CLGX-9.30.12-10Q


 

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 September 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.)
 
40 Pacifica, Irvine, California
92618-7471
(Address of principal executive offices)
(Zip Code)
 
(949) 214-1013
(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 October 22, 2012 there were 97,472,241 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)
September 30,
 
December 31,
Assets
2012
 
2011
Current assets:
 
 
 
Cash and cash equivalents
$
154,552

 
$
259,266

Marketable securities
21,998

 
20,884

Accounts receivable (less allowance for doubtful accounts of $23,659 and $17,365 as of September 30, 2012 and December 31, 2011, respectively)
260,838

 
213,960

Prepaid expenses and other current assets
51,908

 
51,659

Income tax receivable
—

 
15,110

Deferred income tax assets, current
42,877

 
39,584

Assets of discontinued operations
9,816

 
55,516

Total current assets
541,989

 
655,979

Property and equipment, net
197,214

 
214,237

Goodwill, net
1,475,928

 
1,472,206

Other intangible assets, net
147,966

 
164,365

Capitalized data and database costs, net
309,147

 
304,006

Investment in affiliates, net
109,056

 
113,809

Deferred income tax assets, long-term
30,811

 
38,305

Restricted cash
22,081

 
22,044

Other assets
130,232

 
125,120

Total assets
$
2,964,424

 
$
3,110,071

Liabilities and Equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
165,755

 
$
122,859

Accrued salaries and benefits
91,065

 
86,444

Income taxes payable
14,849

 
—

Deferred revenue, current
223,355

 
201,689

Current portion of long-term debt
320

 
62,268

Liabilities of discontinued operations
19,812

 
27,399

Total current liabilities
515,156

 
500,659

Long-term debt, net of current
794,457

 
846,027

Deferred revenue, net of current
313,466

 
338,799

Deferred income tax liabilities, long term
19,376

 
18,383

Other liabilities
172,138

 
161,382

Total liabilities
1,814,593

 
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; 97,437 and 106,544 shares issued and outstanding as of September 30, 2012 and December 31, 2011, respectively
1

 
1

Additional paid-in capital
858,633

 
1,053,447

Retained earnings
303,795

 
209,389

Accumulated other comprehensive loss
(14,679
)
 
(20,316
)
Total CoreLogic stockholders' equity
1,147,750

 
1,242,521

Noncontrolling interests
2,081

 
2,300

Total equity
1,149,831

 
1,244,821

Total liabilities and equity
$
2,964,424

 
$
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 Nine Months Ended
 
September 30,
 
September 30,
(in thousands, except per share amounts)
2012

2011
 
2012
 
2011
Operating revenues
$
409,760


$
348,446

 
$
1,157,222

 
$
993,149

External cost of revenues
100,769


78,178

 
274,366

 
211,457

Salaries and benefits
133,794


131,523

 
406,045

 
414,545

Other operating expenses
80,778


76,061

 
209,206

 
209,739

Depreciation and amortization
33,037


34,844

 
93,434

 
84,160

Total operating expenses
348,378


320,606

 
983,051

 
919,901

Income from continuing operations
61,382


27,840

 
174,171

 
73,248

Interest expense:
 


 

 
 

 
 

Interest income
800


817

 
2,262

 
4,005

Interest expense
13,525


15,236

 
42,463

 
47,783

Total interest expense, net
(12,725
)

(14,419
)
 
(40,201
)
 
(43,778
)
(Loss)/gain on investments and other, net
(4,254
)

(4,118
)
 
(3,865
)
 
86,783

Income from continuing operations before equity in earnings of affiliates and income taxes
44,403


9,303

 
130,105

 
116,253

Provision for income taxes
16,406


20,535

 
53,222

 
76,829

Income/(loss) from continuing operations before equity in earnings of affiliates
27,997


(11,232
)
 
76,883

 
39,424

Equity in earnings of affiliates, net of tax
8,166


8,340

 
29,381


20,393

Net income/(loss) from continuing operations
36,163


(2,892
)
 
106,264

 
59,817

Loss from discontinued operations, net of tax
(10,157
)

(104,220
)
 
(18,142
)
 
(111,125
)
Gain from sale of discontinued operations, net of tax
12,264


—

 
9,277

 
—

Net income/(loss)
38,270


(107,112
)
 
97,399

 
(51,308
)
Less: Net (loss)/income attributable to noncontrolling interests
(50
)

78

 
(209
)
 
1,142

Net income/(loss) attributable to CoreLogic
$
38,320


$
(107,190
)
 
$
97,608

 
$
(52,450
)
Amounts attributable to CoreLogic stockholders:
 


 

 
 

 
 

Net income/(loss) from continuing operations
$
36,213


$
(2,970
)
 
$
106,473

 
$
58,675

Loss from discontinued operations, net of tax
(10,157
)

(104,220
)
 
(18,142
)
 
(111,125
)
Gain from sale of discontinued operations, net of tax
12,264


—

 
9,277

 
—

Net income/(loss) attributable to CoreLogic
$
38,320


$
(107,190
)
 
$
97,608

 
$
(52,450
)
Basic income/(loss) per share:





 
 
 
 
Net income/(loss) from continuing operations
$
0.36


$
(0.03
)
 
$
1.02

 
$
0.53

Loss from discontinued operations, net of tax
(0.10
)

(0.98
)
 
(0.17
)
 
(1.01
)
Gain from sale of discontinued operations, net of tax
0.12


—

 
0.09

 
—

Net income/(loss) attributable to CoreLogic
$
0.38


$
(1.01
)
 
$
0.94

 
$
(0.48
)
Diluted income/(loss) per share:
 


 

 
 

 
 

Net income/(loss) from continuing operations
$
0.35


$
(0.03
)
 
$
1.01

 
$
0.53

Loss from discontinued operations, net of tax
(0.10
)

(0.98
)
 
(0.17
)
 
(1.00
)
Gain from sale of discontinued operations, net of tax
0.12


—

 
0.09

 
—

Net income/(loss) attributable to CoreLogic
$
0.37


$
(1.01
)
 
$
0.93

 
$
(0.47
)
Weighted-average common shares outstanding:
 


 

 
 

 
 

Basic
101,650


106,414

 
104,713

 
109,993

Diluted
103,113


106,414

 
105,686

 
110,591


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 Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2012
 
2011
 
2012
 
2011
Net income/(loss) attributable to CoreLogic
$
38,320

 
$
(107,190
)
 
$
97,608

 
$
(52,450
)
Other comprehensive income/(loss):
 

 
 

 
 

 
 

Unrealized (loss)/gain on marketable securities, net of tax
(419
)
 
(760
)
 
680

 
(853
)
Reclassification adjustment for gain on securities included in net income
—

 
—

 
—

 
(14,776
)
Unrealized loss on interest rate swap, net of tax
(492
)
 
(3,165
)
 
(1,257
)
 
(5,869
)
Reclassification adjustment for gains on terminated interest rate swap included in net income
—

 
—

 
—

 
(246
)
Foreign currency translation adjustments
5,163

 
(27,789
)
 
6,178

 
(26,498
)
Supplemental benefit plans gain/(loss) adjustment, net of tax
12

 
(7
)
 
36

 
(85
)
Total other comprehensive income/(loss)
4,264

 
(31,721
)
 
5,637

 
(48,327
)
Comprehensive income/(loss) attributable to CoreLogic
$
42,584

 
$
(138,911
)
 
$
103,245

 
$
(100,777
)
 
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 Nine Months Ended

September 30,
(in thousands)
2012

2011
Cash flows from operating activities:
 

 
Net income/(loss)
$
97,399


$
(51,308
)
Less: Loss from discontinued operations, net of tax
(18,142
)

(111,125
)
Less: Gain from sale of discontinued operations, net of tax
9,277


—

Net income from continuing operations
106,264


59,817

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


 

Depreciation and amortization
93,434


84,160

Provision for bad debt and claim losses
16,447


19,163

Share-based compensation
16,211


9,523

Tax benefit related to stock options
(643
)

(234
)
Equity in earnings of affiliates, net of taxes
(29,381
)

(20,393
)
Loss on sale of property and equipment
933


—

Loss on early extinguishment of debt
326


10,190

Deferred income tax
5,538


2,552

Loss/(gain) on investments and other, net
3,865


(86,783
)
Change in operating assets and liabilities, net of acquisitions:
 


 

Accounts receivable
(46,358
)

(17,403
)
Prepaid expenses and other current assets
(326
)

(20,596
)
Accounts payable and accrued expenses
31,725


(16,878
)
Deferred revenue
(3,667
)

(23,935
)
Due to/from FAFC
621


(18,678
)
Income taxes
24,683


60,863

Dividends received from investments in affiliates
46,265


35,215

Other assets and other liabilities
(7,148
)

(6,707
)
Net cash provided by operating activities - continuing operations
258,789


69,876

Net cash provided by/(used in) operating activities - discontinued operations
9,684


(14,051
)
Total cash provided by operating activities
$
268,473


$
55,825

Cash flows from investing activities:
 


 

Purchase of redeemable noncontrolling interests
—


(72,000
)
Purchases of capitalized data and other intangible assets
(24,054
)

(19,874
)
Purchases of property and equipment
(38,753
)

(33,558
)
Cash paid for acquisitions, net of cash acquired
111


(214,214
)
Purchases of investments
—


(26,898
)
Proceeds from sale of subsidiary and other decreases in noncontrolling interest, net
10,000


22,754

Proceeds from sale of property and equipment
1,852


389

Proceeds from sale of investments
8,000


53,847

Change in restricted cash
122


2,616

Net cash used in investing activities - continuing operations
(42,722
)

(286,938
)
Net cash used in investing activities - discontinued operations
(1,512
)

(4,380
)
Total cash used in investing activities
$
(44,234
)

$
(291,318
)
Cash flows from financing activities:
 


 

Proceeds from long-term debt
—


857,985

Debt issuance costs
—


(22,080
)
Repayment of long-term debt
(114,365
)

(727,699
)
Proceeds from issuance of stock related to stock options and employee benefit plans
9,624


4,448

Minimum tax withholding paid on behalf of employees for restricted stock units
(3,015
)

(2,023
)
Shares repurchased and retired
(226,629
)

(176,512
)
Distribution to noncontrolling interests
(10
)

(4,835
)
Tax benefit related to stock options
643


234

Net cash used in financing activities - continuing operations
(333,752
)

(70,482
)
Net cash provided by financing activities - discontinued operations
3


70

Total cash used in financing activities
$
(333,749
)

$
(70,412
)
Net decrease in cash and cash equivalents
(109,510
)

(305,905
)
Cash and cash equivalents at beginning of period
259,266


426,212

Less: Change in cash and cash equivalents - discontinued operations
8,175


(18,361
)
Plus: Cash swept from discontinued operations
12,971

 
—

Cash and cash equivalents at end of period
$
154,552


$
138,668

 
 
 
 
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
31,853

 
$
54,161

Cash paid for income taxes
$
39,029

 
$
35,053

Cash refunds from income taxes
$
15,639

 
$
7,302

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)
—

 
—

 
—

 
97,608

 
—

 
(209
)
 
97,399

Shares issued in connection with share-based compensation
922

 
—

 
9,624

 
—

 
—

 
—

 
9,624

Tax withholdings related to net share settlements of restricted stock units
—

 
—

 
(3,015
)
 
—

 
—

 
—

 
(3,015
)
Share-based compensation
—

 
—

 
16,274

 
—

 
—

 
—

 
16,274

Shares repurchased and retired
(10,029
)
 
—

 
(226,629
)
 
—

 
—

 
—

 
(226,629
)
Distributions to noncontrolling interests
—

 
—

 
—

 
—

 
—

 
(10
)
 
(10
)
Additional Separation distribution of FAFC
—

 
—

 
8,932

 
(3,202
)
 
—

 
—

 
5,730

Other comprehensive income
—

 
—

 
—

 
—

 
5,637

 
—

 
5,637

Balance as of September 30, 2012
97,437

 
$
1

 
$
858,633

 
$
303,795

 
$
(14,679
)
 
$
2,081

 
$
1,149,831

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

7



Note 1 – Basis of Condensed Consolidated Financial Statements

CoreLogic, Inc., together with 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 2011 year-end condensed consolidated balance sheet was derived from audited financial statements. 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 and Out-of-Period Adjustment

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 14 - Discontinued Operations. In addition, the 2011 condensed consolidating financial information in Note 17 - Guarantor Subsidiaries have been revised to properly classify deferred income tax accounts and noncontrolling interest from CoreLogic, Inc.'s (the “Parent's”) to guarantor subsidiaries and non-guarantor subsidiaries.

In connection with preparing our three and nine months ended September 30, 2012 financial statements, we identified an adjustment of $4.1 million related to higher income taxes from discontinued operations in 2011 related to our marketing services business. We assessed the materiality of this error on our current and prior period financial statements in accordance with the SEC's Staff Accounting Bulletins (“SAB”) No. 99 and SAB No. 108, and concluded the error was not material to the results of operations or financial condition for the current and prior annual or interim period. The out-of-period adjustment was recorded in the three and nine months ended September 30, 2012, and it impacted basic and diluted net income by $0.04 per share for the three and nine months ended September 30, 2012 and 2011. See further discussion at Note 14 - Discontinued Operations.

Separation Transactions

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. See further discussion at Note 15 - Transactions with FAFC.

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 8 – 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.

Prior to the Separation, we operated primarily as a title insurance company regulated under Article 7 of Regulation S-

8


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 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 $947.8 million as of September 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 August 2012, the Financial Accounting Standards Board (“FASB”) issued updated guidance related to the testing of indefinite-lived intangible assets other than 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 an indefinite-lived intangible assets other than goodwill 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 an indefinite-lived intangible asset other than goodwill is less than its carrying amount, then performing the two-step impairment test is unnecessary. The updated guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this guidance did not have a material impact on our consolidated financial statements.

In December 2011, the 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. As the Company performs its annual impairment testing of goodwill in the fourth quarter, we do not expect adoption of this guidance to 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.


9


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.

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 $8.2 million and $8.3 million for the three months ended September 30, 2012 and 2011, respectively, and $29.4 million and $20.4 million for the nine months ended September 30, 2012 and 2011, respectively. Income tax expense of $5.2 million and $5.6 million was recorded on these earnings for the three months ended September 30, 2012 and 2011, respectively, and $18.7 million and $13.6 million for the nine months ended September 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 78.0% and 85.0% of our total equity in earnings of affiliates, net of tax, for the three months ended September 30, 2012 and 2011, respectively, and 74.6% and 86.9% for the nine months ended September 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 Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2012
 
2011
 
2012
 
2011
Statement of operations
 
 
 
 
 
 
 
Net revenues
$
112,887

 
$
105,187

 
$
363,658

 
$
279,500

Expenses
91,635

 
81,429

 
290,370

 
220,055

Income before income taxes
$
21,252

 
$
23,758

 
$
73,288

 
$
59,445

Net income
$
21,185

 
$
23,582

 
$
72,944

 
$
58,974

CoreLogic equity in earnings of affiliate, pre-tax
$
10,614

 
$
11,815

 
$
36,545

 
$
29,546


In August 2012, we completed the disposition of our remaining 29.8% interest in Lone Wolf Real Estate Technologies, Inc. for $8.0 million. The disposition resulted in a gain of $2.2 million, net for the three and nine months ended September 30, 2012. This gain is included in (loss)/gain on investments and other, net in the accompanying condensed consolidated statements of income.

In July 2012, we completed our acquisition of RELS Reporting Services, LLC (dba RELS Credit) (“RELS Credit”), for $3.0 million. We recorded $1.5 million as dividends received from investments in affiliates related to the aforementioned transaction. The acquisition resulted in a change in equity interest loss of $1.2 million, net for the three and nine months ended September 30, 2012. This loss is included in (loss)/gain on investments and other, net in the accompanying condensed consolidated statements of income. See further discussion at Note 13 - Acquisitions.

Note 3 – Marketable Securities
 
 
 
 
Our marketable securities consist primarily of investments in preferred stock of $22.0 million and $20.9 million as of September 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 nine months ended September 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 September 30, 2011 and the three and nine months ended September 30, 2012.


10


Note 4 - Property and Equipment, Net

Property and equipment as of September 30, 2012 and December 31, 2011 consists of the following:

(in thousands)
2012
 
2011
Land
$
4,000

 
$
13,204

Buildings
10,780

 
13,396

Furniture and equipment
101,773

 
104,081

Capitalized software
468,346

 
449,990

Leasehold improvements
40,577

 
42,873

 
625,476

 
623,544

Less accumulated depreciation
(428,262
)
 
(409,307
)
Property and equipment, net
$
197,214

 
$
214,237


Depreciation expense for property and equipment was approximately $19.0 million and $19.9 million for the three months ended September 30, 2012 and 2011, respectively; and $52.5 million and $47.8 million for the nine months ended September 30, 2012 and 2011, respectively.

We have reclassified $0.4 million and $3.0 million of property and equipment, net, to assets of discontinued operations as of September 30, 2012 and December 31, 2011, respectively. We recognized impairment losses primarily related to internally developed software and land of $8.5 million and $13.6 million for the three and nine months ended September 30, 2012, respectively. We recognized impairment losses primarily related to internally developed software of $5.4 million for the three and nine months ended September 30, 2011.

Note 5 – Goodwill, net

A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the nine months ended September 30, 2012, is as follows:
 
(in thousands)
Data and
Analytics
 
Mortgage Origination Services
 
Default Services
 
Consolidated
Balance as of December 31, 2011
 
 
 
 
 
 
 
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
3,722

 
—

 
—

 
3,722

Balance as of September 30, 2012
 
 
 
 
 
 
 
Goodwill, net
$
652,770

 
$
673,749

 
$
149,409

 
$
1,475,928


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

Note 6 – Other Intangible Assets, net

Other intangible assets consist of the following:
 

11


 
September 30,
 
December 31,
(in thousands)
2012
 
2011
Customer lists
$
261,815

 
$
276,112

Noncompete agreements
6,366

 
7,898

Trade names and licenses
24,618

 
24,402

 
292,799

 
308,412

Less accumulated amortization
(144,833
)
 
(144,047
)
Other intangible assets, net
$
147,966

 
$
164,365


Amortization expense for other intangible assets was $7.1 million and $8.3 million for the three months ended September 30, 2012 and 2011, respectively, and $20.5 million and $19.3 million for the nine months ended September 30, 2012 and 2011, respectively. We have reclassified $0.5 million and $2.6 million of other intangible assets, net, to assets of discontinued operations as of September 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
$
6,931

2013
30,198

2014
23,322

2015
21,325

2016
18,721

Thereafter
47,469

 
$
147,966



12


Note 7 – Long-Term Debt

Our long-term debt consists of the following:
 
 
 
September 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
$
8,628

 
$
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
—

 
34,768

Bank debt:
 
 

 
 

 
Revolving line of credit borrowings due March 2016, weighted average interest rate of 6.8%
51,890

 
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 2014
439

 
7,203

Total long-term debt
794,777

 
908,295

Less current portion of long-term debt
320

 
62,268

Long-term debt, net of current portion
$
794,457

 
$
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 nine months ended September 30, 2012, we repurchased $7.0 million of the Notes. As of September 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 September 30, 2012, A$50.0 million, or $51.9 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 nine months ended September 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 September 30, 2012 and December 31, 2011, we have recorded $12.0 million and $4.4 million, respectively, of accrued interest expense. For the nine months ended September 30, 2012, debt prepayments resulted in $0.3 million of incremental interest expense in the accompanying condensed consolidated statements of income due to the write-off of unamortized debt issuance costs.

