x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 26-4532998 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Large accelerated filer x | Accelerated filer o | |
Non-accelerated filer o | Smaller reporting company o |
Page | |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Revenue: | ||||||||||||||||
External customers | $ | 870,158 | $ | 765,564 | $ | 1,667,729 | $ | 1,451,940 | ||||||||
Related party revenues | 21,059 | 20,431 | 42,111 | 39,666 | ||||||||||||
Total revenue | 891,217 | 785,995 | 1,709,840 | 1,491,606 | ||||||||||||
Network fees and other costs | 410,736 | 362,349 | 798,149 | 693,495 | ||||||||||||
Sales and marketing | 144,844 | 122,925 | 280,482 | 238,980 | ||||||||||||
Other operating costs | 73,599 | 76,551 | 147,302 | 145,290 | ||||||||||||
General and administrative | 49,120 | 47,060 | 93,104 | 94,903 | ||||||||||||
Depreciation and amortization | 65,234 | 67,659 | 133,464 | 135,461 | ||||||||||||
Income from operations | 147,684 | 109,451 | 257,339 | 183,477 | ||||||||||||
Interest expense—net | (26,118 | ) | (25,714 | ) | (53,847 | ) | (51,725 | ) | ||||||||
Non-operating expenses | (4,664 | ) | (6,725 | ) | (10,316 | ) | (15,491 | ) | ||||||||
Income before applicable income taxes | 116,902 | 77,012 | 193,176 | 116,261 | ||||||||||||
Income tax expense | 38,441 | 24,319 | 62,267 | 36,572 | ||||||||||||
Net income | 78,461 | 52,693 | 130,909 | 79,689 | ||||||||||||
Less: Net income attributable to non-controlling interests | (19,134 | ) | (16,157 | ) | (31,844 | ) | (24,164 | ) | ||||||||
Net income attributable to Vantiv, Inc. | $ | 59,327 | $ | 36,536 | $ | 99,065 | $ | 55,525 | ||||||||
Net income per share attributable to Vantiv, Inc. Class A common stock: | ||||||||||||||||
Basic | $ | 0.38 | $ | 0.25 | $ | 0.64 | $ | 0.38 | ||||||||
Diluted | $ | 0.38 | $ | 0.24 | $ | 0.63 | $ | 0.37 | ||||||||
Shares used in computing net income per share of Class A common stock: | ||||||||||||||||
Basic | 155,670,267 | 145,566,899 | 155,533,813 | 145,051,664 | ||||||||||||
Diluted | 197,258,209 | 201,831,467 | 197,018,018 | 201,276,166 |
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Net income | $ | 78,461 | $ | 52,693 | $ | 130,909 | $ | 79,689 | ||||||||
Other comprehensive loss, net of tax: | ||||||||||||||||
Loss on cash flow hedges and other | (5,115 | ) | (330 | ) | (13,226 | ) | (7,700 | ) | ||||||||
Comprehensive income | 73,346 | 52,363 | 117,683 | 71,989 | ||||||||||||
Less: Comprehensive income attributable to non-controlling interests | (17,779 | ) | (16,051 | ) | (28,338 | ) | (21,683 | ) | ||||||||
Comprehensive income attributable to Vantiv, Inc. | $ | 55,567 | $ | 36,312 | $ | 89,345 | $ | 50,306 |
June 30, 2016 | December 31, 2015 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 202,724 | $ | 197,096 | |||
Accounts receivable—net | 721,703 | 680,033 | |||||
Related party receivable | 4,208 | 3,999 | |||||
Settlement assets | 132,304 | 143,563 | |||||
Prepaid expenses | 32,646 | 31,147 | |||||
Other | 69,556 | 61,661 | |||||
Total current assets | 1,163,141 | 1,117,499 | |||||
Customer incentives | 64,043 | 57,984 | |||||
Property, equipment and software—net | 338,755 | 308,009 | |||||
Intangible assets—net | 764,181 | 863,066 | |||||
Goodwill | 3,366,528 | 3,366,528 | |||||
Deferred taxes | 715,078 | 731,622 | |||||
Other assets | 31,602 | 20,718 | |||||
Total assets | $ | 6,443,328 | $ | 6,465,426 | |||
Liabilities and equity | |||||||
Current liabilities: | |||||||
Accounts payable and accrued expenses | $ | 379,118 | $ | 364,878 | |||
Related party payable | 3,394 | 4,698 | |||||
Settlement obligations | 635,161 | 677,502 | |||||
Current portion of note payable to related party | 10,353 | 10,353 | |||||
Current portion of note payable | 99,148 | 106,148 | |||||
Current portion of tax receivable agreement obligations to related parties | 35,659 | 31,232 | |||||
Current portion of tax receivable agreement obligations | 59,503 | 64,227 | |||||
Deferred income | 14,395 | 14,470 | |||||
Current maturities of capital lease obligations | 8,601 | 7,931 | |||||
Other | 20,104 | 13,940 | |||||
Total current liabilities | 1,265,436 | 1,295,379 | |||||
Long-term liabilities: | |||||||
Note payable to related party | 175,993 | 181,169 | |||||
Note payable | 2,712,632 | 2,762,469 | |||||
Tax receivable agreement obligations to related parties | 766,170 | 801,829 | |||||
Tax receivable agreement obligations | 78,551 | 126,980 | |||||
Capital lease obligations | 17,536 | 21,801 | |||||
Deferred taxes | 26,659 | 15,836 | |||||
Other | 34,721 | 34,897 | |||||
Total long-term liabilities | 3,812,262 | 3,944,981 | |||||
Total liabilities | 5,077,698 | 5,240,360 | |||||
Commitments and contingencies (See Note 6 - Commitments, Contingencies and Guarantees) | |||||||
Equity: | |||||||
Class A common stock, $0.00001 par value; 890,000,000 shares authorized; 156,480,777 shares outstanding at June 30, 2016; 155,488,326 shares outstanding at December 31, 2015 | 1 | 1 | |||||
Class B common stock, no par value; 100,000,000 shares authorized; 35,042,826 shares issued and outstanding at June 30, 2016 and December 31, 2015 | — | — | |||||
Preferred stock, $0.00001 par value; 10,000,000 shares authorized; no shares issued and outstanding | — | — | |||||
Paid-in capital | 583,046 | 553,145 | |||||
Retained earnings | 575,369 | 476,304 | |||||
Accumulated other comprehensive loss | (18,924 | ) | (9,204 | ) | |||
Treasury stock, at cost; 2,702,744 shares at June 30, 2016 and 2,593,242 shares at December 31, 2015 | (73,242 | ) | (67,458 | ) | |||
Total Vantiv, Inc. equity | 1,066,250 | 952,788 | |||||
Non-controlling interests | 299,380 | 272,278 | |||||
Total equity | 1,365,630 | 1,225,066 | |||||
Total liabilities and equity | $ | 6,443,328 | $ | 6,465,426 |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
Operating Activities: | |||||||
Net income | $ | 130,909 | $ | 79,689 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization expense | 133,464 | 135,461 | |||||
Amortization of customer incentives | 12,581 | 8,183 | |||||
Amortization and write-off of debt issuance costs | 3,237 | 5,196 | |||||
Share-based compensation expense | 16,292 | 16,720 | |||||
Deferred taxes | 32,400 | 22,705 | |||||
Excess tax benefit from share-based compensation | (8,067 | ) | (13,753 | ) | |||
Tax receivable agreements non-cash items | 10,252 | 13,733 | |||||
Other | 382 | — | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable and related party receivable | (41,879 | ) | 30,348 | ||||
Net settlement assets and obligations | (31,082 | ) | 41,380 | ||||
Customer incentives | (23,343 | ) | (13,342 | ) | |||
Prepaid and other assets | (1,695 | ) | (2,163 | ) | |||
Accounts payable and accrued expenses | 17,867 | 24,043 | |||||
Payable to related party | (1,304 | ) | 595 | ||||
Other liabilities | (1,528 | ) | 3,582 | ||||
Net cash provided by operating activities | 248,486 | 352,377 | |||||
Investing Activities: | |||||||
Purchases of property and equipment | (62,883 | ) | (42,013 | ) | |||
Acquisition of customer portfolios and related assets and other | (883 | ) | (37,154 | ) | |||
Purchase of derivative instruments | (21,523 | ) | — | ||||
Net cash used in investing activities | (85,289 | ) | (79,167 | ) | |||
Financing Activities: | |||||||
Borrowings on revolving credit facility | 855,000 | — | |||||
Repayment of revolving credit facility | (855,000 | ) | — | ||||
Repayment of debt and capital lease obligations | (69,521 | ) | (262,946 | ) | |||
Proceeds from issuance of Class A common stock under employee stock plans | 8,538 | 9,628 | |||||
Repurchase of Class A common stock (to satisfy tax withholding obligations) | (5,784 | ) | (15,867 | ) | |||
Settlement of certain tax receivable agreements | (41,163 | ) | — | ||||
Payments under tax receivable agreements | (53,474 | ) | (22,805 | ) | |||
Excess tax benefit from share-based compensation | 8,067 | 13,753 | |||||
Distributions to non-controlling interests | (4,220 | ) | (3,132 | ) | |||
Other | (12 | ) | — | ||||
Decrease in cash overdraft | — | (2,627 | ) | ||||
Net cash used in financing activities | (157,569 | ) | (283,996 | ) | |||
Net increase (decrease) in cash and cash equivalents | 5,628 | (10,786 | ) | ||||
Cash and cash equivalents—Beginning of period | 197,096 | 411,568 | |||||
Cash and cash equivalents—End of period | $ | 202,724 | $ | 400,782 | |||
Cash Payments: | |||||||
Interest | $ | 50,814 | $ | 48,502 | |||
Taxes | 13,443 | 5,054 |
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Common Stock | Other | Non- | ||||||||||||||||||||||||||||||||||||||
Total | Class A | Class B | Treasury Stock | Paid-in | Retained | Comprehensive | Controlling | |||||||||||||||||||||||||||||||||
Equity | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Interests | ||||||||||||||||||||||||||||||
Beginning Balance, January 1, 2016 | $ | 1,225,066 | 155,488 | $ | 1 | 35,043 | $ | — | 2,593 | $ | (67,458 | ) | $ | 553,145 | $ | 476,304 | $ | (9,204 | ) | $ | 272,278 | |||||||||||||||||||
Net income | 130,909 | — | — | — | — | — | — | — | 99,065 | — | 31,844 | |||||||||||||||||||||||||||||
Issuance of Class A common stock under employee stock plans, net of forfeitures | 8,538 | 1,103 | — | — | — | — | — | 8,538 | — | — | — | |||||||||||||||||||||||||||||
Tax benefit from employee share-based compensation | 8,067 | — | — | — | — | — | — | 8,067 | — | — | — | |||||||||||||||||||||||||||||
Repurchase of Class A common stock (to satisfy tax withholding obligation) | (5,784 | ) | (110 | ) | — | — | — | 110 | (5,784 | ) | — | — | — | — | ||||||||||||||||||||||||||
Unrealized loss on hedging activities and other, net of tax | (13,226 | ) | — | — | — | — | — | — | — | — | (9,720 | ) | (3,506 | ) | ||||||||||||||||||||||||||
Distribution to non-controlling interests | (4,220 | ) | — | — | — | — | — | — | — | — | — | (4,220 | ) | |||||||||||||||||||||||||||
Share-based compensation | 16,292 | — | — | — | — | — | — | 13,308 | — | — | 2,984 | |||||||||||||||||||||||||||||
Other | (12 | ) | — | — | — | — | — | — | (12 | ) | — | — | — | |||||||||||||||||||||||||||
Ending Balance, June 30, 2016 | $ | 1,365,630 | 156,481 | $ | 1 | 35,043 | $ | — | 2,703 | $ | (73,242 | ) | $ | 583,046 | $ | 575,369 | $ | (18,924 | ) | $ | 299,380 |
Accumulated | ||||||||||||||||||||||||||||||||||||||||
Common Stock | Other | Non- | ||||||||||||||||||||||||||||||||||||||
Total | Class A | Class B | Treasury Stock | Paid-in | Retained | Comprehensive | Controlling | |||||||||||||||||||||||||||||||||
Equity | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Earnings | Income (Loss) | Interests | ||||||||||||||||||||||||||||||
Beginning Balance, January 1, 2015 | $ | 1,300,586 | 145,455 | $ | 1 | 43,043 | $ | — | 2,174 | $ | (50,931 | ) | $ | 629,353 | $ | 328,358 | $ | (3,768 | ) | $ | 397,573 | |||||||||||||||||||
Net income | 79,689 | — | — | — | — | — | — | — | 55,525 | — | 24,164 | |||||||||||||||||||||||||||||
Issuance of Class A common stock under employee stock plans, net of forfeitures | 9,628 | 1,129 | — | — | — | — | — | 9,628 | — | — | — | |||||||||||||||||||||||||||||
Tax benefit from employee share-based compensation | 13,753 | — | — | — | — | — | — | 13,753 | — | — | — | |||||||||||||||||||||||||||||
Repurchase of Class A common stock (to satisfy tax withholding obligation) | (15,867 | ) | (405 | ) | — | — | — | 405 | (15,867 | ) | — | — | — | — | ||||||||||||||||||||||||||
Unrealized loss on hedging activities and other, net of tax | (7,700 | ) | — | — | — | — | — | — | — | — | (5,219 | ) | (2,481 | ) | ||||||||||||||||||||||||||
Distribution to non-controlling interests | (3,132 | ) | — | — | — | — | — | — | — | — | — | (3,132 | ) | |||||||||||||||||||||||||||
Share-based compensation | 16,720 | — | — | — | — | — | — | 12,912 | — | — | 3,808 | |||||||||||||||||||||||||||||
Reallocation of non-controlling interests of Vantiv Holding due to change in ownership | — | — | — | — | — | — | — | 2,732 | — | — | (2,732 | ) | ||||||||||||||||||||||||||||
Ending Balance, June 30, 2015 | $ | 1,393,677 | 146,179 | $ | 1 | 43,043 | $ | — | 2,579 | $ | (66,798 | ) | $ | 668,378 | $ | 383,883 | $ | (8,987 | ) | $ | 417,200 |
• | Merchant Services—Provides merchant acquiring and payment processing services to large national merchants, regional and small-to-mid sized businesses. Merchant services are sold to small to large businesses through diverse distribution channels. Merchant Services includes all aspects of card processing including authorization and settlement, customer service, chargeback and retrieval processing and interchange management. |
• | Financial Institution Services—Provides card issuer processing, payment network processing, fraud protection, card production, prepaid program management, automated teller machine (“ATM”) driving and network gateway and switching services that utilize the Company’s proprietary Jeanie debit payment network to a diverse set of financial institutions, including regional banks, community banks, credit unions and regional personal identification number (“PIN”) networks. Financial Institution Services also provides statement production, collections and inbound/outbound call centers for credit transactions, and other services such as credit card portfolio analytics, program strategy and support, fraud and security management and chargeback and dispute services. |
• | Network fees and other costs primarily consist of pass through expenses incurred by the Company in connection with providing processing services to its clients, including Visa and MasterCard network association fees, payment network fees, third party processing fees, telecommunication charges, postage and card production costs. |
• | Sales and marketing expense primarily consists of salaries and benefits paid to sales personnel, sales management and other sales and marketing personnel, residual payments made to ISOs and referral partners, and advertising and promotional costs. |
• | Other operating costs primarily consist of salaries and benefits paid to operational and IT personnel, costs associated with operating the Company’s technology platform and data centers, information technology costs for processing transactions, product development costs, software consulting fees and maintenance costs. |
• | General and administrative expenses primarily consist of salaries and benefits paid to executive management and administrative employees, including finance, human resources, product development, legal and risk management, share-based compensation costs, equipment and occupancy costs and consulting costs. |
• | Non-operating expenses during the three months and six months ended June 30, 2016 and 2015 primarily relate to the change in fair value of a tax receivable agreement (“TRA”) (see Note 7 - Fair Value Measurements). |
• | TRAs with investors prior to the Company’s initial public offering (“IPO”) for its use of NPC Group, Inc. net operating losses (“NOLs”) and other tax attributes existing at the IPO date (the “NPC TRA”), all of which is currently held by Fifth Third. |
• | A TRA with Fifth Third (the “Fifth Third TRA”) in which the Company realizes tax deductions as a result of the increases in tax basis from the purchase of Vantiv Holding units or from the exchange of Vantiv Holding units for cash or shares of Class A common stock, as well as the tax benefits attributable to payments made under such TRAs. |
• | A TRA with Mercury Payment Systems, LLC (“Mercury”) shareholders (the “Mercury TRA”) as part of the acquisition of Mercury as a result of the increase in tax basis of the assets of Mercury resulting from the acquisition and the use of the net operating losses and other tax attributes of Mercury that were acquired as part of the acquisition. |
• | Beginning December 1st of each of 2015, 2016, 2017, and 2018, and ending June 30th of 2016, 2017, 2018, and 2019, respectively, the Company is granted call options (collectively, the "Call Options") pursuant to which certain additional obligations of the Company under the Mercury TRA would be terminated in consideration for cash payments of $41.4 million, $38.1 million, $38.0 million, and $43.0 million, respectively. |
• | In the unlikely event the Company does not exercise the relevant Call Option, the Mercury TRA Holders are granted put options beginning July 10th and ending July 25th of each of 2016, 2017, 2018, and 2019, respectively (collectively, the "Put Options"), pursuant to which certain additional obligations of the Company would be terminated in consideration for cash payments with similar amounts to the Call Options. |
• | In June 2016, the Company exercised the December 2015 Call Option and made a payment to the Mercury TRA Holders. |
June 30, 2016 | December 31, 2015 | |||||||
Customer relationship intangible assets | $ | 1,596,581 | $ | 1,596,581 | ||||
Trade name | 21,733 | 21,733 | ||||||
Customer portfolios and related assets | 129,965 | 129,734 | ||||||
Patents | 568 | 366 | ||||||
1,748,847 | 1,748,414 | |||||||
Less accumulated amortization on: | ||||||||
Customer relationship intangible assets | 902,191 | 821,580 | ||||||
Trade name | 19,035 | 14,350 | ||||||
Customer portfolios and related assets | 63,440 | 49,418 | ||||||
984,666 | 885,348 | |||||||
Intangible assets, net | $ | 764,181 | $ | 863,066 |
Six months ending December 31, 2016 | $ | 93,156 | ||
2017 | 172,052 | |||
2018 | 161,911 | |||
2019 | 153,537 | |||
2020 | 81,490 | |||
2021 | 36,595 |
June 30, 2016 | December 31, 2015 | ||||||
Term A loan, maturing on June 13, 2019(1) | $ | 1,845,000 | $ | 1,896,250 | |||
Term B loan, maturing on June 13, 2021(2) | 1,165,000 | 1,179,000 | |||||
Leasehold mortgage, expiring on August 10, 2021(3) | 10,131 | 10,131 | |||||
Less: Current portion of note payable and current portion of note payable to related party | (109,501 | ) | (116,501 | ) | |||
Less: Original issue discount | (5,370 | ) | (6,024 | ) | |||
Less: Debt issuance costs | (16,635 | ) | (19,218 | ) | |||
Note payable and note payable to related party | $ | 2,888,625 | $ | 2,943,638 |
(1) | Interest at a variable base rate (LIBOR) plus a spread rate (175 basis points) (total rate of 2.19% at June 30, 2016) and amortizing on a basis of 1.25% per quarter during each of the first twelve quarters (September 2014 through June 2017), 1.875% per quarter during the next four quarters (September 2017 through June 2018) and 2.50% during the next three quarters (September 2018 through March 2019) with a balloon payment due at maturity. |
(2) | Interest at a variable base rate (LIBOR) with a floor of 75 basis points plus a spread rate (275 basis points) (total rate of 3.50% at June 30, 2016) and amortizing on a basis of 0.25% per quarter, with a balloon payment due at maturity. |
(3) | Interest payable monthly at a fixed rate of 6.22%. |
Consolidated Statement of Financial Position Location | June 30, 2016 | December 31, 2015 | |||||||
Interest rate contracts | Other current assets | $ | 186 | $ | — | ||||
Interest rate contracts | Other long-term assets | 10,330 | — | ||||||
Interest rate contracts | Other current liabilities | 16,260 | 9,343 | ||||||
Interest rate contracts | Other long-term liabilities | 11,085 | 9,885 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2016 | 2015 | 2016 | 2015 | |||||||||||||
Derivatives in cash flow hedging relationships: | ||||||||||||||||
Amount of (loss) recognized in OCI (effective portion) (1) | $ | (10,117 | ) | $ | (1,717 | ) | $ | (24,211 | ) | $ | (13,152 | ) | ||||
Amount of (loss) reclassified from accumulated OCI into earnings (effective portion) | (2,711 | ) | (1,252 | ) | (5,087 | ) | (2,293 | ) | ||||||||
Amount of gain recognized in earnings (2) | — | 1 | — | — |
(1) | “OCI” represents other comprehensive income. |
(2) | Amount represents hedge ineffectiveness and is recorded as a component of interest expense-net in the accompanying consolidated statement of income. |
Vantiv, Inc. | Fifth Third | Total | ||||||
As of December 31, 2015 | 155,488,326 | 35,042,826 | 190,531,152 | |||||
% of ownership | 81.61 | % | 18.39 | % | ||||
Equity plan activity (1) | 992,451 | — | 992,451 | |||||
As of June 30, 2016 | 156,480,777 | 35,042,826 | 191,523,603 | |||||
% of ownership | 81.70 | % | 18.30 | % |
(1) | Includes stock issued under the equity plans net of Class A common stock withheld to satisfy employee tax withholding obligations upon vesting and forfeitures of restricted Class A common stock awards. |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income | $ | 78,461 | $ | 52,693 | $ | 130,909 | $ | 79,689 | |||||||
Items not allocable to non-controlling interests: | |||||||||||||||
Vantiv, Inc. expenses (1) | 21,253 | 12,587 | 34,391 | 20,397 | |||||||||||
Vantiv Holding net income | $ | 99,714 | $ | 65,280 | $ | 165,300 | $ | 100,086 | |||||||
Net income attributable to non-controlling interests of Fifth Third (2) | $ | 18,053 | $ | 14,468 | $ | 29,927 | $ | 22,371 | |||||||
Net income attributable to joint venture non-controlling interest (3) | 1,081 | 1,689 | 1,917 | 1,793 | |||||||||||
Total net income attributable to non-controlling interests | $ | 19,134 | $ | 16,157 | $ | 31,844 | $ | 24,164 |
(3) | Reflects net income attributable to the non-controlling interest of the joint venture. |
• | Level 1 Inputs—Quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date. |
• | Level 2 Inputs—Inputs other than quoted prices within Level 1 that are observable either directly or indirectly, including but not limited to quoted prices in markets that are not active, quoted prices in active markets for similar assets or liabilities and observable inputs other than quoted prices such as interest rates or yield curves. |
• | Level 3 Inputs—Unobservable inputs reflecting the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. |
June 30, 2016 | December 31, 2015 | ||||||||||||||||||||||
Fair Value Measurements Using | |||||||||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
Assets: | |||||||||||||||||||||||
Interest rate contracts | $ | — | $ | 10,516 | $ | — | $ | — | $ | — | $ | — | |||||||||||
Liabilities: | |||||||||||||||||||||||
Interest rate contracts | $ | — | $ | 27,345 | $ | — | $ | — | $ | 19,228 | $ | — | |||||||||||
Mercury TRA | — | — | 138,054 | — | — | 191,207 |
June 30, 2016 | December 31, 2015 | ||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | ||||||||||||
Liabilities: | |||||||||||||||
Note payable | $ | 2,998,126 | $ | 3,012,464 | $ | 3,060,139 | $ | 3,064,989 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Basic: | |||||||||||||||
Net income attributable to Vantiv, Inc. | $ | 59,327 | $ | 36,536 | $ | 99,065 | $ | 55,525 | |||||||
Shares used in computing basic net income per share: | |||||||||||||||
Weighted-average Class A common shares | 155,670,267 | 145,566,899 | 155,533,813 | 145,051,664 | |||||||||||
Basic net income per share | $ | 0.38 | $ | 0.25 | $ | 0.64 | $ | 0.38 | |||||||
Diluted: | |||||||||||||||
Consolidated income before applicable income taxes | $ | 116,902 | $ | 77,012 | $ | 193,176 | $ | 116,261 | |||||||
Income tax expense excluding impact of non-controlling interest | 42,085 | 27,724 | 69,543 | 41,854 | |||||||||||
Net income attributable to Vantiv, Inc. | $ | 74,817 | $ | 49,288 | $ | 123,633 | $ | 74,407 | |||||||
Shares used in computing diluted net income per share: | |||||||||||||||
Weighted-average Class A common shares | 155,670,267 | 145,566,899 | 155,533,813 | 145,051,664 | |||||||||||
Weighted-average Class B units of Vantiv Holding | 35,042,826 | 43,042,826 | 35,042,826 | 43,042,826 | |||||||||||
Warrant | 5,488,673 | 12,171,352 | 5,367,931 | 11,774,401 | |||||||||||
Stock options | 574,050 | 544,331 | 568,143 | 551,003 | |||||||||||
Restricted stock awards, restricted stock units and employee stock purchase plan | 482,393 | 506,059 | 505,305 | 856,272 | |||||||||||
Diluted weighted-average shares outstanding | 197,258,209 | 201,831,467 | 197,018,018 | 201,276,166 | |||||||||||
Diluted net income per share | $ | 0.38 | $ | 0.24 | $ | 0.63 | $ | 0.37 |
Total Other Comprehensive Income (Loss) | ||||||||||||||||||||||||||||
AOCI Beginning Balance | Pretax Activity | Tax Effect | Net Activity | Attributable to non-controlling interests | Attributable to Vantiv, Inc. | AOCI Ending Balance | ||||||||||||||||||||||
Three Months Ended June 30, 2016 | ||||||||||||||||||||||||||||
Net change in fair value recorded in accumulated OCI | $ | (21,506 | ) | $ | (10,117 | ) | $ | 3,128 | $ | (6,989 | ) | $ | 1,851 | $ | (5,138 | ) | $ | (26,644 | ) | |||||||||
Net realized loss reclassified into earnings (a) | 6,342 | 2,711 | (837 | ) | 1,874 | (496 | ) | 1,378 | 7,720 | |||||||||||||||||||
Net change | $ | (15,164 | ) | $ | (7,406 | ) | $ | 2,291 | $ | (5,115 | ) | $ | 1,355 | $ | (3,760 | ) | $ | (18,924 | ) | |||||||||
Three Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
Net change in fair value recorded in accumulated OCI | $ | (10,782 | ) | $ | (1,717 | ) | $ | 502 | $ | (1,215 | ) | $ | 391 | $ | (824 | ) | $ | (11,606 | ) | |||||||||
Net realized loss reclassified into earnings (a) | 2,231 | 1,252 | (367 | ) | 885 | (285 | ) | 600 | 2,831 | |||||||||||||||||||
Other | (212 | ) | — | — | — | — | — | (212 | ) | |||||||||||||||||||
Net change | $ | (8,763 | ) | $ | (465 | ) | $ | 135 | $ | (330 | ) | $ | 106 | $ | (224 | ) | $ | (8,987 | ) | |||||||||
Six Months Ended June 30, 2016 | ||||||||||||||||||||||||||||
Net change in fair value recorded in accumulated OCI | $ | (14,336 | ) | $ | (24,211 | ) | $ | 7,466 | $ | (16,745 | ) | $ | 4,437 | $ | (12,308 | ) | $ | (26,644 | ) | |||||||||
Net realized loss reclassified into earnings (a) | 5,132 | 5,087 | (1,568 | ) | 3,519 | (931 | ) | 2,588 | 7,720 | |||||||||||||||||||
Net change | $ | (9,204 | ) | $ | (19,124 | ) | $ | 5,898 | $ | (13,226 | ) | $ | 3,506 | $ | (9,720 | ) | $ | (18,924 | ) | |||||||||
Six Months Ended June 30, 2015 | ||||||||||||||||||||||||||||
Net change in fair value recorded in accumulated OCI | $ | (5,288 | ) | $ | (13,152 | ) | $ | 3,831 | $ | (9,321 | ) | $ | 3,003 | $ | (6,318 | ) | $ | (11,606 | ) | |||||||||
Net realized loss reclassified into earnings (a) | 1,732 | 2,293 | (672 | ) | 1,621 | (522 | ) | 1,099 | 2,831 | |||||||||||||||||||
Other | (212 | ) | — | — | — | — | — | (212 | ) | |||||||||||||||||||
Net change | $ | (3,768 | ) | $ | (10,859 | ) | $ | 3,159 | $ | (7,700 | ) | $ | 2,481 | $ | (5,219 | ) | $ | (8,987 | ) |
OCI Component | Affected line in the accompanying consolidated statements of income | ||||||||||
Pretax activity(1) | Interest expense-net | ||||||||||
Tax effect | Income tax expense | ||||||||||
OCI attributable to non-controlling interests | Net income attributable to non-controlling interests | ||||||||||
(1) The three and six months ended June 30, 2016 and 2015 reflect amounts of losses reclassified from AOCI into earnings, representing the effective portion of the hedging relationships, and are recorded in interest expense-net. |
Three Months Ended June 30, 2016 | |||||||||||
Merchant Services | Financial Institution Services | Total | |||||||||
Total revenue | $ | 762,593 | $ | 128,624 | $ | 891,217 | |||||
Network fees and other costs | 374,820 | 35,916 | 410,736 | ||||||||
Sales and marketing | 139,108 | 5,736 | 144,844 | ||||||||
Segment profit | $ | 248,665 | $ | 86,972 | $ | 335,637 |
Three Months Ended June 30, 2015 | |||||||||||
Merchant Services | Financial Institution Services | Total | |||||||||
Total revenue | $ | 661,258 | $ | 124,737 | $ | 785,995 | |||||
Network fees and other costs | 324,166 | 38,183 | 362,349 | ||||||||
Sales and marketing | 116,860 | 6,065 | 122,925 | ||||||||
Segment profit | $ | 220,232 | $ | 80,489 | $ | 300,721 |
Six Months Ended June 30, 2016 | |||||||||||
Merchant Services | Financial Institution Services | Total | |||||||||
Total revenue | $ | 1,457,173 | $ | 252,667 | $ | 1,709,840 | |||||
Network fees and other costs | 728,154 | 69,995 | 798,149 | ||||||||
Sales and marketing | 268,444 | 12,038 | 280,482 | ||||||||
Segment profit | $ | 460,575 | $ | 170,634 | $ | 631,209 |
Six Months Ended June 30, 2015 | |||||||||||
Merchant Services | Financial Institution Services | Total | |||||||||
Total revenue | $ | 1,247,970 | $ | 243,636 | $ | 1,491,606 | |||||
Network fees and other costs | 620,196 | 73,299 | 693,495 | ||||||||
Sales and marketing | 227,035 | 11,945 | 238,980 | ||||||||
Segment profit | $ | 400,739 | $ | 158,392 | $ | 559,131 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Total segment profit | $ | 335,637 | $ | 300,721 | $ | 631,209 | $ | 559,131 | |||||||
Less: Other operating costs | (73,599 | ) | (76,551 | ) | (147,302 | ) | (145,290 | ) | |||||||
Less: General and administrative | (49,120 | ) | (47,060 | ) | (93,104 | ) | (94,903 | ) | |||||||
Less: Depreciation and amortization | (65,234 | ) | (67,659 | ) | (133,464 | ) | (135,461 | ) | |||||||
Less: Interest expense—net | (26,118 | ) | (25,714 | ) | (53,847 | ) | (51,725 | ) | |||||||
Less: Non-operating expenses | (4,664 | ) | (6,725 | ) | (10,316 | ) | (15,491 | ) | |||||||
Income before applicable income taxes | $ | 116,902 | $ | 77,012 | $ | 193,176 | $ | 116,261 |
• | Clearing, Settlement and Sponsorship Services Agreement (the “Sponsorship Agreement”) pursuant to which Fifth Third will continue to act as the Company’s member “sponsor” to the Visa, MasterCard and other payment network associations as non-financial institutions (such as payment processors, independent sales organizations, third party service providers, merchants, non-member financial institutions) must obtain the “sponsorship” of a member bank in order to participate in such associations. Under the Sponsorship Agreement Fifth Third transfers the responsibility for all card association requirements and fees to the Company as a “sponsored participant.” Fifth Third is the primary provider of the Company’s payment network sponsorship. The Sponsorship Agreement terminates on December 31, 2024. |
• | Master Services Agreement (the “Master Services Agreement”) pursuant to which the Company agreed to continue to provide Fifth Third depository institutions with various electronic fund transfer services including debit card processing and ATM terminal driving services. The Master Services Agreement is an exclusive agreement, subject to certain customary qualifications, which is coterminous with the Sponsorship Agreement and terminates on December 31, 2024. |
