UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from            to

Lender Processing Services, Inc.

Delaware		26-1547801
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)
601 Riverside Avenue
Jacksonville, Florida		32204
(Address of principal executive offices)		(Zip Code)

(904) 854-5100
(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ   No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o	Non-accelerated filer þ (Do not check if a smaller reporting company)			Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o   No þ

     As of October 31, 2008, 95,270,427 shares of the Registrant’s Common Stock were outstanding.

 

 

FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 2008

INDEX

		Page
Part I: FINANCIAL INFORMATION
Item 1. Consolidated and Combined Financial Statements (Unaudited)
Consolidated and Combined Balance Sheets as of September 30, 2008 and December 31, 2007			3
Consolidated and Combined Statements of Earnings for the three and nine months ended September 30, 2008 and 2007			4
Consolidated and Combined Statements of Comprehensive Earnings for the three and nine months ended September 30, 2008 and 2007			5
Consolidated and Combined Statement of Stockholders’ Equity for the nine months ended September 30, 2008			6
Consolidated and Combined Statements of Cash Flows for the nine months ended September 30, 2008 and 2007			7
Notes to Consolidated and Combined Financial Statements (Unaudited)			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			21
Item 3. Quantitative and Qualitative Disclosure About Market Risks			33
Item 4T. Controls and Procedures			33
Part II: OTHER INFORMATION
Item 1. Legal Proceedings			33
Item 1A. Risk Factors			34
Item 6. Exhibits			37
EX-31.1
EX-31.2
EX-32.1
EX-32.2

Part I: FINANCIAL INFORMATION

Item 1. Consolidated and Combined Financial Statements (Unaudited)

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		September 30,				December
		2008 (Unaudited)				31, 2007 (1)
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	49,417			$	39,566
Trade receivables, net of allowance for doubtful accounts of $36.0 million and $20.3 million at September 30, 2008 and December 31, 2007			371,098				286,236
Other receivables			15,582				7,971
Due from affiliates			1,082				—
Prepaid expenses and other current assets			22,387				33,323
Deferred income taxes, net			34,640				40,440
Total current assets			494,206				407,536
Property and equipment, net of accumulated depreciation and amortization of $138.0 million and $126.1 million at September 30, 2008 and December 31, 2007			92,473				95,620
Goodwill			1,086,606				1,078,154
Other intangible assets, net of accumulated amortization of $263.0 million and $239.0 million at September 30, 2008 and December 31, 2007			93,481				118,129
Computer software, net of accumulated amortization of $79.9 million and $73.9 million at September 30, 2008 and December 31, 2007			150,170				150,372
Other non-current assets			133,049				112,232
Total assets		$	2,049,985			$	1,962,043
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable		$	32,367			$	19,499
Accrued salaries and benefits			33,629				22,908
Recording and transfer tax liabilities			16,708				10,657
Due to affiliates			1,030				—
Income taxes payable			32,311				—
Other accrued liabilities			70,426				57,053
Current portion of long-term debt			110,105				—
Deferred revenues			53,946				58,076
Total current liabilities			350,522				168,193
Deferred revenues			32,866				23,146
Deferred income taxes, net			45,249				55,196
Long-term debt, excluding current portion			1,438,625				—
Other long-term liabilities			21,439				34,419
Total liabilities			1,888,701				280,954
Minority interest			11,103				10,050
Stockholders’ Equity:
Preferred stock $0.0001 par value; 50 million shares authorized, none issued at September 30, 2008 or December 31, 2007			—				—
Common stock $0.0001 par value; 500 million shares authorized, 95.3 million shares issued at September 30, 2008			9				—
FIS’s equity			—				1,671,039
Additional paid-in capital			101,640				—
Retained earnings			48,738				—
Accumulated other comprehensive earnings			35				—
Treasury stock $0.0001 par value; 7,000 shares at September 30, 2008			(241	)			—
Total stockholders’ equity			150,181				1,671,039
Total liabilities and stockholders’ equity		$	2,049,985			$	1,962,043

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(In thousands, except per share data)								(In thousands, except per share data)
Processing and services revenues, including $73.0 million and $55.5 million of revenues from related parties for the three month periods and $175.0 million and $162.5 million of revenues from related parties for the nine month periods ended September 30, 2008 and 2007, respectively		$	472,678			$	425,464			$	1,385,784			$	1,251,902
Cost of revenues, including related party expenses of $1.9 million and $1.6 million for the three month periods and $6.6 million and $4.2 million for the nine month periods ended September 30, 2008 and 2007, respectively			302,081				261,655				887,218				788,478
Gross profit			170,597				163,809				498,566				463,424
Selling, general, and administrative expenses, including related party expenses, net of expense reimbursements, of $2.8 million and $6.8 million for the three month periods and $25.1 million and $17.1 million for the nine month periods ended September 30, 2008 and 2007, respectively			59,746				51,528				178,745				160,600
Operating income			110,851				112,281				319,821				302,824
Other income (expense):
Interest income			476				427				1,039				1,172
Interest expense			(24,565	)			(34	)			(24,623	)			(111	)
Other income, net			(5	)			—				277				—
Total other income (expense)			(24,094	)			393				(23,307	)			1,061
Earnings before income taxes, equity in losses of unconsolidated entity and minority interest			86,757				112,674				296,514				303,885
Provision for income taxes			33,662				43,610				115,048				117,620
Earnings before equity in losses of unconsolidated entity and minority interest			53,095				69,064				181,466				186,265
Equity in losses of unconsolidated entity			(1,484	)			(794	)			(3,854	)			(2,514	)
Minority interest			(330	)			(279	)			(1,053	)			(715	)
Net earnings		$	51,281			$	67,991			$	176,559			$	183,036
Net earnings per share — basic (1)		$	0.54							$	1.85
Weighted average shares outstanding — basic (1)			94,667								95,551
Net earnings per share — diluted (1)		$	0.54							$	1.84
Weighted average shares outstanding — diluted (1)			95,223								95,963

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		Three months ended September 30,								Nine months ended September 30,
		2008				2007				2008				2007
		(In thousands)								(In thousands)
Net earnings		$	51,281			$	67,991			$	176,559			$	183,036
Other comprehensive earnings:
Unrealized (loss) gain on other investments, net of tax			(111	)			—				139				—
Unrealized loss on interest rate swaps, net of tax			(104	)			—				(104	)			—
Other comprehensive earnings			(215	)			—				35				—
Comprehensive earnings		$	51,066			$	67,991			$	176,594			$	183,036

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

																						Accumulated
										Additional												Other												Total
		Common				Common				Paid-In				Retained				FIS’s				Comprehensive				Treasury				Treasury				Stockholders’
		Shares				Stock				Capital				Earnings				Equity				Earnings				Shares				Stock				Equity
Balances, December 31, 2007			—			$	—			$	—			$	—			$	1,671,039			$	—				—			$	—			$	1,671,039
Net earnings (January 1, 2008 to June 20, 2008)			—				—				—				—				118,295				—				—				—				118,295
Net distribution to FIS			—				—				11,405				—				(121,677	)			—				—				—				(110,272	)
Capitalization of Lender Processing Services, Inc.			1				—				1,667,268				—				(1,667,657	)			389				—				—				—
Issuance of note payable to FIS			—				—				(1,585,000	)			—				—				—				—				—				(1,585,000	)
Net earnings (June 21, 2008 to September 30, 2008)			—				—				—				58,264				—				—				—				—				58,264
Distribution of common stock (July 2, 2008)			94,610				9				(9	)			—				—				—				—				—				—
Issuance of restricted stock			515				—				—				—				—				—				—				—				—
Cash dividends paid			—				—				—				(9,526	)			—				—				—				—				(9,526	)
Exercise of stock options			138				—				1,674				—				—				—				(7	)			(241	)			1,433
Tax benefit associated with exercise of stock options			—				—				512				—				—				—				—				—				512
Stock-based compensation			—				—				5,790				—				—				—				—				—				5,790
Unrealized loss on investments			—				—				—				—				—				(250	)			—				—				(250	)
Unrealized loss on interest rate swaps			—				—				—				—				—				(104	)			—				—				(104	)
Balances, September 30, 2008			95,264			$	9			$	101,640			$	48,738			$	—			$	35				(7	)		$	(241	)		$	150,181

