Edgar Filing: CORELOGIC, INC.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2019

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

For the transition period from to

Commission file number 001-13585

CoreLogic, Inc.

(Exact name of registrant as specified in its charter)



Delaware	95-1068610
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)



40 Pacifica, Irvine, California	92618-7471
(Address of principal executive offices)	(Zip Code)

(949) 214-1000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant: is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o

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

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

Yes o No x

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

On April 22, 2019 there were 80,687,453 shares of common stock outstanding.

CoreLogic, Inc.

Table of Contents



Part I:	Financial Information	1

Item 1.	Financial Statements (unaudited)

	A. Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	1

	B. Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018	2

	C. Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2019 and 2018	3

	D. Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018	4

	E. Condensed Consolidated Statement of Stockholders' Equity for the three months ended March 31, 2019 and 2018	5

	F. Notes to Condensed Consolidated Financial Statements	6

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	33

Part II:	Other Information	33

Item 1.	Legal Proceedings	33

Item 1A.	Risk Factors	33

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

Item 3.	Defaults upon Senior Securities	34

Item 4.	Mine Safety Disclosures	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

PART I: FINANCIAL INFORMATION

Item 1. Financial Statements.

CoreLogic, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)



(in thousands, except par value)	March 31,			December 31,
Assets	2019			2018
Current assets:
Cash and cash equivalents	$	86,828		$	85,271
Accounts receivable (less allowance for doubtful accounts of $6,302 and $5,742 as of March 31, 2019 and December 31, 2018, respectively)	246,329			242,814
Prepaid expenses and other current assets	49,211			50,136
Income tax receivable	13,971			25,299
Total current assets	396,339			403,520
Property and equipment, net	459,478			456,497
Operating lease assets	64,606			—
Goodwill, net	2,395,765			2,391,954
Other intangible assets, net	452,124			468,405
Capitalized data and database costs, net	324,116			324,049
Investment in affiliates, net	21,867			22,429
Other assets	99,701			102,136
Total assets	$	4,213,996		$	4,168,990
Liabilities and Equity
Current liabilities:
Accounts payable and other accrued expenses	$	162,045		$	166,258
Accrued salaries and benefits	75,861			84,940
Contract liabilities, current	312,322			308,959
Current portion of long-term debt	47,465			26,935
Operating lease liabilities, current	16,709			—
Total current liabilities	614,402			587,092
Long-term debt, net of current	1,709,501			1,752,241
Contract liabilities, net of current	520,845			524,069
Deferred income tax liabilities	125,064			124,968
Operating lease liabilities, net of current	82,851			—
Other liabilities	162,062			180,122
Total liabilities	3,214,725			3,168,492

Stockholders' equity:
Preferred stock, $0.00001 par value; 500 shares authorized, no shares issued or outstanding	—			—
Common stock, $0.00001 par value; 180,000 shares authorized; 80,633 and 80,092 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	1			1
Additional paid-in capital	164,969			160,870
Retained earnings	977,062			975,375
Accumulated other comprehensive loss	(142,761		)	(135,748		)
Total stockholders' equity	999,271			1,000,498
Total liabilities and equity	$	4,213,996		$	4,168,990

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

CoreLogic, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)



	For the Three Months Ended
	March 31,
(in thousands, except per share amounts)	2019			2018
Operating revenues	$	417,708		$	444,900
Cost of services (excluding depreciation and amortization shown below)	219,061			239,389
Selling, general and administrative expenses	128,224			114,952
Depreciation and amortization	49,219			46,140
Total operating expenses	396,504			400,481
Operating income	21,204			44,419
Interest expense:
Interest income	978			530
Interest expense	19,703			17,692
Total interest expense, net	(18,725		)	(17,162		)
Gain on investments and other, net	734			161
Income from continuing operations before equity in (losses)/earnings of affiliates and income taxes	3,213			27,418
Provision/(benefit) for income taxes	1,058			(711		)
Income from continuing operations before equity in (losses)/earnings of affiliates	2,155			28,129
Equity in (losses)/earnings of affiliates, net of tax	(422		)	233
Net income from continuing operations	1,733			28,362
Loss from discontinued operations, net of tax	(46		)	(75		)
Net income	$	1,687		$	28,287
Basic income per share:
Net income from continuing operations	$	0.02		$	0.35
Loss from discontinued operations, net of tax	—			—
Net income	$	0.02		$	0.35
Diluted income per share:
Net income from continuing operations	$	0.02		$	0.34
Loss from discontinued operations, net of tax	—			—
Net income	$	0.02		$	0.34
Weighted-average common shares outstanding:
Basic	80,179			81,254
Diluted	81,277			82,820