13



Acquisition-Related Notes

In March 2011, we entered into a 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 September 30, 2012, the discounted balance outstanding under the note was $8.6 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 $7.1 million and $5.1 million at September 30, 2012 and December 31, 2011, respectively, which is included in the accompanying condensed consolidated balance sheets as a component of other liabilities.
 
For the three months ended September 30, 2012 and September 30, 2011, unrealized losses of $0.5 million (net of $0.3 million in deferred taxes) and $3.2 million (net of $2.1 million in deferred taxes) were recognized in other comprehensive income/(loss) related to the Swaps. For the nine months ended September 30, 2012 and September 30, 2011, unrealized losses of $1.3 million (net of $0.8 million in deferred taxes) and $5.9 million (net of $3.9 million in deferred taxes) were recognized in other comprehensive income/(loss) related to the Swaps.

Note 8 – 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 36.9% and 220.7% for the three months ended September 30, 2012 and 2011, respectively, and 40.9% and 66.1% for the nine months ended September 30, 2012 and 2011, respectively. The change in the effective rate for the three months ended September 30, 2012 and 2011 is primarily attributable to the 2011 excess tax gain recognized upon the sale of Corelogic Global Services Private Limited ("Corelogic India"). The change in the effective tax rate for the nine months ended September 30, 2012 and 2011 is primarily attributable to the reversal of deferred taxes related to our interest in Dorado when it was held as an equity method investment in 2011 and the 2011 excess tax gain recognized upon the sale of Corelogic Global Services Private Limited ("Corelogic India"). Income taxes included in equity in earnings of affiliates were $5.2 million and $5.6 million for the three months ended September 30, 2012 and 2011, respectively, and $18.7 million and $13.6 million for the nine months ended September 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 September 30, 2012 and December 31, 2011, the liability for income taxes associated with uncertain tax positions was $52.7 million and $19.3 million, respectively. The increase in the liability as of September 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 September 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 $50.9 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 $6.7 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 2006.
 
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

14


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 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 9 – 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 Nine Months Ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
(in thousands, except per share amounts)
 
 
 
 
 
 
 
Numerator for basic and diluted net income/(loss) per share:
 
 
 
 
 
 
 
Net income/(loss) from continuing operations
$
36,213

 
$
(2,970
)
 
$
106,473

 
$
58,675

Loss from discontinued operations, net of tax
(10,157
)
 
(104,220
)
 
(18,142
)
 
(111,125
)
Gain from sale of discontinued operations, net of tax
12,264

 
—

 
9,277

 
—

Net income/(loss) attributable to CoreLogic
$
38,320

 
$
(107,190
)
 
$
97,608

 
$
(52,450
)
Denominator:
 

 
 

 
 

 
 

Weighted-average shares for basic income/(loss) per share
101,650

 
106,414

 
104,713

 
109,993

Dilutive effect of stock options and restricted stock units
1,463

 
—

 
973

 
598

Weighted-average shares for diluted income/(loss) per share
103,113

 
106,414

 
105,686

 
110,591

Income/(loss) per share
 

 
 

 
 

 
 

Basic:
 

 
 

 
 

 
 

Net income/(loss) from continuing operations
$
0.36

 
$
(0.03
)
 
$
1.02

 
$
0.53

Loss from discontinued operations, net of tax
(0.10
)
 
(0.98
)
 
(0.17
)
 
(1.01
)
Gain from sale of discontinued operations, net of tax
0.12


—

 
0.09

 
—

Net income/(loss) attributable to CoreLogic
$
0.38

 
$
(1.01
)
 
$
0.94

 
$
(0.48
)
Diluted:
 

 
 
 
 
 
 
Net income/(loss) from continuing operations
$
0.35

 
$
(0.03
)
 
$
1.01

 
$
0.53

Loss from discontinued operations, net of tax
(0.10
)
 
(0.98
)
 
(0.17
)
 
(1.00
)
Gain from sale of discontinued operations, net of tax
0.12


—

 
0.09

 
—

Net income/(loss) attributable to CoreLogic
$
0.37

 
$
(1.01
)
 
$
0.93

 
$
(0.47
)

For the three months ended September 30, 2012 and 2011, 1.0 million and 7.1 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 nine months ended September 30, 2012 and 2011, 3.7 million and 5.5 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 10 – 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.
 

15


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 September 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
$
154,552

 
$
—

 
$
154,552

Restricted cash
—

 
22,081

 
22,081

Equity securities
21,998

 
—

 
21,998

Total Financial Assets
$
176,550

 
$
22,081

 
$
198,631

 
 
 
 
 
 
Financial Liabilities:
 
 
 
 
 
Total debt
—

 
881,011

 
881,011

Total Financial Liabilities
$
—

 
$
881,011

 
$
881,011

 
 
 
 
 
 
Derivatives:
 
 
 
 
 
Liability for interest rate swap agreements
$
—

 
$
7,136

 
$
7,136

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


16


 
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:
 
 
 
 
 
Liability for interest rate swap agreements
$
—

 
$
5,078

 
$
5,078


Note 11 – 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 nine months ended September 30, 2012, we awarded 732,820 RSUs with an estimated grant date fair value of $12.2 million. The RSU awards will vest ratably over three years.
    
RSU activity for the nine months ended September 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
733

 
$
16.70

RSUs vested
(458
)
 
$
17.99

RSUs forfeited
(55
)
 
$
16.71

Unvested RSUs outstanding at September 30, 2012
1,413

 
$
17.16


As of September 30, 2012, there was $14.7 million of total unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.2 years. The fair value of RSUs is based on the market value of the Company’s common stock on the date of grant.

Performance-Based Restricted Stock Units

For the nine months ended September 30, 2012, we awarded 345,348 PBRSUs with an estimated grant date fair value

17


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 nine months ended September 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
(78
)
 
$
17.95

Unvested PBRSUs outstanding at September 30, 2012
1,152

 
$
17.19


As of September 30, 2012, there was $15.2 million of total unrecognized compensation cost related to unvested PBRSUs that is expected to be recognized over a weighted-average period of 1.9 years. The fair value of PBRSUs is based on the market value of 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 Nine Months Ended
 
September 30,
 
2012
 
2011
Expected dividend yield
—
%
 
—
%
Risk-free interest rate (1)
1.00
%
 
1.85
%
Expected volatility (2)
42.81
%
 
33.10
%
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.


18


Option activity for the nine months ended September 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
(552
)
 
$
17.92

 
 
 
 
Options canceled
(667
)
 
$
21.49

 
 
 
 
Options outstanding at September 30, 2012
3,963

 
$
20.27

 
5.7

 
$
24,950

Options vested and expected to vest at September 30, 2012
3,915

 
$
20.32

 
5.6

 
$
24,462

Options exercisable at September 30, 2012
2,440

 
$
22.31

 
3.9

 
$
10,458


As of September 30, 2012, there was $6.7 million of total unrecognized compensation cost related to unvested stock options that is expected to be recognized over a weighted-average period of 2.0 years.

The intrinsic value of options exercised was $2.7 million and $0.4 million for the nine months ended September 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 2001 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 2001 employee stock purchase plan expired in September 2011. Our 2012 employee stock purchase plan was approved by our stockholders at our 2012 annual meeting of stockholders and the first offering period commenced in October 2012. Similar to our 2001 employee stock purchase plan, the 2012 employee stock purchase plan allows eligible employees to purchase our common stock at 85.0% of the closing price on the last day of each quarter. We recognized an expense for the amount equal to the discount during the last offering period under our 2001 plan, which ended in September 2011.

The following table sets forth the stock-based compensation expense recognized for the three and nine months ended September 30, 2012 and 2011.
 
 
For the Three Months Ended
 
For the Nine Months Ended
 
September 30,
 
September 30,
(in thousands)
2012
 
2011
 
2012
 
2011
RSUs
$
2,108

 
$
1,592

 
6,896

 
5,333

PBRSUs
4,033

 
1,268

 
6,557

 
2,171

Stock options
1,039

 
578

 
2,758

 
1,719

Employee stock purchase plan
—

 
109

 
—

 
300

 
$
7,180

 
$
3,547

 
$
16,211

 
$
9,523


Note 12 – Litigation and Regulatory Contingencies

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

With respect to matters where we have determined that a loss is both probable and reasonably estimable, we have recorded a liability representing our best estimate of the financial exposure based on known facts. While the ultimate disposition of each such audit, 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

19


already accrued may have been incurred. We record expenses for legal fees as incurred.

We have $9.4 million as of September 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”), as successor to eAppraiseIT, LLC (“eAppraiseIT”), and several of its current and former affiliates.
    
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 and its parent CoreLogic Real Estate Solutions, LLC f/k/a First American Real Estate Solutions, LLC as defendants. The amended complaint sought to recover losses of at least $129.0 million that the FDIC alleges WaMu suffered on loans allegedly related to these 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 defendants intend to defend against the remaining claims vigorously; however, they 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 September 27, 2012, the Company and its subsidiary CVS, as successors in interest respectively to The First American Corporation (“First American”) and eAppraiseIT, entered into a settlement with the Office of the Attorney General of the State of New York in connection with the Attorney General's lawsuit in New York state court filed in 2007 against First American and eAppraiseIT. The lawsuit concerned appraisal management services eAppraiseIT had provided to WaMu in New York between June 2006 and November 2007. The Attorney General subsequently dropped all damage claims, but continued to seek civil penalties and related relief. In November 2011 the Company announced that it had decided to exit the business of CVS and in May 2012 the Company announced that CVS was being wound down and would be closed by September 30, 2012. Thereafter, in conjunction with the wind-down activities, defendants entered into the settlement in order to avoid further expense, time and uncertainty of continued litigation regarding this discontinued business, and without any findings or admissions as to any of the Attorney General's allegations.

In performance of the settlement, on October 4, 2012 CVS paid the Attorney General civil penalties in the sum of $4.0 million, together with costs, fees and disbursements in the sum of $3.8 million. As a result, the Attorney General has dismissed the lawsuit with prejudice and released the defendants from all claims concerning any appraisal or appraisal management services provided by either defendant to or on behalf of WaMu.

The settlement amounts were recorded in the results of discontinued operations.

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 WaMu and 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 alleged a conspiracy 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 on March 9, 2009. On 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

20


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. On July 12, 2012, the Ninth Circuit Court of Appeals declined to review the class certification order.

CVS, as the successor to eAppraiseIT, intends to defend against this claim vigorously; however, it 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, Teletrack filed a motion to dismiss the complaint on grounds that the plaintiffs lacked standing. That motion was denied on March 7, 2012. Teletrack has denied the allegations and is defending against this claim vigorously; however, it 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 September 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 13 – Acquisitions

In July 2012, we completed our acquisition of RELS Credit, for $3.0 million. We recorded $1.5 million as dividends received from investments in affiliates related to the aforementioned transaction. RELS Credit is included as a component of the mortgage origination services segment. We previously held a 50.1% equity method investment in this entity and as a result of the purchase price paid, we recognized a loss of $1.2 million on our existing investment which is included in (loss)/gain on investments and other, net in the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2012. The purchase price was allocated to the assets acquired and liabilities assumed using a variety of valuation techniques including discounted cash flow analysis which included significant unobservables. We recorded $3.1 million of customer lists with an estimated average life of 3 years. The business combination did not have a material impact on our consolidated financial statements.

Note 14 – Discontinued Operations
    
As of August 31, 2012, we completed the disposition of American Driving Records within our transportation services business for $11.0 million, which resulted in a pre-tax gain of $3.9 million for the three and nine months ended September 30, 2012. This gain is included in gain/(loss) from sale of discontinued operations, net of tax in the accompanying condensed consolidated statements of income. In June 2012, we determined to wind down our wholly-owned consumer services business in lieu of a sale. In March 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. In

21


September 2011, we closed our marketing services business (LeadClick). In connection with preparing our three and nine months ended September 30, 2012 financial statements, we recorded an additional adjustment of approximately $4.1 million income tax expense associated with the closure of LeadClick as discussed in Note 1 - Basis for Consolidated Condensed Financial Statements. On December 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 and nine months ended September 30, 2012, we recorded a gain of $12.3 million and a loss of $9.3 million on sale of discontinued operations, net, respectively.

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.

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

(in thousands)
 
Data Analytics
 
Mortgage Origination
 
Default
 
 
As of September 30, 2012
 
Marketing
 
Consumer
 
Appraisal
 
Transportation
 
Total
Current assets
 
$
(269
)
 
$
7,200

 
$
359

 
$
16

 
$
7,306

Property and equipment, net
 
—

 
83

 
306

 
—

 
389

Other assets
 
40

 
2,081

 
—

 
—

 
2,121

Total assets
 
$
(229
)
 
$
9,364

 
$
665

 
$
16

 
$
9,816

 
 
 
 
 
 
 
 
 
 
 
Total liabilities
 
$
1,411

 
$
5,572

 
$
12,146

 
$
683

 
$
19,812

 
 
 
 
 
 
 
 
 
 
 
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



22


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

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

 
$
8,410

 
$
6,938

 
$
11,643

 
$
26,991

(Loss)/income from discontinued operations before income taxes
 
(66
)
 
(348
)
 
(7,121
)
 
24

 
(7,511
)
Income tax expense/(benefit)
 
3,972

 
(122
)
 
(1,199
)
 
(5
)
 
2,646

(Loss)/income from discontinued operations, net of tax
 
$
(4,038
)
 
$
(226
)
 
$
(5,922
)
 
$
29

 
$
(10,157
)
 
 
 
 
 
 
 
 
 
 
 
For the three months ended September 30, 2011
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
6,431

 
$
22,877

 
$
12,463

 
$
16,838

 
$
58,609

(Loss)/income from discontinued operations before income taxes
 
(152,675
)
 
(13,384
)
 
(3,066
)
 
157

 
(168,968
)
Income tax (benefit)/expense
 
(58,300
)
 
(5,318
)
 
(1,188
)
 
58

 
(64,748
)
(Loss)/income from discontinued operations, net of tax
 
$
(94,375
)
 
$
(8,066
)
 
$
(1,878
)
 
$
99

 
$
(104,220
)

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

 
 
Data and Analytics
 
Business Information
 
 
For the nine months ended September 30, 2012
 
Marketing
 
Consumer
 
Transportation
 
Appraisal
 
Total
Operating revenue
 
$
—

 
$
55,773

 
$
46,435

 
$
25,137

 
$
127,345

Income/(loss) from discontinued operations before income taxes
 
111

 
5,177

 
(1,707
)
 
(23,675
)
 
(20,094
)
Income tax expense/(benefit)
 
4,041

 
2,030

 
(1,780
)
 
(6,243
)
 
(1,952
)
(Loss)/income from discontinued operations, net of tax
 
$
(3,930
)
 
$
3,147

 
$
73

 
$
(17,432
)
 
$
(18,142
)
 
 
 
 
 
 
 
 
 
 
 
For the nine months ended September 30, 2011
 
 
 
 
 
 
 
 
 
 
Operating revenue
 
$
29,399

 
$
73,443

 
$
51,448

 
$
60,012

 
$
214,302

(Loss)/income from discontinued operations before income taxes
 
(166,342
)
 
(7,603
)
 
1,210

 
(7,741
)
 
(180,476
)
Income tax (benefit)/expense
 
(63,768
)
 
(3,004
)
 
479

 
(3,058
)
 
(69,351
)
(Loss)/income from discontinued operations, net of tax
 
$
(102,574
)
 
$
(4,599
)
 
$
731

 
$
(4,683
)
 
$
(111,125
)

Note 15 – 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 September 30, 2012 and 2011, the net amount of $1.6 million and $1.7 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 nine months ended September 30, 2012 and 2011, the net amount of $4.9 million and $4.8 million, respectively, was recognized as a reduction of other operating

23


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. See further discussion at Note 12 – 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 $41.0 million and $34.4 million as of September 30, 2012 and December 31, 2011, respectively. The liability for income taxes associated with uncertain tax positions was $44.1 million and $10.4 million as of September 30, 2012 and December 31, 2011, respectively. Further, during our first quarter of 2012, pursuant to our Tax Sharing Agreement, we recorded a net equity adjustment of approximately $5.7 million related to Separation activity associated with FAFC. See further discussion at Note 8 – 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. FAFC 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. Since the Separation, we repurchased 10,433,265 shares of our common stock that was owned by FAFC or one of its subsidiaries for an aggregate purchase price of $227.7 million.

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 $3.3 million for the three and nine months ended September 30, 2012 and 2011.

During the three and nine months ended September 30, 2012 and 2011, we entered into commercial transactions with affiliates of FAFC. The revenue associated with these transactions, which primarily related to sales of data and other settlement services totaled $6.8 million and $3.5 million for the three months ended September 30, 2012 and 2011, respectively, and $14.3 million and $11.6 million for the nine months ended September 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 $0.2 million for the three months ended September 30, 2012 and 2011, respectively, and totaled $0.9 million and $3.9 million for the nine months ended September 30, 2012 and 2011, respectively.

Note 16 – 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 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 analytics segment includes intercompany revenues of $2.2 million and $2.9 million for the three months ended September 30, 2012 and 2011, respectively, and $8.5 million and $9.9 million for the nine months ended September 30, 2012 and 2011, respectively. The segment also includes intercompany expenses of $1.4 million and $2.9 million for the three months ended September 30, 2012 and 2011, respectively, and $4.9 million and $9.4 million for the nine months ended September 30, 2012 and 2011, respectively.

Mortgage Origination Services. Our mortgage origination services segment provides tax monitoring, flood zone certification and monitoring, credit services, mortgage loan administration and production services, lending solutions and mortgage-related business process outsourcing. We are also a provider of geospatial proprietary software and databases combining geographic mapping and data. The segment’s primary customers are large, national mortgage lenders and servicers, but we also serve regional mortgage lenders and brokers, credit unions, commercial banks, government agencies and property and casualty insurance companies.

24



Our mortgage origination services segment includes intercompany revenues of $0.7 million and $2.4 million for the three months ended September 30, 2012 and 2011, respectively, and $2.1 million and $4.2 million for the nine months ended September 30, 2012 and 2011, respectively. The segment also includes intercompany expenses of $2.1 million and $6.2 million for the three months ended September 30, 2012 and 2011, respectively, and $8.3 million and $25.5 million for the nine months ended September 30, 2012 and 2011, respectively.

