Filed Pursuant to Rule 424(b)(3)

SEC File No. 333-153221

PROSPECTUS

 

 

Offer to Exchange

 

$375,000,000 Outstanding 81/8% Senior Notes due 2016

 

for $375,000,000 Registered 81/8% Senior Notes due 2016

 

 

The New Notes:

 

 

The terms of the new notes offered in the exchange offer are substantially identical to the terms of the old notes, except that the new notes are registered under the Securities Act of 1933 and will not contain restrictions on transfer or provisions relating to additional interest, will bear a different CUSIP or ISIN number from the old notes and will not entitle their holders to registration rights.

 

 

Investing in the new notes involves risks. You should carefully review the risk factors beginning on page 12 of this prospectus before participating in the exchange offer.

 

 

The Exchange Offer:

 

 

 

 

The Guarantees:

 

 

Each of our domestic subsidiaries that guarantees our obligations under our old notes will guarantee the new notes on an unsecured senior basis. Additionally, if any material domestic subsidiary (that has not already guaranteed the old notes) guarantees our obligations under our senior secured credit agreement, then such subsidiary will also be required to guarantee the new notes on an unsecured senior basis.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is September 10, 2008.

TABLE OF CONTENTS

 

 

 

 

 

We have not authorized anyone to give you any information or to make any representations about the transactions we discuss in this prospectus other than those contained in the prospectus. If you are given any information or representation about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer to sell securities under applicable law.

 

In making an investment decision, investors must rely on their own examination of the issuers and the terms of the offer, including the merits and risks involved. These securities have not been recommended by any federal or state securities commission or regulatory authority. Furthermore, the foregoing authorities have not confirmed the accuracy or determined the adequacy of this document. Any representation to the contrary is a criminal offense.

 

In connection with the exchange offer, we have filed with the U.S. Securities and Exchange Commission a registration statement on Form S-4 under the Securities Act of 1933, relating to the new notes to be issued in the exchange offer. As permitted by Securities and Exchange Commission rules, this prospectus omits information included in the registration statement. For a more complete understanding of the exchange offer, you should refer to the registration statement, including its exhibits.

 

The public may read and copy any reports or other information that we file with the Securities and Exchange Commission. Such filings are available to the public over the Internet at the Securities and Exchange Commission’s website at http://www.sec.gov. The Securities and Exchange Commission’s website is included in this prospectus as an inactive textual reference only. You may also read and copy any document

that we file with the Securities and Exchange Commission at its public reference room at 100 F Street, N.E., Washington D.C. 20549. You may obtain information on the operation of the public reference room by calling the Securities and Exchange Commission at 1-800-SEC-0330. You may also obtain a copy of the registration statement relating to the exchange offer and other information that we file with the Securities and Exchange Commission at no cost by calling us or writing to us at the following address:

 

Lender Processing Services, Inc.
601 Riverside Avenue
Jacksonville, Florida 32204
(904) 854-5100
Attention: Corporate Secretary

 

In order to obtain timely delivery of such materials, you must request documents from us no later than five business days before you make your investment decision or at the latest by October 2, 2008.

 

THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO PURCHASE NOTES IN ANY JURISDICTION IN WHICH, OR TO OR FROM ANY PERSON TO OR FROM WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER UNDER APPLICABLE SECURITIES OR BLUE SKY LAWS.

 

The delivery of this prospectus shall not under any circumstances create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that there has been no change in the information set forth herein or in any attachments hereto or in the affairs of LPS or any of its subsidiaries or affiliates since the date hereof.

 

INDUSTRY AND MARKET DATA

 

We obtained the market and competitive position data used throughout this prospectus from our own research, surveys or studies conducted by third parties and industry or general publications. Industry publications and surveys generally state that they have obtained information from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. While we believe that each of these studies and publications is reliable, we have not independently verified such data and we do not make any representation as to the accuracy of such information. Similarly, we believe our internal research is reliable but it has not been verified by any independent sources.

TERMS USED IN THIS PROSPECTUS

 

Unless otherwise noted or indicated by the context, in this prospectus, the following terms have the meanings indicated:

 

 

The prospectus refers to certain trademarks, including Desktop, Empower!, Lender Processing Services, Lender Processing Services (LPS), LenderProcessingServices, LPS, LPS (stylized and design), Mortgage Servicing Package, RealEC, and SoftPro.

 

SUMMARY

	•	our mortgage processing services, which we conduct using our market-leading mortgage servicing platform and our team of experienced support personnel based primarily at our Jacksonville, Florida data center;
	•	our Desktop application, a workflow system that assists our customers in managing business processes, which today is primarily used in connection with mortgage loan default management but which has broader applications;
	•	our other software and related service offerings, including our mortgage origination software, our real estate closing and title insurance production software and our middleware application which provides collaborative network 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 types of valuations other than traditional appraisals, our property records business and our advanced analytic services, which assist our customers in their loan marketing or loss mitigation efforts.

	•	settlement services, which consist of title agency services, where we act as an agent for title insurers, closing services, in which we assist in the closing of real estate transactions, and lien recording and release services;
	•	appraisal services, which consist of traditional appraisal and appraisal management services; and
	•	other origination services, which consist of real estate tax services, which provide lenders with information about the tax status of a property, flood zone information, which assists lenders in determining whether a property is in a federally designated flood zone, and qualified exchange intermediary services for customers who seek to engage in qualified exchanges under Section 1031 of the Internal Revenue Code.

	•	foreclosure services, including access to a nationwide network of independent attorneys, document preparation 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 a network of independent real estate brokers, attorneys and other vendors to facilitate the transaction.

	•	allowing us to separately focus on our core business, which may facilitate our potential expansion and growth by enabling us to separately prioritize our opportunities and better allocate resources and management time and attention to those opportunities;
	•	allowing us to determine our own capital structure;
	•	permitting us to allocate technology resources to minimize costs, which may lead to operating our business more efficiently;
	•	allowing us to more properly market our products in the market niche we occupy, thus maximizing the advantages of our business in the view of the market;
	•	enhancing our ability to execute a potential acquisition strategy more effectively; and
	•	permitting us to enhance the efficiency and effectiveness of equity-based compensation programs offered to our employees by better aligning equity awards with the performance of our company.

Securities		$375,000,000 in aggregate principal amount of 81/8% Senior Notes due 2016, which we refer to as the new notes, which will be registered under the Securities Act of 1933.
		The terms of the new notes offered in the exchange offer are identical in all material respects to those of the old notes, except that the new notes will:
		• be registered under the Securities Act of 1933 and therefore will not be subject to restrictions on transfer;
		• not be subject to provisions relating to additional interest;
		• bear a different CUSIP or ISIN number from the old notes;
		• not entitle their holders to registration rights; and
		• be subject to terms relating to book-entry procedures and administrative terms relating to transfers that differ from those of the old notes.
The Exchange Offer		You may exchange old notes for new notes. Subject to the satisfaction or waiver of specified conditions, we will exchange the new notes for all old notes that are validly tendered and not validly withdrawn prior

		to the expiration of the exchange offer. We will cause the exchange to be effected promptly after the expiration of the exchange offer.
Resale of the New Notes		We believe the new notes that will be issued in the exchange offer may be resold by most investors without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, subject to some conditions. You should read the discussion under the heading “The Exchange Offer” for further information regarding the exchange offer and resale of the new notes.
Registration Rights Agreement		We have undertaken this exchange offer pursuant to the terms of a registration rights agreement entered into with the initial purchasers of the old notes. We have agreed to cause a registration statement with respect to an offer to exchange the notes for a new issue of notes registered under the Securities Act to be declared effective no later than 210 days after the issue date. We have further agreed to commence the exchange offer promptly after the registration statement of which this prospectus is a part becomes effective and to hold the offer open for the period required by applicable law (including pursuant to any applicable interpretation by the staff of the Securities and Exchange Commission), but in any event for at least 20 business days. See “The Exchange Offer.”
Consequences of Failure to Exchange the Old Notes		You will continue to hold the old notes that remain subject to their existing transfer restrictions if you:
		• do not tender your old notes; or
		• tender your old notes and they are not accepted for exchange.
		We will have no obligation to register the old notes after we consummate the exchange offer. See “The Exchange Offer — Terms of the Exchange Offer” and “Risk Factors — Risks related to the notes.”
		Upon completion of the exchange offer, there may be no market for the old notes that remain outstanding and you may have difficulty selling them.
Expiration Date		The exchange offer will expire at 5:00 p.m., New York City time, on October 9, 2008, or the “expiration date,” unless we extend it, in which case expiration date means the latest date and time to which the exchange offer has been extended.
Interest on the New Notes		The new notes of each series will accrue interest from the most recent date to which interest has been paid or provided for on the old notes or, if no interest has been paid on the old notes, from the date of original issue of the old notes.
Conditions to the Exchange Offer		The exchange offer is subject to several customary conditions. We will not be required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend the exchange offer if we determine in our reasonable judgment that the exchange offer violates applicable law, any applicable interpretation of the Securities and Exchange Commission or its staff or any action or proceeding has been instituted or threatened in any court or by any governmental agency that might materially impair our ability to proceed with the exchange offer, or any material adverse

		development has occurred in any existing action or proceeding with respect to us. The foregoing conditions are for our sole benefit and may be waived by us. In addition, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any such old notes if:
		• at any time any stop order is threatened or in effect with respect to the registration statement of which this prospectus is a part; or
		• at any time any stop order is threatened or in effect with respect to the qualification of the indenture governing the notes under the Trust Indenture Act of 1939.
		See “The Exchange Offer — Conditions.” We reserve the right to terminate or amend the exchange offer at any time prior to the expiration date upon the occurrence of any of the foregoing events.
Procedures for Tendering Old Notes		If you wish to participate in the exchange offer, you must submit required documentation and tender your old notes pursuant to the procedures for book-entry transfer (or other applicable procedures), all in accordance with the instructions described in this prospectus and in the letter of transmittal or electronic acceptance instruction. See “The Exchange Offer — Procedures for Tendering Old Notes,” “— Book-Entry Transfer” and “— Guaranteed Delivery Procedures.”
Guaranteed Delivery Procedures		If you wish to tender your old notes, but cannot properly do so prior to the expiration date, you may tender your old notes according to the guaranteed delivery procedures set forth in “The Exchange Offer — Guaranteed Delivery Procedures.”
Withdrawal Rights		Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date. To withdraw a tender of old notes, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address set forth in “The Exchange Offer — Exchange Agent” prior to 5:00 p.m., New York City time, on the expiration date.
Acceptance of Old Notes and Delivery of New Notes		Except in some circumstances, any and all old notes that are validly tendered in the exchange offer prior to 5:00 p.m., New York City time, on the expiration date will be accepted for exchange. The new notes issued pursuant to the exchange offer will be delivered promptly following the expiration date. We may reject any and all old notes that we determine have not been properly tendered or any old notes the acceptance of which would, in the opinion of our counsel, be unlawful. We may waive any irregularities in the tender of the old notes. See “The Exchange Offer — Procedures for Tendering Old Notes,” “— Book-Entry Transfer,” and “— Guaranteed Delivery Procedures.” We will have no obligation to register the old notes after we consummate the exchange offer.
Certain U.S. Federal Tax Considerations		We believe that the exchange of the old notes for the new notes will not constitute a taxable exchange for U.S. federal income tax purposes. See “Certain U.S. Federal Tax Considerations.”
Exchange Agent		U.S. Bank National Association, Corporate Trust Services

	•	will be registered under the Securities Act of 1933 and, therefore, will not be subject to restrictions on transfer;
	•	will not be subject to provisions relating to additional interest;
	•	will bear a different CUSIP or ISIN number from the old notes;
	•	will not entitle their holders to registration rights; and
	•	will be subject to terms relating to book-entry procedures and administrative terms relating to transfers that differ from those of the old notes.

