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 June 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 o      No þ

     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		Smaller reporting company o
				(Do not check if a smaller reporting company)

     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 July 31, 2008, 94,810,490 shares of the Registrant’s Common Stock were outstanding.

 

 

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

INDEX

				Page
Part I:		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Consolidated and Combined Balance Sheets as of June 30, 2008 and December 31, 2007			3
		Consolidated and Combined Statements of Earnings for the three and six months ended June 30, 2008 and 2007			4
		Consolidated and Combined Statements of Comprehensive Earnings for the three and six months ended June 30, 2008 and 2007			5
		Consolidated and Combined Statement of Stockholder’s Equity for the six months ended June 30, 2008			6
		Consolidated and Combined Statements of Cash Flows for the six months ended June 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			32
Item 4T.		Controls and Procedures			32
Part II:		OTHER INFORMATION
Item 1.		Legal Proceedings			33
Item 1A.		Risk Factors			34
Item 6.		Exhibits			36
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

Part I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		June 30, 2008				December
		(Unaudited)				31, 2007 (1)
		(In thousands)
ASSETS
Current assets:
Cash and cash equivalents		$	18,628			$	39,566
Trade receivables, net of allowance for doubtful accounts of $33.8 million and $20.3 million at June 30, 2008 and December 31, 2007			350,565				286,236
Other receivables			12,318				7,971
Prepaid expenses and other current assets			24,767				33,323
Deferred income taxes, net			34,640				40,440
Total current assets			440,918				407,536
Property and equipment, net of accumulated depreciation and amortization of $132.7 million and $126.1 million at June 30, 2008 and December 31, 2007			92,487				95,620
Goodwill			1,086,606				1,078,154
Other intangible assets, net of accumulated amortization of $255.5 million and $239.0 million at June 30, 2008 and December 31, 2007			103,347				118,129
Computer software, net of accumulated amortization of $72.6 million and $73.9 million at June 30, 2008 and December 31, 2007			149,562				150,372
Other non-current assets			112,820				112,232
Total assets		$	1,985,740			$	1,962,043
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities:
Trade accounts payable		$	28,358			$	19,499
Accrued salaries and benefits			23,037				22,908
Recording and transfer tax liabilities			17,555				10,657
Other accrued liabilities			65,189				57,053
Deferred revenues			58,394				58,076
Total current liabilities			192,533				168,193
Deferred revenues			31,312				23,146
Deferred income taxes, net			54,844				55,196
Other long-term liabilities			21,777				34,419
Total liabilities			300,466				280,954
Minority interest			10,773				10,050
Stockholder’s Equity:
Preferred stock $0.0001 par value; 50 million shares authorized, none issued at June 30, 2008 or December 31, 2007			—				—
Common stock $0.0001 par value; 500 million shares authorized, 1,000 shares issued at June 30, 2008			—				—
Additional paid-in capital			1,667,268				—
Retained earnings			6,983				—
FIS’s equity			—				1,671,039
Accumulated other comprehensive earnings			250				—
Total stockholder’s equity			1,674,501				1,671,039
Total liabilities and stockholder’s equity		$	1,985,740			$	1,962,043