• | Referral Agreement (the “Referral Agreement”) pursuant to which Fifth Third will continue to refer various parties exclusively to the Company, including commercial and retail merchant clients of Fifth Third depository institutions that request merchant (credit or debit card) acceptance services. In return for these referrals and the resulting processing service relationships, the Company will make ongoing incentive payments to Fifth Third. The Referral Agreement is coterminous with the Sponsorship Agreement and terminates on December 31, 2024. |
• | Direct: Includes a national sales force that targets large national merchants, a regional and mid-market sales team that sells solutions to merchants and third party reseller clients, and a telesales operation that targets small and mid-sized merchants. |
• | Indirect: Includes Independent Sales Organizations (ISOs) that target small and mid-sized merchants. |
• | Merchant Bank: Includes referral partner relationships with financial institutions that target their financial services customers as merchant referrals to us. |
• | Integrated Payments (IP): Includes referral partner relationships with independent software vendors (ISVs), value-added resellers (VARs), and payment facilitators that target their technology customers as merchant referrals to us. |
• | eCommerce: Includes a sales force that targets internet retail, online services and direct marketing merchants. |
• | Sales and marketing expense primarily consists of salaries and benefits paid to sales personnel, sales management and other sales and marketing personnel, residual payments made to ISOs and referral partners and advertising and promotional costs. |
• | Other operating costs primarily consist of salaries and benefits paid to operational and IT personnel, costs associated with operating our technology platform and data centers, information technology costs for processing transactions, product development costs, software consulting fees and maintenance costs. |
• | General and administrative expenses primarily consist of salaries and benefits paid to executive management and administrative employees, including finance, human resources, product development, legal and risk management, share-based compensation costs, equipment and occupancy costs and consulting costs. |
• | Depreciation and amortization expense consists of our depreciation expense related to investments in property, equipment and software as well as our amortization of intangible assets, principally customer relationships acquired in connection with the acquisition of a majority interest in Vantiv Holding in June 2009 and our subsequent acquisitions. |
• | Interest expense—net consists primarily of interest on borrowings under our senior secured credit facilities less interest income earned on our cash and cash equivalents. |
• | Income tax expense represents federal, state and local taxes based on income in multiple jurisdictions. |
• | Non-operating expenses during the three and six months ended June 30, 2016 and 2015 primarily relate to the change in the fair value of the tax receivable agreement (“TRA”) entered into as part of the acquisition of Mercury Payment Systems, LLC (“Mercury”). |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
Fifth Third Tax Benefit (a) | $ | 11,927 | $ | 9,992 | $ | 23,854 | $ | 19,984 | |||||||
Mercury Tax Benefit (b) | 4,665 | 8,607 | 9,330 | 17,214 | |||||||||||
Total Tax Benefits | 16,592 | 18,599 | 33,184 | 37,198 | |||||||||||
Less: TRA payments (c) | (14,103 | ) | (15,809 | ) | (28,206 | ) | (31,618 | ) | |||||||
TRA Tax Benefits (d) | 2,489 | 2,790 | 4,978 | 5,580 | |||||||||||
Acquired Tax Benefits (e) | 15,581 | 8,854 | 31,162 | 17,756 | |||||||||||
Pro Forma Tax Benefits (f) | $ | 18,070 | $ | 11,644 | $ | 36,140 | $ | 23,336 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(in thousands) | (in thousands) | ||||||||||||||
Income before applicable income taxes | $ | 116,902 | $ | 77,012 | $ | 193,176 | $ | 116,261 | |||||||
Non-GAAP Adjustments: | |||||||||||||||
Transition, acquisition and integration costs | 12,408 | 23,345 | 19,571 | 38,019 | |||||||||||
Share-based compensation | 7,940 | 5,097 | 16,292 | 16,720 | |||||||||||
Intangible amortization | 47,242 | 47,524 | 94,907 | 94,749 | |||||||||||
Non-operating expenses | 4,664 | 6,725 | 10,316 | 15,491 | |||||||||||
Non-GAAP Adjusted Income Before Applicable Taxes | 189,156 | 159,703 | 334,262 | 281,240 | |||||||||||
Less: Pro Forma Adjustments | |||||||||||||||
Income tax expense | 68,096 | 57,493 | 120,334 | 101,246 | |||||||||||
Tax adjustments | (18,070 | ) | (11,644 | ) | (36,140 | ) | (23,336 | ) | |||||||
JV non-controlling interest | 692 | 1,083 | 1,227 | 1,151 | |||||||||||
Pro Forma Adjusted Net Income | $ | 138,438 | $ | 112,771 | $ | 248,841 | $ | 202,179 |
Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
(dollars in thousands) | ||||||||||||||
Revenue | $ | 891,217 | $ | 785,995 | $ | 105,222 | 13 | % | ||||||
Network fees and other costs | 410,736 | 362,349 | 48,387 | 13 | % | |||||||||
Net revenue | 480,481 | 423,646 | 56,835 | 13 | % | |||||||||
Sales and marketing | 144,844 | 122,925 | 21,919 | 18 | % | |||||||||
Other operating costs | 73,599 | 76,551 | (2,952 | ) | (4 | )% | ||||||||
General and administrative | 49,120 | 47,060 | 2,060 | 4 | % | |||||||||
Depreciation and amortization | 65,234 | 67,659 | (2,425 | ) | (4 | )% | ||||||||
Income from operations | $ | 147,684 | $ | 109,451 | $ | 38,233 | 35 | % | ||||||
Non-financial data: | ||||||||||||||
Transactions (in millions) | 6,183 | 5,768 | 7 | % |
As a Percentage of Net Revenue | Three Months Ended June 30, | ||||
2016 | 2015 | ||||
Net revenue | 100.0 | % | 100.0 | % | |
Sales and marketing | 30.1 | % | 29.0 | % | |
Other operating costs | 15.3 | % | 18.1 | % | |
General and administrative | 10.3 | % | 11.1 | % | |
Depreciation and amortization | 13.6 | % | 16.0 | % | |
Income from operations | 30.7 | % | 25.8 | % |
Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
(dollars in thousands) | ||||||||||||||
Revenue | $ | 1,709,840 | $ | 1,491,606 | $ | 218,234 | 15 | % | ||||||
Network fees and other costs | 798,149 | 693,495 | 104,654 | 15 | % | |||||||||
Net revenue | 911,691 | 798,111 | 113,580 | 14 | % | |||||||||
Sales and marketing | 280,482 | 238,980 | 41,502 | 17 | % | |||||||||
Other operating costs | 147,302 | 145,290 | 2,012 | 1 | % | |||||||||
General and administrative | 93,104 | 94,903 | (1,799 | ) | (2 | )% | ||||||||
Depreciation and amortization | 133,464 | 135,461 | (1,997 | ) | (1 | )% | ||||||||
Income from operations | $ | 257,339 | $ | 183,477 | $ | 73,862 | 40 | % | ||||||
Non-financial data: | ||||||||||||||
Transactions (in millions) | 12,003 | 11,131 | 8 | % |
As a Percentage of Net Revenue | Six Months Ended June 30, | ||||
2016 | 2015 | ||||
Net revenue | 100.0 | % | 100.0 | % | |
Sales and marketing | 30.8 | % | 29.9 | % | |
Other operating costs | 16.2 | % | 18.2 | % | |
General and administrative | 10.2 | % | 11.9 | % | |
Depreciation and amortization | 14.6 | % | 17.0 | % | |
Income from operations | 28.2 | % | 23.0 | % |
Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
(dollars in thousands) | ||||||||||||||
Total revenue | $ | 762,593 | $ | 661,258 | $ | 101,335 | 15 | % | ||||||
Network fees and other costs | 374,820 | 324,166 | 50,654 | 16 | % | |||||||||
Net revenue | 387,773 | 337,092 | 50,681 | 15 | % | |||||||||
Sales and marketing | 139,108 | 116,860 | 22,248 | 19 | % | |||||||||
Segment profit | $ | 248,665 | $ | 220,232 | $ | 28,433 | 13 | % | ||||||
Non-financial data: | ||||||||||||||
Transactions (in millions) | 5,156 | 4,737 | 9 | % |
Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
(dollars in thousands) | ||||||||||||||
Total revenue | $ | 1,457,173 | $ | 1,247,970 | $ | 209,203 | 17 | % | ||||||
Network fees and other costs | 728,154 | 620,196 | 107,958 | 17 | % | |||||||||
Net revenue | 729,019 | 627,774 | 101,245 | 16 | % | |||||||||
Sales and marketing | 268,444 | 227,035 | 41,409 | 18 | % | |||||||||
Segment profit | $ | 460,575 | $ | 400,739 | $ | 59,836 | 15 | % | ||||||
Non-financial data: | ||||||||||||||
Transactions (in millions) | 10,003 | 9,144 | 9 | % |
Three Months Ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
(dollars in thousands) | ||||||||||||||
Total revenue | $ | 128,624 | $ | 124,737 | $ | 3,887 | 3 | % | ||||||
Network fees and other costs | 35,916 | 38,183 | (2,267 | ) | (6 | )% | ||||||||
Net revenue | 92,708 | 86,554 | 6,154 | 7 | % | |||||||||
Sales and marketing | 5,736 | 6,065 | (329 | ) | (5 | )% | ||||||||
Segment profit | $ | 86,972 | $ | 80,489 | $ | 6,483 | 8 | % | ||||||
Non-financial data: | ||||||||||||||
Transactions (in millions) | 1,027 | 1,031 | — | % |
Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | $ Change | % Change | |||||||||||
(dollars in thousands) | ||||||||||||||
Total revenue | $ | 252,667 | $ | 243,636 | $ | 9,031 | 4 | % | ||||||
Network fees and other costs | 69,995 | 73,299 | (3,304 | ) | (5 | )% | ||||||||
Net revenue | 182,672 | 170,337 | 12,335 | 7 | % | |||||||||
Sales and marketing | 12,038 | 11,945 | 93 | 1 | % | |||||||||
Segment profit | $ | 170,634 | $ | 158,392 | $ | 12,242 | 8 | % | ||||||
Non-financial data: | ||||||||||||||
Transactions (in millions) | 2,000 | 1,987 | 1 | % |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
Net cash provided by operating activities | $ | 248,486 | $ | 352,377 | |||
Net cash used in investing activities | (85,289 | ) | (79,167 | ) | |||
Net cash used in financing activities | (157,569 | ) | (283,996 | ) |
Period | Leverage Ratio (must not exceed) | Interest Coverage Ratio (must exceed) | ||
September 30, 2014 to March 31, 2015 | 6.50 to 1.00 | 4.00 to 1.00 | ||
June 30, 2015 to September 30, 2016 | 6.25 to 1.00 | 4.00 to 1.00 | ||
December 31, 2016 to September 30, 2017 | 5.50 to 1.00 | 4.00 to 1.00 | ||
December 31, 2017 to September 30, 2018 | 4.75 to 1.00 | 4.00 to 1.00 | ||
December 31, 2018 and thereafter | 4.25 to 1.00 | 4.00 to 1.00 |
• | TRAs with investors prior to our initial public offering (“IPO”) for its use of NPC Group, Inc. net operating losses (“NOLs”) and other tax attributes existing at the IPO date under the NPC TRA, all of which is currently held by Fifth Third. |
• | The Fifth Third TRA in which we realize tax deductions as a result of the increases in tax basis from the purchase of Vantiv Holding units or from the exchange of Vantiv Holding units for cash or shares of Class A common stock, as well as the tax benefits attributable to payments made under such TRAs. |
• | A TRA with Mercury shareholders (the “Mercury TRA”) as part of the acquisition of Mercury as a result of the increase in tax basis of the assets of Mercury resulting from the acquisition and the use of the net operating losses and other tax attributes of Mercury that were acquired as part of the acquisition. |
• | Beginning December 1st of each of 2015, 2016, 2017, and 2018, and ending June 30th of 2016, 2017, 2018, and 2019, respectively, we are granted call options (collectively, the "Call Options") pursuant to which certain of our additional obligations under the Mercury TRA would be terminated in consideration for cash payments of $41.4 million, $38.1 million, $38.0 million, and $43.0 million, respectively. |
• | In the unlikely event we do not exercise the relevant Call Option, the Mercury TRA Holders are granted put options beginning July 10th and ending July 25th of each of 2016, 2017, 2018, and 2019, respectively (collectively, the "Put Options"), pursuant to which certain of our additional obligations would be terminated in consideration for cash payments with similar amounts to the Call Options. |
• | In June 2016, we exercised the December 2015 Call Option and made a payment to the Mercury TRA Holders. |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Shares Purchased as Part of Publicly Announced Plans or Programs (2) | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in millions) (2) | ||||||||||
April 1, 2016 to April 30, 2016 | 3,604 | $ | 56.41 | — | $ | 74.6 | ||||||||
May 1, 2016 to May 31, 2016 | — | $ | — | — | $ | 74.6 | ||||||||
June 1, 2016 to June 30, 2016 | 125 | $ | 53.42 | — | $ | 74.6 |
(1) | Includes shares of Class A common stock surrendered to us to satisfy tax withholding obligations in connection with the vesting of restricted stock awards. |
(2) | In February 2014, our board of directors authorized a program to repurchase up to $300 million of our Class A common stock. During the three months ended June 30, 2016, no share repurchases have been transacted under this authorization. Purchases under the repurchase program are allowed from time to time in the open market, in privately negotiated transactions, or otherwise. The manner, timing, and amount of any purchases are determined by management based on an evaluation of market conditions, stock price, and other factors. The share repurchase program has no expiration date and we may discontinue purchases at any time that management determines additional purchases are not warranted. |
VANTIV, INC. | |||
Dated: | July 28, 2016 | By: | /s/ STEPHANIE L. FERRIS |
Name: Stephanie L. Ferris | |||
Title: Chief Financial Officer | |||
Dated: | July 28, 2016 | By: | /s/ CHRISTOPHER THOMPSON |
Name: Christopher Thompson | |||
Title: SVP, Controller and Chief Accounting Officer |
Exhibit | ||
Number | Exhibit Description | |
10.1† | Clearing, Settlement and Sponsorship Services Agreement, dated July 27, 2016, by and between Vantiv, LLC and Fifth Third Bank | |
10.2† | Master Services Agreement, dated as of July 27, 2016, by and between Fifth Third Bank and Vantiv, LLC | |
10.3 | Tax Receivable Purchase Addendum, dated as of July 27, 2016, by and between Vantiv, Inc. and Fifth Third Bank | |
31.1 | Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32 | Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | Interactive Data Files. | |
If to Company: | Vantiv, LLC 8500 Governors Hill Drive Maildrop 1GH1Y1 Cincinnati, OH 45249 Email: Ned.Greene@vantiv.com and Jared.Warner@vantiv.com Attn: General Counsel/Legal Department | |
With copies to: (which shall not constitute notice) | Benesch, Friedlander, Coplan & Aronoff LLP 200 Public Square Cleveland, Ohio 44114-2578 Email: speppard@beneschlaw.com Attn: Sean T. Peppard, Esq. | |
If to Bank: With copies to: (which shall not constitute notice) | Fifth Third Bank 38 Fountain Square Plaza Maildrop 10907E Cincinnati, Ohio 45263 Email: vantivagreement@53.com Attn: Executive Vice President General Counsel of Bank at same address |
VANTIV, LLC | FIFTH THIRD BANK | |||
By: | /s/ Nelson F. Greene | By: | /s/ Randolph J. Kaporc | |
Name: | Nelson F. Greene | Name: | Randolph J. Kaporc | |
Title: | Chief Legal and Corporate Services Officer and Secretary | Title: | Executive Vice President, Payments and Commerce Division | |
Date: | July 27, 2016 | Date: | July 27, 2016 | |
By: | /s/ Robert Marchi | |||
Name: | Robert Marchi | |||
Title: | Vice President, Sourcing | |||
Date: | July 27, 2016 |
1. | High risk MCC transaction volume, as defined by Visa (but excluding brick and mortar ***), shall not exceed (***%) of Sponsored Volume. |
2. | Quarterly periodic and on-boarded Sponsored Entity review performance shall meet or exceed ***% pass rate for all merchants, ISOs, payment facilitators (“PayFacs”), PayFac submerchants, and financial institutions annually. |
3. | Evidence of PCI compliance verification will be part of the quarterly periodic and on-boarded Sponsored Entity review process. ***% of the Level I and II merchants tested across all portfolios must be PCI compliant or in the process of validating compliance. Level III and IV merchant PCI validation rates will be measured relative to current industry validation rates for Level III and IV merchants. |
4. | Prohibited merchant identification in the collective portfolios must not exceed ***% annually. |
5. | Onboarding documentation evidence in the collective portfolios must meet or exceed ***% annually. |
6. | ISO and PayFac registration with the Card Associations shall meet or exceed ***% pass rate annually. |
7. | Financial institutions must meet or exceed ***% FDIC or CDFI certification. |
8. | Chargeback transaction threshold for each Sponsored Entities shall not exceed ***% for *** consecutive months (excluding merchants that are in process of terminating or converting from Vantiv’s system or do less than *** transactions per month), and for all Sponsored Entities shall not exceed ***% annually. |
(a) | Company shall pay to Bank an annual sponsorship fee (“Sponsorship Fee”). For the period commencing on *** and ending on ***, Company shall pay to Bank a Sponsorship Fee of $*** per month. |
2020 | 2021 | 2022 | 2023 | 2024 |
$*** | $*** | $*** | $*** | $*** |
(b) | In each Sponsored Year Company may exclude from the calculation of the Sponsored Volume Calculated Fee the Sponsored Volume of *** New National Merchant (each such excluded New National Merchant being referred to as an “Excluded Merchant”); provided that Company must notify Bank in writing of its designation of an Excluded Merchant for such exclusion within *** days after the Excluded Merchant processes its first Transaction with Company. If Company fails to notify Bank in writing of its designation of an Excluded Merchant within such *** day period, Company will forfeit its right to designate such merchant as an Excluded Merchant; and provided further that exclusion from the calculation of the Sponsored Volume Calculated Fee shall only apply to Sponsored Volume occurring from and after the month (dating back to the first day of such month) that Company provides written notice of its designation of such Excluded Merchant (i.e., if Company signs an agreement with a New National Merchant on January 1, 2020 but does not provide written notice of such designation until February 20, 2020, the Sponsored Volume of such Excluded Merchant will only be excluded from the calculation of the Sponsored Volume Calculated Fee from and after February 1, 2020). Upon Company’s valid designation of an Excluded Merchant, such Excluded Merchant’s Sponsored Volume will continue to be excluded from the calculation of the Sponsorship Fee for each subsequent Sponsored Year (whether or not such merchant continues to qualify as a New National Merchant). Once an Excluded Merchant is designated as provided above, such Excluded Merchant cannot be replaced or substituted by Company. |
(c) | The parties acknowledge and agree that, in connection with Company’s prior acquisitions and integrations, Company shall pay to Bank no later than three (3) days after the Effective Date the sum of *** Dollars ($***) as consideration for Bank’s provision of due diligence services related to such acquisitions and integrations. |
(d) | During the Term of this agreement, Company shall pay to Bank the fees set forth below for the following services: M&A advisory services; diligence costs and assistance; regulatory compliance diligence and assistance; integration assistance; and conversion costs and assistance. |
ACCULYNK PAYMENT SERVICES | 3DELTA SYSTEMS INC |
ACS STATE & LOCAL SOLUTIONS INC | ACH DIRECT INC |
ALDELO LP | ADJACENT INNOVATIONS LLC |
AMERICAN EXPRESS | ALLIANCE DATA SYSTEMS |
ARISTEN GROUP LLC | ANTIPODEAN LABS LLC |
ASH PAYMENT SOLUTIONS INC | ARMED FORCES FINANCIAL NETWORK LLC |
ATX INNOVATION INC | ATTITUDE POSITIVE INC |
AZTPOS | AUGEO CONSUMER ENGAGEMENT SERVICES |
BANCORP BANK | BANC CARD - TEXAS LLC |
BANKDATA SERVICES | BANK OF EDWARDSVILLE |
BILL ME LATER INC | BEAZLEY USA SERVICES INC |
BROOKFIELD EQUINOX LLC | BOOKS A MILLION INC |
BUYPASS CORP | BROSLEY LIMITED |
CAMPGROUND AUTOMATION SYSTEMS (SUNRISE) | CAFFE FANTASTICO |
CANADIAN IMPERIAL BANK OF COMMERCE | CANADAS PROFESSIONAL SCHOOL OF MUSIC AND ARTS - MOTO |
CARD MANAGEMENT CORPORATION | CARD FULFILLMENT SERVICES |
CARDFREE INC | CARD MANAGEMENT CORPORATION FIRST DATA RESOURCES |
CARDWATCH LICENSING LTD | CARDINAL COMMERCE |
CARTERA COMMERCE INC | CARROLLTON BANK |
CATALYST CARD COMPANY | CASHSTAR INC |
CHECKFREE SERVICES CORPORATION | CHASE PAYMENTECH |
CITICORP DINERS CLUB INC | CITIBANK NEW YORK |
CITY OF NORTH OLMSTED | CITICORP SERVICES INC |
CONCORD BANK | COLUMBUS BANK AND TRUST COMPANY |
COUNTY OF WESTCHESTER | CONTROL SCAN INC |
CPI CARD GROUP INDIANA INC | CPI CARD GROUP - COLORADO INC |
CREDORAX | CREDIT UNION 24 INCORPORATED |
CSG SYSTEMS INC | CRYSTAL BRIDGES MUSEUM OF AMERICAN ART |
DATALINE SYSTEMS INC | CUSTOM DATA PROCESSING INC |
DECISIONWISE | DAVID WERNER INC |
DFS SERVICES LLC | DELAWARE BUSINESS SYSTEMS |
DIGITAL RIVER GMBH | DIGITAL RIGHT BRAIN LLC |
DINERWARE | DINERS CLUB INTERNATIONAL LTD |
DISCOVER FINANCIAL SERVICES | DINING A LA CARD |
DYNAMICS PRODUCTS MIDWEST | DURANGO LLC |
ELECTRONIC CLEARING HOUSE INC | EDIBLE ARRANGEMENTS - CORPORATE |
ELIZABETH ARDEN INC | ELEMENT PAYMENT SERVICES |
ENTELIT SOLUTIONS - ECOMMERCE | ENSENTA CORPORATION |
FANTANA ITALIAN RESTAURANT | EPL |
FIFTH THIRD BANK | FAST TRANSACT INC |
FIRST AMERICAN PAYMENT SYSTEMS | FIFTH THIRD BANK FIRST NATIONAL BANK OF OMAHA TSYS ACQUIRING SOLUTIONS LLC |
FIRST NATIONAL BANK OF OMAHA | FIRST DATA SOLUTIONS |
FISERV SOLUTIONS INC | FIRST PREMIER BANK |
FOUR BROTHERS PIZZA INN | FLEETCOR TECHNOLOGIES INC |
G6 TECHNOLOGY | FRANKFORD HOSPITALS |
GEMALTO INC | GALITT US CORP |
GIACT SYSTEMS LLC | GEORGIA THRIFT STORES INC |
GLOBAL ETELECOM | GLOBAL DIRECT |
GLOBAL PAYMENTS INC | GLOBAL PAYMENTS CANADA |
GLOBAL PAYMENTS INC MASTERCARD INTERNATIONAL INCORPORATED | GLOBAL PAYMENTS INC GLOBAL PAYMENTS CANADA |
GREEN DOT CORPORATION | GOOGLE PAYMENT CORP |
HEARTLAND PAYMENT SYSTEMS IN | HARRISONTUCKER LLC |
HOSPITALITY DATA SYSTEMS INC | HOME STATE BANK |
IMAGE WASH | HYLAND HILLS PARK & RECREATION DISTRICT |
INBORNE TECHNOLOGY CORP | IMOBILE3 LLC |
INCOMM | INBS KONRAD KECK |
INSTORE OWN POS | INNOVATION DATA PROCESSING |
iPay Technologies | IP COMMERCE INC |
IT4MERCHANT SOLUTIONS LTD | ISLAND SNOW (CA100) |
J2 RETAIL SYSTEMS INC | J P MORGAN ELECTRONIC FINANCIAL SERVICES INC |
KAHOOTS INC | JET LITHOCOLOR INC |
LAUNCH 3 LLC | LA ROSETTA |
LYNDA.COM INC | LUSH HANDMADE COSMETICS LTD |
MASTERCARD INTERNATIONAL INCORPORATED | MAGTEK INC |
MERCHANT APPLICATIONS INC | MASTERFILES INC |
MERIDIAN FARM MARKET | MERCHANT LINK LLC |
MICHAEL FITCHETT | METABANK |
MICROBIZ LLC | MICHAEL SILVER |
MIDNITE EXPRESS INC | MIDAX INFINITE POSSIBILITIES |
MOBILECHECKOUT.COM LLC | MILLENNIUM DIGITAL TECHNOLOGI |
MOORE CENTER SERVICES | MOJIMAN INC |
NATIONAL BUSINESS PRODUCTS | MULLIGANS SPORTS GRILL INC |
NETS INC | NCO FINANCIAL SYSTEMS INC |
NOURI FAMILY RESTAURANT | NEW ENGLAND CREDIT CARD SYSTEMS |
OBERTHUR | NYCE |
OFFICIAL PAYMENTS CORPORATION | ONE POINT RETAIL SOLUTIONS |
ONLINE RESOURCES CORPORATION | OTI AMERICA INC |
PANGOUSA LLC | PARC ONTARIO LLC |
PARK SLOPE CIVIC COUNCIL | PARTY FOR LESS INC |
PAYMENT REVOLUTION LLC | PAYMENTECH NETWORK SERVICES |
PAYPAL INC | PAYSIMPLE INC |
PAYTRONIX SYSTEMS INC | PAYX INTERNATIONAL LIMITED |
PBM GRAPHICS | PBUS TECH INC |
PC AND MP SERVICE | PEARSONS LUMBER YARD |
PERFECT PLASTIC PRINTING CORP | PERFORMANCE INC |
PHARMACA INTEGRATIVE PHARMACY INC | PHP POINT OF SALE LLC |
PITNEY BOWES | PLANET BINGO |
PLANET MERCHANT PROCESSING | PLANET PAYMENT INC |
PLANNET LOGIX INC | PLUG & PAY TECHNOLOGIES INC |
POS OF MICHIGAN | POS PARTNERS INC |
POS SOS LLC | POS SPECIALISTS |
POS VENTURES LLC | POSIOS |
POSITION CORP | POSNET INC |
POS-X INC | PUEBLO BANK & TRUST COMPANY |
PULSE NETWORK INC | RAIN1 SOLUTIONS LLC |
RAPIDADVANCE LLC | REALTIME POS INC |
RESTOPOD LLC | RETAIL PLUS POS |
REVENTION INC | REVENUE MANAGEMENT SOLUTIONS LLC |
RIDHAM INC | RIPPLE POS INC |
RJZ LTD | ROYAL PET MARKET AND RESORT LLC |
RR DONNELLEY INC | SALE CONTROL SYSTEMS LTD |
SAS COMFORT SHOES | SATURN RETAIL MANAGEMENT SYSTEMS LLC |
SAZU INC | SCANSOURCE INC |
SEAMLESS CARE PHARMACY | SHAZAM INC |
SHISEIDO AMERICAS CORPORATION | SHOPIFY INC |
SILICUS TECHNOLOGIES LLC | SILVERWARE POS INC |
SILVO US | SIMPLISTIC POS |
SIXTH SENSE POINT OF SALE INC | SKIVVIES FOR HER |
SLK AMERICA INC | SLK GLOBAL BPO SERVICES PRIVATE LIMITED |
SLK SOFTWARE SERVICES | SMARTTAB POS |
SOFTTOUCH LLC | SOUTHERN UTE INDIAN TRIBE LEGAL DEPT |
SOUTHWEST CASH SYSTEMS INC | SPEEDLINE SOLUTIONS |
SPF SOLUTIONS LLC | SPLASH CAR WASH INC |
SPLITABILITY PTY LTD | SPOONITY INC |
SRIDEVI TECHNOLOGY SOLUTIONS | STAR NETWORKS |
STERLING CARD SOLUTIONS LLC | SUBTLEDATA INC |
SWITCH COMMERCE LLC | SWITCH INTERNATIONAL BOWLING EKIPMANLARI AS |
SWITCHSOLVE INC | T4MOBILE SOLUTIONS |
TANDA TECHNOLOGIES - ECOMM | TATA AMERICA INTERNATIONAL CORPORATION |
TCSP INC | TELEPERFORMANCE USA |
TERMINAL MANAGEMENT CONCEPTS LTD | T-GATE LLC |
THE ADVANCE FUNDING COMPANY LLC | THE FALL TATTOOOING ETC |
THE FUND FOR THE PUBLIC INTEREST INC | THE ITRANSACT GROUP VALUE EXCHANGE CORPORATION |
THOMSON REUTERS | THORNTONS INC |
TOAST INC | TOTAL SYSTEM SERVICES INC |
TOWN NORTH BANK NA | TRANPOS |
TRANSACTION NETWORK SERVICES INC | TRANSACTIONTREE INC |
TRANSCARD LLC | TRANSCENTRA INC |
TRINITEQ INTERNATIONAL PTY LTD | TRITON SYSTEMS OF DELAWARE LLC |
TSYS ACQUIRING SOLUTIONS LLC | TSYS ACQUIRING SOLUTIONS LLC FIRST DATA MERCHANT SERVICES CORP |
TUSCARORA COUNCIL BSA | TWITCHTV |
UNITED FINANCIAL CREDIT UNION | UNTILL USA INC |
US BANK | VANCO PAYMENT SOLUTIONS LLC |
VECTRON SYSTEMS AG | VELOCITY MOBILE INC |
VENDEASE | VENDOR SAFE TECHNOLOGIES LLC |
VENDSCREEN INC | VERICHECK INC |
VICTORY POS | VISA USA |
VISTA ENTERTAINMENT SOLUTIONS | VISUAL INFORMATION PRODUCTS INC |
WAND CORPORATION | WELLERO |
WESTERN UNION | WESTERN VARIETIES WHOLESALE INC |
WICLOUD POS | WOODS CYCLE COUNTRY LP |
WOODY'S BAR-B-Q DARTMOUTH | WORLDWIDE PAYMENT SERVICES INC |
WORLDWIDEDIRECT PROCESSING INC | YAZ LTD |
ZEUSPOS | ZING CHECKOUT |
ZONAL HOSPITALITY SYSTEMS INC | |
1. | Definitions; Interpretations. |
2. | Services. |
(i) | Vendor's Obligations. |
(a) | Vendor will perform the Services in accordance with and as set forth in the Agreement and the Addenda. |
(b) | Vendor will ensure that the Services are and remain in compliance with (and will enable Customer’s compliance with) all Card Association Rules and Applicable Law, and Vendor will not charge Customer for any modifications or updates to the Services related to any changes to Card Association Rules or Applicable Law. |
(c) | Except for any change in the Services which Vendor reasonably determines is required by Applicable Law or to comply with Card Association Rules (which Vendor shall use its best efforts to implement such changes, and further Vendor shall use commercially reasonable efforts to implement such changes in a manner that has the least adverse impact on Customer and with as much advance written notice as is possible): |
1. | Vendor shall notify Customer in writing at least *** days prior to any proposed Operational Change that Vendor plans to implement, and Customer may object to the proposed Operational Change within *** days of receiving such notice from Vendor. |
2. | If Customer objects within such period of time, the proposed Operational Change shall not become effective; provided, however, that the Parties will thereafter work together in good faith for a reasonable period of time to reach a mutually agreeable resolution that meets the Parties’ interests. If Customer does not object to any Operational Change within the above-described objection period, Vendor may implement such proposed Operational Change, provided that all such Operational Changes must be implemented in accordance with a schedule that is reasonably acceptable to Customer. |
3. | The foregoing procedures shall not apply in the event that Operational Changes are temporarily necessary to maintain continuity of the Services. With respect to temporary Operational Changes made to maintain continuity of the Services, Vendor will document and provide to Customer notification (which may be given orally, provided that any oral notice must be confirmed in writing to Customer within *** business days) of the temporary Operational Change no later than the next business day after the temporary Operational Change is made. |
4. | Notwithstanding the foregoing, in the event that changes other than Operational Changes are made by Vendor that might reasonably be expected to impact Customer’s provision of services to Customer’s customer or otherwise impact Customer’s cost of using or benefitting from the Services, Vendor shall provide notice to Customer at least *** days prior to implementation of any such change. In the event that Vendor fails to provide notice to Customer, Vendor shall bear any and all costs associated with such changes and Customer shall be entitled to any other applicable remedies as stated in the Service Levels. |
(d) | Vendor agrees, as necessary, to cause the Services to evolve and to be modified, enhanced, supplemented and replaced for the Services to be of at least the same quality as the Services provided by Vendor to other large customers. During the Term, Customer shall have the right to operate on, and receive the Services from, Vendor’s most current processing platform being used by Vendor’s other large financial institution customers for no new or additional charge under this Agreement; provided, however, that nothing in this Section 2(i)(d) is intended to eliminate Customer’s obligation to pay for New Services, Optional Upgrades or Replacement Services as provided hereunder. |
(e) | Customer is required, as a banking entity, to assure the safety, soundness and continuity of certain essential banking functions. Vendor acknowledges that its performance of its obligations under this Agreement may be critical to the essential banking functions of Customer. Accordingly, notwithstanding any provisions to the contrary contained in this Agreement or any other agreement between the Parties, Vendor shall not interrupt or cease providing any Services during the Term (which for purposes of this Section 2(i)(e) shall include any Transition Assistance Period) to the extent the same are necessary to Customer’s essential banking functions, as determined by Customer in its reasonable discretion, due to an asserted breach of this Agreement by Customer or otherwise. Vendor acknowledges and agrees that Vendor’s remedies for breach of this Agreement relating to the provision of essential banking functions shall be limited to (i) equitable relief that does not have the effect of interrupting such functions or (ii) monetary damages. Vendor acknowledges that it has waived its right to seek equitable relief that will interrupt the essential functions of the Services and agrees not to seek any such equitable relief. Notwithstanding the foregoing, the provisions of this Section 2(i)(e) shall not apply in the event that the asserted breach by Customer is for the failure to pay undisputed fees due to Vendor hereunder, provided, however, that in no event shall Vendor be permitted to immediately cease providing any Services to Customer, but in such case may instead prepare for the termination of its provision of Services to Customer by assisting Customer to transition to another provider of such Services in a commercially reasonable manner considering the concepts of safety, soundness and continuity of essential banking functions. |
