UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 1-10254
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[TSYS LOGO]
Total System Services, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1493818
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1600 First Avenue, Post Office Box 1755, Columbus, Georgia 31902
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(Address of principal executive offices) (Zip Code)
(706) 649-2310
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF: November 13, 2001
- ----------------------------------- -------------------------------------
Common Stock, $.10 par value 194,778,670
[TSYS LOGO]
TOTAL SYSTEM SERVICES, INC.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) - September 30, 2001 and December
31, 2000 .......................................................... 3
Consolidated Statements of Income (unaudited) - Three months and Nine
months ended September 30, 2001 and September 30, 2000
4
Consolidated Statements of Cash Flows (unaudited) - Nine months ended
September 30, 2001 and 2000 ....................................... 6
Notes to Unaudited Consolidated Financial Statements .................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ................................................................. 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk ............... 30
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K ......................................... 31
Signatures ................................................................................ 32
- 2 -
TOTAL SYSTEM SERVICES, INC.
Part I - Financial Information
Consolidated Balance Sheets
(Unaudited)
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September 30, December 31,
2001 2000
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Assets
Current assets:
Cash and cash equivalents (includes $61.2 million and $74.6 million on
deposit with a related party at 2001 and 2000, respectively)
$ 66,552,001 80,071,895
Accounts receivable, net of allowance for doubtful accounts of $3.0 million
and $2.7 million at 2001 and 2000, respectively ......................... 125,055,592 100,691,083
Prepaid expenses and other current assets .................................. 32,165,664 30,192,248
------------- -------------
Total current assets ................................................... 223,773,257 210,955,226
Property and equipment, less accumulated depreciation and amortization of
$107.1 million and $94.8 million at 2001 and 2000, respectively ............ 119,538,395 110,971,777
Computer software, less accumulated amortization of $103.6 million and $97.7
million at 2001 and 2000, respectively ..................................... 158,184,220 145,454,042
Deferred income tax assets ................................................... 9,628,994 11,104,254
Other assets ................................................................. 132,168,859 125,907,383
------------- -------------
Total assets ........................................................... $ 643,293,725 604,392,682
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ........................................................... $ 25,302,350 43,935,426
Accrued salaries and employee benefits ..................................... 34,635,172 45,202,518
Other current liabilities (includes $2.4 million payable to related parties
at 2001 and 2000, respectively) ......................................... 67,891,951 58,162,646
------------- -------------
Total current liabilities .............................................. 127,829,473 147,300,590
Deferred income tax liabilities .............................................. 39,682,403 34,841,622
Other long-term liabilities .................................................. -- 10,652,600
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Total liabilities ...................................................... 167,511,876 192,794,812
------------- -------------
Minority interest in consolidated subsidiary ................................. 2,532,379 2,583,682
------------- -------------
Shareholders' equity:
Common stock - $.10 par value. Authorized 300,000,000 shares; 195,079,087
issued at 2001 and 2000, respectively; 194,778,670 and 194,738,870
outstanding at 2001 and 2000, respectively .............................. 19,507,909 19,507,909
Additional paid-in capital ................................................. 7,241,268 6,998,100
Accumulated other comprehensive loss ....................................... (2,347,560) (1,613,681)
Treasury stock ............................................................. (3,533,325) (3,594,683)
Retained earnings .......................................................... 452,381,178 387,716,543
------------- -------------
Total shareholders' equity .............................................. 473,249,470 409,014,188
------------- -------------
Total liabilities and shareholders' equity .............................. $ 643,293,725 604,392,682
============= =============
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 3 -
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)
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Three months ended,
September 30,
---------------------------------
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Revenues:
Bankcard data processing services (includes $10.8 million and $11.6
million from related parties for 2001 and 2000, respectively) .......... $ 143,363,960 126,251,382
Other services (includes $1.5 million and $1.8 million from related
parties for 2001 and 2000, respectively) ................................. 19,590,469 22,707,215
------------- -------------
Total revenues .......................................................... 162,954,429 148,958,597
Expenses:
Salaries and other personnel expense ........................................ 66,849,672 63,288,206
Net occupancy and equipment expense ......................................... 41,346,429 38,910,480
Other operating expenses (includes $1.5 million and $2.4 million to related
parties for 2001 and 2000, respectively) ................................. 21,277,830 21,383,610
------------- -------------
Total expenses .......................................................... 129,473,931 123,582,296
------------- -------------
Equity in income of joint ventures ............................................ 4,602,865 3,290,956
------------- -------------
Operating income ........................................................ 38,083,363 28,667,257
------------- -------------
Nonoperating income (expense):
Gain (loss) on disposal of equipment, net .................................... 392 (610,452)
Interest income, net (includes $541,000 and $1,372,000 million from a
related party for 2001 and 2000, respectively) ........................... 597,700 1,493,358
Minority interest in consolidated subsidiary's net income .................... (82,132) (42,319)
Other, net ................................................................... 16,121 --
------------- -------------
Total nonoperating income ............................................... 532,081 840,587
------------- -------------
Income before income taxes .............................................. 38,615,444 29,507,844
Income taxes ................................................................ 13,157,128 10,441,259
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Net income .............................................................. $ 25,458,316 19,066,585
============= =============
Basic earnings per share ................................................ $ .13 .10
============= =============
Diluted earnings per share .............................................. $ .13 .10
============= =============
Weighted average common shares outstanding .............................. 194,778,566 194,781,635
Increase due to assumed issuance of shares related to stock options
outstanding ........................................................... 934,337 484,536
------------- -------------
Weighted average common and common equivalent shares outstanding ........ 195,712,903 195,266,171
============= =============
Cash dividends per common share ......................................... $ .015 .013
============= =============
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 4 -
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)
- --------------------------------------------------------------------------------------------------------------------
Nine months ended,
September 30,
------------------------------------
2001 2000
- --------------------------------------------------------------------------------------------------------------------
Revenues:
Bankcard data processing services (includes $32.8 million and $32.3
million from related parties for 2001 and 2000, respectively) ........ $ 414,790,543 375,350,392
Other services (includes $4.9 million and $5.0 million from related
parties for 2001 and 2000, respectively) ............................... 64,769,175 69,957,237
------------- -------------
Total revenues ........................................................ 479,559,718 445,307,629
------------- -------------
Expenses:
Salaries and other personnel expense ...................................... 190,652,160 176,981,570
Net occupancy and equipment expense ....................................... 126,266,071 118,739,781
Other operating expenses (includes $5.6 million and $7.4 million to related
parties for 2001 and 2000, respectively) ............................... 64,937,264 65,137,548
