NetSpend 2012 Annual Report Download - page 19

Operating Expenses
The changes in cost of services, and selling, general and administrative expenses for the years ended
December 31, 2012 and 2011 include an increase of $10.7 million and $16.2 million, respectively, related to the
effects of currency translation of the Company’s foreign based subsidiaries and branches. The impact of
acquisitions on consolidated total expenses was $20.0 million in 2012. The impact of acquisitions on consolidated
total expenses was $39.1 million in 2011.
Federal legislation was recently enacted which makes extensive changes to the current system of health care
insurance and benefits. The Company has reviewed the legislation and, based upon information available, estimates
the impact of the legislation was approximately $600,000 on 2012 and approximately $1.4 million on 2011.
Nonoperating Income (Expense)
Nonoperating income (expense) consists of interest
income, interest expense, gains and losses on
currency translations and gains and losses on
investments in private equity. Nonoperating income
decreased in 2012 as compared to 2011, and
increased in 2011 as compared to 2010.
Interest income for 2012 was $1.5 million, a 140.8%
increase compared to $620,000 in 2011, which was a
2.8% decrease compared to $638,000 in 2010. The
variation in interest income is primarily attributable to
changes in short-term interest rates in 2012 and 2011
and the amount of cash available for investments.
Interest expense for both 2012 and 2011 was
$3.2 million. The increase in interest expense in 2011
of $348,000 compared to $2.9 million in 2010 is
attributable to additional debt borrowings during the
fourth quarter of 2011.
For the years ended December 31, 2012, 2011 and
2010, the Company recorded a translation loss of
approximately $2.0 million, $3.1 million and
$162,000, respectively, related to intercompany loans
and foreign denominated cash and accounts
receivable balances.
The Company recorded a gain on its investments in
private equity of $898,000 for the year ended
December 31, 2012 as a result of a change in fair
value.
Income Taxes
Income tax expense was $115.1 million,
$102.6 million, and $106.1 million in 2012, 2011 and
2010, respectively, representing effective income tax
rates of 31.9%, 31.6%, and 34.9%, respectively. The
calculation of the effective tax rate excludes
noncontrolling interest in consolidated subsidiaries’
net income and includes equity in income of equity
investments in pretax income.
During 2012, the Company generated foreign net
operating loss benefits and state tax credits in excess
of its utilization capacity based on both the
Company’s current operations and with consideration
of future tax planning strategies. Based upon these
same considerations, the Company reassessed its
need for valuation allowances in other foreign
jurisdictions. Accordingly, the Company experienced
a net increase in its valuation allowance for deferred
income tax assets of $0.2 million.
TSYS has adopted the permanent reinvestment
exception under ASC 740, “Income Taxes,” with
respect to future earnings of certain foreign
subsidiaries. As a result, TSYS considers foreign
earnings related to these foreign operations to be
permanently reinvested. No provision for U.S. federal
and state incomes taxes has been made in our
consolidated financial statements for those non-
U.S. subsidiaries whose earnings are considered to
be reinvested. The amount of undistributed earnings
considered to be “reinvested” which may be subject
to tax upon distribution was approximately $70.1
million at December 31, 2012. Although TSYS does
not intend to repatriate these earnings, a distribution
of these non-U.S. earnings in the form of dividends,
or otherwise, would subject the Company to both
U.S. federal and state income taxes, as adjusted for
non-U.S. tax credits, and withholding taxes payable
to the various non-U.S. countries. Determination of
the amount of any unrecognized deferred income tax
liability on these undistributed earnings is not
practicable.
In 2012, TSYS reassessed its contingencies for
foreign, federal and state exposures, which resulted
in a net increase in tax contingency amounts of
approximately $3.3 million.
Refer to Note 20 in the consolidated financial
statements for more information on income taxes.
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