GPN » Topics » NOTE 2-BUSINESS AND INTANGIBLE ASSET ACQUISITIONS

This excerpt taken from the GPN 10-Q filed Oct 8, 2008.

NOTE 2—BUSINESS AND INTANGIBLE ASSET ACQUISITIONS

On June 30 2008, we acquired a 51% majority ownership interest in HSBC Merchant Services LLP. We paid HSBC UK $439 million for our interest. We manage the day-to-day operations of the partnership, control all major decisions and, accordingly, consolidate the partnership’s financial results for accounting purposes effective with the closing date. HSBC UK retained ownership of the remaining 49% and contributed its existing merchant acquiring business in the United Kingdom to the partnership. In addition, HSBC UK entered into a ten-year marketing alliance with the partnership in which HSBC UK will refer customers to the partnership for payment processing services in the United Kingdom. On June 23, 2008, we entered into a new five year, $200 million term loan to

 

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fund a portion of the acquisition. We funded the remaining purchase price with excess cash and our existing credit facilities. See Note 4 for a more detailed discussion of the term loan. The partnership agreement includes provisions pursuant to which HSBC UK may compel us to purchase, at fair value, additional membership units from HSBC UK (the “UK Put Option”). See Note 12 for a more detailed discussion of the UK Put Option.

The purpose of this acquisition was to establish a presence in the United Kingdom. The key factors that contributed to the decision to make this acquisition include historical and prospective financial statement analysis and HSBC UK’s market share and retail presence in the United Kingdom. The purchase price was determined by analyzing the historical and prospective financial statements and applying relevant purchase price multiples.

The purchase price totaled $441.5 million, consisting of $438.6 million cash consideration plus $2.9 million of direct out of pocket costs. The acquisition has been recorded using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the date of acquisition. The following table summarizes the preliminary purchase price allocation (in thousands):

 

     Total  

Goodwill

   $ 303,015  

Customer-related intangible assets

     117,064  

Contract-based intangible assets

     13,462  

Trademark

     2,209  

Property and equipment

     18,640  

Other current assets

     111  
        

Total assets acquired

     454,501  
        

Minority interest in equity of subsidiary (at historical cost)

     (13,014 )
        

Net assets acquired

   $ 441,487  
        

All of the goodwill associated with the acquisition is expected to be deductible for tax purposes. The customer-related intangible assets have amortization periods of 13 years. The contract-based intangible assets have amortization periods of 7 years. The trademark has an amortization period of 5 years.

The following pro forma information shows the results of our operations for the three months ended August 31, 2008 and 2007 as if the acquisition had occurred on June 1, 2007. The pro forma information is presented for information purposes only and is not necessarily indicative of what would have occurred if the acquisition had been made as of that date. The pro forma information is also not intended to be a projection of future results expected due to the integration of the acquired business.

 

     Three Months Ended August 31,
     2008    2007

Pro forma total revenues

   $ 426,702    $ 371,433

Pro forma net income for the period

   $ 58,791    $ 46,624

Weighted average number of common shares outstanding, basic

     79,462      80,501

Weighted average number of common shares outstanding, diluted

     81,106      81,907

Pro forma net income per share, basic

   $ 0.74    $ 0.58

Pro forma net income per share, diluted

   $ 0.72    $ 0.57

During fiscal 2008, we acquired a portfolio of merchants that process Discover transactions and the rights to process Discover transactions for our existing and new merchants. The purchase of the portfolio was structured to occur in tranches. During the three months ended August 31, 2008, additional tranches were purchased for $1.2 million. Goodwill and intangible assets associated with these acquisitions were $0.7 million and $0.6 million, respectively. As a result of this acquisition, we now process Discover transactions similarly to how we currently process Visa and MasterCard transactions. The purpose of this acquisition was to offer merchants a single point of contact for Discover, Visa and MasterCard card processing. The operating results of the acquired portfolio

 

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have been included in our unaudited consolidated financial statements from the dates of acquisition. The customer-related intangible assets have amortization periods of 10 years. These business acquisitions were not significant to our consolidated financial statements and accordingly, we have not provided pro forma information relating to these acquisitions.

In connection with these Discover related purchases, we have sold the contractual rights to future commissions on Discover transactions to certain of our ISOs. Contractual rights sold totaled $7.6 million during the year ended May 31, 2008 and $1.0 million during the quarter ended August 31, 2008. Such sale proceeds are generally collected in installments over periods ranging from three to six months. During the quarter ended August 31, 2008, we collected $2.9 million of such proceeds, which are included in the Proceeds from sale of investment and contractual rights line item of our unaudited consolidated statement of cash flows. We do not recognize gains on these sales of contractual rights at the time of sale. Proceeds are deferred and recognized as a reduction of the related commission expense. During the quarter ended August 31, 2008, we recognized $0.2 million of such deferred sales proceeds.

This excerpt taken from the GPN 10-K filed Jul 30, 2008.