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

CoreLogic, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)



	For the Three Months Ended
	March 31,
(in thousands)	2019			2018
Net income	$	1,687		$	28,287
Other comprehensive (loss)/income
Adoption of new accounting standards	—			408
Market value adjustments on interest rate swaps, net of tax	(12,206		)	4,137
Foreign currency translation adjustments	5,342			(4,114		)
Supplemental benefit plans adjustments, net of tax	(149		)	(124		)
Total other comprehensive (loss)/income	(7,013		)	307
Comprehensive (loss)/income	$	(5,326	)	$	28,594

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

CoreLogic, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)



	For the Three Months Ended
	March 31,
(in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	1,687		$	28,287
Less: Loss from discontinued operations, net of tax	(46		)	(75		)
Net income from continuing operations	1,733			28,362
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	49,219			46,140
Amortization of debt issuance costs	1,302			1,376
Amortization of operating lease assets	4,036			—
Provision for bad debt and claim losses	3,788			2,847
Share-based compensation	9,892			8,677
Equity in losses/(earnings) of affiliates, net of taxes	422			(233		)
Deferred income tax	4,346			6,250
Gain on investment and other, net	(734		)	(161		)
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable	(5,489		)	12,745
Prepaid expenses and other current assets	(2,778		)	(764		)
Accounts payable and other accrued expenses	(7,665		)	4,987
Contract liabilities	173			(2,756		)
Income taxes	10,966			(482		)
Dividends received from investments in affiliates	—			776
Other assets and other liabilities	(4,630		)	(7,556		)
Net cash provided by operating activities - continuing operations	64,581			100,208
Net cash provided by operating activities - discontinued operations	—			2
Total cash provided by operating activities	$	64,581		$	100,210
Cash flows from investing activities:
Purchases of property and equipment	$	(24,020	)	$	(9,940	)
Purchases of capitalized data and other intangible assets	(8,947		)	(9,544		)
Cash paid for acquisitions, net of cash acquired	—			(20,533		)
Cash received from sale of business-line	1,082			—
Proceeds from sale of property and equipment	—			100
Proceeds from investments	1,157			980
Net cash used in investing activities - continuing operations	(30,728		)	(38,937		)
Net cash provided by investing activities - discontinued operations	—			—
Total cash used in investing activities	$	(30,728	)	$	(38,937	)
Cash flows from financing activities:
Proceeds from long-term debt	$	—		$	95
Repayment of long-term debt	(25,563		)	(45,722		)
Proceeds from issuance of shares in connection with share-based compensation	2,758			15,473
Payment of tax withholdings related to net share settlements	(8,551		)	(10,532		)
Shares repurchased and retired	—			(18,479		)
Contingent consideration payments subsequent to acquisitions	(600		)	—
Net cash used in financing activities - continuing operations	(31,956		)	(59,165		)
Net cash provided by financing activities - discontinued operations	—			—
Total cash used in financing activities	$	(31,956	)	$	(59,165	)
Effect of exchange rate on cash, cash equivalents and restricted cash	(200		)	311
Net change in cash, cash equivalents and restricted cash	1,697			2,419
Cash, cash equivalents and restricted cash at beginning of period	98,250			132,154
Less: Change in cash, cash equivalents and restricted cash - discontinued operations	—			2
Plus: Cash swept from discontinued operations	—			2
Cash, cash equivalents and restricted cash at end of period	$	99,947		$	134,573

Supplemental disclosures of cash flow information:
Cash paid for interest	$	17,351		$	15,553
Cash paid for income taxes	$	1,958		$	988
Cash refunds from income taxes	$	15,950		$	2,917
Non-cash investing activities:
Capital expenditures included in accounts payable and other accrued expenses	$	14,469		$	6,267

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

CoreLogic, Inc.