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		Nine months ended September 30,
		2008				2007
		(In thousands)
Cash flows from operating activities:
Net earnings		$	176,559			$	183,036
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			68,395				77,852
Amortization of debt issuance costs			1,509				—
Deferred income taxes, net			3,968				13,688
Stock-based compensation cost			14,910				10,822
Income tax benefit from exercise of stock options			(512	)			—
Equity in losses of unconsolidated entity			3,854				2,514
Minority interest			1,053				715
Changes in assets and liabilities, net of effects of acquisitions:
Net increase in trade receivables			(84,167	)			(70,052	)
Net (increase) decrease in other receivables			(7,612	)			23,603
Net decrease (increase) in prepaid expenses and other assets			8,631				(6,953	)
Net increase in deferred contract costs			(3,955	)			(18,776	)
Net decrease (increase) in deferred revenues			5,342				(24,272	)
Net increase in accounts payable, accrued liabilities and other liabilities			59,317				2,971
Net cash provided by operating activities			247,292				195,148
Cash flows from investing activities:
Additions to property and equipment			(14,657	)			(5,072	)
Additions to capitalized software			(23,685	)			(29,412	)
Acquisitions, net of cash acquired			(15,488	)			(37,305	)
Net cash used in investing activities			(53,830	)			(71,789	)
Cash flows from financing activities:
Borrowings			25,700				—
Debt service payments			(61,993	)			—
Capitalized debt issuance costs			(24,882	)			—
Stock options exercised			1,433				—
Income tax benefit from exercise of stock options			512				—
Dividends paid			(9,526	)			—
Net distributions to FIS			(114,855	)			(143,843	)
Net cash used in financing activities			(183,611	)			(143,843	)
Net increase (decrease) in cash and cash equivalents			9,851				(20,484	)
Cash and cash equivalents, beginning of period			39,566				47,783
Cash and cash equivalents, end of period		$	49,417			$	27,299
Cash paid for interest		$	15,543			$	—
Cash paid for taxes		$	720			$	—
Non-cash contribution of stock compensation from FIS		$	9,120			$	10,822
Non-cash contribution for Espiel acquisition		$	—			$	6,000
Non-cash redistribution of assets to FIS		$	(4,537	)		$	—
Non-cash exchange of FIS note		$	(1,585,000	)		$	—

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

     Except as otherwise indicated or unless the context otherwise requires, all references to “LPS,” “we,” the “Company,” or the “registrant” are to Lender Processing Services, Inc., a Delaware corporation that was incorporated in December 2007 as a wholly-owned subsidiary of FIS, and its subsidiaries; all references to “FIS,” the “former parent,” or the “holding company” are to Fidelity National Information Services, Inc., a Georgia corporation formerly known as Certegy Inc., and its subsidiaries, that owned all of LPS’s shares until July 2, 2008; all references to “former FIS” are to Fidelity National Information Services, Inc., a Delaware corporation, and its subsidiaries, prior to the Certegy merger described below; all references to “old FNF” are to Fidelity National Financial, Inc., a Delaware corporation that owned a majority of FIS’s shares through November 9, 2006; and all references to “FNF” are to Fidelity National Financial, Inc. (formerly known as Fidelity National Title Group, Inc.), formerly a subsidiary of old FNF but now a stand-alone company that remains a related entity from an accounting perspective.

(1) Basis of Presentation

     The unaudited financial information included in this report includes the accounts of Lender Processing Services, Inc. and its subsidiaries and affiliates prepared in accordance with generally accepted accounting principles and the instructions to Form 10-Q and Article 10 of Regulation S-X. All adjustments considered necessary for a fair presentation have been included. This report should be read in conjunction with the Company’s Form 10 that became effective on June 20, 2008. The preparation of these Consolidated and Combined Financial Statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated and combined financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Capitalization and Closing of Lender Processing Services, Inc. Spin-off Transaction and Issuance of Common Stock Shares

     Our former parent, Fidelity National Information Services, Inc., is a Georgia corporation formerly known as Certegy Inc. In February 2006, Certegy Inc. merged with and into Fidelity National Information Services, Inc., a Delaware corporation, which we refer to as former FIS. Certegy Inc. survived the merger, which we refer to as the Certegy merger, to form our former parent. Following the Certegy merger, Certegy Inc. was renamed Fidelity National Information Services, Inc., which we refer to as FIS. Prior to the Certegy merger, former FIS was a majority-owned subsidiary of Fidelity National Financial, Inc., which we refer to as old FNF. Old FNF merged into our former parent in November 2006 as part of a reorganization, which included old FNF’s spin-off of Fidelity National Title Group, Inc. Fidelity National Title Group, Inc. was renamed Fidelity National Financial, Inc. following this reorganization, and we refer to it as FNF. FNF is now a stand-alone company, but remains a related entity from an accounting perspective.

     In October 2007, the board of directors of FIS approved a plan of restructuring pursuant to which FIS would spin off its lender processing services segment to its shareholders in a tax free distribution. Pursuant to this plan of restructuring, on June 16, 2008, FIS contributed to us all of its interest in the assets, liabilities, businesses and employees related to FIS’s lender processing services operations in exchange for a certain number of shares of our common stock and $1,585.0 million aggregate principal amount of our debt obligations, including our new senior notes and debt obligations under our new credit facility described in Note 5. On June 20, 2008, FIS received a private letter ruling from the Internal Revenue Service with respect to the tax-free nature of the plan of restructuring and distribution, and the Company’s registration statement on Form 10 with respect to the distribution was declared effective by the Securities and Exchange Commission. The spin-off was tax-free to FIS and its shareholders, and the debt-for-debt exchange undertaken in connection with the spin-off was tax-free to FIS.

     On July 2, 2008, FIS distributed to its shareholders a dividend of one-half share of our common stock, par value $0.0001 per share, for each issued and outstanding share of FIS common stock held on June 24, 2008, which we refer to as the “spin-off.” The shares of the Company distributed to FIS shareholders on July 2, 2008 represented all of our issued and outstanding shares. Also on July 2, 2008, FIS exchanged 100% of our debt obligations for a like amount of FIS’s existing Tranche B Term Loans issued under its Credit Agreement dated as of January 18, 2007. Following this debt-for-debt exchange, the portion of the existing Tranche B Term Loans acquired by FIS was

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

retired. On July 3, 2008, we commenced regular way trading on the New York Stock Exchange under the trading symbol “LPS.” Prior to the spin-off, we were a wholly-owned subsidiary of FIS.

     Our principal executive offices are located at 601 Riverside Avenue, Jacksonville, Florida 32204 and our main telephone number is (904) 854-5100. We were incorporated in Delaware in December 2007.