(f) | Vendor shall perform the Services with at least the same degree of accuracy, quality, completeness, timeliness, and responsiveness as was provided by Vendor prior to the Execution Date. If Vendor fails to meet any service level set forth in the Service Levels, in addition to any other remedies available to Customer under this Agreement, Vendor will pay Customer the corresponding remedy set forth in the Service Levels. |
(ii) | Updates and Upgrades; New Services; Custom Modifications. |
(a) | Updates and Upgrades. Vendor will make available to Customer, for ***, any non-customized Updates and Upgrades to the Services that Vendor makes available *** to its other customers; provided that, the implementation of any Updates and Upgrades shall be subject to the other terms and conditions of this Agreement. |
(b) | Replacement Services. Vendor may, from time to time, make new products or services available to Customer which are intended to replace a current Service (each a “Replacement Service”), which Replacement Services shall be at such fees and expenses as agreed to by the Parties (provided, however, that if Vendor is replacing a current Service across its platform, then the Replacement Service shall be provided at such fees and expenses that do not exceed those charged for the current Service); provided that, the implementation of any Replacement Service shall be subject to the other terms and conditions of this Agreement; and provided further that, in the event Vendor for any reason requires Customer to accept a Replacement Service, then Vendor agrees to compensate Customer for any additional non-de minimis out of pocket expenses associated with Customer’s access to or use of such Replacement Service. Vendor agrees to notify Customer as soon as commercially practicable of any impending platform-wide conversion to any Replacement Service. In the event that Customer agrees to replace a Core Service with a Replacement Service, such Replacement Service shall be considered a Core Service for purposes of this Agreement; if Customer agrees to replace a Non-Core Service with a Replacement Service, such Replacement Service shall be considered a Non-Core Service for purposes of this Agreement. In either case, the Parties shall add such Replacement Service to the List of Services, including the Service Levels. |
(c) | Optional Upgrade. Vendor may, from time to time, make an Optional Upgrade to a Service available to Customer, for which Vendor proposes to charge Customer additional fees or expenses, by delivering a written notice to Customer, which notice shall include a reasonably detailed description of (i) the additional features and/or functionality of such Optional Upgrade and (ii) the fees to be charged for such Optional Upgrade. In the event Customer elects to receive such Optional Upgrade, the terms and conditions of such Optional Upgrade shall be subject to the terms and conditions of this Agreement. Optional Upgrades to Core Services, if any, shall be considered Core Services for the purposes of this Agreement, and Optional Upgrades to Non-Core Services, if any, shall be considered Non-Core Services for the purposes of this Agreement. In the event Customer elects to receive an Optional Upgrade, the Parties shall in each case add such Optional Upgrade to the List of Services as a Core Service or Non-Core Service, as applicable in accordance with the immediately preceding sentence. |
(d) | New Services. Vendor may, from time to time, make additional services available to Customer for which Vendor proposes to charge Customer fees or expenses which are not set forth in the Fees (each a “New Service”). In the event Customer, in Customer’s sole discretion, elects to receive such New Service, such New Service will be considered a Non-Core Service for the purposes of this Agreement and the Parties shall add such New Service to the List of Services as a Non-Core Service, unless (x) Customer and Vendor agree at such time that such New Service shall be a Core Service for purposes of this Agreement (in which event the Parties shall add such New Service to the List of Services as a Core Service) or (y) Customer and Vendor agree at such time that such New Service shall instead be subject to the terms and conditions of a separate agreement. For the avoidance of doubt, in the event Customer declines to receive a New Service, Vendor must continue to provide and support existing Services at no additional cost to Customer. |
(e) | Custom Modifications. From time to time, Customer may request Vendor to develop modifications or enhancements to the Services (which may include the development of new services) which are custom to, and/or only applicable to, Customer (each a “Custom Modification”). In the event Customer requests a Custom Modification, the Parties shall mutually develop and execute a statement of work to document the specific terms related to Vendor’s provision of the Custom Modification, which, unless expressly stated to the contrary therein, shall be governed by the terms of this Agreement. Vendor will charge Customer for development of a Custom Modification at a rate of $*** per hour, plus reimbursement of reasonable out of pocket expenses, which may include costs of third parties engaged to assist in providing the Custom Modifications. Vendor agrees that it shall prioritize developing Custom Modifications for Customer in the ordinary course of its development of custom services or custom modifications to services for Vendor’s other large customers or prospective large customers. Except as otherwise set forth in any statement of work, all work or materials, including any and all programs, derivative works, source code, object code, inventions, improvements, materials, documentation, techniques, methods and processes, which are created, made, prepared or developed by Vendor for Customer for a fee under a statement of work, but excluding any Excluded Inventions, will collectively be termed the “Work Product.” Any Work Product shall be deemed to be a “work made for hire” as defined in 17 U.S.C. §101 and §201(b), and all intellectual property rights related to such copyrightable Work Product, will be the sole and exclusive property of Customer. To the extent that any Work Product does not fall within the definition of a “work made for hire,” Vendor grants and assigns to Customer, without reservation, all of Vendor’s worldwide ownership rights, title and interest in and to all intellectual property rights in such Work Product. “Excluded Inventions” means any Vendor intellectual property existing prior to beginning work on any statement of work or any intellectual property that was developed entirely on Vendor’s own time and without the use of any Customer equipment, supplies, facilities or Confidential Information. |
(f) | Pricing. Vendor agrees that, in the event that Customer elects to receive Custom Modifications, Optional Upgrades, Replacement Services or New Services, Vendor shall make such Services available to Customer at ***. |
(iii) | Right of First Offer; Exclusivity; Discontinuance. |
(a) | During the Term, in the event that Customer determines to engage a vendor to provide it with any Processing Service which is not a Service hereunder, Vendor shall have a right of first offer to provide such Processing Service to Customer. Customer shall provide a written notice to Vendor of the Processing Service it has determined to obtain. From and after the receipt of such notice and for *** days thereafter, Customer and Vendor shall negotiate in good faith the terms under which Vendor would provide such Processing Service to Customer and whether such Processing Service will be subject to the terms and conditions of this Agreement or if such Processing Service will instead be subject to the terms and conditions of a separate agreement. If Customer and Vendor agree that Vendor will provide such Processing Service to Customer, then the Processing Service, unless otherwise agreed by the Parties, will be considered a New Service subject to Section 2(ii)(d) hereof of this Agreement. In the event that Customer and Vendor are not able to come to mutually agreeable terms, Customer shall be permitted to obtain such Processing Service from a third party. |
(b) | Unless the engagement of another provider for Core Services or performance by Customer itself of any Core Service is expressly permitted by the terms of this Agreement, Vendor shall be the exclusive provider of Core Services to Customer and each of its depository institution affiliates for so long as such Services are classified as Core Services hereunder. For avoidance of doubt, Customer is not subject to any exclusivity obligations to Vendor with respect to Non-Core Services, including, for such periods as they are designated as Non-Core Services, the Non-Core Services previously designated as Core Services. |
(c) | Customer shall be permitted to discontinue the use of a Core Service, and cease paying any fees relating thereto, in the event that: |
1. | Customer has replaced the discontinued Core Service with a Replacement Service in accordance with Section 2(ii)(b) hereof; |
2. | Commencing on July 1, 2019, Customer no longer requires the Core Service due to market or product development obsolescence or due to general marketplace changes; or |
3. | Commencing on July 1, 2019, Customer elects to discontinue receipt of a Core Service because it will no longer provide the services necessitating such Core Service to its customers. |
(d) | Commencing on July 1, 2019, Customer shall be permitted to discontinue the use of a Core Service, cease paying any fees relating thereto, and receive such Core Service from another provider, to the extent (A) such Core Service has been deemed by an independent third-party reviewer (“Third-Party Reviewer”) to be substantially noncompetitive in quality, performance, or features with similar services available from other providers in the marketplace (an “Obsolete Service”) and (B) Vendor is unable to restore such Obsolete Service to be substantially competitive in quality, performance, and features with similar services available from other providers in accordance |
(e) | Cancellation Payments. |
1. | No Discontinued Service Fee or Terminated Service Fee will be due if Customer discontinues Vendor’s provision of a Core Service pursuant to Sections 2(iii)(c)1 or 2(iii)(d). Additionally, no Terminated Service Fee or Discontinued Service Fee shall ever be due for termination or discontinuance of a Non-Core Service, and any such termination or discontinuance shall not be deemed a breach hereunder. |
2. | In the event that Customer discontinues Vendor’s provision of a Core Service pursuant to Section 2(iii)(c)2 or Section 2(iii)(c)3 (each a “Discontinued Service”), Customer shall pay a cancellation fee to Vendor in respect of such Discontinued Service in an amount equal to the product of (x) and (y) (the “Discontinued Service Fee”), where (x) equals *** percent (***%) of the average amount of the monthly fees payable to Vendor (excluding third-party pass through expenses and interchange payable by Customer or Vendor) for such Discontinued Service for the *** calendar months prior to the effective date of the discontinuation of such Core Service (the “Discontinuance Look-back Period”), after giving effect to the *** percent (***%) credit described in Section 7(i)(a) for such months in the Discontinuance Look-back Period (provided, however, that in the event that the Parties have agreed to Revised Fees pursuant to Section 7(ii) hereof, the Parties shall give effect to the revised unit prices agreed to therein in lieu of the *** percent (***%) credit), if any, occurring prior to January 1, 2017, and (y) equals the number of months remaining in the Term as of the effective date of discontinuance of such Discontinued Service. |
3. | Except as set forth in Section 2(iii)(f) or as otherwise set forth in this Section 2(iii)(e), in the event that Customer terminates Vendor’s provision of a Core Service for any reason (each a “Terminated Service”), Customer shall pay to Vendor in respect of such Terminated Service a cancellation fee in the amount of (x) multiplied by (y) multiplied by (z) (the “Terminated Service Fee”), where: |
• | (x) equals the average amount of the monthly fees payable to Vendor (excluding third-party pass through expenses and interchange payable by Customer or Vendor) for such Terminated Service for the *** calendar months prior to the effective date of the discontinuation of such Core Service (the “Termination Look-back Period”), after giving effect to the *** percent (***%) credit described in Section 7(i)(a) for such months in the Termination Look-back Period (provided, however, that in the event that the Parties have agreed to Revised Fees pursuant to Section 7(ii) hereof, the Parties shall give effect to the revised unit prices agreed to therein in lieu of the *** percent (***%) credit), if any, occurring prior to January 1, 2017 (the “Termination Baseline Amount”); |
• | (y) equals *** percent (***%) of the Termination Baseline Amount; and |
• | (z) equals the number of calendar months remaining in the Term as of the effective date of the termination of such Core Service. |
4. | Notwithstanding anything to the contrary in this Agreement: |
(A) | If, at the time that Customer discontinues or terminates a Core Service such that the Core Service thereafter qualifies as a Discontinued Service or Terminated Service, the sum of the average amount of the monthly fees (excluding third party pass through expenses and interchange payable by Customer or Vendor) payable to Vendor for all New Services and/or Optional Upgrades, if any, for the *** calendar months prior to discontinuance of such Terminated Service or Discontinued Service (as the case may be) plus the average amount of |
(B) | If, at the time that Customer discontinues or terminates a Core Service such that the Core Service thereafter qualifies as a Discontinued Service and/or Terminated Service, *** (excluding third party pass through expenses and interchange payable by Customer or Vendor) payable to Vendor for all New Services and/or Optional Upgrades, if any, for the *** calendar months prior to discontinuance of such Terminated Service or Discontinued Service (as the case may be) plus *** calendar months prior to discontinuance of such Terminated Service or Discontinued Service (as the case may be) plus *** calendar months prior to discontinuance of such Terminated Service or Discontinued Service (as the case may be) is less than the sum of the average amount of the monthly fees paid for all Discontinued Services and Terminated Services hereunder for the *** calendar months prior to the applicable date of discontinuance, then Customer shall pay Vendor an amount equal to (A) the difference between the two amounts multiplied by (B) *** percent (***%) for a Terminated Service or *** percent (***%) for a Discontinued Service multiplied by (C) the number of months remaining in the Term. |
5. | Customer and Vendor recognize and agree that the Terminated Service Fees and Discontinued Service Fees provided for in this Section 2(iii)(e) do not constitute a penalty and are reasonable compensation proportionate to the costs and detriments incurred by Vendor in preparing to render a Service, foregoing other business opportunities, and undertaking the obligations of this Agreement in reliance on Customer’s promise of exclusivity (costs and detriments that are otherwise uncertain as to amount and the difficulty of providing proof). Customer’s sole obligation and liability to Vendor in connection with the discontinuance or termination of any Service shall be Customer’s payment of Terminated Service Fees and Discontinued Service Fees, if any. |
6. | Any Terminated Service Fee or Discontinued Service Fee due hereunder shall be paid in two equal payments, one payment due promptly after Customer discontinues or terminates Vendor’s provision of a Core Service hereunder and one payment due on the one (1) year anniversary of the date that Customer discontinues or terminates Vendor’s provision of a Core Service hereunder. |
(f) | Exceptions to Cancellation Payments. Notwithstanding anything in Section 2(iii)(e) to the contrary, Vendor agrees that Customer may obtain any Service provided under this Agreement from another provider (or Customer may perform such services for itself), without cost, penalty or the payment of any cancellation payment (including any Terminated Service Fee or Discontinued Service Fee) (i) in the event of a ***, but only for so long as *** (it being understood that upon the resolution of the ***, Vendor shall promptly recommence being Customer’s exclusive provider of the Services, and Vendor shall reimburse Customer for any documented reasonable out of pocket costs, including any applicable fee, penalty, and transition costs, which shall include, but are not limited to, any termination payment with the other service provider in connection with converting back to Vendor) or (ii) if Customer terminates this Agreement or the provision of an affected Service in accordance with Section 4(ii)(a) hereof. Notwithstanding anything in Section 2(iii)(e) to the contrary, an *** may obtain any Service provided under this Agreement from another provider pursuant to an ***, without cost, penalty or the payment of any cancellation payment by Customer or such ***, in accordance with and subject to *** hereof. |
(g) | Aggregate Discontinuance Limitation; Termination. In the event Customer discontinues and/or terminates Services such that fees paid hereunder are, or Vendor reasonably anticipates based on fees paid for such Terminated Services or Discontinued Services for the *** month period immediately prior to such discontinuance or termination, that fees paid hereunder will be, less than $*** on an annualized basis, then (i) Customer shall cease to have the right to discontinue the use of Core Services pursuant to Section 2(iii)(c)2 and Section 2(iii)(c)3 hereunder, and (ii) Vendor shall have the right to terminate this Agreement (subject to Section 2(i)(e) and Section 4(v)) by providing *** days written notice of such termination to Customer. For the avoidance of doubt, in the event that the Services are discontinued or terminated by Vendor rather than Customer, then annualized fees referenced above shall be adjusted accordingly. |
(iv) | Regional Servicing. Vendor shall maintain records and segregate the transactions and settlement provided for under this Agreement by geographic region, as described by Customer, using the acronyms for such geographic regions as agreed upon by Customer and Vendor. |
(v) | Acquisition; Merger. |
(a) | Upon Customer’s acquisition of a third party (the “Acquired Entity”) that is then subject to an effective services agreement (the “Existing Services Agreement”) with another entity pursuant to which such entity provides services substantially similar to the Services, Customer may, in its discretion and upon written notice to Vendor either (i) elect that such Acquired Entity will be entitled to the rights and subject to the obligations of this Agreement or (ii) elect to exclude such Acquired Entity from the rights and obligations of this Agreement, in which event the Acquired Entity’s performance under the Existing Services Agreement shall not be a breach of this Agreement. Customer shall not, and shall not permit an Acquired Entity to, extend the term of or renew any Existing Services Agreement and shall terminate, or cause an Acquired Entity to terminate, any Existing Services Agreement as soon as reasonably practicable if such termination may be accomplished without the payment of fees or the occurrence of any other monetary or material non-monetary penalty. Upon Customer’s acquisition of an Acquired Entity that is then subject to an Existing Services Agreement with another entity, the Acquired Entity shall be subject to the terms and conditions of this Agreement immediately following, and without further actions by the Parties, the expiration or termination of such Existing Services Agreement. If directed to do so by Vendor and if permitted by the terms of the Acquired Entity’s Existing Services Agreement, Customer will terminate the Existing Services Agreement and Vendor will pay any and all (unless Vendor and Customer mutually agree otherwise) termination, conversion, or other fees, costs, and expenses (including reasonable attorney’s fees and court costs) and assume any and all liabilities associated with such termination. Notwithstanding anything in this Section 2(v)(a) to the contrary, Customer shall have no obligation to terminate or decline to renew an Existing Services Agreement if Vendor is unable to perform for Customer and/or the Acquired Entity any material service provided by another service provider under such Existing Services Agreement. |
(b) | Upon Customer’s acquisition of an Acquired Entity that is not then subject to an Existing Services Agreement with another entity, the Acquired Entity shall be entitled to the rights and subject to the obligations of this Agreement. |
(c) | In the event Customer elects to convert an Acquired Entity to Vendor’s system and/or the Services, the Parties shall negotiate in good faith to allocate between the Parties any costs of such conversion. In the event Vendor requires that an Acquired Entity convert to Vendor’s system and/or the Services (including through any requirements set forth in this Agreement), such conversion shall be at no cost to Customer or the Acquired Entity unless otherwise agreed by Customer and Vendor. Vendor further agrees to afford and provide Customer with priority consideration and priority scheduling, at least as favorable as that generally provided to Vendor’s large customers, in the conversion of such Acquired Entity. |
(d) | Not in limitation of the foregoing or anything else in this Agreement to the contrary, in the event Customer is acquired by an entity that is party to an agreement with a third party other than Vendor for the provision of services similar to the Services, then the terms of this Agreement shall remain in effect unless and until this Agreement expires or is otherwise terminated pursuant to the terms herein. |
(vi) | Relationship Management. Each Party shall appoint a relationship manager with an appropriate level of experience and expertise whose primary professional responsibility will be to manage the administration of this Agreement and any Addenda by that Party and serve as the primary contact person for all matters arising under this Agreement. The relationship managers shall meet periodically but not less than monthly to discuss matters related to this Agreement including any service level or performance issues. Customer shall be entitled to participate in any committees or user groups of Vendor in which other comparable customers of Vendor are generally invited to participate. |
(vii) | Subcontracting. Without limiting Vendor’s obligations hereunder, except for the Subcontractors providing Services as of the Execution Date (each, an “Existing Subcontractor”), which Existing Subcontractors are listed on Schedule 2.3(vii), no Subcontractor may (1) have direct interactions with Customer’s customers, (2) perform functions involving access to Nonpublic Personal Information (such activities being “Sensitive Services”), or (3) provide any other services materially impacting Vendor’s provision of Services to Customer without the prior written consent of Customer, such consent not to be unreasonably withheld, conditioned or delayed. It shall not be considered unreasonable for Customer to withhold its consent if (A) the use of Subcontractor could be reasonably expected to cause Customer to violate an Applicable Law or otherwise, in the good faith opinion of Customer, subject Customer to regulatory concern, criticism or action; (B) Customer has had a problem or terminated a relationship with the Subcontractor in the past; (C) the Subcontractor is a direct competitor of Customer; or (D) for reasons that indicate that such Subcontractor would be incapable of providing the Services being subcontracted to it. In the event Customer consents to a Subcontractor, Vendor’s written agreement with such Subcontractor shall include provisions that ensure that such Subcontractor has in place the technological, physical and organizational security safeguards to protect Confidential Information of Customer and customers of Customer against anticipated threats or hazards, loss, theft, unauthorized access, disclosure, copying use, modification, disposal and destruction of Confidential Information and will cause any Subcontractor to adhere to the requirements of this Agreement. Vendor agrees that its obligations hereunder are not relieved or diminished in the event of the errors or omissions of a Subcontractor and that Vendor is responsible for the performance, acts and omissions of any Subcontractor. Except for Existing Subcontractors, no Sensitive Services will be performed outside the United States (including by any Subcontractors) without the express and prior written consent of Customer, which consent shall not be unreasonably withheld or delayed, giving consideration to the diligence requirements of Customer as a regulated entity. |
3. | Title to the Services. |
4. | Termination by Customer. |
(i) | Correcting Defects. In addition to all of Customer’s other rights and remedies under this Agreement, in the event that any materials or Services furnished by Vendor are inaccurate, incomplete, or incorrect in a manner that is not material to Vendor’s performance or Customer’s use of any Services (collectively a “Defect”), Vendor will use commercially reasonable efforts to correct the Defect (whether by reprocessing or re-performance of such Services including any data recovery until they are complete, accurate and correct, including any adjustments required thereby) or, if Vendor is unable to correct the Defect using commercially reasonable efforts, then Vendor shall effect an equitable reduction of the price paid or payable for the Services to which such Defect relates. Vendor shall bear all costs associated with correction or equitable reduction related to a Defect. |
(ii) | Material Breach. |
(a) | In the event Customer reasonably believes that Vendor has materially breached its obligations under this Agreement or otherwise fails to perform any term, condition or obligation hereunder (including any Addenda) in a manner that has resulted or could reasonably be expected to result in a material adverse impact or effect on Customer or Customer’s use of or benefit from the Services, Customer may provide to Vendor a written notice specifically describing the nature of such breach or failure and the approximate date on which Vendor breached the Agreement or failed to so provide the Service or comply with such other term, condition or obligation. Upon receipt of such notice, Vendor shall have a period of *** days after receiving notice from Customer in which to cure such breach or failure or to deliver a plan to cure such breach or failure (“Remediation Plan”); provided that the Remediation Plan shall set forth a date before which such cure must take effect, such date not to be more than *** days from the date of Vendor’s receipt of notice of such breach, and provided further that Customer has *** days after receipt of the Remediation Plan to accept or reject the Remediation Plan and terminate this Agreement or the affected Services in Customer’s sole discretion, without liability or expense for Customer, in the event that the breach or failure has caused such a material adverse impact or effect or Customer reasonably believes that the cure cannot be implemented before the date that such material adverse impact or effect would reasonably be expected to occur. In all other instances, Vendor shall have until the date set forth in the Remediation Plan to cure such breach or failure. If Vendor fails to cure the breach or failure within the time period set forth in the Remediation Plan, Customer shall have a right to terminate this Agreement or the affected Services, in Customer’s sole discretion, without liability or expense for Customer relating to such termination. Notwithstanding anything in this Agreement to the contrary, it shall be a material breach of this Agreement if Vendor fails to complete a significant amount of settlement, either in a single instance or in the aggregate, such that, in Customer’s commercially reasonable opinion, Customer is likely to suffer significant adverse financial or regulatory consequences as a result of such failure. Upon receipt of notice of Customer’s intent to terminate for such settlement failure, Vendor shall have a period of *** days in which to cure such failure. If Vendor fails to cure the failure within such *** day period, Customer shall have the right to suspend or terminate this Agreement or the affected Services immediately. |
(b) | Upon a termination by Customer pursuant to this Section 4(ii), Vendor shall be liable to Customer for the damages incurred by Customer as a result of Vendor's breach or nonperformance (including any costs or damages incurred by Customer in obtaining replacement services from another provider); provided, however, that such damages shall be subject to the limit on liability set forth in, and the other applicable provisions of, Section 10. |
(c) | The effective date of any termination pursuant to this Section 4(ii) shall be on such date as Customer may elect, in Customer’s sole discretion, which date shall be communicated to Vendor in a notice of termination. |
