NetSpend 2012 Annual Report Download - page 69

The fair value of the acquired identifiable intangible
assets of $100.8 million was estimated using the
income approach (discounted cash flow and relief
from royalty methods) and cost approach. At the time
of the acquisition, TSYS had identified certain
intangible assets that are expected to generate future
earnings for the Company: customer-related
intangible assets (such as customer lists), contract-
based intangible assets (such as referral agreements),
technology, and trademarks. The useful lives of the
identified intangible assets were primarily determined
by forecasted cash flows, which include estimates for
certain assumptions such as revenues, expenses,
attrition rates, and royalty rates. The useful lives of
these identified assets ranged from 3 to 10 years and
are being amortized on a straight-line basis based
upon their estimated pattern of economic benefit.
This fair value measurement is based on significant
inputs that are not observable in the market and thus
represents a Level 3 measurement as defined in
ASC 820. Key assumptions include (a) cash flow
projections based on market participant and internal
data, (b) a discount rate range of 4% to 14%, (c) a
royalty rate range of 1.5% to 7%, (d) an attrition rate
range of 10% to 30%, and (e) an effective tax rate of
approximately 36%.
The fair value of the noncontrolling interest in TMS,
owned by a private company, was estimated by
applying the income and market approaches. In
particular, a discounted cash flow method, a
guideline companies method, and a recent equity
transaction were employed. This fair value
measurement is based on significant inputs that are
both observable (Level 2) and non-observable
(Level 3) in the market as defined in ASC 820. Key
assumptions include (a) cash flow projections based
on market participant data and developed by
Company management, (b) a discount rate range of
12% to 14%, (c) a terminal value based on long-term
sustainable growth rates ranging between 3% and
5%, (d) an effective tax rate of approximately 36%,
(e) financial multiples of companies deemed to be
similar to TMS, and (f) adjustments because of the
lack of control or lack of marketability that market
participants would consider when estimating the fair
value of the noncontrolling interest in TMS.
With the acquisition of TMS on April 1, 2010, TSYS’
incremental revenue compared to the prior year
associated with acquisitions was $32.7 million and
$97.7 million for the years ended December 31, 2011
and 2010, respectively. For the years ended
December 31, 2011 and 2010, TSYS has included
approximately $4.2 million and $12.7 million,
respectively, in income netted against acquisition
related costs associated with TMS.
Pro forma Results of Operations
The pro forma revenue and earnings of TSYS’
acquisitions are not material to the consolidated
financial statements.
NOTE 25 Collaborative Arrangement
In January 2009, TSYS adopted the authoritative
guidance under ASC 808, “Collaborative
Arrangements.”
TSYS has a 45% ownership interest in an enterprise
jointly owned with two other entities which operates
aircraft for the owners’ internal use. The arrangement
allows each entity access to the aircraft and each
entity pays for its usage of the aircraft. Each quarter,
the net operating results of the enterprise are shared
among the owners based on their respective
ownership percentage.
TSYS records its usage of the aircraft and its share of
net operating results of the enterprise in selling,
general and administrative expenses.
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