Issuer		Lender Processing Services, Inc.
Maturity		July 1, 2016.
Interest payment dates		81/8% per annum, paid every six months on January 1 and July 1, with the first payment on January 1, 2009.
Optional redemption		Prior to July 1, 2011, we may redeem some or all of the notes at a redemption price equal to 100% plus a make-whole premium and accrued and unpaid interest. On or after July 1, 2011, we may redeem some or all of the notes at any time at the redemption prices set forth in “Description of Notes — Optional redemption.”
		Before July 1, 2011, we may redeem up to 35% of the notes with the proceeds of certain sales of common stock or certain capital contributions at a price of 108.125% of principal plus accrued interest, as further described in “Description of Notes — Optional redemption.”
Mandatory offer to repurchase		Upon the occurrence of certain change of control events described under “Description of Notes,” you may require us to repurchase some or all of your notes at 101% of their principal amount plus accrued interest. We cannot assure you that we will have sufficient resources to satisfy our repurchase obligation. You should read carefully the sections called “Risk Factors — Risks related to the notes— We may be unable to make a change of control offer required by the indenture governing the notes which would cause defaults under the indenture governing the notes and our new credit facilities” and “Description of Notes.”
Guarantors		Each of our domestic subsidiaries that guarantees our obligations under our old notes will guarantee the new notes on an unsecured senior basis. Additionally, if any material domestic subsidiary (that has not already guaranteed the old notes) guarantees our obligations under our senior secured credit agreement, then such subsidiary will also be required to guarantee the new notes on an unsecured senior basis.

Ranking		The new notes and the subsidiary guaranties thereof will be senior unsecured obligations and will rank equally with all of our and our guarantor subsidiaries’ existing and future senior debt, will rank senior to all of our and our guarantor subsidiaries’ future subordinated debt and will effectively rank junior to all secured debt to the extent of the value of the collateral and structurally junior to all liabilities of non-guarantor subsidiaries.
		On a pro forma basis:
		• at June 30, 2008 the Company and the guarantors would have had outstanding approximately $1.2 billion of secured debt; and
		• the Company’s subsidiaries which have not guaranteed the notes represent under 5% of our revenue for the twelve months ended June 30, 2008, and represent under 5% of our assets and outstanding liabilities as of June 30, 2008 (including trade payables).
Certain covenants		The indenture governing the notes contains covenants limiting our ability and our subsidiaries’ ability to:
		• incur additional debt or issue subsidiary preferred stock or stock with a mandatory redemption feature before the maturity of the notes;
		• pay dividends on our capital stock;
		• redeem or repurchase capital stock or prepay or repurchase subordinated debt;
		• make some types of investments and sell assets;
		• create liens or engage in sale and leaseback transactions;
		• engage in transactions with affiliates, except on an arms-length basis; and
		• consolidate or merge with, or sell substantially all our assets to, another person.
		Certain of these covenants will be subject to suspension if the notes are rated at least “BBB−” by Standard & Poor’s or at least “Baa3” by Moody’s.
		You should read “Description of Notes — Certain covenants” for a description of these covenants.
Registration Rights		We are required to cause a registration statement with respect to an offer to exchange the notes for a new issue of notes registered under the Securities Act to be declared effective no later than 210 days after the issue date. We may be required to provide a registration statement to effect resales of the notes.
Use of proceeds		We will not receive any cash proceeds from the issuance of the new notes under the exchange offer.
Risk factors		See “Risk Factors” beginning on page 13 of this prospectus for important information regarding the notes and the Company.

														Unaudited
		Fiscal Year Ended December 31,												Six Months Ended June 30,
		2005				2006				2007				2007				2008
		(Dollars in thousands)
Statement of earnings data:
Processing and services revenues		$	1,382,479			$	1,484,977			$	1,690,568			$	826,438			$	913,106
Cost of revenues			804,488				900,145				1,058,647				526,823				585,137
Gross profit			577,991				584,832				631,921				299,615				327,969
Selling, general, and administrative expenses			260,066				257,312				207,859				109,072				118,999
Operating income			317,925				327,520				424,062				190,543				208,970
Other income (expense):
Interest income			4,124				2,606				1,690				745				563
Interest expense			(270	)			(298	)			(146	)			(77	)			(58	)
Other income (expense), net			(1,238	)			(106	)			—				—				282
Total other income (expense)			2,616				2,202				1,544				668				787
Earnings before income taxes, equity in losses of unconsolidated entity and minority interest			320,541				329,722				425,606				191,211				209,757
Provision for income taxes			124,160				127,984				164,734				74,010				81,386
Earnings before equity in losses of unconsolidated entity and minority interest			196,381				201,738				260,872				117,201				128,371
Equity in losses of unconsolidated entity			—				—				(3,048	)			(1,720	)			(2,370	)
Minority interest			(676	)			(683	)			(1,019	)			(436	)			(723	)
Net earnings		$	195,705			$	201,055			$	256,805			$	115,045			$	125,278
Statement of cash flows data:
Net cash provided by (used in):
Operating activities		$	272,792			$	341,950			$	282,994			$	133,389			$	136,683
Investing activities			(98,384	)			(81,589	)			(107,857	)			(62,456	)			(40,625	)
Financing activities			(198,745	)			(272,334	)			(183,354	)			(69,639	)			(116,996	)
Other financial data:
Capital expenditures			92,458				70,248				70,552				25,036				25,137
Depreciation and amortization			112,648				111,858				102,607				52,373				44,576
Balance sheet data (at period end):
Cash and cash equivalents		$	59,756			$	47,783			$	39,566			$	49,077			$	18,628
Working capital			83,981				155,964				239,343				179,732				248,385
Property and equipment, net			107,654				101,962				95,620				94,301				92,487
Goodwill and other intangible assets			918,333				1,198,610				1,196,283				1,217,521				1,189,953
Computer software			114,982				127,080				150,372				133,419				149,562
Total assets			1,542,802				1,879,800				1,962,043				1,947,212				1,985,740
Total debt			—				—				—				—				—
Total shareholder’s equity			1,270,939				1,577,531				1,671,039				1,636,151				1,674,501
Credit Statistics:
Ratio of earnings to fixed charges(a)			—				—				—				—				—

(a)		The historical ratio of earnings to fixed charges for each of the years in the three-year period ended December 31, 2007 and the six months ended June 30, 2008 and 2007 is not meaningful since we did not have any debt outstanding during those time periods. See the “Pro Forma Financial Information” section of this prospectus for a ratio of earnings to fixed charges, based on the pro forma income statements for the year ended December 31, 2007 and the six months ended June 30, 2008. For purposes of calculating the ratio of earnings to fixed charges, “earnings” consist of income before income taxes plus fixed charges. “Fixed charges” include interest expense and amortization of debt issuance costs.

 

You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment in the new notes. In addition to the normal risks of a business, we are subject to significant risks and uncertainties. Any of the risks described herein could result in a significant adverse effect on our results of operation and financial condition. In such case, you may lose all or part of your investment in the notes.

 

Risks related to our business

 

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.

 

Consolidation in the banking and financial services industry could adversely affect our revenues by eliminating some of our existing and potential customers and could make us more dependent on a more limited number of customers.

 

There has been and continues to be substantial merger, acquisition and consolidation activity in the banking and financial services industry. Mergers or consolidations of banks and financial institutions in the future could reduce the number of our customers and potential customers, which could adversely affect our revenues even if these events do not reduce the aggregate activities of the consolidated entities. Further, negative operating results in the current economic environment could lead to some banks, including some of our largest customers, merging or being acquired. In addition, recently there have been a small number of bank failures related to the rising mortgage delinquency and default rates, particularly within the subprime lending market, and it is possible that additional banks could fail in the future. The failure of one of our customers may result in the immediate discontinuance of some or all of the services that we provide to that customer, or in the acquisition of that customer by other entities. If our customers merge with or are acquired by other entities that are not our customers, or that use fewer of our services, they may discontinue or reduce their use of our services.

 

The recent merger of Bank of America and Countrywide Financial Corporation (“Countrywide”) is an example of a merger that presents us with risks and opportunities, as prior to the merger, each of these two entities used some of the services we provide while obtaining others from third parties or from internal resources. We are in senior-level discussions with Bank of America about the scope of services we will provide to the newly consolidated entity. Bank of America has informed us that it is leaning towards phasing out the mortgage processing and appraisal services we provide to Bank of America and instead obtaining these services internally. These services together generated approximately 4% of our revenues in 2007. If this decision becomes final, we anticipate that a mortgage processing conversion would take from 12 to 30 months from July 2008, when the merger was completed. We have not received any formal notice of termination from Bank of America or been involved in any discussions with them about the mechanics or planning of a mortgage processing or appraisal conversion. It is possible that Bank of America could decide to continue its mortgage processing with us (due to greater efficiencies and cost savings we may provide as a result of our higher volumes, or due to other factors) or to continue its appraisal services with us (due to ramifications from the new Code of Conduct referred to below or other factors), although no assurance can be given in this

regard. Furthermore, Bank of America obtains other services from us and has indicated a willingness to expand its relationship with us in other areas. We and Bank of America are discussing other revenue opportunities that may offset a phase-out of the mortgage processing and appraisal services. We cannot assure you that Bank of America will expand its relationship with us in other areas or that any other revenue opportunities will be realized.

 

It is possible that the larger banks or financial institutions resulting from mergers or consolidations would have greater leverage in negotiating terms with us or could decide to perform in-house some or all of the services which we currently provide or could provide. Further, additional bank mergers impacting our customers could result in the discontinued use of certain of our services. Any of these developments could have a material adverse effect on our business and results of operations.

 

Decreased lending and real estate activity reduces demand for certain of our services and may adversely affect our results of operations.

 

Real estate sales are affected by a number of factors, including mortgage interest rates, the availability of funds to finance purchases, the level of home prices and general economic conditions. The volume of refinancing transactions in particular and mortgage originations in general declined in 2005, 2006 and 2007 from 2004 levels, resulting in reduction of revenues in some of our businesses. The current Mortgage Bankers Association forecast is for $1.9 trillion of mortgage originations in 2008 compared to $2.3 trillion in 2007. In addition, rising mortgage delinquency and default rates have negatively impacted some of our mortgage lending customers, particularly within the subprime lending market. These trends appear likely to continue. Our revenues in future periods will continue to be subject to these and other factors which are beyond our control and, as a result, are likely to fluctuate.

 

Further, in the event that levels of home ownership were to decline or other factors were to reduce the aggregate number of U.S. mortgage loans, our revenues from mortgage processing could be adversely affected.

 

If we were to lose any of our largest customers, our results of operations could be significantly affected.

 

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 2007, our three largest customers accounted for approximately 25% of our aggregate revenue and approximately 23% and 26% of the revenue of our Technology, Data and Analytics and Loan Transaction Services segments, respectively. In addition, our fourth largest customer in 2007, which represented 3.5% of our aggregate revenue, was Countrywide, which recently merged with Bank of America, which is one of our three largest customers. Our relationships with these and other large customers are important to our future operating results, and deterioration in any of those relationships, as a result of changes following a merger or otherwise, could significantly reduce our revenues. See “Management’s discussion and analysis of financial condition and results of operations — Business trends and conditions.”

 

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 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.

 

In our mortgage processing business, we face direct competition from third parties. Although we have a substantial market position in processing traditional mortgages, our share of the market for processing home equity lines of credit, an area in which we seek to expand, is much smaller. In this area, we also compete against providers of credit card processing systems, which often offer very aggressive pricing.

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.

 

If we are unable to successfully consummate and integrate acquisitions, our results of operations may be adversely affected.

 

We anticipate that we will seek to 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.

 

Acquisitions have not been a substantial factor in our growth in the past several years. Going forward, however, our management has articulated a strategy for us, as a stand-alone company, that includes growth through acquisitions. Our management will have to balance the challenges associated with being a newly stand-alone company with the demands of completing acquisitions and integrating acquired businesses. Without recent similar experiences and also without access to FIS’s infrastructure, systems and personnel, there can be no assurance that our management will be able to successfully complete acquisitions or bring new businesses together. Additionally, the acquisition and integration processes may disrupt our business and divert our resources.

