10-Q 1 tss-20160930x10q.htm 10-Q tss_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended September 30, 2016

 

 

OR

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the transition period from                     To                    

 

Commission file number: 1-10254

 

Picture 1

Total System Services, Inc.

www.tsys.com

(Exact name of registrant as specified in its charter)

 

Georgia

58-1493818

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

 

One TSYS Way, Post Office Box 1755, Columbus, Georgia 31902

(Address of principal executive offices) (Zip Code)

 

(706) 644-6081

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ☑ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☑

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☐

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No ☑

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

CLASS

OUTSTANDING AS OF: October 31, 2016

Common Stock, $0.10 par value

183,816,753 shares

 

 

 

 


 

Picture 1

 

TOTAL SYSTEM SERVICES, INC.

Table of Contents

 

 

Page
Number

PART I. FINANCIAL INFORMATION 

 

Item 1. Financial Statements 

 

Consolidated Balance Sheets (unaudited) — September 30, 2016 and December 31, 2015 

Consolidated Statements of Income (unaudited) — Three and nine months ended September 30, 2016 and 2015 

Consolidated Statements of Comprehensive Income (unaudited) — Three and nine months ended September 30, 2016 and 2015 

Consolidated Statements of Cash Flows (unaudited) — Nine months ended September 30, 2016 and 2015 

Notes to Unaudited Consolidated Financial Statements 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

28 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

47 

Item 4. Controls and Procedures 

48 

PART II. OTHER INFORMATION 

 

Item 1. Legal Proceedings 

49 

Item 1A. Risk Factors 

49 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 

49 

Item 6. Exhibits 

50 

SIGNATURES 

51 

EXHIBIT INDEX 

52 

 

 

 


 

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

TOTAL SYSTEM SERVICES, INC.

Consolidated Balance Sheets

(Unaudited)

 

 

 

 

 

 

 

 

(in thousands, except per share data)

    

September 30, 2016

    

December 31, 2015

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents (Note 3)

 

$

446,883

 

389,328

 

Accounts receivable, net of allowances for doubtful accounts, billing adjustments and merchant losses of $5.1 million and $4.0 million as of 2016 and 2015, respectively

 

 

413,867

 

314,705

 

Prepaid expenses and other current assets (Note 3)

 

 

124,118

 

154,199

 

Total current assets

 

 

984,868

 

858,232

 

Goodwill

 

 

3,254,422

 

1,545,424

 

Other intangible assets, net of accumulated amortization of $372.9 million and $257.1 million as of 2016 and 2015, respectively

 

 

954,821

 

328,320

 

Computer software, net of accumulated amortization of $742.5 million and $680.6 million as of 2016 and 2015, respectively

 

 

441,016

 

405,070

 

Property and equipment, net of accumulated depreciation and amortization of $483.8 million and $457.3 million as of 2016 and 2015, respectively (Note 7)

 

 

281,733

 

289,898

 

Contract acquisition costs, net of accumulated amortization of $305.8 million and $287.9 million as of 2016 and 2015, respectively (Note 3)

 

 

243,794

 

247,811

 

Equity investments, net

 

 

108,199

 

106,118

 

Deferred income tax assets

 

 

6,974

 

6,242

 

Other assets

 

 

99,351

 

90,780

 

Total assets

 

$

6,375,178

 

3,877,895

 

Liabilities

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accrued salaries and employee benefits

 

$

61,026

 

66,594

 

Current portion of long-term borrowings (Note 4)

 

 

40,451

 

50,078

 

Accounts payable

 

 

36,659

 

52,213

 

Current portion of obligations under capital leases

 

 

2,793

 

3,468

 

Other current liabilities (Note 3)

 

 

228,546

 

166,579

 

Total current liabilities

 

 

369,475

 

338,932

 

Long-term borrowings, excluding current portion (Note 4)

 

 

3,423,660

 

1,373,878

 

Deferred income tax liabilities

 

 

398,083

 

192,444

 

Obligations under capital leases, excluding current portion

 

 

1,487

 

3,663

 

Other long-term liabilities

 

 

91,751

 

96,886

 

Total liabilities

 

 

4,284,456

 

2,005,803

 

Redeemable noncontrolling interest in consolidated subsidiary

 

 

25,053

 

23,410

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

Equity

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Common stock — $0.10 par value. Authorized 600,000 shares; 202,765 and 202,769 issued as of 2016 and 2015 respectively; 183,818 and 182,781 outstanding as of 2016 and 2015, respectively

 

 

20,276

 

20,277

 

Additional paid-in capital

 

 

270,141

 

241,891

 

Accumulated other comprehensive loss, net (Note 3)

 

 

(47,626)

 

(33,544)

 

Treasury stock, at cost (18,947 and 19,988 shares as of 2016 and 2015, respectively)

 

 

(623,884)

 

(641,664)

 

Retained earnings

 

 

2,446,762

 

2,256,058

 

Total shareholders’ equity

 

 

2,065,669

 

1,843,018

 

Noncontrolling interest in consolidated subsidiary

 

 

 —

 

5,664

 

Total equity

 

 

2,065,669

 

1,848,682

 

Total liabilities and equity

 