------------- -------------
Total expenses ........................................................ 381,855,495 360,858,899
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Equity in income of joint ventures .......................................... 12,310,057 11,019,602
------------- -------------
Operating income ...................................................... 110,014,280 95,468,332
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Nonoperating income (expense):
Gain (loss) on disposal of equipment, net .................................. (93,198) (591,871)
Interest income, net (includes $1,972,000 and $3,318,000 from a related
party for 2001 and 2000, respectively) ................................. 2,242,098 3,556,438
Minority interest in consolidated subsidiary's net income .................. (91,563) (42,319)
Other, net ................................................................. (25,005) --
------------- -------------
Total nonoperating income ............................................. 2,032,332 2,922,248
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Income before income taxes ............................................ 112,046,612 98,390,580
Income taxes .............................................................. 38,617,280 34,336,172
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Net income ............................................................ $ 73,429,332 64,054,408
============= =============
Basic earnings per share .............................................. $ .38 .33
============= =============
Diluted earnings per share ............................................ $ .38 .33
============= =============
Weighted average common shares outstanding ............................ 194,770,776 194,794,598
Increase due to assumed issuance of shares related to stock options
outstanding ......................................................... 878,532 490,900
------------- -------------
Weighted average common and common equivalent shares outstanding ...... 195,649,308 195,285,498
============= =============
Cash dividends per common share ....................................... $ .045 .035
============= =============
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 5 -
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
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Nine months ended,
September 30,
-------------------------------
2001 2000
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Cash flows from operating activities:
Net income .......................................................... $ 73,429,332 64,054,408
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in consolidated subsidiary's net income ........ 91,563 42,319
Equity in income of joint ventures .............................. (12,310,056) (11,019,602)
Depreciation and amortization ................................... 40,151,808 37,391,774
Provision for doubtful accounts ................................. 394,345 1,240,629
Deferred income tax expense (benefit) ........................... 6,316,041 3,195,328
(Gain) loss on disposal of equipment, net ....................... 93,198 591,871
(Increase) decrease in:
Accounts receivable ............................................. (24,758,854) 2,996,754
Prepaid expenses and other assets ............................... 911,980 (1,225,211)
Increase (decrease) in:
Accounts payable ................................................ (29,285,676) (2,771,770)
Accrued expenses and other current liabilities .................. (1,009,838) 15,775,980
------------ ------------
Net cash provided by operating activities ................... 54,023,843 110,272,480
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment .................................. (24,127,157) (11,846,500)
Additions to computer software ...................................... (34,066,439) (29,773,766)
Proceeds from disposal of equipment ................................. 962,387 27,898
Cash acquired in acquisition of subsidiary .......................... -- 623,364
Dividends received from joint ventures .............................. 10,410,281 5,369,192
Repayment of contract acquisition costs ............................. -- 10,000,000
Increase in contract acquisition costs .............................. (12,709,917) (39,845,833)
------------ ------------
Net cash used in investing activities ....................... (59,530,845) (65,445,645)
------------ ------------
Cash flows from financing activities:
Repurchase of common stock ....................................... -- (1,397,963)
Principal payments on long-term debt and capital lease obligations -- (204,286)
Dividends paid on common stock ................................... (8,277,257) (6,332,071)
Proceeds from exercise of stock options .......................... 264,365 24,088
------------ ------------
Net cash used in financing activities ....................... (8,012,892) (7,910,232)
------------ ------------
Net increase (decrease) in cash and cash equivalents ........ $(13,519,894) 36,916,603
Cash and cash equivalents at beginning of year ........................ 80,071,895 54,903,107
------------ ------------
Cash and cash equivalents at end of year .............................. $ 66,552,001 91,819,710
============ ============
Cash paid for interest (net of capitalized amounts) .............. $ 30,749 37,837
============ ============
Cash paid for income taxes (net of refunds received) ............. $ 22,086,953 33,841,211
============ ============
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 6 -
TOTAL SYSTEM SERVICES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements represent the
accounts of Total System Services, Inc.(R) (TSYS(R)); its wholly owned
subsidiaries, Columbus Depot Equipment Company (SM) (CDEC(SM)), TSYS Total
Solutions (R), Inc.(TSI), Columbus Productions, Inc.SM (CPI), TSYS Canada,
Inc.SM (TCI) and DotsConnect, Inc. (DotsConnect); and its majority owned foreign
subsidiary, GP Network Corporation (GP Net). These financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all information and footnotes necessary for a fair presentation of
financial position, results of operations and cash flows in conformity with
generally accepted accounting principles. All adjustments, consisting of normal
recurring accruals, which, in the opinion of management, are necessary for a
fair statement of financial position and results of operations for the periods
covered by this report, have been included. The accompanying unaudited
consolidated financial statements should be read in conjunction with the
Company's consolidated financial statements and related notes appearing in the
Company's 2000 annual report previously filed on Form 10-K.
Note 2 - Supplementary Balance Sheet Information
Significant components of prepaid expenses and other current assets are
summarized as follows:
September 30, 2001 December 31, 2000
-------------------- -------------------
Contract acquisition costs, net $ 10,487,673 $ 9,644,657
Prepaid expenses 9,469,320 12,377,875
Other 12,208,671 8,169,716
-------------------- -------------------
Total $ 32,165,664 $ 30,192,248
==================== ===================
Significant components of other assets are summarized as follows:
September 30, 2001 December 31, 2000
--------------------- ------------------
Contract acquisition costs, net $ 66,488,159 $ 65,434,739
Equity investments, net 46,113,712 45,631,679
Other 19,566,988 14,840,965
--------------------- ------------------
Total $ 132,168,859 $ 125,907,383
===================== ==================
Significant components of other current liabilities are summarized as
follows:
September 30, 2001 December 31, 2000
---------------------- -----------------
Customer postage deposits $ 20,249,784 $ 18,751,617
Transaction processing provisions 8,339,258 11,886,312
Other 39,302,909 27,524,717
--------------------- -----------------
Total $ 67,891,951 $ 58,162,646
===================== =================
- 7 -
Notes to Unaudited Consolidated Financial Statements (continued)
Note 3 - Comprehensive Income
Comprehensive income for TSYS consists of net income and foreign currency
translation adjustments recorded as a component of shareholders' equity.
Comprehensive income for the three months ended September 30 is as follows:
2001 2000
--------------- ------------------
Net income $ 25,458,316 $ 19,066,585
Other comprehensive income (loss):
Foreign currency translation adjustments,
net of tax 2,060,336 8,004
--------------- -----------------
Comprehensive income $ 27,518,652 $ 19,074,589
=============== =================
Comprehensive income for the nine months ended September 30 is as follows:
2001 2000
-------------- -----------------
Net income $ 73,429,332 $ 64,054,408
Other comprehensive income (loss):
Foreign currency translation adjustments,
net of tax (733,879) (158,547)
-------------- -----------------
Comprehensive income $ 72,695,453 $ 63,895,861
============== =================
The income tax effects allocated to and the cumulative balance of
accumulated other comprehensive loss are as follows:
Balance at Pretax Balance at
December 31, 2000 amount Tax benefit September 30, 2001
------------------------------------------------------------------------------
Foreign currency
translation
adjustments ($1,613,681) (1,159,457) 425,578 ($2,347,560)
==================== ============ ========= ==============
Note 4 - Segment Reporting and Major Customers
The Company reports selected information about operating segments in
accordance with Statement of Financial Accounting Standards No. 131 (SFAS 131).