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		Three months ended June 30,								Six months ended June 30,
		2008				2007				2008				2007
		(In thousands, except per share data)								(In thousands, except per share data)
Processing and services revenues, including $52.1 million and $58.2 million of revenues from related parties for the three month periods and $102.0 million and $107.0 million of revenues from related parties for the six month periods ended June 30, 2008 and 2007, respectively		$	460,380			$	425,010			$	913,106			$	826,438
Cost of revenues, including related party expenses of $2.1 million and $1.3 million for the three month periods and $4.7 million and $2.6 million for the six month periods ended June 30, 2008 and 2007, respectively			294,963				269,042				585,137				526,823
Gross profit			165,417				155,968				327,969				299,615
Selling, general, and administrative expenses, including related party expenses, net of expense reimbursements, of $8.7 million and $3.3 million for the three month periods and $22.3 million and $10.3 million for the six month periods ended June 30, 2008 and 2007, respectively			60,782				55,603				118,999				109,072
Operating income			104,635				100,365				208,970				190,543
Other income (expense):
Interest income			303				395				563				745
Interest expense			(40	)			(35	)			(58	)			(77	)
Other income, net			282				—				282				—
Total other income (expense)			545				360				787				668
Earnings before income taxes, equity in losses of unconsolidated entity and minority interest			105,180				100,725				209,757				191,211
Provision for income taxes			40,810				38,987				81,386				74,010
Earnings before equity in losses of unconsolidated entity and minority interest			64,370				61,738				128,371				117,201
Equity in losses of unconsolidated entity			(413	)			(958	)			(2,370	)			(1,720	)
Minority interest			(411	)			(274	)			(723	)			(436	)
Net earnings		$	63,546			$	60,506			$	125,278			$	115,045
Pro forma net earnings per share — basic (Note 3)		$	0.67							$	1.32
Pro forma weighted average shares outstanding — basic (Note 3)			94,611								94,611
Pro forma net earnings per share — diluted (Note 3)		$	0.67							$	1.30
Pro forma weighted average shares outstanding — diluted (Note 3)			95,070								96,334

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		Three months ended June 30,								Six months ended June 30,
		2008				2007				2008				2007
		(In thousands)								(In thousands)
Net earnings		$	63,546			$	60,506			$	125,278			$	115,045
Other comprehensive earnings:
Unrealized gain on other investments, net of tax			250				—				250				—
Other comprehensive earnings			250				—				250				—
Comprehensive earnings		$	63,796			$	60,506			$	125,528			$	115,045

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		Common				Common				Additional Paid-In				Retained				FIS’s				Accumulated Other Comprehensive				Total Stockholder’s
		Shares				Stock				Capital				Earnings				Equity				Earnings				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			—				—				—				—				(121,677	)			—				(121,677	)
Capitalization of Lender Processing Services, Inc.			1				—				1,667,268				—				(1,667,657	)			389				—
Net earnings (June 21, 2008 to June 30, 2008)			—				—				—				6,983				—				—				6,983
Unrealized loss on investments			—				—				—				—				—				(139	)			(139	)
Balances, June 30, 2008			1			$	—			$	1,667,268			$	6,983			$	—			$	250			$	1,674,501

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

		Six months ended June 30,
		2008				2007
		(In thousands)
Cash flows from operating activities:
Net earnings		$	125,278			$	115,045
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			44,576				52,373
Deferred income taxes, net			3,968				13,634
Stock-based compensation cost			9,120				7,215
Loss on unconsolidated entity			2,370				1,720
Minority interest			723				436
Changes in assets and liabilities, net of effects of acquisitions:
Net increase in trade receivables			(63,750	)			(55,628	)
Net (increase) decrease in other receivables			(4,348	)			22,286
Net decrease (increase) in prepaid expenses and other assets			7,931				(13,444	)
Net increase in deferred contract costs			(3,420	)			(18,674	)
Net decrease (increase) in deferred revenues			8,235				(18,249	)
Net decrease in accounts payable, accrued liabilities and other liabilities			6,000				26,675
Net cash provided by operating activities			136,683				133,389
Cash flows from investing activities:
Additions to property and equipment			(9,376	)			(6,099	)
Additions to capitalized software			(15,761	)			(18,937	)
Acquisitions, net of cash acquired			(15,488	)			(37,420	)
Net cash used in investing activities			(40,625	)			(62,456	)
Cash flows from financing activities:
Net distributions to FIS			(116,996	)			(69,639	)
Net cash used in financing activities			(116,996	)			(69,639	)
Net (decrease) increase in cash and cash equivalents			(20,938	)			1,294
Cash and cash equivalents, beginning of period			39,566				47,783
Cash and cash equivalents, end of period		$	18,628			$	49,077
Non-cash contribution relating to stock compensation		$	9,120			$	7,215
Non-cash contribution for Espiel acquisition		$	—			$	6,000
Non-cash redistribution of assets to Parent		$	(13,801	)		$	—

See accompanying notes to consolidated and combined financial statements.

LENDER PROCESSING SERVICES, INC.
AND SUBSIDIARIES AND AFFILIATES

NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited)

     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 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 filed 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 of Lender Processing Services, Inc.