$

6,375,178

 

3,877,895

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

3


 

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Income

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

Three months ended September 30, 

 

Nine months ended September 30, 

 

(in thousands, except per share data)

    

2016

    

2015

    

2016

    

2015

 

Total revenues (Note 7)

 

$

1,146,888

 

707,890

 

 

3,037,853

 

 

2,062,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of services

 

 

840,300

 

456,465

 

 

2,166,731

 

 

1,366,141

 

Selling, general and administrative expenses

 

 

151,261

 

88,321

 

 

428,287

 

 

280,355

 

Total operating expenses

 

 

991,561

 

544,786

 

 

2,595,018

 

 

1,646,496

 

Operating income

 

 

155,327

 

163,104

 

 

442,835

 

 

416,202

 

Nonoperating expenses, net

 

 

(30,005)

 

(8,564)

 

 

(82,506)

 

 

(27,982)

 

Income before income taxes and equity in income of equity investments

 

 

125,322

 

154,540

 

 

360,329

 

 

388,220

 

Income taxes

 

 

44,247

 

37,825

 

 

127,966

 

 

119,204

 

Income before equity in income of equity investments

 

 

81,075

 

116,715

 

 

232,363

 

 

269,016

 

Equity in income of equity investments, net of tax

 

 

6,366

 

5,336

 

 

19,234

 

 

15,309

 

Net income

 

 

87,441

 

122,051

 

 

251,597

 

 

284,325

 

Net income attributable to noncontrolling interests

 

 

(2,089)

 

(1,429)

 

 

(5,909)

 

 

(3,109)

 

Net income attributable to Total System Services, Inc. (TSYS) common shareholders

 

$

85,352

 

120,622

 

 

245,688

 

 

281,216

 

Basic earnings per share (EPS) attributable to TSYS common shareholders (Note 10)

 

$

0.46

 

0.66

 

 

1.34

 

 

1.53

 

Diluted EPS attributable to TSYS common shareholders (Note 10)

 

$

0.46

 

0.65

 

 

1.33

 

 

1.52

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

4


 

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 

 

Nine months ended September 30, 

 

(in thousands)

    

2016

    

2015

    

2016

    

2015

 

Net income

 

$

87,441

 

122,051

 

251,597

 

284,325

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(2,668)

 

(12,943)

 

(16,595)

 

(16,663)

 

Postretirement healthcare plan adjustments

 

 

1,154

 

147

 

373

 

441

 

Unrealized gain (loss) on available-for-sale securities

 

 

1,165

 

(186)

 

1,808

 

849

 

Other comprehensive loss

 

 

(349)

 

(12,982)

 

(14,414)

 

(15,373)

 

Comprehensive income

 

 

87,092

 

109,069

 

237,183

 

268,952

 

Comprehensive income attributable to noncontrolling interests

 

 

(2,089)

 

(1,215)

 

(5,577)

 

(2,973)

 

Comprehensive income attributable to TSYS common shareholders

 

$

85,003

 

107,854

 

231,606

 

265,979

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

5


 

TOTAL SYSTEM SERVICES, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

September 30, 

 

(in thousands)

    

2016

    

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

251,597

 

284,325

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

271,468

 

191,219

 

Provisions for fraud and other losses

 

 

37,289

 

29,621

 

Share-based compensation

 

 

33,792

 

31,468

 

Dividends received from equity investments

 

 

15,246

 

12,092

 

Amortization of debt issuance costs

 

 

12,499

 

1,378

 

Provisions for bad debt expenses and billing adjustments

 

 

4,817

 

3,519

 

Deferred income tax (expense) benefit

 

 

4,110

 

(25,960)

 

Charges for transaction processing provisions

 

 

3,355

 

3,471

 

Amortization of bond discount

 

 

529

 

297

 

Loss on disposal of equipment, net

 

 

314

 

4

 

Changes in value of private equity investments

 

 

(181)

 

(3,448)

 

Net (gain) loss on foreign currency

 

 

(1,664)

 

468

 

Excess tax benefit from share-based payment arrangements

 

 

(8,951)

 

(4,892)

 

Equity in income of equity investments

 

 

(19,234)

 

(15,309)

 

Changes in operating assets and liabilities, net of effect of acquisition:

 

 

 

 

 

 

Accounts receivable

 

 

(48,463)

 

(55,911)

 

Prepaid expenses, other current assets and other long-term assets

 

 

(18,087)

 

1,356

 

Accounts payable

 

 

(15,079)

 

(1,163)

 

Accrued salaries and employee benefits

 

 

(9,712)

 

5,589

 

Other current liabilities and other long-term liabilities

 

 

37,315

 

2,430

 

Net cash provided by operating activities

 

 

550,960

 

460,554

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Cash used in acquisitions, net of cash acquired

 

 

(2,345,493)

 

(750)

 

Additions to contract acquisition costs

 

 

(38,384)

 

(50,971)

 

Purchases of property and equipment

 

 

(32,134)

 

(36,505)

 

Additions to internally developed computer software

 

 

(25,705)

 

(31,654)

 

Additions to licensed computer software from vendors

 

 

(11,112)

 

(17,052)

 

