10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________________________ 

FORM 10-Q

__________________________________ 

(Mark One)

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

For the quarterly period ended March 31, 2012

OR

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

For the transition period from to

Commission File No. 001-32594

__________________________________ 

HEARTLAND PAYMENT SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

Delaware	22-3755714
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

90 Nassau Street, Princeton, New Jersey 08542

(Address of principal executive offices) (Zip Code)

(609) 683-3831

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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.    x  YES    o  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).    x  YES    o  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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  YES    x  NO

As of May 1, 2012, there were 38,767,014 shares of the registrant’s Common Stock, $0.001 par value, outstanding.

INDEX

		Page
PART I. FINANCIAL INFORMATION
Item 1.
	Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011	1
	Condensed Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2012 and 2011	2
	Condensed Consolidated Statements of Equity for the three months ended March 31, 2012 and 2011	3
	Condensed Consolidated Statements of Cash Flow for the three months ended March 31, 2012 and 2011	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	40
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 3.	Defaults Upon Senior Securities	41
Item 4.	Mine Safety Disclosures	41
Item 5.	Other Information	41
Item 6.	Exhibits	42

PART I. FINANCIAL INFORMATION

Item 1. Condensed Financial Statements

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands, except share data)

(unaudited)

	March 31, 2012			December 31, 2011
Assets
Current assets:
Cash and cash equivalents	$	49,943		$	40,301
Funds held for payroll customers	53,584			42,511
Receivables, net	183,733			176,535
Investments held to maturity	2,157			2,505
Inventory	10,708			11,492
Prepaid expenses	9,366			9,660
Current deferred tax assets, net	7,037			6,746
Total current assets	316,528			289,750
Capitalized customer acquisition costs, net	55,339			55,014
Property and equipment, net	116,668			115,579
Goodwill	103,561			103,399
Intangible assets, net	31,413			32,498
Deposits and other assets, net	699			681
Total assets	$	624,208		$	596,921
Liabilities and Equity
Current liabilities:
Due to sponsor banks	$	66,334		$	63,881
Accounts payable	49,999			47,373
Deposits held for payroll customers	53,584			42,511
Current portion of borrowings	16,253			15,003
Current portion of accrued buyout liability	8,862			8,104
Processing liabilities and loss reserves	36,543			30,689
Accrued expenses and other liabilities	41,368			50,884
Current tax liability	2,471			1,408
Total current liabilities	275,414			259,853
Deferred tax liabilities, net	25,538			21,643
Reserve for unrecognized tax benefits	2,037			1,819
Long-term portion of borrowings	65,000			70,000
Long-term portion of accrued buyout liability	24,706			23,554
Total liabilities	392,695			376,869
Commitments and contingencies (Note 11)	—			—
Equity
Common Stock, $0.001 par value, 100,000,000 shares authorized, 38,973,993 and 38,847,957 shares issued and outstanding at March 31, 2012 and December 31, 2011	40			39
Additional paid-in capital	218,740			207,643
Accumulated other comprehensive loss	(513		)	(680		)
Retained earnings	40,654			29,236
Treasury stock, at cost (1,198,138 and 778,889 shares at March 31, 2012 and December 31, 2011)	(28,217		)	(16,828		)
Total stockholders’ equity	230,704			219,410
Noncontrolling interests	809			642
Total equity	231,513			220,052
Total liabilities and equity	$	624,208		$	596,921

See accompanying notes to condensed consolidated financial statements.

1

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except per share data)

(unaudited)

	Three Months Ended March 31,
	2012			2011
Total revenues	$	470,485		$	467,646
Costs of services:
Interchange	297,948			320,799
Dues, assessments and fees	43,868			34,150
Processing and servicing	56,722			52,556
Customer acquisition costs	11,436			11,658
Depreciation and amortization	4,386			3,875
Total costs of services	414,360			423,038
General and administrative	32,882			30,046
Total expenses	447,242			453,084
Income from operations	23,243			14,562
Other income (expense):
Interest income	115			41
Interest expense	(850		)	(1,192		)
Provision for processing system intrusion costs	(157		)	(303		)
Other, net	—			(437		)
Total other (expense) income	(892		)	(1,891		)
Income before income taxes	22,351			12,671
Provision for income taxes	8,499			4,809
Net income	13,852			7,862
Less: Net income attributable to noncontrolling interests	98			47
Net income attributable to Heartland	$	13,754		$	7,815
Net income	$	13,852		$	7,862
Other comprehensive income:
Unrealized gains on investments, net of income tax of     $7 and $2	11			5
Unrealized losses on derivative financial instruments	(6		)	(46		)
Foreign currency translation adjustment	231			356
Comprehensive income	14,088			8,177
Less: Comprehensive income attributable to       noncontrolling interests	167			154
Comprehensive income attributable      to Heartland	$	13,921		$	8,023
Earnings per common share:
Basic	$	0.35		$	0.20
Diluted	$	0.34		$	0.20
Weighted average number of common      shares outstanding:
Basic	38,837			38,455
Diluted	40,560			39,738

See accompanying notes to condensed consolidated financial statements.

2

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Equity

(In thousands)

(unaudited)

	Heartland Stockholders’ Equity
	Common Stock				Additional Paid-In Capital		Accumulated Other Comprehensive Gain (Loss)			(Accumulated Deficit) Retained Earnings			Treasury Stock			Noncontrolling Minority Interests		Total Equity
	Shares		Amount
Three Months Ended March 31, 2011:
Balance, January 1, 2011	38,415		$	38	$	185,689	$	37		$	(8,471	)	$	—		$	301	$	177,594
Issuance of common      stock– options      exercised	86		1		650		—			—			—			—		651
Excess tax benefit on      stock options exercised	—		—		341		—			—			—			—		341
Stock-based compensation	—		—		1,970		—			—			—			—		1,970
Accumulated other comprehensive income (loss):
Unrealized gains on      available for sale      investments	—		—		—		5			—			—			—		5
Unrealized losses on      derivative financial      instruments	—		—		—		(46		)	—			—			—		(46		)
Foreign currency      translation      adjustment	—		—		—		249			—			—			107		356
Dividends on common      stock	—		—		—		—			(1,540		)	—			—		(1,540		)
Net income for the period	—		—		—		—			7,815			—			47		7,862
Balance March 31, 2011	38,501		$	39	$	188,650	$	245		$	(2,196	)	$	—		$	455	$	187,193
Three Months Ended March 31, 2012:
Balance, January 1, 2012	38,848		$	39	$	207,643	$	(680	)	$	29,236		$	(16,828	)	$	642	$	220,052
Issuance of common      stock – options      exercised	545		1		6,842		—			—			—			—		6,843
Excess tax benefit on      stock options exercised	—		—		1,321		—			—			—			—		1,321
Repurchase of common      stock	(419	)	—		—		—			—			(11,389		)	—		(11,389		)
Stock-based compensation	—		—		2,934		—			—			—			—		2,934
Accumulated other comprehensive income (loss):
Unrealized gains on      available for sale      investments	—		—		—		11			—			—			—		11
Unrealized losses on derivative financial instruments	—		—		—		(6		)	—			—			—		(6		)
Foreign currency      translation      adjustment	—		—		—		162			—			—			69		231
Dividends on common      stock	—		—		—		—			(2,336		)	—			—		(2,336		)
Net income for the period	—		—		—		—			13,754			—			98		13,852
Balance March 31, 2012	38,974		$	40	$	218,740	$	(513	)	$	40,654		$	(28,217	)	$	809	$	231,513

See accompanying notes to condensed consolidated financial statements.

3

Heartland Payment Systems, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flow

(In thousands)

(unaudited)

	Three Months Ended March 31,
	2012			2011
Cash flows from operating activities
Net income attributable to Heartland	$	13,754		$	7,815
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of capitalized customer acquisition costs	11,197			12,381
Other depreciation and amortization	7,383			7,072
Addition to loss reserves	267			1,489
Provision for doubtful receivables	83			700
Stock-based compensation	2,934			1,970
Deferred taxes	3,602			1,675
Net income attributable to noncontrolling interests	98			47
Write downs on fixed assets and system development costs	—			46
Exit costs for service center	—			464
Changes in operating assets and liabilities:
Increase in receivables	(7,268		)	(4,731		)
Decrease (increase) in inventory	792			(606		)
Payment of signing bonuses, net	(7,554		)	(7,116		)
Increase in capitalized customer acquisition costs	(3,968		)	(3,330		)
Decrease (increase) in prepaid expenses	297			(2,177		)
Decrease in current tax assets	2,378			3,904
Increase in deposits and other assets	(28		)	(406		)
Excess tax benefits on options exercised	(1,321		)	(341		)
Increase in reserve for unrecognized tax benefits	219			106
Increase in due to sponsor bank	2,454			9,857
Increase (decrease) in accounts payable	2,614			(2,075		)
(Decrease) increase in accrued expenses and other liabilities	(10,263		)	827
Increase in processing liabilities and loss reserves	5,586			4,831
Payouts of accrued buyout liability	(2,297		)	(3,175		)
Increase in accrued buyout liability	4,207			2,607
Net cash provided by operating activities	25,166			31,834
Cash flows from investing activities
Purchase of investments held to maturity	(206		)	(1,947		)
Maturities of investments held to maturity	575			1,233
Increase in funds held for payroll customers	(11,054		)	(5,379		)
Increase in deposits held for payroll customers	11,073			5,385
Acquisition of business, net of cash acquired	—			(7,598		)
Purchases of property and equipment	(7,361		)	(9,071		)
Net cash used in investing activities	(6,973		)	(17,377		)
Cash flows from financing activities
Principal payments on borrowings	(3,751		)	(11,791		)
Proceeds from exercise of stock options	6,842			650
Excess tax benefits on employee stock-based compensation	1,321			341
Repurchases of common stock	(10,672		)	—
Dividends paid on common stock	(2,336		)	(1,540		)
Net cash used in financing activities	(8,596		)	(12,340		)
Net increase in cash	9,597			2,117
Effect of exchange rates on cash	45			27
Cash at beginning of year	40,301			41,729
Cash at end of period	$	49,943		$	43,873
Supplemental cash flow information:
Cash paid (received) during the period for:
Interest	$	771		$	931
Income taxes	2,302			(876		)

See accompanying notes to condensed consolidated financial statements.

4

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements

(unaudited)

1. Organization and Operations

Basis of Financial Statement Presentation— The accompanying condensed consolidated financial statements include those of Heartland Payment Systems, Inc. (the “Company,” “we,” “us,” or “our”) and its wholly-owned subsidiaries, Heartland Payroll Company (“HPC”), Debitek, Inc. (“Debitek”) and Heartland Acquisition LLC (“Network Services”), and its 70% owned subsidiary Collective POS Solutions Ltd. (“CPOS”). The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions with the Company's subsidiaries have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements are unaudited. In the opinion of the Company's management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the Company's financial position at March 31, 2012, its results of operations, changes in stockholders’ equity and cash flows for the three months ended March 31, 2012 and 2011. Results of operations reported for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2012. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011. The December 31, 2011 condensed consolidated balance sheet was derived from the audited 2011 consolidated financial statements.

Business Description—The Company’s principal business is to provide payment processing services related to bankcard transactions for merchants throughout the United States and Canada. In addition, the Company provides certain other merchant services, including the sale and rental of terminal equipment, loyalty and gift card processing, and the sale of terminal supplies. The Company provides K to 12 School Solutions in the United States including school nutrition and point-of-sale solutions. HPC provides payroll and related tax filing services throughout the United States. Debitek provides prepaid card and stored-value card solutions throughout the United States and Canada. The Company and Debitek also provide campus payment solutions throughout the United States and Canada. CPOS is a Canadian provider of payment processing services and secure point-of-sale solutions.

Over 74% of the Company's revenue is derived from processing and settling Visa and MasterCard bankcard transactions for its merchant customers. Because the Company is not a ''member bank'' as defined by Visa and MasterCard, in order to process and settle these bankcard transactions for its merchants, the Company has entered into sponsorship agreements with member banks. Visa and MasterCard rules restrict the Company from performing funds settlement or accessing merchant settlement funds and require that these funds be in the possession of the member bank until the merchant is funded. A sponsorship agreement permits the Company to route Visa and MasterCard bankcard transactions under the member bank's control and identification numbers to clear credit bankcard transactions through Visa and MasterCard. A sponsorship agreement also enables the Company to settle funds between cardholders and merchants by delivering funding files to the member bank, which in turn transfers settlement funds to the merchants' bank accounts. These restrictions place the settlement assets and obligations under the control of the member bank.

The sponsorship agreements with the member banks require, among other things, that the Company abide by the by-laws and regulations of the Visa and MasterCard networks and certain of the Sponsor banks require a certificate of deposit or a cash balance in a deposit account. If the Company breaches a sponsorship agreement, the Sponsor banks may terminate the agreement and, under the terms of the agreement, the Company would have 180 days to identify an alternative Sponsor banks. The Company is dependent on its Sponsor banks, Visa and MasterCard for notification of any compliance breaches. As of March 31, 2012, the Company has not been notified of any such issues by its Sponsor banks, Visa or MasterCard.

At March 31, 2012, the Company is party to five bank sponsorship agreements. The Company entered into a sponsorship agreement with KeyBank, National Association on April 1, 1999 and on December 22, 2011, the Company entered into an amendment agreement that extended the expiration date of that agreement to October 1, 2012. In 2007, the Company entered into a sponsor bank agreement with Heartland Bank, an unrelated third party. The agreement with Heartland Bank has been renewed through September 2013. In November 2009, the Company entered into a sponsorship agreement with The Bancorp Bank to sponsor the Company's large national and mid-tier merchants processed by Network Services. The agreement with The Bancorp Bank expires in November 2014. On March 24, 2011, the Company entered into a sponsor bank agreement with Barclays Bank Delaware to sponsor certain of the Company's large national merchants processed by Network Services. The agreement with Barclays Bank Delaware expires in March 2016 with an automatic one year renewal.

5

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

On February 8, 2012, the Company entered into a sponsorship agreement with Wells Fargo Bank, N.A. ("WFB"). The WFB sponsorship agreement will continue in full force and effect until February 8, 2016 and will automatically renew for successive three year periods unless either party provides six months' written notice of nonrenewal to the other party. Effective April 30, 2012, the Company entered into an amendment (the “Amendment”) to its sponsorship agreement with WFB.  The Amendment extended the previously disclosed date, from April 30, 2012 to June 30, 2012, after which either party may terminate the sponsorship agreement on 10 days' notice if an agreement related to ACH processing services (the "ACH Agreement") has not been signed.  The Company is currently negotiating the terms of the ACH Agreement with WFB.

Following is a breakout of the Company’s total Visa and MasterCard settled bankcard processing volume for the month ending March 31, 2012 by percentage processed under its individual bank sponsorship agreements:

Sponsor Bank	% of March 2012 Bankcard Processing Volume
KeyBank, National Association	62%
The Bancorp Bank	16%
Barclays Bank Delaware	13%
Heartland Bank	9%

Processing System Intrusion—On January 20, 2009, the Company publicly announced the discovery of a criminal breach of its payment systems environment (the “Processing System Intrusion”). The Processing System Intrusion involved malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being processed by the Company during the transaction authorization process. The Company believes the breach did not extend beyond 2008.

Since its announcement of the Processing System Intrusion on January 20, 2009 and through March 31, 2012, the Company has expensed a total of $147.3 million, before reducing those charges by $31.2 million of total insurance recoveries. The majority of the total charges of approximately $114.7 million relates to settlements of claims. Approximately $32.6 million of the total charges were for legal fees and costs the Company incurred for investigations, defending various claims and actions, remedial actions and crisis management services.

During the three months ended March 31, 2012, the Company incurred approximately $0.2 million, or less than one cent per share, for legal fees and costs it incurred related to the Processing System Intrusion. During the three months ended March 31, 2011, the Company expensed approximately $0.3 million, or less than one cent per share, related to the Processing System Intrusion.

2. Summary of Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates include, among other things, the accrued buyout liability, capitalized customer acquisition costs, goodwill, loss reserves, certain accounts payable and accrued expenses and certain tax assets and liabilities as well as the related valuation allowances, if any. Actual results could differ from those estimates.

Cash and Cash Equivalents—At March 31, 2012, cash included approximately $33.8 million of processing-related cash in transit and collateral, compared to approximately $28.0 million of processing-related cash in transit and collateral at December 31, 2011.

Receivables—Receivables are stated net of allowance for doubtful accounts. The Company estimates its allowance based on experience with its merchants, customers, and sales force and its judgment as to the likelihood of their ultimate payment. The Company also considers collection experience and makes estimates regarding collectability based on trends in aging. Historically, the Company has not experienced significant charge offs for its merchant receivables.

The Company's primary receivables are from its bankcard processing merchants. These receivables result from the Company's practice of advancing interchange fees to most of its small and mid-sized merchants (referred to as Small and Midsized Enterprises, or “SME”) during the month and collecting those fees at the beginning of the following month, as well as from transaction fees the Company charges its merchants for processing transactions. The Company does not advance

6

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

interchange fees to its Network Services Merchants.

Generally, the Company uses cash available for investment to fund these advances to SME merchants; when available cash has been expended, the Company directs its sponsor banks to make these advances, thus generating a payable to the sponsor banks. We pay our sponsor banks the prime rate on these payables. At March 31, 2012, the Company used $39.3 million of its available cash to fund merchant advances and at December 31, 2011, the Company used $40.0 million of its cash to fund merchant advances. The amount due to sponsor banks for funding advances was $46.7 million at March 31, 2012 and $45.2 million at December 31, 2011. The payable to sponsor banks is repaid at the beginning of the following month out of the fees the Company collects from its merchants. Receivables from merchants also include receivables from the sale of point of sale terminal equipment. Unlike the SME merchants, Network Services Merchants are invoiced monthly, on payment terms of 30 days net from date of invoicing.

Receivables also include amounts resulting from the pre-funding of Discover and American Express transactions to some of the Company's merchants and are due from the related bankcard networks. These amounts are recovered the next business day from the date of processing the transaction.

Receivables also include amounts resulting from the sale, installation, training and repair of payment system hardware and software for prepaid card and stored-value card payment systems, campus payment solutions, and K to 12 solutions. These receivables are mostly invoiced on terms of 30 days net from date of invoicing.

Investments and Funds Held for Payroll Customers—Investments, including those carried on the Condensed Consolidated Balance Sheet as Funds held for payroll customers, consist primarily of fixed income bond funds and certificates of deposit. Funds held for payroll customers also include overnight bank deposits. The majority of investments carried in Funds held for payroll customers are available-for-sale and recorded at fair value based on quoted market prices. Certificates of deposit are classified as held to maturity and recorded at cost. In the event of a sale, cost is determined on a specific identification basis. At March 31, 2012, Funds held for payroll customers included cash and cash equivalents of $52.4 million and investments available for sale of $1.2 million.

Capitalized Customer Acquisition Costs, net—Capitalized customer acquisition costs consist of (1) up-front signing bonus payments made to Relationship Managers and sales managers (the Company's sales force) for the establishment of new merchant relationships, and (2) a deferred acquisition cost representing the estimated cost of buying out the commissions of vested sales employees. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through gross margins associated with merchant contracts. The capitalized customer acquisition costs are amortized using a method which approximates a proportional revenue approach over the initial three-year term of the merchant contract.

The up-front signing bonus paid for new SME bankcard, payroll and loyalty marketing accounts is based on the estimated gross margin for the first year of the merchant contract. The signing bonus, amount capitalized, and related amortization are adjusted after one year to reflect the actual gross margin generated by the merchant contract during that year. The deferred customer acquisition cost asset is accrued over the first year of SME bankcard merchant processing, consistent with the build-up in the accrued buyout liability, as described below.

Management evaluates the capitalized customer acquisition costs for impairment by comparing, on a pooled basis by vintage month of origination, the expected future net cash flows from underlying SME merchant relationships to the carrying amount of the capitalized customer acquisition costs. If the estimated future net cash flows are lower than the recorded carrying amount, indicating an impairment of the value of the capitalized customer acquisition costs, the impairment loss will be charged to operations. The Company believes that no impairment has occurred as of March 31, 2012.

Processing Liabilities and Loss Reserves—The majority of the Company's processing liabilities include funds in transit associated with bankcard and check processing. In addition, the Company maintains merchant deposits to offset potential liabilities from merchant chargeback processing. Disputes between a cardholder and a merchant periodically arise due to the cardholder's dissatisfaction with merchandise quality or the merchant's service, and the disputes may not always be resolved in the merchant's favor. In some of these cases, the transaction is ''charged back'' to the merchant and the purchase price is refunded to the cardholder by the credit card-issuing institution. If the merchant is unable to fund the refund, the Company is liable for the full amount of the transaction. The Company's obligation to stand ready to perform is minimal. The Company maintains a deposit or the pledge of a letter of credit from certain merchants as an offset to potential contingent

7

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

liabilities that are the responsibility of such merchants. The Company evaluates its ultimate risk and records an estimate of potential loss for chargebacks related to merchant fraud based upon an assessment of actual historical fraud loss rates compared to recent bankcard processing volume levels. The Company believes that the liability recorded as loss reserves approximates fair value.

Accrued Buyout Liability—The Company'sRelationship Managers and sales managers are paid residual commissions based on the gross margin generated by monthly SME merchant processing activity. The Company has the right, but not the obligation, to buy out some or all of these commissions, and intends to do so periodically. Such purchases of the commissions are at a fixed multiple of the last twelve months' commissions. Because of the Company's intent and ability to execute purchases of the residual commissions, and the mutual understanding between the Company and the Relationship Managers and sales managers, the Company has accounted for this deferred compensation arrangement pursuant to the substantive nature of the plan. The Company therefore records the amount that it would have to pay (the ''settlement cost'') to buy out non-servicing related commissions in their entirety from vested Relationship Managers and sales managers, and an accrual, based on their progress towards vesting, for those unvested Relationship Managers and sales managers who are expected to vest in the future. As noted above, as the liability increases over the first year of a SME merchant contract, the Company also records a related deferred acquisition cost asset for currently vested Relationship Managers and sales managers. The accrued buyout liability associated with unvested Relationship Managers and sales managers is not included in the deferred acquisition cost asset since future services are required in order to vest. Subsequent changes in the estimated Accrued Buyout Liability due to merchant attrition, same-store sales growth and changes in gross margin are included in the same income statement caption as customer acquisition cost amortization expense.

The accrued buyout liability is based on the SME merchants under contract at the balance sheet date, the gross margin generated by those merchants over the prior twelve months, and the contractual buyout multiple. The liability related to a new SME merchant is therefore zero when the merchant is installed, and increases over the twelve months following the installation date. The same procedure is applied to unvested commissions over the expected vesting period, but is further adjusted to reflect the Company's estimate that 31% of unvested Relationship Managers and sales managers become vested.

The classification of the accrued buyout liability between current and non-current liabilities on the Condensed Consolidated Balance Sheet is based upon the Company's estimate of the amount of the accrued buyout liability that it reasonably expects to pay over the next twelve months. This estimate is developed by calculating the cumulative annual average percentage that total historical buyout payments represent of the accrued buyout liability. That percentage is applied to the period-end accrued buyout liability to determine the current portion.

Revenue—Revenues are mainly comprised of gross processing revenue, payroll processing revenue and equipment-related income. Gross processing revenue primarily consists of discount fees, per-transaction fees and periodic fees (primarily monthly) from the processing of Visa, MasterCard, American Express and Discover bankcard transactions for merchants. The Company passes through to its customers any changes in interchange or network fees. Gross processing revenue also includes fees for servicing American Express accounts, customer service fees, fees for processing chargebacks, termination fees on terminated contracts, gift and loyalty card fees, fees generated by our K to 12 Solutions business, and other miscellaneous revenue. Payroll processing revenue includes periodic and annual fees charged by HPC for payroll processing services, and interest earned from investing tax impound funds held for our customers. Revenue is recorded as bankcard and other processing transactions are processed or payroll services are performed.

Equipment-related income includes revenues from the sale, rental and deployment of bankcard and check processing terminals, from the sale of hardware, software and associated services for prepaid card and stored-value card payment systems, and campus payment solutions. Revenues are recorded at the time of shipment, or the provision of service.

Loss Contingencies and Legal Expenses—The Company records a liability for loss contingencies when the liability is probable and the amount is reasonably estimable. Legal fees associated with loss contingencies are recorded when the legal fees are incurred.

The Company records recoveries from its insurance providers when cash is received from the provider.

Other Income (Expense)—Other income (expense) consists of interest income on cash and investments, the interest cost on our borrowings, the gains or losses on the disposal of property and equipment and other non-operating income or expense items. For the three months ended March 31, 2011, other income (expense) included pre-tax charges of $0.5 million reflecting the estimated liability for costs (primarily accrued staff termination costs and fixed asset write downs) associated

8

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

with closing of the Company's Johnson City, Tennessee service center.

Other income (expense) also includes the pretax charges or recoveries related to the Provision for processing system intrusion costs.

Income Taxes—The Company accounts for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates.

The provision for income taxes for the three months ended March 31, 2012 and 2011 and the resulting effective tax rates were as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Provision for income taxes	$	8,499		$	4,809
Effective tax rate	38.0		%	38.0		%

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings, carry back and carry forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.

The Company regularly evaluates its tax positions for additional unrecognized tax benefits and associated interest and penalties, if applicable. There are many factors that are considered when evaluating these tax positions including: interpretation of tax laws, recent tax litigation on a position, past audit or examination history, and subjective estimates and assumptions, which have been deemed reasonable by management. However, if management's estimates are not representative of actual outcomes, the Company's results could be materially impacted. The Company does not expect any material changes to unrecognized tax benefits in the next twelve months. At March 31, 2012, the reserve for unrecognized tax benefits related to uncertain tax positions was $2.0 million, of which $1.3 million would, if recognized, impact the effective tax rate.

Stock–Based Compensation— In the fourth quarter of 2010, the Company's Board of Directors approved grants of 508,800 performance-based Restricted Share Units. These Restricted Share Units are share awards which would vest 50% in 2013, 25% in 2014, and 25% in 2015 only if, over the term of these Restricted Share Units, the following diluted earnings per share targets for the years ended December 31, 2012, 2013 and 2014 are achieved:

	2012	2013	2014
Diluted Earnings Per Share (a)	$1.48	$1.74	$2.04

(a) Calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and excluding the after-tax impact of Stock Compensation Expense.

As of December 31, 2011, management determined that achieving these performance targets was “more likely than not” to occur and began recording share-based compensation expense for these Restricted Share Units. The closing price of the Company's common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

In the fourth quarter of 2011, the Company's Board of Directors approved grants of 164,808 performance-based Restricted Share Units. These Restricted Share Units are nonvested share awards which would vest 50% in 2014 and 50% in 2015 only if the Company achieves a diluted earnings per share compound annual growth rate ("CAGR") of seventeen percent (17%) for the two-year period ending December 31, 2013. Diluted earnings per share will be calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and exclude the after-tax impact of Stock Compensation Expense. For each 1% that the CAGR actually achieved by the Company for the two yearperiod ending on December 31, 2013 is above the 17% target, the number of shares underlying the Restricted Share Units awarded would be increased by 3.09%; provided, however, that the maximum increase in the number of shares that may be awarded is 100%. Likewise, for each 1% that the CAGR actually achieved by the Company for the two-yearperiod ending on December 31, 2013 is below the 17% target, the number of shares underlying the Restricted Share Units awarded would be decreased by 1.13%. If the target CAGR is missed by 80%

9

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

or more, then the number of shares awarded is zero.

As of December 31, 2011, management determined that achieving the 17%two-year CAGR target was “more likely than not” to occur and began recording share-based compensation expense for these Restricted Share Units based on the number of shares which would vest at the 17%two-year CAGR target. The closing price of the Company's common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

Diluted earnings per share for the three months ended March 31, 2012 and 2011 were computed based on the weighted average outstanding common shares plus equivalent shares assuming exercise of stock options and vesting of Restricted Share Units, where dilutive.

Common Stock Repurchases. On October 21, 2011, the Company's Board of Directors authorized the repurchase of up to $50 million worth of the Company's outstanding common stock. Repurchases under this program will be made through the open market, or in privately negotiated transactions, from time to time in accordance with applicable laws and regulations. The Company intends to fund any repurchases with cash flow from operations, existing cash on the balance sheet, and other sources including the proceeds of options exercises. The manner, timing and amount of repurchases, if any, will be determined by management and will depend on a variety of factors, including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements. The repurchase program may be modified or discontinued at any time.

Under this authorization from its Board of Directors, during the three months ended March 31, 2012 and the year ended December 31, 2011, respectively, the Company repurchased an aggregate of 419,249 shares of its common stock at a total cost of $11.4 million, at an average cost of $27.16 per share, and 778,889 shares of its common stock at a total cost of $16.8 million, at an average cost of $21.61 per share. No common stock was repurchased in the three months ended March 31, 2011. At March 31, 2012, the Company had remaining authorization to repurchase up to $21.8 million worth of its common stock.

Derivative Financial Instruments—The Company utilizes derivative instruments to manage interest rate risk on its borrowings under its Second Amended and Restated Credit Agreement. The Company recognizes the fair value of derivative financial instruments in the Condensed Consolidated Balance Sheets in investments, or accrued expenses and other liabilities. Changes in fair value of derivative instruments are recognized immediately in earnings unless the derivative is designated and qualifies as a hedge of future cash flows. For derivatives that qualify as hedges of future cash flows, the effective portion of changes in fair value is recorded in other comprehensive income and reclassified into interest expense in the same periods during which the hedged item affects earnings. Any ineffectiveness of cash flow hedges would be recognized in other income (expense) in the Condensed Consolidated Statements of Income and Comprehensive Income during the period of change.

In January 2011, the Company entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million as a hedge of future cash flows on the variable rate debt outstanding under its Term Credit Facility. These interest rate swaps convert the related notional amount of variable rate debt to fixed rate. At March 31, 2012, the remaining notional amount of these interest rate swaps was $40.6 million and the fair value of these interest rate swaps, $0.9 million, was recorded as a liability in accrued expenses and other liabilities. The related deferred tax benefit was $0.3 million.

Foreign Currency—The Canadian dollar is the functional currency of CPOS, which operates in Canada. CPOS' revenues and expenses are translated at the average exchange rates prevailing during the period. The foreign currency assets and liabilities of CPOS are translated at the period-end rate of exchange. The resulting translation adjustment is allocated between the Company and CPOS' noncontrolling interests and is recorded as a component of other comprehensive income or noncontrolling interests in total equity. At March 31, 2012 and 2011, the cumulative foreign currency translation reflected a loss of $0.1 million and a gain of $0.2 million, respectively. The Company intends to indefinitely reinvest undistributed earnings of CPOS and has not tax affected the cumulative foreign currency translation gain or loss. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not material.

Noncontrolling Interests— Noncontrolling interests represent noncontrolling minority stockholders' share of the equity and after-tax net income or loss of consolidated subsidiaries. Noncontrolling minority stockholders' share of after-tax net income or loss of consolidated subsidiaries is included in “Net income attributable to noncontrolling interests” in the Condensed Consolidated Statement of Income and Comprehensive Income. The minority stockholders’ interests included in “noncontrolling interests” in the March 31, 2012 and December 31, 2011 Condensed Consolidated Balance Sheet were $809,000 and $642,000, respectively, and reflect the original investments by these minority shareholders in the consolidated

10

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

subsidiaries, along with their proportionate share of the earnings or losses of the subsidiaries.

Subsequent Events—The Company evaluated subsequent events with respect to the Consolidated Financial Statements as of and for the three months ended March 31, 2012.

New Accounting Pronouncements— In May 2011, the FASB issued an accounting standard update which addresses changes to concepts regarding performing fair value measurements including: (i) the application of the highest and best use and valuation premise; (ii) the valuation of an instrument classified in the reporting entity's shareholder equity; (iii) the valuation of financial instruments that are managed within a portfolio; and (iv) the application of premiums and discounts.  This update also enhances disclosure requirements about fair value measurements, including providing information regarding Level 3 measurements such as quantitative information about unobservable inputs, further discussion of the valuation processes used and assumption sensitivity analysis.  The update is effective for interim and annual periods beginning after December 15, 2011. The implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In June 2011, the FASB issued an accounting standard update which amends the comprehensive income topic of the current codification. The update eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. The update is effective for interim and annual periods beginning after December 15, 2011. The implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In September 2011, the FASB issued an accounting standard update on testing goodwill for impairment. This guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (early adoption is permitted). The Company has early adopted the update and the implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In December 2011, the FASB issued an accounting standard update on disclosures about offsetting assets and liabilities. This guidance requires entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on the entity's financial position. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with current literature or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. The update is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The implementation of this update is not expected to have a material effect on the Company's Consolidated Financial Statements.

3. Acquisitions

The Company initiated its K to 12 School Solutions product through its acquisitions of the school solutions businesses operated by Lunchbox, Comalex, mySchoolBucks, and School-Link Technologies. Lunchbox, Comalex, mySchoolBucks, and School-Link Technologies serve approximately 4,400, 3,700, 900 and 10,000 schools, respectively. The combined Heartland School Solutions develops, manufactures, sells, services and maintains computer software designed to facilitate accounting and management functions of school food service operations. These acquisitions provide the Company with the ability to offer Internet payment capability to parents, which facilitates on-line deposits of funds into student accounts and enables schools to operate more efficiently. The Company plans to consolidate the individual platforms and products of Lunchbox, Comalex, mySchoolBucks, and School-Link Technologies to optimize synergies, cost efficiencies and product offerings to customers. Pro forma results of operations have not been presented because the effect of these acquisitions was not material. The entire amount of goodwill is expected to be deductible for income tax reporting. Details of the individual acquisition transactions follow:

Lunchbox

On December 30, 2010, the Company purchased for a $7.7 million cash payment the net assets of the K to 12 School Solutions business previously operated by Lunchbox. The acquisition was financed through a combination of cash on hand and

11

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

our credit facilities. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning December 30, 2010, Lunchbox's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $6.0 million to goodwill, $1.9 million to intangible assets and $0.2 million to net tangible liabilities.

Comalex, Inc.

On January 12, 2011, the Company purchased for a $6.1 million cash payment the net assets of Comalex, Inc. The acquisition was funded with cash on hand. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning January 12, 2011, Comalex's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $4.9 million to goodwill, $1.8 million to intangible assets and $0.6 million to net tangible liabilities.

mySchoolBucks, LLC

On February 4, 2011, the Company purchased for a $1.5 million cash payment the net assets of mySchoolBucks, LLC. The acquisition was funded with cash on hand. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning February 4, 2011, mySchoolBucks' results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $1.0 million to goodwill and $0.5 million to intangible assets.

School-Link Technologies, Inc.

On September 30, 2011, the Company purchased for a $15.6 million cash payment the net assets of School-Link Technologies, Inc. The acquisition was funded with cash on hand. The transaction was accounted for under the purchase method of accounting. Beginning October 1, 2011, School Link's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $28.7 million to goodwill, $4.3 million to intangible assets and $17.4 million to net tangible liabilities. The fair values of the School-Link Technologies' assets acquired and liabilities assumed were estimated as of their acquisition date. The fair values are preliminary, based on estimates, and may be adjusted as more information becomes available and valuations are finalized.

4. Receivables

A summary of receivables by major class was as follows at March 31, 2012 and December 31, 2011:

	March 31, 2012			December 31, 2011
	(In thousands)
Accounts receivable from merchants	$	158,567		$	151,228
Receivables from bankcard networks	23,850			24,301
Accounts receivable from others	2,769			2,457
	185,186			177,986
Less allowance for doubtful accounts	(1,453		)	(1,451		)
Total receivables, net	$	183,733		$	176,535

Included in accounts receivable from others are amounts due from employees which are $0.5 million and $0.6 million at March 31, 2012 and December 31, 2011, respectively. Accounts receivable related to bankcard networks are primarily amounts which were pre-funded to merchants for processing Discover and American Express bankcard transactions as well as amounts due from Visa for PIN debit transactions.

A summary of the activity in the allowance for doubtful accounts for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	1,451		$	683
Additions to allowance	83			700
Charges against allowance	(81		)	(485		)
Ending balance	$	1,453		$	898

12

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

5. Funds Held for Payroll Customers and Investments

A summary of Funds held for payroll customers and investments, including the cost, gross unrealized gains (losses) and estimated fair value for investments held to maturity and investments available-for-sale by major security type and class of security were as follows at March 31, 2012 and December 31, 2011:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
March 31, 2012
Funds Held for Payroll Customers:
Fixed income bond fund - available for sale	$	968	$	208	$	—	$	1,176
Cash held for payroll customers	52,408		—		—		52,408
Total Funds Held for Payroll Customers	$	53,376	$	208	$	—	$	53,584
Investments:
Investments held to maturity – Certificates of deposit (a)	$	2,157	$	—	$	—	$	2,157
Total investments	$	2,157	$	—	$	—	$	2,157

(a) Certificates of deposit have remaining terms ranging from 3 months to 17 months.

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
December 31, 2011
Funds Held for Payroll Customers:
Fixed income bond fund - available for sale	$	968	$	190	$	—	$	1,158
Cash held for payroll customers	41,353		—		—		41,353
Total Funds Held for Payroll Customers	$	42,321	$	190	$	—	$	42,511
Investments:
Investments held to maturity – Certificates of deposit	$	2,505	$	—	$	—	$	2,505
Total investments	$	2,505	$	—	$	—	$	2,505

During the three months ended March 31, 2012 and during the twelve months ended December 31, 2011, the Company did not experience any other-than-temporary losses on its investments. The maturity schedule of all available-for-sale debt securities and held to maturity investments along with amortized cost and estimated fair value as of March 31, 2012 is as follows:

	Amortized Cost		Estimated Fair Value
	(In thousands)
Due in one year or less	$	3,025	$	3,233
Due after one year through five years	100		100
	$	3,125	$	3,333

6. Capitalized Customer Acquisition Costs, Net

A summary of net capitalized customer acquisition costs as of March 31, 2012 and December 31, 2011 was as follows:

13

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

	March 31, 2012			December 31, 2011
	(In thousands)
Capitalized signing bonuses	$	86,163		$	86,837
Less accumulated amortization	(44,218		)	(45,125		)
	41,945			41,712
Capitalized customer deferred acquisition costs	36,650			36,564
Less accumulated amortization	(23,256		)	(23,262		)
	13,394			13,302
Capitalized customer acquisition costs, net	$	55,339		$	55,014

A summary of the activity in capitalized customer acquisition costs, net for the three month periods ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Balance at beginning of period	$	55,014		$	59,251
Plus additions to:
Capitalized signing bonuses, net	7,554			7,116
Capitalized customer deferred acquisition costs	3,968			3,330
	11,522			10,446
Less amortization expense on:
Capitalized signing bonuses, net	(7,321		)	(8,514		)
Capitalized customer deferred acquisition costs	(3,876		)	(3,867		)
	(11,197		)	(12,381		)
Balance at end of period	$	55,339		$	57,316

Net signing bonus adjustments from estimated amounts to actual were $(0.6) million and $(0.2) million, respectively, for the three months ended March 31, 2012 and 2011. Net signing bonus adjustments are netted against additions in the table above. Negative signing bonus adjustments occur when the actual gross margin generated by the merchant contract during the first year is less than the estimated gross margin for that year, resulting in the overpayment of the up-front signing bonus and would be recovered from the relevant salesperson. Positive signing bonus adjustments result from the prior underpayment of signing bonuses and would be paid to the relevant salesperson.

Fully amortized signing bonuses of $8.0 million and $12.3 million respectively, were written off during the three month periods ended March 31, 2012 and 2011. In addition, fully amortized customer deferred acquisition costs of $3.9 million and $3.8 million, respectively, were written off during the three months ended March 31, 2012 and 2011.

The Company believes that no impairment of capitalized customer acquisition costs has occurred as of March 31, 2012.