 

We could have conflicts with FIS and FNF, and the Chairman of our board of directors and other officers and directors could have conflicts of interest due to their relationships with FIS or FNF.

 

FNF and FIS were under common ownership by old FNF until October 2006, when old FNF distributed all of its FNF shares to the stockholders of old FNF. In November 2006, old FNF then merged into FIS. However, FNF and FIS have remained parties to a variety of agreements, some of which were assigned to us by FIS in the spin-off. Further, FNF, FIS and we have overlapping directors and officers.

 

Conflicts may arise between FIS and us, or FNF and us, in each case as a result of our ongoing agreements and the nature of our respective businesses. Among other things, we became a party to a variety of agreements with FIS and FNF in connection with the spin-off, and we may enter into further agreements with FIS or FNF after the spin-off. Certain of our executive officers and directors could be subject to conflicts of interest with respect to such agreements and other matters due to their relationships with FIS or FNF.

 

William P. Foley, II, who became our Chairman as a result of the spin-off, is also the Executive Chairman of FIS and the executive Chairman of the board of directors of FNF. As a result, he has obligations to us as well as to FIS or FNF and could have conflicts of interest with respect to matters potentially or actually involving or affecting us and FIS or FNF.

 

Mr. Foley owns substantial amounts of FIS and FNF stock and stock options because of his relationships with FIS and FNF. In addition, Mr. Carbiener owns a substantial amount of FIS stock, and our directors, including Mr. Kennedy who serves as President and Chief Executive Officer of FIS, also own FIS and in some cases FNF stock and stock options due to similar current or past relationships. Such ownership could create or

appear to create potential conflicts of interest when our directors and officers are faced with decisions that involve FIS or FNF or any of their respective subsidiaries.

 

Matters that could give rise to conflicts between us and FIS or FNF include, among other things:

 

 

We will seek to manage these potential conflicts through dispute resolution and other provisions of our agreements with FIS and FNF and through oversight by independent members of our board of directors. However, there can be no assurance that such measures will be effective or that we will be able to resolve all potential conflicts with FIS and FNF, or that the resolution of any such conflicts will be no less favorable to us than if we were dealing with a third party.

 

If FIS or FNF engages in the same type of business we conduct, our ability to successfully operate and expand our business may be limited.

 

Neither FIS nor FNF is under any obligation not to compete with us. Currently, although a substantial business of our loan facilitation services is acting as a title agent for FNF, FNF is under no obligation to deal exclusively with us, has business units that compete with us in the title agency business and could deal with other agents that compete with us for the title agency business we operate. FNF also competes with us to a small extent in appraisal and default management services.

 

Due to the significant resources of FIS and FNF, including financial resources, each of those companies could have a significant competitive advantage over us should it decide to engage in the types of business we conduct, which could have an adverse effect on our financial condition and results of operations.

 

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:

 

 

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.

 

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, driver’s 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.

 

In the wake of the current mortgage market, there could be adverse regulatory consequences or litigation that could affect us.

 

Various aspects of our businesses are subject to federal and state regulation. The sharp rise in home foreclosures that started in the United States during the fall of 2006 and has accelerated in 2007 and 2008 has begun to result in investigations and lawsuits against various parties commenced by various governmental authorities and third parties. It has also resulted in governmental review of aspects of the mortgage lending business, which may lead to greater regulation in areas such as appraisals, default management, loan closings and regulatory reporting. Such actions and proceedings could have adverse consequences that could affect our business.

 

Over the last few months, the New York Attorney General, which we refer to as the NYAG, has been conducting an inquiry into various practices in the mortgage market, including a review of the possibility that conflicts of interest have in some cases affected the accuracy of property appraisals. Recently, the NYAG announced a resolution of a portion of this inquiry with respect to Federal National Mortgage Association, which we refer to as Fannie Mae, and Federal Home Loan Mortgage Corporation, which we refer to as Freddie Mac. Under agreements entered into with the NYAG, Fannie Mae and Freddie Mac each committed to adopt a new Home Valuation Code of Conduct. This Code of Conduct establishes requirements governing

appraiser selection, compensation, conflicts of interest and corporate independence, among other matters. Both Fannie Mae and Freddie Mac have agreed that they will not purchase any single family mortgage loans, other than government-insured loans, originated after January 1, 2009 from mortgage originators that have not adopted the Code of Conduct with respect to such loans. Among other things, the Code of Conduct prohibits the purchase of home mortgage loans by Fannie Mae and Freddie Mac if the associated appraisal is performed by an appraiser that is employed by the lender, a real estate settlement services provider or a subsidiary of a real estate settlement services provider.

 

Although we provide real estate settlement services, we do not employ appraisers. Instead, we manage the activities of thousands of appraisers who all work as independent contractors. Nevertheless, Freddie Mac has issued a bulletin indicating that the prohibition in the Code of Conduct applies to independent contractor appraisers as well as employees.

 

The Code of Conduct was subject to a comment period that expired on April 30, 2008. We participated in the comment process to attempt to clarify that we are not covered by the Code of Conduct. Several of the comments submitted by other parties and made publicly available to date, such as the comment letters filed by the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Trade Commission, have raised questions about the legality of the agreements reached by the NYAG with Fannie Mae and Freddie Mac on grounds such as whether the process by which the Code of Conduct was entered complied with appropriate administrative procedures for rulemaking.

 

As written, the Code of Conduct is favorable to our appraisal operations because we do not hire appraisers as employees. However, the bulletin issued by Freddie Mac shortly after the Code was adopted introduced uncertainty about how Freddie Mac would apply it. Neither Fannie Mae nor the NYAG have announced similar interpretations. The NYAG, Fannie Mae, Freddie Mac and the Office of Federal Housing Enterprise Oversight (the principal regulator of Fannie Mae and Freddie Mac) are currently reviewing the public comments on the Code of Conduct, and are expected to clarify their collective intent prior to its implementation on January 1, 2009. If the Code of Conduct is ultimately revised or interpreted by the parties thereto in a manner that is adverse to our appraisal operations, we will consider multiple options, which could include: (1) possible court challenges to the legality of the Code of Conduct, on state or federal grounds; (2) restructuring our appraisal operations so that we can comply with the Code, which might include some form of joint operations with a third party; or (3) selling our appraisal business. At this time, we are unable to predict the ultimate effect of the Code of Conduct on our business or results of operations.

 

On July 30, 2008, the President signed into law the Foreclosure Prevention Act of 2008, a wide-ranging piece of legislation aimed at assisting the troubled housing market. There is also pending legislation with a similar purpose in several states. It is too early to predict the impact that any such new legislation may have on our business or results of operations.

 

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:

 

 

Provisions of our certificate of incorporation may prevent us from receiving the benefit of certain corporate opportunities.

 

Because FIS may engage in the same activities in which we engage, there is a risk that we may be in direct competition with FIS over business activities and corporate opportunities. Further, FNF does engage in some of the same businesses as we do and may in the future compete with us more significantly. To address these potential conflicts, we have adopted a corporate opportunity policy that has been incorporated into our certificate of incorporation. These provisions may limit the corporate opportunities of which we are made aware or which are offered to us.

 

During the time the notes are rated investment grade, many of the restrictive covenants will cease to be in effect.

 

During the time, if any, that the notes are rated at least “BBB-” by Standard & Poor’s or at least “Baa3” by Moody’s and certain other conditions are met, many of the restrictive covenants contained in the indenture governing the notes will cease to be in effect. We cannot assure you that the notes will ever be rated investment grade, or that if they are rated investment grade, the notes will maintain such rating. In addition, if the notes are rated investment grade and fail to maintain such rating, the covenants that were suspended will be reinstated. Suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force and any such actions that we take while these covenants are not in force will be permitted even if the notes are subsequently downgraded below investment grade. See “Description of Notes — Certain covenants — Suspension of certain covenants when notes rated investment grade.”

 

Risks related to the spin-off

 

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 prospectus 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:

 

 

For additional information about the past financial performance of our business and the basis of the presentation of the historical financial statements, see “Selected historical financial data,” “Management’s discussion and analysis of financial condition and results of operations” and the historical financial statements and the accompanying notes included elsewhere in this prospectus.

 

If the contribution, debt exchange and/or spin-off do not qualify as tax-free transactions, tax could be imposed on FIS, us and/or FIS shareholders, and we may have to indemnify for the payment of those taxes and tax-related losses.

 

On June 20, 2008, FIS received a favorable private letter ruling from the Internal Revenue Service, which we refer to as the IRS, regarding the contribution of all of FIS’s interest in all the assets, liabilities, businesses and employees related to FIS’s lender processing services operations in exchange for the receipt by FIS of our common stock and our debt obligations, which we refer to as the contribution, the expected exchange by FIS of our debt obligations for certain outstanding FIS debt, which we refer to as the debt exchange, and the

distribution of our common stock to FIS shareholders, which we refer to as the spin-off. The IRS ruling was to the effect that:

 

(i) the contribution taking into account the spin-off will qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986 (the “Code”), as amended, which we refer to as the Code in which neither we nor FIS will recognize any gain or loss;

 

(ii) no gain or loss will be recognized by FIS in the debt exchange, pursuant to Section 361 of the Code; and

 

(iii) no gain or loss will be recognized by FIS or any FIS shareholder on the spin-off, pursuant to Section 355 and related provisions of the Code (including Section 361(c) of the Code), except that any gain that FIS shareholders realize on cash received in lieu of any fractional shares of our common stock to which such shareholders may be entitled in the spin-off generally will be taxable to the FIS shareholders.

 

Notwithstanding FIS’s receipt of the IRS private letter ruling, the IRS could determine that the contribution, debt exchange and/or spin-off constitute taxable transactions if it determines that there was a misstatement or omission of any of the facts, representations, or undertakings that were included in the request for the private letter ruling, or if it disagrees with the conclusions FIS reached regarding certain factual requirements that, consistent with the IRS’s standard ruling policy, were not covered by the IRS ruling.

 

If one or more of the contribution, debt exchange or spin-off transactions ultimately were determined to be subject to tax, FIS would recognize gain and the amount of that gain would be up to the excess of the fair market value of our stock and debt obligations FIS received in the contribution over its basis in the assets it contributed to us in the contribution. The amount of such gain could be substantial. Further, if the spin-off transaction were subject to tax, in addition to tax imposed on FIS, the FIS shareholders generally would be treated as if they received a taxable distribution equal to the full fair market value of our stock on the distribution date. In addition, we could be subject to tax on certain of the preliminary asset transfers within FIS that are made in connection with the contribution transaction.

 

Notwithstanding the favorable IRS ruling that the spin-off qualified for tax-free treatment, it would become taxable to FIS, pursuant to Section 355(e) of the Code, if 50% or more of the shares of either its common stock or our common stock were acquired, directly or indirectly, as part of a plan or series of related transactions that included the spin-off. If the IRS were to determine that acquisitions of FIS common stock or of our common stock, either before or after the spin-off, were part of a plan or series of related transactions that included the spin-off, this determination could result in the recognition of substantial gain by FIS under Section 355(e).

 

Although the taxes resulting from the contribution, debt exchange or spin-off not qualifying for tax-free treatment for United States Federal income tax purposes generally would be imposed on FIS shareholders and FIS, under the tax disaffiliation agreement entered into by FIS and us in connection with the distribution, we would be required to indemnify FIS and its affiliates against all tax related liabilities caused by the failure of any of those transactions to qualify for tax-free treatment for United States Federal income tax purposes (including as a result of Section 355(e) of the Code) to the extent these liabilities arise as a result of any action taken by us or any of our affiliates following the spin-off or otherwise result from any breach of any representation, covenant or obligation of ours or any of our affiliates under the tax disaffiliation agreement. See “Certain relationships and related party transactions — Arrangements with FIS — Tax Disaffiliation Agreement.” FIS estimates that the amount of our indemnification obligation for the amount of tax could be significant.

 

We have agreed to certain restrictions to help preserve the tax-free treatment to FIS of the spin-off, which may reduce our strategic and operating flexibility.

