ACQUISITIONS

12 Months Ended

Dec. 31, 2011

ACQUISITIONS

ACQUISITIONS

NOTE 13: ACQUISITIONS

Jupiter eSources LLC

        On October 1, 2010, we completed the acquisition of Jupiter eSources, which includes the proprietary software product, AACER® (Automated Access to Court Electronic Records), that assists creditors including banks, mortgage processors, and their administrative services professionals to streamline processing of their portfolios of loans in bankruptcy cases. The AACER® product electronically monitors developments in all United States bankruptcy courts and applies sophisticated algorithms to classify docket filings automatically in each case to facilitate the management of large bankruptcy claims operations. By implementing the AACER® solution, clients achieve greater accuracy in faster timeframes, with a significant cost savings compared to manual attorney review of each case in the portfolio.

        The purchase price of Jupiter eSources was comprised of the following:

	(in thousands)
Cash paid at closing	$	51,600
Fair value of holdback		8,090
Working capital adjustment		539
Fair value of contingent consideration		7,166
Total preliminary purchase price	$	67,395

        In connection with this acquisition, we withheld $8.4 million of the purchase price for 18 months for any claims for indemnification and purchase price adjustments. This amount will be deferred for eighteen months following the closing date of the acquisition. This holdback has been discounted using an appropriate imputed interest rate. At December 31, 2011, $8.3 million was recorded in "Current maturities of long-term obligations" on the Consolidated Balance Sheet and at December 31, 2010, $8.1 million was recorded in "Long-term obligations" related to this holdback.

        As a result of an earn-out opportunity based on future revenue growth that is part of this acquisition, we also have contingent consideration. The potential undiscounted amount of all future payments that we could be required to make under the earn-out opportunity is between $0 and $20 million over a four year period. The fair value of the contingent consideration was determined by a present value calculation of the potential payouts based on projected revenue. Subsequent changes in fair value, which are measured quarterly, up to the ultimate amount paid, will be recognized in earnings. We recognized fair value of $7.2 million of the contingent consideration in "Long-term obligations" on the Consolidated Balance Sheet at December 31, 2010. During 2011, based on our probability assessments of projected revenue over the remainder of the earn-out period, we determined that it is not likely that the earn-out opportunity for Jupiter eSources will be achieved and based on this assessment, during the year ended December 31, 2011, we recognized a total decrease in the fair value of $7.2 million which was reflected in "other operating expense" on the Consolidated Statements of Income.

        The transaction was funded from our credit facility. Transaction related costs, which were expensed during the period in which they were incurred, are reflected in "Other operating expense" in the Consolidated Statements of Income, and totaled $2.6 million for the year ended December 31, 2010, for this acquisition.

        Total purchase consideration has been allocated to the tangible and identifiable intangible assets and to liabilities assumed based on their respective fair values on the acquisition date. The purchase price allocations are summarized in the following table:

	(in thousands)
Tangible assets and liabilities
Current assets, including cash acquired	$	1,733
Non-current assets		37
Current liabilities		(1,191	)
Intangible assets		33,258
Software		2,880
Goodwill		30,678
Net assets acquired	$	67,395

        Based on the results of an independent valuation, we allocated approximately $33.3 million of the purchase price to acquired intangible assets, and $2.9 million of the purchase price to software. The following table summarizes the major classes of acquired intangible assets and software, as well as the respective weighted-average amortization periods:

Identifiable Intangible Assets	Amount (in thousands)		Weighted Average Amortization Period (Years)
Trade name	$	6,434		Indefinite
Non-compete agreements		2,955		5.0
Customer relationships		23,869		5.0
Total identifiable intangible assets	$	33,258

Software	Amount (in thousands)		Weighted Average Amortization Period (Years)
AACER® software application	$	2,880		5.0

        In 2011 we recorded $1.3 million of intangible asset impairment expense related to the trade name. See Note 1 and Note 4 for further discussion of intangible assets. The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value we placed on the AACER® product. We have allocated goodwill of $30.7 million related to this acquisition to our bankruptcy segment, which is deductible for tax purposes. The consolidated financial statements include the operating results of Jupiter eSources from the date of acquisition.

        For the year ended December 31, 2011, our consolidated results of operations, since our acquisition of Jupiter eSources on October 1, 2010, included $3.8 million of operating revenue and a net loss from operations of $0.9 million, related to the Jupiter eSources legal entity. These amounts are not necessarily reflective of the actual impact of the Jupiter eSources acquisition due to post-acquisition integration with our legal entities.

