NetSpend 2013 Annual Report Download - page 40

assumptions regarding industry economic factors and
business strategies, and result in an impairment or a
new allocation of purchase price.
Given its history of acquisitions, TSYS may allocate
part of the purchase price of future acquisitions to
contingent consideration as required by GAAP for
business combinations. The fair value calculation of
contingent consideration will involve a number of
assumptions that are subjective in nature and which
may differ significantly from actual results. TSYS may
experience volatility in its earnings to some degree in
future reporting periods as a result of these fair value
measurements.
CASH AND CASH EQUIVALENTS: Cash on hand
and investments with a maturity of three months or
less when purchased are considered to be cash
equivalents.
ACCOUNTS RECEIVABLE: Accounts receivable
balances are stated net of allowances for doubtful
accounts and billing adjustments.
TSYS records an allowance for doubtful accounts
when it is probable that the accounts receivable
balance will not be collected. When estimating the
allowance for doubtful accounts, the Company takes
into consideration such factors as its day-to-day
knowledge of the financial position of specific clients,
the industry and size of its clients, the overall
composition of its accounts receivable aging, prior
history with specific customers of accounts receivable
write-offs and prior experience of allowances in
proportion to the overall receivable balance. This
analysis includes an ongoing and continuous
communication with its largest clients and those
clients with past due balances. A financial decline of
any one of the Company’s large clients could have a
material adverse effect on collectability of receivables
and thus the adequacy of the allowance for doubtful
accounts.
Increases in the allowance for doubtful accounts are
recorded as charges to bad debt expense and are
reflected in selling, general and administrative
expenses in the Company’s Consolidated Statements
of Income. Write-offs of uncollectible accounts are
charged against the allowance for doubtful accounts.
TSYS records an allowance for billing adjustments for
actual and potential billing discrepancies. When
estimating the allowance for billing adjustments, the
Company considers its overall history of billing
adjustments, as well as its history with specific clients
and known disputes. Increases in the allowance for
billing adjustments are recorded as a reduction of
revenues in the Company’s Consolidated Statements
of Income and actual adjustments to invoices are
charged against the allowance for billing
adjustments.
UP-FRONT DISTRIBUTOR PAYMENTS: The
Company makes up-front contractual payments to
third-party distribution partners. The Company
assesses each up-front payment to determine
whether it meets the criteria of an asset as defined by
U.S. GAAP. If these criteria are met, the Company
capitalizes the up-front payment and recognizes the
capitalized amount as expense ratably over the
benefit period, which is generally the contract period.
If the contract requires the distributor to perform
specific acts (i.e. achieve a sales goal) and no other
conditions exist for the distributor to earn
or retain the up-front payment, then the Company
capitalizes the payment and recognizes it as an
expense when the performance conditions have been
met. Up-front distributor payments are classified on
the Consolidated Balance Sheet as other non-current
assets and recorded as a cost of services in the
Consolidated Statements of Income.
PROPERTY AND EQUIPMENT: Property and
equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and
amortization are computed using the straight-line
method over the estimated useful lives of the assets.
Buildings and improvements are depreciated over
estimated useful lives of 5-40 years, computer and
other equipment over estimated useful lives of 2-
5 years, and furniture and other equipment over
estimated useful lives of 3-15 years. The Company
evaluates impairment losses on long-lived assets
used in operations in accordance with the provisions
of ASC 360, “Property Plant and Equipment.”
All ordinary repairs and maintenance costs are
expensed as incurred. Maintenance costs that extend
the asset life are capitalized and amortized over the
remaining estimated life of the asset.
LICENSED COMPUTER SOFTWARE: The
Company licenses software that is used in providing
services to clients. Licensed software is obtained
through perpetual licenses and site licenses and
through agreements based on processing capacity
(called “MIPS agreements”). Perpetual and site
licenses are amortized using the straight-line method
over their estimated useful lives which range from
three to ten years. Software licensed under MIPS
agreements is amortized using a units-of-production
basis over the estimated useful life of the software,
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