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EX-31.1 - CEO CERTIFICATION - Worldpay, Inc.vntvex-311x2014930.htm
EX-31.2 - CFO CERTIFICATION - Worldpay, Inc.vntvex-312x2014930.htm

 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q 
 
 
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
Commission File Number: 001-35462 
 
 
 
Vantiv, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
26-4532998
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
8500 Governor’s Hill Drive
Symmes Township, OH 45249
(Address of principal executive offices)
(513) 900-5250
(Registrant's telephone number, including area code)
 
 
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
 
Accelerated filer o
Non-accelerated filer o
 
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x
As of September 30, 2014, there were 146,130,327 shares of the registrant’s Class A common stock outstanding and 43,042,826 shares of the registrant’s Class B common stock outstanding.

 
 
 
 
 
 
 
 
 
 



VANTIV, INC.
FORM 10-Q
 
For the Quarterly Period Ended September 30, 2014
 
TABLE OF CONTENTS
 
 
Page
 
 

2
 
 
 


NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q, including the section entitled "Management’s Discussion and Analysis of Financial Condition and Results of Operations," contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.  All statements other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, our objectives for future operations, and any statements of a general economic or industry specific nature, are forward-looking statements.  You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Words such as "anticipate," "estimate," "expect," "project," "plan," "intend," "believe," "may," "will," "continue," "could," "should," "can have," "likely," or the negative or plural of these words and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe, based on information currently available to our management, may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.  These forward-looking statements are subject to a number of risks, uncertainties and assumptions. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations and assumptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We undertake no obligation to publicly update any forward-looking statement after the date of this report, whether as a result of new information, future developments or otherwise, or to conform these statements to actual results or revised expectations, except as may be required by law.


3
 
 
 


PART I — FINANCIAL INFORMATION

Item 1. Financial Statements
Vantiv, Inc.
CONSOLIDATED STATEMENTS OF INCOME
Unaudited
(In thousands, except share data)
 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2013
 
2014
 
2013
Revenue:
 
 

 
 

 
 

 
 

External customers
 
$
677,073

 
$
512,437

 
$
1,783,494

 
$
1,490,742

Related party revenues
 
20,036

 
19,910

 
59,924

 
58,980

Total revenue
 
697,109

 
532,347

 
1,843,418

 
1,549,722

Network fees and other costs
 
316,592

 
238,141

 
843,030

 
685,708

Sales and marketing
 
111,233

 
79,551

 
280,184

 
231,963

Other operating costs
 
60,659

 
48,340

 
177,782

 
148,168

General and administrative
 
45,422

 
27,489

 
126,580

 
88,450

Depreciation and amortization
 
65,289

 
48,604

 
204,176

 
136,428

Income from operations
 
97,914

 
90,222

 
211,666

 
259,005

Interest expense—net
 
(28,039
)
 
(10,724
)
 
(52,089
)
 
(30,317
)
Non-operating expenses
 
(6,594
)
 

 
(34,250
)
 
(20,000
)
Income before applicable income taxes
 
63,281

 
79,498

 
125,327

 
208,688

Income tax expense
 
20,436

 
24,893

 
38,078

 
63,650

Net income
 
42,845

 
54,605

 
87,249

 
145,038

Less: Net income attributable to non-controlling interests
 
(12,859
)
 
(18,894
)
 
(30,536
)
 
(54,300
)
Net income attributable to Vantiv, Inc.
 
$
29,986

 
$
35,711

 
$
56,713

 
$
90,738

Net income per share attributable to Vantiv, Inc. Class A common stock:
 
 

 
 

 
 
 
 
Basic
 
$
0.21

 
$
0.26

 
$
0.40

 
$
0.66

Diluted
 
$
0.20

 
$
0.24

 
$
0.40

 
$
0.62

Shares used in computing net income per share of Class A common stock:
 
 

 
 

 
 
 
 
Basic
 
144,632,010

 
139,968,417

 
141,127,560

 
138,142,146

Diluted
 
199,698,988

 
201,011,014

 
199,074,819

 
207,843,165

 
See Notes to Unaudited Consolidated Financial Statements.


4
 
 
 


Vantiv, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Unaudited
(In thousands)
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2014
 
2013
 
2014
 
2013
Net income
$
42,845

 
$
54,605

 
$
87,249

 
$
145,038

Other comprehensive income, net of tax:
 
 
 
 
 
 
 
Gain (loss) on cash flow hedges and other
2,835

 
(5,671
)
 
(2,984
)
 
627

Comprehensive income
45,680

 
48,934

 
84,265

 
145,665

Less: Comprehensive income attributable to non-controlling interests
(13,788
)
 
(16,873
)
 
(29,368
)
 
(54,662
)
Comprehensive income attributable to Vantiv, Inc.
$
31,892

 
$
32,061

 
$
54,897

 
$
91,003

 
See Notes to Unaudited Consolidated Financial Statements.



5
 
 
 


Vantiv, Inc.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Unaudited
(In thousands, except share data)
 
September 30,
2014
 
December 31,
2013
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
371,447

 
$
171,427

Accounts receivable—net
529,441

 
472,196

Related party receivable
6,017

 
5,155

Settlement assets
116,694

 
127,144

Prepaid expenses
29,670

 
18,059

Other
12,571

 
13,932

Total current assets
1,065,840

 
807,913

  Customer incentives
37,925

 
30,808

  Property, equipment and software—net
279,024

 
217,333

  Intangible assets—net
1,114,843

 
795,332

  Goodwill
3,272,907

 
1,943,613

  Deferred taxes
454,811

 
362,785

  Other assets
47,978

 
31,769

Total assets
$
6,273,328

 
$
4,189,553

Liabilities and equity
 

 
 

Current liabilities:
 

 
 

