prepaid cards for businesses of any size. FNMS is included within the Merchant Services segment. The effective date of the acqui- sition was April 1, 2010. On January 4, 2011, TSYS announced it had acquired, effective January 1, 2011, the remaining 49-percent interest in FNMS, from FNBO. The company is being rebranded as TSYS Merchant Solutions (TMS). 

Due to the somewhat seasonal nature of the credit card industry, TSYS’ revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping sea- son. Furthermore, growth or declines in card and merchant portfolios of existing clients, the conversion of cardholder and merchant accounts of new clients to the Company’s processing platforms, the receipt of fees for early contract termination and the loss of cardholder and merchant accounts either through purges or decon- versions impact the results of operations from period to period. 

Another factor which may affect TSYS’ revenues and results of operations from time to time is consolidation in the financial services or retail industries either through the sale by a client of its business, its card portfolio or a segment of its accounts to a party which processes cardholder or merchant accounts internally or uses another third- party processor. A change in the economic environment in the retail sector, or a change in the mix of payments between cash and cards could favorably or unfavorably impact TSYS’ financial position, results of operations and cash flows in the future. 

TSYS’ reported financial results will also be impacted by signifi- cant shifts in currency conversion rates. TSYS does not view foreign currency as an economic event for the Company but as a financial reporting issue. Because changes in foreign currency exchange rates distort the operating growth rates, TSYS discloses the impact of foreign currency translation on its financial performance. 

A significant amount of the Company’s revenues is derived from long-term contracts with large clients, including a certain major customer. Processing contracts with large clients, representing a significant portion of the Company’s total revenues, generally provide for discounts on certain services based on the size and activity of clients’ portfolios. Therefore, revenues and the related margins are influenced by the client mix relative to the size of client portfolios, as well as the number and activity of individual cardholder or merchant accounts processed for each client. Con- solidation among financial institutions has resulted in an increas- ingly concentrated client base, which results in a change in client mix toward larger clients. 

## Economic Conditions 

General economic conditions in the U.S. and other areas of the world dramatically weakened in the second half of 2008 and most of 2009 but showed improvement during 2010. Many of TSYS’ businesses rely in part on the number of consumer credit 

transactions which have been reduced by a weakened U.S. and world economy and difficult credit markets. 

General reduction in consumer credit card spending negatively impacted the Company’s revenues during 2009. Also as a result of the current economic conditions in the U.S., credit card issuers have been reducing credit limits and closing accounts and are more selective with respect to whom they issue credit cards. In 2010, improving economic conditions have led card issuers to increase card solicitations. Continued improvement of economic conditions in the U.S. could positively impact future revenues and profits of the Company. 

## Regulation 

Government regulation affects key areas of TSYS’ business, in the U.S. as well as internationally. As a result of the financial crisis, TSYS, along with the rest of the financial services industry, con- tinues to experience increased legislative and regulatory scrutiny, including the enactment of additional legislative and regulatory initiatives such as the Dodd-Frank Wall Street Reform and Con- sumer Protection Act (Financial Reform Act). This legislation, which provides for sweeping financial regulatory reform, may have a significant and negative impact on the Company’s clients, which could impact TSYS’ earnings through fee reductions, higher costs (both regulatory and implementation) and new restrictions on our operations. The Financial Reform Act may also impact the competitive dynamics of the financial services industry in the U.S. by more adversely impacting large financial institutions, some of which are TSYS clients, and by adversely impacting the competitive position of U.S. financial institutions in compar- ison to foreign competitors in certain businesses. 

The Financial Reform Act mandates that the Federal Reserve Board limit debit card interchange fees. Under the Financial Reform Act, which includes the Durbin Amendment to the Elec- tronic Funds Transfer Act, the Federal Reserve must adopt rules within nine months of enactment of this legislation regarding the interchange fees that may be charged with respect to electronic debit transactions. Those rules will take effect in July 2011. 

Although this legislative action by the U.S. Congress has been anticipated for some time, it remains impossible to predict the impact, if any, that the law and the regulations to be promulgated thereunder may have on the Company’s operations or its financial condition in the future. However, as TSYS’ business is predomi- nately credit card related, the Durbin Amendment is not expected to have a significant negative impact upon TSYS’ business. 

## Financial Review 

This Financial Review provides a discussion of critical accounting policies and estimates, related party transactions and off-balance sheet arrangements. This Financial Review also discusses the results of operations, financial position, liquidity and capital 