7. Intangible Assets and Goodwill

Intangible Assets — Intangible assets consisted of the following as of March 31, 2012 and December 31, 2011:

	March 31, 2012						Amortization Life and Method
	Gross Assets		Accumulated Amortization		Net Asset
	(In thousands)
Finite Lived Assets:
Customer relationships	$	33,179	$	6,066	$	27,113	3 to 18 years—proportional cash flow
Merchant portfolio	3,345		1,956		1,389		7 years—proportional cash flow
Software	10,018		8,740		1,278		2 to 5 years—straight line
Non-compete agreements	2,795		1,236		1,559		3 to 5 years—straight line
Other	480		406		74		2 to 9 years—straight line
	$	49,817	$	18,404	$	31,413

14

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

	December 31, 2011						Amortization Life and Method
	Gross Assets		Accumulated Amortization		Net Asset
	(In thousands)
Finite Lived Assets:
Customer relationships	$	33,166	$	5,406	$	27,760	3 to 18 years—proportional cash flow
Merchant Portfolio	3,345		1,819		1,526		7 years—proportional cash flow
Software	10,078		8,612		1,466		2 to 5 years—straight line
Non-compete agreements	2,794		1,126		1,668		3 to 5 years—straight line
Other	457		379		78		2 to 9 years—straight line
	$	49,840	$	17,342	$	32,498

Amortization expense related to the intangible assets was $1.1 million and $1.5 million, respectively, for the three months ended March 31, 2012 and 2011. The estimated remaining amortization expense related to intangible assets in twelve month increments is as follows:

For the Twelve Months Ended March 31,
	(In thousands)
2013	$	4,293
2014	3,904
2015	3,471
2016	3,147
2017	2,304
Thereafter	14,294
	$	31,413

Goodwill — The changes in the carrying amount of goodwill for the three months ended March 31, 2012 and 2011 were as follows:

	Three Months Ended March 31,
	2012		2011
	(In thousands)
Beginning balance	$	103,399	$	68,319
Goodwill acquired during the period	—		5,987
Effects of foreign currency translation	162		279
Other (a)	—		456
Ending balance	$	103,561	$	75,041

(a)Reflects adjustments to allocations of purchase price.

8. Processing Liabilities and Loss Reserves

The majority of our processing liabilities include funds in transit associated with bankcard and check processing. In addition, we maintain merchant deposits to offset potential liabilities from merchant chargeback processing. A summary of processing liabilities and loss reserves was as follows at March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
	(In thousands)
Merchant bankcard processing	$	13,270	$	10,295
Check processing	12,015		8,594
Merchant deposits	9,298		9,839
Loss reserves	1,960		1,961
	$	36,543	$	30,689

The Company's merchants have the liability for any charges properly reversed by the cardholder through a mechanism known as a chargeback. If the merchant is unable to pay this amount, the Company will be liable to the card brand networks for the reversed charges. The Company has determined that the fair value of its obligation to stand ready to perform

15

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

is minimal. The Company requires personal guarantees and merchant deposits from certain merchants to minimize its obligation.

The card brand networks generally allow chargebacks up to four months after the later of the date the transaction is processed or the delivery of the product or service to the cardholder. As the majority of the Company's SME merchant transactions involve the delivery of the product or service at the time of the transaction, a reasonable basis for determining an estimate of the Company's exposure to chargebacks is the last four months' processing volume on the SME portfolio, which was $22.6 billion and $22.3 billion for the four months ended March 31, 2012 and December 31, 2011, respectively. However, for the four months ended March 31, 2012 and December 31, 2011, the Company was presented with $11.2 million and $12.2 million, respectively, in chargebacks by issuing banks. In the three months ended March 31, 2012 and 2011, the Company incurred merchant credit losses of $0.2 million and $1.3 million, respectively, on total SME bankcard dollar volumes processed of $16.7 billion and $15.4 billion, respectively. These credit losses are included in processing and servicing costs in the Company's Condensed Consolidated Statement of Income and Other Comprehensive Income.

The loss recorded by the Company for chargebacks associated with any individual merchant is typically small, due both to the relatively small size and the processing profile of the Company's SME merchants. However, from time to time the Company will encounter instances of merchant fraud, and the resulting chargeback losses may be considerably more significant to the Company. The Company has established a contingent reserve for estimated credit and fraud losses on its Condensed Consolidated Balance Sheet, amounting to $2.0 million on March 31, 2012 and December 31, 2011. This reserve is determined by performing an analysis of the Company's historical loss experience applied to current processing volume and exposures.

A summary of the activity in the loss reserve for the three month periods ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	1,961		$	1,667
Additions to reserve	267			1,489
Charges against reserve (a)	(268		)	(1,417		)
Ending balance	$	1,960		$	1,739

(a) Included in these amounts are payroll segment losses of $12,000 and $59,000, respectively, for the three months ended March 31, 2012 and 2011.

9. Accrued Buyout Liability

A summary of the accrued buyout liability was as follows as of March 31, 2012 and December 31, 2011:

	March 31, 2012			December 31, 2011
	(In thousands)
Vested Relationship Managers and sales managers	$	32,425		$	30,269
Unvested Relationship Managers and sales managers	1,143			1,389
	33,568			31,658
Less current portion	(8,862		)	(8,104		)
Long-term portion of accrued buyout liability	$	24,706		$	23,554

In calculating the accrued buyout liability for unvested Relationship Managers and sales managers, the Company has assumed that 31% of the unvested Relationship Managers and sales managers will vest in the future, which represents the Company’s historical vesting rate. A 5% increase to 36% in the expected vesting rate would have increased the accrued buyout liability for unvested Relationship Managers and sales managers by $0.1 million at March 31, 2012 and December 31, 2011.

A summary of the activity in the accrued buyout liability for the three months ended March 31, 2012 and 2011 was as follows:

16

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	31,658		$	28,810
Increase in settlement obligation, net	4,207			2,607
Buyouts	(2,297		)	(3,175		)
Ending balance	$	33,568		$	28,242

10. Credit Facilities

On November 24, 2010, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders who are a party to the Credit Agreement. Credit extended under the Credit Agreement is guaranteed by the Company's subsidiaries and is secured by substantially all of its assets and the assets of its subsidiaries. The Credit Agreement amended and restated in its entirety the previous amended and restated credit agreement entered into on May 30, 2008, as amended (the “Previous Credit Agreement”), between the Company and certain of the parties to the Credit Agreement.

The Credit Agreement provides for a revolving credit facility in the aggregate amount of up to $50 million (the “Revolving Credit Facility”), of which up to $10 million may be used for the issuance of letters of credit and up to $5 million is available for swing line loans. Upon the prior approval of the administrative agent, the Company may increase the total revolving commitments by $50 million for a total commitment under the Revolving Credit Facility of $100 million. The Revolving Credit Facility is available to the Company on a revolving basis until November 24, 2015. All principal and interest not previously paid on the Revolving Credit Facility will mature and be due and payable on November 24, 2015.

The Credit Agreement also provides for a term credit facility in the aggregate amount of up to $100 million (the “Term Credit Facility”). The Term Credit Facility requires amortization payments in the amount of $3.75 million for each fiscal quarter during the fiscal years ended December 31, 2011 and 2012, $5.0 million for each fiscal quarter during the fiscal years ended December 31, 2013 and 2014, and $7.5 million for each fiscal quarter during the period commencing on January 1, 2015 through the maturity date on November 24, 2015. All principal and interest not previously paid on the Term Credit Facility will mature and be due and payable on November 24, 2015. Amounts borrowed and repaid under the Term Credit Facility may not be re-borrowed. Principal payments due under the Term Credit Facility as of March 31, 2012 were as follows:

For the Twelve Months Ended March 31,	(In thousands)
2013	$	16,250
2014	20,000
2015	22,500
2016	22,500
	$	81,250

The Credit Agreement contains covenants which include: the Company's maintenance of certain leverage and fixed charge coverage ratios; limitations on its indebtedness, liens on its properties and assets, its investments in, and loans to other business units, its ability to enter into business combinations and asset sales; and certain other financial and non-financial covenants. These covenants also apply to certain of the Company's subsidiaries. The Company was in compliance with these covenants as of March 31, 2012 and expects it will remain in compliance with these covenants for at least the next twelve months.

Under the terms of the Credit Agreement, the Company may borrow, at its option, at interest rates equal to one, two, three or six month adjusted LIBOR rates, or equal to the greater of the prime rate, the federal funds rate plus 0.50% and the adjusted LIBOR rate plus 1%, in each case plus a margin determined by its current leverage ratio. The weighted average interest rate at March 31, 2012 was 2.5%. Total fees and direct costs paid for the Credit Agreement through March 31, 2012 were $1.3 million. These costs are being amortized to interest expense over the life of the Amended and Restated Credit Agreement.

At March 31, 2012, there was $81.3 million outstanding under the Term Credit Facility and no borrowings outstanding under the Revolving Credit Facility.

17

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

11. Commitments and Contingencies

Litigation—The Company is involved in ordinary course legal proceedings, which include all claims, lawsuits,investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business and otherwise not described below. The Company has considered all such ordinary course legal proceedings in formulating its disclosures and assessments. In the opinion of the Company, based on consultations with outside counsel, material losses in addition to amounts previously accrued are not considered reasonably possible in connection with these ordinary course legal proceedings.

The Company has also been subject to lawsuits, claims, and investigations which resulted from the Processing System Intrusion. See Contingencies below for a description of the Processing System Intrusion.

Contingencies—The Company collects and stores sensitive data about its merchant customers and bankcard holders. If the Company’s network security is breached or sensitive merchant or cardholder data is misappropriated, the Company could be exposed to assessments, fines or litigation costs.

On January 20, 2009, the Company publicly announced the Processing System Intrusion. The Processing System Intrusion involved malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being processed by the Company during the transaction authorization process. See Note 1. Organization and Operations - Processing System Intrusion for total expenses incurred, including amounts paid for settlement of claims, related to the Processing System Intrusion.

The Company does not consider it a reasonable possibility that losses exceeding the amounts already recognized on the matters subject to the settlement agreements will be incurred. With regard to the unsettled claims related to the Processing System Intrusion, which the Company described in its Annual Report on Form 10-K for the year ended December 31, 2011, the Company determined material losses in addition to those previously expensed are not considered reasonably possible on any such claim disclosed. The Company is prepared to vigorously defend itself against any unsettled claims relating to the Processing System Intrusion that have been asserted against it and its sponsor banks to date. The Company feels it has strong defenses to all the claims that have been asserted against it and its sponsor banks relating to the Processing System Intrusion.

Leases—The Company leases various office spaces and certain equipment under operating leases with remaining terms ranging up to nine years. The majority of the office space lease agreements contain renewal options and generally require the Company to pay certain operating expenses.

Future minimum lease payments for all non-cancelable leases as of March 31, 2012 were as follows:

For the Twelve Months Ended March 31,	Operating Leases (a)
	(In thousands)
2013	$	7,802
2014	5,452
2015	3,788
2016	1,957
2017	1,866
Thereafter	4,090
Total future minimum lease payments	$	24,955

(a) There were no material capital leases at March 31, 2012.

Rent expense for leased facilities and equipment was $2.0 million and $2.2 million, respectively, for the three months ended March 31, 2012 and 2011.

Commitments—Certain officers of the Company have entered into employee confidential information and non-competition agreements under which they are entitled to severance pay equal to their base salary and medical benefits for twelve months and a pro-rated bonus in the event they are terminated by the Company other than for cause. There were no payouts under these agreements in the three months ended March 31, 2012.

The following table reflects the Company’s other significant contractual obligations, including leases from above, as of March 31, 2012:

18

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 Years		3 to 5 years		More than 5 years
	(In thousands)
Processing providers (a)	$	25,277	$	9,658	$	11,849	$	3,770	$	—
Telecommunications providers	3,117		3,117		—		—		—
Office and equipment leases	24,955		7,802		9,240		3,823		4,090
Term Credit Facility (b)	81,250		16,250		42,500		22,500		—
	$	134,599	$	36,827	$	63,589	$	30,093	$	4,090

(a) The Company has agreements with several third-party processors to provide to us on a non-exclusive basis payment processing and transmittal, transaction authorization and data capture services, and access to various reporting tools. Our agreements with third-party processors require the Company to submit a minimum monthly number of transactions or volume for processing. If the Company submits a number of transactions or volume that is lower than the minimum, it is required to pay the third-party processors the fees that they would have received if the Company had submitted the required minimum number or volume of transactions.

(b) Interest rates on the Term Credit Facility are variable in nature; however, in January 2011 we entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million and a current notional amount of $40.6 million. If interest rates were to remain at the March 31, 2012 level, we would make interest payments of $2.5 million in the next 1 year, $3.1 million in the next 1 to 3 years and $0.3 million in the next 3 to 5 years or a total of $5.9 million including net settlements on the fixed-pay amortizing interest rate swaps. In addition, we had no outstanding amounts under our Revolving Credit Facility at March 31, 2012. The Revolving Credit Facility is available on a revolving basis until November 24, 2015.

12. Segments

The determination of the Company's business segments is based on how the Company monitors and manages the performance of its operations. The Company's operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies, personnel skill sets and technology.

The Company has two reportable segments, as follows: (1) Card, which provides payment processing and related services for bankcard transactions; and (2) Other. The Card segment includes CPOS, our Canadian payments processing subsidiary, and Network Services. The Other segment includes Payroll, which provides payroll and related tax filing services, PrepaidCard, which provides prepaid card, stored-value card and loyalty and gift card solutions, and Heartland School Solutions, which provides point-of-sale platforms designed to facilitate food service operations. None of these Other segments meet the defined thresholds for determining individually reportable segments.

The Company allocates revenues, expenses, assets and liabilities to segments only where directly attributable. The unallocated corporate administration amounts are costs attributed to finance, corporate administration, human resources and corporate services. At March 31, 2012 and 2011, 38% and 45% respectively, of the Other segment's total assets were funds that the Company holds as a fiduciary in its Payroll services activities for payment to taxing authorities. Reconciling items include eliminations of intercompany investments and receivables.

A summary of the Company’s segments for the three month periods ended March 31, 2012 and 2011 was as follows:

19

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

	Card Segment		Other Segment		Unallocated Corporate Administration Amounts			Reconciling Items			Total Amount
	(In thousands)
Three Months Ended March 31, 2012
Total revenues	$	447,219	$	23,330	$	—		$	(64	)	$	470,485
Depreciation and amortization	6,602		725		56			—			7,383
Interest income	115		—		—			—			115
Interest expense	912		2		—			(64		)	850
Net income (loss) attributable to Heartland	16,064		2,090		(4,400		)	—			13,754
Total assets	644,491		142,382		—			(162,665		)	624,208
Three Months Ended March 31, 2011
Total revenues	$	454,998	$	12,698	$	—		$	(50	)	$	467,646
Depreciation and amortization	6,146		801		125			—			7,072
Interest income	41		—		—			—			41
Interest expense	1,240		2		—			(50		)	1,192
Net income (loss) attributable to Heartland	11,495		599		(4,279		)	—			7,815
Total assets	646,388		93,400		—			(155,450		)	584,338

13. Earnings Per Share

The Company presents earnings per share data following the established standards for the computation and presentation of basic and diluted earnings per share data. Under these standards, the dilutive effect of stock options is excluded from the calculation of basic earnings per share but included in diluted earnings per share. The following is a reconciliation of the amounts used to calculate basic and diluted earnings per share:

	Three Months Ended March 31,
	2012		2011
	(In thousands, except per share data)
Basic:
Net income attributable to Heartland	$	13,754	$	7,815
Weighted average common stock outstanding	38,837		38,455
Earnings per share	$	0.35	$	0.20
Diluted:
Net income attributable to Heartland	$	13,754	$	7,815
Basic weighted average common stock outstanding	38,837		38,455
Effect of dilutive instruments:
Stock options and restricted share units	1,723		1,283
Diluted weighted average shares outstanding	40,560		39,738
Earnings per share	$	0.34	$	0.20

14. Fair Value of Financial Instruments

The Company applies a fair value framework in order to measure and disclose its financial assets and liabilities which include fixed income equity securities, interest swap derivatives and certain other financial instruments. The Company determines fair value based on quoted prices when available or through the use of alternative approaches when market quotes are not readily accessible or available. The Company carries its liabilities at fair value, including its derivative liabilities.

The Company’s framework for measuring fair value provides a three-level hierarchy, which prioritizes the factors (inputs) used to calculate the fair value of assets and liabilities as follows:

• Level 1 inputs are unadjusted quoted prices, such as a New York Stock Exchange closing price, in active markets for identical assets. Level 1 is the highest priority in the hierarchy.

20

Heartland Payment Systems, Inc. and Subsidiaries

Notes To Condensed Consolidated Financial Statements—(Continued)

(unaudited)

• Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as other significant inputs that are observable at commonly quoted intervals, such as interest rates, foreign exchange rates, and yield curves.

• Level 3 inputs are unobservable and are based on company assumptions due to little, if any, observable market information. Level 3 is the lowest priority in the hierarchy.

For the three months ended March 31, 2012, there have been no transfers between Level 1 and Level 2 categories. The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2012 and at December 31, 2011:

March 31, 2012	Total		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:	(In thousands)
Investments available for sale:
Fixed income bond fund (a)	$	1,176	$	1,176	$	—
Investments held to maturity:
Certificates of deposit	2,157		—		2,157
Total Assets	$	3,333	$	1,176	$	2,157
Liabilities:
Interest rate swaps	$	909	$	—	$	909
Total Liabilities	$	909	$	—	$	909

December 31, 2011	Total		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:	(In thousands)
Investments available for sale:
Fixed income bond fund (a)	$	1,158	$	1,158	$	—
Investments held to maturity:
Certificates of deposit	2,505		—		2,505
Total Assets	$	3,663	$	1,158	$	2,505
Liabilities:
Interest rate swaps	$	897	$	—	$	897
Total Liabilities	$	897	$	—	$	897

(a) amounts included in Funds held for payroll customers on the Consolidated Balance Sheet

At March 31, 2012 and December 31, 2011, all investments in available-for-sale securities held by the Company were measured using Level 1 inputs and all held to maturity investments held by the Company were measured using Level 2 inputs.

The Company’s liabilities include interest rate swaps that are measured at fair value using observable market inputs including the Company’s credit risk and its counterparties’ credit risks. Based on these inputs, the interest rate swaps are classified within Level 2 of the valuation hierarchy. Based on the Company’s continued ability to enter into these swaps, the Company considers the markets for its fair value instruments to be active.

The carrying amounts of the Company's cash and cash equivalents and cash held for payroll customers approximate fair value as of March 31, 2012 and December 31, 2011, because they bear interest at market rates and had maturities of less than 90 days at the time of purchase. This fair value measurement is classified as Level 1. The carrying amount of the Company's accounts receivable, accounts payable, and accrued expenses approximates fair value as of March 31, 2012 and December 31, 2011, because of the relatively short timeframe to realization. This fair value measurement is classified as Level 2.

21

PART I. FINANCIAL INFORMATION (continued)

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the accompanying notes to condensed consolidated financial statements included elsewhere in this report, and the consolidated financial statements, notes to consolidated financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations and the risk factors contained in our Annual Report on Form 10-K for the year ended December 31, 2011 (the “2011 Form 10-K”).

Forward Looking Statements

Unless the context requires otherwise, references in this report to “the Company,” “we,” “us,” and “our” refer to Heartland Payment Systems, Inc. and our subsidiaries.

Some of the information in this Quarterly Report on Form 10-Q may contain forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements include the information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate” or similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in the forward-looking statements. You should understand that many important factors, in addition to those discussed elsewhere in this report, could cause our results to differ materially from those expressed in the forward-looking statements. Some of these factors are described in Item 1A. Risk Factors of the 2011 Form 10-K and include, without limitation, our competitive environment, the business cycles and credit risks of our merchants, chargeback liability, merchant attrition, problems with our Sponsor banks, our relationships with third-party bankcard payment processors, our inability to pass increased interchange fees along to our merchants, economic conditions, systems failures and government regulation.

Overview

General

Our primary business is to provide bankcard payment processing services to merchants in the United States and Canada. This involves facilitating the exchange of information and funds between merchants and cardholders' financial institutions, providing end-to-end electronic payment processing services to merchants, including merchant set-up and training, transaction authorization and electronic draft capture, clearing and settlement, merchant accounting, merchant assistance and support, and risk management. Our merchant customers primarily fall into two categories: our core small and mid-sized merchants (referred to as "Small and Midsized Enterprises," or “SME merchants”) and Network Services' large national and mid-tier merchants, primarily in the petroleum industry (referred to as “Network Services Merchants”). We also provide additional services to our merchants, such as payroll processing, gift and loyalty programs, paper check processing, and we sell and rent point-of-sale devices and supplies. In addition, we provide closed and open-loop payment solutions, and other transactional services to the college market, and school nutrition and point-of-sale solutions to K to 12 schools.

At March 31, 2012, we provided our bankcard payment processing services to approximately 172,153 active SME merchants located across the United States. This compares to 171,801 active SME bankcard merchants at December 31, 2011, and 174,538 active SME bankcard merchants at March 31, 2011. At March 31, 2012, we provided bankcard payment processing services through Network Services Merchants to 223 merchants with 54,613 locations. Additionally, at March 31, 2012, we provided bankcard payment processing services to over 10,800 merchants in Canada through our 70% owned subsidiary Collective POS Solutions Ltd. (“CPOS”). According to The Nilson Report, in 2011, we were the 6^th largest card acquirer in the United States ranked by transaction count and the 9^th largest acquirer by processed dollar volume, which consists of both credit and debit Visa, MasterCard, American Express, Discover, Diners Club, and JCB transactions. These rankings represented 2.8 billion transactions and 4% of the total bankcard processing market, respectively.

Our total bankcard processing volume for the three months ended March 31, 2012 was $23.4 billion, a 25.2% increase from the $18.7 billion processed during the three months ended March 31, 2011. Our SME bankcard processing volume for the three months ended March 31, 2012 was $16.7 billion , an increase of 8.3% over the three months ended March 31, 2011 reflecting increases for same store sales growth, new SME merchants installed, and growth in American Express and Discover processing. We include American Express volume in our SME bankcard processing volume only where we receive percentage-

22

based residual compensation for that volume. Our bankcard processing volume for the three months ended March 31, 2012 also includes $6.5 billion of settled volume for Network Services Merchants, compared to $3.1 billion for the three months ended March 31, 2011. Bankcard processing volume for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012		2011
	(In millions)
SME merchants	$	16,699	$	15,425
Network Services Merchants	6,517		3,112
Canada	163		136
Total bankcard processing volume (a)	$	23,379	$	18,673

(a) Bankcard processing volume includes volume for credit and signature debit transactions.

Merchant attrition is expected in the card payment processing industry in the ordinary course of business. We experience attrition in merchant bankcard processing volume resulting from several factors, including business closures, transfers of merchants' accounts to our competitors and account closures that we initiate due to heightened credit risks relating to, or contract breaches by, merchants, and (when applicable) same store sales contraction. We measure SME processing volume attrition against all SME merchants that were processing with us in the same month a year earlier. During the three months ended March 31, 2012, we experienced an improved 12.2% average annualized attrition in our SME bankcard processing volume compared to an average attrition of 13.5%, 15.3% and 22.6% for the years ended December 31, 2011, 2010 and 2009, respectively. Historically, much of our attrition has been related to business closures, which accelerated in 2009 due to weak economic conditions.

In our SME business, we measure same store sales growth, or contraction, as the change in bankcard processing volume for all bankcard merchants that were processing with us in the same month a year earlier. During the three months ended March 31, 2012, same store sales grew 3.4% on average, compared to 3.2% in the quarter ended March 31, 2011 and 2.6% on average in 2011. Same store sales growth or contraction results from the combination of the increasing or decreasing use by consumers of bankcards for the purchase of goods and services at the point of sale, and sales growth or contraction experienced by our retained SME bankcard merchants. The following table compares our same store sales growth or contraction during 2012, 2011 and 2010:

Same Store Sales Growth (Contraction)	2012	2011	2010
First Quarter	3.4%	3.2%	(1.5)%
Second Quarter		2.5%	1.1%
Third Quarter		2.3%	2.0%
Fourth Quarter		2.5%	3.8%
Full Year		2.6%	1.3%

Historically, our same store sales experience has tracked overall economic conditions. Management believes that continuing uncertain economic conditions may result in modest near-term improvements in our existing SME merchants' businesses.

We measure the overall production of our sales force by new gross margin installed, which reflects the expected annual gross profit from a merchant contract after deducting processing and servicing costs associated with that revenue. We measure installed margin primarily for our SME card processing, payroll processing and loyalty and gift marketing businesses. Our newly installed gross margin for the three months ended March 31, 2012 increased 15.4% from the gross margin we installed during the three months ended March 31, 2011. We attribute this increase in newly installed gross margin to better economic conditions and improved individual productivity achieved by our salespersons. We expect to drive increases in year-over-year installed margin of future periods principally by increasing our Relationship Manager and Territory Manager count. Our combined Relationship Managers and Territory Managers count amounted to 790 and 807 at December 31, 2011 and March 31, 2012, respectively.

    The bankcard revenue we earn in our SME business is recurring in nature, as we typically enter into three-year service contracts with our card processing SME merchants that, in order to qualify for the agreed-upon pricing, require the merchant to achieve bankcard processing volume minimums. Most of our SME revenue is from payment processing fees, which are a combination of a fee equal to a percentage of the dollar amount of each transaction we process plus a flat fee per transaction. We make mandatory payments of interchange fees to the card issuer through the card networks and dues, assessments and other network fees to Visa, MasterCard and Discover. Our SME gross bankcard processing revenue is largely driven by the Visa and

23

MasterCard volume processed by our merchants. We also realize card processing revenues from processing transactions for our SME merchants accepting American Express and from processing Discover transactions.

In contrast to SME card processing revenues, revenues from our Network Services Merchants are largely driven by the number of transactions we process (whether settled, or only authorized), not our processing volume, as the merchants which comprise Network Services' customer base pay on a per transaction basis for processing services. Additionally, we provide authorization, settlement and account servicing services on our front and back end systems for American Express transactions for larger merchants, and merchants signed to American Express by other processors; for those services we receive compensation from American Express on a per transaction basis. The number of transactions we processed for Network Services Merchants and American Express for the three months ended March 31, 2012 and 2011 were as follows:

	Three Months Ended March 31,
	2012	2011
	(In thousands)
Network Services Merchants:
Settled	223,598	122,931
Authorized	581,311	623,753
American Express	7,732	7,467
Total	812,641	754,151

Our internally-developed front-end authorization systems, HPS Exchange, VAPS and NWS, provide us greater control of the electronic transaction process, allow us to offer our merchants a differentiated product offering, and offer economies of scale that we expect will increase our long-term profitability. During the three months ended March 31, 2012 and 2011, approximately 95% and 90%, respectively, of our SME transactions were processed through HPS Exchange. All of our Network Services transactions were processed through VAPS or NWS. During the three months ended March 31, 2012 and 2011, 97% of all SME merchant accounts established were placed on the HPS Exchange.

We provide clearing, settlement and merchant accounting services through our own internally developed back-end processing system, Passport. Passport enables us to customize these services to the needs of our Relationship Managers and merchants. At both March 31, 2012 and 2011, approximately 99% of total SME bankcard merchants were processing on Passport and all Network Services' settled transactions were processed on Passport.

We provide payroll processing services throughout the United States. At March 31, 2012, we processed payroll for 12,005 customers, an increase of 1.2% from 11,867 payroll customers at March 31, 2011 and an increase of 1.4% from 11,841 payroll customers at December 31, 2011. In the three months ended March 31, 2012 and the full year 2011, we installed 905 and 3,723 new payroll processing customers, respectively. We developed a new comprehensive payroll management system, which we refer to as PlusOne Payroll, that streamlines all aspects of the payroll process to enable time and cost savings. PlusOne Payroll was made available to new and existing customers beginning in 2010. The PlusOne Payroll platform enables us to process payroll on a large scale and provide customizable solutions for businesses of all sizes.

We also provide school nutrition and point-of-sale solutions to K to 12 schools throughout the United States. At March 31, 2012, we provided K to 12 School Solutions to over 19,000 public and private schools.

First Quarter of 2012 Financial Results

Our financial results for the three months ended March 31, 2012, as compared to the three months ended March 31, 2011, benefited from a higher operating margin, reflecting 14.2% year-over-year growth in net revenue offset by lower increases of 7.9% in processing and servicing costs and 9.4% in general and administrative expenses. For the three months ended March 31, 2012, we recorded net income of $13.8 million, or $0.34 per share, compared to $7.8 million, or $0.20 per share, in the three months ended March 31, 2011. The following is a summary of our financial results for the three months ended March 31, 2012:

• Net revenue, which we define as total revenues less interchange fees and dues, assessments and fees, increased $16.0 million, or 14.2%, from $112.7 million in the three months ended March 31, 2011 to $128.7 million in the three months ended March 31, 2012. The increase in Net revenue was driven by the increased card processing net revenue from our SME merchants and increases in revenues for K to 12 School Solutions, Payroll processing, Loyalty and Gift revenues, and card equipment.

• During the three months ended March 31, 2012, our SME processing volume increased 8.3% to $16.7 billion from $15.4 billion during the three months ended March 31, 2011. We earn percentage-based revenues on our

24

SME processing volume. The year-over-year increase reflects same store sales growth, improved merchant volume attrition, and improvements in the level of new SME merchants installed.

• Our processing and servicing expenses increased $4.2 million, or 7.9%, from $52.6 million in the three months ended March 31, 2011, to $56.7 million in the three months ended March 31, 2012 primarily due to increased costs associated with processing and servicing higher SME bankcard processing volume, increased residual commission expense and increased costs of sales and servicing related to the higher K to 12 School Solutions, Payroll processing, Loyalty and Gift and equipment-related revenues. Partially offsetting these increases were reduced merchant losses.

• Our general and administrative expenses increased $2.8 million, or 9.4%, from $30.0 million in the three months ended March 31, 2011 to $32.9 million in the three months ended March 31, 2012. General and administrative expenses in the three months ended March 31, 2012 included $1.1 million for our periodic sales and servicing organization summit held in March 2012. Excluding these summit expenses, our general and administrative expenses in 2012 increased $1.7 million, or 5.8%, primarily due to a $1.8 million increase in personnel costs, including $1.0 million for share-based compensation. General and administrative expenses as a percentage of total revenue for the three months ended March 31, 2012 was 7.0%, an increase from 6.4% for the three months ended March 31, 2011.

• As a result of the 14.2% growth achieved in net revenue and much lower increases in processing and servicing expenses and general and administrative expenses, our income from operations, which we also refer to as operating income, increased $8.7 million to $23.2 million for the three months ended March 31, 2012, from $14.6 million for the three months ended March 31, 2011. Our Operating Margin, which we measure as operating income divided by net revenue, was 18.1% for the three months ended March 31, 2012, compared to 12.9% for the three months ended March 31, 2011.

See “— Results of Operations — Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011” for a more detailed discussion of our first quarter financial results.

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. These condensed consolidated financial statements are unaudited. In our opinion, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of our financial position at March 31, 2012, our results of operations, our changes in stockholders' equity and our cash flows for the three months ended March 31, 2012 and 2011. Results of operations reported for interim periods are not necessarily indicative of the results to be expected for the year ended December 31, 2012. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates. Our significant accounting policies are more fully described in Note 2 to our Condensed Consolidated Financial Statements included elsewhere in this report and in our Annual Report on Form 10-K for the year ended December 31, 2011. The critical accounting estimates described here are those that are most important to the depiction of our financial condition and results of operations, including those whose application requires management's most subjective judgment in making estimates about the effect of matters that are inherently uncertain. The line items on our income statement and balance sheet, which are impacted by management's estimates, are described below.

Revenue

Our bank card processing revenue is derived from processing and settling Visa, MasterCard, American Express and Discover bank card transactions for our merchant customers. Our most significant expense related to the generation of those revenues is interchange fees, which are set by the card networks, and paid to the card issuing banks. For our SME merchant bank card processing, we do not offset bank card processing revenues and interchange fees because our business practice is to advance the interchange fees to most of our merchants when settling their daily transactions (thus paying the full amount of the transaction to the merchant), and then to collect our full discount fees from our merchants on the first business day of the next month. We believe this policy aids in new business generation, as our merchants benefit from bookkeeping simplicity. However, this results in our carrying a large receivable from our merchants at each period-end, and a corresponding but smaller payable to our sponsor banks, which are settled on the first business day after the period-end. As we are at risk for the receivables, we record the associated revenues on a gross processing revenue basis in our consolidated income statements. Certain of our competitors report their processing revenue net of interchange fees. This is because the card issuing banks make their payments to these competitors net of those interchange fees, and these acquirers pay this reduced amount to their merchants. Since the acquisition of Network Services, we also record a portion of our processing revenues net of interchange

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fees because the daily cash settlement with Network Services' merchants is net of interchange fees.

Capitalized Customer Acquisition Costs

Capitalized customer acquisition costs consist of (1) up-front signing bonuses paid to Relationship Managers and sales managers, referred to as the salesperson or salespersons, for the establishment of new merchant relationships, and (2) deferred acquisition cost representing the estimated cost of buying out the commissions of vested salespersons at some point in the future. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through gross margins associated with SME merchant contracts. The capitalized customer acquisition costs are amortized using a method which approximates a proportional revenue approach over the initial three-year term of the merchant contract.

The amount of the up-front signing bonus paid for new SME bankcard, payroll and loyalty marketing accounts is based on the estimated gross margin for the first year of the merchant contract. The gross signing bonuses paid during the three months ended March 31, 2012 and 2011 were $8.2 million and $7.3 million, respectively, and for the full year ended December 31, 2011 were $30.5 million. The signing bonus paid, amount capitalized, and related amortization are adjusted at the end of the first year to reflect the actual gross margin generated by the merchant contract during that year. The net signing bonus adjustments made during the three months ended March 31, 2012 and 2011 were $(0.6) million and $(0.2) million, respectively. Negative signing bonus adjustments occur when the actual gross margin generated by the merchant contract during the first year is less than the estimated gross margin for that year, resulting in the overpayment of the up-front signing bonus and would be recovered from the relevant sales person. Positive signing bonus adjustments result from prior underpayments of up-front signing bonuses, and would be paid to the relevant salesperson. The amount of signing bonuses paid which remained subject to adjustment at March 31, 2012 was $31.2 million.

The deferred acquisition cost component of capitalized customer acquisition costs is accrued for vested salespersons over the first year of SME bankcard merchant processing, consistent with the build-up in the accrued buyout liability, which is described below.

Management evaluates the capitalized customer acquisition costs for impairment by comparing, on a pooled basis by vintage month of origination, the expected future net cash flows from underlying merchant relationships to the carrying amount of the capitalized customer acquisition costs. If the estimated future net cash flows are lower than the recorded carrying amount, indicating an impairment of the value of the capitalized customer acquisition costs, the impairment loss will be charged to operations. We have not recognized an impairment loss for the three months ended March 31, 2012.

Accrued Buyout Liability

We pay our salespersons residual commissions based on the gross margin generated from the monthly processing activity of SME merchants signed by them. We refer to these residual commissions as the ''owned'' portion of such commissions, or ''portfolio equity.'' The salesperson has no obligation to perform additional services for the merchant for so long as the merchant continues processing with us. We accrue the buyout liability, which represents the estimated current settlement cost of buying out all vested and expected-to-vest salespersons for the owned portion of such commissions. We also record a deferred acquisition cost asset related to those buyouts, and amortize that asset as an expense over the initial 3-year contract term.

We consider a salesperson to be vested once they have established merchant relationships that generate the equivalent of $10,000 of monthly gross margin. Vested status entitles the salesperson to his or her residual commissions for as long as the merchant processes with us, even if the salesperson is no longer employed by us.

The accrued buyout liability is based on the SME merchants we have under contract at the balance sheet date, the gross margin we generated from those accounts in the prior twelve months, the “owned” commission rate, and the fixed buyout multiple of 2.5 times the commissions. The liability related to a new merchant is therefore zero when the merchant is installed, and increases over the twelve months following the installation date.

For unvested salespersons, the accrued buyout liability is accrued over the expected vesting period; however, no deferred acquisition cost is capitalized as future services are required in order to vest. In calculating the accrued buyout liability for unvested salespersons, we have assumed that 31% of unvested salespersons will vest in the future, which represents our historical vesting rate. A 5% increase to 36% in the expected vesting rate would have increased the accrued buyout liability for unvested salespersons by $0.1 million at March 31, 2012 and December 31, 2011.

Buyout payments made to salespersons reduce the outstanding accrued buyout liability. Given our view of the duration of the cash flows associated with a pool of merchant contracts, we believe that the benefits of such buyouts

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significantly exceed the cost, which typically represents 2½ years of commissions. If the cash flows associated with a pool of bought out contracts does not exceed this cost, we will incur an economic loss on our decision to buyout the contracts. During the three months ended March 31, 2012 and 2011, we made buyout payments of approximately $2.3 million and $3.2 million respectively, and during the 2011 full year, we made buyout payments of approximately $10.4 million.

Processing Liabilities and Loss Reserves

The majority of our processing liabilities include funds in transit associated with bankcard and check processing. At March 31, 2012, these funds in transit totaled $25.3 million, compared to approximately $18.9 million at December 31, 2011. In addition, we maintain merchant deposits to offset potential liabilities from merchant chargeback processing.

Disputes between a cardholder and a merchant periodically arise as a result of, among other things, the cardholder's dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant's favor. In these cases, the transaction is ''charged back'' to the merchant, which means the purchase price is refunded to the customer by the card-issuing bank and charged to the merchant. If the merchant is unable to fund the refund, we must do so. We also bear the risk of reject losses arising from the fact that we collect our fees from our merchants on the first day after the monthly billing period. If the merchant has gone out of business during such period, we may be unable to collect such fees. We maintain cash deposits or require the pledge of a letter of credit from certain merchants, generally those with higher average transaction size where the card is not present when the charge is made or the product or service is delivered after the charge is made, in order to offset potential contingent liabilities such as chargebacks and reject losses that would arise if the merchant went out of business. At March 31, 2012 and December 31, 2011, we held SME merchant deposits totaling $9.3 million and $9.8 million, respectively. Most chargeback and reject losses are charged to processing and servicing as they are incurred. However, we also maintain a loss reserve against losses including major fraud losses, which are both less predictable and involve larger amounts. The loss reserve was established using historical loss rates applied to recent bankcard processing volume. At both March 31, 2012 and December 31, 2011, our loss reserve totaled $2.0 million. Aggregate SME bankcard merchant losses, including losses charged to operations and the loss reserve, were $0.2 million and $1.3 million for the three months ended March 31, 2012 and 2011.

Chargeback losses originating from Network Services bankcard processing on Passport during the full year 2011 and three months ended March 31, 2012 were insignificant.

Stock-based Compensation

We expense employee share-based payments under the fair value method. Share-based compensation cost is measured at the grant date, based on the fair value of the award, and is recognized as expense over the requisite service period. We estimate the grant date fair value of the stock options we issue using a Black-Scholes valuation model for “plain-vanilla” stock options and performance-based stock options, and we use a lattice valuation model to measure grant date fair value for stock options containing market vesting conditions. Our assumption for expected volatility is based on our historical volatility data related to market trading of our own Common Stock. We base our assumptions for the expected life of new stock option grants on our analysis of the historical exercise patterns of our stock options. Our dividend yield assumption is based on dividends expected to be paid over the expected life of the stock option. Our risk-free interest rate assumption for stock options granted is determined by using U.S. treasury rates of the same period as the expected option term of each stock option.

The weighted-average fair value of options we granted during the three months ended March 31, 2012 and the years ended December 31, 2011 and 2010 were $9.36, $7.95 and $6.12, respectively. The fair value of options granted during the three months ended March 31, 2012 and the years ended December 31, 2011 and 2010 was estimated at the grant date using the following weighted average assumptions:

	Three Months Ended		Year Ended December 31,
	March 31, 2012		2011		2010
Expected volatility	55	%	55	%	54	%
Expected life	3.75 years		3.65 years		3.75 years
Expected Dividends	1.00	%	0.80	%	0.40	%
Risk-free interest rate	0.51	%	0.55	%	1.21	%

In the fourth quarter of 2010, our Board of Directors approved grants of 508,800 performance-based Restricted Share Units. These Restricted Share Units are nonvested share awards which would vest 50% in 2013, 25% in 2014, and 25% in 2015 only if over the term of these Restricted Share Units, the following diluted earnings per share targets for the years ended December 31, 2012, 2013 and 2014 are achieved:

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	2012		2013		2014
Diluted Earnings Per Share (a)	$	1.48	$	1.74	$	2.04

(a) Calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and excluding the after-tax impact of stock compensation expense.

As of December 31, 2011, management determined that achieving these performance targets was “more likely than not” to occur and began recording share-based compensation expense for these Restricted Share Units. The closing price of our common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

In the fourth quarter of 2011, our Board of Directors approved grants of 164,808 performance-based Restricted Share Units. These Restricted Share Units are nonvested share awards which would vest 50% in 2014 and 50% in 2015 only if we achieve a diluted earnings per share compound annual growth rate ("CAGR") of seventeen percent (17%) for the two-year period ending December 31, 2013. Diluted earnings per share will be calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and exclude the after-tax impact of Stock Compensation Expense. For each 1% that the CAGR actually achieved for the two year period ending on December 31, 2013 is above the 17% target, the number of shares underlying the Restricted Share Units awarded would be increased by 3.09%; provided, however, that the maximum increase in the number of shares that may be awarded is 100%. Likewise, for each 1% that the CAGR actually achieved for the two-year period ending on December 31, 2013 is below the 17% target, the number of shares underlying the Restricted Share Units awarded would be decreased by 1.13%. If the target CAGR is missed by 80% or more, then the number of shares awarded is zero.

