Intec Acquisition

12 Months Ended

Dec. 31, 2011

Intec Acquisition [Abstract]

Intec Acquisition

3. Intec Acquisition

Description of the Acquisition. On November 30, 2010, we acquired 100% of the issued and to be issued shares of Intec in an all-cash transaction (the "Intec Acquisition"). Intec is a leading provider of mediation, wholesale, and retail billing solutions, serving 60 of the world's top 100 telecom providers and over 400 clients worldwide. On the date of acquisition, over 90% of Intec's revenues were generated from telecommunications providers. Intec provides product software, associated professional services, and software maintenance services to its clients. We acquired Intec to: (i) evolve our offerings; (ii) expand the markets we serve; and (iii) reach greater economic scale.

Purchase Price. The purchase price for the Intec Acquisition was approximately £234 million, or approximately $364 million, based upon the average exchange rate of 1.56:1.00 between the U.S. dollar and the pound sterling as of November 30, 2010, the date the total purchase price was established under U.S. GAAP.

In September 2010, we entered into a pound sterling call/U.S. dollar put (the "Currency Option") at a strike price of 1.62 in conjunction with the Intec Acquisition to limit our exposure to adverse movements in the exchange rate between the two currencies leading up to the expected closing date. Upon the approval of the acquisition by Intec's shareholders in November 2010, we sold the Currency Option, and entered into a forward contract for the delivery of approximately 240 million pounds sterling (which included estimated Intec Acquisition costs at that time) at an exchange rate of approximately 1.61 (the "Currency Forward"). During December 2010, as part of the payment process for the pound sterling purchase price, we closed out our position in the Currency Forward at an average rate of 1.58. Under U.S. GAAP, the costs and proceeds (including gains and losses) from financial instruments that are used to reduce the risks of a change in the value of the acquiree's net assets or the consideration to be issued by the acquirer before the date of acquisition, are not part of the consideration transferred, or purchase price, and should be recorded currently in earnings. As a result, for the year ended December 31, 2010, we recorded net expense of approximately $14 million related to these financial instrument transactions, and the foreign currency impact of intercompany notes established to structure the Intec Acquisition, which we reflected in Other income (expense) in our Income Statement.

Allocation of Purchase Price. The Intec Acquisition purchase price was $364.1 million, or $255.2 million net of $108.9 million of cash and cash equivalents Intec had on hand at the close of the transaction. The application of the acquisition method of accounting for business combinations requires the use of significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):

Trade accounts receivable	$	58,381
Other current assets		6,179
Property and equipment		9,968
Acquired software		19,184
Acquired client contracts		77,979
Acquired other intangible assets		6,395
Goodwill		113,082
Net deferred income tax assets		37,986
Other non-current assets		2,552
Total assets acquired		331,706
Trade accounts payable		3,611
Accrued employee compensation		17,517
Deferred revenue		33,369
Other current liabilities		9,394
Non-current liabilities		12,577
Total liabilities assumed		76,468
Net assets acquired (excluding acquired cash)	$	255,238

The $255.2 million of net assets acquired reflected above has not changed since December 31, 2010. However, during 2011 we completed our evaluation of the fair values of the assets acquired and liabilities assumed and, as a result, we have made certain revisions to our estimates of the fair value of various assets acquired and liabilities assumed, none of which required the revision of comparative information for periods presented in our Financial Statements since the effects are not material. In addition, we have made certain revisions to our estimates of deferred income taxes. As a result of these changes, related primarily to the reduction in trade accounts receivable of $6.0 million and the increase in deferred revenue of $9.6 million, during 2011, the amount allocated to goodwill has increased by $12.0 million.

Trade accounts receivable consists of billed and unbilled accounts receivable, which are reduced to reflect an estimate for uncollectible amounts. Property and equipment consists primarily of computer equipment, furniture and equipment, and leasehold improvements. The property and equipment are being depreciated on a straight-line basis, over periods ranging from 3 to 7 years.

The acquired software intangible assets represent the estimated value of the three primary technology products of Intec: Singleview, Total Service Mediation ("TSM"), and Wholesale Business Management ("WBM") Solution. The acquired client contracts intangible assets represent the estimated value of the customer relationships related to three of Intec's main sources of revenue: maintenance, software licenses, and managed services. Acquired other intangible assets represent the estimated fair value of the Intec trademark and the trademarks for Singleview, TSM, and WBM Solution. The acquired software intangible assets and the acquired client contract intangible assets are being amortized over 10 years based on the approximate pattern in which the economic benefits of the acquired intangible assets are expected to be realized. The acquired other intangible assets are being amortized over five years based on the approximate pattern in which the economic benefits of the acquired intangible assets are expected to be realized.