Default Services. Our default services segment provides mortgage default management services, loss mitigation services, claims management, property valuation and management services. The segment’s primary customers are large, national mortgage lenders and servicers, but we also serve regional mortgage lenders and brokers, credit unions, commercial banks, government agencies, government-sponsored enterprises and property and casualty insurance companies.

Our default services segment includes intercompany revenues of $0.7 million and $0.3 million for the three months ended September 30, 2012 and 2011, respectively, and $2.1 million and $0.5 million for the nine months ended September 30, 2012 and 2011, respectively. The segment also includes intercompany expenses of $0.1 million and $4.2 million for the three months ended September 30, 2012 and 2011, respectively, and $0.3 million and $12.8 million for the nine months ended September 30, 2012 and 2011, respectively.

Corporate and Eliminations consists primarily of investment gains and losses, corporate personnel, and other operating expenses associated with our corporate facilities, certain technology initiatives, income taxes, unallocated interest expense and elimination of intercompany revenues included in the results of the reportable segments.


25


Selected financial information by reportable segment is as follows:

(in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended September 30, 2012
 
Operating Revenue
 
Depreciation and Amortization
 
Income From Continuing Operations
 
Equity in Earnings of Affiliates, Net of Tax
 
Net Income/(Loss) From Continuing Operations
 
Capital Expenditures
Data and analytics
 
$
148,953

 
$
17,697

 
$
27,695

 
$
489

 
$
29,657

 
$
14,114

Mortgage origination services
 
175,120

 
6,409

 
51,600

 
12,851

 
64,366

 
3,679

Default services
 
89,364

 
799

 
16,722

 
—

 
16,792

 
1,219

Corporate and eliminations
 
(3,677
)
 
8,132

 
(34,635
)
 
(5,174
)
 
(74,652
)
 
3,459

Consolidated (excluding discontinued operations)
 
$
409,760

 
$
33,037

 
$
61,382

 
$
8,166

 
$
36,163

 
$
22,471


 


 


 


 


 


 


For the three months ended September 30, 2011
 
 

 
 

 


 


 
 

 
 

Data and analytics
 
$
139,813

 
$
22,375

 
$
15,854

 
$
350

 
$
15,235

 
$
10,375

Mortgage origination services
 
129,176

 
6,719

 
20,490

 
13,411

 
34,534

 
3,668

Default services
 
85,106

 
1,292

 
12,708

 
(34
)
 
12,747

 
1,473

Corporate and eliminations
 
(5,649
)
 
4,458

 
(21,212
)
 
(5,387
)
 
(65,408
)
 
2,121

Consolidated (excluding discontinued operations)
 
$
348,446

 
$
34,844

 
$
27,840

 
$
8,340

 
$
(2,892
)
 
$
17,637


 


 


 


 


 


 


For the nine months ended September 30, 2012
 
 

 
 

 


 


 
 

 
 

Data and analytics
 
$
435,893

 
$
53,351

 
$
80,764

 
$
1,705

 
$
83,230

 
$
42,027

Mortgage origination services
 
476,944

 
21,219

 
123,925

 
46,239

 
169,705

 
12,533

Default services
 
257,995

 
3,406

 
46,931

 
—

 
47,145

 
3,103

Corporate and eliminations
 
(13,610
)
 
15,458

 
(77,449
)
 
(18,563
)
 
(193,816
)
 
5,144

Consolidated (excluding discontinued operations)
 
$
1,157,222

 
$
93,434

 
$
174,171

 
$
29,381

 
$
106,264

 
$
62,807


 


 


 


 


 


 


For the nine months ended September 30, 2011
 
 

 
 

 


 


 
 

 
 

Data and analytics
 
$
386,875

 
$
48,237

 
$
49,615

 
$
1,089

 
$
50,398

 
$
31,341

Mortgage origination services
 
370,512

 
17,896

 
53,494

 
32,733

 
113,302

 
9,213

Default services
 
250,371

 
3,952

 
39,362

 
(129
)
 
38,883

 
3,454

Corporate and eliminations
 
(14,609
)
 
14,075

 
(69,223
)
 
(13,300
)
 
(142,766
)
 
9,424

Consolidated (excluding discontinued operations)
 
$
993,149

 
$
84,160

 
$
73,248

 
$
20,393

 
$
59,817

 
$
53,432


(in thousands)
 
As of
 
As of
Assets
 
September 30, 2012
 
December 31, 2011

Data and analytics
 
$
1,257,857

 
$
1,248,436

Mortgage origination services
 
1,044,557

 
1,039,069

Default services
 
229,631

 
226,034

Corporate and eliminations
 
422,563

 
541,016

Consolidated (excluding discontinued operations)
 
$
2,954,608

 
$
3,054,555



26


Note 17 - Guarantor Subsidiaries

As discussed in Note 7 - Long-Term Debt, the Notes are guaranteed on a senior unsecured basis by each of our existing and future direct and indirect subsidiaries that guarantee our Credit Agreement. These guarantees are required in support of the Notes, are coterminous with the terms of the Notes and would require performance upon certain events of default referred to in the respective guarantees. The maximum potential amounts that could be required to be paid under the domestic guarantees are essentially equal to the outstanding principal and interest under the Notes. The following condensed consolidating financial information reflects the Parent's separate accounts, the combined accounts of the guarantor subsidiaries, the combined accounts of the non-guarantor subsidiaries, the combined consolidating adjustments and eliminations and the Parent's consolidated accounts for the dates and periods indicated.

 
 
Condensed Balance Sheet
 
 
As of September 30, 2012
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
171,969

 
$
323,345

 
$
46,675

 
$
—

 
$
541,989

Property and equipment, net
 
13,935

 
149,877

 
33,402

 
—

 
197,214

Goodwill
 
—

 
1,288,328

 
187,600

 
—

 
1,475,928

Other identifiable intangible assets, net
 
—

 
96,186

 
51,780

 
—

 
147,966

Capitalized data and database cost, net
 
—

 
224,638

 
84,509

 
—

 
309,147

Investments in affiliates
 
—

 
102,728

 
6,328

 
—

 
109,056

Deferred income tax assets, long-term
 
45,711

 
—

 
—

 
(14,900
)
 
30,811

Restricted cash
 
18,299

 
306

 
3,476

 
—

 
22,081

Investment in subsidiaries
 
1,744,865

 
—

 
—

 
(1,744,865
)
 
—

Other assets
 
98,767

 
29,328

 
2,137

 
—

 
130,232

Total assets
 
$
2,093,546

 
$
2,214,736

 
$
415,907

 
$
(1,759,765
)
 
$
2,964,424

 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$
76,530

 
$
391,623

 
$
47,003

 
$
—

 
$
515,156

Long-term debt, net
 
733,820

 
8,747

 
51,890

 
—

 
794,457

Deferred revenue
 
—

 
313,466

 
—

 
—

 
313,466

Deferred income taxes, long term
 
—

 
14,900

 
19,376

 
(14,900
)
 
19,376

Other liabilities
 
135,446

 
32,861

 
3,831

 
—

 
172,138

Total CoreLogic stockholders' equity
 
1,147,750

 
1,453,139

 
291,726

 
(1,744,865
)
 
1,147,750

Noncontrolling interests
 
—

 
—

 
2,081

 
—

 
2,081

Total liabilities and equity
 
$
2,093,546

 
$
2,214,736

 
$
415,907

 
$
(1,759,765
)
 
$
2,964,424


27



 
 
Condensed Balance Sheet
 
 
As of December 31, 2011
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Assets:
 
 
 
 
 
 
 
 
 
 
Current assets
 
$
284,329

 
$
339,098

 
$
32,552

 
$
—

 
$
655,979

Property and equipment, net
 
8,500

 
175,129

 
30,608

 
—

 
214,237

Goodwill
 
—

 
1,288,328

 
183,878

 
—

 
1,472,206

Other identifiable intangible assets, net
 
—

 
107,994

 
56,371

 
—

 
164,365

Capitalized data and database cost, net
 
—

 
218,534

 
85,472

 
—

 
304,006

Investments in affiliates
 
—

 
108,323

 
5,486

 
—

 
113,809

Deferred income tax assets, long-term
 
53,724

 
—

 
—

 
(15,419
)
 
38,305

Restricted cash
 
18,298

 
122

 
3,624

 
—

 
22,044

Investment in subsidiaries
 
1,797,065

 
—

 
—

 
(1,797,065
)
 
—

Other assets
 
92,910

 
30,152

 
2,058

 
—

 
125,120

Total assets
 
$
2,254,826

 
$
2,267,680

 
$
400,049

 
$
(1,812,484
)
 
$
3,110,071

 
 
 
 
 
 
 
 
 
 
 
Liabilities and equity:
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
$
95,237

 
$
369,631

 
$
35,791

 
$
—

 
$
500,659

Long-term debt, net
 
784,570

 
10,412

 
51,045

 
—

 
846,027

Deferred revenue
 
—

 
338,799

 
—

 
—

 
338,799

Deferred income taxes, long term
 
—

 
15,419

 
18,383

 
(15,419
)
 
18,383

Other liabilities
 
132,498

 
24,333

 
4,551

 
—

 
161,382

Total CoreLogic stockholders' equity
 
1,242,521

 
1,509,086

 
287,979

 
(1,797,065
)
 
1,242,521

Noncontrolling interests
 
—

 
—

 
2,300

 
—

 
2,300

Total liabilities and equity
 
$
2,254,826

 
$
2,267,680

 
$
400,049

 
$
(1,812,484
)
 
$
3,110,071


28



 
 
Condensed Statement of Operations
 
 
For the three months ended September 30, 2012
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Operating revenues
 
$
—

 
$
386,033

 
$
23,727

 
$
—

 
$
409,760

External cost of revenues
 
—

 
97,213

 
3,556

 
—

 
100,769

Salaries and benefits
 
21,143

 
101,266

 
11,385

 
—

 
133,794

Other operating expenses
 
(3,684
)
 
81,707

 
2,755

 
—

 
80,778

Depreciation and amortization
 
610

 
26,755

 
5,672

 
—

 
33,037

(Loss)/income from continuing operations
 
(18,069
)
 
79,092

 
359

 
—

 
61,382

Total interest expense, net
 
(12,035
)
 
(28
)
 
(662
)
 
—

 
(12,725
)
Gain/(loss) on investment and other, net
 
1,111

 
(5,598
)
 
233

 
—

 
(4,254
)
(Benefit)/provision for income taxes
 
(10,228
)
 
24,898

 
1,736

 
—

 
16,406

Equity in earnings of affiliates, net of tax
 
—

 
7,919

 
247

 
—

 
8,166

Equity in earnings of subsidiary, net of tax
 
57,085

 
—

 
—

 
(57,085
)
 
—

Net income/(loss) from continuing operations, net of tax
 
38,320

 
56,487

 
(1,559
)
 
(57,085
)
 
36,163

Loss from discontinued operations, net of tax
 
—

 
(10,157
)
 
—

 
—

 
(10,157
)
Gain on sale of discontinued operations, net of tax
 
—

 
12,264

 
—

 
—

 
12,264

Net income/(loss)
 
38,320

 
58,594

 
(1,559
)
 
(57,085
)
 
38,270

Less: Net loss attributable to noncontrolling interest
 
—

 
—

 
(50
)
 
—

 
(50
)
Net income/(loss) attributable to CoreLogic
 
$
38,320

 
$
58,594

 
$
(1,509
)
 
$
(57,085
)
 
$
38,320

Total other comprehensive income/(loss)
 
4,264

 
—

 
5,163

 
(5,163
)
 
4,264

Comprehensive income/(loss) attributable to CoreLogic
 
$
42,584

 
$
58,594

 
$
3,654

 
$
(62,248
)
 
$
42,584


29



 
 
Condensed Statement of Operations
 
 
For the three months ended September 30, 2011
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Operating revenues
 
$
—

 
$
316,415

 
$
32,031

 
$
—

 
$
348,446

External cost of revenues
 
—

 
75,906

 
2,272

 
—

 
78,178

Salaries and benefits
 
13,444

 
101,679

 
16,400

 
—

 
131,523

Other operating expenses
 
1,228

 
62,662

 
12,171

 
—

 
76,061

Depreciation and amortization
 
920

 
24,482

 
9,442

 
—

 
34,844

(Loss)/income from continuing operations
 
(15,592
)
 
51,686

 
(8,254
)
 
—

 
27,840

Total interest expense, net
 
(13,288
)
 
(193
)
 
(938
)
 
—

 
(14,419
)
Loss on investment and other, net
 
(3,297
)
 
(821
)
 
—

 
—

 
(4,118
)
Provision/(benefit) for income taxes
 
24,722

 
(4,508
)
 
321

 
—

 
20,535

Equity in earnings of affiliates, net of tax
 
—

 
8,284

 
56

 
—

 
8,340

Equity in earnings of subsidiary, net of tax
 
(50,291
)
 
—

 
—

 
50,291

 
—

Net (loss)/income from continuing operations, net of tax
 
(107,190
)

63,464


(9,457
)

50,291


(2,892
)
Loss from discontinued operations, net of tax
 
—

 
(104,220
)
 
—

 
—

 
(104,220
)
Net (loss)/income
 
(107,190
)
 
(40,756
)
 
(9,457
)
 
50,291

 
(107,112
)
Less: Net income attributable to noncontrolling interest
 
—

 
—

 
78

 
—

 
78

Net (loss)/income attributable to CoreLogic
 
$
(107,190
)
 
$
(40,756
)
 
$
(9,535
)
 
$
50,291

 
$
(107,190
)
Total other comprehensive (loss)/income
 
(31,721
)
 
(271
)
 
(27,789
)
 
28,060

 
(31,721
)
Comprehensive (loss)/income attributable to CoreLogic
 
$
(138,911
)
 
$
(41,027
)
 
$
(37,324
)
 
$
78,351

 
$
(138,911
)

30



 
 
Condensed Statement of Operations
 
 
For the nine months ended September 30, 2012
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Operating revenues
 
$
—

 
$
1,088,836

 
$
68,386

 
$
—

 
$
1,157,222

External cost of revenues
 
—

 
264,281

 
10,085

 
—

 
274,366

Salaries and benefits
 
62,576

 
308,436

 
35,033

 
—

 
406,045

Other operating expenses
 
(13,948
)
 
214,722

 
8,432

 
—

 
209,206

Depreciation and amortization
 
2,137

 
73,582

 
17,715

 
—

 
93,434

(Loss)/income from continuing operations
 
(50,765
)
 
227,815

 
(2,879
)
 
—

 
174,171

Total interest (expense)/income, net
 
(38,034
)
 
159

 
(2,326
)
 
—

 
(40,201
)
Gain/(loss) on investment and other, net
 
2,456

 
(7,144
)
 
823

 
—

 
(3,865
)
(Benefit)/provision for income taxes
 
(31,698
)
 
81,263

 
3,657

 
—

 
53,222

Equity in earnings of affiliates, net of tax
 
—

 
28,490

 
891

 
—

 
29,381

Equity in earnings of subsidiary, net of tax
 
152,253

 
—

 
—

 
(152,253
)
 
—

Net income/(loss) from continuing operations, net of tax
 
97,608

 
168,057

 
(7,148
)
 
(152,253
)
 
106,264

Loss from discontinued operations, net of tax
 
—

 
(18,142
)
 
—

 
—

 
(18,142
)
Gain from sale of discontinued operations, net of tax
 
—

 
9,277

 
—

 
—

 
9,277

Net income/(loss)
 
97,608

 
159,192

 
(7,148
)
 
(152,253
)
 
97,399

Less: Net loss attributable to noncontrolling interest
 
—

 
—

 
(209
)
 
—

 
(209
)
Net income/(loss) attributable to CoreLogic
 
$
97,608

 
$
159,192

 
$
(6,939
)
 
$
(152,253
)
 
$
97,608

Total other comprehensive income/(loss)
 
5,637

 
—

 
6,178

 
(6,178
)
 
5,637

Comprehensive income/(loss) attributable to CoreLogic
 
$
103,245

 
$
159,192

 
$
(761
)
 
$
(158,431
)
 
$
103,245


31


 
 
Condensed Statement of Operations
 
 
For the nine months ended September 30, 2011
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Operating revenues
 
$
—

 
$
907,207

 
$
85,942

 
$
—

 
$
993,149

External cost of revenues
 
—

 
207,435

 
4,022

 
—

 
211,457

Salaries and benefits
 
53,803

 
313,907

 
46,835

 
—

 
414,545

Other operating expenses
 
5,869

 
182,087

 
21,783

 
—

 
209,739

Depreciation and amortization
 
2,778

 
67,985

 
13,397

 
—

 
84,160

(Loss)/income from continuing operations
 
(62,450
)
 
135,793

 
(95
)
 
—

 
73,248

Total interest expense, net
 
(42,721
)
 
(152
)
 
(905
)
 
—

 
(43,778
)
Gain on investment and other, net
 
63,362

 
23,339

 
82

 
—

 
86,783

Provision for income taxes
 
19,990

 
54,385

 
2,454

 
—

 
76,829

Equity in earnings of affiliates, net of tax
 
—

 
20,337

 
56

 
—

 
20,393

Equity in earnings of subsidiary, net of tax
 
9,839

 
—

 
—

 
(9,839
)
 
—

Net (loss)/income from continuing operations, net of tax
 
(51,960
)
 
124,932

 
(3,316
)
 
(9,839
)
 
59,817

Loss from discontinued operations, net of tax
 
—

 
(111,125
)
 
—

 
—

 
(111,125
)
Net (loss)/income
 
(51,960
)
 
13,807

 
(3,316
)
 
(9,839
)
 
(51,308
)
Less: Net income attributable to noncontrolling interest
 
490

 
—

 
652

 
—

 
1,142

Net (loss)/income attributable to CoreLogic
 
$
(52,450
)
 
$
13,807

 
$
(3,968
)
 
$
(9,839
)
 
$
(52,450
)
Total other comprehensive (loss)/income
 
(48,327
)
 
(14,244
)
 
(26,498
)
 
40,742

 
(48,327
)
Comprehensive (loss)/income attributable to CoreLogic
 
$
(100,777
)
 
$
(437
)
 
$
(30,466
)
 
$
30,903

 
$
(100,777
)


32



 
 
Condensed Statement of Cash Flows
 
 
For the nine months ended September 30, 2012
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
Net cash (used in)/provided by operating activities - continuing operations
 
$
(15,158
)
 
$
263,740

 
$
10,207

 
$
—

 
$
258,789

Net cash provided by operating activities - discontinued operations
 
—

 
9,684

 
—

 
—

 
9,684

Total cash (used in)/provided by operating activities
 
$
(15,158
)
 
$
273,424

 
$
10,207

 
$
—

 
$
268,473

Cash flow from investing activities:
 
 
 
 
 
 
 
 
 
 
Purchases of property and equipment
 
(1,409
)
 
(27,940
)
 
(9,404
)
 
—

 
(38,753
)
Purchases of capitalized data and other intangible assets
 
—

 
(21,537
)
 
(2,517
)
 