As of December 31, 2011, management determined that achieving the 17% two-year CAGR target was “more likely than not” to occur and began recording share-based compensation expense for these Restricted Share Units based on the number of shares which would vest at the 17% two-year CAGR target. The closing price of our common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

Goodwill

Goodwill represents the excess of acquisition costs over the fair values of net assets acquired in business combinations. We test goodwill for impairment at least annually and between annual tests if an event occurs or changes in circumstances suggest a potential decline in the fair value of the reporting unit. A significant amount of judgment is involved in determining if an indicator or change in circumstances relating to impairment has occurred.  Such changes may include, among others: a significant decline in expected future cash flows; a sustained decline in market capitalization; a significant adverse change in legal factors or in the business climate; unanticipated competition; and slower growth rates. We perform annual goodwill impairment testing in the fourth quarter. Our evaluation indicated that no impairment existed as of December 31, 2011. At March 31, 2012 and December 31, 2011, goodwill of $103.6 million and $103.4 million, respectively, is recorded on our Condensed Consolidated Balance Sheet. We may be required to record goodwill impairment losses in future periods, whether in connection with our next annual impairment testing in the fourth quarter of 2012 or prior to that, if any such indicators constitute a triggering event in other than the quarter in which the annual goodwill impairment test is performed.  It is not possible at this time to determine if any such future impairment loss would result or, if it does, whether such charge would be material.

Income Taxes

We account for income taxes by recognizing deferred tax assets and liabilities, which are recorded to reflect the future tax consequences attributable to the effects of differences between the carrying amounts of existing assets and liabilities for financial reporting and for income tax purposes. Judgments are required in determining the amount and probability of future taxable income, which in turn is critical to a determination of whether a valuation reserve against the deferred tax asset is appropriate.

We also account for the recognition and measurement of tax benefits associated with uncertain tax positions. This requires evaluations of individual tax positions to determine whether any part of that position can be recognized or continues to be recognized in the financial statements. An uncertain tax position exists if it is unclear how a transaction will be treated under tax law. We had approximately $2.0 million of total gross unrecognized tax benefits as of March 31, 2012, approximately $1.3 million of which would impact the effective tax rate.

We have recorded income tax expense (benefit) at U.S. tax rates on all taxable income (loss), except undistributed earnings of CPOS, our Canadian subsidiary. We intend to indefinitely reinvest undistributed earnings of CPOS and

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accordingly, have provided Canadian income tax on those earnings but not U.S. income tax. The amount of undistributed earnings of CPOS for which we have not recorded U.S. income tax was approximately $2.5 million. In the event of distribution of those earnings in the form of dividends or otherwise, we would be subject to U.S. income taxes subject to an adjustment, if any, for foreign tax credits. Determination of the amount of U.S. income tax liability that would be incurred is not practicable because of the complexities associated with this hypothetical calculation.

Results of Operations

Three Months Ended March 31, 2012 Compared to Three Months Ended March 31, 2011

The following table shows certain income statement data as a percentage of revenue for the periods indicated (in thousands of dollars):

	Three Months Ended March 31, 2012			% of Total Revenue		Three Months Ended March 31, 2011			% of Total Revenue		Change
											Amount			%
Total Revenues	$	470,485		100.0	%	$	467,646		100.0	%	$	2,839		0.6	%
Costs of Services:
Interchange	297,948			63.3	%	320,799			68.6	%	(22,851		)	(7.1	)%
Dues, assessments and fees	43,868			9.3	%	34,150			7.3	%	9,718			28.5	%
Processing and servicing	56,722			12.1	%	52,556			11.2	%	4,166			7.9	%
Customer acquisition costs	11,436			2.4	%	11,658			2.5	%	(222		)	(1.9	)%
Depreciation and amortization	4,386			0.9	%	3,875			0.8	%	511			13.2	%
Total costs of services	414,360			88.1	%	423,038			90.5	%	(8,678		)	(2.1	)%
General and administrative	32,882			7.0	%	30,046			6.4	%	2,836			9.4	%
Total expenses	447,242			95.1	%	453,084			96.9	%	(5,842		)	(1.3	)%
Income from operations	23,243			4.9	%	14,562			3.1	%	8,681			59.6	%
Other income (expense):
Interest income	115			—	%	41			—	%	74			180.5	%
Interest expense	(850		)	(0.2	)%	(1,192		)	(0.3	)%	342			28.7	%
Provision for processing system intrusion costs	(157		)	—	%	(303		)	(0.1	)%	146			48.2	%
Other, net	—			—	%	(437		)	(0.1	)%	437			100.0	%
Total other income (expense)	(892		)	(0.2	)%	(1,891		)	(0.4	)%	999			52.8	%
Income before income taxes	22,351			4.8	%	12,671			2.7	%	9,680			76.4	%
Provision for income taxes	8,499			1.8	%	4,809			1.0	%	3,690			76.7	%
Net income	13,852			2.9	%	7,862			1.7	%	5,990			76.2	%
Less: Net income attributable to       noncontrolling interests	98					47					51
Net income attributable to Heartland	$	13,754		2.9	%	$	7,815		1.7	%	$	5,939		76.0	%

Total Revenues. Total revenues increased by 0.6% from $467.6 million in the three months ended March 31, 2011 to $470.5 million in the three months ended March 31, 2012, primarily as a result of higher revenues from our K to 12 School Solutions business and prepaid card income including loyalty and gift marketing, and a $1.5 million, or 19.5% increase in equipment-related income. Our gross SME card processing revenues for the three months ended March 31, 2012 were impacted by the "Durbin Amendment," which was part of the July 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act that went into effect on October 1, 2011. SME card processing revenues and the Durbin Amendment are discussed below in —Processing revenues, gross. The breakout of our total revenues for the three months ended March 31, 2012 and 2011 was as follows (in thousands of dollars):

	Three Months Ended March 31,				Change from Prior Year
	2012		2011		Amount		%
Processing revenues, gross (a)	$	455,024	$	454,256	$	768	0.2	%
Payroll processing revenues	6,279		5,709		570		10.0	%
Equipment-related income	9,182		7,681		1,501		19.5	%
Total Revenues	$	470,485	$	467,646	$	2,839	0.6	%

(a) Includes Visa, MasterCard, AMEX and Discover bankcard processing revenues, AMEX fees, check processing fees, customer service fees, gift card, loyalty, K to 12 School Solutions and other miscellaneous revenue.

Processing revenues, gross. Further breakout of our gross processing revenues for the three months ended March 31,

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2012 and 2011 was as follows (in thousands of dollars):

	Three Months Ended March 31,				Change from Prior Year
	2012		2011		Amount			%
Merchant Card Processing Revenue:
SME card processing	$	409,226	$	416,757	$	(7,531	)	(1.8	)%
Network Services card processing	33,193		30,651		2,542			8.3	%
CPOS card processing	2,082		1,774		308			17.4	%
	444,501		449,182		(4,681		)	(1.0	)%
K to 12 School Solutions income	5,613		1,052		4,561			433.6	%
Prepaid Card income	4,415		3,512		903			25.7	%
Other miscellaneous revenue	495		510		(15		)	(2.9	)%
Total Processing Revenues, Gross	$	455,024	$	454,256	$	768		0.2	%

The $0.8 million increase in gross processing revenues from $454.3 million in the three months ended March 31, 2011 to $455.0 million in the three months ended March 31, 2012 was primarily due to higher revenues from our K to 12 School Solutions business, Network Services card processing, and from prepaid card income including loyalty and gift marketing.

Our gross SME merchant card processing revenues for the three months ended March 31, 2012 reflect a decline as compared to the three months ended March 31, 2011 due to the impact of the Durbin Amendment. The Durbin Amendment places limits on debit card interchange rates that card issuing banks may charge. While not impacting our net revenue (which we present net of interchange, dues and assessments and fees as discussed below in —Net revenue), beginning in the fourth quarter of 2011 there was a decrease in the amount of SME interchange expense we record in our Income Statement as a result of the Durbin Amendment. Since our gross SME card processing revenues include the interchange that we pass through to our merchants, our Total revenues decreased by an equivalent amount. We estimate that the amount of this decrease on our gross SME merchant card processing revenues for the three months ended March 31, 2012 was a reduction of approximately $41.3 million.

Partially offsetting the impact that the Durbin Amendment had on our gross revenues from SME card processing was the increase in revenue attributable to higher SME bankcard processing volume. For the three months ended March 31, 2012, our SME bankcard processing volume increased 8.3% to $16.7 billion, compared to $15.4 billion for the three months ended March 31, 2011, reflecting increases for same store sales growth, new SME merchants installed, and improved SME merchant volume attrition.

Network Services increased its card processing revenues based on the 224 million transactions it settled, representing $6.5 billion in processing volume, and the 581 million transactions it authorized through its front-end card processing systems during the three months ended March 31, 2012, as compared to the 123 million transactions it settled, representing $3.1 billion in processing volume, and the 624 million transactions it authorized through its front-end card processing systems during the three months ended March 31, 2011. We report Network Services’ settled bankcard processing revenues net of credit interchange and dues and assessments because the daily cash settlement with Network Services’ merchants is on a net basis. However, the Durbin Amendment did impact Network Services' settled PIN debit interchange by approximately $1.7 million for the three months ended March 31, 2012.

Also contributing to our growth in processing revenues for the three months ended March 31, 2012 were the processing revenues generated by our K to 12 School Solutions businesses, and from prepaid card income including

loyalty and gift marketing. The increase in K to 12 School Solution processing revenues for the three months ended March 31, 2012 reflects acquisitions we made in 2011 ( see "— Liquidity and Capital Resources” for a detail on these acquisitions).

Payroll processing revenues. Payroll processing revenues, which include fees earned on payroll processing services and interest income earned on funds held for customers, increased by 10.0%, from $5.7 million in the three months ended March 31, 2011 to $6.3 million in the three months ended March 31, 2012, primarily due to price increases for almost half of our payroll processing customers and a 1.2% increase in the total number of payroll processing customers from 11,867 at March 31, 2011 to 12,005 at March 31, 2012.

Equipment-related income. Equipment-related income increased by $1.5 million, or 19.5%, from $7.7 million in the three months ended March 31, 2011 to $9.2 million in the three months ended March 31, 2012, primarily due to increases in revenues from the sale of card processing terminals, including our proprietary encryption terminals, referred to as E3 Terminals, which benefited from a one-time sale, and from sales of equipment in our K to 12 School Solutions businesses.

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Net revenue. Net revenue, which we define as total revenues less interchange fees and dues, assessments and fees, increased 14.2% from $112.7 million in the three months ended March 31, 2011, to $128.7 million in the three months ended March 31, 2012. The increase in net revenue was driven primarily by increases in SME bankcard processing volume, and increases in revenues from K to 12 School Solutions, Payroll processing, Loyalty and Gift and equipment-related income. The following table summarizes our Net Revenue components for the three months ended March 31, 2012 and 2011 (in thousands of dollars):

	Three Months Ended March 31,						Change from Prior Year
	2012			2011			Amount			%
Merchant Card Processing Revenue:
SME card processing	$	409,226		$	416,757
Less: interchange, dues, assessments and fees	(320,460		)	(336,708		)
SME card processing net revenue	88,766			80,049			$	8,717		10.9	%
Network Services card processing	33,193			30,651
Less: interchange, dues, assessments and fees	(21,356		)	(18,241		)
Network Services card processing net revenue	11,837			12,410			(573		)	(4.6	)%
CPOS card processing net revenue	2,082			1,774			308			17.4	%
Card processing revenues, net	102,685			94,233			8,452			9.0	%
K to 12 School Solutions income	5,613			1,052			4,561			433.6	%
Prepaid card income	4,415			3,512			903			25.7	%
Other miscellaneous revenue	495			510			(15		)	(2.9	)%
Processing revenues, net	113,208			99,307			13,901			14.0	%
Payroll processing revenues	6,279			5,709			570			10.0	%
Equipment-related revenues	9,182			7,681			1,501			19.5	%
Total net revenue	$	128,669		$	112,697		$	15,972		14.2	%

Costs of services. Costs of services decreased 2.1% from $423.0 million in the three months ended March 31, 2011 to $414.4 million in the three months ended March 31, 2012, due to the decrease in interchange expense resulting from the Durbin Amendment. Interchange expense decreased 7.1% from $320.8 million in the three months ended March 31, 2011 to $297.9 million in the three months ended March 31, 2012, and represented 63.3% of total revenues in the three months ended March 31, 2012 compared to 68.6% in the three months ended March 31, 2011.

Dues, assessments and fees increased 28.5% from $34.2 million in the three months ended March 31, 2011 to $43.9 million in the three months ended March 31, 2012, primarily as a result of higher SME bankcard processing volume and Network services transactions. Dues, assessments and fees were 9.3% of total revenues in the three months ended March 31, 2012, compared to 7.3% in the three months ended March 31, 2011.

Processing and servicing expense for the three months ended March 31, 2012 increased by $4.2 million, or 7.9%, compared with the three months ended March 31, 2011. The increase in processing and servicing expenses was due to increased costs associated with processing and servicing higher SME bankcard processing volume, increased residual commission expense and increased cost of sales and servicing related to higher K to 12 School Solutions, Payroll processing, Loyalty and Gift, and equipment-related revenues. The increase in processing and servicing expense also reflects refined allocations of certain information technology related expenses, previously reported in general and administrative expense, to processing and servicing in the three months ended March 31, 2012. Partially offsetting these increases were reduced merchant losses. As a percentage of total revenue, processing and servicing expense increased to 12.1% for the three months ended March 31, 2012 compared with 11.2% for the three months ended March 31, 2011.

Customer acquisition costs for the three months ended March 31, 2012 decreased by $0.2 million, or 1.9% compared with the three months ended March 31, 2011. This decline reflects the impacts of the lower signing bonus amortization as capitalized signing bonuses recorded in periods having higher new gross margin installed run off. Customer acquisition costs for the three months ended March 31, 2012 and 2011 included the following components (in thousands of dollars):

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	Three Months Ended March 31,
	2012			2011
Amortization of signing bonuses, net	$	7,321		$	8,514
Amortization of capitalized customer deferred acquisition costs	3,876			3,867
Increase in accrued buyout liability	4,207			2,607
Capitalized customer deferred acquisition costs	(3,968		)	(3,330		)
Total Customer Acquisition Costs	$	11,436		$	11,658

Depreciation and amortization expenses increased 13.2% from $3.9 million in the three months ended March 31, 2011 to $4.4 million in the three months ended March 31, 2012. Most of our investments in information technology have been for security-related enhancements and in support of the continuing development of HPS Exchange, Passport and other processing-related initiatives. Depreciation and amortization expense recorded on these investments is included in processing and servicing expense. Additionally, we capitalized salaries, fringe benefits and other expenses incurred by our employees that worked on internally developed software projects and outsourced programming. Amortization does not begin on the internally developed software until the project is complete and placed in service, at which time we begin to amortize the asset over expected lives of three to five years. The amount capitalized increased from $5.2 million in the three months ended March 31, 2011 to $8.1 million in the three months ended March 31, 2012. The total amount of capitalized costs for projects placed in service in the three months ended March 31, 2012 and 2011 was $4.6 million and $2.2 million, respectively.

General and administrative. General and administrative expenses increased $2.8 million, or 9.4%, from $30.0 million in the three months ended March 31, 2011 to $32.9 million in the three months ended March 31, 2012. General and administrative expenses in the three months ended March 31, 2012 included $1.1 million for our periodic sales and servicing organization summit held in March 2012. Excluding these summit expenses, our general and administrative expenses in 2012 increased $1.7 million, or 5.8%, primarily due to a $1.8 million increase in personnel costs, including a $1.0 million increase for share-based compensation. General and administrative expenses for the three months ended March 31, 2012 benefited from refined allocations of certain information technology related expenses, previously reported in general and administrative expense, now recorded in processing and servicing expense. General and administrative expenses as a percentage of total revenue for the three months ended March 31, 2012 was 7.0%, an increase from 6.4% for the three months ended March 31, 2011.

Income from operations. As a result of the 14.2% increase in net revenue and much lower increases in processing and servicing expenses and general and administrative expenses, our income from operations, which we also refer to as operating income, improved to $23.2 million for the three months ended March 31, 2012, from $14.6 million for the three months ended March 31, 2011. Our operating margin, which we measure as operating income divided by net revenue, was 18.1% for the three months ended March 31, 2012, compared to 12.9% for the three months ended March 31, 2011.

Interest expense. Interest expense for the three months ended March 31, 2012 was $0.9 million, compared with $1.2 million for the three months ended March 31, 2011. Interest expense in both periods includes interest incurred under our Credit Facilities and interest we recorded on payables to our sponsor banks. The decline in interest expense reflects lower borrowings due to payments we made on our Term Loan Facility. See “—Liquidity and Capital Resources—Credit Facility” for more detail on our borrowings.

Provision for processing system intrusion costs. On January 20, 2009, we publicly announced the discovery of a criminal breach of our payment systems environment (the “Processing System Intrusion”). The Processing System Intrusion involved malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being processed during the transaction authorization process. We believe the breach did not extend beyond 2008.

Since the announcement of the Processing System Intrusion on January 20, 2009 and through March 31, 2012, we have expensed a total of $147.3 million, before reducing those charges by $31.2 million of total insurance recoveries. The majority of the total charges, or approximately $114.7 million, related to settlements of claims. Approximately $32.6 million of the total charges were for legal fees and costs we incurred for investigations, defending various claims and actions, remedial actions and crisis management services.

During the three months ended March 31, 2012, we incurred approximately $0.2 million, or less than one cent per share, for legal fees and costs incurred related to the Processing System Intrusion. During the three months ended March 31, 2011, we expensed approximately $0.3 million, or less than one cent per share, related to the Processing System Intrusion.

Other income (expense), net. Other, net for the three months ended March 31, 2011 included pre-tax charges of $0.5 million reflecting the estimated liability for costs (primarily accrued staff termination costs and fixed asset write downs)

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associated with the closing of our Johnson City, Tennessee service center.

Income taxes. Income taxes for the three months ended March 31, 2012 were an expense of $8.5 million, reflecting an effective tax rate of 38.0%. This compares to income tax expense of $4.8 million for the three months ended March 31, 2011, and an effective tax rate of 38.0%.

Net income attributable to Heartland. As a result of the above factors, we recorded net income of $13.8 million for the three months ended March 31, 2012. This compares to a net income of $7.8 million for the three months ended March 31, 2011.

Balance Sheet Information

	March 31, 2012		December 31, 2011
	(In thousands)
Selected Balance Sheet Data
Cash and cash equivalents	$	49,943	$	40,301
Funds held for payroll customers	53,584		42,511
Receivables, net	183,733		176,535
Capitalized customer acquisition costs, net	55,339		55,014
Property and equipment, net	116,668		115,579
Goodwill	103,561		103,399
Intangible assets, net	31,413		32,498
Total assets	624,208		596,921
Due to sponsor banks	66,334		63,881
Accounts payable	49,999		47,373
Deposits held for payroll customers	53,584		42,511
Borrowings:
Current portion	16,253		15,003
Long term portion	65,000		70,000
Accrued buyout liability:
Current portion	8,862		8,104
Long term portion	24,706		23,554
Total liabilities	392,695		376,869
Total stockholders’ equity	230,704		219,410

March 31, 2012 Compared to December 31, 2011

Total assets increased $27.3 million, or 4.6%, to $624.2 million at March 31, 2012 from $596.9 million at December 31, 2011, primarily due to increases in cash, funds held for payroll customers, and receivables. Cash increased $9.6 million, or 23.9%, primarily due to higher balances in processing related cash at March 31, 2012 and our increase in operating cash for the three months ended March 31, 2012 (see “— Liquidity and Capital Resources” for more detail). The $11.1 million increase in funds held for payroll customers was offset by an equal increase in deposits held for payroll customers.

Our receivables, which increased $7.2 million or 4.1% from December 31, 2011, are primarily due from our bankcard processing merchants and result in large part from our practice of advancing interchange fees to most of our SME merchants during the month and collecting those fees from our merchants at the beginning of the following month, as well as from transaction fees we charge merchants for processing transactions. Generally, these advances to our SME merchants are funded first with our available cash, then by incurring a payable to our sponsor banks when that cash has been expended. Our receivables from SME bankcard processing merchants increased $4.0 million from December 31, 2011. At March 31, 2012, we used $39.3 million of available cash to fund merchant advances and at December 31, 2011, we used $40.0 million of cash to fund merchant advances. The amount due to sponsor banks for funding advances was $46.7 million at March 31, 2012 and $45.2 million at December 31, 2011. The payable to sponsor banks is repaid at the beginning of the following month out of the fees we collect from our merchants. Receivables from merchants also include transaction fees due from Network Services Merchants, up approximately $3.2 million from December 31, 2011 and receivables from the sale of point of sale terminal equipment. Total receivables also include amounts due from bankcard networks for pre-funding of Discover and American Express transactions to our merchants as well as amounts due from Visa for PIN debit transactions. These amounts are recovered from the networks the following business day from the date of processing the transaction.

Total borrowings decreased $3.8 million, or 4.4%, to $81.3 million at March 31, 2012 from $85.0 million at

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December 31, 2011, primarily due to a $3.8 million quarterly amortization payment due under our Term Credit Facility. See “—Liquidity and Capital Resources” for discussion of Credit Facilities.

Total stockholders’ equity increased $11.3 million from December 31, 2011 primarily due to recording net income of $13.8 million for the three months ended March 31, 2012. Other increases in total stockholders’ equity for the three months ended March 31, 2012 included proceeds received from the exercise of stock options, tax benefits related to those stock option exercises and stock-based compensation expense. During the three months ended March 31, 2012, we repurchased $11.4 million of our outstanding common stock and paid cash dividends of $2.3 million. See “—Liquidity and Capital Resources” for discussion of Credit Facilities.

Liquidity and Capital Resources

General. Liquidity and capital resource management is a process focused on providing the funding we need to meet our short and long-term cash and working capital needs. We have used our funding sources to build our merchant portfolio, our servicing technology platforms, and our Jeffersonville, Indiana service center, and to make acquisitions with the expectation that these investments will generate cash flows sufficient to cover our working capital needs and other anticipated needs for capital.

Our cash requirements include funding payments to salespersons for signing bonuses, residual commissions and residual buyouts, paying interest expense and other operating expenses, including taxes, adding to our primary service center, investing in our technology infrastructure, and making acquisitions of businesses or assets. We expect that our future cash requirements will continue to include amounts used to repurchase our common stock.

Other than borrowings we had used to fund certain acquisitions and settlements of claims related to the Processing System Intrusion, we fund our cash needs primarily with cash flow from our operating activities and through our agreements with our sponsor banks to fund SME merchant advances. We believe that our current cash and investment balances, cash generated from operations and our agreements with our sponsor banks to fund SME merchant advances will provide sufficient liquidity to meet our anticipated needs for operating capital for at least the next twelve months.

Working Capital. Our working capital, defined as current assets less current liabilities, was positive by $41.1 million at March 31, 2012.

At March 31, 2012, we had cash on our Balance Sheet totaling $49.9 million compared to cash of $40.3 million at December 31, 2011. Our March 31, 2012 cash balance included approximately $33.8 million of processing-related cash in transit and collateral, compared to approximately $28.0 million of processing-related cash in transit and collateral at December 31, 2011. As of March 31, 2012, we had used $39.3 million of our available cash to fund SME merchant advances and at December 31, 2011, we had used $40.0 million of our cash to fund advances.

On March 31, 2012, we had $50.0 million available to us under our Revolving Credit Facility. See “— Credit Facilities” for more details.

Acquisitions. On January 12, 2011, February 4, 2011 and September 30, 2011, we acquired the K to 12 School Solutions businesses of Comalex, Inc., mySchoolBucks, LLC, and School-Link Technologies, Inc, respectively. We made cash payments of $6.1 million, $1.5 million, and $15.6 million, respectively, for the net assets of these three businesses. These acquisitions, which were funded with cash on hand, enable us to offer school nutrition and point-of-sale solutions including Internet payment capability enabling on-line deposits of funds into student accounts, to a wide base of schools, students and their parents. Comalex, mySchoolBucks and School-Link added approximately 3,700, 900 and 10,000 schools, respectively, to our K to 12 School Solutions product. These acquisitions, added to the December 30, 2010 acquisition of Lunchbox and its approximately 4,400 schools, have given us an almost 20% market share in this industry. We plan to consolidate the individual platforms and products of Lunchbox, Comalex, mySchoolBucks, and School-Link to optimize synergies, cost efficiencies and product offerings to our customers.

The $7.7 million cash payment for the Lunchbox acquisition was financed through a combination of cash on hand and our Revolving Credit Facility. We repaid the amount we borrowed under our Revolving Credit Facility in the first quarter of 2011. See “— Credit Facilities” for more details.

Cash Flow Provided By Operating Activities. We reported net cash provided by operating activities of $25.2 million in the three months ended March 31, 2012, compared to $31.8 million in the three months ended March 31, 2011. Cash provided by operating activities in the three months ended March 31, 2012 reflects the benefit of our increase in net income for

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the current year, offset by our use of a greater amount of operating cash to fund receivables, including SME merchant advances during the three months ended March 31, 2012. As of March 31, 2012, we had used $39.3 million of our available cash to fund SME merchant advances, compared to $28.4 million as of March 31, 2011. Additionally, during the three months ended March 31, 2012 we used cash to pay and reduce accrued expenses.

Other major determinants of operating cash flow are net signing bonus payments, which consume operating cash as we install new merchants, and payouts on the accrued buyout liability, which represent the costs of buying out residual commissions owned by our salespersons. See “— Critical Accounting Estimates — Capitalized Customer Acquisition Costs” and “— Critical Accounting Estimates — Accrued Buyout Liability” for more information. We paid net signing bonuses of $7.6 million and $7.1 million, respectively, in the three months ended March 31, 2012 and 2011. The increase in net signing bonuses paid during the three months ended March 31, 2012 reflects a year-over-year improvement in newly installed gross margin. In the three months ended March 31, 2012 and 2011, we reduced our accrued buyout liability by making buyout payments of $2.3 million and $3.2 million, respectively.

Cash Flow Used In Investing Activities. Net cash used in investing activities was $7.0 million for the three months ended March 31, 2012, compared to $17.4 million for the three months ended March 31, 2011. The amount of cash used in investing activities during the three months ended March 31, 2011 included $7.6 million for the acquisitions of Comalex, Inc. and mySchoolBucks, LLC.

We made capital expenditures of $7.4 million during the three months ended March 31, 2012, compared to $9.1 million in the three months ended March 31, 2011. Capital expenditures in the three months ended March 31, 2011 include costs of $1.6 million related to additions to our primary service center facility in Jeffersonville, Indiana. We also continue building our technology infrastructure, primarily for hardware and software needed for the development and expansion of our operating platforms. To further develop our technology, we anticipate that these expenditures will continue near current levels.

Cash Flow Used In Financing Activities. Net cash used in financing activities was $8.6 million for the three months ended March 31, 2012, compared to $12.3 million for the three months ended March 31, 2011.

In both the three months ended March 31, 2012 and 2011, we made term loan amortization payments of $3.8 million due under our Term Credit facility and during the three months ended March 31, 2011, we paid down $8.0 million on our Revolving Credit Facility. See “— Credit Facilities” for more details.

Cash used in financing activities in the three months ended March 31, 2012 included cash for common stock repurchases. See “ —Common Stock Repurchases” for more information on our common stock repurchase authorizations. We used $10.7 million of cash to repurchase 419,249 shares of our common stock during the three months ended March 31, 2012.

Cash dividends paid in the three months ended March 31, 2012 were $2.3 million, compared to dividends paid of $1.5 million in the three months ended March 31, 2011. See “— Dividends on Common Stock” for more information on our common stock dividends. During the three months ended March 31, 2012 and 2011, employees exercised stock options generating cash proceeds in the aggregate of $6.8 million and $0.7 million, respectively.

Credit Facilities. On November 24, 2010, we entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders who are a party to the Credit Agreement. Credit extended under the Credit Agreement is guaranteed by our subsidiaries and is secured by substantially all of our assets and the assets of our subsidiaries. The Credit Agreement amended and restated in its entirety our previous amended and restated credit agreement entered into on May 30, 2008, as amended (the “Previous Credit Agreement”), between us and certain of the parties to the Credit Agreement.

The Credit Agreement provides for a revolving credit facility in the aggregate amount of up to $50 million (the “Revolving Credit Facility”), of which up to $10 million may be used for the issuance of letters of credit and up to $5 million is available for swing line loans. Upon the prior approval of the administrative agent, we may increase the total revolving commitments by $50 million for a total commitment under the Revolving Credit Facility of $100 million. The Revolving Credit Facility is available to us on a revolving basis until November 24, 2015. All principal and interest not previously paid on the Revolving Credit Facility will mature and be due and payable on November 24, 2015.

The Credit Agreement also provides for a term credit facility in the aggregate amount of up to $100 million (the “Term Credit Facility”). The Term Credit Facility requires amortization payments in the amount of $3.75 million for each fiscal quarter during the fiscal years ended December 31, 2011 and 2012, $5.0 million for each fiscal quarter during the fiscal years ended December 31, 2013 and 2014, and $7.5 million for each fiscal quarter during the period commencing on January 1, 2015 through the maturity date on November 24, 2015. All principal and interest not previously paid on the Term Credit Facility will

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mature and be due and payable on November 24, 2015.

The Credit Agreement contains covenants which include: maintenance of certain leverage and fixed charge coverage

ratios; limitations on our indebtedness, liens on our properties and assets, investments in, and loans to other business units, our

ability to enter into business combinations and asset sales; and certain other financial and non-financial covenants. These

covenants also apply to certain of our subsidiaries. We were in compliance with these covenants as of March 31, 2012 and December 31, 2011 and expect we will remain in compliance with these covenants for at least the next twelve months.

At March 31, 2012, there was $81.3 million outstanding under the Term Credit Facility and no borrowings outstanding under the Revolving Credit Facility. At December 31, 2011, we had $85.0 million outstanding under the Term Credit Facility and no borrowings outstanding under the Revolving Credit Facility.

Common Stock Repurchases. On October 21, 2011, our Board of Directors authorized the repurchase of up to $50

million worth of our common stock. Repurchases under this program will be made through the open market, or in privately

negotiated transactions, from time to time in accordance with applicable laws and regulations. We intend to fund any

repurchases with cash flow from operations, existing cash on the balance sheet, and other sources including the proceeds of

options exercises. The manner, timing and amount of repurchases, if any, will be determined by our management and will

depend on a variety of factors, including price, corporate and regulatory requirements, market conditions and other corporate

liquidity requirements. The repurchase program may be modified or discontinued at any time.

Under authorization from our Board of Directors, during the three months ended March 31, 2012 and the year ended December 31, 2011, respectively, we repurchased an aggregate of 419,249 shares of our common stock at a total cost of $11.4 million, at an average cost of $27.16 per share, and 778,889 shares of our common stock at a total cost of $16.8 million, at an average cost of $21.61 per share. At March 31, 2012, we have remaining authorization to repurchase up to $21.8 million worth of our common stock.

Dividends on Common Stock. The following table summarizes quarterly cash dividends declared and paid on our common stock during 2012 and 2011:

Date Declared	Record Date	Date Paid	Amount Paid Per Common Share
Three Months Ended March 31, 2012:
February 8, 2012	March 2, 2012	March 15, 2012	$0.06
Twelve Months Ended December 31, 2011:
February 16, 2011	March 4, 2011	March 15, 2011	$0.04
May 13, 2011	May 24, 2011	June 15, 2011	$0.04
August 2, 2011	August 24, 2011	September 15, 2011	$0.04
October 21, 2011	November 24, 2011	December 15, 2011	$0.04

On May 1, 2012, our Board of Directors declared a quarterly cash dividend of $0.06 per share of common stock,

payable on June 15, 2012 to stockholders of record as of May 24, 2012.

Contractual Obligations. The card brand networks generally allow chargebacks up to four months after the later of the date the transaction is processed or the delivery of the product or service to the cardholder. If the merchant incurring the chargeback is unable to fund the refund to the card issuing bank, we must do so. As the majority of our SME transactions involve the delivery of the product or service at the time of the transaction, a good basis to estimate our exposure to chargebacks is the last four months' bankcard processing volume on our SME portfolio, which was $22.6 billion for the four months ended March 31, 2012 and $22.3 billion for the four months ended December 31, 2011. However, during the four months ended March 31, 2012 and December 31, 2011, we were presented with $11.2 million and $12.2 million, respectively, of chargebacks by issuing banks. In the three months ended March 31, 2012 and the year ended December 31, 2011, we incurred merchant credit losses of $0.2 million and $5.1 million, respectively, on total SME bankcard dollar volumes processed of $16.7 billion and $63.1 billion, respectively. These credit losses are included in processing and servicing expense in our Consolidated Statement of Income.

The following table reflects our significant contractual obligations as of March 31, 2012:

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	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 years		3 to 5 years		More than 5 years
	(In thousands)
Processing providers (a)	$	25,277	$	9,658	$	11,849	$	3,770	$	—
Telecommunications providers	3,117		3,117		—		—		—
Office and equipment leases	24,955		7,802		9,240		3,823		4,090
Term Credit Facility (b)	81,250		16,250		42,500		22,500		—
	$	134,599	$	36,827	$	63,589	$	30,093	$	4,090

(a) We have agreements with several third-party processors to provide to us on a non-exclusive basis payment processing and transmittal, transaction authorization and data capture services, and access to various reporting tools. Our agreements with third-party processors require us to submit a minimum monthly number of transactions or volume for processing. If we submit a number of transactions or volume that is lower than the minimum, we are required to pay the third-party processors the fees that they would have received if we had submitted the required minimum number or volume of transactions.

(b) Interest rates on the Term Credit Facility are variable in nature; however, in January 2011 we entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million and a current notional amount of $40.6 million. If interest rates were to remain at the March 31, 2012 level, we would make interest payments of $2.5 million in the next 1 year, $3.1 million in the next 1 to 3 years and $0.3 million in the next 3 to 5 years or a total of $5.9 million including net settlements on the fixed-pay amortizing interest rate swaps. In addition, we had no outstanding amounts under our Revolving Credit Facility at March 31, 2012. The Revolving Credit Facility is available on a revolving basis until November 24, 2015.

Unrecognized Tax Benefits. At March 31, 2012, we had gross tax-effected unrecognized tax benefits of approximately $2.0 million. See “— Critical Accounting Estimates — Income Taxes.” As of March 31, 2012, we are unable to make reasonably reliable estimates of the period of cash settlement with the respective taxing authority, hence the unrecognized tax benefits have been excluded from the above commitment and contractual obligations table.

Legal and Regulatory Considerations

The following is a description of material developments that occurred during the quarter ended March 31, 2012 in legal proceedings reported in our Annual Report on Form 10-K for the year ended December 31, 2011.

On June 10, 2009, the Judicial Panel on Multidistrict Litigation (the “JPML”) entered an order centralizing the class action cases for pre-trial proceedings before the United States District Court for the Southern District of Texas, under the caption In re Heartland Payment Systems, Inc. Customer Data Security Breach Litigation, MDL No. 2046, 4:09-md-2046. On August 24, 2009, the court appointed interim co-lead and liaison counsel for the financial institution and consumer plaintiffs. On September 23, 2009, the financial institution plaintiffs filed a Master Complaint in the MDL proceedings, which we moved to dismiss on October 23, 2009. On December 1, 2011, the Court entered an order granting in part our motion to dismiss the financial institution plaintiffs' master complaint against us, but allowing the plaintiffs leave to amend to re-plead certain claims. Plaintiffs' amended complaint is currently due on June 4, 2012 and a status conference will be set following the filing of the amended master complaint. On December 18, 2009, we and interim counsel for the consumer plaintiffs filed with the Court a proposed settlement agreement, subject to court approval, of the consumer class action claims. On May 3, 2010, the Court entered an order preliminarily certifying the settlement class, authorizing notice to the class to proceed, and scheduling a fairness hearing for December 10, 2010, which was later adjourned to December 13, 2010. On March 20, 2012, the Court issued a memorandum and opinion granting final approval to the settlement and on April 12, 2012, the Court entered a judgment. The time period for parties to appeal the Court's ruling has not yet expired.

Other actions have been filed against us seeking damages allegedly arising out of the Processing System Intrusion and other related relief on an individual basis. On December 28, 2009, Putnam Bank of Putnam, Connecticut filed a complaint in Connecticut Superior Court, Putnam Bank v. Heartland Payment Systems, Inc., case no. WWM-CV-10-6001208-S. On January 20, 2010, we removed the action to the United States District Court for the District of Connecticut, case no. 3:10-cv-0061 (JBA), and, on January 27, 2010, filed a Notice of Potential Tag-Along Action, requesting centralization of the action with the MDL proceedings. On March 17, 2010, the action was centralized with the MDL proceedings. On February 9, 2010, OmniAmerican Bank filed a complaint in the District Court for Collin County, Texas, Civ. No. 380-00563-2012. The complaint identifies as a party in interest the Federal Insurance Company, which is alleged to have insured plaintiff and reimbursed it for $1,005,077.50, less a $100,000 deductible. On March 15, 2010, we filed an answer to the complaint and removed the action to the United States District Court for the Eastern District of Texas, case no. 4:10-cv-114, and, on March 16, 2010, filed a Notice of Potential Tag-Along Action, requesting centralization of the action with the MDL proceedings. On April 29, 2010, the action was centralized with the MDL proceedings. On February 18, 2010, Quad City Bank and Trust filed a complaint in the District Court for Collin County, Texas, Civ. No. 380-00721-2010. The complaint identifies as a party in interest the Federal Insurance Company, which is alleged to have insured plaintiff and reimbursed it for $432,420.32, less a $100,000 deductible. On March

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15, 2010, we filed an answer to the complaint and removed the action to the United States District Court for the Eastern District of Texas, case no. 4:10-cv-115 and, on March 16, 2010, filed a Notice of Potential Tag-Along Action, requesting centralization of the action with the MDL proceedings. On April 29, 2010, the action was centralized with the MDL proceedings. On May 5, 2010, Napus Federal Credit Union filed a complaint in the United States District Court for the Southern District of Texas, case no. 4:10-cv-1616, and the action was consolidated with the MDL proceedings on June 9, 2010.

On January 19, 2010, financial institution plaintiffs, including certain of the named plaintiffs in the MDL proceedings, commenced an action against our sponsor banks in the United States District Court for the Southern District of Texas, captioned Lonestar National Bank, N.A. et al. v. KeyBank NA, et al., Civ. No. 4:10-cv-00171. This action against our sponsor banks asserts common-law claims similar to those asserted against us, and likewise seeks to represent all financial institutions that issued payment cards to cardholders whose transaction information is alleged to have been placed at risk in the course of the Processing System Intrusion. On March 4, 2010, this action was transferred to the judge overseeing the MDL proceedings. On April 9, 2010, our sponsor banks moved to dismiss the complaint. On March 31, 2011, the Court entered an order granting the sponsor banks' motions to dismiss the complaint and invited additional briefing on the effect of the Court's order on our pending motion to dismiss. On May 18, 2011, the plaintiffs filed an amended complaint against KeyBank, NA, which KeyBank, NA moved to dismiss on July 7, 2011. On March 14, 2012, the Court entered an order granting KeyBank's motion to dismiss and entered final judgment dismissing the action with prejudice. On April 18, 2011, in accordance with its order dismissing the claims against Heartland Bank for lack of personal jurisdiction, the court transferred the action against Heartland Bank to the United States District Court for the Eastern District of Missouri. Heartland Bank filed a notice with the Judicial Panel on Multidistrict Litigation on July 27, 2011 designating the transferred action as a potential tag-along action to the MDL proceedings. On August 11, 2011, the action was centralized with the MDL proceedings. The sponsor banks could seek indemnification from us in regard to the claims asserted in this action.