Encore Discovery Solutions

        On April 4, 2011, we completed the acquisition of one hundred percent of Encore for approximately $104.3 million, $10.0 million of which was placed in escrow as security for potential indemnification claims. Encore provides products and services for electronic evidence processing, document review platforms, and professional services for project management, data collection and forensic consulting. With this transaction, we further strengthen our worldwide eDiscovery franchise providing corporate legal departments and law firms with a broad range of capabilities to manage electronic information for discovery, investigations, compliance and related legal matters. The transaction was funded from our credit facility.

        The total preliminary purchase price transferred to effect the acquisition was as follows (in thousands):

	(in thousands)
Cash paid at closing	$	103,385
Other consideration		844
Working capital adjustment		98
Total preliminary purchase price	$	104,327

        The transaction was funded from our credit facility. Transaction related costs, which were expensed during the period in which they were incurred, are reflected in "Other operating expense" in the Consolidated Statements of Income, and totaled $3.9 million for the year ended December 31, 2011, for this acquisition.

        Total purchase consideration has been allocated to the tangible and identifiable intangible assets and to liabilities assumed based on their respective fair values on the acquisition date. The measurement period for purchase price allocations ends as soon as information on the facts and circumstances becomes available, but does not exceed 12 months. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized for assets acquired and liabilities assumed, we will retrospectively adjust the amounts recognized as of the acquisition date. The preliminary purchase price allocations are summarized in the following table:

	(in thousands)
Tangible assets and liabilities
Current assets, including cash acquired	$	20,044
Non-current assets		2,669
Current liabilities		(6,646	)
Non-current liabilities		(15,115	)
Intangible assets		32,578
Software		2,498
Goodwill		68,299
Net assets acquired	$	104,327

        Included in the total liabilities assumed is a preliminary net deferred tax liability balance of $16.0 million, primarily comprised of the difference between the assigned values of the intangible assets acquired and the tax basis of those assets.

        Based on the preliminary results of an independent valuation, we have allocated approximately $32.6 million of the purchase price to acquired intangible assets, and $2.5 million of the purchase price to software. The following table summarizes the major classes of acquired intangible assets and software, as well as the respective weighted-average amortization periods:

	Amount (in thousands)		Weighted Average Amortization Period (Years)
Identifiable Intangible Assets
Trade name	$	1,617		5.0
Non-compete agreement		1,362		2.0
Customer relationships		29,599		7.0
Total identifiable intangible assets	$	32,578
Software internally developed	$	2,498		5.0

        The amounts shown above may change in the near term as management continues to assess the fair value of acquired assets and liabilities. We are also continuing to gather information necessary to evaluate the income tax implications on the opening balance sheet. The income tax related accounts and goodwill may be affected once this evaluation is complete. The Encore transaction was structured as a stock purchase and therefore, the goodwill and acquired intangible assets are not amortizable for tax purposes.

        As a result of the continuing evaluation of the income tax implications of the Encore acquisition, we retrospectively decreased the net deferred tax liability as of April 4, 2011, by approximately $0.8 million. This reduction was attributable to new information gathered during the measurement period and our assessment of income tax filing requirements in state and local jurisdictions where Encore has significant operations. This opening balance sheet adjustment resulted in a corresponding reduction in goodwill and had no impact on the accompanying Consolidated Statements of Income.

        The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to Encore, including the expected benefits from the synergies resulting from the transaction, as well as the knowledge and experience of the workforce in place.

        For the year ended December 31, 2011, our consolidated results of operations, since our acquisition of Encore on April 4, 2011, included $42.2 million and $8.3 million of operating revenue and operating income, respectively, related to the Encore legal entity. These amounts are not necessarily reflective of the actual impact of the Encore acquisition on our results of operations due to post-acquisition integration with our legal entities.

De Novo Legal LLC

        On December 28, 2011, we completed the acquisition of one hundred percent of De Novo Legal for approximately $87.2 million and $5.0 million is being held by us as security for potential indemnification claims. De Novo Legal has document review centers in key strategic locations in the United States and is among the largest providers of managed review and staffing services. De Novo Legal also offers clients eDiscovery processing and hosted review. This transaction augments our capacity for managed review services and broadens our eDiscovery customer base. The transaction was funded from our credit facility.