—

 
(24,054
)
Cash paid for acquisitions, net of cash acquired
 
—

 
111

 
—

 
—

 
111

Proceeds from sale of discontinued operations
 
—

 
10,000

 
—

 
—

 
10,000

Proceeds from sale of property and equipment
 
—

 
1,852

 
—

 
—

 
1,852

Proceeds from sale of investments
 
—

 
8,000

 
—

 
—

 
8,000

Change in restricted cash
 
—

 
(185
)
 
307

 
—

 
122

Net cash used in investing activities - continuing operations
 
(1,409
)
 
(29,699
)
 
(11,614
)
 
—

 
(42,722
)
Net cash used in investing activities - discontinued operations
 
—

 
(1,512
)
 
—

 
—

 
(1,512
)
Total cash used in investing activities
 
$
(1,409
)
 
$
(31,211
)
 
$
(11,614
)
 
$
—

 
$
(44,234
)
Cash flow from financing activities:
 
 
 
 
 
 
 
 
 
 
Repayments of long-term debt
 
(103,018
)
 
(11,251
)
 
(96
)
 
—

 
(114,365
)
Share repurchased and retired
 
(226,629
)
 
—

 
—

 
—

 
(226,629
)
Proceeds from issuance of stock related to stock options and employee benefit plans
 
9,624

 
—

 
—

 
—

 
9,624

Minimum tax withholding paid on behalf of employees for restricted stock units
 
(3,015
)
 
—

 
—

 
—

 
(3,015
)
Distribution to noncontrolling interests
 
—

 
—

 
(10
)
 
—

 
(10
)
Tax benefit related to stock options
 
643

 
—

 
—

 
—

 
643

Other
 
226,159

 
(231,582
)
 
5,423

 
—

 
—

Net cash (used in)/provided by financing activities - continuing operations
 
(96,236
)
 
(242,833
)
 
5,317

 
—

 
(333,752
)
Net cash provided by financing activities - discontinued operations
 
—

 
3

 
—

 
—

 
3

Total cash (used in)/provided by financing activities
 
$
(96,236
)
 
$
(242,830
)
 
$
5,317

 
$
—

 
$
(333,749
)
Net (decrease)/increase in cash and cash equivalents
 
(112,803
)
 
(617
)
 
3,910

 
—

 
(109,510
)
Cash and cash equivalents at beginning of period
 
229,871

 
9,106

 
20,289

 
—

 
259,266


33


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

 
8,175

 
—

 
—

 
8,175

Plus: Cash swept from discontinued operations
 
12,971

 
—

 
—

 
—

 
12,971

Cash and cash equivalents at end of period
 
$
130,039

 
$
314

 
$
24,199

 
$
—

 
$
154,552


34



 
 
Condensed Statement of Cash Flows
 
 
For the nine months ended September 30, 2011
 
 
Parent
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating/Eliminating Adjustments
 
Total
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
Net cash (used in)/provided by operating activities - continuing operations
 
$
(110,604
)
 
$
198,806

 
$
(18,326
)
 
$
—

 
$
69,876

Net cash used in operating activities - discontinued operations
 
—

 
(14,051
)
 
—

 
—

 
(14,051
)
Total cash (used in)/provided by operating activities
 
$
(110,604
)
 
$
184,755

 
$
(18,326
)
 
$
—

 
$
55,825

Cash flow from investing activities:
 
 
 
 
 
 
 
 
 
 
Purchases of redeemable noncontrolling interests
 
(72,000
)
 
—

 
—

 
—

 
(72,000
)
Purchases of property and equipment
 
(393
)
 
(29,041
)
 
(4,124
)
 
—

 
(33,558
)
Purchases of capitalized data and other intangible assets
 
—

 
(19,872
)
 
(2
)
 
—

 
(19,874
)
Cash paid for acquisitions, net of cash acquired
 
(215,096
)
 
—

 
882

 
—

 
(214,214
)
Proceeds from sale of subsidiary and other decreases in noncontrolling interest, net
 
22,754

 
—

 
—

 
—

 
22,754

Purchases of investments
 
725

 
(27,623
)
 
—

 
—

 
(26,898
)
Proceeds from sale of property and equipment
 
—

 
389

 
—

 
—

 
389

Proceeds from sale of investments
 
—

 
53,847

 
—

 
—

 
53,847

Change in restricted cash
 
3,200

 
—

 
(584
)
 
—

 
2,616

Net cash used in investing activities - continuing operations
 
(260,810
)
 
(22,300
)
 
(3,828
)
 
—

 
(286,938
)
Net cash used in investing activities - discontinued operations
 
—

 
(4,380
)
 
—

 
—

 
(4,380
)
Total cash used in investing activities
 
$
(260,810
)
 
$
(26,680
)
 
$
(3,828
)
 
$
—

 
$
(291,318
)
Cash flow from financing activities:
 
 
 
 
 
 
 
 
 
 
Proceeds from long-term debt
 
750,000

 
54,375

 
53,610

 
—

 
857,985

Debt issuance costs
 
(21,636
)
 
(444
)
 
—

 
—

 
(22,080
)
Repayments of long-term debt
 
(571,412
)
 
(105,804
)
 
(50,483
)
 
—

 
(727,699
)
Share repurchased and retired
 
(176,512
)
 
—

 
—

 
—

 
(176,512
)
Proceeds from issuance of stock related to stock options and employee benefit plans
 
4,448

 
—

 
—

 
—

 
4,448

Minimum tax withholding paid on behalf of employees for restricted stock units
 
(2,023
)
 
—

 
—

 
—

 
(2,023
)
Distribution to noncontrolling interests
 
—

 
(4,290
)
 
(545
)
 
—

 
(4,835
)
Tax benefit related to stock options
 
217

 
17

 
—

 
—

 
234

Other
 
149,013

 
(141,807
)
 
(7,206
)
 
—

 
—

Net cash provided by/(used in) financing activities - continuing operations
 
132,095

 
(197,953
)
 
(4,624
)
 
—

 
(70,482
)
Net cash provided by financing activities - discontinued operations
 
—

 
70

 
—

 
—

 
70


35


Total cash provided by/(used in) financing activities
 
$
132,095

 
$
(197,883
)
 
$
(4,624
)
 
$
—

 
$
(70,412
)
Net decrease in cash and cash equivalents
 
(239,319
)
 
(39,808
)
 
(26,778
)
 
—

 
(305,905
)
Cash and cash equivalents at beginning of period
 
355,974

 
23,013

 
47,225

 
—

 
426,212

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

 
(18,361
)
 
—

 
—

 
(18,361
)
Cash and cash equivalents at end of period
 
$
116,655

 
$
1,566

 
$
20,447

 
$
—

 
$
138,668


36


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q and certain information incorporated herein by reference contain forward-looking statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. All statements included or incorporated by reference in this Quarterly Report, other than statements that are purely historical, are forward-looking statements. Words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “seek,” “estimate,” “will,” “should,” “would,” “could,” “may,” and similar expressions also identify forward-looking statements. The forward-looking statements include, without limitation, statements regarding our overall financial performance, including future revenue and earnings growth, future operations, financial condition and prospects, operating results, future cost savings and the impact of our cost-savings initiatives; our ability to satisfy anticipated operational cash requirements, debt service and other contractual obligations; mortgage market trends; reduction in indebtedness and share repurchase amounts and timing; our access to liquidity sources for new borrowings; our estimated income tax rate, unrecognized tax positions, amortization expenses; our expectations regarding realization of our deferred tax assets; the impact of recent accounting pronouncements; our plans to maintain significant cash balances outside of the U.S.; our long-term strategy regarding acquisitions, divestitures and joint ventures; the potential outcome and estimates related to our litigation; the level of aggregate U.S. mortgage originations and applications and inventory of delinquent mortgage loans and loans in foreclosure, the effect of the disposition or work-out of delinquent mortgage loans and loans in foreclosure; customer concentration and customer macro-economic factors; estimates related to our purchase price allocations; our ability to access additional liquidity; and the reasonableness of the carrying value related to specific financial assets and liabilities.

Our expectations, beliefs, objectives, intentions and strategies regarding the future results are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from results contemplated by our forward-looking statements. These risks and uncertainties include, but are not limited to:

•
limitations on access to or increase in prices for data from external sources, including government and public record sources;

•
changes in applicable government legislation, regulations and the level of regulatory scrutiny affecting our customers or us, including with respect to consumer financial services and the use of public records and consumer data;

•
compromises in the security of our data transmissions, including the transmission of confidential information or systems interruptions;

•
difficult conditions in the mortgage and consumer lending industries and the economy generally, together with our customer concentration and the impact of these factors thereon;

•
our ability to protect proprietary technology rights;

•
our significant indebtedness and the restrictions in our various debt agreements;

•
our cost reduction plan and our ability to significantly decrease future allocated costs and other amounts in connection therewith;

•
risks related to the outsourcing of services and our international operations;

•
impairments in our goodwill or other intangible assets; and

•
the inability to realize the benefits of the Separation as a result of the factors described immediately above, as well as, among other factors, increased borrowing costs, competition between the resulting companies, increased operating or other expenses or the triggering of rights and obligations by the transaction or any litigation arising out of or related to the Separation.

The forward-looking statements in this Quarterly Report on Form 10-Q are subject to additional risks and uncertainties set forth in Item 1A of Part II below, and are based on information available to us on the date hereof. Because of these risk factors, as well as other variables affecting our financial condition, results of operations or cash flows, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results

37


or trends in future periods. We assume no obligation to update any forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of the filing of this Quarterly Report on Form 10-Q.

Separation Transaction

On June 1, 2010, we completed 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. See further discussion at Note 15 - Transactions with FAFC.

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 as described in Note 8 – 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.

Business Overview

We are a leading residential property information, analytics and services provider in the United States and Australia. The markets we serve include real state and mortgage finance, insurance, capital markets, transportation and government. We deliver value to our customers through unique data, analytics, workflow technology, advisory and managed services. Our customers rely on us to help identify and managed growth opportunities, improve performance and mitigate risk..

We believe that we offer our customers access to among the most comprehensive national databases of public, contributory and proprietary data covering real property and mortgage information, judgments and liens, parcel and geospatial data, criminal background and eviction records, non-prime lending and consumer credit information, tax status and delinquency information, and flood and other catastrophe information, among other data types. Our databases include over 700 million historical property transactions, over 93 million mortgage applications and property-specific data covering approximately 99% of U.S. residential, commercial and vacant land properties exceeding 147 million records. We believe that the quality of the data we offer is distinguished by our broad range of data sources and our core expertise in aggregating, organizing, normalizing, processing and delivering data to our customers.

With our data as a foundation, we have built strong analytics capabilities and a variety of value-added business services to meet our customers’ needs for mortgage and automotive credit reporting, property tax, property valuation, flood plain location determination and other geospatial data, data, analytics and related services.
 
Reportable Segments

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 offers access to data assets 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 license our data directly to our customers and provide our customers with analytical products and services for risk management, collateral assessment and fraud prediction. 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, property management companies and government-sponsored enterprises.

Mortgage Origination Services


38


We provide tax monitoring, flood zone certification and monitoring, credit services, mortgage loan administration and production services, lending solutions and mortgage-related business process outsourcing. We are also a provider of geospatial proprietary software and databases combining geographic mapping and data. The segment's primary customers are large, national mortgage lenders and servicers, but we also serve regional mortgage lenders and brokers, credit unions, commercial banks, government agencies and property and casualty insurance companies. We are also a member in several joint ventures that provide settlement services in connection with residential mortgage loans.

Default Services

We provide mortgage default management services, loss mitigation services, claims management, property valuation and management services. The segment’s primary customers are large, national mortgage lenders and servicers, but we also serve regional mortgage lenders and brokers, credit unions, commercial banks, government agencies, government-sponsored enterprises and property and casualty insurance companies.

RESULTS OF OPERATIONS

Summary

We generate the majority of our revenues from clients with operations in the U.S. residential real estate, mortgage origination and mortgage servicing markets. We believe the volume of real estate transactions is primarily affected by real estate prices, the availability of funds for mortgage loans, mortgage interest rates, employment levels and the overall state of the U.S. economy. Throughout 2012 we have benefited from the improvement in the U.S. residential real estate and mortgage lending industries, particularly refinancing transactions. Higher levels of mortgage applications, originations combined with recovering home prices and home purchase activity have all created an improved market environment for our businesses in 2012. As a result, the historical seasonal trend of strongest mortgage and real estate activity in the spring and summer months has been less pronounced this year.

For the three months ended September 30, 2012, 79.2% of our revenues were related to clients that process real estate mortgage loan applications, origination and non-default related servicing. Approximately 36.4% of our operating revenues for the three months ended September 30, 2012 were generated from the ten largest United States mortgage originators. Based on statistics published by the Mortgage Bankers' Association (“MBA”) and data from significant mortgage originators, we estimate that total mortgage originations increased approximately 34.2% in the third quarter of 2012 relative to the same period of 2011. MBA estimates that mortgage applications increased 44.8% in the third quarter of 2012 relative to the same period of 2011. Given that many of our origination-related products and services are provided early in the origination cycle, application volumes are a leading indicator of demand for these products and services. As a result of the historical low long-term interest rate environment, the accommodative policy stance of the Federal Reserve, and the presence of Federal Government programs targeting mortgage loan refinancing and modification activity, we anticipate the level of mortgage originations, particularly refinancing transactions, to remain at relatively high levels in the near term.

Based on our internal estimates, the level of loans seriously delinquent (loans delinquent 90 days or more) or in foreclosure decreased approximately 10.6% in the quarter ending September 30, 2012 relative to quarter ending September 30, 2011. Additionally, based on our internal analysis and market estimates, we believe that the inventory of seriously delinquent mortgage loans and loans in foreclosure is decreasing and the market is continuing to experience a delay in processing these troubled loans.

As part of the Company's on-going cost efficiency programs, in July 2012, the Company announced the launch of its technology transformation initiative (“TTI”) with Dell Services. The objective of the TTI is to convert the Company's existing technology infrastructure to a new platform which is expected to provide new functionality, increased performance, and a reduction in application management and development costs. Following an initial transition period of thirty months, the Company expects net operating expense reductions of approximately $35.0 to $40.0 million per year compared to 2012 cost levels. Third quarter 2012 expenses related to the initiative were $22.4 million, of which $11.9 million are non-cash charges.

On a consolidated basis, our operating revenues increased 17.6% and 16.5%, for the three and nine months ended September 30, 2012, when compared to the same periods of the prior year. Data and analytics segment operating revenues increased 6.5% and 12.7% for the three and nine months ended September 30, 2012, when compared to the same periods of the prior year, due to higher data licensing and analytics projects, and the impact of acquisition activity. Mortgage origination services segment operating revenues increased 35.6% and 28.7% for the three and nine months ended September 30, 2012, when compared to the same periods of the previous year, due to higher mortgage origination volumes and the impact of acquisition activity. Default services segment operating revenues increased 5.0% and 3.0% for the three and nine months ended

39


September 30, 2012, when compared to the same periods of the previous year, due primarily to higher loss mitigation services and field services.

Our total operating expense increased 8.7% and 6.9% for the three and nine months ended September 30, 2012, when compared to the same periods of the prior year, primarily due to higher external cost of revenue from increased volumes. For the three months ended September 30, 2012, operating expense further increased due to higher external cost of sales, higher salaries and benefits and higher other operating expenses from higher volumes and our TTI investment charges, partially offset by lower depreciation and amortization. For the nine months ended September 30, 2012, operating expense further increased due to higher external cost of sales from increased volumes and higher depreciation and amortization from acquisitions, partially offset by lower salaries and benefits and lower other operating expenses resulting from our cost-reduction initiatives.

Total interest expense, net, decreased 11.7% and 8.2% for the three and nine months ended September 30, 2012, when compared to the same periods of the prior year, due to lower write-offs of deferred financing costs of $10.2 million in the second quarter of 2011, partially offset by higher interest expense due to higher average outstanding debt balances as a result of the issuance of $400.0 million principal amount of senior notes in May 2011.

Loss on investments and other income decreased 3.3% and 104.5% for the three and nine months ended September 30, 2012, when compared to the same periods of the prior year. For the nine months ended September 30, 2012, the variance is due to the $24.9 million pre-tax gain on the sale of our remaining investment in DealerTrack Holdings, Inc. in January 2011 and the $58.9 million pre-tax gain from our acquisition of the remaining interest in RP Data in May 2011.

Net income increased $145.5 million, or 135.7%, for the three months ended September 30, 2012, when compared to the same period of the prior year, primarily due to lower losses from discontinued operations of $94.1 million which included the closure of the marketing services business in September 2011, higher net income from continuing operations of $39.1 million, partially offset by higher loss from sale of discontinued operations of $12.3 million, and higher non-controlling interests of $0.1 million. Net income increased $150.1 million, or 286.1%, for the nine months ended September 30, 2012, when compared to the same periods of the prior year, primarily due to higher net income from continuing operations of $46.4 million, lower losses from discontinued operations of $93.0 million due to the wind-down of our wholly-owned appraisal management company businesses and the sale of American Driving Records, partially offset by higher loss from sale of discontinued operations of $9.3 million and lower non-controlling interests of $1.4 million.

The historically low level of home purchase activity, continued general economic weakness and the impact of increased regulatory uncertainty have constrained the demand for many of our products and services. If these challenges persist for us and our customers, they could negatively affect our revenue, earnings and liquidity. For additional information related to our results of operations for each of our reportable segments please see the discussions under “Data and Analytics,” “Mortgage Origination Services” and “Default Services” below.

Unless otherwise indicated, the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q relate solely to the discussion of our continuing operations.


