e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2010
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission File
No. 001-34005
Lender Processing Services,
Inc.
(Exact name of registrant as
specified in its charter)
|
|
|
Delaware
|
|
26-1547801
|
(State or other jurisdiction
of incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
601 Riverside Avenue
Jacksonville, Florida
(Address of principal
executive offices)
|
|
32204
(Zip
Code)
|
(904) 854-5100
(Registrants telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of Each Class:
|
|
Name of Each Exchange on Which Registered:
|
|
Common Stock, par value $0.0001 per share
|
|
New York Stock Exchange
|
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes þ No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange Act)
Yes o No þ
The aggregate market value of the registrants common stock
held by non-affiliates was $2,914,909,057 based on the closing
sale price of $31.31 on June 30, 2010 as reported by the
New York Stock Exchange. For the purposes of the foregoing
sentence only, all directors and executive officers of the
registrant were assumed to be affiliates. The number of shares
outstanding of the registrants common stock,
$0.0001 par value per share, was 88,861,779 as of
January 31, 2011.
The information in Part III hereof is incorporated herein
by reference to the registrants Proxy Statement on
Schedule 14A for its 2011 annual meeting of shareholders,
to be filed within 120 days after the close of the fiscal
year that is the subject of this Report.
LENDER
PROCESSING SERVICES, INC.
2010
FORM 10-K
ANNUAL REPORT
TABLE OF CONTENTS
i
Except as otherwise indicated or unless the context otherwise
requires, all references to LPS, we, the
Company, or the registrant are to Lender
Processing Services, Inc., a Delaware corporation that was
incorporated in December 2007 as a wholly-owned subsidiary of
FIS, and its subsidiaries; all references to FIS,
the former parent, or the holding
company are to Fidelity National Information Services,
Inc., a Georgia corporation formerly known as Certegy Inc., and
its subsidiaries, that owned all of LPSs shares until
July 2, 2008; all references to former FIS are
to Fidelity National Information Services, Inc., a Delaware
corporation, and its subsidiaries, prior to the merger of
Certegy, Inc. and former FIS; all references to old
FNF are to Fidelity National Financial, Inc., a Delaware
corporation that owned a majority of former FISs shares
through November 9, 2006; and all references to
FNF are to Fidelity National Financial, Inc.
(formerly known as Fidelity National Title Group, Inc.),
formerly a subsidiary of old FNF but now a stand-alone
company.
PART I
Overview
We are a provider of integrated technology and services to the
mortgage lending industry, with market leading positions in
mortgage processing and default management services in the
U.S. We conduct our operations through two reporting
segments, Technology, Data and Analytics and Loan Transaction
Services, which produced approximately 31% and 69%,
respectively, of our revenues for the year ended
December 31, 2010. A large number of financial institutions
use our solutions. Our technology solutions include our mortgage
processing system, which automates all areas of loan servicing,
from loan setup and ongoing processing to customer service,
accounting and reporting. Our technology solutions also include
our Desktop system, which is a middleware enterprise workflow
management application designed to streamline and automate
business processes. Our loan transaction services include our
default management services, which are used by mortgage lenders,
servicers and other real estate professionals to reduce the
expense of managing defaulted loans, and our loan facilitation
services, which support most aspects of the closing of mortgage
loan transactions by national lenders and loan servicers.
Prior to July 2, 2008, the Company was a wholly-owned
subsidiary of FIS. In October 2007, the board of directors of
FIS approved a plan of restructuring pursuant to which FIS would
spin off its lender processing services segment to its
shareholders in a tax free distribution. Pursuant to this plan
of restructuring, on June 16, 2008, FIS contributed to us
all of its interest in the assets, liabilities, businesses and
employees related to FISs lender processing services
operations in exchange for shares of our common stock and
$1,585.0 million aggregate principal amount of our debt
obligations. On July 2, 2008, FIS distributed to its
shareholders a dividend of one-half share of our common stock,
par value $0.0001 per share, for each issued and outstanding
share of FIS common stock held on June 24, 2008, which we
refer to as the spin-off. Also on July 2, 2008,
FIS exchanged 100% of our debt obligations for a like amount of
FISs existing Tranche B Term Loans issued under its
Credit Agreement dated as of January 18, 2007. The spin-off
was tax-free to FIS and its shareholders, and the
debt-for-debt
exchange undertaken in connection with the spin-off was tax-free
to FIS.
Information
about Reporting Segments
We offer a suite of solutions across the mortgage continuum,
including technology applications, data, analytics, loan
facilitation services and default management services. Our two
reporting segments are Technology, Data and Analytics and Loan
Transaction Services. We provide our solutions to many of the
top 50 U.S. banks, as well as a number of other financial
institutions, mortgage lenders, mortgage loan servicers, and
other real estate professionals.
In our Technology, Data and Analytics segment, our principal
technology solutions are software applications provided to
mortgage lenders and other lending institutions, together with
related support and services. Our technology solutions primarily
consist of mortgage processing and workflow management software
applications. The long term nature of most of our contracts in
this business provides us with substantial recurring revenues.
Our revenues from mortgage processing are generally based on the
number of active mortgages on our mortgage servicing platform in
a given period. Our other technology solutions include our
Desktop application, which at
1
present is deployed primarily to customers utilizing our default
management services. We generally earn revenues from our Desktop
application on a per transaction basis. Our data and analytics
offerings primarily consist of our alternative valuation
services, real estate and mortgage data, fraud detection
solutions, modeling and forecasting and analytical tools. For
2010, the Technology, Data and Analytics segment generated
$762.6 million, or approximately 31%, of our consolidated
revenues.
Our Loan Transaction Services segment consists principally of
our loan facilitation services and our default management
services. Our loan facilitation services consist primarily of
settlement services, such as title agency and closing services,
traditional appraisals and appraisal management services and
other origination and real estate-related services. Each of
these services is provided through a centralized delivery
channel in accordance with a lenders specific
requirements, regardless of the geographic location of the
borrower or property. Our default management services, including
title, posting and publication, property preservation, asset
management and REO auction services and administrative support,
are provided to national lenders, loan servicers and other real
estate professionals to enable them to better manage some or all
of the business processes necessary to take a loan and the
underlying property through the default, foreclosure and
disposition process. Our revenues from our Loan Transaction
Services segment in 2010 were $1,701.5 million, or
approximately 69%, of our consolidated revenues.
In 2010, 2009 and 2008, all of our revenues were from sources
within the U.S. and Puerto Rico.
Technology,
Data and Analytics
Our Technology, Data and Analytics segment offers leading
software systems and information solutions that facilitate and
automate many of the business processes across the life cycle of
a mortgage. Our customers use our technology and services to
reduce their operating costs, improve their customer service and
enhance the quality and consistency of various aspects of their
mortgage servicing. We continually work with our customers to
customize and integrate our software and services in order to
assist them in achieving the value proposition that we offer to
them.
Technology. We build all of our technology
platforms to be scalable, highly secure, flexible,
standards-based, and web connected. The primary applications and
services of our technology businesses include:
|
|
|
|
|
MSP. Our mortgage servicing platform,
or MSP, is an application that automates loan servicing,
including loan setup and ongoing processing, customer service,
accounting and reporting to the secondary mortgage market, and
federal regulatory reporting. MSP serves as the core application
through which our customers keep the primary records of their
mortgage loans. MSP processes a wide range of loan products,
including fixed-rate mortgages, adjustable-rate mortgages,
construction loans and daily simple interest loans. Our
capabilities on our MSP platform also include processing home
equity lines of credit, or HELOCs. We believe MSP
provides a more robust system for addressing HELOCs in areas
such as loss mitigation, escrow tracking and regulatory
reporting than the software systems that many banks have
historically used to process these loans, which are based on
credit card systems.
|
When a bank hires us to process its mortgage portfolio, we
provide the hardware and the skilled personnel whose role is to
keep the system up and running 24 hours a day, seven days a
week; to keep the programs and interfaces running smoothly; and
to make the system and application changes needed to upgrade the
processes and ensure compliance with regulatory changes. We also
undertake to perform the processing securely. The bank customer
is responsible for all external communications and all keying or
other data input, such as reflecting when checks or other
payments are received from its loan customers.
|
|
|
|
|
Desktop. We have developed a web-based
workflow information system, which we refer to as Desktop. The
Desktop application can be used for managing and automating a
wide range of different workflow processes. It can also be used
to organize images of paper documents within a particular file,
to capture information from imaged documents, to manage invoices
and to provide multiple users access to key data needed for
various types of monitoring and process management.
|
2
|
|
|
|
|
Other software applications. We offer
various software applications and services that facilitate the
origination of mortgage loans in the U.S. For example, we
offer a loan origination software system, known as
Empower!, which is used by banks, savings &
loans and mortgage bankers to automate the loan origination
process. Empower! provides credit bureau access and interfaces
with MSP, automated underwriting systems used by Freddie Mac and
Fannie Mae and various vendors providing settlement services. We
also offer a software system, known as SoftPro, which is
a real estate closing and title insurance production application
used to create forms used in the closing of residential and
commercial real estate transactions in the U.S. We also
offer RealEC, a collaborative vendor network for the
mortgage industry. The RealEC network enables lenders and their
business partners to electronically connect, collaborate and
automate their business processes and to electronically order
and route settlement services.
|
We build all of our technology platforms to be scalable, highly
secure, flexible, standards-based, and web connected. Standards
and web connectivity ensure that our products are easy to use
for our customers. Further, we can bring solutions to market
quickly due to investments that we have made in integrating our
technology.
Data and analytics. In addition to our
technology applications, this segment provides data and
analytics solutions that are used in different steps in the life
cycle of a mortgage. Our primary data and analytics services are:
|
|
|
|
|
Alternative valuation services. We
offer a broad range of property valuation services that allow
our customers to match their risk of loss with alternative forms
of property valuations, depending upon their needs and
regulatory requirements. These include, among others, automated
valuation models, broker price opinions, collateral risk scores,
appraisal review services and valuation reconciliation services.
To deliver these services, we utilize artificial intelligence
software, detailed real estate statistical analysis, and
modified physical property inspections.
|
|
|
|
Data and information. We acquire and
aggregate real estate property and loan data on a national level
and make such data available to our customers in a single
database with a standard, normalized format. We also offer a
number of value added services that enable our customers to
utilize this data to assess risk, determine property values,
track market performance, generate leads and mitigate risk.
|
|
|
|
Fraud detection. We also provide our
customers with automated verification solutions. These services
assist our customers to combat mortgage fraud and manage risk by
quickly verifying applicant income and identity against Internal
Revenue Service and Social Security Administration databases. We
also provide employment verification services.
|
The following table sets forth our revenues for the last three
years from our mortgage processing services and other services
in this segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Mortgage processing
|
|
$
|
402.7
|
|
|
$
|
387.9
|
|
|
$
|
334.2
|
|
Other Technology, Data and Analytics
|
|
|
359.9
|
|
|
|
319.6
|
|
|
|
231.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues
|
|
$
|
762.6
|
|
|
$
|
707.5
|
|
|
$
|
565.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan
Transaction Services
Our Loan Transaction Services segment offers customized
outsourced business process and information solutions. We work
with our customers to set specific parameters regarding the
services they require, and where practicable, provide a single
point of contact with us for these services.
Loan facilitation services. This segment
includes the following services:
|
|
|
|
|
Settlement services. We offer
centralized title agency and closing services to our customers.
Our title agency services include conducting title searches and
preparing an abstract of title, reviewing the status of title in
a title commitment, resolving any title exceptions, verifying
the payment of existing loans secured by a subject property,
verifying the amount of prorated expenses and either arranging
for or issuing a title insurance policy by a title insurance
underwriter. Our closing management services include preparing
many of the documents used in connection with the closing. We
work with independent closing agents that are
|
3
|
|
|
|
|
trained to close loans in accordance with the lenders
instructions, and independent notaries who are available to
promptly assist with the closing. Due to the centralized nature
of our title and closing operations, our settlement services are
typically utilized in connection with refinancing transactions.
|
|
|
|
|
|
Appraisal services. We operate an
appraisal management company, which contracts with independent
appraisers to provide traditional appraisals. Traditional
property appraisal services involve labor intensive inspections
of the real property in question and of comparable properties in
the same and similar neighborhoods, and typically take weeks to
complete. These services are typically provided in connection
with first mortgages.
|
|
|
|
Other origination services. We offer
lenders real estate tax information and federal flood zone
certifications in connection with the origination of new
mortgage loans. We also offer monitoring services that will
notify a lender of any change in flood zone status during the
life of a loan.
|
Default management services. In addition to
loan facilitation services, our Loan Transaction Services
segment offers default management services. These services allow
our customers to efficiently manage the business processes
necessary to take a loan and the underlying real estate securing
the loan through the default and foreclosure process. We offer a
full spectrum of services relating to the management of
defaulted loans, from initial property inspection through the
eventual disposition of our customers asset. Based on a
customers needs, our default management services can be
provided individually or, more commonly, as part of a solution
that integrates one or more of those services with our
technology applications, such as the Desktop application. Our
default management services include:
|
|
|
|
|
Foreclosure services. We offer lenders,
servicers and their attorneys certain administrative and support
services in connection with managing foreclosures. We also offer
comprehensive posting and publication of foreclosure and auction
notices, and conduct mandatory title searches, in each case as
necessary to meet state statutory requirements for foreclosure.
|
|
|
|
Property inspection and preservation
services. At the onset of a loan default, our
services are designed to assess and preserve the value of the
property securing the loan. For example, through independent
inspectors we provide inspection services, including daily
reports on vacant properties, occupancy inspections and disaster
and insurance inspections. We also offer property preservation
and maintenance services, such as lock changes, window
replacement, lawn service and debris removal, through
independent contractors.
|
|
|
|
Asset management, default title and settlement
services. After a property has been
foreclosed, we provide services that aid our customers in
managing their real estate owned, or REO, properties, including
property preservation field services. We also offer a variety of
title and settlement services relating to the lenders
ownership and eventual sale of REO properties. Finally, we offer
advisory and management services, as well as a comprehensive REO
auction solution, to facilitate a lenders REO sales.
|
The following table sets forth our revenues for the last three
years from our loan facilitation and default management services
in this segment (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Loan facilitation services
|
|
$
|
640.9
|
|
|
$
|
547.3
|
|
|
$
|
431.7
|
|
Default management services
|
|
|
1,060.6
|
|
|
|
1,137.3
|
|
|
|
851.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total segment revenues
|
|
$
|
1,701.5
|
|
|
$
|
1,684.6
|
|
|
$
|
1,283.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
In addition to our two reporting segments, we also have a
corporate segment, which includes costs and expenses not
allocated to our two reporting segments as well as certain
smaller investments and operations.
Customers
We have numerous customers in each category of service that we
offer across the mortgage continuum. A significant focus of our
marketing efforts is on the top 50 U.S. banks, although we
also provide our services to a
4
number of other financial institutions, mortgage lenders,
mortgage loan servicers, attorneys, trustees and real estate
professionals.
Our most significant customer relationships tend to be long-term
in nature and we typically provide an extensive number of
services to each customer. Because of the depth of these
relationships, we derive a significant portion of our aggregate
revenue from our largest customers. For example, in 2010, our
largest customer, Wells Fargo Bank, N.A. (Wells
Fargo), accounted for approximately 20.0% of our aggregate
revenue and approximately 12.2% and 23.3% of the revenue from
our Technology, Data and Analytics and Loan Transaction Services
segments, respectively. JPMorgan Chase Bank, N.A.
(JPMorgan Chase), our second largest customer,
accounted for approximately 11.1% of our consolidated revenues
and approximately 10.3% and 11.3% of the revenues of our
Technology, Data and Analytics and Loan Transaction Services
segments, respectively. Our five largest customers accounted for
approximately 47.7% of our aggregate revenue and approximately
31.4% and 54.7% of the revenue of our Technology, Data and
Analytics and Loan Transaction Services segments, respectively.
However, these revenues in each case are spread across a range
of services, and are subject to multiple separate contracts.
Although the diversity of the services we provide to each of
these customers reduces the risk that we would lose all of the
revenues associated with any of these customers, a significant
deterioration in our relationships with or the loss of any one
or more of these customers could have a significant impact on
our results of operations. See Risk Factors
Our results of operations may be affected by the nature of our
relationships with our largest customers or by our
customers relationships with the government-sponsored
enterprises.
Sales and
Marketing
Sales
Force
We have teams of experienced sales personnel with subject matter
expertise in particular services or in the needs of particular
types of customers. A significant portion of our potential
customers in each of our business lines is targeted via direct
and/or
indirect field sales, as well as inbound and outbound
telemarketing efforts. Marketing activities include direct
marketing, print advertising, media relations, public relations,
tradeshow and convention activities, seminars and other targeted
activities. As many of our customers use a single service, or a
combination of services, our direct sales force also targets
existing customers to promote cross-selling opportunities. These
individuals also support the efforts of our Office of the
Enterprise, discussed below.
Office
of the Enterprise
The broad range of services we offer provides us with the
opportunity to expand our sales to our existing customer base
through cross-selling efforts. We have established a core team
of senior managers to lead account management and cross-selling
of the full range of our services to existing and potential
customers at the top 50 U.S. lending institutions. The
individuals who participate in this effort, which we coordinate
through our Office of the Enterprise, spend a significant amount
of their time on sales and marketing efforts.
As part of the Office of the Enterprise operations, we engage in
strategic account reviews, during which our executives share
their knowledge of clients and the market in order to determine
the best sales approach on a
client-by-client
basis. The Office of the Enterprise provides us with a more
cohesive sales force and reduces confusion over client
responsibility. As a result, we have created an effective
cross-sell culture within our organization.
Patents,
Trademarks and Other Intellectual Property
We rely on a combination of contractual restrictions, internal
security practices, and copyright and trade secret law to
establish and protect our software, technology, and expertise.
Further, we have developed a number of brands that have
accumulated goodwill in the marketplace, and we rely on
trademark law to protect our rights in that area. We intend to
continue our policy of taking all measures we deem necessary to
protect our copyright, trade secret and trademark rights.
5
Competition
A number of the businesses in which we engage are highly
competitive. The businesses that make up our Technology, Data
and Analytics segment compete with internal technology
departments within financial institutions and with third party
data processing or software development companies and data and
analytics companies. Competitive factors in processing
businesses include the quality of the technology-based
application or service, application features and functions, ease
of delivery and integration, ability of the provider to
maintain, enhance and support the applications or services, and
pricing. We believe that due to our integrated technology and
economies of scale in the mortgage processing business, we have
a competitive advantage in each of these categories.
With respect to our mortgage servicing platform, we compete with
our customers internal technology departments and other
providers of similar systems. MSP is a leading mortgage
processing software in the U.S.
Our Desktop application, which is a workflow information system
that can be used to manage a range of different workflow
processes, is currently the leading mortgage default management
application in the U.S. We compete primarily with our
customers in-house technology departments for this type of
business.
In our Data and Analytics businesses, we primarily compete with
Corelogic, Inc., in-house capabilities and certain niche
providers. Recently, the national credit bureaus have also begun
providing competitive fraud detection offerings.
For the businesses that comprise our Loan Transaction Services
segment, key competitive factors include quality of the service,
convenience, speed of delivery, customer service and price. Our
title and closing services businesses principally compete with
large national title insurance underwriters. Our appraisal
services businesses principally compete with First American
Corporation, Fidelity National Financial, Inc. and small
independent appraisal providers, as well as our customers
in-house appraisers. Due to a lack of publicly available
information as to the national market for these services, we are
unable to determine our overall competitive position in the
national marketplace with respect to our loan facilitation
services businesses. Our default management services businesses
principally compete with in-house services performed directly by
our customers and, to a lesser extent, other third party vendors
that offer similar applications and services. Based in part on
the range and quality of default management services we offer
and our focus on technology and customer service, our default
management business has grown significantly and we believe we
are now one of the largest mortgage default management services
providers in the U.S.
Research
and Development
Our research and development activities have related primarily
to the design and development of our processing systems and
related software applications. We expect to continue our
practice of investing an appropriate level of resources to
maintain, enhance and extend the functionality of our
proprietary systems and existing software applications, to
develop new and innovative software applications and systems in
response to the needs of our customers, and to enhance the
capabilities surrounding our infrastructure. We work with our
customers to determine the appropriate timing and approach to
introducing technology or infrastructure changes to our
applications and services.
Government
Regulation
Various aspects of our businesses are subject to federal and
state regulation. Our failure to comply with any applicable laws
and regulations could result in restrictions on our ability to
provide certain services, as well as the possible imposition of
civil fines and criminal penalties.
As a provider of electronic data processing to financial
institutions, such as banks and credit unions, we are subject to
regulatory oversight and examination by the Federal Financial
Institutions Examination Council, an interagency body of the
Federal Reserve Board, the Office of the Comptroller of the
Currency, the Federal Deposit Insurance Corporation and various
other federal and state regulatory authorities. In addition,
independent auditors annually review several of our operations
to provide reports on internal controls for our customers
auditors and regulators. We also may be subject to possible
review by state agencies that regulate banks in each state in
which we conduct our electronic processing activities.
6
Our financial institution clients are required to comply with
various privacy regulations imposed under state and federal law,
including the Gramm-Leach-Bliley Act. These regulations place
restrictions on the use of non-public personal information. All
financial institutions must disclose detailed privacy policies
to their customers and offer them the opportunity to direct the
financial institution not to share information with third
parties. The regulations, however, permit financial institutions
to share information with non-affiliated parties who perform
services for the financial institutions. As a provider of
services to financial institutions, we are required to comply
with the privacy regulations and are generally bound by the same
limitations on disclosure of the information received from our
customers as apply to the financial institutions themselves.
The Real Estate Settlement Procedures Act, or RESPA, and related
regulations generally prohibit the payment or receipt of fees or
any other item of value for the referral of real estate-related
settlement services. RESPA also prohibits fee shares or splits
or unearned fees in connection with the provision of residential
real estate settlement services, such as mortgage brokerage and
real estate brokerage. Notwithstanding these prohibitions, RESPA
permits payments for goods furnished or for services actually
performed, so long as those payments bear a reasonable
relationship to the market value of the goods or services
provided. RESPA and related regulations may to some extent
restrict our real estate-related businesses from entering into
certain preferred alliance arrangements. The
U.S. Department of Housing and Urban Development is
responsible for enforcing RESPA.
Real estate appraisers are subject to regulation in most states,
and some state appraisal boards have sought to prohibit our
automated valuation applications. Courts have limited such
prohibitions, in part on the ground of preemption by the federal
Financial Institutions Reform, Recovery, and Enforcement Act of
1989, but we cannot assure you that our valuation and appraisal
services business will not be subject to further regulation. In
July 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the Wall Street Reform Act), which
contains broad changes for many sectors of the financial
services and lending industries, was signed into law. Among
other things, the Wall Street Reform Act includes new
requirements for appraisals and appraisal management companies.
In addition, some states have enacted legislation requiring the
registration of appraisal management companies, and numerous
states have similar proposals pending. We monitor these
proposals carefully, and we believe that our appraisal
management operations will be able to comply with any new
requirements.
The title agency and related services we provide are conducted
through an affiliated group of underwritten title agencies. Our
underwritten title agencies are generally required by various
state laws to maintain specified levels of net worth and working
capital, and are also required to obtain and maintain a license
in each state in which they operate. The title agencies are also
subject to regulation by the insurance or banking regulators in
many jurisdictions. These regulators generally require, among
other items, that our agents and certain employees maintain
state licenses as well, and be appointed by a title insurer. We
also own a title insurer which issues policies generated by our
agency operations. This insurer is domiciled in New York and is
therefore subject to regulation by the insurance regulatory
authorities of that state. Among other things, the laws of New
York require that (1) certain amounts of premiums earned by
our insurance company be set aside as reserves, (2) only
limited, defined amounts of any earnings of our insurance
company are available as potential dividends, and (3) no
one person may acquire 10% or more of our common stock without
the approval of the New York insurance regulators.
The current economic downturn and troubled housing market have
resulted in increased scrutiny of all parties involved in the
mortgage industry by governmental authorities with the most
recent focus being on those involved in the foreclosure process.
This scrutiny has included federal and state governmental review
of all aspects of the mortgage lending business, including an
increased legislative and regulatory focus on consumer
protection practices. The Wall Street Reform Act is one example
of such legislation. It is too early to predict the final form
that regulations or other rule-makings to implement the various
requirements of the Wall Street Reform Act may take, what
additional legislative or regulatory changes may be approved in
the future, or whether those changes may require us to change
our business practices, incur increased costs of compliance or
adversely affect our results of operations.
7
Employees
As of December 31, 2010, we had approximately
8,700 employees, all of which were principally employed in
the U.S. None of our workforce currently is unionized. We
have not experienced any work stoppages, and we consider our
relations with employees to be good.
Available
Information
We file Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
and Current Reports on
Form 8-K
with the Securities and Exchange Commission (the
SEC). The public may read and copy any materials we
file with the SEC at the SECs Public Reference Room at
100 F Street, N.E., Washington, DC 20549. The public
may obtain information on the operation of the Public Reference
Room by calling the SEC at
1-800-SEC-0330.
We are an electronic filer, and the SEC maintains an Internet
site at www.sec.gov that contains the reports, proxy and
information statements and other information we file
electronically. We make available, free of charge, through our
website our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
and Current Reports on
Form 8-K,
and amendments to those reports, as soon as reasonably
practicable after we file them with, or furnish them to, the
SEC. Our Internet website address is
http://www.lpsvcs.com.
Our Corporate Governance Guidelines and Code of Business Conduct
and Ethics are also available on our website and are available
in print, free of charge, to any stockholder who mails a request
to the Corporate Secretary, Lender Processing Services, Inc.,
601 Riverside Avenue, Jacksonville, Florida 32204. Other
corporate governance-related documents can be found on our
website as well. However, the information found on our website
is not part of this or any other report.
In addition to the normal risks of business, we are subject to
significant risks and uncertainties, including those listed
below and others described elsewhere in this Annual Report on
Form 10-K.
Any of the risks described in this report could result in a
significant adverse effect on our results of operations and
financial condition.
The
strength of the economy and the housing market affect demand for
certain of our services.
The level of real estate activity is primarily affected by real
estate prices, the availability of funds for mortgage loans,
mortgage interest rates and the overall state of the
U.S. economy. The Mortgage Brokers Association
(MBA) estimates that the level of U.S. mortgage
originations, by dollar volume, was $1.5 trillion and $2.0
trillion in 2010 and 2009, respectively. Of these total
origination markets in 2010 and 2009, approximately 69% and 65%,
respectively, were refinancing transactions. The revenues for
our loan facilitation business are linked to the volume of
origination transactions, and refinancing transactions in
particular. There can be no assurance that the relative strength
of the refinancing market will continue, especially in light of
current market conditions, rising interest rates and tightened
loan requirements, such as higher credit score and down payment
requirements and additional fees. In the event that the level of
origination transactions, particularly refinancing transactions,
decreases, the results of our loan facilitation operations could
be adversely affected. Further, in the event that the difficult
economy or other factors lead to a decline in levels of home
ownership and a reduction in the aggregate number of
U.S. mortgage loans outstanding, our revenues from mortgage
processing could be adversely affected.
In contrast, the weaker economy and housing market have tended
to increase the volume of consumer mortgage defaults, which can
favorably affect our default management operations, in which we
service residential mortgage loans in default. It can also
increase revenues from our Desktop solution, which is currently
primarily used in connection with default management. As a
result, our default management services have historically
provided a natural hedge against the volatility of the real
estate origination business and its resulting impact on our loan
facilitation services. However, government legislation aimed at
mitigating the current downturn in the housing market by
providing a loan modification program targeted at borrowers who
are at risk of foreclosure because their incomes are not
sufficient to make their mortgage payments, and lenders
efforts to comply with the requirements of that legislation and
other foreclosure requirements, has adversely affected
foreclosure volumes and the results of our default management
operations. Although we believe that the reduction in
foreclosure volumes is temporary, it is impossible to predict
whether additional legislative or regulatory changes will be
implemented or other actions may be taken by regulators or
lenders that might cause a continuation of or further slow the
current level of
8
foreclosure volumes and adversely affect our future results. In
the event that foreclosure volumes remain slow without a
corresponding increase in the level of mortgage originations to
increase revenues from our loan facilitation businesses, our
revenues could be adversely affected.
Our
results of operations may be affected by the nature of our
relationships with our largest customers or by our
customers relationships with the government-sponsored
enterprises.
A small number of customers have accounted for a significant
portion of our revenues, and we expect that a limited number of
customers will continue to represent a significant portion of
our revenues for the foreseeable future. In 2010, our largest
customer, Wells Fargo, accounted for approximately 20.0% of our
aggregate revenue, and our second largest customer, JPMorgan
Chase, accounted for approximately 11.1% of our aggregate
revenue. Wells Fargo accounted for approximately 12.2% of the
revenue from our Technology, Data and Analytics segment and
approximately 23.3% of the revenue from our Loan Transaction
Services segments in 2010, and JPMorgan Chase accounted for
approximately 10.3% of the revenue from our Technology, Data and
Analytics segment and approximately 11.3% of the revenue from
our Loan Transaction Services segment in 2010. Our five largest
customers accounted for approximately 47.7% of our aggregate
revenue and approximately 31.4% and 54.7% of the revenue of our
Technology, Data and Analytics and Loan Transaction Services
segments, respectively. See Business
Customers. The revenues of our five largest customers are
spread across a range of services, and we protect ourselves by
utilizing separate contracts for different services. However,
our relationships with these and other large customers are
important to our future operating results, and deterioration in
any of those relationships could significantly reduce our
revenues. In addition, by virtue of their significant
relationships with us, these customers may be able to exert
pressure on us with respect to the pricing of our services.
Our customers also have significant relationships with the
Federal National Mortgage Association, or Fannie Mae, and the
Federal Home Loan Mortgage Corporation, or Freddie Mac, which
are government-sponsored enterprises (GSE) tasked
with working with financial institutions to provide liquidity to
the mortgage market. They do this by purchasing loans from the
lenders either for cash or in exchange for a mortgage-backed
security that comprises those loans and that, for a fee, carries
the GSEs guarantee of timely payment of interest and
principal. Because our customers service the loans owned by the
GSEs, we provide services on many of those loans. As a result of
these relationships, the GSEs have been able to implement
changes to our pricing structure on certain services we provide
related to default and foreclosure servicing. The GSEs or other
governmental agencies may be able to exert similar pressure on
the pricing of our services in the future, which could have a
negative impact on our results of operations.
Participants
in the mortgage industry are under increased scrutiny, and
efforts by the government to reform the mortgage industry or
address the troubled mortgage market and the current economic
environment could affect us.
The current economic downturn and troubled housing market have
resulted in increased scrutiny of all parties involved in the
mortgage industry by governmental authorities, judges and the
news media, among others, with the most recent focus being on
those involved in the foreclosure process. This scrutiny has
included federal and state governmental review of all aspects of
the mortgage lending business, including an increased
legislative and regulatory focus on consumer protection
practices. An example of such legislation is the Dodd-Frank Wall
Street Reform and Consumer Protection Act (the Wall Street
Reform Act), which was signed into law in July 2010 and
contains broad changes for many sectors of the financial
services and lending industries. Among other things, the Wall
Street Reform Act includes new requirements for appraisals and
appraisal management companies. In addition, some states have
enacted legislation requiring the registration of appraisal
management companies, and numerous states have similar proposals
pending. While we believe that we will be able to comply with
the new federal and any new state requirements relating to
appraisals going forward, it is too early to predict with
certainty what impact those requirements may have on our
business or the results of our operations. It is also too early
to predict the final form that regulations and rule-makings to
implement other requirements of the Wall Street Reform Act may
take, what additional legislative or regulatory changes may be
approved in the future, or whether those changes may require us
to change our business practices, incur increased costs of
compliance
and/or
adversely affect our results of operations.
9
Several pieces of legislation have been enacted to address the
struggling mortgage market and the current economic downturn.
For example, under the Homeowner Affordability and Stability
Plan (the HASP), many homeowners with an existing
mortgage owned by Fannie Mae or Freddie Mac who would otherwise
be unable to get a refinancing loan because of a loss in home
value have been able to get a refinancing loan. In addition, the
Home Affordable Modification Program (HAMP) under
the HASP provides mortgage loan servicers with a set of
standardized qualification guidelines for loan modifications
aimed at reducing borrower monthly payments to affordable
levels. Although HAMP has produced a large number of trial
modifications, only a small portion of those modifications have
been converted to permanent modifications to date. We cannot
predict the ultimate impact that the governments
initiatives under the HASP or other foreclosure relief and loan
modification initiatives may have, or whether the government may
take additional action to address the current housing market.
Notwithstanding the effects of existing government programs, we
believe that the inventory of delinquent mortgage loans and
loans in foreclosure continues to grow. We believe this growth
is due in part to continued high delinquency rates and lenders
focusing their resources on trying to make modifications under
the HAMP program in compliance with its requirements and new
government directives intended to increase its success, which
slowed the pace of foreclosure starts in the first half of 2010.
The timing for foreclosure starts and the pace of foreclosure
proceedings further slowed in the fourth quarter of 2010 as a
number of lenders once again slowed or in some cases temporarily
halted foreclosures in order to confirm the compliance of their
foreclosure procedures with applicable laws. We cannot predict
whether any legislative or regulatory changes will be
implemented as a result of recent issues reported by banks and
servicers in connection with foreclosure actions, or whether the
government may implement additional directives to increase the
success of HAMP. Any such actions could cause a continuation of
or further slow the current level of foreclosure volumes and
adversely affect our future results.
We may
incur additional costs and expenses due to investigations or
other actions relating to default procedures.
As described in Item 3. Legal Proceedings, a
number of governmental agencies have been conducting separate
inquiries concerning various current and past business practices
in our default operations, and others may do so in the future.
These inquiries range from grand jury subpoenas for documents
and/or
testimony to informal requests for information. We have been
cooperating and we have expressed our willingness to continue to
fully cooperate with these inquiries. Due to the current
scrutiny being placed on participants in the foreclosure process
and the early stage of certain of these inquiries, it is
difficult to predict the final outcome of these matters. There
can be no assurance that we will not incur additional material
costs and expenses, including but not limited to fines or
penalties and legal costs, or be subject to other remedies, as a
result of regulatory, legislative or administrative
investigations or actions relating to default procedures. Also
as described in Item 3. Legal Proceedings, we
are a defendant in civil litigation relating to default matters,
and could become subject to additional civil litigation. There
can be no assurance that we will not incur material costs and
expenses as a result of such litigation.
If we
fail to adapt our services to changes in technology or in the
marketplace, or if our ongoing efforts to upgrade our technology
are not successful, we could lose customers and have difficulty
attracting new customers for our services.