Condensed Consolidated Statement of Stockholders' Equity

(Unaudited)



	Common Stock Shares		Common Stock Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
(in thousands)
For the Three Months Ended March 31, 2019
Balance as of December 31, 2018	80,092		$	1	$	160,870		$	975,375		$	(135,748	)	$	1,000,498
Net income	—		—		—			$	1,687		—			1,687
Shares issued in connection with share-based compensation	541		—		2,758			—			—			2,758
Payment of tax withholdings related to net share settlements	—		—		(8,551		)	—			—			(8,551		)
Share-based compensation	—		—		9,892			—			—			9,892
Other comprehensive loss	—		—		—			—			(7,013		)	(7,013		)
Balance as of March 31, 2019	80,633		$	1	$	164,969		$	977,062		$	(142,761	)	$	999,271

For the Three Months Ended March 31, 2018
Balance at December 31, 2017	80,885		$	1	$	224,455		$	877,111		$	(93,691	)	1,007,876
Adoption of new accounting standards	—		—		—			(23,600		)	408			(23,192		)
Net income	—		—		—			28,287			—			28,287
Shares issued in connection with share-based compensation	1,151		—		15,473			—			—			15,473
Payment of tax withholdings related to net share settlements	—		—		(10,532		)	—			—			(10,532		)
Share-based compensation	—		—		8,677			—			—			8,677
Shares repurchased and retired	(400	)	—		(18,479		)	—			—			(18,479		)
Other comprehensive loss	—		—		—			—			(101		)	(101		)
Balance as of March 31, 2018	81,636		$	1	$	219,594		$	881,798		$	(93,384	)	$	1,008,009

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

Note 1 – Basis of Condensed Consolidated Financial Statements

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

Our condensed consolidated financial information included in this report has been prepared in accordance with accounting principles generally accepted (“GAAP”) in the United States ("US") for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the condensed consolidated financial statements and accompanying notes. Actual amounts may differ from these estimated amounts. Certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The 2018 year-end condensed consolidated balance sheet was derived from the Company's audited financial statements for the year ended December 31, 2018. Interim financial information does not require the inclusion of all the information and footnotes required by GAAP for complete financial statements. Therefore, these financial statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2018.

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

Client Concentration

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

Cash, Cash Equivalents and Restricted Cash

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



(in thousands)	March 31, 2019		March 31, 2018
Cash and cash equivalents	$	86,828	$	123,698
Restricted cash included in other assets	11,134		9,806
Restricted cash included in prepaid expenses and other current assets	1,985		1,069
Total cash, cash equivalents and restricted cash	$	99,947	$	134,573

Operating Revenue Recognition

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

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

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

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

See further discussion in Note 8 - Operating Revenues.

Comprehensive Loss

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



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

Investment in Affiliates, net

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

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

Discontinued Operations

In September 2014, we completed the sale of our collateral solutions and field services businesses, which were included in the former reporting segment Asset Management and Processing Solutions. In September 2012, we completed the wind down of our consumer services business and our appraisal management company business. In September 2011, we closed our marketing services business. In December 2010, we completed the sale of our Employer and Litigation Services businesses.

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

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

Tax Escrow Disbursement Arrangements

We administer tax escrow disbursements as a service to our clients in connection with our tax services business. These deposits are maintained in segregated accounts for the benefit of our clients and totaled $5.7 billion and $696.0 million as of March 31, 2019 and December 31, 2018, respectively. Because these deposits are held on behalf of our clients, they are not our funds and, therefore, are not included in the accompanying condensed consolidated balance sheets.

These deposits generally remain in the accounts for a period of two to five business days. We record earnings credits from these activities as a reduction to related administrative expenses, including the cost of bank fees and other administration costs.

Under our contracts with our clients, if we make a payment in error or fail to pay a taxing authority when a payment is due, we could be held liable to our clients for all or part of the financial loss they suffer as a result of our act or omission. We maintained total claim reserves relating to incorrect disposition of assets of $20.4 million and $21.2 million as of March 31, 2019, and December 31, 2018, respectively. Within these amounts, $9.2 million, for both periods, are short-term and are reflected within accounts payable and other accrued expenses within our accompanying condensed consolidated balance sheets. The remaining reserves are reflected within other liabilities.