     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 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 10. 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 registration statement on Form 10 that FIS filed on the Company’s behalf with respect to the distribution was declared effective by the Securities and Exchange Commission.

     On July 2, 2008, FIS distributed to its shareholders a dividend of one-half share of our common stock 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

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

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.

Principles of Consolidation and Combination

     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.

Separation from FIS

     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 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 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.

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

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

•

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.

     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 June 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.

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

•		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.
•		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 six months ended June 30, 2008 and 2007 is as follows (in millions):

		Three months ended June 30,								Six months ended June 30,
		2008				2007				2008				2007
Title agency commissions		$	34.2			$	36.1			$	66.8			$	68.3
Software development revenue			14.3				15.5				28.1				28.7
Other data related services			3.6				6.6				7.1				10.0
Total revenues		$	52.1			$	58.2			$	102.0			$	107.0

•		Title plant information expense. These agreements provide for our title agency operations to access title plant assets owned by FNF.
•		Allocation by FIS of corporate services. Prior to the spin-off, FIS provided general management, accounting, treasury, tax, finance, payroll, human resources, employee benefits, internal audit, mergers and acquisitions, and other corporate and administrative support to the Company. Management believes the methods used to allocate the amounts included in these financial statements for corporate services are reasonable.
•		Licensing, leasing, cost sharing and other agreements. These agreements provide for the reimbursement of certain amounts from FNF and FIS related to various ancillary leasing 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. Included as expense reimbursements are amounts received related to leases of certain office space to FIS and FNF, as well as amounts received for property management services for office space located on our corporate headquarters campus. In addition, our expenses include expenses for a sublease of office space and furnishings from FNF at our corporate headquarters campus.

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

		Three months ended June 30,								Six months ended June 30,
		2008				2007				2008				2007
Title plant information expense		$	2.1			$	1.3			$	4.7			$	2.6
Corporate services			13.9				9.9				27.6				19.8
Licensing, leasing and cost sharing agreements			(5.2	)			(6.6	)			(5.3	)			(9.5	)
Total expenses		$	10.8			$	4.6			$	27.0			$	12.9

     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 approximate 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.

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

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 which totaled $28.1 million and $30.5 million as of June 30, 2008 and December 31, 2007, respectively. FIS recorded equity losses (net of tax) from its investment in FNRES of $0.4 million and $1.0 million for the three months ended June 30, 2008 and 2007, respectively, and $2.4 million and $1.7 million for the six months ended June 30, 2008 and 2007, respectively. On June 16, 2008, FIS contributed its equity investment in FNRES to LPS in the spin-off (Note 10).

(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 at June 30, 2008. As such, management believes the resulting GAAP earnings per share measure is not meaningful for both the three and six months ended June 30, 2008, and therefore, the calculation has been excluded from the Consolidated and Combined Statements of Earnings and the Notes thereto.

     Unaudited pro forma net earnings per share — basic, for the three and six months ended June 30, 2008, is calculated using the number of shares issued by LPS on July 2, 2008. Unaudited pro forma net earnings per share — diluted, for the three months ended June 30, 2008, is calculated using the number of dilutive common stock equivalents converted into stock options and awards of our common stock on July 2, 2008. Unaudited pro forma net earnings per share — diluted, for the six months ended June 30, 2008, is calculated as the average of the unaudited pro forma net earnings per share — diluted, for the three months ended March 31, 2008 and June 30, 2008.

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

		Three months ended				Six months ended
		June 30, 2008				June 30, 2008
Pro forma weighted average shares outstanding — basic			94,611				94,611
Plus: Pro forma common stock equivalent shares assumed from conversion of options			459				1,723
Pro forma weighted average shares outstanding — diluted			95,070				96,334
Pro forma basic net earnings per share		$	0.67			$	1.32
Pro forma diluted net earnings per share		$	0.67			$	1.30

(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.