Through online accounting and bankcard data processing systems, Total System
Services, Inc. provides card processing and electronic commerce services to
card-issuing institutions in the United States, Mexico, Canada, Honduras, United
Kingdom, Ireland and the Caribbean. TSYS' subsidiaries provide support services
including correspondence processing, commercial printing and equipment leasing.
Segments are identified based on the services provided. Transaction processing
services account for approximately 85% or more of financial activity in all the
quantitative thresholds required to be measured under SFAS 131 for the three
months and nine months ended September 30, 2001 and 2000.
- 8 -
Notes to Unaudited Consolidated Financial Statements (continued)
TSYS and three of its subsidiaries were aggregated into transaction
processing services. One of these subsidiaries' sole business activity is to
provide programming support services to the parent company. Another subsidiary
provides electronic commerce activities previously performed by TSYS for its
clients. The other transaction processing subsidiary serves as a payment gateway
for more than 100,000 merchants in Japan. The remaining segments were aggregated
into support services.
Transaction Support
Operating Segments processing services services Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
At September 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 632,361,610 55,530,920 $ 687,892,530
Intersegment eliminations (44,472,673) (126,132) (44,598,805)
-------------------------- ------------------------ ------------------------
Total assets $ 587,888,937 55,404,788 $ 643,293,725
========================== ======================== ========================
- ---------------------------------------------------------------------------------------------------------------------------------
At December 31, 2000
- ---------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 590,065,183 57,738,614 $ 647,803,797
Intersegment eliminations (43,264,302) (146,813) (43,411,115)
-------------------------- ------------------------ ------------------------
Total assets $ 546,800,881 57,591,801 $ 604,392,682
========================== ======================== ========================
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 145,706,474 18,360,603 $ 164,067,077
Intersegment revenue (352,292) (760,356) (1,112,648)
-------------------------- ------------------------ ------------------------
Revenue from external customers $ 145,354,182 17,600,247 $ 162,954,429
========================== ======================== ========================
Equity in income of joint ventures $ 4,602,865 - $ 4,602,865
========================== ======================== ========================
Segment operating income $ 37,337,210 746,153 $ 38,083,363
========================== ======================== ========================
Income taxes $ 13,130,377 26,751 $ 13,157,128
========================== ======================== ========================
Net income $ 24,637,767 820,549 $ 25,458,316
========================== ======================== ========================
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended September 30, 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 128,878,631 21,005,240 $ 149,883,871
Intersegment revenue (464,801) (460,473) (925,274)
-------------------------- ------------------------ ------------------------
Revenue from external customers $ 128,413,830 20,544,767 $ 148,958,597
========================== ======================== ========================
Equity in income of joint ventures $ 3,290,956 - $ 3,290,956
========================== ======================== ========================
Segment operating income $ 26,048,780 2,618,477 $ 28,667,257
========================== ======================== ========================
Income taxes $ 9,421,906 1,019,353 $ 10,441,259
========================== ======================== ========================
Net income $ 17,379,106 1,687,479 $ 19,066,585
========================== ======================== ========================
- 9 -
Notes to Unaudited Consolidated Financial Statements (continued)
Transaction Support
Operating Segments processing services services Consolidated
- ---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2001
- ---------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 422,776,760 60,169,748 $ 482,946,508
Intersegment revenue (1,179,885) (2,206,905) (3,386,790)
-------------------------- ------------------------ ------------------------
Revenue from external customers $ 421,596,875 57,962,843 $ 479,559,718
========================== ======================== ========================
Equity in income of joint ventures $ 12,310,057 - $ 12,310,057
========================== ======================== ========================
Segment operating income $ 104,516,378 5,497,902 $ 110,014,280
========================== ======================== ========================
Income taxes $ 36,732,675 1,884,605 $ 38,617,280
========================== ======================== ========================
Net income $ 69,423,174 4,006,158 $ 73,429,332
========================== ======================== ========================
- ---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2000
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 382,872,204 64,726,541 $ 447,598,745
Intersegment revenue (724,122) (1,566,994) (2,291,116)
-------------------------- ------------------------ ------------------------
Revenue from external customers $ 382,148,082 63,159,547 $ 445,307,629
========================== ======================== ========================
Equity in income of joint ventures $ 11,019,602 - $ 11,019,602
========================== ======================== ========================
Segment operating income $ 85,350,197 10,118,135 $ 95,468,332
========================== ======================== ========================
Income taxes $ 30,420,735 3,915,437 $ 34,336,172
========================== ======================== ========================
Net income $ 57,624,066 6,430,342 $ 64,054,408
========================== ======================== ========================
The following geographic area data represent revenues for the three and
nine months ended September 30, 2001 and 2000, respectively, based on the
geographic locations of customers.
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------------------------------------------------- ----------------------------------------------
(Dollars in millions) 2001 2000 2001 2000
---------------------------- --------------------- ------------------- ------------------- ------------------------
United States $ 137.9 135.6 419.9 407.3
Canada* 9.0 8.4 28.5 24.5
United Kingdom 9.4 0.0 11.9 0.0
Mexico 3.9 4.1 11.1 11.9
Japan 2.4 0.6 7.2 0.6
Other 0.4 0.3 1.0 1.0
---------------------------- --------------------- ------------------- ------------------- ------------------------
Totals $ 163.0 149.0 479.6 445.3
---------------------------- ===================== =================== =================== ========================
*These revenues include those generated from the Caribbean accounts owned by a
Canadian institution.
- 10 -
Notes to Unaudited Consolidated Financial Statements (continued)
The Company maintains property and equipment in United States, United
Kingdom, Canada and Japan. The following geographic area data represent net
property and equipment balances by region:
At September 30, At December 31,
- -------------------------------- ---------------------- ---------------------
(Dollars in millions) 2001 2000
- --------------------------------- --------------------- ---------------------
United States $ 91.3 93.3
United Kingdom 21.3 16.7
Canada 6.2 0.1
Japan 0.7 0.7
- --------------------------------- --------------------- --------------------
Totals $ 119.5 110.8
- --------------------------------- ===================== ====================
Major Customers
For the three months ended September 30, 2001, the Company had two major
customers which accounted for approximately 27.9%, or $45.4 million, of total
revenues. For the three months ended September 30, 2000, TSYS had three major
customers that accounted for 37.4%, or $55.6 million, of total revenues.
