UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

OR

☐           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
(Street Address)	(City)	(State)	(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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading symbol(s)	Name of exchange on which registered
Common Stock, $0.00001 par value	CLGX	New York Stock Exchange

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  ☒    No   ☐

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  ☒     No   ☐

Indicate by check mark whether the registrant: is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth 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	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

☐ 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  ☐    No   ☒

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

On October 21, 2019 there were 79,518,536 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 September 30, 2019 and December 31, 2018	1
	B. Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018	2
	C. Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018	3
	D. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018	4
	E. Condensed Consolidated Statement of Stockholders' Equity for the three and nine months ended September 30, 2019 and 2018	5
	F. Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	40
Item 4.	Controls and Procedures	40
Part II:	Other Information	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6.	Exhibits	43

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	2019			2018
Current assets:
Cash and cash equivalents	$	88,238		$	85,271
Accounts receivable (less allowance for doubtful accounts of $7,394 and $5,742 as of September 30, 2019 and December 31, 2018, respectively)	273,021			242,814
Prepaid expenses and other current assets	60,328			50,136
Income tax receivable	2,673			25,299
Total current assets	424,260			403,520
Property and equipment, net	446,057			456,497
Operating lease assets	65,302			—
Goodwill, net	2,392,972			2,391,954
Other intangible assets, net	391,994			468,405
Capitalized data and database costs, net	323,777			324,049
Investment in affiliates, net	18,575			22,429
Other assets	75,518			102,136
Total assets	$	4,138,455		$	4,168,990
Liabilities and Equity
Current liabilities:
Accounts payable and other accrued expenses	$	179,740		$	166,258
Accrued salaries and benefits	80,570			84,940
Contract liabilities, current	314,847			308,959
Current portion of long-term debt	68,247			26,935
Operating lease liabilities, current	16,839			—
Total current liabilities	660,243			587,092
Long-term debt, net of current	1,636,272			1,752,241
Contract liabilities, net of current	539,037			524,069
Deferred income tax liabilities	100,229			124,968
Operating lease liabilities, net of current	85,844			—
Other liabilities	183,969			180,122
Total liabilities	3,205,594			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; 79,519 and 80,092 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	1			1
Additional paid-in capital	124,872			160,870
Retained earnings	994,673			975,375
Accumulated other comprehensive loss	(186,685		)	(135,748		)
Total stockholders' equity	932,861			1,000,498
Total liabilities and equity	$	4,138,455		$	4,168,990

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

1

CoreLogic, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(in thousands, except per share amounts)	2019			2018			2019			2018
Operating revenues	$	458,957		$	451,768		$	1,336,203		$	1,385,069
Cost of services (excluding depreciation and amortization shown below)	228,186			230,419			674,457			709,154
Selling, general and administrative expenses	111,276			113,075			362,298			340,049
Depreciation and amortization	45,717			48,461			142,042			141,948
Impairment loss	78			33			47,912			82
Total operating expenses	385,257			391,988			1,226,709			1,191,233
Operating income	73,700			59,780			109,494			193,836
Interest expense:
Interest income	349			299			1,728			1,053
Interest expense	19,852			19,382			59,137			56,061
Total interest expense, net	(19,503		)	(19,083		)	(57,409		)	(55,008		)
Gain/(loss) on investments and other, net	224			2,835			(1,926		)	5,124
Tax indemnification release	—			—			(13,394		)	—
Income from continuing operations before equity in earnings/(losses) of affiliates and income taxes	54,421			43,532			36,765			143,952
Provision for income taxes	14,481			20,836			508			37,432
Income from continuing operations before equity in earnings/(losses) of affiliates	39,940			22,696			36,257			106,520
Equity in earnings/(losses) of affiliates, net of tax	605			(161		)	497			2,909
Net income from continuing operations	40,545			22,535			36,754			109,429
Loss from discontinued operations, net of tax	(17,362		)	(84		)	(17,456		)	(175		)
Net income	$	23,183		$	22,451		$	19,298		$	109,254
Basic income per share:
Net income from continuing operations	$	0.51		$	0.28		$	0.46		$	1.35
Loss from discontinued operations, net of tax	(0.22		)	—			(0.22		)	—
Net income	$	0.29		$	0.28		$	0.24		$	1.35
Diluted income per share:
Net income from continuing operations	$	0.50		$	0.27		$	0.45		$	1.33
Loss from discontinued operations, net of tax	(0.21		)	—			(0.21		)	—
Net income	$	0.29		$	0.27		$	0.24		$	1.33
Weighted-average common shares outstanding:
Basic	79,761			80,680			80,138			81,073
Diluted	80,914			82,017			81,205			82,528

