NetSpend 2012 Annual Report Download - page 10

earnings through fee reductions, higher costs (both
regulatory and implementation) and new restrictions
on our operations. The Financial Reform Act may also
impact the competitive dynamics of the financial
services industry in the U.S. by more adversely
impacting large financial institutions, some of which
are TSYS clients, and by adversely impacting the
competitive position of U.S. financial institutions in
comparison to foreign competitors in certain
businesses.
The Financial Reform Act, which includes the Durbin
Amendment to the Electronic Funds Transfer Act,
mandates that the Federal Reserve Board limit debit
card interchange fees. Final rules were issued in June
2011. The final rules cap interchange fees for debit
transactions at $0.21 plus five basis points of the
transaction and require that the amount of any debit
interchange transaction fee charged be reasonable
and proportional to the costs incurred in connection
with the transaction.
Although this legislative action by the U.S. Congress
had been anticipated for some time, it remains
impossible to predict the impact, if any, that the law
and the regulations to be promulgated thereunder
may have on the Company’s operations or its
financial condition in the future. However, as TSYS’
business is predominately credit card related, the
Durbin Amendment is not expected to have a
significant negative impact upon TSYS’ business.
Financial Review
This Financial Review provides a discussion of critical
accounting policies and estimates, related party
transactions and off-balance sheet arrangements.
This Financial Review also discusses the results of
operations, financial position, liquidity, and capital
resources of TSYS and outlines the factors that have
affected its recent earnings, as well as those factors
that may affect its future earnings. The accompanying
Consolidated Financial Statements and related Notes
are an integral part of this Financial Review and
should be read in conjunction with it.
Critical Accounting Policies and Estimates
TSYS’ financial position, results of operations and
cash flows are impacted by the accounting policies
the Company has adopted. In order to gain a full
understanding of the Company’s financial statements,
one must have a clear understanding of the
accounting policies employed.
Refer to Note 1 in the consolidated financial
statements for more information on the Company’s
basis of presentation and a summary of significant
accounting policies.
Risk factors that could affect the Company’s future
operating results and cause actual results to vary
materially from expectations are listed in the
Company’s forward-looking statements. Negative
developments in these or other risk factors could
have a material adverse effect on the Company’s
financial position, results of operations and cash
flows.
Management believes that the following accounting
policies are the most critical to fully understand and
evaluate the Company’s results. Within each critical
policy, the Company makes estimates that require
management’s subjective or complex judgments
about the effects of matters that are inherently
uncertain.
A summary of the Company’s critical accounting
estimates applicable to all three reportable operating
segments follows:
Allowance for Doubtful Accounts and
Billing Adjustments
The Company estimates the allowances for doubtful
accounts. When estimating the allowances for
doubtful accounts, the Company takes into
consideration such factors as its knowledge of the
financial position of specific clients, the industry and
size of its clients, the overall composition of its
accounts receivable aging, prior experience with
specific customers of accounts receivable write-offs
and prior history of allowances in proportion to the
overall receivable balance. This analysis includes an
ongoing and continuous communication with its
largest clients and those clients with past due
balances. A financial decline of any one of the
Company’s large clients could have a material
adverse effect on collectability of receivables and
thus the adequacy of the allowance for doubtful
accounts. If the actual collectability of clients’
accounts is not consistent with the Company’s
estimates, bad debt expense, which is recorded in
selling, general and administrative expenses, may be
materially different than was initially recorded. The
Company’s experience and extensive data
accumulated historically indicates that these
estimates have proven reliable over time.
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