Purchase of private equity investments

 

 

(4,430)

 

(3,525)

 

Proceeds from sale of private equity investment

 

 

120

 

1,839

 

Net cash used in investing activities

 

 

(2,457,138)

 

(138,618)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from borrowings of long-term debt

 

 

2,666,295

 

1,912

 

Proceeds from exercise of stock options

 

 

9,980

 

19,690

 

Excess tax benefit from share-based payment arrangements

 

 

8,951

 

4,892

 

Subsidiary dividends paid to noncontrolling shareholders

 

 

(4,163)

 

(3,796)

 

Repurchase of common stock under plans and tax withholding

 

 

(5,396)

 

(83,635)

 

Purchase of noncontrolling interest

 

 

(5,878)

 

 -

 

Debt issuance costs

 

 

(26,563)

 

 -

 

Dividends paid on common stock

 

 

(55,000)

 

(55,277)

 

Principal payments on long-term borrowings and capital lease obligations

 

 

(618,598)

 

(42,215)

 

Net cash provided by (used in) financing activities

 

 

1,969,628

 

(158,429)

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(5,895)

 

(4,840)

 

Net increase in cash and cash equivalents

 

 

57,555

 

158,667

 

Cash and cash equivalents at beginning of period

 

 

389,328

 

289,183

 

Cash and cash equivalents at end of period

 

$

446,883

 

447,850

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

Interest paid

 

$

74,765

 

21,994

 

Income taxes paid, net

 

$

58,855

 

122,180

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

6


 

TOTAL SYSTEM SERVICES, INC.

Notes to Unaudited Consolidated Financial Statements

 

Note 1  —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 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 for financial and nonfinancial 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.

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements of TSYS include the accounts of TSYS and its wholly- and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

These financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and, therefore, do not include all information and footnotes required by U.S. GAAP for complete financial statements. The preparation of the consolidated financial statements requires management of the Company to make estimates and assumptions relating to the reported amounts of assets and liabilities as of 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. All adjustments, consisting of normal recurring accruals, which, in the opinion of management, are necessary for a fair presentation of financial position and results of operations for the periods covered by this report, have been included.

 

Certain prior period amounts have been reclassified to conform to the current period’s presentation.

 

The accompanying unaudited consolidated financial statements should be read in conjunction with the Company’s summary of significant accounting policies, consolidated financial statements and related notes appearing in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission (SEC). Results of interim periods are not necessarily indicative of results to be expected for the year.

 

Revenue Recognition

 

With the acquisition of TransFirst Holdings Corp. (TransFirst) on April 1, 2016, TSYS included TransFirst’s results as part of the Merchant Services segment.  TransFirst’s revenues are reported gross, which includes amounts paid for interchange and assessments, as TransFirst is the principal in the contractual relationship with its customers. Expenses covering interchange and assessment fees are included in TransFirst’s cost of services and are directly attributable to processing fee revenues and are recognized in the same period as the related revenue.

 

7


 

Recently Adopted Accounting Pronouncements

 

The Company adopted the following Accounting Standards Updates (ASUs) on January 1, 2016:

 

ASU 2015-17 “Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes” requires the classification of all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. Also, companies will no longer allocate valuation allowances between current and noncurrent deferred tax assets because those allowances also will be classified as noncurrent. The Company early adopted this ASU resulting in $24.7 million of current net deferred tax assets as of December 31, 2015 being moved to noncurrent.  The guidance was applied retrospectively. The adoption of this ASU did not have a material impact on the Company’s results of operations or cash flows.

 

ASU 2015-16 “Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments” eliminates the requirement for an acquirer to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows. 

 

ASU 2015-15 “Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements – Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting” and ASU 2015-03 “Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs require entities to present debt issuance costs in the balance sheet as a direct deduction from the carrying amount of the corresponding debt liability, consistent with debt discounts, and allow entities to defer and present debt issuance costs associated with a line-of-credit as an asset and subsequently amortize deferred debt issuance costs ratably over the term of a line-of-credit arrangement. The guidance was applied retrospectively. The adoption of this guidance resulted in $6.4 million of debt issuance costs as of December 31, 2015 being moved from noncurrent assets on the Company’s balance sheet to liabilities that offset both the current and noncurrent portions of the debt which these costs are associated as of September 30, 2016. The Company continues to include debt issuance costs associated with a line-of-credit in its noncurrent assets. The adoption of this guidance did not have a material impact on the Company’s results of operations or cash flows.

 

ASU 2015-05 “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement” provides guidance about whether a cloud computing arrangement includes a software license or a service agreement. The Company adopted this ASU on a prospective basis. The adoption of this ASU did not have a material impact on the Company’s financial position, results of operations or cash flows.

 

ASU 2015-01 “Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items” eliminates from GAAP the concept of extraordinary items. The adoption of this ASU did not have a material impact on the financial position, results of operations or cash flows of the Company.

 

New Accounting Pronouncements

 

In August 2016, the FASB issued ASU 2016-15 “Statement of Cash Flow (Topic 230): Classification of Certain Receipts and Cash Payments,” which clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows. The guidance also clarifies how the predominance principle should be applied when cash receipts and cash payments have aspects of more than one class of cash flow. The ASU is effective for the Company on January 1, 2018. Early adoption is permitted by all entities. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial position, results of operations or cash flows. 