The markets for our services are characterized by constant
technological changes, frequent introductions of new services
and evolving industry standards. Our future success will be
significantly affected by our ability to enhance our current
services, and develop and introduce new services that address
the increasingly sophisticated needs of our customers and their
customers. These initiatives carry the risks associated with any
new service development effort, including cost overruns, delays
in delivery and performance issues. There can be no assurance
that we will be successful in developing, marketing and selling
new services that meet these changing demands, that we will not
experience difficulties that could delay or prevent the
successful development, introduction, and marketing of these
services, or that our new services and their enhancements will
adequately meet the demands of the marketplace and achieve
market acceptance.
10
We
operate in a competitive business environment, and if we are
unable to compete effectively our results of operations and
financial condition may be adversely affected.
The markets for our services are intensely competitive. Our
competitors vary in size and in the scope and breadth of the
services they offer. We compete for existing and new customers
against both third parties and the in-house capabilities of our
customers. Some of our competitors have substantial resources.
In addition, we expect that the markets in which we compete will
continue to attract new competitors and new technologies. There
can be no assurance that we will be able to compete successfully
against current or future competitors or that competitive
pressures we face in the markets in which we operate will not
materially adversely affect our business, financial condition
and results of operations.
Further, because many of our larger potential customers have
historically developed their key processing applications
in-house and therefore view their system requirements from a
make-versus-buy perspective, we often compete against our
potential customers in-house capacities. As a result,
gaining new customers in our mortgage processing business can be
difficult. For banks and other potential customers, switching
from an internally designed system to an outside vendor, or from
one vendor of mortgage processing services to a new vendor, is a
significant undertaking. Many potential customers worry about
potential disadvantages such as loss of accustomed
functionality, increased costs and business disruption. As a
result, potential customers often resist change. There can be no
assurance that our strategies for overcoming potential
customers reluctance to change will be successful, and
this resistance may adversely affect our growth.
We
have substantial indebtedness, which could have a negative
impact on our financing options and liquidity
position.
We have approximately $1,249.4 million of total debt
outstanding, consisting of (i) a senior secured credit
agreement divided into two tranches, a $700 million Term
Loan A under which $385.0 million was outstanding at
December 31, 2010, and a $510 million Term Loan B
under which $497.3 million was outstanding at
December 31, 2010, and (ii) $367.0 million of
senior unsecured notes outstanding at December 31, 2010. As
of December 31, 2010, we also had additional borrowing
capacity of approximately $138.5 million available under
our revolving credit facility. We also have other contractual
commitments and contingent obligations. See
Managements discussion and analysis of results of
operations and financial condition Contractual
obligations.
This high level of debt could have important consequences to us,
including the following:
|
|
|
|
|
this debt level makes us more vulnerable to economic downturns
and adverse developments in our business, may cause us to have
difficulty borrowing money in the future in excess of amounts
available under our credit facility for working capital, capital
expenditures, acquisitions or other purposes and may limit our
ability to pursue other business opportunities and implement
certain business strategies;
|
|
|
|
we will need to use a large portion of the money we earn to pay
principal and interest on our debt, which will reduce the amount
of money available to finance operations, acquisitions and other
business activities and pay stockholder dividends;
|
|
|
|
approximately $657.2 million of the debt currently bears
interest at a floating rate, which exposes us to the risk of
increased interest rates (for example, a one percent increase in
interest rates would result in a $1 million increase in our
annual interest expense for every $100 million of floating
rate debt we incur, which may make it more difficult for us to
service our debt);
|
|
|
|
while we have entered into various agreements limiting our
exposure to higher interest rates and may enter into additional
similar agreements in the future, any such agreements may not
offer complete protection from this risk, and we remain subject
to the risk that one or more of the counterparties to these
agreements may fail to satisfy their obligations under such
agreements; and
|
|
|
|
we have a higher level of debt than certain of our competitors,
which may cause a competitive disadvantage and may reduce
flexibility in responding to changing business and economic
conditions, including increased competition.
|
11
Despite our substantial indebtedness, we may be able to incur
additional debt in the future. The terms of our credit
facilities and the indenture governing the notes allow us to
incur substantial amounts of additional debt, subject to certain
limitations. If new debt is added to our current debt levels,
the related risks we could face would be magnified.
Our
financing arrangements subject us to various restrictions that
could limit our operating flexibility.
The agreements governing our credit facilities and the indenture
governing the notes each impose operating and financial
restrictions on our activities. These restrictions include
compliance with, or maintenance of, certain financial tests and
ratios, including a minimum interest coverage ratio and maximum
leverage ratio, and limit or prohibit our ability to, among
other things:
|
|
|
|
|
create, incur or assume any additional debt and issue preferred
stock;
|
|
|
|
create, incur or assume certain liens;
|
|
|
|
redeem
and/or
prepay certain subordinated debt we might issue in the future;
|
|
|
|
pay dividends on our stock or repurchase stock;
|
|
|
|
make certain investments and acquisitions;
|
|
|
|
enter into or permit to exist contractual limits on the ability
of our subsidiaries to pay dividends to us;
|
|
|
|
enter new lines of business;
|
|
|
|
engage in consolidations, mergers and acquisitions;
|
|
|
|
engage in specified sales of assets; and
|
|
|
|
enter into transactions with affiliates.
|
These restrictions on our ability to operate our business could
harm our business by, among other things, limiting our ability
to take advantage of financing, merger and acquisition and other
corporate opportunities.
Security
breaches or our own failure to comply with privacy regulations
imposed on providers of services to financial institutions could
harm our business by disrupting our delivery of services and
damaging our reputation.
As part of our business, we electronically receive, process,
store and transmit sensitive business information of our
customers. In addition, we collect personal consumer data, such
as names and addresses, social security numbers, drivers
license numbers and payment history records. Unauthorized access
to our computer systems or databases could result in the theft
or publication of confidential information or the deletion or
modification of records or could otherwise cause interruptions
in our operations. These concerns about security are increased
when we transmit information over the Internet.
Additionally, as a provider of services to financial
institutions, we are bound by the same limitations on disclosure
of the information we receive from our customers as apply to the
financial institutions themselves. If we fail to comply with
these regulations, we could be exposed to suits for breach of
contract or to governmental proceedings. In addition, if more
restrictive privacy laws or rules are adopted in the future on
the federal or state level, that could have an adverse impact on
us. Any inability to prevent security or privacy breaches could
cause our existing customers to lose confidence in our systems
and terminate their agreements with us, and could inhibit our
ability to attract new customers.
12
If our
applications or services are found to infringe the proprietary
rights of others, we may be required to change our business
practices and may also become subject to significant costs and
monetary penalties.
As our information technology applications and services develop,
we may become increasingly subject to infringement claims. Any
claims, whether with or without merit, could:
|
|
|
|
|
be expensive and time-consuming to defend;
|
|
|
|
cause us to cease making, licensing or using applications that
incorporate the challenged intellectual property;
|
|
|
|
require us to redesign our applications, if feasible;
|
|
|
|
divert managements attention and resources; and
|
|
|
|
require us to enter into royalty or licensing agreements in
order to obtain the right to use necessary technologies.
|
If we
are unable to successfully consummate and integrate
acquisitions, our results of operations may be adversely
affected.
One of our strategies to grow our business is to
opportunistically acquire complementary businesses and services.
This strategy will depend on our ability to find suitable
acquisitions and finance them on acceptable terms. We may
require additional debt or equity financing for future
acquisitions, and doing so will be made more difficult by our
substantial debt. If we are unable to acquire suitable
acquisition candidates, we may experience slower growth.
Further, even if we successfully complete acquisitions, we will
face challenges in integrating any acquired business. These
challenges include eliminating redundant operations, facilities
and systems, coordinating management and personnel, retaining
key employees, managing different corporate cultures, and
achieving cost reductions and cross-selling opportunities.
Additionally, the acquisition and integration processes may
disrupt our business and divert our resources.
We
have substantial investments in recorded goodwill as a result of
prior acquisitions, and an economic downturn or troubled
mortgage market could cause these investments to become
impaired, requiring write-downs that would reduce our operating
income.
Goodwill was approximately $1,160 million, or approximately
51% of our total assets, as of December 31, 2010. Current
accounting rules require that goodwill be assessed for
impairment at least annually or whenever changes in
circumstances indicate that the carrying amount may not be
recoverable from estimated future cash flows. Factors that may
indicate the carrying value of our intangible assets, including
goodwill, may not be recoverable include, but are not limited
to, significant underperformance relative to historical or
projected future operating results, a significant decline in our
stock price and market capitalization, and negative industry or
economic trends.
The results of our fiscal year 2010 annual assessment of the
recoverability of goodwill indicated that the fair value of all
of the Companys reporting units were in excess of the
carrying value of those reporting units, and thus no goodwill
impairment existed as of December 31, 2010. However, if the
current economic downturn continues over a prolonged period or
if the mortgage market continues to struggle, the carrying
amount of our goodwill may no longer be recoverable, and we may
be required to record an impairment charge, which would have a
negative impact on our results of operations and financial
condition. We will continue to monitor our market capitalization
and the impact of the current economic downturn on our business
to determine if there is an impairment of goodwill in future
periods.
13
We
have a long sales cycle for many of our technology solutions and
if we fail to close sales after expending significant time and
resources to do so, our business, financial condition, and
results of operations may be adversely affected.
The implementation of many of our technology solutions often
involves significant capital commitments by our customers,
particularly those with smaller operational scale. Potential
customers generally commit significant resources to an
evaluation of available technology solutions and require us to
expend substantial time, effort and money educating them as to
the value of our technology solutions and services. We incur
substantial costs in order to obtain each new customer. We may
expend significant funds and management resources during the
sales cycle and ultimately fail to close the sale. Our sales
cycle may be extended due to our customers budgetary
constraints or for other reasons. If we are unsuccessful in
closing sales after expending significant funds and management
resources or if we experience delays, it could have a material
adverse effect on our business, financial condition and results
of operations.
We may
experience defects, development delays, installation
difficulties and system failures with respect to our technology
solutions, which would harm our business and reputation and
expose us to potential liability.
Many of our services are based on sophisticated software and
computing systems, and we may encounter delays when developing
new technology solutions and services. Further, the technology
solutions underlying our services have occasionally contained
and may in the future contain undetected errors or defects when
first introduced or when new versions are released. In addition,
we may experience difficulties in installing or integrating our
technologies on platforms used by our customers. Finally, our
systems and operations could be exposed to damage or
interruption from fire, natural disaster, power loss,
telecommunications failure, unauthorized entry and computer
viruses. Defects in our technology solutions, errors or delays
in the processing of electronic transactions, or other
difficulties could result in:
|
|
|
|
|
interruption of business operations;
|
|
|
|
delay in market acceptance;
|
|
|
|
additional development and remediation costs;
|
|
|
|
diversion of technical and other resources;
|
|
|
|
loss of customers;
|
|
|
|
negative publicity; or
|
|
|
|
exposure to liability claims.
|
Any one or more of the foregoing occurrences could have a
material adverse effect on our business, financial condition and
results of operations. Although we attempt to limit our
potential liability through disclaimers and
limitation-of-liability
provisions in our license and customer agreements, we cannot be
certain that these measures will be successful in limiting our
liability.
Our
historical financial information may not be indicative of our
future results as a stand-alone company.
The historical financial information we have included in this
report for periods ending prior to July 2, 2008 may
not reflect what our results of operations, financial condition
and cash flows would have been had we been a stand-alone company
during the periods presented or be indicative of what our
results of operations, financial condition and cash flows may be
in the future now that we are a stand-alone company. This is
primarily a result of the following factors:
|
|
|
|
|
our historical financial information for periods ending prior to
July 2, 2008 does not reflect the debt and related interest
expense that we incurred as part of the spin-off, including debt
we incurred in order to issue debt obligations to FIS in partial
consideration of FISs contribution to us of our
operations; and
|
14
|
|
|
|
|
the historical financial information for periods ending prior to
July 2, 2008 does not reflect the increased costs
associated with being a stand-alone company, including changes
in our cost structure, personnel needs, financing and operations
of the contributed business as a result of the spin-off from FIS.
|
For additional information about the past financial performance
of our business and the basis of the presentation of the
historical financial statements, see our consolidated financial
statements and the accompanying notes.
Statement
Regarding Forward-Looking Information
The statements contained in this report or in our other
documents or in oral presentations or other statements made by
our management that are not purely historical are
forward-looking statements, including statements regarding our
expectations, hopes, intentions, or strategies regarding the
future. These statements relate to, among other things, our
future financial and operating results. In many cases, you can
identify forward-looking statements by terminology such as
may, will, should,
expect, plan, anticipate,
believe, estimate, predict,
potential, or continue, or the negative
of these terms and other comparable terminology. Actual results
could differ materially from those anticipated in these
statements as a result of a number of factors, including, but
not limited to:
|
|
|
|
|
our ability to adapt our services to changes in technology or
the marketplace;
|
|
|
|
the impact of changes in the level of real estate activity
(including among others, loan originations and foreclosures) on
demand for certain of our services;
|
|
|
|
our ability to maintain and grow our relationships with our
customers;
|
|
|
|
the effects of our substantial leverage on our ability to make
acquisitions and invest in our business;
|
|
|
|
the level of scrutiny being placed on participants in the
foreclosure process;
|
|
|
|
risks associated with federal and state inquiries and
examinations currently underway or that may be commenced in the
future with respect to our default management operations, and
with civil litigation related to these matters;
|
|
|
|
changes to the laws, rules and regulations that regulate our
businesses as a result of the current economic and financial
environment;
|
|
|
|
changes in general economic, business and political conditions,
including changes in the financial markets;
|
|
|
|
the impact of any potential defects, development delays,
installation difficulties or system failures on our business and
reputation;
|
|
|
|
risks associated with protecting information security and
privacy; and
|
|
|
|
other risks detailed elsewhere in this Annual Report on
Form 10-K.
|
We undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new
information, future developments or otherwise.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
15
Our corporate headquarters are located in Jacksonville, Florida,
in an owned facility. FNF and FIS occupy and pay us rent for
145,682 square feet in this facility. We also own one
facility in Sharon, Pennsylvania. We lease office space as
follows:
|
|
|
|
|
|
|
Number of
|
|
State
|
|
Locations (1)
|
|
|
California
|
|
|
17
|
|
Texas
|
|
|
12
|
|
Florida
|
|
|
8
|
|
Minnesota, Colorado
|
|
|
4
|
|
Georgia, Pennsylvania
|
|
|
3
|
|
Nevada, Arizona, North Carolina, Washington
|
|
|
2
|
|
Other
|
|
|
10
|
|
|
|
|
(1) |
|
Represents the number of locations in each state listed. |
We have no leased properties outside the United States. We
believe our properties are adequate for our business as
presently conducted.
|
|
Item 3.
|
Legal
Proceedings.
|
Litigation
In the ordinary course of business, we are involved in various
pending and threatened litigation matters related to our
operations, some of which include claims for punitive or
exemplary damages. We believe that no actions, other than the
matters listed below, depart from customary litigation
incidental to our business. As background to the disclosure
below, please note the following:
|
|
|
|
|
In these matters, plaintiffs seek a variety of remedies but do
not make a specific statement as to the dollar amount of damages
demanded. Due to these reasons and the early stage of these
cases, it is not possible to make meaningful estimates of the
amount or range of loss that could result from these matters at
this time.
|
|
|
|
We review these matters on an ongoing basis and follow the
provisions of Financial Accounting Standards Board Accounting
Standards Codification Topic 450, Contingencies, when
making accrual and disclosure decisions. When assessing
reasonably possible and probable outcomes, we base our decision
on our assessment of the ultimate outcome following all appeals.
|
|
|
|
We intend to vigorously defend all litigation matters that are
brought against us, and we do not believe that their ultimate
disposition will have a material adverse impact on our financial
position or results of operations.
|
Elizabeth Foster, et al vs. MERS, GMAC, Lender
Processing Services, Inc., et al.
We were named in a putative class action complaint filed in the
United States District Court in the Western District of
Kentucky, Louisville Division on September 28, 2010. Many
of plaintiffs allegations are neither directed at nor
relate to our business, including challenges to the
securitization of loans, the use of assignments of mortgage, and
the participation of Mortgage Electronic Registration System, or
MERS, in the foreclosure process. Generally, plaintiffs make
allegations concerning unlawful foreclosure, conspiracy and
other matters relating to the handling of the plaintiffs
loans and the default process. The plaintiffs never served us
with the complaint in this proceeding, and this case was
voluntarily dismissed by the plaintiffs on February 3,
2011. A motion for sanctions against plaintiffs counsel is
pending.
Thorne vs. Prommis Solution Holding Corporation, Lender
Processing Services, Inc., et al.
We were named in a putative class action adversary proceeding
filed in the United States Bankruptcy Court for the Northern
District of Mississippi on September 30, 2010. The
complaint has a single plaintiff and alleges that the
16
defendants engaged in unlawful fee splitting with the attorneys
representing the creditor in the bankruptcy matter and the
unauthorized practice of law. On October 28, 2010, we filed
a motion for summary judgment seeking to dismiss the complaint.
Knippel vs. Saxon Mortgage Services, Lender Processing
Services, Inc., et al.
We were named in a putative class action complaint filed in the
United States District Court for the District of Nevada on
October 5, 2010. The complaint had a single plaintiff and
alleged unspecified violations of the Fair Debt Collection
Practices Act, deceptive trade practices and unlawful fee
splitting. This proceeding was dismissed with prejudice in
January 2011.
Securities Class Action Litigation
On December 1, 2010, the Company was served with a
complaint entitled St. Clair Shores General Employees
Retirement System v. Lender Processing Services, Inc., et
al., which was filed in the United States District Court for
the Middle District of Florida. The putative class action seeks
damages for alleged violations of federal securities laws in
connection with our disclosures relating to our default
operations. On December 29, 2010, the court entered an
order granting a temporary suspension of filing deadlines
pending a determination of the lead plaintiff and lead counsel.
On January 24, 2011 applications for lead plaintiff and
counsel were filed. On January 11, 2011, a second putative
class action complaint entitled Southwest Ohio District
Council of Carpenters vs. LPS, Inc., et al., was filed in
the Middle District of Florida. The second complaint contains
nearly identical allegations, and a motion to consolidate the
two matters is pending.
Shareholder Derivative Litigation
On December 22, 2010, a complaint entitled International
Brotherhood of Electrical Workers Local 164 Pension Fund,
derivatively on behalf of Lender Processing Services,
Inc. v. Lee A. Kennedy, et al., was filed in the Court
of Chancery in the State of Delaware. The complaint seeks
recovery on behalf of the Company of damages from certain
directors for purported violations of fiduciary duties and
breaches of good faith in connection with our default
operations. We filed a motion to dismiss this case on
February 8, 2011. On January 21, 2011, a second
complaint entitled Michael Wheatley, derivatively on behalf
of Lender Processing Services, Inc. v. Jeffrey S.
Carbiener, et al., was filed in the Circuit Court of the 4th
Judicial Circuit, in and for Duval County, Florida. The second
complaint also seeks damages from our directors and certain
current and former executives and contains nearly identical
allegations.
Regulatory
Matters
Due to the heavily regulated nature of the mortgage industry,
from time to time we receive inquiries and requests for
information from various state and federal regulatory agencies,
including state attorneys general, the U.S. Department of
Justice and other agencies, about various matters relating to
our business. These inquiries take various forms, including
informal or formal requests, reviews, investigations and
subpoenas. We attempt to cooperate with all such inquiries.
At present, there is increased scrutiny of all parties involved
in the mortgage industry by governmental authorities, judges and
the news media, among others. Like others, we have responded to
or are currently responding to inquiries from multiple
governmental agencies. These inquiries range from informal
requests for information to grand jury subpoenas. In 2010, we
learned that the U.S. Attorneys office for the Middle
District of Florida and the Florida Attorney General had begun
conducting separate inquiries concerning certain business
processes in our default operations. Since then, other federal
and state authorities, including various regulatory agencies,
and other state attorneys general, have initiated inquiries
about these matters, and additional agencies may do so in the
future. The business processes that these authorities are
considering include the former document preparation,
verification, signing and notarization practices of certain of
our default operations and our relationships with foreclosure
attorneys. We have discovered, during our own internal reviews,
potential issues related to some of these practices which may
cause the validity of certain documents used in foreclosure
proceedings to be challenged. However, we are not aware of any
person who was wrongfully foreclosed upon as a result of a
potential error in the processes used by our employees. We have
been cooperating and we have expressed our willingness to
continue to fully cooperate with all such inquiries.
17
We continue to believe that the outcome of the current inquiries
will not have a material adverse impact on our business or
results of operations, although it is difficult to predict the
final outcome of these matters due, among other things, to the
early stage of many of these inquiries. As a result, there can
be no assurance that we will not incur additional material costs
and expenses, including but not limited to fines or penalties
and legal costs, or be subject to other remedies, as a result of
regulatory, legislative or administrative investigations or
actions relating to default procedures.
PART II
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
|
Our common stock trades on the New York Stock Exchange under the
ticker symbol LPS. As of January 31, 2011,
there were approximately 8,400 registered holders of our common
stock. The table set forth below provides the high and low sales
prices of our common stock and the cash dividends declared per
share of common stock during the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
43.09
|
|
|
$
|
37.03
|
|
|
$
|
0.10
|
|
Second Quarter
|
|
$
|
39.87
|
|
|
$
|
30.81
|
|
|
$
|
0.10
|
|
Third Quarter
|
|
$
|
34.88
|
|
|
$
|
29.22
|
|
|
$
|
0.10
|
|
Fourth Quarter
|
|
$
|
33.65
|
|
|
$
|
25.50
|
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Dividend
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
$
|
31.50
|
|
|
$
|
24.21
|
|
|
$
|
0.10
|
|
Second Quarter
|
|
$
|
33.99
|
|
|
$
|
20.81
|
|
|
$
|
0.10
|
|
Third Quarter
|
|
$
|
39.05
|
|
|
$
|
26.55
|
|
|
$
|
0.10
|
|
Fourth Quarter
|
|
$
|
44.38
|
|
|
$
|
37.51
|
|
|
$
|
0.10
|
|
We currently pay a dividend of $0.10 per common share on a
quarterly basis, and expect to continue to do so in the future.
The declaration and payment of future dividends is at the
discretion of the Board of Directors, and depends on, among
other things, our investment policy and opportunities, results
of operations, financial condition, cash requirements, future
prospects, and other factors that may be considered relevant by
our Board of Directors, including legal and contractual
restrictions. Additionally, the payment of cash dividends may be
limited by the terms of our debt agreements. A regular quarterly
dividend of $0.10 per common share is payable on March 17,
2011 to stockholders of record as of the close of business on
March 3, 2011.
The following table provides information as of December 31,
2010, about our common stock which may be issued under our
equity compensation plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average Exercise
|
|
|
Available for Future Issuance
|
|
|
|
be Issued upon Exercise
|
|
|
Price of Outstanding
|
|
|
Under Equity Compensation Plans
|
|
|
|
of Outstanding Options,
|
|
|
Options, Warrants and
|
|
|
(Excluding Securities Reflected in
|
|
Plan Category
|
|
Warrants and Rights(a)
|
|
|
Rights
|
|
|
Column (a))
|
|
|
Equity compensation plans approved by security holders
|
|
|
7,719,442
|
|
|
$
|
33.06
|
|
|
|
2,719,428
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
7,719,442
|
|
|
|
|
|
|
|
2,719,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
On July 22, 2010, our Board of Directors authorized us to
repurchase shares of our common stock
and/or our
senior notes in an amount not to exceed $150.0 million. In
addition, on October 28, 2010, our Board of Directors
approved a new authorization for us to repurchase up to
$250.0 million of our common stock
and/or our
senior notes. This new authorization is effective through
December 31, 2011. The October 28, 2010 authorization
replaced the previous authorization and subsumed all amounts
remaining available thereunder. Our ability to repurchase shares
of common stock or senior notes is subject to restrictions
contained in our senior secured credit agreement and in the
indenture governing our senior unsecured notes.
The following table summarizes our repurchase activity under our
repurchase authorization in each month of the fourth quarter of
2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Approximate Dollar Value
|
|
|
|
Total Number of
|
|
|
Average Price
|
|
|
Shares Purchased as Part
|
|
|
(In millions) of Shares that May Yet Be
|
|
Period
|
|
Shares Purchased
|
|
|
Paid per Share
|
|
|
of Publicly Announced Plans
|
|
|
Purchased Under the Plans (1) (2)
|
|
|
October 1 to October 31, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
250.0
|
|
November 1 to November 30, 2010
|
|
|
1,906,000
|
|
|
$
|
30.69
|
|
|
|
1,906,000
|
|
|
$
|
191.5
|
|
December 1 to December 31, 2010
|
|
|
668,245
|
|
|
$
|
30.02
|
|
|
|
668,245
|
|
|
$
|
171.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,574,245
|
|
|
|
|
|
|
|
2,574,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Reflects amount remaining available under the
$250.0 million authorization approved by our Board of
Directors on October 28, 2010. |
|
(2) |
|
As of the last day of the respective month. |
19
Stock
Performance Graph
This graph depicts the Companys cumulative total
shareholder returns relative to the performance of the
Standard & Poors Midcap 400 Index and the
Standard & Poors 1500 Data
Processing & Outsourced Services Index for the period
commencing on July 3, 2008, the first trading day of the
Companys stock, and ending on December 31, 2010, the
last trading day of fiscal year 2010. The graph assumes $100
invested at the closing price of the Companys common stock
on the New York Stock Exchange on July 3, 2008 and each
index on June 30, 2008, and assumes that all dividends were
reinvested on the date paid.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/3/08
|
|
|
|
9/30/08
|
|
|
|
12/31/08
|
|
|
|
3/31/09
|
|
|
|
6/30/09
|
|
|
|
9/30/09
|
|
|
|
12/31/09
|
|
|
|
3/31/10
|
|
|
|
6/30/10
|
|
|
|
9/30/10
|
|
|
|
12/31/10
|
|
Lender Processing Services, Inc.
|
|
|
|
100.00
|
|
|
|
|
97.78
|
|
|
|
|
94.74
|
|
|
|
|
98.85
|
|
|
|
|
89.99
|
|
|
|
|
124.02
|
|
|
|
|
132.44
|
|
|
|
|
123.27
|
|
|
|
|
102.54
|
|
|
|
|
109.20
|
|
|
|
|
97.34
|
|
Standard & Poors Midcap 400
|
|
|
|
100.00
|
|
|
|
|
89.13
|
|
|
|
|
66.36
|
|
|
|
|
60.61
|
|
|
|
|
71.98
|
|
|
|
|
86.36
|
|
|
|
|
91.16
|
|
|
|
|
99.45
|
|
|
|
|
89.92
|
|
|
|
|
101.71
|
|
|
|
|
115.45
|
|
Standard & Poors 1500 Data
Processing & Outsourced Services Index
|
|
|
|
100.00
|
|
|
|
|
89.34
|
|
|
|
|
72.59
|
|
|
|
|
73.13
|
|
|
|
|
78.79
|
|
|
|
|
91.40
|
|
|
|
|
103.60
|
|
|
|
|
104.01
|
|
|
|
|
87.17
|
|
|
|
|
95.65
|
|
|
|
|
98.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item 6.
|
Selected
Financial Data.
|
The following table presents our selected historical financial
data and should be read in conjunction with Item 7.
Managements Discussion and Analysis of Financial
Condition and Results of Operations and Item 8.
Financial Statements and Supplementary Data included
elsewhere in this Annual Report on
Form 10-K.
Our financial information may not be indicative of our future
performance and does not necessarily reflect what our financial
position and results of operations would have been had we
operated as a separate, stand-alone entity for periods ending
prior to July 2, 2008 that are presented, including changes
that occurred in our operations and capitalization as a result
of our spin-off from FIS.
The consolidated statement of earnings data for the years ended
December 31, 2010 and December 31, 2009 and the
consolidated balance sheet data as of December 31, 2010 and
December 31, 2009 is derived from our audited financial
statements included in this report. Except with respect to pro
forma shares and per share amounts, the consolidated statement
of earnings data for the years ended December 31, 2008 is
derived from our audited financial statements included in this
report. The combined statement of earnings data for the year
ended December 31, 2007 and December 31, 2006 and the
combined balance sheet data as of December 31, 2008,
December 31, 2007 and December 31, 2006 are derived
from our audited financial statements not included in this
report. The unaudited financial statements have been prepared on
the same basis as the audited financial statements
20
and, in the opinion of our management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a
fair presentation of the information set forth in this report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
Statement of Earnings
Data:
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Processing and services revenues
|
|
$
|
2,456,335
|
|
|
$
|
2,370,548
|
|
|
$
|
1,837,590
|
|
|
$
|
1,638,622
|
|
|
$
|
1,404,839
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
|
302,344
|
|
|
|
275,729
|
|
|
|
230,888
|
|
|
|
256,805
|
|
|
|
201,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share basic(1)
|
|
$
|
3.25
|
|
|
$
|
2.88
|
|
|
$
|
2.42
|
|
|
$
|
2.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares basic(1)
|
|
|
93,095
|
|
|
|
95,632
|
|
|
|
95,353
|
|
|
|
97,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted(1)
|
|
$
|
3.23
|
|
|
$
|
2.87
|
|
|
$
|
2.41
|
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares diluted(1)
|
|
|
93,559
|
|
|
|
96,152
|
|
|
|
95,754
|
|
|
|
97,697
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Earnings per share data for the years ended December 31,
2008 and 2007 is reflected on a pro forma basis (discussed in
Note 2 of the notes to our consolidated financial
statements). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,287
|
|
|
$
|
70,528
|
|
|
$
|
125,966
|
|
|
$
|
39,566
|
|
|
$
|
47,783
|
|
Total assets
|
|
|
2,251,843
|
|
|
|
2,197,304
|
|
|
|
2,103,633
|
|
|
|
1,962,043
|
|
|
|
1,879,800
|
|
Long-term debt
|
|
|
1,249,401
|
|
|
|
1,289,350
|
|
|
|
1,547,451
|
|
|
|
|
|
|
|
|
|
Selected
Quarterly Financial Data (Unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
|
(In thousands)
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing and services revenues
|
|
$
|
592,394
|
|
|
$
|
599,081
|
|
|
$
|
626,040
|
|
|
$
|
638,820
|
|
Earnings from continuing operations before income taxes and
equity in losses of unconsolidated entity
|
|
|
117,434
|
|
|
|
130,223
|
|
|
|
127,434
|
|
|
|
112,558
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
|
72,516
|
|
|
|
80,413
|
|
|
|
78,691
|
|
|
|
70,724
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing and services revenues
|
|
$
|
529,817
|
|
|
$
|
613,171
|
|
|
$
|
619,427
|
|
|
$
|
608,133
|
|
Earnings from continuing operations before income taxes and
equity in losses of unconsolidated entity
|
|
|
82,546
|
|
|
|
122,530
|
|
|
|
122,528
|
|
|
|
121,378
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
|
50,046
|
|
|
|
75,240
|
|
|
|
75,542
|
|
|
|
74,901
|
|
21
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
The following discussion should be read in conjunction with
Item 8: Financial Statements and Supplementary Data and the
Notes thereto included elsewhere in this report.
Overview
We are a provider of integrated technology and services to the
mortgage lending industry, with market leading positions in
mortgage processing and default management services in the
U.S. We conduct our operations through two reporting
segments, Technology, Data and Analytics and Loan Transaction
Services, which produced approximately 31% and 69%,
respectively, of our revenues for the year ended
December 31, 2010. A large number of financial institutions
use our services. Our technology solutions include our mortgage
processing system, which automates all areas of loan servicing,
from loan setup and ongoing processing to customer service,
accounting and reporting. Our technology solutions also include
our Desktop system, which is a middleware enterprise workflow
management application designed to streamline and automate
business processes. Our loan transaction services include our
default management services, which are used by mortgage lenders,
servicers, attorneys and trustees to reduce the expense of
managing defaulted loans, and our loan facilitation services,
which support most aspects of the closing of mortgage loan
transactions by national lenders and loan servicers.
Our Technology, Data and Analytics segment principally includes:
|
|
|
|
|
our mortgage processing services, which we conduct using our
mortgage servicing platform and our team of experienced support
personnel;
|
|
|
|
our Desktop application, a workflow system that assists our
customers in managing business processes, which is primarily
used in connection with mortgage loan default management;
|
|
|
|
our other software and related service offerings, including our
mortgage origination software, our real estate closing and title
insurance production software and our collaborative electronic
vendor network, which provides connectivity among mortgage
industry participants; and
|
|
|
|
our data and analytics businesses, the most significant of which
are our alternative property valuations business, which provides
a range of valuations other than traditional appraisals, our
aggregated property and loan data services, and our fraud
detection solutions.
|
Our Loan Transaction Services segment offers a range of services
used mainly in the production of a mortgage loan, which we refer
to as our loan facilitation services, and in the management of
mortgage loans that go into default, which we refer to as
default management services.
Our loan facilitation services include:
|
|
|
|
|
settlement services, which consist of title agency services, in
which we act as an agent for title insurers or as an
underwriter, and closing services, in which we assist in the
closing of real estate transactions;
|
|
|
|
appraisal services, which consist of traditional appraisals
provided through our appraisal management company; and
|
|
|
|
other origination services, which consist of flood zone
information, which assists lenders in determining whether a
property is in a federally designated flood zone, and real
estate tax services that provide lenders with information about
the tax status of a property.
|
Our default management services include, among others:
|
|
|
|
|
foreclosure management services, including administrative
services provided to independent attorneys and trustees,
mandatory title searches, posting and publishing, and other
services;
|
|
|
|
property inspection and preservation services, designed to
preserve the value of properties securing defaulted
loans; and
|
|
|
|
asset management services, providing disposition services for
our customers real estate owned properties through
independent real estate brokers, attorneys and other vendors to
facilitate the transaction.
|
22
Corporate overhead costs, including stock compensation expense,
and other operations that are not included in our operating
segments are included in Corporate and Other.
Prior to July 2, 2008, the Company was a wholly-owned
subsidiary of FIS. In October 2007, the board of directors of
FIS approved a plan of restructuring pursuant to which FIS would
spin off its lender processing services segment to its
shareholders in a tax free distribution. Pursuant to this plan
of restructuring, on June 16, 2008, FIS contributed to us
all of its interest in the assets, liabilities, businesses and
employees related to FISs lender processing services
operations in exchange for shares of our common stock and
$1,585.0 million aggregate principal amount of our debt
obligations. On July 2, 2008, FIS distributed to its
shareholders a dividend of one-half share of our common stock,
par value $0.0001 per share, for each issued and outstanding
share of FIS common stock held on June 24, 2008, which we
refer to as the spin-off. Also on July 2, 2008,
FIS exchanged 100% of our debt obligations for a like amount of
FISs existing Tranche B Term Loans issued under its
Credit Agreement dated as of January 18, 2007. The spin-off
was tax-free to FIS and its shareholders, and the
debt-for-debt
exchange undertaken in connection with the spin-off was tax-free
to FIS.
