NetSpend 2013 Annual Report Download - page 39

Notes to Consolidated Financial Statements
NOTE 1 Basis of Presentation and
Summary of Significant
Accounting Policies
BUSINESS: Total System Services, Inc.’s (TSYS’ or
the Company’s) revenues are derived from providing
payment processing, merchant services and related
payment services to financial and nonfinancial
institutions, generally under long-term processing
contracts. The Company also derives revenues by
providing general purpose reloadable (GPR) prepaid
debit cards and payroll cards and alternative financial
services to underbanked consumers. The Company’s
services are provided through the Company’s four
operating segments: North America Services,
International Services, Merchant Services and
NetSpend.
Through the Company’s North America Services and
International Services segments, TSYS processes
information through its cardholder systems to
financial institutions throughout the United States and
internationally. The Company’s North America
Services segment provides these services to clients in
the United States, Canada, Mexico and the
Caribbean. The Company’s International Services
segment provides services to clients in Europe, India,
Middle East, Africa, Asia Pacific and Brazil. The
Company’s Merchant Services segment provides
merchant services to merchant acquirers and
merchants mainly in the United States. The
Company’s NetSpend segment provides services to
consumers in the United States.
PRINCIPLES OF CONSOLIDATION AND BASIS OF
PRESENTATION: The accompanying consolidated
financial statements, which are prepared in
accordance with generally accepted accounting
principles (GAAP) include the accounts of TSYS and
its wholly- and majority-owned subsidiaries. All
significant intercompany accounts and transactions
have been eliminated in consolidation. In addition,
the Company evaluates its relationships with other
entities to identify whether they are variable interest
entities as defined in accordance with the provisions
of Accounting Standards Codification (ASC) 810,
“Consolidation,” and to assess whether it is the
primary beneficiary of such entities. If the
determination is made that the Company is the
primary beneficiary, then that entity is included in the
consolidated financial statements in accordance with
ASC 810.
RISKS AND UNCERTAINTIES AND USE OF
ESTIMATES: Factors that could affect the
Company’s future operating results and cause actual
results to vary materially from expectations include,
but are not limited to, lower than anticipated growth
from existing clients, an inability to attract new clients
and grow internationally, loss of a major customer or
other significant client, loss of a major supplier, an
inability to grow through acquisitions or successfully
integrate acquisitions, an inability to control
expenses, technology changes, the impact of the
application of and/or changes in accounting
principles, financial services consolidation, changes in
regulatory requirements, a decline in the use of cards
as a payment mechanism, disruption of the
Company’s international operations, breach of the
Company’s security systems, a decline in the financial
stability of the Company’s clients and uncertain
economic conditions. Negative developments in
these or other risk factors could have a material
adverse effect on the Company’s financial position,
results of operations and cash flows.
The Company has prepared the accompanying
consolidated financial statements in conformity with
accounting principles generally accepted in the
United States of America. The preparation of the
consolidated financial statements requires
management of the Company to make a number of
estimates and assumptions relating to the reported
amounts of assets and liabilities at the date of the
consolidated financial statements and the reported
amounts of revenues and expenses during the
period. These estimates and assumptions are
developed based upon all information available.
Actual results could differ from estimated amounts.
ACQUISITIONS — PURCHASE PRICE
ALLOCATION: TSYS’ purchase price allocation
methodology requires the Company to make
assumptions and to apply judgment to estimate the
fair value of acquired assets and liabilities. TSYS
estimates the fair value of assets and liabilities based
upon appraised market values, the carrying value of
the acquired assets and widely accepted valuation
techniques, including discounted cash flows and
market multiple analyses. Management determines
the fair value of fixed assets and identifiable
intangible assets such as developed technology or
customer relationships, and any other significant
assets or liabilities. TSYS adjusts the purchase price
allocation, as necessary, up to one year after the
acquisition closing date as TSYS obtains more
information regarding asset valuations and liabilities
assumed. Unanticipated events or circumstances may
occur which could affect the accuracy of the
Company’s fair value estimates, including
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