40


Data and Analytics
 
 
For the Three Months Ended
 
For the Nine Months Ended
(in thousands, except percentages)
September 30, 2012
 
September 30, 2011
 
$ Change
 
% Change
 
September 30, 2012
 
September 30, 2011
 
$ Change
 
% Change
Operating revenues
$
148,953

 
$
139,813

 
$
9,140

 
6.5
 %
 
$
435,893

 
$
386,875

 
$
49,018

 
12.7
 %
External cost of revenues
15,152

 
10,688

 
4,464

 
41.8
 %
 
37,976

 
31,021

 
6,955

 
22.4
 %
Salaries and benefits
52,044

 
48,603

 
3,441

 
7.1
 %
 
158,938

 
136,233

 
22,705

 
16.7
 %
Other operating expenses
36,365

 
42,293

 
(5,928
)
 
(14.0
)%
 
104,864

 
121,769

 
(16,905
)
 
(13.9
)%
Depreciation and amortization
17,697

 
22,375

 
(4,678
)
 
(20.9
)%
 
53,351

 
48,237

 
5,114

 
10.6
 %
Total operating expenses
121,258

 
123,959

 
(2,701
)
 
(2.2
)%
 
355,129

 
337,260

 
17,869

 
5.3
 %
Income from operations
27,695

 
15,854

 
11,841

 
74.7
 %
 
80,764

 
49,615

 
31,149

 
62.8
 %
Total interest (expense)/income, net
(674
)
 
(148
)
 
(526
)
 
355.4
 %
 
(1,675
)
 
514

 
(2,189
)
 
(425.9
)%
Gain/(loss) on investments and other income
2,147

 
(821
)
 
2,968

 
(361.5
)%
 
2,436

 
(820
)
 
3,256

 
(397.1
)%
Income from continuing operations before income taxes
29,168

 
14,885

 
14,283

 
96.0
 %
 
81,525

 
49,309

 
32,216

 
65.3
 %
Provision for income taxes
—

 
—

 
—

 
—
 %
 
—

 
—

 
—

 
—
 %
Income from continuing before equity in earnings of affiliates
29,168

 
14,885

 
14,283

 
96.0
 %
 
81,525

 
49,309

 
32,216

 
65.3
 %
Equity in earnings of affiliates
489

 
350

 
139

 
39.7
 %
 
1,705

 
1,089

 
616

 
56.6
 %
Income from continuing operations
$
29,657

 
$
15,235

 
$
14,422

 
94.7
 %
 
$
83,230

 
$
50,398

 
$
32,832

 
65.1
 %

Operating Revenues

Data and analytics segment operating revenues were $149.0 million and $435.9 million for the three and nine months ended September 30, 2012, respectively, an increase of $9.1 million, or 6.5%, and an increase of $49.0 million, or 12.7%, when compared to the respective periods of the prior year. Acquisition activity accounted for $1.9 million and $31.8 million of the increase for the three and nine months ended September 30, 2012, respectively. For the three months ended September 30, 2012, excluding acquisition activity, the increase of $7.2 million was due to higher data licensing revenues of $5.3 million, growth in analytics revenues of $3.2 million and higher advisory services of $0.5 million which experienced higher document retrieval services as well as higher capital markets projects, partially offset by lower information report revenues of $1.6 million and lower other revenues of $0.2 million. For the nine months ended September 30, 2012, excluding acquisition activity, the increase of $17.2 million was due to growth in analytics revenues of $12.8 million, higher advisory services of $5.2 million and higher data licensing revenues of $4.7 million, partially offset by decreased information report revenues of $4.5 million, lower Multiple Listing Services Solutions revenues of $0.9 million and lower other revenues of $0.1 million.

41


Information report revenues for both the three and nine months ended September 30, 2012 were negatively impacted by challenging market conditions in our tenancy services business and regulatory conditions affecting certain customers of our under-banked credit services business.

External Cost of Revenues

Data and analytics segment external cost of revenues were $15.2 million and $38.0 million, for the three and nine months ended September 30, 2012, respectively, an increase of $4.5 million, or 41.8%, and an increase of $7.0 million, or 22.4%, when compared to the respective periods of the prior year. Acquisition activity contributed $4.1 million of the increase for the nine months ended September 30, 2012. For both the three and six months ended September 30, 2012, excluding acquisition activity, the increases were due to a shift in product mix primarily related to higher advisory services revenues.

Salaries and Benefits

Data and analytics segment salaries and benefits were $52.0 million and $158.9 million for the three and nine months ended September 30, 2012, respectively, an increase of $3.4 million, or 7.1%, and an increase of $22.7 million, or 16.7%, when compared to the respective periods of the prior year. Acquisition activity accounted for $0.6 million and $18.3 million of the increase for the three and nine months ended September 30, 2012, respectively. For the three months ended September 30, 2012, excluding acquisition activity, the increase of $2.8 million was due to higher benefit costs of $1.3 million, higher salaries of $1.2 million and higher other expenses of $0.8 million, partially offset by lower commission and incentives of $0.5 million. For the nine months ended September 30, 2012, excluding acquisition activity, the increase of $4.4 million was due to higher benefit costs of $2.9 million, higher commission and incentives of $1.9 million and higher other expenses of $0.2 million, partially offset by lower salaries of $0.6 million.

Other Operating Expenses

Data and analytics segment other operating expenses were $36.4 million and $104.9 million for the three and nine months ended September 30, 2012, respectively, a decrease of $5.9 million, or 14.0%, and a decrease of $16.9 million, or 13.9%, when compared to the respective periods of the prior year. Acquisition activity accounted for $0.2 million and $0.8 million of the variance for the three and nine months ended September 30, 2012, respectively. For the three months ended September 30, 2012, excluding acquisition activity, the decrease of $6.2 million was due to lower net allocated costs of $6.4 million, lower professional fees of $0.8 million, partially offset by higher other expenses of $1.0 million. For the nine months ended September 30, 2012, excluding acquisition activity, the decrease of $17.7 million was due to lower net allocated costs of $13.4 million, lower legal expense due to proceeds from the settlement of litigation to enforce patent and other intellectual property rights of $7.0 million, lower professional fees of $2.2 million, partially offset by higher licensing software expense of $1.9 million and higher other expenses of $3.0 million. We allocate expenses, from Corporate and Eliminations, to our business segments for various shared service costs such as human resources, legal, accounting and finance, and technology infrastructure cost.

Depreciation and Amortization

Data and analytics segment depreciation and amortization expense was $17.7 million and $53.4 million for the three and nine months ended September 30, 2012, respectively, a decrease of $4.7 million, or 20.9%, and an increase of $5.1 million, or 10.6%, when compared to the respective periods of the prior year. Acquisition activity accounted for $0.5 million and $9.2 million of the variance for the three and nine months ended September 30, 2012. For the three months ended September 30, 2012, excluding acquisition activity, the decrease of $5.2 million was due to prior year write-offs of approximately $5.0 million relating to certain non-performing assets.

Gain/(Loss) on Investments and Other Income, Net

Data and analytics segment gain on investments and other income, net were $2.1 million and $2.4 million for the three and nine months ended September 30, 2012, respectively, and a loss of $0.8 million for the three and nine months ended September 30, 2011. The variance was primarily due to the gain on sale of an investment in an affiliate.

Equity in Earnings of Affiliates

Data and analytics segment equity in earnings of affiliates was $0.5 million and $1.7 million for the three and nine months ended September 30, 2012, respectively, an increase of $0.1 million, or 39.7%, and an increase of $0.6 million, or 56.6%, when compared to the respective periods of the prior year. Acquisition activity contributed $0.8 million of the variance

42


in equity in earnings of affiliates for the nine months ended September 30, 2012.


43


Mortgage Origination Services
 
 
For the Three Months Ended
 
For the Nine Months Ended
(in thousands, except percentages)
September 30, 2012
 
September 30, 2011
 
$ Change
 
% Change
 
September 30, 2012
 
September 30, 2011
 
$ Change
 
% Change
Operating revenues
$
175,120

 
$
129,176

 
$
45,944

 
35.6
 %
 
$
476,944

 
$
370,512

 
$
106,432

 
28.7
 %
External cost of revenues
43,221

 
25,496

 
17,725

 
69.5
 %
 
113,682

 
67,681

 
46,001

 
68.0
 %
Salaries and benefits
42,860

 
39,276

 
3,584

 
9.1
 %
 
123,358

 
117,062

 
6,296

 
5.4
 %
Other operating expenses
31,030

 
37,195

 
(6,165
)
 
(16.6
)%
 
94,760

 
114,379

 
(19,619
)
 
(17.2
)%
Depreciation and amortization
6,409

 
6,719

 
(310
)
 
(4.6
)%
 
21,219

 
17,896

 
3,323

 
18.6
 %
Total operating expenses
123,520

 
108,686

 
14,834

 
13.6
 %
 
353,019

 
317,018

 
36,001

 
11.4
 %
Income from operations
51,600

 
20,490

 
31,110

 
151.8
 %
 
123,925

 
53,494

 
70,431

 
131.7
 %
Total interest (expense)/income, net
(85
)
 
633

 
(718
)
 
(113.4
)%
 
(459
)
 
2,160

 
(2,619
)
 
(121.3
)%
Gain on investments and other income
—

 
—

 
—

 
—
 %
 
—

 
24,915

 
(24,915
)
 
(100.0
)%
Income from continuing operations before income taxes
51,515

 
21,123

 
30,392

 
143.9
 %
 
123,466

 
80,569

 
42,897

 
53.2
 %
Provision for income taxes
—

 
—

 
—

 
—
 %
 
—

 
—

 
—

 
—
 %
Income from continuing operations before equity in earnings of affiliates
51,515

 
21,123

 
30,392

 
143.9
 %
 
123,466

 
80,569

 
42,897

 
53.2
 %
Equity in earnings of affiliates
12,851

 
13,411

 
(560
)
 
(4.2
)%
 
46,239

 
32,733

 
13,506

 
41.3
 %
Income from continuing operations
$
64,366

 
$
34,534

 
$
29,832

 
86.4
 %
 
$
169,705

 
$
113,302

 
$
56,403

 
49.8
 %
 
Operating Revenues

Mortgage origination services segment operating revenues were $175.1 million and $476.9 million for the three and nine months ended September 30, 2012, respectively, an increase of $45.9 million, or 35.6%, and an increase of $106.4 million, or 28.7%, when compared to the respective periods of the prior year. Acquisition activity increased revenues by $15.9 million for the nine months ended September 30, 2012. For the three months ended September 30, 2012, the increase of $45.9 million was due primarily to higher mortgage origination volumes, which increased credit services revenues by $18.5 million, tax services revenues by $18.4 million, flood certification revenues by $4.6 million, lending solutions by $4.7 million and other revenues by $0.3 million. Credit services was also impacted from decreased volumes in automobile-related credit services of $0.6 million. For the nine months ended September 30, 2012, excluding acquisition activity, the increase of $90.5 million was due to higher mortgage origination volumes, which increased credit services revenues by $41.8 million, tax services revenues by $31.0 million, flood certification revenues by $15.7 million and other revenues by $1.7 million. Credit services also benefited from increased volumes in automobile-related credit services of $0.3 million.
 
External Cost of Revenues
 
Mortgage origination services segment external cost of revenues were $43.2 million and $113.7 million for the three and nine months ended September 30, 2012, respectively, an increase of $17.7 million, or 69.5%, and an increase of $46.0

44


million, or 68.0%, when compared to the respective periods of the prior year. Acquisition activity accounted for $8.4 million of the increase for the nine months ended September 30, 2012. For the three months ended September 30, 2012, the increase of $17.7 million was due to higher credit bureau expense of $10.3 million, the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $1.9 million, higher lending services costs of $3.0 million and higher other expenses of $2.5 million. For the nine months ended September 30, 2012, excluding acquisition activity, the increase of $37.7 million was due to higher credit bureau expense of $23.6 million, the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $9.8 million, higher flood certification expenses of $1.8 million and higher other expenses of $2.5 million. In August 2011, we sold CoreLogic Global Services Private Limited (“CoreLogic India”), our India-based captive operations, to an affiliate of Cognizant Technology Solutions Corporation (“Cognizant”) and subsequent to the closing of the sale we began to recognize certain expenses in external cost of revenues.

Salaries and Benefits
 
Mortgage origination services segment salaries and benefits were $42.9 million and $123.4 million for the three and nine months ended September 30, 2012, respectively, an increase of $3.6 million, or 9.1%, and an increase of $6.3 million, or 5.4%, when compared to the respective periods of the prior year. Acquisition activity increased salaries and benefits by $5.0 million for the nine months ended September 30, 2012. For the three months ended September 30, 2012, the increase of $3.6 million was due to higher cost in credit services of $2.0 million, higher costs in lending solutions of $0.7 million, higher tax servicing business of $0.8 million and higher other costs of $0.1 million. For the nine months ended September 30, 2012, excluding acquisition activity, the increase of $1.3 million was due to higher costs in credit services of $2.1 million and higher flood certifications of $0.5 million, partially offset by lower costs in our tax servicing business of $1.3 million.

Other Operating Expenses
 
Mortgage origination services segment other operating expenses were $31.0 million and $94.8 million for the three and nine months ended September 30, 2012, respectively, a decrease of $6.2 million, or 16.6%, and a decrease of $19.6 million, or 17.2%, when compared to the respective periods of the prior year. Acquisition activity accounted for $3.0 million of the variance for the nine months ended September 30, 2012. For the three months ended September 30, 2012, the decrease of $6.2 million was due to lower expense from the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $1.9 million, lower net allocated costs of $3.8 million, lower facilities costs of $1.8 million and lower other expenses of $0.1 million, partially offset by higher professional fees of $1.4 million. For the nine months ended September 30, 2012, excluding acquisition activity, the decrease of $22.6 million was due to lower expense from the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $9.8 million, lower net allocated costs of $8.0 million, lower facilities costs of $6.1 million, partially offset by higher other expenses of $1.3 million.

Depreciation and Amortization
 
Mortgage origination services segment depreciation and amortization expense was $6.4 million and $21.2 million for the three and nine months ended September 30, 2012, a decrease of $0.3 million, or 4.6%, and an increase of $3.3 million, or 18.6%, when compared to the respective periods of the prior year. Acquisition activity accounted for $1.3 million of the increase for the nine months ended September 30, 2012 and the remaining variance of $2.0 million was primarily due to impairment losses on internally developed software.

Gain on Investments and Other Income, Net
 
Mortgage origination services segment gain on investments and other income, net was $24.9 million for the nine months ended September 30, 2011 and reflects the pre-tax gain on the sale of our remaining investment in DealerTrack Holdings, Inc.
 
Equity in Earnings of Affiliates
 
Mortgage origination services segment equity in earnings of affiliates totaled $12.9 million and $46.2 million for the three and nine months ended September 30, 2012, respectively, an increase of $0.6 million, or 4.2%, and an increase of $13.5 million, or 41.3%, when compared to the respective periods of the prior year. The variance is primarily due to higher loan origination activity experienced from the increase in mortgage refinancing in 2012.


45


Default Services
 
 
For the Three Months Ended
 
For the Nine Months Ended
(in thousands, except percentages)
September 30, 2012

September 30, 2011
 
$ Change
 
% Change
 
September 30, 2012
 
September 30, 2011
 
$ Change
 
% Change
Operating revenues
$
89,364

 
$
85,106

 
$
4,258

 
5.0
 %
 
$
257,995

 
$
250,371

 
$
7,624

 
3.0
 %
External cost of revenues
42,396

 
41,311

 
1,085

 
2.6
 %
 
122,706

 
111,149

 
11,557

 
10.4
 %
Salaries and benefits
10,392

 
11,718

 
(1,326
)
 
(11.3
)%
 
32,798

 
39,019

 
(6,221
)
 
(15.9
)%
Other operating expenses
19,055

 
18,077

 
978

 
5.4
 %
 
52,154

 
56,889

 
(4,735
)
 
(8.3
)%
Depreciation and amortization
799

 
1,292

 
(493
)
 
(38.2
)%
 
3,406

 
3,952

 
(546
)
 
(13.8
)%
Total operating expenses
72,642

 
72,398

 
244

 
0.3
 %
 
211,064

 
211,009

 
55

 
—
 %
Income from operations
16,722

 
12,708

 
4,014

 
31.6
 %
 
46,931

 
39,362

 
7,569

 
19.2
 %
Total interest income, net
70

 
73

 
(3
)
 
(4.1
)%
 
214

 
141

 
73

 
51.8
 %
Loss on investments and other income
—

 
—

 
—

 
—
 %
 
—

 
(491
)
 
491

 
(100.0
)%
Income from continuing operations before income taxes
16,792

 
12,781

 
4,011

 
31.4
 %
 
47,145

 
39,012

 
8,133

 
20.8
 %
Provision for income taxes
—

 
—

 
—

 
—
 %
 
—

 
—

 
—

 
—
 %
Income from continuing operations before equity in losses of affiliates
16,792

 
12,781

 
4,011

 
31.4
 %
 
47,145

 
39,012

 
8,133

 
20.8
 %
Equity in losses of affiliates
—

 
(34
)
 
34

 
(100.0
)%
 
—

 
(129
)
 
129

 
(100.0
)%
Income from continuing operations
$
16,792

 
$
12,747

 
$
4,045

 
31.7
 %
 
$
47,145

 
$
38,883

 
$
8,262

 
21.2
 %
 
Operating Revenues
 
Default services segment operating revenues were $89.4 million and $258.0 million for the three and nine months ended September 30, 2012, respectively, an increase of $4.3 million, or 5.0%, and an increase of $7.6 million, or 3.0%, when compared the respective periods of the prior year. For the three months ended September 30, 2012, the increase was primarily due to higher loss mitigation services of $8.3 million due to stronger volumes and pricing, higher field services revenues of $1.9 million, and higher other revenues of $0.6 million, partially offset by lower volumes in real estate owned asset management and other default revenues of $3.3 million, broker price opinion revenues of $2.4 million and claims management revenues $0.8 million. For the nine months ended September 30, 2012, the increase was primarily due to higher loss mitigation services of $16.0 million due to stronger volumes and pricing and higher field services revenues of $14.6 million, partially offset by lower volumes in real estate owned asset management and other default revenues of $11.2 million, broker price opinion revenues of $2.9 million, claims management revenue of $2.9 million, technology revenues of $2.7 million and lower other revenues of $3.3 million.

External Cost of Revenues
 
Default services segment external cost of revenues were $42.4 million and $122.7 million for the three and nine months ended September 30, 2012, respectively, an increase of $1.1 million, or 2.6%, and an increase of $11.6 million, or 10.4%, when compared to the same periods of the prior year. For the three months ended September 30, 2012, the increase was

46


primarily due to higher expense from the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $1.7 million, increased costs from higher volumes in field services of $0.7 million and higher other expenses of $0.1 million due to higher volumes in other default services, partially offset by lower broker price opinion expenses of $1.4 million. For the nine months ended September 30, 2012, the increase was primarily due to higher expense from the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $8.7 million and increased costs from higher volumes in field services of $6.2 million, partially offset by lower other expenses of $1.9 million due to lower volumes in other default services and lower broker price opinion expenses of $1.4 million.

Salaries and Benefits
 
Default services segment salaries and benefits were $10.4 million and $32.8 million for the three and nine months ended September 30, 2012, a decrease of $1.3 million, or 11.3%, and a decrease of $6.2 million, or 15.9%, when compared to the respective periods of the prior year. For the three and nine months ended September 30, 2012, the decrease in both periods is predominantly due to the impact of lower headcount and higher efficiency in connection with our cost-reduction initiatives.

Other Operating Expenses

Default services segment other operating expenses were $19.1 million and $52.2 million for the three and nine months ended September 30, 2012, an increase of $1.0 million, or 5.4%, and a decrease of $4.7 million, or 8.3%, when compared to the respective periods of the prior year. For the three months ended September 30, 2012, the increase is primarily due to higher net allocated costs of $3.3 million, partially offset by lower expense from the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $1.7 million and lower other expenses of $0.6 million. For the nine months ended September 30, 2012, the decrease is primarily due to lower expense from the change in expense classification of our former India-based captive operations from other operating expense to external cost of revenues of $8.7 million and lower other expenses of $1.2 million, partially offset by higher net allocated costs of $5.2 million.