(iii) | Excused or Delayed Performance. Neither Party shall be deemed to be in default under this Agreement nor liable for any delay or loss in the performance, failure to perform, or interruption of any Services to the extent resulting from: errors in data provided by Customer (in the case of Vendor’s performance), fire or other casualty, governmental orders, acts of civil or military authority, national emergencies, acts of God, war, riots, acts of terrorism or any other cause, whether similar or dissimilar to the foregoing, beyond the commercially reasonable control and expectation of the non-performing Party (any such event, a “Force Majeure Event”). Upon the occurrence of a Force Majeure Event, the Party suffering such event shall immediately notify the other Party of the cause and anticipated duration of such Force Majeure Event, and performance by the non-performing Party shall be excused until the Force Majeure Event has ceased and the non-performing Party has had a reasonable time to again perform under the Agreement. In such event, Customer may obtain substitute services for the duration of such event as set forth in Section 2. For the avoidance of doubt, this Section 4(iii) shall be subject to, and shall not in any way limit or reduce, Vendor’s obligations under Section *** of this Agreement. |
(iv) | Insolvency of Vendor. In the event that Vendor becomes subject to any voluntary or involuntary bankruptcy, insolvency, reorganization or liquidation or similar proceeding, a receiver or conservator is appointed for Vendor if such appointment is not vacated or stayed, or within *** days after the expiration of any such stay, if such appointment is not vacated, or Vendor makes an assignment for benefit of creditors, or admits its inability to pay its debts as they come due, Customer shall have the right to immediately terminate this Agreement upon written notice to Vendor. |
(v) | Transition/Conversion. In connection with the termination or expiration of this Agreement for any reason, Vendor and Customer will each assist the other in any orderly termination of this Agreement and the transfer of all data and information, assets, tangible or intangible, as may be necessary for the orderly conversion of Customer from Vendor and as further described in the process for deconversion as agreed to by the Parties in the List of Services. Notwithstanding anything to the contrary contained herein, in the event of the termination, expiration or non-renewal of this Agreement (other than a termination by Vendor as a result of Customer’s failure to pay undisputed fees due to Vendor hereunder, which conversion shall be governed by Section 2(i)(e)), upon the written request of Customer, Vendor shall continue to provide the Services to Customer under the same terms and conditions described in this Agreement and any applicable Addenda for up to *** months, commencing on the date of termination or expiration of this Agreement (the “Transition Assistance Period”). Termination of this Agreement by Customer shall not relieve Vendor from any liability or obligation to Customer arising prior to such termination, subject to the limitations on liability in this Agreement generally. Customer shall pay Vendor for any deconversion services described in this Agreement or the process for deconversion as agreed to by the Parties in the List of Services at the rate of $*** per hour and shall reimburse Vendor for Vendor’s reasonable out-of-pocket expenses associated with such deconversion services; provided, however, that Customer shall not be obligated to pay Vendor any amounts for deconversion services described in this Agreement or the process for deconversion as agreed to by the Parties in the List of Services if Customer has terminated this Agreement pursuant to Section 4(ii) hereof. In the event that Vendor provides Services pursuant to Section 2(i)(e) or this Section 4(v) after the expiration of the Term (the Parties agreeing that the Term does not include the Transition Assistance Period) or if this Agreement is terminated pursuant to Section 2(iii)(g), then (i) the fees for such Services for the *** month period following the expiration of the Term (or the termination of this Agreement, as applicable) shall be at *** percent (***%) of the fees being charged at the end of the Term (or as of the termination of this Agreement, as applicable) and (ii) the fees shall be increased by *** percent (***%) on each and every *** month anniversary of the end of the Term (or termination of this Agreement, as applicable) thereafter. |
5. | Termination by Vendor. |
(i) | Default by Customer. Customer shall be in default under this Agreement upon the occurrence of any of the following events (each, an “Event of Default”), and upon such occurrence, subject to Section 2(i)(e) hereof, Vendor may at any time thereafter, terminate this Agreement as described below. |
(a) | In the event that Customer becomes subject to any voluntary or involuntary bankruptcy, insolvency, reorganization or liquidation or similar proceeding, a receiver is appointed for Customer (or any direct or indirect parent company thereof), if such appointment is not vacated or stayed, or within *** days after the expiration of any such stay, if such appointment is not vacated, or Customer (or any direct or indirect parent company thereof) makes an assignment for benefit of creditors, or admits its inability to pay its debts as they come due, Vendor shall have the right to immediately terminate this Agreement upon written notice to Customer. |
(b) | In the event Customer is in material default of any terms or conditions of this Agreement or any Addendum, Vendor shall provide written notice thereof to Customer describing such default or violation. Upon receipt of such notice, Customer shall have *** days to cure such default or violation that has occurred, or such longer time as mutually agreed upon by the Parties provided that if such default or violation cannot reasonably be cured within such period of time and so long as Customer is acting reasonably diligently to cure such default or violation, then Customer shall have up to *** additional days following the expiration of such initial *** day cure period, to cure such default or violation. In the event Customer fails to cure such default or violation within such time, Vendor shall have a right to terminate this Agreement effective upon not less than *** days prior written notice to Customer. Notwithstanding the foregoing, Vendor shall not be obligated to provide any written notice of, nor provide Customer with an opportunity to cure, a default of Customer’s payment obligations as set forth in Section 7 hereof. |
(ii) | Termination. Termination of this Agreement by Vendor as provided in Section 5(i) above shall not relieve Customer from any liability or obligation to Vendor arising prior to such termination, subject to the limitations of liability in this Agreement generally. |
(iii) | Upon the occurrence of an Event of Default, and termination of this Agreement as a result thereof, Customer shall pay to Vendor liquidated damages in the amount of (x) multiplied by (y) multiplied by (z), where: |
▪ | (x) equals the average amount of the monthly fees payable to Vendor (excluding third-party pass through expenses and interchange payable by Customer or Vendor) for Core Services for the *** calendar months prior to the effective date of termination of this Agreement (the “Event of Default Look-back Period”), after giving effect to the *** percent (***%) credit described in Section 7(i)(a) for such months in the Event of Default Look-back Period (provided, however, that in the event that the Parties have agreed to Revised Fees pursuant to Section 7(ii) hereof, the Parties shall give effect to the revised unit prices agreed to therein in lieu of the *** percent (***%) credit), if any, occurring prior to January 1, 2017 (the “Event of Default Baseline Amount”); |
▪ | (y) equals *** percent (***%) of the Event of Default Baseline Amount; and |
▪ | (z) equals the number of calendar months remaining in the Term as of the effective date of the termination of this Agreement. |
(iv) | Customer and Vendor recognize and agree that the liquidated damages described in Section 5(iii) do not constitute a penalty and are reasonable in proportion to the probable damages likely to be sustained in the event of any such breach in view of the uncertainty and difficulty of predicting the amount of any actual damages, Vendor foregoing other business opportunities, and Vendor undertaking the obligations of this Agreement in reliance on Customer’s agreement to perform its obligations hereunder. All such amounts shall be due and payable by Customer on the effective date of termination notwithstanding that the Vendor may continue to provide services to the Customer for a limited period thereafter as contemplated by Section 4(v) or any Addendum, and Customer’s payment of liquidated damages shall be Customer’s sole obligation and liability to Vendor in connection with any early termination of this Agreement. For the avoidance of doubt, in the event Customer becomes liable to Vendor for liquidated damages under Section 5(iii) hereof, Customer shall not thereafter be liable to Vendor for any Discontinued Service Fee or Terminated Service Fee. |
6. | Independent Contractor. Vendor shall perform the Services as an independent contractor, and nothing contained herein shall be deemed to create any partnership, joint venture, or relationship of principal and agent between the Parties hereto or any of their subsidiaries, or to provide either Party with any right, power or authority, whether express or implied, to create any such duty or obligation on behalf of the other Party. Vendor shall pay all taxes on its employees, on its assets, income or other taxes to Vendor applicable under the law. Each Party shall bear all liability with respect to its employees or subcontractors it may engage, and such Parties will not be deemed third-party beneficiaries of this Agreement. |
7. | Fees and Payments. |
(i) | Customer shall pay to Vendor for the Services performed as follows: |
(a) | Effective July 1, 2016 until December 31, 2016, the fees and expenses shall be as agreed to between the Parties pursuant to the List of Services (the “2016 Fees”), provided, however, that each monthly invoice will include a credit equal to *** percent (***%) of the amount invoiced for such month for Services (excluding, for the avoidance of doubt, the fees charged for any Optional Upgrades or New Services and any third-party pass through expenses and interchange payable by Customer or Vendor); and |
(b) | Subject to Section 7(ii) below, commencing January 1, 2017 and until the end of the Term, the fees and expenses shall be the Revised Fees (as hereinafter defined). |
(ii) | The Parties agree to negotiate in good faith revised fees to take effect on January 1, 2017, (the “Revised Fees”) which the Parties agree will result in a *** percent (***%) *** in the unit prices of the 2016 Fees. In the event that the Parties are unable to agree to the terms of the Revised Fees on or before January 1, 2017, then Customer shall continue to pay for the Services pursuant to Section 7(i)(a) until such time that the Parties reach agreement on the Revised Fees. |
(iii) | The fees payable by Customer shall be described on Vendor’s Services invoices (each, a “Services Invoice”). From the Execution Date through June 30, 2019, Vendor shall provide preliminary invoices to Customer on or before the second, third and fourth business days of each calendar month in connection with Customer’s monthly financial accounting process, as well as a final preliminary invoice on or before the *** business day of the calendar month. The Parties agree that no later than Company’s February 2017 Service Invoice date, all Services Invoices are to be submitted electronically through Customer’s Procure to Pay system (“P2P Invoicing System”). Services Invoices submitted through the P2P Invoicing System shall be provided in accordance with and subject to the service level standards provided in the Service Levels to the List of Services. From July 1, 2019 through the end of the Term, each Services Invoice shall be issued monthly for Services rendered during the prior month and shall be submitted electronically through the P2P Invoicing System no later than the *** day of each calendar month. Payment of the undisputed amounts reflected on each Services Invoice shall be due within *** days of Customer’s receipt of the Services Invoice. Each Services Invoice shall provide detail and backup in a manner sufficient to permit Customer to determine the accuracy and validity of the billing, including but not limited to the following classifications: service code, unit price, volume, description, ACRO, and extended price. Customer may request, and Vendor will provide, reasonable additional information to support the fees and expenses reflected in any Services Invoice. |
(iv) | Customer shall initiate payment for the amount of each Services Invoice via electronic payment method as determined by Customer. Customer shall have the right to dispute the fees listed in any Services Invoice pursuant to the dispute resolution procedures set forth in Section 17 hereof, provided that notice of such dispute is given to Vendor within *** months after Customer’s receipt of such Services Invoice. |
(v) | Customer shall be entitled to $*** in annual program development credits; provided, however, that (i) up to $*** of unused program development credits shall be rolled over from prior years (and have no impact on Customer program development credits for the current year) and (ii) any unused program development credits in excess of $*** shall be forfeited and not roll over for Customer’s use the following year. |
(vi) | The Parties further agree and acknowledge, for the avoidance of doubt, that, effective January 1, 2016, Vendor shall have no right to effect Consumer Price Index (CPI) adjustments to the fees charged to Customer for Services. |
8. | Customer's Representations and Covenants. |
(i) | That it will comply, and will cause its employees and agents and affiliate financial institutions, to comply, with all the terms of this Agreement and any Addendum, including any amendments thereto. |
(ii) | That each financial institution owned by Customer is a state and/or federally chartered financial institution licensed to do business in all applicable jurisdictions in which it conducts business, and that it will comply in all material respects with all Applicable Laws applicable to its business operations except to the extent that a failure to comply with Applicable Laws could not reasonably be expected to adversely affect Customer’s performance under this Agreement. Customer shall notify Vendor within *** days of any change in Customer’s name, principal location or state and/or federal charter. |
(iii) | That it will be responsible for the quality, accuracy, and adequacy of all information supplied to Vendor to be input into Vendor's system or otherwise provided to Vendor hereunder, and that it will establish and maintain adequate audit controls to monitor the quality and delivery of such data. |
(iv) | That it will review all reports made available to Customer. Customer's failure to reject any settlement oriented report within *** business days of its receipt or any other report within *** days of its receipt shall constitute acceptance of the report, subject to Customer’s audit rights. Any such acceptance does not waive any rights of Customer in the event the Services were performed inaccurately or incorrectly or such reports contain errors that were caused by Vendor. |
(v) | That, except as otherwise provided in this Agreement, it shall solely be responsible for its record-keeping as may be required of it under Applicable Laws. Notwithstanding the foregoing or any provision of the Risk Standards, Vendor shall not be obligated to retain any reports provided to Customer for a period beyond *** years after delivery, or availability as the case may be, of the report to Customer. Certain historical transaction records will be retained by Vendor, to the extent and for such time required by any Applicable Laws applicable to Vendor or required of Vendor by a Card Association, and may be provided to Customer upon request at Vendor’s then standard fees. |
(vi) | To the extent Customer provides software, data or other information to Vendor for Vendor's use in performing its obligations under the Agreement, Customer has the right to do so and, to Customer’s knowledge, Vendor's use of such software, data or other information in the course of providing the Services will not infringe upon, constitute or result in a misappropriation of, or otherwise violate the proprietary information, intellectual property or other rights of any other person. |
9. | Vendor Representations and Covenants. |
(i) | That all Services will be provided by competent professionals with the requisite skills to perform the Services, and that all Services and any deliverables, creative works, software programming, documentation, code, data, reports, studies, or other materials, methods, or procedures undertaken by Vendor pursuant to this Agreement will substantially conform in all material respects to the relevant requirements of this Agreement (including any Addenda hereto). |
(ii) | That it maintains insurance covering the performance of the Services to Customer as outlined in the Risk Standards. |
(iii) | That it will comply, and cause its employees and agents to comply, with all the terms of this Agreement and any Addendum, including any amendments thereto. |
(iv) | That Vendor is licensed to do business in all applicable jurisdictions in which it conducts business, and that it will comply with all Applicable Laws relevant to the provision of the Services. Vendor will notify Customer within *** days of any change in Vendor’s name or principal location. |
(v) | That Vendor has the corporate power and authority to conduct its business as it is now being conducted and to enter into this Agreement and Addenda pursuant hereto and to provide the Services and carry out its obligations hereunder including having all systems, facilities and personnel required for that purpose. |
(vi) | That Vendor will perform the Services in accordance with Applicable Laws, Card Association Rules and the service standards specified in any Addenda. The contents of all reports provided to Customer shall be complete and correct in all material respects. |
(vii) | That, to Vendor’s knowledge, Vendor owns or otherwise has the rights to license any software, materials, programs, or other property to Customer used by Vendor in the performance of the Services under this Agreement and further that any Services shall not violate or infringe upon the copyright, trademark, patent, trade secret or other intellectual property right of a third party. |
(viii) | That Vendor is and shall remain throughout the Term compliant with all applicable PCI Requirements, relevant Card Association Rules, and Applicable Laws. |
(ix) | That Vendor shall provide Customer with copies of its then-current Documentation, and when applicable, from time-to-time, provide Customer with updates to such Documentation if and when the Services are modified. Vendor covenants |
10. | Limits on Liability; Indemnification. |
(i) | Limits on Liability. EXCEPT THOSE EXPRESS WARRANTIES MADE IN THIS AGREEMENT, VENDOR DISCLAIMS ALL WARRANTIES INCLUDING, WITHOUT LIMITATION, ANY EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Neither Party shall be liable to the other Party under this Agreement for any incidental, special, consequential or punitive damages suffered by the other Party, its customers or any third party in connection with the Services provided hereunder. Subject to subsection (ii) below, neither Party’s liability hereunder shall exceed (x) $*** per event giving rise to the liability, or (y) $*** in the aggregate for all events giving rise to liability (each of (x) and (y), the “Monetary Cap”). |
(ii) | The Monetary Cap and other limitations on liabilities set forth herein shall not be applicable to a Party’s liability caused by or resulting from (i) a Party’s gross negligence or willful misconduct or material violation of Applicable Laws; (ii) Vendor’s failure, loss or incorrect settlement of funds; (iii) a Party’s breach of any intellectual property representation, warranty or covenant in this Agreement; (iv) a Party’s breach of the confidentiality provisions set forth in the Risk Standards, including any Exhibit thereto and any Addenda thereto; (v) a Party’s indemnification obligations hereunder; (vi) fines or penalties assessed against a Party due to the other Party’s material breach of Card Association Rules relevant to Customer or Vendor or the Services; (vii) the occurrence of a Data Compromise Event; (viii) Vendor’s right to receive liquidated damages pursuant to Section 5(iii); or (ix) any unpaid Terminated Service Fees or Discontinued Service Fees owed by Customer pursuant to Section 2(iii)(e). No cause of action, regardless of form, shall be brought by either Party under this Agreement more than 1 year after the cause of action arose. |
(iii) | Vendor’s Indemnification of Customer Indemnified Parties. Vendor will indemnify, defend and hold Customer, its directors, officers, employees, affiliates and agents (each a “Customer Indemnified Party”), harmless from and against any proceedings, claims, liabilities, losses, damages, fees, fines, penalties and expenses whatsoever (including reasonable legal and accounting fees and expenses) arising out of or in connection with claims brought by third parties against any Customer Indemnified Party to the extent such claims are attributable to Vendor’s breach or nonperformance of any provision of this Agreement except, however, to the extent such is due to the negligence, gross negligence, willful misconduct or breach of this Agreement by Customer. Vendor also will indemnify, defend and hold harmless each Customer Indemnified Party from and against any and all claims, allegations, suits, damages, losses, expenses, costs, including reasonable attorneys’ fees, as incurred, or amounts payable under any judgment, verdict, court order or court settlement resulting from the infringement or misappropriation, or alleged infringement or alleged misappropriation, of any third party intellectual property or other rights to the extent that such infringement or misappropriation is attributable to or arises out of the Services or any software, code or other materials provided by Vendor in connection herewith. Should any Services supplied by Vendor and used by Customer infringe or misappropriate third-party intellectual property or other rights, Vendor will provide to Customer at no additional cost to Customer and in Vendor’s discretion either: (i) the right to continue using the Services or (ii) a non-infringing equivalent replacement or modification acceptable to Customer. |
(iv) | Customer’s Indemnification of Vendor. Customer will indemnify, defend and hold Vendor, and its directors, officers, employees, affiliates and agents (each, a “Vendor Indemnified Party”), harmless from all proceedings, claims, liabilities and expenses whatsoever (including reasonable legal and accounting fees and expenses) arising out of or in connection with claims brought by third parties against a Vendor Indemnified Party to the extent such third-party claims are attributable to Customer’s breach or nonperformance of any provision of this Agreement except, however, to the extent such is due to the negligence, gross negligence, willful misconduct of or the breach of this Agreement by Vendor or any of its affiliates. |
(v) | Indemnification Procedures. With respect to a Party’s indemnification obligations hereunder, the following procedures shall apply: |
(a) | Notice. Promptly after receipt by any indemnified Party (“Indemnified Party”) of notice of the commencement or threatened commencement of any civil, criminal, administrative, or investigative action or proceeding involving a claim in respect of which the Indemnified Party will seek indemnification pursuant to this Agreement, the Indemnified Party shall notify the other Party (“Indemnifying Party”) of such claim. No delay or failure to so notify an Indemnifying Party shall relieve it of its obligations under this Agreement except to the extent that such Indemnifying Party has suffered actual prejudice by such delay or failure. Within *** days following receipt of notice from the Indemnified Party relating to any claim, but no later than *** days before the date on which any response to a complaint or summons is due, the Indemnifying Party shall notify the Indemnified Party that the Indemnifying Party elects to assume control of the defense and settlement of that claim (a “Notice of Election”), and whether the Indemnifying Party seeks contribution from the Indemnified Party for a portion of the claim. |
(b) | Procedures Following Notice of Election. If the Indemnifying Party delivers a Notice of Election within the required notice period, the Indemnifying Party shall assume control (subject to Indemnified Party’s right to participate at its own expense) over the defense and settlement of the claim; provided, however, that: (i) the Indemnifying Party shall keep the Indemnified Party fully apprised at all times as to the status of the defense; and (ii) the Indemnifying Party shall obtain the prior written approval of the Indemnified Party before entering into any settlement of such claim asserting any liability against the Indemnified Party or imposing any obligations or restrictions on the Indemnified Party or ceasing to defend against such claim. The Indemnifying Party shall not |
(c) | Procedure Where No Notice of Election Is Delivered. If the Indemnifying Party does not deliver a Notice of Election relating to any claim within the required notice period, the Indemnified Party shall have the rights to defend the claim in such manner as it may deem appropriate. The Indemnifying Party shall promptly reimburse the Indemnified Party for all reasonable costs and expenses incurred by Indemnified Party, including attorneys’ fees, as incurred. |
(vi) | Miscellaneous. Customer acknowledges that Vendor shall not be responsible for the accuracy or adequacy of any information provided by Customer to Vendor; nor shall Vendor be liable for any damage, loss or liability whatsoever resulting to Customer or its customers to the extent such damage, loss or liability is attributable to the inaccuracy or inadequacy of such information. |
11. | Term. This Agreement shall become effective, without further action, as of the Execution Date and shall remain in effect through December 31, 2024 (the “Term”), unless this Agreement or any Addendum hereto is earlier terminated in accordance with this Agreement or any Addendum. |
12. | *** |
13. | Violation of Applicable Laws and Regulations. Vendor may cease providing any Service if such Service, in Vendor's reasonable opinion, violates any Applicable Law and cannot be modified or updated in such a way as to avoid violating Applicable Laws; provided that such opinion is provided by a nationally recognized independent law firm. Customer may discontinue its receipt of any Service if such Service, in Customer’s reasonable opinion, violates any Applicable Law and cannot be modified or updated in such a way as to avoid violating Applicable Laws; provided that such opinion is provided by a nationally recognized independent law firm. |
14. | Intentionally Omitted. |
15. | Taxes. Any sales, use, excise or other taxes (other than Vendor's income taxes or such other taxes which are the responsibility of Vendor such as those with respect to Vendor’s employees or real estate for example) payable in connection with or attributable to the Services shall be paid by Customer in accordance with Section 7. |
16. | Successors; Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties hereto and their respective successors, transferees and assignees. Neither this Agreement nor any interest herein may assigned by either Customer or Vendor, in whole or in part, without the prior written consent of the other Party. |
17. | Informal Dispute Resolution. The following procedure will be adhered to in all disputes between Vendor and Customer arising under and during the term of this Agreement that Vendor and Customer cannot resolve informally through the Party’s relationship managers. In the event of any dispute, controversy or claim arising under or in connection with this Agreement (including disputes as to the creation, validity, interpretation, breach or termination of this Agreement) (collectively a “Dispute”), then upon the written request of either Party, each of the Parties will appoint a designated senior business executive whose task it will be to meet for the purpose of endeavoring to resolve the Dispute. The designated executives will meet as often as the Parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue which the Parties believe to be appropriate and germane in connection with its resolution. Such executives will discuss the Dispute and will negotiate in good faith in an effort to resolve the Dispute without the necessity of any formal proceeding relating thereto. The specific format for such discussions will be left to the discretion of the designated executives but may include the preparation of agreed upon statements of fact or written statements of position furnished to the other Party. No Party may initiate litigation proceedings (excluding those for injunctive or equitable relief) until the earlier to occur of (a) a conclusion by either Party in writing to the other Party that an amicable resolution through continued negotiation of the matter in issue does not appear likely or that continued negotiation would result in financial or legal prejudice to the Party; or, (b) the 60th calendar day after the initial request to negotiate the Dispute. All negotiations shall be confidential and shall be treated as compromise and settlement negotiations under the United States Federal Rules of Evidence. |
18. | Entire Agreement. This Agreement (including all exhibits and Addenda hereto and all documents and materials referenced herein) supersedes any and all other agreements, oral or written, between the Parties hereto with respect to the subject matter hereof, and contains the entire agreement between such Parties with respect to the transactions contemplated hereunder. |
