NetSpend 2013 Annual Report Download - page 24

Income Taxes
Income tax expense was $112.4 million, $115.1
million, and $102.6 million in 2013, 2012 and 2011,
respectively, representing effective income tax rates
of 31.4%, 31.9%, and 31.6%, 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 2013, the Company generated foreign net
operating losses 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 all jurisdictions.
Accordingly, the Company experienced a net
increase in its valuation allowance for deferred
income tax assets of $0.5 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 the
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 $79.0
million at December 31, 2013. 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 2013, TSYS reassessed its contingencies for
foreign, federal and state exposures, which resulted
in a net decrease in tax contingency amounts of
approximately $6.3 million.
Refer to Note 14 in the consolidated financial
statements for more information on income taxes.
Equity in Income of Equity Investments
TSYS’ share of income from its equity in equity
investments was $13.0 million, $10.2 million, and
$8.7 million for 2013, 2012 and 2011, respectively.
The increase in equity income is the result of the
growth in CUP Data. Refer to Note 11 in the
consolidated financial statements for more
information on equity investments.
Net Income
Net income increased 2.7% to $256.6 million in 2013,
compared to 2012. In 2012, net income increased
12.2% to $249.9 million, compared to $222.7 million
in 2011.
Net income attributable to noncontrolling interests in
2013 increased to $11.8 million, as compared to
$5.6 million in 2012 and $2.1 million in 2011. The
increases in 2013 and 2012, as compared to 2011,
were the result of the acquisition of 60% of CPAY in
2012.
In 2013, net income attributable to TSYS common
shareholders increased 0.2% to $244.8 million (basic
and diluted EPS of $1.30 and $1.29, respectively),
compared to $244.3 million (basic and diluted EPS of
$1.30 and $1.29, respectively) in 2012. Net income
attributable to TSYS common shareholders increased
10.8% to $244.3 million (basic and diluted EPS of
$1.30 and $1.29, respectively) in 2012, compared to
$220.6 million (basic and diluted EPS of $1.15) in
2011.
Non-GAAP Financial Measures
Management evaluates the Company’s operating
performance based upon operating margin excluding
reimbursables, adjusted cash EPS, and adjusted
EBITDA, which are all non-generally accepted
accounting principle (non-GAAP) measures. TSYS also
uses these non-GAAP financial measures to evaluate
and assess TSYS’ financial performance against
budget.
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