We were contacted by the Federal Financial Institutions Examination Council and informed that it would make inquiries into the Processing System Intrusion, and the Federal Trade Commission, by letters dated February 19, 2009, August 4, 2009, and March 10, 2010, has requested that we provide information about our payment processing services and information security practices. Additionally, we have received written or telephonic inquiries relating to the Processing System Intrusion from a number of state Attorneys General's offices, including a Civil Investigative Demand from the Louisiana Department of Justice Office of the Attorney General, the Canadian Privacy Commission, and other government officials. We have cooperated with the government officials in response to each of these inquiries and have not received any further communications from the above-mentioned government agencies. Additional lawsuits may be filed against us relating to the Processing System Intrusion and that additional inquiries from governmental agencies may be received or investigations may be commenced.

In the ordinary course of our business, we are party to various legal proceedings, which we believe are incidental to the operation of our business. We believe that the outcome of the proceedings to which we are currently a party will not have a material adverse effect on our financial position, results of operations or cash flows.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk. Our primary market risk exposure is to changes in interest rates.

We have interest rate risk related to our payable to our sponsor banks. Within our amount payable to our sponsor banks are balances which KeyBank and Heartland Bank have advanced to our SME merchants for interchange fees. We fund these advances first by applying a portion of our available cash and then by incurring a significant payable to our sponsor banks, bearing interest at the prime rate. At March 31, 2012, our payable to sponsor banks included $46.7 million for funding interchange advances to our SME merchants. This payable is repaid on the first business day of the following month out of fees collected from our merchants. During the quarter ended March 31, 2012, the average daily interest-bearing balance of that payable was approximately $8.6 million. The outstanding balance of our payable to our sponsor banks is directly related to our bankcard processing volume and also will fluctuate depending on the amount of our available cash. A hypothetical 100 basis point change in short-term interest rates applied to our average payable to sponsor banks would result in a change of approximately $86,000 in annual pre-tax income.

We also incur interest rate risk on borrowings under our Second Amended and Restated Credit Agreement. The Second Amended and Restated Credit Agreement provides for a Revolving Credit Facility of $50.0 million and a Term Credit Facility of $100.0 million. At March 31, 2012, there was $81.3 million outstanding under the Term Credit Facility and no outstanding balance under the Revolving Credit Facility. The Term Credit Facility requires amortization payments in the amount of $3.75 million for each fiscal quarter during the fiscal years ended December 31, 2011 and 2012, $5.0 million for each fiscal quarter during the fiscal years ended December 31, 2013 and 2014, and $7.5 million for each fiscal quarter during

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the period commencing on January 1, 2015 through the maturity date on November 24, 2015. Under the terms of the Credit Agreement, we may borrow, at our option, at interest rates equal to one, two, three or six month adjusted LIBOR rates, or equal to the greater of the prime rate, the federal funds rate plus 0.50% and the adjusted LIBOR rate plus 1%, in each case plus a margin determined by our current leverage ratio. In January 2011, we entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million on the variable rate debt outstanding under the Term Credit Facility. These interest rate swaps convert that initial notional amount to fixed rate. At March 31, 2012, the remaining notional amount of these interest rate swaps was $40.6 million. The impact which a hypothetical 100 basis point increase in short-term interest rates would have on our outstanding March 31, 2012 balances under the Second Amended and Restated Credit Agreement would be a decline of approximately $406,000 in annual pre-tax income, including the effect from interest rate swaps.

While the bulk of our cash and cash-equivalents are held in checking accounts or money market funds, we do hold certain fixed-income investments with maturities within three years. At March 31, 2012, a hypothetical 100 basis point increase in short-term interest rates would result in an increase of approximately $53,000 in annual pre-tax income from money market fund holdings, but a decrease in the value of fixed-rate investments of approximately $40,000. A hypothetical 100 basis point decrease in short-term interest rates would result in a decrease of approximately $53,000 in annual pre-tax income from money market funds, but an increase in the value of fixed-rate instruments of approximately $40,000.

Foreign Currency Risk. While substantially all of our business is conducted in U.S. dollars, our 70% owned Canadian processing subsidiary, CPOS, conducts its operations in Canadian dollars. Consequently, a portion of CPOS' revenues and expenses may be affected by fluctuations in foreign currency exchange rates. We are also affected by fluctuations in exchange rates on assets and liabilities related to our CPOS subsidiary. We have not hedged our translation risk on foreign currency exposure. For the year ended December 31, 2011, foreign currency exposures had an immaterial impact on our revenues and our net income. For the three months ended March 31, 2012, fluctuations in exchange rates on CPOS' assets and liabilities increased our total other comprehensive income and noncontrolling interests by $0.2 million.

We do not hold or engage in the trading of foreign exchange instruments.

Office Facilities

At March 31, 2012, we owned one facility and leased sixteen facilities which we use for operational, sales and administrative purposes.

Our principal executive offices are located in approximately 9,300 square feet of leased office space on Nassau

Street in Princeton, New Jersey. The Nassau Street lease expires in May 2013. We own 35 acres of land in Jeffersonville, Indiana, on which we constructed our credit card operations and service center. The state-of-the-art facility is comprised of 238,000 square feet of space supporting customer service, operations, deployment, day care, fitness, cafeteria, and large company meetings.

We also leased the following facilities as of March 31, 2012:

Location	Square Feet	Expiration
Auburn, Alabama	2,382	April 30, 2014
Chattanooga, Tennessee	9,461	June 30, 2014
Cleveland, Ohio	24,229	June 30, 2012
Cleveland, Ohio	41,595	June 30, 2019
Colorado Springs, Colorado	9,920	February 28, 2015
Harlan, Kentucky	5,000	May 25, 2014
Johnson City, Tennessee	5,252	April 17, 2014
Phoenix, Arizona	1,284	April 30, 2013
Phoenix, Arizona	1,930	October 31, 2012
Plano, Texas	53,976	May 31, 2015 for 26,988 square feet. January 14, 2019 for 26,988 square feet.
Plano, Texas	26,020	January 31, 2015
Portland, Oregon	11,564	September 30, 2013
Tempe, Arizona	14,315	September 30, 2014
Toronto, Ontario, Canada	14,094	July 31, 2020
West Windsor Township, New Jersey	5,288	May 31, 2013

39

We believe that our facilities are suitable and adequate for our current business operations and, if necessary, could be replaced with little disruption to our company. We periodically review our space requirements and may acquire new space to meet our business needs or consolidate and dispose of or sublet facilities which are no longer required.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations –Quantitative and Qualitative Disclosures About Market Risk.”

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("the Exchange Act") as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and are designed to ensure that information required to be disclosed in those reports is accumulated and communicated to management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based, in part, upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

Changes in Internal Controls

During the quarter ended March 31, 2012, there was no change in our internal controls over financial reporting (as defined in Rule 13 a-15(f) and 15d-15(e) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Except as disclosed in “Legal and Regulatory Considerations” of Part I of this Quarterly Report on Form 10-Q, there were no material developments that occurred during the three months ended March 31, 2012 in the proceedings reported under Part I, Item 3. Legal Proceedings in our Annual Report on Form 10-K for the year ended December 31, 2011, nor are we aware of any other material legal proceedings initiated against us during the three months ended March 31, 2012.

Item 1A. Risk Factors

There have been no material changes in our Risk Factors as previously reported in our Annual Report on Form 10-K for the year ended December 31, 2011.

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

(a) None

(b) None

(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On October 21, 2011, our Board of Directors authorized the repurchase of up to $50 million worth of our common stock. Repurchases under this program will be made through the open market, or in privately negotiated transactions, from time to time in accordance with applicable laws and regulations. We intend to fund any repurchases with cash flow from operations, existing cash on the balance sheet, and other sources including the proceeds of options exercises. The manner, timing and amount of repurchases, if any, will be determined by our management and will depend on a variety of factors, including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements. The

40

repurchase program may be modified or discontinued at any time.

Under authorization from our Board of Directors, during the three months ended March 31, 2012 and the year ended December 31, 2011, respectively, we repurchased an aggregate of 419,249 shares of our common stock at a total cost of $11.4 million, at an average cost of $27.16 per share, and 778,889 shares of our common stock at a total cost of $16.8 million, at an average cost of $21.61 per share. At March 31, 2012, we have remaining authorization to repurchase up to $21.8 million worth of our common stock.

The following table presents information with respect to those purchases of our common stock made during the three months ended March 31, 2012:

	Total Number of Shares Purchased	Average Price Paid Per Share	Total number of shares purchased as part of publicly announced plans or programs	Maximum number (or approximate dollar value) of shares that may yet be purchased under the plans or programs
				(In thousands)
January 1— 31, 2012	156,149	$24.16	156,149	$29,400
February 1— 29, 2012	30,000	24.83	30,000	28,655
March 1 — 31, 2012	233,100	29.48	233,100	21,784
Total	419,249	$27.16	419,249

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

Effective April 30, 2012, we entered into an amendment (the “Amendment”) to the Merchant Financial Services Agreement with Wells Fargo Bank, N.A. (“Wells Fargo”) dated February 8, 2012 (the “Agreement”).  The Amendment extended the previously disclosed date after which either party may terminate the Agreement on 10 days' notice, if the ACH Agreement has not been signed, from April 30, 2012 to June 30, 2012.  We are currently negotiating the terms of the ACH Agreement with Wells Fargo.

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Item 6. Exhibits

Exhibit Number	Description
*10.1	Merchant Financial Services Agreement with Wells Fargo Bank, N.A dated February 8, 2012.
*10.2	Amendment No. 1 to the Merchant Financial Services Agreement between Wells Fargo Bank, N.A. and Heartland Payment Systems, Inc. dated April 30, 2012.
*31.1	Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*31.2	Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
*32.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*32.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

_____________________

*    Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 7, 2012

HEARTLAND PAYMENT SYSTEMS, INC.
(Registrant)
By:	/S/    ROBERT O. CARR
	Robert O. Carr
	Chief Executive Officer
	(Principal Executive Officer)
By:	/S/    Maria Rueda
	Maria Rueda
	Chief Financial Officer
	(Principal Financial Officer)

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EXHIBIT INDEX

Exhibit Number	Description
*10.1	Merchant Financial Services Agreement with Wells Fargo Bank, N.A dated February 8, 2012.
*10.2	Amendment No. 1 to the Merchant Financial Services Agreement between Wells Fargo Bank, N.A. and Heartland Payment Systems, Inc. dated April 30, 2012.
*31.1	Certification of the Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*31.2	Certification of the Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
*32.1	Certification of the Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification of the Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

_____________________

* Filed herewith.

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EX-10.1

MERCHANT FINANCIAL SERVICES AGREEMENT

BY AND BETWEEN

WELLS FARGO BANK, N.A.,

and

HEARTLAND PAYMENT SYSTEMS, INC.

February 8, 2012

MERCHANT FINANCIAL SERVICES AGREEMENT

This is a Merchant Financial Services Agreement (the “Agreement”) made and entered into on this __ day of February, 2012 (the “Effective Date”), by and between WELLS FARGO BANK, N.A., a national banking association (“WFB”) and HEARTLAND PAYMENT SYSTEMS, INC. (“Company”).

ARTICLE 1

DEFINITIONS

The following terms shall have the meanings specified below when used in this Agreement.  Certain other capitalized terms are defined elsewhere in this Agreement in the context of the provisions in which they are used.

1.1 “ACH Agreement” shall have the meaning ascribed thereto in Section 6.6.

1.2 “Agreement” shall have the meaning ascribed thereto in the Preamble.

1.3 “Audit” shall have the meaning ascribed thereto in Section 4.4.

1.4 “BIN” means one or more Bank Identification Numbers issued by Visa to WFB (whether or not transferred to WFB from Company's existing Payment Company sponsor) and dedicated to Company for its exclusive use. 

1.5 “Business Day” shall mean a calendar day on which Wells Fargo is open for business. 

1.6 “Card” shall mean a credit or debit card branded with the marks of a Payment Company.

1.7 “Chargeback Losses” shall have the meaning ascribed thereto in Section 5.8.

1.8 “Chargeback Shortfall” shall have the meaning ascribed thereto in Section 5.8.

1.9 “Company” shall have the meaning ascribed thereto in the Preamble.

1.10 “Company Compensation” shall have the meaning ascribed thereto in Section 5.8.

1.11 “Company Indemnitees” shall have the meaning ascribed thereto in Section 9.1.1.

1.12 “Company Security Breach” shall have the meaning ascribed thereto in Section 3.5.1.

1.13 “Company's System” shall have the meaning ascribed thereto in Section 3.5.1.

1.14 “Confidential Information” shall have the meaning ascribed thereto in Section 3.1.1.

1.15 “Contracted Parties”means Persons other than the Company and WFB that provides Transaction Card Services pursuant to a contract between such Person and Company requiring such Persons to be bound by terms and conditions similar to those included in this Agreement (as further described in Section 5.2.5) and which Persons are required to be registered with the Payment Companies by WFB. Contracted Parties, in the case of Company, shall necessarily include ISOs or MSPs with whom Company contracts relative to the Transaction Card Services being provided pursuant to this Agreement. WFB reserves the right to approve all Contracted Parties proposed by Company, and WFB's approval shall not be unreasonably

withheld, conditioned or delayed. Company acknowledges that it is responsible for all actions of Contracted Parties in relation to the provision of Transaction Card Services and such Contract Parties' compliance with this Agreement. Notwithstanding any other agreement to the contrary, Company hereby agrees that it shall at all times be responsible for the actions and omissions of such Contracted Parties.

1.16 “Contracted Party Agreements” shall have the meaning ascribed thereto in Section 5.2.5.

1.17 “Credit Policy” means the policy agreed upon between the parties pursuant to Section 5.3.

1.18 “Customer/Consumer Information” means information or data (provided by, through, or on behalf of a Disclosing Party) about or relating to any customer or prospective or former customer of Disclosing Party (whether an individual, business entity, governmental unit, or otherwise) or any consumer of Disclosing Party, including (without limitation) any and all nonpublic personal information of Disclosing Party made available to Receiving Party Personnel (a) on Disclosing Party's consumers or customers (within the meaning of Title V of the Gramm-Leach-Bliley Act and its implementing regulations) and (b) with respect to any information subject to Section 628 of the Fair Credit Reporting Act and any regulations or guidelines adopted thereunder.

1.19 “Disclosing Party” shall have the meaning ascribed thereto in Section 1.44.

1.20 “Dispute Notice” shall have the meaning ascribed thereto in Section 5.7.2.

1.21 “Dispute Period” shall have the meaning ascribed thereto in Section 5.7.2.

1.22 “Effective Date” shall have the meaning ascribed thereto in the Preamble.

1.23 “Event of Default” shall have the meaning ascribed thereto in Section 8.2.1.

1.24 “Existing Merchant” means a merchant (as defined and used in the MasterCard and Visa Payment Company Rules) that was party to an agreement with Company prior to the transfer of the BIN and ICA to WFB.

1.25 “Existing Merchant Agreement” means an agreement with an Existing Merchant.

1.26 “Fee Account” shall have the meaning ascribed thereto in Section 5.7.2.

1.27 “Findings Letter” shall have the meaning ascribed thereto in Section 10.16.

1.28 “Fraud Prevention Program” shall mean the program required under Section 5.4.

1.29 “General Reserve Account” shall have the meaning ascribed thereto in Section 5.11.1.

1.30 “ICA” means the Interbank Card Association number issued by MasterCard to WFB (whether or not transferred to WFB from Company's existing Payment Company sponsor) and dedicated to Company for its exclusive use.

1.31 “Interchange” means the contracts, agreements, rules, regulations and procedures governing the relationships between, or the actions in accordance with the contracts, agreements, rules, regulations or procedures by, any two or more Persons in connection with Settlement.

1.32 “ISO” means an Independent Sales Organization as defined in Payment Company Rules.

1.33 “Losses” has the meaning ascribed thereto in Section 9.1.3.

1.34 “Merchant” shall mean a merchant (as defined and used in the MasterCard and Visa Payment Company Rules) who receives Transaction Card Services from Company pursuant to a Merchant Agreement and whose Card transactions will be processed via the ICAs and/or BINs.

1.35 “Merchant Agreement” shall mean the contract between Company and a Merchant for the provision of the Transaction Card Services.

1.36 “Merchant Reserve Account” shall have the meaning ascribed thereto in Section 5.11.2.

1.37 “MSP” means a Member Service Provider as defined in Payment Company Rules.

1.38 “Party Identity” shall have the meaning ascribed thereto in Section 4.1.

1.39 “Payment Company” shall mean MasterCard Inc. and Visa Inc., and any affiliate or successor of the foregoing.

1.40 “Payment Company Customer” shall mean an entity that: (a) is a member of a Payment Company; (b) whose membership in a Payment Company is not dependent on sponsorship by or from another entity; and (c) is authorized to sponsor other Persons with a Payment Company.

1.41 “Payment Company Rules” shall mean the bylaws, rules, regulations, orders and interpretations issued by the respective Payment Company applicable to the performance of Transaction Card Services and related matters, as amended from time to time by the respective Payment Company.

1.42 “PCI-DSS” shall have the meaning ascribed thereto in Section 3.5.1.

1.43 “Person” shall mean an association, a corporation, an individual, a partnership, a trust or any other entity or organization.

1.44 “Proprietary and Other Confidential Information” means any and all information or data, provided by, through, or on behalf of any party or any of its affiliates (“Disclosing Party”) to another party (“Receiving Party”) and any of its officers, employees, agents, representatives, sub-contractors or any other individual doing work for such party (collectively “Receiving Party Personnel”), about or relating to any customer or prospective or former customer of Disclosing Party (whether an individual, business entity, governmental unit, or otherwise) and any and all confidential business, technical or data processing information, trade secret or other proprietary information acquired by Receiving Party Personnel in the course of carrying out the tasks hereunder or as a result of access to the premises of Disclosing Party, whether or not conceived of or prepared by Receiving Party whether or not reduced to writing, and whether or not in human readable or machine readable form (including, without limitation, any information concerning the Disclosing Party's data processing concepts, techniques, or procedures, software in various stages of development, discoveries, ideas, inventions, operations, data, designs, drawings, diagrams, specifications, documentation, research, know-how, compilations of information, records, costs, purchasing data, financial data, accounting,

marketing and development plans, proposals, market research, marketing techniques and plans or requests for proposals for future Services, sales, pricing, profits, business plans or procedures, Disclosing Party's data, employee information and other information not generally known to non-Disclosing Party personnel). Proprietary and Other Confidential Information also includes any and all information described above which Disclosing Party obtains from another party and treats as proprietary or designates as Confidential Information, whether or not owned or developed by Disclosing Party.

1.45 “Receiving Party” shall have the meaning ascribed thereto in Section 1.44.

1.46 “Receiving Party Personnel” shall have the meaning ascribed thereto in Section 1.44.

1.47 “Reserve Accounts” shall have the meaning ascribed thereto in Section 5.11.

1.48 “SEC” shall have the meaning ascribed thereto in Section 2.6.

1.49 “Settlement Account” shall have the meaning ascribed thereto in Section 5.7.1.1.

1.50 “Settlement” means the process of exchanging financial data and value resulting from sales transactions, cash disbursements, pre-funded card transactions, or merchandise credits associated with amounts owed to Merchants for their Transactions less applicable merchant discounts, chargebacks or fees on a monthly or daily basis.

1.51 “Transaction” means the purchase by a cardholder of goods or services from a Merchant or a refund from a Merchant to a cardholder by use of a Card.

1.52 “Transaction Card Services” shall mean those services described in Section 5.1.

1.53 “WFB” shall have the meaning ascribed thereto in the Preamble.

1.54 “WFB Indemnitees” shall have the meaning ascribed thereto in Section 9.1.2.

1.55 “WFB Security Breach” shall have the meaning ascribed thereto in Section 3.5.2.

1.56 “Wind Down Period” shall have the meaning ascribed thereto in Section 8.3.3.

ARTICLE 2

REPRESENTATIONS AND WARRANTIES

WFB and Company each hereby represents and warrants as follows, as pertains to itself:

2.1        Corporate Organization, Good Standing.  WFB is a national banking association duly organized, validly existing and in good standing under the laws of the United States.  WFB has the requisite corporate power and authority to own all of its properties and assets and to carry on its business as it is now being conducted.  Company is a corporation validly existing and in good standing under the laws of the State of Delaware and has the corporate power and authority to own all of its properties and assets and to carry on its business as it is now being conducted.

2.2       Payment Companies.  WFB is and, during the term of this Agreement will, remain a Payment Company Customer in good standing of MasterCard, Visa, and any other applicable Payment Companies.

2.3       Authorization.  The execution and delivery by each party of this Agreement and the consummation and performance by such party of the transactions contemplated hereby have been duly authorized by all necessary corporate action in compliance with applicable law.

2.4       Non-Contravention. The execution and delivery of this Agreement by such party does not and the consummation and performance by both WFB and Company of the transactions contemplated hereby will not: 

2.4.1    violate any provision of the charter documents or bylaws of such party;

2.4.2    violate or conflict with any other restriction of any kind or character to which such party is subject or by which any of its assets may be bound; or

2.4.3    require the consent of or notice to any non‑governmental party.

2.5       Governmental Consents, Etc.  Except for the sponsorship of Company pursuant to Section 6.1, no consent, authorization, order or approval of, or filing or registration with, any governmental commission, governmental board or other governmental body is required for or in connection with the execution and delivery of this Agreement by such party and the consummation by such party of the transactions contemplated hereby.

2.6        Litigation.  Except as set forth in such party's filings with the Securities and Exchange Commission (the “SEC”), there is no claim, action, suit or proceeding pending, or to the knowledge of the applicable party, contemplated or threatened, against such party or any of its properties which relates to or affects the transactions contemplated by this Agreement in a material adverse manner; nor is there any judgment, decree, injunction, ruling or order of any court, government or any other Person outstanding against such party which relates to or affects the Transaction Card Services, or would result in a material adverse change for such party; and such party is not a party to or bound by any judgment, decree, injunction, ruling or order of any court, governmental department, agency or any other Person outstanding against such party having any such effect. 

ARTICLE 3

CONFIDENTIALITY

3.1.General Definitions and Exclusions.

3.1.1Definition of Confidential Information.“Confidential Information” will mean and include Customer/Consumer Information and Proprietary and Other Confidential Information.

3.1.2Exclusions. Proprietary and Other Confidential Information will not include information that is: (a) already known by the Receiving Party without an obligation of confidentiality other than under this Agreement; (b) publicly known or becomes publicly known through no unauthorized act of the Receiving Party; (c) independently developed by the Receiving Party without use of the Disclosing Party's confidential information; or (d) approved by the Disclosing Party for disclosure. In any dispute with respect to these exclusions, the burden of proof will be on the Receiving Party to show that the exclusion applies. The exclusions set forth in this Section 3.1.2 shall not apply to Customer/Consumer Information.

3.2General Obligations Regarding Confidential Information.

3.2.1Receiving Party acknowledges that, in the course of its relationship with Disclosing Party, Receiving Party Personnel will acquire or have access to Confidential Information of various kinds respecting Disclosing Party, its business and its customers. Receiving Party acknowledges that all Confidential Information disclosed by Disclosing Party to Receiving Party Personnel for the purposes of performing services hereunder, or which comes to the attention of Receiving Party Personnel during the course of such performance of services, constitutes a valuable asset of Disclosing Party, is proprietary to Disclosing Party, and is properly the subject of protection. Receiving Party covenants that it will take all steps necessary (including without limitation, at minimum, such measures as Receiving Party takes to safeguard its own confidential information) to ensure the security and confidentiality of all Confidential Information, to protect against anticipated threats or hazards to the security or integrity of such Confidential Information and to protect against unauthorized access to or use of such Confidential Information, including but not limited to the proper disposal of such information. Notwithstanding anything to the contrary herein, (i) the identity of any Person as a Merchant or customer of Company, (ii) the identity of any Contracted Party of Company and (iii) any non-public information about (i) or (ii) shall be Confidential Information of Company and not of WFB, and shall not be (a) used by WFB, or any affiliate thereof, for any purpose other than to perform its obligations under this Agreement or (b) shared with First Data Corp. or any affiliate thereof (except to the extent Wells Fargo Merchant Services, LLC is deemed to be an affiliate of First Data Corp.).

3.2.2Receiving Party also acknowledges that Disclosing Party may have a responsibility to its customers and the customers of its affiliates to keep Customer/Consumer Information strictly confidential and proprietary. Receiving Party further acknowledges that Disclosing Party may have proprietary or Confidential Information of third parties that they may rightfully use in the course of their businesses. Receiving Party further agrees that Receiving Party will disclose Confidential Information to only those Receiving Party Personnel that need to know such Confidential Information solely for the purpose of carrying out the performance of specific terms of this Agreement, and, in such case, if the Receiving Party Personnel is an agent or contractor such Receiving Party Personnel must be bound by similar obligations of confidentiality as those set forth in this Confidential Information provision.

3.2.3Receiving Party agrees that neither it nor any Receiving Party Personnel will, during the term of this Agreement or thereafter, without the prior written consent of Disclosing Party, use, disclose, sell, lease, assign, transfer, copy, reveal or otherwise make available to any Person (except as required in performing Receiving Party's services or other obligations under this Agreement or by Payment Company Rules, stock exchange rules, law, regulation or other legal process) any Confidential Information of Disclosing Party. Receiving Party further agrees that it will instruct Receiving Party Personnel not to, sell, lease, assign, transfer, copy or reveal any Confidential Information obtained while performing services for Disclosing Party or any products or services that embody, in whole or in part, any of such Confidential Information without the prior written consent of Disclosing Party. Further Receiving Party agrees that it and any Receiving Party Personnel will not use any Confidential Information except as may be reasonably necessary in the ordinary course of business to carry out the activities to be performed by Receiving Party under this Agreement or as may be required by Payment Company Rules, stock exchange rules, law, regulation or other legal process. For the avoidance of doubt, the parties acknowledge and agree that all Merchant information is the Confidential Information of Company and (i) may not be (a) used by WFB, or any affiliate thereof, for any purpose other than to perform its obligations under this Agreement during the term of this Agreement and during the Wind-Down Period or (b) shared with First Data Corp. or any affiliate thereof (except to the extent Wells Fargo Merchant Services, LLC is deemed to be an affiliate of First

Data Corp.), (ii) will not be used by WFB, directly or indirectly, to solicit any Merchants or induce any Merchant to terminate or otherwise alter their relationship with the Company and (iii) will not be used by WFB or its affiliates for the purpose of soliciting any Person to begin or expand any financial services relationship (including, without limitation, any lending, depository, insurance, brokerage or similar relationship) with WFB, any affiliate thereof, or any other party.

3.3 Injunctive Relief. It is agreed that the unauthorized disclosure or use of any Confidential Information may cause immediate or irreparable injury to the Disclosing Party, and that the Disclosing Party may not be adequately compensated for such injury in monetary damages. The Receiving Party therefore acknowledges and agrees that, in such event, the Disclosing Party shall be entitled to any temporary or permanent injunctive relief necessary to prevent such unauthorized disclosure or use, or threat of disclosure or use, without the obligation to post any bond or other security measure to secure such relief. This provision with respect to injunctive relief will not, however, diminish the Disclosing Party's right to claim and recover damages.

3.4 Legal Proceedings. In the event that a subpoena or other legal process requiring disclosure of Confidential Information disclosed by the Disclosing Party to the Receiving Party, is served upon the Receiving Party, the Receiving Party agrees that it will notify the Disclosing Party promptly upon receipt of such subpoena or other legal process and will cooperate with the Disclosing Party, at the Disclosing Party's expense, in any lawful effort by the Disclosing Party to contest the legal validity of such subpoena or other legal process or otherwise protect the confidentiality of such Confidential Information.

3.5 Security Breach.

3.5.1In the event of any actual or reasonably suspected security breach (including but not limited to, for example, physical trespass on a secure facility, computing systems intrusion/hacking, loss/theft of a PC (laptop or desktop), loss/theft of printed materials, etc.) Company either suffers or learns of with regard to Merchant or any other third party provider, that either compromises or could reasonably be expected to materially compromise Cardholder Data or Sensitive Authentication Data (as such terms are defined in the Payment Card Industry Data Security Standards or any successor thereto (“PCI-DSS”) or either party's Confidential Information that is related to this Agreement (collectively, a “Company Security Breach”), Company will, as promptly as reasonably practicable in accordance with applicable law, notify WFB security personnel of such Company Security Breach at the following 24-hour phone number: 800-947-4915, and will promptly investigate and use its best efforts to remedy such Company Security Breach.  Except as may be required by applicable law, regulation, any law enforcement agency, a regulator, or Payment Company, Company agrees that it will use its best efforts to consult with WFB prior to informing any third party of such Company Security Breach. Company agrees to use commercially reasonable efforts to consult with WFB regarding the content of such disclosure so as to minimize any potential adverse impact upon WFB as the sponsoring entity under this Agreement. In the event of a Company Security Breach of the processing platform or other systems operated by Company that contain or transmit data or information related to the Transaction Card Services (“Company's System”), WFB shall have the right to immediately suspend accepting all Transactions and data from Company's System to the extent necessary to investigate the severity of the problem, devise a remedy or otherwise secure the data; provided, that (i) such Company Security Breach presents an actual or probable ongoing compromise to the Transactions, and (ii) WFB shall use commercially reasonable best efforts to limit such suspension in a manner that minimizes the impact to Company while still accomplishing the goal of mitigating risk associated with such Company Security Breach and shall re-institute accepting

Transactions and data at the earliest reasonably possible time.

3.5.2In the event of any actual or reasonably suspected security breach (including but not limited to, for example, physical trespass on a secure facility, computing systems intrusion/hacking, loss/theft of a PC (laptop or desktop), loss/theft of printed materials, etc.) WFB either suffers or learns of with regard to the sponsorship services or the Transactions, that either compromises or could compromise Cardholder Data or Sensitive Authentication Data (as such terms are defined in the PCI-DSS) or Confidential Information of Company, including without limitation (collectively, a “WFB Security Breach”), WFB will, as promptly as reasonably practicable in accordance with applicable law, notify Company security personnel of such WFB Security Breach at the following 24-hour phone number: 972-295-8721, and will promptly investigate and use its best efforts to remedy such the WFB Security Breach.  Except as may be required by applicable law, regulation or by a regulator who has jurisdiction over WFB, WFB agrees that it will use commercially reasonable efforts to consult with Company prior to informing any third party of any such WFB Security Breach; however, if such disclosure is required by applicable law, regulation or by a regulator who has jurisdiction over WFB, WFB agrees to use commercially reasonable efforts to consult with Company regarding the content of such disclosure so as to minimize any potential adverse impact upon Company as the sponsored entity under this Agreement.

ARTICLE 4

ADDITIONAL COVENANTS AND AGREEMENTS

4.1        Publicity.  Except as otherwise provided in this Agreement or the identification of WFB and Payment Company Customer as required by Payment Company Rules, all proposed advertising, sale promotion, and other publicity material, including advertisements and press releases or news or other releases, which use the name, likeness, or logo of the other party (“Party Identity”) shall not be published or used by the other party without the prior written approval of an officer of the other party. Each party shall use its best effort to review said materials and approve or deny approval of the same within five (5) Business Days via email.

4.2        Financial Information to be Furnished to WFB.  Company acknowledges that WFB may required to obtain financial or other information regarding the Transaction Card Services, and agrees to supply such information to WFB as needed, in the reasonable judgment of WFB, to permit the compliance with any regulator, taxing authority or tax reporting requirements, or Payment Company Rules; provided, however, that WFB will first seek such information from its own records or Company's filings with the SEC, before requesting that Company provide such information. Any such information produced by the Company shall be deemed to be Confidential Information for purposes of this Agreement, and that WFB shall demonstrate, at Company's request and to Company's reasonable satisfaction, its need to obtain such additional information.

4.3        Registration. WFB and Company shall not be bound by this Agreement unless and until Company is registered by WFB under Payment Company Rules and regulations as provided in Section 6.1.

4.4 Audit & Inspections. Company shall permit WFB, MasterCard, Visa, or any regulatory authority having jurisdiction over WFB, or the authorized representatives of such parties, to: (i) perform a financial, procedural, compliance, security or operational audit (an “Audit”) of the electronic data processing environment of Company or its Service Providers, or of any records or documents maintained by Company or its service providers in connection with the provision of the Transaction Card Services (including Merchant Agreements and files), as may be required by applicable Payment Company Rules, any regulatory authority having jurisdiction over WFB, or by WFB requirements (including those listed in Schedule 4.4); and (ii) inspect any business location of Company in order to evaluate compliance with provisions of this Agreement,

all applicable Payment Company regulations and regulatory requirements and written WFB requirements that have been provided to Company. In connection with any Audit and inspection: (a) Company may reasonably require that the party performing the Audit (other than WFB) execute a confidentiality agreement with respect to any confidential or proprietary information which may be provided and (b) Company shall reimburse WFB for any amounts WFB is required to pay a Payment Company or a regulatory authority in connection with an inspection relating to this Agreement. Company shall allow any such auditors reasonable access during normal business hours to the records, procedures and facilities of Company, and/or its Merchants, suppliers, or Service Providers related to this Agreement. Such access and any Audit shall be requested upon advance written notice of not less than ten (10) days (or such shorter period required by a regulatory authority or Payment Company). Company shall reasonably cooperate with any such auditors or representatives in the conduct of any Audits, including giving them access to officers and independent auditors of Company for discussion of any Audit.

ARTICLE 5

COMPANY RESPONSIBILITIES

5.1        Transaction Card Services.  The Company will arrange for the funding of receivables and provide the following services to Merchants (collectively, the “Transaction Card Services”):

5.1.1 Enter into Merchant Agreements (in accordance with Section 5.2 below) and obtain from each Merchant such documentation as is required by the applicable Merchant Agreement, evaluate such prospective new Merchants as to the level of risk they might pose, negotiate the Merchant Agreement, and process Merchant's Transactions;

5.1.2 Provide all services not provided by WFB pursuant to the terms of this Agreement that are necessary to authorize, data capture, process, settle and reconcile transactions effected by Merchants with holders of applicable Cards;

5.1.3 Set up new Merchants and provide ongoing maintenance of Merchant accounts;

5.1.4 Monitor daily loss prevention of the serviced accounts, according to a Fraud Prevention Program;

5.1.5 Provide all communication to and from Merchants in furtherance of the services contemplated in this Agreement;

5.1.6 Report all Merchant account activity contemplated under this Agreement pursuant to a mutually agreed uponMonthly Scorecard (including, but not limited to processing, chargebacks, and credits on an individual Merchant and aggregate basis) which is described in Schedule 5.1;

5.1.7 Provide detailed reporting, the form and substance of which shall be subject to WFB's approval, that allows WFB to ensure accurate and timely reconciliation according to WFB's financial monitoring and controls policies; and

5.1.8 Underwrite Merchants in a manner that conforms to the requirements of the Credit Policy, as further described in Section 5.3.

5.2        Negotiation of Contract Terms; Decisions To Establish, Modify or Terminate Relationships.

5.2.1     As between WFB and Company, Company shall have the authority to negotiate with each

Merchant to establish or renew any Merchant Agreement, provided (i) that the acceptance or continuation of such Merchant (and the terms of the Merchant Agreement) are consistent with the standards in the Credit Policy and (ii) that WFB has approved the base standard form Merchant Agreement presented to the Merchants (and any material changes thereto that Company may negotiate with Merchants from time to time). Without limiting the foregoing, Company agrees that Merchant Agreements shall include the WFB disclosure page, which is attached as Schedule 5.2.1(a) hereto.  WFB will advise Company as to any changes to the form of Merchant Agreement required by a Payment Company, and Company shall timely effect all such changes. For avoidance of doubt, the following are examples of changes to the form of Merchant Agreement that are material and would require prior approval of WFB: (1) any changes to the representations and warranties of the Merchant set forth in the Merchant Agreement, (2) any changes to obligations of the Merchant regarding confidentiality or data security, (3) changes which vary the obligation of the Merchant to comply with the Payment Company Rules, (4) changes which adversely impact the ability of WFB to terminate the Merchant Agreement or (5) changes to the provisions of the Merchant Agreement governing indemnification or limitation of liability. For avoidance of doubt, the parties acknowledge and agree that changes to the form of Merchant Agreement relating to pricing, term, guarantor provisions, and termination fees do not constitute material adverse changes. For the first 90 days following the completion of the transfer of the BIN and ICA to WFB in accordance with Section 6.1, WFB will accept Merchant Agreements on the form used for Existing Merchant Agreements, a current copy of which is attached hereto as Schedule 5.2.1(b). Notwithstanding the foregoing or any other term of this Agreement, Company agrees that Company will be responsible for the form and content of any Merchant Agreement including, without limitation, any financial or other non-compliance consequences that may result to the extent a Payment Network determines that a Merchant Agreement does not conform to Payment Network Rules, except to the extent that such deficiency is attributable to a specific element of the Merchant Agreement that was mandated by WFB.

5.2.2     If Company wishes to enter into a Merchant Agreement and such Merchant cannot be accepted in accordance with the Credit Policy, Company may present its proposal for acceptance of such Merchant to WFB for its review and WFB may, in its sole discretion, approve the acceptance of such Merchant.

5.2.3     Company is prohibited from entering a Merchant Agreement with any business associated with the business types listed as Unqualified Merchants, as described in Schedules 5.3(a), (b), (c), (d) and (e), without the consent of WFB.

5.2.4 Company shall have the right to terminate any Merchant or Merchant Agreement at any time for any reason or no reason. Without limiting any rights WFB may otherwise have under this Agreement, WFB has the right to reject or terminate any Merchant or Merchant Agreement at any time:

(i) based on WFB's determination of possible fraud or credit risk;

(ii)to the extent termination is required as a result of a violation of Payment Company Rules and/or applicable law by the Merchant and/or in the event of fraud by the Merchant;

(iii)if required by a Payment Company, provided that in such case WFB may, in its reasonable discretion, permit Company to terminate the Merchant Agreement with

respect to the Association so requiring;

(iv)due to the requirements of WFB's regulator or if failure to do so would case WFB to violate applicable law or regulations, or any directive from any regulator with jurisdiction over WFB; and/or

(v)to the extent such Merchant's then-current business or operations fail to satisfy the Credit Policy in effect at such time.

In the event WFB requires Company to terminate a particular Merchant Agreement for any of the reasons described above, WFB will notify Company of the requirement to terminate along with a reasonably detailed explanation of the reason for such termination and, provided WFB is not prohibited from doing so for any of the reasons indicated in subsections (ii) to (iv) of this Section 5.2.4, the parties may cooperate in transferring/converting the Transaction Card Services as to such Merchant from WFB to an alternative Payment Company Customer.

5.2.5 Agreements with Contracted Parties. Company hereby agrees that it shall include in its agreement with any Contracted Party (hereinafter a “Contracted Party Agreement”) terms that are substantially similar to the provisions set forth in subsections 5.2.6, 5.3, 5.4, 5.7, 5.8, 5.9, 5.10, and 5.11 (as applicable) of this Agreement as well as any terms required by any Payment Company. Notwithstanding the foregoing or any other term of this Agreement, Company agrees that Company will be responsible for the form and content of any Contracted Party Agreement including, without limitation, any financial or other non-compliance consequences that may result to the extent a Payment Network determines that a Contracted Party Agreement does not conform to Payment Network Rules, except to the extent that such deficiency is attributable to a specific element of the Contracted Party Agreement that was mandated by WFB.

5.2.6 Contracted Parties Checklist. Prior to entering into any agreement with any Contracted Party (ISO, MSP, or otherwise) as a Contracted Party under this Agreement, Company shall complete the ISO Checklist, as forth in Schedule 5.2.6, and obtain WFB's approval thereon. WFB shall provide its approval or rationale for any non-approval within ten (10) business days of WFB's receipt of a completed ISO package.

5.3        Governing Credit Policy.

5.3.1    Adoption of Credit Policy.  WFB and Company hereby agree to adopt the Credit Policy requirements collectively described in Schedules 5.3(a), (b), (c), (d), and (e) as the Credit Policy which governs the acceptance, continuance and termination of Merchants, subject to WFB's rights under Sections 5.2.2, 5.2.3 and 5.2.4.

5.3.2    Revisions by WFB.  At any time following adoption of the Credit Policy, WFB may advise Company as to revisions to the Credit Policy that WFB requires, and Company agrees to make such revisions.  This Agreement may be terminated in accordance with Section 8.2.4 if Company fails to amend or replace the Credit Policy to WFB's satisfaction. WFB will give Company notice of such changes as far in advance as reasonably practicable. Unless required by WFB regulators or Payment Company Rules, WFB agrees to cooperate in good faith with Company as to existing Merchants implicated by revisions to the Credit Policy, including implementing a reasonable conversion timeline and/or granting exceptions as to certain Merchants where applicable. Any change to Merchant Criteria shall apply only to the extent

it also generally affects the merchant criteria applicable to other sponsored entities of WFB and Wells Fargo Merchant Services for its own (non-Company) merchant services business. Notwithstanding the foregoing, nothing herein shall be construed as prohibiting WFB from granting exceptions, on a case-by-case basis, to other sponsored entities of WFB and/or to Wells Fargo Merchant Services, even if such exceptions may be deemed advantageous to such other sponsored entities of WFB or Wells Fargo Merchant Services.