 

In May 2016, the FASB issued ASU 2016-12 “Revenue from Contracts with Customers (Topic 606): Narrow Scope Improvements and Practical Expedients,” which affects only the following narrow aspects of Topic 606: Assessing the Collectability Criterion; Presentation of Sales and Other Taxes Collected from Customers; Noncash Consideration; Contract Modification at Transition; Completed Contracts at Transition; and Technical

8


 

Correction. The ASU is effective for the Company on January 1, 2018, with early adoption permitted no sooner than January 1, 2017. The Company has not determined the effect on its ongoing financial reporting for adoption of this ASU.

 

In April 2016, the FASB issued ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” which clarifies two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The ASU is effective for the Company on January 1, 2018, with early adoption permitted no sooner than January 1, 2017.  The Company has not determined the effect on its ongoing financial reporting for adoption of this ASU.

 

In March 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic  606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," which improves the operability and understandability of the implementation guidance on principal versus agent considerations by providing indicators as to which party controls the good or service provided to a customer (the principal). The ASU is effective for the Company on January 1, 2018, with early adoption permitted no sooner than January 1, 2017. The Company has not determined the effect on its ongoing financial reporting for adoption of this ASU.

 

In March 2016, the FASB issued ASU 2016-07 “Simplifying the Transition to the Equity Method of Accounting,” which simplifies the equity method of accounting by eliminating the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. The ASU further requires that unrealized holding gains or losses in accumulated other comprehensive income related to an available-for-sale security that becomes eligible for the equity method be recognized in earnings as of the date on which the investment qualifies for the equity method. The guidance in the ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Early adoption is permitted for all entities. Entities are required to apply the guidance prospectively to increases in the level of ownership interest or degree of influence occurring after the ASU’s effective date. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial position, results of operations or cash flows.

 

In March 2016, the FASB issued ASU 2016-09 “Improvements to Employee Share‑Based Payment Accounting,” which simplifies several aspects of the accounting for employee share‑based payment transactions, including the accounting for income taxes, forfeitures and statutory tax withholding requirements, as well as classification in the statement of cash flows. The ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2016. The adoption of this ASU will result in excess tax benefits and deficiencies associated with share-based payments being recorded on the income statement at the time they are deducted on the income tax return instead of being recorded in additional paid-in capital. The excess tax benefits are recorded along with other income tax cash flows as an operating activity in the statement of cash flows. The Company will adopt this ASU on January 1, 2017. The Company has not determined the effect on its ongoing financial reporting for adoption of this ASU.

 

In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842).” ASU 2016-02 introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the FASB’s new revenue recognition standard. The ASU also addresses other concerns related to the current leases model. The new guidance will be effective for fiscal years and interim periods within those years beginning after December 15, 2018. Early adoption will be permitted for all entities. The Company preliminarily believes it will early adopt this ASU on January 1, 2018. The Company has not determined the effect on its ongoing financial reporting for adoption of this ASU.

 

In January 2016, the FASB issued ASU 2016-01 “Recognition and Measurement of Financial Assets and Financial Liabilities,” which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. The ASU significantly revises an entity’s accounting related to (1) the classification and measurement of investments in equity securities and (2) the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments.  The new standard is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company does not expect the adoption of this ASU to have a material impact on the Company’s financial position, results of operations or cash flows.

9


 

 

In May 2014, the FASB issued ASU 2014-09 “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The new standard is effective for the Company on January 1, 2018, with early adoption permitted no sooner than January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company is evaluating the effect that ASU 2014-09 will have on its consolidated financial statements and related disclosures. The Company is still determining the effect of this ASU on its ongoing financial reporting.

 

Note 2 — Fair Value Measurement 

 

Refer to Note 3 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding fair value measurement.

 

GAAP requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant level of inputs.  The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

 

Level 1 – Quoted prices for identical assets and liabilities in active markets.

 

Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 – Unobservable inputs for the asset or liability.

 

The Company had no transfers between Level 1, Level 2 or Level 3 assets during the nine months ended September 30, 2016 and 2015.

 

As of September 30, 2016, the Company had recorded goodwill in the amount of $3.3 billion. The Company performed its annual impairment testing of its goodwill balance as of May 31, 2016, and this test did not indicate any impairment. The fair value of the reporting units substantially exceeds their carrying value.

 

Note 3 — Supplementary Balance Sheet Information

 

Cash and Cash Equivalents

 

The Company maintains accounts outside the United States denominated in currencies other than the U.S. Dollar. All amounts in domestic accounts are denominated in U.S. Dollars.

