NetSpend 2013 Annual Report Download - page 72

NOTE 22 Supplemental Cash Flow
Information
Nonvested Share Awards
The Company has issued shares of TSYS common
stock to certain key employees and non-management
members of its Board of Directors. The grants to
certain key employees were issued in the form of
nonvested stock bonus awards for services to be
provided in the future by such officers and
employees. Beginning in 2011, the grants to the
Board of Directors were fully vested on the date of
grant. Refer to Note 18 for more information on
nonvested share awards.
Equipment and Software Acquired Under
Capital Lease Obligations
The Company acquired computer equipment and
software under capital lease in the amount of $14.8
million, $5.3 million and $8.1 million in 2013, 2012
and 2011, respectively.
NOTE 23 Acquisitions
2013
On July 1, 2013, TSYS acquired all the outstanding
stock of NetSpend, which previously operated as a
publicly traded company and is a leading provider of
GPR prepaid debit and payroll cards and related
financial services to underbanked consumers in the
U.S. The acquisition complements the Company’s
existing presence in the prepaid processing space.
The results of the newly acquired business are being
reported by TSYS as a new operating segment titled
NetSpend.
Under the terms of the Merger Agreement, TSYS
acquired 100 percent ownership of NetSpend for
approximately $1.4 billion, including $1.2 billion of
cash to shareholders, $70.7 million of cash for
payment to holders of vested stock options and
awards, $58.3 million of cash for repayment of
NetSpend’s revolving credit facility and $15.6 million
in replacement stock options and awards. NetSpend
shareholders received $16.00 in cash for each share
of NetSpend common stock. There were 1.6 million
NetSpend shares held by five shareholders who have
asserted appraisal (or dissenters’) rights with respect
to their NetSpend shares, for a preliminary value of
$25.7 million at $16.00 per share that were not
funded at the closing of the acquisition.
Under the terms of the Merger Agreement, the
Company replaced unvested share-based awards for
certain current employees of NetSpend. The
following table provides a list of all replacement
awards and the estimated fair value of those awards
issued in conjunction with the acquisition of
NetSpend:
Number of Shares
and Options Issued Fair Value (in millions)
Time-based restricted
stock ............ 870,361 $21.5
Non-qualified stock
options .......... 530,696 8.4
Incentive stock
options .......... 529,452 5.3
Performance-based
restricted stock . . . 87,356 2.2
Total ............ 2,017,865 $37.4
The portion of the fair value of the replacement
awards related to services provided prior to the
business combination was included in the total
purchase price. The portion of the fair value
associated with future service is recognized as
expense over the future service period, which varies
by award. The Company determined that $15.6
million ($11.1 million net of tax) of the replacement
awards was related to services rendered prior to the
business combination.
The goodwill amount of $1.0 billion arising from the
acquisition consists largely of expansion of customer
base, differentiation in market opportunity and
economies of scale expected from combining the
operations of TSYS and NetSpend. All of the goodwill
was assigned to TSYS’ new NetSpend segment. The
goodwill recognized is not expected to be deductible
for income tax purposes.
The following table summarizes the consideration
paid for NetSpend and the preliminary recognized
amounts of the identifiable assets acquired and
liabilities assumed on July 1, 2013 (the acquisition
date). These amounts will remain preliminary until the
valuation analysis has been finalized. The
measurement period during which changes in assets,
liabilities, equity interests, or items of consideration
are subject to adjustment ends one year following
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