NetSpend 2012 Annual Report Download - page 58

allow the Company to continually update its
computer equipment. Total rental expense under all
operating leases in 2012, 2011 and 2010 was
$99.0 million, $97.5 million and $102.1 million,
respectively. Total rental expense under sublease
arrangements in 2010 was $675,000. The rental
income under sublease arrangements in 2010 was
$809,000.
CONTRACTUAL COMMITMENTS: In the normal
course of its business, the Company maintains long-
term processing contracts with its clients. These
processing contracts contain commitments,
including, but not limited to, minimum standards and
time frames against which the Company’s
performance is measured. In the event the Company
does not meet its contractual commitments with its
clients, the Company may incur penalties and certain
clients may have the right to terminate their contracts
with the Company. The Company does not believe
that it will fail to meet its contractual commitments to
an extent that will result in a material adverse effect
on its financial position, results of operations or cash
flows.
CONTINGENCIES:
Legal Proceedings — General
The Company is subject to various legal proceedings
and claims and is also subject to information
requests, inquiries and investigations arising out of
the ordinary conduct of its business. The Company
establishes reserves for litigation and similar matters
when those matters present loss contingencies that
TSYS determines to be both probable and reasonably
estimable in accordance with ASC 450,
“Contingencies.” In the opinion of management,
based on current knowledge and in part upon the
advice of legal counsel, all matters not specifically
discussed below are believed to be adequately
covered by insurance, or, if not covered, the
possibility of losses from such matters are believed to
be remote or such matters are of such kind or involve
such amounts that would not have a material adverse
effect on the financial position, results of operations
or cash flows of the Company if disposed of
unfavorably.
NetSpend Matter
A putative class action lawsuit has been filed in
connection with TSYS’ proposed acquisition of
NetSpend Holdings, Inc. (NetSpend). This lawsuit,
entitled Joan Litwin v. NetSpend Holdings, Inc. et al.,
was filed on February 22, 2013 in the Court of
Chancery of the State of Delaware and names TSYS,
NetSpend and the members of the board of directors
of NetSpend as defendants. This lawsuit was brought
by a purported stockholder of NetSpend, both
individually and on behalf of a putative class of
NetSpend stockholders, alleging that the members of
NetSpend’s board of directors breached their
fiduciary duties in connection with TSYS’ proposed
acquisition of NetSpend by depriving NetSpend’s
stockholders of the full and fair value of their
ownership interest in NetSpend and by failing to
inform NetSpend’s stockholders of materials facts
regarding the proposed acquisition. The plaintiff
further alleges that NetSpend and TSYS aided and
abetted the alleged breaches by NetSpend’s board
of directors. The action seeks equitable relief,
including, among other things, to enjoin
consummation of TSYS’ acquisition of NetSpend,
rescission of the related Agreement and Plan of
Merger, an award of compensatory damages and/or
rescissory damages, and an award of all costs,
including reasonable attorneys’ fees and other
expenses. TSYS believes that this lawsuit is without
merit and intends to vigorously defend itself;
however, there can be no assurance that it will be
successful in its defense.
GUARANTEES AND INDEMNIFICATIONS: The
Company has entered into processing and licensing
agreements with its clients that include intellectual
property indemnification clauses. Under these
clauses, the Company generally agrees to indemnify
its clients, subject to certain exceptions, against legal
claims that TSYS’ services or systems infringe on
certain third party patents, copyrights or other
proprietary rights. In the event of such a claim, the
Company is generally obligated to hold the client
harmless and pay for related losses, liabilities, costs
and expenses, including, without limitation, court
costs and reasonable attorney’s fees. The Company
has not made any indemnification payments pursuant
to these indemnification clauses.
The Company has not recorded a liability for
guarantees or indemnities in the accompanying
consolidated balance sheet since the maximum
amount of potential future payments under such
guarantees and indemnities is not determinable.
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