Depreciation and Amortization

Default services segment depreciation and amortization expense was $0.8 million and $3.4 million for the three and nine months ended September 30, 2012, respectively, a decrease of $0.5 million, or 38.2%, and a decrease of $0.5 million, or 13.8%, when compared to the respective periods of the prior year. The variance for both periods ended September 30, 2012 is due to fully-amortized internally developed software.

Loss on Investments and Other Income, Net

Default services segment loss on investments and other income, net was $0.5 million for the nine months ended September 30, 2011, which primarily reflects the loss incurred on the sale of our second lien outsourcing product line.

Equity in Earnings of Affiliates

Default services segment equity in earnings of affiliates totaled approximately $0.1 million for both the three and nine months ended September 30, 2011. There were no equity in earnings nor losses in earnings of affiliates for the three and nine months ended September 30, 2012. The variances relative to the prior year periods are not meaningful.


47


Corporate and Eliminations
 
 
For the Three Months Ended
 
For the Nine Months Ended
(in thousands, except percentages)
September 30, 2012
 
September 30, 2011
 
$ Change
 
% Change
 
September 30, 2012
 
September 30, 2011
 
$ Change
 
% Change
Operating revenues
$
(3,677
)
 
$
(5,649
)
 
$
1,972

 
(34.9
)%
 
$
(13,610
)
 
$
(14,609
)
 
$
999

 
(6.8
)%
External cost of revenues
—

 
681

 
(681
)
 
(100.0
)%
 
—

 
1,606

 
(1,606
)
 
(100.0
)%
Salaries and benefits
28,498

 
31,927

 
(3,429
)
 
(10.7
)%
 
90,953

 
122,230

 
(31,277
)
 
(25.6
)%
Other operating expenses
(5,672
)
 
(21,503
)
 
15,831

 
(73.6
)%
 
(42,572
)
 
(83,297
)
 
40,725

 
(48.9
)%
Depreciation and amortization
8,132

 
4,458

 
3,674

 
82.4
 %
 
15,458

 
14,075

 
1,383

 
9.8
 %
Total operating expenses
30,958

 
15,563

 
15,395

 
98.9
 %
 
63,839

 
54,614

 
9,225

 
16.9
 %
Loss from operations
(34,635
)
 
(21,212
)
 
(13,423
)
 
63.3
 %
 
(77,449
)
 
(69,223
)
 
(8,226
)
 
11.9
 %
Total interest expense, net
(12,036
)
 
(14,977
)
 
2,941

 
(19.6
)%
 
(38,280
)
 
(46,593
)
 
8,313

 
(17.8
)%
(Loss)/gain on investments and other income
(6,401
)
 
(3,297
)
 
(3,104
)
 
94.1
 %
 
(6,302
)
 
63,180

 
(69,482
)
 
(110.0
)%
(Loss)/income from continuing operations before income taxes
(53,072
)
 
(39,486
)
 
(13,586
)
 
34.4
 %
 
(122,031
)
 
(52,636
)
 
(69,395
)
 
131.8
 %
Provision for income taxes
16,406

 
20,535

 
(4,129
)
 
(20.1
)%
 
53,222

 
76,830

 
(23,608
)
 
(30.7
)%
Loss from continuing operations before equity in losses of affiliates
(69,478
)
 
(60,021
)
 
(9,457
)
 
15.8
 %
 
(175,253
)
 
(129,466
)
 
(45,787
)
 
35.4
 %
Equity in losses of affiliates, net of tax
(5,174
)
 
(5,387
)
 
213

 
(4.0
)%
 
(18,563
)
 
(13,300
)
 
(5,263
)
 
39.6
 %
Loss from continuing operations
$
(74,652
)
 
$
(65,408
)
 
$
(9,244
)
 
14.1
 %
 
$
(193,816
)
 
$
(142,766
)
 
$
(51,050
)
 
35.8
 %

Operating Revenues

Corporate and eliminations operating revenues were $(3.7) million and $(13.6) million for the three and nine months ended September 30, 2012, respectively. The variances relate to the timing and elimination of revenues between our operating businesses.

External Cost of Revenues

Corporate and eliminations external cost of revenues was not a significant balance for either the three and nine months ended September 30, 2012 and 2011.

Salaries and Benefits

Corporate and eliminations salaries and benefits were $28.5 million and $91.0 million for the three and nine months ended September 30, 2012, respectively a decrease of $3.4 million, or 10.7%, and a decrease of $31.3 million, or 25.6%, when compared to the respective periods of the prior year. For the three months ended September 30, 2012, corporate salaries and benefit costs decreased $13.1 million over the prior year due to the outsourcing of certain IT and business process functions in

48


connection with sale of CoreLogic India, our India-based captive back-office operations to Cognizant in August 2011 and the outsourcing of our technology infrastructure as part of our TTI. These headcount driven decreases were partially offset by an increases in employee deferred compensation plan obligations of $4.3 million, stock and other compensation related expenses of $4.2 million due to improved 2012 operating performance, and TTI severance and benefit charges of $1.3 million. For the nine months ended September 30, 2012, corporate salaries and benefit costs decreased $47.2 million over the prior year primarily due to the outsourcing of certain IT and business process functions to Cognizant and technology infrastructure as part of our TTI. These headcount driven decreases were partially offset by increases in employee deferred compensation plan obligations of $4.6 million and stock based and other compensation related expenses of $11.3 million related to improved operating performance in 2012.
Other Operating Expenses

Corporate and eliminations other operating expenses were $(5.7) million and $(42.6) million for the three and nine months ended September 30, 2012, respectively, an increase of $15.8 million, or 73.6%, and an increase of $40.7 million, or 48.9%, when compared to the respective periods of the prior year. Other operating expenses include eliminations for internal cost of sales between our business segments and expense allocations to our business segments. For the three months ended September 30, 2012, the increase in corporate and eliminations other operating expenses was due to reduced corporate eliminations of $9.8 million as a result of the outsourcing of Corelogic India, reduced allocations out to our operating segments of $4.9 million as a result of workforce and other cost reduction initiatives in our corporate shared services and information technology functions and $9.2 million of TTI related expenses. These increases in other operating expenses were partially offset by a reduction in professional fees of $8.2 million related to the outsourcing of Corelogic India. For the nine months ended September 30, 2012, the increase in corporate and eliminations other operating expenses was due to reduced corporate eliminations of $36.6 million as a result of the outsourcing of Corelogic India, reduced allocations to our operating segments of $13.9 million as a result of workforce and other cost reduction initiatives in our corporate shared services and information technology functions and $9.2 million of TTI related expenses. These increases in other operating expenses were offset by reductions in professional fees of $19.0 million related to the outsourcing of Corelogic India in the prior year.

Depreciation and Amortization

Corporate and eliminations depreciation and amortization expense was $8.1 million and $15.5 million for the three and nine months ended September 30, 2012, respectively, an increase of $3.7 million, or 82.4%, and an increase of $1.4 million, or 9.8%, when compared to the respective periods of the prior year. For the three months ended September 30, 2012, the increase is primarily due to the acceleration of depreciation of certain corporate assets in connection with the TTI.

Total Interest Expense, net

Corporate and eliminations net interest expense was $12.0 million and $38.3 million for the three and nine months ended September 30, 2012, a decrease of $2.9 million, or 19.6%, and a decrease $8.3 million, or 17.8%, when compared the respective periods of the prior year. For the three months ended September 30, 2012, the decrease is due to debt repayments during the first half of 2012. For the nine months ended September 30, 2012, the decrease is due to the write-off of deferred financing costs in the amount of $10.2 million in the prior year partially offset by higher average outstanding debt balances as a result of the new issuance of $400.0 million principal amount of senior notes in May of 2011.

(Loss)/Gain on Investments and Other Income, Net

Corporate and eliminations loss on investments, net and other income was $6.4 million and $6.3 million for the three and nine months ended September 30, 2012, an increase in loss of $3.1 million, or 94.1%, and an increase in loss of $69.5 million, or 110.0%, when compared to the same periods in the prior year. For the three months ended September 30, 2012, the increase in loss is due to a non-cash impairment charge of $7.5 million on land near our operating facilities in Westlake, Texas, partially offset by a gain of $4.4 million on employee deferred compensation plan assets. For the nine months ended September 30, 2012, the increase in loss is due to a non-cash impairment charge on land in the current year of $7.5 million and $2.0 million in other losses, prior year realized gains on the settlement of a forward currency contract in amount of $5.7 million and a $58.9 million step-up of our initial investment in RP Data to fair value following our acquisition of the remaining outstanding shares in May 2011, partially offset by a gain of $4.6 million on employee deferred compensation plan assets.

Equity in Losses of Affiliates, net of tax

Corporate and eliminations equity in losses of affiliates were $5.2 million and $18.6 million for the three and nine months ended September 30, 2012, a decrease of $0.2 million, or 4.0%, and an increase of $5.3 million, or 39.6%, when

49


compared to the respective periods of the prior year. We record income tax expense on the earnings from our investments in affiliates in corporate and eliminations. For the nine months ended September 30, 2012, the increase is primarily attributable to higher income tax expense based on higher earnings in affiliates contained in our mortgage origination services segment.
 
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 36.9% and 40.9% for the three and nine months ended September 30, 2012, respectively. For the three and nine months ended September 30, 2011, the effective income tax rate was 220.7% and 66.1%, respectively. The change in the effective rate for the three months ended September 30, 2012 and 2011 is primarily attributable to the 2011 excess tax gain recognized upon the sale of Corelogic Global Services Private Limited ("Corelogic India"). The change in the effective tax rate for the nine months ended September 30, 2012 and 2011 is primarily attributable to the reversal of deferred taxes related to our interest in Dorado when it was held as an equity method investment in 2011 and the 2011 excess tax gain recognized upon the sale of Corelogic Global Services Private Limited ("Corelogic India"). Income taxes included in equity in earnings of affiliates were $5.2 million and $5.6 million for the three months ended September 30, 2012 and 2011, respectively, and $18.7 million and $13.6 million for the nine months ended September 30, 2012 and 2011, respectively. For the purpose of segment reporting, these amounts are not reflected at the segment level but are recorded within corporate and eliminations.
 
As of September 30, 2012 and December 31, 2011, the liability for income taxes associated with uncertain tax positions was $52.7 million and $19.3 million, respectively. The increase in the liability as of September 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 September 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 $50.9 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 $6.7 million.

Our income attributable to noncontrolling interests is attributable to a limited liability company subsidiary, which for tax purposes, is treated as a partnership. Accordingly, no income taxes have been provided for the portion of the partnership income attributable to noncontrolling interests.

We evaluate the realizability of our deferred tax assets by assessing our valuation allowance and by adjusting the amount of such allowance, if necessary. The factors used to assess the likelihood of realization are our forecast of future taxable income and available tax planning strategies that could be implemented to realize the deferred tax assets. Failure to achieve our taxable income forecast in the applicable taxing jurisdictions could affect the ultimate realization of deferred tax assets and could result in an increase in our effective tax rate on future earnings.


50


LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at September 30, 2012 totaled $154.6 million, a decrease of $104.7 million from December 31, 2011. We hold our cash balances inside and outside of the U.S. Our cash balances held outside of the U.S. are primarily related to our international operations and at September 30, 2012 totaled $22.2 million. Most of the amounts held outside of the U.S. could be repatriated to the U.S. but, under current law, would be subject to U.S. federal income taxes, less applicable foreign tax credits. We plan to maintain significant cash balances outside the U.S. for the foreseeable future.

Restricted cash of $22.1 million at September 30, 2012 and $22.0 million at December 31, 2011, represents cash pledged for various letters of credit secured by the Company.

Cash Flow

Operating Activities. Cash provided by operating activities reflects net income adjusted for non-cash items and changes in certain assets and liabilities. Cash provided by operating activities was approximately $268.5 million and $55.8 million during the nine months ended September 30, 2012 and 2011, respectively. The increase in cash provided by operating activities was primarily due to higher profitability levels in the current period, higher dividends received from investments in affiliates and timing of collections of accounts receivable and payments of accounts payable and accrued expenses.

Investing Activities. Cash flows from investing activities consist primarily of capital expenditures, acquisitions and dispositions. Cash used in investing activities was approximately $44.2 million and $291.3 million during the nine months ended September 30, 2012 and 2011, respectively.

Cash used in investing activities for the nine months ended September 30, 2012 was primarily related to investments in property and equipment and capitalized data of $38.8 million and $24.1 million, respectively; partially offset by proceeds of $10.0 million from the sale of American Driving Records in August 2012 and proceeds of $8.0 million from the sale of our investment in Lone Wolf Real Estate Technologies. Cash used in investing activities for the nine months ended September 30, 2011 was primarily due to the acquisition of the remaining noncontrolling interest in CoreLogic Information Solutions Holdings, Inc. for $72.0 million in February 2011, the acquisition of Dorado for $31.6 million in cash in March 2011, the cash investment in STARS of $20.0 million in March 2011, the acquisition of RP Data for $157.2 million in May 2011, the acquisition of Tarasoft in September 2011 for $30.3 million, investments in property and equipment of $33.6 million, and investments in capitalized data of $19.9 million. The 2011 increase in cash used in investing activities was offset by proceeds from the sale of our marketable securities investments of $53.8 million, primarily our investment in DealerTrack Holdings, Inc.

Financing Activities. Net cash used in financing activities was approximately $333.7 million for the nine months ended September 30, 2012, which was primarily comprised of repayment of long-term debt of $114.4 million and share repurchases of $226.6 million, partially offset by proceeds from issuance of stock related to stock options and employee benefit plans of $9.6 million. Net cash used in financing activities was $70.4 million for the nine months ended September 30, 2011. During 2011, we repaid acquisition-related notes, entered into a credit agreement and issued senior notes in a private placement for net proceeds of $130.3 million. Also during this period, we repurchased $176.5 million of our common stock.

Financing and Financing Capacity

At September 30, 2012, we had total debt outstanding of $794.8 million, compared to $908.3 million at December 31, 2011. Our significant debt instruments are described below.

Senior Notes

On May 20, 2011, we issued $400.0 million aggregate principal amount of 7.25% senior notes due June 1, 2021 (the "Notes"). The Notes are guaranteed on a senior unsecured basis by each of the Company's existing and future direct and indirect subsidiaries that guarantee the Company's Credit Agreement. Interest is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2011.

The Notes are redeemable by the Company, in whole or in part on or after June 1, 2016 at a price up to 103.63% of the aggregate principal amount of the Notes, plus accrued and unpaid interest, if any, to the applicable redemption date, subject to other limitations. The Company may also redeem up to 35.0% of the original aggregate principal amount of the Notes at any time prior to June 1, 2014 with the proceeds from certain equity offerings at a price equal to 107.25% of the aggregate principal amount of the Notes, together with accrued and unpaid interest, if any, to the applicable redemption date, subject to certain other limitations. The Company may also redeem some or all of the Notes before June 1, 2016 at a redemption price equal to

51


100.0% of the aggregate principal amount of the Notes, plus a "make-whole premium," plus accrued and unpaid interest, if any, to the date of purchase.

Upon the occurrence of specific kinds of change of control events, holders of the Notes have the right to cause us to purchase some or all of the Notes at 101.0% of their principal amount, plus accrued and unpaid interest, if any, to the date of purchase.

The indenture governing the Notes contains restrictive covenants that limit, among other things, the ability of the Company and its restricted subsidiaries to incur additional indebtedness or issue certain preferred equity, pay dividends or make other distributions or other restricted payments, make certain investments, create restrictions on distributions from restricted subsidiaries, create liens on certain properties and assets to secure debt, sell certain assets, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets, enter into certain transactions with affiliates and designate the Company's subsidiaries as unrestricted subsidiaries. At September 30, 2012, we were in compliance with the covenants of the Notes.

If we have a significant increase in our outstanding debt or if our earnings before interest, taxes, depreciation and amortization ("EBITDA") decreases significantly, we may be unable to incur additional amounts of indebtedness, and the holders of the Notes may be unwilling to permit us to amend the restrictive covenants to provide additional flexibility. In addition, the indenture contains a financial covenant for the incurrence of additional indebtedness that requires that the interest coverage ratio be at least 2:00 to 1:00 on a pro forma basis after giving effect to any new indebtedness. There are carve-outs that permit us to incur certain indebtedness notwithstanding satisfaction of this ratio, but they are limited. Based on our EBITDA and interest charges as of September 30, 2012, we would be able to incur additional indebtedness without breaching the limitation on indebtedness covenant contained in the indenture.

Credit Agreement

On May 23, 2011, we entered into a senior secured credit facility (the "Credit Agreement") with Bank of America, N.A. as administrative agent and other financial institutions. The Credit Agreement provides for 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 September 30, 2012, A$50.0 million, or $51.9 million, is outstanding under the multicurrency revolving sub-facility related to our acquisition of 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.

The obligations under the Credit Agreement are senior secured obligations of the Company and the guarantors. The loans under the Credit Agreement bear interest at LIBOR plus a spread ranging from 1.75% to 2.75%. The Credit Agreement also requires the Company to pay a commitment fee for the unused portion of the Revolving Facility, which will be a minimum of 0.30% and a maximum of 0.50%, depending on the Company's leverage ratio.

The Credit Agreement provides that loans under the Term Facility shall be repaid in equal quarterly installments, commencing on September 30, 2011 and continuing on each three-month anniversary thereafter until and including March 31, 2016 in an amount equal to $4.4 million on each repayment date from September 30, 2011 through June 30, 2013, $8.8 million on each repayment date from September 30, 2013 through June 30, 2014 and $13.1 million on each repayment date from September 30, 2014 through March 31, 2016. The remaining outstanding balance of loans under the Term Facility will be due on May 23, 2016. For the nine months ended September 30, 2012, we prepaid $43.8 million of outstanding indebtedness under the Term Facility. This prepayment was applied to the most current portion of the term loan amortization schedule.

The Credit Agreement contains customary financial maintenance covenants, including a (i) maximum total leverage ratio as of the last date of any fiscal quarter not to exceed 4.25 to 1.00 (stepping down to 4.00 to 1.00 starting in the fourth quarter of 2012, with a further step down to 3.50 to 1.00 starting in the fourth quarter of 2013); (ii) a minimum interest coverage ratio of at least 3.00 to 1.00; and (iii) a maximum senior secured leverage ratio not to exceed 3.25 to 1.00 (stepping down to 3.00 to 1.00 starting in the fourth quarter of 2012). At September 30, 2012, we were in compliance with these financial covenants and the restrictive covenants described below.

The Credit Agreement also contains restrictive covenants that limit among other things, the ability of the Company and its subsidiaries, to incur additional indebtedness or issue certain preferred equity, pay dividends or make other distributions or other restricted payments, make certain investments, create restrictions on distributions from subsidiaries, to enter into sale-leaseback transactions, amend the terms of certain other indebtedness, create liens on certain assets to secure debt, sell certain assets, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets and enter into certain transactions

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with affiliates.

