-Related Notes

In March 2011, we entered into a new settlement services joint venture with Speedy Title & Appraisal Review Services LLC ("STARS"). Our initial investment in STARS was $20.0 million and we also issued a note payable for an additional $15.0 million of consideration, which is non-interest bearing and due in three equal installments. As of June 30, 2012, the discounted balance outstanding under the note was $8.5 million.

Interest Rate Swaps
 
In June 2011, we entered into amortizing interest rate swap transactions (“Swaps”) with a termination date of May 2016. The Swaps had an initial notional value of $200.0 million, with a fixed interest rate of 1.73% and amortize quarterly by $2.5 million through September 30, 2013, $5.0 million from October 1, 2013 through September 30, 2014 and $7.5 million from October 1, 2014 through May 16, 2016, with a notional amount of $107.5 million.
 
We entered into the Swaps in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. We have designated the Swaps as cash flow hedges. The estimated fair value of these cash flow hedges resulted in a liability of $6.3 million and $5.1 million at June 30, 2012 and December 31, 2011, respectively, which is included in the accompanying condensed consolidated balance sheets as a component of other assets.
 
For the three months ended June 30, 2012 and June 30, 2011, unrealized losses of $0.7 million (net of $0.5 million in deferred taxes) and $3.5 million (net of $2.4 million in deferred taxes) were recognized in other comprehensive income/(loss) related to the Swaps. For the six months ended June 30, 2012 and June 30, 2011, unrealized losses of $0.8 million (net of $0.5 million in deferred taxes) and $2.7 million (net of $1.8 million in deferred taxes) were recognized in other comprehensive income/(loss) related to the Swaps.

Note 7 – Income Taxes

The effective income tax rate (provision for income taxes as a percentage of income from continuing operations before equity in earnings of affiliates and income taxes) was 44.5% and 39.4% for the three months ended June 30, 2012 and 2011, respectively, and 43.0% and 52.6% for the six months ended June 30, 2012 and 2011, respectively. The change in the effective rate is primarily attributable to the reversal of a deferred tax asset related to our interest in Dorado Network Systems Corporation (“Dorado”) when it was held as an equity method investment during the six months ended June 30, 2011. Income taxes included in equity in earnings of affiliates were $7.5 million and $3.8 million for the three months ended June 30, 2012 and 2011, respectively, and $13.5 million and $8.0 million for the six months ended June 30, 2012 and 2011, respectively. For the purpose of segment reporting, these amounts are not reflected at the segment level but are recorded as a component of the corporate and eliminations group.
 
As of June 30, 2012 and December 31, 2011, the liability for income taxes associated with uncertain tax positions was $56.3 million and $19.3 million, respectively. The increase in the liability as of June 30, 2012 relates primarily to the Company's claim, on behalf of FAFC, for a timing adjustment in a prior year tax return. The claim is for FAFC losses reported and is subject to indemnification from FAFC under the Tax Sharing Agreement. As of June 30, 2012, the liability can be reduced by $1.8 million of offsets related to state income taxes and timing adjustments. The net amount of $54.5 million, if recognized, would favorably affect the Company's effective tax rate and after considering the impact of the agreement with FAFC, the impact to net income would be $6.8 million.
 
The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various state jurisdictions, and various non-U.S. jurisdictions. With a few exceptions, we are no longer subject to U.S. federal, state, and non-U.S. income tax examinations by taxing authorities for years prior to 2007.
 
It is reasonably possible that the amount of the unrecognized benefit with respect to certain of our unrecognized tax positions could significantly increase or decrease within the next 12 months. These changes may be the result of items such as ongoing audits, competent authority proceedings related to transfer pricing, or the expiration of federal and state statutes of limitation for the assessment of taxes.
 
We entered into a Tax Sharing Agreement with FAFC in connection with the Separation. The Tax Sharing Agreement governs ours and FAFC’s respective rights, responsibilities and obligations after the Distribution with respect to taxes, including ordinary course of business taxes and taxes, if any, incurred as a result of any failure of the Distribution to qualify as a tax-free distribution for U.S. federal income tax purposes within the meaning of Section 355 of the Internal Revenue Code of

13



1986, as amended, and taxes incurred in connection with certain internal transactions undertaken in anticipation of the Separation. Our rights, responsibilities and obligations under the Tax Sharing Agreement are discussed in our Annual Report filed with the SEC on Form 10-K for the year ended December 31, 2011, as amended.