19. | Notices. All notices, demands, and other communications hereunder shall be in writing and shall be delivered (i) in person, (ii) by United States mail, certified or registered, with return receipt requested, (iii) by national overnight courier with record of successful delivery retained (e.g., FedEx), or (iv) by email with confirmation, as follows: |
If to Vendor: Vantiv, LLC 8500 Governor’s Hill Drive Maildrop 1GH1Y1 Cincinnati, OH 45249-1384 Email: Ned.Greene@vantiv.com and Jared.Warner@vantiv.com Attn: General Counsel/Legal Department | If to Customer: Fifth Third Bank 38 Fountain Square Plaza Maildrop 10907E Cincinnati, OH 45263 Email: Attn: Executive Vice President |
With a copy to: Benesch, Friedlander, Coplan & Aronoff LLP 200 Public Square, Suite 2300 Cleveland, Ohio 44114-2578 Email:speppard@beneschlaw.com Attention: Sean T. Peppard, Esq. | With a copy to: General Counsel of Customer at the same address. |
20. | Waiver. If either Party waives in writing an unsatisfied condition, representation, warranty, undertaking or agreement (or portion thereof) set forth herein, the waiving Party shall thereafter be barred from recovering, and thereafter shall not seek to recover, any damages, claims, losses, liabilities or expenses, including, without limitation, legal and other expenses, from the other Party in respect of the matter or matters so waived. Except as otherwise specifically provided for in this Agreement or any Addendum, the failure of any Party to promptly enforce its rights herein shall not be construed to be a waiver of such rights unless agreed to in writing. Any rights and remedies specifically provided for in any Addendum are in addition to those rights and remedies set forth in this Agreement. |
21. | Headings. The headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision of this Agreement. |
22. | Severability. If any term or provision of this Agreement or any application thereof shall be invalid or unenforceable, the remainder of this Agreement and any other application of such term or provision shall not be affected thereby. |
23. | No Third-Party Beneficiary. This Agreement is for the benefit of, and may be enforced only by, Vendor and Customer and their respective successors and permitted transferees and assignees, and is not for the benefit of, and may not be enforced by, any third party. |
24. | Applicable Law; Waiver of Jury Trial. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Ohio. The Parties hereby consent to service of process, personal jurisdiction, and venue in the state and federal courts in Cincinnati, Ohio or Hamilton County, Ohio, and select such courts as the exclusive forum with respect to any action or proceeding brought to enforce any liability or obligation under this Agreement. Each of Vendor and Customer hereby irrevocably agrees to waive any right to a trial by jury in any claim or cause of action arising out of or related to this Agreement. |
25. | Authorization. Each of the Parties hereto represents and warrants on behalf of itself that it has full power and authority to enter into this Agreement; that the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or partnership or other appropriate authorizing actions; that the execution, delivery and performance of this Agreement will not contravene any applicable by law, corporate charter, partnership or joint venture agreement, Applicable Law, regulation, order or judgment; and, that this Agreement is valid and enforceable in accordance with its terms. Customer further represents and warrants that execution, delivery and performance of this Agreement will not contravene any provision or constitute a default under any other agreement, license or contract which it or its financial institution affiliates are bound. |
26. | Counterparts. This Agreement may be executed and delivered in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. Each Party agrees that scanned or facsimile signatures will have the same legal effect as original signatures and may be used as evidence of execution. |
27. | Survival. The Vendor and Customer agree that the terms of Sections 1, 2(i)(e), 2(ii)(e), 2(vii) (with respect to Subcontractors’ required compliance with certain requirements of the Agreement and Vendor’s liability therefor), 3, 4(ii)(c), 4(v), 5(ii), 5(iii), 5(iv), 7(iv), 10, 16, 17 - 24, 27, 33, 34 and 35 shall survive the termination of this Agreement, as well as any obligations accrued but not yet satisfied as of the termination or expiration of this Agreement. |
28. | Background Checks. Vendor shall be responsible, at its sole cost and expense, for conducting a social security number trace and full felony and misdemeanor criminal background check on any and all employees, representatives or agents that Vendor intends to perform the Services hereunder. Such background checks shall cover a period of not less than *** years prior to date the background check is initiated and shall cover all counties identified by the social security trace. Vendor agrees that in the event the criminal background check reveals any criminal offense involving dishonesty, theft or money laundering, or the illegal manufacture, sale, distribution of or trafficking in controlled substances, then the individual is not permitted to work, directly or indirectly, on the Customer’s account |
29. | Publicity. Except as may be required by Applicable Law or with prior written consent of the other Party, it is agreed that the neither Party shall have the right to disclose the other Party’s name as a customer or vendor or to use the other Party’s name and/or logo publicly. |
30. | Unfair, Deceptive or Abusive Acts or Practices. Vendor will comply with all applicable federal, state and local consumer financial laws, regulations, rules and orders. Such authorities are incorporated herein by reference. Vendor will not engage in any unfair, deceptive or abusive acts or practices as defined by federal, state and local consumer financial law. If Customer reasonably believes that Vendor is engaging in unfair, deceptive or abusive acts or practices, Customer has the right to immediately terminate this Agreement for cause, or in the alternative, demand Vendor terminate such practices immediately, which right shall be reasonably exercised by Customer. If Vendor is found to have engaged in unfair, deceptive or abusive acts or practices, Vendor shall fully indemnify Customer for any liability, costs, fines or damages arising out of such acts or practices in accordance with Section 10 hereof. |
31. | Amendments. This Agreement and any Addendum shall only be modified or amended by an instrument in writing signed by each Party hereto. |
32. | Audit Procedures. |
(i) | In addition to any other rights provided in this Agreement, Customer shall have the right and access to, upon no less than *** days’ advance written notice, conduct financial, operational and technical audits of Vendor to verify compliance with (a) the terms and conditions of this Agreement and any and all statements of work, the List of Services or schedules to the Agreement, (b) the accuracy of charges invoiced by Vendor (and, if applicable, documentation of pass through costs from its Subcontractors) and (c) Vendor’s performance of the Services (each such audit, an “Audit”); provided, however, that Customer may not exercise its Audit rights more than one (1) time in any *** month period, but provided further that, Customer may exercise its Audit rights more frequently in the event that Customer has identified Vendor’s meaningful non-compliance with this Agreement, or if Customer reasonably believes that Vendor is not in meaningful compliance with this Agreement; provided, however, that any audit rights in addition to the annual audit right described above shall be limited to the subject area of Vendor’s meaningful non-compliance (or the subject area that Customer reasonably believes that Vendor is not in meaningful compliance). For purposes of clarity, a “Due Diligence Review” of Vendor or Vendor’s Subcontractors is not considered an “Audit” for purposes of the Audit frequency limitation set forth in this Section 32(i). For purposes of this Section 32, “Due Diligence Review” means ongoing and routine operational reviews, regular and reoccurring oversight and monitoring processes, and risk management assessments. In performing any Audit, Customer and its Auditor (defined below), as applicable, shall endeavor to complete the Audit within *** business days and otherwise in such a manner as to avoid unnecessary disruption of Vendor’s business operations. Audits will occur during normal business hours and at a mutually agreeable time. Vendor will assist in any Audit as requested by Customer or Customer’s Auditor; provided, however, that Vendor reserves the right to charge Customer for Vendor's reasonable expenses in providing such review assistance. If in the course of an Audit, Customer identifies Vendor’s non-compliance with the terms of this Agreement, Customer shall notify Vendor of such non-compliance within *** days of identifying the non-compliance and Vendor shall remediate such non-compliance. Notwithstanding the foregoing, Customer’s right to dispute Service Invoices as set forth in Section 7(iv) in connection with any billing disputes that not have not been identified as part of an Audit, is not limited hereby. Customer shall pay the cost of its own Audits; provided that, in the event that such an Audit identifies Vendor’s material non-compliance with this Agreement, Vendor shall be required to pay the expenses of any subsequent Audits (provided such Audits are solely limited to the subject area of Vendor’s material non-compliance) until Vendor has remediated its material non-compliance to the reasonable satisfaction of Customer. |
(ii) | Any Government Entity with jurisdiction over Customer will have the right to audit Vendor to the extent of such Government Entity’s authority to audit Customer if Customer were performing the Services internally and has relevant jurisdiction over Vendor. In the event of any such Government Entity Audit, Vendor will reasonably cooperate with such Audit and provide such Government Entity with all information and data relating to the Services provided to Customer. Customer further acknowledges that any information disclosed to Customer during the term of the Agreement in any way related to an Audit, including but not limited to the specific contents and general results of such Audit, shall be treated as Vendor Confidential Information. Upon the later of the expiration/termination of the Agreement and the date Customer is no longer required to maintain such Confidential Information for compliance with Applicable Law, Customer shall either return all copies, memoranda, materials, other papers and copies relating to the Audit or, alternatively, certify in writing to Vendor that all such information has been properly destroyed by Customer. Notwithstanding anything to the contrary herein, Customer acknowledges that Vendor is regulated and examined as a Technology Service Provider by the Federal Financial Institutions Examination Council (“FFIEC”) and that any Audit by a Government Entity may require coordination through the FFIEC. |
(iii) | Subject to the notice provisions, restrictions and other terms of this Section 32, during the term of the Agreement and during the period for which Vendor must maintain records relating to the Services provided, Vendor shall provide to Customer, and to Customer’s Auditor (as applicable), access at reasonable hours to Vendor’s personnel, to the facilities at or from which Services are then being provided, and to pertinent information, all to the extent reasonably relevant to the Services and Vendor obligations under this Agreement, the Risk Standards the List of Services, or any statement of work or schedule. Vendor shall provide to such reviewers, inspectors, regulators, and representatives such assistance, as reasonably required and shall cooperate fully with Customer or its Auditor in connection with Audit functions and with regard to examinations |
(iv) | Customer reserves the right to use a third-party auditor (“Auditor”) in connection with Customer’s Audit rights hereunder, provided that (A) Customer provides Vendor with advance written notice of the name and a summary of the related professional experience of such Auditor, (B) such Auditor must be reasonably familiar with the Services provided by Vendor to Customer, (C) Vendor approves such Auditor, which approval will not be unreasonably withheld, and (D) Customer will be responsible for managing the Audit and ensuring such Auditor complies with the provisions of this Exhibit. Customer, and any Auditor or other third party authorized by this Section 32 to perform an Audit of Vendor on Customer’s behalf, will be required to comply with Vendor’s reasonable security and confidentiality guidelines and shall not be given access to Vendor’s other customers’ proprietary information, to Vendor’s proprietary information or to Vendor’s locations that are not reasonably related to Customer or the Services. Notwithstanding anything to the contrary in this Section 32, Vendor reserves the right to not provide information or materials that Vendor reasonably believes are unrelated to the completeness and accuracy of the Services or the fees paid therefor, represent trade secrets or intellectual property or cannot be provided due to confidentiality agreements with third parties. |
(v) | Following any Audit, Vendor and Customer will meet promptly to review the results of such Audit. Customer shall conduct, or request its Auditor to conduct, an exit conference with Vendor prior to completing Customer’s audit report. Vendor and Customer shall develop and agree upon an action plan during the exit conference, or appropriately following, to appropriately address, resolve and remediate any non-compliance items, concerns and/or recommendations in such report, as appropriate. Unless the Parties mutually agreed to a longer period, such action plan will require remediation of meaningful non-compliance within *** days of the final audit report. Vendor will respond to each such report in writing within *** days from receipt thereof, unless a shorter response time is reasonably stated in the report. In addition to Vendor’s obligation to respond to the audit report, Vendor, at its own expense, shall undertake remedial action in accordance with such action plan and the dates specified therein. |
(vi) | Vendor shall make available to Customer all certification and compliance reports of mutually agreed to industry standard certifications. |
33. | International Conventions Excluded. The Parties agree that the UN Convention on Contracts for the International Sale of Goods (Vienna, 1980) shall not apply to this Agreement nor to any dispute arising out of this Agreement. |
34. | Termination or Continuation of Other Agreements. Vendor and Customer have agreed that as of the Execution Date, the agreements, supplements, side letters, and other binding documents designated as “Terminated Agreements” between the Parties (“Terminated Agreements”) shall be terminated, subject to the surviving rights and obligations for such Terminated Agreements as agreed between the Parties. Vendor and Customer agree that as of the Execution Date, the agreements, supplements, side letters, and other binding documents designated as “Surviving Agreements” between the Parties (“Surviving Agreements”) shall continue to be in full force and effect from and after the date hereof, subject to any amendments as agreed between the Parties for such Surviving Agreements. The Parties agree to negotiate in good faith and reach an agreement to finalize the Terminated Agreements and Surviving Agreements within thirty (30) days of the date hereof. Notwithstanding the generality of the foregoing, the Parties hereby terminate, effective as of the date hereof, that certain agreement by and between Customer and Vendor dated as of December 31, 2015 regarding resolution of the Disagreement (as defined therein), which, from and after the date hereof, shall have no further force or effect, and Customer and Vendor agree that there are no amounts due thereunder. |
35. | General Mutual Release. Except for invoices outstanding as of the date hereof and for invoices to be issued for services provided by Vendor under that certain Master Services Agreement dated June 30, 2009 by and between Vendor and Customer, the Parties, on behalf of themselves, their directors, officers, shareholders, employees, agents, successors and assigns, hereby release and forever discharge each other, their directors, officers, shareholders, employees, agents, successors and assigns, from any and all obligations, liabilities, claims, demands, and causes of action (including any claim for indemnification), which a Party has, had or may have against the other Party, of any nature whatsoever, whether know or unknown, contingent or otherwise, from the beginning of the world through the effectiveness of this Agreement. |
36. | Order of Precedence. In the event of any inconsistencies between the terms of this Agreement, the Risk Standards, the List of Services, and the Service Levels, priority shall be given to such terms in the following order: this Agreement, the Risk Standards, the List of Services, and the Service Levels. |
CUSTOMER: FIFTH THIRD BANK By: /s/ Randolph J. Kaporc Name: Randolph J. Kaporc Title: Executive Vice President, Payments and Commerce Division Date: July 27, 2016 | CUSTOMER: FIFTH THIRD BANK By: /s/ Robert Marchi Name: Robert Marchi Title: Vice President, Sourcing Date: July 27, 2016 |
ACCULYNK PAYMENT SERVICES | 3DELTA SYSTEMS INC |
ACS STATE & LOCAL SOLUTIONS INC | ACH DIRECT INC |
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BROOKFIELD EQUINOX LLC | BOOKS A MILLION INC |
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CAMPGROUND AUTOMATION SYSTEMS (SUNRISE) | CAFFE FANTASTICO |
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CARD MANAGEMENT CORPORATION | CARD FULFILLMENT SERVICES |
CARDFREE INC | CARD MANAGEMENT CORPORATION FIRST DATA RESOURCES |
CARDWATCH LICENSING LTD | CARDINAL COMMERCE |
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COUNTY OF WESTCHESTER | CONTROL SCAN INC |
CPI CARD GROUP INDIANA INC | CPI CARD GROUP - COLORADO INC |
CREDORAX | CREDIT UNION 24 INCORPORATED |
CSG SYSTEMS INC | CRYSTAL BRIDGES MUSEUM OF AMERICAN ART |
DATALINE SYSTEMS INC | CUSTOM DATA PROCESSING INC |
DECISIONWISE | DAVID WERNER INC |
DFS SERVICES LLC | DELAWARE BUSINESS SYSTEMS |
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ELIZABETH ARDEN INC | ELEMENT PAYMENT SERVICES |
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FIFTH THIRD BANK | FAST TRANSACT INC |
FIRST AMERICAN PAYMENT SYSTEMS | FIFTH THIRD BANK FIRST NATIONAL BANK OF OMAHA TSYS ACQUIRING SOLUTIONS LLC |
FIRST NATIONAL BANK OF OMAHA | FIRST DATA SOLUTIONS |
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FOUR BROTHERS PIZZA INN | FLEETCOR TECHNOLOGIES INC |
G6 TECHNOLOGY | FRANKFORD HOSPITALS |
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GLOBAL PAYMENTS INC | GLOBAL PAYMENTS CANADA |
GLOBAL PAYMENTS INC MASTERCARD INTERNATIONAL INCORPORATED | GLOBAL PAYMENTS INC GLOBAL PAYMENTS CANADA |
GREEN DOT CORPORATION | GOOGLE PAYMENT CORP |
HEARTLAND PAYMENT SYSTEMS IN | HARRISONTUCKER LLC |
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INSTORE OWN POS | INNOVATION DATA PROCESSING |
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ZEUSPOS | ZING CHECKOUT |
ZONAL HOSPITALITY SYSTEMS INC | |
VANTIV, INC. | |
By: | /s/ NELSON F. GREENE |
Name: Nelson F. Greene | |
Title: Chief Legal and Corporate Services Officer and Secretary | |
FIFTH THIRD BANK | |
By: | /s/ JAMES C. LEONARD |
Name: James C. Leonard | |
Title: Treasurer | |
By: | /s/ FRANK R. FORREST |
Name: Frank R. Forrest | |
Title: CRO |
Call Option | Call Option Payment | Exercise Period |
2017 Call Options | ||
First Call Option | $15,118,000 | Starting on March 1, 2017 and ending on 5:00 p.m. Eastern Time on March 10, 2017 |
Second Call Option | $15,586,000 | Starting on June 1, 2017 and ending on 5:00 p.m. Eastern Time on June 10, 2017 |
Third Call Option | $16,074,000 | Starting on September 1, 2017 and ending on 5:00 p.m. Eastern Time on September 10, 2017 |
Fourth Call Option | $16,577,000 | Starting on December 1, 2017 and ending on 5:00 p.m. Eastern Time on December 10, 2017 |
2018 Call Options | ||
Fifth Call Option | $25,627,000 | Starting on March 1, 2018 and ending on 5:00 p.m. Eastern Time on March 10, 2018 |
Sixth Call Option | $26,420,000 | Starting on June 1, 2018 and ending on 5:00 p.m. Eastern Time on June 10, 2018 |
Seventh Call Option | $27,247,000 | Starting on September 1, 2018 and ending on 5:00 p.m. Eastern Time on September 10, 2018 |
Eighth Call Option | $28,100,000 | Starting on December 1, 2018 and ending on 5:00 p.m. Eastern Time on December 10, 2018 |
Put Option | Put Option Payment | Exercise Period |
2017 Put Options | ||
First Put Option | $15,118,000 | Starting on March 20, 2017 and ending on 5:00 p.m. Eastern Time on March 31, 2017 |
Second Put Option | $15,586,000 | Starting on June 20, 2017 and ending on 5:00 p.m. Eastern Time on June 30, 2017 |
Third Put Option | $16,074,000 | Starting on September 20, 2017, 2017 and ending on 5:00 p.m. Eastern Time on September 30, 2017 |
Fourth Put Option | $16,577,000 | Starting on December 20, 2017 and ending on December 31, 2017 5:00 p.m. Eastern Time on, 2017 |
2018 Put Options | ||
Fifth Put Option | $25,627,000 | Starting on March 20, 2018 and ending on 5:00 p.m. Eastern Time on March 31, 2018 |
Sixth Put Option | $26,420,000 | Starting on June 20, 2018 and ending on 5:00 p.m. Eastern Time on June 30, 2018 |
Seventh Put Option | $27,247,000 | Starting on September 20, 2018 and ending on 5:00 p.m. Eastern Time on September 30, 2018 |
Eighth Put Option | $28,100,000 | Starting on December 20, 2018 and ending on 5:00 p.m. Eastern Time on December 31, 2018 |
1. | I have reviewed this quarterly report on Form 10-Q of Vantiv, 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(s) 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 fiscal 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(s) 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. |
July 28, 2016 | /s/ CHARLES D. DRUCKER |
Charles D. Drucker | |
President and Chief Executive Officer |
1. | I have reviewed this quarterly report on Form 10-Q of Vantiv, 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(s) 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 fiscal 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(s) 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. |
July 28, 2016 | /s/ STEPHANIE L. FERRIS |
Stephanie L. Ferris | |
Chief Financial Officer |
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 result of operations of the Company. |
July 28, 2016 | /s/ CHARLES D. DRUCKER |
Charles D. Drucker | |
President and Chief Executive Officer |
July 28, 2016 | /s/ STEPHANIE L. FERRIS |
Stephanie L. Ferris | |
Chief Financial Officer |
DOCUMENT AND ENTITY INFORMATION |
6 Months Ended |
---|---|
Jun. 30, 2016
shares
| |
Document and Entity Information [Abstract] | |
Entity Registrant Name | Vantiv, Inc. |
Entity Central Index Key | 0001533932 |
Document Type | 10-Q |
Document Period End Date | Jun. 30, 2016 |
Amendment Flag | false |
Current Fiscal Year End Date | --12-31 |
Entity Current Reporting Status | Yes |
Entity Filer Category | Large Accelerated Filer |
Document Fiscal Year Focus | 2016 |
Document Fiscal Period Focus | Q2 |
Class A Common Stock | |
Entity Information | |
Entity Common Stock, Shares Outstanding (in shares) | 156,480,777 |
Class B Common Stock | |
Entity Information | |
Entity Common Stock, Shares Outstanding (in shares) | 35,042,826 |
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Revenue: | ||||
External customers | $ 870,158 | $ 765,564 | $ 1,667,729 | $ 1,451,940 |
Related party revenues | 21,059 | 20,431 | 42,111 | 39,666 |
Total revenue | 891,217 | 785,995 | 1,709,840 | 1,491,606 |
Network fees and other costs | 410,736 | 362,349 | 798,149 | 693,495 |
Sales and marketing | 144,844 | 122,925 | 280,482 | 238,980 |
Other operating costs | 73,599 | 76,551 | 147,302 | 145,290 |
General and administrative | 49,120 | 47,060 | 93,104 | 94,903 |
Depreciation and amortization | 65,234 | 67,659 | 133,464 | 135,461 |
Income from operations | 147,684 | 109,451 | 257,339 | 183,477 |
Interest expense—net | (26,118) | (25,714) | (53,847) | (51,725) |
Non-operating expenses | (4,664) | (6,725) | (10,316) | (15,491) |
Income before applicable income taxes | 116,902 | 77,012 | 193,176 | 116,261 |
Income tax expense | 38,441 | 24,319 | 62,267 | 36,572 |
Net income | 78,461 | 52,693 | 130,909 | 79,689 |
Less: Net income attributable to non-controlling interests | (19,134) | (16,157) | (31,844) | (24,164) |
Net income attributable to Vantiv, Inc. | $ 59,327 | $ 36,536 | $ 99,065 | $ 55,525 |
Class A Common Stock | ||||
Net income per share attributable to Vantiv, Inc. Class A common stock: | ||||
Basic (in dollars per share) | $ 0.38 | $ 0.25 | $ 0.64 | $ 0.38 |
Diluted (in dollars per share) | $ 0.38 | $ 0.24 | $ 0.63 | $ 0.37 |
Shares used in computing net income per share of Class A common stock: | ||||
Basic (in shares) | 155,670,267 | 145,566,899 | 155,533,813 | 145,051,664 |
Diluted (in shares) | 197,258,209 | 201,831,467 | 197,018,018 | 201,276,166 |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Statement of Comprehensive Income [Abstract] | ||||
Net income | $ 78,461 | $ 52,693 | $ 130,909 | $ 79,689 |
Other comprehensive loss, net of tax: | ||||
Loss on cash flow hedges and other | (5,115) | (330) | (13,226) | (7,700) |
Comprehensive income | 73,346 | 52,363 | 117,683 | 71,989 |
Less: Comprehensive income attributable to non-controlling interests | (17,779) | (16,051) | (28,338) | (21,683) |
Comprehensive income attributable to Vantiv, Inc. | $ 55,567 | $ 36,312 | $ 89,345 | $ 50,306 |
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Parenthetical) - $ / shares |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Preferred stock, par value (in dollars per share) | $ 0.00001 | $ 0.00001 |
Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
Preferred stock, shares issued (in shares) | 0 | 0 |
Preferred stock, shares outstanding (in shares) | 0 | 0 |
Treasury stock, shares (in shares) | 2,702,744 | 2,593,242 |
Class A Common Stock | ||
Common stock, par value (in dollars per share) | $ 0.00001 | $ 0.00001 |
Common stock, shares authorized (in shares) | 890,000,000 | 890,000,000 |
Common stock, shares outstanding (in shares) | 156,480,777 | 155,488,326 |
Class B Common Stock | ||
Common stock, shares authorized (in shares) | 100,000,000 | 100,000,000 |
Common stock, shares issued (in shares) | 35,042,826 | 35,042,826 |
Common stock, shares outstanding (in shares) | 35,042,826 | 35,042,826 |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Vantiv, Inc., a Delaware corporation, is a holding company that conducts its operations through its majority-owned subsidiary, Vantiv Holding, LLC (“Vantiv Holding”). Vantiv, Inc. and Vantiv Holding are referred to collectively as the “Company,” “Vantiv,” “we,” “us” or “our,” unless the context requires otherwise. The Company provides electronic payment processing services to merchants and financial institutions throughout the United States of America. The Company markets its services through diverse distribution channels, including national, regional and mid-market sales teams, third-party reseller clients and a telesales operation. The Company also has relationships with a broad range of referral partners that include merchant banks, independent software vendors (“ISVs”), value-added resellers (“VARs”), payment facilitators, independent sales organizations (“ISOs”) and trade associations, as well as arrangements with core processors. Segments The Company’s segments consist of the Merchant Services segment and the Financial Institution Services segment. The Company’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), evaluates the performance and allocates resources based on the operating results of each segment. Below is a summary of each segment:
