NOTE 13: ACQUISITIONS

De Novo Legal LLC

On December 28, 2011, we completed the acquisition of one hundred percent of De Novo for approximately $86.6 million and $5.0 million is being held by us as security for potential indemnification claims payable 18 months following the closing date of the acquisition. De Novo 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 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.

During 2012, we adjusted the holdback liability to reflect reductions related to certain uncollectible accounts receivable and other items for which, as agreed to by the sellers, we will be indemnified by the sellers. At December 31, 2012, $3.5 million was recorded in "Current maturities of long-term obligations and at December 31, 2011 $4.9 million was recorded in "Long-term obligations" on the Condensed Consolidated Balance Sheets related to this holdback. This holdback has been discounted using an appropriate imputed interest rate. Also during the first quarter of 2012, we finalized the calculation of the working capital adjustment to the purchase price as reflected in the table below.

The total 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		4,417
Fair value of contingent consideration		16,226
Working capital adjustment		(1,861	)

Total purchase price	$	86,648

De Novo contingent consideration obligation

In connection with the De Novo acquisition, contingent consideration may be payable to the sellers if performance hurdles based on operating revenue objectives are achieved which significantly exceed market expectations. The portion of the contingent consideration tied to certain sellers' continued employment is recognized as compensation expense over the two-year post-acquisition measurement period. The portion of the contingent consideration that is not tied to continued employment was considered to be part of the total consideration transferred for the purchase of De Novo and was measured as of the acquisition date and recognized at fair value as shown in the above table. The fair value of potential contingent consideration was determined using a present value calculation combined with the probability of the potential payouts based on projected revenue. Subsequent changes in fair value, measured quarterly, up to the end of the final measurement period will be recognized in earnings.

During the second quarter of 2012, the employment ended for a De Novo employee entitled to a portion of the potential contingent consideration. According to the terms of the purchase agreement with De Novo, the portion of the contingent consideration subject to the continued employment for this employee was forfeited and will not be allocated to the remaining sellers. As adjusted for this forfeiture, the amount of the remaining potential future cash payments under the contingent consideration opportunity ranges from $0 and $29.1 million. Approximately one-quarter of the remaining contingent consideration opportunity is also contingent upon the continued employment of certain sellers.

During 2012, based upon projected revenue over the remainder of the measurement period, we determined that it is not likely that any contingent consideration for De Novo will be achieved and based on this assessment, we recorded a total decrease in the fair value of the contingent consideration obligation of $17.2 million for the year ended December 31, 2012, which is included in "Fair value adjustment to contingent consideration" in the Consolidated Statement of Income. As of December 31, 2012, no amounts related to this obligation are recorded on the Condensed Consolidated Balance Sheet. As of December 31, 2011, $ 16.2 million was included in "Long-term Obligations" on the Condensed Consolidated Balance Sheet.

Also, in conjunction with the quarterly fair value assessment of the compensation-related contingent consideration, approximately $3.4 million of accrued compensation expense was reversed during the year ended December 31, 2012 which is included in "General and administrative" expense on the Consolidated Statement of Income. As of December 31, 2012, no amounts related to this obligation are recorded on the Consolidated Balance Sheet. For the years ended December 31, 2012 and 2011, compensation expense related to this obligation was $0. As of December 31, 2011, no amounts related to the acquisition-related compensation had been accrued for the period December 28, 2011 through December 31, 2011 as the amount was immaterial.

The change in fair value of the De Novo contingent consideration also includes increases of $1.1 million related to accretion expense, which is included in "Interest expense" in the Consolidated Statement of Income for the year ended December 31, 2012.

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 purchase price allocations are summarized in the following table:

	(in thousands)

Tangible assets and liabilities
Current assets, including cash acquired	$	11,214
Non-current assets		2,738
Current liabilities		(2,361	)
Non-current liabilities		(500	)
Intangible assets		34,629
Goodwill		40,928

Net assets acquired	$	86,648

Based on the results of an independent valuation, we initially allocated approximately $34.4 million of the purchase price to acquired intangible assets. During the first quarter of 2012, based on new information obtained after December 31, 2011, related to the results of an independent valuation of the fair value of property, plant and equipment acquired in connection with the De Novo acquisition, we adjusted the preliminary purchase price allocation to reflect a $1.5 million reduction in property, plant and equipment along with a corresponding increase of $1.3 million to goodwill and a $0.2 million increase to the customer relationship intangible asset.

The following table summarizes the major classes of acquired intangible assets, as well as the respective weighted-average amortization periods:

	Amount (in thousands)

Identifiable Intangible Assets
Trade name	$	850	5.0
Non-compete agreement		2,900	5.0
Customer relationships		30,879	8.0

Total identifiable intangible assets	$	34,629

The excess of purchase consideration over net assets assumed was recorded as goodwill, which represents the strategic value assigned to De Novo, 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 on December 28, 2011, did not have a material impact on our results of operations for the year ended December 31, 2011.

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 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 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 Statement of Income, and totaled $3.9 million for the year ended December 31, 2011, for this acquisition.

Total purchase consideration was 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	$	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 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 results of an independent valuation, we 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)

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 Encore transaction was structured as a stock purchase and therefore, the goodwill and acquired intangible assets are not amortizable for tax purposes.

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.

Jupiter eSources LLC

On October 1, 2010, we completed the acquisition of Jupiter eSources for approximately $67.4 million, 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.

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 that was subsequently paid in May 2012. At December 31, 2011, $8.3 million was recorded in "Current maturities of long-term obligations" on the Consolidated Balance Sheet related to this holdback.

As a result of a contingent consideration opportunity based on future revenue growth related to the Jupiter eSources acquisition, we also have potential future contingent consideration. The potential undiscounted amount of all future payments that we could be required to make under the contingent consideration 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. During 2011, based on our probability assessments of projected revenue over the remainder of the measurement period, we determined that it is not likely that the contingent consideration 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 Statement of Income. Subsequent changes in fair value, measured quarterly, up to the end of the final measurement period will be recognized in earnings.

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 Statement of Income, and totaled $2.6 million for the year ended December 31, 2010, for this acquisition.

See Note 1 and Note 4 for further discussion of intangible assets, including the AACER® trade name.

The consolidated financial statements include the operating results of Jupiter eSources from the date of acquisition. For the year ended December 31, 2010, our consolidated results of operations, since our acquisition of Jupiter eSources on October 1, 2010, included $3.8 million of operating revenue and an operating loss 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

Pro forma financial information

The following unaudited condensed pro forma financial information presents consolidated results of operations as if the De Novo, 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, Encore and Jupiter eSources had been completed on January 1, 2010, nor are they indicative of our future operating results. These unaudited pro forma amounts include an adjustment to reclassify acquisition expenses related to Encore and De Novo to 2010 whereas they were actually incurred throughout 2011.

	Year Ended December 31,

	2011		2010
Total revenue	$	356,954	$	340,425
Operating revenue		334,893		310,854
Net income		22,759		16,346