Note 8 – Earnings Per Share
 
The following is a reconciliation of net income per share, using the treasury-stock method:

 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
 
2012
 
2011
 
2012
 
2011
(in thousands, except per share amounts)
 
 
 
 
 
 
 
Numerator for basic and diluted net income/(loss) per share:
 
 
 
 
 
 
 
Net income from continuing operations
$
41,208

 
$
40,041

 
$
70,259

 
$
61,645

Gain/(loss) from discontinued operations, net of tax
983

 
(8,556
)
 
(7,985
)
 
(6,905
)
Gain/(loss) from sale of discontinued operations, net of tax
466

 

 
(2,987
)
 

Net income attributable to CoreLogic
$
42,657

 
$
31,485

 
$
59,287

 
$
54,740

Denominator:
 

 
 

 
 

 
 

Weighted-average shares for basic income/(loss) per share
105,895

 
108,018

 
106,245

 
111,781

Dilutive effect of stock options and restricted stock units
573

 
623

 
641

 
705

Weighted-average shares for diluted income/(loss) per share
106,468

 
108,641

 
106,886

 
112,486

Income/(loss) per share
 

 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

Net income from continuing operations
$
0.39

 
$
0.37

 
$
0.66

 
$
0.55

Gain/(loss) from discontinued operations, net of tax
0.01

 
(0.08
)
 
(0.08
)
 
(0.06
)
Gain/(loss) from sale of discontinued operations, net of tax



 
(0.03
)
 

Net income attributable to CoreLogic
$
0.40

 
$
0.29

 
$
0.55

 
$
0.49

Diluted:
 

 
 
 
 
 
 
Net income from continuing operations
$
0.39

 
$
0.37

 
$
0.66

 
$
0.55

Gain/(loss) from discontinued operations, net of tax
0.01

 
(0.08
)
 
(0.07
)
 
(0.06
)
Gain/(loss) from sale of discontinued operations, net of tax



 
(0.03
)
 

Net income attributable to CoreLogic
$
0.40

 
$
0.29

 
$
0.56

 
$
0.49


For the three months ended June 30, 2012 and 2011, 5.1 million and 5.7 million stock options and restricted stock units, respectively, were excluded from the computation of diluted earnings per share due to their anti-dilutive effect. For the six months ended June 30, 2012 and 2011, 4.9 million and 5.2 million stock options and restricted stock units, respectively, were excluded from the computation of diluted earnings per share due to their anti-dilutive effect.

Note 9 – Fair Value of Financial Instruments

Fair value is the price that would be received to sell 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.
 

14



The market approach is applied for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Fair value balances are classified based on the observability of those inputs.
 
A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize observable inputs in markets other than active markets.

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

Cash and cash equivalents

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

Restricted cash

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

Marketable securities

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

Long-term debt

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

Interest rate swap agreements
 
The fair value of the interest rate swap agreements 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, 2012 are presented in the following table:

 
Fair Value Measurements Using
 
 
(in thousands)
Level 1
 
Level 2
 
Fair Value
Financial Assets:
 
 
 
 
 
Cash and cash equivalents
$
259,673

 
$

 
$
259,673

Restricted cash

 
22,034

 
22,034

Equity securities
22,683

 

 
22,683

Total Financial Assets
$
282,356

 
$
22,034

 
$
304,390

 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
Total debt

 
832,279

 
832,279

Total Financial Liabilities
$

 
$
832,279

 
$
832,279

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Interest rate swap agreements
$

 
$
(6,330
)
 
$
(6,330
)
    
    

15



The fair values of our financial instruments as of December 31, 2011 are presented in the following table:

 
Fair Value Measurements Using
 
(in thousands)
Level 1
 
Level 2
 
Fair Value
Financial Assets:
 
 
 
 
 
Cash and cash equivalents
$
259,266

 
$

 
$
259,266

Restricted cash

 
22,044

 
22,044

Equity securities
20,884

 

 
20,884

Total Financial Assets
$
280,150

 
$
22,044

 
$
302,194

 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
Total debt

 
828,990

 
828,990

Total Financial Liabilities
$

 
$
828,990

 
$
828,990

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Interest rate swap agreements
$

 
$
(5,078
)
 
$
(5,078
)

Note 10 – Stock-Based Compensation

We currently issue equity awards under the CoreLogic, Inc. 2011 Performance Incentive Plan (the “Plan”) which was approved by our stockholders at our Annual Meeting held on May 19, 2011. The Plan permits the grant of restricted stock units (“RSUs”), performance-based restricted stock units ("PBRSUs"), stock options, stock appreciation rights, stock bonuses and other forms of awards granted or denominated in our common stock, as well as cash bonus awards. The Plan was adopted, in part, to make an additional 18,000,000 shares of the Company's common stock available for award grants, so that the Company will have sufficient authority and flexibility to adequately provide for future incentives. Prior to the approval of the Plan, we issued share-based awards under the CoreLogic, Inc. 2006 Incentive Plan (the “2006 Plan”).