Revenues from major customers for the periods reported are attributable to both
reporting segments.
Three Months Ended September 30,
-----------------------------------------------------------------------------------------------------------
2001 2000
---------------------------------- ------------------------------------- ------------------------------
Revenue % of Total % of Total
(Dollars in millions) Dollars Revenues Dollars Revenues
---------------------------------- ------------------------------------- ------------------------------
One $ 24.9 15.3% $ 23.1 15.5%
Two 20.5 12.6 17.1 11.5
Three na na 15.4 10.4
---------------------------------- ------------------------------- -------------------------------
Totals $ 45.4 27.9% $ 55.6 37.4%
---------------------------------- =============================== ===============================
na = not applicable. Client represented less than 10% of total revenues.
For the nine months ended September 30, 2001, the Company had two major
customers which accounted for approximately 28.2%, or $135.4 million, of total
revenues. For the nine months ended September 30, 2000, TSYS had three major
customers that accounted for 36.5%, or $162.7 million, of total revenues.
Revenues from major customers for the periods reported are attributable to both
reporting segments.
Nine Months Ended September 30,
-----------------------------------------------------------------------------------------------------------
2001 2000
---------------------------------- ------------------------------------- ------------------------------
Revenue % of Total % of Total
(Dollars in millions) Dollars Revenues Dollars Revenues
---------------------------------- ------------------------------------- ------------------------------
One $ 74.4 15.5% $ 68.9 15.5%
Two 61.0 12.7 47.8 10.7
Three na na 46.0 10.3
---------------------------------- ------------------------------- -------------------------------
Totals $ 135.4 28.2% $ 162.7 36.5%
---------------------------------- =============================== ===============================
na = not applicable. Client represented less than 10% of total revenues.
- 11 -
Notes to Unaudited Consolidated Financial Statements (continued)
Note 5 - Legal Proceedings
On November 10, 1998, a class action complaint was filed against
NationsBank of Delaware, N.A., in the United States District Court for the
Southern District of Mississippi. On March 23, 1999, the named plaintiff amended
the complaint and named the Company and certain credit bureaus as defendants in
the case. The named plaintiff alleged, among other things, that the defendants
failed to report properly the credit standing of each member of the putative
class. The named plaintiff defined the class as all persons and entities within
the United States who obtained credit cards from NationsBank and whose accounts
were purchased by or transferred to U.S. BankCard and whose accounts were
reported to credit bureaus or credit agencies incorrectly in August 1998. The
parties have reached a settlement of the litigation. On September 21, 2001, the
Magistrate Judge for the United States District Court for the Southern District
of Mississippi issued an order of final approval of that settlement pursuant to
Rule 23(e) of the Federal Rules of Civil Procedure. Payments to settle the
litigation were substantially covered by insurance.
Note 6 - Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
Statement of Financial Accounting Standards No. 138 (SFAS 138), "Accounting for
Certain Derivative Instruments and Hedging Activities, an amendment of SFAS
133." SFAS 133 and SFAS 138 require that all derivative instruments be recorded
on the balance sheet at their respective fair values. The accounting for changes
in the fair value (i.e., gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. If certain conditions are met, entities
may elect to designate a derivative instrument as a hedge of exposures to
changes in fair values, cash flows or foreign currencies. If the hedged exposure
is a fair value exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of change together with the offsetting loss
or gain on the hedged item attributable to the risk being hedged. If the hedged
exposure is a cash flow exposure, the effective portion of the gain or loss on
the derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. If the derivative
instrument is not designated as a hedge, the gain or loss is recognized in
earnings in the period of change.
For TSYS, SFAS 133, as amended by SFAS 138, was effective January 1, 2001.
On adoption, the provisions of SFAS 133 must be applied prospectively. The
Company did not have any outstanding derivative instruments or hedging
transactions at September 30, 2001. The Company is assessing the impact of SFAS
133 and SFAS 138 on anticipated hedging instruments.
In July 2001, the FASB issued Statement No. 141 (SFAS 141), "Business
Combinations," and Statement No. 142 (SFAS 142), "Goodwill and Other Intangible
Assets." SFAS 141 requires
- 12 -
Notes to Unaudited Consolidated Financial Statements (continued)
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. SFAS 141 also specifies criteria
that intangible assets acquired in a purchase method business combination must
meet to be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for separately.
SFAS 142 will require that goodwill and intangible assets with indefinite useful
lives no longer be amortized, but instead tested for impairment at least
annually in accordance with the provisions of SFAS 142. SFAS 142 will also
require that intangible assets with estimable useful lives be amortized over
their respective estimated useful lives to their estimated residual values, and
reviewed for impairment in accordance with Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." The Company has adopted the provisions of
SFAS 141 effective July 1, 2001 and expects to adopt SFAS 142 effective January
1, 2002.
Furthermore, goodwill and intangible assets determined to have an
indefinite useful life acquired in a purchase business combination completed
after June 30, 2001 but before SFAS 142 is adopted in full will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized and tested for impairment in accordance with the
appropriate pre-SFAS 142 accounting requirements prior to the adoption of SFAS
142.
SFAS 141 will require, upon adoption of SFAS 142, the Company to evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination and to make any necessary reclassifications in
order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Company will be required to reassess
the useful lives and residual values of all intangible assets acquired and make
any necessary amortization period adjustments by the end of the first interim
period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS 142 within the first interim period. Any impairment loss will be measured
as of the date of adoption and recognized as the cumulative effect of a change
in accounting principle in the first interim period.
In connection with SFAS 142's transitional goodwill impairment evaluation,
the Statement will require the Company to perform an assessment of whether there
is an indication that goodwill [and equity-method goodwill] is impaired as of
the date of adoption. To accomplish this, the Company must identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company will then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and the Company must perform
- 13 -
Notes to Unaudited Consolidated Financial Statements (continued)
the second step of the transitional impairment test. In the second step, the
Company must compare the implied fair value of the reporting unit's goodwill,
determined by allocating the reporting unit's fair value to all of its assets
(recognized and unrecognized) and liabilities in a manner similar to a purchase
price allocation in accordance with SFAS 141, to its carrying amount, both of
which would be measured as of the date of adoption. This second step is required
to be completed as soon as possible, but no later than the end of the year of
adoption. Any transitional impairment loss will be recognized as the cumulative
effect of a change in accounting principle in the Company's statement of
earnings. And finally, any unamortized negative goodwill [and equity-method
negative goodwill], existing at the date SFAS 142 is adopted, must be written
off as the cumulative effect of a change in accounting principle.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $3.6 million which will be subject to the transition
provisions of SFAS 141 and SFAS 142. Amortization expense related to goodwill
was $528,000 and $642,000 for the year ended December 31, 2000 and the nine
months ended September 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting SFAS 142, it is not practicable to reasonably
estimate the impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether it will be required to
recognize any transitional impairment losses as the cumulative effect of a
change in accounting principle.