Accounts payable and accrued expenses
$
261,600

 
$
233,383

Related party payable
3,201

 
2,381

Settlement obligations
434,053

 
333,649

Current portion of note payable to related party
10,353

 
17,621

Current portion of note payable
106,148

 
74,879

Current portion of tax receivable agreement obligations to related parties
23,333

 
8,639

Deferred income
8,005

 
9,053

Current maturities of capital lease obligations
8,118

 
4,326

Other
5,242

 
1,382

Total current liabilities
860,053

 
685,313

Long-term liabilities:
 

 
 

Note payable to related party
194,109

 
325,993

Note payable
3,111,880

 
1,392,757

Tax receivable agreement obligations to related parties
637,766

 
551,061

Tax receivable agreement obligations
144,793

 

Capital lease obligations
17,013

 
12,044

Deferred taxes
43,053

 
37,963

Other
21,437

 
8,100

Total long-term liabilities
4,170,051

 
2,327,918

Total liabilities
5,030,104

 
3,013,231

Commitments and contingencies (See Note 7 - Commitments, Contingencies and Guarantees)


 


Equity:
 

 
 

Class A common stock, $0.00001 par value; 890,000,000 shares authorized; 146,130,327 shares outstanding at September 30, 2014; 141,758,681 shares outstanding at December 31, 2013
1

 
1

Class B common stock, no par value; 100,000,000 shares authorized; 43,042,826 shares issued and outstanding at September 30, 2014; 48,822,826 shares issued and outstanding at December 31, 2013

 

Preferred stock, $0.00001 par value; 10,000,000 shares authorized; no shares issued and outstanding

 

Paid-in capital
636,741

 
597,730

Retained earnings
259,779

 
203,066

Accumulated other comprehensive (loss) income
(1,552
)
 
264

Treasury stock, at cost; 2,131,554 shares at September 30, 2014 and 1,606,664 shares at December 31, 2013
(49,829
)
 
(33,130
)
Total Vantiv, Inc. equity
845,140

 
767,931

Non-controlling interests
398,084

 
408,391

Total equity
1,243,224

 
1,176,322

Total liabilities and equity
$
6,273,328

 
$
4,189,553

See Notes to Unaudited Consolidated Financial Statements.

6
 
 
 


Vantiv, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(In thousands)
 
 
Nine Months Ended
September 30,
 
 
2014
 
2013
Operating Activities:
 
 

 
 

Net income
 
$
87,249

 
$
145,038

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

 
 

Depreciation and amortization expense
 
169,909

 
136,428

Write-off of intangible asset
 
34,267

 

Amortization of customer incentives
 
8,094

 
7,466

Amortization and write-off of debt issuance costs
 
30,416

 
23,256

Share-based compensation expense
 
30,797

 
21,352

Other non-cash items
 
8,311

 

Change in operating assets and liabilities:
 
 

 
 

Accounts receivable and related party receivable
 
(15,946
)
 
25,734

Net settlement assets and obligations
 
109,402

 
13,910

Customer incentives
 
(11,581
)
 
(10,548
)
Prepaid and other assets
 
(10,321
)
 
(7,535
)
Accounts payable and accrued expenses
 
22,628

 
(14,508
)
Payable to related party
 
733

 
1,038

Other liabilities
 
(1,161
)
 
132

Net cash provided by operating activities
 
462,797

 
341,763

Investing Activities:
 
 

 
 

Purchases of property and equipment
 
(76,984
)
 
(46,970
)
Acquisition of customer portfolios and related assets
 
(27,399
)
 
(6,555
)
Purchase of investments
 
(7,487
)
 
(3,174
)
Cash used in acquisitions, net of cash acquired
 
(1,658,694
)
 
(155,654
)
Net cash used in investing activities
 
(1,770,564
)
 
(212,353
)
Financing Activities:
 
 

 
 

Proceeds from issuance of long-term debt
 
3,443,000

 
1,850,000

Repayment of debt and capital lease obligations
 
(1,838,906
)
 
(1,280,366
)
Payment of debt issuance costs
 
(38,069
)
 
(26,288
)
Proceeds from exercise of Class A common stock options
 
2,774

 

Repurchase of Class A common stock
 
(34,366
)
 
(400,592
)
Repurchase of Class A common stock (to satisfy tax withholding obligations)
 
(16,699
)
 
(12,739
)
Payments under tax receivable agreements
 
(8,639
)
 

Tax benefit from employee share-based compensation
 
11,845

 
6,754

Distribution to non-controlling interests
 
(13,153
)
 
(28,978
)
Net cash provided by financing activities
 
1,507,787

 
107,791

Net increase in cash and cash equivalents
 
200,020

 
237,201

Cash and cash equivalents—Beginning of period
 
171,427

 
67,058

Cash and cash equivalents—End of period
 
$
371,447

 
$
304,259

Cash Payments:
 
 

 
 

Interest
 
$
44,611

 
$
28,141

Taxes
 
18,422

 
43,041

Non-cash Items:
 
 

 
 

Issuance of tax receivable agreements to related parties
 
$
109,400

 
$
328,900

Issuance of tax receivable agreement as contingent consideration
 
137,120

 


See Notes to Unaudited Consolidated Financial Statements.