5.3.3    Revisions By Company.  Company may advise WFB as to revisions to the Credit Policy that Company may propose, and only upon the written agreement of WFB, may the Credit Policy be amended or replaced.

5.4.      Fraud Prevention Program.  WFB and Company hereby agree to incorporate the requirements referenced in Schedule 5.4 into the Fraud Prevention Program, which shall govern the acceptance, continuance and termination of Merchants, subject to WFB's rights under Sections 5.2.2, 5.2.3, 5.2.4. At any time, WFB may advise Company as to revisions to the Fraud Prevention Program that it requires.  This Agreement may be terminated in accordance with Section 8.2.4 if Company fails to amend or replace the Fraud Prevention Program to WFB's satisfaction.  Company may advise WFB as to material revisions to the Fraud Prevention Program that it requires, and upon the written agreement of WFB, the Fraud Prevention Program may be amended or replaced. The Fraud Protection Program agreed upon between the parties pursuant to this Section 5.4 will herein be called the “Fraud Protection Program”.

5.5       Performance by Company.  As between WFB and Company and except with respect to the services provided by WFB hereunder, Company shall have full responsibility from and after the Effective Date and during the term of this Agreement for the proper performance of the Transaction Card Services under each Merchant Agreement (whether entered into directly by Company or through a Contracted Party). 

5.6       Merchant Complaints or Inquiries: Adjustments or Errors.

5.6.1    Merchant Inquiries or Complaints.  Company shall be responsible for responding to and resolving any and all inquiries or complaints from Merchants, regarding deposits, sales records and electronic transmissions received by Company, debits or credits to Merchants pursuant to the Settlement process, and the Transaction Card Services provided by Company.  Company also shall resolve with Merchants any discrepancies between the deposit tickets and the sales and credit records delivered to Company in physical format. 

5.6.2    Settlement Errors.  In the event of any errors by either party with respect to Settlement, the party responsible for such errors shall correct such errors promptly after discovery or notification.

5.7 Bank Accounts and Reserve Funds. Company shall be responsible to fund and maintain bank accounts and reserve funds, as described herein in order to facilitate the arrangements contemplated by this Agreement, at all times during the term of this Agreement.

5.7.1 The Settlement Account, Merchant Reserve Account, and Third Party Payment Account (each as defined below) will each be maintained at WFB's office located at 420 Montgomery Street, San Francisco, or such other office of WFB as Company and WFB may from time to time agree. Each such account will be an account maintained in the name of WFB FBO Company. The Settlement Account shall be a non-interest bearing

account but will earn “earnings credits” as provided in Schedule 7.1. WFB will provide Company with timely notice of any changes instituted to the formula and rate provided in this Section 5.7.1.

5.7.1.1 Settlement Account. The Settlement Account shall be the account in which settlement amounts for Transactions are received from Payment Companies. Upon request from Company, WFB may establish more than one Settlement Account in order to efficiently carry out the activities described herein (in which case the term “Settlement Account” shall include all such accounts, taken together).

5.7.1.2 Reserve Accounts. The Reserve Accounts shall be the accounts established in accordance with Section 5.11 below.

5.7.1.3 Third Party Payment Account. The Third Party Payment Account, which will be established only upon written direction from Company, will be an account for funds payable by Company to third parties who are a recipient of a portion of the proceeds of the Transactions.

5.7.2 Company shall additionally establish an account (the “Fee Account”) for payment of any fees due WFB as set forth in Schedule 7.1. Company shall fund the Fee Account, at minimum, to the level of expected fees set forth on Schedule 7.1. The Fee Account will be maintained at WFB. Company shall provide written notice thirty (30) days in advance of any change to the institution location of the Fee Account. A fee calculation will be communicated by WFB by the 20^th day of each month for the prior month's activity. Company shall have ten (10) Business Days (“Dispute Period”) to review and dispute such fee calculation by written notice to WFB (a “Dispute Notice”). In the event WFB has not received a Dispute Notice during the Dispute Period, WFB will then debit the Fee Account for all fees other than those, if any, subject to a good faith dispute between the parties. Company shall provide to WFB all actual data on the 2^nd business day of the subsequent month, but no later than the 7^th business day of the subsequent month following said transactions. The actual data shall include the exact monthly counts and volumes as specified in Section 5.1.

5.7.3 During the term of this Agreement, Company shall ensure that: (i) WFB is in receipt of appropriate letter(s) authorizing WFB to effectuate the transfers and debits from the Settlement Account, Third Party Payment Account, Fee Account, and the Merchant Reserve Account as contemplated by this Agreement; (ii) that such letter continues to be in full force and effect through this Agreement; and (iii) that WFB is in receipt of any other authorization from Company with respect to such accounts required by any applicable law, rule or regulation, or any generally applicable corporate policies and procedures of WFB that may be communicated to Company from time to time.

5.7.4 Notwithstanding anything to the contrary set forth herein, during the Term and the Wind-Down Period (as defined below), WFB shall provide or otherwise make available to Company a written report in the format reasonably agreed-upon by the parties that details the credits and debits to the accounts described in Section 5.7 and the supporting basis therefore no later than the fifteenth (15^th) day of each month for the prior month's activity. Company shall have ten (10) days (“Dispute Period”) to review and dispute such fee calculation by written notice to WFB (a “Dispute Notice”), unless such fee notice is not provided until after the fifteenth (15^th) of the month in which case Company shall have fifteen (15) days to review and dispute

such fee calculation. In the event WFB has not received a Dispute Notice during the Dispute Period, WFB will then debit the Fee Account for all fees other than those, if any, subject to a good faith dispute between the parties. Notwithstanding the foregoing, Company shall not be foreclosed from asserting, and WFB shall not be released from correcting, errors relating to the fee calculation at any time within one year following the Dispute Period. Company shall provide to WFB all actual data on the 2^nd business day of the subsequent month, but no later than the 7^th business day of the subsequent month following said transactions. The actual data shall include the exact monthly counts and volumes as specified in Section 5.1.

5.8 Allocation of Risks and Responsibility; Chargebacks. Company shall be responsible as between WFB and Company for performing all obligations under, and bearing all Chargeback Losses. Company shall indemnify and hold harmless WFB for all Chargeback Losses for which Company, its Contracted Parties or any of its Service Providers is responsible under this Agreement. In the event that a Merchant suffers a chargeback pursuant to the processing of a Transaction hereunder, then WFB shall first deduct the amount of the chargeback and any fees or penalties related thereto (collectively, “Chargeback Losses”) from any monies owed and unpaid to Company hereunder (“Company Compensation”). If the Chargeback Losses exceed the Company Compensation, then WFB shall notify Company, and Company shall deliver to WFB cash in an amount equal to the difference between the Chargeback Losses and the Company Compensation (“Chargeback Shortfall”). If Company fails to make such payment to WFB, WFB may then deduct the Chargeback Shortfall from the Reserve Accounts. In addition to Chargeback Losses, Company shall indemnify and hold harmless WFB for all credit and fraud risks as well as any Payment Company fines or penalties associated with each Merchant Agreement. The procedure described in this Section 5.8 for Chargeback Losses shall also be followed for such credit and fraud risks as well as any Payment Company fines or penalties.

5.9 Compliance with Laws, Rules, and Guidelines. Company, Contracted Parties and WFB will comply with all applicable Payment Company Rules, laws and regulations in connection with this Agreement.

5.10 Record Keeping. Company shall maintain all records, covering the services contemplated in this Agreement in accordance with Payment Company Rules.

5.11 Reserve Accounts. Company shall establish and fund a General Reserve Account and Merchant Reserve Account (collectively “Reserve Accounts”) as follows.

5.11.1 General Reserve Account. Pursuant to the terms and conditions described herein, Company may be required to establish and fund an account (the “General Reserve Account”) at WFB, provided that there shall be no minimum balance in the General Reserve Account, and that each of Company and WFB agree that the initial balance in the General Reserve Account shall be $0. Company's obligation to fund the General Reserve Account may satisfied with an irrevocable pledge to WFB of a certificate of deposit or the delivery of an irrevocable letter of credit (with WFB listed as sole beneficiary), and in each case the instrument must be from or with a bank that is reasonably acceptable to WFB.  If Company does not provide either of the listed funding options then WFB will be entitled to fund the General Reserve Account to cover such obligation by deductions or offsets to payments otherwise due to Company. Subject to Section 5.11.2, Company shall maintain such amount (or other amount agreed by both parties) in the General Reserve Account at all times during the term of this Agreement and thereafter as provided in Section 5.11.3.  WFB retains the right to change the amount of the General Reserve during the term of this Agreement as described herein. WFB may request that Company fund the General Reserve upon ten (10) days written notice to Company, except

that if Company terminates or significantly limits its business operations, is liquidated, dissolved, enters into receivership, makes an assignment for the benefit of creditors, is insolvent or unable to pay its debts as they mature in the ordinary course of business, or if there are any proceedings instituted by or against Company in bankruptcy or under any insolvency laws or for reorganization, receivership or dissolution, then WFB may request the amount of the required balance immediately upon written notice to Company.  Any required balance of the General Reserve Account shall be reasonably related to the potential outstanding maximum liability related to the Transactions, and such maximum liability may be assessed based on the relative financial stability of Company, both as determined by WFB in its sole discretion. If WFB determines that it is necessary to change the amount required to be held in the General Reserve during the term of this Agreement, WFB will consider any supporting information related to Company's financial risk, and WFB shall provide a summary of WFB's analysis to Company upon request. In reaching its determination, factors that WFB may consider include, but are not limited to, (i) a change in Company's financial condition, (ii) a change in the underlying risk of Company's sub-merchants, (iii) a change in external economic conditions,(iv) a change in Company's management, (v) changes in Payment Company Rules or programs, (vi) a change in the potential risk associated with Heartland's processing under PCI-DSS, (vii) suspected fraud, (viii) suspicious, illegal, or prohibited transaction card activity, and/or(ix) negative findings in WFB's oversight meetings and/or on site due diligence. In addition, WFB shall review with Company the evidence of such risk calculation prior to assessing the reserve. Notwithstanding the above, if Company does not agree with the amount of any General Reserve increase requested by WFB, Company may terminate the Agreement by funding the amount requested and giving written notice to WFB indicating Company's intent to terminate no later than thirty (30) days after receiving notice of such request. In the event Company terminates the Agreement for the reasons described in the preceding sentence, (1) Company shall not be obligated to pay any Early Termination penalties that would otherwise apply under Section 8.4; and (2) the termination shall be effective no later than thirty (30) days after the date such written notice was given.

To the extent WFB requires Company to maintain a balance in the reserve, WFB will review the reserve status no less than bi-monthly to determine whether the reserve is still required and whether the amount of the reserve is still accurate in light of WFB's determination of risk at the time of such bi-monthly assessment. WFB will use commercially reasonable efforts to complete any such review within fifteen (15) days after WFB receives the updated financial information requested from Company. If, at any time, WFB determines that a reserve is no longer required, WFB will release any reserve amounts in its possession within fifteen (15) business days.

5.11.2 The Company may establish and fund an account (the “Merchant Reserve Account”) at WFB for retaining collateral withheld from Merchants' sales transactions at all times during the term of this Agreement and for the Wind-Down Period or for such longer period of time as is consistent with WFB's liability for Transactions in accordance with Payment Company Rules. The Merchant Reserve Account balance may be, at Company's sole discretion, a flat amount or an aggregate of a percentage of each Merchant's previous month's sales, based on such Merchant's risk profile.

5.11.3 Upon termination of this Agreement for any reason, the funding of the Merchant Reserve Account will be maintained in one of the following ways:

5.11.3.1 If Company proposes a successor Payment Company Customer which agrees, in

writing in a form reasonably acceptable to WFB, to assume liability for all chargebacks, fees and other charges assessed to WFB by the Payment Companies for transactions relating to the BINs and ICAs, such successor Payment Company Customer assumes the BINs and ICAs pursuant to an Assignment and Assumption Agreement in a form that is acceptable to WFB, and there is no pending financial assessments as related to non-compliance or breach by Company which could give rise to financial liability while WFB was the acquirer of record, then WFB shall release to Company or the successor Payment Company Customer, the total amounts held in the Merchant Reserve Account; notwithstanding the foregoing, if WFB retains the BINs and ICAs, or to the extent that there is a pending financial assessments as related to non-compliance or breach by Company, it retains the right to collect or retain the Merchant Reserve Account if there are pending fines, fees or chargebacks associated with those BINs and ICAs, as determined by WFB in its reasonable judgment; or

5.11.3.2 If Company does not propose a successor Payment Company Customer which is willing to assume such liability, then Company will analyze, and WFB will evaluate, each Merchant to determine the approximate total liability associated with chargebacks “tail off” fees and other charges that may be charged to the BINs and ICAs after termination. WFB will review the analysis conducted by Company, but may apply its own reasonable standards and reasonable analytical techniques to assess future potential liability, to arrive at WFB's estimate of such liability. Upon termination of such review process, WFB will adjust the amount of the General Reserve Account and/or the Merchant Reserve Account(s) in accordance with the estimated liability that WFB has calculated. At the close of each calendar month thereafter following termination of this Agreement, Company and WFB will analyze the charges assessed to the BINs and ICAs during that month, and WFB will adjust the accounts accordingly.

5.11.4 Notwithstanding anything to the contrary in this Agreement, Company may at any time during the term of this agreement without the consent or notice to WFB (i) sell or otherwise dispose of any of the assets of the Company; (ii) create or grant a security interest, lien or any other encumbrance upon the assets of the Company; and (iii) maintain the assets of the Company in any reasonable manner.  WFB agrees to duly execute and deliver to the Company such instruments, documents and agreements as may be reasonably requested to permit Company to engage in any of the foregoing. The foregoing statement shall not impact or obviate any of Company's other obligations under this Agreement. In addition to any rights granted WFB under applicable law and subject to the terms of this Agreement, WFB is hereby authorized (and any related advance notice and demand are hereby expressly waived), to set off, recoup and to appropriate and to apply any and all such amounts owing, funds held, account balances and other collateral against and on account of Company's Obligations, whether such Obligations are liquidated, unliquidated, fixed, contingent matured or unmatured. WFB agrees to provide detailed written notice of any such set off within two (2) Business Days thereof.

ARTICLE 6

WFB RESPONSIBILITIES

6.1        Sponsorship of Company

6.1.1 WFB shall sponsor Company and/or make such registrations with MasterCard and Visa as

are necessary (in the opinion of the applicable Payment Company) including any supplements or amendments to any registration materials (with Company's assistance, if necessary), and shall take all commercially reasonable actions within WFB's control to maintain such registration(s) throughout the period that WFB is required to serve as Company's Payment Company sponsor hereunder.  WFB shall transfer or obtain, as necessary, one or more dedicated ICAs and BINs used by Company for the exclusive purpose of the Transactions contemplated under this Agreement. In accordance with a schedule to be agreed upon by Company and WFB, and subject to the negotiation of an Assignment and Assumption Agreement in a form that is acceptable to WFB, the BIN and ICA used by the Company's existing Payment Company sponsor will be transferred to WFB.

6.1.2 Company may recommend to WFB Persons that are registered or to be registered with the Associations that have entered into agreements or that desire to enter into agreements with Company to become Contracted Parties and which require WFB to register such Person with the Payment Companies. As of the date hereof, the Contracted Parties set forth on Schedule 6.1.2 are all the Contracted Parties of Company. WFB acknowledges and agrees, as of the date hereof, that the Contracted Parties set forth on Schedule 6.1.2 are acceptable to WFB and shall receive sponsorship from WFB pursuant to Payment Company Rules. WFB shall promptly evaluate and, in its reasonable discretion, approve additional Persons that Company requests that WFB sponsor as Contracted Parties.

6.1.3 Company may request that WFB provide sponsorship and other services to Company's affiliates (as if such affiliate were party to this Agreement) upon such affiliate's agreement to accept and abide by the terms and conditions of this Agreement through its entering into an Affiliate Addendum in the form of Schedule 6.1.3 attached hereto. WFB acknowledges and agrees that the Company affiliates set forth on Schedule 6.1.3 are acceptable to WFB from a sponsorship and credit underwriting perspective.

6.2        Merchant Agreements.  In its capacity as a Payment Company Customer, WFB will own the Merchant Agreements only to the extent specifically required by Payment Company Rules, subject to the provisions of this Agreement, including provisions under which WFB will assign and thereby cease holding such Merchant Agreements upon termination of this Agreement as provided in Section 8.3. Except as otherwise specifically provided herein or specifically required by Payment Company Rules, Company shall administer and control the Merchant Agreements, and associated Merchant relationship created thereby (such control shall include, but not be limited to, decisions regarding the continuance, amendment, assignment or termination of such Merchant Agreement). Company may at any time during the term of this agreement without the consent or notice to WFB, sell or otherwise dispose of any of the assets of the Company, including the Merchant Agreements.

6.3        Other Payment Company Matters.  WFB will report all transactions processed by Company and its Contracted Parties hereunder using the dedicated ICA's and BIN's contemplated in Section 6.1 and on a timely basis will report such transactions as its own on the quarterly questionnaires which must be submitted to the Payment Companies.  WFB will pay on a timely basis all assessments imposed by the Payment Companies with respect to such transactions, and Company will reimburse WFB for such amounts in accordance with Schedule 7.1.  Company understands and agrees that any Payment Company fees associated with the transactions shall be billed on a pass through basis to Company (including any discounts or incentives received by WFB), and may be adjusted/ changed at any time by the Payment Companies.

6.4        Use of WFB's ICAs, BINs, Name, Etc. WFB agrees that Company may use the ICAs and

BINs for the Transaction Card Services to the extent reasonably necessary or appropriate to perform the Transaction Card Services, subject to the provisions of this Agreement, including provisions under which WFB will transfer such dedicated BINs and ICAs to another successor sponsoring bank, and thereby cease holding such BINs and ICAs. The BINs and ICAs shall not be used by any other Person other than at the direction of the Company. At Company's request, WFB will obtain additional BINs and ICAs for Company's exclusive use, and Company agrees to pay all related costs associated with obtaining such additional BINs and ICAs, including fees charged by Payment Companies. WFB hereby agrees that Company and Contracted Parties may identify WFB as their sponsoring Payment Company Customer (i) when required to do so by Payment Company Rules and (ii) as provided for in Section 4.1.

6.5        Access to Payment Company Materials and Personnel.  Subject to any confidentiality obligations and applicable law and Payment Company Rules, and upon request, WFB hereby agrees to provide Company access to any Payment Company reporting materials and Payment Company publications and to request that Company be given access to Payment Company Personnel; provided, however, Company acknowledges that WFB cannot ensure that a Payment Company will take any particular action as a result of such requests and/or conversations and, accordingly, that WFB shall not be responsible for the outcome of such requests and/or conversations.

6.6      ACH Activities.  The terms and conditions applicable to the ACH processing services provided to Company by WFB shall be set forth in that certain Master Agreement for Treasury Management Services (including in particular the Service Descriptions thereto that pertain to ACH processing services) that will be executed by WFB and Company prior to commencement of the Transaction Card Services (the “ACH Agreement”).

ARTICLE 7

PAYMENT FOR SERVICES AND EXPENSES

7.1        WFB Fees & “Pass Through” Costs & Expenses.  In consideration for WFB's services under this Agreement, Company agrees to pay the amounts set forth in Schedule 7.1.  Company further agrees that all reasonable out-of-pocket third party expenses that WFB incurs in connection with creating, maintaining and terminating the WFB services referred to in this Agreement shall be passed through to Company, as described to Schedule 7.1.  Specifically, WFB shall charge the Settlement Account, at actual out of pocket cost and without markup, amounts necessary to cover the following charges (including any applicable taxes):

7.1.1    All Payment Company acquiring Interchange fees, Transaction charges, frequency charges, application fees, dues and other fees which may be applicable that are specific to the Company or the Merchants;

7.1.2    Interbank clearing fees incurred in connection with the transmittal by WFB of funds to Merchants;

7.1.3    All initial and annual Contracted Party registration fees charged to WFB by any Payment Company;

7.1.4    All fines or penalties paid by WFB to a Payment Company resulting from Company's violation of the Payment Company Rules or directives of any Payment Company;

7.1.5    All chargeback losses owed by WFB to any Payment Company arising from a Merchant's

insolvency or failure to pay;

7.1.6    Merchant fines owed by WFB to any Payment Company because of Merchants' insolvency or failure to pay; and

7.1.7    All reasonable, actual and documented expenses and fees paid to third parties, which are (a) incurred in maintaining the sponsorship relationship by WFB on behalf of Company (including but not limited to, WFB's retention of outside lawyers or other third party service providers for consulting services in relation to any legal, regulatory or any matters that may arise under, or in connection with, this Agreement) and (b) over and above those ordinary overhead expenses typically incurred by WFB during normal operation of the sponsorship relationship. To the extent commercially reasonable, WFB will give Company advance notice of such expenses and WFB and Company will negotiate in good faith to mitigate expenses as the circumstances permit.

ARTICLE 8

TERM AND TERMINATION

8.1        Term.  Subject to Section 8.2, this Agreement shall continue in full force and effect for a period of four (4) years from the Effective Date and shall be renewed for successive three (3) year periods thereafter unless sooner terminated in accordance with this Agreement.  The renewal of this Agreement for additional periods following the initial term shall occur automatically unless WFB or Company provides six (6) months written notice of nonrenewal to the other.  WFB and Company agree that upon either party's request, the parties shall reasonably confer and discuss in good faith any proposed adjustment to the terms of the provisions of this Agreement with respect to the Merchant Reserve Accounts prior to the date for notice of nonrenewal of this Agreement.

8.2        Termination.  Either party may terminate this Agreement prior to expiration of its then applicable term only as follows:

8.2.1    Event of Default.  Upon an Event of Default, the nondefaulting party may terminate this Agreement by giving a thirty (30) day written notice specifying the grounds for termination and allowing the breaching party to cure that default to the nondefaulting party's reasonable satisfaction by the end of the notice period.  An “Event of Default” means a material default in the performance of any duty or obligation or a material breach of any representation or warranty under this Agreement.

8.2.2    Immediate Termination.  Either party may terminate this Agreement immediately by giving a single written termination notice to the other party if: (i) the other party is subject to any voluntary or involuntary proceeding seeking bankruptcy, reorganization, or debt consolidation underfederal, provincial or state bankruptcy or insolvency laws; (ii) there is appointed a trustee, administrator, receiver, custodian, liquidator, conservator or the like, for the other party or over substantially all of the other party's assets;  (iii) the other party makes an assignment of substantially all of its assets for the benefit of creditors; or (iv) if continuation of this Agreement would be in violation of applicable law, the Payment Company Rules, or other regulations.  Either party may terminate this Agreement on sixty (60) days written notice (or such shorter period as may be designated in writing by Visa, MasterCard) if such party has received written notification that continuation of this Agreement would be in material violation of the Payment Company Rules. Additionally, WFB may terminate this Agreement immediately if Company sells all or a substantial portion of Company assets that has, or reasonably can be estimated to have, a material adverse effect on Company's ability to perform

under this Agreement.  Company may present to WFB a potential acquirer of Company for review to determine if WFB will, upon such an acquisition of Company, continue this Agreement with the acquirer.  Such approval shall not be unreasonably withheld.  Nothing in this Section 8.2.2 shall be interpreted to impair or diminish WFB's rights to review its financial risk under this Agreement and make according adjustments.

8.2.3    Change of Payment Company Customer Rights.  Company may terminate this Agreement upon giving a ten (10) day advance written notice to WFB in the event of a material adverse change in WFB's rights as a Payment Company Customer of MasterCard or Visa which would materially impair the ability of Company to provide the Transaction Card Services in the manner contemplated by this Agreement.  WFB shall give Company notice of any such material adverse change immediately upon receipt of such information.

8.2.4    Credit and Fraud Policies.  Either party may terminate this Agreement upon giving a thirty (30) day advance written notice to the other in the event that the parties, after a preceding thirty (30) day discussion period, have been unable to reach agreement as to a governing Credit Policy as required pursuant to the terms of Sections 5.3 or a governing Fraud Prevention Program pursuant to Section 5.4.  Each party agrees to reasonably cooperate and participate in such discussions at the request of the other party.

8.2.5    WFB Termination.  WFB may terminate this Agreement, in its sole discretion, if Company (a) engages in fraudulent activity, (b) engages in activities that cause WFB to repeatedly violate the Payment Company Rules, (c) operates in an unsound or unsafe manner, (d) is subject to more than six (6) non-compliance fees under Schedule 7.1 in a six (6) month period, or (e) engages in any other activities that may or do result in undue material economic hardship or damage to the goodwill of the Payment Companies and Company fails to take corrective action.  Company shall include provisions in the Merchant Agreement that permit Company to terminate the contract if the Merchant participates in any of the activities described in this Section.

8.2.6 Either WFB or Company may terminate this Agreement on ten (10) days notice if they have been unable, after good faith negotiations, to agree to the terms of and execute the ACH Agreement on or prior to April 30, 2012.

8.3       Effects of Expiration or Termination.  The effects of a nonrenewal or other termination of this Agreement under Section 8.1 or 8.2 shall be as follows:

8.3.1    Effect of Termination.  Upon any termination of this Agreement, Company will own all Merchant Agreements with no further obligations under this Agreement, except its obligations to WFB which survive termination as described in Section 10.10. 

8.3.2    Effect of Termination.  Upon any termination of this Agreement, WFB agrees, subject to Section 5.11.2 and applicable Payment Company Rules, to transfer to a Payment Company Customer designated by Company the BINs and ICAs, WFB's rights and obligations in the Merchant Agreements and, subject to the negotiation of a mutually acceptable assignment and assumption agreement, the Merchant Reserve Account.

8.3.3    Obligations Post-Termination.  Upon termination of this Agreement, Company shall be liable for all residual chargeback activity, including any fees and expenses, associated with transactions processed pursuant to this Agreement, from the date of the last transaction

processed for a period ending upon the final release of reserve accounts under Section 5.11.3, with the exception of any chargebacks resulting from acts of gross negligence or fraud on the part of WFB. Provided WFB is not prohibited from doing so by law, any Payment Company, any regulator or regulatory authority having jurisdiction over WFB or Company, or otherwise, WFB will continue to provide the services described herein to Company and Merchants pursuant to the terms hereof until the Merchants and WFB's rights and obligations hereunder are transferred to another Payment Company Customer. The period commencing after the expiration or termination of the Agreement and ending on the later of (i) the date the last Merchant is assigned by WFB, or (ii) the date the BIN and ICA are transferred to a new Payment Company Customer, shall be the “Wind Down Period.” During the Wind Down Period, WFB will work with Company, including by continuing to perform its services hereunder on the terms and conditions provided herein and to facilitate the transition of the Merchants and the Company's obligations hereunder, including by making good faith efforts to transition such Merchants and obligations to another Payment Company Customer and continuing to accept new Merchants in an expeditious manner subject to Company's prompt implementation, at WFB's sole direction, of revisions to the Credit Policy that will apply during the Wind Down Period (for the avoidance of doubt, the implementation of any Credit Policy revisions during the Wind Down Period will not be subject to any notice or discussion periods otherwise required herein). In no event shall the Wind Down Period exceed nine (9) months. Upon the expiration or termination of the Wind Down Period, each party shall have no further obligation to provide services hereunder, provided that during the Wind-Down Period and thereafter, Company shall have the rights set forth in Section 8.3.2. The Wind Down Period described in this Section 8.3.3 shall not be applicable in the event that (1) WFB is compelled to discontinue the services described herein prior to the conclusion of the Wind Down Period by (a) any regulatory authority, whether or not such regulatory authority has direct jurisdiction over WFB, (b) law, or (c) any Payment Network, or (2) an ongoing Event of Default exists that presents a material reputation or financial risk to WFB and, in the case of financial risk, such financial risk cannot be reasonably mitigated by Company's reserves.

8.4 Early Termination. Should Company terminate the agreement prior to the completion of the initial term provided for herein (other than as a result of WFB's breach of the Agreement or pursuant to Sections 8.2.4 or 8.2.6), Company hereby acknowledges and agrees that in addition to any other remedies contained herein or available under applicable law, unless Company is terminating this Agreement for cause, that Company will pay to WFB the amount payable as the monthly minimum, as calculated at the time of termination, for the remainder of the initial term of this agreement. Company shall pay these amounts as would otherwise be due in the ordinary course of business on a monthly basis for the balance of the term.

ARTICLE 9

INDEMNIFICATION & LIMITATION LIABILITY

9.1       Indemnification.

9.1.1    By WFB.  WFB shall indemnify, defend and hold Company and its representatives, successors, assigns, agents, employees, officers, directors, shareholders, and affiliates (collectively, “Company Indemnitees”) harmless against any Losses, as defined below, which are incurred by Company arising from a third party's claims or lawsuits with respect to WFB's negligence (including negligent performance of, or negligent failure to perform, its obligations

hereunder), intentional misconduct (including intentional failure to perform properly its obligations hereunder) or other breach of any of WFB's covenants, representations or warranties herein or any Payment Company Rule, including any failure to comply with the provisions of Section 3.5 or the PCI-DSS. WFB shall indemnify and hold harmless Company from any and all third party claims, of whatever type and nature, that arise to the extent of WFB's failure to comply with the provisions of Section 3.5.2 or any WFB Security Breach.

9.1.2    By Company.  Company shall indemnify, defend and hold WFB and its representatives, successors, assigns, agents, employees, officers, directors, shareholders, and affiliates (collectively, “WFB Indemnitees”) harmless against any Losses which are incurred by WFB arising from a third party's claims or lawsuits:

9.1.2.1       with respect to Company's negligence (including negligent performance of, or negligent failure to perform, its obligations hereunder), intentional misconduct (including intentional failure to perform properly its obligations hereunder) or other breach of any of Company's covenants, representations or warranties or any Payment Company Rule, including any failure to comply with the provisions of Section 3.5 or the PCI-DSS;

9.1.2.2       as a result of a credit, fraud or other liability or risk allocated to Company hereunder; 

9.1.2.3       as a result of WFB's compliance with any instructions from Company pursuant to this Agreement;

9.1.2.4       as a result of any non-recoverable goods and services tax which may be payable in connection with the provision of Transaction Card Services pursuant to this Agreement and/or Company's failure to provide tax reporting and withholding to Merchants pursuant to Internal Revenue Code Section 6050W and associated regulations;

9.1.2.5 with respect to Company's Contracted Parties;

9.1.2.6 with respect to Company's failure to comply with the provisions of Section 3.5.1 or any Company Security Breach; or

9.1.2.7 with respect to any liability created by any Contracted Parties.

9.1.3 Losses.  For purposes of this Agreement, the term “Losses” shall mean any losses, liabilities, damages, failures to collect payments, fees, costs and expenses, including without limitation reasonable fees and expenses of attorneys and other advisers, court costs and other dispute resolution costs, incurred by WFB or Company, as the case may be.

9.2 Issuer Claims. Company and WFB acknowledge and agree that WFB and certain WFB Indemnitees may serve as issuers of Cards processed by Company in connection with Transaction Card Services, in addition to WFB's role as Payment Company acquirer/sponsor pursuant to this Agreement. It is the intent of WFB and Company that WFB, solely in its capacity as a Card issuer, and any WFB Indemnitees, solely in their respective capacities as card issuers, shall not, in the event of a Company Security Breach, be entitled to assert any contractual claims (including any indemnity claims pursuant to Section 9.1.2) relating to breach of confidentiality under Article 3 of this Agreement by virtue of the fact that WFB, in its capacity as an acquirer/sponsor, is party to this Agreement, and that any actions of WFB or any WFB Indemnitees who issue Cards may not be brought under, and shall also

not be limited by, this Agreement. For the avoidance of doubt, and without limiting the foregoing or anything to the contrary herein:

(i)WFB acknowledges and agrees that Company shall not be liable to WFB or any WFB Indemnitees pursuant to this Agreement for any claims that WFB or any WFB Indemnitees may assert as a Card issuer in connection with a Company Security Breach or other breach of the provisions of Article 3; provided, however, that the foregoing should not be construed as a limitation of Company's liability for Losses or any claims that WFB or any WFB Indemnities who issue Cards may have against Company apart from this Agreement;

(ii)WFB and the Company do not intend, by virtue of this Section 9.2, to waive or abnegate WFB's or any WFB Indemnitee's rights, if any, to recover any Losses incurred by WFB or WFB Indemnitees by virtue of WFB's role as Payment Company acquirer/sponsor pursuant to this Agreement;

(iii)WFB and the Company do not intend, by virtue of this Section 9.2, to waive or abnegate WFB's or any WFB Indemnitee's rights, if any, to recover any Losses as Payment Company Customers (i.e., issuers and/or acquirers) pursuant to Payment Company Rules; and

(iv)WFB and the Company do not intend, by virtue of this Section 9.2, to waive or abnegate WFB's or any WFB Indemnitee's rights, if any, to recover any Losses as Card issuer pursuant to any cause of action that is not grounded in this Agreement (e.g., causes of action against Company pursuant to torts or contracts other than this Agreement).

To further effectuate the intention of WFB and Company pursuant to this Section 9.2,WFB certifies, on behalf of itself and its Affiliates, that it has read and understands, and hereby expressly waives, the benefits of Section 1542 of the California Civil Code and any and all similar statutes, rules, and legal doctrines in any jurisdiction, to the extent applicable.

9.3        LIMIT ON LIABILITY.    IN NO EVENT SHALL WFB OR COMPANY BE LIABLE UNDER ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  IN NO EVENT SHALL THE AGGREGATE LIABILITY OF WFB EXCEED THE TOTAL AMOUNT OF THE FEES PAID TO WFB BY COMPANY (PURSUANT TO SCHEDULE 7.1) DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE DATE ON WHICH THE EVENTS GIVING RISE TO SUCH LIABILITY FIRST OCCURRED. 

ARTICLE 10

MISCELLANEOUS

10.1    Amendments; Waivers.  This Agreement and any schedule or exhibit attached hereto may be amended only by agreement in writing of all parties.  No waiver of any provision nor consent to any exception to the terms of this Agreement shall be effective unless in writing and signed by the party to be bound and then only to the specific purpose, extent and instance so provided. No failure on the part of any party to exercise or delay in exercising any right hereunder shall be deemed a waiver thereof, nor shall any single or partial exercise preclude any further or other exercise of such or any other right.

10.2    Entire Agreement.  This Agreement, together with all schedules and exhibits, constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements and understandings of the parties in connection therewith.

10.3    Governing Law; Severability.  This Agreement and the legal relations between the parties shall be governed by and construed in accordance with the laws of the State of Delaware.  In case any provision of this Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.

10.4    Compliance.  In performing their duties under this Agreement, Company and WFB shall comply with all applicable US federal and state lawsand shall comply in all material respects with all applicable Payment Company Rules and any WFB policies related to this Agreement that are communicated to Company in writing.  To the extent any modifications may be needed from time to time in the arrangements contemplated by this Agreement in order to comply with the Payment Company Rules, the parties shall negotiate in good faith to reach a mutually acceptable revision to these arrangements but shall not be obligated to continue any arrangements that violate any such Payment Company Rules.

10.5    No Assignment.  Neither this Agreement nor any rights, duties or obligations under it are assignable by WFB or Company, in whole or in part, without the consent of the other parties; provided, that (i) such consent shall not be unreasonably withheld, conditioned or delayed and (ii) if consent is not given by the non-assigning party, the assigning party shall have the right to terminate this Agreement without additional cause or penalty. Subject to the foregoing, all of the terms and provisions hereof shall be binding upon, and inure to the benefit of, the successors and assigns of the parties hereto.  No purported or attempted assignment in contravention of this Section shall be effective or legally binding.

10.6    Parties in Interest.  This Agreement shall be binding upon and inure to the benefit of each party and any successors and assigns permitted under Section 10.5, and nothing in this Agreement, express or implied, is intended to confer upon any other person any rights or remedies of any nature whatsoever under or by reason of this Agreement.  Nothing in this Agreement is intended to relieve or discharge the obligation of any third person to or to confer any right of subrogation or action over against, any party to this Agreement. This Agreement shall not constitute, give effect to, or otherwise imply a joint venture, partnership, agency or formal or informal business organization of any kind. The parties are acting as independent contractors hereunder.

10.7    Notices.  Any notice or other communication hereunder must be given in writing and either (a) delivered in person or by courier service, (b) transmitted by telecopy mechanism, provided that any notice so given is also sent for delivery as provided in clause (a) or mailed as provided in clause (c), or (c) mailed by certified or registered mail postage prepaid, as follows:

If to WFB, addressed to:

Wells Fargo Bankwith a copy to:Senior Counsel

1200 Montego WayWells Fargo Law Department

 MAC A0347-023633 Folsom Street

Walnut Creek, CA 94598San Francisco, CA  94107

Attention: Deirdre Cohen

If to Company, addressed to:

Heartland Payment Systems, Inc. with a copy to: Heartland Payment Systems, Inc.

90 Nassau St., 2^nd Floor90 Nassau St., 2^nd Floor

Princeton, NJ 08542Princeton, NJ 08542

Attention: PresidentAttention: Legal Department

and a copy to: Waller Lansden Dortch & Davis, LLP

511 Union St., Ste. 2700

Nashville, TN 37219

Attention: Christopher M. Phillips

or to such other address or to such other person as any party shall have last designated by such notice to the other parties.  Each such notice or other communication shall be effective (i) if given by telecopy, when transmitted to the applicable number so specified in (or pursuant to) this Section and an appropriate mechanical or voice confirmation is received, (ii) if given by mail, seven Business Days after such communication is deposited in the mails with first-class postage prepaid, addressed as aforesaid, or (iii) if given by any other means, when actually received at such address.

10.8    Expenses.  Except as expressly set forth herein, WFB and Company shall each pay their own expenses incident to the negotiation, preparation and performance of this Agreement, including but not limited to the fees, expenses and disbursements of their respective accountants, counsel, and any brokers, finders, investment and other agents and advisers.

10.9    Remedies.  To the extent permitted by law and except as otherwise provided with respect to liquidated damages, all rights and remedies existing under this Agreement and any related agreements or documents are cumulative to and not exclusive of, any rights or remedies otherwise available under applicable law; provided, however, that this shall not be construed to entitle any party to double recovery for the same damages. 

10.10 Survival.  The parties agree that the provisions of Article 1 (Definitions), Article 3 (Confidentiality), Sections 4.1 (Publicity), 4.4 (Audit and Inspections - for one year), 5.8  (Allocation of Risks and Responsibility), 5.10 (Record Keeping), 5.11 (Reserve Accounts), Article 7 (Payment for Services and Expenses), Section 8.3 (Effects of Expiration or Termination), and Articles 9 (Indemnification & Limit on Liability) and 10 (Miscellaneous) shall survive any termination or expiration of this Agreement.

10.11 Attorneys' Fees.  In the event of any action for the breach of this Agreement or misrepresentation by any party, the prevailing party shall be entitled to reasonable attorneys' fees, costs and expenses incurred in such action.

10.12 Headings.  The headings contained herein are for the convenience of reference only and are not intended to define, limit, expand or describe the scope or intent of any provision of this Agreement.

10.13 Interpretation.  The provisions of this Agreement shall be interpreted in a reasonable manner to affect the intent of the parties. The parties expressly agree that no prior drafts of this Agreement or prior communications of any form shall be used in interpretation of any ambiguity in this Agreement.

10.14 Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

10.15 Force Majeure. If performance by either party of any service or obligation under this Agreement is prevented, restricted, delayed, or interfered with by labor disputes, strikes, acts of God, floods, lightning, severe weather, shortages of materials, rationing, utility losses or shortages, earthquakes, war, revolution, civil commotion, acts of public enemies, blockade, embargo, communication failures, failure of a Payment Company, failure or delay in receiving electronic data, or other unforeseeable causes which are beyond the reasonable control of such party, then such party shall be excused from the performance to the extent of but only so long as the prevention, restriction, delay, or interference. In the event of any force majeure occurrence as set forth in this section, the disabled party shall use its best efforts to meet its obligations under this Agreement. The disabled party, if it is unable to perform due to a force majeure event, shall notify the other party of the expected duration of such inability to perform and of any developments (or changes therein) that appear likely to affect the ability of that party to perform any of its obligations hereunder in whole or in part. This Section 10.15 shall not prevent any failure to perform hereunder form being an event of default pursuant to Article 8 hereof.