In August 2001, the FASB issued Statement No. 143 (SFAS 143), "Accounting
for Asset Retirement Obligations." SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 applies to all
entities. SFAS 143 applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligation of leases.
SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Management does not anticipate the adoption of
SFAS 143 will have a material effect on its financial condition or results of
operations.
In October 2001, the FASB issued Statement No. 144 (SFAS 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business (as previously
defined in that Opinion). This Statement also amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements," to eliminate the exception
to consolidation for a subsidiary for which control is likely to be temporary.
- 14 -
Notes to Unaudited Consolidated Financial Statements (continued)
SFAS 144 improves financial reporting by requiring that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and by broadening the presentation
of discontinued operations to include more disposal transactions.
SFAS 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The provisions are to be applied prospectively. Management does not
anticipate the adoption of SFAS 144 will have a material effect on its financial
condition or results of operations.
Note 7 - Commitments and Contingencies
In the fourth quarter of 1999, the Company made a payment representing a
contract acquisition cost of $10.0 million to a prospective client. Under the
terms of the arrangement, the prospective client agreed to repay the $10.0
million in the event a processing agreement was not executed by July 1, 2000.
Subsequently, the prospective client announced its intention to exit the credit
card business through a sale of its accounts in 2000. The parent of the
prospective client repaid the $10.0 million advance in June 2000 by obtaining a
five-year loan from Columbus Bank and Trust Company (CB&T). TSYS has agreed to
guarantee the loan. As of September 30, 2001, all payments on the loan have been
made timely. The remaining balance at September 30, 2001 was $8.0 million. The
Company does not anticipate any negative consequences to its results of
operations and financial condition as a result of its loan guarantee.
Note 8 - Subsequent Event
In November 2001, TSYS announced its decision to integrate the operations
of two of its subsidiaries, DotsConnect and Total Solutions, into two separate
divisions of TSYS. The functions of both subsidiaries will remain the same - one
supporting e-commerce and the other supporting customer care and business
process management solutions. The decision was made to better serve TSYS'
clients through a more productive and efficient process. The integration will
become effective January 1, 2002.
- 15 -
TOTAL SYSTEM SERVICES, INC.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table sets forth certain revenue and expense items as a
percentage of total revenues and the percentage increases or decreases in those
items for the three months ended September 30:
Percentage of Percentage Change
Total Revenues in Dollar Amounts
------------------ -----------------
2001 2000 2001 vs. 2000
------ ------- -----------------
Revenues:
Bankcard data processing services .. 88.0 % 84.8 % 13.6 %
Other services ..................... 12.0 15.2 (13.7)
------ -------
Total revenues .................... 100.0 100.0 9.4
------ -------
Expenses:
Salaries and other personnel expense 41.0 42.5 5.6
Net occupancy and equipment expense 25.4 26.1 6.3
Other operating expenses ........... 13.1 14.4 0.5
------ -------
Total expenses .................... 79.5 83.0 4.8
------ -------
Equity in income of joint ventures ... 2.9 2.2 39.9
------ -------
Operating income ................... 23.4 19.2 32.8
Nonoperating income .................. 0.3 0.6 (36.7)
------ -------
Income before income taxes ......... 23.7 19.8 30.9
Income taxes ......................... 8.1 7.0 26.0
------ -------
Net income ......................... 15.6 % 12.8 % 33.5 %
====== =======
- 16 -
Results of Operations (continued)
The following table sets forth certain revenue and expense items as a
percentage of total revenues and the percentage increases or decreases in those
items for the nine months ended September 30:
Percentage of Percentage Change
Total Revenues in Dollar Amounts
------------------ -----------------
2001 2000 2001 vs. 2000
------ ------- -----------------
Revenues:
Bankcard data processing services .. 86.5 % 84.3 % 10.5 %
Other services ..................... 13.5 15.7 (7.4)
------ -------
Total revenues .................. 100.0 100.0 7.7
------ -------
Expenses:
Salaries and other personnel expense 39.8 39.7 7.7
Net occupancy and equipment expense 26.3 26.7 6.3
Other operating expenses ........... 13.5 14.6 (0.3)
------ -------
Total expenses ................. 79.6 81.0 5.8
------ -------
Equity in income of joint ventures ... 2.6 2.4 11.7
------ -------
Operating income ............... 23.0 21.4 15.2
Nonoperating income .................. 0.4 0.7 (30.5)
------ -------
Income before income taxes ..... 23.4 22.1 13.9
Income taxes ......................... 8.1 7.7 12.5
------ -------
Net income ........................... 15.3 % 14.4 % 14.6 %
====== =======
Total revenues increased $14.0 million, or 9.4%, and $34.3, or 7.7%, during
the three and nine months ended September 30, 2001, respectively, compared to
the same periods in 2000.
Revenues from bankcard data processing services increased $17.1 million, or
13.6%, for the three months ended September 30, 2001, compared to the same
period in 2000. During the nine months ended September 30, 2001, revenues from
bankcard data processing services increased $39.4 million, or 10.5%, compared to
the same period in 2000. Increased revenues from bankcard data processing
services are attributable to the growth in the card portfolios of existing
customers, as well as cardholder accounts of new customers converted to TSYS'
processing systems. Processing contracts with large customers, representing a
significant portion of the Company's total revenues, generally provide for
discounts on certain services based on the size and activity of customers'
portfolios. As a result, bankcard data processing revenues and the related
margins are influenced by the customer mix relative to the size of customer
bankcard portfolios, as well as the number and activity of individual cardholder
accounts processed for each customer.
The Company's revenues are also impacted by the use of value added products
and services of TSYS' processing systems by clients. Value added products and
services are optional features each client can choose to subscribe to in order
to increase the financial performance of its portfolio. For the three months
ended September 30, 2001 and 2000, value added products and services represented
12.9%, or $21.1 million, and 12.4%, or $18.5 million, of total revenues,
respectively. Revenues from
- 17 -
Results of Operations (continued)
value added products and services were up 13.7%, or $2.6 million, for the three
months ended September 30, 2001, compared to the same period in 2000. For the
nine months ended September 30, 2001 and 2000, value added products and services
represented 13.3%, or $63.8 million, and 12.2%, or $54.2 million, of total
revenues, respectively. Revenues from value added products and services were up
17.8%, or $9.6 million, for the nine months ended September 30, 2001, compared
to the same period in 2000. The Company changed its accounting policy for
recognizing revenue for one of the value added products and services it offers
clients. The Company was recognizing revenue one month in arrears. Due to
historical data the Company has accumulated over a set amount of time, the
Company determined that it now can estimate its current monthly revenue with
some precision. During the nine months ended September 30, 2001, the Company has
recognized, as a result of the change, ten months of revenue, or an additional
$1.4 million, for this one value added product and service.
