Acquisitions

12 Months Ended

Dec. 31, 2012

Acquisitions [Abstract]

Acquisitions

3. Acquisitions

Ascade Acquisition. On July 13, 2012, we acquired Ascade Holdings AB (“Ascade”) for approximately $19 million in cash (the “Ascade Acquisition”). Ascade was an independent Swedish software company which provided trading and routing software solutions to telecommunications companies globally. Ascade’s trading and routing software solution, has been combined with our Wholesale Business Management Solution (“WBMS”) suite to strengthen our global leadership position in the telecommunications wholesale marketplace. The acquisition also expands our geographic presence, bringing product specialists and support resources closer to our wholesale customers worldwide.

Intec 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 was 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 provided 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.

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.

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.

Summary of Purchase Price Allocations. 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 preliminary estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the above mentioned businesses (in thousands):

	Ascade		Intec
Trade accounts receivable	$	3,049	$	58,381
Other current assets		2,701		6,179
Fixed assets		137		9,968
Acquired customer relationships and other intangible assets		5,640		84,374
Acquired technology assets		3,590		19,184
Goodwill		8,955		113,082
Net deferred income tax assets		—		37,986
Other non-current assets		—		2,552
Total assets acquired		24,072		331,706
Accounts payable and accrued employee compensation		2,294		21,128
Deferred revenue		2,154		33,369
Other current liabilities		380		9,394
Non-current liabilities		—		12,577
Total liabilities assumed		4,828		76,468
Net assets acquired	$	19,244	$	255,238

Ascade. The above estimated fair values of assets acquired and liabilities assumed are considered provisional and are based on the information that was available as of the date of the Ascade acquisition to estimate the fair value of assets acquired and liabilities assumed. We believe that information provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed, but we are waiting for additional information, primarily related to estimated values of certain items within current assets and current liabilities, and to estimated values of deferred income tax assets, necessary to finalize those fair values. Thus the provisional measurements of fair value set forth above are subject to change. Such changes are not expected to be significant. We expect to finalize the valuation and complete the purchase price allocation as soon as practicable, but not later than one year from the acquisition date.

The Ascade goodwill, consisting largely of the benefits from combining our operations and Ascade’s operations, has been assigned to our one reportable segment. The Ascade goodwill and acquired intangible assets are not deductible for income tax purposes. We have recognized deferred tax liabilities of $2.4 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. We have also recognized net deferred tax assets of $2.4 million. The estimated lives assigned to the acquired customer relationships and the acquired technology assets range from approximately 5 – 10 years, and 10 years, respectively. Amortization expense related to these acquired intangible assets is recognized based upon the pattern in which the economic benefits of the acquired intangible assets are expected to be realized.

Intec. 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.

Current assets primarily represent trade accounts receivable, consisting of billed and unbilled accounts receivable, which have been reduced to reflect an estimate for uncollectible amounts. Fixed assets consists primarily of computer equipment, furniture and equipment, and leasehold improvements. The fixed assets are being depreciated on a straight-line basis, over periods ranging from 3 to 7 years.

The acquired technology assets represent the estimated value of the three primary technology products of Intec: Singleview, Total Service Mediation (“TSM”), and WBMS. The acquired customer relationship and other 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; and the estimated fair value of the Intec trademark and the trademarks for Singleview, TSM, and WBMS. The acquired technology assets and the acquired customer relationship assets are being amortized over ten 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.

The Intec goodwill, 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. 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.

Accounts payable and accrued employee compensation primarily 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.

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. The results of operations for the Ascade and the Intec businesses are included in the accompanying Income Statements for the periods subsequent to the respective acquisition dates.

Ascade. Pro forma information on our historical results of operations to reflect the acquisition of Ascade is not presented as Ascade’s results of operations during prior periods are not material to our results of operations.

Intec. The following supplemental unaudited pro forma summary representing our results of operations for the years ended December 31, 2010, assuming the acquisition of Intec had been completed as of the beginning of the 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, 2010, nor are they indicative of any future results.

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

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 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.