Recent Accounting Pronouncements

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

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

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

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

Leases

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

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

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

Note 2 - Property and Equipment, Net

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



(in thousands)	2019			2018
Land	$	7,476		$	7,476
Buildings	6,487			6,487
Furniture and equipment	71,559			68,851
Capitalized software	925,752			902,482
Leasehold improvements	43,607			43,476
Construction in progress	1,218			669
	1,056,099			1,029,441
Less accumulated depreciation	(596,621		)	(572,944		)
Property and equipment, net	$	459,478		$	456,497

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

Note 3 – Goodwill, Net

A reconciliation of the changes in the carrying amount of goodwill and accumulated impairment losses, by reporting unit, for the three months ended March 31, 2019 is as follows:



(in thousands)	PIRM			UWS			Consolidated
Balance as of January 1, 2019
Goodwill	$	1,107,466		$	1,292,013		$	2,399,479
Accumulated impairment losses	(600		)	(6,925		)	(7,525		)
Goodwill, net	1,106,866			1,285,088			2,391,954
Measurement period adjustments	192			—			192
Translation adjustments	3,619			—			3,619
Balance as of March 31, 2019
Goodwill, net	$	1,110,677		$	1,285,088		$	2,395,765

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

Note 4 – Other Intangible Assets, Net

Other intangible assets, net consist of the following:



	March 31, 2019							December 31, 2018
(in thousands)	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Client lists	$	706,819	$	(339,748	)	$	367,071	$	706,253	$	(327,201	)	$	379,052
Non-compete agreements	35,227		(21,465		)	13,762		35,224		(20,156		)	15,068
Tradenames and licenses	131,233		(59,942		)	71,291		131,130		(56,845		)	74,285
	$	873,279	$	(421,155	)	$	452,124	$	872,607	$	(404,202	)	$	468,405

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

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



(in thousands)
Remainder of 2019	$	47,668
2020	61,947
2021	58,795
2022	56,927
2023	49,311
Thereafter	177,476
	$	452,124

Note 5 – Long-Term Debt

Our long-term debt consists of the following:



		March 31, 2019							December 31, 2018
(in thousands)		Gross		Debt Issuance Costs			Net		Gross		Debt Issuance Costs			Net
Bank debt:
	Term loan facility borrowings due August 2022, weighted-average interest rate of 4.25% and 4.05% as of March 31, 2019 and December 31, 2018, respectively	$	1,575,000	$	(12,105	)	$	1,562,895	$	1,597,500	$	(13,043	)	$	1,584,457
	Revolving line of credit borrowings due August 2022, weighted-average interest rate of 4.24% and 4.06% as of March 31, 2019 and December 31, 2018, respectively	178,323		(4,852		)	173,471		178,146		(5,216		)	172,930
Notes:
	7.55% senior debentures due April 2028	14,645		(44		)	14,601		14,645		(44		)	14,601
Other debt:
	Various debt instruments with maturities through 2024	5,999		—			5,999		7,188		—			7,188
Total long-term debt		1,773,967		(17,001		)	1,756,966		1,797,479		(18,303		)	1,779,176
Less current portion of long-term debt		47,465		—			47,465		26,935		—			26,935
Long-term debt, net of current portion		$	1,726,502	$	(17,001	)	$	1,709,501	$	1,770,544	$	(18,303	)	$	1,752,241

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

Credit Agreement

In August 2017, we amended and restated our credit agreement (“Credit Agreement”) with Bank of America, N.A. as the administrative agent, and other financial institutions. The Credit Agreement provides for a $1.8 billion five-year term loan A facility (“Term Facility”), and a $700.0 million five-year revolving credit facility ("Revolving Facility"). The Term Facility matures and the Revolving Facility expires in August 2022. The Revolving facility includes a $100.0 million multicurrency revolving sub-facility and a $50.0 million letter of credit sub-facility. The Credit Agreement also provides for the ability to increase the Term Facility and/or Revolving Facility by up to $100.0 million in the aggregate; however the lenders are not obligated to do so. As of March 31, 2019, we had a remaining borrowing capacity of $521.7 million under the Revolving Facility and we were in compliance with all of our covenants under the Credit Agreement.

Debt Issuance Costs

In connection with the amendment and restatement of the Credit Agreement, in August 2017, we incurred approximately $14.3 million of debt issuance costs of which $14.0 million were initially capitalized within long-term debt, net of current in the accompanying condensed consolidated balance sheets. In addition, when we amended and restated the Credit Agreement, we wrote-off previously unamortized debt issuance costs of $1.8 million within gain on investments and other, net in the accompanying consolidated statement of operations; resulting in a remaining $12.0 million of previously unamortized costs. We will amortize all of these costs over the term of the Credit Agreement. For the three months ended March 31, 2019 and 2018, $1.3 million and $1.4 million, respectively, were recognized in the accompanying condensed consolidated statement of operations related to the amortization of debt issuance costs.