Average cardholder accounts on file for the three months ended September
30, 2001 were 210.7 million, an increase of approximately 14.1% over the average
of 184.6 million for the same period in 2000. For the first nine months of 2001,
average cardholder accounts were 202.7 million, a 3.9% increase over the 195.1
million average cardholder accounts on file for the same period last year.
Cardholder accounts on file at September 30, 2001 were 212.4 million, a 13.8%
increase compared to the 186.6 million accounts on file at September 30, 2000.
The change in cardholder accounts on file from September 2000 to September 2001
included the deconversion of 3.2 million accounts, the addition of approximately
15.2 million accounts attributable to the internal growth of existing clients,
and approximately 13.8 million accounts for new clients.
The Company provides services to its clients including processing
commercial, retail, and consumer cards. Consumer cards include Visa and
MasterCard credit and debit cards. Retail cards include private label and gift
cards. Commercial cards include purchasing cards, corporate cards and fleet
cards for employees. The following table summarizes TSYS' accounts on file by
portfolio type:
Accounts on File Types
(in millions) September 30, 2001 September 30, 2000 % Change
- -------------------------- ------------------- ------------------ ----------
Consumer 117.4 85.6 37.1
Retail 77.4 87.5 (11.5)
Commercial 17.6 13.5 30.5
- -------------------------- ------------------- -------------------
Total 212.4 186.6 13.8
- -------------------------- =================== ===================
TSYS expects to expand its position in the consumer card, retail card and
commercial card arenas. The Company's future growth in the consumer card arena
is dependent upon increased card activity, new clients, international expansion
and continued internal growth of clients' portfolios.
TSYS is positioned as a major third-party processor of retail cards.
Traditional retail card operations are beginning to increase the activity of
their portfolios by converting inactive accounts to Visa/MasterCard consumer
cards. TSYS is able to provide its extensive bankcard processing tools and
techniques, as well as value-added functionality, to traditional retail card
operations allowing better segmentation and potentially increased profitability
for clients. TSYS does not receive as much revenue from retail clients, on a per
account basis, as it does for a consumer card because consumer
- 18 -
Results of Operations (continued)
cards traditionally generate more transactions. Retail cards are generally
limited to a particular location or retail chain. Consumer cards are widely
accepted at various retail outlets.
TSYS' major retail client has converted 10.2 million of its total portfolio
from traditional retail accounts to consumer accounts since September 2000. The
same retail client has purged approximately 8 million inactive accounts on file.
TSYS has a dominant market share position in the domestic Visa and
MasterCard commercial card processing arena. Future growth in this area is
dependent upon increased card activity with more purchasing by businesses being
transacted electronically and additional firms realizing the benefits of
converting their paper-based purchasing systems to electronic transactions.
TSYS provides processing services to its clients worldwide. TSYS plans to
continue to expand its service offerings to other countries in the future. The
following table summarizes TSYS accounts on file by area:
Accounts on File by Area
(in millions) September 30, 2001 September 30, 2000 % Change
- -------------------------- ------------------ ------------------ ------------
Domestic 185.8 169.6 9.5
Foreign 26.6 17.0 56.8
- -------------------------- ------------------ ------------------
Total 212.4 186.6 13.8
================== ==================
In 2000, the Company announced the signing of The Royal Bank of Scotland
Group plc (RBS) and Allied Irish Banks plc (AIB) to multiyear processing
agreements. The portfolios of both clients were fully converted by the middle of
the third quarter of 2001. With the completed conversions of RBS and AIB, TSYS
became the leading third-party international processor.
A significant amount of the Company's revenues is derived from long-term
contracts with large customers, including certain major customers. For the three
months ended September 30, 2001, the Company had two major customers. The two
major customers for the quarter ended September 30, 2001 accounted for
approximately 27.9%, or $45.4 million, of total revenues. For the three months
ended September 30, 2000, TSYS had three major customers that accounted for
37.4%, or $55.6 million, of total revenues. For the nine months ended September
30, 2001, the Company had two major customers. The two major customers for the
nine months ended September 30, 2001 accounted for approximately 28.2%, or
$135.4 million, of total revenues. For the nine months ended September 30, 2000,
TSYS had three major customers that accounted for 36.5%, or $162.7 million, of
total revenues. The loss of one of the Company's major customers, or other
significant customers, could have a material adverse effect on the Company's
financial condition and results of operations.
In October 2001, the Company announced it had signed a 10-year extension to
its long-term credit card-processing agreement with one of its major customers,
Providian Financial Corporation. Providian has been a customer of TSYS since
1986.
- 19 -
Results of Operations (continued)
The Company experienced a drop in transaction and authorization volumes on
September 11, 2001 and the following weeks as a result of the terrorist attacks.
In the ensuing weeks, those processing volumes returned to normal levels as
consumers resumed their daily activities. TSYS did not experience any material
financial impact as a result of the September 11th attacks.
In March 2000, the Company announced its intention to launch a new, wholly
owned subsidiary, DotsConnect, Inc. (DotsConnect), to focus exclusively on the
electronic payments (e-payments) market. DotsConnect delivers and hosts digital
solutions that enable financial services companies to reliably manage online
transaction-based processes. DotsConnect is headquartered in Columbus, Georgia,
with an office in Atlanta, Georgia. DotsConnect commenced operations on May 1,
2000.
In August 2000, the Company announced that it had entered the Asian card
market by purchasing a controlling equity interest in GP Network Corporation (GP
Net), an established electronics payment company for more than 100,000 merchants
in Japan. GP Net's revenues are included in bankcard processing revenues. TSYS
also announced the opening of an office in Japan to facilitate its marketing of
processing services for card-issuing financial institutions and retailers.
Revenues from other services consist primarily of revenues generated by
TSYS' wholly owned subsidiaries. Revenues from other services decreased $3.1
million, or 13.7%, in the third quarter of 2001, compared to the third quarter
of 2000. Revenues from other services decreased $5.2 million, or 7.4%, for the
nine months ended September 30, 2001, compared to the same period in 2000. The
majority of the revenues from other services are generated by TSYS Total
Solutions, Inc. (TSI). During the second quarter of 2001, one of TSI's major
clients stopped outsourcing certain functions as a result of the client's need
to reduce expenses. As a result, TSI's revenues were negatively impacted.