We primarily utilize RSUs, PBRSUs and stock options 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 the vesting period.

Restricted Stock Units

For the six months ended June 30, 2012, we awarded 718,315 RSUs with an estimated grant date fair value of $11.9 million. The RSU awards will vest ratably over three years.
    
RSU activity for the six months ended June 30, 2012, 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, 2011
1,193

 
$
17.74

RSUs granted
718

 
$
16.58

RSUs vested
(409
)
 
$
18.21

RSUs forfeited
(40
)
 
$
16.46

Unvested RSUs outstanding at June 30, 2012
1,462

 
$
17.07


As of June 30, 2012, there was $16.8 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.4 years. The fair value of RSUs is based on the market value of the Company’s common stock on the date of grant.


16



Performance-Based Restricted Stock Units

For the six months ended June 30, 2012, we awarded 345,348 PBRSUs with an estimated grant date fair value of $5.5 million. These awards are subject to both service-based and performance-based vesting. The performance period is from January 1, 2012 to December 31, 2012 and the performance metric is adjusted earnings per share. To the extent the performance criteria are satisfied, the awards vest on December 31, 2014.

PBRSU activity for the six months ended June 30, 2012, 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, 2011
988

 
$
17.71

PBRSUs granted
345

 
$
16.05

PBRSUs vested
(103
)
 
$
17.76

PBRSUs forfeited
(41
)
 
$
17.92

Unvested PBRSUs outstanding at June 30, 2012
1,189

 
$
17.22


As of June 30, 2012, there was $15.3 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 2.2 years. The fair value of PBRSUs is based on the market value of the Company's common stock on the date of grant.

Stock Options

In 2012 and 2011, we issued stock options as incentive compensation for certain key employees. The exercise price of each stock option is the closing market price of our common stock on the date of grant. The 2012 and 2011 options will vest in three equal annual installments on the first, second and third anniversaries of grant and expire ten years after the grant date. The fair values of these stock options were estimated using the Black-Scholes valuation model with the following weighted-average assumptions:

 
For the Three Months Ended
 
June 30,
 
2012
 
2011
Expected dividend yield
%
 
%
Risk-free interest rate (1)
1.00
%
 
2.01
%
Expected volatility (2)
42.81
%
 
32.02
%
Expected life (3)
5.5

 
5.5


(1)
The risk-free interest rate for the periods within the contractual term of the options is based on the U.S. Treasury yield curve in effect at the time of the grant.
(2)
The expected volatility is a measure of the amount by which a stock price has fluctuated or is expected to fluctuate based primarily on our and our peers' historical data.
(3)
The expected life is the period of time, on average, that participants are expected to hold their options before exercise based primarily on our historical data.


17



Option activity for the six months ended June 30, 2012 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, 2011
4,601

 
$
20.78

 
 
 
 
Options granted
581

 
$
16.00

 
 
 
 
Options exercised
(76
)
 
$
13.82

 
 
 
 
Options canceled
(590
)
 
$
21.63

 
 
 
 
Options outstanding at June 30, 2012
4,516

 
$
20.11

 
5.6

 
$
3,922

Options vested and expected to vest at June 30, 2012
4,457

 
$
20.16

 
5.5

 
$
3,801

Options exercisable at June 30, 2012
2,912

 
$
21.88

 
3.8

 
$
1,418


As of June 30, 2012, there was $8.0 million of total unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted-average period of 2.2 years.

The intrinsic value of options exercised was $0.3 million for both the six months ended June 30, 2012 and 2011. This intrinsic value represents the difference between the fair market value of the Company’s common stock on the date of exercise and the exercise price of each option.

Employee Stock Purchase Plan

The employee stock purchase plan allowed eligible employees to purchase our common stock at 85.0% of the closing price on the last day of each quarter. The employee stock purchase plan expired in September 2011. We recognized an expense for the amount equal to the discount.
    
