NetSpend 2012 Annual Report Download - page 34

Notes to Consolidated Financial Statements
NOTE 1 Basis of Presentation and
Summary of Significant
Accounting Policies
BUSINESS: Total System Services, Inc.‘s (TSYS’ or
the Company’s) revenues are derived from providing
global payment services to financial and nonfinancial
institutions, generally under long-term processing
contracts. The Company’s services are provided
through the Company’s three operating segments:
North America Services, International Services and
Merchant Services.
Through the Company’s North America Services and
International Services segments, TSYS processes
information through its cardholder systems to
financial institutions throughout the United States and
internationally. The Company’s North America
Services segment provides these services to clients in
the United States, Canada, Mexico and the
Caribbean. The Company’s International Services
segment provides services to clients in Europe, India,
Middle East, Africa, Asia Pacific and Brazil. The
Company’s Merchant Services segment provides
merchant services to merchant acquirers and
merchants in the United States.
On December 26, 2012, TSYS completed its
acquisition of all of the outstanding stock of ProPay,
Inc (ProPay). ProPay previously operated as a
privately-held company, and offers simple, secure
and affordable payment solutions for organizations
ranging from small, home based entrepreneurs to
multi-billion dollar enterprises.
On August 8, 2012, TSYS completed its acquisition of
60% of Central Payment Co., LLC (CPAY), a privately
held direct merchant acquirer. CPAY provides
merchant services to small- to medium-sized
merchants through an Independent Sales Agent (ISA)
model, with a focus on merchants in the restaurant,
personal services and retail sectors.
On May 2, 2011, TSYS completed its acquisition of all
of the outstanding common stock of TermNet
Merchant Services, Inc. (TermNet), an Atlanta-based
merchant acquirer.
On March 1, 2010, TSYS announced the signing of an
Investment Agreement with First National Bank of
Omaha (FNBO) to form a new joint venture company,
First National Merchant Solutions, LLC (FNMS), of
which TSYS would own 51%. FNMS offers transaction
processing, merchant support and underwriting, and
value-added services, as well as Visa- and
MasterCard-branded prepaid cards for businesses of
any size. FNMS is included in the Merchant Services
segment. The effective date of the acquisition was
April 1, 2010. On January 4, 2011, TSYS announced
that it acquired, effective January 1, 2011, the
remaining 49% interest in FNMS, from FNBO. The
company was rebranded as TSYS Merchant Solutions
(TMS).
Refer to Note 24 for more information on
acquisitions.
As a result of the sale of certain assets and liabilities
of TSYS POS Systems and Services, LLC (TPOS) in
2010, as discussed in Note 2, the Company’s financial
statements reflect TPOS as discontinued operations.
The Company segregated operating results from
continuing operations in Consolidated Statements of
Income for 2010.
ACQUISITIONS — PURCHASE PRICE
ALLOCATION: TSYS adopted revised generally
accepted accounting principles (GAAP) relating to
business combinations as of January 1, 2009. The
revised guidance retains the purchase method of
accounting for acquisitions and requires a number of
changes to the previous guidance, including changes
in the way assets and liabilities are recognized in
purchase accounting. Other changes include
requiring the recognition of assets acquired and
liabilities assumed arising from contingencies,
requiring the capitalization of in-process research and
development at fair value, and requiring the
expensing of acquisition-related costs as incurred.
TSYS’ purchase price allocation methodology
requires the Company to make assumptions and to
apply judgment to estimate the fair value of acquired
assets and liabilities. TSYS estimates the fair value of
assets and liabilities based upon appraised market
values, the carrying value of the acquired assets and
widely accepted valuation techniques, including
discounted cash flows and market multiple analyses.
Management determines the fair value of fixed assets
and identifiable intangible assets such as developed
technology or customer relationships, and any other
significant assets or liabilities. TSYS adjusts the
purchase price allocation, as necessary, up to one
year after the acquisition closing date as TSYS
obtains more information regarding asset valuations
and liabilities assumed. Unanticipated events or
circumstances may occur which could affect the
accuracy of the Company’s fair value estimates,
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