Goodwill, representing the excess of the purchase price for Intec over the net amounts assigned to identifiable assets acquired and liabilities assumed and consisting largely of the benefits from combining our operations and Intec's operations, has been assigned to our one reportable segment. The Intec goodwill and intangible assets resulting from the Intec Acquisition are not deductible for income tax purposes. In accordance with GAAP, we have recognized deferred tax liabilities of $25.1 million for the difference between the assigned book values and the tax bases of the acquired intangible assets, but have not recognized deferred tax liabilities for the difference between the assigned book value and the tax basis of goodwill. Included in Intec's net assets acquired are deferred income tax assets of $17.2 million related to Federal net operating loss ("NOL") carryforwards of $49.1 million, which we believe are more likely than not to be realized. The Intec Federal NOL carryforward begins to expire in 2019.

Accrued employee compensation represents employee-related liabilities, which includes payroll tax, accrued vacation and bonus accruals. Deferred revenue represents the estimated fair value of the obligations we assumed at the acquisition date to complete contracts related to professional services, software maintenance, and managed services. Non-current liabilities consist primarily of over-market-rate and abandoned facility leases.

Acquisition Financing. We financed the Intec Acquisition by borrowing against a new credit agreement that consists of a $200 million, five-year term loan and a $100 million, five-year revolving loan facility that we entered into on September 24, 2010 and amended on November 24, 2010 as part of this transaction; with the remaining purchase price satisfied by using our existing cash. See Note 6 for further information regarding our credit agreement.

Financing and Other Acquisition-Related Expenses. In conjunction with our new credit agreement, we incurred debt issuance costs of approximately $10 million. These costs are being amortized to interest expense over the lives of the term loan and revolving loan facility components of the new credit agreement. The unamortized deferred financing costs balance is reflected in Other assets in our Balance Sheet.

In addition to the loss on foreign currency transactions of approximately $14 million discussed above, during 2010, we incurred certain direct and incremental acquisition-related costs, totaling approximately $10 million, related primarily to investment banking, legal, accounting, and other professional services. We have reflected these costs in Selling, general and administrative expenses in our Income Statement.

Unaudited Pro Forma Information. From December 1, 2010 through December 31, 2010, Intec contributed net revenues of $17.8 million and incurred $19.6 million of operating expenses, which includes approximately $2 million of restructuring charges associated with the acquisition. The following supplemental unaudited pro forma summary representing our results of operations for the years ended December 31, 2010 and 2009, assuming the acquisition of Intec had been completed as of the beginning of each year, is presented in the table below (in thousands, except for per share amounts). These amounts were calculated after conversion to U.S. GAAP, applying our accounting policies, and adjusting Intec's results to reflect the additional amortization expense that would have been charged assuming the fair value adjustments to the acquired intangible assets had been applied as of the beginning of each year, together with the consequential tax effects. These adjustments also reflect the additional interest expense incurred on the debt to finance the purchase. This supplemental pro forma information has been prepared for comparative purposes and does not purport to be indicative of what would have occurred had the Intec Acquisition been completed on January 1, 2009 or January 1, 2010, nor are they indicative of any future results.

	(Unaudited) Year Ended December 31,
	2010		2009
Total revenues	$	751,175	$	760,617
Net income		19,373		80,933
Diluted net income per common share:
Income from continuing operations	$	0.58	$	2.35
Weighted average common shares		33,365		34,449

The pro forma information for the year ended December 31, 2010, combines our results for the year ended December 31, 2010 (without the one month impact of Intec), and Intec's results for the year ended September 30, 2010 (with September 30 being the last day of Intec's fiscal year). The pro forma information for the year ended December 31, 2009, combines our results for the year ended December 31, 2009, and Intec's results for its fiscal year ended September 30, 2009.

The Intec acquisition-related expenses of approximately $10 million and the loss on foreign currency transactions of approximately $14 million discussed above have been excluded from the pro forma results. The pro forma adjustments related to income tax expense have been recorded for the impact of the pro forma adjustments at the statutory rates in effect during the periods presented.