 

In order to help preserve the tax-free treatment of the spin-off, we have agreed not to take certain actions without first securing the consent of certain FIS officers or securing an opinion from a nationally recognized law firm or accounting firm that such action will not cause the spin-off to be taxable. In general, such actions

would include, (i) for a period of two years after the spin-off, engaging in certain transactions involving (a) the acquisition of our stock or (b) the issuance of shares of our stock, (ii) repurchasing or repaying our new debt prior to maturity other than in accordance with its terms and (iii) making certain modifications to the terms of the debt that could affect its characterization for federal income tax purposes.

 

The covenants in, and our indemnity obligations under, the tax disaffiliation agreement may limit our ability to pursue strategic transactions or engage in new business or other transactions that may maximize the value of our business. The limitations on our ability to issue capital stock could, for example, make it harder for us to raise capital if we need additional funds to satisfy our debt service or other debt obligations.

 

Following the spin-off, we have substantial indebtedness, which could have a negative impact on our financing options and liquidity position and prevent us from fulfilling our obligations under the notes.

 

In connection with the spin-off, we issued to FIS shares of our common stock and $1,585 million principal amount of our debt obligations, in exchange for the assets to be contributed to us. As a result, following the spin-off, we have approximately $1,610.7 million of total debt outstanding, consisting of (i) a new senior secured credit agreement divided into two tranches, a $700 million Term Loan A and a $510 million Term Loan B and (ii) $375 million of senior unsecured notes. We also have additional borrowing capacity available under a new $140 million revolving credit facility, under which we borrowed approximately $25.7 million to pay debt issuance costs on the issue date. We also have other contractual commitments and contingent obligations. See “Management’s 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:

 

 

Despite our substantial debt, we may still be able to incur significantly more debt. This could further exacerbate the risks associated with our substantial debt.

 

We may be able to incur additional debt in the future. The terms of our new 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 and our ability to make payments on the notes.

 

The agreements governing our new 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:

 

 

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.

 

The risks described in this Risk Factors section, as well as adverse changes in economic conditions generally, could result in adverse financial changes for our company, which in turn could affect our ability to comply with these covenants and maintain these financial tests and ratios. A default would permit lenders to accelerate the maturity for the debt under these agreements and to foreclose upon any collateral securing the debt and to terminate any commitments to lend. Under these circumstances, we might have insufficient funds or other resources to satisfy all our obligations.

 

Potential liabilities may arise due to fraudulent transfer considerations, which would adversely affect our financial condition and our results of operations.

 

If a court were to determine that, at the time of the spin-off, either FIS or our company:

 

 

the court might be able to void the spin-off, in whole or in part, as a fraudulent conveyance or transfer under Federal or State law. The court could then require our stockholders to return to FIS some or all of the shares of our common stock issued pursuant to the spin-off, or require FIS or us, as the case may be, to fund liabilities of the other company for the benefit of creditors. The measure of insolvency will vary depending upon the jurisdiction whose law is being applied. Generally, however, an entity would be considered insolvent if the fair value of its assets was less than the amount of its liabilities or if it incurred debt beyond its ability to repay such debt as it matures. In connection with the spin-off, we will incur substantial debt. Neither we nor FIS has obtained a solvency opinion from an independent financial advisor in connection with the spin-off.

Risks related to the notes

 

The notes are effectively subordinated to our and the guarantors’ secured debt.

 

The notes, and each guarantee of the notes, are unsecured and therefore are effectively subordinated to any of our and the guarantors’ secured debt to the extent of the assets securing such debt. In the event of a bankruptcy or similar proceeding, the assets which serve as collateral for any secured debt will be available to satisfy the obligations under the secured debt before any payments are made on the notes. After giving pro forma effect to the spin-off, we would have had approximately $1.2 billion of secured debt outstanding and $114.3 million of additional availability under our new credit facilities as of June 30, 2008. The notes are effectively subordinated to any borrowings under the new credit facilities and other secured debt. The indenture governing the notes allows us to incur a substantial amount of additional secured debt.

 

Not all of our subsidiaries are required to guarantee the notes, and the assets of any non-guarantor subsidiaries may not be available to make payments on the notes.

 

Certain of our subsidiaries did not guarantee the new credit facilities or the old notes and will not guarantee the new notes. As of June 30, 2008, after giving pro forma effect to the spin-off, the non-guarantor subsidiaries represented under 5% of our total combined assets and total combined liabilities. In addition, for the twelve months ended June 30, 2008, after giving pro forma effect to the spin-off, the non-guarantors would have contributed under 5% of our total combined revenue. All of our future unrestricted subsidiaries, and any of our future restricted subsidiaries that do not guarantee any of our other debt, will not guarantee the notes. Also, in the event an existing guarantor of the notes is released from its guarantee under our new credit facilities, its guaranty of the notes will also be released.

 

In the event that any of our non-guarantor subsidiaries becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of our debt, and our trade creditors generally will be entitled to payment on their claims from the assets of that subsidiary before any of those assets are made available to us or any guarantors. Consequently, your claims in respect of the notes will be effectively subordinated to all of the liabilities of any of our subsidiaries that is not a guarantor, including trade payables. In addition, the indenture will, subject to certain limitations, permit these subsidiaries to incur additional indebtedness and will not contain any limitation on the amount of other liabilities, such as trade payables, that these subsidiaries may incur.

 

To service our debt and meet our other cash needs, we will require a significant amount of cash, which may not be available to us.

 

Our ability to make payments on, or repay or refinance, our debt, including the notes, and to fund planned capital expenditures, dividends and other cash needs will depend largely upon our future operating performance. Our future performance, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. In addition, our ability to borrow funds in the future to make payments on our debt will depend on the satisfaction of the covenants in our new credit facilities and our other debt agreements, including the indenture governing the notes, and other agreements we may enter into in the future. Specifically, we will need to maintain specified financial ratios and satisfy financial condition tests. Furthermore, we expect to pay cash dividends of $0.40 per share per annum, which will represent an aggregate of approximately $38 million per year to the holders of our common stock. We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our new credit facilities or from other sources in an amount sufficient to enable us to pay our debt, including the notes, or to fund our dividends and other liquidity needs.

 

In addition, prior to the repayment of the notes, we will be required to refinance or repay our new credit facilities. We cannot assure you that we will be able to refinance any of our debt, including our new credit facilities, on commercially reasonable terms or at all. If we are unable to make payments or refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as:

 

 

 

Our credit agreement and the indenture governing the notes may restrict, or market or business conditions may limit, our ability to do some of these things. In addition, certain tax related agreements may limit our ability to engage in such actions. See “— Risks related to the spin-off — If the contribution, debt exchange and/or spin-off do not qualify as tax-free transactions, tax could be imposed on FIS, us and/or FIS shareholders, and we may have to indemnify for the payment of those taxes and tax-related losses” and “— Risks related to the notes — Following the spin-off, we have substantial indebtedness, which could have a negative impact on our financing options and liquidity position and prevent us from fulfilling our obligations under the notes.”

 

We are dependent upon dividends from our subsidiaries to meet our debt service obligations.

 

We are a holding company and conduct all of our operations through our subsidiaries. Our ability to meet our debt service obligations will be dependent on receipt of dividends from our direct and indirect subsidiaries. Subject to the restrictions contained in our new credit agreement and indenture, future borrowings by our subsidiaries may contain restrictions or prohibitions on the payment of dividends by our subsidiaries to us. See “Description of Notes — Certain covenants.” In addition, applicable state corporate law may limit the ability of our subsidiaries to pay dividends to us. We cannot assure you that the agreements governing the current and future indebtedness of our subsidiaries, applicable laws or state regulation will permit our subsidiaries to provide us with sufficient dividends, distributions or loans to fund payments on these notes when due.

 

Fraudulent conveyance laws may void the notes and/or the guarantees or subordinate the notes and/or the guarantees.

 

The issuance of the notes may be subject to review under federal bankruptcy law or relevant state fraudulent conveyance laws if a bankruptcy lawsuit is commenced by or on behalf of our or the guarantors’ creditors. Under these laws, if in such a lawsuit a court were to find that, at the time the notes are issued, we:

 

 

and the guarantor:

 

 

then the court could void the notes or subordinate the notes to our presently existing or future debt or take other actions detrimental to you.

 

While the notes were issued to FIS in exchange for the contribution of the lender processing services operations, a court could conclude they were issued for less than reasonably equivalent value. The measure of insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, an entity would be considered insolvent if, at the time it incurred the debt:

 

 

 

We cannot assure you as to what standard a court would apply in order to determine whether we were “insolvent” as of the date the notes were issued, and we cannot assure you that, regardless of the method of valuation, a court would not determine that we were insolvent on that date. Nor can we assure you that a court would not determine, regardless of whether we were insolvent on the date the notes were issued, that the payments constituted fraudulent transfers on another ground.

 

Our obligations under the notes are guaranteed by all of our existing subsidiaries that are guarantors under our new credit facilities, and the guarantees may also be subject to review under various laws for the protection of creditors. The analysis set forth above would generally apply, except that the guarantees could also be subject to the claim that, since the guarantees were incurred for our benefit, and only indirectly for the benefit of the guarantors, the obligations of the guarantors thereunder were incurred for less than reasonably equivalent value or fair consideration. A court could void a guarantor’s obligation under its guarantee, subordinate the guarantee to the other indebtedness of a guarantor, direct that holders of the notes return any amounts paid under a guarantee to the relevant guarantor or to a fund for the benefit of its creditors, or take other action detrimental to the holders of the notes. In addition, the liability of each guarantor under the indenture will be limited to the amount that will result in its guarantee not constituting a fraudulent conveyance, and there can be no assurance as to what standard a court would apply in making a determination as to what would be the maximum liability of each guarantor.

 

We may be unable to make a change of control offer required by the indenture governing the notes which would cause defaults under the indenture governing the notes and our new credit facilities.

 

The terms of the notes require us to make an offer to repurchase the notes upon the occurrence of a change of control at a purchase price equal to 101% of the principal amount of the notes, plus accrued interest to the date of the purchase. The terms of our new credit facilities require, and other financing arrangements may require, repayment of amounts outstanding in the event of a change of control and limit our ability to fund the repurchase of your notes in certain circumstances. It is possible that we will not have sufficient funds at the time of the change of control to make the required repurchase of notes or that restrictions in our new credit facilities and other financing arrangements will not allow the repurchases. See “Description of Notes — Certain covenants — Repurchase of notes upon a change of control.”

 

An active trading market may not develop for the notes, which may hinder your ability to liquidate your investment.

 

The notes are a new issue of securities with no established trading market and we do not intend to list them on any securities exchange. The liquidity of the trading market in the notes, and the market price quoted for the notes, may be adversely affected by changes in the overall market for fixed income securities and by changes in our financial performance or prospects or in the prospects for companies in our industry in general. As a result, we cannot assure you that an active trading market will develop for the notes. If no active trading market develops, you may not be able to resell your notes at their fair market value or at all.

 

You may have difficulty selling your old notes that you do not exchange, and any old notes that you do not exchange could experience significant diminution in value compared to the value of the new notes.

 

If you do not exchange your outstanding old notes for the new notes offered in this exchange offer, you will continue to be subject to the restrictions on the transfer of your old notes. Those transfer restrictions are described in the indenture governing the old notes, and in the offering memorandum for the old notes, and arose because we originally issued the old notes under an exemption from, and in transactions not subject to, the registration requirements of the Securities Act of 1933. In general, you may only offer or sell the old notes if they are registered under the Securities Act and applicable state securities laws, or offered and sold under an exemption from these requirements. We do not plan to register the old notes under the Securities Act. For

further information regarding the consequences of tendering your old notes in the exchange offer, see the discussions below under the captions “The Exchange Offer — Consequences of Failure to Exchange” and “Certain U.S. Federal Tax Considerations.”

 

You must comply with the exchange offer procedures in order to receive new, freely tradable new notes.