10.16 Findings Letter Implementation Conditions. Prior to the Effective Date of the Agreement, WFB will provide Company with a letter that summarizes the results of WFB's due diligence site visit (the “Findings Letter”). The Findings Letter may include certain high risk issues or other implementation conditions that WFB will require to be remediated to WFB's satisfaction before Company can begin providing Transaction Card Services to Merchant under the Agreement. WFB will begin assessing the Monthly Minimum Fee identified in Schedule 7.1 ninety (90) days after the Effective Date of the Agreement if Company has not remediated all high risk issues and other implementation conditions listed in the Findings Letter.

ARTICLE 11

INSURANCE REQUIREMENTS

11.1    Minimum Coverage Amounts. Without limiting Company's liability to WFB or its affiliates under other sections of this Agreement, Company, at its sole cost and expense, will maintain, secure and keep in force during the term of this Agreement, adequate insurance coverages with respect to the Company's potential liability, with coverages and limits that are, at a minimum (and without limiting Company's obligation to maintain adequate coverages), substantially similar in type and amount to those that are in effect with respect to Company's potential liability as of Effective Date of this Agreement. Without limiting the foregoing, Company represents and warrants that Company maintains, as of the Effective Date of this Agreement, insurance coverages of the types and with limits as set forth below:

A. Commercial general liability, including premises or operations, contractual, and products or completed operations coverages (if applicable), independent contractors' liability, personal injury, advertising injury, and contractual liability, with limits of $1 million per occurrence and $2 million general aggregate. Note: products/completed operations coverage must be maintained for a minimum of three (3) years past the end of this Agreement;

B. Automobile liability, including coverage for owned (if any), hired, non-hired, non-owned and borrowed automobiles, covering Vendor in the performance of Services hereunder with limits of $1 million per accident;

C. Workers' compensation or other programs as allowed by Law; coverage must include employer's liability insurance of not less than $1 million, or else an equivalent “stop gap” endorsement to Company's general liability insurance;

D. Errors and Omissions, also known as professional liability insurance, covering Company with a limit of not less than $65 million per loss; if coverage is on a "claims-made" basis, equivalent coverage must be maintained in force for a minimum of three (3) years after the termination of this Agreement. Coverage will include acts, errors, omissions or negligent acts in the delivery of products and Services under this Agreement, and if applicable, network risks (including coverage for unauthorized access, failure of security, breach-of-privacy perils, notification costs and regulatory defenses);

E. Fidelity Bond (Commercial crime insurance), including dishonesty coverage for Company, and if relevant, computer crime and wire transfer coverage, with $5 million per claim/aggregate;

F. Umbrella Liability with a combined single limit of $20 million; and

G. Cyber/Privacy Liability, with policy limits of not less than $65 million, including coverage for first and third party legal liability as a result of a physical privacy breach or breach of privacy regulations, as well as damages and claims for expenses arising out of computer attacks or other network intrusions associated with security failures.

11.2 Further Requirements.Any deductible or self-insured retention amount or other similar obligation under the policies listed above will be the sole responsibility of Company. This insurance must be placed with insurers rated “A-” or better by A.M. Best (or non-U.S. equivalent, if applicable). Insurers with less than an “A-” rating are unacceptable without WFB's prior written consent. WFB and its affiliates, officers, and employees will be an additional insured on the Commercial General Liability policy, the Umbrella Liability policy, and the Cyber/Privacy Liability policy. The insurance coverages required above, through a policy or endorsement, will include: (i) a provision that the policy and endorsements relevant to this Agreement may not be canceled or materially modified without thirty (30) days' prior written notice to WFB (provided that if Company receives less than thirty (30) days notice of cancellation or modification from the applicable insuror, Company will notify WFB as promptly as reasonably practicable); and (ii) a provision that Company's insurance coverage will be primary and non-contributory with respect to any insurance, self-insurance or self-retention maintained by WFB, and that any insurance, self-insurance or self-retention maintained by WFB will be for WFB's interest only. The legal defense provided to WFB under the policies/endorsements must be free of any conflicts of interest, even if retention of separate legal counsel for WFB is necessary. Company will furnish a certificate of insurance to WFB prior to the commencement of Services, showing compliance with the provisions of this Article 11. Additionally, and without limiting the foregoing, Company agrees to notify WFB as promptly as reasonably practicable: (a) if there are any material changes to Company's Systems or otherwise associated with Company's technical environment that would reasonably be expected to impact Company's insurance coverage; (b) if there are any material changes to the terms of Company's insurance policies that would reasonably be expected to impact the insurer's right to cancel such policies in a manner that is adverse to the Company or WFB; (c) of any actions are taken by Company or Company's insurer that are in furtherance of a material change to, or cancellation of, any of the insurance coverages described in this Article; (d) of any planned due diligence visits scheduled by Company's insurer that are related to the insurance coverages described in this Article and of any attestation that such due diligence has been completed in connection with such visit; (e) regarding any and all findings, concerns, suggestions or recommendations provided by Company's insurer in connection with any such due diligence visits; (f) of any increase in Company's premiums associated with the insurance coverages described in this

Article if such increase exceeds ten percent (10%); and (g) if there is a material change in the status of Company's insurer (e.g. solvency, ratings downgrade, etc.) that is detrimental to the interests of WFB or Company.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date first above written.

WELLS FARGO BANK, N.A.	HEARTLAND PAYMENT SYSTEMS, INC.
By: /s/ Mark Baumli_______________________	By: /s/ Robert O. Carr_____ __________________
Name: Mark Baumli	Name: Robert O. Carr
Title: Executive Vice President	Title: Chief Executive Officer

EX-10.2

Amendment No.1 to the Merchant Financial Services Agreement

between

Wells Fargo Bank, N.A. and Heartland Payment Systems, Inc.

THIS AMENDMENT No.1 (“Amendment No. 1”) to the Merchant Financial Services Agreement dated February 8 , 2012 (the “Agreement”) is made as of the 30^th day of April 2012 (the “Effective Date”), by and between Heartland Payment Systems, Inc. (“Company”), and Wells Fargo Bank, N.A. (“WFB”). Company and WFB are collectively from time to time referred to herein as the “Parties” with each being individually referred to as a “Party.”

WFB and Company desire to amend the Agreement to extend the period during which the Parties may negotiate and execute the ACH Agreement.

NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants hereinafter set forth and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, WFB and Company agree as follows:

1. Section 8.2.6 of the Agreement is hereby deleted in its entirety and replaced with the following:

Either WFB or Company may terminate this Agreement on ten (10) days' notice if they have been unable, after good faith negotiations, to agree to the terms of and execute the ACH Agreement on or prior to June 30, 2012.

2.This Amendment No.1 does not, and shall not be construed to, modify any term or condition of the Agreement other than those specific terms and conditions expressly referenced herein and the Agreement shall remain unchanged, except as provided for in this Amendment No.1, and in full force and effect. In the event of any inconsistency or discrepancy between the Agreement and this Amendment No. 1, the terms and conditions set forth in this Amendment No.1 shall control. This Amendment No.1 may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

3.Except as otherwise modified herein, the capitalized terms used in this Amendment shall have the meaning specified in the Agreement.

IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be executed on its behalf by its duly authorized officers as of the Effective Date.

HEARTLAND Payment Systems, Inc.	WELLS FARGO BANK, N.A.
By: /s/ Robert O. Carr	By: /s/ Mark Baumli
Name: Robert O. Carr	Name: Mark Baumli
Title: Chief Executive Officer	Title: Executive Vice President
Date: May 3, 2012	Date: May 3, 2012

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert O. Carr, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heartland Payment Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2012

/s/	Robert O. Carr
	Robert O. Carr
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO RULE 13a-14(a) and 15d-14(a), AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Maria Rueda, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heartland Payment Systems, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 7, 2012

/s/	Maria Rueda
	Maria Rueda
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Heartland Payment Systems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert O. Carr, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is being provided pursuant to 18 U.S.C. Section 1350 and is not deemed to be “filed” for any purpose whatsoever.

Date: May 7, 2012

/s/	Robert O. Carr
	Robert O. Carr
	Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Heartland Payment Systems, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Maria Rueda, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

This certification is being provided pursuant to 18 U.S.C. Section 1350 and is not deemed to be “filed” for any purpose whatsoever.

Date: May 7, 2012

/s/	Maria Rueda
	Maria Rueda
	Chief Financial Officer

XML

Summary of Significant Accounting Policies Effective Income Tax Rate (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Accounting Policies [Abstract]
Income tax expense (benefit)	$ 8,499	$ 4,809
Effective income tax rate, continuing operations	38.00%	38.00%

XML

Credit Facilities (Schedule of Maturities of Long-term Debt) (Details) (USD $)	3 Months Ended
	Mar. 31, 2012
Principal payments due under Term Credit Facility: [Abstract]
Credit agreement, description of variable rate periods	interest rates equal to one, two, three or six month adjusted LIBOR rates
Credit agreement, weighted average interest rate	2.50%
Credit agreement, fees and direct costs	$ 1,300,000
Credit agreement, amount outstanding	0
Revolving Credit Facility [Member]
Line of Credit Facility
Maximum borrowing capacity	50,000,000
Revolving Credit Facility [Member] | Letter of Credit [Member]
Line of Credit Facility
Maximum borrowing capacity	10,000,000
Revolving Credit Facility [Member] | Bridge Loan [Member]
Line of Credit Facility
Maximum borrowing capacity	5,000,000
Term Credit Facility [Member]
Line of Credit Facility
Maximum borrowing capacity	100,000,000
Principal payments due under Term Credit Facility: [Abstract]
Quarterly repayments of principal, for fiscal years ended 2011 and 2012	3,750,000
Quarterly repayments of principal, for fiscal years ending 2013 and 2014	5,000,000
Quarterly repayments of principal, for 2015 (November 24, 2015 maturity)	7,500,000
Credit agreement, amount outstanding	81,300,000
Subsequent To Administrative Agent Approval [Member] | Revolving Credit Facility [Member]
Line of Credit Facility
Maximum borrowing capacity	100,000,000
Commitment Increase Agreement, additional borrowings	50,000,000
Line of Credit [Member] | Term Credit Facility [Member]
Principal payments due under Term Credit Facility: [Abstract]
2013	16,250,000
2014	20,000,000
2015	22,500,000
2016	22,500,000
Total principal payments due under Term Credit Facility	$ 81,250,000
LIBOR [Member]
Debt Instrument [Line Items]
Credit agreement, basis spread on variable rate	1.00%
Federal Funds Rate [Member]
Debt Instrument [Line Items]
Credit agreement, basis spread on variable rate	0.50%

XML

Intangible Assets and Goodwill (Schedule of Finite-Lived Intangible Assets, Future Amortization Expense) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012
Finite-Lived Intangible Assets, Future Amortization Expense [Abstract]
2013	$ 4,293
2014	3,904
2015	3,471
2016	3,147
2017	2,304
Thereafter	14,294
Total	$ 31,413

XML

Commitments and Contingencies (Schedule of Future Minimum Rental Payments for Operating Leases) (Details) (USD $)	3 Months Ended
	Mar. 31, 2012		Mar. 31, 2011
Operating Leases, Future Minimum Payments Due [Abstract]
2013	$ 7,802,000	[1]
2014	5,452,000	[1]
2015	3,788,000	[1]
2016	1,957,000	[1]
2017	1,866,000	[1]
Thereafter	4,090,000	[1]
Total future minimum lease payments	24,955,000	[1]
Leases, Operating [Abstract]
Operating leases, remaining terms	9 years
Rent expense, leased facilities and expense	$ 2,000,000		$ 2,200,000

[1] There were no material capital leases at March 31, 2012.

XML

Capitalized Customer Acquisition Costs, Net (Capitalized Customer Acquisition Activity) (Details) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Capitalized Customer Acquisition Costs, Net [Roll Forward]
Balance at beginning of period	$ 55,014,000	$ 59,251,000
Capitalized signing bonuses, net	7,554,000	7,116,000
Capitalized customer deferred acquisition costs	3,968,000	3,330,000
Capitalized customer acquisition costs, additions	11,522,000	10,446,000
Capitalized signing bonuses, net	(7,321,000)	(8,514,000)
Capitalized customer deferred acquisition costs	(3,876,000)	(3,867,000)
Capitalized customer acquisition costs, amortization expense	(11,197,000)	(12,381,000)
Balance at end of period	55,339,000	57,316,000
Signing bonus adjustments from estimated amounts to actual	(600,000)	(200,000)
Write-off of fully amortized signing bonuses	8,000,000	12,300,000
Write-off of fully amortized customer deferred acquisition costs	$ 3,900,000	$ 3,800,000

XML

Segments (Tables)

3 Months Ended

Mar. 31, 2012

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

A summary of the Company’s segments for the three month periods ended March 31, 2012 and 2011 was as follows:

	Card Segment		Other Segment		Unallocated Corporate Administration Amounts			Reconciling Items			Total Amount
	(In thousands)
Three Months Ended March 31, 2012
Total revenues	$	447,219	$	23,330	$	—		$	(64	)	$	470,485
Depreciation and amortization	6,602		725		56			—			7,383
Interest income	115		—		—			—			115
Interest expense	912		2		—			(64		)	850
Net income (loss) attributable to Heartland	16,064		2,090		(4,400		)	—			13,754
Total assets	644,491		142,382		—			(162,665		)	624,208
Three Months Ended March 31, 2011
Total revenues	$	454,998	$	12,698	$	—		$	(50	)	$	467,646
Depreciation and amortization	6,146		801		125			—			7,072
Interest income	41		—		—			—			41
Interest expense	1,240		2		—			(50		)	1,192
Net income (loss) attributable to Heartland	11,495		599		(4,279		)	—			7,815
Total assets	646,388		93,400		—			(155,450		)	584,338

XML

Segments (Schedule of Segment Reporting Information, by Segment) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012 Reportable_Segments	Mar. 31, 2011	Dec. 31, 2011
Segment Reporting Information [Line Items]
Number of Reportable Segments	2
Total revenues	$ 470,485	$ 467,646
Depreciation and amortization	7,383	7,072
Interest income	115	41
Interest expense	850	1,192
Net income (loss) attributable to Heartland	13,754	7,815
Total assets	624,208	584,338	596,921
Card Segment [Member]
Segment Reporting Information [Line Items]
Total revenues	447,219	454,998
Depreciation and amortization	6,602	6,146
Interest income	115	41
Interest expense	912	1,240
Net income (loss) attributable to Heartland	16,064	11,495
Total assets	644,491	646,388
Other Segment [Member]
Segment Reporting Information [Line Items]
Funds held as a fiduciary in payroll services activities for payment to taxing authorities, portion of total assets, percentage	38.00%	45.00%
Total revenues	23,330	12,698
Depreciation and amortization	725	801
Interest income	0	0
Interest expense	2	2
Net income (loss) attributable to Heartland	2,090	599
Total assets	142,382	93,400
Unallocated Corporate Administration Amounts [Member]
Segment Reporting Information [Line Items]
Total revenues	0	0
Depreciation and amortization	56	125
Interest income	0	0
Interest expense	0	0
Net income (loss) attributable to Heartland	(4,400)	(4,279)
Total assets	0	0
Reconciling Items [Member]
Segment Reporting Information [Line Items]
Total revenues	(64)	(50)
Depreciation and amortization	0	0
Interest income	0	0
Interest expense	(64)	(50)
Net income (loss) attributable to Heartland	0	0
Total assets	$ (162,665)	$ (155,450)

XML

Receivables (Tables)

3 Months Ended

Mar. 31, 2012

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable

A summary of receivables by major class was as follows at March 31, 2012 and December 31, 2011:

	March 31, 2012			December 31, 2011
	(In thousands)
Accounts receivable from merchants	$	158,567		$	151,228
Receivables from bankcard networks	23,850			24,301
Accounts receivable from others	2,769			2,457
	185,186			177,986
Less allowance for doubtful accounts	(1,453		)	(1,451		)
Total receivables, net	$	183,733		$	176,535

Summary of Allowance for Doubtful Accounts Receivables

A summary of the activity in the allowance for doubtful accounts for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	1,451		$	683
Additions to allowance	83			700
Charges against allowance	(81		)	(485		)
Ending balance	$	1,453		$	898

XML

Processing Liabilities and Loss Reserves (Details) (USD $)	3 Months Ended		4 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Mar. 31, 2012	Dec. 31, 2011
Processing Liabilities and Loss Reserves [Line Items]
Processing liabilities and loss reserves	$ 36,543,000		$ 36,543,000	$ 30,689,000
Chargebacks, card brand networks, period	4 months
Bank chargebacks			11,200,000	12,200,000
Merchant credit losses	200,000	1,300,000
Merchant bankcard processing
Processing Liabilities and Loss Reserves [Line Items]
Processing liabilities and loss reserves	13,270,000		13,270,000	10,295,000
Check processing
Processing Liabilities and Loss Reserves [Line Items]
Processing liabilities and loss reserves	12,015,000		12,015,000	8,594,000
Merchant deposits
Processing Liabilities and Loss Reserves [Line Items]
Processing liabilities and loss reserves	9,298,000		9,298,000	9,839,000
Loss reserves
Processing Liabilities and Loss Reserves [Line Items]
Processing liabilities and loss reserves	1,960,000		1,960,000	1,961,000
SME [Member]
Processing Liabilities and Loss Reserves [Line Items]
Processing volume	$ 16,700,000,000	$ 15,400,000,000	$ 22,600,000,000	$ 22,300,000,000

XML

Receivables (Summary of Allowance for Doubtful Accounts Receivables) (Details) (USD $)	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Movement in Valuation Allowances and Reserves [Roll Forward]
Additions to allowance	$ 83,000	$ 700,000
Allowance for Doubtful Accounts [Member]
Movement in Valuation Allowances and Reserves [Roll Forward]
Beginning balance	1,451,000	683,000
Additions to allowance	83,000	700,000
Charges against allowance	(81,000)	(485,000)
Ending balance	$ 1,453,000	$ 898,000

XML

Summary of Significant Accounting Policies (Details) (USD $)	0 Months Ended	3 Months Ended		12 Months Ended	24 Months Ended									3 Months Ended
	Oct. 21, 2011	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011	Dec. 31, 2013	Jan. 31, 2011	Mar. 31, 2012 Cash held for payroll customers [Member]	Dec. 31, 2011 Cash held for payroll customers [Member]	Mar. 31, 2012 Available-for-sale securities [Member]	Mar. 31, 2012 Funding advances [Member]	Dec. 31, 2011 Funding advances [Member]	Dec. 31, 2011 Restricted Stock Units Performance Based [Member]	Dec. 31, 2010 Restricted Stock Units Performance Based [Member]	Dec. 31, 2011 Restricted Share Units, 2011 [Member]	Dec. 31, 2011 Two Year Period Ending December 31 2013 [Member]
Significant Accounting Policies [Line Items]
Processing-related cash in transit and collateral		$ 33,800,000		$ 28,000,000
Cash used to fund merchant advances		39,300,000		40,000,000
Due to sponsor banks		66,334,000		63,881,000						46,700,000	45,200,000
Funds held for payroll customers		53,584,000		42,511,000			52,408,000	41,353,000
Funds held for payroll customers, investments									1,200,000
Estimated vesting percentage, Relationship Managers and sales managers		31.00%
Other income (expense), pre-tax charges		0	464,000
Reserve for unrecognized tax benefits		2,037,000		1,819,000
Unrecognized tax benefits that would impact effective tax rate		1,300,000
Number of performance-based Restricted Share Units authorized												164,808	508,800
Restricted share units, vesting percent rate in 2013		50.00%
Restricted share units, vesting percent rate in 2014		25.00%												50.00%
Restricted share units, vesting percent rate in 2015		25.00%												50.00%
Compound annual growth rate, diluted earnings per share, target					17.00%										17.00%
Compound annual growth rate, increase over target															1.00%
Restricted share units, increase for exceeding CAGR target															3.09%
Restricted share units, maximum number of shares authorized to award															100.00%
Compound annual growth rate, decrease below target															1.00%
Restricted share units, decrease for falling below CAGR target															1.13%
Compound annual growth rate, percentage of target required to award shares															80.00%
Restricted share units, awards if CAGR target missed by 80% or more		0
Stock repurchase program, authorized purchase amount	50,000,000
Common stock repurchased during period, shares		419,249		778,889
Payments for repurchase of common stock		11,400,000		16,800,000
Treasury stock acquired, average cost per share		$ 27.16		$ 21.61
Stock repurchase program, remaining authorized repurchase amount		21,800,000
Notional amount of interest rate derivatives		40,600,000				50,000,000
Interest rate swap liabilities, at fair value		900,000
Deferred income tax expense (benefit), interest rate swaps		(300,000)
Cumulative foreign currency translation gain (loss)		(100,000)	200,000
Stockholders' equity attributable to noncontrolling interest		809,000		642,000
Invoicing terms		30 days
Amortization of capitalized customer acquisition costs, period		3 years
Signing bonus amount and amortization, adjustment period		1 year
Buy out of Relationship Managers and sales managers commissions, fixed multiple period		12 months
Determination of accrued buyout liability, gross margin for prior period		12 months
New SME merchant accrued buyout liability		$ 0
Period accrued buyout liability increases for new SME merchants		12 months
Classification of current accrued buyout liability, period		12 months
Diluted earnings per share compound annual growth rate, period		2 years

XML

Accrued Buyout Liability (Summary of Accrued Buyout Liability) (Details) (USD $)	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2011	Dec. 31, 2010
Accrued Buyout Liability [Line Items]
Accrued Buyout Liability Total	$ 33,568,000	$ 31,658,000	$ 28,242,000	$ 28,810,000
Less current portion	(8,862,000)	(8,104,000)
Long-term portion of accrued buyout liability	24,706,000	23,554,000
Estimated vesting percentage, Relationship Managers and sales managers	31.00%
Hypothetical increase to vesting percentage, Relationship Managers and sales managers	5.00%
Hypothetical vesting percentage, Relationship Managers and sales managers	36.00%
Hypothetical increase to accrued buyout liability	100,000	100,000
Vested Relationship Managers and sales managers [Member]
Accrued Buyout Liability [Line Items]
Accrued Buyout Liability Total	32,425,000	30,269,000
Unvested Relationship Managers and sales managers [Member]
Accrued Buyout Liability [Line Items]
Accrued Buyout Liability Total	$ 1,143,000	$ 1,389,000

XML

Intangible Assets and Goodwill (Schedule of Finite-Lived Intangible Assets by Major Class) (Details) (USD $)	3 Months Ended			3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended	3 Months Ended	12 Months Ended
	Mar. 31, 2012	Mar. 31, 2011	Dec. 31, 2011	Mar. 31, 2012 Customer relationships Y	Dec. 31, 2011 Customer relationships Y	Mar. 31, 2012 Merchant Portfolio Y	Dec. 31, 2011 Merchant Portfolio Y	Mar. 31, 2012 Software Y	Dec. 31, 2011 Software Y	Mar. 31, 2012 Non-compete agreements Y	Dec. 31, 2011 Non-compete agreements Y	Mar. 31, 2012 Other Y	Dec. 31, 2011 Other Y
Finite-Lived Intangible Assets [Line Items]
Gross Assets	$ 49,817,000		$ 49,840,000	$ 33,179,000	$ 33,166,000	$ 3,345,000	$ 3,345,000	$ 10,018,000	$ 10,078,000	$ 2,795,000	$ 2,794,000	$ 480,000	$ 457,000
Accumulated Amortization	(18,404,000)		(17,342,000)	(6,066,000)	(5,406,000)	(1,956,000)	(1,819,000)	(8,740,000)	(8,612,000)	(1,236,000)	(1,126,000)	(406,000)	(379,000)
Net Asset	31,413,000		32,498,000	27,113,000	27,760,000	1,389,000	1,526,000	1,278,000	1,466,000	1,559,000	1,668,000	74,000	78,000
Amortization life and method, useful life, minimum (in years)				3	3			2	2	3	3	2	2
Amortization life and method, useful life, maximum (in years)				18	18	7	7	5	5	5	5	9	9
Finite-Lived intangible assets, amortization expense	$ 1,100,000	$ 1,500,000

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates include, among other things, the accrued buyout liability, capitalized customer acquisition costs, goodwill, loss reserves, certain accounts payable and accrued expenses and certain tax assets and liabilities as well as the related valuation allowances, if any. Actual results could differ from those estimates.

Cash and Cash Equivalents—At March 31, 2012, cash included approximately $33.8 million of processing-related cash in transit and collateral, compared to approximately $28.0 million of processing-related cash in transit and collateral at December 31, 2011.

Receivables—Receivables are stated net of allowance for doubtful accounts. The Company estimates its allowance based on experience with its merchants, customers, and sales force and its judgment as to the likelihood of their ultimate payment. The Company also considers collection experience and makes estimates regarding collectability based on trends in aging. Historically, the Company has not experienced significant charge offs for its merchant receivables.

The Company's primary receivables are from its bankcard processing merchants. These receivables result from the Company's practice of advancing interchange fees to most of its small and mid-sized merchants (referred to as Small and Midsized Enterprises, or “SME”) during the month and collecting those fees at the beginning of the following month, as well as from transaction fees the Company charges its merchants for processing transactions. The Company does not advance interchange fees to its Network Services Merchants.

Generally, the Company uses cash available for investment to fund these advances to SME merchants; when available cash has been expended, the Company directs its sponsor banks to make these advances, thus generating a payable to the sponsor banks. We pay our sponsor banks the prime rate on these payables. At March 31, 2012, the Company used $39.3 million of its available cash to fund merchant advances and at December 31, 2011, the Company used $40.0 million of its cash to fund merchant advances. The amount due to sponsor banks for funding advances was $46.7 million at March 31, 2012 and $45.2 million at December 31, 2011. The payable to sponsor banks is repaid at the beginning of the following month out of the fees the Company collects from its merchants. Receivables from merchants also include receivables from the sale of point of sale terminal equipment. Unlike the SME merchants, Network Services Merchants are invoiced monthly, on payment terms of 30 days net from date of invoicing.

Receivables also include amounts resulting from the pre-funding of Discover and American Express transactions to some of the Company's merchants and are due from the related bankcard networks. These amounts are recovered the next business day from the date of processing the transaction.

Receivables also include amounts resulting from the sale, installation, training and repair of payment system hardware and software for prepaid card and stored-value card payment systems, campus payment solutions, and K to 12 solutions. These receivables are mostly invoiced on terms of 30 days net from date of invoicing.

Investments and Funds Held for Payroll Customers—Investments, including those carried on the Condensed Consolidated Balance Sheet as Funds held for payroll customers, consist primarily of fixed income bond funds and certificates of deposit. Funds held for payroll customers also include overnight bank deposits. The majority of investments carried in Funds held for payroll customers are available-for-sale and recorded at fair value based on quoted market prices. Certificates of deposit are classified as held to maturity and recorded at cost. In the event of a sale, cost is determined on a specific identification basis. At March 31, 2012, Funds held for payroll customers included cash and cash equivalents of $52.4 million and investments available for sale of $1.2 million.

Capitalized Customer Acquisition Costs, net—Capitalized customer acquisition costs consist of (1) up-front signing bonus payments made to Relationship Managers and sales managers (the Company's sales force) for the establishment of new merchant relationships, and (2) a deferred acquisition cost representing the estimated cost of buying out the commissions of vested sales employees. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through gross margins associated with merchant contracts. The capitalized customer acquisition costs are amortized using a method which approximates a proportional revenue approach over the initial three-year term of the merchant contract.

The up-front signing bonus paid for new SME bankcard, payroll and loyalty marketing accounts is based on the estimated gross margin for the first year of the merchant contract. The signing bonus, amount capitalized, and related amortization are adjusted after one year to reflect the actual gross margin generated by the merchant contract during that year. The deferred customer acquisition cost asset is accrued over the first year of SME bankcard merchant processing, consistent with the build-up in the accrued buyout liability, as described below.

Management evaluates the capitalized customer acquisition costs for impairment by comparing, on a pooled basis by vintage month of origination, the expected future net cash flows from underlying SME merchant relationships to the carrying amount of the capitalized customer acquisition costs. If the estimated future net cash flows are lower than the recorded carrying amount, indicating an impairment of the value of the capitalized customer acquisition costs, the impairment loss will be charged to operations. The Company believes that no impairment has occurred as of March 31, 2012.

Processing Liabilities and Loss Reserves—The majority of the Company's processing liabilities include funds in transit associated with bankcard and check processing. In addition, the Company maintains merchant deposits to offset potential liabilities from merchant chargeback processing. Disputes between a cardholder and a merchant periodically arise due to the cardholder's dissatisfaction with merchandise quality or the merchant's service, and the disputes may not always be resolved in the merchant's favor. In some of these cases, the transaction is ''charged back'' to the merchant and the purchase price is refunded to the cardholder by the credit card-issuing institution. If the merchant is unable to fund the refund, the Company is liable for the full amount of the transaction. The Company's obligation to stand ready to perform is minimal. The Company maintains a deposit or the pledge of a letter of credit from certain merchants as an offset to potential contingent liabilities that are the responsibility of such merchants. The Company evaluates its ultimate risk and records an estimate of potential loss for chargebacks related to merchant fraud based upon an assessment of actual historical fraud loss rates compared to recent bankcard processing volume levels. The Company believes that the liability recorded as loss reserves approximates fair value.

Accrued Buyout Liability—The Company'sRelationship Managers and sales managers are paid residual commissions based on the gross margin generated by monthly SME merchant processing activity. The Company has the right, but not the obligation, to buy out some or all of these commissions, and intends to do so periodically. Such purchases of the commissions are at a fixed multiple of the last twelve months' commissions. Because of the Company's intent and ability to execute purchases of the residual commissions, and the mutual understanding between the Company and the Relationship Managers and sales managers, the Company has accounted for this deferred compensation arrangement pursuant to the substantive nature of the plan. The Company therefore records the amount that it would have to pay (the ''settlement cost'') to buy out non-servicing related commissions in their entirety from vested Relationship Managers and sales managers, and an accrual, based on their progress towards vesting, for those unvested Relationship Managers and sales managers who are expected to vest in the future. As noted above, as the liability increases over the first year of a SME merchant contract, the Company also records a related deferred acquisition cost asset for currently vested Relationship Managers and sales managers. The accrued buyout liability associated with unvested Relationship Managers and sales managers is not included in the deferred acquisition cost asset since future services are required in order to vest. Subsequent changes in the estimated Accrued Buyout Liability due to merchant attrition, same-store sales growth and changes in gross margin are included in the same income statement caption as customer acquisition cost amortization expense.

The accrued buyout liability is based on the SME merchants under contract at the balance sheet date, the gross margin generated by those merchants over the prior twelve months, and the contractual buyout multiple. The liability related to a new SME merchant is therefore zero when the merchant is installed, and increases over the twelve months following the installation date. The same procedure is applied to unvested commissions over the expected vesting period, but is further adjusted to reflect the Company's estimate that 31% of unvested Relationship Managers and sales managers become vested.

The classification of the accrued buyout liability between current and non-current liabilities on the Condensed Consolidated Balance Sheet is based upon the Company's estimate of the amount of the accrued buyout liability that it reasonably expects to pay over the next twelve months. This estimate is developed by calculating the cumulative annual average percentage that total historical buyout payments represent of the accrued buyout liability. That percentage is applied to the period-end accrued buyout liability to determine the current portion.

Revenue—Revenues are mainly comprised of gross processing revenue, payroll processing revenue and equipment-related income. Gross processing revenue primarily consists of discount fees, per-transaction fees and periodic fees (primarily monthly) from the processing of Visa, MasterCard, American Express and Discover bankcard transactions for merchants. The Company passes through to its customers any changes in interchange or network fees. Gross processing revenue also includes fees for servicing American Express accounts, customer service fees, fees for processing chargebacks, termination fees on terminated contracts, gift and loyalty card fees, fees generated by our K to 12 Solutions business, and other miscellaneous revenue. Payroll processing revenue includes periodic and annual fees charged by HPC for payroll processing services, and interest earned from investing tax impound funds held for our customers. Revenue is recorded as bankcard and other processing transactions are processed or payroll services are performed.

Equipment-related income includes revenues from the sale, rental and deployment of bankcard and check processing terminals, from the sale of hardware, software and associated services for prepaid card and stored-value card payment systems, and campus payment solutions. Revenues are recorded at the time of shipment, or the provision of service.

Loss Contingencies and Legal Expenses—The Company records a liability for loss contingencies when the liability is probable and the amount is reasonably estimable. Legal fees associated with loss contingencies are recorded when the legal fees are incurred.

The Company records recoveries from its insurance providers when cash is received from the provider.

Other Income (Expense)—Other income (expense) consists of interest income on cash and investments, the interest cost on our borrowings, the gains or losses on the disposal of property and equipment and other non-operating income or expense items. For the three months ended March 31, 2011, other income (expense) included pre-tax charges of $0.5 million reflecting the estimated liability for costs (primarily accrued staff termination costs and fixed asset write downs) associated with closing of the Company's Johnson City, Tennessee service center.

Other income (expense) also includes the pretax charges or recoveries related to the Provision for processing system intrusion costs.

Income Taxes—The Company accounts for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates.

The provision for income taxes for the three months ended March 31, 2012 and 2011 and the resulting effective tax rates were as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Provision for income taxes	$	8,499		$	4,809
Effective tax rate	38.0		%	38.0		%

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings, carry back and carry forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.

The Company regularly evaluates its tax positions for additional unrecognized tax benefits and associated interest and penalties, if applicable. There are many factors that are considered when evaluating these tax positions including: interpretation of tax laws, recent tax litigation on a position, past audit or examination history, and subjective estimates and assumptions, which have been deemed reasonable by management. However, if management's estimates are not representative of actual outcomes, the Company's results could be materially impacted. The Company does not expect any material changes to unrecognized tax benefits in the next twelve months. At March 31, 2012, the reserve for unrecognized tax benefits related to uncertain tax positions was $2.0 million, of which $1.3 million would, if recognized, impact the effective tax rate.

Stock–Based Compensation— In the fourth quarter of 2010, the Company's Board of Directors approved grants of 508,800 performance-based Restricted Share Units. These Restricted Share Units are share awards which would vest 50% in 2013, 25% in 2014, and 25% in 2015 only if, over the term of these Restricted Share Units, the following diluted earnings per share targets for the years ended December 31, 2012, 2013 and 2014 are achieved:

	2012	2013	2014
Diluted Earnings Per Share (a)	$1.48	$1.74	$2.04

(a) Calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and excluding the after-tax impact of Stock Compensation Expense.

As of December 31, 2011, management determined that achieving these performance targets was “more likely than not” to occur and began recording share-based compensation expense for these Restricted Share Units. The closing price of the Company's common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

In the fourth quarter of 2011, the Company's Board of Directors approved grants of 164,808 performance-based Restricted Share Units. These Restricted Share Units are nonvested share awards which would vest 50% in 2014 and 50% in 2015 only if the Company achieves a diluted earnings per share compound annual growth rate ("CAGR") of seventeen percent (17%) for the two-year period ending December 31, 2013. Diluted earnings per share will be calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and exclude the after-tax impact of Stock Compensation Expense. For each 1% that the CAGR actually achieved by the Company for the two yearperiod ending on December 31, 2013 is above the 17% target, the number of shares underlying the Restricted Share Units awarded would be increased by 3.09%; provided, however, that the maximum increase in the number of shares that may be awarded is 100%. Likewise, for each 1% that the CAGR actually achieved by the Company for the two-yearperiod ending on December 31, 2013 is below the 17% target, the number of shares underlying the Restricted Share Units awarded would be decreased by 1.13%. If the target CAGR is missed by 80% or more, then the number of shares awarded is zero.

As of December 31, 2011, management determined that achieving the 17%two-year CAGR target was “more likely than not” to occur and began recording share-based compensation expense for these Restricted Share Units based on the number of shares which would vest at the 17%two-year CAGR target. The closing price of the Company's common stock on the grant date equals the grant date fair value of these nonvested Restricted Share Units awards and will be recognized as compensation expense over their vesting periods.

Diluted earnings per share for the three months ended March 31, 2012 and 2011 were computed based on the weighted average outstanding common shares plus equivalent shares assuming exercise of stock options and vesting of Restricted Share Units, where dilutive.

Common Stock Repurchases. On October 21, 2011, the Company's Board of Directors authorized the repurchase of up to $50 million worth of the Company's outstanding common stock. Repurchases under this program will be made through the open market, or in privately negotiated transactions, from time to time in accordance with applicable laws and regulations. The Company intends to fund any repurchases with cash flow from operations, existing cash on the balance sheet, and other sources including the proceeds of options exercises. The manner, timing and amount of repurchases, if any, will be determined by management and will depend on a variety of factors, including price, corporate and regulatory requirements, market conditions and other corporate liquidity requirements. The repurchase program may be modified or discontinued at any time.

Under this authorization from its Board of Directors, during the three months ended March 31, 2012 and the year ended December 31, 2011, respectively, the Company repurchased an aggregate of 419,249 shares of its common stock at a total cost of $11.4 million, at an average cost of $27.16 per share, and 778,889 shares of its common stock at a total cost of $16.8 million, at an average cost of $21.61 per share. No common stock was repurchased in the three months ended March 31, 2011. At March 31, 2012, the Company had remaining authorization to repurchase up to $21.8 million worth of its common stock.

Derivative Financial Instruments—The Company utilizes derivative instruments to manage interest rate risk on its borrowings under its Second Amended and Restated Credit Agreement. The Company recognizes the fair value of derivative financial instruments in the Condensed Consolidated Balance Sheets in investments, or accrued expenses and other liabilities. Changes in fair value of derivative instruments are recognized immediately in earnings unless the derivative is designated and qualifies as a hedge of future cash flows. For derivatives that qualify as hedges of future cash flows, the effective portion of changes in fair value is recorded in other comprehensive income and reclassified into interest expense in the same periods during which the hedged item affects earnings. Any ineffectiveness of cash flow hedges would be recognized in other income (expense) in the Condensed Consolidated Statements of Income and Comprehensive Income during the period of change.

In January 2011, the Company entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million as a hedge of future cash flows on the variable rate debt outstanding under its Term Credit Facility. These interest rate swaps convert the related notional amount of variable rate debt to fixed rate. At March 31, 2012, the remaining notional amount of these interest rate swaps was $40.6 million and the fair value of these interest rate swaps, $0.9 million, was recorded as a liability in accrued expenses and other liabilities. The related deferred tax benefit was $0.3 million.

Foreign Currency—The Canadian dollar is the functional currency of CPOS, which operates in Canada. CPOS' revenues and expenses are translated at the average exchange rates prevailing during the period. The foreign currency assets and liabilities of CPOS are translated at the period-end rate of exchange. The resulting translation adjustment is allocated between the Company and CPOS' noncontrolling interests and is recorded as a component of other comprehensive income or noncontrolling interests in total equity. At March 31, 2012 and 2011, the cumulative foreign currency translation reflected a loss of $0.1 million and a gain of $0.2 million, respectively. The Company intends to indefinitely reinvest undistributed earnings of CPOS and has not tax affected the cumulative foreign currency translation gain or loss. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not material.

Noncontrolling Interests— Noncontrolling interests represent noncontrolling minority stockholders' share of the equity and after-tax net income or loss of consolidated subsidiaries. Noncontrolling minority stockholders' share of after-tax net income or loss of consolidated subsidiaries is included in “Net income attributable to noncontrolling interests” in the Condensed Consolidated Statement of Income and Comprehensive Income. The minority stockholders’ interests included in “noncontrolling interests” in the March 31, 2012 and December 31, 2011 Condensed Consolidated Balance Sheet were $809,000 and $642,000, respectively, and reflect the original investments by these minority shareholders in the consolidated subsidiaries, along with their proportionate share of the earnings or losses of the subsidiaries.

Subsequent Events—The Company evaluated subsequent events with respect to the Consolidated Financial Statements as of and for the three months ended March 31, 2012.