Basis of Presentation and Consolidation The accompanying consolidated financial statements include those of Vantiv, Inc. and all subsidiaries thereof, including its majority-owned subsidiary, Vantiv Holding, LLC. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and should be read in connection with the Company’s 2015 audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. The accompanying consolidated financial statements are unaudited; however, in the opinion of management they include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. All intercompany balances and transactions have been eliminated. As of June 30, 2016, Vantiv, Inc. and Fifth Third Bank (“Fifth Third”) owned interests in Vantiv Holding of 81.70% and 18.30%, respectively (see Note 5 - Controlling and Non-controlling Interests for changes in non-controlling interests). The Company accounts for non-controlling interests in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation. Non-controlling interests primarily represent Fifth Third’s minority share of net income or loss of and equity in Vantiv Holding. Net income attributable to non-controlling interests does not include expenses incurred directly by Vantiv, Inc., including income tax expense attributable to Vantiv, Inc. All of the Company’s non-controlling interests are presented after Vantiv Holding income tax expense in the accompanying consolidated statements of income as “Net income attributable to non-controlling interests.” Non-controlling interests are presented as a component of equity in the accompanying consolidated statements of financial position. Share Repurchase Program In February 2014, our board of directors authorized a program to repurchase up to $300 million of our Class A common stock. We have approximately $75 million of share repurchase authority remaining as of June 30, 2016 under this authorization. Purchases under the repurchase program are allowed from time to time in the open market, in privately negotiated transactions, or otherwise. The manner, timing, and amount of any purchases are determined by management based on an evaluation of market conditions, stock price, and other factors. The share repurchase program has no expiration date and the Company may discontinue purchases at any time that management determines additional purchases are not warranted. Sponsorship In order to provide electronic payment processing services, Visa, MasterCard and other payment networks require sponsorship of non-financial institutions by a member clearing bank. In June 2009, the Company entered into a 10-year agreement with Fifth Third (the “Sponsoring Member”), to provide sponsorship services to the Company. The Company also has agreements with certain other banks that provide sponsorship into the card networks. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Revenue Recognition The Company has contractual agreements with its clients that set forth the general terms and conditions of the relationship including line item pricing, payment terms and contract duration. Revenues are recognized as earned (i.e., for transaction based fees, when the underlying transaction is processed) in conjunction with ASC 605, Revenue Recognition. ASC 605, Revenue Recognition, establishes guidance as to when revenue is realized or realizable and earned by using the following criteria: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price is fixed or determinable; and (4) collectibility is reasonably assured. The Company follows guidance provided in ASC 605-45, Principal Agent Considerations, which states that the determination of whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors should be considered in the evaluation. The Company recognizes processing revenues net of interchange fees, which are assessed to the Company’s merchant customers on all processed transactions. Interchange rates are not controlled by the Company, which effectively acts as a clearing house collecting and remitting interchange fee settlement on behalf of issuing banks, debit networks, credit card associations and its processing customers. All other revenue is reported on a gross basis, as the Company contracts directly with the end customer, assumes the risk of loss and has pricing flexibility. The Company generates revenue primarily by processing electronic payment transactions. Set forth below is a description of the Company’s revenue by segment. Merchant Services The Company’s Merchant Services segment revenue is primarily derived from processing credit and debit card transactions. Merchant Services revenue is primarily comprised of fees charged to businesses, net of interchange fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. The fees charged consist of either a percentage of the dollar volume of the transaction or a fixed fee, or both, and are recognized at the time of the transaction. Merchant Services revenue also includes a number of revenue items that are incurred by the Company and are reimbursable as the costs are passed through to and paid by the Company’s clients. These items primarily consist of Visa, MasterCard and other payment network fees. In addition, for sales through ISOs and certain other referral sources in which the Company is the primary party to the contract with the merchant, the Company records the full amount of the fees collected from the merchant as revenue. Merchant Services segment revenue also includes revenue from ancillary services such as fraud management, equipment sales and terminal rent. Merchant Services revenue is recognized as services are performed. Financial Institution Services The Company’s Financial Institution Services segment revenue is primarily derived from debit, credit and ATM card transaction processing, ATM driving and support, and PIN debit processing services. Financial Institution Services revenue associated with processing transactions includes per transaction and account related fees, card production fees and fees generated from the Company’s Jeanie network. Financial Institution Services revenue related to card transaction processing is recognized when consumers use their client-issued cards to make purchases. Financial Institution Services also generates revenue through other services, including statement production, collections and inbound/outbound call centers for credit transactions and other services such as credit card portfolio analytics, program strategy and support, fraud and security management and chargeback and dispute services. Financial Institution Services revenue is recognized as services are performed. Financial Institution Services provides certain services to Fifth Third. Revenues related to these services are included in the accompanying statements of income as related party revenues. Expenses Set forth below is a brief description of the components of the Company’s expenses:
Share-Based Compensation The Company expenses employee share-based payments under ASC 718, Compensation—Stock Compensation, which requires compensation cost for the grant-date fair value of share-based payments to be recognized over the requisite service period. The Company estimates the grant date fair value of the share-based awards issued in the form of options using the Black-Scholes option pricing model. The fair value of restricted stock awards and performance awards is measured based on the market price of the Company’s stock on the grant date. For the six months ended June 30, 2016 and 2015 total share-based compensation expense was $16.3 million and $16.7 million, respectively. In 2016 the Company began offering an Employee Stock Purchase Plan (“ESPP”). The ESPP has 2.5 million shares of common stock reserved for issuance. Full-time and benefits-eligible part-time employees who have completed at least one year of service are eligible to participate. Temporary, seasonal and employees subject to Section 16 reporting are excluded. Shares may be purchased at 85% of the market value at the end of the offering period through accumulation of payroll deductions. The ESPP provides for six month offerings commencing on January 1 and July 1 of each year with purchases on June 30 and December 31 of each year. The expense related to the ESPP’s 15% discount is included in total share based compensation expense above. Earnings Per Share Basic earnings per share is computed by dividing net income attributable to Vantiv, Inc. by the weighted average shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Vantiv, Inc., adjusted as necessary for the impact of potentially dilutive securities, by the weighted-average shares outstanding during the period and the impact of securities that would have a dilutive effect on earnings per share. See Note 8 - Net Income Per Share for further discussion. Dividend Restrictions The Company does not intend to pay cash dividends on its Class A common stock in the foreseeable future. Vantiv, Inc. is a holding company that does not conduct any business operations of its own. As a result, Vantiv, Inc.’s ability to pay cash dividends on its common stock, if any, is dependent upon cash dividends and distributions and other transfers from Vantiv Holding. The amounts available to Vantiv, Inc. to pay cash dividends are subject to the covenants and distribution restrictions in its subsidiaries’ loan agreements. As a result of the restrictions on distributions from Vantiv Holding and its subsidiaries, essentially all of the Company’s consolidated net assets are held at the subsidiary level and are restricted as of June 30, 2016. Income Taxes Vantiv, Inc. is taxed as a C corporation for U.S. income tax purposes and is therefore subject to both federal and state taxation at a corporate level. Income taxes are computed in accordance with ASC 740, Income Taxes, and reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, such deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made. As of June 30, 2016 and December 31, 2015, the Company had recorded no valuation allowances against deferred tax assets. The Company’s consolidated interim effective tax rate is based upon expected annual income from operations, statutory tax rates and tax laws in the various jurisdictions in which the Company operates. Significant or unusual items, including adjustments to accruals for tax uncertainties, are recognized in the quarter in which the related event occurs. The Company’s effective tax rates were 32.2% and 31.5% respectively, for the six months ended June 30, 2016 and 2015. The effective tax rate for each period reflects the impact of the Company’s non-controlling interests not being taxed at the statutory corporate tax rates. As our non-controlling interest declines to the point Vantiv Holding is a wholly-owned subsidiary, we expect our effective rate to increase to approximately 36.0%. Cash and Cash Equivalents Cash on hand and investments with original maturities of three months or less (that are readily convertible to cash) are considered to be cash equivalents. Cash equivalents consist primarily of overnight EuroDollar sweep accounts which are maintained at reputable financial institutions with high credit quality and therefore are considered to bear minimal credit risk. Accounts Receivable—net Accounts receivable primarily represent processing revenues earned but not collected. For a majority of its customers, the Company has the authority to debit the client’s bank accounts through the Federal Reserve’s Automated Clearing House; as such, collectibility is reasonably assured. The Company records a reserve for doubtful accounts when it is probable that the accounts receivable will not be collected. The Company reviews historical loss experience and the financial position of its customers when estimating the allowance. As of June 30, 2016 and December 31, 2015, the allowance for doubtful accounts was not material to the Company’s statements of financial position. Customer Incentives Customer incentives represent signing bonuses paid to customers. Customer incentives are paid in connection with the acquisition or renewal of customer contracts, and are therefore deferred and amortized using the straight-line method based on the contractual agreement. Related amortization is recorded as contra-revenue. Property, Equipment and Software—net Property, equipment and software consists of the Company’s facilities, furniture and equipment, software, land and leasehold improvements. These assets are depreciated on a straight-line basis over their respective useful lives, which are 15 to 40 years for the Company’s facilities and related improvements, 2 to 10 years for furniture and equipment, 3 to 8 years for software and 3 to 10 years for leasehold improvements or the lesser of the estimated useful life of the improvement or the term of lease. Also included in property, equipment and software is work in progress consisting of costs associated with software developed for internal use which has not yet been placed in service. Accumulated depreciation as of June 30, 2016 and December 31, 2015 was $274.4 million and $240.3 million, respectively. The Company capitalizes certain costs related to computer software developed for internal use and amortizes such costs on a straight-line basis over an estimated useful life of 5 to 8 years. Research and development costs incurred prior to establishing technological feasibility are charged to operations as such costs are incurred. Once technological feasibility has been established, costs are capitalized until the software is placed in service. Goodwill and Intangible Assets In accordance with ASC 350, Intangibles—Goodwill and Other, the Company tests goodwill for impairment for each reporting unit on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that fair value of the goodwill within the reporting unit is less than its carrying value. The Company performed its most recent annual goodwill impairment test for all reporting units as of July 31, 2015 using market data and discounted cash flow analyses. Based on this analysis, it was determined that the fair value of all reporting units were substantially in excess of the carrying value. There have been no other events or changes in circumstances subsequent to the testing date that would indicate impairment of these reporting units as of June 30, 2016. Intangible assets consist of acquired customer relationships, trade names and customer portfolios and related assets that are amortized over their estimated useful lives. The Company reviews finite lived intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. As of June 30, 2016, there have been no such events or circumstances that would indicate potential impairment of finite lived intangible assets. Settlement Assets and Obligations Settlement assets and obligations result from Financial Institution Services when funds are transferred from or received by the Company prior to receiving or paying funds to a different entity. This timing difference results in a settlement asset or obligation. The amounts are generally collected or paid the following business day. The settlement assets and obligations recorded by Merchant Services represent intermediary balances due to differences between the amount the Sponsoring Member receives from the card associations and the amount funded to the merchants. Such differences arise from timing differences, interchange expenses, merchant reserves and exception items. In addition, certain card associations limit the Company from accessing or controlling merchant settlement funds and, instead, require that these funds be controlled by the Sponsoring Member. The Company follows a net settlement process whereby, if the settlement received from the card associations precedes the funding obligation to the merchant, the Company temporarily records a corresponding liability. Conversely, if the funding obligation to the merchant precedes the settlement from the card associations, the amount of the net receivable position is recorded by the Company, or in some cases, the Sponsoring Member may cover the position with its own funds in which case a receivable position is not recorded by the Company. Derivatives The Company accounts for derivatives in accordance with ASC 815, Derivatives and Hedging. This guidance establishes accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the statement of financial position at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative will be recorded in accumulated other comprehensive income (loss) (“AOCI”) and will be recognized in the statement of income when the hedged item affects earnings. The Company does not enter into derivative financial instruments for speculative purposes. Tax Receivable Agreements As of June 30, 2016, the Company is party to several TRAs in which the Company agrees to make payments to various parties of 85% of the federal, state, local and foreign income tax benefits realized by the Company as a result of certain tax deductions. Payments under the TRAs will be based on the tax reporting positions of the Company and are only required to the extent the Company realizes cash savings as a result of the underlying tax attributes. The cash savings realized by the Company are computed by comparing the actual income tax liability of the Company to the amount of such taxes the Company would have been required to pay had there been no deductions related to the tax attributes discussed below. The Company will retain the benefit of the remaining 15% of the cash savings associated with the TRAs. The Company has entered into the following three TRAs:
Obligations recorded pursuant to the TRAs are based on estimates of future taxable income and future tax rates. On an annual basis, the Company evaluates the assumptions underlying the TRA obligations. During 2015, the Company entered into a Repurchase Addendum to Tax Receivable Agreement (the “Mercury TRA Addendum”) with each of the pre-acquisition owners of Mercury ("Mercury TRA Holders"). The Mercury TRA Addendum contains the following provisions to acquire a significant portion of the Mercury TRA:
Except to the extent the Company’s obligations under the Mercury TRA have been terminated and settled in full in accordance with the terms of the Mercury TRA Addendum, the Mercury TRA will remain in effect, and the parties thereto will continue to have all rights and obligations thereunder. All TRA obligations are recorded based on the full and undiscounted amount of the expected future payments, except for the Mercury TRA which represents contingent consideration relating to an acquired business, and is recorded at fair value for financial reporting purposes (see Note 7 - Fair Value Measurements). The timing and/or amount of aggregate payments due under the TRAs may vary based on a number of factors, including the amount and timing of the taxable income the Company generates in the future and the tax rate then applicable, the use of loss carryovers and amortizable basis. Payments under the TRAs, if necessary, are required to be made no later than January 5th of the second year immediately following the taxable year in which the obligation occurred. The Company made payments under the TRA obligations of approximately $53.5 million and $22.8 million in January 2016 and January 2015, respectively. The term of the TRAs will continue until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA for an amount based on the agreed payments remaining to be made under the agreement. See Note 11 - Subsequent Events for discussion of the tax receivable purchase addendum with Fifth Third executed on July 27, 2016. New Accounting Pronouncements In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update simplifies several aspects of the accounting for share-based payment award transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of the adoption of this update on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU amends the existing guidance by recognizing all leases, including operating leases, with a term longer than 12 months on the balance sheet and disclosing key information about the lease arrangements. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The update requires modified retrospective transition, which requires application of the ASU at the beginning of the earliest comparative period presented in the year of adoption. The Company is currently evaluating the impact of the adoption of this principle on the Company’s consolidated financial statements. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The update simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in the balance sheet. The update is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. As of December 31, 2015, the Company elected to early adopt this ASU on a prospective basis and therefore, prior years were not retrospectively adjusted. In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This standard was clarified in August 2015 with the issuance of ASU 2015-15. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Amortization of the costs will continue to be reported as interest expense. These updates require retrospective application and represent a change in accounting principle. The change in accounting principle, resulting from the Company’s adoption of this ASU in December 2015, has been implemented and the results are not material to the Company’s consolidated statement of financial position. In May 2014, the FASB issued ASU 2014-09, "Revenue From Contracts With Customers." The ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard, as amended, is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendment allows companies to use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company is currently evaluating which transition approach to use and assessing the impact of the adoption of this principle on the Company’s consolidated financial statements. |
INTANGIBLE ASSETS |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOODWILL AND INTANGIBLE ASSETS | INTANGIBLE ASSETS As of June 30, 2016 and December 31, 2015, the Company’s finite lived intangible assets consisted of the following (in thousands):
Amortization expense on intangible assets for the three months ended June 30, 2016 and 2015 was $49.4 million and $49.6 million, respectively. Amortization expense on intangible assets for the six months ended June 30, 2016 and 2015 was $99.3 million and $98.8 million, respectively. The estimated amortization expense of intangible assets for the remainder of 2016 and the next five years is as follows (in thousands):
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LONG-TERM DEBT |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
LONG-TERM DEBT | LONG-TERM DEBT As of June 30, 2016 and December 31, 2015, the Company’s long-term debt consisted of the following (in thousands):
As of June 30, 2016, in addition to the term A loan and term B loan listed in the table above, the Company has access to a $425 million revolving credit facility under our existing amended and restated loan agreement ("Amended Loan Agreement") entered into in June 2014. The revolving credit facility matures in June 2019 and includes a $100 million swing line facility and a $40 million letter of credit facility. The commitment fee rate for the unused portion of the revolving credit facility is 0.375% per year. During the three months ended June 30, 2016 the Company periodically borrowed under its revolving credit facility and repaid the amounts prior to quarter end. There were no outstanding borrowings on the revolving credit facility at June 30, 2016 and December 31, 2015. As of June 30, 2016 and December 31, 2015, Fifth Third held $186.3 million and $191.5 million, respectively, of the term A loans, which were presented as note payable to related party on the Company’s consolidated statements of financial position. On January 6, 2015, the Company made an early principal payment of $200 million on the term B loan. The Company expensed approximately $1.8 million in non-operating expenses related to the write-off of deferred financing fees and OID in connection with the early principal payment. Guarantees and Security The Company’s debt obligations at June 30, 2016 are unconditional and are guaranteed by Vantiv Holding and certain of Vantiv Holding’s existing and subsequently acquired or organized domestic subsidiaries. The refinanced debt and related guarantees are secured on a first-priority basis (subject to liens permitted under the Amended Loan Agreement) by substantially all the capital stock (subject to a 65% limitation on pledges of capital stock of foreign subsidiaries and domestic holding companies of foreign subsidiaries) and personal property of Vantiv Holding and any obligors as well as any real property in excess of $10 million in the aggregate held by Vantiv Holding or any obligors (other than Vantiv Holding), subject to certain exceptions. Covenants There are certain financial and non-financial covenants contained in the Amended Loan Agreement for the refinanced debt, which are tested on a quarterly basis. The financial covenants require maintenance of certain leverage and interest coverage ratios. At June 30, 2016, the Company was in compliance with these financial covenants. |
DERIVATIVES AND HEDGING ACTIVITIES |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DERIVATIVES AND HEDGING ACTIVITIES | DERIVATIVES AND HEDGING ACTIVITIES Risk Management Objective of Using Derivatives The Company enters into derivative financial instruments to manage differences in the amount, timing and duration of its known or expected cash payments related to its variable-rate debt. As of December 31, 2015, the Company’s derivative instruments consisted of interest rate swaps, which hedged the variable rate debt by converting floating-rate payments to fixed-rate payments. In addition to the interest rate swaps, in March the Company entered into interest rate cap agreements in exchange for an upfront premium of $21.5 million. These interest rate cap agreements cap a portion of the Company’s variable rate debt if interest rates rise above the strike rate on the contract. As of June 30, 2016 the interest rate cap agreements had a fair value of $10.5 million, classified within other current and non-current assets on the Company’s consolidated statements of financial position. The interest rate swaps and caps (collectively “interest rate contracts”) are designated as cash flow hedges for accounting purposes. Accounting for Derivative Instruments The Company recognizes derivatives in other current and non-current assets or liabilities in the accompanying consolidated statements of financial position at their fair values. Refer to Note 7 - Fair Value Measurements for a detailed discussion of the fair value of its derivatives. The Company designates its interest rate contracts as cash flow hedges of forecasted interest rate payments related to its variable-rate debt. The Company formally documents all relationships between hedging instruments and underlying hedged transactions, as well as its risk management objective and strategy for undertaking hedge transactions. This process includes linking all derivatives that are designated as cash flow hedges to forecasted transactions. A formal assessment of hedge effectiveness is performed both at inception of the hedge and on an ongoing basis to determine whether the hedge is highly effective in offsetting changes in cash flows of the underlying hedged item. Hedge effectiveness is assessed using a regression analysis. If it is determined that a derivative ceases to be highly effective during the term of the hedge, the Company will discontinue hedge accounting for such derivative. The Company’s interest rate contracts qualify for hedge accounting under ASC 815, Derivatives and Hedging. Therefore, the effective portion of changes in fair value were recorded in AOCI and will be reclassified into earnings in the same period during which the hedged transactions affected earnings. Cash Flow Hedges of Interest Rate Risk The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company uses a combination of interest rate swaps and caps as part of its interest rate risk management strategy. As of June 30, 2016, the Company had a total of 10 outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk. Of the 10 outstanding interest rate swaps, 4 of them cover an exposure period from June 2016 through June 2017 and have a combined notional balance of $1.1 billion. The remaining 6 interest rate swaps cover an exposure period from January 2016 through January 2019 and have a combined notional balance of $500 million. Fifth Third is the counterparty to 4 of the 10 outstanding interest rate swaps with notional balances ranging from $262.5 million to $250.0 million. Additionally, as of June 30, 2016, the Company had a total of 6 interest rate cap agreements with a combined notional balance of $1.0 billion, cap strike rate of 0.75%, covering an exposure period from January 2017 to January 2020. The Company does not offset derivative positions in the accompanying consolidated financial statements. The table below presents the fair value of the Company’s derivative financial instruments designated as cash flow hedges included within the accompanying consolidated statements of financial position (in thousands):
Any ineffectiveness associated with such derivative instruments will be recorded immediately as interest expense in the accompanying consolidated statements of income. As of June 30, 2016, the Company estimates that $18.0 million will be reclassified from accumulated other comprehensive income as an increase to interest expense during the next 12 months. The table below presents the pre-tax effect of the Company’s interest rate contracts on the accompanying consolidated statements of comprehensive income for the three and six months ended June 30, 2016 and 2015 (in thousands):
Credit Risk Related Contingent Features The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, then the Company could also be declared in default on its derivative obligations. As of June 30, 2016, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $28.6 million. As of June 30, 2016, the Company had not posted any collateral related to these agreements. If the Company had breached any of these provisions at June 30, 2016, it could have been required to settle its obligations under the agreements at their termination value of $28.6 million. |
CONTROLLING AND NON-CONTROLLING INTERESTS |
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Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CONTROLLING AND NON-CONTROLLING INTERESTS | CONTROLLING AND NON-CONTROLLING INTERESTS The Company has various non-controlling interests that are accounted for in accordance with ASC 810, Consolidation (“ASC 810”). As discussed in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Vantiv, Inc. owns a controlling interest in Vantiv Holding, and therefore consolidates the financial results of Vantiv Holding and its subsidiaries and records non-controlling interest for the economic interests in Vantiv Holding held by Fifth Third. The Exchange Agreement entered into prior to the IPO provides for a 1 to 1 ratio between the units of Vantiv Holding and the common stock of Vantiv, Inc. In May 2014, the Company entered into a joint venture with a bank partner which provides customers a comprehensive suite of payment solutions. Vantiv Holding owns 51% and the bank partner owns 49% of the joint venture. The joint venture is consolidated by the Company in accordance with ASC 810, with the associated non-controlling interest included in “Net income attributable to non-controlling interests” in the consolidated statements of income. As of June 30, 2016, Vantiv, Inc.’s interest in Vantiv Holding was 81.70%. Changes in units and related ownership interest in Vantiv Holding are summarized as follows:
As a result of changes in ownership interests in Vantiv Holding, periodic adjustments are made in order to reflect the portion of net assets of Vantiv Holding attributable to non-controlling unit holders based on changes in the proportionate ownership interests in Vantiv Holding during a period. The table below provides a reconciliation of net income attributable to non-controlling interests based on relative ownership interests as discussed above (in thousands):
(1) Primarily represents income tax expense related to Vantiv, Inc. (2) Net income attributable to non-controlling interests of Fifth Third reflects the allocation of Vantiv Holding’s net income based on the proportionate ownership interests in Vantiv Holding held by the non-controlling unit holders. The net income attributable to non-controlling unit holders reflects the changes in ownership interests summarized in the table above.
