Basis of Condensed Consolidated Financial Statements

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Condensed Consolidated Financial Statements

CoreLogic, Inc., together with its subsidiaries (collectively “CoreLogic”, “the Company”, “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, property risk and replacement cost, 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 2020 year-end condensed consolidated balance sheet was derived from the Company’s audited financial statements for the year ended December 31, 2020. 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, 2020.

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.

Merger Agreement

In February 2021, we entered into an Agreement and Plan of Merger (“Merger Agreement”) with Celestial-Saturn Parent Inc., a Delaware corporation (“Acquirer”), and Celestial-Saturn Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Acquirer (“Acquisition Sub”). Pursuant to the Merger Agreement, and subject to the terms and conditions set forth therein, Acquisition Sub would be merged with and into CoreLogic (“Merger”), with CoreLogic continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Acquirer. The Acquirer and Acquisition Sub are affiliates of Stone Point Capital Partners and Insight Partners. If the Merger is consummated, CoreLogic’s securities will be de-listed from the New York Stock Exchange and de-registered under the Securities Exchange Act of 1934, as amended (“Exchange Act”), as soon as practicable following the effective time of the Merger (“Effective Time”).

In the event the Merger is completed, except as otherwise provided in the Merger Agreement, each share of common stock, par value $0.00001 per share, of CoreLogic issued and outstanding immediately prior to the Effective Time would be converted into the right to receive $80.00 per share in cash, without interest (“Merger Consideration”).

Consummation of the Merger is subject to customary closing conditions, including, among other things, (i) the adoption of the Merger Agreement by the holders of a majority of the outstanding shares of our common stock (“Requisite Stockholder Approval”), and (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”), and the expiration of applicable waiting periods or clearance of the Merger, as applicable, under the antitrust and foreign investment laws of certain other jurisdictions (“Regulatory Approvals”). The Requisite Stockholder Approval was obtained at a special meeting of the Company’s stockholders on April 28, 2021. In addition, the applicable waiting period under the HSR Act expired on March 22, 2021 and clearance to proceed was obtained from the New Zealand Overseas Investment Office on March 8, 2021. CoreLogic made the filing required in Australia in February 2021 and is awaiting approval from the Australian Foreign Investment Review Board.

The consummation of the Merger is not subject to a financing condition, and the Acquirer has obtained equity and debt financing commitments for the purpose of financing the Merger and the other transactions contemplated by the Merger Agreement. Certain debt financing arrangements have already been secured by Acquisition Sub and, subject to the consummation of the Merger, will become indebtedness of CoreLogic at the Effective Time.

Either we or the Acquirer may terminate the Merger Agreement in certain circumstances, including if (i) the Merger shall not have been consummated on or before 5:00 p.m. (New York City time) on August 9, 2021, (ii) any of certain governmental authorities of competent jurisdiction has issued a final non-appealable law or order prohibiting the Merger, (iii) the Requisite Stockholder Approval is not obtained at the stockholders’ meeting duly convened therefor or (iv) the other party materially breaches, and does not cure, any representation or covenant that would cause the related condition to the other party’s obligation to consummate the Merger not to be satisfied, in each case subject to certain limitations set forth in the Merger Agreement. If we terminate the Merger Agreement because (i) the Acquirer or Acquisition Sub materially breaches, and does not cure, any representation or covenant that would cause any conditions to our obligation to consummate the Merger not to be satisfied or (ii) all conditions to the Merger have been and continue to be satisfied (subject to customary exceptions) and the Acquirer fails to consummate the Merger after receiving written notification from us, we would be entitled to receive a termination fee from the Acquirer of $330 million. If the Merger Agreement is terminated by us or the Acquirer under other certain circumstances specified in the Merger Agreement, we would be obligated to pay a termination fee of $165 million to the Acquirer. See the risk factor titled “If the Merger Agreement is terminated, under certain conditions, we may be obligated to pay the Acquirer a substantial termination fee, which could require us to incur additional debt or reduce the amount of cash we have available to fund our operations” under “Risk Factors” in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (“2020 10-K”) for further information about the termination fee we may be obligated to pay.

In March 2021, we filed a definitive proxy statement on Schedule 14A with the SEC (as supplemented, the “Definitive Proxy Statement”) related to the special meeting of stockholders called for the purpose of obtaining the Requisite Stockholder Approval. Please refer to the Definitive Proxy Statement for further information about the Merger, the Merger Agreement, and the other transactions contemplated thereby.