New Accounting Pronouncements— In May 2011, the FASB issued an accounting standard update which addresses changes to concepts regarding performing fair value measurements including: (i) the application of the highest and best use and valuation premise; (ii) the valuation of an instrument classified in the reporting entity's shareholder equity; (iii) the valuation of financial instruments that are managed within a portfolio; and (iv) the application of premiums and discounts.  This update also enhances disclosure requirements about fair value measurements, including providing information regarding Level 3 measurements such as quantitative information about unobservable inputs, further discussion of the valuation processes used and assumption sensitivity analysis.  The update is effective for interim and annual periods beginning after December 15, 2011. The implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In June 2011, the FASB issued an accounting standard update which amends the comprehensive income topic of the current codification. The update eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. The update is effective for interim and annual periods beginning after December 15, 2011. The implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In September 2011, the FASB issued an accounting standard update on testing goodwill for impairment. This guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (early adoption is permitted). The Company has early adopted the update and the implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In December 2011, the FASB issued an accounting standard update on disclosures about offsetting assets and liabilities. This guidance requires entities to disclose information about offsetting and related arrangements to enable users of financial statements to understand the effect of those arrangements on the entity's financial position. The amendments require enhanced disclosures by requiring improved information about financial instruments and derivative instruments that are either (i) offset in accordance with current literature or (ii) subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in accordance with current literature. The update is effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The implementation of this update is not expected to have a material effect on the Company's Consolidated Financial Statements.

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Funds Held for Payroll Customers and Investments (Funds Held for Payroll Customers and Investments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012		Dec. 31, 2011
Funds Held for Payroll Customers:
Cost	$ 53,376		$ 42,321
Gross Unrealized Gains	208		190
Gross Unrealized Losses	0		0
Estimated Fair Value	53,584		42,511
Investments:
Cost	2,157		2,505
Certificates of Deposit, Term, Minimum	3 months
Certificates of Deposit, Term, Maximum	17 months
Cash held for payroll customers [Member]
Funds Held for Payroll Customers:
Cost	52,408		41,353
Gross Unrealized Gains	0		0
Gross Unrealized Losses	0		0
Estimated Fair Value	52,408		41,353
Investments held to maturity - Certificates of deposit
Investments:
Cost	2,157	[1]	2,505	[1]
Estimated Fair Value	2,157	[1]	2,505
Available-for-sale securities [Member] | Fixed income bond fund
Funds Held for Payroll Customers:
Cost	968		968
Gross Unrealized Gains	208		190
Gross Unrealized Losses	0		0
Estimated Fair Value	$ 1,176	[2]	$ 1,158

[1] Certificates of deposit have remaining terms ranging from 3 months to 17 months.

[2] amounts included in Funds held for payroll customers on the Consolidated Balance Sheet

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Processing Liabilities and Loss Reserves (Tables)

3 Months Ended

Mar. 31, 2012

Processing Liabilities and Loss Reserves [Abstract]

Summary Of Processing Liabilities And Loss Reserves

A summary of processing liabilities and loss reserves was as follows at March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
	(In thousands)
Merchant bankcard processing	$	13,270	$	10,295
Check processing	12,015		8,594
Merchant deposits	9,298		9,839
Loss reserves	1,960		1,961
	$	36,543	$	30,689

Schedule Of Credit And Fraud Loss Reserve

A summary of the activity in the loss reserve for the three month periods ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	1,961		$	1,667
Additions to reserve	267			1,489
Charges against reserve (a)	(268		)	(1,417		)
Ending balance	$	1,960		$	1,739

(a) Included in these amounts are payroll segment losses of $12,000 and $59,000, respectively, for the three months ended March 31, 2012 and 2011.

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Intangible Assets and Goodwill (Tables)

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Finite-Lived Intangible Assets by Major Class

Intangible assets consisted of the following as of March 31, 2012 and December 31, 2011:

	March 31, 2012						Amortization Life and Method
	Gross Assets		Accumulated Amortization		Net Asset
	(In thousands)
Finite Lived Assets:
Customer relationships	$	33,179	$	6,066	$	27,113	3 to 18 years—proportional cash flow
Merchant portfolio	3,345		1,956		1,389		7 years—proportional cash flow
Software	10,018		8,740		1,278		2 to 5 years—straight line
Non-compete agreements	2,795		1,236		1,559		3 to 5 years—straight line
Other	480		406		74		2 to 9 years—straight line
	$	49,817	$	18,404	$	31,413

	December 31, 2011						Amortization Life and Method
	Gross Assets		Accumulated Amortization		Net Asset
	(In thousands)
Finite Lived Assets:
Customer relationships	$	33,166	$	5,406	$	27,760	3 to 18 years—proportional cash flow
Merchant Portfolio	3,345		1,819		1,526		7 years—proportional cash flow
Software	10,078		8,612		1,466		2 to 5 years—straight line
Non-compete agreements	2,794		1,126		1,668		3 to 5 years—straight line
Other	457		379		78		2 to 9 years—straight line
	$	49,840	$	17,342	$	32,498

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

The estimated remaining amortization expense related to intangible assets in twelve month increments is as follows:

For the Twelve Months Ended March 31,
	(In thousands)
2013	$	4,293
2014	3,904
2015	3,471
2016	3,147
2017	2,304
Thereafter	14,294
	$	31,413

Schedule of Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2012 and 2011 were as follows:

	Three Months Ended March 31,
	2012		2011
	(In thousands)
Beginning balance	$	103,399	$	68,319
Goodwill acquired during the period	—		5,987
Effects of foreign currency translation	162		279
Other (a)	—		456
Ending balance	$	103,561	$	75,041

(a)Reflects adjustments to allocations of purchase price.

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Commitments and Contingencies (Schedule of Contractual Obligations) (Details) (USD $)	Mar. 31, 2012		Jan. 31, 2011
Other significant contractual obligations:
Total	$ 134,599,000
Less than 1 year	36,827,000
1 to 3 years	63,589,000
3 to 5 years	30,093,000
More than 5 years	4,090,000
Notional amount of fixed-pay amortizing interest rate swaps	40,600,000		50,000,000
Contractual obligation, total	134,599,000
Processing providers [Member]
Other significant contractual obligations:
Total	25,277,000	[1]
Less than 1 year	9,658,000	[1]
1 to 3 years	11,849,000	[1]
3 to 5 years	3,770,000	[1]
More than 5 years	0	[1]
Contractual obligation, total	25,277,000	[1]
Telecommunications providers [Member]
Other significant contractual obligations:
Total	3,117,000
Less than 1 year	3,117,000
1 to 3 years	0
3 to 5 years	0
More than 5 years	0
Contractual obligation, total	3,117,000
Office and equipment leases [Member]
Other significant contractual obligations:
Total	24,955,000
Less than 1 year	7,802,000
1 to 3 years	9,240,000
3 to 5 years	3,823,000
More than 5 years	4,090,000
Contractual obligation, total	24,955,000
Term Credit Facility [Member]
Other significant contractual obligations:
Total	81,250,000	[2]
Less than 1 year	16,250,000	[2]
1 to 3 years	42,500,000	[2]
3 to 5 years	22,500,000	[2]
More than 5 years	0	[2]
Contractual obligation, total	81,250,000	[2]
Interest Payments Including Net Settlements On Interest Rate Swaps [Member] | Term Credit Facility [Member]
Other significant contractual obligations:
Total	5,900,000
Less than 1 year	2,500,000
1 to 3 years	3,100,000
3 to 5 years	300,000
Contractual obligation, total	$ 5,900,000

[1] The Company has agreements with several third-party processors to provide to us on a non-exclusive basis payment processing and transmittal, transaction authorization and data capture services, and access to various reporting tools. Our agreements with third-party processors require the Company to submit a minimum monthly number of transactions or volume for processing. If the Company submits a number of transactions or volume that is lower than the minimum, it is required to pay the third-party processors the fees that they would have received if the Company had submitted the required minimum number or volume of transactions.

[2] Interest rates on the Term Credit Facility are variable in nature; however, in January 2011 we entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million and a current notional amount of $40.6 million. If interest rates were to remain at the March 31, 2012 level, we would make interest payments of $2.5 million in the next 1 year, $3.1 million in the next 1 to 3 years and $0.3 million in the next 3 to 5 years or a total of $5.9 million including net settlements on the fixed-pay amortizing interest rate swaps. In addition, we had no outstanding amounts under our Revolving Credit Facility at March 31, 2012. The Revolving Credit Facility is available on a revolving basis until November 24, 2015.

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Funds Held for Payroll Customers and Investments (Investment Maturities) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012
Amortized Cost
Marketable securities maturities within one year, amortized cost	$ 3,025
Marketable securities maturities, after one through five years, amortized cost	100
Marketable securities, amortized cost	3,125
Estimated Fair Value
Marketable securities maturities within one year, fair value	3,233
Marketable securities maturities, after one through five years, fair value	100
Marketable securities, fair value	$ 3,333

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Accrued Buyout Liability (Tables)

3 Months Ended

Mar. 31, 2012

Accrued Buyout Liability [Abstract]

Summary of Accrued Buyout Liability

A summary of the accrued buyout liability was as follows as of March 31, 2012 and December 31, 2011:

	March 31, 2012			December 31, 2011
	(In thousands)
Vested Relationship Managers and sales managers	$	32,425		$	30,269
Unvested Relationship Managers and sales managers	1,143			1,389
	33,568			31,658
Less current portion	(8,862		)	(8,104		)
Long-term portion of accrued buyout liability	$	24,706		$	23,554

Summary of Activity in Accrued Buyout Liability

A summary of the activity in the accrued buyout liability for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	31,658		$	28,810
Increase in settlement obligation, net	4,207			2,607
Buyouts	(2,297		)	(3,175		)
Ending balance	$	33,568		$	28,242

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Credit Facilities (Tables)

3 Months Ended

Mar. 31, 2012

Debt Disclosure [Abstract]

Schedule of Maturities of Long-term Debt

Principal payments due under the Term Credit Facility as of March 31, 2012 were as follows:

For the Twelve Months Ended March 31,	(In thousands)
2013	$	16,250
2014	20,000
2015	22,500
2016	22,500
	$	81,250

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Organization and Operations

3 Months Ended

Mar. 31, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Operations

Organization and Operations

Basis of Financial Statement Presentation— The accompanying condensed consolidated financial statements include those of Heartland Payment Systems, Inc. (the “Company,” “we,” “us,” or “our”) and its wholly-owned subsidiaries, Heartland Payroll Company (“HPC”), Debitek, Inc. (“Debitek”) and Heartland Acquisition LLC (“Network Services”), and its 70% owned subsidiary Collective POS Solutions Ltd. (“CPOS”). The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. All intercompany balances and transactions with the Company's subsidiaries have been eliminated upon consolidation.

The accompanying condensed consolidated financial statements are unaudited. In the opinion of the Company's management, the unaudited condensed consolidated financial statements include all normal recurring adjustments necessary for a fair presentation of the Company's financial position at March 31, 2012, its results of operations, changes in stockholders’ equity and cash flows for the three months ended March 31, 2012 and 2011. Results of operations reported for interim periods are not necessarily indicative of the results to be expected for the year ending December 31, 2012. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2011. The December 31, 2011 condensed consolidated balance sheet was derived from the audited 2011 consolidated financial statements.

Business Description—The Company’s principal business is to provide payment processing services related to bankcard transactions for merchants throughout the United States and Canada. In addition, the Company provides certain other merchant services, including the sale and rental of terminal equipment, loyalty and gift card processing, and the sale of terminal supplies. The Company provides K to 12 School Solutions in the United States including school nutrition and point-of-sale solutions. HPC provides payroll and related tax filing services throughout the United States. Debitek provides prepaid card and stored-value card solutions throughout the United States and Canada. The Company and Debitek also provide campus payment solutions throughout the United States and Canada. CPOS is a Canadian provider of payment processing services and secure point-of-sale solutions.

Over 74% of the Company's revenue is derived from processing and settling Visa and MasterCard bankcard transactions for its merchant customers. Because the Company is not a ''member bank'' as defined by Visa and MasterCard, in order to process and settle these bankcard transactions for its merchants, the Company has entered into sponsorship agreements with member banks. Visa and MasterCard rules restrict the Company from performing funds settlement or accessing merchant settlement funds and require that these funds be in the possession of the member bank until the merchant is funded. A sponsorship agreement permits the Company to route Visa and MasterCard bankcard transactions under the member bank's control and identification numbers to clear credit bankcard transactions through Visa and MasterCard. A sponsorship agreement also enables the Company to settle funds between cardholders and merchants by delivering funding files to the member bank, which in turn transfers settlement funds to the merchants' bank accounts. These restrictions place the settlement assets and obligations under the control of the member bank.

The sponsorship agreements with the member banks require, among other things, that the Company abide by the by-laws and regulations of the Visa and MasterCard networks and certain of the Sponsor banks require a certificate of deposit or a cash balance in a deposit account. If the Company breaches a sponsorship agreement, the Sponsor banks may terminate the agreement and, under the terms of the agreement, the Company would have 180 days to identify an alternative Sponsor banks. The Company is dependent on its Sponsor banks, Visa and MasterCard for notification of any compliance breaches. As of March 31, 2012, the Company has not been notified of any such issues by its Sponsor banks, Visa or MasterCard.

At March 31, 2012, the Company is party to five bank sponsorship agreements. The Company entered into a sponsorship agreement with KeyBank, National Association on April 1, 1999 and on December 22, 2011, the Company entered into an amendment agreement that extended the expiration date of that agreement to October 1, 2012. In 2007, the Company entered into a sponsor bank agreement with Heartland Bank, an unrelated third party. The agreement with Heartland Bank has been renewed through September 2013. In November 2009, the Company entered into a sponsorship agreement with The Bancorp Bank to sponsor the Company's large national and mid-tier merchants processed by Network Services. The agreement with The Bancorp Bank expires in November 2014. On March 24, 2011, the Company entered into a sponsor bank agreement with Barclays Bank Delaware to sponsor certain of the Company's large national merchants processed by Network Services. The agreement with Barclays Bank Delaware expires in March 2016 with an automatic one year renewal.

On February 8, 2012, the Company entered into a sponsorship agreement with Wells Fargo Bank, N.A. ("WFB"). The WFB sponsorship agreement will continue in full force and effect until February 8, 2016 and will automatically renew for successive three year periods unless either party provides six months' written notice of nonrenewal to the other party. Effective April 30, 2012, the Company entered into an amendment (the “Amendment”) to its sponsorship agreement with WFB.  The Amendment extended the previously disclosed date, from April 30, 2012 to June 30, 2012, after which either party may terminate the sponsorship agreement on 10 days' notice if an agreement related to ACH processing services (the "ACH Agreement") has not been signed.  The Company is currently negotiating the terms of the ACH Agreement with WFB.

Following is a breakout of the Company’s total Visa and MasterCard settled bankcard processing volume for the month ending March 31, 2012 by percentage processed under its individual bank sponsorship agreements:

Sponsor Bank	% of March 2012 Bankcard Processing Volume
KeyBank, National Association	62%
The Bancorp Bank	16%
Barclays Bank Delaware	13%
Heartland Bank	9%

Processing System Intrusion—On January 20, 2009, the Company publicly announced the discovery of a criminal breach of its payment systems environment (the “Processing System Intrusion”). The Processing System Intrusion involved malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being processed by the Company during the transaction authorization process. The Company believes the breach did not extend beyond 2008.

Since its announcement of the Processing System Intrusion on January 20, 2009 and through March 31, 2012, the Company has expensed a total of $147.3 million, before reducing those charges by $31.2 million of total insurance recoveries. The majority of the total charges of approximately $114.7 million relates to settlements of claims. Approximately $32.6 million of the total charges were for legal fees and costs the Company incurred for investigations, defending various claims and actions, remedial actions and crisis management services.

During the three months ended March 31, 2012, the Company incurred approximately $0.2 million, or less than one cent per share, for legal fees and costs it incurred related to the Processing System Intrusion. During the three months ended March 31, 2011, the Company expensed approximately $0.3 million, or less than one cent per share, related to the Processing System Intrusion.

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Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

Future minimum lease payments for all non-cancelable leases as of March 31, 2012 were as follows:

For the Twelve Months Ended March 31,	Operating Leases (a)
	(In thousands)
2013	$	7,802
2014	5,452
2015	3,788
2016	1,957
2017	1,866
Thereafter	4,090
Total future minimum lease payments	$	24,955

(a) There were no material capital leases at March 31, 2012.

Schedule Of Contractual Obligations

The following table reflects the Company’s other significant contractual obligations, including leases from above, as of March 31, 2012:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 Years		3 to 5 years		More than 5 years
	(In thousands)
Processing providers (a)	$	25,277	$	9,658	$	11,849	$	3,770	$	—
Telecommunications providers	3,117		3,117		—		—		—
Office and equipment leases	24,955		7,802		9,240		3,823		4,090
Term Credit Facility (b)	81,250		16,250		42,500		22,500		—
	$	134,599	$	36,827	$	63,589	$	30,093	$	4,090

(a) The Company has agreements with several third-party processors to provide to us on a non-exclusive basis payment processing and transmittal, transaction authorization and data capture services, and access to various reporting tools. Our agreements with third-party processors require the Company to submit a minimum monthly number of transactions or volume for processing. If the Company submits a number of transactions or volume that is lower than the minimum, it is required to pay the third-party processors the fees that they would have received if the Company had submitted the required minimum number or volume of transactions.

(b) Interest rates on the Term Credit Facility are variable in nature; however, in January 2011 we entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million and a current notional amount of $40.6 million. If interest rates were to remain at the March 31, 2012 level, we would make interest payments of $2.5 million in the next 1 year, $3.1 million in the next 1 to 3 years and $0.3 million in the next 3 to 5 years or a total of $5.9 million including net settlements on the fixed-pay amortizing interest rate swaps. In addition, we had no outstanding amounts under our Revolving Credit Facility at March 31, 2012. The Revolving Credit Facility is available on a revolving basis until November 24, 2015.

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Acquisitions (Narrative) (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2012 Lunchbox [Member] school	Dec. 30, 2010 Lunchbox [Member]	Mar. 31, 2012 Comalex school	Jan. 12, 2011 Comalex	Mar. 31, 2012 mySchoolBucks school	Feb. 04, 2011 mySchoolBucks	Mar. 31, 2012 School-Link Technologies school	Sep. 30, 2011 School-Link Technologies
Business Acquisition [Line Items]
Approximate number of schools served	4,400		3,700		900		10,000
Cost of acquired entity, cash payment		$ 7.7		$ 6.1		$ 1.5		$ 15.6
Business Acquisition, Purchase Price Allocation
Goodwill		6.0		4.9		1.0		28.7
Intangible assets		1.9		1.8		0.5		4.3
Net tangible liabilities		$ (0.2)		$ (0.6)				$ (17.4)

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Accrued Buyout Liability (Summary of Activity in Accrued Buyout Liability) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Accrued Buyout Liability [Roll Forward]
Beginning balance	$ 31,658	$ 28,810
Increase in settlement obligation, net	(4,207)	(2,607)
Buyouts	2,297	3,175
Ending balance	$ 33,568	$ 28,242

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011
Current assets:
Cash and cash equivalents	$ 49,943	$ 40,301
Funds held for payroll customers	53,584	42,511
Receivables, net	183,733	176,535
Investments held to maturity	2,157	2,505
Inventory	10,708	11,492
Prepaid expenses	9,366	9,660
Current deferred tax assets, net	7,037	6,746
Total current assets	316,528	289,750
Capitalized customer acquisition costs, net	55,339	55,014
Property and equipment, net	116,668	115,579
Goodwill	103,561	103,399
Intangible assets, net	31,413	32,498
Deposits and other assets, net	699	681
Total assets	624,208	596,921
Current liabilities:
Due to sponsor banks	66,334	63,881
Accounts payable	49,999	47,373
Deposits held for payroll customers	53,584	42,511
Current portion of borrowings	16,253	15,003
Current portion of accrued buyout liability	8,862	8,104
Processing liabilities and loss reserves	36,543	30,689
Accrued expenses and other liabilities	41,368	50,884
Current tax liability	2,471	1,408
Total current liabilities	275,414	259,853
Deferred tax liabilities, net	25,538	21,643
Reserve for unrecognized tax benefits	2,037	1,819
Long-term portion of borrowings	65,000	70,000
Long-term portion of accrued buyout liability	24,706	23,554
Total liabilities	392,695	376,869
Commitments and contingencies (Note 11)	0	0
Equity
Common stock, $0.001 par value, 100,000,000 shares authorized, 38,973,993 and 38,847,957 shares issued and outstanding at March 31, 2012 and December 31, 2011	40	39
Additional paid-in capital	218,740	207,643
Accumulated other comprehensive loss	(513)	(680)
Retained earnings	40,654	29,236
Treasury stock, at cost (1,198,138 and 778,889 shares at March 31, 2012 and December 31, 2011)	(28,217)	(16,828)
Total stockholders’ equity	230,704	219,410
Noncontrolling interests	809	642
Total equity	231,513	220,052
Total liabilities and equity	$ 624,208	$ 596,921

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Capitalized Customer Acquisition Costs, Net (Capitalized Customer Acquisition Costs Net) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012	Dec. 31, 2011	Mar. 31, 2011	Dec. 31, 2010
Capitalized Customer Acquisition Costs, Net [Abstract]
Capitalized signing bonuses	$ 86,163	$ 86,837
Less accumulated amortization	(44,218)	(45,125)
Capitalized signing bonuses, net	41,945	41,712
Capitalized customer deferred acquisition costs	36,650	36,564
Less accumulated amortization	(23,256)	(23,262)
Capitalized customer deferred acquisition costs, net	13,394	13,302
Capitalized customer acquisition costs, net	$ 55,339	$ 55,014	$ 57,316	$ 59,251

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Condensed Consolidated Statements of Equity (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Gain (Loss)	(Accumulated Deficit) Retained Earnings	Treasury Stock	Noncontrolling Minority Interests
Stockholders' Equity, Balance at Dec. 31, 2010	$ 177,594	$ 38	$ 185,689	$ 37	$ (8,471)	$ 0	$ 301
Common stock, shares outstanding at Dec. 31, 2010		38,415,000
Increase (Decrease) in Stockholders' Equity
Issuance of common stock - options exercised, shares		86,000
Issuance of common stock - options exercised, amount	651	1	650
Excess tax benefit on stock options exercised	341		341
Stock-based compensation	1,970		1,970
Accumulated other comprehensive income (loss):
Unrealized gains on available for sale investments	5			5
Unrealized losses on derivative financial instruments	(46)			(46)
Foreign currency translation adjustment	356			249			107
Dividends on common stock	(1,540)				(1,540)
Net income for the period	7,862				7,815		47
Stockholders' Equity, Balance at Mar. 31, 2011	187,193	39	188,650	245	(2,196)	0	455
Common stock, shares outstanding at Mar. 31, 2011		38,501,000
Stockholders' Equity, Balance at Dec. 31, 2011	220,052	39	207,643	(680)	29,236	(16,828)	642
Common stock, shares outstanding at Dec. 31, 2011	38,847,957	38,848,000
Increase (Decrease) in Stockholders' Equity
Issuance of common stock - options exercised, shares		545,000
Issuance of common stock - options exercised, amount	6,843	1	6,842
Excess tax benefit on stock options exercised	1,321		1,321
Repurchase of common stock, shares		(419,000)
Repurchase of common stock, amount	(11,389)					(11,389)
Stock-based compensation	2,934		2,934
Accumulated other comprehensive income (loss):
Unrealized gains on available for sale investments	11			11
Unrealized losses on derivative financial instruments	(6)			(6)
Foreign currency translation adjustment	231			162			69
Dividends on common stock	(2,336)				(2,336)
Net income for the period	13,852				13,754		98
Stockholders' Equity, Balance at Mar. 31, 2012	$ 231,513	$ 40	$ 218,740	$ (513)	$ 40,654	$ (28,217)	$ 809
Common stock, shares outstanding at Mar. 31, 2012	38,973,993	38,974,000

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Fair Value of Financial Instruments (Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2012		Dec. 31, 2011
Fair Value, Measurements, Recurring [Member]
Assets:
Total Assets	$ 3,333		$ 3,663
Liabilities:
Interest rate swaps	909		897
Total Liabilities	909		897
Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Total Assets	1,176		1,158
Liabilities:
Interest rate swaps	0		0
Total Liabilities	0		0
Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Total Assets	2,157		2,505
Liabilities:
Interest rate swaps	909		897
Total Liabilities	909		897
Certificates of Deposit [Member]
Assets:
Certificates of deposit	2,157	[1]	2,505
Certificates of Deposit [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Certificates of deposit	2,157		2,505
Certificates of Deposit [Member] | Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Certificates of deposit	0		0
Certificates of Deposit [Member] | Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Certificates of deposit	2,157		2,505
Available-for-sale securities [Member] | Fixed Income Funds [Member] | Fair Value, Measurements, Recurring [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Investments available for sale	0	[2]	0	[2]
Available-for-sale securities [Member] | Fixed Income Funds [Member] | Fair Value, Measurements, Recurring [Member]
Assets:
Investments available for sale	1,176	[2]	1,158	[2]
Available-for-sale securities [Member] | Fixed Income Funds [Member] | Fair Value, Measurements, Recurring [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Investments available for sale	$ 1,176	[2]	$ 1,158	[2]

[1] Certificates of deposit have remaining terms ranging from 3 months to 17 months.

[2] amounts included in Funds held for payroll customers on the Consolidated Balance Sheet

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Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2012

Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2012 and at December 31, 2011:

March 31, 2012	Total		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:	(In thousands)
Investments available for sale:
Fixed income bond fund (a)	$	1,176	$	1,176	$	—
Investments held to maturity:
Certificates of deposit	2,157		—		2,157
Total Assets	$	3,333	$	1,176	$	2,157
Liabilities:
Interest rate swaps	$	909	$	—	$	909
Total Liabilities	$	909	$	—	$	909

December 31, 2011	Total		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:	(In thousands)
Investments available for sale:
Fixed income bond fund (a)	$	1,158	$	1,158	$	—
Investments held to maturity:
Certificates of deposit	2,505		—		2,505
Total Assets	$	3,663	$	1,158	$	2,505
Liabilities:
Interest rate swaps	$	897	$	—	$	897
Total Liabilities	$	897	$	—	$	897

(a) amounts included in Funds held for payroll customers on the Consolidated Balance Sheet

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Use of Estimates

Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates include, among other things, the accrued buyout liability, capitalized customer acquisition costs, goodwill, loss reserves, certain accounts payable and accrued expenses and certain tax assets and liabilities as well as the related valuation allowances, if any. Actual results could differ from those estimates.

Receivables

Receivables—Receivables are stated net of allowance for doubtful accounts. The Company estimates its allowance based on experience with its merchants, customers, and sales force and its judgment as to the likelihood of their ultimate payment. The Company also considers collection experience and makes estimates regarding collectability based on trends in aging. Historically, the Company has not experienced significant charge offs for its merchant receivables.

The Company's primary receivables are from its bankcard processing merchants. These receivables result from the Company's practice of advancing interchange fees to most of its small and mid-sized merchants (referred to as Small and Midsized Enterprises, or “SME”) during the month and collecting those fees at the beginning of the following month, as well as from transaction fees the Company charges its merchants for processing transactions. The Company does not advance interchange fees to its Network Services Merchants.

Generally, the Company uses cash available for investment to fund these advances to SME merchants; when available cash has been expended, the Company directs its sponsor banks to make these advances, thus generating a payable to the sponsor banks. We pay our sponsor banks the prime rate on these payables. At March 31, 2012, the Company used $39.3 million of its available cash to fund merchant advances and at December 31, 2011, the Company used $40.0 million of its cash to fund merchant advances. The amount due to sponsor banks for funding advances was $46.7 million at March 31, 2012 and $45.2 million at December 31, 2011. The payable to sponsor banks is repaid at the beginning of the following month out of the fees the Company collects from its merchants. Receivables from merchants also include receivables from the sale of point of sale terminal equipment. Unlike the SME merchants, Network Services Merchants are invoiced monthly, on payment terms of 30 days net from date of invoicing.

Receivables also include amounts resulting from the pre-funding of Discover and American Express transactions to some of the Company's merchants and are due from the related bankcard networks. These amounts are recovered the next business day from the date of processing the transaction.

Receivables also include amounts resulting from the sale, installation, training and repair of payment system hardware and software for prepaid card and stored-value card payment systems, campus payment solutions, and K to 12 solutions. These receivables are mostly invoiced on terms of 30 days net from date of invoicing.

Investments and Funds Held for Payroll Customers

Investments and Funds Held for Payroll Customers—Investments, including those carried on the Condensed Consolidated Balance Sheet as Funds held for payroll customers, consist primarily of fixed income bond funds and certificates of deposit. Funds held for payroll customers also include overnight bank deposits. The majority of investments carried in Funds held for payroll customers are available-for-sale and recorded at fair value based on quoted market prices. Certificates of deposit are classified as held to maturity and recorded at cost. In the event of a sale, cost is determined on a specific identification basis.

Capitalized Customer Acquisition Costs, net

Capitalized Customer Acquisition Costs, net—Capitalized customer acquisition costs consist of (1) up-front signing bonus payments made to Relationship Managers and sales managers (the Company's sales force) for the establishment of new merchant relationships, and (2) a deferred acquisition cost representing the estimated cost of buying out the commissions of vested sales employees. Capitalized customer acquisition costs represent incremental, direct customer acquisition costs that are recoverable through gross margins associated with merchant contracts. The capitalized customer acquisition costs are amortized using a method which approximates a proportional revenue approach over the initial three-year term of the merchant contract.

The up-front signing bonus paid for new SME bankcard, payroll and loyalty marketing accounts is based on the estimated gross margin for the first year of the merchant contract. The signing bonus, amount capitalized, and related amortization are adjusted after one year to reflect the actual gross margin generated by the merchant contract during that year. The deferred customer acquisition cost asset is accrued over the first year of SME bankcard merchant processing, consistent with the build-up in the accrued buyout liability, as described below.

Management evaluates the capitalized customer acquisition costs for impairment by comparing, on a pooled basis by vintage month of origination, the expected future net cash flows from underlying SME merchant relationships to the carrying amount of the capitalized customer acquisition costs. If the estimated future net cash flows are lower than the recorded carrying amount, indicating an impairment of the value of the capitalized customer acquisition costs, the impairment loss will be charged to operations.

Processing Liabilities And Loss Reserves

Processing Liabilities and Loss Reserves—The majority of the Company's processing liabilities include funds in transit associated with bankcard and check processing. In addition, the Company maintains merchant deposits to offset potential liabilities from merchant chargeback processing. Disputes between a cardholder and a merchant periodically arise due to the cardholder's dissatisfaction with merchandise quality or the merchant's service, and the disputes may not always be resolved in the merchant's favor. In some of these cases, the transaction is ''charged back'' to the merchant and the purchase price is refunded to the cardholder by the credit card-issuing institution. If the merchant is unable to fund the refund, the Company is liable for the full amount of the transaction. The Company's obligation to stand ready to perform is minimal. The Company maintains a deposit or the pledge of a letter of credit from certain merchants as an offset to potential contingent liabilities that are the responsibility of such merchants. The Company evaluates its ultimate risk and records an estimate of potential loss for chargebacks related to merchant fraud based upon an assessment of actual historical fraud loss rates compared to recent bankcard processing volume levels. The Company believes that the liability recorded as loss reserves approximates fair value.

Accrued Buyout Liability

Accrued Buyout Liability—The Company'sRelationship Managers and sales managers are paid residual commissions based on the gross margin generated by monthly SME merchant processing activity. The Company has the right, but not the obligation, to buy out some or all of these commissions, and intends to do so periodically. Such purchases of the commissions are at a fixed multiple of the last twelve months' commissions. Because of the Company's intent and ability to execute purchases of the residual commissions, and the mutual understanding between the Company and the Relationship Managers and sales managers, the Company has accounted for this deferred compensation arrangement pursuant to the substantive nature of the plan. The Company therefore records the amount that it would have to pay (the ''settlement cost'') to buy out non-servicing related commissions in their entirety from vested Relationship Managers and sales managers, and an accrual, based on their progress towards vesting, for those unvested Relationship Managers and sales managers who are expected to vest in the future. As noted above, as the liability increases over the first year of a SME merchant contract, the Company also records a related deferred acquisition cost asset for currently vested Relationship Managers and sales managers. The accrued buyout liability associated with unvested Relationship Managers and sales managers is not included in the deferred acquisition cost asset since future services are required in order to vest. Subsequent changes in the estimated Accrued Buyout Liability due to merchant attrition, same-store sales growth and changes in gross margin are included in the same income statement caption as customer acquisition cost amortization expense.

The accrued buyout liability is based on the SME merchants under contract at the balance sheet date, the gross margin generated by those merchants over the prior twelve months, and the contractual buyout multiple. The liability related to a new SME merchant is therefore zero when the merchant is installed, and increases over the twelve months following the installation date. The same procedure is applied to unvested commissions over the expected vesting period, but is further adjusted to reflect the Company's estimate that 31% of unvested Relationship Managers and sales managers become vested.

The classification of the accrued buyout liability between current and non-current liabilities on the Condensed Consolidated Balance Sheet is based upon the Company's estimate of the amount of the accrued buyout liability that it reasonably expects to pay over the next twelve months. This estimate is developed by calculating the cumulative annual average percentage that total historical buyout payments represent of the accrued buyout liability. That percentage is applied to the period-end accrued buyout liability to determine the current portion.

Revenue

Revenue—Revenues are mainly comprised of gross processing revenue, payroll processing revenue and equipment-related income. Gross processing revenue primarily consists of discount fees, per-transaction fees and periodic fees (primarily monthly) from the processing of Visa, MasterCard, American Express and Discover bankcard transactions for merchants. The Company passes through to its customers any changes in interchange or network fees. Gross processing revenue also includes fees for servicing American Express accounts, customer service fees, fees for processing chargebacks, termination fees on terminated contracts, gift and loyalty card fees, fees generated by our K to 12 Solutions business, and other miscellaneous revenue. Payroll processing revenue includes periodic and annual fees charged by HPC for payroll processing services, and interest earned from investing tax impound funds held for our customers. Revenue is recorded as bankcard and other processing transactions are processed or payroll services are performed.

Equipment-related income includes revenues from the sale, rental and deployment of bankcard and check processing terminals, from the sale of hardware, software and associated services for prepaid card and stored-value card payment systems, and campus payment solutions. Revenues are recorded at the time of shipment, or the provision of service.

Loss Contingencies and Legal Expenses

Loss Contingencies and Legal Expenses—The Company records a liability for loss contingencies when the liability is probable and the amount is reasonably estimable. Legal fees associated with loss contingencies are recorded when the legal fees are incurred.

The Company records recoveries from its insurance providers when cash is received from the provider.

Other Income (Expense)

Other Income (Expense)—Other income (expense) consists of interest income on cash and investments, the interest cost on our borrowings, the gains or losses on the disposal of property and equipment and other non-operating income or expense items.

Income Taxes

Income Taxes—The Company accounts for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements and the tax basis of assets and liabilities using enacted tax rates.

The Company maintains valuation allowances when it is more likely than not that all or a portion of a deferred tax asset will not be realized. In determining whether a valuation allowance is warranted, the Company evaluates factors such as prior earnings history, expected future earnings, carry back and carry forward periods and tax strategies that could potentially enhance the likelihood of the realization of a deferred tax asset.

The Company regularly evaluates its tax positions for additional unrecognized tax benefits and associated interest and penalties, if applicable. There are many factors that are considered when evaluating these tax positions including: interpretation of tax laws, recent tax litigation on a position, past audit or examination history, and subjective estimates and assumptions, which have been deemed reasonable by management. However, if management's estimates are not representative of actual outcomes, the Company's results could be materially impacted.

Derivative Financial Instruments

Derivative Financial Instruments—The Company utilizes derivative instruments to manage interest rate risk on its borrowings under its Second Amended and Restated Credit Agreement. The Company recognizes the fair value of derivative financial instruments in the Condensed Consolidated Balance Sheets in investments, or accrued expenses and other liabilities. Changes in fair value of derivative instruments are recognized immediately in earnings unless the derivative is designated and qualifies as a hedge of future cash flows. For derivatives that qualify as hedges of future cash flows, the effective portion of changes in fair value is recorded in other comprehensive income and reclassified into interest expense in the same periods during which the hedged item affects earnings. Any ineffectiveness of cash flow hedges would be recognized in other income (expense) in the Condensed Consolidated Statements of Income and Comprehensive Income during the period of change.

Foreign Currency

Foreign Currency—The Canadian dollar is the functional currency of CPOS, which operates in Canada. CPOS' revenues and expenses are translated at the average exchange rates prevailing during the period. The foreign currency assets and liabilities of CPOS are translated at the period-end rate of exchange. The resulting translation adjustment is allocated between the Company and CPOS' noncontrolling interests and is recorded as a component of other comprehensive income or noncontrolling interests in total equity. At March 31, 2012 and 2011, the cumulative foreign currency translation reflected a loss of $0.1 million and a gain of $0.2 million, respectively. The Company intends to indefinitely reinvest undistributed earnings of CPOS and has not tax affected the cumulative foreign currency translation gain or loss. Determination of the amount of unrecognized deferred tax liability related to indefinitely reinvested profits is not material.

Noncontrolling Interests

Noncontrolling Interests— Noncontrolling interests represent noncontrolling minority stockholders' share of the equity and after-tax net income or loss of consolidated subsidiaries. Noncontrolling minority stockholders' share of after-tax net income or loss of consolidated subsidiaries is included in “Net income attributable to noncontrolling interests” in the Condensed Consolidated Statement of Income and Comprehensive Income. The minority stockholders’ interests included in “noncontrolling interests” in the March 31, 2012 and December 31, 2011 Condensed Consolidated Balance Sheet were $809,000 and $642,000, respectively, and reflect the original investments by these minority shareholders in the consolidated subsidiaries, along with their proportionate share of the earnings or losses of the subsidiaries.

Subsequent Events

Subsequent Events—The Company evaluated subsequent events with respect to the Consolidated Financial Statements as of and for the three months ended March 31, 2012.

New Accounting Pronouncements

New Accounting Pronouncements— In May 2011, the FASB issued an accounting standard update which addresses changes to concepts regarding performing fair value measurements including: (i) the application of the highest and best use and valuation premise; (ii) the valuation of an instrument classified in the reporting entity's shareholder equity; (iii) the valuation of financial instruments that are managed within a portfolio; and (iv) the application of premiums and discounts.  This update also enhances disclosure requirements about fair value measurements, including providing information regarding Level 3 measurements such as quantitative information about unobservable inputs, further discussion of the valuation processes used and assumption sensitivity analysis.  The update is effective for interim and annual periods beginning after December 15, 2011. The implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In June 2011, the FASB issued an accounting standard update which amends the comprehensive income topic of the current codification. The update eliminates the option to present the components of other comprehensive income as part of the statement of changes in equity, and instead requires consecutive presentation of the statement of net income and other comprehensive income either in a continuous statement of comprehensive income or in two separate but consecutive statements. The update is effective for interim and annual periods beginning after December 15, 2011. The implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

In September 2011, the FASB issued an accounting standard update on testing goodwill for impairment. This guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit (if any). If an entity determines that the fair value of a reporting unit is more than its carrying amount, the two-step goodwill impairment test is not required. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 (early adoption is permitted). The Company has early adopted the update and the implementation of this update did not have a material effect on the Company's Consolidated Financial Statements.

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Organization and Operations (Bankcard Processing Volume) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		38 Months Ended
	Mar. 31, 2012 Bank_Sponsorship_Agreements	Mar. 31, 2011	Mar. 31, 2012 Bank_Sponsorship_Agreements
Bankcard Processing Volume [Line Items]
Days to identify alternative bank sponsor following terminated agreement	180 days
Number of bank sponsorship agreements	5		5
Organization and Operations
Processing System Intrusion Expenses, Gross	$ 0.2	$ 0.3	$ 147.3
Insurance recoveries, non-operating income			31.2
Processing System Intrusion Expenses Settlement Of Claims			114.7
Legal Fees			$ 32.6
KeyBank, National Association [Member]
Bankcard Processing Volume [Line Items]
Sponsor banks, bankcard processing volume percentage	62.00%
The Bancorp Bank [Member]
Bankcard Processing Volume [Line Items]
Sponsor banks, bankcard processing volume percentage	16.00%
Barclays Bank Delaware [Member]
Bankcard Processing Volume [Line Items]
Automatic renewal period, sponsor bank agreement	1 year
Sponsor banks, bankcard processing volume percentage	13.00%
Heartland Bank [Member]
Bankcard Processing Volume [Line Items]
Sponsor banks, bankcard processing volume percentage	9.00%
Wells Fargo Bank [Member]
Bankcard Processing Volume [Line Items]
Automatic renewal period, sponsor bank agreement	3 years
Organization and Operations
Written notice period, nonrenewal of sponsor bank agreement	6 months
Merchant Bankcard Processing [Member] | Visa And MasterCard [Member]
Organization and Operations
Sales revenue, minimum percentage	74.00%		74.00%
Collective POS Solutions Ltd. [Member]
Organization and Operations
Parent's ownership percentage	70.00%		70.00%

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2012

Accounting Policies [Abstract]

Schedule of Effective Income Tax Rate

The provision for income taxes for the three months ended March 31, 2012 and 2011 and the resulting effective tax rates were as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Provision for income taxes	$	8,499		$	4,809
Effective tax rate	38.0		%	38.0		%

Schedule of Share-based Compensation, Restricted Stock Units Award Activity

Stock–Based Compensation— In the fourth quarter of 2010, the Company's Board of Directors approved grants of 508,800 performance-based Restricted Share Units. These Restricted Share Units are share awards which would vest 50% in 2013, 25% in 2014, and 25% in 2015 only if, over the term of these Restricted Share Units, the following diluted earnings per share targets for the years ended December 31, 2012, 2013 and 2014 are achieved:

	2012	2013	2014
Diluted Earnings Per Share (a)	$1.48	$1.74	$2.04

(a) Calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and excluding the after-tax impact of Stock Compensation Expense.