At June 30, 2016, Fifth Third holds the rights, under a warrant, to purchase 7.8 million Class C Non-Voting Units of Vantiv Holding at an exercise price of $15.98 per unit. The warrant is currently exercisable, in whole or in part, and from time to time. The warrant expires upon the earliest to occur of June 30, 2029 or a change of control where the price paid per unit in such change of control minus the exercise price of the warrant is less than zero. The warrant is recorded as a component of the non-controlling interest on the accompanying statements of financial position. |
COMMITMENTS, CONTINGENCIES AND GUARANTEES |
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Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS, CONTINGENCIES AND GUARANTEES | COMMITMENTS, CONTINGENCIES AND GUARANTEES Legal Reserve From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. While it is impossible to ascertain the ultimate resolution or range of financial liability with respect to these contingent matters, management believes none of these matters, either individually or in the aggregate, would have a material effect upon the Company’s consolidated financial statements. |
FAIR VALUE MEASUREMENTS |
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FAIR VALUE MEASUREMENTS | FAIR VALUE MEASUREMENTS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the hierarchy prescribed in ASC 820, Fair Value Measurement, based upon the available inputs to the valuation and the degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows:
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):
Interest Rate Contracts The Company uses interest rate contracts to manage interest rate risk. The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. The fair value of the interest rate caps is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected future cash flows of each interest rate cap. This analysis reflects the contractual terms of the interest rate caps, including the period to maturity, and uses observable market inputs including interest rate curves and implied volatilities. In addition, to comply with the provisions of ASC 820, Fair Value Measurements, credit valuation adjustments, which consider the impact of any credit enhancements to the contracts, are incorporated in the fair values to account for potential nonperformance risk. In adjusting the fair value of its interest rate contracts for the effect of nonperformance risk, the Company has considered any applicable credit enhancements such as collateral postings, thresholds, mutual puts, and guarantees. Although the Company determined that the majority of the inputs used to value its interest rate contracts fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate contracts utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, as of June 30, 2016 and December 31, 2015, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate contracts and determined that the credit valuation adjustment was not significant to the overall valuation of its interest rate contracts. As a result, the Company classified its interest rate contract valuations in Level 2 of the fair value hierarchy. See Note 4 - Derivatives and Hedging Activities for further discussion of the Company’s interest rate contracts. Mercury TRA The Mercury TRA is considered contingent consideration as it is part of the consideration payable to the former owners of Mercury. Such contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which is classified in Level 3 of the fair value hierarchy. The Mercury TRA is recorded at fair value based on estimates of discounted future cash flows associated with the estimated payments to the Mercury TRA Holders. The significant unobservable inputs used in the fair value measurement of the Mercury TRA are the discount rate, projections of taxable income and effective tax rates. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement. The liability recorded is re-measured at fair value at each reporting period with the change in fair value recognized in earnings as a non-operating expense. The change in value of the Mercury TRA from December 31, 2015 to June 30, 2016 consists of the increase in fair value of $10.3 million and the decrease from payments of $63.4 million related to the Mercury TRA obligations and the exercised 2015 Call Option. The Company recorded non-operating expenses of $4.6 million and $6.7 million related to the change in fair value during the three months ended June 30, 2016 and 2015, respectively. The Company recorded non-operating expenses of $10.3 million and $13.7 million related to the change in fair value during the six months ended June 30, 2016 and 2015, respectively. The following table summarizes carrying amounts and estimated fair values for the Company’s financial instrument liabilities that are not reported at fair value in our consolidated statements of financial position as of June 30, 2016 and December 31, 2015 (in thousands):
We consider that the carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses approximates fair value (level 1) given the short-term nature of these items. The fair value of the Company’s note payable was estimated based on rates currently available to the Company for bank loans with similar terms and maturities and is classified in Level 2 of the fair value hierarchy. |
NET INCOME PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
NET INCOME PER SHARE | NET INCOME PER SHARE Basic net income per share is calculated by dividing net income attributable to Vantiv, Inc. by the weighted-average shares of Class A common stock outstanding during the period. Diluted net income per share is calculated assuming that Vantiv Holding is a wholly-owned subsidiary of Vantiv, Inc., therefore eliminating the impact of Fifth Third’s non-controlling interest. Pursuant to the Exchange Agreement, the Class B units of Vantiv Holding (“Class B units”), which are held by Fifth Third and represent the non-controlling interest in Vantiv Holding, are convertible into shares of Class A common stock on a one-for-one basis. Based on this conversion feature, diluted net income per share is calculated assuming the conversion of the Class B units on an “if-converted” basis. Due to the Company’s structure as a C corporation and Vantiv Holding’s structure as a pass-through entity for tax purposes, the numerator in the calculation of diluted net income per share is adjusted accordingly to reflect the Company’s income tax expense assuming the conversion of the Fifth Third non-controlling interest into Class A common stock. The adjusted effective tax rate used in the calculation was 36.0% for 2016 and 2015, which is the effective rate we expect as our non-controlling interest declines to the point Vantiv Holding is a wholly-owned subsidiary. As of June 30, 2016 and 2015, there were approximately 35.0 million and 43.0 million Class B units outstanding, respectively. In addition to the Class B units discussed above, potentially dilutive securities during the three and six months ended June 30, 2016 and 2015 included restricted stock awards, restricted stock units, the warrant held by Fifth Third which allows for the purchase of Class C units of Vantiv Holding, stock options, performance share awards and ESPP purchase rights, all calculated based on the treasury stock method. The shares of Class B common stock do not share in the earnings or losses of the Company and are therefore not participating securities. Accordingly, basic and diluted net income per share of Class B common stock has not been presented. The following table sets forth the computation of basic and diluted net income per share (in thousands, except share data):
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) The activity of the components of accumulated other comprehensive income (loss) related to cash flow hedging and other activities for the three and six months ended June 30, 2016 and 2015 is presented below (in thousands):
(a) The reclassification adjustment on cash flow hedge derivatives affected the following lines in the accompanying consolidated statements of income:
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SEGMENT INFORMATION |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT INFORMATION | SEGMENT INFORMATION Segment operating results are presented below (in thousands). The results reflect revenues and expenses directly related to each segment. The Company does not evaluate performance or allocate resources based on segment asset data, and therefore such information is not presented. Segment profit reflects total revenue less network fees and other costs and sales and marketing costs of the segment. The Company’s CODM evaluates this metric in analyzing the results of operations for each segment.
A reconciliation of total segment profit to the Company’s income before applicable income taxes is as follows (in thousands):
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SUBSEQUENT EVENTS (Notes) |
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Subsequent Events [Abstract] | |||||||||||||
SUBSEQUENT EVENTS | SUBSEQUENT EVENTS Clearing, Settlement and Sponsorship Services Agreement, Master Services Agreement and Referral Agreement with Fifth Third Bank On July 27, 2016, the Company entered into the following agreements with Fifth Third, which extend the existing agreements that were originally set to expire on June 30, 2019:
Since Fifth Third is a stockholder of the Company, a special committee of the Company’s board of directors comprised of independent, disinterested directors authorized the Sponsorship Agreement, Master Services Agreement, and Referral Agreement. Tax Receivable Purchase Addendum On July 27, 2016, the Company entered into a purchase addendum in connection with the Company’s TRA with Fifth Third (the “Fifth Third TRA Addendum”) to terminate and settle a portion of the Company’s obligations owed to Fifth Third under the Fifth Third TRA and the NPC TRA. Under the terms of the Fifth Third TRA Addendum, the Company paid approximately $116.3 million to Fifth Third to settle approximately $330.7 million of obligations under the Fifth Third TRA, the difference of which will be recorded as an addition to paid-in capital. In addition, the Fifth Third TRA Addendum provides that the Company may be obligated to pay up to a total of approximately $170.7 million to Fifth Third to terminate and settle certain remaining obligations under the Fifth Third TRA and the NPC TRA, totaling an estimated $394.1 million, the difference of which will be recorded as an addition to paid-in capital upon the exercise of the Call Options or Put Options (as defined below). If the associated Call Options or Put Options are exercised, 10% of the obligations would be settled on each of March 31, 2017, June 30, 2017, September 30, 2017, and December 31, 2017 and 15% of the obligations would be settled on each of March 31, 2018, June 30, 2018, September 30, 2018, and December 31, 2018. Under the terms of the Fifth Third TRA Addendum, beginning March 1, 2017, June 1, 2017, September 1, 2017, December 1, 2017, March 1, 2018, June 1, 2018, September 1, 2018 and December 1, 2018, and ending March 10, 2017, June 10, 2017, September 10, 2017, December 10, 2017, March 10, 2018, June 10, 2018, September 10, 2018 and December 10, 2018, respectively, the Company is granted call options (collectively, the “Call Options”) pursuant to which certain additional obligations of the Company under the Fifth Third TRA and the NPC TRA would be terminated and settled in consideration for cash payments of $15.1 million, $15.6 million, $16.1 million, $16.6 million, $25.6 million, $26.4 million, $27.2 million and $28.1 million, respectively. Under the terms of the Fifth Third TRA Addendum, if the Company does not exercise the relevant Call Option, Fifth Third is granted put options beginning March 20, 2017, June 20, 2017, September 20, 2017, December 20, 2017, March 20, 2018, June 20, 2018, September 20, 2018 and December 20, 2018, and ending March 31, 2017, June 30, 2017, September 30, 2017, December 31, 2017, March 31, 2018, June 30, 2018, September 30, 2018 and December 31, 2018, respectively (collectively, the “Put Options”), pursuant to which certain additional obligations of the Company would be terminated and settled in consideration for cash payments with similar amounts to the Call Options. Except to the extent the Company’s obligations under the Fifth Third TRA and the NPC TRA have been terminated and settled in full in accordance with the terms of the Fifth Third TRA Addendum, the Fifth Third TRA and the NPC TRA will each remain in effect, and the parties thereto will continue to have all rights and obligations thereunder. Since Fifth Third is a stockholder of the Company, a special committee of the Company’s board of directors comprised of independent, disinterested directors authorized the TRA Addendum. See Note 1 - Basis of Presentation and Summary of Significant Accounting Policies for additional information about the Fifth Third TRA and the NPC TRA. |
SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||
Segments | Segments The Company’s segments consist of the Merchant Services segment and the Financial Institution Services segment. The Company’s Chief Executive Officer (“CEO”), who is the chief operating decision maker (“CODM”), evaluates the performance and allocates resources based on the operating results of each segment. Below is a summary of each segment:
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Principles of Consolidation | Basis of Presentation and Consolidation The accompanying consolidated financial statements include those of Vantiv, Inc. and all subsidiaries thereof, including its majority-owned subsidiary, Vantiv Holding, LLC. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and should be read in connection with the Company’s 2015 audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K. The accompanying consolidated financial statements are unaudited; however, in the opinion of management they include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods presented. Results of operations reported for interim periods are not necessarily indicative of results for the entire year. All intercompany balances and transactions have been eliminated. As of June 30, 2016, Vantiv, Inc. and Fifth Third Bank (“Fifth Third”) owned interests in Vantiv Holding of 81.70% and 18.30%, respectively (see Note 5 - Controlling and Non-controlling Interests for changes in non-controlling interests). The Company accounts for non-controlling interests in accordance with Accounting Standards Codification (“ASC”) 810, Consolidation. Non-controlling interests primarily represent Fifth Third’s minority share of net income or loss of and equity in Vantiv Holding. Net income attributable to non-controlling interests does not include expenses incurred directly by Vantiv, Inc., including income tax expense attributable to Vantiv, Inc. All of the Company’s non-controlling interests are presented after Vantiv Holding income tax expense in the accompanying consolidated statements of income as “Net income attributable to non-controlling interests.” Non-controlling interests are presented as a component of equity in the accompanying consolidated statements of financial position. |
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Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. |
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Revenue Recognition | Revenue Recognition The Company has contractual agreements with its clients that set forth the general terms and conditions of the relationship including line item pricing, payment terms and contract duration. Revenues are recognized as earned (i.e., for transaction based fees, when the underlying transaction is processed) in conjunction with ASC 605, Revenue Recognition. ASC 605, Revenue Recognition, establishes guidance as to when revenue is realized or realizable and earned by using the following criteria: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller’s price is fixed or determinable; and (4) collectibility is reasonably assured. The Company follows guidance provided in ASC 605-45, Principal Agent Considerations, which states that the determination of whether a company should recognize revenue based on the gross amount billed to a customer or the net amount retained is a matter of judgment that depends on the facts and circumstances of the arrangement and that certain factors should be considered in the evaluation. The Company recognizes processing revenues net of interchange fees, which are assessed to the Company’s merchant customers on all processed transactions. Interchange rates are not controlled by the Company, which effectively acts as a clearing house collecting and remitting interchange fee settlement on behalf of issuing banks, debit networks, credit card associations and its processing customers. All other revenue is reported on a gross basis, as the Company contracts directly with the end customer, assumes the risk of loss and has pricing flexibility. The Company generates revenue primarily by processing electronic payment transactions. Set forth below is a description of the Company’s revenue by segment. Merchant Services The Company’s Merchant Services segment revenue is primarily derived from processing credit and debit card transactions. Merchant Services revenue is primarily comprised of fees charged to businesses, net of interchange fees, for payment processing services, including authorization, capture, clearing, settlement and information reporting of electronic transactions. The fees charged consist of either a percentage of the dollar volume of the transaction or a fixed fee, or both, and are recognized at the time of the transaction. Merchant Services revenue also includes a number of revenue items that are incurred by the Company and are reimbursable as the costs are passed through to and paid by the Company’s clients. These items primarily consist of Visa, MasterCard and other payment network fees. In addition, for sales through ISOs and certain other referral sources in which the Company is the primary party to the contract with the merchant, the Company records the full amount of the fees collected from the merchant as revenue. Merchant Services segment revenue also includes revenue from ancillary services such as fraud management, equipment sales and terminal rent. Merchant Services revenue is recognized as services are performed. Financial Institution Services The Company’s Financial Institution Services segment revenue is primarily derived from debit, credit and ATM card transaction processing, ATM driving and support, and PIN debit processing services. Financial Institution Services revenue associated with processing transactions includes per transaction and account related fees, card production fees and fees generated from the Company’s Jeanie network. Financial Institution Services revenue related to card transaction processing is recognized when consumers use their client-issued cards to make purchases. Financial Institution Services also generates revenue through other services, including statement production, collections and inbound/outbound call centers for credit transactions and other services such as credit card portfolio analytics, program strategy and support, fraud and security management and chargeback and dispute services. Financial Institution Services revenue is recognized as services are performed. Financial Institution Services provides certain services to Fifth Third. Revenues related to these services are included in the accompanying statements of income as related party revenues. |
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Expenses | Expenses Set forth below is a brief description of the components of the Company’s expenses:
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Share-Based Compensation | Share-Based Compensation The Company expenses employee share-based payments under ASC 718, Compensation—Stock Compensation, which requires compensation cost for the grant-date fair value of share-based payments to be recognized over the requisite service period. The Company estimates the grant date fair value of the share-based awards issued in the form of options using the Black-Scholes option pricing model. The fair value of restricted stock awards and performance awards is measured based on the market price of the Company’s stock on the grant date. For the six months ended June 30, 2016 and 2015 total share-based compensation expense was $16.3 million and $16.7 million, respectively. In 2016 the Company began offering an Employee Stock Purchase Plan (“ESPP”). The ESPP has 2.5 million shares of common stock reserved for issuance. Full-time and benefits-eligible part-time employees who have completed at least one year of service are eligible to participate. Temporary, seasonal and employees subject to Section 16 reporting are excluded. Shares may be purchased at 85% of the market value at the end of the offering period through accumulation of payroll deductions. The ESPP provides for six month offerings commencing on January 1 and July 1 of each year with purchases on June 30 and December 31 of each year. The expense related to the ESPP’s 15% discount is included in total share based compensation expense above. |
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Earnings Per Share | Earnings Per Share Basic earnings per share is computed by dividing net income attributable to Vantiv, Inc. by the weighted average shares outstanding during the period. Diluted earnings per share is computed by dividing net income attributable to Vantiv, Inc., adjusted as necessary for the impact of potentially dilutive securities, by the weighted-average shares outstanding during the period and the impact of securities that would have a dilutive effect on earnings per share. See Note 8 - Net Income Per Share for further discussion. |
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Income Taxes | Income Taxes Vantiv, Inc. is taxed as a C corporation for U.S. income tax purposes and is therefore subject to both federal and state taxation at a corporate level. Income taxes are computed in accordance with ASC 740, Income Taxes, and reflect the net tax effects of temporary differences between the financial reporting carrying amounts of assets and liabilities and the corresponding income tax amounts. The Company has deferred tax assets and liabilities and maintains valuation allowances where it is more likely than not that all or a portion of deferred tax assets will not be realized. To the extent the Company determines that it will not realize the benefit of some or all of its deferred tax assets, such deferred tax assets will be adjusted through the Company’s provision for income taxes in the period in which this determination is made. As of June 30, 2016 and December 31, 2015, the Company had recorded no valuation allowances against deferred tax assets. The Company’s consolidated interim effective tax rate is based upon expected annual income from operations, statutory tax rates and tax laws in the various jurisdictions in which the Company operates. Significant or unusual items, including adjustments to accruals for tax uncertainties, are recognized in the quarter in which the related event occurs. The Company’s effective tax rates were 32.2% and 31.5% respectively, for the six months ended June 30, 2016 and 2015. The effective tax rate for each period reflects the impact of the Company’s non-controlling interests not being taxed at the statutory corporate tax rates. As our non-controlling interest declines to the point Vantiv Holding is a wholly-owned subsidiary, we expect our effective rate to increase to approximately 36.0%. |
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Cash and Cash Equivalents | Cash and Cash Equivalents Cash on hand and investments with original maturities of three months or less (that are readily convertible to cash) are considered to be cash equivalents. Cash equivalents consist primarily of overnight EuroDollar sweep accounts which are maintained at reputable financial institutions with high credit quality and therefore are considered to bear minimal credit risk. |
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Accounts Receivable—net | Accounts Receivable—net Accounts receivable primarily represent processing revenues earned but not collected. For a majority of its customers, the Company has the authority to debit the client’s bank accounts through the Federal Reserve’s Automated Clearing House; as such, collectibility is reasonably assured. The Company records a reserve for doubtful accounts when it is probable that the accounts receivable will not be collected. The Company reviews historical loss experience and the financial position of its customers when estimating the allowance. As of June 30, 2016 and December 31, 2015, the allowance for doubtful accounts was not material to the Company’s statements of financial position. |
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Customer Incentives | Customer Incentives Customer incentives represent signing bonuses paid to customers. Customer incentives are paid in connection with the acquisition or renewal of customer contracts, and are therefore deferred and amortized using the straight-line method based on the contractual agreement. Related amortization is recorded as contra-revenue. |
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Property and Equipment—net | Property, Equipment and Software—net Property, equipment and software consists of the Company’s facilities, furniture and equipment, software, land and leasehold improvements. These assets are depreciated on a straight-line basis over their respective useful lives, which are 15 to 40 years for the Company’s facilities and related improvements, 2 to 10 years for furniture and equipment, 3 to 8 years for software and 3 to 10 years for leasehold improvements or the lesser of the estimated useful life of the improvement or the term of lease. Also included in property, equipment and software is work in progress consisting of costs associated with software developed for internal use which has not yet been placed in service. Accumulated depreciation as of June 30, 2016 and December 31, 2015 was $274.4 million and $240.3 million, respectively. The Company capitalizes certain costs related to computer software developed for internal use and amortizes such costs on a straight-line basis over an estimated useful life of 5 to 8 years. Research and development costs incurred prior to establishing technological feasibility are charged to operations as such costs are incurred. Once technological feasibility has been established, costs are capitalized until the software is placed in service. |
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Goodwill and Intangible Assets | Goodwill and Intangible Assets In accordance with ASC 350, Intangibles—Goodwill and Other, the Company tests goodwill for impairment for each reporting unit on an annual basis, or when events occur or circumstances indicate the fair value of a reporting unit is below its carrying value. If the fair value of a reporting unit is less than its carrying value, an impairment loss is recorded to the extent that fair value of the goodwill within the reporting unit is less than its carrying value. The Company performed its most recent annual goodwill impairment test for all reporting units as of July 31, 2015 using market data and discounted cash flow analyses. Based on this analysis, it was determined that the fair value of all reporting units were substantially in excess of the carrying value. There have been no other events or changes in circumstances subsequent to the testing date that would indicate impairment of these reporting units as of June 30, 2016. Intangible assets consist of acquired customer relationships, trade names and customer portfolios and related assets that are amortized over their estimated useful lives. The Company reviews finite lived intangible assets for possible impairment whenever events or changes in circumstances indicate that carrying amounts may not be recoverable. As of June 30, 2016, there have been no such events or circumstances that would indicate potential impairment of finite lived intangible assets. |
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Settlement Assets and Obligations | Settlement Assets and Obligations Settlement assets and obligations result from Financial Institution Services when funds are transferred from or received by the Company prior to receiving or paying funds to a different entity. This timing difference results in a settlement asset or obligation. The amounts are generally collected or paid the following business day. The settlement assets and obligations recorded by Merchant Services represent intermediary balances due to differences between the amount the Sponsoring Member receives from the card associations and the amount funded to the merchants. Such differences arise from timing differences, interchange expenses, merchant reserves and exception items. In addition, certain card associations limit the Company from accessing or controlling merchant settlement funds and, instead, require that these funds be controlled by the Sponsoring Member. The Company follows a net settlement process whereby, if the settlement received from the card associations precedes the funding obligation to the merchant, the Company temporarily records a corresponding liability. Conversely, if the funding obligation to the merchant precedes the settlement from the card associations, the amount of the net receivable position is recorded by the Company, or in some cases, the Sponsoring Member may cover the position with its own funds in which case a receivable position is not recorded by the Company. |
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Derivatives | Derivatives The Company accounts for derivatives in accordance with ASC 815, Derivatives and Hedging. This guidance establishes accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be recorded on the statement of financial position at fair value. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item will be recognized in earnings. If the derivative is designated as a cash flow hedge, the effective portion of the change in the fair value of the derivative will be recorded in accumulated other comprehensive income (loss) (“AOCI”) and will be recognized in the statement of income when the hedged item affects earnings. The Company does not enter into derivative financial instruments for speculative purposes. |
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Tax Receivable Agreements | Tax Receivable Agreements As of June 30, 2016, the Company is party to several TRAs in which the Company agrees to make payments to various parties of 85% of the federal, state, local and foreign income tax benefits realized by the Company as a result of certain tax deductions. Payments under the TRAs will be based on the tax reporting positions of the Company and are only required to the extent the Company realizes cash savings as a result of the underlying tax attributes. The cash savings realized by the Company are computed by comparing the actual income tax liability of the Company to the amount of such taxes the Company would have been required to pay had there been no deductions related to the tax attributes discussed below. The Company will retain the benefit of the remaining 15% of the cash savings associated with the TRAs. The Company has entered into the following three TRAs:
Obligations recorded pursuant to the TRAs are based on estimates of future taxable income and future tax rates. On an annual basis, the Company evaluates the assumptions underlying the TRA obligations. During 2015, the Company entered into a Repurchase Addendum to Tax Receivable Agreement (the “Mercury TRA Addendum”) with each of the pre-acquisition owners of Mercury ("Mercury TRA Holders"). The Mercury TRA Addendum contains the following provisions to acquire a significant portion of the Mercury TRA:
Except to the extent the Company’s obligations under the Mercury TRA have been terminated and settled in full in accordance with the terms of the Mercury TRA Addendum, the Mercury TRA will remain in effect, and the parties thereto will continue to have all rights and obligations thereunder. All TRA obligations are recorded based on the full and undiscounted amount of the expected future payments, except for the Mercury TRA which represents contingent consideration relating to an acquired business, and is recorded at fair value for financial reporting purposes (see Note 7 - Fair Value Measurements). The timing and/or amount of aggregate payments due under the TRAs may vary based on a number of factors, including the amount and timing of the taxable income the Company generates in the future and the tax rate then applicable, the use of loss carryovers and amortizable basis. Payments under the TRAs, if necessary, are required to be made no later than January 5th of the second year immediately following the taxable year in which the obligation occurred. The Company made payments under the TRA obligations of approximately $53.5 million and $22.8 million in January 2016 and January 2015, respectively. The term of the TRAs will continue until all such tax benefits have been utilized or expired, unless the Company exercises its right to terminate the TRA for an amount based on the agreed payments remaining to be made under the agreement. |
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New Accounting Pronouncements | New Accounting Pronouncements In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update simplifies several aspects of the accounting for share-based payment award transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The update is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The Company is currently evaluating the impact of the adoption of this update on the Company’s consolidated financial statements. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU amends the existing guidance by recognizing all leases, including operating leases, with a term longer than 12 months on the balance sheet and disclosing key information about the lease arrangements. The effective date of this update is for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, with early adoption permitted. The update requires modified retrospective transition, which requires application of the ASU at the beginning of the earliest comparative period presented in the year of adoption. The Company is currently evaluating the impact of the adoption of this principle on the Company’s consolidated financial statements. In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. The update simplifies the presentation of deferred income taxes by requiring that deferred tax liabilities and assets be classified as noncurrent in the balance sheet. The update is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively and early adoption is permitted. As of December 31, 2015, the Company elected to early adopt this ASU on a prospective basis and therefore, prior years were not retrospectively adjusted. In April 2015, the FASB issued ASU 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. This standard was clarified in August 2015 with the issuance of ASU 2015-15. The update requires debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of the related debt liability instead of being presented as an asset. Amortization of the costs will continue to be reported as interest expense. These updates require retrospective application and represent a change in accounting principle. The change in accounting principle, resulting from the Company’s adoption of this ASU in December 2015, has been implemented and the results are not material to the Company’s consolidated statement of financial position. In May 2014, the FASB issued ASU 2014-09, "Revenue From Contracts With Customers." The ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The new standard provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new standard also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The new standard, as amended, is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. The amendment allows companies to use either a full retrospective or a modified retrospective approach to adopt this ASU. The Company is currently evaluating which transition approach to use and assessing the impact of the adoption of this principle on the Company’s consolidated financial statements. |
INTANGIBLE ASSETS (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of intangible assets | As of June 30, 2016 and December 31, 2015, the Company’s finite lived intangible assets consisted of the following (in thousands):
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Schedule of expected amortization expense | The estimated amortization expense of intangible assets for the remainder of 2016 and the next five years is as follows (in thousands):
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LONG-TERM DEBT (Tables) |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the Company's debt | As of June 30, 2016 and December 31, 2015, the Company’s long-term debt consisted of the following (in thousands):
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DERIVATIVES AND HEDGING ACTIVITIES (Tables) |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of fair value of derivative instruments | The table below presents the fair value of the Company’s derivative financial instruments designated as cash flow hedges included within the accompanying consolidated statements of financial position (in thousands):
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Schedule of effect of the Company's interest rate swaps on the consolidated statements of income | The table below presents the pre-tax effect of the Company’s interest rate contracts on the accompanying consolidated statements of comprehensive income for the three and six months ended June 30, 2016 and 2015 (in thousands):
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CONTROLLING AND NON-CONTROLLING INTERESTS IN VANTIV HOLDING (Tables) |
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Noncontrolling Interest [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in units and related ownership interest | Changes in units and related ownership interest in Vantiv Holding are summarized as follows:
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Schedule of reconciliation of net income (loss) attributable to non-controlling interest | The table below provides a reconciliation of net income attributable to non-controlling interests based on relative ownership interests as discussed above (in thousands):
(1) Primarily represents income tax expense related to Vantiv, Inc. (2) Net income attributable to non-controlling interests of Fifth Third reflects the allocation of Vantiv Holding’s net income based on the proportionate ownership interests in Vantiv Holding held by the non-controlling unit holders. The net income attributable to non-controlling unit holders reflects the changes in ownership interests summarized in the table above.