 

Delivery of the new notes in exchange for old notes tendered and accepted for exchange pursuant to the exchange offer will be made in accordance with the procedures described in this prospectus. We are not required to notify you of defects or irregularities in tenders of old notes for exchange. Old notes that are not tendered or that are tendered but we do not accept for exchange will, following consummation of the exchange offer, continue to be subject to the existing transfer restrictions under the Securities Act and, upon consummation of the exchange offer, certain registration and other rights under the registration rights agreements will terminate. See “The Exchange Offer — Procedures for Tendering Old Notes” and “The Exchange Offer — Consequences of Failure to Exchange.”

 

Some holders who exchange their old notes may be deemed to be underwriters, and these holders will be required to comply with the registration and prospectus delivery requirements in connection with any resale transaction.

 

If you exchange your old notes in the exchange offer for the purpose of participating in a distribution of the new notes, you may be deemed to have received restricted securities and, if so, will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

 

The statements contained in this prospectus 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:

 

 

 

We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise.

 

Terms of the Exchange Offer

 

General

 

In connection with the issuance of the old notes pursuant to the purchase agreement, dated as of June 18, 2008, among us, the selling noteholders named therein and the several initial purchasers named therein, the holders of the notes from time to time became entitled to the benefits of a registration rights agreement.

 

Under the registration rights agreement, we agreed to use our commercially reasonable efforts to cause the registration statement of which this prospectus is a part to become effective under the Securities Act of 1933 within 210 days of the issue date of the old notes.

 

Upon the terms and subject to the conditions set forth in this prospectus and the letter of transmittal, all old notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date will be accepted for exchange. We will issue new notes in exchange for an equal principal amount of outstanding old notes accepted in the exchange offer. You may only tender old notes in minimum denominations of $1,000 and any integral multiple of $1,000 in excess thereof. This prospectus, together with the letter of transmittal, is being sent to all registered holders as of September 10, 2008. The exchange offer is not conditioned upon any minimum principal amount of old notes being tendered for exchange. Our obligation to accept old notes for exchange pursuant to the exchange offer is, however, subject to conditions as set forth below under “— Conditions.”

 

The old notes will be deemed to have been accepted as validly tendered when, as and if we have given oral or written notice of such acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders of old notes for the purposes of receiving the new notes and delivering new notes to such holders.

 

Based on interpretations by the staff of the Securities and Exchange Commission as set forth in no-action letters issued to third parties (including Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), K-III Communications Corporation (available May 14, 1993) and Shearman & Sterling (available July 2, 1993)), we believe that the new notes issued pursuant to the exchange offer may be offered for resale, resold and otherwise transferred by any holder of such new notes, other than any such holder that is a broker-dealer or an “affiliate” of ours within the meaning of Rule 405 under the Securities Act of 1933, without compliance with the registration and prospectus delivery requirements of the Securities Act of 1933, provided that:

 

 

We have not sought and do not intend to seek a no-action letter from the staff of the Securities and Exchange Commission with respect to the effects of the exchange offer, and there can be no assurance that the staff of the Securities and Exchange Commission would make a similar determination with respect to the new notes as it has in previous no-action letters.

By tendering old notes in exchange for new notes, and executing the letter of transmittal, you will represent to us that:

 

 

If you are a broker-dealer, you will also be required to represent that you will receive the new notes for your own account in exchange for old notes acquired as a result of market-making activities or other trading activities, that you will deliver a prospectus in connection with any resale of new notes and that you have not entered into any arrangement or understanding with us or an affiliate of ours to distribute the new notes in connection with any resale of such new notes. See “Plan of Distribution.” If you are not a broker-dealer, you will be required to represent that you are not engaged in and do not intend to engage in the distribution of the new notes. Whether or not you are a broker-dealer, you must also represent that you are not acting on behalf of any person that could not truthfully make any of the foregoing representations contained in this paragraph. If you are unable to make the foregoing representations, you may not rely on the applicable interpretations of the staff of the Securities and Exchange Commission and must comply with the registration and prospectus delivery requirements of the Securities Act of 1933 in connection with any secondary resale transaction unless such sale is made pursuant to an exemption from such requirements.

 

Each broker-dealer that holds old notes for its own account as a result of market-making activities or other trading activities and receives new notes pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes. By so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act of 1933. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes, where such old notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. We have agreed that, for a period of 180 days after the expiration date of the exchange offer, we will make this prospectus available to any broker-dealer for use in connection with any such resale. See “Plan of Distribution.”

 

Upon consummation of the exchange offer, any old notes not tendered will remain outstanding and continue to accrue interest at the rate provided therein, and holders of old notes who do not exchange their old notes for new notes pursuant to the exchange offer will no longer be entitled to registration rights and will not be able to offer or sell their old notes unless such old notes are subsequently registered under the Securities Act of 1933, except pursuant to an exemption from or in a transaction not subject to the Securities Act of 1933 and applicable state securities laws.

 

Expiration Date; Extensions; Amendments; Termination

 

The expiration date for the exchange offer will be 5:00 p.m., New York City time, on October 9, 2008 unless we, in our sole discretion, extend the exchange offer, in which case the expiration date for the exchange offer will be the latest date to which the exchange offer has been extended.

 

To extend the expiration date, we will notify the exchange agent of any extension by oral or written notice and will notify the remaining holders of the old notes by means of a press release or other public announcement prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date for the exchange offer. Such an announcement may state that we are extending the exchange offer for a specified period of time.

 

We reserve the right to:

 

(1) extend the exchange offer, delay acceptance of any old notes due to an extension of the exchange offer or terminate the exchange offer and not permit acceptance of old notes not previously accepted if any of the conditions set forth under “— Conditions” has occurred and has not been waived by us prior

to 5:00 p.m., New York City time, on the expiration date, by giving oral or written notice of such delay, extension or termination to the exchange agent, or

 

(2) amend the terms of the exchange offer in any manner deemed by us to be advantageous to the holders of the old notes.

 

Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice of such delay, extension or termination or amendment to the exchange agent. If the terms of the exchange offer are amended in a manner determined by us to constitute a material change, we will promptly disclose such amendment in a manner reasonably calculated to inform you of such amendment, and we will extend the exchange offer so that at least five business days remain in the exchange offer from the date notice of such material change is given.

 

Without limiting the manner in which we may choose to make public an announcement of any delay, extension or termination of the exchange offer, we will have no obligations to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency.

 

Interest on the New Notes

 

The new notes will accrue interest at the rate of 8.125% per annum, accruing interest from the last interest payment date on which interest was paid on the corresponding old notes surrendered in exchange for such new notes to the day before the consummation of the exchange offer and thereafter, at the rate of 8.125% per annum for the new notes, provided, however, that if old notes are surrendered for exchange on or after a record date for the notes for an interest payment date that will occur on or after the date of such exchange and as to which interest will be paid, interest on the new notes received in exchange for such old notes will accrue from the date of such interest payment date. Interest on the new notes is payable on January 1 and July 1 of each year, commencing January 1, 2009. No additional interest will be paid on old notes tendered and accepted for exchange.

 

Procedures for Tendering Old Notes

 

To tender your old notes, you must either:

 

 

In addition, either:

 

 

We will only issue new notes in exchange for old notes that are timely and properly tendered. The method of delivery of old notes, letters of transmittal and all other required documents is at your election and risk. Rather than mail these items, we recommend that you use an overnight or hand-delivery service. If delivery is by mail, we recommend that you use registered mail, properly insured, with return receipt requested. In all cases, you should allow sufficient time to assure timely delivery and should carefully follow the instructions on how to tender old notes. You should not send old notes, letters of transmittal or other

required documents to us. Instead, you must deliver all old notes, letters of transmittal and other documents to the exchange agent for the notes at its address set forth below under “— Exchange Agent.” You may also request your respective brokers, dealers, commercial banks, trust companies or nominees to effect such tender on your behalf. Neither we nor the exchange agent for the notes is required to tell you of any defects or irregularities with respect to your old notes or the tenders of the old notes.

 

Your tender of old notes will constitute an agreement between you and us in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal. If you are a beneficial owner of old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender your old notes, you should contact such registered holder promptly and instruct such registered holder to tender on your behalf.

 

Signatures on the letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by any member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or an “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934 unless the old notes tendered pursuant to the letter of transmittal or notice of withdrawal, as the case may be, are tendered:

 

 

If the letter of transmittal is signed by a person other than the registered holder of any old notes listed on the old notes, such old notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder’s name appears on the old notes and an eligible guarantor institution must guarantee the signature on the bond power.

 

If the letter of transmittal or any certificates representing old notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by us, submit with the letter of transmittal evidence satisfactory to us of their authority to so act.

 

DTC has confirmed that any financial institution that is a participant in DTC’s system may use DTC’s Automated Tender Offer Program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent for the notes, electronically transmit an acceptance of the exchange by causing DTC to transfer the old notes to the exchange agent for the notes in accordance with DTC’s Automated Tender Offer Program procedures for transfer. DTC will then send an agent’s message to the exchange agent for the notes. In connection with tenders of the old notes, the term “agent’s message” means a message transmitted by DTC, received by the exchange agent for the notes and forming part of the book-entry confirmation, that states that:

 

 

Book-Entry Transfer

 

Promptly after the date of this prospectus, the exchange agent for the notes will make a request to establish an account with respect to the old notes at DTC as book-entry transfer facility for tenders of the old notes. Any financial institution that is a participant in the applicable book-entry transfer facility’s systems may make book- entry delivery of old notes by causing the book-entry transfer facility to transfer such old notes

into the exchange agent’s account for such notes at the book-entry transfer facility in accordance with such book-entry transfer facility’s procedures for transfer. In addition, although delivery of old notes may be effected through book-entry transfer at the book-entry transfer facility, the letter of transmittal or a facsimile thereof, together with any required signature guarantees and any other required documents, or an agent’s message, must in any case be transmitted to and received by the exchange agent at its address set forth below under “— Exchange Agent” prior to 5:00 p.m., New York City time, on the expiration date, or the guaranteed delivery procedures described below must be complied with. Delivery of documents to the applicable book-entry transfer facility does not constitute delivery to the exchange agent.

 

Acceptance of Old Notes for Exchange; Delivery of New Notes

 

Upon satisfaction or waiver of all of the conditions to the exchange offer, all old notes properly tendered will be accepted promptly after the expiration date, and new notes will be issued promptly after acceptance of such old notes. See “— Conditions.” For purposes of the exchange offer, old notes will be deemed to have been accepted as validly tendered for exchange when, as and if we have given oral or written notice thereof to the exchange agent. For each old note accepted for exchange, the holder of such old note will receive a new note having a principal amount equal to that of the surrendered old note.

 

In all cases, issuance of new notes for old notes that are accepted for exchange pursuant to the exchange offer will be made only after timely receipt by the exchange agent of:

 

 

If any tendered old notes are not accepted for any reason set forth in the terms and conditions of the exchange offer, such unaccepted or such non-exchanged old notes will be returned without expense to the tendering holder of such notes, if in certificated form, or credited to an account maintained with such book-entry transfer facility promptly after the expiration or termination of the exchange offer.

 

All questions as to the validity, form, eligibility, time of receipt and withdrawal of the tendered old notes will be determined by us in our sole discretion, such determination being final and binding on all persons. We reserve the absolute right to reject any and all old notes not properly tendered or any old notes that, if accepted, would, in the opinion of counsel for us, be unlawful. We also reserve the absolute right to waive any irregularities or defects with respect to tender as to particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within such time as we determine. Neither we, the exchange agent nor any other person will be under any duty to give notification of defects or irregularities with respect to tenders of old notes, nor will we or any of them incur any liability for failure to give such notification. Tenders of old notes will not be deemed to have been made until such irregularities have been cured or waived. Any old notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned without cost to such holder by the exchange agent, unless otherwise provided in the letter of transmittal, promptly following the expiration date.

 

In addition, we reserve the right in our sole discretion, subject to the provisions of the indenture pursuant to which the notes were issued:

 

 

The terms of any such purchases or offers could differ from the terms of the exchange offer.