 

Cash and cash equivalent balances are summarized as follows:

 

 

 

 

 

 

 

 

(in thousands)

    

September 30, 2016

    

December 31, 2015

Cash and cash equivalents in domestic accounts

 

$

399,633

 

307,578

 

Cash and cash equivalents in foreign accounts

 

 

47,250

 

81,750

 

Total

 

$

446,883

 

389,328

 

 

 

 

 

 

 

 

 

10


 

Prepaid Expenses and Other Current Assets

 

Significant components of prepaid expenses and other current assets are summarized as follows:

 

 

 

 

 

 

 

 

(in thousands)

    

September 30, 2016

    

December 31, 2015

Prepaid expenses

 

$

55,076

 

37,961

 

Supplies inventory

 

 

13,478

 

15,114

 

Income taxes receivable

 

 

 -

 

51,322

 

Other

 

 

55,564

 

49,802

 

Total

 

$

124,118

 

154,199

 

 

 

 

 

 

 

 

 

Contract Acquisition Costs, Net

 

Significant components of contract acquisition costs, net of accumulated amortization, are summarized as follows:

 

 

 

 

 

 

 

 

(in thousands)

    

September 30, 2016

    

December 31, 2015

Conversion costs, net of accumulated amortization of $161.6 million and $149.9 million as of 2016 and 2015, respectively

 

$

149,396

 

159,000

 

Payments for processing rights, net of accumulated amortization of $144.2 million and $137.9 million as of 2016 and 2015, respectively

 

 

94,398

 

88,811

 

Total

 

$

243,794

 

247,811

 

 

 

 

 

 

 

 

 

Amortization expense related to conversion costs, which is recorded in cost of services, was $6.9 million and $7.0 million for the three months ended September 30, 2016 and 2015, respectively.  For the nine months ended September 30, 2016 and 2015, amortization expense related to conversion costs was $21.3 million and $20.1 million, respectively.

 

Amortization related to payments for processing rights, which is recorded as a reduction of revenues, was $4.9 million and $4.6 million for the three months ended September 30, 2016 and 2015, respectively.  For the nine months ended September 30, 2016 and 2015, amortization expense related to payments for processing rights was $14.9 million and $12.4 million, respectively.

 

Other Current Liabilities

 

Significant components of other current liabilities are summarized as follows:

 

 

 

 

 

 

 

 

(in thousands)

    

September 30, 2016

    

December 31, 2015

Deferred revenues

 

$

40,261

 

39,863

 

Accrued expenses

 

 

29,429

 

26,017

 

Accrued third-party commissions

 

 

25,793

 

9,810

 

Dividends payable

 

 

19,351

 

19,367

 

Accrued interest

 

 

11,325

 

2,820

 

Other

 

 

102,387

 

68,702

 

Total

 

$

228,546

 

166,579

 

 

 

 

 

 

 

 

 

11


 

Accumulated Other Comprehensive Income (AOCI)

 

The income tax effects allocated to and the cumulative balance of accumulated other comprehensive income (loss) attributable to TSYS shareholders are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(a)

 

(b)

 

(c)

 

(d)

 

(a+d)

 

(in thousands)

    

Beginning Balance December 31, 2015

    

Pretax
Amount

    

Tax Effect

    

Net-of-Tax
Amount
(b-c)

    

Ending Balance September 30, 2016

 

Foreign currency translation adjustments and transfers from noncontrolling interests

 

$

(35,013)

 

(20,298)

 

(4,035)

 

$

(16,263)

 

$

(51,276)

 

Unrealized gain on available-for-sale securities

 

 

2,503

 

2,936

 

1,128

 

 

1,808

 

 

4,311

 

Change in AOCI related to postretirement healthcare plans

 

 

(1,034)

 

582

 

209

 

 

373

 

 

(661)

 

Total

 

$

(33,544)

 

(16,780)

 

(2,698)

 

$

(14,082)

 

$

(47,626)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

There were no reclassifications of AOCI to net income or to other accounts for the nine months ended September 30, 2016.

 

Note 4 — Long-Term Borrowings

 

On January 26, 2016, the Company entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Vista Equity Partners Fund V, L.P., a Delaware limited partnership (“Fund V”), Vista Equity Partners Fund V-A, L.P., a Cayman Islands limited partnership (“Fund V-A”), Vista Equity Partners Fund V-B, L.P., a Cayman Islands limited partnership (“Fund V-B”), Vista Equity Partners Fund V Executive, L.P., a Delaware limited partnership (“Fund V Executive”), VEPF V FAF, L.P., a Delaware limited partnership (“VEPF V”), Vista Equity Associates, LLC, a Delaware limited liability company (“Associates LLC” and, together with Fund V, Fund V-A, Fund V-B, Fund V Executive and VEPF V, the “Sellers”), and TransFirst, a Delaware corporation, pursuant to which, and upon the terms and subject to the conditions set forth in the Purchase Agreement, the Company acquired all of the outstanding capital stock of TransFirst from the Sellers on April 1, 2016.

 

On February 23, 2016, the Company entered into a Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as Administrative Agent and L/C Issuer, Bank of America, N.A., as Syndication Agent and L/C Issuer, The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank National Association and Wells Fargo Bank, National Association, as Co-Documentation Agents, and the other lenders party thereto, with J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, The Bank of Tokyo-Mitsubishi UFJ, LTD., U.S. Bank National Association and Wells Fargo Securities, LLC as joint lead arrangers and joint bookrunners. The Credit Agreement provides the Company with a $700 million five-year term loan facility (the “Term Loan Facility”) consisting of (i) a $300 million term loan (the “Refinancing Term Loan”) funded upon entry into the Credit Agreement and (ii) a $400 million term loan (the “Delayed Draw Term Loan”). The Credit Agreement also provides the Company with a $800 million unsecured revolving credit facility (the “Revolving Loan Facility”), which includes a $50 million sub-facility for the issuance of standby letters of credit.