        The total preliminary purchase price transferred to effect the acquisition was as follows (in thousands):

	(in thousands)
Cash paid at closing	$	67,866
Fair value of deferred cash consideration		4,870
Fair value of contingent consideration		16,226
Working capital adjustment		(1,720	)
Total preliminary purchase price	$	87,242

        In connection with this acquisition$5.0 million of the purchase price is being held by us and deferred for 18 months following the closing date of the acquisition as security for any claims for indemnification. This holdback has been discounted using an appropriate imputed interest rate. At December 31, 2011, $4.9 million was recorded in "Long-term obligations" on the Consolidated Balance Sheet related to this holdback.

        As a result of an earn-out opportunity based on future revenue growth that is part of this acquisition, we also have contingent consideration. The potential undiscounted amount of all future payments that we could be required to make under the earn-out opportunity is between $0 and $33.6 million over a two-year period. Approximately one-third of the De Novo Legal earn-out opportunity is contingent upon certain of the sellers remaining employees of Epiq. The portion of the contingent consideration that is not tied to employment is considered to be part of the total consideration transferred for the purchase of De Novo Legal and has been measured and recognized at a fair value of approximately $16.2 million as of December 31, 2011, in "Long-term obligations" on the Consolidated Balance Sheet at December 31, 2011. The fair value of the contingent consideration was determined by a present value calculation of the potential payouts based on projected revenue. Subsequent fair value changes, measured quarterly, up to the ultimate amount paid, will be recognized in earnings. The portion of the contingent consideration that is tied to employment will be treated as compensation expense when incurred.

        The transaction was funded from our credit facility. Transaction related costs, which were expensed during the period in which they were incurred, are reflected in "Other operating expense" in the Consolidated Statements of Income, and totaled $3.5 million for the year ended December 31, 2011, for this acquisition.

        Total purchase consideration has been allocated to the tangible and identifiable intangible assets and to liabilities assumed based on their respective fair values on the acquisition date. The measurement period for purchase price allocations ends as soon as information on the facts and circumstances becomes available, but does not exceed 12 months. If new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the measurement of the amounts recognized for assets acquired and liabilities assumed, we will retrospectively adjust the amounts recognized as of the acquisition date. The preliminary purchase price allocations are summarized in the following table:

	(in thousands)
Tangible assets and liabilities
Current assets, including cash acquired	$	11,546
Non-current assets		4,247
Current liabilities		(2,103	)
Non-current liabilities		(500	)
Intangible assets		34,400
Goodwill		39,652
Net assets acquired	$	87,242

        Based on the preliminary results of an independent valuation, we have allocated approximately $34.4 million of the purchase price to acquired intangible assets. The following table summarizes the major classes of acquired intangible assets, as well as the respective weighted-average amortization periods:

	Amount (in thousands)		Weighted Average Amortization Period (Years)
Identifiable Intangible Assets
Trade name	$	850		5.0
Non-compete agreement		2,900		5.0
Customer relationships		30,650		8.0
Total identifiable intangible assets	$	34,400

        The amounts shown above may change in the near term as management continues to assess the fair value of acquired assets and liabilities. We are also continuing to gather information necessary to evaluate the income tax implications on the opening balance sheet. The income tax related accounts and goodwill may be affected once this evaluation is complete.

        The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to De Novo Legal, including the expected benefits from the synergies resulting from the transaction, as well as the knowledge and experience of the workforce in place. The goodwill and intangible assets related to this acquisition are deductible for tax purposes.

        The acquisition of De Novo Legal on December 28, 2011, did not have a material impact on our results of operations for the year ended December 31, 2011.

Pro forma financial information

        The following unaudited condensed pro forma financial information presents the results of operations as if the De Novo Legal, Encore and Jupiter eSources acquisitions had taken place on January 1, 2010 (in thousands). These amounts were prepared in accordance with the acquisition method of accounting under existing standards and are not necessarily indicative of the results of operations that would have occurred if our acquisitions of De Novo Legal, Encore and Jupiter eSources had been completed on January 1, 2010, nor are they indicative of our future operating results. The historical unaudited financial information has been adjusted to give effect to pro forma events that are (1) directly attributable to the acquisitions, (2) factually supportable, and (3) expected to have a continuing impact on our combined results of operations. These unaudited pro forma amounts include adjustments to reflect the additional amortization expense that would have been charged assuming the fair value adjustments to intangible assets had been applied from January 1, 2010, together with the consequential tax effects. These adjustments also reflect the additional interest expense incurred on the debt to finance the acquisitions and adjustments to reclassify acquisition expenses related to Encore and De Novo Legal to 2010 whereas they were actually incurred in 2011.

	Year Ended December 31,
	2011		2010
Revenue	$	356,954	$	340,425
Net income		22,759		16,346