NetSpend 2014 Annual Report Download - page 48

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ACQUISITION TECHNOLOGY INTANGIBLES: These identifiable intangible assets are software technology
assets resulting from acquisitions. These assets are amortized using the straight-line method over periods not
exceeding their estimated useful lives, which range from five to nine years. GAAP requires that intangible assets
with estimated useful lives be amortized over their respective estimated useful lives to their residual values, and
reviewed for impairment. Acquisition technology intangibles’ net book values are included in computer software,
net in the accompanying balance sheets. Amortization expenses are charged to cost of services in the Company’s
Consolidated Statements of Income.
SOFTWARE DEVELOPMENT COSTS: Software development costs are capitalized once technological
feasibility of the software product has been established. Costs incurred prior to establishing technological
feasibility are expensed as incurred. Technological feasibility is established when the Company has completed a
detailed program design and has determined that a product can be produced to meet its design specifications,
including functions, features and technical performance requirements. Capitalization of costs ceases when the
product is generally available to clients. At each balance sheet date, the Company evaluates the unamortized
capitalized costs of software development as compared to the net realizable value of the software product which
is determined by future undiscounted net cash flows. The amount by which the unamortized software
development costs exceed the net realizable value is written off in the period that such determination is made.
Software development costs are amortized using the straight-line method over its estimated useful life, which
ranges from three to ten years.
The Company also develops software that is used internally. These software development costs are capitalized in
accordance with GAAP. Internal-use software development costs are capitalized once: (1) the preliminary project
stage is completed, (2) management authorizes and commits to funding a computer software project, and (3) it is
probable that the project will be completed and the software will be used to perform the function intended.
Costs incurred prior to meeting the qualifications are expensed as incurred. Capitalization of costs ceases when
the project is substantially complete and ready for its intended use. Internal-use software development costs are
amortized using the straight-line method over its estimated useful life which ranges from three to ten years.
Software development costs may become impaired in situations where development efforts are abandoned due
to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned
software product.
CONTRACT ACQUISITION COSTS: The Company capitalizes contract acquisition costs related to signing or
renewing long-term contracts and costs related to cash payments for rights to provide processing services. The
Company capitalizes internal conversion costs in accordance with GAAP. All costs incurred prior to a signed
agreement are expensed as incurred.
Contract acquisition costs are amortized using the straight-line method over the expected customer relationship
(contract term) beginning when the client’s cardholder accounts are converted and producing revenues. The
amortization of contract acquisition costs associated with cash payments for client incentives is included as a
reduction of revenues in the Company’s Consolidated Statements of Income. The amortization of contract
acquisition costs associated with conversion activity is recorded as cost of services in the Company’s
Consolidated Statements of Income.
The Company evaluates the carrying value of contract acquisition costs associated with each customer for
impairment on the basis of whether these costs are fully recoverable from either contractual minimum fees
(contractual costs) or from expected undiscounted net operating cash flows of the related contract (cash
incentives paid). The determination of expected undiscounted net operating cash flows requires management to
make estimates. These costs may become impaired with the loss of a contract, the financial decline of a client,
termination of conversion efforts after a contract is signed, diminished prospects for current clients or if the
Company’s actual results differ from its estimates of future cash flows. The amount of the impairment is written off
in the period that such a determination is made.
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)
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