In November 2001, TSYS announced its decision to integrate the operations
of two of its subsidiaries, DotsConnect and TSI, into two separate divisions of
TSYS. The functions of both subsidiaries will remain the same - one supporting
e-commerce and the other supporting customer care and business process
management solutions. The decision was made to better serve TSYS' clients
through a more productive and efficient process. The integration will become
effective January 1, 2002.
Total expenses increased 4.8% and 5.8% for the three and nine months ended
September 30, 2001, respectively, compared to the same periods in 2000. The
increases in operating expenses are attributable to increases in a majority of
expense categories as described below.
Employment expenses increased $3.6 million, or 5.6%, for the three months
ended September 30, 2001, compared to the same period in 2000. For the nine
months ended September 30, 2001, employment expenses increased $13.7 million, or
7.7%, compared to the same period in 2000. The change in employment expenses
consists of increases of $7.3 million and $27.6 million for the three and nine
months ended September 30, 2001, respectively, associated with the growth in the
number of employees, normal salary increases and related benefits. These
increases were partially offset by $3.7 million and $13.9 million invested in
capitalized software development costs and contract
- 20 -
Results of Operations (continued)
acquisition costs for the three and nine months ending September 30, 2001,
respectively. Capitalized software development costs relate to the continued
development of a commercial card system for TS2(R), which began in May 1998 and
is expected to be substantially complete by the end of 2001, and enhancements to
expand international functionality. The average number of employees in the third
quarter of 2001 increased to 4,833, a 7.1% increase over 4,512 in the same
period of 2000. For the first nine months of 2001, the average number of
employees was 4,794, a 6.8% increase over the first nine months of 2000. At
October 31, 2001, TSYS had 4,652 full-time and 195 part-time employees.
Net occupancy and equipment expense increased $2.4 million, or 6.3%, for
the three months ended September 30, 2001, over the same period in 2000. For the
nine months ended September 30, 2001, net occupancy and equipment expense
increased $7.5 million, or 6.3%, over the same period in 2000. Computer
equipment and software rentals, which represent the largest component of net
occupancy and equipment expense, increased approximately $1.0 million in the
third quarter of 2001, compared to the same period of 2000. Due to rapidly
changing technology in computer equipment, TSYS' equipment needs are achieved to
a large extent through operating leases.
During 2000, the Company established a data processing center in Europe and
purchased a building to house client services personnel. Although it only began
processing accounts for its new European clients during the second quarter of
2001, the Company had to build the necessary infrastructure in order to begin
processing those accounts in 2001. Through the first nine months of 2001, the
Company incurred $13.6 million of net operating expense related to the expansion
in Europe.
Other operating expenses remained approximately the same for the three and
nine months ended September 30, 2001, respectively, compared to the same periods
in 2000. The Company's concerted efforts on cost controls, specifically reducing
errors and reduced amortization of client conversion costs helped offset
increases in travel and amortization of client incentives.
TSYS' share of income from its equity in joint ventures was $4.6 million
and $3.3 million for the third quarters of 2001 and 2000, respectively. For the
nine months ended September 30, 2001, the Company's equity in income of its
joint ventures was $12.3 million compared to $11.0 for the nine months ended
September 30, 2000. The increases for the third quarter and nine months are
attributable mainly to Vital Processing Services (Vital).
Vital's operating results were impacted during the third quarters of 2001
and 2000 by the varying amounts of acquisition expense incurred for two
acquisitions. During the third quarter of 2001, Vital acquired the remaining 49%
of a majority owned subsidiary. During the third quarter of 2000, Vital incurred
acquisition costs related to the purchase of a merchant terminal business.
The Company has completed negotiations with its Mexican partners to
restructure its Mexican joint venture agreement whereby TSYS will process for
the member banks directly instead of processing through the joint venture. The
joint venture will continue to print statements and provide card-issuing
services to the joint venture clients. The Company has executed contracts with
banks that represent approximately 73% of its account-on-file base in Mexico.
Prior to all of the contracts being executed, the Company will continue to
provide services to its clients under the
- 21 -
Results of Operations (continued)
prior arrangement. The net effect of the restructuring will be minimal and
should result in a decrease in equity in income of joint ventures while bankcard
processing revenues should increase. The new restructured arrangement is
expected to become effective before the end of 2001. There remains uncertainty
in the Mexican economy which management continues to monitor.
Interest income, net, includes interest income of $627,000 and $29,000 of
interest expense for the third quarter of 2001. During the third quarter of
2000, interest income, net, included interest income of $1.5 million and no
interest expense. For both the nine months ended September 30, 2001 and 2000,
respectively, interest expense was $31,000, and interest income was $2.3 million
and $3.6 million. The decrease in interest income for the nine months ending
September 30, 2001, as compared to the same period in 2000, was primarily the
result of decreased levels of cash available for investment and lower short-term
interest rates.
Operating income increased 32.8% and 15.2% for the three and nine months
ended September 30, 2001, respectively, over the same periods in 2000. The
increase in operating income was the result of the Company's commitment to
contain the growth in operating expenses below the growth rate in revenues.
Operating income for the nine months ended September 30, 2000 included the
income related to processing the Citigroup Universal Card Services' consumer
card portfolio.
TSYS' effective income tax rate for the third quarter of 2001 was 34.1%,
compared to 35.4% for the same period in 2000. For the nine months ended
September 30, 2001, the effective tax rate was 34.5% compared to 34.9% for the
same period in 2000. TSYS was able to recognize additional state tax credits in
2001.
Net income for the three months ended September 30, 2001, increased 33.5%
to $25.5 million, or basic and diluted earnings per share of $.13, compared to
$19.1 million, or basic and diluted earnings per share of $.10, for the same
period in 2000. Net income for the first nine months of 2001 increased 14.6% to
$73.4 million, up from $64.1 million for the same period last year. Basic and
diluted earnings per share for the first nine months of 2001 increased to $.38,
up from $.33 for the same period of 2000. The Company expects its 2001 net
income to exceed 2000 net income by approximately 20 percent. This anticipated
increase in net income is based in part upon the following assumptions: a 10-12%
internal growth rate for existing clients; an approximately 50% increase in
international revenues on an annualized basis; an aggressive focus on expense
control and productivity improvement; the successful implementation and market
acceptance of new product offerings, including stored value and e-commerce; and
increasing the total cardholder base to approximately 213 million accounts. The
Company also expects to grow its net income by 20-25% each year for the years
2002 and 2003.
Liquidity and Capital Resources
The Consolidated Statements of Cash Flows detail the Company's cash flows
from operating, investing and financing activities. TSYS' primary method of
funding its operations and growth has been cash generated from current
operations and the occasional use of borrowed funds to supplement financing of
capital expenditures. The major uses of cash generated from operations have been
the
- 22 -
Liquidity and Capital Resources (continued)
internal development and purchase of computer software, the addition of property
and equipment, investment in contract acquisition costs, and the payment of cash
dividends.