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

(5) Long-Term Debt

     As of June 30, 2008, we did not have any long-term debt obligations on our balance sheet. However, the Company was a guarantor under an FIS credit facility, which had an outstanding balance of $4,049.3 million at June 30, 2008. In connection with the spin-off, we were released from our guaranty under the FIS credit facility. On July 2, 2008, the Company entered into new debt facilities for an aggregate amount of $1,725.0 million, of which $1,610.7 million was outstanding as of such date (Note 10).

(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. 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

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

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.

(8) Stock Option Plans

     Historically, our employees have participated in FIS’s and 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.

     These financial statements include stock compensation expense attributable to our employees for all periods presented. This includes all stock compensation specifically recorded by FIS for employees within our operating segments and an allocation of the expense recorded by FIS for certain corporate employees and FIS’s Board of Directors.

     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 (Note 10). 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. As of June 30, 2008, our employees held approximately 4.5 million outstanding FIS options that were subsequently converted into options to purchase our common stock at the spin-off. The options have an average exercise price of $33.83 per share and a weighted average remaining contractual life of 6.3 years. Of the options, approximately 1.7 million options were exercisable as of June 30, 2008 at an average exercise price of $25.69 per share with a weighted average remaining contractual life of 5.7 years. As of June 30, 2008, our employees held approximately 0.2 million outstanding FIS restricted stock awards that were subsequently converted into equivalent LPS awards at the spin-off.

     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 July 2, 2008, our employees held approximately 5.2 million outstanding LPS options, which have an average exercise price of $29.68 per share and a weighted average remaining contractual life of 6.3 years. Of the options, approximately 1.9 million were exercisable as of July 2, 2008 at an average exercise price of $22.46 per share with a weighted average remaining contractual life of 5.7 years. As of July 2, 2008, our employees held approximately 0.2 million outstanding LPS restricted stock awards.

     At June 30, 2008, the total unrecognized compensation cost related to non-vested FIS stock options and FIS restricted stock awards (subsequently converted to LPS stock options and LPS restricted stock awards following the spin-off) held by our employees is $35.0 million, which will be recognized in pre-tax income over a weighted average period of 1.9 years.

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

(9) Segment Information

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

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

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	141,744			$	322,347			$	(3,711	)		$	460,380
Cost of revenues			81,397				217,337				(3,771	)			294,963
Gross profit			60,347				105,010				60				165,417
Selling, general and administrative expenses			17,471				29,366				13,945				60,782
Operating income		$	42,876			$	75,644			$	(13,885	)		$	104,635
Depreciation and amortization		$	13,971			$	5,310			$	1,599			$	20,880
Total assets		$	1,014,288			$	907,908			$	63,544			$	1,985,740
Goodwill		$	662,172			$	424,434			$	—			$	1,086,606

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

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	142,009			$	281,677			$	1,324			$	425,010
Cost of revenues			78,187				192,174				(1,319	)			269,042
Gross profit			63,822				89,503				2,643				155,968
Selling, general and administrative expenses			16,954				27,711				10,938				55,603
Operating income		$	46,868			$	61,792			$	(8,295	)		$	100,365
Depreciation and amortization		$	17,437			$	7,449			$	1,366			$	26,252
Total assets		$	1,007,360			$	835,746			$	104,106			$	1,947,212
Goodwill		$	650,412			$	426,554			$	—			$	1,076,966

     For the six months ended June 30, 2008 (in thousands):

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	277,568			$	642,577			$	(7,039	)		$	913,106
Cost of revenues			155,507				436,793				(7,163	)			585,137
Gross profit			122,061				205,784				124				327,969
Selling, general and administrative expenses			33,729				57,829				27,441				118,999
Operating income		$	88,332			$	147,955			$	(27,317	)		$	208,970
Depreciation and amortization		$	29,986			$	11,496			$	3,094			$	44,576

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

     For the six months ended June 30, 2007 (in thousands):

		Technology,				Loan
		Data and				Transaction				Corporate
		Analytics				Services				and Other				Total
Processing and services revenues		$	284,385			$	540,929			$	1,124			$	826,438
Cost of revenues			160,308				369,167				(2,652	)			526,823
Gross profit			124,077				171,762				3,776				299,615
Selling, general and administrative expenses			32,776				54,753				21,543				109,072
Operating income		$	91,301			$	117,009			$	(17,767	)		$	190,543
Depreciation and amortization		$	35,619			$	14,219			$	2,535			$	52,373