At September 30, 2012, we had additional borrowing capacity under the revolving lines of credit of $498.1 million, and were in compliance with the financial covenants of our loan agreements. However, if we have a significant increase in our outstanding debt or if our EBITDA decreases significantly, we may be unable to incur additional indebtedness, and the lenders under the Credit Agreement may be unwilling to permit us to amend the financial or restrictive covenants described above to provide additional flexibility.

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. For the three and nine months ended September 30, 2012, unrealized loss was $0.5 million (net of $0.3 million in deferred taxes) and $5.9 million (net of $3.9 million in deferred taxes), respectively.

Availability of Additional Liquidity

Our access to additional capital, whether from private capital sources (including financial institutions) or the public capital markets, fluctuates as market conditions change. There may be times when the private capital markets and the public debt or equity markets lack sufficient liquidity or when our securities cannot be sold at attractive prices, in which case we would not be able to access capital from these sources. Based on current market conditions and our financial condition (including our ability to satisfy the conditions contained in our Credit Agreement and the indenture governing the Notes that are required to be satisfied to permit us to incur additional indebtedness as further described above), we believe that we have the ability to effectively access these liquidity sources for new borrowings. However, a weakening of our financial condition or strength, including a significant decrease in our profitability or cash flows or a material increase in our leverage could adversely affect our ability to access these markets and/or increase our cost of borrowings. Due to our liquid-asset position and our ability to generate cash flows from operations, we believe that our resources are sufficient to satisfy our anticipated operational cash requirements, debt service and other contractual obligations (including acquisition-related commitments) through the next twelve months.

Liquidity and Capital Strategy

The Company employs a balanced approach to capital allocation over the long term. In the near term, we expect to focus our capital allocation on growth-related initiatives to drive shareholder returns. We will also consider the repurchase of our shares of common stock and the retirement of outstanding debt on an opportunistic basis. For the nine months ended September 30, 2012, we repaid $114.4 million of our debt obligations. In July 2012, the Company announced its plan to repurchase at least 10.0 million shares under an existing Board of Directors authorization. During the third quarter of 2012, we repurchased approximately 8.3 million shares of our common stock for $197.9 million including commission costs, bringing our year to date total for 2012 share repurchases to 10.0 million shares for $226.6 million including commission costs.

Critical Accounting Policies And Estimates

For additional information with respect to the Company's critical accounting policies which the Company believes could have the most significant effect on the Company's reported results and require subjective or complex judgments by management see pages 30-33 in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of the Company's Annual Report on Form 10-K for the year ended December 31, 2011, as amended. Management believes that at September 30, 2012, there had been no material changes to this information.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Our primary exposure to market risk relates to interest-rate risk associated with certain financial instruments. Although we monitor our risk associated with fluctuations in interest rates, we do not currently use derivative financial instruments on any material scale to hedge these risks.

As of September 30, 2012, we had approximately $794.8 million in long-term debt outstanding, of which approximately $331.9 million was variable-interest-rate debt. We have entered into interest rate swaps, which converted the interest rate exposure on $187.5 million of our floating-rate debt from variable to fixed-rate as of September 30, 2012. A

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hypothetical 1% increase or decrease in interest rates would have resulted in an approximately $1.1 million change to interest expense for the nine months ended September 30, 2012.
    
We are also subject to equity price risk related to our equity securities portfolio. At September 30, 2012, we had equity securities with a cost and fair value of $22.0 million.

Although we are subject to foreign currency exchange rate risk as a result of our operations in certain foreign countries, the foreign exchange exposure related to these operations, in the aggregate, is not material to our financial condition or results of operations.

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our chief executive officer and chief financial officer have concluded that, as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures, as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, were effective, based on the evaluation of these controls and procedures required by Rule 13a-15(b) thereunder.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during the quarter ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
 
PART II: OTHER INFORMATION

Item  1.  Legal Proceedings.

For a description of our legal proceedings, see Note 12 – Litigation and Regulatory Contingencies of our condensed consolidated financial statements, which is incorporated by reference in response to this item.
 
Item  1A.  Risk Factors.

A restated description of the risk factors associated with our business is set forth below. This description includes any material changes to and supersedes the description of the risk factors associated with our business previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011, as amended. The risks discussed below are not the only ones facing our business. Please read the cautionary notice regarding forward-looking statements under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations.”

 Risks Related to Our Business

1.
We depend on our ability to access data from external sources to maintain and grow our businesses. If we are unable to access needed data from these sources or if the prices charged for these services increase, the quality, pricing and availability of our products and services may be adversely affected, which could have a material adverse impact on our business, financial condition, and results of operations.

We rely extensively upon data from a variety of external sources to maintain our proprietary and non-proprietary databases, including data from third-party suppliers, various government and public record sources and data contributed by our customers. Our data sources could withdraw their data from us, increase the price we pay for their data, or limit our use of their data for a variety of reasons, including legislatively or judicially imposed restrictions on use. If a number of suppliers are no longer able or are unwilling to provide us with certain data, or if our public record sources of data become unavailable or the cost becomes economically unfeasible, we may need to find alternative sources. If we are unable to identify and contract with suitable alternative data suppliers and efficiently and effectively integrate these data sources into our service offerings, we could experience service disruptions, increased costs and reduced quality of our services. Additionally, if one or more of our suppliers terminates our existing agreements with them, there is no assurance that we will obtain new agreements with other suppliers on terms favorable to us, if at all. Loss of such access or the availability of data in the future on commercially reasonable terms or at all may reduce the quality and availability of our services and products, which could have a material adverse effect on our business, financial condition and results of operations.


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Moreover, some of our suppliers compete with us in certain product offerings, which may make us vulnerable to unpredictable price increases. Significant price increases could have a material adverse effect on our operating margins and our financial position, in particular if we are unable to arrange for substitute sources of data on more favorable economic terms.

2.
Our customers and we are subject to various governmental regulations, and a failure to comply with government regulations or changes in these regulations could result in regulatory penalties, restrict or limit our or our customers' operations or make it more burdensome to conduct such operations, any of which could have a material adverse effect on revenues, earnings and cash flows.

Many of our and our customers' businesses are subject to various federal, state, local and foreign laws and regulations. Our failure to comply with laws and regulations applicable to us could result in restrictions on our ability to provide certain services, imposition of civil fines and criminal penalties, substantial regulatory and compliance costs, litigation expense, adverse publicity and loss of revenue. Likewise, our failure to provide certain products and services in a manner that is compliant with the laws and regulations applicable to our customers' business could increase our litigation expense, result in adverse publicity or otherwise cause our customers to lose confidence in us, any of which could have an adverse affect on our revenues, earnings and cash flows. In addition, independent auditors annually review several of our operations to provide reports on internal controls for our customers and our customers' auditors and regulators. Moreover, since we provide a variety of key services to federally regulated financial institutions, it appears more likely that federal financial institution regulators will also seek to perform examinations on various parts of our operations. In addition, several of our largest bank customers are subject to consent orders with the Office of the Comptroller of the Currency and/or are parties to the National Mortgage Settlement, both of which require them to exercise greater oversight and perform more rigorous audits of their key vendors such as us.

Specifically, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, was enacted in 2010 to broadly reform practices in the financial services industry. Title X of the Dodd-Frank Act established a new Bureau of Consumer Financial Protection, or CFPB, to protect consumers from abusive financial services practices. The CFPB has authority to write rules impacting the business of credit reporting agencies and also to supervise, conduct examinations of, and enforce compliance as to federal consumer financial protections laws and regulations, with respect to certain “non-depository covered persons” determined by the CFPB to be “larger participants” that offer consumer financial products and services. On July 16, 2012, the CFPB issued a final rule that includes two of our credit businesses - CoreLogic Credco and Teletrack - under the CFPB non-bank supervision program. We expect that the first examinations of the credit depositories will begin sometime after the September 30, 2012 effective date of the final rule, with examinations of other credit reporting agencies, including our businesses, sometime thereafter. In addition, the CFPB and the prudential financial institution regulators also have the authority to examine us in our role as a service provider to large financial institutions.
These laws and regulations (as well as actions that may be taken by legislatures and regulatory bodies in the various states or in other countries) could limit our ability to pursue business opportunities we might otherwise consider engaging in, impose additional costs on us, result in significant loss of revenue, impact the value of assets we hold, or otherwise significantly adversely affect our business. In addition, this increased level of scrutiny may cause an increase in the cost of compliance for us.
In addition, several of our largest bank customers are subject to consent orders with the Office of the Comptroller of the Currency and/or are parties to the National Mortgage Settlement, both of which require them to exercise greater oversight and perform more rigorous audits of their key vendors such as us.
Additional changes in the applicable regulatory environment or interpretations of existing regulations or statutes or enhanced governmental oversight of us or our customers could negatively affect our operations. These changes may compel us to increase our prices in certain situations or decrease our prices in other situations, may restrict our ability to implement price increases, and may limit the manner in which we conduct our business or otherwise may have a negative impact on our ability to generate revenues, earnings and cash flows.

In addition, the Dodd-Frank Act and the extensive regulations being promulgated thereunder materially alter consumer and financial markets regulation in other areas. For example, the Dodd-Frank Act expands regulation of real estate appraisals, appraisal management companies, broker price opinions ("BPOs") and automated valuation models ("AVMs"). If we are unable to adapt our products and services to conform to the new laws and regulations, or if these laws and regulations have a negative impact on our customers, we may experience customer losses or increased operating costs, and our business and results of operations could be negatively affected.



55


3.
Regulatory developments with respect to use of consumer data and public records could have a material adverse effect on our business, financial condition and results of operations.

Because our databases include certain public and non-public personal information concerning consumers, we are subject to government regulation and potential adverse publicity concerning our use of consumer data. We acquire, store, use and provide many types of consumer data and related services that already are subject to regulation under the Fair Credit Reporting Act ("FCRA"), the Gramm-Leach-Bliley Act ("GLBA"), and the Driver's Privacy Protection Act and, to a lesser extent, various other federal, state, and local laws and regulations. These laws and regulations are designed to protect the privacy of consumers and to prevent the unauthorized access and misuse of personal information in the marketplace. Failure to comply with these laws by us could result in substantial regulatory penalties, litigation expense and loss of revenue.

In addition, some of our data suppliers face similar regulatory requirements and, consequently, they may cease to be able to provide data to us or may substantially increase the fees they charge us for this data which may make it financially burdensome or impossible for us to acquire data that is necessary to offer our products and services. Further, many consumer advocates, privacy advocates and government regulators believe that existing laws and regulations do not adequately protect privacy or ensure the accuracy of consumer-related data. As a result, they are seeking further restrictions on the dissemination or commercial use of personal information to the public and private sectors as well as contemplating requirements relative to data accuracy and the ability of consumers to opt to have their personal data removed from databases such as ours. Any such restrictions may reduce the quality and availability of our products and services, which could have a material adverse effect on our business, financial condition and results of operations.

4.
If we are unable to protect our information systems against data corruption, cyber-based attacks or network security breaches, or if we are unable to provide adequate security in the electronic transmission of sensitive data, it could have a material adverse effect on our business, financial condition and results of operations.

We are highly dependent on information technology networks and systems, including the Internet, to securely process, transmit and store electronic information. In particular, we depend on our information technology infrastructure for business-to-business and business-to-consumer electronic commerce. Security breaches of this infrastructure, including physical or electronic break-ins, computer viruses, attacks by hackers and similar breaches, can create system disruptions, shutdowns or unauthorized disclosure of confidential information. Unauthorized access could jeopardize the security of information stored in our systems and can lead to "phishing" schemes whereby unauthorized persons pose as employees or other valid personnel and seek to obtain personal or confidential information from our systems. In addition, malware or viruses could jeopardize the security of information stored or used in a user's computer. If we are unable to prevent such security or privacy breaches, our operations could be disrupted, or we may suffer loss of reputation, financial loss and other regulatory penalties because of lost or misappropriated information, including sensitive consumer data.

Likewise, our customers are increasingly imposing more stringent contractual obligations on us relating to our information security protections. If we are unable to maintain protections and processes at a level commensurate with that required by our large customers, it could negatively affect our relationships with those customers or increase our operating costs, which could harm our business or reputation.

5.
Systems interruptions may impair the delivery of our products and services, causing potential customer and revenue loss.

System interruptions may impair the delivery of our products and services, resulting in a loss of customers and a corresponding loss in revenue. In August 2012, as part of our Technology Transformation Initiative (TTI), we entered into an agreement to outsource our technology infrastructure management services, including the hosting of our data centers, to Dell Marketing, L.P. ("Dell"). We depend heavily upon the computer systems located in our data centers, which will be moved under the Dell arrangement from Santa Ana, California and Westlake, Texas to Dell's data centers in Quincy, Washington and Plano, Texas. Certain events beyond our control, including natural disasters and telecommunications failures, or technical issues at Dell that are beyond our control, could interrupt the delivery of products and services. These interruptions also may interfere with our suppliers' ability to provide necessary data and our employees' ability to attend work and perform their responsibilities. Such interruptions and intrusions may cause a loss of customers or a loss in revenue.

6.
Our revenue from customers in the mortgage and consumer lending industries is affected by the volume of real estate transactions. As a result, declines in transaction volumes in these industries may materially adversely affect our business and results of operations.

A significant portion of our revenue is generated from solutions we provide to the mortgage and consumer lending

56


industries. These industries have been affected by fluctuations in volumes in mortgage origination and residential real estate transactions. Reductions in these transaction volumes could materially adversely affect our business, financial condition and results of operations. In addition, declines in the level of loans seriously delinquent (loans delinquent 90 days or more) or loans in foreclosure and delays in the default cycle may negatively affect the demand for many of our products and services in our default services segment. Negative economic conditions have had an impact on and may continue to affect the performance and financial condition of some of our customers in many of our businesses, which may lead to negative effects on our revenue, earnings and liquidity.

7.
We do not solely control the operations and dividend policies of our partially-owned affiliates, including our National Joint Ventures. A decrease in earnings or dividends from these joint ventures could have a negative impact on our earnings and cash flow.

In our National Joint Ventures with some of our largest customers, we share control of the management of the operations of the joint venture with the other partner. As a result, we cannot solely dictate the business strategy, operations or dividend policies of these joint ventures without the cooperation of the respective partners. A decrease in earnings and dividends derived from these joint ventures could have a negative impact on our earnings and cash flow, and we may not have the ability to prevent such a decrease. In addition, our joint venture partners could decide to exit the joint venture or otherwise terminate the operations, which could have a material adverse effect on our business and results of operations.

8.
We rely on our top customers for a significant portion of our revenue and profit, which makes us susceptible to the same macro-economic factors that our customers face. If these customers are negatively impacted by current economic conditions or otherwise experience financial hardship or stress, or if the terms of our relationships with these customers change, our business, financial condition and results of operations could be adversely affected.

The ten largest U.S. mortgage originators generated 40.3% of our 2011 operating revenues for the year ended December 31, 2011, and one customer, Wells Fargo, N.A., accounted for 11.4% of our 2011 operating revenues. These customers face continued pressure in the current economic and regulatory climate. Many of our relationships with these customers are long-standing and are important to our future operating results, but there is no guarantee that we will be able to retain or renew existing agreements or maintain our relationships on acceptable terms or at all. Deterioration in or termination of any of these relationships could significantly reduce our revenue and could adversely affect our business, financial condition and results of operations.

9.
We rely upon proprietary technology and information rights, and if we are unable to protect our rights, our business, financial condition and results of operations could be harmed.

Our success depends, in part, upon our intellectual property rights. We rely primarily on a combination of patents, copyrights, trade secrets, and trademark laws and nondisclosure and other contractual restrictions on copying and distribution to protect our proprietary technology and information. This protection is limited, and our intellectual property could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any infringement, disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. Moreover, litigation may be necessary to enforce or protect our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation could be time-consuming, result in substantial costs and diversion of resources and could harm our business, financial condition, results of operations and cash flows.

10.
If our products or services are found to infringe on the proprietary rights of others, we may be required to change our business practices and may also become subject to significant costs and monetary penalties.

As we continue to develop and expand our products and services, we may become increasingly subject to infringement claims from third parties such as non-practicing entities, software providers or suppliers of data. Likewise, if we are unable to maintain adequate controls over how third-party software and data are used we may be subject to claims of infringement. Any claims, whether with or without merit, could:

•
be expensive and time-consuming to defend;
•
cause us to cease making, licensing or using applications that incorporate the challenged intellectual property;
•
require us to redesign our applications, if feasible;
•
divert management's attention and resources; and
•
require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies.

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11.
Our substantial indebtedness could adversely affect our financial condition and prevent us from fulfilling our obligations under our outstanding debt.

We have a significant amount of indebtedness. As of September 30, 2012, our total debt is approximately $794.8 million, and we have unused commitments of approximately $498.1 million under our credit facilities.

Subject to the limitations contained in the credit agreement governing our credit facilities, the indenture governing the 7.25% senior notes and our other debt instruments, we may incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other general corporate purposes. If we do so, the risks related to our high level of debt could intensify. Specifically, our high level of debt could have important consequences, including:

•
making it more difficult for us to satisfy our obligations with respect to the notes, our credit facilities and our other debt;
•
limiting our ability to obtain additional financing to fund future working capital, capital expenditures and investments or acquisitions or other general corporate purposes;
•
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of cash flows available for working capital, capital expenditures, investments or acquisitions and other general corporate purposes;
•
increasing our vulnerability to general adverse economic and industry conditions;
•
exposing us to the risk of increased rates as certain of our borrowings, in particular the borrowings under our credit facilities, are at variable rates of interest;
•
limiting our flexibility in planning for and reacting to changes in the industries in which we compete;
•
placing us at a disadvantage compared to other less leveraged competitors; and
•
increasing our cost of borrowing.

12. The instruments governing our indebtedness subject us to various restrictions that could limit our operating flexibility.

The indenture governing the notes and the credit agreement governing our credit facilities each impose operating and financial restrictions on our activities. These restrictions include the financial covenants in our credit facilities which require on-going compliance with certain financial tests and ratios, including a minimum interest coverage ratio and maximum leverage ratio. The operating and financial restrictions in the indenture or the credit agreement could limit or prohibit our ability to, among other things:

•
create, incur or assume additional debt;
•
create, incur or assume certain liens;
•
redeem and/or prepay certain subordinated debt we might issue in the future;
•
pay dividends on our stock or repurchase stock;
•
make certain investments and acquisitions, including joint ventures;
•
enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us;
•
enter into new lines of business;
•
engage in consolidations, mergers and acquisitions;
•
engage in specified sales of assets; and
•
enter into transactions with affiliates.

These restrictions on our ability to operate our business could impact our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition or other corporate opportunities that might otherwise be beneficial to us. Our failure to comply with these restrictions could result in an event of default which, if not cured or waived, could result in the acceleration of substantially all our debt.

