NetSpend 2013 Annual Report Download - page 60

A portion of the Company’s business is conducted
through distributors that provide load and reload
services to cardholders at their locations. Members of
the Company’s distribution and reload network
collect cardholder funds and remit them by electronic
transfer to the Issuing Banks for deposit in the
cardholder accounts. The Company’s Issuing Banks
typically receive cardholders’ funds no earlier than
three business days after they are collected by the
distributor. If any distributor fails to remit
cardholders’ funds to the Company’s Issuing Banks,
the Company typically reimburses the Issuing Banks
for the shortfall created thereby. The Company
manages the risk associated with this process through
a formalized set of credit standards, volume limits
and deposit requirements for certain distributors and
by typically maintaining the right to offset any
settlement shortfall against the commissions payable
to the relevant distributor. To date, the Company has
not experienced any significant losses associated with
settlement failures and the Company had not
recorded a settlement guarantee liability as of
December 31, 2013. As of December 31, 2013, the
Company’s estimated gross settlement exposure was
$8.8 million.
GPR cardholders can incur charges in excess of the
funds available in their accounts and are liable for the
resulting overdrawn account balance. Although the
Company generally declines authorization attempts
for amounts that exceed the available balance in a
cardholder’s account, the application of the
Networks’ rules and regulations, the timing of the
settlement of transactions and the assessment of
subscription, maintenance or other fees can, among
other things, result in overdrawn card accounts. The
Company also provides, as a courtesy and in its
discretion, certain cardholders with a “cushion” that
allows them to overdraw their card accounts by up to
$10. In addition, eligible cardholders may enroll in
the Issuing Banks’ overdraft protection programs and
fund transactions that exceed the available balance in
their accounts. The Company generally provides the
funds used as part of these overdraft programs
(MetaBank will advance the first $1.0 million on
behalf of its cardholders) and is responsible to the
Issuing Banks for any losses associated with any
overdrawn account balances. As of December 31,
2013, cardholders’ overdrawn account balances
totaled $13.8 million. As of December 31, 2013, the
Company’s reserves for the losses it estimates will
arise from processing customer transactions, debit
card overdrafts, chargebacks for unauthorized card
use and merchant-related chargebacks due to non-
delivery of goods or services was $5.8 million.
The Company has not recorded a liability for
guarantees or indemnities in the accompanying
consolidated balance sheet since the maximum
amount of potential future payments under such
guarantees and indemnities is not determinable.
PRIVATE EQUITY INVESTMENTS: On May 31,
2011, the Company entered into a limited
partnership agreement in connection with its
agreement to invest in an Atlanta, Georgia-based
venture capital fund focused exclusively on investing
in technology-enabled financial services companies.
Pursuant to the limited partnership agreement, the
Company has committed to invest up to $20 million
in the fund so long as its ownership interest in the
fund does not exceed 50%. As of December 31,
2013, the Company had made investments in the
fund of $6.0 million and recognized a cumulative gain
of $1.8 million due to an increase in fair value.
NOTE 16 Employee Benefit Plans
The Company provides benefits to its employees by
offering employees participation in certain defined
contribution plans. The employee benefit plans
through which TSYS provided benefits to its
employees during 2013 are described as follows:
TSYS RETIREMENT SAVINGS PLAN: TSYS
maintains a single plan, the Retirement Savings Plan,
which is designed to reward all team members of
TSYS U.S.-based companies with a uniform employer
contribution. The terms of the plan provide for the
Company to match 100% of the employee
contribution up to 4% of eligible compensation. The
Company can make discretionary contributions up to
another 4% based upon business conditions. The
Company’s contributions to the plan charged to
expense for the years ended December 31 are as
follows:
(in thousands) 2013 2012 2011
TSYS Retirement
Savings Plan ....... $14,506 13,421 15,951
STOCK PURCHASE PLAN: The Company
maintains a stock purchase plan for employees and
previously maintained a stock purchase plan for
directors. The Company contributes 15% of
employee contributions and contributed 15% of
director voluntary contributions. The funds are used
to purchase presently issued and outstanding shares
of TSYS common stock on the open market at fair
market value for the benefit of participants. The
Director Stock Purchase Plan was terminated on
58