NetSpend 2015 Annual Report Download - page 89

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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
Current technology .................................................... 78,711 7.0
Trade name .......................................................... 44,000 5.0
Database ............................................................ 28,000 5.0
Covenants-not-to-compete ............................................. 11,500 6.0
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.
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 $3.2 million and $14.2 million in acquisition-related costs
primarily related to professional legal, finance, and accounting costs for the years ended December 31, 2014 and
2013, respectively. These costs were expensed as incurred and are included in selling, general and administrative
expenses on the income statement.
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