ACQUISITIONS

9 Months Ended

Sep. 30, 2011

ACQUISITIONS

ACQUISITIONS

NOTE 11:   ACQUISITIONS

Jupiter eSources LLC

On October 1, 2010, we completed the acquisition of one hundred percent 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 U.S. 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 purchase price	$	67,395

In connection with this acquisition, we withheld a portion of the purchase price for any claims for indemnification and purchase price adjustments.  This holdback has been discounted using an appropriate imputed interest rate.  At September 30, 2011, $8.3 million was recorded in “Current maturities of long-term obligations” on the Condensed 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 $20.0 million over a four year period.  We have recognized the fair value of $2.7 million and $7.2 million of the contingent consideration in “Long-term obligations” on the Condensed Consolidated Balance Sheet at September 30, 2011 and December 31, 2010, respectively. 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.  For the three and nine-month periods ended September 30, 2011, we recognized a decrease in the fair value of $1.7 million and $4.5 million, respectively, reflected in “Other operating expense” in the Condensed 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 Condensed Consolidated Statements of Income, and totaled $0.1 million for the nine months ended September 30, 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	$	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

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 Condensed Consolidated Financial Statements include the operating results of Jupiter eSources from the date of acquisition.

Encore Discovery Solutions

On April 4, 2011, we completed the acquisition of one hundred percent of Encore Discovery Solutions (“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 e-discovery 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 Condensed Consolidated Statements of Income, and totaled $3.9 million for the nine months ended September 30, 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	$	19,239
Non-current assets	2,669
Current liabilities	(6,646		)
Non-current liabilities	(15,087		)
Intangible assets	32,578
Software	2,498
Goodwill	69,076
Net assets acquired	$	104,327

Included in the total liabilities assumed is a preliminary net deferred tax liability balance of $16.4 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.

During the third quarter of 2011, we continued evaluating the income tax implications of the Encore acquisition.  As a result of that evaluation we retrospectively decreased the net deferred tax liability as of April 4, 2011, by approximately $1.4 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 Condensed 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.

Pro forma financial information

The following unaudited condensed pro forma financial information presents the results of operations as if the Encore and Jupiter eSources acquisitions had taken place on January 1, 2010 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2011		2010		2011		2010
Revenue	$	76,111	$	73,034	$	221,211	$	219,816
Net income	4,327		5,752		11,259		9,385