NetSpend 2013 Annual Report Download - page 42

EQUITY INVESTMENTS: TSYS’ 49% investment in
Total System Services de México, S.A. de C.V. (TSYS
de México), an electronic payment processing
support operation located in Toluca, Mexico, is
accounted for using the equity method of
accounting, as is TSYS’ 44.56% investment in China
UnionPay Data Co., Ltd. (CUP Data) headquartered in
Shanghai, China. TSYS’ equity investments are
recorded initially at cost and subsequently adjusted
for equity in earnings, cash contributions and
distributions, and foreign currency translation
adjustments.
GOODWILL: Goodwill results from the excess of
cost over the fair value of net assets of businesses
acquired.
Goodwill and intangible assets with indefinite useful
lives are tested for impairment at least annually in
accordance with the provisions of ASC 350. ASC 350
also requires that intangible assets with estimable
useful lives be amortized over their respective
estimated useful lives to their estimated residual
values.
The portion of the difference between the cost of an
investment and the amount of underlying equity in
net assets of an equity method investee that is
recognized as goodwill in accordance with the
provisions of ASC 323, “Investments — Equity
Method and Joint Ventures,” shall not be amortized.
However, equity method goodwill shall not be
reviewed for impairment in accordance with ASC 350,
but instead should continue to be reviewed for
impairment in accordance with paragraph 19(h) of
ASC 323. Equity method goodwill, which is not
reported as goodwill in the Company’s Consolidated
Balance Sheet, but is reported as a component of the
equity investment, was $52.7 million as of
December 31, 2013.
OTHER INTANGIBLE ASSETS: Identifiable
intangible assets relate primarily to customer
relationships, databases, channel relationships,
covenants-not-to-compete, trade names and trade
associations resulting from acquisitions. These
identifiable intangible assets are amortized using the
straight-line method over periods not exceeding the
estimated useful lives, which range from three to ten
years. ASC 350 requires that intangible assets with
estimable useful lives be amortized over their
respective estimated useful lives to their estimated
residual values, and reviewed for impairment in
accordance with ASC 360. Amortization expenses are
charged to selling, general and administrative
expenses in the Company’s Consolidated Statements
of Income.
FAIR VALUES OF FINANCIAL
INSTRUMENTS: The Company uses financial
instruments in the normal course of its business. The
carrying values of cash equivalents, accounts
receivable, accounts payable, accrued salaries and
employee benefits, and other current liabilities
approximate their fair value due to the short-term
maturities of these assets and liabilities. The fair value
of the Company’s long-term debt and obligations
under capital leases is not significantly different from
its carrying value.
Investments in equity investments are accounted for
using the equity method of accounting and pertain to
privately held companies for which fair value is not
readily available. The Company believes the fair
values of its investments in equity investments
exceed their respective carrying values.
IMPAIRMENT OF LONG-LIVED ASSETS: In
accordance with ASC 360, the Company reviews
long-lived assets, such as property and equipment
and intangibles subject to amortization, including
contract acquisition costs and certain computer
software, for impairment whenever events or changes
in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a
comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected
to be generated by the asset. If upon a triggering
event the Company determines that the carrying
amount of an asset exceeds its estimated
undiscounted future cash flows, an impairment
charge is recognized by the amount by which the
carrying amount of the asset exceeds the fair value of
the asset. Assets to be disposed of would be
separately presented in the balance sheet and
reported at the lower of the carrying amount or fair
value less costs to sell, and would no longer be
depreciated. The assets and liabilities of a disposed
group classified as held for sale would be presented
separately in the appropriate asset and liability
sections of the balance sheet.
TRANSACTION PROCESSING PROVISIONS: The
Company has recorded an accrual for contract
contingencies (performance penalties) and
processing errors. A significant number of the
Company’s contracts with large clients contain
service level agreements which can result in TSYS
incurring performance penalties if contractually
required service levels are not met. When providing
for these accruals, the Company takes into
consideration such factors as the prior history of
performance penalties and processing errors
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