 

The Refinancing Term Loan was used to repay in full the Company’s outstanding loans and other obligations under that certain credit agreement, dated as of September 10, 2012, by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended, and that certain credit agreement, dated as of April 8, 2013, by and among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent thereunder, as amended. The Delayed Draw Term Loan was used to finance, in part, the acquisition and related transactions, upon satisfaction of a limited set of conditions precedent. The Revolving Loan Facility is available for draws for purposes of working capital and other general corporate purposes, including to finance, in part, the acquisition and related transactions upon satisfaction of a limited set of conditions precedent.

 

Concurrently with entering into the Purchase Agreement, the Company obtained commitments for a $2.0 billion 364-day bridge term loan facility from JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, Merrill Lynch,

12


 

Pierce, Fenner & Smith Incorporated, Bank of America N.A., The Bank of Tokyo-Mitsubishi UFJ, Ltd, U.S. Bank National Association, Wells Fargo Securities, LLC and Wells Fargo Bank, National Association (collectively, the “Commitment Parties”). Thereafter, the Commitment Parties assigned portions of their commitments to certain other bridge facility lenders. Based on the terms of the bridge term loan facility commitment letter, upon entering into the Credit Agreement, the total commitments under the bridge term loan facility were reduced from $2.0 billion to $1.15 billion by the amount of the Delayed Draw Term Loan commitment and the portion of the Revolving Loan Facility commitments in excess of $350 million. The bridge term loan facility was terminated in March 2016 after the issuance of the Notes described below.

 

Borrowings under the Credit Agreement will accrue interest at the base rate (as defined in the Credit Agreement) or, for certain euro-denominated borrowings, the London Interbank Offered Rate (“LIBOR”), in each case plus a margin that is set based on the Company’s corporate credit ratings. The applicable margin for loans bearing interest based on LIBOR ranges from 0.900% to 1.500% for revolving loans and 1.000% to 1.750% for term loans. The applicable margin for loans bearing interest based on the base rate ranges from 0.000% to 0.500% for revolving loans and 0.000% to 0.750% for term loans. In addition, the Company will pay the lenders a facility fee ranging from 0.100% to 0.250% per annum, depending on the Company’s corporate credit ratings, on the commitments under the Revolving Loan Facility (regardless of usages) and the undrawn commitment amount in respect of the Delayed Draw Term Loan. Based on the Company’s current corporate credit ratings, (i) the applicable margin for loans accruing interest at the base rate is 0.500% for term loans and 0.300% for revolving loans and (ii) the applicable margin for loans accruing interest at LIBOR is 1.500% for term loans and 1.300% for revolving loans. The Credit Agreement contains customary covenants regarding, among other matters, the maintenance of insurance, the preservation and maintenance of our corporate existence, material compliance with laws and the payment of taxes and other material obligations. During the nine months ended September 30, 2016, the Company repaid $300.0 million on the Revolving Loan Facility. As of September 30, 2016, the outstanding balance on the Revolving Loan Facility was $170.0 million.

 

On March 17, 2016, the Company closed its sale (the “Transaction”) of $750 million aggregate principal amount of 3.800% Senior Notes due 2021 and $750 million aggregate principal amount of 4.800% Senior Notes due 2026 (collectively, the “Notes”) pursuant to an agreement (the “Underwriting Agreement”) with J.P. Morgan Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the underwriters, whereby the Company agreed to sell and the Underwriters agreed to purchase the Notes from the Company, subject to and upon the terms and conditions set forth in the Underwriting Agreement. The Company used the net proceeds of the Transaction to pay a portion of the approximately $2.35 billion purchase price of the Company’s acquisition of TransFirst and related fees and expenses. The Notes were issued pursuant to a Senior Indenture, dated as of March 17, 2016, between the Company and Regions Bank, as trustee.

 

For more information regarding the indebtedness and the acquisition, refer to Note 12. Refer to Note 13 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding long-term borrowings.

 

Note 5 — Share-Based Compensation

 

Refer to Notes 1 and 19 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding the Company’s share-based compensation plans and policy.

 

Share-Based Compensation

 

Share-based compensation costs are classified as selling, general and administrative expenses on the Company’s statements of income and corporate administration and other expenses typically for segment reporting purposes.  TSYS’ share-based compensation costs are expensed, rather than capitalized, as these awards are typically granted to individuals not involved in capitalizable activities. For the three months ended September 30, 2016, share-based compensation was $13.1 million, compared to $11.3 million for the same period in 2015.  For the nine months ended September 30, 2016, share-based compensation was $33.8 million, compared to $31.5 million for the same period in 2015.

13


 

 

Nonvested Share Awards

 

The Company granted shares of TSYS common stock to certain key employees. The nonvested stock bonus awards are typically for services to be provided in the future and vest over a period of up to four years. The market value of the TSYS common stock as of the date of issuance is charged as compensation expense over the vesting periods of the awards.