 

Guaranteed Delivery Procedures

 

If you cannot complete the procedures for book-entry transfer for any old notes on a timely basis, you may tender your old notes if:

 

 

 

 

Withdrawal of Tenders

 

Tenders of old notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration date.

 

For a withdrawal to be effective, the exchange agent must receive a written notice of withdrawal prior to 5:00 p.m., New York City time, on the expiration date at its address set forth below under “— Exchange Agent.” Any such notice of withdrawal must:

 

 

All questions as to the validity, form, eligibility and time of receipt of such notice will be determined by us, in our sole discretion, such determination being final and binding on all persons. Any old notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the exchange offer.

Any old notes that have been tendered for exchange but that are not exchanged for any reason will be returned to the tendering holder of such notes without cost to such holder, in the case of physically tendered old notes, or credited to an account maintained with the book-entry transfer facility for the old notes promptly after withdrawal, rejection of tender or termination of the exchange offer. Properly withdrawn old notes may be retendered by following one of the procedures described above under “— Procedures for Tendering Old Notes” at any time on or prior to 5:00 p.m., New York City time, on the expiration date.

 

Conditions

 

Notwithstanding any other provision in the exchange offer, we will not be required to accept for exchange, or to issue new notes in exchange for, any old notes and may terminate or amend the exchange offer if at any time prior to 5:00 p.m., New York City time on the expiration date, we determine in our reasonable judgment that (i) the exchange offer violates applicable law or any applicable interpretation of the Securities and Exchange Commission or its staff or (ii) any action or proceeding has been instituted or threatened in any court or by any governmental agency that might materially impair our ability to proceed with the exchange offer, or any material adverse development has occurred in any existing action or proceeding with respect to us.

 

The foregoing conditions are for our sole benefit and may be asserted by us regardless of the circumstances giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time, prior to the expiration date, in our reasonable discretion. Our failure at any time to exercise any of the foregoing rights prior to 5:00 p.m., New York City time, on the expiration date will not be deemed a waiver of any such right, and each such right will be deemed an ongoing right that may be asserted at any time and from time to time prior to 5:00 p.m., New York City time, on the expiration date. If we waive any of the foregoing conditions to an exchange offer and determine that such waiver constitutes a material change, we will extend the offer so that at least five business days remain in the offer from the date notice of such material change is given.

 

In addition, we will not accept for exchange any old notes tendered, and no new notes will be issued in exchange for any such old notes, if at any such time any stop order is threatened or in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture governing the notes under the Trust Indenture Act of 1939. Pursuant to the registration rights agreement, we are required to use our commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of the registration statement at the earliest possible time.

 

Exchange Agent

 

U.S. Bank National Association, Corporate Trust Services (“U.S. Bank”) has been appointed as exchange agent for the exchange offer for the notes. U.S. Bank also acts as trustee under the indenture governing the old notes, which is the same indenture that will govern the new notes. Questions and requests for assistance and requests for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows:

 

Fees and Expenses

 

The expenses of soliciting tenders pursuant to the exchange offer will be borne by us. The principal solicitation for tenders pursuant to the exchange offer is being made by mail; however, additional solicitations may be made by telegraph, telephone, telecopy or in person by our officers and regular employees.

 

We will not make any payments to or extend any commissions or concessions to any broker or dealer. We will, however, pay the exchange agent reasonable and customary fees for its services and will reimburse the exchange agent for its reasonable out-of-pocket expenses. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of the prospectus and related documents to the beneficial owners of the old notes and in handling or forwarding tenders for exchange.

 

The expenses to be incurred by us in connection with the exchange offer will be paid by us, including fees and expenses of the exchange agent and trustee and accounting, legal, printing and related fees and expenses.

 

We will pay all transfer taxes, if any, applicable to the exchange of old notes pursuant to the exchange offer. If, however, new notes or old notes for principal amounts not tendered or accepted for exchange are to be registered or issued in the name of any person other than the registered holder of the old notes tendered, or if tendered old notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of old notes pursuant to the exchange offer, then the amount of any such transfer taxes imposed on the registered holder or any other persons will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to such tendering holder.

 

Federal Income Tax Consequences

 

We believe that the exchange of the old notes for the new notes will not constitute a taxable exchange for U.S. federal income tax purposes. See “Certain U.S. Federal Tax Considerations.”

 

Accounting Treatment

 

The new notes will be recorded as carrying the same value as the old notes, which is face value, as reflected in our accounting records on the date of the exchange. Accordingly, we will not recognize any gain or loss for accounting purposes as a result of the exchange offer. The expenses of the exchange offer will be deferred and charged to expense over the term of the new notes.

 

Consequences of Failure to Exchange

 

Holders of old notes that do not exchange their old notes for new notes pursuant to the exchange offer will continue to be subject to the restrictions on transfer of such old notes as set forth in the legend on such old notes as a consequence of the issuance of the old notes pursuant to exemptions from, or in transactions not subject to, the registration requirements of the Securities Act of 1933 and applicable state securities laws. See “Risk Factors — Risks related to the notes — You may have difficulty selling your old notes that you do not exchange, and any old notes that you do not exchange could experience significant diminution in value compared to the value of the new notes.”

 

 

The exchange offer is intended to satisfy our obligations under the registration rights agreement that we entered into in connection with the private offering of the old notes. We will not receive any cash proceeds from the issuance of the new notes under the exchange offer. In consideration for issuing the new notes as contemplated by this prospectus, we will receive the old notes in like principal amount, the terms of which are identical in all material respects to the new notes, with limited exceptions. Old notes surrendered in exchange for new notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the new notes will not result in any increase in our indebtedness.

 

The following table describes our cash and cash equivalents and capitalization as of June 30, 2008 on an actual basis, and on an as-adjusted basis to give effect to the incurrence by us of approximately $1.6 billion of debt, consisting of (i) a new senior secured credit agreement divided into two tranches, a $700 million Term Loan A and a $510 million Term Loan B and (ii) $375 million of senior unsecured notes. The as-adjusted column also includes a $140 million revolving credit facility, of which approximately $25.7 million was drawn to cover issuance costs at the spin-off date. The information presented below should be read in conjunction with “Pro forma financial information,” “Management’s discussion and analysis of financial condition and results of operations” and our combined financial statements and the related notes included elsewhere in this offering memorandum.

 

 

 

 

The following unaudited pro forma consolidated and combined financial statements present historical financial statements of our company with adjustments relating to our spin-off from our parent, including the incurrence of approximately $1.6 billion in debt, interest expense related to the debt, and the related reduction in equity. The unaudited pro forma consolidated balance sheet as of June 30, 2008 is presented as if the spin-off of our company had been completed on June 30, 2008. The unaudited pro forma consolidated and combined statement of earnings for the year ended December 31, 2007 and the six months ended June 30, 2008 are presented as if the spin-off of our company had been completed on January 1, 2007.

 

These unaudited pro forma consolidated and combined financial statements should be read in conjunction with our historical consolidated and combined financial statements and accompanying notes included herein. The unaudited pro forma consolidated and combined financial statements are not necessarily indicative of the results of operations or financial position of LPS that would have been reported had the spin-off been completed as of the dates presented, and are not necessarily representative of the future consolidated results of operations or financial position of our company. The pro forma adjustments do not give effect to the additional annual costs that we will incur as a separately traded public company. We expect these costs to be approximately $10-15 million per year.

Unaudited pro forma consolidated balance sheet
as of June 30, 2008

 

 

 

 

Unaudited pro forma consolidated and combined statement of earnings
for the six months ended June 30, 2008

 

 

 

Unaudited pro forma combined statement of earnings
for the year ended December 31, 2007

 

 

 

 

The following table presents our selected historical financial data. The combined statement of earnings data for each of the years in the three-year period ended December 31, 2007 and the combined balance sheet data as of December 31, 2007 and 2006 have been derived from our audited combined financial statements included elsewhere herein. The consolidated and combined statement of earnings data for the six months ended June 30, 2008 and 2007 and the consolidated balance sheet data as of June 30, 2008 are derived from our unaudited combined financial statements included herein. The combined statement of earnings data for the years ended December 31, 2004 and 2003 and the combined balance sheet data as of June 30, 2007 and December 31, 2005, 2004 and 2003 are derived from our unaudited combined financial statements not included herein. The unaudited consolidated and combined financial statements have been prepared on the same basis as the audited combined financial statements 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 herein.

 

The selected historical financial data presented below should be read in conjunction with our consolidated and combined financial statements and accompanying notes and “Pro forma financial information” and “Management’s discussion and analysis of financial condition and results of operations” included elsewhere herein. 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 during the periods presented, including changes that will occur in our operations and capitalization as a result of our spin-off from FIS. Further, results for any interim period are not necessarily indicative of results to be expected for the full year.

 

Selected quarterly financial information (unaudited)

 

 

 

 

The following discussion should be read in conjunction with the combined financial statements and the notes thereto and selected historical financial information included elsewhere herein. The discussion below contains forward-looking statements that are based upon our current expectations and are subject to uncertainty and changes in circumstances. Our actual results may differ materially from these expectations due to changes in global, political, economic, business, competitive and market factors, many of which are beyond our control. See “Forward-Looking Statements.”

 

Overview

 

We are a leading provider of integrated technology and outsourced services to the mortgage lending industry, with market-leading positions in mortgage processing and default management services in the U.S. A large number of financial institutions use our services, including 39 of the 50 largest banks in the U.S. based on 2007 rankings. Our technology solutions include our mortgage processing system, which processes over 50% of all U.S. residential mortgage loans by dollar volume. Our outsourced services include our default management services, which are used by mortgage lenders and servicers to reduce the expense of managing defaulted loans, and our loan facilitation services, which support most aspects of the closing of mortgage loan transactions to national lenders and loan servicers. For the year ended December 31, 2007, we generated revenues of $1,690.6 million and operating income of $424.1 million.

 

The spin-off transaction

 

Prior to distributing all of our common stock to its shareholders, FIS contributed all of the assets and liabilities comprising its lender processing services businesses as of the date of the spin-off to us in exchange for additional shares of our common stock and approximately $1.6 billion principal amount of our new debt obligations. Following the effectiveness of our registration statement on Form 10 with respect to the distribution of our stock, FIS distributed 100% of our common stock to its shareholders in the spin-off and exchanged the new debt for a like amount of its existing debt. The spin-off was tax-free to FIS and its shareholders, and the debt-for-debt exchange was tax-free to FIS. FIS then retired its debt received in exchange for our new debt obligations. The spin-off was completed on July 2, 2008. FIS’s former Chief Financial Officer, Jeffrey S. Carbiener, became the President and Chief Executive Officer of our company.

 

Reporting segments

 

We conduct our operations through two reporting segments, Technology, Data and Analytics and Loan Transaction Services. Our Technology, Data and Analytics segment principally includes:

 

 

For the year ended December 31, 2007, this segment produced $570.1 million in revenue, of which our mortgage processing services represented $339.7 million.

 

Our Loan Transaction Services segment offers a range of services used mainly in the making of a mortgage loan, which we refer to as our loan facilitation services, and in the management of mortgage loans that go into default. Our loan facilitation services include:

 

 

Our default management services offer a full spectrum of outsourced services in connection with defaulted loans. These services include, among others:

 

 

Our revenues from these services grew significantly in 2007 and tend to provide a natural hedge against the effects of high interest rates or a slow real estate market on our loan facilitation services. For the year ended December 31, 2007, revenues from our Loan Transaction Services segment were $1,125.9 million.

 

We also have a corporate segment that consists of the corporate overhead and other smaller operations that are not included in the other segments.

 

We were incorporated in December 2007 and completed our spin-off from FIS on July 2, 2008.