NOTE 2—BUSINESS AND INTANGIBLE ASSET ACQUISITIONS

 

In the years ended May 31, 2008, 2007 and 2006, we acquired the following businesses:

 

Business

   Date Acquired    Percentage
Ownership
 

Fiscal 2008

           

Discover merchant portfolio

   Various    100 %

LFS Spain

   April 15, 2008    100 %

Money transfer branch locations

   Various    100 %

Fiscal 2007

           

HSBC Asia-Pacific merchant acquiring business

   July 24, 2006    56 %

Diginet d.o.o.

   November 14, 2006    100 %

Money transfer branch locations

   Various    100 %

Fiscal 2006

           

Costamar money transfer branch locations

   Various    100 %

 

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Index to Financial Statements

NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS—(Continued)

 

These acquisitions have been recorded using the purchase method of accounting, and accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their estimated fair value as of the date of acquisition. The operating results of each acquisition are included in our consolidated statements of income from the dates of each acquisition.

 

This excerpt taken from the GPN 10-Q filed Apr 2, 2008.

NOTE 2—BUSINESS AND INTANGIBLE ASSET ACQUISITIONS

During the nine months ended February 29, 2008, we acquired a series of money transfer branch locations in the United States. The purpose of these acquisitions was to increase the market presence of our DolEx-branded money transfer offering. The operating results of the acquired locations were included in our unaudited consolidated financial statements from the date of acquisition.

During the nine months ended February 29, 2008, we also acquired a portfolio of merchants that process Discover transactions and the rights to process Discover transactions for our existing and new merchants. As a result of this acquisition, we will now process Discover transactions similarly to how we currently process Visa and MasterCard transactions. The purpose of this acquisition was to offer merchants a single point of contact for Discover, Visa and MasterCard card processing. The operating results of the acquired portfolio were included in our unaudited consolidated financial statements from the date of acquisition.

These business acquisitions have been recorded using the purchase method of accounting, and, accordingly, the purchase prices have been allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. The following table summarizes the preliminary purchase price allocations of these business acquisitions (in thousands):

 

     Total  

Goodwill

   $ 6,863  

Customer-related intangible assets

     3,142  

Contract-based intangible assets

     728  

Other current assets

     2,806  
        

Total assets acquired

     13,539  
        

Current liabilities

     (2,655 )

Minority interest in equity of subsidiary

     (486 )
        

Net assets acquired

   $ 10,398  
        

The customer-related intangible assets have amortization periods of up to 14 years. The contract-based intangible assets have amortization periods of 3 to 10 years.

These business acquisitions were not significant to our consolidated financial statements and accordingly, we have not provided pro forma information relating to these acquisitions.

In addition, during the nine months ended February 29, 2008, we acquired a customer list and long-term merchant referral agreement in our Canadian merchant services channel for $1.7 million. The value assigned to the customer list was expensed immediately. The value assigned to the merchant referral agreement is being amortized on a straight-line basis over its useful life of 10 years.

This excerpt taken from the GPN 10-Q filed Jan 8, 2008.

NOTE 2—BUSINESS AND INTANGIBLE ASSET ACQUISITIONS

During the six months ended November 30, 2007, we acquired a series of money transfer branch locations in the United States. The purpose of these acquisitions was to increase the market presence of our DolEx-branded money transfer offering. The operating results of the acquired locations were included in our unaudited consolidated financial statements from the date of acquisition.

During the six months ended November 30, 2007, we also acquired a portfolio of merchants that process Discover transactions. As a result of this acquisition, we will now process Discover transactions similarly to how we currently process Visa and MasterCard transactions. The purpose of this acquisition was to offer merchants a single point of contact for Discover, Visa and MasterCard card processing. As of November 30, 2007, the purchase price allocation for goodwill and intangible assets has not been completed, and the entire purchase price has been recorded as goodwill in the accompanying unaudited consolidated balance sheet and in the table below. We expect this purchase price allocation to be completed during the three months ended February 29, 2008, and a portion of the purchase price will be allocated to amortizable intangible assets. The operating results of the acquired portfolio were included in our unaudited consolidated financial statements from the date of acquisition.

These business acquisitions have been recorded using the purchase method of accounting, and, accordingly, the purchase prices have been allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the date of acquisition. The following table summarizes the preliminary purchase price allocations of these business acquisitions (in thousands):

 

     Total  

Goodwill

   $ 9,855  

Non-compete agreements

     578  

Customer-related intangible assets

     52  

Other current assets

     2,806  
        

Total assets acquired

     13,291  

Current liabilities

     (2,907 )

Minority interest in equity of subsidiary

     (486 )
        

Net assets acquired

   $ 9,898  
        

The customer-related intangible assets have amortization periods of less than a year. The non-compete agreements have amortization periods of 3 years.

These business acquisitions were not significant to our consolidated financial statements and accordingly, we have not provided pro forma information relating to these acquisitions.

In addition, during the six months ended November 30, 2007, we acquired a customer list and long-term merchant referral agreement in our Canadian merchant services channel for $1.7 million. The value assigned to the customer list was expensed immediately. The value assigned to the merchant referral agreement is being amortized on a straight-line basis over its useful life of 10 years.

 

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