2. Acquisitions

S1 Corporation

On February 10, 2012, the Company completed the exchange offer for S1 Corporation and all its subsidiaries. The acquisition was effectively closed on February 13, 2012 for approximately $368.7 million in cash and 5.9 million shares of the Company’s stock, including 95,500 shares reissued from Treasury stock, resulting in a total purchase price of $587.3 million (the “Merger”). The combination of the Company and S1 will create a leader in the global enterprise payments industry. The combined company will have enhanced scale, breadth and additional capabilities, as well as a complementary suite of products that will better serve the entire spectrum of financial institutions, processors and retailers.

Under the terms of the transaction, S1 stockholders could elect to receive $10.00 in cash or 0.3148 shares of the Company’s stock for each S1 share they own, subject to proration, such that in the aggregate 33.8% of S1 shares are exchanged for the Company’s shares and 66.2% are exchanged for cash. No S1 shareholders received fractional shares of the Company’s stock. Instead, the total number of shares that each holder of S1 common stock received was rounded down to the nearest whole number, and the Company paid cash for any resulting fractional share determined by multiplying the fraction by $34.14.

Each outstanding option to acquire S1 common stock was canceled and terminated at the effective time of the Merger and converted into the right to receive the merger consideration with respect to the number of shares of S1 common stock that would have been issuable upon a net exercise of such option, assuming the market value of the S1 common stock at the time of such exercise was equal to the value of the merger consideration as of the close of trading on the day immediately prior to the effective date of the Merger. Any outstanding option with a per share exercise price that was greater than or equal to such amount was cancelled and terminated and no payment was made with respect thereto. In addition, each S1 restricted stock unit award outstanding immediately prior to the effective time of the Merger was fully vested and cancelled, and each holder of such awards became entitled to receive the Merger Consideration for each share of S1 common stock into which the vested portion of the awards would otherwise have been converted. Each S1 restricted stock award was vested immediately prior to the effective time of the Merger and was entitled to receive the Merger Consideration.

Additionally, the Company had previously purchased 1,107,000 shares of S1 stock that were held as available-for-sale securities prior to the acquisition date. The fair value of those shares as of February 13, 2012, has been included in the total purchase price with the previously unrealized gain of approximately $1.6 million being recognized as a gain and included in other income (expense) in the statements of operations for the three months ended March 31, 2012.

The Company used $73.7 million of its cash balance for the acquisition in addition to $295.0 million of senior bank financing arranged through Wells Fargo Securities, LLC. See Note 3, Debt, for terms of the financing arrangement.

The consideration paid by the Company to complete the acquisition has been allocated preliminarily to the assets acquired and liabilities assumed based upon their estimated fair values as of the date of the acquisition. The allocation of purchase price is based upon certain external valuations and other analyses that have not been completed as of the date of this filing, including, but not limited to, certain tax matters, property and equipment, leases, etc. Accordingly, the purchase price allocations are preliminary and are subject to future adjustments during the maximum one-year allocation period. The purchase price of S1 Corporation’s common stock as of the date of acquisition was comprised of (in thousands):


	Amount
Cash payments to S1 shareholders	$	365,918
Issuance of ACI common stock		204,857
Reissuance of treasury stock		2,174
Cash payments for noncompete agreements		2,778
S1 shares previously held as available-for-sale securities		11,557

Total Purchase Price	$	587,284

The Company incurred approximately $5.2 million in transaction related expenses during the three months ended March 31, 2012, including fees to the investment bank, legal and other professional fees, which are included in general and administrative expenses in the accompanying condensed consolidated statement of operations.

S1 contributed approximately $22.5 million in revenue and $8.8 million in net operating losses to the period ended March 31, 2012, which includes severance and accelerated share-based compensation expense related to the integration activities.

In connection with the acquisition, the Company recorded the following amounts based upon its preliminary purchase price allocation during the three months ended March 31, 2012, which are subject to completion of the valuation and other analyses (in thousands, except weighted-average useful lives):


	Amount		Weighted-Average Useful Lives
Current assets:
Cash and cash equivalents	$	97,748
Billed and accrued receivables, net		62,584
Other current assets		27,708

Total current assets acquired		188,040

Noncurrent assets:
Property and equipment		25,991
Goodwill		271,286
Software		88,277	5-10 years
Customer relationships		108,690	10 -20 years
Trademarks		4,500	3 years
Covenant not to compete		360	3 years
Other noncurrent assets		17,897

Total assets acquired		705,041

Current liabilities:
Deferred revenue		34,341
Accrued employee compensation		33,975
Other current liabilities		26,400

Total current liabilities acquired		94,716

Noncurrent liabilities acquired		23,041

Total liabilities acquired		117,757

Net assets acquired	$	587,284

Factors contributing to the purchase price that resulted in the goodwill (which is not tax deductible) include the acquisition of management, sales, and technology personnel with the skills to market new and existing products of the Company, enhanced global product capabilities, complementary products and customers.

The following pro forma financial information presents the combined historical results of the combined Company as if the acquisition had occurred January 1, 2011 (in thousands, except per share data).


	Pro Forma Results of Operations for the Three Months Ended March 31,
	2012			2011
Total Revenues		170,390			162,383
Net loss		(384	)		(1,100	)

Loss per share
Basic	$	(0.01	)	$	(0.03	)
Diluted	$	(0.01	)	$	(0.03	)

The pro forma information is shown for illustrative purposes only and is not necessarily indicative of future results of operations of the Company or results of operations of the Company that would have actually occurred had the transactions been in effect for the periods presented. This pro forma information is not intended to represent or be indicative of actual results had the acquisition occurred as of the beginning of each period, nor is it necessarily indicative of future results and does not reflect potential synergies, integration costs, or other such costs or savings. Certain pro forma adjustments have been made to net income (loss) to give effect to: estimated adjustments to expenses to remove the amortization on eliminated S1 historical identifiable intangible assets and added amortization expense for the value of identified intangibles acquired in the acquisition (primarily acquired software, customer relationships, trade names, and covenants not to compete), adjustments to interest expense to reflect the elimination of preexisting S1 debt and added estimated interest expense on the Company’s Term Credit Facility and additional borrowings on the Revolving Credit Facility. In addition, the March 31, 2012 pro forma financials have been adjusted for the following transaction related items: $4.3 million in additional revenue for impact of the revaluation of deferred revenue to fair value, $9.6 million in employee related actions, including accelerated share-based compensation on vested Transaction RSAs, $7.8 million on investment bank fees paid by the Company and S1 and $1.2 million in other one-time professional fees related to the acquisition.