13. We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or refinance our debt obligations depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial, business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. Our inability to generate

58


sufficient cash flows to satisfy our debt obligations, or to refinance our indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations. If we cannot make scheduled payments on our debt, we will be in default and holders of the notes or the lenders under our credit facilities could declare all outstanding principal and interest to be due and payable, and the lenders under our credit facilities could terminate their revolving commitments to loan money and foreclose against the assets securing their borrowings, and we could be forced into bankruptcy or liquidation.

14.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt
service obligations to increase significantly.

Borrowings under our credit facilities are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. As of September 30, 2012, we had approximately $794.8 million in long-term debt outstanding, of which approximately $331.9 million was variable interest rate debt. We have entered into interest rate swaps, which converted the interest rate exposure on $187.5 million of our floating rate debt from variable to fixed rate as of September 30, 2012. A hypothetical 1% increase or decrease in interest rates would have resulted in an approximately $1.1 million change to interest expense for the quarter ended September 30, 2012.

15. We operate in a competitive business environment, and if we are unable to compete effectively our results of operations and financial condition may be adversely affected.

The markets for our products and services are intensely competitive. Our competitors vary in size and in the scope and breadth of the services they offer. We compete for existing and new customers against both third parties and the in-house capabilities of our customers. Some of our competitors, such as the credit bureaus, have substantial resources. Some have widely-used technology platforms that they seek to use as a competitive advantage to drive sales of other products and services. In addition, we expect that the markets in which we compete will continue to attract new competitors and new technologies. These competitors and new technologies may render our existing technology obsolete, resulting in operating inefficiencies and increased competitive pressure. We cannot assure you that we will be able to compete successfully against current or future competitors or that competitive pressures we face in the markets in which we operate will not materially adversely affect our business, financial condition and results of operations.

16.
The acquisition and integration of businesses by us may not produce the desired financial or operating results.

During 2011, we completed the acquisitions of various businesses in separate transactions, and announced the planned divestiture of certain other businesses to better align with our strategic focus. Expected benefits, synergies and growth from these initiatives may not materialize as planned. In addition, we may have difficulty integrating our completed or any future acquisitions into our operations. If we fail to properly integrate acquired businesses, products, technologies and personnel, it could impair relationships with employees, customers and strategic partners, distract management attention, result in control failures and otherwise disrupt our ongoing business and harm our results of operations. We also may not be able to retain key management and other critical employees after an acquisition. In addition, our future business strategy may include growth through strategic acquisitions, and we may not be able to identify suitable acquisition candidates, obtain the capital necessary to pursue acquisitions or complete acquisitions on satisfactory terms.

17.
Our international outsourcing service providers and our own international operations subject us to additional risks, which could have an adverse effect on our results of operations. Dependence on these operations, in particular our outsourcing arrangements, may impair our ability to operate effectively.

Over the last few years, we have reduced our costs by utilizing lower cost labor outside the U.S. in countries such as India and the Philippines, primarily through outsourcing arrangements. These countries are subject to relatively higher degrees of political and social instability than the U.S. and may lack the infrastructure to withstand political unrest or natural disasters. Such disruptions can impact our ability to deliver our products and services on a timely basis if at all, and to a lesser extent can decrease efficiency and increase our costs. Weakness of the U.S. dollar in relation to the currencies used and higher inflation rates experienced in these countries may also reduce the savings we planned to achieve through this strategy. Furthermore, the practice of utilizing labor based in foreign countries has come under increased scrutiny in the United States and, as a result, some of our customers may require us to use labor based in the U.S. We may not be able to pass on the increased costs of higher-priced U.S.-based labor to our customers, which ultimately could have an adverse effect on our results of operations.

There is a possibility that the foreign countries in which we have outsourcing arrangements or operate could adopt

59


new legislation or regulations that would adversely affect our business by making it difficult, more costly or impossible for us to continue our foreign activities as currently being conducted. In addition, in many foreign countries, particularly in those with developing economies, it is common to engage in business practices that are prohibited by laws and regulations applicable to us, such as the Foreign Corrupt Practices Act ("FCPA"). Any violations of FCPA or local anti-corruption laws by us, our subsidiaries or our local agents, could have an adverse effect on our business and reputation and result in substantial financial penalties or other sanctions.

18. We may not realize the full benefit of our outsourcing arrangements, which may result in increased costs, or may adversely affect our service levels for our customers.

We outsource various business process and information technology services to various third parties, including the outsourcing arrangement we entered into with a subsidiary of Cognizant Technology Solutions and the technology infrastructure management services arrangement we entered into with Dell, and may outsource additional functions to third-party providers in the future. Under our outsourcing arrangements, we rely on the outsource partners to provide services on a timely and effective basis. Although we have service level arrangements governing the performance of these third parties, we do not ultimately control the performance of our outsourcing partners. To the extent our customers object to the outsourcing of services we provide for them either because the services are provided offshore or because of quality issues, we may be required to perform such services directly at a higher cost. The failure of our outsourcing partners to perform as expected or as contractually required could result in significant disruptions and costs to our operations, and to the services we provide to our customers, which could materially and adversely affect our business, customer relationships, financial condition, operating results and cash flow.

Our outsourcing arrangement with Cognizant Technology Solutions that we entered into in August 2011 subjects us to a net cumulative minimum commitment of approximately $303.5 million, plus applicable inflation adjustments, over the five years, which we are required to pay regardless of the actual value of the services it provides. This minimum commitment could negatively affect our cost structure and our ability to divest operations which utilize services under this outsourcing agreement.

19.
We may not be able to attract and retain qualified management or develop current management to keep pace with company growth or with the regulatory environment, which could have an adverse effect on our ability to maintain or increase our product and service offerings.

We rely on skilled management and our success depends on our ability to attract, train and retain a sufficient number of such individuals. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for talented individuals not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of individuals who have the skills and training needed to grow our company, especially in the increasingly regulated environment in which we operate. Increased attrition or competition for qualified management could have an adverse effect on our ability to expand our business and product offerings, as well as cause us to incur greater personnel expenses and training costs.

20.
We have substantial investments in recorded goodwill as a result of prior acquisitions and an impairment of these investments would require a write-down that would reduce our net income.

In accordance with generally accepted accounting principles, or GAAP, existing goodwill is not amortized but instead is required to be assessed for impairment annually or sooner if circumstances indicate a possible impairment. Factors that could lead to impairment of goodwill include significant under-performance relative to historical or projected future operating results, a significant decline in our stock price and market capitalization and negative industry or economic trends. In the event that the book value of goodwill is impaired, any such impairment would be charged to earnings in the period of impairment. In the event of significant volatility in the capital markets or a worsening of current economic conditions, we may be required to record an impairment charge, which would negatively impact our results of operations. Possible future impairment of goodwill under accounting guidance may have a material adverse effect on our business, financial condition and results of operations.

21. We may not be able to effectively achieve our cost-containment or growth strategies, which could adversely affect our financial condition or results of operations.

Our cost-containment and growth strategies include strategic outsourcing, labor management, streamlining functions and improving overall processes. Although we have implemented many of these plans, we cannot guarantee that we will be able to realize all of the projected benefits of our cost-containment and growth strategies. Our cost-containment efforts could impair our ability to attract and retain resources and can also prohibit us from being able to execute effectively and efficiently on our plans.

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Risks Relating to the Separation of FAFC

1.
Our historical financial information may not be indicative of our future results as a stand-alone company.

The historical financial information we have included in prior filings for periods ending prior to June 1, 2010, and the unaudited pro forma consolidated financial statements as of and for the twelve months ended December 31, 2009 filed on Form 8-K on March 22, 2010, may not reflect what our results of operations, financial condition and cash flows would have been had we been a stand-alone company during the periods presented and may not be indicative of what our results of operations, financial condition and cash flows may be in the future now that we are a stand-alone company. Specifically, the pro forma financial information and the financial information does not reflect any increased costs associated with being a stand-alone company, including changes in our cost structure and personnel needs.

2.
The Separation could give rise to liabilities, increased operating expense or other unfavorable effects that may not have otherwise arisen.

The Separation may lead to increased operating and other expenses, both of a non-recurring and a recurring nature, and changes to certain operations, which expenses or changes could arise pursuant to arrangements made with FAFC or the triggering of rights and obligations to other parties. In addition, the Separation may provide more competition in our business than it would have if the companies remained together. For example, FAFC has a small offering of appraisal-related services that may compete with certain of our products and services. With the exception of a noncompetition agreement related to the tax services business, there will be no prohibition on either us or FAFC competing with each other. Litigation with FAFC or other parties could also arise out of the transaction.

3.
We are responsible for a portion of FAFC's contingent and other corporate liabilities.

Under the Separation and Distribution Agreement we entered into with FAFC and related agreements, subject to certain exceptions contained in the Tax Sharing Agreement, we and FAFC are each responsible for 50% of certain of FAC's contingent and other corporate liabilities. External costs and expenses associated with the management of these contingent and other corporate liabilities are shared equally. These contingent and other corporate liabilities primarily relate to any third party claims related to the Separation or the Distribution. Contingent and other corporate liabilities that relate only to the information solutions business were generally allocated to us and those that relate only to the financial services business were generally allocated to FAFC.

If FAFC were to default on a payment obligation related to these liabilities, we may be required to pay the amount in default. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of the agreed-upon share of the contingent and other corporate liabilities, including associated expenses.

4.
We share responsibility with FAFC for certain income tax liabilities for tax periods prior to and including the date of the Distribution.

Under the Tax Sharing Agreement, we are generally responsible for taxes attributable to members of the information solutions group of companies or the assets, liabilities or businesses of the information group of companies and FAFC is generally responsible for all taxes attributable to members of the FAFC group of companies or the assets, liabilities or businesses of the FAFC group of companies. Generally, any liabilities arising from adjustments to prior year (or partial year with respect to 2010) consolidated tax returns will be shared in proportion to each company's percentage of the tax liability for the relevant year (or partial year with respect to 2010), unless the adjustment is attributable to either party, in which case the adjustment will generally be for the account of such party. In addition to this potential liability associated with adjustments for prior periods, if FAFC were to fail to pay any tax liability it is required to pay under the Tax Sharing Agreement, we could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of tax liabilities.

5.
If the Distribution or certain internal transactions undertaken in anticipation of the Separation are determined to be taxable for U.S. federal income tax purposes, we, our stockholders that are subject to U.S. federal income tax and FAFC will incur significant U.S. federal income tax liabilities.

In connection with the Separation we received a private letter ruling from the IRS to the effect that, among other things, certain internal transactions undertaken in anticipation of the Separation will qualify for favorable treatment under the Code, the contribution by us of certain assets of the financial services businesses to FAFC, and the pro-rata distribution to our

61


shareholders of the common stock of FAFC will, except for cash received in lieu of fractional shares, qualify as a tax-free transaction for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Code. In addition, we received opinions of tax counsel to similar effect. The ruling and opinions relied on certain facts, assumptions, representations and undertakings from us and FAFC regarding the past and future conduct of the companies' respective businesses and other matters. If any of these facts, assumptions, representations or undertakings is incorrect or not otherwise satisfied, we and our stockholders may not be able to rely on the ruling or the opinions of tax counsel and could be subject to significant tax liabilities. Notwithstanding the private letter ruling and opinions of tax counsel, the IRS could determine on audit that the Separation is taxable if it determines that any of these facts, assumptions, representations or undertakings were not correct or have been violated or if it disagrees with the conclusions in the opinions that were not covered by the private letter ruling, or for other reasons, including as a result of certain significant changes in the stock ownership of us or FAFC after the Separation. If the Separation is determined to be taxable for U.S. federal income tax purposes, we and our stockholders that are subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.

In addition, under the terms of the Tax Sharing Agreement, in the event the Distribution were determined to be taxable and such determination were the result of actions taken after the Distribution by us or FAFC, the party responsible for such failure would be responsible for all taxes imposed on us or FAFC as a result thereof.

6.
In connection with the Separation, we entered into a number of agreements with FAFC setting forth rights and obligations of the parties post Separation. In addition, certain provisions of these agreements provide protection to FAFC in the event of a change of control of us, which could reduce the likelihood of a potential change of control that our stockholders may consider favorable.

In connection with the Separation, we and FAFC entered into a number of agreements that set forth certain rights and obligations of the parties post-Separation, including the Separation and Distribution Agreement, the Tax Sharing Agreement, the Restrictive Covenants Agreement, certain transition services agreements and leases for our data center and headquarters facilities in Santa Ana. We possess certain rights under those agreements, including without limitation indemnity rights from certain liabilities allocated to FAFC. The failure of FAFC to perform its obligations under the agreements could have an adverse effect on our financial condition, results of operations and cash flows.

In addition, the Separation and Distribution Agreement gives FAFC the right to purchase the equity or assets of our entity or entities directly or indirectly owning the real property databases that we currently own upon the occurrence of certain triggering events. The triggering events include the direct or indirect purchase of the databases by a title insurance underwriter (or its affiliate) or an entity licensed as a title insurance underwriter, including a transaction where a title insurance underwriter (or its affiliate) acquires 25% or more of us. Such a triggering event also triggers the ability of FAFC to terminate our data center and headquarters leases upon 30 days notice. The purchase right expires June 1, 2020. Until the expiration of the purchase right, this provision could have the effect of limiting or discouraging an acquisition of us or preventing a change of control that our stockholders might consider favorable. Likewise, if a triggering event occurs, the loss of ownership of our real property database and our need to move our headquarters and data center very abruptly could have a material adverse effect on our financial condition, business and results of operations.

7.
We might not be able to engage in desirable strategic transactions and equity issuances following the Separation because of restrictions relating to U.S. federal income tax requirements for tax-free distributions.

Our ability to engage in significant equity transactions could be limited or restricted in order to preserve for U.S. federal income tax purposes the tax-free nature of the Distribution by FAC. Even if the Distribution otherwise qualified for tax-free treatment under Sections 368(a)(1)(D) and 355 of the Code, it may result in corporate level taxable gain to us under Section 355(e) of the Code if 50% or more, by vote or value, of our common stock or FAFC's common stock are acquired or issued as part of a plan or series of related transactions that includes the Distribution. For this purpose, any acquisitions or issuances of shares of FAC's common stock within two years before the Distribution, and any acquisitions or issuances of our common stock or FAFC's common stock within two years after the Distribution generally are presumed to be part of such a plan, although FAFC or we may be able to rebut that presumption.

Prior to the Distribution, FAC issued to FAFC and FAFC's principal title insurance subsidiary a total of approximately 13 million shares of common stock, which represented approximately 11% of FAC's shares outstanding at the time of the issuance. In addition, in November 2009 FAC issued approximately 9.5 million shares of common stock in connection with its acquisition of the minority interest shares of its then publicly traded subsidiary, First Advantage Corporation. This represented approximately 9% of FAC's shares currently outstanding. Both of these issuances could count towards the 50% limitation, which could hinder our ability to issue additional shares during the two year period following the Distribution. If an acquisition or issuance of our common stock or FAFC's common stock triggers the application of Section 355(e) of the Code, we would

62


recognize taxable gain for which FAF could be wholly or partially liable as described above.

Moreover, the Tax Sharing Agreement generally provides that each party thereto is responsible for any taxes imposed on the other party as a result of the failure of the distribution to qualify as a tax-free transaction under the Code if such failure is attributable to post-Distribution actions taken by or in respect of the responsible party or its stockholders, regardless of when the actions occur after the Distribution, the other party consents to such actions or such party obtains a favorable letter ruling or opinion of tax counsel as described above. For example, we would be responsible for a third party's acquisition of us at a time and in a manner that would cause a failure of the Distribution to qualify as a tax-free transaction under the Code. These restrictions may prevent us from entering into transactions which might be advantageous to our stockholders.


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Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

Unregistered Sales of Equity Securities

During the quarter ended September 30, 2012, we did not issue any unregistered common shares.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table describes purchases by us of shares of our common stock which settled during each period set forth in the table. Prices in column (b) include commissions. Purchases described in column (c) were made pursuant to our stock repurchase plan initially approved by the Board of Directors and announced by us on May 18, 2004, which was amended to add additional amounts to the repurchase authorization as subsequently amended on May 19, 2005, June 26, 2006, and January 15, 2008. The amounts in column (d) reflect the effect of these amendments, but do not reflect any restrictions on repurchases under our debt agreements as described below. The stock repurchase plan has no expiration date. This plan provided for the repurchase up to $800.0 million shares of our common stock.

Under our May 2011 credit agreement, our stock repurchase capacity is restricted to $100.0 million per fiscal year, with the ability to undertake an additional amount of repurchases in such fiscal year provided that, on a pro forma basis after giving effect to the stock repurchase, our senior secured leverage ratio does not exceed 2.25:1.0 or our total leverage ratio does not exceed 3.25:1:0. In addition, our stock repurchase capacity is limited by the restricted payments covenant in the indenture governing our 7.25% senior notes. While we continue to preserve the capacity to execute share repurchases under our existing share repurchase authorization, going forward we will consider the repurchase of shares of our common stock and retirement of outstanding debt on an opportunistic basis.

Issuer Purchases of Equity Securities
 
 
(a)
 
(b)
 
(c)
 
(d)
Period
Total Number of Shares Purchased
 
Average Price Paid per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
 
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs
July 1 to July 31, 2012
1,500,000

 
$
22.80

 
—

 
$
202,016,777

August 1 to August 31, 2012
6,844,665

 
$
24.04

 
1,911,400

 
$
156,066,721

September 1 to September 30, 2012
—

 
$
—

 
—

 
$
156,066,721

Total
8,344,665

 
$
23.82

 
1,911,400

 
 

Item 3.  Defaults Upon Senior Securities. None.

Item 4.  Mine Safety Disclosures. Not applicable.

Item  5.  Other Information. None.

Item 6.  Exhibits.

See Exhibit Index.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
CoreLogic, Inc.
 
 
(Registrant)
 
 
 
 
 
By: /s/   Anand Nallathambi
 
 
Anand Nallathambi
 
 
President and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
By: /s/    Frank D. Martell
 
 
Frank D. Martell
 
 
Chief Financial Officer
 
 
(Principal Financial Officer)
Date:
October 25, 2012
 


65


EXHIBIT INDEX
 
Exhibit
Number
 
Description
10.1
 
Master Services Agreement by and between the Company and Dell Marketing, L.P., dated as of July 19, 2012 *ü
 
 
 
10.2
 
2012 Employee Stock Purchase Plan (Incorporated by reference from Annex I to that certain Definitive Proxy Statement filed with the SEC on June 25, 2012)
 
 
 
31.1
 
Certification by Chief Executive Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 ü
 
 
 
31.2
 
Certification by Chief Financial Officer Pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934 ü
 
 
 
32.1
 
Certification by Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 ü
 
 
 
32.2
 
Certification by Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 ü
 
 
 
101
 
Extensible Business Reporting Language (XBRL)^

 
 
 

 
ü
Included in this filing
 
^
Users of this data are advised that, in accordance with Rule 406T of Regulation S-T promulgated by the Securities and Exchange Commission, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise are not subject to liability under these sections.
 
*
Portions of this exhibit are subject to a request for confidential treatment and have been redacted and filed separately with the SEC.



66