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

 

    

2016

    

2015

 

Number of shares granted

 

 

331,733

 

388,211

 

Market value (in millions)

 

$

15.3

 

14.9

 

 

 

 

 

 

 

 

 

Performance- and Market-Based Awards

 

The Company granted performance- and market-based shares to certain key executives.  The Company has also granted performance-based shares to certain key employees. The performance- and market-based goals are established by the Compensation Committee of the Board of Directors and will vest, up to a maximum of 200%.  During the first nine months of 2016 and 2015, the Compensation Committee established performance goals based on adjusted EPS, Merchant Segment net revenue, corporate accountability operating income, attainment of synergies from the TransFirst acquisition, revenue growth and revenues before reimbursable items and market goals based on Total Shareholder Return (TSR) as compared to the TSR of the companies in the S&P 500 over the performance period.

 

Compensation expense for performance shares is measured on the grant date based on the quoted market price of TSYS common stock. The Company estimates the probability of achieving the goals through the performance period and expenses the awards on a straight-line basis. The fair value of market-based awards is estimated on the grant date using a Monte Carlo simulation model. The Company expenses market-based awards on a straight-line basis.  Compensation costs related to performance- and market-based shares are recognized through the longer of the performance period or the vesting period. As of September 30, 2016, there was approximately $24.6 million of unrecognized compensation cost related to TSYS performance-based awards that is expected to be recognized through December 2018. As of September 30, 2016, there was approximately $2.6 million of unrecognized compensation cost related to TSYS market-based awards that is expected to be recognized through December 2018.

 

The following table summarizes the market-based awards granted during the first nine months of 2016 and 2015:

 

 

 

 

 

 

 

 

 

Year
Awarded

    

Performance
Period Ending

    

Performance
Measure

    

Number of
Shares
Granted

    

Period Expensed
Through

2016

 

December 2017

 

TSR

 

6,403

 

December 2017

2016

 

December 2018

 

TSR

 

52,404

 

December 2018

2015

 

July 2016, 2017 and 2018

 

TSR

 

25,000

 

July 2018

2015

 

December 2017

 

TSR

 

57,982

 

December 2017

 

 

 

 

 

 

 

 

 

 

14


 

The following table summarizes the performance-based awards granted during the first nine months of 2016 and 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year
Awarded

    

Performance
Period Ending

    

Performance
Measure

    

Number of
Shares
Granted

    

Period Expensed
Through

2016

 

December 2016

 

Revenues before Reimbursable Items and Adjusted EPS

 

15,605

 

December 2016

2016

 

December 2017

 

Adjusted EPS

 

14,940

 

December 2017

2016

 

December 2018

 

Merchant Segment Net Revenue, Corporate Accountability Operating Income and attainment of synergies from TransFirst acquisition

 

29,332

 

December 2018

2016

 

December 2018

 

Revenues before Reimbursable Items and Adjusted Operating Income

 

67,517

 

December 2018

2016

 

December 2018

 

Merchant Segment Net Revenue and Corporate Accountability Operating Income

 

78,220

 

December 2018

2016

 

December 2018

 

Adjusted EPS

 

122,284

 

December 2018

2016

 

December 2016

 

Revenues before Reimbursable Items and Adjusted EPS

 

144,995

 

December 2018

2015

 

December 2017

 

Adjusted EPS

 

135,289

 

December 2017

2015

 

December 2015

 

Revenues before Reimbursable Items and Adjusted EPS

 

165,543

 

December 2018

 

 

 

 

 

 

 

 

 

 

Stock Option Awards

 

The Company granted stock options to certain key executives. The grants will vest over a period of up to three years.

 

The weighted average fair value of the option grants was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions:

 

 

 

 

 

 

 

 

 

 

Nine months ended September 30, 

 

 

    

2016

 

2015

 

Number of options granted

 

 

687,685

 

613,473

 

Weighted average exercise price

 

$

47.01

 

39.01

 

Risk-free interest rate

 

 

1.24

%  

1.73

%

Expected volatility

 

 

21.53

%  

20.80

%

Expected term (years)

 

 

4.5

 

6.3

 

Dividend yield

 

 

0.86

%  

1.04

%

Weighted average fair value

 

$

8.50

 

8.27

 

 

 

 

 

 

 

 

 

As of September 30, 2016, there was approximately $4.1 million of unrecognized compensation cost related to TSYS stock options that is expected to be recognized over a remaining weighted average period of 1.5 years.

 

Note 6 — Income Taxes

 

Refer to Notes 1 and 15 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding income taxes.

 

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 2011 and with few exceptions, the

15


 

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 through 2012 for a subsidiary which TSYS acquired in 2013.  Also, TSYS is currently undergoing federal income tax examinations for the years 2011 through 2013.  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 liability for uncertain tax positions relating to these jurisdictions for such years is adequate.

 

TSYS’ effective tax rate was 35.3% and 24.5% for the three months ended September 30, 2016 and 2015, respectively.  TSYS’ effective tax rate was 35.5% and 30.7% for the nine months ended September 30, 2016 and 2015, respectively. The increased rate during the nine months ended September 30, 2016 was primarily due to realizing favorable discrete items during 2015 and increases in permanent items during 2016.