7
 
 
 


Vantiv, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
Unaudited
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2014
$
1,176,322

 
141,759

 
$
1

 
48,823

 
$

 
1,607

 
$
(33,130
)
 
$
597,730

 
$
203,066

 
$
264

 
$
408,391

Net income
87,249

 

 

 

 

 

 

 

 
56,713

 

 
30,536

Issuance of Class A common stock under employee stock plans, net of forfeitures
2,774

 
225

 

 

 

 

 

 
2,774

 

 

 

Tax benefit from employee share-based compensation
11,845

 

 

 

 

 

 

 
11,845

 

 

 

Repurchase of Class A common stock (to satisfy tax withholding obligation)
(16,699
)
 
(525
)
 

 

 

 
525

 
(16,699
)
 

 

 

 

Issuance of Class A common stock and cancellation of Class B common stock in connection with secondary offering

 
5,780

 

 
(5,780
)
 

 

 

 

 

 

 

Repurchase of Class A common stock
(34,366
)
 
(1,109
)
 

 

 

 

 

 
(34,366
)
 

 

 

Issuance of tax receivable agreements
(17,400
)
 

 

 

 

 

 

 
(17,400
)
 

 

 

Unrealized loss on hedging activities and other, net of tax
(2,984
)
 

 

 

 

 

 

 

 

 
(1,816
)
 
(1,168
)
Formation of joint venture
18,839

 

 

 

 

 

 

 

 

 

 
18,839

Distribution to non-controlling interests
(13,153
)
 

 

 

 

 

 

 

 

 

 
(13,153
)
Share-based compensation
30,797

 

 

 

 

 

 

 
23,324

 

 

 
7,473

Reallocation of non-controlling interests of Vantiv Holding due to change in ownership

 

 

 

 

 

 

 
52,834

 

 

 
(52,834
)
Ending Balance, September 30, 2014
$
1,243,224

 
146,130

 
$
1

 
43,043

 
$

 
2,132

 
$
(49,829
)
 
$
636,741

 
$
259,779

 
$
(1,552
)
 
$
398,084

 
See Notes to Unaudited Consolidated Financial Statements.



8
 
 
 


Vantiv, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
Unaudited
(In thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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, 2013
$
1,444,235

 
142,244

 
$
1

 
70,219

 
$

 
978

 
$
(17,906
)
 
$
766,337

 
$
69,494

 
$

 
$
626,309

Net Income
145,038

 

 

 

 

 

 

 

 
90,738

 

 
54,300

Issuance of Class A common stock upon vesting of restricted stock awards

 
2

 

 

 

 

 

 

 

 

 

Tax benefit from employee share-based compensation
6,754

 

 

 

 

 

 

 
6,754

 

 

 

Repurchase of Class A common stock (to satisfy tax withholding obligation)
(12,739
)
 
(568
)
 

 

 

 
568

 
(12,739
)
 

 

 

 

Issuance of Class A common stock and cancellation of Class B common stock in connection with secondary offering

 
21,396

 

 
(21,396
)
 

 

 

 

 

 

 

Repurchase of Class A common stock
(400,592
)
 
(17,453
)
 

 

 

 

 

 
(400,592
)
 

 

 

Issuance of tax receivable agreements
(93,000
)
 

 

 

 

 

 

 
(93,000
)
 

 

 

Unrealized gain on hedging activities, net of tax
627

 

 

 

 

 

 

 

 

 
265

 
362

Distribution to non-controlling interests
(28,978
)
 

 

 

 

 

 

 

 

 

 
(28,978
)
Share-based compensation
21,352

 

 

 

 

 

 

 
14,993

 

 

 
6,359

Forfeitures of restricted stock awards

 
(347
)
 

 

 

 

 

 

 

 

 

Reallocation of non-controlling interests of Vantiv Holding due to change in ownership

 

 

 

 

 

 

 
240,779

 

 

 
(240,779
)
Ending Balance, September 30, 2013
$
1,082,697


145,274


$
1


48,823


$


1,546


$
(30,645
)

$
535,271


$
160,232


$
265


$
417,573

 
See Notes to Unaudited Consolidated Financial Statements.



9
 
 
 


Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
1. 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 merchant banks; technology partners, which include integrated point-of-sale software developers and dealers; payment facilitators; independent sales organizations ("ISOs") and trade associations as well as arrangements with core processors. On June 13, 2014, the Company acquired Mercury Payment Systems, LLC ("Mercury") (see Note 2 - Business Combination).
 
Segments
 
The Company’s segments consist of the Merchant Services segment and the Financial Institution Services segment. The Company’s Chief Executive Officer, 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:
 
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.

Secondary Offerings and Share Repurchases
    
In October 2013, the Company's board of directors authorized a program to repurchase up to $137 million of the Company's Class A common stock. During the nine months ended September 30, 2014, approximately 1.1 million shares were repurchased for $34.4 million, which completed the repurchases under this authorization.    

In February 2014, the Company's board of directors authorized a program to repurchase up to an additional $300 million of the Company's Class A common stock. As of September 30, 2014, no shares had been repurchased under this authorization.

In March 2014, a secondary offering took place in which Advent International Corporation sold its remaining 18.8 million shares of the Company's Class A common stock. The Company did not receive any proceeds from the sale.

In June 2014, a secondary offering took place in which Fifth Third Bank ("Fifth Third") sold 5.8 million shares of the Company's Class A common stock. The Company did not receive any proceeds from the sale.

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

10
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and should be read in conjunction with the Company's 2013 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 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 September 30, 2014, Vantiv, Inc. and Fifth Third owned interests in Vantiv Holding of 77.25% and 22.75%, respectively (see Note 8 - 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.

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 ten-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. ASC 605-45, Principal Agent Considerations, states that 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.
 

11
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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 revenues are 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 consolidated statements of income as related party revenues.
 
Expenses
 
Set forth below is a brief description of the components of the Company’s expenses:
 
Network fees and other costs primarily consist of certain 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 expenses, 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, technology partners, merchant banks and other third party 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 primarily relate to the refinancing of the Company's senior secured credit facilities (see Note 5 - Long-Term Debt) and the change in fair value of a tax receivable agreement ("TRA") (see Note 4 - Tax Receivable Agreements) entered into in June 2014. The 2013 amount relates to the refinancing of the Company's senior secured credit facilities in May 2013.