The following table sets forth the stock-based compensation expense recognized for the three months ended June 30, 2012 and 2011.
 
 
For the Three Months Ended
 
For the Six Months Ended
 
June 30,
 
June 30,
(in thousands)
2012
 
2011
 
2012
 
2011
RSUs
$
2,575

 
$
1,999

 
4,788

 
3,741

PBRSUs
1,164

 
319

 
2,524

 
904

Stock options
938

 
434

 
1,719

 
1,141

Employee stock purchase plan

 
116

 

 
192

 
$
4,677

 
$
2,868

 
$
9,031

 
$
5,978


Note 11 – Litigation and Regulatory Contingencies

We have been named in various lawsuits. Also, we may from time to time be subject to audit or investigation by governmental agencies. Currently, governmental agencies are auditing or investigating certain of our operations. We do not believe the results of these audits or investigations will be material at this time. We are also in litigation with governmental agencies regarding certain appraisal matters.

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, or 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 have been incurred. We record expenses for legal fees as incurred.


18



We have $3.4 million as of June 30, 2012 and $6.9 million as of December 31, 2011 reserved for litigation and regulatory contingency matters.

FDIC

On May 9, 2011, the Federal Deposit Insurance Corporation (the “FDIC”), as Receiver of Washington Mutual Bank (“WaMu”), filed a complaint in the United States District Court for the Central District of California (the “Court”) against CoreLogic Valuation Services, LLC (“CVS”), f/k/a eAppraiseIT, LLC (“eAppraiseIT”) and several of its current and former affiliates (the "defendants").
    
The FDIC complaint alleged that eAppraiseIT was grossly negligent and breached its contract with WaMu in the provision of appraisal services in 2006 and 2007 relating to 194 residential mortgage loans. On November 14, 2011, the Court granted the defendants' motion to dismiss the FDIC's gross negligence, alter ego, single business enterprise and joint venture claims, and a portion of the breach of contract claim. On November 30, 2011, the FDIC filed its first amended complaint, alleging only breach of contract claims and naming only CVS f/k/a eAppraiseIT and its parent CoreLogic Real Estate Solutions, LLC f/k/a First American Real Estate Solutions, LLC as Defendants. FDIC seeks to recover losses of at least $129.0 million it alleges WaMu suffered on loans allegedly related to the appraisal services. On February 6, 2012, the Court granted the defendants' motion to dismiss the FDIC's $16.0 million breach of contract claim related to 26 appraisal services allegedly provided before the effective date of the WaMu - eAppraiseIT Agreement. On February 16, 2012, the FDIC filed a second amended complaint reasserting that claim. On April 25, 2012, the Court granted the defendants' motion to dismiss that $16.0 million claim with prejudice.

The Company intends to defend against the remaining claims vigorously; however, we may not be successful. At this time, we cannot predict the ultimate outcome of this claim or the potential range of damages, if any.

New York Attorney General
 
On November 1, 2007, the New York Attorney General filed a complaint in New York state court against First American Corporation (“First American”) and eAppraiseIT, LLC (“eAppraiseIT”). CoreLogic and its subsidiary, CoreLogic Valuation Services, LLC (“CVS”), are the successors in interest to First American and eAppraiseIT.
  
The lawsuit concerns appraisal services eAppraiseIT obtained for Washington Mutual Bank (“WaMu”) in New York in 2006-2007. The Attorney General asserts that eAppraiseIT acceded to pressure from WaMu in the spring of 2007 and agreed to use a panel of appraisers chosen by WaMu's loan origination staff because they allegedly provided opinions of value that would allow loans to close and that First American and eAppraiseIT falsely represented to the public that the appraisals produced through their efforts were independent of the lender and in compliance with Uniform Standards of Professional Appraisal Practice. The Attorney General subsequently dropped its damages claims, but continues to seek civil penalties, restitution, disgorgement, and unspecified injunctive relief. On November 22, 2011, the Court of Appeals of New York issued a divided ruling affirming lower court decisions denying the defendants' motion to dismiss the complaint on grounds that the Attorney General's claims are pre-empted by federal law. On April 16, 2012, the United States Supreme Court declined to review the Court of Appeals decision. The bench trial for this matter began on June 13, 2012 in New York state trial court and is currently ongoing on a schedule of several days of testimony per month.