 

Separation from FIS

 

Our historical financial statements include assets, liabilities, revenues and expenses directly attributable to our operations. Our historical financial statements reflect allocations of certain corporate expenses from FIS. These expenses have been allocated to us on a basis that management considers to reflect most fairly or reasonably the utilization of the services provided to or the benefit obtained by our businesses. These expense allocations reflect an allocation to us of a portion of the compensation of certain senior officers and other personnel of FIS who will not be our employees after the distribution but who historically provided services to us. Certain of the amounts allocated to us reflect a portion of amounts charged to FIS under agreements entered into with FNF. Our historical financial statements also do not reflect the debt or interest expense we might have incurred if we had been a stand-alone entity. In addition, we will 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 been 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. We estimate that the expected amount of additional costs we will incur as a separately traded public company would be approximately $10 to $15 million per year.

 

Related party transactions

 

We have historically conducted business with FIS and with FNF. We have various agreements with FNF under which we have provided title agency services, software development and other data services. We have been allocated corporate costs from FIS and will continue to receive certain corporate services from FIS for a

period of time. We have also had other arrangements with FNF and FIS under which we have paid or been allocated expenses. Summaries of the material agreements between us and FIS and FNF are included in “Certain relationships and related party transactions” and in the notes to the combined financial statements.

 

A summary of related party items with FIS or FNF included in our revenues and expenses is as follows:

 

 

 

We have been included in FIS’s consolidated tax returns and thus any income tax liability or receivable is due to/from FIS. For purposes of our historical combined financial statements any other receivables or payables between FIS and us are treated as capital contributions.

 

Certain of the foregoing related party arrangements are set forth in agreements between us and FNF or FIS that will remain in effect for specified periods following the distribution. Other items described above in respect of which amounts have been allocated to or by us are the subject of agreements entered into by us with related parties at or prior to the time of the distribution. These existing agreements and certain other agreements we entered into at the time of the distribution are described in “Certain relationships and related party transactions.”

 

Our related party revenues have increased over the period from 2005 to 2007. The main component of the overall increase was the increase in title agency commissions to $132.2 million in 2007 from $83.9 million in 2006. Our title agency business sells title insurance policies issued by FNF to third parties who are our customers. We reflect the title agent commissions received as related party revenues. The 2007 increase in these commissions was largely the result of title insurance business that our default management services generated with customers of our default operations. Our software development revenues, which represent amounts received from FNF for licensed software, software maintenance and software development activities, also increased, primarily as a result of work we performed on development of a new agency management system for FNF’s title insurance operations.

 

The spin-off in itself did not have a significant impact on the level of revenues we derive from related parties. We continue serving as a title agent for FNF and our title commissions will depend largely on levels of real estate and default activity and our success in competing for customers. Given the degree of completion of the agency management system development project and the overall state of the real estate industry (which will likely have an impact on FNF’s discretionary spending for software development), we do not expect our software development revenues from FNF to increase in 2008 over 2007 amounts. None of the agreements under which we earn related party revenues limit FNF or FIS from using another vendor and therefore, to the extent they could find similar services from third parties, they are free to do so.

Prior to the distribution we issued approximately $1.6 billion principal amount of our debt obligations to FIS. See “— Liquidity and capital resources.” FIS exchanged these debt obligations for its existing Tranche B Term Loans, following which our new debt was syndicated or otherwise distributed by FIS’s bank lenders.

 

Investment by FNF in FNRES Holdings, Inc.

 

On December 31, 2006, FNF contributed $52.5 million to FNRES Holdings, Inc., our subsidiary, which we refer to as FNRES, for approximately 61% of the outstanding shares of FNRES. As a result, since December 31, 2006, we no longer consolidate FNRES, but record our remaining 39% interest as an equity investment in the amount of $30.5 million and $33.5 million as of December 31, 2007 and 2006, respectively. We recorded equity losses (net of tax), from our investment in FNRES, of $3.0 million for the year ended December 31, 2007. During 2006 and 2005, FNRES contributed revenues of $45.1 million and $43.7 million, respectively, and operating (loss) income of $(6.6) million and $1.7 million, respectively, which are reflected in the Corporate and Other segment.

 

Business trends and conditions

 

Our revenues in our loan facilitation businesses and certain of our data businesses are affected by the level of residential real estate activity, which depends in part on the level of interest rates. The increase in interest rates and tightening of lending standards in 2007 resulted in a reduction in new loan originations and refinancing activity. In addition to earlier rate reduction actions, the Federal Reserve Bank decreased the federal funds rate by a total of 200 basis points during the first quarter of 2008. This move resulted in an increase in mortgage refinancing volume in the first part of the first quarter; however, this increased volume level has not been sustained. The current Mortgage Bankers Association forecast is for $1.9 trillion of mortgage originations in 2008 as compared to $2.3 trillion in 2007. Relatively higher interest rates are also likely to result in seasonal effects having more influence on real estate activity. Traditionally, the greatest volume of real estate activity, particularly residential resale transactions, has occurred in the spring and summer months.

 

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 a downturn in real estate transactions and mortgage originations, our mortgage processing business is generally not affected by such a downturn as it earns revenues based on processing the total amount of mortgage loans outstanding which tends to stay more constant. Over 2007, we were able to offset somewhat the impact of lower levels of mortgage originations and refinancing transactions on our loan facilitation and other data services by continuing to gain market share in our traditional appraisal business, but if there is a continued downturn in the real estate market there is no guarantee that this trend will continue and our loan facilitation revenues could decrease.

 

In contrast, we believe that a rising interest rate environment or a weaker economy tends to increase the volume of consumer mortgage defaults and thus favorably affect our default management services, which provide services relating to residential mortgage loans in default. The overall strength of the economy also affects default revenues. These factors also increase our revenues from Desktop, because its primary application at present is in connection with default management. Although management believes our aggregate revenues are likely to be somewhat higher in periods when interest rates are lower and real estate markets are robust, our default management services provide a natural hedge against the volatility of the real estate business.

 

Our 2006 and 2007 results demonstrate the extent to which rising default management revenues can offset declines in loan facilitation revenues. 2005 was an active year for mortgage originations, the level of which declined in 2006 and again in 2007. In 2005, our revenues from loan facilitation and default management (excluding Desktop revenues) were $603.6 million and $216.4 million, respectively; in 2006 they were $623.1 million and $277.8 million, respectively; and in 2007 they were $652.9 million and $473.0 million, respectively. It is difficult to state with certainty the extent to which rising interest rates and changes in the economy produced these results, because we gained market share in our traditional appraisal and default

businesses during much of the three years. However, our management believes that absent these market share gains, our loan facilitation revenues would have declined over the three year period while our default revenues would have increased.

 

Historically, some of our default management businesses have had lower margins than our loan facilitation businesses. However, as our default volumes have increased, our margins have improved significantly on the incremental sales in 2007 and the first six months of 2008. Because we are often not paid for our default services until completion of the foreclosure, default does not contribute as quickly to our cash flow from operations as it does to our revenues. Our trade receivables balance increased by approximately $100.6 million from December 31, 2006 to December 31, 2007, largely due to the increase in our default business. Our traditional appraisal services tend to have had lower margins than the remainder of our loan facilitation services.

 

At the same time, as revenue from our loan facilitation businesses has decreased, the associated margins have declined. Sharply lower levels of subprime lending in the second half of 2007 and in 2008 have particularly affected our tax business, the customers of which were heavily weighted to subprime lenders. The rate at which subprime loans are refinanced or repaid due to sales has declined significantly, which in turn has substantially increased the service period for life of loan tax monitoring without any associated additional revenue.

 

In connection with the spin-off, we incurred approximately $1.6 billion in long-term debt, of which a substantial portion bears interest at a floating rate. We also have a $140 million revolving credit facility. Following the spin-off, therefore, we became highly leveraged and became subject to risk from changes in interest rates. Having this amount of debt also makes us more susceptible to negative economic changes, as a large portion of our cash is committed to servicing our debt. Therefore, in a bad economy or if interest rates rise, it will be harder for us to attract executive talent, invest in acquisitions or new ventures, or develop new services.

 

We may be affected by the consolidation trend in the banking industry. This trend may be beneficial or detrimental to our lender processing services businesses. Prior to a merger, merger partners often purchase services from competing service providers. When a mortgage processing client is involved in a consolidation, we may benefit by expanding the use of our services if such services are chosen to survive the consolidation and support the newly combined entity. In our other service lines, we are typically one of two or more vendors of the particular type of service to each of our customers. Following a merger involving a customer of ours in these service lines and a non-customer, our business may increase if the merged entity chooses to retain us as one of its preferred providers of services. Conversely, we may lose market share if a customer of ours is involved in a consolidation and our mortgage processing or other services are not chosen to survive the consolidation and support the newly combined entity. A recent example is the December 2007 sale by ABN AMRO of a mortgage portfolio for which we provided mortgage processing to a bank that we do not service, which resulted in a small loss of revenues for us in the first quarter of 2008 from mortgage processing.

 

The recent merger of Bank of America and Countrywide is an example of a merger that presents us with risks and opportunities, as prior to the merger, each of these two entities used some of the services we provide while obtaining others from third parties or from internal resources. We are in senior-level discussions with Bank of America about the scope of services we will provide to the newly consolidated entity. Bank of America has informed us that it is leaning towards phasing out the mortgage processing and appraisal services we provide to Bank of America and instead obtaining these services internally. These services together generated approximately 4% of our revenues in 2007. If this decision becomes final, we anticipate that a mortgage processing conversion would take from 12 to 30 months from July 2008, when the merger was completed. We have not received any formal notice of termination from Bank of America or been involved in any discussions with them about the mechanics or planning of a mortgage processing or appraisal conversion. It is possible that Bank of America could decide to continue its mortgage processing with us (due to greater efficiencies and cost savings we may provide as a result of our higher volumes, or due to other factors) or to continue its appraisal services with us (due to ramifications from the new Code of Conduct or other factors), although no assurance can be given in this regard. Furthermore, Bank of America obtains other services from

us and has indicated a willingness to expand its relationship with us in other areas. We and Bank of America are discussing other revenue opportunities that may offset a phase-out of the mortgage processing and appraisal services. We cannot assure you that Bank of America will expand its relationship with us in other areas or that any other revenue opportunities will be realized.

 

In a number of our business lines, we are affected by the decisions of potential customers to outsource the types of functions our businesses provide or perform those functions internally. Generally, demand for outsourcing solutions has increased over time as providers such as us realize economies of scale and improve their ability to provide services that improve customer efficiencies and reduce costs. Further, in a slowing economy or mortgage market, we believe that larger financial institutions may seek additional outsourcing solutions to avoid the fixed costs of operating or investing in internal capabilities.

 

Finally, for a description of the new Code of Conduct that Fannie Mae and Freddie Mac have committed to adopt with respect to appraisals, see “Risk Factors — Risks related to our business — In the wake of the current mortgage market, there could be adverse regulatory consequences or litigation that could affect us.” We are currently unable to predict the ultimate effect of the Code of Conduct on our business or results of operations.

 

Critical accounting policies

 

The accounting policies described below are those we consider critical in preparing our combined 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 combined 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 notes to the combined financial statements for a more detailed description of the significant accounting policies that have been followed in preparing our combined financial statements.

 

Revenue recognition

 

We recognize revenues in accordance with SEC Staff Accounting Bulletin No. 104 (“SAB No. 104”), “Revenue Recognition” and related interpretations, Financial Accounting Standards Board (“FASB”) Emerging Issues Task Force No. 00-21 (“EITF 00-21”), “Revenue Arrangements with Multiple Deliverables,” American Institute of Certified Public Accountant’s SOP No. 97-2 “Software Revenue Recognition” (“SOP 97-2”), SOP No. 98-9 “Modification of SOP No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions” (“SOP 98-9”), and SOP No. 81-1, “Accounting for Performance of Construction Type and Certain Production-Type Contracts” (“SOP 81-1”). Recording revenues under the provisions of these pronouncements requires judgment, including determining whether or not 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 under SAB 104: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured. Under EITF 00-21, 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 as determined under SOP 97-2 or SOP 98-9, we apply these pronouncements and related interpretations to 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 management’s 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 as

defined in SOP 98-9. 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, as required by SOP No. 97-2, when the arrangement with the customer includes significant customization, modification, or production of software. For elements accounted for under contract accounting, revenue is recognized in accordance with SOP 81-1, “Accounting for Performance of Construction Type and Certain Production-Type Contracts,” 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 historical and future results of operations or financial position.