 

GAAP 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. The amount of unrecognized tax benefits were $17.5 million and $13.1 million as of September 30, 2016 and December 31, 2015, respectively, which resulted in an increase of $4.4 million during the period.

 

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 $1.2 million and $0.7 million as of September 30, 2016 and December 31, 2015, respectively. The total amounts of unrecognized income tax benefits as of September 30, 2016 and December 31, 2015, that, if recognized, would affect the effective tax rates are $18.1 million and $13.2 million (net of the federal benefit on state tax issues), respectively, which include interest and penalties of $0.8 million and $0.5 million, respectively. TSYS does not expect any significant changes to its calculation of uncertain tax positions during the next twelve months.

16


 

 

Note 7 — Segment Reporting and Major Customers 

 

Refer to Note 22 of the Company’s audited financial statements for the year ended December 31, 2015, which are included as Exhibit 13.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the SEC, for a discussion regarding segment reporting and major customers.

 

The following table presents the Company’s total assets by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

 

    

    

 

    

 

 

    

September 30, 2016

    

December 31, 2015

North America Services

 

 

 

 

 

 

 

$

5,660,048

 

3,485,924

 

International Services

 

 

 

 

 

 

 

 

310,286

 

348,714

 

Merchant Services

 

 

 

 

 

 

 

 

3,325,108

 

689,781

 

NetSpend

 

 

 

 

 

 

 

 

1,468,576

 

1,504,740

 

Intersegment assets

 

 

 

 

 

 

 

 

(4,388,840)

 

(2,151,264)

 

Total assets

 

 

 

 

 

 

 

$

6,375,178

 

3,877,895

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company maintains property and equipment, net of accumulated depreciation and amortization, in the following geographic areas:

 

 

 

 

 

 

 

 

 

 

As of

 

(in thousands)

    

September 30, 2016

    

December 31, 2015

United States

 

$

235,541

 

241,814

 

Europe*

 

 

39,774

 

41,953

 

Other*

 

 

6,418

 

6,131

 

Total

 

$

281,733

 

289,898

 

 

 

 

 

 

 

 

*Property and equipment are impacted by movements in foreign currency exchange rates. 

 

17


 

The following table presents the Company’s operating results by segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Segments

 

Three months ended September 30, 

 

 

Nine months ended September 30, 

 

(in thousands)

    

 

2016

    

2015

 

 

 

2016

 

2015

 

Operating income (a)

 

$

155,327

 

163,104

 

 

 

442,835

 

416,202

 

Share-based compensation

 

 

13,069

 

11,295

 

 

 

33,792

 

31,468

 

TransFirst M&A and integration expenses1

 

 

1,830

 

 -

 

 

 

25,908

 

 -

 

Acquisition intangible amortization

 

 

53,341

 

22,883

 

 

 

134,748

 

69,601

 

Adjusted operating income (b)

 

$

223,567

 

197,282

 

 

 

637,283

 

517,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating income by segment:

 

 

 

 

 

 

 

 

 

 

 

 

North America Services (c)

 

$

113,425

 

113,946

 

 

 

350,955

 

324,902

 

International Services (d)

 

 

15,524

 

18,370

 

 

 

41,564

 

38,706

 

Merchant Services (e)

 

 

90,784

 

42,387

 

 

 

219,056

 

117,192

 

NetSpend (f)

 

 

40,856

 

37,315

 

 

 

125,538

 

109,224

 

Corporate Administration and Other

 

 

(37,022)

 

(14,736)

 

 

 

(99,830)

 

(72,753)

 

Adjusted segment operating income2

 

$

223,567

 

197,282

 

 

 

637,283

 

517,271

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues (g)

 

$

1,146,888

 

707,890

 

 

 

3,037,853

 

2,062,698

 

Reimbursable items, interchange and assessment expenses

 

 

357,300

 

71,504

 

 

 

781,684

 

208,444

 

Net revenue2 (h)

 

 

789,588

 

636,386

 

 

 

2,256,169

 

1,854,254

 

Intersegment

 

 

8,454

 

7,000

 

 

 

29,498

 

25,098

 

Segment net revenue

 

$

798,042

 

643,386

 

 

 

2,285,667

 

1,879,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segment net revenue:

 

 

 

 

 

 

 

 

 

 

 

 

North America Services (i)

 

$

300,754

 

293,571

 

 

 

901,563

 

846,989

 

International Services (j)

 

 

79,445

 

86,446

 

 

 

236,570

 

244,033

 

Merchant Services (k)

 

 

262,494

 

123,721

 

 

 

644,573

 

351,987

 

NetSpend (l)

 

 

155,349

 

139,648

 

 

 

502,961

 

436,343

 

Segment net revenue

 

$

798,042

 

643,386

 

 

 

2,285,667

 

1,879,352

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating margin (GAAP) (a)/(g)

 

 

13.5%

 

23.0%

 

 

 

14.6%

 

20.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Adjusted operating margin on net revenue (b)/(h)

 

 

28.3%