12
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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 nine months ended September 30, 2014 and 2013 total share-based compensation expense was $30.8 million and $21.4 million, respectively.

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 10 - 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, which are subject to certain Fifth Third consent rights in the Amended and Restated Vantiv Holding Limited Liability Company Agreement. These consent rights require the approval of Fifth Third for certain significant matters, including the payment of all distributions by Vantiv Holding other than certain permitted distributions, which relate primarily to the payment of tax distributions and tax-related obligations. The amounts available to Vantiv, Inc. to pay cash dividends are also 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 our consolidated net assets are held at the subsidiary level and are restricted as of December 31, 2013 and September 30, 2014.

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 September 30, 2014 and December 31, 2013 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 30.4% and 30.5%, respectively, for the nine months ended September 30, 2014 and 2013. The effective tax rate for each period reflects the impact of the Company's non-controlling interests.
 
Cash and Cash Equivalents
 
Investments with original maturities of three months or less (that are readily convertible to cash) are considered to be cash equivalents and are stated at cost, which approximates fair value. 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.
 

13
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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 September 30, 2014 and December 31, 2013, the allowance for doubtful accounts was not material to the Company’s consolidated 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 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 5 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 September 30, 2014 and December 31, 2013 was $187.8 million and $137.4 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 3 to 5 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, 2014 using market data and discounted cash flow analyses. Based on this analysis, it was determined that the fair value of all reporting units was 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 September 30, 2014.

Intangible assets consist of acquired customer relationships, trade names and customer portfolios and related assets that are amortized over their estimated useful lives. Subsequent to the Mercury acquisition in June 2014, the Company decided to phase out an existing trade name used in the ISO channel within the Merchant Services segment. As a result of this decision, the remaining useful life was changed from indefinite to definite which resulted in the Company recording a charge to amortization expense of $34.3 million during the quarter ended June 30, 2014. The remaining fair value will be amortized on a straight-line basis over the remaining estimated useful life of two years. 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 September 30, 2014, there have been no such events or circumstances that would indicate potential impairment.
 
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.
 

14
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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 costs, 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 ("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.

New Accounting Pronouncement

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09, "Revenue From Contracts With Customers." The ASU supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. The amendment provides a five-step analysis of transactions to determine when and how revenue is recognized, based upon the core principal 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 amendment also requires additional disclosures regarding the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016, with early adoption prohibited. 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.

2. BUSINESS COMBINATION

Acquisition of Mercury Payment Systems, LLC

On June 13, 2014, the Company completed the acquisition of Mercury, acquiring all of the outstanding voting interest. Mercury is a payment technology and service leader whose solutions are integrated into point-of-sale software applications and brought to market through dealer and developer partners. This acquisition helps to accelerate the Company's growth in the integrated payments channel.

The following is the estimated fair value of the purchase price for Mercury (in thousands):
Cash purchase price paid at closing
$
1,681,179

Fair value of contingent consideration related to a TRA
137,120

Total purchase price
$
1,818,299



15
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


The acquisition was accounted for as a business combination under ASC 805, Business Combinations. The purchase price was allocated to the assets acquired and the liabilities assumed based on the estimated fair value at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired was allocated to goodwill, a significant portion of which is deductible for tax purposes. Goodwill, assigned to Merchant Services, consists primarily of the acquired workforce and growth opportunities, none of which qualify as an intangible asset. The preliminary purchase price allocation is as follows (in thousands):

Cash acquired
$
22,485

Current assets
47,421

Property, equipment and software
34,156

Customer relationship intangible assets
412,500

Goodwill
1,329,294

Deferred tax assets
13,496

Other non-current assets
9,026

Current and non-current liabilities
(50,079
)
Total purchase price
$
1,818,299


The above estimated fair values of assets acquired and liabilities assumed are preliminary and are based on the information that was available as of the reporting date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that the information provides a reasonable basis for estimating the fair values, but the Company is waiting for additional information necessary to finalize those amounts, particularly with respect to the estimated fair value of intangible assets and goodwill. The potential for measurement period adjustments related to the acquired assets and assumed liabilities exists based on the Company’s continuing review of all matters related to the acquisition and could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.
    
Simultaneously and in connection with the completion of the Mercury acquisition, the Company entered into a Tax Receivable Agreement (the "Mercury TRA") with pre-acquisition owners of Mercury ("Mercury TRA Holders"). See Note 4 - Tax Receivable Agreements for further discussion of the Mercury TRA. The Mercury TRA is considered contingent consideration under ASC 805 as it is part of the consideration payable to the former owners of Mercury. In accordance with ASC 805, the contingent consideration is initially measured at fair value at the acquisition date and recorded as a liability. The Mercury TRA liability is therefore recorded at fair value based on estimates of discounted future cash flows associated with estimated payments to the Mercury TRA Holders. The Company recorded an initial Mercury TRA liability of $137.1 million as part of the consideration transferred. The liability recorded by the Company for the Mercury TRA obligations will be re-measured at fair value at each reporting date with the change in fair value recognized in earnings as a non-operating expense.
    
Customer relationship intangible assets have a weighted average estimated useful life of 10 years.

The Company incurred transaction and integration expenses of approximately $13.6 million during the nine months ended September 30, 2014 in conjunction with the acquisition of Mercury, which are included within general and administrative expenses on the accompanying consolidated statement of income.

Under the terms of the Mercury transaction agreement, the Company replaced unvested employee stock options held by certain employees of Mercury. The number of replacement stock options was based on a conversion factor into equivalent stock options of the Company on the acquisition date. The weighted average fair value of the replacement options was $32.1 million and was calculated on the acquisition date using the Black-Scholes option pricing model. The portion of the fair value of the replacement awards related to services provided prior to the acquisition of $17.7 million was part of the consideration transferred to acquire Mercury. The remaining portion of the fair value is associated with future service and will be recognized as expense over the future service period.