Business
Trends and Conditions
Revenues in our loan facilitation businesses and certain of our
data businesses are closely related to the level of residential
real estate activity in the U.S., which includes sales, mortgage
financing and mortgage refinancing. The level of real estate
activity is primarily affected by real estate prices, the
availability of funds for mortgage loans, mortgage interest
rates and the overall state of the U.S. economy. The
federal government has taken several steps over the last few
years to attempt to address the downturn in the housing market,
including steps to reduce interest rates and legislation such as
the Homeowner Affordability and Stability Plan (the
HASP) under which homeowners who would otherwise be
unable to get a refinancing loan because of a loss in home value
have been able to refinance.
The Mortgage Brokers Association (MBA) estimates
that the level of U.S. mortgage originations, by dollar
volume, was $1.5 trillion and $2.0 trillion in 2010 and 2009,
respectively, with refinancing transactions comprising
approximately 69% and 65%, respectively, of the total markets.
The MBAs Mortgage Finance Forecast currently estimates
that the mortgage origination market for 2011 will be
approximately $1.0 trillion, with the decrease in activity being
driven by substantially decreased refinancing activity. The
decrease in the MBAs projections for 2011 is due to, among
other things, current real estate prices, rising interest rates
and tightened loan requirements, such as higher credit score and
down payment requirements and additional fees. The revenues for
our loan facilitation businesses are linked to the volume of
origination transactions, and refinancing transactions in
particular, and a decrease in the level of origination activity
could adversely affect the results of operations of those
businesses.
Our various businesses are impacted differently by the level of
mortgage originations and refinancing transactions. For
instance, while our loan facilitation and some of our data
businesses are directly affected by the volume of real estate
transactions and mortgage originations, our mortgage processing
business is generally less affected because it earns revenues
based on the total number of mortgage loans it processes, which
tends to stay more constant. However, in the event that the
difficult economy or other factors lead to a decline in levels
of home ownership and a reduction in the number of mortgage
loans outstanding, our mortgage processing revenues could be
adversely affected.
In contrast, we believe that a weaker economy tends to increase
the volume of consumer mortgage defaults, which can favorably
affect our default management operations in which we service
residential mortgage loans in default. These factors can also
increase revenues from our Desktop solution, as the Desktop
application, at present, is primarily used in connection with
default management. However, in addition to providing
refinancing opportunities for borrowers who are current on their
mortgage payments but have been unable to refinance because
their homes have decreased in value, the HASP also provides for
the Home Affordable Modification Program (HAMP), a
loan modification program targeted at borrowers who are at risk
of foreclosure because their incomes are not sufficient to make
their mortgage payments.
Through 2010, the Treasury department estimates that banks
worked through most of the approximately 2.9 million loans
currently eligible for the program, and offered 1.7 million
trial modifications. Of those,
23
approximately 1.5 million trial modifications were actually
implemented and approximately 580,000 became permanent. Although
we believe that HAMP, which expires on December 31, 2012,
has had an adverse effect on the processing of delinquent loans
(and may continue to have a negative effect in the future as
additional mortgages become eligible under the programs
current criteria or if those criteria are broadened), the pace
of modifications slowed during 2010, from approximately 50,000
in January to approximately 30,000 in December, indicating a
lessened impact going forward.
Notwithstanding the effects of existing government programs, we
believe that the inventory of delinquent mortgage loans and
loans in foreclosure continues to grow. We believe this growth
is due in part to continued high delinquency rates and lenders
focusing their resources on trying to make modifications under
the HAMP program in recent quarters. Despite the high
delinquency rates, foreclosure starts declined in the first half
of 2010 compared to the same period in 2009, in part due to
lender efforts to ensure compliance with new government
directives intended to increase the success of the HAMP program.
Although foreclosure starts increased in the third quarter of
2010, beginning in the fourth quarter of 2010 a number of
lenders once again slowed or in some cases temporarily halted
foreclosures in order to confirm the compliance of their
foreclosure procedures with applicable laws. As a result, the
size of the overall default market in 2010 was slightly smaller
than in 2009. We continue to believe the size of the default
services market should increase in future years due to the
continuing growth in the inventory of delinquent loans and loans
in foreclosure, which should have a positive effect on our
default revenues and the revenues from our Desktop solution.
However, it is difficult to predict when or the speed at which
these loans will make their way through the foreclosure process.
It is also difficult to predict whether any additional
legislative or regulatory changes will be implemented as a
result of the recent issues reported by banks and servicers in
connection with foreclosure actions, or whether the government
will take any other actions to address the current housing
market and economic downturn. These types of government actions
could cause a continuation of or further slow the current level
of foreclosure volumes and adversely affect our future results.
The ongoing economic downturn and troubled housing market have
resulted in increased scrutiny of all parties involved in the
mortgage industry by governmental authorities, judges and the
news media, among others, with the most recent focus being on
those involved in the foreclosure process following the recent
foreclosure-related issues reported by banks and servicers. This
scrutiny has included federal and state governmental review of
all aspects of the mortgage lending business, including an
increased legislative and regulatory focus on consumer
protection practices. An example of such legislation is the
Dodd-Frank Wall Street Reform and Consumer Protection Act (the
Wall Street Reform Act), which was signed into law
in July 2010 and contains broad changes for many sectors of the
financial services and lending industries. Among other things,
the Wall Street Reform Act includes new requirements for
appraisals and appraisal management companies. In addition, some
states have enacted legislation requiring the registration of
appraisal management companies, and numerous states have similar
proposals pending. While we believe that we will be able to
comply with the new federal and any new state requirements
relating to appraisals going forward, it is too early to predict
with certainty what impact those requirements may have on our
business or the results of our operations. It is also difficult
to predict the final form that regulations or other
rule-makings
to implement other requirements of the Wall Street Reform Act
may take, what additional legislative or regulatory changes may
be approved in the future, or whether those changes may require
us to change our business practices, incur increased costs of
compliance or adversely affect our results of operations.
Factors
Affecting Comparability
The consolidated financial statements included in this report
that present our financial condition and operating results
reflect the following significant transactions:
|
|
|
|
|
On July 2, 2008, FIS exchanged 100% of our debt
obligations, which consisted of $1,210.0 million under bank
credit facilities and senior notes in an aggregate principal
amount of $375.0 million, for a like amount of FISs
existing term loans issued under its credit agreement dated as
of January 18, 2007. Prior to July 2, 2008 we had an
insignificant amount of interest expense.
|
As a result of the above transaction, the results of operations
in the periods covered by the consolidated financial statements
may not be directly comparable. See also Item 1A.
Risk Factors Our historical financial
information may not be indicative of our future results as a
stand-alone company.
24
Critical
Accounting Policies
The accounting policies described below are those we consider
critical in preparing our consolidated financial statements.
These policies require management to make estimates, judgments
and assumptions that affect the reported amounts of assets and
liabilities and disclosures with respect to contingent
liabilities and assets at the date of the consolidated financial
statements and the reported amounts of revenues and expenses
during the reporting periods. Actual amounts could differ from
those estimates. See note 2 of the notes to our
consolidated financial statements for a more detailed
description of the significant accounting policies that have
been followed in preparing our consolidated financial statements.
Revenue
Recognition
We recognize revenues in accordance with Financial Accounting
Standards Board (FASB) Accounting Standards
Codification (ASC) Topic 605, Revenue Recognition
(ASC 605). Recording revenues requires judgment,
including determining whether an arrangement includes multiple
elements, whether any of the elements are essential to the
functionality of any other elements, and whether evidence of
fair value exists for those elements. Customers receive certain
contract elements over time and changes to the elements in an
arrangement, or in our ability to identify fair value for these
elements, could materially impact the amount of earned and
unearned revenue reflected in our financial statements.
The primary judgments relating to our revenue recognition are
determining when all of the following criteria are met:
(1) persuasive evidence of an arrangement exists;
(2) delivery has occurred or services have been rendered;
(3) the sellers price to the buyer is fixed or
determinable; and (4) collectability is reasonably assured.
Judgment is also required to determine whether an arrangement
involving more than one deliverable contains more than one unit
of accounting and how the arrangement consideration should be
measured and allocated to the separate units of accounting.
If the deliverables under a contract are software related, we
determine the appropriate units of accounting and how the
arrangement consideration should be measured and allocated to
the separate units. This determination, as well as
managements ability to establish vendor specific objective
evidence (VSOE) for the individual deliverables, can
impact both the amount and timing of revenue recognition under
these agreements. The inability to establish VSOE for each
contract deliverable results in having to record deferred
revenues
and/or
applying the residual method. For arrangements where we
determine VSOE for software maintenance using a stated renewal
rate within the contract, we use judgment to determine whether
the renewal rate represents fair value for that element as if it
had been sold on a stand-alone basis. For a small percentage of
revenues, we use contract accounting when the arrangement with
the customer includes significant customization, modification,
or production of software. For elements accounted for under
contract accounting, revenue is recognized using the
percentage-of-completion
method since reasonably dependable estimates of revenues and
contract hours applicable to various elements of a contract can
be made.
Occasionally, we are party to multiple concurrent contracts with
the same customer. These situations require judgment to
determine whether the individual contracts should be aggregated
or evaluated separately for purposes of revenue recognition. In
making this determination we consider the timing of negotiating
and executing the contracts, whether the different elements of
the contracts are interdependent and whether any of the payment
terms of the contracts are interrelated.
Due to the large number, broad nature and average size of
individual contracts we are a party to, the impact of judgments
and assumptions that we apply in recognizing revenue for any
single contract is not likely to have a material effect on our
consolidated operations. However, the broader accounting policy
assumptions that we apply across similar arrangements or classes
of customers could significantly influence the timing and amount
of revenue recognized in our results of operations.
25
Goodwill
and Other Intangible Assets
We have significant intangible assets that were acquired through
business acquisitions. These assets consist of purchased
customer relationships, contracts, and the excess of purchase
price over the fair value of identifiable net assets acquired
(goodwill).
As of December 31, 2010 and 2009, goodwill was
$1,159.5 million and $1,166.1 million, respectively.
Goodwill is not amortized, but is tested for impairment annually
or more frequently if circumstances indicate potential
impairment. The process of determining whether or not an asset,
such as goodwill, is impaired or recoverable relies on
projections of future cash flows, operating results and market
conditions. Such projections are inherently uncertain and,
accordingly, actual future cash flows may differ materially from
projected cash flows. In evaluating the recoverability of
goodwill, we perform an annual goodwill impairment test on our
reporting units based on an analysis of the discounted future
net cash flows generated by the reporting units underlying
assets. Such analyses are particularly sensitive to changes in
estimates of future net cash flows and discount rates. Changes
to these estimates might result in material changes in the fair
value of the reporting units and determination of the
recoverability of goodwill which may result in charges against
earnings and a reduction in the carrying value of our goodwill.
As of December 31, 2010 and 2009, intangible assets, net of
accumulated amortization, were $58.3 million and
$72.8 million, respectively, which consist primarily of
purchased customer relationships and trademarks. Long-lived
assets and intangible assets with definite useful lives are
reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. The valuation of these assets involves
significant estimates and assumptions concerning matters such as
customer retention, future cash flows and discount rates. If any
of these assumptions change, it could affect the recoverability
of the carrying value of these assets. Purchased customer
relationships are amortized over their estimated useful lives
using an accelerated method which takes into consideration
expected customer attrition rates over a period of up to ten
years. All intangible assets that have been determined to have
indefinite lives are not amortized, but are reviewed for
impairment at least annually in accordance with ASC 350.
The determination of estimated useful lives and the allocation
of the purchase price to the fair values of the intangible
assets other than goodwill require significant judgment and may
affect the amount of future amortization of such intangible
assets. Amortization expense for intangible assets other than
goodwill was $24.8 million, $30.7 million and
$40.0 million in 2010, 2009 and 2008, respectively.
Definite-lived intangible assets are amortized over their
estimated useful lives ranging from 5 to 10 years using
accelerated methods. There is an inherent uncertainty in
determining the expected useful life of or cash flows to be
generated from intangible assets. We have not historically
experienced material changes in these estimates but could be
subject to them in the future.
Computer
Software
Computer software includes the fair value of software acquired
in business combinations, purchased software and capitalized
software development costs. As of December 31, 2010 and
2009, computer software, net of accumulated amortization was
$217.6 million and $185.4 million, respectively.
Purchased software is recorded at cost and amortized using the
straight-line method over its estimated useful life. Software
acquired in business combinations is recorded at its fair value
and amortized using straight-line or accelerated methods over
its estimated useful life, ranging from five to ten years.
Internally developed software costs are amortized using the
greater of the straight-line method over the estimated useful
life or based on the ratio of current revenues to total
anticipated revenue over the estimated useful lives. Useful
lives of computer software range from 3 to 10 years.
Capitalized software development costs are accounted for in
accordance with either ASC Topic 985, Software, Subtopic
20, Costs of Software to Be Sold, Leased, or Marketed
(ASC
985-20),
or ASC 350, Subtopic 40, Internal-Use Software
(ASC
350-40).
For computer software products to be sold, leased, or otherwise
marketed (ASC
985-20
software), all costs incurred to establish the technological
feasibility are research and development costs, and are expensed
as they are incurred. Costs incurred subsequent to establishing
technological feasibility, such as programmers salaries and
related payroll costs and costs of independent contractors, are
development costs, and are capitalized and amortized on a
product by product basis commencing on the date of general
release to customers. We do not capitalize any costs once the
product is available for general release to customers. For
internal-use computer software products (ASC
350-40
software), internal and external costs incurred during the
26
preliminary project stage are expensed as they are incurred.
Internal and external costs incurred during the application
development stage are capitalized and amortized on a product by
product basis commencing on the date the software is ready for
its intended use. We do not capitalize any costs once the
software is ready for its intended use.
Amortization expense for computer software was
$36.5 million, $35.3 million and $30.6 million in
2010, 2009 and 2008, respectively. We also assess the recorded
value of computer software for impairment on a regular basis by
comparing the carrying value to the estimated future cash flows
to be generated by the underlying software asset. There is an
inherent uncertainty in determining the expected useful life of
or cash flows to be generated from computer software. We have
not historically experienced material changes in these estimates
but could be subject to them in the future.
Accounting
for Income Taxes
As part of the process of preparing the consolidated financial
statements, we are required to determine income taxes in each of
the jurisdictions in which we operate. This process involves
estimating actual current tax expense together with assessing
temporary differences resulting from differing recognition of
items for income tax and accounting purposes. These differences
result in deferred income tax assets and liabilities, which are
included within our consolidated balance sheets. We must then
assess the likelihood that deferred income tax assets will be
recovered from future taxable income and, to the extent we
believe that recovery is not likely, establish a valuation
allowance. To the extent we establish a valuation allowance or
increase this allowance in a period, we must reflect this
increase as an expense within income tax expense in the
statement of earnings. Determination of the income tax expense
requires estimates and can involve complex issues that may
require an extended period to resolve. Further, changes in the
geographic mix of revenues or in the estimated level of annual
pre-tax income can cause the overall effective income tax rate
to vary from period to period.
Recent
Accounting Pronouncements
Discussion of recent accounting pronouncements is included in
note 2 of the notes to our consolidated financial
statements.
Related
Party Transactions
William P. Foley, II, who served as Executive Chairman of
the Board of LPS from the spin-off until March 15, 2009, is
an executive and a director of FNF, and therefore FNF was
considered a related party of the Company during that time.
Mr. Foley, along with Daniel D. Lane and Cary H. Thompson,
who also serve as directors of FNF, retired from our Board of
Directors on March 15, 2009 and therefore FNF is not a
related party for periods subsequent to that date. In addition,
Lee A. Kennedy, who has served as our director since the
spin-off and as our Executive Chairman since September 15,
2009, served as an executive and a director of FIS until
March 1, 2010. Therefore, FIS was a related party of the
Company for periods prior to that date.
We have various agreements with FNF under which we provide title
agency services, software development and other data services.
Additionally, from the spin-off until July 2010, we were
allocated corporate costs from FIS and received certain
corporate services from FIS. We were also parties to certain
other agreements under which we incurred other expenses to, or
received revenues from, FIS and FNF during the periods in which
they were related parties.
Mr. Kennedy was appointed Chairman of Ceridian Corporation
(Ceridian) on January 25, 2010, where he also
served as Chief Executive Officer from that date until August
2010. Therefore, Ceridian is a related party of the Company for
periods subsequent to January 25, 2010. During 2010, we
were party to certain limited agreements with Ceridian from
which we incurred expenses.
27
A detail of related party items included in revenues for the
years ended December 31, 2010, 2009 and 2008 is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 (1)
|
|
|
2009 (2)
|
|
|
2008
|
|
|
Title agency services
|
|
$
|
|
|
|
$
|
74.8
|
|
|
$
|
187.9
|
|
Software development services
|
|
|
|
|
|
|
13.4
|
|
|
|
55.7
|
|
Other data related services
|
|
|
|
|
|
|
3.4
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
91.6
|
|
|
$
|
255.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes revenues generated from FIS under these agreements
through February 28, 2010. The revenues generated from FIS
were less than $10,000 during the period from January 1,
2010 to February 28, 2010. FIS ceased to be a related party
of the Company on February 28, 2010. |
|
(2) |
|
Includes revenues received from FNF under these agreements
through March 31, 2009. FNF ceased to be a related party of
the Company on March 15, 2009; however, it was
impracticable to estimate revenues received from FNF as of that
date. We continue to generate revenues from contracts that were
entered into while FNF was a related party. |
A detail of related party items included in expenses for the
years ended December 31, 2010, 2009 and 2008 is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 (1,2)
|
|
|
2009 (3)
|
|
|
2008
|
|
|
Title plant information expense (4)
|
|
$
|
|
|
|
$
|
4.1
|
|
|
$
|
7.4
|
|
Corporate services expense (5)
|
|
|
0.1
|
|
|
|
7.3
|
|
|
|
34.8
|
|
Licensing, leasing and cost sharing agreements (5)
|
|
|
|
|
|
|
(3.1)
|
|
|
|
(0.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
0.1
|
|
|
$
|
8.3
|
|
|
$
|
41.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The expenses paid to Ceridian were greater than $100,000 during
the period. |
|
(2) |
|
Includes expense reimbursements paid to or received from FIS
under these agreements through February 28, 2010. These
expenses were less than $50,000 during the period. FIS ceased to
be a related party of the Company on February 28, 2010. |
|
(3) |
|
Includes expense reimbursements paid to FNF under these
agreements through March 31, 2009. FNF ceased to be a
related party of the company on March 15, 2009; however, it
was impracticable to estimate expense reimbursements paid to FNF
as of that date. We continue to incur expenses under contracts
that were entered into while FNF was a related party. |
|
(4) |
|
Included in cost of revenues. |
|
(5) |
|
Included in selling, general, and administrative expenses. |
Descriptions of these related party agreements and other related
party relationships are included in note 3 of the notes to
our consolidated financial statements.
28
Results
of Operations for the Years Ended December 31, 2010, 2009
and 2008
Consolidated
Results of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of
Revenue(1)
(2)
|
|
Year Ended December 31,
|
|
2010
|
|
|
2009 (2)
|
|
|
2008 (2)
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions, except per share amounts)
|
|
|
Processing and services revenues
|
|
$
|
2,456.3
|
|
|
$
|
2,370.5
|
|
|
$
|
1,837.6
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Cost of revenues
|
|
|
1,642.1
|
|
|
|
1,571.0
|
|
|
|
1,176.5
|
|
|
|
66.9
|
%
|
|
|
66.3
|
%
|
|
|
64.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
814.2
|
|
|
|
799.5
|
|
|
|
661.1
|
|
|
|
33.1
|
%
|
|
|
33.7
|
%
|
|
|
36.0
|
%
|
Gross margin
|
|
|
33.1
|
%
|
|
|
33.7
|
%
|
|
|
36.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
257.3
|
|
|
|
267.3
|
|
|
|
229.9
|
|
|
|
10.5
|
%
|
|
|
11.3
|
%
|
|
|
12.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
556.9
|
|
|
|
532.2
|
|
|
|
431.2
|
|
|
|
22.7
|
%
|
|
|
22.5
|
%
|
|
|
23.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
22.7
|
%
|
|
|
22.5
|
%
|
|
|
23.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
(69.3
|
)
|
|
|
(83.2
|
)
|
|
|
(48.0
|
)
|
|
|
2.8
|
%
|
|
|
3.5
|
%
|
|
|
2.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes and
equity in losses of unconsolidated entity
|
|
|
487.6
|
|
|
|
449.0
|
|
|
|
383.2
|
|
|
|
19.9
|
%
|
|
|
18.9
|
%
|
|
|
20.9
|
%
|
Provision for income taxes
|
|
|
185.3
|
|
|
|
171.7
|
|
|
|
146.6
|
|
|
|
7.5
|
%
|
|
|
7.2
|
%
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before equity in losses of
unconsolidated entity
|
|
|
302.3
|
|
|
|
277.3
|
|
|
|
236.6
|
|
|
|
12.3
|
%
|
|
|
11.7
|
%
|
|
|
12.9
|
%
|
Equity in losses of unconsolidated entity, discontinued
operation and minority interest, net
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
(5.7
|
)
|
|
|
nm
|
|
|
|
nm
|
|
|
|
nm
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
$
|
302.3
|
|
|
$
|
275.7
|
|
|
$
|
230.9
|
|
|
|
12.3
|
%
|
|
|
11.6
|
%
|
|
|
12.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share attributable to Lender Processing
Services, Inc diluted
|
|
$
|
3.23
|
|
|
$
|
2.87
|
|
|
$
|
2.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Certain operating items are not material as a percentage of
revenues, indicated by nm. |
|
(2) |
|
Columns may not total due to rounding. |
Year
Ended December 31, 2010 Compared With the Year Ended
December 31, 2009
Processing
and Services Revenues
Processing and services revenues increased $85.8 million,
or 3.6%, during 2010 when compared to 2009. The increase was
driven by growth in our Technology, Data and Analytics segment
and Loan Transaction Services segment. The increase in our
Technology, Data and Analytics segment was primarily driven by
growth in our mortgage processing operation due to an increase
in the number of loans serviced as a result of the conversion of
JPMorgan Chases portfolio during the third quarter of
2009, and from increases in project and loan activity fees,
professional services and license-based revenues, partially
offset by Bank of Americas portfolio deconversion at the
beginning of 2010. Additionally, the increase in our Technology,
Data and Analytics segment during the period resulted from
revenue growth in our Desktop operation due to the recent
conversion of two large servicers, as well as from our Empower
and RealEC operations, which facilitate the movement of
transactional data in the loan origination process. The increase
in our Loan Transaction Services segment during the current year
resulted from growth in our loan facilitation services, which
include our front-end loan origination related services, due to
market share gains in title and appraisal services driven by our
continued expansion into the retail branch, wholesale and
correspondent channels, partially offset by a decline in our
default management services primarily due to lower foreclosure
volumes resulting from continued delays in the start of
foreclosure proceedings from increased regulatory oversight,
judicial actions and voluntary delays by the servicers.
29
Cost of
Revenues
Cost of revenues increased $71.1 million, or 4.5%, during
2010 when compared to 2009. Cost of revenues as a percentage of
processing and services revenues was 66.9% during 2010 and 66.3%
during 2009. The
year-over-year
increase in cost of revenues as a percentage of processing and
services revenues was due to a number of changes including:
investments made in our Desktop platform and infrastructure
during 2010 in advance of the conversion of two large servicers;
a reduction of our Default Services revenues due to continued
delays in foreclosure proceedings resulting from increased
regulatory oversight, judicial actions and voluntary delays by
the servicers; and an adjustment recorded in the fourth quarter
of 2010 for an immaterial error pertaining to a 2008 and 2007
reserve for cost of sales in the agency sales and posting
operation of our default services business. These increases were
partially offset by a change in revenue mix in our mortgage
processing division as the loss of lower margin account-based
revenue from Bank of Americas portfolio, which deconverted
in January 2010, was replaced by higher margin project and
activity fee-based revenue, as well as from market share gains
in our loan facilitation services.
Gross
Profit
Gross profit was $814.2 million and $799.5 million
during 2010 and 2009, respectively. Gross margin decreased to
33.1% during 2010 from 33.7% in 2009 as a result of the factors
described above.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses decreased
$10.0 million, or 3.7%, during 2010 when compared to 2009.
Selling, general and administrative expenses as a percentage of
processing and services revenues decreased to 10.5% during 2010
from 11.3% during 2009 primarily due to a non-recurring charge
totaling $9.0 million recognized during 2009 related to the
retirement of three LPS directors, partially offset by a
$4.3 million charge recognized during 2010 from the
departure of our former chief financial officer, as well as from
lower incentive compensation costs during 2010.
Operating
Income
Operating income increased $24.7 million, or 4.6%, during
2010 when compared to 2009. Operating margin increased to 22.7%
during 2010 from 22.5% during 2009 as a result of the factors
described above.
Other
Income (Expense)
Other income and expense, which consists of interest income,
interest expense and other items, totaled $69.3 million
during 2010 and $83.2 million during 2009. The decrease
during the current year was primarily due to a reduction in
interest expense, which totaled $70.9 million and
$84.6 million during 2010 and 2009, respectively, resulting
from lower interest rates and principal balances.
Provision
for Income Taxes
The provision for income taxes totaled $185.3 million
during 2010 and $171.7 million during 2009. The effective
tax rate decreased to 38.0% during 2010 from 38.25% during 2009
primarily due to utilization of available federal tax credits.
Equity in
Losses of Unconsolidated Entity, Discontinued Operation and
Noncontrolling Minority Interest, Net
Equity in losses of unconsolidated entity, discontinued
operation and noncontrolling minority interest, net totaled
$1.6 million during 2009.
Net
Earnings and Net Earnings Per Share Attributable to
LPS Diluted
Net earnings and net earnings per diluted share totaled
$302.3 million and $3.23, respectively, during 2010 and
$275.7 million and $2.87, respectively, during 2009. The
increase during 2010 was a result of the factors described
30
above, as well as from a reduction in the weighted average
shares outstanding during 2010 due to higher share repurchases.
Year
Ended December 31, 2009 Compared With the Year Ended
December 31, 2008
Processing
and Services Revenues
Processing and services revenues increased $532.9 million,
or 29.0%, during 2009 when compared to 2008. The increase was
primarily driven by growth in our Loan Transaction Services
segment resulting from increased demand for our services that
support the default life cycle as well as from growth in certain
of our loan facilitation services due to increased refinance
activities resulting from the lower interest rate environment.
Additionally, the increase was driven by growth in our
Technology, Data and Analytics segment, primarily from growth in
our mortgage processing operation due to higher loan transaction
fees from our customers loss mitigation efforts and growth
in our loan modification programs, as well as higher project and
professional services revenues. Additionally, continued strong
demand for our Desktop application and applied analytics
services, as well as incremental revenues from our acquisition
of the remaining 61% equity interest in FNRES totaling
$37.2 million, also contributed to revenue growth during
fiscal year 2009.
Cost of
Revenues
Cost of revenues increased $394.5 million, or 33.5% during
2009 when compared to 2008. Cost of revenues as a percentage of
processing and services revenues were 66.3% during 2009 and
64.0% during 2008. The increases were primarily due to a change
in revenue mix resulting from growth in several of our default
management services operations, including field services and
asset management solutions, which have a higher cost of revenue
associated with their operations. These increases were partially
offset by growth in our higher margin loan facilitation
services, loan origination software sales, and data and
analytics services. Additionally, the increase was due to the
acquisition of FNRES in February 2009, which was neutral to our
operating income.
Gross
Profit
Gross profit was $799.5 million and $661.1 million
during 2009 and 2008, respectively. Gross margin decreased to
33.7% during 2009 from 36.0% during 2008 as a result of the
factors described above.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$37.4 million, or 16.3%, during 2009 when compared to 2008.
Selling, general and administrative expenses as a percentage of
processing and services revenues decreased to 11.3% during 2009
from 12.5% during 2008. The increases were primarily due to
incremental public company costs incurred since our spin-off
from FIS, as well as higher stock compensation and other
incentive related costs. Additionally, the increase was due to a
$6.8 million charge recognized during 2009 related to the
retirement of three LPS directors.
Operating
Income
Operating income increased $101.0 million, or 23.4% during
2009 when compared to 2008. Operating income as a percentage of
processing and services revenues (operating margin)
decreased to 22.5% in 2009 from 23.5% in 2008 as a result of the
factors described above.
Other
Income (Expense)
Other income (expense), which consists of interest income,
interest expense and other items, totaled $83.2 million
during 2009 and $48.0 million during 2008. The increase
during 2009 was primarily due to increased interest expense from
bank credit facilities entered into and senior notes issued on
July 2, 2008 in connection with our spin-off from FIS.
Interest expense was $84.6 million during 2009 and
$49.9 million in 2008.
31
Provision
for Income Taxes
The provision for income taxes totaled $171.7 million
during 2009 and $146.6 million during 2008. The effective
tax rate was 38.25% during 2009 and 2008.
Equity in
Losses of Unconsolidated Entity, Discontinued Operation and
Noncontrolling Minority Interest, Net
Equity in losses of unconsolidated entity, discontinued
operation and noncontrolling minority interest, net was
$(1.6) million during 2009 and $(5.7) million during
2008. The increase during 2009 when compared to 2008 was
primarily due to the acquisition of the remaining 61% equity
interest of FNRES in February 2009, for which we no longer
recognize equity losses.
Net
Earnings and Net Earnings Per Share Attributable to
LPS Diluted
Net earnings and net earnings per diluted share totaled
$275.7 million and $2.87, respectively, during 2009 and
$230.9 million and $2.41, respectively, during 2008. The
increase during 2009 was a result of the factors described above.
Segment
Results of Operations Technology, Data and
Analytics
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of Revenue
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
Year Ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
(In millions)
|
|
|
Processing and services revenues
|
|
$
|
762.6
|
|
|
$
|
707.5
|
|
|
$
|
565.6
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
$
|
55.1
|
|
|
|
7.8
|
%
|
|
$
|
141.9
|
|
|
|
25.1
|
%
|
Cost of revenues
|
|
|
435.1
|
|
|
|
402.4
|
|
|
|
310.0
|
|
|
|
57.1
|
%
|
|
|
56.9
|
%
|
|
|
54.8
|
%
|
|
|
(32.7
|
)
|
|
|
(8.1
|
)%
|
|
|
(92.4
|
)
|
|
|
(29.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
327.5
|
|
|
|
305.1
|
|
|
|
255.6
|
|
|
|
42.9
|
%
|
|
|
43.1
|
%
|
|
|
45.2
|
%
|
|
|
22.4
|
|
|
|
7.3
|
%
|
|
|
49.5
|
|
|
|
19.4
|
%
|
Gross margin
|
|
|
42.9
|
%
|
|
|
43.1
|
%
|
|
|
45.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
81.0
|
|
|
|
70.7
|
|
|
|
64.6
|
|
|
|
10.6
|
%
|
|
|
10.0
|
%
|
|
|
11.4
|
%
|
|
|
(10.3
|
)
|
|
|
(14.6
|
)%
|
|
|
(6.1
|
)
|
|
|
(9.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
246.5
|
|
|
$
|
234.4
|
|
|
$
|
191.0
|
|
|
|
32.3
|
%
|
|
|
33.1
|
%
|
|
|
33.8
|
%
|
|
$
|
12.1
|
|
|
|
5.2
|
%
|
|
$
|
43.4
|
|
|
|
22.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
32.3
|
%
|
|
|
33.1
|
%
|
|
|
33.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2010 Compared With the Year Ended
December 31, 2009
Processing
and Services Revenues
Processing and services revenues increased $55.1 million,
or 7.8%, during 2010 when compared to 2009. The increase was
primarily driven by growth in our mortgage processing operation
due to an increase in the number of loans serviced as a result
of the conversion of JPMorgan Chases portfolio during the
third quarter of 2009, and from increases in project and loan
activity fees, professional services and license-based revenues,
partially offset by Bank of Americas portfolio
deconversion at the beginning of 2010. Additionally, the
increase in our Technology, Data and Analytics segment during
the period resulted from revenue growth in our Desktop operation
due to the recent conversion of two large servicers, as well as
from growth in our Empower and RealEC operations, which
facilitate the movement of transactional data in the loan
origination process.
Cost of
Revenues
Cost of revenues increased $32.7 million, or 8.1%, during
2010 when compared to 2009. Cost of revenues as a percentage of
processing and services revenues increased to 57.1% during 2010
from 56.9% in 2009. The increase in cost of revenues as a
percentage of processing and services revenues was primarily due
to investments made in our Desktop platform and infrastructure
during 2010 in advance of the conversion of two large servicers,
both of which had converted as of year-end, which was partially
offset by a change in revenue mix in our mortgage
32
processing division as the loss of lower margin account-based
revenue from Bank of Americas portfolio, which deconverted
in January 2010, was replaced by higher margin project and
activity fee-based revenue.
Gross
Profit
Gross profit was $327.5 million and $305.1 million
during 2010 and 2009, respectively. Gross margin decreased
nominally to 42.9% during 2010 from 43.1% during 2009 as a
result of the factors described above.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$10.3 million, or 14.6%, during 2010 when compared to 2009.
Selling, general and administrative expenses as a percentage of
processing and services revenues increased to 10.6% during 2010
from 10.0% during 2009 primarily as a result of higher personnel
costs, as well as from a change in revenue mix driven by growth
of some of our lower margin operations.
Operating
Income
Operating income increased $12.1 million, or 5.2%, during
2010 when compared to 2009. Operating margin decreased to 32.3%
during 2010 from 33.1% during 2009 as a result of the factors
described above.
Year
Ended December 31, 2009 Compared With the Year Ended
December 31, 2008
Processing
and Services Revenues
Processing and services revenues increased $141.9 million,
or 25.1% during 2009 when compared to 2008. The increase was
driven by the acquisition of FNRES in February 2009 which
contributed $37.2 million to our 2009 revenue growth,
growth in our mortgage processing operation due to higher loan
transaction fees from our customers loss mitigation
efforts, growth in our loss mitigation programs, higher project
and professional services revenues and continued demand for our
Desktop application and applied analytics services.