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FAIR VALUE MEASUREMENTS (Tables) |
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Schedule of assets and liabilities measured at fair value on recurring basis | The following table summarizes assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):
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Schedule of carrying amounts and estimated fair values for the Company's liabilities | The following table summarizes carrying amounts and estimated fair values for the Company’s financial instrument liabilities that are not reported at fair value in our consolidated statements of financial position as of June 30, 2016 and December 31, 2015 (in thousands):
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NET INCOME PER SHARE (Tables) |
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Schedule of computation of basic and diluted net income per share | The following table sets forth the computation of basic and diluted net income per share (in thousands, except share data):
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Tables) |
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Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of activity of the components of accumulated other comprehensive income (loss) | The activity of the components of accumulated other comprehensive income (loss) related to cash flow hedging and other activities for the three and six months ended June 30, 2016 and 2015 is presented below (in thousands):
(a) The reclassification adjustment on cash flow hedge derivatives affected the following lines in the accompanying consolidated statements of income:
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SEGMENT INFORMATION (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of results of operations for each segment | Segment profit reflects total revenue less network fees and other costs and sales and marketing costs of the segment. The Company’s CODM evaluates this metric in analyzing the results of operations for each segment.
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Schedule of reconciliation of total segment profit to the company's income before applicable income taxes | A reconciliation of total segment profit to the Company’s income before applicable income taxes is as follows (in thousands):
|
Consolidation and Sponsorship Agreement (Details) |
1 Months Ended | ||
---|---|---|---|
Jun. 30, 2009 |
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Sponsorship agreement | |||
Sponsorship agreement term | 10 years | ||
Fifth Third | Vantiv Holding | |||
Ownership Percentage of Vantiv Holding | |||
Ownership percentage by Fifth Third | 18.30% | 18.39% | |
Vantiv, Inc. | Vantiv Holding | |||
Ownership Percentage of Vantiv Holding | |||
Ownership percentage by Vantiv, Inc | 81.70% | 81.61% |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Share Repurchase Program (Details) - Class A Common Stock - February 2014 Authorized Share Repurchase Program - USD ($) $ in Millions |
Jun. 30, 2016 |
Feb. 12, 2014 |
---|---|---|
Share Repurchase Program | ||
Stock repurchase program, authorized amount | $ 300 | |
Stock repurchase program, remaining authorized repurchase amount | $ 75 |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Share Based Compensation (Details) - USD ($) shares in Millions, $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Share-based Compensation | ||
Allocated Share-based Compensation Expense | $ 16.3 | $ 16.7 |
Employee Stock Purchase Plan | ||
Share-based Compensation | ||
Common stock reserved for issuance under ESPP | 2.5 | |
ESPP, service period | 1 year | |
ESPP purchase price of common stock, percent of fair market value | 85.00% | |
ESPP offering period | 6 months | |
ESPP discount from fair market value on purchase date | 15.00% |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes (Details) - USD ($) |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Accounting Policies [Abstract] | |||
Valuation allowance against deferred assets | $ 0 | $ 0 | |
Effective income tax rate | 32.20% | 31.50% | |
Adjusted Effective Tax Rate | 36.00% | 36.00% |
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Tax Receivable Agreements (Details) - USD ($) $ in Thousands |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Tax receivable agreement | |||
Tax Receivable Agreement Payments as Percentage of Cash Savings in Tax | 85.00% | ||
Tax Receivable Agreement, Cash Savings Percent | 15.00% | ||
Payments Under Tax Receivable Agreements | $ 53,474 | $ 22,805 | |
Mercury Payment Systems, LLC | |||
Tax receivable agreement | |||
Payments Under Tax Receivable Agreements | $ 63,400 | ||
Mercury Payment Systems, LLC | Call Option | |||
Tax receivable agreement | |||
2016 cash payment to terminate Mercury TRA under Call Options | $ 41,400 | ||
2017 cash payment to terminate Mercury TRA under Call Options | 38,100 | ||
2018 cash payment to terminate Mercury TRA under Call Options | 38,000 | ||
2019 cash payment to terminate Mercury TRA under Call Options | $ 43,000 |
LONG-TERM DEBT (Details) - USD ($) $ in Thousands |
Jun. 13, 2014 |
Jun. 30, 2016 |
Dec. 31, 2015 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Long-term debt | ||||||||||
Less: Current portion of note payable and current portion of note payable to related party | $ (109,501) | $ (116,501) | ||||||||
Less: Original issue discount | (5,370) | (6,024) | ||||||||
Less: Debt issuance costs | (16,635) | (19,218) | ||||||||
Note payable and note payable to related party | 2,888,625 | 2,943,638 | ||||||||
Term A loan | ||||||||||
Long-term debt | ||||||||||
Long-term debt, gross | [1] | $ 1,845,000 | 1,896,250 | |||||||
Variable base rate | LIBOR | |||||||||
Effective Interest rate (as a percent) | 2.19% | |||||||||
Spread rate (as a percent) | 1.75% | |||||||||
Term A loan first twelve quarters amortization percentage | 1.25% | |||||||||
Term A loan next four quarters amortization percentage | 1.875% | |||||||||
Term A loan following three quarters amortization percentage | 2.50% | |||||||||
Term B loan | ||||||||||
Long-term debt | ||||||||||
Long-term debt, gross | [2] | $ 1,165,000 | 1,179,000 | |||||||
Variable base rate | LIBOR | |||||||||
Effective Interest rate (as a percent) | 3.50% | |||||||||
Spread rate (as a percent) | 2.75% | |||||||||
Term B loan amortization percentage | 0.25% | |||||||||
Leasehold Mortgage for corporate headquarters | ||||||||||
Long-term debt | ||||||||||
Long-term debt, gross | [3] | $ 10,131 | $ 10,131 | |||||||
Leasehold mortgage interest rate (as a percent) | 6.22% | |||||||||
Minimum | Term B loan | ||||||||||
Long-term debt | ||||||||||
Spread rate (as a percent) | 0.75% | |||||||||
|
LONG-TERM DEBT Narrative (Details) - USD ($) $ in Millions |
6 Months Ended | |||
---|---|---|---|---|
Jan. 06, 2015 |
Jun. 13, 2014 |
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Long-term debt | ||||
Percentage of capital stock of the entity's domestic and foreign subsidiaries pledged as collateral for borrowings | 65.00% | |||
Minimum aggregate value of real property held by obligors provided as security on first priority basis | $ 10.0 | |||
Term A loan | Fifth Third | ||||
Long-term debt | ||||
Notes Payable, Related Parties | $ 186.3 | $ 191.5 | ||
Term B loan | ||||
Long-term debt | ||||
Repayments of Debt | $ 200.0 | |||
Unamortized deferred financing cost written off | $ 1.8 | |||
Swing line credit facility | ||||
Long-term debt | ||||
Maximum borrowing capacity | $ 100.0 | |||
Revolving credit facility | ||||
Long-term debt | ||||
Maximum borrowing capacity | $ 425.0 | |||
Commitment fees (as a percent) | 0.375% | |||
Letter of credit facility | ||||
Long-term debt | ||||
Maximum borrowing capacity | $ 40.0 |
CONTROLLING AND NON-CONTROLLING INTERESTS OWNERSHIP INTEREST IN JOINT VENTURE (Details) - Joint Venture |
May 31, 2014 |
---|---|
Controlling and non-controlling interest in Joint Venture | |
Ownership percentage by Vantiv, Inc | 51.00% |
Bank Partner | |
Controlling and non-controlling interest in Joint Venture | |
Ownership percentage by Bank Partner | 49.00% |
CONTROLLING AND NON-CONTROLLING INTERESTS IN VANTIV HOLDING (Details) $ / shares in Units, $ in Thousands |
1 Months Ended | 3 Months Ended | 6 Months Ended | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2009
$ / shares
|
Jun. 30, 2016
USD ($)
shares
|
Jun. 30, 2015
USD ($)
|
Jun. 30, 2016
USD ($)
shares
|
Jun. 30, 2015
USD ($)
|
Mar. 21, 2012 |
||||||||||
Vantiv Holding net income, Including Portion Attributable to Noncontrolling Interest [Abstract] | |||||||||||||||
Net income | $ | $ 78,461 | $ 52,693 | $ 130,909 | $ 79,689 | |||||||||||
Items not allocable to non-controlling interests: | |||||||||||||||
Vantiv, Inc. expenses | $ | [1] | 21,253 | 12,587 | 34,391 | 20,397 | ||||||||||
Net income attributable to Vantiv Holding | $ | 99,714 | 65,280 | 165,300 | 100,086 | |||||||||||
Net Income Attributable to Noncontrolling Interest | |||||||||||||||
Net income attributable to non-controlling interests | $ | 19,134 | 16,157 | 31,844 | 24,164 | |||||||||||
Fifth Third | |||||||||||||||
Net Income Attributable to Noncontrolling Interest | |||||||||||||||
Net income attributable to non-controlling interests | $ | [2] | 18,053 | 14,468 | 29,927 | 22,371 | ||||||||||
Bank Partner | |||||||||||||||
Net Income Attributable to Noncontrolling Interest | |||||||||||||||
Net income attributable to non-controlling interests | $ | [3] | $ 1,081 | $ 1,689 | $ 1,917 | $ 1,793 | ||||||||||
Vantiv Holding | |||||||||||||||
Changes in units and related ownership interest | |||||||||||||||
Beginning balance (in shares) | 190,531,152 | ||||||||||||||
Equity plan activity (in shares) | [1] | 992,451 | |||||||||||||
Ending balance (in shares) | 191,523,603 | 191,523,603 | |||||||||||||
Common Stock | |||||||||||||||
Changes in units and related ownership interest | |||||||||||||||
Conversion ratio for conversion of LLC units into common stock | 1 | ||||||||||||||
Vantiv, Inc. | Vantiv Holding | |||||||||||||||
Changes in units and related ownership interest | |||||||||||||||
Beginning balance (in shares) | 155,488,326 | ||||||||||||||
Opening percentage of ownership by parent | 81.61% | ||||||||||||||
Equity plan activity (in shares) | [4] | 992,451 | |||||||||||||
Ending balance (in shares) | 156,480,777 | 156,480,777 | |||||||||||||
Closing percentage of ownership by parent | 81.70% | 81.70% | |||||||||||||
Fifth Third | Vantiv Holding | |||||||||||||||
Changes in units and related ownership interest | |||||||||||||||
Beginning balance (in shares) | 35,042,826 | ||||||||||||||
Opening percentage of ownership by noncontrolling interest | 18.39% | ||||||||||||||
Ending balance (in shares) | 35,042,826 | 35,042,826 | |||||||||||||
Closing percentage of ownership by noncontrolling interest | 18.30% | 18.30% | |||||||||||||
Class C Non-Voting Units | Vantiv Holding | Warrant | Fifth Third | |||||||||||||||
Changes in units and related ownership interest | |||||||||||||||
Warrants outstanding | 7,800,000 | 7,800,000 | |||||||||||||
Warrant price (in dollars per share) | $ / shares | $ 15.98 | ||||||||||||||
|
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Assets and liabilities measured at fair value on a recurring basis | |||||
Payments of Mercury TRA | $ 53,474 | $ 22,805 | |||
Recurring basis | Level 2 | Interest Rate Contract | |||||
Assets: | |||||
Fair value of hedge assets | $ 10,516 | 10,516 | |||
Liabilities: | |||||
Fair value of hedge liabilities | 27,345 | 27,345 | $ 19,228 | ||
Mercury Payment Systems, LLC | |||||
Assets and liabilities measured at fair value on a recurring basis | |||||
Change in fair value of TRA | 4,600 | $ 6,700 | 10,300 | $ 13,700 | |
Payments of Mercury TRA | 63,400 | ||||
Mercury Payment Systems, LLC | Recurring basis | Level 3 | |||||
Liabilities: | |||||
Fair value of Mercury TRA | $ 138,054 | $ 138,054 | $ 191,207 |
FAIR VALUE OF THE COMPANY'S LIABILITIES (Details) - Nonrecurring Basis - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Carrying amount | ||
Liabilities | ||
Notes payable | $ 2,998,126 | $ 3,060,139 |
Fair value | ||
Liabilities | ||
Notes payable | $ 3,012,464 | $ 3,064,989 |
NET INCOME PER SHARE NARRATIVE (Details) - shares |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Earnings Per Share, Diluted | |||
Adjusted Effective Tax Rate | 36.00% | 36.00% | |
Class A Common Stock | |||
Earnings Per Share, Diluted | |||
Class B units of Vantiv Holding outstanding (in shares) | 156,480,777 | 155,488,326 | |
Class B Units of Vantiv Holding | |||
Earnings Per Share, Diluted | |||
Class B units of Vantiv Holding outstanding (in shares) | 35,000,000 | 43,000,000 | |
Subsidiaries | Class B Units of Vantiv Holding | Class A Common Stock | |||
Earnings Per Share, Diluted | |||
Conversion ratio for conversion of Class B units into Class A common stock | 1 |
NET INCOME PER SHARE (Basic) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Earnings Per Share, Basic | ||||
Net income attributable to Vantiv, Inc. | $ 59,327 | $ 36,536 | $ 99,065 | $ 55,525 |
Class A Common Stock | ||||
Earnings Per Share, Basic | ||||
Weighted-average Class A common shares, basic (in shares) | 155,670,267 | 145,566,899 | 155,533,813 | 145,051,664 |
Basic net income per share (in dollars per share) | $ 0.38 | $ 0.25 | $ 0.64 | $ 0.38 |
NET INCOME PER SHARE (Dilutive) (Details) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Earnings Per Share, Diluted | ||||
Consolidated income before applicable income taxes | $ 116,902 | $ 77,012 | $ 193,176 | $ 116,261 |
Income tax expense excluding impact of non-controlling interest | 42,085 | 27,724 | 69,543 | 41,854 |
Net income attributable to Vantiv, Inc. | $ 74,817 | $ 49,288 | $ 123,633 | $ 74,407 |
Class A Common Stock | ||||
Earnings Per Share, Diluted | ||||
Weighted-average Class A common shares, basic (in shares) | 155,670,267 | 145,566,899 | 155,533,813 | 145,051,664 |
Weighted-average Class B units of Vantiv Holding dilutive effect (in shares) | 35,042,826 | 43,042,826 | 35,042,826 | 43,042,826 |
Warrant dilutive effect (in shares) | 5,488,673 | 12,171,352 | 5,367,931 | 11,774,401 |
Total diluted weighted-average shares outstanding (in shares) | 197,258,209 | 201,831,467 | 197,018,018 | 201,276,166 |
Diluted net income per share (in dollars per share) | $ 0.38 | $ 0.24 | $ 0.63 | $ 0.37 |
Class A Common Stock | Stock Options | ||||
Earnings Per Share, Diluted | ||||
Class A common stock equivalents included in the computation of diluted net income per share | 574,050 | 544,331 | 568,143 | 551,003 |
Class A Common Stock | Stock Compensation Plan | ||||
Earnings Per Share, Diluted | ||||
Class A common stock equivalents included in the computation of diluted net income per share | 482,393 | 506,059 | 505,305 | 856,272 |
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
||||
Balance | $ 1,225,066 | $ 1,300,586 | |||||
Accumulated other comprehensive loss, net of tax | (9,204) | ||||||
Net activity | $ (5,115) | $ (330) | (13,226) | (7,700) | |||
Accumulated other comprehensive loss, net of tax | (18,924) | (18,924) | |||||
Balance | 1,365,630 | 1,393,677 | 1,365,630 | 1,393,677 | |||
AOCI Attributable to Parent | |||||||
Balance | (15,164) | (8,763) | (9,204) | (3,768) | |||
Other comprehensive loss, unrealized loss, net of tax | (5,138) | (824) | (12,308) | (6,318) | |||
Net realized loss reclassified into earnings, net of tax | [1] | 1,378 | 600 | 2,588 | 1,099 | ||
other, net of tax | 0 | 0 | |||||
Net activity | (3,760) | (224) | (9,720) | (5,219) | |||
Balance | (18,924) | (8,987) | (18,924) | (8,987) | |||
Non-Controlling Interests | |||||||
Balance | 272,278 | 397,573 | |||||
Other comprehensive loss, unrealized loss, net of tax | 1,851 | (391) | (4,437) | (3,003) | |||
Net realized loss reclassified into earnings, net of tax | [1] | (496) | 285 | 931 | 522 | ||
other, net of tax | 0 | 0 | |||||
Net activity | 1,355 | (106) | (3,506) | (2,481) | |||
Balance | 299,380 | 417,200 | 299,380 | 417,200 | |||
AOCI Including Portion Attributable to Noncontrolling Interest | |||||||
Net change in fair value recorded in accumulated OCI, before reclassifications, before tax | (10,117) | (1,717) | (24,211) | (13,152) | |||
Net change in fair value recorded in accumulated OCI, before reclassifications, tax | 3,128 | 502 | 7,466 | 3,831 | |||
Other comprehensive loss, unrealized loss, net of tax | (6,989) | (1,215) | (16,745) | (9,321) | |||
Net realized loss reclassified into earnings, before tax | [1] | 2,711 | 1,252 | 5,087 | 2,293 | ||
Net realized loss reclassified into earnings, tax | [1] | (837) | (367) | (1,568) | (672) | ||
Net realized loss reclassified into earnings, net of tax | [1] | 1,874 | 885 | 3,519 | 1,621 | ||
Other, before tax | 0 | 0 | |||||
Other, tax | 0 | 0 | |||||
other, net of tax | 0 | 0 | |||||
Pretax activity | (7,406) | (465) | (19,124) | (10,859) | |||
Tax effect | 2,291 | 135 | 5,898 | 3,159 | |||
Net activity | (5,115) | (330) | (13,226) | (7,700) | |||
Accumulated Net Gain (Loss) from Cash Flow Hedges | |||||||
Accumulated other comprehensive loss, net of tax | (21,506) | (10,782) | (14,336) | (5,288) | |||
Accumulated other comprehensive loss, net of tax | (26,644) | (11,606) | (26,644) | (11,606) | |||
Reclassification out of Accumulated Other Comprehensive Income | |||||||
Accumulated other comprehensive loss, net of tax | [1] | 6,342 | 2,231 | 5,132 | 1,732 | ||
Accumulated other comprehensive loss, net of tax | [1] | $ 7,720 | 2,831 | $ 7,720 | 2,831 | ||
Accumulated Foreign Currency Adjustment Attributable to Parent | |||||||
Accumulated other comprehensive loss, net of tax | (212) | (212) | |||||
Accumulated other comprehensive loss, net of tax | $ (212) | $ (212) | |||||
|
SEGMENT INFORMATION (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Result of operation for each segment | ||||
Total revenue | $ 891,217 | $ 785,995 | $ 1,709,840 | $ 1,491,606 |
Network fees and other costs | 410,736 | 362,349 | 798,149 | 693,495 |
Sales and marketing | 144,844 | 122,925 | 280,482 | 238,980 |
Segment profit | 335,637 | 300,721 | 631,209 | 559,131 |
Operating Segments | Merchant Services | ||||
Result of operation for each segment | ||||
Total revenue | 762,593 | 661,258 | 1,457,173 | 1,247,970 |
Network fees and other costs | 374,820 | 324,166 | 728,154 | 620,196 |
Sales and marketing | 139,108 | 116,860 | 268,444 | 227,035 |
Segment profit | 248,665 | 220,232 | 460,575 | 400,739 |
Operating Segments | Financial Institution Services | ||||
Result of operation for each segment | ||||
Total revenue | 128,624 | 124,737 | 252,667 | 243,636 |
Network fees and other costs | 35,916 | 38,183 | 69,995 | 73,299 |
Sales and marketing | 5,736 | 6,065 | 12,038 | 11,945 |
Segment profit | $ 86,972 | $ 80,489 | $ 170,634 | $ 158,392 |
SEGMENT INFORMATION (Details 2) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Reconciliation of total segment profit to the company's (loss) income before applicable income taxes | ||||
Total segment profit | $ 335,637 | $ 300,721 | $ 631,209 | $ 559,131 |
Less: Other operating costs | (73,599) | (76,551) | (147,302) | (145,290) |
Less: General and administrative | (49,120) | (47,060) | (93,104) | (94,903) |
Less: Depreciation and amortization | (65,234) | (67,659) | (133,464) | (135,461) |
Less: Interest expense—net | (26,118) | (25,714) | (53,847) | (51,725) |
Less: Non-operating expenses | (4,664) | (6,725) | (10,316) | (15,491) |
Income before applicable income taxes | $ 116,902 | $ 77,012 | $ 193,176 | $ 116,261 |
SUBSEQUENT EVENTS (Details) - USD ($) $ in Thousands |
6 Months Ended | ||
---|---|---|---|
Jul. 27, 2016 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Subsequent Event | |||
Payments to settle certain tax receivable agreements | $ 41,163 | $ 0 | |
Fifth Third | Subsequent Event | |||
Subsequent Event | |||
Payments to settle certain tax receivable agreements | $ 116,300 | ||
Tax receivable agreement obligations settled as a result of prepayment | 330,700 | ||
Call Option | Fifth Third | Subsequent Event | |||
Subsequent Event | |||
Payments to settle certain tax receivable agreements | 170,700 | ||
Tax receivable agreement obligations settled as a result of prepayment | $ 394,100 | ||
2017 quarterly tax receivable obligation settlement percentage under call option | 10.00% | ||
2018 quarterly tax receivable obligation settlement percentage under call option | 15.00% | ||
Q1 2017 TRA settlement payment under call option | $ 15,100 | ||
Q2 2017 TRA settlement payment under call option | 15,600 | ||
Q3 2017 TRA settlement payment under call option | 16,100 | ||
Q4 2017 TRA settlement payment under call option | 16,600 | ||
Q1 2018 TRA settlement payment under call option | 25,600 | ||
Q2 2018 TRA settlement payment under call option | 26,400 | ||
Q3 2018 TRA settlement payment under call option | 27,200 | ||
Q4 2018 TRA settlement payment under call option | $ 28,100 |
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