16
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


The following pro forma information shows the Company’s results of operations for the three months and nine months ended September 30, 2014 and 2013 as if the Mercury acquisition had occurred January 1, 2013. The pro forma information is presented for informational purposes only and is not necessarily indicative of what would have occurred if the acquisition had been made as of that date, nor is it intended to be indicative of future operating results.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2014
 
2013
 
2014
 
2013
 
(Actual)
 
(Pro forma)
 
(Pro forma)
 
(Pro forma)
 
(in thousands, except share data)
Total revenue
$
697,109

 
$
619,033

 
$
2,003,239

 
$
1,791,065

Income from operations
97,914

 
101,127

 
223,034

 
262,580

Net income including non-controlling interests
42,845

 
50,451

 
95,160

 
102,656

Net income attributable to Vantiv, Inc.
29,986

 
32,090

 
62,623

 
61,017

Net income per share attributable to Vantiv, Inc. Class A common stock:
 

 
 

 
 
 
 
Basic
$
0.21

 
$
0.23

 
$
0.44

 
$
0.44

Diluted
$
0.20

 
$
0.22

 
$
0.44

 
$
0.41

Shares used in computing net income per share of Class A common stock:
 

 
 

 
 
 
 
Basic
144,632,010

 
139,968,417

 
141,127,560

 
138,142,146

Diluted
199,698,988

 
201,011,014

 
199,074,819

 
207,843,165

 

Earnings per share is calculated independently for each separately reported period. Accordingly, the sum of the separately reported periods may not necessarily be equal to the per share amount for the corresponding nine months ended period, as independently calculated.

The pro forma results include certain pro forma adjustments that were directly attributable to the business combination as follows:
additional amortization expense that would have been recognized relating to the acquired intangible assets,
adjustment of interest expense to reflect the additional borrowings of the Company in conjunction with the acquisition and removal of Mercury historical debt, and
a reduction in non-operating expenses in the nine months ended September 30, 2014 and a corresponding increase in the nine months ended September 30, 2013 for acquisition-related transaction costs and debt refinancing costs incurred by the Company.

3. GOODWILL AND INTANGIBLE ASSETS

A summary of changes in goodwill through September 30, 2014 is as follows (in thousands):
 
 
Merchant Services
 
Financial Institution Services
 
Total
Balance as of December 31, 2013
 
$
1,368,763

 
$
574,850

 
$
1,943,613

Goodwill attributable to acquisition of Mercury
 
1,329,294

 

 
1,329,294

Balance as of September 30, 2014
 
$
2,698,057

 
$
574,850

 
$
3,272,907

    
Intangible assets consist of acquired customer relationships, trade names and customer portfolios and related assets. The useful lives of customer relationships are determined based on forecasted cash flows, which include estimates for customer attrition associated with the underlying portfolio of customers acquired. The customer relationships acquired in conjunction with acquisitions are amortized based on the pattern of cash flows expected to be realized taking into consideration expected revenues and customer attrition, which are based on historical data and the Company's estimates of future performance. These estimates result in accelerated amortization on certain acquired intangible assets.


17
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Indefinite lived trade names are reviewed for impairment on an annual basis or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Subsequent to the Mercury acquisition in June 2014, the Company decided to phase out an existing trade name used in the ISO channel. The trade name was originally expected to remain in use for the foreseeable future and therefore was deemed an indefinite lived intangible asset not subject to amortization. As a result of this decision, the remaining useful life was changed from indefinite to definite which resulted in the Company recording a charge to amortization expense of $34.3 million during the nine months ended September 30, 2014. The trade name was revalued utilizing an income approach using the relief-from-royalty method. The revised fair value of $6.7 million will be amortized on a straight-line basis over the remaining estimated useful life of two years.

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 September 30, 2014 and December 31, 2013, the Company's intangible assets consisted of the following (in thousands):
 
 
September 30,
2014
 
December 31,
2013
Customer relationship intangible assets
 
$
1,677,118

 
$
1,234,042

Trade name - indefinite lived
 

 
41,000

Trade name - finite lived
 
14,733

 
500

Customer portfolios and related assets
 
55,128

 
26,422

 
 
1,746,979

 
1,301,964

 
 
 
 
 
Less accumulated amortization on:
 
 
 
 
  Customer relationship intangible assets
 
609,321

 
496,906

Trade name - finite lived
 
2,041

 
208

  Customer portfolios and related assets
 
20,774

 
9,518

 
 
632,136

 
506,632

 
 
$
1,114,843

 
$
795,332

  
During the nine months ended September 30, 2014, the Company acquired approximately $28.7 million of customer portfolios and related assets, which are being amortized over a weighted average useful life of 4.0 years. Amortization expense on intangible assets for the three months ended September 30, 2014 and 2013 was $47.1 million and $32.9 million, respectively. Amortization expense on intangible assets for the nine months ended September 30, 2014 and 2013 was $152.1 million and $95.6 million, respectively. For the nine months ended September 30, 2014, intangible amortization expense included the $34.3 million charge related to the phasing out of a trade name discussed above.

The estimated amortization expense of intangible assets for the next five years is as follows (in thousands):
Three months ending December 31, 2014
 
$
46,205

2015
 
180,112

2016
 
168,966

2017
 
158,976

2018
 
154,756

2019
 
150,990


4. TAX RECEIVABLE AGREEMENTS

The Company is party to two tax receivable agreements with Fifth Third ("IPO TRAs") that were entered into at the time of the Company's initial public offering ("IPO"). One provides for the payment by the Company to Fifth Third of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that the Company actually realizes as a result of the increases in tax basis that may result from the purchase of Vantiv Holding units from Fifth Third or from the future exchange of units by Fifth Third for cash or shares of the Company's Class A common stock, as well as the tax benefits

18
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


attributable to payments made under such tax receivable agreement. Any actual increase in tax basis, as well as the amount and timing of any payments under the agreement, will vary depending upon a number of factors, including the timing of exchanges, the price of shares of the Company's Class A common stock at the time of the exchange, the extent to which such exchanges are taxable, and the amount and timing of the Company's income. The other IPO TRA provides for the payment by the Company to Fifth Third of 85% of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that National Processing Company ("NPC") actually realizes as a result of its use of its net operating losses ("NOLs") and other tax attributes.