Separation from FIS and Principles of Consolidation and Combination

     Our historical financial statements include assets, liabilities, revenues and expenses directly attributable to our operations. Our historical financial statements also reflect allocations of certain corporate expenses from FIS. These expenses have been allocated to us on a basis that 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 are not our employees after the spin-off 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 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.

     Prior to June 21, 2008, the historical financial statements of the Company were presented on a combined basis. Beginning June 21, 2008, after all the assets and liabilities of the lender processing services segment of FIS were formally contributed by FIS to LPS, the historical financial statements of the Company have been presented on a consolidated basis for financial reporting purposes. The accompanying Consolidated and Combined Financial Statements include those assets, liabilities, revenues and expenses directly attributable to LPS’s operations and, prior to June 21, 2008, allocations of certain FIS corporate assets, liabilities, revenues and expenses to LPS.

     The accompanying Consolidated and Combined Financial Statements were prepared in accordance with generally accepted accounting principles and all adjustments considered necessary for a fair presentation have been included. All significant intercompany accounts and transactions have been eliminated. Our investments in less than 50% owned affiliates are accounted for using the equity method of accounting.

Reporting Segments

     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. We conduct our operations through two reporting segments, Technology, Data and Analytics and Loan Transaction Services.

     Our Technology, Data and Analytics segment principally includes:

	•		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 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.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

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

     Our loan facilitation services include:

	•		settlement services, which consist of title agency services, in which we act as an agent for title insurers, 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.

     Our default management services include, among others:

	•		foreclosure management 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.

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

(2) Related Party Transactions

     We have historically conducted business with FNF. We have various agreements with FNF under which we have provided title agency services, software development and other data services. Additionally, we have been allocated corporate costs from FIS and will continue to receive certain corporate services from FIS for a period of time. A summary of these agreements in effect through September 30, 2008 is as follows:

•

Agreements to provide title agency services. These agreements allow us to provide services to existing customers through loan facilitation transactions, primarily with large national lenders. The arrangement involves providing title agency services which result in the issuance of title policies on behalf of title insurance underwriters owned by FNF and its subsidiaries. Subject to certain early termination provisions for cause, each of these agreements may be terminated upon five years’ prior written notice, which notice may not be given until after the fifth anniversary of the effective date of each agreement, which ranges from July 2004 through September 2006 (thus effectively resulting in a minimum ten year term and a rolling one-year term thereafter). Under these agreements, we earn commissions which, in aggregate, are equal to approximately 88% of the total title premium from title policies that we place with subsidiaries of FNF. We also perform similar functions in connection with trustee sale guarantees, a form of title insurance that subsidiaries of FNF issue as part of the foreclosure process on a defaulted loan.

•

Agreements to provide software development and services. These agreements govern the fee structure under which we are paid for providing software development and services to FNF which consist of developing software for use in the title operations of FNF.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

•

Arrangements to provide other data services. Under these arrangements, we are paid for providing other data services to FNF, which consist primarily of data services required by the title insurance operations.

     A detail of related party items included in revenues for the three and nine months ended September 30, 2008 and 2007 is as follows (in millions):

		Three months ended								Nine months ended
		September 30								September 30
		2008				2007				2008				2007
Title agency commissions		$	56.8			$	34.7			$	123.6			$	103.0
Software development revenue			13.7				15.9				41.8				44.6
Other data related services			2.5				4.9				9.6				14.9
Total revenues		$	73.0			$	55.5			$	175.0			$	162.5

•

Title plant access and title production services. Under these agreements, we obtain access to FNF’s title plants for real property located in various states, including access to their online databases, physical access to title records, use of space, image system use, and use of special software, as well as other title production services. For the title plant access, we pay monthly fees (subject to certain minimum charges) based on the number of title reports or products ordered and other services received. For the title production services, we pay for services based on the number of properties searched, subject to certain minimum use. The title plant access agreement has a term of 3 years beginning in November 2006 and is automatically renewable for successive 3 year terms unless either party gives 30 days’ prior written notice. The title production services agreement can be terminated by either party upon 30 days’ prior written notice.

•

Agreements to provide administrative corporate support services to and from FIS and from FNF. Historically, FNF has provided to FIS certain administrative corporate support services relating to general management, statutory accounting, claims administration, and other administrative support services. Prior to the spin-off, as a part of FIS, we also received these administrative corporate support services from FNF. In connection with the spin-off, we entered into a separate agreement with FNF for the provision of certain of these administrative corporate support services by FNF. In addition, prior to the spin-off, FIS provided general management, accounting, treasury, payroll, human resources, internal audit, and other corporate administrative support services to us. In connection with the spin-off, we entered into corporate services agreements with FIS under which we receive from FIS, and we provide to FIS, certain transitional corporate support services. The pricing for all of these services, both from FNF and FIS, and to FIS, is on an at-cost basis. The term of the corporate services agreements is two years, subject to early termination because the services are no longer required by the party receiving the services or upon mutual agreement of the parties and subject to extension in certain circumstances. Management believes the methods used to allocate the amounts included in these financial statements for corporate services are reasonable.

•

Corporate aircraft use agreements. Historically the Company has had access to certain corporate aircraft owned by FNF and by FIS. In connection with the spin-off, the Company was added as a co-obligor of the aircraft lease obligations for the aircraft leased by FIS, and pursuant to an aircraft interchange agreement, LPS was included as an additional permitted user of corporate aircraft leased by FNF. FNF will also continue to be a permitted user of any aircraft leased by FIS or LPS. LPS was also added as a party to the aircraft cost sharing agreement that was previously between FNF and FIS. Under this agreement, the Company and FIS share the costs of one of FNF’s aircraft that is used by all of the entities. The cost for use of each aircraft under the aircraft interchange agreement is calculated on the same basis and reflects the costs attributable to the time the aircraft is in use by the user. The aircraft interchange agreement is terminable by any party on 30 days’ prior notice. The costs under the aircraft cost sharing agreement are shared equally among FNF, FIS and the Company, and the agreement remains in effect so long as FNF has possession or use of the aircraft (or any replacement) but may be terminated at any time with the consent of FNF, FIS and the Company.

•

Real estate management, real estate lease and equipment lease agreements. In connection with the spin-off and the transfer of the real property located at the Company’s corporate headquarters campus from FIS to LPS, the Company entered into new leases with FNF and FIS, as tenants, as well as a new sublease with FNF, as landlord, for office space on the Company’s headquarters corporate campus. The Company also entered into a new

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

		property management agreement with FNF for an office building located on the corporate campus with the Company’s headquarters. Included in the Company’s expenses are amounts paid to FNF for the lease of certain equipment and the sublease of certain office space, furniture and furnishings at the Company’s headquarters location. In addition, the Company’s revenues include amounts paid by FNF and FIS for the lease of office space located at the Company’s corporate headquarters and business operations as well as revenues for property management services for FNF for the office building located on the corporate campus with the Company’s headquarters.
•		Licensing, cost sharing, business processing and other agreements. These agreements provide for the reimbursement of certain amounts from FNF and FIS related to various licensing and cost sharing agreements, as well as the payment of certain amounts by the Company to FNF or its subsidiaries in connection with our use of certain intellectual property or other assets of or services by FNF.