The Company intends to defend against these claims vigorously; however, we may not be successful. At this time, we cannot predict the ultimate outcome of this claim.
 
RESPA Class Action

On February 8, 2008, a purported class action was filed in the United States District Court for the Northern District of California, San Jose Division, against Washington Mutual Bank (“WaMu”) and First American eAppraiseIT (“eAppraiseIT”) alleging breach of contract, unjust enrichment, and violations of the Real Estate Settlement Procedures Act (“RESPA”), the California Unfair Competition Law and the California Consumers Legal Remedies Act. The complaint was largely based on the above-described complaint filed by the New York Attorney General and alleged conspiracies between WaMu and eAppraiseIT to allow WaMu to direct appraisers to artificially inflate appraisals in order to qualify higher value loans that WaMu could then sell in the secondary market. Plaintiffs subsequently voluntarily dismissed WaMu and on March 9, 2009 and August 30, 2009, the Court dismissed all claims against eAppraiseIT except the RESPA claim.

On July 2, 2010, the Court denied plaintiff's first motion for class certification. On November 19, 2010, the plaintiffs filed a renewed motion for class certification. On April 25, 2012, the Court granted plaintiffs' renewed motion and certified a

19



nationwide class of all persons who, on or after June 1, 2006, received home loans from WaMu in connection with appraisals that were obtained through eAppraiseIT. CoreLogic Valuation Services, LLC (“CVS”), as the successor to eAppraiseIT, intends to seek appeal of that decision. On July 12, 2012, the Ninth Circuit Court of Appeals declined to review the class certification order.

CVS intends to defend against this claim vigorously; however, we may not be successful. At this time we cannot predict the ultimate outcome of this claim or the potential range of damages, if any.

FCRA Class Action

On June 30, 2011, a purported class action was filed in the United States District Court for the Northern District of Illinois against Teletrack, Inc. ("Teletrack"), one of our subsidiaries. The complaint alleges that Teletrack has been furnishing consumer reports to third parties who did not have a permissible purpose to obtain them in violation of the Fair Credit Reporting Act, 15 U.S.C. §1681 et seq., and seeks to recover actual, punitive and statutory damages, as well as attorney's fees, litigation expenses and cost of suit. On September 20, 2011, we filed a Motion to Dismiss the complaint on grounds that the plaintiffs lacked standing. That motion was denied on March 7, 2012. We have denied the allegations and are defending against this claim vigorously; however, we may not be successful. At this time, we cannot predict the ultimate outcome of this claim or the potential range of damages, if any.

Separation

As part of the Separation, we are responsible for a portion of FAFC's contingent and other corporate liabilities.

In 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 in accordance with GAAP.
At June 30, 2012, 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 FAC's financial services business with FAFC and financial responsibility for the obligations and liabilities of FAC's information solutions business with us. Specifically, each party will, and will cause its subsidiaries and affiliates to, indemnify, defend and hold harmless the other party, its respective affiliates and subsidiaries and each of its respective officers, directors, employees and agents for any losses arising out of or otherwise in connection with the liabilities each such party assumed or retained pursuant to the Separation and Distribution Agreement; and any breach by such party of the Separation and Distribution Agreement.

Note 12 – Discontinued Operations

As of June 30, 2012, we determined to wind down our wholly-owned consumer services business in lieu of a sale. As of March 31, 2012, we determined to wind down our wholly-owned appraisal management company business in lieu of a sale which resulted in a pre-tax write-down of the remaining goodwill of $13.9 million in the first quarter of 2012.

As of September 30, 2011, we closed our marketing services business (LeadClick) and concluded we would actively pursue the sale of our consumer services (Consumer Credit Monitoring Services), transportation services (comprised of our American Driving Records and CompuNet Credit Services business units) and our wholly-owned appraisal management company businesses. As a result, each of these businesses is reflected in our consolidated financial statements as discontinued operations and the results of these businesses in the prior years have been recast to conform to the 2012 presentation.

On December 22, 2010, we entered into a purchase agreement with an affiliate of Symphony Technology Group, pursuant to which we sold our employer and litigation services businesses. For the three months ended June 30, 2012, we recognized a loss on sale of discontinued operations, net of tax of $0.5 million for changes in tax related accruals due to expenses incurred in the first quarter of 2012.