Cost of
Revenues
Cost of revenues increased $92.4 million, or 29.8% during
2009 when compared to 2008. Cost of revenues as a percentage of
processing and services revenues increased to 56.9% during 2009
from 54.8% during 2008. The increase was primarily due to the
acquisition of the remaining 61% equity interest in FNRES in
February 2009, which was neutral to our operating income. The
impact of the FNRES acquisition was partially offset by growth
in our mortgage processing operation due to higher loan
transaction fees from our customers loss mitigation
efforts, growth in our loan modification programs, and higher
project and professional services revenues, all of which
contribute higher margins.
Gross
Profit
Gross profit was $305.1 million and $255.6 million
during 2009 and 2008, respectively. Gross margin decreased to
43.1% during 2009 from 45.2% in 2008 as a result of the factors
described above.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$6.1 million, or 9.4% during 2009 when compared to 2008.
Selling, general and administrative expenses as a percentage of
processing and services revenues decreased to 10.0% in 2009 from
11.4% during 2008 due to continued leverage of our existing
overhead infrastructure.
Operating
Income
Operating income increased $43.4 million, or 22.7%, during
2009 when compared to 2008. Operating margin decreased to 33.1%
during 2009 from 33.8% during 2008 as a result of the factors
described above.
33
Segment
Results of Operations Loan Transaction
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
|
|
As a % of Revenue
|
|
|
2010 vs. 2009
|
|
|
2009 vs. 2008
|
|
Year Ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
$
|
|
|
%
|
|
|
$
|
|
|
%
|
|
|
|
(In millions)
|
|
|
Processing and services revenues
|
|
$
|
1,701.5
|
|
|
$
|
1,684.6
|
|
|
$
|
1,283.5
|
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
$
|
16.9
|
|
|
|
1.0
|
%
|
|
$
|
401.1
|
|
|
|
31.3
|
%
|
Cost of revenues
|
|
|
1,212.8
|
|
|
|
1,190.2
|
|
|
|
879.0
|
|
|
|
71.3
|
%
|
|
|
70.7
|
%
|
|
|
68.5
|
%
|
|
|
(22.6
|
)
|
|
|
(1.9
|
)%
|
|
|
(311.2
|
)
|
|
|
(35.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
488.7
|
|
|
|
494.4
|
|
|
|
404.5
|
|
|
|
28.7
|
%
|
|
|
29.3
|
%
|
|
|
31.5
|
%
|
|
|
(5.7
|
)
|
|
|
(1.1
|
)%
|
|
|
89.9
|
|
|
|
22.2
|
%
|
Gross margin
|
|
|
28.7
|
%
|
|
|
29.3
|
%
|
|
|
31.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
95.6
|
|
|
|
107.8
|
|
|
|
105.3
|
|
|
|
5.6
|
%
|
|
|
6.4
|
%
|
|
|
8.2
|
%
|
|
|
12.2
|
|
|
|
11.3
|
%
|
|
|
(2.5
|
)
|
|
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
$
|
393.1
|
|
|
$
|
386.6
|
|
|
$
|
299.2
|
|
|
|
23.1
|
%
|
|
|
22.9
|
%
|
|
|
23.3
|
%
|
|
$
|
6.5
|
|
|
|
1.7
|
%
|
|
$
|
87.4
|
|
|
|
29.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin
|
|
|
23.1
|
%
|
|
|
22.9
|
%
|
|
|
23.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2010 Compared With the Year Ended
December 31, 2009
Processing
and Services Revenues
Processing and services revenues increased $16.9 million,
or 1.0%, during 2010 when compared to 2009. The increase
resulted from growth in our loan facilitation services, which
include our front-end loan origination related services, due to
market share gains in our title and appraisal services driven by
our continued expansion into the retail branch, wholesale and
correspondent channels, partially offset by a decline in our
default management services primarily due to lower foreclosure
volumes resulting from continued delays in the start of
foreclosure proceedings from increased regulatory oversight,
judicial actions and voluntary delays by the servicers.
Cost of
Revenues
Cost of revenues increased $22.6 million, or 1.9%, during
2010 when compared to 2009. Cost of revenues as a percentage of
processing and services revenues increased to 71.3% during 2010
from 70.7% during 2009 as a result of a reduction of our Default
Services revenues due to continued delays in foreclosure
proceedings resulting from increased regulatory oversight,
judicial actions and voluntary delays by our customers, and from
an adjustment recorded in the fourth quarter of 2010 for an
immaterial error pertaining to a 2008 and 2007 reserve for cost
of sales in the agency sales and posting operation of our
default services business. The impact of these items was
partially offset by higher revenue and margin growth in our loan
facilitation operations due to continued market share gains.
Gross
Profit
Gross profit decreased $5.7 million, or 1.1%, during 2010
when compared to 2009. Gross margin decreased to 28.7% in 2010
from 29.3% during 2009 as a result of the factors described
above.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses decreased
$12.2 million, or 11.3%, during 2010 when compared to 2009.
As a percentage of processing and services revenues, selling,
general and administrative expenses decreased to 5.6% during
2010 from 6.4% during 2009 as a result of an increased emphasis
on cost control, as well as from lower incentive compensation
costs.
Operating
Income
Operating income increased $6.5 million, or 1.7%, during
2010 when compared to 2009. Operating margin increased to 23.1%
during 2010 from 22.9% during 2009 as a result of the factors
described above.
34
Year
Ended December 31, 2009 Compared With the Year Ended
December 31, 2008
Processing
and Services Revenues
Processing and services revenues increased $401.1 million,
or 31.3% during 2009 when compared to 2008. The increase was
primarily driven by our default management services and strong
market growth as well as continued market share gains.
Additionally, during 2009 our loan facilitation services, which
include our front-end loan origination related services, grew
due to increased refinance activities resulting from the lower
interest rate environment, partially offset by a decrease in our
tax outsourcing services.
Cost of
Revenues
Cost of revenues increased $311.2 million, or 35.4% during
2009 when compared to 2008. Cost of revenues as a percentage of
processing and services revenues increased to 70.7% during 2009
from 68.5% during 2008 primarily due to the growth in several of
our default management operations, including field services and
asset management solutions, which have a higher cost of revenue
associated with their operations.
Gross
Profit
Gross profit increased $89.9 million, or 22.2% during 2009
when compared to 2008. Gross margin decreased to 29.3% during
2009 from 31.5% in 2008 as a result of the factors described
above.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses increased
$2.5 million, or 2.4% during 2009 when compared to 2008.
Selling, general and administrative expenses as a percentage of
processing and services revenues decreased to 6.4% during 2009
from 8.2% during 2008. The dollar increase to selling, general
and administrative expense in 2009 over 2008 was primarily due
to increased personnel costs associated with the revenue growth
in several of our default management services.
Operating
Income
Operating income increased $87.4 million, or 29.2%, during
2009 when compared to 2008. Operating margin decreased to 22.9%
during 2009 from 23.3% during 2008 as a result of the factors
described above.
Segment
Results of Operations Corporate and
Other
The Corporate and Other segment consists of corporate overhead
costs that are not included in the other segments as well as
certain smaller operations. Net expenses for this segment were
$82.6 million, $88.8 million and $59.0 million
during 2010, 2009 and 2008, respectively. The decrease in net
corporate expenses during 2010 as compared to 2009 was primarily
due to a non-recurring charge totaling $6.8 million
recognized in 2009 related to the retirement of three LPS
directors, and from lower current period incentive compensation
costs. These decreases were partially offset by increased stock
compensation expense during the current year which was
$32.1 million and $28.0 million during 2010 and 2009,
respectively, and a nonrecurring $4.3 million charge
relating to the departure of our former chief financial officer
in 2010.
The increase in net corporate expenses during 2009 when compared
to 2008 was primarily due to incremental public company costs
incurred since our spin-off from FIS, as well as higher stock
compensation and other incentive related costs and a
$6.8 million charge recognized during 2009 related to the
retirement of three LPS directors.
Liquidity
and Capital Resources
Cash
Requirements
Our cash requirements include cost of revenues, selling, general
and administrative expenses, income taxes, debt service
payments, capital expenditures, systems development
expenditures, stockholder dividends and business acquisitions.
Our principal source of funds is from cash generated by our
operations.
35
At December 31, 2010, we had cash on hand of
$52.3 million and debt of $1,249.4 million, including
the current portion. We expect that cash flows from operations
over the next twelve months will be sufficient to fund our
operating cash requirements and pay principal and interest on
our outstanding debt absent any unusual circumstances such as
adverse changes in the business environment.
We currently pay a dividend of $0.10 per common share on a
quarterly basis, and expect to continue to do so in the future.
The declaration and payment of future dividends is at the
discretion of the Board of Directors, and depends on, among
other things, our investment policy and opportunities, results
of operations, financial condition, cash requirements, future
prospects, and other factors that may be considered relevant by
our Board of Directors, including legal and contractual
restrictions. Additionally, the payment of cash dividends may be
limited by covenants in certain debt agreements. A regular
quarterly dividend of $0.10 per common share is payable
March 17, 2011 to stockholders of record as of the close of
business on March 3, 2011. We continually assess our
capital allocation strategy, including decisions relating to the
amount of our dividend, reduction of debt, repurchases of our
stock and the making of select acquisitions.
We intend to limit dilution caused by option exercises,
including anticipated exercises, by repurchasing shares on the
open market or in privately negotiated transactions. On
June 18, 2009, our Board of Directors approved a plan
authorizing repurchases of common stock
and/or
senior notes of up to $75.0 million, of which
$50.0 million was available to repurchase our senior notes.
On February 5, 2010, our Board of Directors authorized us
to repurchase shares of our common stock
and/or our
senior notes in an amount not to exceed $150.0 million. On
July 22, 2010, our Board of Directors authorized us to
repurchase shares of our common stock
and/or our
senior notes in an amount not to exceed $150.0 million.
Most recently, on October 28, 2010, our Board of Directors
approved a new authorization for us to repurchase up to
$250.0 million of our common stock
and/or our
senior notes. This new authorization is effective through
December 31, 2011. Each new authorization replaced the
previous authorization and subsumed all amounts remaining
available thereunder. Our ability to repurchase shares of common
stock or senior notes is subject to restrictions contained in
our senior secured credit agreement and in the indenture
governing our senior unsecured notes. During 2010, we
repurchased 7.4 million shares of our stock for
$246.6 million, at an average price of $33.20 per share. As
of December 31, 2010, we had $171.4 million remaining
available under our $250.0 million repurchase
authorization. Since January 1, 2011, we repurchased
1,665,300 shares of our stock for $55.1 million, at an
average price of $33.06 per share.
Operating
Activities
Cash provided by operating activities reflects net income
adjusted for certain non-cash items and changes in certain
assets and liabilities. Cash provided by operating activities
was approximately $448.7 million, $443.7 million and
$363.9 million during 2010, 2009 and 2008, respectively.
The increase in cash provided by operating activities during
2010 when compared to 2009, and during 2009 when compared to
2008, was primarily related to an increase in earnings as
adjusted for noncash items, as well as from improvements in
working capital management.
Investing
Activities
Investing cash flows consist primarily of capital expenditures,
investment activities, purchases of title plants and property
records data, and acquisitions and dispositions. Cash used in
investing activities was approximately $152.4 million,
$179.7 million and $82.2 million during 2010, 2009 and
2008, respectively. The decrease in cash used in investing
activities during 2010 when compared to 2009 was primarily due
to a reduction in the level of acquisition and disposition
(M&A) related activities during 2010, and from
a reduction in the level of title plant acquisitions during
2010, partially offset by an increase in investment related
activities as well as from an increase in capital expenditures.
The increase in cash used in investing activities during 2009
when compared to 2008 was primarily related to the disposition
of our IPEX operation in exchange for the remaining 61% of the
equity interest in FNRES, the acquisitions of Verification
Bureau and Rising Tide, the payment of acquisition related
contingent earn-outs, the acquisition of various title plants,
which totaled $17.2 million in 2009, and the increase in
the level of capital expenditures.
36
Our principal capital expenditures are for computer software
(purchased and internally developed) and additions to property
and equipment. We spent approximately $108.3 million,
$98.8 million and $62.3 million on capital
expenditures during 2010, 2009 and 2008, respectively.
We acquired True Automation, Inc. during 2010 and Rising Tide,
Verification Bureau and FNRES during 2009. We spent (net of cash
acquired) approximately $18.8 million, $31.1 million
and $19.9 million on acquisitions during 2010, 2009 and
2008, respectively.
Financing
Activities
Prior to the spin-off, financing cash flows consisted entirely
of contributions by and distributions to FIS. These primarily
included distributions of excess cash flows to FIS, partially
offset by contributions by FIS to fund payroll, operating
expenses, corporate allocations, income taxes, capital
expenditures and acquisitions. Subsequent to the spin-off,
financing cash flows consist primarily of our borrowings,
related debt issuance costs and service payments, proceeds from
the sale of shares through our employee equity incentive plans,
repurchase of treasury shares, repurchase of noncontrolling
minority interests and payment of dividends to stockholders.
Cash used in financing activities was approximately
$314.5 million, $319.4 million and $195.2 million
during 2010, 2009 and 2008, respectively. The decrease in cash
used in financing activities during 2010 when compared to 2009
was primarily due to lower debt service payments in 2010
resulting from the prepayments made during 2009, partially
offset by an increase in the level of treasury stock repurchases
during 2010. The increase in cash used in financing activities
during 2009 when compared to 2008 was primarily related to an
increase in debt service payments, including payment of a
portion of our 2010 principal installments in the amount of
$105.0 million, an increase in dividends paid in 2009 as
2008 only reflected two quarterly dividend payments following
our spin-off from FIS, and an increase in the level of treasury
share repurchases, partially offset by a decrease in the net
distributions to FIS due to the termination of cash sweep
arrangements following our spin-off from FIS. Approximately
$114.9 million of the cash used in financing activities
during 2008 was related to net distributions to FIS that
occurred prior to the spin-off.
Financing
On July 2, 2008, we entered into a Credit Agreement (the
Credit Agreement) with JPMorgan Chase Bank, N.A., as
Administrative Agent, Swing Line Lender and Letters of Credit
Issuer, and various other lenders who are parties to the Credit
Agreement. The Credit Agreement consists of: (i) a
5-year
revolving credit facility in an aggregate principal amount
outstanding at any time not to exceed $140.0 million (with
a $25.0 million
sub-facility
for Letters of Credit) under which no borrowings were
outstanding at December 31, 2010; (ii) a Term A Loan
in an initial aggregate principal amount of $700.0 million
under which $385.0 million was outstanding at
December 31, 2010; and (iii) a Term B Loan in an
initial aggregate principal amount of $510.0 million under
which $497.3 million was outstanding at December 31,
2010. Proceeds from disbursements under the
5-year
revolving credit facility are to be used for general corporate
purposes.
The loans under the Credit Agreement bear interest at a floating
rate, which is an applicable margin plus, at our option, either
(a) the Eurodollar (LIBOR) rate or (b) the higher of
(i) the prime rate or (ii) the federal funds rate plus
0.5% (the higher of clauses (i) and (ii), the ABR
rate). The annual margin on the Term A Loan and the
revolving credit facility is a percentage per annum to be
determined in accordance with a leverage ratio-based pricing
grid and on the Term B Loan is 2.5% in the case of LIBOR loans
and 1.5% in the case of ABR rate loans. At December 31,
2010, the rate on the Term A Loan was 2.26% and the rate on the
Term B Loan was 2.76%.
In addition to the scheduled principal payments, the Term Loans
are (with certain exceptions) subject to mandatory prepayment
upon issuances of debt, casualty and condemnation events, and
sales of assets, as well as from up to 50% of excess cash flow
(as defined in the Credit Agreement) in excess of an agreed
threshold commencing with the cash flow for the year ended
December 31, 2009. Voluntary prepayments of the loans are
generally permitted at any time without fee upon proper notice
and subject to a minimum dollar requirement. Commitment
reductions of the revolving credit facility are also permitted
at any time without fee upon proper notice. The revolving credit
facility has no scheduled principal payments, but it will be due
and payable in full on July 2, 2013.
37
The obligations under the Credit Agreement are jointly and
severally, unconditionally guaranteed by certain of our domestic
subsidiaries. Additionally, the Company and such subsidiary
guarantors pledged substantially all of our respective assets as
collateral security for the obligations under the Credit
Agreement and our respective guarantees.
The Credit Agreement contains customary affirmative, negative
and financial covenants including, among other things, limits on
the creation of liens, limits on the incurrence of indebtedness,
restrictions on investments and dispositions, limits on the
payment of dividends and other restricted payments, a minimum
interest coverage ratio and a maximum leverage ratio. Upon an
event of default, the administrative agent can accelerate the
maturity of the loan. Events of default include events customary
for such an agreement, including failure to pay principal and
interest in a timely manner and breach of covenants. These
events of default include a cross-default provision that permits
the lenders to declare the Credit Agreement in default if
(i) we fail to make any payment after the applicable grace
period under any indebtedness with a principal amount in excess
of a specified amount or (ii) we fail to perform any other
term under any such indebtedness, as a result of which the
holders thereof may cause it to become due and payable prior to
its maturity.
On July 2, 2008, we issued senior notes (the
Notes) in an initial aggregate principal amount of
$375.0 million under which $367.0 million was
outstanding at December 31, 2010. The Notes were issued
pursuant to an Indenture dated July 2, 2008 (the
Indenture) among the Company, the guarantors party
thereto and U.S. Bank Corporate Trust Services, as
Trustee.
The Notes bear interest at a rate of 8.125% per annum. Interest
payments are due semi-annually each January 1 and July 1.
The maturity date of the Notes is July 1, 2016. From time
to time we may be in the market to repurchase portions of the
Notes, subject to limitations set forth in the Credit Agreement.
The indenture contains covenants that, among other things, limit
LPS ability and the ability of certain of LPS
subsidiaries (a) to incur or guarantee additional
indebtedness or issue preferred stock, (b) to make certain
restricted payments, including dividends or distributions on
equity interests held by persons other than LPS or certain
subsidiaries, in excess of an amount generally equal to 50% of
consolidated net income generated since July 1, 2008,
(c) to create or incur certain liens, (d) to engage in
sale and leaseback transactions, (e) to create restrictions
that would prevent or limit the ability of certain subsidiaries
to (i) pay dividends or other distributions to LPS or
certain other subsidiaries, (ii) repay any debt or make any
loans or advances to LPS or certain other subsidiaries or
(iii) transfer any property or assets to LPS or certain
other subsidiaries, (f) to sell or dispose of assets of LPS
or any restricted subsidiary or enter into merger or
consolidation transactions and (g) to engage in certain
transactions with affiliates. These covenants are subject to a
number of exceptions, limitations and qualifications in the
Indenture.
The Notes are our general unsecured obligations. Accordingly,
they rank equally in right of payment with all of our existing
and future unsecured senior debt; senior in right of payment to
all of our future subordinated debt; effectively subordinated to
our existing and future secured debt to the extent of the assets
securing such debt, including all borrowings under our credit
facilities; and effectively subordinated to all of the
liabilities of our non-guarantor subsidiaries, including trade
payables and preferred stock.
The Notes are guaranteed by each existing and future domestic
subsidiary that is a guarantor under our credit facilities. The
guarantees are general unsecured obligations of the guarantors.
Accordingly, they rank equally in right of payment with all
existing and future unsecured senior debt of our guarantors;
senior in right of payment with all existing and future
subordinated debt of such guarantors; and effectively
subordinated to such guarantors existing and future
secured debt to the extent of the assets securing such debt,
including the guarantees by the guarantors of obligations under
our credit facilities.
LPS has no independent assets or operations and our
subsidiaries guarantees are full and unconditional and
joint and several. There are no significant restrictions under
the indenture on the ability of LPS or any of the subsidiary
guarantors to obtain funds from any of our subsidiaries by
dividend or loan.
We may redeem some or all of the Notes on or after July 1,
2011, at the redemption prices described in the Indenture, plus
accrued and unpaid interest. Upon the occurrence of a change of
control, unless we have exercised our right to redeem all of the
Notes as described above, each holder may require us to
repurchase such holders
38
Notes, in whole or in part, at a purchase price equal to 101% of
the principal amount thereof plus accrued and unpaid interest to
the purchase date. During 2009, we repurchased $8.0 million
face value of the Notes for $8.2 million.
The Indenture contains customary events of default, including
failure of the Company (i) to pay principal and interest
when due and payable and breach of certain other covenants and
(ii) to make an offer to purchase and pay for Notes
tendered as required by the Indenture. Events of default also
include cross defaults, with respect to any other debt of the
Company or debt of certain subsidiaries having an outstanding
principal amount of $80.0 million or more in the aggregate
for all such debt, arising from (i) failure to make
principal payment when due and such defaulted payment is not
made, waived or extended within the applicable grace period or
(ii) the occurrence of an event which results in such debt
being due and payable prior to its scheduled maturity. Upon the
occurrence of an event of default (other than a bankruptcy
default with respect to the Company or certain subsidiaries),
the trustee or holders of at least 25% of the Notes then
outstanding may accelerate the Notes by giving us appropriate
notice. If, however, a bankruptcy default occurs with respect to
the Company or certain subsidiaries, then the principal of and
accrued interest on the Notes then outstanding will accelerate
immediately without any declaration or other act on the part of
the trustee or any holder.
Interest
Rate Swaps
We have entered into interest rate swap transactions in order to
convert a portion of our interest rate exposure on our floating
rate debt from variable to fixed. We have designated these
interest rate swaps as cash flow hedges. It is our policy to
execute such instruments with credit-worthy banks and not to
enter into derivative financial instruments for speculative
purposes. See note 11 to the notes to consolidated
financial statements for a detailed description of our interest
rate swaps.
Contractual
Obligations
Our long-term contractual obligations generally include our
debt, data processing and maintenance commitments and operating
lease payments on certain of our property and equipment and
deferred compensation obligations. As of December 31, 2010,
our required annual payments relating to these contractual
obligations were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
Thereafter
|
|
|
Total
|
|
|
Long-term debt
|
|
$
|
145,154
|
|
|
$
|
145,160
|
|
|
$
|
110,137
|
|
|
$
|
481,950
|
|
|
$
|
|
|
|
$
|
367,000
|
|
|
$
|
1,249,401
|
|
Interest on long-term debt (2)
|
|
|
52,794
|
|
|
|
50,280
|
|
|
|
46,214
|
|
|
|
36,623
|
|
|
|
29,819
|
|
|
|
29,819
|
|
|
|
245,549
|
|
Data processing and maintenance commitments
|
|
|
23,367
|
|
|
|
21,590
|
|
|
|
5,962
|
|
|
|
5,612
|
|
|
|
|
|
|
|
|
|
|
|
56,531
|
|
Operating lease payments
|
|
|
19,480
|
|
|
|
19,294
|
|
|
|
13,712
|
|
|
|
7,588
|
|
|
|
4,960
|
|
|
|
295
|
|
|
|
65,329
|
|
Deferred compensation (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,564
|
|
|
|
21,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
240,795
|
|
|
$
|
236,324
|
|
|
$
|
176,025
|
|
|
$
|
531,773
|
|
|
$
|
34,779
|
|
|
$
|
418,678
|
|
|
$
|
1,638,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Deferred compensation is presented as payable after 2015 because
of the uncertain timing of the payables. |
|
(2) |
|
Used 12/31/2010 rate for 1 month LIBOR of .26% for future
interest obligation on long-term debt. |
Indemnifications
and Warranties
We often indemnify our customers against damages and costs
resulting from claims of patent, copyright, or trademark
infringement associated with use of our software through
software licensing agreements. Historically, we have not made
any payments under such indemnifications, but continue to
monitor the conditions that are subject to the indemnifications
to identify whether a loss has occurred that is both probable
and estimable that would require recognition. In addition, we
warrant to customers that our software operates substantially in
accordance with the software specifications. Historically, no
costs have been incurred related to software warranties and none
are expected in the future, and as such no accruals for warranty
costs have been made.
39
Off-Balance
Sheet Arrangements
We do not have any material off-balance sheet arrangements other
than operating leases, and the escrow arrangements described
below.
Escrow
Arrangements
In conducting our title agency, closing and tax services, we
routinely hold customers assets in escrow accounts,
pending completion of real estate related transactions. Certain
of these amounts are maintained in segregated accounts, and
these amounts have not been included in the accompanying
consolidated balance sheets. As an incentive for holding
deposits at certain banks, we periodically have programs for
realizing economic benefits through favorable arrangements with
these banks. As of December 31, 2010, the aggregate value
of all amounts held in escrow in our title agency, closing and
tax services operations totaled $177.0 million.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosure About Market Risk
|
In the normal course of business, we are routinely subject to a
variety of risks, including those described in Item 1A:
Risk Factors of Part I of this report. For example, we are
exposed to the risk that decreased lending and real estate
activity, which depend in part on the level of interest rates,
may reduce demand for certain of our services and adversely
affect our results of operations. The risks related to our
business also include certain market risks that may affect our
debt and other financial instruments. In particular, we face the
market risks associated with our cash equivalents and interest
rate movements on our outstanding debt. We regularly assess
market risks and have established policies and business
practices to protect against the adverse effects of these
exposures.
Our cash equivalents are predominantly invested with high credit
quality financial institutions, and consist of short-term
investments such as money market accounts, money market funds
and time deposits.
We are a highly leveraged company, with approximately
$1,249.4 million in long-term debt outstanding as of
December 31, 2010. We have entered into interest rate swap
transactions which converted a portion of the interest rate
exposure on our floating rate debt from variable to fixed. We
performed a sensitivity analysis based on the principal amount
of our floating rate debt as of December 31, 2010, less the
principal amount of such debt that was then subject to an
interest rate swap. This sensitivity analysis takes into account
scheduled principal installments that will take place in the
next 12 months as well as the related notional amount of
interest rate swaps then outstanding. Further, in this
sensitivity analysis, the change in interest rates is assumed to
be applicable for the entire year. Of the remaining variable
rate debt not covered by the swap arrangements, we estimate that
a one percent increase in the LIBOR rate would increase our
annual interest expense by approximately $6.1 million.
40
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
INDEX TO
FINANCIAL INFORMATION
|
|
|
|
|
|
|
Page
|
|
|
Number
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
47
|
|
|
|
|
48
|
|
|
|
|
49
|
|
41
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lender Processing Services, Inc.:
We have audited Lender Processing Services, Inc.s and
subsidiaries (the Company) internal control over financial
reporting as of December 31, 2010, based on criteria
established in Internal Control Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control Over Financial
Reporting. Our responsibility is to express an opinion on the
Companys internal control over financial reporting based
on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Lender Processing Services, Inc. and
subsidiaries maintained, in all material respects, effective
internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Lender Processing Services, Inc.
and subsidiaries as of December 31, 2010 and 2009, and the
related consolidated statements of earnings, comprehensive
earnings, stockholders equity and cash flows for each of
the years in the three-year period ended December 31, 2010,
and our report dated March 1, 2011 expressed an unqualified
opinion on those consolidated financial statements.
March 1, 2011
Jacksonville, Florida
Certified Public Accountants
42
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Lender Processing Services, Inc.:
We have audited the accompanying consolidated balance sheets of
Lender Processing Services, Inc. and subsidiaries (the Company)
as of December 31, 2010 and 2009, and the related
consolidated statements of earnings, comprehensive earnings,
stockholders equity and cash flows for each of the years
in the three-year period ended December 31, 2010. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Lender Processing Services, Inc. and subsidiaries as
of December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Lender Processing Services, Inc.s and subsidiaries
internal control over financial reporting as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 1, 2011
expressed an unqualified opinion on the effectiveness of the
Companys internal control over financial reporting.
As discussed in note 1 to the consolidated financial
statements, the Company completed its spin-off from Fidelity
National Information Services, Inc. on July 2, 2008.
March 1, 2011
Jacksonville, Florida
Certified Public Accountants
43
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
52,287
|
|
|
$
|
70,528
|
|
Trade receivables, net
|
|
|
419,647
|
|
|
|
401,333
|
|
Other receivables
|
|
|
4,910
|
|
|
|
3,770
|
|
Prepaid expenses and other current assets
|
|
|
38,328
|
|
|
|
26,985
|
|
Deferred income taxes, net
|
|
|
44,102
|
|
|
|
47,528
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
559,274
|
|
|
|
550,144
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
123,897
|
|
|
|
113,108
|
|
Computer software, net
|
|
|
217,573
|
|
|
|
185,376
|
|
Other intangible assets, net
|
|
|
58,269
|
|
|
|
72,796
|
|
Goodwill
|
|
|
1,159,539
|
|
|
|
1,166,142
|
|
Other non-current assets
|
|
|
133,291
|
|
|
|
109,738
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,251,843
|
|
|
$
|
2,197,304
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
145,154
|
|
|
$
|
40,100
|
|
Trade accounts payable
|
|
|
51,610
|
|
|
|
38,166
|
|
Accrued salaries and benefits
|
|
|
55,230
|
|
|
|
54,376
|
|
Recording and transfer tax liabilities
|
|
|
10,879
|
|
|
|
15,208
|
|
Due to affiliates
|
|
|
|
|
|
|
3,321
|
|
Other accrued liabilities
|
|
|
145,203
|
|
|
|
151,601
|
|
Deferred revenues
|
|
|
57,651
|
|
|
|
66,602
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
465,727
|
|
|
|
369,374
|
|
|
|
|
|
|
|
|
|
|
Deferred revenues
|
|
|
36,893
|
|
|
|
37,681
|
|
Deferred income taxes, net
|
|
|
96,732
|
|
|
|
65,215
|
|
Long-term debt, net of current portion
|
|
|
1,104,247
|
|
|
|
1,249,250
|
|
Other non-current liabilities
|
|
|
22,030
|
|
|
|
19,926
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,725,629
|
|
|
|
1,741,446
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 12)
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Preferred stock $0.0001 par value; 50 million shares
authorized, none issued and outstanding at December 31,
2010 and 2009, respectively
|
|
|
|
|
|
|
|
|
Common stock $0.0001 par value; 500 million shares
authorized, 97.4 million and 97.0 million shares
issued and outstanding at December 31, 2010 and 2009,
respectively
|
|
|
10
|
|
|
|
10
|
|
Additional paid-in capital
|
|
|
216,896
|
|
|
|
173,424
|
|
Retained earnings
|
|
|
596,168
|
|
|
|
330,963
|
|
Accumulated other comprehensive earnings (loss)
|
|
|
(283
|
)
|
|
|
(7,630
|
)
|
Treasury stock $0.0001 par value; 8.6 million shares
and 1.2 million shares at December 31, 2010 and 2009,
respectively, at cost
|
|
|
(286,577
|
)
|
|
|
(40,909
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
526,214
|
|
|
|
455,858
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
2,251,843
|
|
|
$
|
2,197,304
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Processing and services revenues (note 3)
|
|
$
|
2,456,335
|
|
|
$
|
2,370,548
|
|
|
$
|
1,837,590
|
|
Cost of revenues (note 3)
|
|
|
1,642,075
|
|
|
|
1,571,003
|
|
|
|
1,176,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
814,260
|
|
|
|
799,545
|
|
|
|
661,111
|
|
Selling, general, and administrative expenses (note 3)
|
|
|
257,350
|
|
|
|
267,339
|
|
|
|
229,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
556,910
|
|
|
|
532,206
|
|
|
|
431,236
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,316
|
|
|
|
1,654
|
|
|
|
1,605
|
|
Interest expense
|
|
|
(70,850
|
)
|
|
|
(84,630
|
)
|
|
|
(49,927
|
)
|
Other income (expense), net
|
|
|
273
|
|
|
|
(248
|
)
|
|
|
273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(69,261
|
)
|
|
|
(83,224
|
)
|
|
|
(48,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes and
equity in losses of unconsolidated entity
|
|
|
487,649
|
|
|
|
448,982
|
|
|
|
383,187
|
|
Provision for income taxes
|
|
|
185,305
|
|
|
|
171,735
|
|
|
|
146,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before equity in losses of
unconsolidated entity
|
|
|
302,344
|
|
|
|
277,247
|
|
|
|
236,618
|
|
Equity in losses of unconsolidated entity
|
|
|
|
|
|
|
(37
|
)
|
|
|
(4,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
302,344
|
|
|
|
277,210
|
|
|
|
231,931
|
|
Discontinued operation, net of tax
|
|
|
|
|
|
|
(504
|
)
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
302,344
|
|
|
|
276,706
|
|
|
|
232,089
|
|
Net earnings attributable to noncontrolling minority interest
|
|
|
|
|
|
|
(977
|
)
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
$
|
302,344
|
|
|
$
|
275,729
|
|
|
$
|
230,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts attributable to Lender Processing Services, Inc.:
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations, net of tax
|
|
$
|
302,344
|
|
|
$
|
276,233
|
|
|
$
|
230,730
|
|
Discontinued operation, net of tax
|
|
|
|
|
|
|
(504
|
)
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
302,344
|
|
|
$
|
275,729
|
|
|
$
|
230,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share basic from continuing
operations
|
|
$
|
3.25
|
|
|
$
|
2.88
|
|
|
$
|
2.42
|
|
Net earnings per share basic from discontinued
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share basic
|
|
$
|
3.25
|
|
|
$
|
2.88
|
|
|
$
|
2.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic(1)
|
|
|
93,095
|
|
|
|
95,632
|
|
|
|
95,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted from continuing
operations
|
|
$
|
3.23
|
|
|
$
|
2.87
|
|
|
$
|
2.41
|
|
Net earnings per share diluted from discontinued
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted
|
|
$
|
3.23
|
|
|
$
|
2.87
|
|
|
$
|
2.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted(1)
|
|
|
93,559
|
|
|
|
96,152
|
|
|
|
95,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Earnings per share data for the year ended December 31,
2008 is reflected on an unaudited pro forma basis (note 2). |
See accompanying notes to consolidated financial statements.
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
$
|
302,344
|
|
|
$
|
275,729
|
|
|
$
|
230,888
|
|
Other comprehensive earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on other investments, net of tax
|
|
|
(224
|
)
|
|
|
(163
|
)
|
|
|
671
|
|
Unrealized gain (loss) on interest rate swaps, net of tax(1)
|
|
|
7,571
|
|
|
|
6,200
|
|
|
|
(14,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive earnings
|
|
|
7,347
|
|
|
|
6,037
|
|
|
|
(13,667
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive earnings attributable to Lender Processing
Services, Inc.
|
|
$
|
309,691
|
|
|
$
|
281,766
|
|
|
$
|
217,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Net of income tax expense (benefit) of $4.7 million,
$4.0 million and $(9.0) million for the years ended
December 31, 2010, 2009 and 2008. |
See accompanying notes to consolidated financial statements.