     A detail of related party items included in expenses for the three and nine months ended September 30, 2008 and 2007 is as follows (in millions):

		Three months ended								Nine months ended
		September 30,								September 30,
		2008				2007				2008				2007
Title plant information expense		$	1.9			$	1.6			$	6.6			$	4.2
Corporate services			3.5				9.3				31.1				29.1
Licensing, leasing and cost sharing agreements			(0.7	)			(2.5	)			(6.0	)			(12.0	)
Total expenses		$	4.7			$	8.4			$	31.7			$	21.3

     We believe the amounts earned from or charged by FNF or FIS under each of the foregoing service arrangements are fair and reasonable. We believe that the approximately 88% aggregate commission rate on title insurance policies is consistent with the blended rate that would be available to a third party title agent given the amount and the geographic distribution of the business produced and the low risk of loss profile of the business placed. The software development services provided to FNF are priced within the range of prices we offer to third parties. These transactions between us and FIS and FNF are subject to periodic review for performance and pricing.

Other related party transactions:

     Investment by FNF in Fidelity National Real Estate Solutions, Inc.

     On December 31, 2006, FNF contributed $52.5 million to Fidelity National Real Estate Solutions, Inc. (“FNRES”), an FIS subsidiary, for approximately 61% of the outstanding shares of FNRES. As a result, since December 31, 2006, FIS no longer consolidated FNRES, but recorded the remaining 39% interest as an equity investment. On June 16, 2008, FIS contributed its equity investment in FNRES to LPS in the spin-off (Note 1), which totaled $26.7 million and $30.5 million as of September 30, 2008 and December 31, 2007, respectively. LPS recorded equity losses (net of tax) from its investment in FNRES of $1.5 million and $0.8 million for the three months ended September 30, 2008 and 2007, respectively, and $3.9 million and $2.5 million for the nine months ended September 30, 2008 and 2007, respectively.

(3) Unaudited Pro Forma Net Earnings per Share

     The basic weighted average shares and common stock equivalents are generally computed in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, Earnings per Share, using the treasury stock method. However, due to the nature and timing of the spin-off, the number of outstanding shares issued in the capitalization of the Company were the only shares outstanding prior to the spin-off (Note 1). As such, management believes the resulting GAAP earnings per share — basic and GAAP earnings per share — diluted measures are not meaningful for the three and nine months ended September 30, 2008, and therefore, the calculation has been excluded from the Consolidated and Combined Statements of Earnings and the Notes thereto.

     Pro forma weighted average shares outstanding — basic, for the three months ended September 30, 2008, is calculated using the number of shares issued by LPS on July 2, 2008, as if the shares had been issued on July 1,

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

2008. Pro forma weighted average shares outstanding — diluted, for the three months ended September 30, 2008, is calculated using the same number of shares as the pro forma weighted average shares outstanding — basic, plus common stock equivalents from stock awards. Pro forma weighted average shares outstanding — basic, for the nine months ended September 30, 2008, is calculated using the same number of shares as the average of the number of shares used to calculate the pro forma weighted average shares outstanding — basic for the three months ended March 31, June 30 and September 30, 2008. Pro forma weighted average shares outstanding — diluted, for the nine months ended September 30, 2008, is calculated using the same number of shares as the average of the number of shares used to calculate the pro forma weighted average shares outstanding — diluted for the three months ended March 31, June 30 and September 30, 2008.

     The following table summarizes the pro forma earnings per share for the three and nine months ending September 30, 2008 (in thousands, except per share amounts):

		Three months ended				Nine months ended
		September 30, 2008				September 30, 2008
Pro forma weighted average shares outstanding — basic			94,667				95,551
Plus: Pro forma common stock equivalent shares			556				412
Pro forma weighted average shares outstanding — diluted			95,223				95,963
Pro forma basic net earnings per share		$	0.54			$	1.85
Pro forma diluted net earnings per share		$	0.54			$	1.84

     Options to purchase approximately 4.5 million shares of our common stock for the three months ended September 30, 2008 were not included in the computation of diluted earnings per share because they were antidilutive.

(4) Acquisitions

     In May 2008, we acquired McDash Analytics, LLC for $15.5 million (net of cash acquired) which resulted in the recognition of $10.6 million of goodwill and $4.4 million of other intangible assets and software.

     In June 2007, we acquired Espiel, Inc. and Financial Systems Integrators, Inc. for $43.3 million (net of cash acquired) which resulted in the recognition of $32.4 million of goodwill and $12.4 million of other intangible assets and software.

(5) Long-Term Debt

     Long-term debt as of September 30, 2008 consisted of the following (in thousands):

		September 30,
		2008
Term A Loan, secured, interest payable at LIBOR plus 2.50% (6.43% at September 30, 2008), quarterly principal amortization, maturing July 2013		$	665,000
Term B Loan, secured, interest payable at LIBOR plus 2.50% (6.43% at September 30, 2008), quarterly principal amortization, maturing July 2014			508,725
Revolving Loan, secured, interest payable at LIBOR plus 2.50% (Eurocurrency Borrowings), Fed-funds plus 2.50% (Swingline Borrowings) or Prime plus 1.50% (Base Rate Borrowings) (6.43%, 4.53% or 6.50%, respectively, at September 30, 2008), maturing July 2013. Total of $139.3 million unused (net of outstanding letters of credit) as of September 30, 2008			—
Senior unsecured notes, issued at par, interest payable semiannually at 8.125%, due July 2016			375,000
Other promissory notes with various interest rates and maturities			5
			1,548,730
Less current portion			(110,105	)
Long-term debt, excluding current portion		$	1,438,625

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

     On July 2, 2008, we entered into a Credit Agreement (the “Credit Agreement”) among JPMorgan Chase Bank, N.A., as Administrative Agent, Swing Line Lender and Letters of Credit Issuer and various other lenders who are parties to the Credit Agreement. The Credit Agreement consists of: (i) a 5-year revolving credit facility in an aggregate principal amount outstanding at any time not to exceed $140.0 million (with a $25.0 million sub-facility for Letters of Credit); (ii) a Term A Loan in an initial aggregate principal amount of $700.0 million; and (iii) a Term B Loan in an initial aggregate principal amount of $510.0 million. Proceeds from disbursements under the 5-year revolving credit facility are to be used for general corporate purposes. Our debt obligations issued to FIS as described in Note 1 consisted of the Term A Loan, the Term B Loan and the Notes described below.

     The loans under the Credit Agreement bear interest at a floating rate, which is an applicable margin plus, at our option, either (a) the Eurodollar (LIBOR) rate or (b) the higher of (i) the prime rate or (ii) the federal funds rate plus 0.5% (the higher of clauses (i) and (ii), the “ABR rate”). The annual margin on the Term A Loan and the revolving credit facility, for the first six months after issuance, is 2.5% in the case of LIBOR loans and 1.5% in the case of ABR rate loans, and thereafter a percentage per annum to be determined in accordance with a leverage ratio-based pricing grid; and on the Term B Loan is 2.5% in the case of LIBOR loans, and 1.5% in the case of ABR rate loans.

     In addition to the scheduled principal payments, the Term Loans are (with certain exceptions) subject to mandatory prepayment upon issuances of debt, casualty and condemnation events, and sales of assets, as well as from up to 50% of excess cash flow (as defined in the Credit Agreement) in excess of an agreed threshold commencing with the cash flow for the year ended December 31, 2009. Voluntary prepayments of the loans are generally permitted at any time without fee upon proper notice and subject to a minimum dollar requirement. However, optional prepayments of the Term B Loan in the first year after issuance made with the proceeds of certain loans having an interest spread lower than the Term B Loan are required to be made at 101% of the principal amount repaid. Commitment reductions of the revolving credit facility are also permitted at any time without fee upon proper notice. The revolving credit facility has no scheduled principal payments, but it will be due and payable in full on July 2, 2013.