7.55% Senior Debentures

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

Interest Rate Swaps

We have entered into amortizing interest rate swaps ("Swaps") in order to convert a portion of our interest rate exposure on the Term Facility floating rate borrowings from variable to fixed. Under the Swaps, we agree to exchange floating rate for fixed rate interest payments periodically over the life of the agreement. The floating rates in our Swaps are based on the one-month London interbank offering rate. The notional balances, terms and maturities of our Swaps are designed to have at least 50% of our debt as fixed rate.

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

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

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

Note 6 – Leases

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

The following table provides a breakdown of lease balances within our condensed consolidated balance sheet as of March 31, 2019 and December 31, 2018:



(in thousands)
Lease Type and Classification	Included Within	March 31, 2019		December 31, 2018 (1)
Assets
Operating	Operating lease assets	$	64,606	$	—
Finance	Property and equipment, net	5,895		5,002
Total		$	70,501	$	5,002

Liabilities
Current
Operating	Operating lease liabilities, current	$	16,709	$	—
Finance	Current portion of long-term debt	2,465		2,340
Long-term
Operating	Operating lease liabilities, net of current	82,851		—
Finance	Long-term debt, net of current	3,534		2,753
Total		$	105,559	$	5,093

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

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



(in thousands)
Lease Cost	Included Within	March 31, 2019
Finance lease cost
Amortization of lease assets	Depreciation and amortization	$	825
Interest on lease liabilities	Interest expense	$	30

Operating lease cost	SG&A	$	5,270
Operating lease cost	Cost of services	401
		$	5,671

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



(in thousands)
Other Information	Finance Leases			Operating Leases
Cash paid for amounts included in measurement of liabilities
Operating cash outflows	$	30		$	6,907
Financing cash outflows	$	822		$	—

Right-of-use assets obtained in exchange for lease liabilities	$	1,739		$	862
Weighted average remaining lease term (years)	2.9			8.5
Weighted average discount rate	3.78		%	6.49		%

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



(in thousands)	Finance Leases			Operating Leases
2019	$	1,970		$	16,796
2020	2,141			22,898
2021	1,255			17,702
2022	634			10,823
2023	289			8,487
Thereafter	70			56,486
Total lease payments	6,359			133,192
Less imputed interest	(360		)	(33,632		)
Total	$	5,999		$	99,560

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



(in thousands)
2019	$	26,738
2020	25,413
2021	19,214
2022	12,149
2023	8,908
Thereafter	57,179
Total	$	149,601

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

Note 7 – Fair Value of Financial Instruments

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

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

A fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). Level 2 measurements utilize observable inputs in active markets for similar assets and liabilities, or, quoted prices in markets that are not active.

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

Cash and Cash Equivalents

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

Restricted Cash

Restricted cash is comprised of certificates of deposit that are pledged for various letters of credit/bank guarantees secured by us, escrow accounts due to acquisitions and divestitures and short-term investments within our deferred compensation plan trust. We deem the carrying value to be a reasonable estimate of fair value due to the nature of these instruments.

Other Investments

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

Contingent Consideration

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

Long-Term Debt

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

Interest Rate Swaps

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

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



(in thousands)	Fair Value Measurements Using
As of March 31, 2019	Level 1		Level 2		Level 3		Fair Value
Financial Assets:
Cash and cash equivalents	$	86,828	$	—	$	—	$	86,828
Restricted cash	2,513		10,606		—		13,119
Other investments	—		—		5,708		5,708
Total	$	89,341	$	10,606	$	5,708	$	105,655

Financial Liabilities:
Contingent consideration	$	—	$	—	$	5,500	$	5,500
Total debt	—		1,775,970		—		1,775,970
Total	$	—	$	1,775,970	$	5,500	$	1,781,470

Derivatives:
Asset for Swaps	$	—	$	8,747	$	—	$	8,747
Liability for Swaps	$	—	$	26,853	$	—	$	26,853

As of December 31, 2018
Financial Assets:
Cash and cash equivalents	$	85,271	$	—	$	—	$	85,271
Restricted cash	1,366		11,613