NetSpend 2014 Annual Report Download - page 20

which are recorded in cost of services, may be materially different than were initially recorded. The Company’s
experience and extensive data accumulated historically indicates that these estimates have proven reliable over
time. As of December 31, 2014, the Company had a transaction processing provision in the amount of
$4.6 million.
Income Taxes
In calculating its effective tax rate, the Company makes decisions regarding certain tax positions, including the
timing and amount of deductions and allocations of income among various tax jurisdictions. The Company has
various tax filing positions, including the timing and amount of deductions and credits, the establishment of
reserves for audit matters and the allocation of income among various tax jurisdictions.
The Company makes estimates as to the amount of deferred tax assets and liabilities and records valuation
allowances to reduce its deferred tax assets to reflect the amount that is more likely than not to be realized. The
Company considers projected future taxable income and ongoing tax planning strategies in assessing the need
for the valuation allowance. Actual results may differ from the Company’s estimates. If the Company realizes a
deferred tax asset or the Company was unable to realize a net deferred tax asset, an adjustment to the deferred
tax asset would increase or decrease earnings, respectively, in the period the difference is recognized.
Related Party Transactions
In December 2014, TSYS’ majority-owned subsidiary, TSYS Managed Services EMEA Ltd. (TSYS Managed
Services), obtained a £900,000, or approximately $1.4 million, pound-denominated term loan bearing interest at
a rate of LIBOR plus two percentage points. The loan matures in December 2017, and has monthly interest
payments. The lender is Merchants Limited, who has a noncontrolling interest in TSYS Managed Services.
The Company provides electronic payment processing and other services to the Company’s equity investments,
Total System Services de México, S.A. de C.V. (TSYS de México) and China UnionPay Data Co., Ltd. (CUP Data).
The related party services and arrangements are performed under contracts that are similar to its contracts with
unrelated third party customers. The Company believes the terms and conditions of transactions between the
Company and these related parties are comparable to those which could have been obtained in transactions with
unaffiliated parties. The Company’s margins with respect to related party transactions are comparable to margins
recognized in transactions with unrelated third parties. The amounts related to these transactions are immaterial.
No significant changes have been made to the method of establishing terms with the affiliated companies during
the periods presented.
Refer to Note 4 in the Consolidated Financial Statements for more information on transactions with affiliated
companies.
Off-Balance Sheet Arrangements
OPERATING LEASES: As a method of funding its operations, TSYS employs noncancelable operating leases for
computer equipment, software and facilities. These leases allow the Company to use the latest technology while
avoiding the risk of ownership. Neither the assets nor obligations related to these leases are included on the
balance sheet. Refer to Notes 1 and 16 in the Consolidated Financial Statements for further information on
operating lease commitments.
CONTRACTUAL OBLIGATIONS: The total liability for uncertain tax positions as of December 31, 2014 is $6.7
million. Refer to Note 15 in the Consolidated Financial Statements for more information on income taxes. 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 year.
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