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ACQUISITIONS
6 Months Ended
Jun. 30, 2013
ACQUISITIONS  
ACQUISITIONS

NOTE 3 — ACQUISITIONS

 

Homeward Fee-Based Businesses

 

On March 29, 2013, we acquired certain fee-based businesses associated with Ocwen’s acquisition of Homeward.  As part of the acquisition, Ocwen agreed not to develop similar fee-based businesses that would directly or indirectly compete with services provided by Altisource relative to the Homeward servicing portfolio.  Additionally, the terms of the Service Agreements were amended to extend the term from 2020 to 2025 (see Note 2).  We paid $87.0 million, subject to a working capital and net income adjustment within 90 days, subsequently extended for an additional 60 days, for the Homeward fee-based businesses. From the acquisition date through June 30, 2013, we have recorded revenue of $33.9 million and pre-tax income of $8.9 million related to these businesses.

 

Management has adjusted the preliminary purchase price allocation and assigned associated asset lives based upon information that has become available since the acquisition date.  The purchase price allocation and assessment of asset lives will continue to be revised as additional information about the fair value of assets and liabilities becomes available. Such assessment must be completed within 12 months from the acquisition date.

 

The preliminary adjusted allocation of the purchase price is estimated as follows:

 

(in thousands)

 

 

 

 

 

 

 

Due from Ocwen

 

$

9,558

 

Premises and equipment

 

2,749

 

Customer relationship

 

77,648

 

 

 

89,955

 

Accounts payable and accrued expenses

 

(3,005

)

Purchase price

 

$

86,950

 

 

 

 

Estimated
life

(in years)

 

 

 

 

 

Premises and equipment

 

2 - 5

 

Customer relationship

 

7

 

 

ResCap Fee-Based Businesses

 

On April 12, 2013, we entered into an agreement with Ocwen to establish additional terms related to the existing servicing arrangements between Altisource and Ocwen in connection with certain mortgage servicing platform assets of ResCap (the “ResCap Business”).  The Service Agreements provide that (i) Altisource will be the exclusive provider, except as prohibited by applicable law, to Ocwen of certain services related to the ResCap Business, (ii) Ocwen will not establish similar fee-based businesses that would directly or indirectly compete with Altisource’s services as they relate to the ResCap Business and (iii) Ocwen will market and promote the utilization of Altisource’s services to their various third party relationships.  Additionally, the parties agreed to use commercially reasonable best efforts to ensure that the loans associated with the ResCap Business are boarded onto Altisource’s mortgage servicing platform.  We paid $128.8 million ($80.0 million on April 12, 2013 and $48.8 million on May 10, 2013) for the ResCap fee-based businesses. From the acquisition date through June 30, 2013, we have recorded revenue of $7.8 million and pre-tax income of $1.8 million related to these businesses.

 

We acquired no tangible assets and assumed no liabilities in connection with the acquisition.  However, certain employees as well as practices and processes developed to support the ResCap servicing portfolio were components of the transaction.  We accounted for this transaction as a business combination in accordance with ASC Topic 805, Business Combinations.

 

Management has prepared a preliminary purchase price allocation and assigned associated asset lives based upon available information at the time of the agreement and through the date of filing.  This preliminary allocation and assessment of asset lives will be revised as additional information about the fair value of assets and liabilities becomes available. Such assessment must be completed within 12 months from the acquisition date. The agreement consideration of $128.8 million was fully allocated to the customer relationship intangible asset with an estimated average useful life of 7 years.

 

The following tables present the unaudited pro forma condensed consolidated results of operations as if the Homeward and ResCap Business transactions had occurred at the beginning of the periods presented.

 

 

 

Six months ended
June 30, 2013

 

(in thousands, except per share amounts)

 

As reported

 

Pro forma

 

Revenue

 

$

334,937

 

$

368,428

 

Net income attributable to Altisource

 

58,449

 

64,980

 

Earnings per share — diluted

 

2.34

 

2.61

 

 

 

 

Six months ended
June 30, 2012

 

(in thousands, except per share amounts)

 

As reported

 

Pro forma

 

Revenue

 

$

283,271

 

$

356,196

 

Net income attributable to Altisource

 

53,310

 

67,963

 

Earnings per share — diluted

 

2.15

 

2.73

 

 

 

 

Three months ended
June 30, 2012

 

(in thousands, except per share amounts)

 

As reported

 

Pro forma

 

Revenue

 

$

144,205

 

$

180,668

 

Net income attributable to Altisource

 

28,081

 

35,437

 

Earnings per share — diluted

 

1.13

 

1.43

 

 

The unaudited pro forma information presents the combined operating results of Altisource and the Homeward and ResCap Business transactions.  The Homeward and ResCap Business operating results were derived from their historical financial statements for the most comparable periods available.  The results prior to the acquisition dates have been adjusted to include the pro forma impact of the adjustment of amortization of the acquired intangible assets based on the preliminary purchase price allocations, the adjustment of interest expense reflecting the portion of our $200 million senior secured term loan, increased to $400 million on May 7, 2013, used in the Homeward and ResCap Business transactions (i.e., the pro forma impact of borrowing $215.7 million for the six months ended June 30, 2012) and to reflect the impact of income taxes on the pro forma adjustments utilizing Altisource’s effective income tax rate in each period presented.

 

The unaudited pro forma results are presented for illustrative purposes only and do not reflect additional revenue opportunities, the realization of any potential cost savings and any related integration costs.  Certain revenue opportunities and cost savings may result from the transactions and the conversion to the Altisource model; however, there can be no assurance that these revenue opportunities and cost savings will be achieved.  These pro forma results do not purport to be indicative of the results that would have actually been obtained if the transactions occurred as of the beginning of each of the periods presented, nor does the pro forma data intend to be a projection of results that may be obtained in the future.