20



Summarized below are certain assets and liabilities classified as discontinued operations as of June 30, 2012 and December 31, 2011:

(in thousands)
 
Data Analytics
 
Mortgage Origination
 
Default
 
 
As of June 30, 2012
 
Marketing
 
Consumer
 
Appraisal
 
Transportation
 
Total
Current assets
 
$
837

 
$
16,672

 
$
357

 
$
11,524

 
$
29,390

Property and equipment, net
 

 
92

 
407

 
1,618

 
2,117

Goodwill and other identifiable intangible assets, net
 

 
2,090

 

 
1,877

 
3,967

Other assets
 

 

 

 
100

 
100

Total assets
 
$
837

 
$
18,854

 
$
764

 
$
15,119

 
$
35,574

 
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
$
1,439

 
$
10,359

 
$
6,420

 
$
7,136

 
$
25,354

 
 
 
 
 
 
 
 
 
 
 
As of December 31, 2011
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
3,380

 
$
14,833

 
$
1,038

 
$
13,252

 
$
32,503

Property and equipment, net
 

 
114

 
911

 
1,967

 
2,992

Goodwill and other identifiable intangible assets, net
 

 
2,109

 
13,959

 
3,845

 
19,913

Other assets
 

 

 

 
108

 
108

Total assets
 
$
3,380

 
$
17,056

 
$
15,908

 
$
19,172

 
$
55,516

 
 

 

 

 

 

Total liabilities
 
$
(2,210
)
 
$
11,849

 
$
10,907

 
$
6,853

 
$
27,399


Summarized below are the components of our income/(loss) from discontinued operations for the three months ended June 30, 2012 and 2011:

(in thousands)
 
Data and Analytics
 
Mortgage Origination
 
Default
 
 
For the three months ended June 30, 2012
 
Marketing
 
Consumer
 
Appraisal
 
Transportation
 
Total
Operating revenue
 
$

 
$
24,527

 
$
8,212

 
$
16,785

 
$
49,524

Income/(loss) from discontinued operations before income taxes
 
55

 
3,796

 
(2,353
)
 
(1,701
)
 
(203
)
Income tax expense/(benefit)
 
21

 
1,480

 
(924
)
 
(1,763
)
 
(1,186
)
Income/(loss) from discontinued operations, net of tax
 
$
34

 
$
2,316

 
$
(1,429
)
 
$
62

 
$
983

 
 
 
 
 
 
 
 
 
 
 
For the three months ended June 30, 2011
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
4,936

 
$
24,686

 
$
21,709

 
$
16,650

 
$
67,981

(Loss)/income from discontinued operations before income taxes
 
(13,605
)
 
1,755

 
(2,809
)
 
399

 
(14,260
)
Income tax (benefit)/expense
 
(5,442
)
 
702

 
(1,124
)
 
160

 
(5,704
)
(Loss)/income from discontinued operations, net of tax
 
$
(8,163
)
 
$
1,053

 
$
(1,685
)
 
$
239

 
$
(8,556
)


21



Summarized below are the components of our income/(loss) from discontinued operations for the six months ended June 30, 2012 and 2011:

 
 
Data and Analytics
 
Business Information
 
 
For the six months ended June 30 2012
 
Marketing
 
Consumer
 
Transportation
 
Appraisal
 
Total
Operating revenue
 
$

 
$
47,363

 
$
34,792

 
$
18,199

 
$
100,354

(Loss)/income from discontinued operations before income taxes
 
177

 
5,526

 
(1,730
)
 
(16,554
)
 
(12,581
)
Income tax expense/(benefit)
 
69

 
2,151

 
(1,774
)
 
(5,042
)
 
(4,596
)
(Loss)/income, net of tax
 
108

 
3,375

 
44

 
(11,512
)
 
(7,985
)
Less:  Net income attributable to noncontrolling interests
 

 

 

 

 

(Loss)/income from discontinued operations, net of tax
 
$
108

 
$
3,375

 
$
44

 
$
(11,512
)
 
$
(7,985
)
 
 
 
 
 
 
 
 
 
 
 
For the six months ended June 30, 2011
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
22,969

 
$
50,566

 
$
34,610

 
$
47,548

 
$
155,693

(Loss)/income from discontinued operations before income taxes
 
(13,667
)
 
5,780

 
1,053

 
(4,675
)
 
(11,509
)
Income tax benefit
 
(5,467
)
 
2,312

 
421

 
(1,870
)
 
(4,604
)
Income/(loss), net of tax
 
(8,200
)
 