(10) Subsequent Events

Closing of LPS Spin-off Transaction and Issuance of Common Stock Shares

     On July 2, 2008, all of the shares of the Company’s common stock, par value $0.0001 per share, previously wholly-owned by FIS, were distributed to FIS shareholders through a stock dividend. At the time of the distribution, the Company consisted of all the assets, liabilities, businesses and employees related to FIS’s lender processing services segment as of the spin-off date. In the spin-off, FIS contributed to LPS all of its interest in such assets, liabilities, businesses and employees in exchange for shares of LPS common stock and $1,585.0 million aggregate principal amount of our debt obligations. Upon the distribution, FIS’s shareholders received one-half share of our common stock for every share of FIS common stock held as of the close of business on June 24, 2008. FIS’s shareholders collectively received 100% of our common stock, and LPS is now a stand-alone public company trading under the symbol “LPS” on the New York Stock Exchange.

     On June 20, 2008, FIS received a favorable private letter ruling from the Internal Revenue Service, with respect to the tax-free nature of the distribution. The spin-off is expected to be tax-free to FIS and its shareholders, and the debt-for-debt exchange undertaken in connection with the spin-off is expected to be tax-free to FIS.

Long-term Debt

     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 party 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) under which $25.7 million is outstanding at July 2, 2008; (ii) a Term A Loan in an aggregate principal amount of $700.0 million; and (iii) a Term B Loan in an 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 above 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.

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

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 are 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 will initially be unregistered under the Securities Act of 1933, but we may exchange the Notes for registered notes in the future. In the event the Notes are not registered on or prior to the 210^th calendar day after July 2, 2008 (the “Target Registration Date”), the interest rate on the Notes will be increased by 0.25% per annum for the first 90-day period immediately following the Target Registration Date. The interest rate will be increased an additional 0.25% per annum with respect to each subsequent 90-day period up to a maximum increase of 1.00% per annum.

     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.

     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.

     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

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

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	%

     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 Company will estimate the fair value of these cash flow hedges on a quarterly basis, with the resulting asset (liability) to be included as a component of other long-term assets (liabilities) in the consolidated balance sheets and as a component of accumulated other comprehensive earnings (losses), net of deferred tax expense (benefit). 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.

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

Pro Forma Financial Statements

     Selected unaudited pro forma balance sheet as of June 30, 2008, assuming the spin-off had occurred as of such date, and results of operations for the period ended June 30, 2008, assuming the spin-off had occurred as of January 1, 2007, and using assets, liabilities, revenues and expenses prior to the spin-off, are presented below (in thousands, except per share data):

     Pro Forma Condensed Consolidated Balance Sheet — Unaudited

						Pro Forma				Pro Forma
		June 30, 2008				Adjustments				June 30, 2008
ASSETS
Current assets:
Cash and cash equivalents		$	18,628			$	—			$	18,628
Trade receivables, net of allowance for doubtful accounts			350,565				—				350,565
Other current assets			71,725				—				71,725
Total current assets			440,918				—				440,918
Property and equipment, net of accumulated depreciation and amortization			92,487				—				92,487
Goodwill			1,086,606				—				1,086,606
Intangible assets, net of accumulated amortization			103,347				—				103,347
Computer software, net of accumulated amortization			149,562				—				149,562
Other non-current assets			112,820				25,700	(1)			138,520
Total assets		$	1,985,740			$	25,700			$	2,011,440
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total current liabilities		$	192,533			$	135,800	(1)		$	328,333
Total non-current liabilities			107,933				1,474,900	(1)			1,582,833
Total liabilities			300,466				1,610,700				1,911,166
Minority interest			10,773				—				10,773
Stockholders’ equity			1,674,501				(1,585,000)	(1)			89,501
Total liabilities and stockholders’ equity		$	1,985,740			$	25,700			$	2,011,440