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

2

CoreLogic, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
(in thousands)	2019			2018			2019			2018
Net income	$	23,183		$	22,451		$	19,298		$	109,254
Other comprehensive loss
Adoption of new accounting standards	—			—			—			408
Market value adjustments on interest rate swaps, net of tax	(8,121		)	2,532			(41,415		)	10,770
Reclassification adjustment for gain on terminated interest rate swap included in net income	—			—			(67		)	—
Foreign currency translation adjustments	(13,529		)	(6,129		)	(9,007		)	(23,729		)
Supplemental benefit plans adjustments, net of tax	(149		)	(124		)	(448		)	(371		)
Total other comprehensive loss	(21,799		)	(3,721		)	(50,937		)	(12,922		)
Comprehensive income/(loss)	$	1,384		$	18,730		$	(31,639	)	$	96,332

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

3

CoreLogic, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	For the Nine Months Ended
	September 30,
(in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	19,298		$	109,254
Less: Loss from discontinued operations, net of tax	(17,456		)	(175		)
Net income from continuing operations	36,754			109,429
Adjustments to reconcile net income from continuing operations to net cash provided by operating activities:
Depreciation and amortization	142,042			141,948
Amortization of debt issuance costs	3,836			4,103
Amortization of operating lease assets	11,675			—
Impairment loss	47,912			82
Provision for bad debt and claim losses	11,546			11,113
Share-based compensation	26,863			29,574
Equity in earnings of affiliates, net of taxes	(497		)	(2,909		)
Gain on sale of property and equipment	(3		)	(19		)
Loss on early extinguishment of debt	1,453			—
Deferred income tax	(10,642		)	10,279
Loss/(gain) on investments and other, net	473			(5,124		)
Tax indemnification release	13,394			—
Change in operating assets and liabilities, net of acquisitions:
Accounts receivable	(33,071		)	2,619
Prepaid expenses and other current assets	(7,132		)	(7,617		)
Accounts payable and other accrued expenses	(18,023		)	(22,037		)
Contract liabilities	19,629			(18,406		)
Income taxes	31,239			7,847
Dividends received from investments in affiliates	—			775
Other assets and other liabilities	(29,208		)	(9,353		)
Net cash provided by operating activities - continuing operations	248,240			252,304
Net cash used in operating activities - discontinued operations	(1,148		)	(4		)
Total cash provided by operating activities	$	247,092		$	252,300
Cash flows from investing activities:
Purchases of property and equipment	$	(63,196	)	$	(41,020	)
Purchases of capitalized data and other intangible assets	(29,443		)	(25,013		)
Cash paid for acquisitions, net of cash acquired	(13,280		)	(140,977		)
Purchases of investments	(658		)	—
Cash received from sale of business-lines	4,109			3,245
Proceeds from sale of property and equipment	3			198
Proceeds from investments	5,591			980
Net cash used in investing activities - continuing operations	(96,874		)	(202,587		)
Net cash provided by investing activities - discontinued operations	—			—
Total cash used in investing activities	$	(96,874	)	$	(202,587	)
Cash flows from financing activities:
Proceeds from long-term debt	$	1,770,000		$	120,095
Debt issuance costs	(9,621		)	—
Repayment of long-term debt	(1,844,155		)	(114,626		)
Proceeds from issuance of shares in connection with share-based compensation	8,391			19,585
Payment of tax withholdings related to net share settlements	(9,645		)	(12,623		)
Shares repurchased and retired	(61,607		)	(87,028		)
Contingent consideration payments subsequent to acquisitions	(612		)	—
Net cash used in financing activities - continuing operations	(147,249		)	(74,597		)
Net cash provided by financing activities - discontinued operations	—			—
Total cash used in financing activities	$	(147,249	)	$	(74,597	)
Effect of exchange rate on cash, cash equivalents and restricted cash	637			2,039
Net change in cash, cash equivalents and restricted cash	3,606			(22,845		)
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	(1,148		)	(4		)
Plus: Cash swept from discontinued operations	(1,148		)	(4		)
Cash, cash equivalents and restricted cash at end of period	$	101,856		$	109,309
Supplemental disclosures of cash flow information:
Cash paid for interest	$	53,202		$	50,108
Cash paid for income taxes	$	11,558		$	25,406
Cash refunds from income taxes	$	16,812		$	3,271
Non-cash investing activities:
Capital expenditures included in accounts payable and other accrued expenses	$	11,286		$	16,911

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

4

CoreLogic, Inc.

