NetSpend 2012 Annual Report Download - page 9

Middle East, Africa, Asia Pacific and Brazil. The
Company’s Merchant Services segment provides
merchant services to merchant acquirers and
merchants in the United States.
In 2009, the Merchant Services segment’s revenues
represented approximately 19% of the Company’s
total revenues. As part of its strategic plan to
diversify, the Company acquired companies between
2010 and 2012 to expand the Merchant Services
segment in the direct acquiring business. Refer to
Notes 1 and 24 in the consolidated financial
statements for further information related to these
acquisitions.
The following table sets forth each segment’s
revenues as a percentage of the Company’s total
revenues:
Years Ended December 31,
2012 2011 2010
North America Services . . 51% 51% 54%
International Services .... 22 22 19
Merchant Services ....... 27 27 27
Total revenues .......... 100% 100% 100%
Due to the somewhat seasonal nature of the credit
card industry, TSYS’ revenues and results of
operations have generally increased in the fourth
quarter of each year because of increased transaction
and authorization volumes during the traditional
holiday shopping season. Furthermore, growth or
declines in card and merchant portfolios of existing
clients, the conversion of cardholder and merchant
accounts of new clients to the Company’s processing
platforms, the receipt of fees for early contract
termination and the loss of cardholder and merchant
accounts either through purges or deconversions
impact the results of operations from period to
period.
Another factor which may affect TSYS’ revenues and
results of operations from time to time is
consolidation in the financial services or retail
industries either through the sale by a client of its
business, its card portfolio or a segment of its
accounts to a party which processes cardholder or
merchant accounts internally or uses another third-
party processor. A change in the economic
environment in the retail sector, or a change in the
mix of payments between cash and cards could
favorably or unfavorably impact TSYS’ financial
position, results of operations and cash flows in the
future.
TSYS’ reported financial results will also be impacted
by significant shifts in currency conversion rates. TSYS
does not view foreign currency as an economic event
for the Company but as a financial reporting issue.
Because changes in foreign currency exchange rates
distort the operating growth rates, TSYS discloses the
impact of foreign currency translation on its financial
performance.
A significant amount of the Company’s revenues is
derived from long-term contracts with large clients.
Processing contracts with large clients, representing a
significant portion of the Company’s total revenues,
generally provide for discounts on certain services
based on the size and activity of clients’ portfolios.
Therefore, revenues and the related margins are
influenced by the client mix relative to the size of
client portfolios, as well as the number and activity of
individual cardholder or merchant accounts
processed for each client. Consolidation among
financial institutions has resulted in an increasingly
concentrated client base, which results in a change in
client mix toward larger clients.
Economic Conditions
Many of TSYS’ businesses rely in part on the number
of consumer credit transactions which had been
reduced by a weakened U.S. and world economy and
difficult credit markets. As a result of these economic
conditions in the U.S., credit card issuers had been
reducing credit limits and closing accounts and were
more selective with respect to whom they issue credit
cards. However, general economic conditions in the
U.S. and other areas of the world have shown
improvement during 2010, 2011 and 2012. These
improved economic conditions led card issuers to
increase card solicitations. Continued improvement
of economic conditions in the U.S. could positively
impact future revenues and profits of the Company.
Regulation
Government regulation affects key areas of TSYS’
business, in the U.S. as well as internationally. As a
result of the financial crisis, TSYS, along with the rest
of the financial services industry, continues to
experience increased legislative and regulatory
scrutiny, including the enactment of additional
legislative and regulatory initiatives such as the
Dodd-Frank Wall Street Reform and Consumer
Protection Act (Financial Reform Act). This legislation,
which provides for sweeping financial regulatory
reform, may have a significant and negative impact
on the Company’s clients, which could impact TSYS’
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