 

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, 2007 and 2006, computer software, net of accumulated amortization was $150.4 million and $127.1 million, respectively. Purchased software is recorded at cost and amortized using the straight line method over its estimated useful life and software acquired in business combinations is recorded at its fair value and amortized using straight line and accelerated methods. 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. In determining useful lives, management considers historical results and technological trends which may influence the estimate. Amortization expense for computer software was $31.1 million, $29.0 million and $28.7 million in 2007, 2006 and 2005, 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 or cash flows to be generated from computer software. We have not historically experienced significant changes in these estimates but any change in the future could have an impact on our results of operations.

 

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, 2007 and 2006, goodwill was $1,078.2 million and $1,045.8 million, respectively. 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, 2007 and 2006, intangible assets, net of accumulated amortization, were $118.1 million and $152.8 million, respectively, which consist primarily of purchased customer relationships and trademarks. 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 Statement of Financial Accounting Standards (“SFAS”) No. 142. The determination of estimated useful lives and the allocation of the purchase price to the fair values of the intangible assets require significant judgment and may affect the amount of future amortization on the intangible assets other than goodwill. Amortization expense for intangible assets other than goodwill was $42.4 million, $51.5 million and $56.0 million in 2007, 2006 and 2005, 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 or cash flows to be generated from intangible assets. We have not historically experienced significant 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 combined financial statements, we were 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 combined 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.

Results of operations for the six months ended June 30, 2008 and 2007

 

Unaudited Combined results of operations

 

 

Processing and services revenues.  Processing and services revenues totaled $913.1 million and $826.4 million for the six months ended June 30, 2008 and 2007, respectively. The overall increase of $86.7 million, or 10.5%, in the 2008 period as compared to the 2007 period was primarily driven by growth in our Loan Transaction Services segment which resulted from continued growth in Default services, partially offset by a decline in loan facilitation due to ongoing weakness in the housing market and the resulting impact on our loan origination services. The increase in Loan Transaction Services segment revenue related primarily to accelerating demand for services within our default management businesses due to higher levels of defaulted mortgages and market share gains, which contributed an increase of $160.7 million, offset by our traditional appraisal services, which decreased due to the declining real estate market. These increases were also offset by decreased demand for our tax services and our property exchange services. The decrease in the Technology, Data and Analytics segment was due to a $3.3 million decrease in revenues from mortgage processing services as the result of the loss of a portfolio of loans when it was sold by ABN AMRO to a bank to which we do not provide mortgage processing, as well as several other revenue declines in businesses in the segment. These declines were offset somewhat by our increase in revenues from Desktop.

 

Cost of revenues.  Cost of revenues totaled $585.1 million and $526.8 million for the six months ended June 30, 2008 and 2007, respectively. The overall increase of $58.3 million, or 11.1%, in the 2008 period as compared to 2007 is consistent with revenue growth.

 

Gross profit.  Gross profit as a percentage of revenues (“gross margin”) was 35.9% and 36.3% for the six months ended June 30, 2008 and 2007, respectively. The slight decrease in gross margin in the 2008 period as compared to 2007 was driven by a change in revenue mix as the increased margin contribution from our growth in Default services was offset by contraction in several of our origination based business.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses totaled $119.0 million and $109.1 million for the six months ended June 30, 2008 and 2007, respectively, an increase

of $9.9 million, or 9.1%. The overall increase is primarily due to restructuring and spin-off charges which totaled $5.5 million during the six month period. As a percentage of revenues, selling, general and administrative expenses decreased to 13.0% from 13.2% in the respective 2008 and 2007 periods, largely due to higher revenues from the Loan Transaction Services segment without a corresponding increase in costs.

 

Operating income.  Operating income totaled $209.0 million and $190.5 million for the six months ended June 30, 2008 and 2007, respectively. Operating margin was 22.9% and 23.1% in the respective periods, for the reasons set forth above.

 

Income tax expense.  Income tax expense totaled $81.4 million and $74.0 million for the six months ended June 30, 2008 and 2007, respectively. This resulted in an effective tax rate of 38.8% and 38.7% for the respective periods.

 

Net earnings.  Our net earnings totaled $125.3 million and $115.0 million for the six months ended June 30, 2008 and 2007, respectively.

 

Segment results of operations

 

Technology, Data and Analytics segment unaudited results of operations

 

 

Processing and services revenues.  Processing and services revenues totaled $277.6 million and $284.4 million for the six months ended June 30, 2008 and 2007, respectively. The overall decrease of $6.8 million, or 2.4%, in the 2008 period as compared to the 2007 period resulted from a $3.3 million decrease in revenues from mortgage processing services and decreases in some of our other data and analytics services partially offset by growth in Desktop revenues due to the active default environment.

 

Cost of Revenues.  Cost of revenues totaled $155.5 million and $160.3 million for the six months ended June 30, 2008 and 2007, respectively. The overall decrease of $4.8 million or 3.0%, in the 2008 period as compared to 2007 is reflective of the decrease in revenues from certain business lines such as mortgage processing services and origination software sales.

 

Gross profit.  Gross margin was 44.0% and 43.6% for the six months ended June 30, 2008 and 2007, respectively, as a result of the factors described above.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses totaled $33.7 million and $32.8 million for the six months ended June 30, 2008 and 2007, respectively, an increase of $0.9 million, or 2.7%. As a percentage of revenues, selling, general and administrative expenses were 12.1% and 11.5% in the respective 2008 and 2007 periods.

 

Operating income.  Operating income totaled $88.3 million and $91.3 million for the six months ended June 30, 2008 and 2007, respectively. Operating margin was 31.8% and 32.1% in the respective 2008 and 2007 periods. The decrease in operating margin primarily relates to the decrease in higher margin revenues described above.

Loan Transaction Services segment unaudited results of operations

 

 

Processing and services revenues.  Processing and services revenues totaled $642.6 million and $540.9 million for the six months ended June 30, 2008 and 2007, respectively. The overall increase of $101.7 million, or 18.8%, in the 2008 period as compared to the 2007 period resulted from an increase in demand for services within our default management businesses due to higher levels of defaulted mortgages and market share gains, which contributed an increase of $160.7 million, partially offset by our traditional appraisal services, which decreased due to the declining real estate market. The increase was also offset by decreased demand for our tax services and our tax deferred property exchange services.

 

Cost of revenues.  Cost of revenues totaled $436.8 million and $369.2 million for the six months ended June 30, 2008 and 2007, respectively. The overall increase of $67.6 million, or 18.3%, in the 2008 period as compared to 2007 is consistent with the revenue growth described above.

 

Gross profit.  Gross margin was 32.0% and 31.7% for the six months ended June 30, 2008 and 2007, respectively. The small increase in gross margin can be attributed to the significant growth in our Default services.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses totaled $57.8 million and $54.8 million for the six months ended June 30, 2008 and 2007, respectively, an increase of $3.0 million, or 5.5%. As a percentage of revenues selling, general and administrative expenses were 9.0% and 10.1% in the respective 2008 and 2007 periods.

 

Operating income.  Operating income totaled $148.0 million and $117.0 million for the six months ended June 30, 2008 and 2007, respectively. Operating margin was 23.0% and 21.6% for the respective 2008 and 2007 periods, for the reasons described above.

 

Corporate and Other segment

 

The Corporate and Other segment consists of corporate overhead costs that are not included in the other segments as well as certain smaller investments and operations. Net expenses for this segment increased from $17.8 million during the six months ended June 30, 2007 to $27.3 million in the six months ended June 30, 2008. The increase in net corporate expenses in the six month period of 2008 is primarily due to spin-off related costs incurred, as well as higher incentive and stock related compensation costs. Stock related compensation costs were $9.1 million and $7.2 million for the six months ended June 30, 2008 and 2007, respectively.

Results of operations for the years ended December 31, 2007, 2006 and 2005

 

Combined results of operations

 

 

Processing and services revenues.  Processing and services revenues totaled $1,690.6 million, $1,485.0 million and $1,382.5 million for 2007, 2006 and 2005, respectively. The overall increase of $205.6 million, or 13.8%, in 2007 as compared to 2006 resulted from an increase in our Technology, Data and Analytics segment revenues of $23.2 million and an increase in our Loan Transaction Services segment revenues of $224.9 million partially offset by a reduction in Corporate and Other segment revenues due to the deconsolidation of FNRES, which had revenues in 2006 of approximately $45.1 million. The increase in Technology, Data and Analytics revenue resulted primarily from an increase of $16.7 million in revenues relating to mortgage processing services and the growth in transactions processed by Desktop primarily resulting from increased foreclosure activity. These increases were partially offset by a decrease in revenues in 2007 from our alternative valuation services relating to the overall slowdown of real estate activity. The increase in Loan Transaction Services revenue related primarily to accelerating demand for services within our default management businesses, which contributed an increase of $195.2 million, and market share gains in our traditional appraisal services, which increased $75.3 million despite the declining real estate market. These increases were partially offset by decreased demand for our tax services and our property exchange services. The overall increase of $102.5 million, or 7.4%, in 2006 compared to 2005 was driven primarily by growth of $21.7 million in the Technology, Data and Analytics segment and $80.9 million in the Loan Transaction Services segment. The growth from 2005 to 2006 in the Technology, Data and Analytics segment was driven by a $10.4 million increase in revenues from mortgage processing services. The growth from 2005 to 2006 in the Loan Transaction Services segment was largely due to an increase in revenues from default management services of $61.4 million and a $43.9 million increase relating to our traditional appraisal services.

 

Cost of revenues.  Cost of revenues totaled $1,058.6 million, $900.1 million and $804.5 million for 2007, 2006 and 2005, respectively. The overall increase of $158.5 million, or 17.6%, in 2007 as compared to 2006, as well as the increase of $95.7 million, or 11.9%, in 2006 as compared to 2005, exceeded the pace of our increases in revenues due primarily to significant growth in lower margin service lines within the Loan

Transaction Services segment, particularly our appraisal services, along with declining revenues and margins in tax services and our tax deferred exchange businesses due to lower volumes.

 

Gross profit.  Gross margin was 37.4%, 39.4% and 41.8% for 2007, 2006 and 2005, respectively, for the reasons set forth above.

 

Selling, general and administrative expenses.  Selling, general and administrative expenses totaled $207.9 million, $257.3 million and $260.1 million for 2007, 2006 and 2005, respectively. The decrease of $49.5 million, or 19.2%, in 2007 as compared to 2006 was primarily the result of the deconsolidation of FNRES which resulted in a reduction of $22.7 million, a reduction in stock based compensation of $10.0 million and other cost control measures. Stock based compensation in 2006 included $16.9 million in acceleration charges relating to performance based options and options vested due to FIS’s merger with FNF. Selling, general and administrative expenses stayed relatively constant in 2006 and 2005.

 

Operating income.  Operating income totaled $424.1 million, $327.5 million and $317.9 million for 2007, 2006 and 2005 respectively. Operating margin was 25.1%, 22.1% and 23.0% for 2007, 2006 and 2005, respectively. The increase in operating income in 2007 as compared to 2006 primarily results from our increased revenue and lower selling, general and administrative costs, partially offset by our decreasing gross margin.

 

Income tax expense.  Income tax expense totaled $164.7 million, $128.0 million and $124.2 million for 2007, 2006 and 2005, respectively. This resulted in an effective tax rate of 38.7%, 38.8% and 38.7% for 2007, 2006 and 2005, respectively. The increase in tax expense for 2007 as compared to 2006 is attributable to increased operating income.

 

Net earnings.  Our net earnings totaled $256.8 million, $201.1 million and $195.7 million for 2007, 2006 and 2005, respectively.

 

Segment results of operations

 

Technology, Data and Analytics segment results of operations