     The obligations under the Credit Agreement are jointly and severally, unconditionally guaranteed by certain of our domestic subsidiaries. Additionally, the Company and such subsidiary guarantors pledged substantially all our respective assets as collateral security for the obligations under the Credit Agreement and our respective guarantees.

     The Credit Agreement contains customary affirmative, negative and financial covenants including, among other things, limits on the creation of liens, limits on the incurrence of indebtedness, restrictions on investments and dispositions, limits on the payment of dividends and other restricted payments, a minimum interest coverage ratio and a maximum leverage ratio. Upon an event of default, the administrative agent can accelerate the maturity of the loan. Events of default include events customary for such an agreement, including failure to pay principal and interest in a timely manner and breach of covenants. These events of default include a cross-default provision that permits the lenders to declare the Credit Agreement in default if (i) we fail to make any payment after the applicable grace period under any indebtedness with a principal amount in excess of a specified amount or (ii) we fail to perform any other term under any such indebtedness, as a result of which the holders thereof may cause it to become due and payable prior to its maturity.

     On July 2, 2008, we issued senior notes (the “Notes”) in an aggregate principal amount of $375.0 million. The Notes were issued pursuant to an Indenture dated July 2, 2008 (the “Indenture”) among the Company, the guarantors party thereto and U.S. Bank Corporate Trust Services, as Trustee.

     The Notes were also subject to a Registration Rights Agreement dated July 2, 2008 (the “Registration Rights Agreement”) among the Company, the guarantors parties thereto, and J.P. Morgan Securities Inc., Banc of America Securities LLC and Wachovia Capital Markets, LLC, as representatives of the several initial purchasers. The Notes were initially unregistered under the Securities Act of 1933, but on October 15, 2008 were exchanged for registered notes pursuant to the Registration Statement filed on Form S-4 that became effective on September 10, 2008.

     The Notes bear interest at a rate of 8.125% per annum. Interest payments are due semi-annually each January 1 and July 1, with the first interest payment due on January 1, 2009. The maturity date of the Notes is July 1, 2016.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

     The Notes are our general unsecured obligations. Accordingly, they rank equally in right of payment with all of our existing and future unsecured senior debt; senior in right of payment to all of our future subordinated debt; effectively subordinated to our existing and future secured debt to the extent of the assets securing such debt, including all borrowings under our credit facilities; and effectively subordinated to all of the liabilities of our non-guarantor subsidiaries, including trade payables and preferred stock.

     The Notes are guaranteed by each existing and future domestic subsidiary that is a guarantor under our credit facilities. The guarantees are general unsecured obligations of the guarantors. Accordingly, they rank equally in right of payment with all existing and future unsecured senior debt of our guarantors; senior in right of payment with all existing and future subordinated debt of such guarantors; and effectively subordinated to such guarantors’ existing and future secured debt to the extent of the assets securing such debt, including the guarantees by the guarantors of obligations under our credit facilities.

     LPS has no independent assets or operations, our subsidiaries’ guarantees are full and unconditional and joint and several, and our subsidiaries, other than subsidiary guarantors, are minor. There are no significant restrictions on the ability of LPS or any of the subsidiary guarantors to obtain funds from any of our subsidiaries by dividend or loan.

     We may redeem some or all of the Notes on or after July 1, 2011, at the redemption prices described in the Indenture, plus accrued and unpaid interest. Upon the occurrence of a change of control, unless we have exercised our right to redeem all of the Notes as described above, each holder may require us to repurchase such holder’s Notes, in whole or in part, at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest to the purchase date.

     The Indenture contains customary events of default, including a cross default provision that, with respect to any other debt of the Company or any of our restricted subsidiaries having an outstanding principal amount equal to or more than a specified amount in the aggregate for all such debt, occurs upon (i) an event of default that results in such debt being due and payable prior to its scheduled maturity or (ii) failure to make a principal payment. Upon the occurrence of an event of default (other than a bankruptcy default with respect to the Company), the trustee or holders of at least 25% of the Notes then outstanding may accelerate the Notes by giving us appropriate notice. If, however, a bankruptcy default occurs with respect to the Company, then the principal of and accrued interest on the Notes then outstanding will accelerate immediately without any declaration or other act on the part of the trustee or any holder.

Interest Rate Swaps

     On July 10, 2008, the Company entered into the following 2-year amortizing interest rate swap transaction converting a portion of our interest rate exposure on our floating rate debt from variable to fixed:

		Notional Amount				Bank Pays				LPS pays
Amortization Period		(in millions)				Variable Rate of(1)				Fixed Rate of(2)
July 31, 2008 to December 31, 2008		$	420.0			1 Month LIBOR					3.275	%
December 31, 2008 to March 31, 2009		$	400.0			1 Month LIBOR					3.275	%
March 31, 2009 to June 30, 2009		$	385.0			1 Month LIBOR					3.275	%
June 30, 2009 to September 30, 2009		$	365.0			1 Month LIBOR					3.275	%
September 30, 2009 to December 31, 2009		$	345.0			1 Month LIBOR					3.275	%
December 31, 2009 to March 31, 2010		$	330.0			1 Month LIBOR					3.275	%
March 31, 2010 to June 30, 2010		$	310.0			1 Month LIBOR					3.275	%
June 30, 2010 to July 31, 2010		$	290.0			1 Month LIBOR					3.275	%

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

     Subsequent to quarter end, on October 6, 2008, the Company entered into an additional interest rate swap transaction converting a portion of our interest rate exposure on our floating rate debt from variable to fixed. Under the agreement, the Company receives a one month LIBOR rate of interest in exchange for paying a fixed rate of 2.78% until December 31, 2010 on $350 million of notional principal amount.

     We have designated these interest rate swaps as cash flow hedges in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. The estimated fair value of these cash flow hedges results in a liability of $0.2 million as of September 30, 2008, which is included in the accompanying consolidated balance sheets in other noncurrent liabilities and as a component of accumulated other comprehensive earnings, net of deferred taxes. A portion of the amount included in accumulated other comprehensive earnings will be reclassified into interest expense as a yield adjustment as interest payments are made on the Term Loans. In accordance with the provisions of SFAS No. 157, Fair Value Measurements, the inputs used to determine the estimated fair value of our interest rate swaps are Level 2-type measurements.

     It is our policy to execute such instruments with credit-worthy banks and not to enter into derivative financial instruments for speculative purposes.

     Principal maturities at September 30, 2008 for the next five years and thereafter are as follows (in thousands):

2008		$	1,280
2009			145,100
2010			145,100
2011			145,100
2012			145,100
Thereafter			967,050
Total		$	1,548,730

(6) Income Taxes

     During 2007, we adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, Accounting for Uncertainty in Income Taxes (“FIN 48”). As a result of the adoption of FIN 48, we had no change to reserves for uncertain tax positions. Interest and penalties on accrued but unpaid taxes are classified in the consolidated and combined financial statements as income tax expense. There were no unrecognized tax benefits for any period presented.