In connection with the secondary offering in June 2014, as discussed in Note 1 - Basis of Presentation and Summary of Significant Accounting Policies, Fifth Third exchanged Class B units of Vantiv Holding for shares of Vantiv, Inc. Class A Common Stock. As a result of the secondary offering and exchange of units of Vantiv Holding, the Company recorded an additional liability under the IPO TRA of $109.4 million and an additional deferred tax asset of $92.0 million in the second quarter of 2014 associated with the increase in tax basis. The Company recorded a corresponding reduction to paid-in capital for the difference between the IPO TRA liability and the related deferred tax asset.

As discussed in Note 2 - Business Combination, the Company entered into the Mercury TRA, which generally provides that the Company will pay to the Mercury TRA Holders 85% of the value of the amount of cash savings, if any, in U.S. federal, state, local and foreign income tax that the Company actually realizes as a result of the increase in tax basis of the assets of Mercury and the use of the net operating losses and other tax attributes of Mercury. The timing and/or amount of aggregate payments due under the Mercury TRA 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. The Company recorded an initial liability of $137.1 million for the Mercury TRA and non-operating expenses of $6.5 million and $7.7 million related to the change in fair value of the Mercury TRA during the three and nine months ended September 30, 2014, respectively.

The following table reflects TRA activity and balances as of September 30, 2014 (in thousands):
 
Balance as of
December 31, 2013
 
2014 TRA Payment
 
2014 Secondary Offering
 
Acquisition of Mercury
 
Change in Value
 
Balance as of
September 30, 2014
IPO TRAs
$
559,700

 
$
(8,639
)
 
$
109,400

 
$

 
$
638

 
$
661,099

Mercury TRA

 

 

 
137,120

 
7,673

 
144,793

Total
$
559,700

 
$
(8,639
)
 
$
109,400

 
$
137,120

 
$
8,311

 
$
805,892


Payments under each of the TRAs discussed above 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 Company's actual income tax liability 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 above. As such, obligations recorded pursuant to the TRAs are based on estimates of future taxable income and future tax rates. The Company will retain the benefit of the remaining 15% of the cash tax savings associated with each of the TRAs discussed above.

Payments under the TRAs, if necessary, are required to be made no later than January 5th of the second year immediately following the current taxable year. The first contractually obligated payment under the IPO TRA of approximately $8.6 million was paid in January 2014. The first contractually obligated payment under the Mercury TRA is due in January 2016. As of September 30, 2014, the balance of the current portion of tax receivable agreement obligations to related parties on the accompanying statement of financial position is $23.3 million. 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 TRAs for an amount based on the agreed payments remaining to be made under the agreements.


19
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


5. LONG-TERM DEBT

    As of September 30, 2014 and December 31, 2013, the Company's debt consisted of the following:
 
September 30,
2014
 
December 31,
2013
 
(in thousands)
$2,050.0 million term A loan, maturing on June 2019, and bearing interest at a variable base rate (LIBOR) plus a spread rate (200 basis points) (total rate of 2.15% at September 30, 2014) and amortizing on a basis of 1.25% per quarter during each of the first twelve quarters, 1.875% per quarter during the next four quarters and 2.50% during next three quarters with a balloon payment due at maturity
$
2,024,375

 
$

$1,850.0 million term A loan, maturing on May 15, 2018, and bearing interest at a variable base rate (LIBOR) plus a spread rate (175 basis points) (total rate of 1.92% at December 31, 2013) and amortizing on a basis of 1.25% during each of the first eight quarters, 1.875% during each of the second eight quarters and 2.5% during each of the following three quarters, with a balloon payment due at maturity

 
1,803,750

$1,400.0 million term B loan, maturing on June 2021, and bearing interest at a variable base rate (LIBOR) plus a spread rate (300 basis points) with a floor of 75 basis points (total rate of 3.75% at September 30, 2014) and amortizing on a basis of 0.25% per quarter, with a balloon payment due at maturity
1,396,500

 

$10.1 million leasehold mortgage, expiring on August 10, 2021 and bearing interest payable monthly at a fixed rate (rate of 6.22% at September 30, 2014)
10,131

 
10,131

Less: Current portion of note payable and current portion of note payable to related party
(116,501
)
 
(92,500
)
Less: Original issue discount
(8,516
)
 
(2,631
)
Note payable and note payable to related party
$
3,305,989

 
$
1,718,750


June 2014 Debt Refinancing

On June 13, 2014, Vantiv, LLC completed a debt refinancing by entering into an amended and restated loan agreement ("Amended Loan Agreement"). The Amended Loan Agreement provides for senior secured credit facilities comprised of a $2.05 billion term A loan, a $1.4 billion term B loan and a $425 million revolving credit facility. Proceeds from the refinancing were primarily used to fund the Mercury acquisition and repay the prior term A loan with an outstanding balance of approximately $1.8 billion. The prior revolving credit facility was also terminated. The maturity date and debt service requirements relating to the new term A and term B loans are listed in the table above. The new 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.
    
As of September 30, 2014 and December 31, 2013, Fifth Third held $204.5 million and $343.6 million, respectively, of the term A loans.

