Mercury Insurance 2009 Annual Report Download - page 104

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company recognized the assets acquired and the liabilities assumed at the acquisition date, measured at
their fair values as of that date. The following table summarizes the consideration paid for AIS and the allocation
of the purchase price.
January 1, 2009
(Amounts in thousands)
Consideration
Cash ....................................................... $120,000
Fair value of total consideration transferred ..................... $120,000
Acquisition-related costs ........................................... $ 2,000
Recognized amounts of identifiable assets acquired and liabilities assumed
Financial assets ............................................... $ 12,875
Property, plant, and equipment ................................... 2,915
Favorable leases .............................................. 1,725
Trade names ................................................. 15,400
Customer relationships ......................................... 51,200
Software and technology ....................................... 4,850
Liabilities assumed ............................................ (6,608)
Total identifiable net assets ................................. 82,357
Goodwill .................................................... 37,643
Total ................................................... $120,000
A contingent consideration arrangement requires the Company to pay the former owner of AIS up to an
undiscounted maximum amount of $34.7 million. The potential undiscounted amount of all future payments that
the Company could be required to make under the contingent consideration arrangement is between $0 and $34.7
million. Based on the actual to date and the projected performance of the AIS business through December 31,
2010, the Company does not expect to pay the contingent consideration. That estimate of future performance is
based on significant inputs that are not observable in the market, including management’s projections of future
cash flows, which are considered Level 3 inputs. A key assumption in determining the estimated contingent
consideration is a forecasted decline in revenues ranging from 5.0% to 8.0%. As of February 18, 2010, the
estimates for the contingent consideration arrangement, the range of outcomes, and the assumptions used to
develop the estimates have not changed.
The fair value of the financial assets acquired includes cash, prepaid expenses, and receivables from
customers. The acquired receivables of $6.6 million at fair value were fully collected during the three-month
period ended March 31, 2009. The fair value of the liabilities assumed includes accounts payable and other
accrued liabilities. The following table reflects the amount of revenue and net income of AIS, which are included
in the Company’s consolidated statements of operations for the year ended December 31, 2009, and the revenue
of the combined entity for the year ended December 31, 2008, had the acquisition date been January 1, 2008.
2009 2008
(Amounts in thousands)
AIS
Revenues(1) ............................................. $ 11,846 N/A
Net income(1) ............................................ $ 1,228 N/A
Combined entity
Revenues(2) ............................................. $3,121,493 $2,425,414
Net income(3) ............................................ $ 403,072 N/A
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