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lender Processing Services, Inc. Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Noncontrolling
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
FISs
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Earnings
|
|
|
Treasury
|
|
|
Treasury
|
|
|
Minority
|
|
|
Total
|
|
|
|
Shares
|
|
|
Stock
|
|
|
Equity
|
|
|
Capital
|
|
|
Earnings
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Stock
|
|
|
Interest
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
$
|
1,671,039
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
10,051
|
|
|
$
|
1,681,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Lender Processing Services, Inc.
(January 1, 2008 to June 20, 2008)
|
|
|
|
|
|
|
|
|
|
|
118,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
118,295
|
|
Net earnings attributable to noncontrolling minority interest
(January 1, 2008 to June 20, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
562
|
|
|
|
562
|
|
Net contribution by (distribution to) FIS
|
|
|
|
|
|
|
|
|
|
|
(121,677
|
)
|
|
|
14,634
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(107,043
|
)
|
Capitalization of Lender Processing Services, Inc.
|
|
|
1
|
|
|
|
|
|
|
|
(1,667,657
|
)
|
|
|
1,667,268
|
|
|
|
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution of common stock
|
|
|
94,610
|
|
|
|
9
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of note payable to FIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,585,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,585,000
|
)
|
Net earnings attributable to Lender Processing Services, Inc.
(June 21, 2008 to December 31, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,593
|
|
Net earnings attributable to noncontrolling minority interest
(June 21, 2008 to December 31, 2008)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
639
|
|
|
|
639
|
|
Issuance of restricted stock
|
|
|
521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,053
|
)
|
Exercise of stock options and restricted stock vesting
|
|
|
152
|
|
|
|
|
|
|
|
|
|
|
|
2,030
|
|
|
|
|
|
|
|
|
|
|
|
(20
|
)
|
|
|
(582
|
)
|
|
|
|
|
|
|
1,448
|
|
Tax benefit associated with equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
533
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,393
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,393
|
|
Unrealized gain on investments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
282
|
|
Unrealized loss on interest rate swaps, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14,338
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
|
95,284
|
|
|
|
9
|
|
|
|
|
|
|
|
111,849
|
|
|
|
93,540
|
|
|
|
(13,667
|
)
|
|
|
(20
|
)
|
|
|
(582
|
)
|
|
|
11,252
|
|
|
|
202,401
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net distribution to FIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434
|
)
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
275,729
|
|
Net earnings attributable to noncontrolling minority interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
977
|
|
|
|
977
|
|
Acquisition of outstanding noncontrolling minority interest
(note 4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,229
|
)
|
|
|
(6,850
|
)
|
Issuance of restricted stock
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(38,306
|
)
|
Exercise of stock options and restricted stock vesting
|
|
|
1,285
|
|
|
|
1
|
|
|
|
|
|
|
|
25,667
|
|
|
|
|
|
|
|
|
|
|
|
(573
|
)
|
|
|
(17,570
|
)
|
|
|
|
|
|
|
8,098
|
|
Tax benefit associated with equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,921
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,921
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,042
|
|
Treasury stock repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(617
|
)
|
|
|
(22,757
|
)
|
|
|
|
|
|
|
(22,757
|
)
|
Unrealized loss on investments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163
|
)
|
Unrealized gain on interest rate swaps, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2009
|
|
|
97,049
|
|
|
|
10
|
|
|
|
|
|
|
|
173,424
|
|
|
|
330,963
|
|
|
|
(7,630
|
)
|
|
|
(1,210
|
)
|
|
|
(40,909
|
)
|
|
|
|
|
|
|
455,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
302,344
|
|
Issuance of restricted stock
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends paid(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(37,139
|
)
|
Exercise of stock options and restricted stock vesting
|
|
|
376
|
|
|
|
|
|
|
|
|
|
|
|
11,230
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
|
881
|
|
|
|
|
|
|
|
12,111
|
|
Tax benefit associated with equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
165
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,077
|
|
Treasury stock repurchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,425
|
)
|
|
|
(246,549
|
)
|
|
|
|
|
|
|
(246,549
|
)
|
Unrealized loss on investments, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(224
|
)
|
Unrealized gain on interest rate swaps, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,571
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2010
|
|
|
97,427
|
|
|
$
|
10
|
|
|
$
|
|
|
|
$
|
216,896
|
|
|
$
|
596,168
|
|
|
$
|
(283
|
)
|
|
|
(8,581
|
)
|
|
$
|
(286,577
|
)
|
|
$
|
|
|
|
$
|
526,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Dividends were paid at $0.10 per common share per quarter. |
See accompanying notes to consolidated financial statements.
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
302,344
|
|
|
$
|
275,729
|
|
|
$
|
230,888
|
|
Adjustments to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
98,761
|
|
|
|
97,922
|
|
|
|
93,416
|
|
Amortization of debt issuance costs
|
|
|
4,716
|
|
|
|
5,404
|
|
|
|
3,002
|
|
Gain on sale of discontinued operation
|
|
|
|
|
|
|
(2,574
|
)
|
|
|
|
|
Deferred income taxes, net
|
|
|
30,417
|
|
|
|
25,463
|
|
|
|
(28
|
)
|
Stock-based compensation cost
|
|
|
32,077
|
|
|
|
28,042
|
|
|
|
21,513
|
|
Income tax benefit from exercise of stock options
|
|
|
(165
|
)
|
|
|
(2,921
|
)
|
|
|
(533
|
)
|
Equity in losses of unconsolidated entity
|
|
|
|
|
|
|
37
|
|
|
|
4,687
|
|
Minority interest
|
|
|
|
|
|
|
977
|
|
|
|
1,201
|
|
Changes in assets and liabilities, net of effects of
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
(17,802
|
)
|
|
|
(49,602
|
)
|
|
|
(57,918
|
)
|
Other receivables
|
|
|
(1,126
|
)
|
|
|
13,637
|
|
|
|
(9,423
|
)
|
Prepaid expenses and other assets
|
|
|
(22,859
|
)
|
|
|
(11,578
|
)
|
|
|
11,666
|
|
Deferred revenues
|
|
|
(11,687
|
)
|
|
|
11,316
|
|
|
|
10,501
|
|
Accounts payable, accrued liabilities and other liabilities
|
|
|
34,018
|
|
|
|
51,836
|
|
|
|
54,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
448,694
|
|
|
|
443,688
|
|
|
|
363,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property and equipment
|
|
|
(40,653
|
)
|
|
|
(40,890
|
)
|
|
|
(23,012
|
)
|
Additions to capitalized software
|
|
|
(67,603
|
)
|
|
|
(57,885
|
)
|
|
|
(39,276
|
)
|
Purchases of investment, net of proceeds from sales
|
|
|
(20,956
|
)
|
|
|
|
|
|
|
|
|
Acquisition of title plants and property records data
|
|
|
(4,401
|
)
|
|
|
(17,219
|
)
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
(18,823
|
)
|
|
|
(31,103
|
)
|
|
|
(19,938
|
)
|
Proceeds from sale of discontinued operations, net of cash
distributed
|
|
|
|
|
|
|
(32,638
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(152,436
|
)
|
|
|
(179,735
|
)
|
|
|
(82,226
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings
|
|
|
|
|
|
|
|
|
|
|
25,700
|
|
Debt service payments
|
|
|
(40,109
|
)
|
|
|
(254,497
|
)
|
|
|
(63,272
|
)
|
Capitalized debt issuance costs
|
|
|
|
|
|
|
|
|
|
|
(25,735
|
)
|
Exercise of stock options and restricted stock vesting
|
|
|
12,111
|
|
|
|
8,098
|
|
|
|
1,448
|
|
Tax benefit associated with equity compensation
|
|
|
165
|
|
|
|
2,921
|
|
|
|
533
|
|
Dividends paid
|
|
|
(37,139
|
)
|
|
|
(38,306
|
)
|
|
|
(19,053
|
)
|
Treasury stock repurchases
|
|
|
(246,549
|
)
|
|
|
(22,757
|
)
|
|
|
|
|
Bond repurchases
|
|
|
|
|
|
|
(8,000
|
)
|
|
|
|
|
Acquisition of outstanding noncontrolling minority interest
|
|
|
|
|
|
|
(6,850
|
)
|
|
|
|
|
Net distributions to FIS
|
|
|
|
|
|
|
|
|
|
|
(114,855
|
)
|
Payment of contingent consideration related to acquisitions
|
|
|
(2,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(314,499
|
)
|
|
|
(319,391
|
)
|
|
|
(195,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(18,241
|
)
|
|
|
(55,438
|
)
|
|
|
86,400
|
|
Cash and cash equivalents, beginning of year
|
|
|
70,528
|
|
|
|
125,966
|
|
|
|
39,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
52,287
|
|
|
$
|
70,528
|
|
|
$
|
125,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
69,005
|
|
|
$
|
81,698
|
|
|
$
|
32,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
151,436
|
|
|
$
|
154,595
|
|
|
$
|
62,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash contribution of stock compensation by FIS
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,120
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash redistribution of assets to FIS
|
|
$
|
|
|
|
$
|
434
|
|
|
$
|
(1,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash exchange of FIS note
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,585,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash consideration received from sale of discontinued
operation
|
|
$
|
|
|
|
$
|
40,310
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash consideration issued in acquisition of business
|
|
$
|
|
|
|
$
|
(5,162
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
48
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company Information
Except as otherwise indicated or unless the context otherwise
requires, all references to LPS, we, the
Company, or the registrant are to Lender
Processing Services, Inc., a Delaware corporation that was
incorporated in December 2007 as a wholly-owned subsidiary of
FIS, and its subsidiaries; all references to FIS,
the former parent, or the holding
company are to Fidelity National Information Services,
Inc., a Georgia corporation formerly known as Certegy Inc., and
its subsidiaries, that owned all of LPSs shares until
July 2, 2008; all references to former FIS are
to Fidelity National Information Services, Inc., a Delaware
corporation, and its subsidiaries, prior to the Certegy merger
described below; all references to old FNF are to
Fidelity National Financial, Inc., a Delaware corporation that
owned a majority of former FISs shares through
November 9, 2006; and all references to FNF are
to Fidelity National Financial, Inc. (formerly known as Fidelity
National Title Group, Inc.), formerly a subsidiary of old
FNF but now a stand-alone company.
|
|
(1)
|
Description
of Business
|
Lender
Processing Services, Inc. Spin-off Transaction
Our former parent, Fidelity National Information Services, Inc.,
is a Georgia corporation formerly known as Certegy Inc. In
February 2006, Certegy Inc. merged with and into Fidelity
National Information Services, Inc., a Delaware corporation,
which we refer to as former FIS. Certegy Inc. survived the
merger, which we refer to as the Certegy merger, to form our
former parent. Following the Certegy merger, Certegy Inc. was
renamed Fidelity National Information Services, Inc., which we
refer to as FIS. Prior to the Certegy merger, former FIS was a
majority-owned subsidiary of Fidelity National Financial, Inc.,
which we refer to as old FNF. Old FNF merged into our former
parent in November 2006 as part of a reorganization, which
included old FNFs spin-off of Fidelity National
Title Group, Inc. Fidelity National Title Group, Inc.
was renamed Fidelity National Financial, Inc. following this
reorganization, and we refer to it as FNF. FNF is now a
stand-alone company, but remained a related entity from an
accounting perspective through March 15, 2009.
In October 2007, the board of directors of FIS approved a plan
of restructuring pursuant to which FIS would spin off its lender
processing services segment to its shareholders in a tax free
distribution. Pursuant to this plan of restructuring, on
June 16, 2008, FIS contributed to us substantially all of
its interest in the assets, liabilities, businesses and
employees related to FISs lender processing services
operations in exchange for shares of our common stock and
$1,585.0 million aggregate principal amount of our debt
obligations, including our new senior notes and debt obligations
under our new credit facility described in note 11. On
June 20, 2008, FIS received a private letter ruling from
the Internal Revenue Service with respect to the tax-free nature
of the plan of restructuring and distribution, and the
Companys registration statement on Form 10 with
respect to the distribution was declared effective by the
Securities and Exchange Commission.
On July 2, 2008, FIS distributed to its shareholders a
dividend of one-half share of our common stock, par value
$0.0001 per share, for each issued and outstanding share of FIS
common stock held on June 24, 2008, which we refer to as
the spin-off. Also on July 2, 2008, FIS
exchanged 100% of our debt obligations for a like amount of
FISs existing Tranche B Term Loans issued under its
Credit Agreement dated as of January 18, 2007. The spin-off
was tax-free to FIS and its shareholders, and the
debt-for-debt
exchange undertaken in connection with the spin-off was tax-free
to FIS. On July 3, 2008, we commenced regular way trading
on the New York Stock Exchange under the trading symbol
LPS. Prior to the spin-off, we were a wholly-owned
subsidiary of FIS.
Reporting
Segments
We are a provider of integrated technology and outsourced
services to the mortgage lending industry, with mortgage
processing and default management services in the U.S. We
conduct our operations through two reporting segments,
Technology, Data and Analytics and Loan Transaction Services.
49
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Our Technology, Data and Analytics segment principally includes:
|
|
|
|
|
our mortgage processing services, which we conduct using our
mortgage servicing platform and our team of experienced support
personnel;
|
|
|
|
our Desktop application, a workflow system that assists our
customers in managing business processes, which is primarily
used in connection with mortgage loan default management;
|
|
|
|
our other software and related service offerings, including our
mortgage origination software, our real estate closing and title
insurance production software and our collaborative electronic
vendor network, which provides connectivity among mortgage
industry participants; and
|
|
|
|
our data and analytics businesses, the most significant of which
are our alternative property valuations business, which provides
a range of valuations other than traditional appraisals, our
aggregated property and loan data services, and our fraud
detection solutions.
|
Our Loan Transaction Services segment offers a range of services
used mainly in the production of a mortgage loan, which we refer
to as our loan facilitation services, and in the management of
mortgage loans that go into default, which we refer to as
default management services.
Our loan facilitation services include:
|
|
|
|
|
settlement services, which consist of title agency services, in
which we act as an agent for title insurers or as an
underwriter, and closing services, in which we assist in the
closing of real estate transactions;
|
|
|
|
appraisal services, which consist of traditional appraisals
provided through our appraisal management company; and
|
|
|
|
other origination services, which consist of flood zone
information, which assists lenders in determining whether a
property is in a federally designated flood zone, and real
estate tax services that provide lenders with information about
the tax status of a property.
|
Our default management services include, among others:
|
|
|
|
|
foreclosure management services, administrative services
provided to independent attorneys and trustees, mandatory title
searches, posting and publishing, and recording and other
services;
|
|
|
|
property inspection and preservation services, designed to
preserve the value of properties securing defaulted
loans; and
|
|
|
|
asset management services, providing disposition services for
our customers real estate owned properties through
independent real estate brokers, attorneys and other vendors to
facilitate the transaction.
|
Corporate overhead costs, including stock compensation expense,
and other operations that are not included in our operating
segments are included in Corporate and Other.
|
|
(2)
|
Significant
Accounting Policies
|
The following describes our significant accounting policies
which have been followed in preparing the accompanying
consolidated financial statements.
|
|
(a)
|
Principles
of Consolidation and Combination and Basis of
Presentation
|
The accompanying consolidated financial statements were prepared
in accordance with generally accepted accounting principles
(GAAP) and all adjustments considered necessary for
a fair presentation have been
50
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
included. All significant intercompany accounts and transactions
have been eliminated. Our investments in less than 50% owned
affiliates are accounted for using the equity method of
accounting.
Prior to June 21, 2008, the historical financial statements
of the Company were presented on a combined basis. Our
historical financial statements include assets, liabilities,
revenues and expenses directly attributable to our operations.
Our historical financial statements also reflect allocations of
certain corporate expenses from FIS. These expenses have been
allocated to us on a basis that reflects most fairly or
reasonably the utilization of the services provided to or the
benefit obtained by our businesses. These expense allocations
reflect an allocation of a portion of the compensation of
certain senior officers and other personnel of FIS who are not
our employees after the spin-off but who historically provided
services to us. Certain of the amounts allocated reflect a
portion of amounts charged to FIS under agreements entered into
with FNF.
Our historical financial statements do not reflect the debt or
interest expense we might have incurred if we had been a
stand-alone entity. In addition, since the spin-off, we now
incur other expenses not reflected in our historical financial
statements, as a result of being a separate publicly traded
company. As a result, our historical financial statements do not
necessarily reflect what our financial position or results of
operations would have been if we had operated as a stand-alone
public entity during the periods covered, and may not be
indicative of our future results of operations or financial
position.
Beginning June 21, 2008, after all the assets and
liabilities of the lender processing services segment of FIS
were formally contributed by FIS to LPS, the historical
financial statements of the Company have been presented on a
consolidated basis for financial reporting purposes.
During the fourth quarter of fiscal 2010, we identified an
immaterial error in our consolidated annual and interim
financial statements included in previously filed
Forms 10-Q
and
Forms 10-K
relating to fiscal 2008 and 2007. The error relates to a reserve
accrual for cost of sales in our agency sales and posting
operations. We believe the correction of the error to be both
quantitatively and qualitatively immaterial to our annual
results for fiscal 2010 or any of our previously issued
financial statements. As a result, we did not adjust any prior
year amounts. We reflected the correction of this error in the
fourth quarter of 2010. As of and for the year ended
December 31, 2010, the impact of the correction was an
increase in other accrued liabilities and cost of revenues of
$9.8 million, and a decrease in income taxes payable and
income tax expense of $3.7 million.
|
|
(c)
|
Net
Distribution to FIS
|
Prior to the spin-off, we participated in a centralized cash
management program with FIS. A significant amount of our cash
disbursements were made through a centralized payable system
which was operated by FIS, and a significant amount of our cash
receipts were received by us and transferred to centralized
accounts maintained by FIS. There were no formal financing
arrangements with FIS and all cash receipts and disbursement
activity was recorded through FISs equity in our
consolidated balance sheets, and as net contributions by or
distributions to FIS in our consolidated statements of
stockholders equity and cash flows because such amounts
were considered to have been contributed by or distributed to
FIS. As a result, there were no net amounts due to or from FIS
which would have required settlement at the spin-off date. Cash
and cash equivalents reflected on our historical balance sheet
represents only those amounts held at our Companys level.
The major components of the amounts contributed by or
distributed to FIS relate to our participation in a centralized
cash management program with FIS. These amounts primarily
included distributions of excess cash flows to FIS, partially
offset by contributions by FIS to fund payroll, operating
expenses, corporate allocations, income taxes, capital
expenditures and acquisitions.
51
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The major components of the net distributions to FIS for the
year ended December 31, 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
Distribution of cash collections
|
|
|
|
|
|
$
|
857,591
|
|
|
|
|
|
|
|
|
|
|
Contribution of cash disbursements:
|
|
|
|
|
|
|
|
|
Payroll
|
|
|
(270,497
|
)
|
|
|
|
|
Other cost of revenues
|
|
|
(336,079
|
)
|
|
|
|
|
Current provision for income taxes
|
|
|
(77,418
|
)
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(9,376
|
)
|
|
|
|
|
Additions to capitalized software
|
|
|
(15,761
|
)
|
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
(15,488
|
)
|
|
|
|
|
FIS corporate allocations
|
|
|
(18,117
|
)
|
|
|
|
|
Total cash disbursements
|
|
|
|
|
|
|
(742,736
|
)
|
|
|
|
|
|
|
|
|
|
Net cash distributions to FIS
|
|
|
|
|
|
|
114,855
|
|
Non cash items:
|
|
|
|
|
|
|
|
|
Contribution of stock compensation by FIS
|
|
|
(9,120
|
)
|
|
|
|
|
Redistribution of assets to FIS
|
|
|
1,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non cash items
|
|
|
|
|
|
|
(7,812
|
)
|
|
|
|
|
|
|
|
|
|
Net distribution to FIS
|
|
|
|
|
|
$
|
107,043
|
|
|
|
|
|
|
|
|
|
|
Other cost of revenues primarily includes payments to third
party contractors, occupancy costs, equipment costs, data
processing costs, travel and entertainment and professional fees.
Fair
Value of Financial Assets and Liabilities
FASB ASC Topic 820, Fair Value Measurements and
Disclosures, establishes the following fair value hierarchy:
|
|
|
|
|
Level 1 Inputs to the valuation methodology are unadjusted
quoted prices for identical assets or liabilities in active
markets that the Company has the ability to access.
|
|
|
|
Level 2 Inputs to the valuation methodology include:
|
|
|
|
|
|
quoted prices for similar assets or liabilities in active
markets;
|
|
|
|
quoted prices for identical or similar assets or liabilities in
inactive markets;
|
|
|
|
inputs other than quoted prices that are observable for the
asset or liability; and
|
|
|
|
inputs that are derived principally from or corroborated by
observable market data by correlation or other means.
|
|
|
|
|
|
Level 3 Inputs to the valuation methodology are
unobservable and significant to the fair value measurement.
|
Assets are classified in their entirety based on the lowest
level of input that is significant to the fair value
measurement. Our valuation methods are appropriate and
consistent with other market participants. The use of
52
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
different methodologies or assumptions to determine the fair
value of certain financial instruments could result in a
different fair value measurement at the reporting date.
The following table sets forth by level within the fair value
hierarchy our assets and liabilities measured at fair value on a
recurring basis. The fair values of other financial instruments,
which primarily include short-term financial assets and
liabilities, are estimated as of year-end and disclosed
elsewhere in these notes.
As of December 31, 2010 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Classification
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Investments (note 5)
|
|
Asset
|
|
$
|
32.5
|
|
|
$
|
6.8
|
|
|
$
|
25.7
|
|
|
$
|
|
|
|
$
|
32.5
|
|
Interest rate swaps (note 11)
|
|
Liability
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
|
|
|
|
|
|
0.9
|
|
As of December 31, 2009 (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Classification
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Investments (note 5)
|
|
Asset
|
|
$
|
14.2
|
|
|
$
|
5.6
|
|
|
$
|
8.6
|
|
|
$
|
|
|
|
$
|
14.2
|
|
Interest rate swaps (note 11)
|
|
Liability
|
|
|
13.2
|
|
|
|
|
|
|
|
13.2
|
|
|
|
|
|
|
|
13.2
|
|
As of December 31, 2010 and 2009, our Level 1
financial instruments include U.S government and agency bonds,
in which there are quoted prices in active markets. Our
Level 2 financial instruments consist of corporate bonds
and municipal bonds, in which there are parallel markets or
alternative means to estimate fair value using observable
information inputs. The estimates used are subjective in nature
and involve uncertainties and significant judgment in the
interpretation of current market data. Therefore, the values
presented are not necessarily indicative of amounts we could
realize or settle currently.
Fair
Value of Assets Acquired and Liabilities Assumed
The values of assets acquired and liabilities assumed in
business combinations are estimated using various assumptions.
The most significant assumptions, and those requiring the most
judgment, involve the estimated fair values of intangible assets
and software, with the remaining attributable to goodwill, if
any. The Company utilizes third-party experts to determine the
fair values of intangible assets and software purchased in
business combinations.
The preparation of these consolidated financial statements in
conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts
of revenues and expenses during the reporting periods. The
accounting estimates that require our most significant,
difficult and subjective judgments include the recoverability of
long-lived assets and the recognition of revenue related to
software contracts. Actual results that we experience could
differ from our estimates.
|
|
(f)
|
Cash
and Cash Equivalents
|
Highly liquid instruments purchased with original maturities of
three months or less are considered cash equivalents. Cash
equivalents are predominantly invested with high credit quality
financial institutions and consist of short-term investments,
such as money market accounts, money market funds and time
deposits. The carrying amounts of these instruments reported in
the consolidated balance sheets approximate their fair value
because of their immediate or short-term maturities.
53
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(g)
|
Trade
Receivables, Net
|
The carrying amounts reported in the consolidated balance sheets
for trade receivables approximate their fair value because of
their immediate or short-term maturities.
A summary of trade receivables, net of an allowance for doubtful
accounts, at December 31, 2010 and 2009 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Trade receivables billed
|
|
$
|
445,312
|
|
|
$
|
421,717
|
|
Trade receivables unbilled
|
|
|
7,874
|
|
|
|
5,580
|
|
|
|
|
|
|
|
|
|
|
Total trade receivables
|
|
|
453,186
|
|
|
|
427,297
|
|
Allowance for doubtful accounts
|
|
|
(33,539
|
)
|
|
|
(25,964
|
)
|
|
|
|
|
|
|
|
|
|
Total trade receivables, net
|
|
$
|
419,647
|
|
|
$
|
401,333
|
|
|
|
|
|
|
|
|
|
|
The allowance for doubtful accounts represents managements
estimate of those balances that are uncollectible as of the
consolidated balance sheet dates. A summary of the roll forward
of allowance for doubtful accounts for the years ended
December 31, 2010, 2009 and 2008 is as follows (in
thousands):
|
|
|
|
|
Allowance for doubtful accounts as of December 31, 2007
|
|
$
|
(20,330
|
)
|
Bad debt expense
|
|
|
(14,537
|
)
|
Transfers and acquisitions
|
|
|
(23
|
)
|
Write offs
|
|
|
7,690
|
|
|
|
|
|
|
Allowance for doubtful accounts as of December 31, 2008
|
|
|
(27,200
|
)
|
Bad debt expense
|
|
|
(15,443
|
)
|
Transfers and acquisitions
|
|
|
215
|
|
Write offs
|
|
|
16,464
|
|
|
|
|
|
|
Allowance for doubtful accounts as of December 31, 2009
|
|
|
(25,964
|
)
|
Bad debt expense
|
|
|
(24,914
|
)
|
Transfers and acquisitions
|
|
|
|
|
Write offs
|
|
|
17,339
|
|
|
|
|
|
|
Allowance for doubtful accounts as of December 31, 2010
|
|
$
|
(33,539
|
)
|
|
|
|
|
|
The carrying amounts reported in the consolidated balance sheets
for other receivables approximate their fair value.
|
|
(i)
|
Deferred
Contract Costs
|
Cost of software sales and outsourced data processing and
application management arrangements, including costs incurred
for bid and proposal activities, are generally expensed as
incurred. However, certain costs incurred upon initiation of a
contract are deferred and expensed over the contract life. These
costs represent incremental external costs or certain specific
internal costs that are directly related to the contract
acquisition or transition activities and are primarily
associated with installation of systems/processes and data
conversion.
In the event indications exist that a deferred contract cost
balance related to a particular contract may be impaired,
undiscounted estimated cash flows of the contract are projected
over its remaining term and compared to
54
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the unamortized deferred contract cost balance. If the projected
cash flows are not adequate to recover the unamortized cost
balance, the balance would be adjusted to equal the
contracts net realizable value, including any termination
fees provided for under the contract, in the period such a
determination is made.
As of December 31, 2010 and 2009, we had approximately
$30.6 million and $31.1 million, respectively,
recorded as deferred contract costs that were classified in
prepaid expenses and other current assets and other non-current
assets in our consolidated balance sheets. Amortization expense
for deferred contract costs was $7.3 million,
$5.8 million and $2.3 million for the years ended
December 31, 2010, 2009 and 2008, respectively, and is
included in cost of revenues in the accompanying consolidated
statements of earnings.
Long-lived assets and intangible assets with definite useful
lives are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Recoverability of assets to be held and used
is measured by comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated future cash flows, an impairment charge is
recognized in the amount by which the carrying amount of the
asset exceeds the fair value of the asset. There have been no
impairment charges during the periods presented.
|
|
(k)
|
Property
and Equipment
|
Property and equipment is recorded at cost, less accumulated
depreciation and amortization. Depreciation and amortization are
computed primarily using the straight-line method based on the
estimated useful lives of the related assets: thirty years for
buildings and three to seven years for furniture, fixtures and
computer equipment. Leasehold improvements are amortized using
the straight-line method over the lesser of the initial terms of
the applicable leases or the estimated useful lives of such
assets.
Computer software includes the fair value of software acquired
in business combinations, purchased software and capitalized
software development costs. Purchased software is recorded at
cost and amortized using the straight-line method over its
estimated useful life. Software acquired in business
combinations is recorded at its fair value and amortized using
straight-line or accelerated methods over its estimated useful
life, ranging from five to ten years.
Internally developed software costs are amortized using the
greater of the straight-line method over the estimated useful
life or based on the ratio of current revenues to total
anticipated revenue over the estimated useful lives. Useful
lives of computer software range from 3 to 10 years.
Capitalized software development costs are accounted for in
accordance with either ASC Topic 985, Software, Subtopic
20, Costs of Software to Be Sold, Leased, or Marketed
(ASC
985-20),
or ASC Topic 350, Intangibles Goodwill and Other
(ASC 350), Subtopic 40, Internal-Use Software
(ASC
350-40).
For computer software products to be sold, leased, or otherwise
marketed (ASC
985-20
software), all costs incurred to establish the technological
feasibility are research and development costs, and are expensed
as they are incurred. Costs incurred subsequent to establishing
technological feasibility, such as programmers salaries and
related payroll costs and costs of independent contractors, are
development costs, and are capitalized and amortized on a
product by product basis commencing on the date of general
release to customers. We do not capitalize any costs once the
product is available for general release to customers. For
internal-use computer software products (ASC
350-40
software), internal and external costs incurred during the
preliminary project stage are expensed as they are incurred.
Internal and external costs incurred during the application
development stage are capitalized and amortized on a product by
product basis commencing on the date the software is ready for
its intended use. We do not capitalize any costs once the
software is ready for its
55
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
intended use. We also assess the recorded value of computer
software for impairment on a regular basis by comparing the
carrying value to the estimated future cash flows to be
generated by the underlying software asset.
We have intangible assets which consist primarily of customer
relationships and trademarks that are recorded in connection
with acquisitions at their fair value based on the results of a
valuation analysis. Customer relationships are amortized over
their estimated useful lives using an accelerated method which
takes into consideration expected customer attrition rates over
a period of up to 10 years. Certain trademarks determined
to have indefinite lives are reviewed for impairment at least
annually.
Goodwill represents the excess of cost over the fair value of
identifiable assets acquired and liabilities assumed in business
combinations. Goodwill is not amortized, and is tested for
impairment annually, or more frequently if circumstances
indicate potential impairment. We test consolidated goodwill for
impairment using a fair value approach at the reporting unit
level. We have four reporting units that carry goodwill as of
the balance sheet date Technology, Data and
Analytics, Loan Facilitation Services, and Default Services. We
measure for impairment on an annual basis during the fourth
quarter using a September 30th measurement date. The
results of our fiscal year 2010 annual assessment of the
recoverability of goodwill indicated that the fair value of all
of the Companys reporting units were in excess of the
carrying value of those reporting units, and thus no goodwill
impairment existed as of December 31, 2010.
|
|
(o)
|
Trade
Accounts Payable
|
The carrying amounts reported in the consolidated balance sheets
for trade accounts payable approximate their fair value because
of their immediate or short-term maturities.
|
|
(p)
|
Deferred
Compensation Plan
|
LPS maintains a deferred compensation plan (the
Plan) which is available to certain LPS management
level employees and directors. The Plan permits participants to
defer receipt of part of their current compensation. Participant
benefits for the Plan are provided by a funded rabbi trust.
The compensation withheld from Plan participants, together with
investment income on the Plan, is recorded as a deferred
compensation obligation to participants and is included as a
long-term liability in the accompanying consolidated balance
sheets. The related plan assets are classified within other
non-current assets in the accompanying consolidated balance
sheets and are reported at market value. The balance of the
deferred compensation liability totaled $21.6 million and
$19.9 million as of December 31, 2010 and 2009,
respectively, and approximates the value of the corresponding
asset.
|
|
(q)
|
Derivative
Instruments
|
We account for derivative financial instruments in accordance
with ASC Topic 815, Derivatives and Hedging (ASC
815). We engage in hedging activities relating to our
variable rate debt through the use of interest rate swaps. We
have designated these interest rate swaps as cash flow hedges.
Gains and losses on cash flow hedges are included, to the extent
they are effective, in other comprehensive earnings, until the
underlying transactions are recognized as gains or losses and
included in our consolidated statement of earnings.
56
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following describes our primary types of revenues and our
revenue recognition policies as they pertain to the types of
transactions we enter into with our customers. We enter into
arrangements with customers to provide services, software and
software related services such as post-contract customer support
and implementation and training either individually or as part
of an integrated offering of multiple services. These services
occasionally include offerings from more than one segment to the
same customer. The revenues for services provided under these
multiple element arrangements are recognized in accordance with
the applicable revenue recognition accounting principles as
further described below.
In our Technology, Data and Analytics segment, we recognize
revenues relating to mortgage processing, outsourced business
processing services, data and analytics services, along with
software licensing and software related services. In some cases,
these services are offered in combination with one another and
in other cases we offer them individually. Revenues from
processing services are typically volume-based depending on
factors such as the number of accounts processed, transactions
processed and computer resources utilized.
The substantial majority of the revenues in our Technology, Data
and Analytics segment are from outsourced data processing, data
and valuation related services, and application management
arrangements. Revenue is realized or realizable and earned when
all of the following criteria are met: (1) persuasive
evidence of an arrangement exists; (2) delivery has
occurred or services have been rendered; (3) the
sellers price to the buyer is fixed or determinable; and
(4) collectability is reasonably assured. Revenues and
costs related to implementation, conversion and programming
services associated with our data processing and application
management agreements during the implementation phase are
deferred and subsequently recognized using the straight-line
method over the term of the related services agreement. We
evaluate these deferred contract costs for impairment in the
event any indications of impairment exist.
In the event that our arrangements with our customers include
more than one service, we determine whether the individual
revenue elements can be recognized separately. We determine
whether an arrangement involving more than one deliverable
contains more than one unit of accounting and how the
arrangement consideration should be measured and allocated to
the separate units of accounting.
If the services are software related services we determine the
appropriate units of accounting and how the arrangement
consideration should be measured and allocated to the separate
units.
Initial license fees are recognized when a contract exists, the
fee is fixed or determinable, software delivery has occurred and
collection of the receivable is deemed probable, provided that
vendor-specific objective evidence (VSOE) has been
established for each element or for any undelivered elements. We
determine the fair value of each element or the undelivered
elements in multi-element software arrangements based on VSOE.
VSOE for each element is based on the price charged when the
same element is sold separately, or in the case of post-contract
customer support, when a stated renewal rate is provided to the
customer. If evidence of fair value of all undelivered elements
exists but evidence does not exist for one or more delivered
elements, then revenue is recognized using the residual method.
Under the residual method, the fair value of the undelivered
elements is deferred and the remaining portion of the
arrangement fee is recognized as revenue. If evidence of fair
value does not exist for one or more undelivered elements of a
contract, then all revenue is deferred until all elements are
delivered or fair value is determined for all remaining
undelivered elements. Revenue from post-contract customer
support is recognized ratably over the term of the agreement. We
record deferred revenue for all billings invoiced prior to
revenue recognition.