(7) Commitments and Contingencies

Litigation

     In the ordinary course of business, we are involved in various pending and threatened litigation matters related to our operations, some of which include claims for punitive or exemplary damages. We believe that no actions, other than the matters listed below, depart from customary litigation incidental to our business. As background to the disclosure below, please note the following:

	•		These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities.
	•		In these matters, plaintiffs seek a variety of remedies including equitable relief in the form of injunctive and other remedies and monetary relief in the form of compensatory damages. In some cases, the monetary damages sought include punitive or treble damages. None of the cases described below includes a specific statement as to the dollar amount of damages demanded. Instead, each of the cases includes a demand in an amount to be proved at trial.
	•		For the reasons specified above, it is not possible to make meaningful estimates of the amount or range of loss that could result from these matters at this time. We review these matters on an ongoing basis and follow the provisions of SFAS No. 5, Accounting for Contingencies, when making accrual and disclosure decisions.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

			When assessing reasonably possible and probable outcomes, we base our decision on our assessment of the ultimate outcome following all appeals.
	•		We intend to vigorously defend each of these matters, and we do not believe that the ultimate disposition of these lawsuits will have a material adverse impact on our financial position.

     National Title Insurance of New York, Inc. Litigation

     One of our subsidiaries, National Title Insurance of New York, Inc., has been named in twelve putative class action lawsuits. The complaints in these lawsuits are substantially similar and allege that the title insurance underwriters named as defendants, including National Title Insurance of New York, Inc., engaged in illegal price fixing as well as market allocation and division that resulted in higher title insurance prices for consumers. The complaints seek treble damages in an amount to be proved at trial and an injunction against the defendants from engaging in any anti-competitive practices under the Sherman Antitrust Act and various state statutes. A motion was filed before the Multidistrict Litigation Panel to consolidate and/or coordinate these actions in the United States District Court in the Southern District of New York. However, that motion was denied. The cases are generally being consolidated before one district court judge in each state and scheduled for the filing of consolidated complaints and motion practice.

     Harris, Ernest and Mattie v. FIS Foreclosure Solutions, Inc.

     A putative class action was filed on January 16, 2008 as an adversary proceeding in the Bankruptcy Court in the Southern District of Texas. The complaint alleges that LPS engaged in unlawful attorney fee-splitting practices in its default management business. The complaint seeks declaratory and equitable relief reversing all attorneys’ fees charged to debtors in bankruptcy court and disgorging any such fees we collected. We filed a Motion to Dismiss, and the Bankruptcy Court dismissed three of the six counts contained in the complaint. We also filed a Motion to Withdraw the Reference and remove the case to federal district court as the appropriate forum for the resolution of the allegations contained in the complaint. The Bankruptcy Court recommended removal to the U.S. District Court for the Southern District of Texas, and the U.S. District Court accepted that recommendation in April 2008.

Off-Balance Sheet Arrangements

     We do not have any material off-balance sheet arrangements other than operating leases and the escrow and Section 1031 tax deferred exchange arrangements described below.

Escrow Arrangements

     In conducting our title agency, closing and section 1031 tax deferred exchange operations, we routinely hold customers’ assets in escrow and investment accounts, pending completion of real estate and exchange transactions. Certain of these amounts are maintained in segregated accounts and have not been included in the accompanying consolidated and combined balance sheets. As an incentive for holding deposits at certain banks, we have ongoing programs for realizing economic benefits through favorable arrangements with these banks.

     We conduct our section 1031 tax deferred exchange operations through our subsidiary Investment Property Exchange Services, Inc. (“IPEX”). Pursuant to IPEX’s customary contractual arrangements with its customers, IPEX provides qualified intermediary services for 1031 tax deferred exchanges of property on behalf of its customer, and then holds the proceeds from the sale transaction until such time as the customer instructs IPEX to use the principal balance from the sale transaction in connection with the acquisition of a replacement property. These arrangements generally last for a period of six months or less. LPS guarantees the performance of IPEX’s obligations with respect to these arrangements, including IPEX’s proper application of a customer’s principal balance in the acquisition of a replacement property. As of September 30, 2008, IPEX’s customers’ balances were held in investment accounts that were largely invested in short-term, high grade investments that minimize the risk to its customers’ principal balances. None of the investments in the portfolio included auction rate securities or equities. However, as a result of recent illiquidity in the securities marketplace, certain investments maintained on behalf of our customers have experienced declines in market value. As of September 30, 2008, the aggregate market value of all investments held in escrow in our title agency, closing and IPEX operations totaled $892.7 million while our contingent liability to our customers totaled

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

$932.4 million. We believe that such declines in value are largely temporary in nature and there will be sufficient liquidity to complete our section 1031 tax deferred exchange obligations as they become payable. In accordance with the provisions of SFAS 157, the inputs used to determine the estimated fair value of the investments are Level 1-type measurements.

(8) Stock Option Plans

     Historically, our employees have participated in FIS’s, FNF’s and old FNF’s stock incentive plans that provide for the granting of incentive and nonqualified stock options, restricted stock and other stock-based incentive awards to officers and key employees. Since November 9, 2006, all options and awards held by our employees were issuable in the common stock of FIS. Prior to November 9, 2006, certain awards held by our employees were issuable in both old FNF and FIS common stock. On November 9, 2006, as part of the closing of the merger between FIS and old FNF, FIS assumed certain options and restricted stock grants that the Company’s employees and directors held under various old FNF stock-based compensation plans and all these awards were converted into awards issuable in FIS common stock.

     We provided for stock compensation expense of $5.8 million and $3.6 million for the three month periods and $14.9 million and $10.8 million for the nine month periods ended September 30, 2008 and 2007, respectively, which is included in selling, general and administrative expenses in the accompanying consolidated and combined statements of earnings.

     On July 2, 2008, in connection with the spin-off, all FIS options and FIS restricted stock awards held by our employees prior to the spin-off were converted into options and awards issuable in our common stock, authorized by a new stock option plan. We measured the fair value of the awards using a Black-Scholes model with appropriate assumptions both before and after the date of the spin-off.

     On August 13, 2008, we granted 351,750 shares of restricted stock with a weighted average grant date fair value of $34.58 per share. Also, on that date, we granted options to purchase 1,682,500 shares of common stock with a weighted average exercise price of $34.58 per share and a weighted average fair value of $8.55 per share. The following assumptions were used for this stock option grant: the risk free interest rate was 3.2%, the volatility factor for the expected market price of the common stock was 25%, the expected dividend yield was 1.1% and weighted average expected life was 5 years.

     The exercise price and number of shares subject to each FIS option and FIS restricted stock award were adjusted to reflect the differences in FIS’s and our common stock prices. As of September 30, 2008, our employees held approximately 6.8 million outstanding LPS options, which have an average exercise price of $31.12 per share and a weighted average remaining contractual life of 5.9 years. Of the options, approximately 1.9 million were exercisable as of September 30, 2008 at an average exercise price of $22.67 per share with a weighted average remaining contractual life of 5.3 years. As of September 30, 2008, our employees held approximately 0.5 million outstanding LPS restricted stock awards.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