Condensed Consolidated Statement of Stockholders' Equity (Quarter-to-Date)

(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 September 30, 2019
Balance as of June 30, 2019	80,133		$	1	$	146,887		$	971,490	$	(164,886	)	$	953,492
Net income	—		—		—			23,183		—			23,183
Shares issued in connection with share-based compensation	86		—		1,832			—		—			1,832
Payment of tax withholdings related to net share settlements	—		—		(378		)	—		—			(378		)
Share-based compensation	—		—		9,108			—		—			9,108
Shares repurchased and retired	(700	)	—		(32,577		)	—		—			(32,577		)
Other comprehensive loss	—		—		—			—		(21,799		)	(21,799		)
Balance as of September 30, 2019	79,519		$	1	$	124,872		$	994,673	$	(186,685	)	$	932,861
For the Three Months Ended September 30, 2018
Balance as of June 30, 2018	80,944		$	1	$	186,816		$	940,314	$	(102,892	)	$	1,024,239
Net income	—		—		—			22,451		—			22,451
Shares issued in connection with share-based compensation	97		—		2,019			—		—			2,019
Payment of tax withholdings related to net share settlements	—		—		(941		)	—		—			(941		)
Share-based compensation	—		—		9,775			—		—			9,775
Shares repurchased and retired	(479	)	—		(23,706		)	—		—			(23,706		)
Other comprehensive loss	—		—		—			—		(3,721		)	(3,721		)
Balance as of September 30, 2018	80,562		$	1	$	173,963		$	962,765	$	(106,613	)	$	1,030,116

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

5

CoreLogic, Inc.

Condensed Consolidated Statement of Stockholders' Equity (Year-to-Date)

(Unaudited)

	Common Stock Shares		Common Stock Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total
(in thousands)
For the Nine Months Ended September 30, 2019
Balance as of December 31, 2018	80,092		$	1	$	160,870		$	975,375		$	(135,748	)	$	1,000,498
Net income	—		—		—			19,298			—			19,298
Shares issued in connection with share-based compensation	827				8,391			—			—			8,391
Payment of tax withholdings related to net share settlements	—				(9,645		)	—			—			(9,645		)
Share-based compensation	—				26,863			—			—			26,863
Shares repurchased and retired	(1,400	)			(61,607		)	—			—			(61,607		)
Other comprehensive loss	—				—			—			(50,937		)	(50,937		)
Balance as of September 30, 2019	79,519		$	1	$	124,872		$	994,673		$	(186,685	)	$	932,861
For the Nine Months Ended September 30, 2018
Balance as of 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	—		—		—			109,254			—			109,254
Shares issued in connection with share-based compensation	1,428		—		19,585			—			—			19,585
Payment of tax withholdings related to net share settlements	—		—		(12,623		)	—			—			(12,623		)
Share-based compensation	—		—		29,574			—			—			29,574
Shares repurchased and retired	(1,751	)	—		(87,028		)	—			—			(87,028		)
Other comprehensive loss	—		—		—			—			(13,330		)	(13,330		)
Balance as of September 30, 2018	80,562		$	1	$	173,963		$	962,765		$	(106,613	)	$	1,030,116

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

6

Note 1 – Basis of Condensed Consolidated Financial Statements

CoreLogic, Inc., together with its subsidiaries (collectively “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, 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 31% and 32% of our operating revenues for the three months ended September 30, 2019 and 2018, 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 for the three months ended September 30, 2019 nor 2018. Approximately 30% and 32% of our operating revenues for the nine months ended September 30, 2019 and 2018, respectively, were generated from our top ten clients with none of our clients individually accounting 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 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)	September 30, 2019		September 30, 2018
Cash and cash equivalents	$	88,238	$	97,884
Restricted cash included in other assets	11,616		10,355
Restricted cash included in prepaid expenses and other current assets	2,002		1,070
Total cash, cash equivalents and restricted cash	$	101,856	$	109,309

7

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 income/(loss). The following table shows the components of accumulated other comprehensive loss, net of taxes, as of September 30, 2019 and December 31, 2018:

(in thousands)	2019			2018
Cumulative foreign currency translation	$	(138,413	)	$	(129,406	)
Cumulative supplemental benefit plans	(5,406		)	(4,958		)
Net unrecognized losses on interest rate swaps	(42,799		)	(1,384		)
Reclassification adjustment for gain on terminated interest rate swap included in net income	(67		)	—
Accumulated other comprehensive loss	$	(186,685	)	$	(135,748	)

8

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.