In our Loan Transaction Services segment, we recognize revenues
relating to loan facilitation services and default management
services. Revenue derived from software and service arrangements
included in the Loan Transaction Services segment is recognized
as discussed above. Loan facilitation services primarily consist
of centralized title agency services for various types of
lenders. Revenues relating to loan facilitation services are
57
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
typically recognized at the time of closing of the related real
estate transaction. Ancillary service fees are recognized when
the service is provided. Default management services assist
customers through the default and foreclosure process, including
property preservation and maintenance services (such as lock
changes, window replacement, debris removal and lawn service),
posting and publication of foreclosure and auction notices,
title searches, document preparation and recording services, and
referrals for legal and property brokerage services. Property
data or data-related services principally include appraisal and
valuation services, property records information, real estate
tax services and borrower credit and flood zone information.
Revenues derived from these services are recognized as the
services are performed as described above.
In addition, our flood and tax units provide various services
including
life-of-loan-monitoring
services. Revenue for
life-of-loan
services is deferred and recognized ratably over the estimated
average life of the loan service period, which is determined
based on our historical experience and industry data. We
evaluate our historical experience on a periodic basis, and
adjust the estimated life of the loan service period
prospectively.
|
|
(s)
|
Cost
of Revenue and Selling, General and Administrative
Costs
|
Cost of revenue includes payroll, employee benefits, occupancy
costs and other costs associated with personnel employed in
customer service roles, including program design and development
and professional services. Cost of revenue also includes data
processing costs, amortization of software and customer
relationship intangible assets and depreciation of operating
assets.
Selling, general, and administrative expenses include payroll,
employee benefits, occupancy and other costs associated with
personnel employed in sales, marketing, human resources and
finance roles. Selling, general, and administrative expenses
also include depreciation of non-operating assets, advertising
costs and other marketing-related programs.
|
|
(t)
|
Stock-Based
Compensation Plans
|
We account for stock-based compensation in accordance with ASC
Topic 718, Compensation Stock Compensation
(ASC 718). Compensation cost is measured based
on the fair value of the award at the grant date and recognized
on a straight-line basis over the vesting period.
Prior to the spin-off, our operating results were included in
FISs consolidated U.S. Federal and State income tax
returns and reflect the estimated income taxes we would have
paid as a stand-alone taxable entity. We recognize deferred
income tax assets and liabilities for temporary differences
between the financial reporting basis and the tax basis of our
assets and liabilities and expected benefits of utilizing net
operating loss and credit carryforwards. Deferred income tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. A
valuation allowance is established, if necessary, for the amount
of any tax benefits that, based on available evidence, are not
expected to be realized. The impact on deferred income taxes of
changes in tax rates and laws, if any, is reflected in the
consolidated financial statements in the period enacted. Our
obligation for taxes through the date of the spin-off has been
paid by FIS on our behalf and settled through equity.
|
|
(v)
|
Net
Earnings Per Share
|
The basic weighted average shares and common stock equivalents
are generally computed in accordance with ASC Topic 260,
Earnings Per Share, using the treasury stock method.
However, due to the nature and timing of the spin-off, the
number of outstanding shares issued in the capitalization of the
Company were the only shares outstanding prior to the spin-off.
As such, management believes the resulting GAAP earnings per
share basic and
58
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
diluted measures are not meaningful for the year ended
December 31, 2008, and therefore, the calculation has been
excluded from the Consolidated Statements of Earnings and the
Notes thereto.
Unaudited pro forma weighted average shares
outstanding basic for the year ended
December 31, 2008 is calculated using the average of the
number of shares used to calculate the pro forma weighted
average shares outstanding basic for the three
months ended March 31, 2008 (97,376), June 30, 2008
(94,611), September 30, 2008 (94,667) and December 31,
2008 (94,757). Unaudited pro forma weighted average shares
outstanding diluted for the year ended
December 31, 2008 is calculated using the average of the
number of shares used to calculate the pro forma weighted
average shares outstanding diluted for the three
months ended March 31, 2008 (97,597), June 30, 2008
(95,070), September 30, 2008 (95,223) and December 31,
2008 (95,126).
The following table summarizes earnings per share for the years
ended December 31, 2010 and 2009 and unaudited pro forma
earnings per share for the year ended December 31, 2008 (in
thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Earnings from continuing operations, net of tax
|
|
$
|
302,344
|
|
|
$
|
276,233
|
|
|
$
|
230,730
|
|
Discontinued operation, net of tax
|
|
|
|
|
|
|
(504
|
)
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
302,344
|
|
|
$
|
275,729
|
|
|
$
|
230,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share basic from continuing
operations
|
|
$
|
3.25
|
|
|
$
|
2.88
|
|
|
$
|
2.42
|
|
Net earnings per share basic from discontinued
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share basic
|
|
$
|
3.25
|
|
|
$
|
2.88
|
|
|
$
|
2.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
93,095
|
|
|
|
95,632
|
|
|
|
95,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted from continuing
operations
|
|
$
|
3.23
|
|
|
$
|
2.87
|
|
|
$
|
2.41
|
|
Net earnings per share diluted from discontinued
operation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per share diluted
|
|
$
|
3.23
|
|
|
$
|
2.87
|
|
|
$
|
2.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
93,559
|
|
|
|
96,152
|
|
|
|
95,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options to purchase approximately 4.7 million shares of our
common stock for the years ended December 31, 2010 and
2009, were not included in the computation of diluted earnings
per share because they were antidilutive.
We intend to limit dilution caused by option exercises,
including anticipated exercises, by repurchasing shares on the
open market or in privately negotiated transactions. On
June 18, 2009, our Board of Directors approved a plan
authorizing repurchases of common stock
and/or
senior notes of up to $75.0 million, of which
$50.0 million was available to repurchase our senior notes.
On February 5, 2010, our Board of Directors authorized us
to repurchase shares of our common stock
and/or our
senior notes in an amount not to exceed $150.0 million. On
July 22, 2010, our Board of Directors authorized us to
repurchase shares of our common stock
and/or our
senior notes in an amount not to exceed $150.0 million.
Most recently, on October 28, 2010, our Board of Directors
approved a new authorization for us to repurchase up to
$250.0 million of our common stock
and/or our
senior notes. This new authorization is effective through
December 31, 2011. Each new authorization replaced the
previous authorization and subsumed all amounts remaining
available thereunder. Our ability to repurchase shares of common
stock or senior notes is subject to restrictions contained in
our senior secured credit agreement and in the indenture
governing our senior unsecured notes.
59
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(w)
|
Recent
Accounting Pronouncements
|
In December 2010, the Financial Accounting Standards Board
(FASB) issued guidance requiring a public entity
that has entered into a business combination to disclose certain
pro forma information about the revenues and earnings of the
combined entity within the notes to the financial statements.
This guidance requires that the pro forma information be
presented as if the business combination occurred at the
beginning of the prior annual reporting period for purposes of
calculating both the current reporting period and the prior
reporting period pro forma financial information. The guidance
also requires that this disclosure be accompanied by a narrative
description of the amount and nature of material nonrecurring
pro forma adjustments. The new guidance is effective on or after
the beginning of the first annual reporting period beginning on
or after December 15, 2010. As the new guidance will only
require enhanced disclosures, it will have no impact on the
Companys statements of financial position or operations.
In January 2010, the Financial Accounting Standards Board
(FASB) issued guidance changing disclosure
requirements for fair value measurements. The changes require a
reporting entity to disclose separately the amounts of
significant transfers in and out of Level 1 and
Level 2 fair value measurements and describe the reasons
for the transfers. The changes also clarify existing disclosure
requirements related to how assets and liabilities should be
grouped by class and valuation techniques used for recurring and
nonrecurring fair value measurements. The adoption of the
guidance did not materially affect the Companys statements
of financial position or operations.
In October 2009, the Financial Accounting Standards Board
(FASB) issued guidance eliminating the requirement
that all undelivered elements have Vendor Specific Objective
Evidence (VSOE) or Third-Party Evidence (TPE) of standalone
selling price before an entity can recognize the portion of an
overall arrangement fee that is attributable to items that have
been delivered. In the absence of VSOE or TPE of the standalone
selling price for one or more delivered or undelivered elements
in a multiple-element arrangement, entities will be required to
estimate the selling prices of those elements. The overall
arrangement fee will be allocated to each element (both
delivered and undelivered items) based on their relative selling
prices, regardless of whether those selling prices are evidenced
by VSOE or TPE or are based on the entitys estimated
selling price. Application of the residual method of
allocating an overall arrangement fee between delivered and
undelivered elements will no longer be permitted upon adoption
of this new guidance. Additional disclosure will be required
about multiple-element revenue arrangements, as well as
qualitative and quantitative disclosure about the effect of the
change. The amendment is effective prospectively for revenue
arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. Early adoption is
permitted at the beginning of a fiscal year or applied
retrospectively to the beginning of a fiscal year. Management
has evaluated the effects of the adoption of this pronouncement
and does not expect it to have a material impact on our
consolidated statement of financial position or operations.
In April 2009, the FASB issued guidance for the initial
recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. Effective
January 1, 2009, we adopted the FSP. The adoption of the
guidance did not materially affect the Companys statements
of financial condition or operations. In December 2007, the FASB
issued guidance requiring an acquirer in a business combination
to recognize the assets acquired, the liabilities assumed, and
any noncontrolling interest in the acquiree at their fair values
at the acquisition date, with limited exceptions. The
transaction costs of the acquisition as well as any related
restructuring costs are expensed as incurred. Assets and
liabilities arising from contingencies in a business combination
are to be recognized at their fair value at the acquisition date
and adjusted prospectively as new information becomes available.
When the fair value of assets acquired exceeds the fair value of
consideration transferred plus any noncontrolling interest in
the acquiree, the excess is recognized as a gain. Effective
January 1, 2009, we adopted the guidance. The adoption of
the guidance did not materially affect the Companys
statements of financial condition or operations.
60
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(3)
|
Transactions
with Related Parties
|
Lee A. Kennedy, who has served as our director since the
spin-off and as our Executive Chairman since September 15,
2009, was appointed Chairman of Ceridian Corporation
(Ceridian) on January 25, 2010, where he also
served as Chief Executive Officer from that date until August
2010. Therefore, Ceridian is a related party of the Company for
periods subsequent to January 25, 2010. During 2010, we
were party to certain agreements with Ceridian from which we
incurred expenses. A summary of the Ceridian related party
agreements in effect as of December 31, 2010 is as follows:
|
|
|
|
|
FMLA Administrative Services. Ceridian
provides Family and Medical Leave Act (FMLA)
administrative services and military leave administrative
services to our human resources group. The FMLA and military
leave agreement had an initial term of one year beginning in
January 2010 and is automatically renewable for successive one
year terms unless either party gives 90 days prior written
notice. It may be terminated upon 30 days written notice in
the event of a breach.
|
|
|
|
COBRA Health Benefit Services. Ceridian also
provides us with Consolidated Omnibus Budget Reconciliation Act
(COBRA) health benefit services. The COBRA agreement
had an initial term of one year beginning in January 2009 and is
automatically renewable for successive one year terms unless
either party gives 90 days prior written notice. It may be
terminated upon 30 days written notice in the event of a
breach.
|
William P. Foley, II, who served as Executive Chairman of
the Board of LPS from the spin-off until March 15, 2009, is
an executive and a director of FNF, and therefore FNF was
considered a related party of the Company during that time.
Mr. Foley, along with Daniel D. Lane and Cary H. Thompson,
who also serve as directors of FNF, retired from our Board of
Directors on March 15, 2009, and therefore FNF is not a
related party for periods subsequent to that date. In addition,
Mr. Kennedy served as an executive and a director of FIS
through February 28, 2010. Therefore, FIS was a related
party of the Company for periods prior to that date.
We have various agreements with FNF under which we provide title
agency services, software development and other data services.
Additionally, from the spin-off until July 2010, we were
allocated corporate costs from FIS and received certain
corporate services from FIS. We were also parties to certain
other agreements under which we incurred other expenses to, or
received revenues from, FIS and FNF during the periods in which
they were related parties. Summaries of our agreements with FNF
and FIS that were deemed related party agreements during the
periods described above are set forth below.
Agreements with FNF from which we received related party
revenues:
|
|
|
|
|
Agreements to provide title agency
services. These agreements allow us to provide
services to existing customers through loan facilitation
transactions, primarily with large national lenders. The
arrangement involves providing title agency services which
result in the issuance of title policies on behalf of title
insurance underwriters owned by FNF. Subject to certain early
termination provisions for cause, each of these agreements may
be terminated upon five years prior written notice, which notice
may not be given until after the fifth anniversary of the
effective date of each agreement, which ranges from July 2004
through September 2006 (thus effectively resulting in a minimum
ten year term and a rolling one-year term thereafter). Under
these agreements, we earn commissions which, in the aggregate,
are equal to at least 87% of the total title premium from title
policies that we place with subsidiaries of FNF. The commissions
we earn are subject to adjustment based on changes in FNFs
provision for claim losses, but under no circumstances are the
commissions less than 87%. We also perform similar functions in
connection with trustee sale guarantees, a form of title
insurance that subsidiaries of FNF issue as part of the
foreclosure process on a defaulted loan.
|
61
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
Agreements to provide software development and
services. Under these agreements, we are paid for
providing software development and services to FNF which consist
of developing software for use in the title operations of FNF.
|
|
|
|
Arrangements to provide other data
services. Under these arrangements, we are paid
for providing other data services to FNF, primarily consisting
of data services required by the FNF title insurance operations.
|
Agreements with FNF and FIS from which we incurred related party
expenses:
|
|
|
|
|
Title plant access and title production
services. Under these agreements, we obtain
access to FNFs title plants for real property located in
various states, including access to their online databases,
physical access to title records, use of space, image system
use, and use of special software, as well as other title
production services. For the title plant access, we pay monthly
fees (subject to certain minimum charges) based on the number of
title reports or products ordered and other services received.
For the title production services, we pay for services based on
the number of properties searched, subject to certain minimum
use. The title plant access agreement had an initial term of
3 years beginning in November 2006 and is automatically
renewable for successive 3 year terms unless either party
gives 30 days prior written notice. The title production
services agreement can be terminated by either party upon
30 days prior written notice.
|
|
|
|
Agreements to provide administrative corporate support
services to and from FIS and from FNF. Historically, FNF
provided to FIS certain administrative corporate support
services relating to general management, statutory accounting,
claims administration, and other administrative support
services. Prior to the spin-off, as a part of FIS, we also
received these administrative corporate support services from
FNF. In addition, prior to the spin-off, FIS provided general
management, accounting, treasury, payroll, human resources,
internal audit, and other corporate administrative support
services to us. In connection with the spin-off, we entered into
corporate services agreements with FNF and FIS under which we
received from FNF and FIS, and we provided to FIS, certain
transitional corporate support services. The pricing for all of
these services, both from FNF and FIS, and to FIS, was on an
at-cost basis. These corporate services agreements had a term of
two years following the spin-off. Management believes the
methods used to allocate the amounts included in these financial
statements for corporate services are reasonable.
|
|
|
|
Corporate aircraft use
agreements. Historically the Company has had
access to certain corporate aircraft owned or leased by FNF and
by FIS. Pursuant to an aircraft interchange agreement, LPS is
included as an additional permitted user of corporate aircraft
leased by FNF and FIS. FNF and FIS also continue to be permitted
users of any aircraft leased by LPS. LPS was also added as a
party to the aircraft cost sharing agreement that was previously
signed between FNF and FIS. Under this agreement, the Company
and FIS share the costs of one of FNFs aircraft that is
used by all of the entities. The cost for use of each aircraft
under the aircraft interchange agreement is calculated on the
same basis and reflects the costs attributable to the time the
aircraft is in use by the user. The aircraft interchange
agreement is terminable by any party on 30 days prior
notice. The costs under the aircraft cost sharing agreement are
shared equally among FNF, FIS and the Company, and the agreement
remains in effect so long as FNF has possession or use of the
aircraft (or any replacement) except that it may be terminated
at any time with the consent of FNF, FIS and the Company.
|
|
|
|
Real estate management, real estate lease and equipment lease
agreements. In connection with the spin-off and
the transfer of the real property located at the Companys
corporate headquarters campus from FIS to LPS, the Company
entered into new leases with FNF and FIS, as tenants, as well as
a new sublease with FNF, as sub landlord, for office space in
the building known as Building V, which is
leased by FNF and is located on the Companys corporate
headquarters campus. The Company also entered into a new
property management agreement with FNF with respect to Building
V. Included in the Companys expenses are amounts paid to
FNF for the lease of certain equipment and the sublease of
office space in Building V,
|
62
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
together with furniture and furnishings. In addition, the
Companys financials include amounts paid by FNF and FIS
for the lease of office space located at the Companys
corporate headquarters campus and property management services
for FNF for Building V.
|
|
|
|
|
|
Licensing, cost sharing, business processing and other
agreements. These agreements provide for the
reimbursement of certain amounts from FNF and FIS related to
various licensing and cost sharing agreements, as well as the
payment of certain amounts by the Company to FNF or its
subsidiaries in connection with our use of certain intellectual
property or other assets of or services by FNF.
|
We believe the amounts charged by Ceridian, and earned from or
charged by FNF or FIS under the above-described service
arrangements are fair and reasonable. We believe that the
aggregate commission rate on title insurance policies is
consistent with the blended rate that would be available to a
third party title agent given the amount and the geographic
distribution of the business produced and the low risk of loss
profile of the business placed. The software development
services provided to FNF are priced within the range of prices
we offer to third parties. These transactions between us and FIS
and FNF are subject to periodic review for performance and
pricing.
A detail of related party items included in revenues for the
years ended December 31, 2010, 2009 and 2008 is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010(1)
|
|
|
2009(2)
|
|
|
2008
|
|
|
Title agency services
|
|
$
|
|
|
|
$
|
74.8
|
|
|
$
|
187.9
|
|
Software development services
|
|
|
|
|
|
|
13.4
|
|
|
|
55.7
|
|
Other data related services
|
|
|
|
|
|
|
3.4
|
|
|
|
12.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
|
|
|
$
|
91.6
|
|
|
$
|
255.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Includes revenues generated from FIS under these agreements
through February 28, 2010. The revenues generated from FIS
were less than $10,000 during the period from January 1,
2010 to February 28, 2010. FIS ceased to be a related party
of the Company on February 28, 2010. |
|
(2) |
|
Includes revenues received from FNF under these agreements
through March 31, 2009. FNF ceased to be a related party of
the Company on March 15, 2009; however, it was
impracticable to estimate revenues received from FNF as of that
date. We continue to generate revenues from contracts that were
entered into while FNF was a related party. |
A detail of related party items included in expenses for the
years ended December 31, 2010, 2009 and 2008 is as follows
(in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010(1,2)
|
|
|
2009(3)
|
|
|
2008
|
|
|
Title plant information expense(4)
|
|
$
|
|
|
|
$
|
4.1
|
|
|
$
|
7.4
|
|
Corporate services expense(5)
|
|
|
0.1
|
|
|
|
7.3
|
|
|
|
34.8
|
|
Licensing, leasing and cost sharing agreements(5)
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
$
|
0.1
|
|
|
$
|
8.3
|
|
|
$
|
41.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The expenses paid to Ceridian were greater than $100,000 during
the period. |
|
(2) |
|
Includes expense reimbursements paid to or received from FIS
under these agreements through February 28, 2010. These
expenses were less than $50,000 during the period. FIS ceased to
be a related party of the Company on February 28, 2010. |
63
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(3) |
|
Includes expense reimbursements paid to FNF under these
agreements through March 31, 2009. FNF ceased to be a
related party of the Company on March 15, 2009; however it
was impracticable to estimate expense reimbursements paid to FNF
as of that date. |
|
(4) |
|
Included in cost of revenues. |
|
(5) |
|
Included in selling, general and administrative expenses. |
Other
related party transactions:
FNRES
Holdings, Inc. and Investment Property Exchange Services,
Inc.
On December 31, 2006, FNF contributed $52.5 million to
FNRES Holdings, Inc. (FNRES), a FIS subsidiary, for
approximately 61% of the outstanding shares of FNRES. In June
2008, FIS contributed its remaining 39% equity investment in
FNRES to the Company in the spin-off (note 1). On
February 6, 2009, we acquired the remaining 61% of the
equity interest of FNRES from FNF in exchange for all of our
interests in Investment Property Exchange Services, Inc.
(IPEX) (note 4). The exchange resulted in FNRES
becoming our wholly-owned subsidiary.
|
|
(4)
|
Acquisitions
and Dispositions
|
The results of operations and financial position of other
entities acquired during the years ended December 31, 2010,
2009 and 2008 are included in the consolidated financial
statements from and after the date of acquisition. Businesses
acquired by FIS prior to June 20, 2008 and included in our
results of operations were contributed by FIS to us. The
purchase price of each acquisition was allocated to the assets
acquired and liabilities assumed based on their fair value with
any excess cost over fair value being allocated to goodwill. The
impact of the acquisitions made from January 1, 2008
through December 31, 2010 was not significant individually
or in the aggregate to our historical financial results.
True
Automation, Inc
On November 12, 2010, our subsidiary, LPS Mortgage
Processing Solutions, Inc., acquired True Automation Inc. for
$18.6 million (net of cash acquired). As a result of the
transaction, we recognized a liability for contingent
consideration totaling $3.6 million. The acquisition
resulted in the recognition of $14.0 million of goodwill
and $11.5 million of other intangible assets and software.
The allocation of the purchase price to goodwill and intangible
assets was based on the valuation performed to determine the
value of such assets as of the acquisition date. The valuation
was determined using the income approach utilizing
Level 3-type
inputs. The Company is still finalizing our purchase price
allocation and amounts are subject to change. True Automation
Inc. is now a part of the Technology, Data and Analytics segment
and expands our government solutions offerings.
NRC
Rising Tide National Auction & REO Solutions,
LLC
On October 30, 2009, our subsidiary, LPS Auction Solutions,
LLC, acquired substantially all of the assets of NRC Rising Tide
National Auction & REO Solutions, LLC (Rising
Tide) for a $3.7 million cash payment and a
contingent earn-out payment not to exceed $30.0 million. As
a result of the transaction, we recognized a contingent earn-out
liability totaling $28.2 million. In the process of
finalizing our review of contingent liabilities resulting from
the purchase, and based on information available at the date of
acquisition, we recorded a decrease to the contingent earn-out
liability of $22.2 million, with a corresponding decrease to
goodwill of $20.6 million and other intangibles of $1.6 million.
The allocation of the purchase price to goodwill and intangible
assets was based on the valuations performed to determine the
values of such assets as of the acquisition date. The valuation
of Rising Tide was determined using a combination of the income
and cost approaches utilizing
Level 3-type
inputs. Rising Tide is now a part of the Loan Transaction
Services segment and it expands our default management services
by providing entry into the residential REO auction services
market.
64
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
RealEC
Technologies, Inc.
On July 21, 2009, our subsidiary, LPS Asset Management
Solutions, Inc. (Asset Management), acquired 22% of
the noncontrolling minority interest of RealEC Technologies,
Inc. (RealEC) for $2.6 million. On
November 12, 2009, Asset Management acquired the remaining
22% of the noncontrolling minority interest of RealEC for
$4.3 million. Prior to the acquisitions we owned 56% of the
interest of RealEC, which was consolidated as a part of the
Technology, Data and Analytics segment, and we reported
noncontrolling minority interest related to RealEC in the equity
section of our consolidated balance sheets. RealEC contributed
net earnings attributable to minority interest of
$1.0 million and $1.2 million for the years ended
December 31, 2009 and 2008, respectively. The transactions
resulted in RealEC becoming our wholly-owned subsidiary, and we
no longer have any outstanding noncontrolling minority interest.
Tax
Verification Bureau, Inc.
On June 19, 2009, we acquired Tax Verification Bureau,
Inc., which we have renamed LPS Verification Bureau, Inc.
(Verification Bureau), for $14.9 million (net
of cash acquired). As a result of the transaction, we recognized
a contingent consideration liability totaling $2.8 million,
which was subsequently paid in 2010, and a deferred tax
liability totaling $3.1 million. The acquisition resulted
in the recognition of $12.8 million of goodwill and
$7.7 million of other intangible assets and software. The
allocation of the purchase price to goodwill and intangible
assets was based on the valuations performed to determine the
values of such assets as of the acquisition date. The valuation
of Verification Bureau was determined using a combination of the
income and cost approaches utilizing
Level 3-type
inputs. Verification Bureau is now a part of the Technology,
Data and Analytics segment and it expands our data and analytics
offerings and fraud solutions capabilities.
FNRES
Holdings, Inc.
On December 31, 2006, FNF contributed $52.5 million to
FNRES, an FIS subsidiary, for approximately 61% of the
outstanding shares of FNRES. In June 2008, FIS contributed its
remaining 39% equity investment in FNRES to the Company in the
spin-off (note 1). On February 6, 2009, we acquired
the remaining 61% of the equity interest of FNRES from FNF in
exchange for all of our interests in Investment Property
Exchange Services, Inc. (IPEX). FNRES is now a part
of the Technology, Data and Analytics segment and it expands our
data and analytics offerings and IT development capabilities.
IPEX was previously part of the Loan Transaction Services
segment and it provided qualified exchange intermediary services
for our customers who sought to engage in qualified exchanges
under Section 1031 of the Internal Revenue Code. The
exchange resulted in FNRES, which we subsequently renamed LPS
Real Estate Group, Inc., becoming our wholly-owned subsidiary.
In accordance with FASB ASC Topic 205, Presentation of
Financial Statements, the net earnings from IPEX, including
related party revenues and expense reimbursements, have been
reclassified as a discontinued operation in our consolidated
statements of earnings for the years ended December 31,
2009 and 2008.
FNRES and IPEX were valued at $66.6 million (including
$0.5 million in cash) and $37.8 million (including
$32.6 million in cash), respectively, resulting in the
recognition of a pre-tax gain of $2.6 million
($0.5 million after-tax) which is included as a
discontinued operation in our consolidated statements of
earnings for the periods presented. The valuation of FNRES was
determined using a combination of the market and income
approaches utilizing Level 2 and
Level 3-type
inputs, while the valuation of IPEX was determined using the
income approach utilizing
Level 3-type
inputs. As a result of the transaction, we recognized
$32.6 million of goodwill and $14.2 million of other
intangible assets and software. The allocation of the purchase
price to goodwill and intangible assets is based on the
valuations performed to determine the values of such assets as
of the acquisition date. FNRES contributed revenues of
$37.2 million and pre-tax loss of $0.2 million for the
year ended December 31, 2009. IPEX contributed revenues of
$0.3 million and $24.3 million for the years ended
December 31, 2009 and
65
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
2008, respectively, and pre-tax (loss) profit of
$(0.7) million and $9.0 million for the years ended
December 31, 2009 and 2008, respectively.
Prior to the exchange we did not consolidate FNRES, but recorded
our 39% interest as an equity investment, carried on the
consolidated balance sheet in other non-current assets at
$25.8 million as of December 31, 2008. We recorded
equity losses (net of tax) from our investment in FNRES of
$2.0 million from January 1, 2009 to February 6,
2009 and $4.7 million for the year ended December 31,
2008.
McDash
Analytics, LLC
In May 2008, we acquired McDash Analytics, LLC for
$15.5 million (net of cash acquired). As a result of the
transaction, we have paid contingent consideration totaling
$17.5 million, of which $13.0 million was paid in
2009. The acquisition has resulted in the recognition of
$28.0 million of goodwill and $4.4 million of other
intangible assets and software.
Our title insurance underwriter subsidiary, National Title
Insurance of New York Inc., is statutorily required to
maintain reserves for settling losses on the policies it issues.
These investments, which consist of treasury bills, municipal
bonds, agency bonds and corporate bonds, are classified as
available for sale securities, and are classified in the
accompanying balance sheet at fair value within other
non-current assets. Any gains or losses on these investments are
recognized in other comprehensive earnings until the investment
maturity date. Since the Company does not intend to sell and
will more-likely-than-not maintain each debt security until its
anticipated recovery, and no significant credit risk is deemed
to exist, these investments are not considered other than
temporarily impaired. The carrying amounts and fair values of
our available for sale securities at December 31, 2010 and
December 31, 2009 are as follows: (in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
|
|
Gross Unrealized
|
|
Gross Unrealized
|
|
|
|
|
Cost
|
|
Gains
|
|
Losses
|
|
Fair Value
|
|
As of December 31, 2010
|
|
$
|
32,065
|
|
|
$
|
815
|
|
|
$
|
(352
|
)
|
|
$
|
32,528
|
|
As of December 31, 2009
|
|
$
|
13,398
|
|
|
$
|
833
|
|
|
$
|
|
|
|
$
|
14,231
|
|
The following table summarizes the amortized costs and fair
value of our investments, classified by stated maturity as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Adjusted
|
|
|
Fair
|
|
|
|
Cost
|
|
|
Value
|
|
|
2011-2015
|
|
$
|
14,245
|
|
|
$
|
14,518
|
|
2016-2020
|
|
|
9,545
|
|
|
|
9,820
|
|
2021-2025
|
|
|
1,422
|
|
|
|
1,386
|
|
2026-2030
|
|
|
|
|
|
|
|
|
Thereafter
|
|
|
6,853
|
|
|
|
6,804
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,065
|
|
|
$
|
32,528
|
|
|
|
|
|
|
|
|
|
|
66
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(6)
|
Property
and Equipment
|
Property and equipment as of December 31, 2010 and 2009
consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Land
|
|
$
|
4,847
|
|
|
$
|
4,847
|
|
Buildings
|
|
|
75,836
|
|
|
|
71,143
|
|
Leasehold improvements
|
|
|
18,009
|
|
|
|
14,945
|
|
Computer equipment
|
|
|
153,078
|
|
|
|
123,617
|
|
Furniture, fixtures, and other equipment
|
|
|
43,445
|
|
|
|
44,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
295,215
|
|
|
|
259,328
|
|
Accumulated depreciation and amortization
|
|
|
(171,318
|
)
|
|
|
(146,220
|
)
|
|
|
|
|
|
|
|
|
|
Property and equipment, net of depreciation and amortization
|
|
$
|
123,897
|
|
|
$
|
113,108
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense on property and equipment
amounted to $30.3 million, $26.1 million and
$20.5 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Computer software as of December 31, 2010 and 2009 consists
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Software from business acquisitions
|
|
$
|
92,722
|
|
|
$
|
91,680
|
|
Capitalized software development costs
|
|
|
241,738
|
|
|
|
187,665
|
|
Purchased software
|
|
|
39,303
|
|
|
|
26,299
|
|
|
|
|
|
|
|
|
|
|
Computer software
|
|
|
373,763
|
|
|
|
305,644
|
|
Accumulated amortization
|
|
|
(156,190
|
)
|
|
|
(120,268
|
)
|
|
|
|
|
|
|
|
|
|
Computer software, net of accumulated amortization
|
|
$
|
217,573
|
|
|
$
|
185,376
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for computer software was
$36.5 million, $35.3 million and $30.6 million
for the years ended December 31, 2010, 2009 and 2008,
respectively, and is included in cost of revenues in the
accompanying consolidated statements of earnings.
Intangible assets as of December 31, 2010 and 2009 consists
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
Gross Carrying
|
|
|
Accumulated
|
|
|
Net Carrying
|
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Customer relationships
|
|
$
|
262,842
|
|
|
$
|
(220,407
|
)
|
|
$
|
42,435
|
|
|
$
|
257,737
|
|
|
$
|
(203,396
|
)
|
|
$
|
54,341
|
|
Customer contracts
|
|
|
106,582
|
|
|
|
(100,645
|
)
|
|
|
5,937
|
|
|
|
106,582
|
|
|
|
(96,094
|
)
|
|
|
10,488
|
|
Purchase data files
|
|
|
8,241
|
|
|
|
(1,472
|
)
|
|
|
6,769
|
|
|
|
6,867
|
|
|
|
(676
|
)
|
|
|
6,191
|
|
Other
|
|
|
8,012
|
|
|
|
(4,884
|
)
|
|
|
3,128
|
|
|
|
6,044
|
|
|
|
(4,268
|
)
|
|
|
1,776
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
385,677
|
|
|
$
|
(327,408
|
)
|
|
$
|
58,269
|
|
|
$
|
377,230
|
|
|
$
|
(304,434
|
)
|
|
$
|
72,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for intangible assets with definite lives
was $24.8 million, $30.7 million and
$40.0 million for the years ended December 31, 2010,
2009 and 2008, respectively. Intangible assets, other than
67
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
those with indefinite lives, are amortized over their estimated
useful lives ranging from 5 to 10 years using accelerated
methods.