Options Outstanding																										Options Exercisable
														Weighted																Weighted
														Average				Weighted				Intrinsic Value at								Average				Weighted
														Remaining				Average				September 30,								Remaining				Average				Intrinsic Value at
Range of Exercise										Number of				Contractual				Exercise				2008				Number of				Contractual				Exercise				September 30, 2008
Prices										Options				Life				Price				(in thousands)				Options				Life				Price				(in thousands)
$	0.00					$	13.67				1,004,873				5.88			$	12.64			$	17,968				719,214				5.65			$	12.23			$	13,155
	13.68						20.00				229,953				3.74				18.60				2,742				229,953				3.74				18.60				2,742
	20.01						25.00				18,728				2.36				23.13				138				18,728				2.36				23.13				138
	25.01						28.00				383,981				4.71				26.33				1,610				383,981				4.71				26.33				1,610
	28.01						30.00				30,696				3.29				28.15				73				30,696				3.29				28.15				73
	30.01						33.00				38,730				6.90				32.37				—				22,961				7.02				32.23				—
	33.01						35.00				2,185,860				6.33				34.57				—				228,800				6.33				34.51				—
	35.01						36.00				543,399				6.23				35.17				—				150,150				6.23				35.17				—
	36.01						37.00				487,726				5.18				36.19				—				153,043				5.18				36.15				—
	37.01						38.00				1,857,662				6.22				37.20				—				—				—				—				—
$	0.00					$	38.00				6,781,608				5.94			$	31.12			$	22,531				1,937,526				5.27			$	22.67			$	17,718

     At September 30, 2008, the total unrecognized compensation cost related to non-vested LPS stock options and LPS restricted stock awards held by our employees was $56.1 million, which will be recognized in pre-tax income over a weighted average period of 1.2 years.

(9) Segment Information

     Summarized unaudited financial information concerning our segments is shown in the following tables.

     As of and for the three months ended September 30, 2008 (in thousands):

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	138,964			$	335,389			$	(1,675	)		$	472,678
Cost of revenues			73,980				229,804				(1,703	)			302,081
Gross profit			64,984				105,585				28				170,597
Selling, general and administrative expenses			15,790				28,324				15,632				59,746
Operating income		$	49,194			$	77,261			$	(15,604	)		$	110,851
Depreciation and amortization		$	15,230			$	6,669			$	1,920			$	23,819
Total assets		$	1,061,519			$	810,559			$	177,907			$	2,049,985
Goodwill		$	662,172			$	424,434			$	—			$	1,086,606

     As of and for the three months ended September 30, 2007 (in thousands):

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	139,849			$	289,256			$	(3,641	)		$	425,464
Cost of revenues			78,391				184,595				(1,331	)			261,655
Gross profit			61,458				104,661				(2,310	)			163,809
Selling, general and administrative expenses			16,319				28,351				6,858				51,528
Operating income		$	45,139			$	76,310			$	(9,168	)		$	112,281
Depreciation and amortization		$	16,958			$	7,279			$	1,242			$	25,479
Total assets		$	1,047,239			$	716,479			$	151,970			$	1,915,688
Goodwill		$	651,600			$	426,554			$	—			$	1,078,154

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) — Continued

     For the nine months ended September 30, 2008 (in thousands):

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	416,532			$	977,966			$	(8,714	)		$	1,385,784
Cost of revenues			229,487				666,597				(8,866	)			887,218
Gross profit			187,045				311,369				152				498,566
Selling, general and administrative expenses			49,519				86,153				43,073				178,745
Operating income		$	137,526			$	225,216			$	(42,921	)		$	319,821
Depreciation and amortization		$	45,216			$	18,165			$	5,014			$	68,395

     For the nine months ended September 30, 2007 (in thousands):

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	424,234			$	830,185			$	(2,517	)		$	1,251,902
Cost of revenues			238,699				553,762				(3,983	)			788,478
Gross profit			185,535				276,423				1,466				463,424
Selling, general and administrative expenses			49,095				83,104				28,401				160,600
Operating income		$	136,440			$	193,319			$	(26,935	)		$	302,824
Depreciation and amortization		$	52,577			$	21,498			$	3,777			$	77,852

     Except as otherwise indicated or unless the context otherwise requires, all references to “LPS,” “we,” the “Company,” or the “registrant” are to Lender Processing Services, Inc., a Delaware corporation that was incorporated in December 2007 as a wholly-owned subsidiary of FIS, and its subsidiaries; all references to “FIS,” the “former parent,” or the “holding company” are to Fidelity National Information Services, Inc., a Georgia corporation formerly known as Certegy Inc., and its subsidiaries, that owned all of LPS’s shares until July 2, 2008; all references to “former FIS” are to Fidelity National Information Services, Inc., a Delaware corporation, and its subsidiaries, prior to the Certegy merger described below; all references to “old FNF” are to Fidelity National Financial, Inc., a Delaware corporation that owned a majority of FIS’s shares through November 9, 2006; and all references to “FNF” are to Fidelity National Financial, Inc. (formerly known as Fidelity National Title Group, Inc.), formerly a subsidiary of old FNF but now a stand-alone company that remains a related entity from an accounting perspective.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following discussion should be read in conjunction with Item 1: Consolidated and Combined Financial Statements (Unaudited) and the Notes thereto included elsewhere in this report. The discussion below contains forward-looking statements that involve a number of risks and uncertainties. Those forward-looking statements include all statements that are not historical facts, including statements about our beliefs and expectations. Forward-looking statements are based on management’s beliefs, as well as assumptions made by and information currently available to management. Because such statements are based on expectations as to future economic performance and are not statements of historical fact, actual results may differ materially from those projected. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. The risks and uncertainties to which forward-looking statements are subject include, but are not limited to: changes in general economic, business and political conditions, including changes in the financial markets; the effects of our substantial leverage on our ability to make acquisitions and invest in our business; the elimination of existing and potential customers as a result of failures and consolidations in the banking and financial services industries; changes to the laws, rules and regulations that regulate our businesses as a result of the current economic and financial environment; the impact of adverse changes in the level of real estate activity on demand for certain of our services; our ability to adapt our services to changes in technology or the marketplace; risks associated with protecting information security and privacy; the impact of any potential defects, development delays, installation difficulties or system failures on our business and reputation; risks associated with our spin-off from FIS, including those relating to our new stand-alone public company status and limitations on our strategic and operating flexibility as a result of the tax-free nature of the spin-off; and other risks and uncertainties detailed in Item 1A: Risk Factors of Part II of this report and in the “Statement Regarding Forward-Looking Information,” “Risk Factors,” and other sections of the Company’s Form 10 and other filings with the Securities and Exchange Commission.

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. We have two reporting segments, Technology, Data and Analytics and Loan Transaction Services, which produced approximately 29% and 71%, respectively, of our revenues for the three months ended September 30, 2008, and 30% and 70%, respectively, of our revenues for the nine months ended September 30, 2008. 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. Our integrated solutions create a strong value proposition for our customers across the life cycle of a mortgage. We believe that we will continue to benefit from the opportunity to cross-sell services across our broad customer base.

     Our Technology, Data and Analytics segment principally includes:

	•		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 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.

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

     Our loan facilitation services include:

	•		settlement services, which consist of title agency services, in which we act as an agent for title insurers, 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.

     Our default management services include, among others:

	•		foreclosure management 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.

     Corporate overhead costs and other operations that are not included in our operating segments are included in Corporate and Other.

     On June 20, 2008, FIS received a private letter ruling from the Internal Revenue Service with respect to the tax-free nature of the plan of restructuring and distribution, and the Company’s registration statement on Form 10 with respect to the distribution was declared effective by the Securities and Exchange Commission. The spin-off was tax-free to FIS and its shareholders, and the debt-for-debt exchange undertaken in connection with the spin-off was tax-free to FIS.

