TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 2006, 2005, and 2004
(1) | Description of the Plan |
The Total System Services, Inc. Employee Stock Purchase Plan (the Plan) was implemented as of October 1, 1984. The Plan is designed to enable participating Total System Services, Inc. (TSYS) and subsidiaries’ employees to purchase shares of common stock of TSYS at prevailing market prices from contributions made by them and TSYS and subsidiaries (the Participating Employers).
TSYS serves as the plan administrator. The Plan agent is Mellon Investor Services, LLC, hereafter referred to as “Agent.”
Prior to July 1, 2002, all employees who work 20 hours per week or more were eligible to participate in the Plan after completing three months of continuous employment prior to the beginning of a calendar quarter. Effective July 1, 2002, the Plan was amended to allow employees who work 20 hours per week or more to become eligible to participate in the plan on the first payroll date after completing three months of continuous employment. Effective December 31, 2002, employees of TSYS or TSYS affiliates who are employed in a country other than the United States and are eligible to participate in a compensatory stock plan sponsored by TSYS or TSYS affiliates similar to the Plan that has been established pursuant to the laws of that country are not eligible to participate in the Plan. Participants contribute to the Plan through payroll deductions as a percentage of compensation. The minimum contribution was 0.5%, and the maximum contribution ranges from 3% to 7%, based on years of service. Effective July 1, 2002, the minimum allowable contribution is 1% of compensation. Contributions to the Plan are to be made by the Participating Employers in an amount equal to one-half of each participant’s contribution. Participants are immediately vested in their contributions and Participating Employers’ matching contributions.
The Plan provides, among other things, that all expenses of the Plan and its administration shall be paid by TSYS with the exception of brokers’ fees, commissions, postage, and transaction costs which are included in the cost of each participant’s investment in common stock of TSYS.
The Plan provides that each participant may withdraw at any time all or some of his or her account balance. The participant may elect to receive the proceeds in the form of shares of common stock of TSYS or in a lump-sum cash distribution. Prior to January 23, 2002, participants who had previously withdrawn shares from their Plan account remained eligible to participate, but with certain exceptions were precluded from receiving matching contributions from the Plan sponsor for a specified period of time. Effective January 23, 2002, the Plan was amended to allow employees to make unlimited withdrawals without their employer matching contributions being suspended.
TSYS expects to maintain the Plan indefinitely, but reserves the right to terminate or amend the Plan at any time, provided, however, that no termination or amendment shall affect or diminish any participant’s right to the benefit of contributions made by him/her or TSYS prior to the date of such amendment or termination.
(2) | Summary of Accounting Policies |
The investment in common stock of TSYS is stated at fair value. The 2006 and 2005 fair values are based on the closing price at year-end. The December 31, 2006 and 2005 fair values were $26.39 and $19.79 per share, respectively.
TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 2006, 2005, and 2004
The realized gain on distributions to participants is determined by computing the difference between the average cost per share of common stock and the fair value per share at the date of the distribution to the participants, less transaction costs.
Contributions to the Plan by TSYS and participating employees are accounted for on the accrual basis. Withdrawals are accounted for upon distribution. At December 31, 2006, plan investments include 3,401 shares held by 18 terminated employees who have not yet requested distribution in accordance with the terms of the Plan.
Dividend income is accrued on the record date.
The Plan’s investments consist of common stock of TSYS which is exposed to market and credit risks. Due to the level of risk associated with investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect the amounts reported in the Plan’s financial statements.
The Plan is not qualified under Sections 401(a) or 501(a) of the Internal Revenue Code of 1986, as amended. The Plan does not provide for income taxes because any income is taxable to the participants. Participants in the Plan must treat as compensation income their pro rata share of contributions made to the Plan by their employer. Cash dividends paid on common stock of TSYS purchased under the Plan will be taxable to the participants on a pro rata basis for Federal and state income tax purposes during the year any such dividend is received by the participant or the Plan. Upon disposition of the common stock of TSYS purchased under the Plan, participants must treat any gain or loss as long-term or short-term capital gain or loss depending upon when such disposition occurs.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and changes therein, and disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Management of the Plan believes that the carrying amount of the receivables is a reasonable approximation of the fair value due to the short-term nature.
TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 2006, 2005, and 2004
(3) | Unrealized Appreciation (Depreciation) in Common Stock of TSYS |
Changes in unrealized appreciation (depreciation) in common stock of TSYS are as follows:
| | | | | | | | 2006 | | 2005 | | 2004 |
Unrealized appreciation (depreciation) | | | | | | |
| at end of year | $ | 9,530,704 | | (1,751,034) | | 8,376,030 |
Unrealized (depreciation) appreciation | | | | | | |
| at beginning of year | | (1,751,034) | | 8,376,030 | | 23,034,721 |
| | | | | Unrealized appreciation | | | | | | |
| | | | | | (depreciation) for the year | $ | 11,281,738 | | (10,127,064) | | (14,658,691) |
(4) | Realized Gain on Withdrawal/Distributions to Participants |
The gain realized on withdrawal/distributions to participants is summarized as follows:
| | | | | | | | 2006 | | 2005 | | 2004 |
Fair value at dates of distribution or | |
| redemption of shares of common | | | | | | |
| stock of TSYS | $ | 16,508,699 | | 13,082,903 | | 13,071,280 |
| | Less cost (computed on an average | | | | | |
| | | cost basis) of shares of common | | | | | | |
| | | stock of TSYS distributed or | | | | | | |
| | | redeemed | | 15,825,212 | | 11,280,023 | | 10,216,606 |
| | | | | Total realized gain | $ | 683,487 | | 1,802,880 | | 2,854,674 |
| | | | | | | | | | | | | | | | | |