Rights Agreement Amendment

In February 2021, in connection with the execution of the Merger Agreement, we also entered into an amendment (“Rights Agreement Amendment”) to the Rights Agreement, dated as of July 6, 2020, by and between CoreLogic and Equiniti Trust Company, as rights agent (“Rights Agreement”), in order to (i) render the Rights Agreement inapplicable to the Merger and the transactions contemplated by the Merger Agreement, (ii) ensure that in connection with the transactions contemplated by the Merger Agreement, none of the Acquirer, Acquisition Sub, or any of their “Affiliates” or “Associates” (each as defined in the Rights Agreement) shall be deemed to be or become an “Acquiring Person” (as defined below) and (iii) provide that the “Expiration Date” (as defined in the Rights Agreement) shall occur immediately prior to the Effective Time.

Unsolicited Proposal and Proxy Contest Proposals

On June 26, 2020, we received an unsolicited proposal from Senator Investment Group, LP (“Senator”) and Cannae Holdings, Inc. (“Cannae”) to acquire the Company for $65.00 per share in cash, which initial proposal was increased by Senator and Cannae on September 14, 2020 by $1.00 per share to $66.00 per share in cash (the “Unsolicited Proposal”). In July 2020, our Board of Directors (“Board”), in consultation with its independent financial and legal advisors, unanimously determined to reject the Unsolicited Proposal. In July 2020, Senator and Cannae issued a press release announcing proposals to remove members of our Board and replace them with up to nine individuals nominated by Senator and Cannae and to amend certain provisions of our Bylaws (“Proxy Contest Proposals”). In August 2020, the Board determined to call a special meeting of CoreLogic’s stockholders to allow our stockholders to consider and vote on the Proxy Contest Proposals. A special meeting of our stockholders to vote on the Proxy Contest Proposals was held in November 2020, with a record date of September 18, 2020, resulting in the removal of three members of our Board and the appointment of three of Senator and Cannae’s nominees to our Board, each with a term expiring at the Company’s 2021 annual meeting of stockholders. In connection with the Unsolicited Proposal, Proxy Contest Proposals, and related strategic transaction process we have incurred expenses of approximately $11.4 million for the three months ended March 31, 2021.

Reportable Segments

We have organized into the following two reportable segments: Property Intelligence & Risk Management (“PIRM”) and Underwriting & Workflow Solutions (“UWS”). Please refer to Note 13 - Segment Information for further information.

Discontinued Operations

In July 2020, we announced our intention to exit our reseller operations focused on mortgage credit and borrower verification and multi-family tenant screening. These businesses are comprised of our Rental Property Solutions (“RPS”) and Credit Solutions (“CS”) operations. Although market leaders in their respective business areas, these reseller businesses are not compatible with our long-term strategic imperatives. The divestiture of these operations is expected to improve our revenue growth trends and revenue mix, and significantly enhance profit margins. As a result of this strategic decision, the businesses have been reflected in our condensed consolidated financial statements as discontinued operations for all periods presented.

In October 2020, we sold a portion of our multi-family tenant screening business, which resulted in a gain on sale of discontinued operations of $2.7 million, net of tax. In February 2021, we sold the remainder of RPS for $51.2 million which resulted in a loss of $5.3 million, net of tax, for the three months ended March 31, 2021.

In connection with businesses we have previously discontinued, we retain certain contingent liabilities of the businesses that were disposed of. These contingent liabilities include, among other items, liability for certain litigation matters, indemnification obligations and potential breaches of representations or warranties. Please refer to Note 14 - Discontinued Operations for further information.

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 40% and 30% of our operating revenues for the three months ended March 31, 2021 and 2020, respectively, were generated from our top ten clients, who consist of the largest US mortgage originators and servicers. None of our clients individually accounted for greater than 10% of our operating revenues during these periods.

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 deposits 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, 2021		March 31, 2020
Cash and cash equivalents	$	227,102	$	150,937
Restricted cash included in other assets	9,966		9,714
Restricted cash included in prepaid expenses and other current assets	398		178
Total cash, cash equivalents, and restricted cash	$	237,466	$	160,829

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 or service (also referred as "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 approaches.

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 7 - Operating Revenues.