Estimated amortization expense for the next five fiscal years is
as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
17,379
|
|
2012
|
|
|
12,460
|
|
2013
|
|
|
7,164
|
|
2014
|
|
|
4,221
|
|
2015
|
|
|
3,982
|
|
Changes in goodwill during the years ended December 31,
2010 and 2009 are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
Loan
|
|
|
|
|
|
|
Data and
|
|
|
Transaction
|
|
|
|
|
|
|
Analytics
|
|
|
Services
|
|
|
Total
|
|
|
Balance, December 31, 2008
|
|
$
|
701,676
|
|
|
$
|
389,380
|
|
|
$
|
1,091,056
|
|
Goodwill acquired during 2009 relating to McDash
|
|
|
13,000
|
|
|
|
|
|
|
|
13,000
|
|
Goodwill acquired during 2009 relating to FNRES
|
|
|
32,614
|
|
|
|
|
|
|
|
32,614
|
|
Goodwill acquired during 2009 relating to Verification Bureau
|
|
|
12,791
|
|
|
|
|
|
|
|
12,791
|
|
Goodwill disposed of during 2009 relating to IPEX
|
|
|
|
|
|
|
(12,308
|
)
|
|
|
(12,308
|
)
|
Goodwill acquired during 2009 relating to Rising Tide
|
|
|
|
|
|
|
28,989
|
|
|
|
28,989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
760,081
|
|
|
|
406,061
|
|
|
|
1,166,142
|
|
Adjustment to goodwill relating to Rising Tide
|
|
|
|
|
|
|
(20,583
|
)
|
|
|
(20,583
|
)
|
Goodwill acquired during 2010 relating to True Automation
|
|
|
13,980
|
|
|
|
|
|
|
|
13,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
774,061
|
|
|
$
|
385,478
|
|
|
$
|
1,159,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10)
|
Other
Accrued Liabilities
|
Other accrued liabilities as of December 31, 2010 and 2009
consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Operating expense accruals
|
|
$
|
106,809
|
|
|
$
|
113,964
|
|
Title claims reserve
|
|
|
22,732
|
|
|
|
9,269
|
|
Interest accrual on debt and swap obligation
|
|
|
15,662
|
|
|
|
28,368
|
|
|
|
|
|
|
|
|
|
|
Total other accrued liabilities
|
|
$
|
145,203
|
|
|
$
|
151,601
|
|
|
|
|
|
|
|
|
|
|
68
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Long-term debt as of December 31, 2010 and 2009 consisted
of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Term A Loan, secured, interest payable at LIBOR plus 2.00%
(2.26% at December 31, 2010), quarterly principal
amortization, maturing July 2013
|
|
$
|
385,000
|
|
|
$
|
420,000
|
|
Term B Loan, secured, interest payable at LIBOR plus 2.50%
(2.76% at December 31, 2010), quarterly principal
amortization, maturing July 2014
|
|
|
497,250
|
|
|
|
502,350
|
|
Revolving Loan, secured, interest payable at LIBOR plus 2.00%
(Eurocurrency Borrowings), Fed-funds plus 2.00% (Swingline
Borrowings) or Prime plus 1.00% (Base Rate Borrowings) (2.26%,
2.13% or 4.25%, respectively, at December 31, 2010),
maturing July 2013. Total of $138.5 million unused (net of
outstanding letters of credit) as of December 31, 2010
|
|
|
|
|
|
|
|
|
Senior unsecured notes, issued at par, interest payable
semiannually at 8.125%, due July 2016
|
|
|
367,000
|
|
|
|
367,000
|
|
Other promissory notes with various interest rates and maturities
|
|
|
151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,249,401
|
|
|
|
1,289,350
|
|
Less current portion
|
|
|
(145,154
|
)
|
|
|
(40,100
|
)
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
$
|
1,104,247
|
|
|
$
|
1,249,250
|
|
|
|
|
|
|
|
|
|
|
On July 2, 2008, we entered into a Credit Agreement (the
Credit Agreement) with JPMorgan Chase Bank, N.A., as
Administrative Agent, Swing Line Lender and Letters of Credit
Issuer, and various other lenders who are parties to the Credit
Agreement. The Credit Agreement consists of: (i) a
5-year
revolving credit facility in an aggregate principal amount
outstanding at any time not to exceed $140.0 million (with
a $25.0 million
sub-facility
for Letters of Credit); (ii) a Term A Loan in an initial
aggregate principal amount of $700.0 million; and
(iii) a Term B Loan in an initial aggregate principal
amount of $510.0 million. Proceeds from disbursements under
the 5-year
revolving credit facility are to be used for general corporate
purposes.
The loans under the Credit Agreement bear interest at a floating
rate, which is an applicable margin plus, at our option, either
(a) the Eurodollar (LIBOR) rate or (b) the higher of
(i) the prime rate or (ii) the federal funds rate plus
0.5% (the higher of clauses (i) and (ii), the ABR
rate). The annual margin on the Term A Loan and the
revolving credit facility is a percentage per annum to be
determined in accordance with a leverage ratio-based pricing
grid and on the Term B Loan is 2.5% in the case of LIBOR loans
and 1.5% in the case of ABR rate loans.
In addition to the scheduled principal payments, the Term Loans
are (with certain exceptions) subject to mandatory prepayment
upon issuances of debt, casualty and condemnation events, and
sales of assets, as well as from up to 50% of excess cash flow
(as defined in the Credit Agreement) in excess of an agreed
threshold commencing with the cash flow for the year ended
December 31, 2009. Voluntary prepayments of the loans are
generally permitted at any time without fee upon proper notice
and subject to a minimum dollar requirement. Commitment
reductions of the revolving credit facility are also permitted
at any time without fee upon proper notice. The revolving credit
facility has no scheduled principal payments, but it will be due
and payable in full on July 2, 2013.
The obligations under the Credit Agreement are jointly and
severally, unconditionally guaranteed by certain of our domestic
subsidiaries. Additionally, the Company and such subsidiary
guarantors pledged substantially all of
69
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
our respective assets as collateral security for the obligations
under the Credit Agreement and our respective guarantees.
The Credit Agreement contains customary affirmative, negative
and financial covenants including, among other things, limits on
the creation of liens, limits on the incurrence of indebtedness,
restrictions on investments and dispositions, limits on the
payment of dividends and other restricted payments, a minimum
interest coverage ratio and a maximum leverage ratio. Upon an
event of default, the administrative agent can accelerate the
maturity of the loan. Events of default include events customary
for such an agreement, including failure to pay principal and
interest in a timely manner and breach of covenants. These
events of default include a cross-default provision that permits
the lenders to declare the Credit Agreement in default if
(i) we fail to make any payment after the applicable grace
period under any indebtedness with a principal amount in excess
of a specified amount or (ii) we fail to perform any other
term under any such indebtedness, as a result of which the
holders thereof may cause it to become due and payable prior to
its maturity.
On July 2, 2008, we issued senior notes (the
Notes) in an aggregate principal amount of
$375.0 million. The Notes were issued pursuant to an
Indenture dated July 2, 2008 (the Indenture)
among the Company, the guarantors party thereto and
U.S. Bank Corporate Trust Services, as Trustee.
The Notes bear interest at a rate of 8.125% per annum. Interest
payments are due semi-annually each January 1 and July 1.
The maturity date of the Notes is July 1, 2016. From time
to time we may be in the market to repurchase portions of the
Notes, subject to limitations set forth in the Credit Agreement.
The indenture contains covenants that, among other things, limit
LPS ability and the ability of certain of LPS
subsidiaries (a) to incur or guarantee additional
indebtedness or issue preferred stock, (b) to make certain
restricted payments, including dividends or distributions on
equity interests held by persons other than LPS or certain
subsidiaries, in excess of an amount generally equal to 50% of
consolidated net income generated since July 1, 2008,
(c) to create or incur certain liens, (d) to engage in
sale and leaseback transactions, (e) to create restrictions
that would prevent or limit the ability of certain subsidiaries
to (i) pay dividends or other distributions to LPS or
certain other subsidiaries, (ii) repay any debt or make any
loans or advances to LPS or certain other subsidiaries or
(iii) transfer any property or assets to LPS or certain
other subsidiaries, (f) to sell or dispose of assets of LPS
or any restricted subsidiary or enter into merger or
consolidation transactions and (g) to engage in certain
transactions with affiliates. These covenants are subject to a
number of exceptions, limitations and qualifications in the
Indenture.
The Notes are our general unsecured obligations. Accordingly,
they rank equally in right of payment with all of our existing
and future unsecured senior debt; senior in right of payment to
all of our future subordinated debt; effectively subordinated to
our existing and future secured debt to the extent of the assets
securing such debt, including all borrowings under our credit
facilities; and effectively subordinated to all of the
liabilities of our non-guarantor subsidiaries, including trade
payables and preferred stock.
The Notes are guaranteed by each existing and future domestic
subsidiary that is a guarantor under our credit facilities. The
guarantees are general unsecured obligations of the guarantors.
Accordingly, they rank equally in right of payment with all
existing and future unsecured senior debt of our guarantors;
senior in right of payment with all existing and future
subordinated debt of such guarantors; and effectively
subordinated to such guarantors existing and future
secured debt to the extent of the assets securing such debt,
including the guarantees by the guarantors of obligations under
our credit facilities.
LPS has no independent assets or operations and our
subsidiaries guarantees are full and unconditional and
joint and several. There are no significant restrictions under
the indenture on the ability of LPS or any of the subsidiary
guarantors to obtain funds from any of our subsidiaries by
dividend or loan.
We may redeem some or all of the Notes on or after July 1,
2011, at the redemption prices described in the Indenture, plus
accrued and unpaid interest. Upon the occurrence of a change of
control, unless we have exercised
70
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
our right to redeem all of the Notes as described above, each
holder may require us to repurchase such holders Notes, in
whole or in part, at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the
purchase date. During 2009, we repurchased $8.0 million
face value of the Notes for $8.2 million.
The Indenture contains customary events of default, including
failure of the Company (i) to pay principal and interest
when due and payable and breach of certain other covenants and
(ii) to make an offer to purchase and pay for Notes
tendered as required by the Indenture. Events of default also
include cross defaults, with respect to any other debt of the
Company or debt of certain subsidiaries having an outstanding
principal amount of $80.0 million or more in the aggregate
for all such debt, arising from (i) failure to make
principal payment when due and such defaulted payment is not
made, waived or extended within the applicable grace period or
(ii) the occurrence of an event which results in such debt
being due and payable prior to its scheduled maturity. Upon the
occurrence of an event of default (other than a bankruptcy
default with respect to the Company or certain subsidiaries),
the trustee or holders of at least 25% of the Notes then
outstanding may accelerate the Notes by giving us appropriate
notice. If, however, a bankruptcy default occurs with respect to
the Company or certain subsidiaries, then the principal of and
accrued interest on the Notes then outstanding will accelerate
immediately without any declaration or other act on the part of
the trustee or any holder.
The fair value of the Companys long-term debt at
December 31, 2010 is estimated to be approximately 99% of
the carrying value. We have estimated the fair value of the term
loans based on values of recent quoted market prices and
estimated the fair value of the notes based on values of recent
trades.
Interest
Rate Swaps
On August 4, 2010, we entered into the following interest
rate swap transactions, which have been designated as cash flow
hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank Pays
|
|
|
LPS Pays
|
|
Period
|
|
Notional Amount
|
|
|
Variable Rate of(1)
|
|
|
Fixed Rate of(2)
|
|
|
|
(In millions)
|
|
|
|
|
|
|
|
|
December 31, 2010 to December 31, 2011
|
|
$
|
225.0
|
|
|
|
1 Month LIBOR
|
|
|
|
0.605
|
%
|
December 31, 2011 to December 31, 2012
|
|
|
150.0
|
|
|
|
1 Month LIBOR
|
|
|
|
1.295
|
|
December 31, 2012 to December 31, 2013
|
|
|
75.0
|
|
|
|
1 Month LIBOR
|
|
|
|
2.080
|
|
|
|
|
(1) |
|
0.26% as of December 31, 2010. |
|
(2) |
|
In addition to the fixed rate paid under the swaps, we pay an
applicable margin to our bank lenders on the Term A Loan and
Revolving Loan equal to 2.00% and on the Term B Loan equal to
2.50% as of December 31, 2010. |
We have entered into interest rate swap transactions in order to
convert a portion of our interest rate exposure on our floating
rate debt from variable to fixed. We have designated these
interest rate swaps as cash flow hedges. The estimated fair
value of these cash flow hedges resulted in liabilities of
$0.9 million, which is included in the accompanying
consolidated balance sheet as other accrued liabilities of
$0.6 million and other non-current liabilities of
$0.3 million as of December 31, 2010, and
$13.2 million, which is included in the accompanying
consolidated balance sheet in other non-current liabilities as
of December 31, 2009. A cumulative loss of $0.6 million and
$8.1 million is reflected in accumulated other comprehensive
earnings (AOCE) as of December 31, 2010 and
December 31, 2009, respectively. A portion of the amount
included in AOCE will be reclassified into interest expense as a
yield adjustment as interest payments are made on the Term
Loans. The inputs used to determine the estimated fair value of
our interest rate swaps are
Level 2-type
measurements. We considered our own credit risk when determining
the fair value of our interest rate swaps.
The amount of loss recognized in other comprehensive earnings
(OCE) related to the interest rate swap contracts is
$1.4 million and $6.0 million for the years ended
December 31, 2010 and December 31, 2009,
71
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
respectively. The amount of loss reclassified out of OCE into
interest expense is $8.9 million and $12.2 million in
the years ended December 31, 2010 and December 31,
2009, respectively. During 2011, we expect to recognize the
outstanding balance of AOCE as of December 31, 2010 as
effective net losses from our interest rate hedges.
It is our policy to execute such instruments with credit-worthy
banks and not to enter into derivative financial instruments for
speculative purposes. As of December 31, 2010, we believe
our interest rate swap counterparties will be able to fulfill
their obligations under our agreements, and we believe we will
have debt outstanding through the various expiration dates of
the swaps such that the occurrence of future hedge cash flows
remains probable.
Principal
Maturities of Debt
Principal maturities at December 31, 2010 for the next five
years and thereafter are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
145,154
|
|
2012
|
|
|
145,160
|
|
2013
|
|
|
110,137
|
|
2014
|
|
|
481,950
|
|
2015
|
|
|
|
|
Thereafter
|
|
|
367,000
|
|
|
|
|
|
|
Total
|
|
$
|
1,249,401
|
|
|
|
|
|
|
|
|
(12)
|
Commitments
and Contingencies
|
Litigation
In the ordinary course of business, we are involved in various
pending and threatened litigation matters related to our
operations, some of which include claims for punitive or
exemplary damages. We believe that no actions, other than the
matters listed below, depart from customary litigation
incidental to our business. As background to the disclosure
below, please note the following:
|
|
|
|
|
In these matters, plaintiffs seek a variety of remedies but do
not make a specific statement as to the dollar amount of damages
demanded. Due to these reasons and the early stage of these
cases, it is not possible to make meaningful estimates of the
amount or range of loss that could result from these matters at
this time.
|
|
|
|
We review these matters on an ongoing basis and follow the
provisions of Financial Accounting Standards Board Accounting
Standards Codification Topic 450, Contingencies, when
making accrual and disclosure decisions. When assessing
reasonably possible and probable outcomes, we base our decision
on our assessment of the ultimate outcome following all appeals.
|
|
|
|
We intend to vigorously defend all litigation matters that are
brought against us, and we do not believe that their ultimate
disposition will have a material adverse impact on our financial
position or results of operations.
|
Elizabeth
Foster, et al vs. MERS, GMAC, Lender Processing Services,
Inc., et al.
We were named in a putative class action complaint filed in the
United States District Court in the Western District of
Kentucky, Louisville Division on September 28, 2010. Many
of plaintiffs allegations are neither directed at nor
relate to our business, including challenges to the
securitization of loans, the use of assignments of mortgage, and
the participation of Mortgage Electronic Registration Systems,
or MERS, in the foreclosure process. Generally, plaintiffs make
allegations concerning unlawful foreclosure, conspiracy and
other matters relating to the handling of the plaintiffs
loans and the default process. The plaintiffs never served us
with the complaint in this proceeding,
72
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and this case was voluntarily dismissed by the plaintiffs on
February 3, 2011. A motion for sanctions against
plaintiffs counsel is pending.
Thorne
vs. Prommis Solution Holding Corporation, Lender Processing
Services, Inc., et al.
We were named in a putative class action adversary proceeding
filed in the United States Bankruptcy Court for the Northern
District of Mississippi on September 30, 2010. The
complaint has a single plaintiff and alleges that the defendants
engaged in unlawful fee splitting with the attorneys
representing the creditor in the bankruptcy matter and the
unauthorized practice of law. On October 28, 2010, we filed
a motion for summary judgment seeking to dismiss the complaint.
Knippel
vs. Saxon Mortgage Services, Lender Processing Services, Inc.,
et al.
We were named in a putative class action complaint filed in the
United States District Court for the District of Nevada on
October 5, 2010. The complaint had a single plaintiff and
alleged unspecified violations of the Fair Debt Collection
Practices Act, deceptive trade practices and unlawful fee
splitting. This proceeding was dismissed with prejudice in
January 2011.
Securities
Class Action Litigation
On December 1, 2010, the Company was served with a
complaint entitled St. Clair Shores General Employees
Retirement System v. Lender Processing Services, Inc., et
al., which was filed in the United States District Court for
the Middle District of Florida. The putative class action seeks
damages for alleged violations of federal securities laws in
connection with our disclosures relating to our default
operations. On December 29, 2010, the court entered an
order granting a temporary suspension of filing deadlines
pending a determination of the lead plaintiff and lead counsel.
On January 24, 2011 applications for lead plaintiff and
counsel were filed. On January 11, 2011, a second putative
class action complaint entitled Southwest Ohio District
Council of Carpenters vs. LPS, Inc., et al., was filed in
the Middle District of Florida. The second complaint contains
nearly identical allegations, and a motion to consolidate the
two matters is pending.
Shareholder
Derivative Litigation
On December 22, 2010, a complaint entitled International
Brotherhood of Electrical Workers Local 164 Pension Fund,
derivatively on behalf of Lender Processing Services,
Inc. v. Lee A. Kennedy, et al., was filed in the Court
of Chancery in the State of Delaware. The complaint seeks
recovery on behalf of the Company of damages from certain
directors for purported violations of fiduciary duties and
breaches of good faith in connection with our default
operations. We filed a motion to dismiss this case on
February 8, 2011. On January 21, 2011, a second
complaint entitled Michael Wheatley, derivatively on behalf
of Lender Processing Services, Inc. v. Jeffrey S.
Carbiener, et al., was filed in the Circuit Court of the 4th
Judicial Circuit, in and for Duval County, Florida. The second
complaint also seeks damages from our directors and certain
current and former executives and contains nearly identical
allegations.
Regulatory
Matters
Due to the heavily regulated nature of the mortgage industry,
from time to time we receive inquiries and requests for
information from various state and federal regulatory agencies,
including state attorneys general, the U.S. Department of
Justice and other agencies, about various matters relating to
our business. These inquiries take various forms, including
informal or formal requests, reviews, investigations and
subpoenas. We attempt to cooperate with all such inquiries.
73
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
At present, there is increased scrutiny of all parties involved
in the mortgage industry by governmental authorities, judges and
the news media, among others. We have responded to or are
currently responding to inquiries from multiple governmental
agencies. These inquiries range from informal requests for
information to grand jury subpoenas. In 2010, we learned that
the U.S. Attorneys office for the Middle District of
Florida and the Florida Attorney General had begun conducting
separate inquiries concerning certain business processes in our
default operations. Since then, other federal and state
authorities, including various regulatory agencies, and other
state attorneys general, have initiated inquiries about these
matters, and additional agencies may do so in the future. The
business processes that these authorities are considering
include the former document preparation, verification, signing
and notarization practices of certain of our default operations
and our relationships with foreclosure attorneys. We have
discovered, during our own internal reviews, potential issues
related to some of these practices which may cause the validity
of certain documents used in foreclosure proceedings to be
challenged. However, we are not aware of any person who was
wrongfully foreclosed upon as a result of a potential error in
the processes used by our employees. We have been cooperating
and we have expressed our willingness to continue to fully
cooperate with all such inquiries.
We continue to believe that the outcome of the current inquiries
will not have a material adverse impact on our business or
results of operations, although it is difficult to predict the
final outcome of these matters due, among other things, to the
early stage of many of these inquiries. As a result, there can
be no assurance that we will not incur additional material costs
and expenses, including but not limited to fines or penalties
and legal costs, or be subject to other remedies, as a result of
regulatory, legislative or administrative investigations or
actions relating to default procedures.
Leases
We lease certain of our property under leases which expire at
various dates. Several of these agreements include escalation
clauses and provide for purchases and renewal options for
periods ranging from one to five years.
Future minimum operating lease payments for leases with
remaining terms greater than one year for each of the years in
the five years and thereafter are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
19,480
|
|
2012
|
|
|
19,294
|
|
2013
|
|
|
13,712
|
|
2014
|
|
|
7,588
|
|
2015
|
|
|
4,960
|
|
Thereafter
|
|
|
295
|
|
|
|
|
|
|
Total
|
|
$
|
65,329
|
|
|
|
|
|
|
Rent expense incurred under all operating leases during the
years ended December 31, 2010 and 2009 was
$26.6 million and $26.3 million, respectively.
Data
Processing and Maintenance Services Agreements
We have various data processing and maintenance services
agreements with vendors, which expire through 2014, for portions
of our computer data processing operations and related
functions. The Companys estimated aggregate contractual
obligation remaining under these agreements was approximately
$56.5 million as of December 31, 2010. However, this
amount could be more or less depending on various factors such
as the inflation rate, the introduction of significant new
technologies, or changes in the Companys data processing
needs.
74
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Indemnifications
and Warranties
We often indemnify our customers against damages and costs
resulting from claims of patent, copyright, or trademark
infringement associated with use of our software through
software licensing agreements. Historically, we have not made
any payments under such indemnifications, but continue to
monitor the conditions that are subject to the indemnifications
to identify whether a loss has occurred that is both probable
and estimable that would require recognition. In addition, we
warrant to customers that our software operates substantially in
accordance with the software specifications. Historically, no
costs have been incurred related to software warranties and none
are expected in the future, and as such no accruals for warranty
costs have been made.
Off-Balance
Sheet Arrangements
We do not have any material off-balance sheet arrangements other
than operating leases described above and the escrow
arrangements described below.
Escrow
Arrangements
In conducting our title agency, closing and tax services, we
routinely hold customers assets in escrow accounts,
pending completion of real estate related transactions. Certain
of these amounts are maintained in segregated accounts, and
these amounts have not been included in the accompanying
consolidated balance sheets. As an incentive for holding
deposits at certain banks, we periodically have programs for
realizing economic benefits through favorable arrangements with
these banks. As of December 31, 2010, the aggregate value
of all amounts held in escrow in our title agency, closing and
tax services operations totaled $177.0 million.
|
|
(13)
|
Employee
Benefit Plans
|
Stock
Purchase Plan
Prior to the spin-off, our employees participated in the FNF
Employee Stock Purchase Plan (through mid-2006) and the FIS
Employee Stock Purchase Plan (since mid-2006). Subsequent to the
spin-off, our employees have participated in the LPS Employee
Stock Purchase Plan (collectively the ESPP Plans).
Under the terms of the ESPP Plans and subsequent amendments,
eligible employees may voluntarily purchase, at current market
prices, shares of common stock through payroll deductions. We
have registered 10 million shares for issuance under the
current plan. Pursuant to the ESPP Plans, employees may
contribute an amount between 3% and 15% of their base salary and
certain commissions. Shares purchased are allocated to
employees, based upon their contributions. We contribute varying
matching amounts as specified in the ESPP Plans. We recorded an
expense of $6.8 million, $6.0 million and
$5.3 million for the years ended December 31, 2010,
2009 and 2008, respectively, relating to the participation of
our employees in the ESPP Plans.
401(k)
Profit Sharing Plan
Prior to the spin-off, our employees participated in qualified
401(k) plans sponsored by FNF or FIS. Subsequent to the
spin-off, our employees have participated in a qualified 401(k)
plan sponsored by LPS. Under the terms of all three plans and
subsequent amendments, eligible employees may contribute up to
40% of their pretax annual compensation, up to the amount
allowed pursuant to the Internal Revenue Code. We generally
match 50% of each dollar of employee contribution up to 6% of
the employees total eligible compensation. We recorded
$10.8 million, $9.0 million and $7.0 million for
the years ended December 31, 2010, 2009 and 2008,
respectively, relating to the participation of our employees in
the 401(k) plans.
75
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Option Plans
Prior to
spin-off
Prior to the spin-off, our employees participated in FISs,
FNFs and old FNFs stock incentive plans. As a
result, these financial statements include an allocation of
stock compensation expense from FIS for the periods presented,
up through July 2, 2008. This allocation includes all stock
compensation recorded by FIS for the employees within our
operating segments and an allocation for certain corporate
employees and directors.
Prior to November 9, 2006, certain awards held by our
employees were issuable in both old FNF and FIS common stock. On
November 9, 2006, as part of the closing of the merger
between FIS and old FNF, FIS assumed certain options and
restricted stock grants that the Companys employees and
directors held under various old FNF stock-based compensation
plans and all these awards were converted into awards issuable
in FIS common stock. From November 9, 2006 to July 2,
2008, all options and awards held by our employees were issuable
in the common stock of FIS. On July 2, 2008, in connection
with the spin-off, all FIS options and FIS restricted stock
awards held by our employees prior to the spin-off were
converted into options and awards issuable in our common stock,
authorized by our new stock option plan. The exercise price and
number of shares subject to each FIS option and FIS restricted
stock award were adjusted to reflect the differences in
FISs and our common stock prices, which resulted in an
equal fair value of the options before and after the exchange.
Therefore, no compensation charge was recorded in connection
with the conversion. Since July 2, 2008, all options and
awards held by our employees are issuable in LPS common stock.
Post
spin-off
Our employees participate in LPSs 2008 Omnibus Incentive
Plan (the Plan). Under the Plan, the Company may
grant up to 14 million share-based awards to officers,
directors and key employees. As of December 31, 2010,
2.7 million share-based awards were available for future
grant under the Plan. Awards of restricted stock and shares
issued as a result of exercises of stock options will be issued
from treasury shares. Expired and forfeited awards are available
for re-issuance. Vesting and exercise of share-based awards are
generally contingent on continued employment.
The Company recognizes compensation expense on a straight-line
basis over the vesting period of share-based awards. We recorded
stock compensation expense, including the allocations discussed
above, of $32.1 million, $28.0 million and
$21.5 million during 2010, 2009 and 2008, respectively, and
a related income tax benefit of $0.2 million,
$2.9 million and $0.5 million for the years ended
December 31, 2010, 2009 and 2008, respectively. This
compensation expense is included in selling, general and
administrative expenses in the accompanying consolidated
statements of earnings.
During 2010 and 2009, $3.4 million and $5.5 million,
respectively, of cash was used for minimum statutory withholding
requirements upon net settlement of employee exercises of
share-based awards.
As of December 31, 2010, the Company had $46.2 million
of unrecognized compensation cost related to share-based
payments, which is expected to be recognized in pre-tax earnings
over a weighted average period of 1.41 years.
76
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Options
The following table summarizes stock option activity under the
Plan since inception (July 2, 2008):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Number of Shares
|
|
|
Exercise Price
|
|
|
Inception of Plan
|
|
|
|
|
|
$
|
|
|
FIS options converted on July 2, 2008 to LPS options
(conversion ratio of 1.14)
|
|
|
5,211,018
|
|
|
|
29.64
|
|
Other grants
|
|
|
1,682,500
|
|
|
|
34.58
|
|
|
|
|
|
|
|
|
|
|
Total Granted
|
|
|
6,893,518
|
|
|
|
30.85
|
|
Exercised(1)
|
|
|
(132,156
|
)
|
|
|
14.47
|
|
Cancelled
|
|
|
(247
|
)
|
|
|
25.12
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008
|
|
|
6,761,115
|
|
|
|
31.16
|
|
Total Granted
|
|
|
1,949,400
|
|
|
|
28.53
|
|
Exercised(1)
|
|
|
(1,285,227
|
)
|
|
|
19.97
|
|
Cancelled
|
|
|
(618,578
|
)
|
|
|
35.19
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
6,806,710
|
|
|
|
32.16
|
|
Total Granted
|
|
|
1,529,770
|
|
|
|
35.61
|
|
Exercised(1)
|
|
|
(537,879
|
)
|
|
|
28.88
|
|
Cancelled
|
|
|
(79,159
|
)
|
|
|
33.59
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2010
|
|
|
7,719,442
|
|
|
|
33.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The total intrinsic value of stock options exercised during the
years ended December 31, 2010, 2009 and 2008 was
$4.7 million, $16.3 million and $2.5 million,
respectively. |
We measured the fair value of the awards at the date of grant
using a Black-Scholes option pricing model with various
assumptions. The risk-free interest rate is based on the rate in
effect for the expected term of the option at the grant date.
The dividend yield is based on historical dividends. The
volatility assumptions are based on our historical volatility
and the historical volatilities of comparable publicly traded
companies using daily closing prices for the historical period
commensurate with the expected term of the option. The expected
life of the options is determined based on the Securities and
Exchange Commissions simplified method for companies
without enough historical data.
The following table summarizes weighted average assumptions used
to estimate fair values for awards granted during the periods
presented in the consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
Risk Free
|
|
Volatility
|
|
Expected
|
|
Expected Life
|
Year
|
|
Fair Value
|
|
Interest Rate
|
|
Factor
|
|
Dividend Yield
|
|
(In Years)
|
|
2010
|
|
$
|
10.67
|
|
|
|
2
|
.2
|
%
|
|
|
36
|
%
|
|
|
1
|
.1%
|
|
4.5
|
2009
|
|
|
8.35
|
|
|
|
2
|
.0
|
%
|
|
|
35
|
%
|
|
|
1
|
.4%
|
|
5.0
|
2008
|
|
|
8.55
|
|
|
|
3
|
.2
|
%
|
|
|
25
|
%
|
|
|
1
|
.1%
|
|
5.0
|
77
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table summarizes stock options held by our
employees that were outstanding and those that were exercisable
as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
Range of
|
|
|
|
Remaining
|
|
Average
|
|
Intrinsic Value at
|
|
|
|
Remaining
|
|
Average
|
|
Intrinsic Value at
|
Exercise
|
|
Number of
|
|
Contractual
|
|
Exercise
|
|
December 31,
|
|
Number of
|
|
Contractual
|
|
Exercise
|
|
December 31,
|
Prices
|
|
Options
|
|
Life
|
|
Price
|
|
2010
|
|
Options
|
|
Life
|
|
Price
|
|
2010
|
|
|
$0
|
.00 $4.99
|
|
|
20,166
|
|
|
|
0.59
|
|
|
$
|
4.08
|
|
|
$
|
512,893
|
|
|
|
20,166
|
|
|
|
0.59
|
|
|
$
|
4.08
|
|
|
$
|
512,983
|
|
|
5
|
.00 9.99
|
|
|
5,000
|
|
|
|
1.01
|
|
|
|
6.02
|
|
|
|
117,487
|
|
|
|
5,000
|
|
|
|
1.01
|
|
|
|
6.02
|
|
|
|
117,487
|
|
|
10
|
.00 14.99
|
|
|
168,030
|
|
|
|
3.68
|
|
|
|
12.93
|
|
|
|
2,787,420
|
|
|
|
168,030
|
|
|
|
3.68
|
|
|
|
12.93
|
|
|
|
2,787,420
|
|
|
15
|
.00 19.99
|
|
|
74,531
|
|
|
|
1.72
|
|
|
|
19.56
|
|
|
|
742,329
|
|
|
|
74,531
|
|
|
|
1.72
|
|
|
|
19.56
|
|
|
|
742,329
|
|
|
20
|
.00 24.99
|
|
|
13,590
|
|
|
|
0.88
|
|
|
|
22.78
|
|
|
|
91,580
|
|
|
|
13,590
|
|
|
|
0.88
|
|
|
|
22.78
|
|
|
|
91,580
|
|
|
25
|
.00 29.99
|
|
|
2,040,352
|
|
|
|
5.10
|
|
|
|
28.32
|
|
|
|
2,451,655
|
|
|
|
750,074
|
|
|
|
4.43
|
|
|
|
28.33
|
|
|
|
891,383
|
|
|
30
|
.00 34.99
|
|
|
1,843,015
|
|
|
|
3.80
|
|
|
|
34.54
|
|
|
|
|
|
|
|
1,394,865
|
|
|
|
3.54
|
|
|
|
34.53
|
|
|
|
|
|
|
35
|
.00 40.66
|
|
|
3,539,758
|
|
|
|
4.64
|
|
|
|
36.47
|
|
|
|
|
|
|
|
2,139,375
|
|
|
|
3.53
|
|
|
|
36.68
|
|
|
|
|
|
|
40
|
.67 42.74
|
|
|
15,000
|
|
|
|
5.83
|
|
|
|
42.74
|
|
|
|
|
|
|
|
5,001
|
|
|
|
5.83
|
|
|
|
42.74
|
|
|
|
|
|
|
$0
|
.00 $42.74
|
|
|
7,719,442
|
|
|
|
4.50
|
|
|
$
|
33.06
|
|
|
$
|
6,703,454
|
|
|
|
4,570,632
|
|
|
|
3.64
|
|
|
$
|
33.29
|
|
|
$
|
5,143,182
|
|
The number of shares vested and expected to vest total
approximately 7.7 million, have a weighted average
remaining contractual life of 4.5 years, a weighted average
exercise price of $33.06 and an intrinsic value of
$6.7 million.
Restricted
Stock
On May 10, 2010, we granted approximately 0.4 million
shares of restricted stock with a grant date fair value of
$36.14. Subsequently, on November 29, 2010, we granted
approximately 0.2 million shares of restricted stock with a
grant date fair value of $31.16. These grants are subject to
both a service and performance-based vesting condition. If the
performance objective is not achieved, the restricted stock is
subject to automatic forfeiture to the Company for no
consideration. Dividends on the unvested restricted stock are
accrued until the vest date, at which time they are paid in full
to the participants. Additionally, all executive officers of the
Company who were granted restricted stock in connection with
this grant are required to hold a portion of their vested shares
for a period of six months following the vesting of each tranche.
As of December 31, 2010, approximately 0.3 million
shares of restricted stock awards with service-based vesting
conditions were outstanding, and approximately 0.6 million
shares of restricted stock awards with service and
performance-based vesting conditions were outstanding.
78
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Income tax expense attributable to continuing operations for the
years ended December 31, 2010, 2009 and 2008 consists of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Current provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
134,184
|
|
|
$
|
126,744
|
|
|
$
|
122,786
|
|
State
|
|
|
20,704
|
|
|
|
18,879
|
|
|
|
18,774
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current provision
|
|
|
154,888
|
|
|
|
145,623
|
|
|
|
141,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred provision:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
27,836
|
|
|
|
23,989
|
|
|
|
4,562
|
|
State
|
|
|
2,581
|
|
|
|
2,123
|
|
|
|
447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred provision
|
|
|
30,417
|
|
|
|
26,112
|
|
|
|
5,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
185,305
|
|
|
$
|
171,735
|
|
|
$
|
146,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A reconciliation of the federal statutory income tax rate to our
effective income tax rate for the years ended December 31,
2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal statutory income tax rate
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
|
|
35.00
|
%
|
State income taxes
|
|
|
3.27
|
|
|
|
3.23
|
|
|
|
3.28
|
|
Other
|
|
|
(.27
|
)
|
|
|
0.02
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
38.00
|
%
|
|
|
38.25
|
%
|
|
|
38.25
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The significant components of deferred income tax assets and
liabilities at December 31, 2010 and 2009 consist of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred income tax assets:
|
|
|
|
|
|
|
|
|
Employee benefits
|
|
$
|
30,509
|
|
|
$
|
20,254
|
|
Deferred revenue
|
|
|
24,573
|
|
|
|
30,066
|
|
Allowance for doubtful accounts
|
|
|
12,829
|
|
|
|
9,917
|
|
Net operating losses
|
|
|
11,133
|
|
|
|
12,413
|
|
State taxes
|
|
|
7,493
|
|
|
|
6,974
|
|
Accruals and reserves
|
|
|
6,764
|
|
|
|
6,694
|
|
Investments
|
|
|
174
|
|
|
|
4,709
|
|
|
|
|
|
|
|
|
|
|
Total gross deferred income tax assets
|
|
|
93,475
|
|
|
|
91,027
|
|
Less: valuation allowance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax assets
|
|
|
93,475
|
|
|
|
91,027
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
|
|
Amortization of goodwill and intangible assets
|
|
|
(120,486
|
)
|
|
|
(90,311
|
)
|
Depreciation
|
|
|
(13,952
|
)
|
|
|
(6,647
|
)
|
Deferred contract costs
|
|
|
(11,667
|
)
|
|
|
(11,756
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred income tax liabilities
|
|
|
(146,105
|
)
|
|
|
(108,714
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
(52,630
|
)
|
|
$
|
(17,687
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income taxes have been classified in the consolidated
balance sheets as of December 31, 2010 and 2009 as follows
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Current assets
|
|
$
|
44,102
|
|
|
$
|
47,528
|
|
Non-current liabilities
|
|
|
(96,732
|
)
|
|
|
(65,215
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income taxes
|
|
$
|
(52,630
|
)
|
|
$
|
(17,687
|
)
|
|
|
|
|
|
|
|
|
|
Management believes that based on its historical pattern of
taxable income, projections of future income, tax planning
strategies and other relevant evidence, the Company will produce
sufficient income in the future to realize its deferred income
tax assets. A valuation allowance is established for any portion
of a deferred income tax asset if management believes it is more
likely than not that the Company will not be able to realize the
benefits or portion of a deferred income tax asset. Adjustments
to the valuation allowance will be made if there is a change in
managements assessment of the amount of deferred income
tax asset that is realizable.