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

Pro Forma Condensed Consolidated Statement of Earnings — Unaudited

										Pro Forma
		Six month period				Pro Forma				six months ended
		ended June 30, 2008				Adjustments				June 30, 2008
Processing and services revenues		$	913,106							$	913,106
Operating income		$	208,970							$	208,970
Net earnings		$	125,278			$	(28,131)	(2)		$	97,147
Pro forma net earnings per share — basic		$	1.32							$	1.03
Pro forma net earnings per share — diluted		$	1.30							$	1.01

Stock Compensation Plan

     Effective July 2, 2008, we adopted the Lender Processing Services, Inc. 2008 Omnibus Incentive Plan (the “Incentive Plan”), which provides for the granting of incentive and nonqualified stock options, restricted stock and other stock-based incentive awards to officers and key employees. Also, certain of our employees were participants in FIS’s stock-based compensation plans until the spin-off.

401(k) Profit Sharing and Employee Stock Purchase Plans

     Effective July 2, 2008, we adopted the Lender Processing Services, Inc. 401(k) Profit Sharing Plan (the “401(k) Plan”) and the Lender Processing Services, Inc. Employee Stock Purchase Plan (“ESPP”) which provide programs through which the executives and employees of the Company may purchase shares of common stock through payroll deductions and through matching employer contributions.

     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.

     The following discussion should be read in conjunction with Item 1: Financial Statements and the Notes thereto included elsewhere in this report. The discussion below contains forward-looking statements that involve a number of risks and uncertainties. Statements that are not historical facts, including statements about our beliefs and expectations, are forward-looking statements. 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 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, which may limit the funds available to make acquisitions and invest in our business; the risks of reduction in revenue from the elimination of existing and potential customers due to consolidation in the banking, retail and financial services industries; failures to adapt our services to changes in technology or in the marketplace; adverse changes in the level of real estate activity, which would adversely affect certain of our businesses; our potential inability to find suitable acquisition candidates or difficulties in integrating acquisitions; significant competition that our operating subsidiaries face; and other risks detailed in Item 1A: Risk Factors of Part II of this report and in the “Statement Regarding Forward-Looking Information,” 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 30% and 70%, respectively, of our revenues for both the three and six months ended June 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 July 2, 2008, all of the shares of the Company’s common stock, par value $0.0001 per share, previously wholly-owned by FIS, were distributed to FIS shareholders through a stock dividend. At the time of the distribution, the Company consisted of all the assets, liabilities, businesses and employees related to FIS’s lender processing services segment as of the spin-off date. In the spin-off, FIS contributed to LPS all of its interest in such assets, liabilities, businesses and employees in exchange for shares of LPS common stock and $1,585.0 million aggregate principal amount of our debt obligations. Upon the distribution, FIS’s shareholders received one-half share of our common stock for every share of FIS common stock held as of the close of business on June 24, 2008. FIS’s shareholders collectively received 100% of our common stock, and LPS is now a stand-alone public company trading under the symbol “LPS” on the New York Stock Exchange.

     On June 20, 2008, FIS received a favorable private letter ruling from the Internal Revenue Service, with respect to the tax-free nature of the distribution. The spin-off is expected to be tax-free to FIS and its shareholders, and the debt-for-debt exchange undertaken in connection with the spin-off is expected to be tax-free to FIS.

Critical Accounting Policies

     There have been no significant changes to our critical accounting policies since our Form 10 was filed 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.

Comparisons of three and six months ended June 30, 2008 and 2007

Consolidated Results of Operations — Unaudited

     The following tables reflects 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 June 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	460.4			$	425.0				100.0	%			100.0	%		$	35.4				8.3	%
Cost of revenues			295.0				269.0				64.1	%			63.3	%			(26.0	)			-9.7	%
Gross profit			165.4				156.0				35.9	%			36.7	%			9.4				6.0	%
Gross margin			35.9	%			36.7	%
Selling, general and administrative expenses			60.8				55.6				13.2	%			13.1	%			(5.2	)			-9.4	%
Operating income		$	104.6			$	100.4				22.7	%			23.6	%		$	4.2				4.2	%
Operating margin			22.7	%			23.6	%