Original Issue Discount and Deferred Financing Fees

As a result of the Company's June 2014 debt refinancing discussed above, the Company expensed approximately $26.5 million during the three months ended June 30, 2014, which consisted primarily of the write-offs of unamortized deferred financing fees and original issue discount ("OID") associated with the component of the refinancing accounted for as a debt extinguishment and certain third party costs incurred in connection with the refinancing. Amounts expensed in connection with the refinancing are recorded as a component of non-operating expenses in the accompanying consolidated statement of income for the nine months ended September 30, 2014. At September 30, 2014, deferred financing fees of approximately $26.6 million and OID of approximately $8.5 million are recorded as a component of other non-current assets and as a reduction of note payable, respectively, in the accompanying consolidated statement of financial position.

Guarantees and Security

The Company's debt obligations at September 30, 2014 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

20
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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 quarterly financial and non-financial covenants contained in the Amended Loan Agreement for the refinanced debt, which are tested on a quarterly basis. At September 30, 2014, the Company was in compliance with these covenants.

6. 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 September 30, 2014 and December 31, 2013, 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. These swaps 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 9 - Fair Value Measurements for a detailed discussion of the fair value of its derivatives. The Company designates its interest rate swaps 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 swaps 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 interest rate swaps as part of its interest rate risk management strategy. As of September 30, 2014, the Company had 12 outstanding interest rate swaps with a combined notional balance of $1.3 billion (amortizing to $1.1 billion) covering an exposure period from June 2014 through June 2017 that were designated as cash flow hedges of interest rate risk. Fifth Third is the counterparty to 5 of the 12 outstanding interest rate swaps with notional balances ranging from $318.8 million to $262.5 million.
 
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):
 
 
Consolidated Statement of
Financial Position Location
 
September 30, 2014
 
December 31, 2013
Interest rate swaps
 
Other long-term assets
 
$
1,649

 
$
4,545

Interest rate swaps
 
Other current liabilities
 
2,882

 

Interest rate swaps
 
Other long-term liabilities
 
1,885

 
3,728

 

21
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


Any ineffectiveness associated with such derivative instruments is recorded immediately as interest expense in the accompanying consolidated statements of income. As of September 30, 2014, the Company estimates that $4.7 million will be reclassified from AOCI as an increase to interest expense during the next 12 months.

The table below presents the effect of the Company’s interest rate swaps on the accompanying consolidated statements of income for the three months and nine months ended September 30, 2014 and 2013 (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2013
 
2014
 
2013
Derivatives in cash flow hedging relationships:
 
 

 
 
 
 
 
 
Amount of gain (loss) recognized in other comprehensive income (effective portion)
 
$
2,968

 
$
(8,057
)
 
$
(5,865
)
 
$
506

Amount of loss reclassified from AOCI into earnings (effective portion)
 
(1,114
)
 
(243
)
 
(1,932
)
 
(277
)
Amount of gain (loss) recognized in earnings (1)
 

 

 
(2
)
 

 
(1)
Amount represents ineffectiveness and is recorded as a component of interest expense-net in the accompanying consolidated statement of income.

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 September 30, 2014, 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 $4.1 million. As of September 30, 2014, the Company has not posted any collateral related to these agreements. If the Company had breached any of these provisions at September 30, 2014, it could have been required to settle its obligations under the agreements at their termination value of $4.1 million.

7. 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.

8. CONTROLLING AND NON-CONTROLLING INTERESTS
 
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 Company and Peoples United Bank (“PUB”) formed People’s United Merchant Services (“PUMS”) during the second quarter of 2014, which represents a joint venture that will provide customers a comprehensive suite of payment solutions. Vantiv Holding owns 51% of PUMS and PUB owns 49%. PUMS will be consolidated by the Company in accordance with ASC 810, Consolidation, with the associated non-controlling interest included in “Net income attributable to non-controlling interests" in the consolidated statements of income. PUB contributed a merchant asset portfolio to PUMS valued at $18.8 million which was recorded to non-controlling interests in the Consolidated Statements of Equity.

 

22
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


As of September 30, 2014, Vantiv, Inc.’s interest in Vantiv Holding was 77.25%. Changes in units and related ownership interest in Vantiv Holding are summarized as follows:
 
 
Vantiv, Inc.
 
Fifth Third
 
Total
As of December 31, 2013
 
141,758,681

 
48,822,826

 
190,581,507

% of ownership
 
74.38
%
 
25.62
%
 
 

Fifth Third exchange of Vantiv Holding units for shares of Class A common stock in connection with June 2014 secondary offering
 
5,780,000

 
(5,780,000
)
 

Share repurchases
 
(1,108,700
)
 

 
(1,108,700
)
Equity plan activity (a)
 
(299,654
)
 

 
(299,654
)
As of September 30, 2014
 
146,130,327

 
43,042,826

 
189,173,153

% of ownership
 
77.25
%
 
22.75
%
 
 
 
(a)
Includes stock issued under equity plans less Class A common stock withheld to satisfy employee tax withholding obligations upon vesting or exercise of employee equity awards and forfeitures of restricted Class A common stock awards.

As a result of the changes in ownership interests in Vantiv Holding, an adjustment of $52.8 million has been recognized during the nine months ended September 30, 2014 in order to reflect the portion of net assets of Vantiv Holding attributable to non-controlling unit holders based on ownership interests in Vantiv Holding since the end of 2013.

The table below provides a reconciliation of net income attributable to non-controlling interests based on relative ownership interests as discussed above (in thousands):
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2014
 
2013
 
2014
 
2013
Net income
 
$
42,845

 
$
54,605

 
$
87,249

 
$
145,038

Items not allocable to non-controlling interests:
 
 

 
 

 
0

 
 
Vantiv, Inc. expenses (a)
 
12,687

 
17,857

 
32,501

 
41,922

Vantiv Holding net income
 
55,532

 
72,462

 
119,750

 
186,960

Net income attributable to non-controlling interests of Fifth Third (b)
 
12,695

 
18,894

 
30,071

 
54,300

Net income attributable to PUMS non-controlling interest (c)
 
164

 

 
465

 

Total net income attributable to non-controlling interests
 
$
12,859

 
$
18,894

 
$
30,536

 
$
54,300

 
 
(a)                    Primarily represents income tax expense related to Vantiv, Inc.
(b)                     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.
(c)
Reflects net income attributable to the non-controlling interest of PUMS.