3,468

 
632

 
(2,805
)
 
(6,905
)
Less:  Net loss attributable to noncontrolling interests
 

 

 

 

 

Income/(loss) from discontinued operations, net of tax
 
$
(8,200
)
 
$
3,468

 
$
632

 
$
(2,805
)
 
$
(6,905
)

Note 13 – Transactions with FAFC

In connection with the Separation, we entered into various transition services agreements with FAFC effective June 1, 2010. The agreements include transitional services in the areas of information technology, tax, accounting and finance, employee benefits and internal audit. Except for the information technology services agreements, the transition services agreements are short-term in nature. For the three months ended June 30, 2012 and 2011, the net amount of $1.7 million and $1.4 million, respectively, (reflecting services provided by us to FAFC and from FAFC to us) was recognized as a reduction of other operating expenses in connection with the transition services agreements. For the six months ended June 30, 2012 and 2011, the net amount of $3.3 million and $3.1 million, respectively, was recognized as a reduction of other operating expenses in connection with the transition services agreements.

In the Separation and Distribution Agreement, we and FAFC agreed 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 cases. We will record our share of any such liability when the responsible party determines a reserve is necessary in accordance with GAAP. At June 30, 2012, no reserves were considered necessary. See further discussion at Note 11 – Litigation and Regulatory Contingencies.

Additionally, as part of the Separation, we entered into a Tax Sharing Agreement whereby FAFC is contingently liable for certain tax liabilities. We recorded a receivable, in other assets in the accompanying Condensed Consolidated Balance Sheets, for these contingent tax obligations from FAFC of $40.7 million and $34.4 million as of June 30, 2012 and December 31, 2011, respectively. The liability for income taxes associated with uncertain tax positions was $47.6 million and $10.4 million as of June 30, 2012 and December 31, 2011, respectively. See further discussion at Note 7 – Income Taxes.

In connection with the Separation transactions, we issued approximately $250.0 million in value, or 12,933,265 shares of our common stock, to FAFC. Based on the closing price of our stock on June 1, 2010, the value of the equity issued to FAFC was $242.6 million. As a result, we made a cash payment to FAFC of $7.4 million to arrive at the full value of $250.0 million.

22



FAFC has agreed to dispose of the shares five years after the Separation or to bear any adverse tax consequences arising out of holding the shares for longer than that period. On April 11, 2011, we purchased 4.0 million shares of our common stock from a wholly-owned subsidiary of FAFC for total consideration of $75.8 million based on a spot market price of our common stock on April 5, 2011 of $18.95 per share. The price per share was agreed upon by the parties during the trading day on April 5, 2011.

FAFC owns two office buildings that are leased to us under the terms of certain lease agreements. Rental expense associated with these properties totaled $1.1 million and $2.2 million for the three and six months ended June 30, 2012 and 2011.

During the three and six months ended June 30, 2012 and 2011, we entered into commercial transactions with affiliates of FAFC. The revenue associated with these transactions, which primarily relate to sales of data and other settlement services totaled $3.8 million and $4.2 million for the three months ended June 30, 2012 and 2011, respectively. The revenue associated with these transactions, which primarily relate to sales of data and other settlement services totaled $7.5 million and $8.1 million for the six months ended June 30, 2012 and 2011, respectively. The expenses related to these transactions, which primarily related to purchase of data and other settlement services, totaled $0.3 million and $1.2 million for the three months ended June 30, 2012 and 2011, respectively. The expenses related to these transactions, which primarily related to the purchase of data and other settlement services, totaled $0.6 million and $3.7 million for the six months ended June 30, 2012 and 2011, respectively.

Note 14 – Segment Information

We have organized our reportable segments into the following three segments: data and analytics, mortgage origination services and default services.

Data and Analytics. Our data and analytics segment owns or licenses data including real estate information (such as property characteristic information, mortgage information, collateral information, and images of publicly recorded documents relating to real property), mortgage-backed securities information, criminal and eviction records, employment verification, and under-banked credit information. We both license our data directly to our customers and provide our customers with analytical products for risk management, collateral assessment, loan quality reviews and fraud assessment. We also provide consumer screening and risk management for the multi-family housing and under-banked credit services industries. Our primary customers are commercial banks, mortgage lenders and brokers, investment banks, fixed-income investors, real estate agents, property and casualty insurance companies, title insurance companies and government-sponsored enterprises.

Our data and analyti