At December 31, 2010 and 2009 the Company has federal net
operating loss carryforwards resulting in deferred tax assets of
$11.1 million and $12.4 million, respectively. These
net operating losses expire between 2027 and 2029. The Company
fully anticipates utilizing these losses prior to expiration and
thus, no valuation allowance has been established.
The Company is a participant in the Internal Revenue
Services Compliance Assurance Process (CAP), which is a
real time audit of the income tax returns and other tax related
matters. The IRS has completed its review for tax years 2002
through 2009 resulting in no material adverse changes to any
member of the LPS consolidated group. The IRS is currently
reviewing the 2010 tax year and management believes the ultimate
resolution of the
80
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
examination will not result in a material adverse effect to our
financial position or results of operations. Substantially all
of the state income tax audits have been concluded through the
2006 tax year.
Reserves for uncertain tax positions are computed by determining
a minimum recognition threshold a tax position is required to
meet before being recognized in the financial statements. It
also provides guidance on measurement and classification of
amounts relating to uncertain tax positions, accounting for
interest and penalties, and disclosures. The Company has
performed an evaluation of its tax positions and has concluded
that as of December 31, 2010, there were no significant
uncertain tax positions requiring recognition in its financial
statements. The Companys policy is to recognize interest
and penalties related to unrecognized tax benefits as a
component of income tax expense.
|
|
(15)
|
Concentration
of Risk
|
We generate a significant amount of revenue from large
customers, including one customer that accounted for 20.0% and
13.9% of total revenue and another customer that accounted for
11.1% and 12.5% of total revenue, in the years ended
December 31, 2010 and 2009, respectively. The revenues from
these customers were spread across both of our operating
segments during 2010. No customers accounted for more than 10%
of total revenue in the year ended December 31, 2008.
Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of cash
equivalents and trade receivables.
Summarized financial information concerning our segments is
shown in the following tables.
As of and for the year ended December 31, 2010 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
Data and
|
|
|
Transaction
|
|
|
Corporate
|
|
|
|
|
|
|
Analytics
|
|
|
Services
|
|
|
and Other
|
|
|
Total
|
|
|
Processing and services revenues
|
|
$
|
762,641
|
|
|
$
|
1,701,523
|
|
|
$
|
(7,829
|
)
|
|
$
|
2,456,335
|
|
Cost of revenues
|
|
|
435,138
|
|
|
|
1,212,781
|
|
|
|
(5,844
|
)
|
|
|
1,642,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
327,503
|
|
|
|
488,742
|
|
|
|
(1,985
|
)
|
|
|
814,260
|
|
Selling, general and administrative expenses
|
|
|
81,035
|
|
|
|
95,656
|
|
|
|
80,659
|
|
|
|
257,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
246,468
|
|
|
|
393,086
|
|
|
|
(82,644
|
)
|
|
|
556,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
68,022
|
|
|
$
|
23,313
|
|
|
$
|
7,426
|
|
|
$
|
98,761
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
79,628
|
|
|
$
|
21,634
|
|
|
$
|
6,994
|
|
|
$
|
108,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,228,943
|
|
|
$
|
837,150
|
|
|
$
|
185,750
|
|
|
$
|
2,251,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
774,061
|
|
|
$
|
385,478
|
|
|
$
|
|
|
|
$
|
1,159,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
As of and for the year ended December 31, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
Data and
|
|
|
Transaction
|
|
|
Corporate
|
|
|
|
|
|
|
Analytics
|
|
|
Services
|
|
|
and Other
|
|
|
Total
|
|
|
Processing and services revenues
|
|
$
|
707,485
|
|
|
$
|
1,684,613
|
|
|
$
|
(21,550
|
)
|
|
$
|
2,370,548
|
|
Cost of revenues
|
|
|
402,411
|
|
|
|
1,190,238
|
|
|
|
(21,646
|
)
|
|
|
1,571,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
305,074
|
|
|
|
494,375
|
|
|
|
96
|
|
|
|
799,545
|
|
Selling, general and administrative expenses
|
|
|
70,717
|
|
|
|
107,769
|
|
|
|
88,853
|
|
|
|
267,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
234,357
|
|
|
|
386,606
|
|
|
|
(88,757
|
)
|
|
|
532,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (1)
|
|
$
|
69,477
|
|
|
$
|
20,310
|
|
|
$
|
8,130
|
|
|
$
|
97,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1)
|
|
$
|
71,439
|
|
|
$
|
21,322
|
|
|
$
|
6,014
|
|
|
$
|
98,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,154,772
|
|
|
$
|
829,471
|
|
|
$
|
213,061
|
|
|
$
|
2,197,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
760,081
|
|
|
$
|
406,061
|
|
|
$
|
|
|
|
$
|
1,166,142
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes the impact of discontinued operations. |
As of and for the year ended December 31, 2008 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology,
|
|
|
Loan
|
|
|
|
|
|
|
|
|
|
Data and
|
|
|
Transaction
|
|
|
Corporate
|
|
|
|
|
|
|
Analytics
|
|
|
Services
|
|
|
and Other
|
|
|
Total
|
|
|
Processing and services revenues
|
|
$
|
565,650
|
|
|
$
|
1,283,501
|
|
|
$
|
(11,561
|
)
|
|
$
|
1,837,590
|
|
Cost of revenues
|
|
|
309,969
|
|
|
|
879,031
|
|
|
|
(12,521
|
)
|
|
|
1,176,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
255,681
|
|
|
|
404,470
|
|
|
|
960
|
|
|
|
661,111
|
|
Selling, general and administrative expenses
|
|
|
64,640
|
|
|
|
105,299
|
|
|
|
59,936
|
|
|
|
229,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
191,041
|
|
|
|
299,171
|
|
|
|
(58,976
|
)
|
|
|
431,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization (1)
|
|
$
|
61,205
|
|
|
$
|
25,132
|
|
|
$
|
7,000
|
|
|
$
|
93,337
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures (1)
|
|
$
|
41,273
|
|
|
$
|
18,583
|
|
|
$
|
2,422
|
|
|
$
|
62,278
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,056,012
|
|
|
$
|
796,146
|
|
|
$
|
251,475
|
|
|
$
|
2,103,633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
701,676
|
|
|
$
|
389,380
|
|
|
$
|
|
|
|
$
|
1,091,056
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excludes the impact of discontinued operations. |
|
|
(17)
|
Condensed
Consolidating Financial Information
|
On July 2, 2008, LPS (the Parent Company)
entered into the Credit Agreement and the Notes described in
Note 11. The Credit Agreement and the Notes are fully and
unconditionally guaranteed, jointly and severally, by the
majority of the subsidiaries of the Parent Company (the
Subsidiary Guarantors). Certain other subsidiaries
(the Other Subsidiaries) are not guarantors of the
Credit Agreement and the Notes. The guarantees by the Subsidiary
Guarantors are senior to any of their existing and future
subordinated obligations, equal in right of payment with any
82
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
of their existing and future senior unsecured indebtedness and
effectively subordinated to any of their existing and future
secured indebtedness.
The Parent Company conducts virtually all of its business
operations through its Subsidiary Guarantors and Other
Subsidiaries. Accordingly, the Parent Companys main
sources of internally generated cash are dividends and
distributions with respect to its ownership interests in the
subsidiaries, which are derived from the cash flow generated by
the subsidiaries.
As of December 31, 2010, the Parent Company has no
independent assets or operations, our subsidiaries
guarantees are full and unconditional and joint and several.
There are no significant restrictions under the Credit Agreement
or the Indenture governing the Notes on the ability of LPS or
any of the subsidiary guarantors to obtain funds from any of our
subsidiaries by dividend or loan. However, one of our
subsidiaries, other than a subsidiary guarantor, was more than
minor.
The following tables set forth, on a condensed consolidating
basis, the statement of earnings and the statement of cash flows
for each of the years ended December 31, 2010, 2009 and
2008 and the balance sheet as of December 31, 2010 and
2009, for the Parent Company, the Subsidiary Guarantors and
Other Subsidiaries.
The following table represents our condensed consolidating
balance sheet as of December 31, 2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Total Consolidated
|
|
|
|
Company(1)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
351
|
|
|
$
|
541,458
|
|
|
$
|
17,465
|
|
|
$
|
|
|
|
$
|
559,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
1,743,989
|
|
|
|
|
|
|
|
|
|
|
|
(1,743,989
|
)
|
|
|
|
|
Non-current assets
|
|
|
12,745
|
|
|
|
1,644,224
|
|
|
|
35,600
|
|
|
|
|
|
|
|
1,692,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,757,085
|
|
|
$
|
2,185,682
|
|
|
$
|
53,065
|
|
|
$
|
(1,743,989
|
)
|
|
$
|
2,251,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
149,787
|
|
|
$
|
286,964
|
|
|
$
|
28,976
|
|
|
$
|
|
|
|
$
|
465,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,230,871
|
|
|
|
465,949
|
|
|
|
28,809
|
|
|
|
|
|
|
|
1,725,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
526,214
|
|
|
|
1,719,733
|
|
|
|
24,256
|
|
|
|
(1,743,989
|
)
|
|
|
526,214
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
1,757,085
|
|
|
$
|
2,185,682
|
|
|
$
|
53,065
|
|
|
$
|
(1,743,989
|
)
|
|
$
|
2,251,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents our condensed consolidating
statement of earnings for the year ended December 31, 2010
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Company(2)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Processing and services revenues
|
|
$
|
|
|
|
$
|
2,159,455
|
|
|
$
|
296,880
|
|
|
$
|
|
|
|
$
|
2,456,335
|
|
Operating expenses
|
|
|
32,077
|
|
|
|
1,583,349
|
|
|
|
283,999
|
|
|
|
|
|
|
|
1,899,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(32,077
|
)
|
|
|
576,106
|
|
|
|
12,881
|
|
|
|
|
|
|
|
556,910
|
|
Equity in earnings of subsidiaries
|
|
|
366,169
|
|
|
|
|
|
|
|
|
|
|
|
(366,169
|
)
|
|
|
|
|
Other income (expense)
|
|
|
(70,850
|
)
|
|
|
1,039
|
|
|
|
550
|
|
|
|
|
|
|
|
(69,261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes and
equity in losses of unconsolidated entity
|
|
|
263,242
|
|
|
|
577,145
|
|
|
|
13,431
|
|
|
|
(366,169
|
)
|
|
|
487,649
|
|
Provision for income taxes
|
|
|
(39,102
|
)
|
|
|
219,302
|
|
|
|
5,105
|
|
|
|
|
|
|
|
185,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
302,344
|
|
|
|
357,843
|
|
|
|
8,326
|
|
|
|
(366,169
|
)
|
|
|
302,344
|
|
Discontinued operation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
302,344
|
|
|
|
357,843
|
|
|
|
8,326
|
|
|
|
(366,169
|
)
|
|
|
302,344
|
|
Net earnings attributable to noncontrolling minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
$
|
302,344
|
|
|
$
|
357,843
|
|
|
$
|
8,326
|
|
|
$
|
(366,169
|
)
|
|
$
|
302,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents our condensed consolidating
statement of cash flows for the year ended December 31,
2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Company
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
302,344
|
|
|
$
|
357,843
|
|
|
$
|
8,326
|
|
|
$
|
(366,169
|
)
|
|
$
|
302,344
|
|
Adjustment to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash expenses and other items
|
|
|
(331,426
|
)
|
|
|
130,269
|
|
|
|
794
|
|
|
|
366,169
|
|
|
|
165,806
|
|
Changes in assets and liabilities, net of effects from
acquisitions
|
|
|
(23,318
|
)
|
|
|
(656
|
)
|
|
|
4,518
|
|
|
|
|
|
|
|
(19,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
(52,400
|
)
|
|
|
487,456
|
|
|
|
13,638
|
|
|
|
|
|
|
|
448,694
|
|
Net cash used in investing activities
|
|
|
(271
|
)
|
|
|
(131,186
|
)
|
|
|
(20,979
|
)
|
|
|
|
|
|
|
(152,436
|
)
|
Net cash used in financing activities
|
|
|
(311,521
|
)
|
|
|
(2,978
|
)
|
|
|
|
|
|
|
|
|
|
|
(314,499
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
(364,192
|
)
|
|
$
|
353,292
|
|
|
$
|
(7,341
|
)
|
|
$
|
|
|
|
$
|
(18,241
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Parent Company does not allocate current or deferred income
tax assets or liabilities to the Subsidiary Guarantors or Other
Subsidiaries. |
|
(2) |
|
The Parent Company does not allocate corporate overhead to the
Subsidiary Guarantors or Other Subsidiaries. |
84
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents our condensed consolidating
balance sheet as of December 31, 2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Company(1)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
21,729
|
|
|
$
|
512,365
|
|
|
$
|
16,050
|
|
|
$
|
|
|
|
$
|
550,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in subsidiaries
|
|
|
1,734,386
|
|
|
|
|
|
|
|
|
|
|
|
(1,734,386
|
)
|
|
|
|
|
Non-current assets
|
|
|
17,461
|
|
|
|
1,612,140
|
|
|
|
17,559
|
|
|
|
|
|
|
|
1,647,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,773,576
|
|
|
$
|
2,124,505
|
|
|
$
|
33,609
|
|
|
$
|
(1,734,386
|
)
|
|
$
|
2,197,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
68,468
|
|
|
$
|
291,491
|
|
|
$
|
9,415
|
|
|
$
|
|
|
|
$
|
369,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,317,718
|
|
|
|
412,494
|
|
|
|
11,234
|
|
|
|
|
|
|
|
1,741,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
455,858
|
|
|
|
1,712,011
|
|
|
|
22,375
|
|
|
|
(1,734,386
|
)
|
|
|
455,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
1,773,576
|
|
|
$
|
2,124,505
|
|
|
$
|
33,609
|
|
|
$
|
(1,734,386
|
)
|
|
$
|
2,197,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents our condensed consolidating
statement of earnings for the year ended December 31, 2009
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Company(2)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Processing and services revenues
|
|
$
|
|
|
|
$
|
2,323,869
|
|
|
$
|
46,679
|
|
|
$
|
|
|
|
$
|
2,370,548
|
|
Operating expenses
|
|
|
28,042
|
|
|
|
1,762,962
|
|
|
|
47,338
|
|
|
|
|
|
|
|
1,838,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(28,042
|
)
|
|
|
560,907
|
|
|
|
(659
|
)
|
|
|
|
|
|
|
532,206
|
|
Equity in earnings of subsidiaries
|
|
|
346,822
|
|
|
|
|
|
|
|
|
|
|
|
(346,822
|
)
|
|
|
|
|
Other income (expense)
|
|
|
(84,630
|
)
|
|
|
666
|
|
|
|
740
|
|
|
|
|
|
|
|
(83,224
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes and
equity in losses of unconsolidated entity
|
|
|
234,150
|
|
|
|
561,573
|
|
|
|
81
|
|
|
|
(346,822
|
)
|
|
|
448,982
|
|
Provision for income taxes
|
|
|
(43,097
|
)
|
|
|
214,802
|
|
|
|
30
|
|
|
|
|
|
|
|
171,735
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before equity in losses of
unconsolidated entity
|
|
|
277,247
|
|
|
|
346,771
|
|
|
|
51
|
|
|
|
(346,822
|
)
|
|
|
277,247
|
|
Equity in losses of unconsolidated entity
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
277,247
|
|
|
|
346,734
|
|
|
|
51
|
|
|
|
(346,822
|
)
|
|
|
277,210
|
|
Discontinued operation, net of tax
|
|
|
|
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
(504
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
277,247
|
|
|
|
346,230
|
|
|
|
51
|
|
|
|
(346,822
|
)
|
|
|
276,706
|
|
Net earnings attributable to noncontrolling minority interests
|
|
|
|
|
|
|
(977
|
)
|
|
|
|
|
|
|
|
|
|
|
(977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
$
|
277,247
|
|
|
$
|
345,253
|
|
|
$
|
51
|
|
|
$
|
(346,822
|
)
|
|
$
|
275,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
85
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents our condensed consolidating
statement of cash flows for the year ended December 31,
2009 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Company
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
277,247
|
|
|
$
|
345,253
|
|
|
$
|
51
|
|
|
$
|
(346,822
|
)
|
|
$
|
275,729
|
|
Adjustment to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash expenses and other items
|
|
|
(340,509
|
)
|
|
|
145,762
|
|
|
|
275
|
|
|
|
346,822
|
|
|
|
152,350
|
|
Changes in assets and liabilities, net of effects from
acquisitions
|
|
|
10,907
|
|
|
|
4,431
|
|
|
|
271
|
|
|
|
|
|
|
|
15,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
(52,355
|
)
|
|
|
495,446
|
|
|
|
597
|
|
|
|
|
|
|
|
443,688
|
|
Net cash used in investing activities
|
|
|
(63,741
|
)
|
|
|
(115,991
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(179,735
|
)
|
Net cash used in financing activities
|
|
|
(319,394
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
(319,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
(435,490
|
)
|
|
$
|
379,458
|
|
|
$
|
594
|
|
|
$
|
|
|
|
$
|
(55,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
125,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The Parent Company does not allocate current or deferred income
tax assets or liabilities to the Subsidiary Guarantors or Other
Subsidiaries. |
|
(2) |
|
The Parent Company does not allocate corporate overhead to the
Subsidiary Guarantors or Other Subsidiaries. |
86
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table represents our condensed consolidating
statement of earnings for the year ended December 31, 2008
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Company(2)
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Processing and services revenues
|
|
$
|
|
|
|
$
|
1,815,665
|
|
|
$
|
21,925
|
|
|
$
|
|
|
|
$
|
1,837,590
|
|
Operating expenses
|
|
|
42,583
|
|
|
|
1,348,460
|
|
|
|
15,311
|
|
|
|
|
|
|
|
1,406,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
(42,583
|
)
|
|
|
467,205
|
|
|
|
6,614
|
|
|
|
|
|
|
|
431,236
|
|
Equity in earnings of subsidiaries
|
|
|
476,036
|
|
|
|
|
|
|
|
|
|
|
|
(476,036
|
)
|
|
|
|
|
Other income (expense)
|
|
|
(50,010
|
)
|
|
|
1,113
|
|
|
|
848
|
|
|
|
|
|
|
|
(48,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before income taxes and
equity in losses of unconsolidated entity
|
|
|
383,443
|
|
|
|
468,318
|
|
|
|
7,462
|
|
|
|
(476,036
|
)
|
|
|
383,187
|
|
Provision for income taxes
|
|
|
146,667
|
|
|
|
179,132
|
|
|
|
2,854
|
|
|
|
(182,084
|
)
|
|
|
146,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations before equity in losses of
unconsolidated entity
|
|
|
236,776
|
|
|
|
289,186
|
|
|
|
4,608
|
|
|
|
(293,952
|
)
|
|
|
236,618
|
|
Equity in losses of unconsolidated entity
|
|
|
(254
|
)
|
|
|
(4,433
|
)
|
|
|
|
|
|
|
|
|
|
|
(4,687
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
236,522
|
|
|
|
284,753
|
|
|
|
4,608
|
|
|
|
(293,952
|
)
|
|
|
231,931
|
|
Discontinued operation, net of tax
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
|
236,522
|
|
|
|
284,753
|
|
|
|
4,766
|
|
|
|
(293,952
|
)
|
|
|
232,089
|
|
Net earnings attributable to noncontrolling minority interests
|
|
|
|
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
|
|
|
|
(1,201
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to Lender Processing Services,
Inc.
|
|
$
|
236,522
|
|
|
$
|
283,552
|
|
|
$
|
4,766
|
|
|
$
|
(293,952
|
)
|
|
$
|
230,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table represents our condensed consolidating
statement of cash flows for the year ended December 31,
2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Parent
|
|
|
Subsidiary
|
|
|
Other
|
|
|
Consolidating
|
|
|
Consolidated
|
|
|
|
Company
|
|
|
Guarantors
|
|
|
Subsidiaries
|
|
|
Adjustments
|
|
|
Amounts
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$
|
236,522
|
|
|
$
|
283,552
|
|
|
$
|
4,766
|
|
|
$
|
(293,952
|
)
|
|
$
|
230,888
|
|
Adjustment to reconcile net earnings to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash expenses and other items
|
|
|
(445,658
|
)
|
|
|
91,810
|
|
|
|
1,070
|
|
|
|
476,036
|
|
|
|
123,258
|
|
Changes in assets and liabilities, net of effects from
acquisitions
|
|
|
(44,665
|
)
|
|
|
58,984
|
|
|
|
(4,605
|
)
|
|
|
|
|
|
|
9,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
(253,801
|
)
|
|
|
434,346
|
|
|
|
1,231
|
|
|
|
182,084
|
|
|
|
363,860
|
|
Net cash used in investing activities
|
|
|
(2,421
|
)
|
|
|
(78,852
|
)
|
|
|
(953
|
)
|
|
|
|
|
|
|
(82,226
|
)
|
Net cash used in financing activities
|
|
|
(52,938
|
)
|
|
|
(141,052
|
)
|
|
|
(1,244
|
)
|
|
|
|
|
|
|
(195,234
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
(309,160
|
)
|
|
$
|
214,442
|
|
|
$
|
(966
|
)
|
|
$
|
182,084
|
|
|
$
|
86,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
125,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
(1) |
|
The Parent Company does not allocate current or deferred income
tax assets or liabilities to the Subsidiary Guarantors or Other
Subsidiaries. |
|
(2) |
|
The Parent Company does not allocate corporate overhead to the
Subsidiary Guarantors or Other Subsidiaries. |
Subsequent events have been evaluated through the date on which
the financial statements were filed.
Repurchase
Authorization
Since January 1, 2011, we repurchased 1,665,300 shares
of our stock for $55.1 million, at an average price of
$33.06 per share.
88
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
As of the end of the year covered by this report, the Company
carried out an evaluation, under the supervision and with the
participation of its principal executive officer and principal
financial officer, of the effectiveness of the design and
operation of its disclosure controls and procedures, as such
term is defined in
Rule 13a-15(e)
under the Exchange Act. Based on this evaluation, the
Companys principal executive officer and principal
financial officer concluded that its disclosure controls and
procedures were effective to ensure that information required to
be disclosed by the Company in the reports that we file or
submit under the Act is: (a) recorded, processed,
summarized and reported, within the time periods specified in
the Commissions rules and forms; and (b) accumulated
and communicated to management, including our principal
executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosure.
There were no changes in our internal control over financial
reporting that occurred during the most recent fiscal quarter
that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in Exchange Act
Rule 13a-15(f).
Under the supervision and with the participation of our
management, including our principal executive officer and
principal financial officer, we conducted an evaluation of the
effectiveness of our internal control over financial reporting.
Management has adopted the framework in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Based on our evaluation under this framework, our
management concluded that our internal control over financial
reporting was effective as of the end of the period covered by
this annual report. KPMG LLP, an independent registered public
accounting firm has issued an attestation report on our internal
control over financial reporting as set forth in Item 8.
|
|
Item 9B.
|
Other
Information.
|
None.
PART III
Items 10-14.
Within 120 days after the close of its fiscal year, the
Company intends to file with the Securities and Exchange
Commission a definitive proxy statement pursuant to
Regulation 14A of the Securities Exchange Act of 1934 as
amended, which will include the matters required by these items.
89
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(1) Financial Statement Schedules:
All schedules have been omitted because they are not applicable
or the required information is included in the consolidated
financial statements or notes to the statements.
(2) Exhibits:
The following is a complete list of exhibits included as part of
this report, including those incorporated by reference. A list
of those documents filed with this report is set forth on the
Exhibit Index appearing elsewhere in this report and is
incorporated by reference.
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
2
|
.1
|
|
Contribution and Distribution Agreement, dated as of
June 13, 2008, between Lender Processing Services, Inc. and
Fidelity National Information Services, Inc. (incorporated by
reference to Exhibit 2.1 to Current Report on
Form 8-K
filed on July 9, 2008).
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation of Lender
Processing Services, Inc. (incorporated by reference to
Exhibit 4.1 to Registration Statement on
Form S-8
filed on July 8, 2008).
|
|
3
|
.2
|
|
Amended and Restated Bylaws of Lender Processing Services, Inc.
(incorporated by reference to Exhibit 4.2 to Registration
Statement on
Form S-8
filed on July 8, 2008).
|
|
4
|
.1
|
|
Indenture, dated as of July 2, 2008, among Lender
Processing Services, Inc., the guarantors parties thereto and
U.S. Bank Corporate Trust Services, as Trustee relating to
8.125% Notes due 2016 (incorporated by reference to
Exhibit 4.4 to Registration Statement on
Form S-8
filed on July 8, 2008).
|
|
4
|
.2
|
|
Form of 8.125% Note due 2016 (incorporated by reference to
Exhibit 4.3 to Registration Statement on
Form S-4
filed on August 27, 2008).
|
|
4
|
.3
|
|
Form of certificate representing Lender Processing Services,
Inc. Common Stock (incorporated by reference to Exhibit 4.3
to Registration Statement on
Form S-8
filed on July 8, 2008).
|
|
10
|
.1
|
|
Credit Agreement, dated as of July 2, 2008, among Lender
Processing Services, Inc., the lenders parties thereto from time
to time and JPMorgan Chase Bank, N.A., as Administrative Agent,
Swing Line Lender and L/C Issuer (including the schedules and
exhibits thereto) (incorporated by reference to
Exhibit 10.1 to Current Report on
Form 8-K
filed on June 21, 2010).
|
|
10
|
.2
|
|
Lender Processing Services, Inc. Annual Incentive Plan
(incorporated by reference to Exhibit 10.5 to Current
Report on
Form 8-K
filed on July 9, 2008).(1)
|
|
10
|
.3
|
|
Lender Processing Services, Inc. 2008 Omnibus Incentive Plan
(incorporated by reference to Exhibit 10.6 to Current
Report on
Form 8-K
filed on July 9, 2008).(1)
|
|
10
|
.4
|
|
Form of Notice of Restricted Stock Grant and Restricted Stock
Award Agreement under Lender Processing Services, Inc. 2008
Omnibus Incentive Plan (incorporated by reference to
Exhibit 99.6 to Current Report on
Form 8-K
filed on August 14, 2008).(1)
|
|
10
|
.5
|
|
Form of Stock Option Agreement and Notice of Stock Option Grant
under Lender Processing Services, Inc. 2008 Omnibus Incentive
Plan (incorporated by reference to Exhibit 99.5 to Current
Report on
Form 8-K
filed on August 14, 2008).(1)
|
|
10
|
.6
|
|
Form of Performance-Based Restricted Stock Award Agreement and
Notice of Performance-Based Restricted Stock Grant under the
Lender Processing Services, Inc. 2008 Omnibus Incentive Plan
(incorporated by reference to Exhibit 99.3 to Current
Report on
8-K filed on
May 12, 2010).(1)
|
|
10
|
.7
|
|
Form of Amendment to Performance-Based Restricted Stock Award
Agreement under the Lender Processing Services, Inc. 2008
Omnibus Incentive Plan (incorporated by reference to
Exhibit 10.1 to Quarterly Report on
Form 10-Q
filed on August 9, 2010).(1)
|
|
10
|
.8
|
|
Form of Restricted Stock Award Agreement and Notice of
Restricted Stock Grant (Retention) under the Lender Processing
Services, Inc. 2008 Omnibus Incentive Plan.(1)
|
90
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.9
|
|
Form of Performance-Based Restricted Stock Award Agreement and
Notice of Performance-Based Restricted Stock Grant under the
Lender Processing Services, Inc. 2008 Omnibus Incentive Plan
(incorporated by reference to Exhibit 99.2 to Current
Report on
8-K filed on
December 1, 2010).(1)
|
|
10
|
.10
|
|
Form of Performance-Based Restricted Stock Award Agreement and
Notice of Performance-Based Restricted Stock Grant under the
Lender Processing Services, Inc. 2008 Omnibus Incentive Plan.(1)
|
|
10
|
.11
|
|
Lender Processing Services, Inc. Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.7 to Current
Report on
Form 8-K
filed on July 9, 2008).(1)
|
|
10
|
.12
|
|
Lender Processing Services, Inc. Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 to Current
Report on
Form 8-K
filed on July 9, 2008).(1)
|
|
10
|
.13
|
|
Lender Processing Services, Inc. Executive Life and Supplemental
Retirement Benefit Plan (incorporated by reference to
Exhibit 10.9 to Current Report on
Form 8-K
filed on July 9, 2008).(1)
|
|
10
|
.14
|
|
Lender Processing Services, Inc. Special Supplemental Executive
Retirement Plan (incorporated by reference to Exhibit 10.10
to Current Report on
Form 8-K
filed on July 9, 2008).(1)
|
|
10
|
.15
|
|
Employment Agreement, effective as of December 31, 2009, by
and between Lender Processing Services, Inc. and Jeffrey S.
Carbiener (incorporated by reference to Exhibit 99.1 to
Current Report on
Form 8-K
filed on January 6, 2010).(1)
|
|
10
|
.16
|
|
Employment Agreement, effective as of December 31, 2009, by
and between Lender Processing Services, Inc. and Francis K. Chan
(incorporated by reference to Exhibit 99.2 to Current
Report on
Form 8-K
filed on January 6, 2010).(1)
|
|
10
|
.17
|
|
Employment Agreement, effective as of December 31, 2009, by
and between Lender Processing Services, Inc. and Daniel T.
Scheuble (incorporated by reference to Exhibit 99.3 to
Current Report on
Form 8-K
filed on January 6, 2010).(1)
|
|
10
|
.18
|
|
Employment Agreement, effective as of December 31, 2009, by
and between Lender Processing Services, Inc. and Eric D. Swenson
(incorporated by reference to Exhibit 99.4 to Current
Report on
Form 8-K
filed on January 6, 2010).(1)
|
|
10
|
.19
|
|
Employment Agreement between Lender Processing Services, Inc.
and Lee A. Kennedy, dated March 26, 2010 (incorporated by
reference to Exhibit 99.1 to Current Report on
Form 8-K
filed on March 31, 2010).(1)
|
|
10
|
.20
|
|
Employment Agreement, effective as of November 1, 2010, by
and between Lender Processing Services, Inc. and Thomas L.
Schilling (incorporated by reference to Exhibit 10.1 to
Quarterly Report on
Form 10-Q
filed on November 8, 2010).(1)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm (KPMG
LLP).
|
|
31
|
.1
|
|
Certification of Jeffrey S. Carbiener, Chief Executive Officer
of Lender Processing Services, Inc., pursuant to
rule 13a-14(a)
or 15d-14(a) of the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Thomas L. Schilling, Chief Financial Officer of
Lender Processing Services, Inc., pursuant to
rule 13a-14(a)
or 15d-14(a) of the Exchange Act, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Jeffrey S. Carbiener, Chief Executive Officer
of Lender Processing Services, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Thomas L. Schilling, Chief Financial Officer of
Lender Processing Services, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
(1) |
|
Management Contract or Compensatory Plan. |
91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
|
|
|
Date: March 1, 2011
|
|
Lender Processing Services, Inc.
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
/s/ Jeffrey
S. Carbiener
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey S. Carbiener
|
|
|
|
|
|
|
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ Jeffrey
S. Carbiener
Jeffrey
S. Carbiener
President and Chief Executive Officer
(Principal Executive Officer)
Director
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ Thomas
L. Schilling
Thomas
L. Schilling
Executive Vice President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ Lee
A. Kennedy
Lee
A. Kennedy
Executive Chairman of the Board
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ Alvin
R. (Pete) Carpenter
Alvin
R. (Pete) Carpenter
Director
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ John
F. Farrell, Jr.
John
F. Farrell, Jr.
Director
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ Philip
G. Heasley
Philip
G. Heasley
Director
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ David
K. Hunt
David
K. Hunt
Director
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ James
K. Hunt
James
K. Hunt
Director
|
|
|
|
|
|
Date: March 1, 2011
|
|
By:
|
|
/s/ Susan
E. Lester
Susan
E. Lester
Director
|
92
LENDER
PROCESSING SERVICES, INC.
AND SUBSIDIARIES
FORM 10-K
INDEX TO EXHIBITS
The following documents are being filed with this Report:
|
|
|
|
|
Exhibit
|
|
|
No.
|
|
Description
|
|
|
10
|
.8
|
|
Form of Restricted Stock Award Agreement and Notice of
Restricted Stock Grant (Retention) under the Lender Processing
Services, Inc. 2008 Omnibus Incentive Plan.
|
|
10
|
.10
|
|
Form of Performance-Based Restricted Stock Award Agreement and
Notice of Performance-Based Restricted Stock Grant under the
Lender Processing Services, Inc. 2008 Omnibus Incentive Plan.
|
|
21
|
.1
|
|
Subsidiaries of the Registrant.
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm (KPMG
LLP).
|
|
31
|
.1
|
|
Certification of Jeffrey S. Carbiener, Chief Executive Officer
of Lender Processing Services, Inc., pursuant to rule 13a-14(a)
or 15d-14(a) of the Exchange Act, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of Thomas L. Schilling, Chief Financial Officer of
Lender Processing Services, Inc., pursuant to rule 13a-14(a) or
15d-14(a) of the Exchange Act, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of Jeffrey S. Carbiener, Chief Executive Officer
of Lender Processing Services, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
32
|
.2
|
|
Certification of Thomas L. Schilling, Chief Financial Officer of
Lender Processing Services, Inc., pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
93