     On July 2, 2008, FIS distributed to its shareholders a dividend of one-half share of our common stock, par value $0.0001 per share, for each issued and outstanding share of FIS common stock held on June 24, 2008, which we refer to as the “spin-off.” The shares of the Company distributed to FIS shareholders on July 2, 2008 represented all of our issued and outstanding shares. Also on July 2, 2008, FIS exchanged 100% of our debt obligations for a like amount of FIS’s existing Tranche B Term Loans issued under its Credit Agreement dated as of January 18, 2007. Following this debt-for-debt exchange, the portion of the existing Tranche B Term Loans acquired by FIS was retired. On July 3, 2008, we commenced regular way trading on the New York Stock Exchange under the trading symbol “LPS.” Prior to the spin-off, we were a wholly-owned subsidiary of FIS.

Recent Trends and Developments

     Present economic conditions, as well as changes in financial markets, have affected and may continue to affect our results of operations. As a result of the weakening economy and, specifically, the declining housing market, mortgage origination rates around the country have decreased, while default rates have increased. These changes have contributed to a significant continued growth of our default services, partially offset by a decline in our loan origination services. Additionally, in part as a result of the rising mortgage delinquency and default rates, many banks and financial institutions are experiencing negative operating results, which, in some cases, has led to the failure and or consolidation of certain banks and financial institutions. Such failures and consolidations of banks and financial institutions, as well as the effects of legislation that has been or may be enacted in response to current conditions, may have an additional effect on our future results of operations.

Critical Accounting Policies

     There have been no significant changes to our critical accounting policies since our Form 10 became effective on June 20, 2008.

Transactions with Related Parties

     We have historically conducted business with FIS and its subsidiaries, FNF and its subsidiaries, and other related parties. See Note 2 to the Notes to Consolidated and Combined Financial Statements for a detailed description of all related party transactions.

Factors Affecting Comparability

     The Consolidated and Combined Financial Statements included in this report that present our financial condition and operating results reflect the following significant transactions:

•

On July 2, 2008, we borrowed $1,235.7 million under bank credit facilities, including $25.7 million on a revolving credit facility. We also issued senior notes in an aggregate principal amount of $375.0 million. Prior to July 2, 2008 we had no debt on the balance sheet and an insignificant amount of interest expense on the income statement.

     As a result of the above transactions, the results of operations in the periods covered by the Consolidated and Combined Financial Statements may not be directly comparable.

     Comparisons of three and nine months ended September 30, 2008 and 2007

Consolidated Results of Operations — Unaudited

     The following tables reflect certain amounts included in operating income in our consolidated and combined statements of earnings, the relative percentage of those amounts to total revenues, and the change in those amounts from the comparable prior year period.

										% of Revenue								Variance
Three months ended September 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	472.7			$	425.5				100.0	%			100.0	%		$	47.2				11.1	%
Cost of revenues			302.1				261.7				63.9	%			61.5	%			(40.4	)			-15.4	%
Gross profit			170.6				163.8				36.1	%			38.5	%			6.8				4.2	%
Gross margin			36.1	%			38.5	%
Selling, general and administrative expenses			59.7				51.5				12.6	%			12.1	%			(8.2	)			-15.9	%
Operating income		$	110.9			$	112.3				23.5	%			26.4	%		$	(1.4	)			-1.2	%
Operating margin			23.5	%			26.4	%

										% of Revenue								Variance
Nine months ended September 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	1,385.8			$	1,251.9				100.0	%			100.0	%		$	133.9				10.7	%
Cost of revenues			887.3				788.5				64.0	%			63.0	%			(98.8	)			-12.5	%
Gross profit			498.5				463.4				36.0	%			37.0	%			35.1				7.6	%
Gross margin			36.0	%			37.0	%
Selling, general and administrative expenses			178.7				160.6				12.9	%			12.8	%			(18.1	)			-11.3	%
Operating income		$	319.8			$	302.8				23.1	%			24.2	%		$	17.0				5.6	%
Operating margin			23.1	%			24.2	%

     Processing and Services Revenues

     Processing and services revenues increased $47.2 million, or 11.1%, during the third quarter of 2008, and $133.9 million, or 10.7%, during the first nine months of 2008. These increases were primarily driven by growth in Default Services as a result of continued growth in foreclosure volumes, partially offset by a decline in Loan Facilitation Services due to ongoing weakness in the housing market and the resulting impact on our loan origination services.

     Cost of Revenues

     Cost of revenues increased $40.4 million, or 15.4%, during the third quarter of 2008, and $98.8 million, or 12.5%, during the first nine months of 2008. Cost of revenues as a percentage of processing and services revenues increased from 61.5% during the third quarter of 2007 to 63.9% in the same period of 2008, and from 63.0% during the first nine months of 2007 to 64.0% in the same period of 2008. These increases are primarily due to a change in revenue mix resulting from growth in several of our default management services businesses, which have a higher cost of revenue associated with their operations, combined with revenue declines from our higher margin Loan Facilitation Services, loan origination software sales, and data and analytic services. Additionally, the third quarter of 2007 includes an adjustment to reduce incentive compensation based on results for that period.

     Gross Margin

     Gross profit as a percentage of processing and services revenues (“gross margin”) declined from 38.5% during the third quarter of 2007 to 36.1% in the 2008 period, and from 37.0% during the first nine months of 2007 to 36.0% in the same period of 2008, as a result of the factors described above.

     Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased $8.2 million, or 15.9%, during the third quarter of 2008, and $18.1 million, or 11.3%, during the first nine months of 2008. Selling, general and administrative expenses as a percentage of processing and services revenues was relatively consistent year over year. The increase in selling, general and administrative expenses during the first nine months of 2008 is primarily due to restructuring and spin-off related charges totaling $5.5 million incurred prior to the spin-off transaction, as well as incremental public company costs and an increase in stock compensation and other incentive related costs.

     Operating Income

     Operating income decreased $1.4 million, or 1.2%, during the third quarter of 2008 and increased $17.0 million, or 5.6%, during the first nine months of 2008. Operating income as a percentage of processing and services revenues (“operating margin”) declined from 26.4% during the third quarter of 2007 to 23.5% in the 2008 period, and from 24.2% during the first nine months of 2007 to 23.1% in the 2008 period, as a result of the factors described above.

Segment Results of Operations — Technology, Data and Analytics — Unaudited

										% of Revenue								Variance
Three months ended September 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	139.0			$	139.8				100.0	%			100.0	%		$	(0.8	)			-0.6	%
Cost of revenues			74.0				78.4				53.2	%			56.1	%			4.4				5.6	%
Gross profit			65.0				61.4				46.8	%			43.9	%			3.6				5.9	%
Gross margin			46.8	%			43.9	%
Selling, general and administrative expenses			15.8				16.3				11.4	%			11.7	%			0.5				3.1	%
Operating income		$	49.2			$	45.1				35.4	%			32.3	%		$	4.1				9.1	%
Operating margin			35.4	%			32.3	%

										% of Revenue								Variance
Nine months ended September 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	416.5			$	424.2				100.0	%			100.0	%		$	(7.7	)			-1.8	%
Cost of revenues			229.5				238.7				55.1	%			56.3	%			9.2				3.9	%
Gross profit			187.0				185.5				44.9	%			43.7	%			1.5				0.8	%
Gross margin			44.9	%			43.7	%
Selling, general and administrative expenses			49.5				49.1				11.9	%			11.6	%			(0.4	)			-0.8	%
Operating income		$	137.5			$	136.4				33.0	%			32.2	%		$	1.1				0.8	%
Operating margin			33.0	%			32.2	%