NetSpend 2013 Annual Report Download - page 58

deferred income tax liability on these undistributed
earnings is not practicable.
TSYS is the parent of an affiliated group that files a
consolidated U.S. federal income tax return and most
state and foreign income tax returns on a separate
entity basis. In the normal course of business, the
Company is subject to examinations by these taxing
authorities unless statutory examination periods
lapse. TSYS is no longer subject to U.S. federal
income tax examinations for years before 2009 and
with few exceptions, the Company is no longer
subject to income tax examinations from state and
local or foreign tax authorities for years before 2005.
There are currently federal income tax examinations
in progress for the years 2009 and 2010 for a
subsidiary which was acquired this year. Additionally,
a number of tax examinations are in progress by the
relevant state tax authorities. Although TSYS is
unable to determine the ultimate outcome of these
examinations, TSYS believes that its recorded liability
for uncertain tax positions relating to these
jurisdictions for such years is adequate.
TSYS adopted the provisions of ASC 740 on
January 1, 2007 which prescribes a recognition
threshold and measurement attribute for the financial
statement recognition, measurement and disclosure
of a tax position taken or expected to be taken in a
tax return. During the year ended December 31,
2013, TSYS decreased its liability for prior year
uncertain income tax positions as a discrete item by a
net amount of approximately $6.3 million (net of the
federal tax effect). This decrease resulted from refunds
received and TSYS reassessing its tax positions. The
Company is not able to reasonably estimate the
amount by which the liability will increase or decrease
over time; however, at this time, the Company does
not expect any significant changes related to these
obligations within the next twelve months.
A reconciliation of the beginning and ending amount
of unrecognized tax liabilities is as follows 1:
(in millions)
Year Ended
December 31,
2013
Beginning balance .................... $9.0
Current activity:
Additions based on tax positions related
to current year .................... 0.7
Additions for tax positions of prior
years ............................ 1.5
Reductions for tax positions of prior
years ............................ (6.0)
Settlements ........................ (2.5)
Net, current activity ............... (6.3)
Ending balance ....................... $2.7
1 Unrecognized state tax liabilities are not adjusted for
the federal tax impact.
TSYS recognizes potential interest and penalties
related to the underpayment of income taxes as
income tax expense in the Consolidated Statements
of Income. Gross accrued interest and penalties on
unrecognized tax benefits totaled $0.3 million and
$0.9 million as of December 31, 2013 and
December 31, 2012, respectively. The total amounts
of unrecognized income tax benefits as of
December 31, 2013 and December 31, 2012 that, if
recognized, would affect the effective tax rates are
$2.8 million and $8.8 million (net of the federal
benefit on state tax issues), respectively, which
includes interest and penalties of $0.2 million and
$0.7 million, respectively.
NOTE 15 Commitments and Contingencies
LEASE COMMITMENTS: TSYS is obligated under
noncancelable operating leases for computer
equipment and facilities.
The future minimum lease payments under
noncancelable operating leases with remaining terms
greater than one year for the next five years and
thereafter and in the aggregate as of December 31,
2013, are as follows:
(in thousands)
2014 ............................... $123,807
2015 ............................... 121,904
2016 ............................... 111,455
2017 ............................... 43,517
2018 ............................... 23,210
Thereafter .......................... 42,208
Total future minimum lease payments . . . $466,101
The majority of computer equipment lease
commitments come with a renewal option or an
option to terminate the lease. These lease
commitments may be replaced with new leases which
allow the Company to continually update its
computer equipment. Total rental expense under all
operating leases in 2013, 2012 and 2011 was
$95.7 million, $99.0 million and $97.5 million,
respectively.
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
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