Comprehensive Loss

Comprehensive loss includes all changes in equity except those resulting from investments by stockholders and distributions to stockholders. 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. The following table shows the components of accumulated other comprehensive loss, net of taxes, as of March 31, 2021 and December 31, 2020:


(in thousands)	2021		2020
Cumulative foreign currency translation	$	(100,650)	$	(98,839)
Cumulative supplemental benefit plans	(10,880)		(10,966)
Net unrecognized losses on interest rate swaps	(46,941)		(60,271)
Reclassification adjustment for gain on terminated interest rate swap included in net income	(67)		(67)
Accumulated other comprehensive loss	$	(158,538)	$	(170,143)

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, less dividends received.

We have one investment in an affiliate that is fully impaired as of March 31, 2021 and December 31, 2020. For both the three months ended March 31, 2021 and March 31, 2020, we had insignificant revenue, expense, accounts receivable, and accounts payable related to our investments in these affiliates.

In January 2020, we completed the acquisition of the remaining 66% of Location, Inc. ("Location") for $11.5 million, subject to certain working capital adjustments. In connection with this transaction, we remeasured our pre-existing 34% investment balance of $5.6 million to fair value based on the purchase price, resulting in a $0.6 million step-up gain which is reflected within gain/(loss) on investments and other, net, in our condensed consolidated statement of operations for the three months ended March 31, 2020. Prior to the acquisition of the remaining interest, we accounted for Location under the equity method and received dividends of $0.7 million in the first quarter of 2020.

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 over the lease term 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, which, if applicable, may factor in renewal or termination options. Finance leases incur interest expense using the effective interest method in addition to amortization of the leased asset on a straight-line basis, both over the applicable lease term. Lease terms may factor in options to extend or terminate the lease.

If we abandon our right of use to a leased property prior to the lease termination date, and have no intention or ability to sublease the space, we reduce the remaining right of use asset and record an impairment charge in the period we vacate or otherwise cease to use the leased asset. For the three months ended March 31, 2021 and March 31, 2020, we had no impairment charges.

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.

Dividends

We record cash dividends as reductions to retained earnings upon declaration, with a corresponding increase to current liabilities, based on common shares outstanding on the record date. In addition, as part of our share-based compensation program, the terms of our restricted stock units (“RSUs”) and performance-based restricted stock units (“PBRSUs”) stipulate that holders of these awards are credited with dividend equivalent units on each date that a cash dividend is paid to holders of common stock. These dividend equivalents are subject to the same vesting and performance requirements of the underlying units and therefore are forfeitable (i.e. non-participating). Upon declaration of a dividend, we record dividend equivalents as a reduction to retained earnings, derived from the number of eligible unvested shares, with a corresponding increase to additional paid-in-capital.

In December 2019, we announced the initiation of a quarterly cash dividend to common shareholders. CoreLogic paid a cash dividend of $0.22 per share of common stock in January 2020 and June 2020 to shareholders of record as of the close of business on January 10, 2020 and June 1, 2020, respectively. In July 2020, our Board announced a 50% increase in our cash dividend and declared a $0.33 per share cash dividend to common stockholders, which was paid in September 2020, December 2020, and March 2021 to stockholders of record as of the close of business on September 1, 2020, December 1, 2020, and March 1, 2021, respectively. Pursuant to the Merger Agreement, we agreed to refrain from declaring or paying any further dividends during the Interim Operating Period, subject to the terms, limitations and exceptions set forth in the Merger Agreement.

Tax Escrow Disbursement Arrangements

We administer tax escrow disbursements as a service to our clients in connection with our tax services business. Funds to be disbursed are deposited and maintained in segregated accounts for the benefit of our clients and totaled $7.4 billion and $0.5 billion as of March 31, 2021 and December 31, 2020, 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 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 $27.8 million and $29.6 million as of March 31, 2021 and December 31, 2020, respectively. Within these amounts are $11.7 million and $11.4 million, respectively, which are short-term and are therefore 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 January 2021, the Financial Accounting Standards Board (“FASB”) issued guidance to clarify that all derivative instruments affected by changes to interest rates used for discounting, margining or contract price alignment can apply certain optional expedients and exceptions mentioned in its reference rate reform guidance. We adopted the guidance in the first quarter of 2021, which has not had a material effect on our condensed consolidated financial statements.

CORELOGIC, INC. 10-Q