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Condensed Consolidated Statements of Cash Flow (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Cash flows from operating activities
Net income attributable to Heartland	$ 13,754	$ 7,815
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of capitalized customer acquisition costs	11,197	12,381
Other depreciation and amortization	7,383	7,072
Addition to loss reserves	267	1,489
Provision for doubtful receivables	83	700
Stock-based compensation	2,934	1,970
Deferred taxes	3,602	1,675
Net income attributable to noncontrolling interests	98	47
Write downs on fixed assets and system development costs	0	46
Exit costs for service center	0	464
Changes in operating assets and liabilities:
Increase in receivables	(7,268)	(4,731)
Decrease (increase) in inventory	792	(606)
Payment of signing bonuses, net	(7,554)	(7,116)
Increase in capitalized customer acquisition costs	(3,968)	(3,330)
Decrease (increase) in prepaid expenses	297	(2,177)
Decrease in current tax asset	2,378	3,904
Increase in deposits and other assets	(28)	(406)
Excess tax benefits on options exercised	(1,321)	(341)
Increase in reserve for unrecognized tax benefits	219	106
Increase in due to sponsor bank	2,454	9,857
Increase (decrease) in accounts payable	2,614	(2,075)
(Decrease) increase in accrued expenses and other liabilities	(10,263)	827
Increase in processing liabilities and loss reserves	5,586	4,831
Payouts of accrued buyout liability	(2,297)	(3,175)
Increase in accrued buyout liability	4,207	2,607
Net cash provided by operating activities	25,166	31,834
Cash flows from investing activities
Purchase of investments held to maturity	(206)	(1,947)
Maturities of investments held to maturity	575	1,233
Increase in funds held for payroll customers	(11,054)	(5,379)
Increase in deposits held for payroll customers	11,073	5,385
Acquisition of business, net of cash acquired	0	(7,598)
Purchases of property and equipment	(7,361)	(9,071)
Net cash used in investing activities	(6,973)	(17,377)
Cash flows from financing activities
Principal payments on borrowings	(3,751)	(11,791)
Proceeds from exercise of stock options	6,842	650
Excess tax benefits on employee stock-based compensation	1,321	341
Repurchases of common stock	(10,672)	0
Dividends paid on common stock	(2,336)	(1,540)
Net cash used in financing activities	(8,596)	(12,340)
Net increase in cash	9,597	2,117
Effect of exchange rates on cash	45	27
Cash at beginning of year	40,301	41,729
Cash at end of period	49,943	43,873
Cash paid (received) during the period for:
Interest	771	931
Income taxes	$ 2,302	$ (876)

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Condensed Consolidated Balance Sheets Parentheticals (Unaudited) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Equity
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	100,000,000	100,000,000
Common stock, shares issued	38,973,993	38,847,957
Common stock, shares outstanding	38,973,993	38,847,957
Treasury Stock, shares	1,198,138	778,889

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Credit Facilities

3 Months Ended

Mar. 31, 2012

Debt Disclosure [Abstract]

Credit Facilities

Credit Facilities

On November 24, 2010, the Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders who are a party to the Credit Agreement. Credit extended under the Credit Agreement is guaranteed by the Company's subsidiaries and is secured by substantially all of its assets and the assets of its subsidiaries. The Credit Agreement amended and restated in its entirety the previous amended and restated credit agreement entered into on May 30, 2008, as amended (the “Previous Credit Agreement”), between the Company and certain of the parties to the Credit Agreement.

The Credit Agreement provides for a revolving credit facility in the aggregate amount of up to $50 million (the “Revolving Credit Facility”), of which up to $10 million may be used for the issuance of letters of credit and up to $5 million is available for swing line loans. Upon the prior approval of the administrative agent, the Company may increase the total revolving commitments by $50 million for a total commitment under the Revolving Credit Facility of $100 million. The Revolving Credit Facility is available to the Company on a revolving basis until November 24, 2015. All principal and interest not previously paid on the Revolving Credit Facility will mature and be due and payable on November 24, 2015.

The Credit Agreement also provides for a term credit facility in the aggregate amount of up to $100 million (the “Term Credit Facility”). The Term Credit Facility requires amortization payments in the amount of $3.75 million for each fiscal quarter during the fiscal years ended December 31, 2011 and 2012, $5.0 million for each fiscal quarter during the fiscal years ended December 31, 2013 and 2014, and $7.5 million for each fiscal quarter during the period commencing on January 1, 2015 through the maturity date on November 24, 2015. All principal and interest not previously paid on the Term Credit Facility will mature and be due and payable on November 24, 2015. Amounts borrowed and repaid under the Term Credit Facility may not be re-borrowed. Principal payments due under the Term Credit Facility as of March 31, 2012 were as follows:

For the Twelve Months Ended March 31,	(In thousands)
2013	$	16,250
2014	20,000
2015	22,500
2016	22,500
	$	81,250

The Credit Agreement contains covenants which include: the Company's maintenance of certain leverage and fixed charge coverage ratios; limitations on its indebtedness, liens on its properties and assets, its investments in, and loans to other business units, its ability to enter into business combinations and asset sales; and certain other financial and non-financial covenants. These covenants also apply to certain of the Company's subsidiaries. The Company was in compliance with these covenants as of March 31, 2012 and expects it will remain in compliance with these covenants for at least the next twelve months.

Under the terms of the Credit Agreement, the Company may borrow, at its option, at interest rates equal to one, two, three or six month adjusted LIBOR rates, or equal to the greater of the prime rate, the federal funds rate plus 0.50% and the adjusted LIBOR rate plus 1%, in each case plus a margin determined by its current leverage ratio. The weighted average interest rate at March 31, 2012 was 2.5%. Total fees and direct costs paid for the Credit Agreement through March 31, 2012 were $1.3 million. These costs are being amortized to interest expense over the life of the Amended and Restated Credit Agreement.

At March 31, 2012, there was $81.3 million outstanding under the Term Credit Facility and no borrowings outstanding under the Revolving Credit Facility.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2012	May 01, 2012
Entity Information [Line Items]
Entity Registrant Name	HEARTLAND PAYMENT SYSTEMS INC
Entity Central Index Key	0001144354
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Common Stock, Shares Outstanding		38,767,014

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Litigation—The Company is involved in ordinary course legal proceedings, which include all claims, lawsuits,investigations and proceedings, including unasserted claims, which are probable of being asserted, arising in the ordinary course of business and otherwise not described below. The Company has considered all such ordinary course legal proceedings in formulating its disclosures and assessments. In the opinion of the Company, based on consultations with outside counsel, material losses in addition to amounts previously accrued are not considered reasonably possible in connection with these ordinary course legal proceedings.

The Company has also been subject to lawsuits, claims, and investigations which resulted from the Processing System Intrusion. See Contingencies below for a description of the Processing System Intrusion.

Contingencies—The Company collects and stores sensitive data about its merchant customers and bankcard holders. If the Company’s network security is breached or sensitive merchant or cardholder data is misappropriated, the Company could be exposed to assessments, fines or litigation costs.

On January 20, 2009, the Company publicly announced the Processing System Intrusion. The Processing System Intrusion involved malicious software that appears to have been used to collect in-transit, unencrypted payment card data while it was being processed by the Company during the transaction authorization process. See Note 1. Organization and Operations - Processing System Intrusion for total expenses incurred, including amounts paid for settlement of claims, related to the Processing System Intrusion.

The Company does not consider it a reasonable possibility that losses exceeding the amounts already recognized on the matters subject to the settlement agreements will be incurred. With regard to the unsettled claims related to the Processing System Intrusion, which the Company described in its Annual Report on Form 10-K for the year ended December 31, 2011, the Company determined material losses in addition to those previously expensed are not considered reasonably possible on any such claim disclosed. The Company is prepared to vigorously defend itself against any unsettled claims relating to the Processing System Intrusion that have been asserted against it and its sponsor banks to date. The Company feels it has strong defenses to all the claims that have been asserted against it and its sponsor banks relating to the Processing System Intrusion.

Leases—The Company leases various office spaces and certain equipment under operating leases with remaining terms ranging up to nine years. The majority of the office space lease agreements contain renewal options and generally require the Company to pay certain operating expenses.

Future minimum lease payments for all non-cancelable leases as of March 31, 2012 were as follows:

For the Twelve Months Ended March 31,	Operating Leases (a)
	(In thousands)
2013	$	7,802
2014	5,452
2015	3,788
2016	1,957
2017	1,866
Thereafter	4,090
Total future minimum lease payments	$	24,955

(a) There were no material capital leases at March 31, 2012.

Rent expense for leased facilities and equipment was $2.0 million and $2.2 million, respectively, for the three months ended March 31, 2012 and 2011.

Commitments—Certain officers of the Company have entered into employee confidential information and non-competition agreements under which they are entitled to severance pay equal to their base salary and medical benefits for twelve months and a pro-rated bonus in the event they are terminated by the Company other than for cause. There were no payouts under these agreements in the three months ended March 31, 2012.

The following table reflects the Company’s other significant contractual obligations, including leases from above, as of March 31, 2012:

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1 to 3 Years		3 to 5 years		More than 5 years
	(In thousands)
Processing providers (a)	$	25,277	$	9,658	$	11,849	$	3,770	$	—
Telecommunications providers	3,117		3,117		—		—		—
Office and equipment leases	24,955		7,802		9,240		3,823		4,090
Term Credit Facility (b)	81,250		16,250		42,500		22,500		—
	$	134,599	$	36,827	$	63,589	$	30,093	$	4,090

(a) The Company has agreements with several third-party processors to provide to us on a non-exclusive basis payment processing and transmittal, transaction authorization and data capture services, and access to various reporting tools. Our agreements with third-party processors require the Company to submit a minimum monthly number of transactions or volume for processing. If the Company submits a number of transactions or volume that is lower than the minimum, it is required to pay the third-party processors the fees that they would have received if the Company had submitted the required minimum number or volume of transactions.

(b) Interest rates on the Term Credit Facility are variable in nature; however, in January 2011 we entered into fixed-pay amortizing interest rate swaps having an initial notional amount of $50.0 million and a current notional amount of $40.6 million. If interest rates were to remain at the March 31, 2012 level, we would make interest payments of $2.5 million in the next 1 year, $3.1 million in the next 1 to 3 years and $0.3 million in the next 3 to 5 years or a total of $5.9 million including net settlements on the fixed-pay amortizing interest rate swaps. In addition, we had no outstanding amounts under our Revolving Credit Facility at March 31, 2012. The Revolving Credit Facility is available on a revolving basis until November 24, 2015.

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Condensed Consolidated Statements of Income and Comprehensive Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Statement of Income and Comprehensive Income [Abstract]
Total revenues	$ 470,485	$ 467,646
Costs of services:
Interchange	297,948	320,799
Dues, assessments and fees	43,868	34,150
Processing and servicing	56,722	52,556
Customer acquisition costs	11,436	11,658
Depreciation and amortization	4,386	3,875
Total costs of services	414,360	423,038
General and administrative	32,882	30,046
Total expenses	447,242	453,084
Income from operations	23,243	14,562
Other income (expense):
Interest income	115	41
Interest expense	(850)	(1,192)
Provision for processing system intrusion costs	(157)	(303)
Other, net	0	(437)
Total other (expense) income	(892)	(1,891)
Income before income taxes	22,351	12,671
Provision for income taxes	8,499	4,809
Net income	13,852	7,862
Less: Net income attributable to noncontrolling interests	98	47
Net income attributable to Heartland	13,754	7,815
Net income	13,852	7,862
Other comprehensive income:
Unrealized gains on investments, net of income tax of $7 and $2	11	5
Unrealized losses on derivative financial instruments	(6)	(46)
Foreign currency translation adjustment	231	356
Comprehensive income	14,088	8,177
Less: Comprehensive income attributable to noncontrolling interests	167	154
Comprehensive income attributable to Heartland	$ 13,921	$ 8,023
Earnings per common share:
Basic	$ 0.35	$ 0.20
Diluted	$ 0.34	$ 0.20
Weighted average number of common shares outstanding:
Basic	38,837	38,455
Diluted	40,560	39,738

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Funds Held for Payroll Customers and Investments

3 Months Ended

Mar. 31, 2012

Funds Held for Payroll Customers and Investments [Abstract]

Funds Held for Payroll Customers and Investments

Funds Held for Payroll Customers and Investments

A summary of Funds held for payroll customers and investments, including the cost, gross unrealized gains (losses) and estimated fair value for investments held to maturity and investments available-for-sale by major security type and class of security were as follows at March 31, 2012 and December 31, 2011:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
March 31, 2012
Funds Held for Payroll Customers:
Fixed income bond fund - available for sale	$	968	$	208	$	—	$	1,176
Cash held for payroll customers	52,408		—		—		52,408
Total Funds Held for Payroll Customers	$	53,376	$	208	$	—	$	53,584
Investments:
Investments held to maturity – Certificates of deposit (a)	$	2,157	$	—	$	—	$	2,157
Total investments	$	2,157	$	—	$	—	$	2,157

(a) Certificates of deposit have remaining terms ranging from 3 months to 17 months.

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
December 31, 2011
Funds Held for Payroll Customers:
Fixed income bond fund - available for sale	$	968	$	190	$	—	$	1,158
Cash held for payroll customers	41,353		—		—		41,353
Total Funds Held for Payroll Customers	$	42,321	$	190	$	—	$	42,511
Investments:
Investments held to maturity – Certificates of deposit	$	2,505	$	—	$	—	$	2,505
Total investments	$	2,505	$	—	$	—	$	2,505

During the three months ended March 31, 2012 and during the twelve months ended December 31, 2011, the Company did not experience any other-than-temporary losses on its investments. The maturity schedule of all available-for-sale debt securities and held to maturity investments along with amortized cost and estimated fair value as of March 31, 2012 is as follows:

	Amortized Cost		Estimated Fair Value
	(In thousands)
Due in one year or less	$	3,025	$	3,233
Due after one year through five years	100		100
	$	3,125	$	3,333

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Receivables

3 Months Ended

Mar. 31, 2012

Receivables [Abstract]

Receivables

Receivables

A summary of receivables by major class was as follows at March 31, 2012 and December 31, 2011:

	March 31, 2012			December 31, 2011
	(In thousands)
Accounts receivable from merchants	$	158,567		$	151,228
Receivables from bankcard networks	23,850			24,301
Accounts receivable from others	2,769			2,457
	185,186			177,986
Less allowance for doubtful accounts	(1,453		)	(1,451		)
Total receivables, net	$	183,733		$	176,535

Included in accounts receivable from others are amounts due from employees which are $0.5 million and $0.6 million at March 31, 2012 and December 31, 2011, respectively. Accounts receivable related to bankcard networks are primarily amounts which were pre-funded to merchants for processing Discover and American Express bankcard transactions as well as amounts due from Visa for PIN debit transactions.

A summary of the activity in the allowance for doubtful accounts for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	1,451		$	683
Additions to allowance	83			700
Charges against allowance	(81		)	(485		)
Ending balance	$	1,453		$	898

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Organization and Operations (Tables) (Visa And MasterCard [Member])

3 Months Ended

Mar. 31, 2012

Visa And MasterCard [Member]

Bankcard Processing Volume [Line Items]

Bankcard Processing Volume

Following is a breakout of the Company’s total Visa and MasterCard settled bankcard processing volume for the month ending March 31, 2012 by percentage processed under its individual bank sponsorship agreements:

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Segments

3 Months Ended

Mar. 31, 2012

Segment Reporting [Abstract]

Segments

Segments

The determination of the Company's business segments is based on how the Company monitors and manages the performance of its operations. The Company's operating segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies, personnel skill sets and technology.

The Company has two reportable segments, as follows: (1) Card, which provides payment processing and related services for bankcard transactions; and (2) Other. The Card segment includes CPOS, our Canadian payments processing subsidiary, and Network Services. The Other segment includes Payroll, which provides payroll and related tax filing services, PrepaidCard, which provides prepaid card, stored-value card and loyalty and gift card solutions, and Heartland School Solutions, which provides point-of-sale platforms designed to facilitate food service operations. None of these Other segments meet the defined thresholds for determining individually reportable segments.

The Company allocates revenues, expenses, assets and liabilities to segments only where directly attributable. The unallocated corporate administration amounts are costs attributed to finance, corporate administration, human resources and corporate services. At March 31, 2012 and 2011, 38% and 45% respectively, of the Other segment's total assets were funds that the Company holds as a fiduciary in its Payroll services activities for payment to taxing authorities. Reconciling items include eliminations of intercompany investments and receivables.

A summary of the Company’s segments for the three month periods ended March 31, 2012 and 2011 was as follows:

	Card Segment		Other Segment		Unallocated Corporate Administration Amounts			Reconciling Items			Total Amount
	(In thousands)
Three Months Ended March 31, 2012
Total revenues	$	447,219	$	23,330	$	—		$	(64	)	$	470,485
Depreciation and amortization	6,602		725		56			—			7,383
Interest income	115		—		—			—			115
Interest expense	912		2		—			(64		)	850
Net income (loss) attributable to Heartland	16,064		2,090		(4,400		)	—			13,754
Total assets	644,491		142,382		—			(162,665		)	624,208
Three Months Ended March 31, 2011
Total revenues	$	454,998	$	12,698	$	—		$	(50	)	$	467,646
Depreciation and amortization	6,146		801		125			—			7,072
Interest income	41		—		—			—			41
Interest expense	1,240		2		—			(50		)	1,192
Net income (loss) attributable to Heartland	11,495		599		(4,279		)	—			7,815
Total assets	646,388		93,400		—			(155,450		)	584,338

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Processing Liabilities and Loss Reserves

3 Months Ended

Mar. 31, 2012

Processing Liabilities and Loss Reserves [Abstract]

Processing Liabilities and Loss Reserves

Processing Liabilities and Loss Reserves

The majority of our processing liabilities include funds in transit associated with bankcard and check processing. In addition, we maintain merchant deposits to offset potential liabilities from merchant chargeback processing. A summary of processing liabilities and loss reserves was as follows at March 31, 2012 and December 31, 2011:

	March 31, 2012		December 31, 2011
	(In thousands)
Merchant bankcard processing	$	13,270	$	10,295
Check processing	12,015		8,594
Merchant deposits	9,298		9,839
Loss reserves	1,960		1,961
	$	36,543	$	30,689

The Company's merchants have the liability for any charges properly reversed by the cardholder through a mechanism known as a chargeback. If the merchant is unable to pay this amount, the Company will be liable to the card brand networks for the reversed charges. The Company has determined that the fair value of its obligation to stand ready to perform is minimal. The Company requires personal guarantees and merchant deposits from certain merchants to minimize its obligation.

The card brand networks generally allow chargebacks up to four months after the later of the date the transaction is processed or the delivery of the product or service to the cardholder. As the majority of the Company's SME merchant transactions involve the delivery of the product or service at the time of the transaction, a reasonable basis for determining an estimate of the Company's exposure to chargebacks is the last four months' processing volume on the SME portfolio, which was $22.6 billion and $22.3 billion for the four months ended March 31, 2012 and December 31, 2011, respectively. However, for the four months ended March 31, 2012 and December 31, 2011, the Company was presented with $11.2 million and $12.2 million, respectively, in chargebacks by issuing banks. In the three months ended March 31, 2012 and 2011, the Company incurred merchant credit losses of $0.2 million and $1.3 million, respectively, on total SME bankcard dollar volumes processed of $16.7 billion and $15.4 billion, respectively. These credit losses are included in processing and servicing costs in the Company's Condensed Consolidated Statement of Income and Other Comprehensive Income.

The loss recorded by the Company for chargebacks associated with any individual merchant is typically small, due both to the relatively small size and the processing profile of the Company's SME merchants. However, from time to time the Company will encounter instances of merchant fraud, and the resulting chargeback losses may be considerably more significant to the Company. The Company has established a contingent reserve for estimated credit and fraud losses on its Condensed Consolidated Balance Sheet, amounting to $2.0 million on March 31, 2012 and December 31, 2011. This reserve is determined by performing an analysis of the Company's historical loss experience applied to current processing volume and exposures.

A summary of the activity in the loss reserve for the three month periods ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	1,961		$	1,667
Additions to reserve	267			1,489
Charges against reserve (a)	(268		)	(1,417		)
Ending balance	$	1,960		$	1,739

(a) Included in these amounts are payroll segment losses of $12,000 and $59,000, respectively, for the three months ended March 31, 2012 and 2011.

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Capitalized Customer Acquisition Costs, Net

3 Months Ended

Mar. 31, 2012

Capitalized Customer Acquisition Costs, Net [Abstract]

Capitalized Customer Acquisition Costs, Net

Capitalized Customer Acquisition Costs, Net

A summary of net capitalized customer acquisition costs as of March 31, 2012 and December 31, 2011 was as follows:

	March 31, 2012			December 31, 2011
	(In thousands)
Capitalized signing bonuses	$	86,163		$	86,837
Less accumulated amortization	(44,218		)	(45,125		)
	41,945			41,712
Capitalized customer deferred acquisition costs	36,650			36,564
Less accumulated amortization	(23,256		)	(23,262		)
	13,394			13,302
Capitalized customer acquisition costs, net	$	55,339		$	55,014

A summary of the activity in capitalized customer acquisition costs, net for the three month periods ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Balance at beginning of period	$	55,014		$	59,251
Plus additions to:
Capitalized signing bonuses, net	7,554			7,116
Capitalized customer deferred acquisition costs	3,968			3,330
	11,522			10,446
Less amortization expense on:
Capitalized signing bonuses, net	(7,321		)	(8,514		)
Capitalized customer deferred acquisition costs	(3,876		)	(3,867		)
	(11,197		)	(12,381		)
Balance at end of period	$	55,339		$	57,316

Net signing bonus adjustments from estimated amounts to actual were $(0.6) million and $(0.2) million, respectively, for the three months ended March 31, 2012 and 2011. Net signing bonus adjustments are netted against additions in the table above. Negative signing bonus adjustments occur when the actual gross margin generated by the merchant contract during the first year is less than the estimated gross margin for that year, resulting in the overpayment of the up-front signing bonus and would be recovered from the relevant salesperson. Positive signing bonus adjustments result from the prior underpayment of signing bonuses and would be paid to the relevant salesperson.

Fully amortized signing bonuses of $8.0 million and $12.3 million respectively, were written off during the three month periods ended March 31, 2012 and 2011. In addition, fully amortized customer deferred acquisition costs of $3.9 million and $3.8 million, respectively, were written off during the three months ended March 31, 2012 and 2011.

The Company believes that no impairment of capitalized customer acquisition costs has occurred as of March 31, 2012.

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Intangible Assets and Goodwill

3 Months Ended

Mar. 31, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

Intangible Assets and Goodwill

Intangible Assets — Intangible assets consisted of the following as of March 31, 2012 and December 31, 2011:

	March 31, 2012						Amortization Life and Method
	Gross Assets		Accumulated Amortization		Net Asset
	(In thousands)
Finite Lived Assets:
Customer relationships	$	33,179	$	6,066	$	27,113	3 to 18 years—proportional cash flow
Merchant portfolio	3,345		1,956		1,389		7 years—proportional cash flow
Software	10,018		8,740		1,278		2 to 5 years—straight line
Non-compete agreements	2,795		1,236		1,559		3 to 5 years—straight line
Other	480		406		74		2 to 9 years—straight line
	$	49,817	$	18,404	$	31,413

	December 31, 2011						Amortization Life and Method
	Gross Assets		Accumulated Amortization		Net Asset
	(In thousands)
Finite Lived Assets:
Customer relationships	$	33,166	$	5,406	$	27,760	3 to 18 years—proportional cash flow
Merchant Portfolio	3,345		1,819		1,526		7 years—proportional cash flow
Software	10,078		8,612		1,466		2 to 5 years—straight line
Non-compete agreements	2,794		1,126		1,668		3 to 5 years—straight line
Other	457		379		78		2 to 9 years—straight line
	$	49,840	$	17,342	$	32,498

Amortization expense related to the intangible assets was $1.1 million and $1.5 million, respectively, for the three months ended March 31, 2012 and 2011. The estimated remaining amortization expense related to intangible assets in twelve month increments is as follows:

For the Twelve Months Ended March 31,
	(In thousands)
2013	$	4,293
2014	3,904
2015	3,471
2016	3,147
2017	2,304
Thereafter	14,294
	$	31,413

Goodwill — The changes in the carrying amount of goodwill for the three months ended March 31, 2012 and 2011 were as follows:

	Three Months Ended March 31,
	2012		2011
	(In thousands)
Beginning balance	$	103,399	$	68,319
Goodwill acquired during the period	—		5,987
Effects of foreign currency translation	162		279
Other (a)	—		456
Ending balance	$	103,561	$	75,041

(a)Reflects adjustments to allocations of purchase price.

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Accrued Buyout Liability

3 Months Ended

Mar. 31, 2012

Accrued Buyout Liability [Abstract]

Accrued Buyout Liability

Accrued Buyout Liability

A summary of the accrued buyout liability was as follows as of March 31, 2012 and December 31, 2011:

	March 31, 2012			December 31, 2011
	(In thousands)
Vested Relationship Managers and sales managers	$	32,425		$	30,269
Unvested Relationship Managers and sales managers	1,143			1,389
	33,568			31,658
Less current portion	(8,862		)	(8,104		)
Long-term portion of accrued buyout liability	$	24,706		$	23,554

In calculating the accrued buyout liability for unvested Relationship Managers and sales managers, the Company has assumed that 31% of the unvested Relationship Managers and sales managers will vest in the future, which represents the Company’s historical vesting rate. A 5% increase to 36% in the expected vesting rate would have increased the accrued buyout liability for unvested Relationship Managers and sales managers by $0.1 million at March 31, 2012 and December 31, 2011.

A summary of the activity in the accrued buyout liability for the three months ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Beginning balance	$	31,658		$	28,810
Increase in settlement obligation, net	4,207			2,607
Buyouts	(2,297		)	(3,175		)
Ending balance	$	33,568		$	28,242

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Schedule of Calculation of Numerator and Denominator in Earnings Per Share

The following is a reconciliation of the amounts used to calculate basic and diluted earnings per share:

	Three Months Ended March 31,
	2012		2011
	(In thousands, except per share data)
Basic:
Net income attributable to Heartland	$	13,754	$	7,815
Weighted average common stock outstanding	38,837		38,455
Earnings per share	$	0.35	$	0.20
Diluted:
Net income attributable to Heartland	$	13,754	$	7,815
Basic weighted average common stock outstanding	38,837		38,455
Effect of dilutive instruments:
Stock options and restricted share units	1,723		1,283
Diluted weighted average shares outstanding	40,560		39,738
Earnings per share	$	0.34	$	0.20

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Processing Liabilities and Loss Reserves (Schedule Of Credit And Fraud Loss Reserve) (Details) (Loss reserves, USD $)	3 Months Ended
	Mar. 31, 2012		Mar. 31, 2011
Movement in Valuation Allowances and Reserves [Roll Forward]
Beginning balance	$ 1,961,000		$ 1,667,000
Additions to reserve	267,000		1,489,000
Charges against reserve	(268,000)	[1]	(1,417,000)	[1]
Ending balance	1,960,000		1,739,000
Payroll [Member]
Movement in Valuation Allowances and Reserves [Roll Forward]
Charges against reserve	$ (12,000)		$ (59,000)

[1] Included in these amounts are payroll segment losses of $12,000 and $59,000, respectively, for the three months ended March 31, 2012 and 2011.

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Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2012

Financial Instruments, Owned, at Fair Value [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company applies a fair value framework in order to measure and disclose its financial assets and liabilities which include fixed income equity securities, interest swap derivatives and certain other financial instruments. The Company determines fair value based on quoted prices when available or through the use of alternative approaches when market quotes are not readily accessible or available. The Company carries its liabilities at fair value, including its derivative liabilities.

The Company’s framework for measuring fair value provides a three-level hierarchy, which prioritizes the factors (inputs) used to calculate the fair value of assets and liabilities as follows:

• Level 1 inputs are unadjusted quoted prices, such as a New York Stock Exchange closing price, in active markets for identical assets. Level 1 is the highest priority in the hierarchy.

• Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as other significant inputs that are observable at commonly quoted intervals, such as interest rates, foreign exchange rates, and yield curves.

• Level 3 inputs are unobservable and are based on company assumptions due to little, if any, observable market information. Level 3 is the lowest priority in the hierarchy.

For the three months ended March 31, 2012, there have been no transfers between Level 1 and Level 2 categories. The following tables provide the assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2012 and at December 31, 2011:

March 31, 2012	Total		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:	(In thousands)
Investments available for sale:
Fixed income bond fund (a)	$	1,176	$	1,176	$	—
Investments held to maturity:
Certificates of deposit	2,157		—		2,157
Total Assets	$	3,333	$	1,176	$	2,157
Liabilities:
Interest rate swaps	$	909	$	—	$	909
Total Liabilities	$	909	$	—	$	909

December 31, 2011	Total		Quoted Prices in Active Markets for Identical Assets  (Level 1)		Significant Other Observable Inputs (Level 2)
Assets:	(In thousands)
Investments available for sale:
Fixed income bond fund (a)	$	1,158	$	1,158	$	—
Investments held to maturity:
Certificates of deposit	2,505		—		2,505
Total Assets	$	3,663	$	1,158	$	2,505
Liabilities:
Interest rate swaps	$	897	$	—	$	897
Total Liabilities	$	897	$	—	$	897

(a) amounts included in Funds held for payroll customers on the Consolidated Balance Sheet

At March 31, 2012 and December 31, 2011, all investments in available-for-sale securities held by the Company were measured using Level 1 inputs and all held to maturity investments held by the Company were measured using Level 2 inputs.

The Company’s liabilities include interest rate swaps that are measured at fair value using observable market inputs including the Company’s credit risk and its counterparties’ credit risks. Based on these inputs, the interest rate swaps are classified within Level 2 of the valuation hierarchy. Based on the Company’s continued ability to enter into these swaps, the Company considers the markets for its fair value instruments to be active.

The carrying amounts of the Company's cash and cash equivalents and cash held for payroll customers approximate fair value as of March 31, 2012 and December 31, 2011, because they bear interest at market rates and had maturities of less than 90 days at the time of purchase. This fair value measurement is classified as Level 1. The carrying amount of the Company's accounts receivable, accounts payable, and accrued expenses approximates fair value as of March 31, 2012 and December 31, 2011, because of the relatively short timeframe to realization. This fair value measurement is classified as Level 2.

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Funds Held for Payroll Customers and Investments (Tables)

3 Months Ended

Mar. 31, 2012

Funds Held for Payroll Customers and Investments [Abstract]

Funds Held for Payroll Customers and Investments

A summary of Funds held for payroll customers and investments, including the cost, gross unrealized gains (losses) and estimated fair value for investments held to maturity and investments available-for-sale by major security type and class of security were as follows at March 31, 2012 and December 31, 2011:

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
March 31, 2012
Funds Held for Payroll Customers:
Fixed income bond fund - available for sale	$	968	$	208	$	—	$	1,176
Cash held for payroll customers	52,408		—		—		52,408
Total Funds Held for Payroll Customers	$	53,376	$	208	$	—	$	53,584
Investments:
Investments held to maturity – Certificates of deposit (a)	$	2,157	$	—	$	—	$	2,157
Total investments	$	2,157	$	—	$	—	$	2,157

(a) Certificates of deposit have remaining terms ranging from 3 months to 17 months.

	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(In thousands)
December 31, 2011
Funds Held for Payroll Customers:
Fixed income bond fund - available for sale	$	968	$	190	$	—	$	1,158
Cash held for payroll customers	41,353		—		—		41,353
Total Funds Held for Payroll Customers	$	42,321	$	190	$	—	$	42,511
Investments:
Investments held to maturity – Certificates of deposit	$	2,505	$	—	$	—	$	2,505
Total investments	$	2,505	$	—	$	—	$	2,505

Investments Classified by Contractual Maturity Date

The maturity schedule of all available-for-sale debt securities and held to maturity investments along with amortized cost and estimated fair value as of March 31, 2012 is as follows:

	Amortized Cost		Estimated Fair Value
	(In thousands)
Due in one year or less	$	3,025	$	3,233
Due after one year through five years	100		100
	$	3,125	$	3,333

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Intangible Assets and Goodwill (Schedule of Goodwill) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012		Mar. 31, 2011
Goodwill [Roll Forward]
Beginning balance	$ 103,399		$ 68,319
Goodwill acquired during the period	0		5,987
Effects of foreign currency translation	162		279
Other	0	[1]	456	[1]
Ending balance	$ 103,561		$ 75,041

[1] Reflects adjustments to allocations of purchase price.

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Receivables (Schedule of Accounts, Notes, Loans and Financing Receivable) (Details) (USD $)	Mar. 31, 2012	Dec. 31, 2011
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables, gross	$ 185,186,000	$ 177,986,000
Less allowance for doubtful accounts	(1,453,000)	(1,451,000)
Total receivables, net	183,733,000	176,535,000
Due from employees	500,000	600,000
Accounts receivable from merchants [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables, gross	158,567,000	151,228,000
Receivables from bankcard networks [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables, gross	23,850,000	24,301,000
Accounts receivable from others [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total receivables, gross	$ 2,769,000	$ 2,457,000

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Consolidated Statements of Operations and Comprehensive Income (Loss) Parentheticals (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Statement of Income and Comprehensive Income [Abstract]
Unrealized (losses) gains on investments, tax	$ 7	$ 2

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Acquisitions

3 Months Ended

Mar. 31, 2012

Business Combinations [Abstract]

Acquisitions

Acquisitions

The Company initiated its K to 12 School Solutions product through its acquisitions of the school solutions businesses operated by Lunchbox, Comalex, mySchoolBucks, and School-Link Technologies. Lunchbox, Comalex, mySchoolBucks, and School-Link Technologies serve approximately 4,400, 3,700, 900 and 10,000 schools, respectively. The combined Heartland School Solutions develops, manufactures, sells, services and maintains computer software designed to facilitate accounting and management functions of school food service operations. These acquisitions provide the Company with the ability to offer Internet payment capability to parents, which facilitates on-line deposits of funds into student accounts and enables schools to operate more efficiently. The Company plans to consolidate the individual platforms and products of Lunchbox, Comalex, mySchoolBucks, and School-Link Technologies to optimize synergies, cost efficiencies and product offerings to customers. Pro forma results of operations have not been presented because the effect of these acquisitions was not material. The entire amount of goodwill is expected to be deductible for income tax reporting. Details of the individual acquisition transactions follow:

Lunchbox

On December 30, 2010, the Company purchased for a $7.7 million cash payment the net assets of the K to 12 School Solutions business previously operated by Lunchbox. The acquisition was financed through a combination of cash on hand and our credit facilities. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning December 30, 2010, Lunchbox's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $6.0 million to goodwill, $1.9 million to intangible assets and $0.2 million to net tangible liabilities.

Comalex, Inc.

On January 12, 2011, the Company purchased for a $6.1 million cash payment the net assets of Comalex, Inc. The acquisition was funded with cash on hand. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning January 12, 2011, Comalex's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $4.9 million to goodwill, $1.8 million to intangible assets and $0.6 million to net tangible liabilities.

mySchoolBucks, LLC

On February 4, 2011, the Company purchased for a $1.5 million cash payment the net assets of mySchoolBucks, LLC. The acquisition was funded with cash on hand. Pro forma results of operations have not been presented because the effect of the acquisition was not material. The transaction was accounted for under the purchase method of accounting. Beginning February 4, 2011, mySchoolBucks' results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $1.0 million to goodwill and $0.5 million to intangible assets.

School-Link Technologies, Inc.

On September 30, 2011, the Company purchased for a $15.6 million cash payment the net assets of School-Link Technologies, Inc. The acquisition was funded with cash on hand. The transaction was accounted for under the purchase method of accounting. Beginning October 1, 2011, School Link's results of operations are included in the Company's results of operations. The allocation of the total purchase price was as follows: $28.7 million to goodwill, $4.3 million to intangible assets and $17.4 million to net tangible liabilities. The fair values of the School-Link Technologies' assets acquired and liabilities assumed were estimated as of their acquisition date. The fair values are preliminary, based on estimates, and may be adjusted as more information becomes available and valuations are finalized.

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Earnings Per Share (Schedule of Calculation of Numerator and Denominator in Earnings Per Share) (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2012	Mar. 31, 2011
Earnings Per Share [Abstract]
Net income attributable to Heartland	$ 13,754	$ 7,815
Basic weighted average common stock outstanding	38,837	38,455
Earnings per share, basic (in dollars per share)	$ 0.35	$ 0.20
Stock options and restricted share units	1,723	1,283
Diluted weighted average shares outstanding	40,560	39,738
Earnings per share, diluted (in dollars per share)	$ 0.34	$ 0.20

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Capitalized Customer Acquisition Costs, Net (Tables)

3 Months Ended

Mar. 31, 2012

Capitalized Customer Acquisition Costs, Net [Abstract]

Capitalized Customer Acquisition Costs Net

A summary of net capitalized customer acquisition costs as of March 31, 2012 and December 31, 2011 was as follows:

	March 31, 2012			December 31, 2011
	(In thousands)
Capitalized signing bonuses	$	86,163		$	86,837
Less accumulated amortization	(44,218		)	(45,125		)
	41,945			41,712
Capitalized customer deferred acquisition costs	36,650			36,564
Less accumulated amortization	(23,256		)	(23,262		)
	13,394			13,302
Capitalized customer acquisition costs, net	$	55,339		$	55,014

Capitalized Customer Acquisition Activity

A summary of the activity in capitalized customer acquisition costs, net for the three month periods ended March 31, 2012 and 2011 was as follows:

	Three Months Ended March 31,
	2012			2011
	(In thousands)
Balance at beginning of period	$	55,014		$	59,251
Plus additions to:
Capitalized signing bonuses, net	7,554			7,116
Capitalized customer deferred acquisition costs	3,968			3,330
	11,522			10,446
Less amortization expense on:
Capitalized signing bonuses, net	(7,321		)	(8,514		)
Capitalized customer deferred acquisition costs	(3,876		)	(3,867		)
	(11,197		)	(12,381		)
Balance at end of period	$	55,339		$	57,316

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Summary of Significant Accounting Policies (Diluted Earnings Per Share) (Details) (USD $)	12 Months Ended
	Dec. 31, 2014		Dec. 31, 2013		Dec. 31, 2012
Accounting Policies [Abstract]
Diluted earnings per share, restricted units, benchmark one year					$ 1.48	[1]
Diluted earnings per share, restricted units, benchmark year two			$ 1.74	[1]
Diluted earnings per share, restricted units, benchmark year three	$ 2.04	[1]

[1] Calculated on a Pro Forma basis to exclude non-operating gains and losses, if any, and excluding the after-tax impact of Stock Compensation Expense.

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Earnings Per Share

3 Months Ended

Mar. 31, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The Company presents earnings per share data following the established standards for the computation and presentation of basic and diluted earnings per share data. Under these standards, the dilutive effect of stock options is excluded from the calculation of basic earnings per share but included in diluted earnings per share. The following is a reconciliation of the amounts used to calculate basic and diluted earnings per share:

	Three Months Ended March 31,
	2012		2011
	(In thousands, except per share data)
Basic:
Net income attributable to Heartland	$	13,754	$	7,815
Weighted average common stock outstanding	38,837		38,455
Earnings per share	$	0.35	$	0.20
Diluted:
Net income attributable to Heartland	$	13,754	$	7,815
Basic weighted average common stock outstanding	38,837		38,455
Effect of dilutive instruments:
Stock options and restricted share units	1,723		1,283
Diluted weighted average shares outstanding	40,560		39,738
Earnings per share	$	0.34	$	0.20