For the three and nine months ended September 30, 2019, we did not have any operating revenues related to our investment in affiliates and had $0.3 million and $0.9 million for the three and nine months ended September 30, 2018, respectively. We recorded operating expenses of $0.4 million and $1.0 million related to our investment in affiliates for the three months ended September 30, 2019 and 2018, respectively, and $1.1 million and $6.3 million for the nine months ended September 30, 2019 and 2018, respectively.

During the three and nine months ended September 30, 2019, we recorded a non-cash impairment charge of $1.5 million in our investment in affiliates, net, due to an other-than-temporary loss because we do not foresee an ability to recover the carrying amount of the investment. This loss was recorded within gain/(loss) on investments and other, net in our condensed consolidated statements of operations. No such impairments were recorded in the three and nine months ended September 30, 2018.

As of September 30, 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 former 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 retained 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. With respect to our Employer and Litigation Services divestiture, we retained certain liabilities and, in September 2016, a jury returned an unfavorable verdict against this discontinued operating unit, which we appealed. In August 2019, the verdict was upheld on appeal. We have accrued a potential loss of $21.7 million as of September 30, 2019 with respect to this verdict, although we are pursuing further review of the verdict. The liability is reflected in our results from discontinued operations.

As of September 30, 2019, and December 31, 2018, we recorded assets of discontinued operations of $6.3 million and $0.6 million, respectively, within prepaid expenses and other current assets within our condensed consolidated balance sheets, mainly consisting of tax-related assets. Additionally, as of September 30, 2019 and December 31, 2018, we recorded liabilities of $24.1 million and $2.2 million, respectively, within accounts payable and other accrued expenses, which mainly consisted 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 $1.3 billion and $0.7 billion as of September 30, 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 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 $21.4 million and $21.2 million as of September 30, 2019 and December 31, 2018, respectively. Within these amounts, $9.3 million and $9.2 million, respectively, 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.

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Recent Accounting Pronouncements

In April 2019, the Financial Accounting Standards Board (“FASB”) issued guidance to amend or clarify certain areas within three previously issued standards related to financial instruments which includes clarification for fair value using the measurement alternative, measuring credit losses and accounting for derivatives and hedging. The amendments in this guidance are largely effective for fiscal years beginning after December 15, 2019 with early adoption permitted. We have not elected early adoption and do not anticipate that this guidance will have a material impact on our consolidated financial statements.

In August 2017, the 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 became 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 beginning with fiscal year 2019 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 in the first quarter of 2019.

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 reclassifications of pre-existing balances, such as deferred and prepaid rent, into the lease asset balance. The adoption of this 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 a 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.

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Note 2 - Property and Equipment, Net

Property and equipment, net as of September 30, 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	71,993			68,851
Capitalized software	897,990			902,482
Leasehold improvements	44,424			43,476
Construction in progress	3,297			669
	1,031,667			1,029,441
Less accumulated depreciation	(585,610		)	(572,944		)
Property and equipment, net	$	446,057		$	456,497

Depreciation expense for property and equipment, net was approximately $22.1 million and $22.6 million for the three months ended September 30, 2019 and 2018, respectively, and $68.0 million and $66.8 million for the nine months ended September 30, 2019 and 2018, respectively.

Impairment losses for property and equipment, net of $0.1 million and $12.3 million were recorded for the three and nine months ended September 30, 2019, respectively. For the three and nine months ended September 30, 2018, impairment losses were less than $0.1 million. See Note 7 - Fair Value for further discussion.

Note 3 – 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, 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
Acquisition	—			6,551			6,551
Measurement period adjustments	(83		)	—			(83		)
Disposal	—			(1,337		)	(1,337		)
Translation adjustments	(4,113		)	—			(4,113		)
Balance as of September 30, 2019
Goodwill, net	$	1,102,670		$	1,290,302		$	2,392,972

For the three and nine months ended September 30, 2019, we recorded a goodwill disposal of $1.3 million related to the sale of a non-core business.

See Note 13 - Acquisitions for discussion of current year acquisition and measurement period adjustments.

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Note 4 – Other Intangible Assets, Net

Other intangible assets, net consists of the following:

	September 30, 2019			December 31, 2018
(in thousands)	Gross	Accumulated Amortization	Net	Gross	Accumulated Amortization	Net
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