NetSpend 2013 Annual Report Download - page 31

Foreign Operations
TSYS operates internationally and is subject to the
impact of adverse movements in foreign currency
exchange rates. TSYS does not enter into foreign
exchange forward contracts to reduce its exposure to
foreign currency rate changes; however, the
Company continues to analyze the potential use of
hedging instruments to safeguard it from significant
foreign currency translation risks.
TSYS maintains operating cash accounts outside the
United States. Refer to Note 4 in the consolidated
financial statements for more information on cash and
cash equivalents. TSYS has adopted the permanent
reinvestment exception under ASC 740 with respect
to future earnings of certain foreign subsidiaries.
While some of the foreign cash is available to repay
intercompany financing arrangements, remaining
amounts are not presently available to fund domestic
operations and obligations without paying a
significant amount of taxes upon its repatriation.
Demand on the Company’s cash has increased as a
result of its strategic initiatives. TSYS funds these
initiatives through a balance of internally generated
cash, external sources of capital, and, when
advantageous, access to foreign cash in a tax efficient
manner. Where local regulations limit an efficient
intercompany transfer of amounts held outside of the
U.S., TSYS will continue to utilize these funds for local
liquidity needs. Under current law, balances available
to be repatriated to the U.S. would be subject to U.S.
federal income taxes, less applicable foreign tax
credits. TSYS has provided for the U.S. federal tax
liability on these amounts for financial statement
purposes, except for foreign earnings that are
considered permanently reinvested outside of the
U.S. TSYS utilizes a variety of tax planning and
financing strategies with the objective of having its
worldwide cash available in the locations where it is
needed.
Impact of Inflation
Although the impact of inflation on its operations
cannot be precisely determined, the Company
believes that by controlling its operating expenses
and by taking advantage of more efficient computer
hardware and software, it can minimize the impact of
inflation.
Working Capital
TSYS may seek additional external sources of capital
in the future. The form of any such financing will vary
depending upon prevailing market and other
conditions and may include short-term or long-term
borrowings from financial institutions or the issuance
of additional equity and/or debt securities such as
industrial revenue bonds. However, there can be no
assurance that funds will be available on terms
acceptable to TSYS. Management expects that TSYS
will continue to be able to fund a significant portion
of its capital expenditure needs through internally
generated cash in the future, as evidenced by TSYS’
current ratio of 2.2:1. As of December 31, 2013, TSYS
had working capital of $356.7 million, compared to
$344.2 million in 2012 and $269.6 million in 2011.
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.
Settlement of Certain Litigation
As previously disclosed, a putative class action
entitled Koehler v. NetSpend Holdings, Inc. et. al.
(the “Koehler action”) was filed in the Court of
Chancery of the State of Delaware on March 1, 2013
and a putative class action entitled Bushansky v.
NetSpend Holdings, Inc. et al. (together with the
Koehler action, the “Actions”) was filed in the District
Court of Travis County, Texas on February 25, 2013,
each in connection with TSYS’ proposed merger with
NetSpend pursuant to the Merger Agreement. On
May 21, 2013, the Delaware Chancery Court issued a
memorandum opinion in the Koehler action denying
the plaintiff’s motion for a preliminary injunction,
which sought to enjoin a shareholder vote on the
proposed merger.
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