										% of Revenue								Variance
Six months ended June 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues			913.1			$	826.4				100.0	%			100.0	%		$	86.7				10.5	%
Cost of revenues			585.1				526.8				64.1	%			63.7	%			(58.3	)			-11.1	%
Gross profit			328.0				299.6				35.9	%			36.3	%			28.4				9.5	%
Gross margin			35.9	%			36.3	%
Selling, general and administrative expenses			119.0				109.1				13.0	%			13.2	%			(9.9	)			-9.1	%
Operating income		$	209.0			$	190.5				22.9	%			23.1	%		$	18.5				9.7	%
Operating margin			22.9	%			23.1	%

     Processing and Services Revenues

     Processing and services revenues increased $35.4 million, or 8.3%, during the second quarter of 2008 and $86.7 million, or 10.5%, during the first six months of 2008. These increases were 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.

     Cost of Revenues

     Cost of revenues increased $26.0 million, or 9.7%, during the second quarter of 2008, and $58.3 million, or 11.1%, during the first six months of 2008. Cost of revenues as a percentage of processing and services revenues increased from 63.3% during the second quarter of 2007 to 64.1% in 2008 and from 63.7% during the first six months of 2007 to 64.1% in 2008. These increases are primarily due to a change in revenue mix as the positive margin contribution from the growth in default services was offset by contraction in several of our origination based businesses, particularly in our loan origination software business which, historically, has a higher marginal contribution.

     Gross Margin

     Gross profit as a percentage of processing and services revenues (“gross margin”) declined from 36.7% during the second quarter of 2007 to 35.9% in 2008 and from 36.3% during the first six months of 2007 to 35.9% in 2008. Consistent with the increase in cost of revenues as a percentage of processing and services revenues, the decline in gross margin is primarily due to a change in revenue mix as the positive margin contribution from the growth in default services was offset by contraction in several of our origination based business, particularly in our loan origination software business which, historically, has a higher marginal contribution.

     Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased $5.2 million, or 9.4%, during the second quarter of 2008 and $9.9 million, or 9.1%, during the first six 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 in 2008 is primarily due to restructuring and spin-off related charges which totaled $4.5 million and $5.5 million during the three and six months ended June 30, 2008, respectively, as well as an increase in stock compensation and other incentive related costs.

     Operating Income

     Operating income increased $4.2 million, or 4.2%, during the second quarter of 2008 and $18.5 million, or 9.7%, during the first six months of 2008. Operating income as a percentage of processing and services revenues (“operating margin”) declined from 23.6% during the second quarter of 2007 to 22.7% in 2008 and from 23.1% during the first six months of 2007 to 22.9% in 2008. Consistent with the decrease in gross margin, the decrease in operating margin is primarily due to a change in revenue mix, as well as the impact of incremental selling, general and administrative expenses in 2008 for restructuring and spin-off related charges and stock compensation and other incentive related costs.

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

										% of Revenue								Variance
Three months ended June 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	141.7			$	142.0				100.0	%			100.0	%		$	(0.3	)			-0.2	%
Cost of revenues			81.4				78.2				57.4	%			55.1	%			(3.2	)			-4.1	%
Gross profit			60.3				63.8				42.6	%			44.9	%			(3.5	)			-5.5	%
Gross margin			42.6	%			44.9	%
Selling, general and administrative expenses			17.5				17.0				12.4	%			12.0	%			(0.5	)			-2.9	%
Operating income		$	42.8			$	46.8				30.2	%			33.0	%		$	(4.0	)			-8.5	%
Operating margin			30.2	%			33.0	%

										% of Revenue								Variance
Six months ended June 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	277.6			$	284.4				100.0	%			100.0	%		$	(6.8	)			-2.4	%
Cost of revenues			155.5				160.3				56.0	%			56.4	%			4.8				3.0	%
Gross profit			122.1				124.1				44.0	%			43.6	%			(2.0	)			-1.6	%
Gross margin			44.0	%			43.6	%
Selling, general and administrative expenses			33.7				32.8				12.1	%			11.5	%			(0.9	)			-2.7	%
Operating income		$	88.4			$	91.3				31.8	%			32.1	%		$	(2.9	)			-3.2	%
Operating margin			31.8	%			32.1	%

     Processing and Services Revenues

     Processing and services revenues decreased nominally during the second quarter of 2008 and $6.8 million, or 2.4%, during the first six months of 2008. The decrease during the first six months of 2008 was primarily driven by decreases in revenues in our data and analytics services, loan origination software sales, and mortgage processing services resulting from the deconversion of a large customer in the fourth quarter of 2007, partially offset by continued growth in our Desktop application.