9. 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:
 
Level 1 Inputs—Quoted prices (unadjusted) for identical assets or liabilities in active markets that are accessible as of the measurement date.
 

23
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


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.
 
The following table summarizes assets and liabilities measured at fair value on a recurring basis as of September 30, 2014 and December 31, 2013 (in thousands):
 
 
September 30, 2014
 
December 31, 2013
 
 
Fair Value Measurements Using
 
 
Level 1
 
Level 2
 
Level 3
 
Level 1
 
Level 2
 
Level 3
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
$
1,649

 
$

 
$

 
$
4,545

 
$

Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
$
4,767

 
$

 
$

 
$
3,728

 
$

  Mercury TRA
 

 

 
144,793

 

 

 

 
Interest Rate Swaps
 
The Company uses interest rate swaps to manage interest rate risk. The fair value of interest rate swaps are 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. 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 swaps 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 swaps fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its interest rate swaps 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 September 30, 2014 and December 31, 2013, the Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its interest rate swaps and determined that the credit valuation adjustment was not significant to the overall valuation of its interest rate swaps. As a result, the Company classified its interest rate swap valuations in Level 2 of the fair value hierarchy. See Note 6 - Derivatives and Hedging Activities for further discussion of the Company’s interest rate swaps.

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 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 Company recorded non-operating expenses of $6.5 million and $7.7 million related to the change in fair value during the three and nine months ended September 30, 2014, respectively. See Note 2 - Business Combination and Note 4 - Tax Receivable Agreements for further discussion of the Mercury TRA.


24
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


The following table summarizes carrying amounts and estimated fair values for financial assets and liabilities, excluding assets and liabilities measured at fair value on a recurring basis, as of September 30, 2014 and December 31, 2013 (in thousands):
 
 
September 30, 2014
 
December 31, 2013
 
 
Carrying
Amount
 
Fair Value
 
Carrying
Amount
 
Fair Value
Assets:
 
 

 
 

 
 

 
 

Cash and cash equivalents
 
$
371,447

 
$
371,447

 
$
171,427

 
$
171,427

Liabilities:
 
 

 
 

 
 

 
 

Note payable
 
3,422,490

 
3,390,827

 
1,811,250

 
1,815,459

 
Due to the short-term nature of cash and cash equivalents, the carrying value approximates fair value. Cash and cash equivalents are classified in Level 1 of the fair value hierarchy. 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.

10.  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 interests. As such, due to Vantiv, Inc.'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 denominator is adjusted to include the weighted-average shares of Class A common stock outstanding assuming conversion of the Class B units of Vantiv Holding held by Fifth Third on an "if-converted" basis. As of September 30, 2014 and 2013, there were approximately 43.0 million and 48.8 million Class B units outstanding, respectively.
 
In addition to the Class B units discussed above, potentially dilutive securities during the three months and nine months ended September 30, 2014 and 2013 included restricted stock awards, stock options, performance share units and the warrant to purchase Class C units of Vantiv Holding held by Fifth Third. During the three months and nine months ended September 30, 2014 and 2013 approximately 563,000 and 211,000, respectively, performance share units have been excluded as the applicable performance metrics had not been met as of the reporting date. Approximately 652,000 stock options were excluded for the three months and nine months ended September 30, 2013 as they were anti-dilutive during the period.
 
The shares of Vantiv, Inc. 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.

25
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)



The following table sets forth the computation of basic and diluted net income per share (in thousands, except share data): 
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
2014
 
2013
 
2014
 
2013
Basic:
 
 

 
 

 
 
 
 
Net income attributable to Vantiv, Inc.
 
$
29,986

 
$
35,711

 
$
56,713

 
$
90,738

Shares used in computing basic net income per share:
 
 
 
 
 
 
 
 
Weighted-average Class A common shares
 
144,632,010

 
139,968,417

 
141,127,560

 
138,142,146

Basic net income per share
 
$
0.21

 
$
0.26

 
$
0.40

 
$
0.66

Diluted:
 
 
 
 
 
 
 
 
Consolidated income before applicable income taxes
 
$
63,281

 
$
79,498

 
$
125,327

 
$
208,688

Income tax expense excluding impact of non-controlling interest
 
23,098

 
30,607

 
45,744

 
80,345

Net income attributable to Vantiv, Inc.
 
$
40,183

 
$
48,891

 
$
79,583

 
$
128,343

Shares used in computing diluted net income per share:
 
 
 
 
 
 
 
 
Weighted-average Class A common shares
 
144,632,010

 
139,968,417

 
141,127,560

 
138,142,146

Weighted-average Class B units of Vantiv Holding
 
43,042,826

 
50,833,696

 
46,282,167

 
60,934,515

Warrant
 
10,349,050

 
8,429,342

 
10,058,028

 
6,987,250

Restricted stock awards
 
1,140,561

 
1,779,559

 
1,352,914

 
1,779,254

Stock options
 
534,541

 

 
254,150

 

Diluted weighted-average shares outstanding
 
199,698,988

 
201,011,014

 
199,074,819

 
207,843,165

Diluted net income per share
 
$
0.20

 
$
0.24

 
$
0.40

 
$
0.62



26
 
 
 

Vantiv, Inc.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (continued)


11. 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 months and nine months ended September 30, 2014 and 2013 is presented below (in thousands).
 
 
 
 
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 September 30, 2014