NetSpend 2013 Annual Report Download - page 29

Purchase of Noncontrolling Interest
In connection with the acquisition of CPAY, the
Company is party to call and put arrangements with
respect to the membership units that represent the
remaining noncontrolling interest of CPAY. The call
arrangement is exercisable by TSYS and the put
arrangement is exercisable by the Seller. The put
arrangement is outside the control of the Company
by requiring the Company to purchase the Seller’s
entire equity interest in CPAY at a put price at fair
market value. The put arrangement is recorded on
the balance sheet and is classified as redeemable
noncontrolling interest outside of permanent equity.
The call and put arrangements for CPAY,
representing 40% of its total outstanding equity
interests, may be exercised at the discretion of TSYS
or the Seller on the second anniversary of the closing
and upon the recurrence of certain other specified
events.
The put option was not redeemable as of
December 31, 2013 but a redemption is considered
probable based upon the passage of time of the
second anniversary date. As such, the Company
accretes changes in the redemption value over the
period from the date of issuance to the earliest
redemption date, which the Company believes to be
in one year. If the put option was redeemable as of
December 31, 2013, its estimated value would have
been approximately $39.7 million. The Company did
not accrete any changes to the redemption value as
the balance as of December 31, 2013 exceeded the
accretion fair value amount.
In February 2014, with cash on hand, the Company
purchased an additional 15% interest in CPAY,
reducing its redeemable noncontrolling interest to
25%. Refer to Note 26 in the consolidated financial
statements for further information on this purchase.
With the acquisition of TMS, the Company was a
party to put and call arrangements with respect to
the membership units that represented the remaining
noncontrolling interest of FNMS Holding, LLC (FNMS
Holding). The call and put arrangements could have
been exercised at the discretion of TSYS or First
National Bank of Omaha (FNBO) on April 1, 2015,
2016 and 2017, upon the dilution of FNBO’s equity
ownership in FNMS Holding below a designated
threshold and in connection with certain acquisitions
by TSYS or FNMS Holding in excess of designated
value thresholds.
On January 4, 2011, TSYS announced that it
acquired, effective January 1, 2011, the remaining
49% interest in TMS from FNBO. The fair value of the
noncontrolling interest in TMS, owned by a private
company as of December 31, 2010, 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 of
approximately 13%, (c) a terminal value based on a
long-term sustainable growth rate of approximately
3%, (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.
Refer to Note 23 in the consolidated financial
statements for more information on the acquisition of
TMS.
Stock Repurchase Plan
In April 2010, TSYS announced a stock repurchase
plan to purchase up to 10 million shares of TSYS
stock. The shares may be purchased from time to
time over the next two years at prices considered
attractive to the Company. In May 2011, TSYS
announced that its Board had approved an increase
in the number of shares that may be repurchased
under its current share repurchase plan from up to
10 million shares to up to 15 million shares of TSYS
stock. The expiration date of the plan was also
extended to April 30, 2013. In July 2012, TSYS
announced that its Board had approved an increase
in the number of shares that may be repurchased
under its current share repurchase plan from up to
15 million shares to up to 20 million shares of TSYS
stock. The expiration date of the plan was also
extended to April 30, 2014. Through December 31,
2013, the Company purchased 16.0 million shares for
approximately $338.0 million, at an average price of
$21.13.
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