     Cost of Revenues

     Cost of revenues increased $3.2 million, or 4.1%, during the second quarter of 2008 but decreased $4.8 million, or 3.0%, during the first six months of 2008. Cost of revenues as a percentage of processing and services revenues increased from 55.1% during the second quarter of 2007 to 57.4% in 2008 but was relatively flat during the first six months of 2007 as compared to 2008. The increase during the second quarter of 2008 is primarily due to a change in revenue mix during the quarter as we experienced a decrease in revenues from our higher margin loan origination software sales and mortgage processing services, partially offset by growth in our Desktop application.

     Gross Margin

     Gross margin declined from 44.9% during the second quarter of 2007 to 42.6% in 2008 but was relatively flat during the first six months of 2007 as compared to 2008. Consistent with the increase in cost of revenues as a percentage of processing and services revenues during the second quarter of 2008, the decline in gross margin is primarily due to a change in revenue mix which resulted in a decrease in revenues from our higher margin loan origination software sales and mortgage processing services, partially offset by growth in our Desktop application.

     Selling, General and Administrative Expenses

     Selling, general and administrative expenses increased $0.5 million, or 2.9%, during the second quarter of 2008 and $0.9 million, or 2.7%, during the first six months of 2008. Selling, general and administrative expenses as a

percentage of processing and services revenues increased from 12.0% during the second quarter of 2007 to 12.4% in 2008 and from 11.5% during the first six months of 2007 to 12.1% in 2008. The increase during the second quarter of 2008 was primarily due to the impact of restructuring costs recorded during the period, while the increase during the first six months of 2008 was primarily due to the restructuring costs, as previously noted, as well as an increase in incentive compensation and other general and administrative expenses.

     Operating Income

     Operating income decreased $4.0 million, or 8.5%, during the second quarter of 2008 and $2.9 million, or 3.2%, during the first six months of 2008. Operating margin declined from 33.0% during the second quarter of 2007 to 30.2% in 2008 and from 32.1% during the first six months of 2007 to 31.8% in 2008. The decrease in operating margin for the three and six months ended June 30, 2008 is primarily due to a change in revenue mix as we experienced a decrease in revenues from our higher margin loan origination software sales and mortgage processing services, partially offset by growth in our Desktop application, as well as the impact of restructuring costs and incremental incentive compensation and other general and administrative expenses incurred in 2008.

Segment Results of Operations – Loan Transaction Services — Unaudited

										% of Revenue								Variance
Three months ended June 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	322.3			$	281.7				100.0	%			100.0	%		$	40.6				14.4	%
Cost of revenues			217.3				192.2				67.4	%			68.2	%			(25.1	)			-13.1	%
Gross profit			105.0				89.5				32.6	%			31.8	%			15.5				17.3	%
Gross margin			32.6	%			31.8	%
Selling, general and administrative expenses			29.4				27.7				9.1	%			9.8	%			(1.7	)			-6.1	%
Operating income		$	75.6			$	61.8				23.5	%			21.9	%		$	13.8				22.3	%
Operating margin			23.5	%			21.9	%

										% of Revenue								Variance
Six months ended June 30,		2008				2007				2008				2007				$				%
(in millions)
Processing and services revenues		$	642.6			$	540.9				100.0	%			100.0	%		$	101.7				18.8	%
Cost of revenues			436.8				369.2				68.0	%			68.3	%			(67.6	)			-18.3	%
Gross profit			205.8				171.7				32.0	%			31.7	%			34.1				19.9	%
Gross margin			32.0	%			31.7	%
Selling, general and administrative expenses			57.8				54.8				9.0	%			10.1	%			(3.0	)			-5.5	%
Operating income		$	148.0			$	116.9				23.0	%			21.6	%		$	31.1				26.6	%
Operating margin			23.0	%			21.6	%