NetSpend 2013 Annual Report Download - page 73

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the acquisition date. The Company continues to
evaluate consideration paid, deferred taxes, goodwill
and financial liabilities.
(in thousands)
Consideration
Cash ............................. $1,355,270
Equity instruments .................. 15,557
Dissenting shareholder liability* ....... 25,723
Fair value of total consideration
transferred ...................... $1,396,550
Recognized amounts of identifiable
assets acquired and liabilities
assumed:
Cash ............................. $ 40,610
Accounts receivable ................ 11,335
Property equipment and software ..... 11,657
Identifiable intangible assets ......... 480,086
Deferred tax asset .................. 10,165
Other assets ....................... 36,660
Deferred tax liability ................ (155,945)
Financial liabilities .................. (62,452)
Total identifiable net assets .......... 372,116
Goodwill .......................... 1,024,434
$1,396,550
* Represents 1.6 million NetSpend shares held by
dissenting shareholders
Identifiable intangible assets acquired in the
NetSpend acquisition include channel relationships,
current technology, a prospect database, the
NetSpend trade name and non-compete
agreements.
The identifiable intangible assets had no significant
estimated residual value. These intangible assets are
being amortized over their estimated useful lives of
five to eight years based on the pattern of expected
future economic benefit, which approximates a
straight-line basis over the useful lives of the assets.
The fair value of the acquired identifiable intangible
assets of $480.1 million was estimated using the
income approach (discounted cash flow and relief
from royalty methods) and cost approach. The fair
values and useful lives of the identified intangible
assets were primarily determined using forecasted
cash flows, which included estimates for certain
assumptions such as revenues, expenses, attrition
rates and royalty rates. The estimated fair value of
identifiable intangible assets acquired in the
acquisitions and the related estimated weighted
average useful lives are as follows:
(in thousands) Fair Value
Weighted Average
Useful Life
(in years)
Channel relationships . . . $317,000 8.0
Covenants-not-to-
compete ............ 11,500 6.0
Current technology ..... 78,711 7.0
Database ............. 28,000 5.0
Trade name ........... 44,000 5.0
Favorable lease ........ 875 4.9
Total acquired
identifiable
intangible assets . . . $480,086 7.3
The fair value measurement of the identifiable
intangible assets represents Level 2 and Level 3
measurements as defined in ASC 820. Key
assumptions include (a) cash flow projections based
on market participant and internal data, (b) a discount
rate of 11%, (c) a pre-tax royalty rate range of
2.5-7.0%, (d) attrition rates of 5%-40%, (e) an effective
tax rate of 40%, and (f) a terminal value based on a
long-term sustainable growth rate of 3%.
In connection with the acquisition, TSYS incurred
$14.2 million in acquisition-related costs primarily
related to professional legal, finance, and accounting
costs. These costs were expensed as incurred and are
included in merger and acquisition expenses on the
income statement for the year ended December 31,
2013.
71