During the third quarter of 2001, TSYS purchased property and equipment of
$8.4 million for total purchases of $24.1 million for the first nine months of
2001. Additions to computer software during the third quarter were $4.5 million,
bringing the total additions for 2001 to $34.1 million. Of the $4.5 million
computer software additions made during the third quarter, $3.3 million was for
purchased software and $1.2 million was related to investments in internally
developed software, bringing the totals for the first nine months of 2001 to
$25.8 million for purchased software and $8.3 million for internally developed
software.
During the first nine months of 2001, the Company made investments in
contract acquisition costs of $12.7 million compared to $39.8 million for the
first nine months of 2000. In the fourth quarter of 1999, the Company made a
payment representing a contract acquisition cost of $10.0 million to a
prospective client. Under the terms of the arrangement, the prospective client
agreed to repay the $10.0 million in the event a processing agreement was not
executed by July 1, 2000. Subsequently, the prospective client announced its
intention to exit the credit card business through a sale of its accounts in
2000. In June 2000, the parent of the prospective client repaid the $10.0
million advance by obtaining a five-year loan from CB&T. TSYS has agreed to
guarantee the loan. As of September 30, 2001, all payments on the loan have been
made timely. The remaining balance at September 30, 2001 was $8.0 million. The
Company does not anticipate any negative consequences to its results of
operations and financial condition as a result of its loan guarantee.
Dividends on common stock of $2.9 million were paid in the third quarter of
2001, bringing the total amount of dividends paid year to date to $8.3 million.
On February 26, 2001, the Company announced a 20% increase in its quarterly cash
dividend from $0.0125 to $0.0150 per share. On April 13, 2000, the Company
announced a 25% increase in its quarterly cash dividend from $0.01 to $0.0125
per share.
In October 1999, the Company announced a plan to repurchase up to 1.5
million shares of its common stock from time to time and at various prices over
the next 24 months. Shares repurchased could be utilized to fund TSYS' various
stock option and other compensation arrangements or used for other purposes,
including potential acquisitions. The maximum of 1.5 million shares represents
approximately five percent of the shares of TSYS common stock held by
shareholders other than TSYS' affiliates, including CB&T. The Company planned to
use internally generated cash to fund the purchases. During the first nine
months of 2001, the Company did not purchase any shares under this plan. Since
the plan was announced, the Company has purchased 207,500 shares for $3.4
million. The plan has since expired.
In 1997, the Company entered into an operating lease agreement relating to
the corporate campus. The lease provides for a substantial residual value
guarantee, up to $81.3 million, and includes purchase options at the original
cost of the property. Real estate taxes, insurance, maintenance and operating
expenses applicable to the leased property are obligations of the Company.
- 23 -
Liquidity and Capital Resources (continued)
In July 2000, TSYS broke ground on a 32,000 square foot childcare facility
which is located on the northeast corner of the campus. The new facility offers
the Company's employees an alternative option for childcare needs. The facility
was completed at a cost of approximately $3.5 million and opened in August 2001.
The Company will be able to recoup its building costs through future state tax
credits from the state of Georgia for setting up a company-sponsored childcare
facility.
In March 2001, the Company announced plans to move its printing subsidiary,
Columbus Productions, Inc. (CPI), and its materials management division into a
new building in east Columbus. The 61,000 square-foot building was completed in
August 2001 at a cost of approximately $3.7 million. In conjunction with the
move, CPI sold its existing location for $960,000. While waiting on construction
of the new building to be completed, CPI was leasing the existing facility from
the new owner.
In September 1999, Synovus Financial Corp. (Synovus) completed the
acquisition of the debt collection and bankruptcy management business offered by
Wallace & de Mayo. The services provided by Wallace & de Mayo include recovery
collections work, bankruptcy process management, legal account management and
skip tracing. These services are being marketed under the name TSYS Total Debt
Management, Inc. through the Company and its wholly owned subsidiary, TSI, for
which Synovus paid TSYS a management fee of $374,000 and $1.1 million for the
three and nine months ended September 30, 2001, respectively, compared to
$438,000 and $1.3 million for the same periods last year.
In May 2000, Synovus completed the acquisition of ProCard, Inc. (ProCard),
a leading provider of software and Internet tools designed to assist
organizations with the management of purchasing, travel and fleet card programs.
ProCard's software solutions have been integrated into TSYS' processing
solutions and offer TSYS the opportunity to further expand its services to
ProCard's clients. The Company assists in managing ProCard, for which the
Company was paid a management fee of $76,000 and $227,000 by Synovus for the
three and nine months ended September 30, 2001, respectively.
Due to the complexity of the differences between the English language and
Asian languages, computer systems require two bytes to store an Asian character
compared to one byte in the English language. With the opening of a branch
office in Japan to facilitate its marketing of card processing services, TSYS
began modifying its current TS2 system to be able to accommodate language and
currency differences with Asia, commonly referred to as the "double byte
project." Management expects to spend $10-15 million on the project. To date,
the Company has expensed approximately $2.5 million and has capitalized $1.0
million since determining technological feasibility. The Company expects to
complete the project by the end of the second quarter of 2002.
Although the impact of inflation on its operations cannot be precisely
determined, the Company believes that by controlling its operating expenses and
by taking advantage of more efficient computer hardware and software, it can
minimize the impact of inflation.
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Liquidity and Capital Resources (continued)
TSYS may seek additional external sources of capital in the future. The
form of any such financing will vary depending upon prevailing market and other
conditions and may include short-term or long-term borrowings from financial
institutions or the issuance of additional equity and/or debt securities such as
industrial revenue bonds. However, there can be no assurance that funds will be
available on terms acceptable to TSYS. Management expects that TSYS will
continue to be able to fund a significant portion of its capital expenditure
needs through internally generated cash in the future, as evidenced by TSYS'
current ratio of 1.8:1. At September 30, 2001, TSYS had working capital of $95.9
million compared to $63.7 million at December 31, 2000.
Legal Proceedings
On November 10, 1998, a class action complaint was filed against
NationsBank of Delaware, N.A., in the United States District Court for the
Southern District of Mississippi. On March 23, 1999, the named plaintiff amended
the complaint and named the Company and certain credit bureaus as defendants in
the case. The named plaintiff alleged, among other things, that the defendants
failed to report properly the credit standing of each member of the putative
class. The named plaintiff defined the class as all persons and entities within
the United States who obtained credit cards from NationsBank and whose accounts
were purchased by or transferred to U.S. BankCard and whose accounts were
reported to credit bureaus or credit agencies incorrectly in August 1998. The
parties have reached a settlement of the litigation. On September 21, 2001, the
Magistrate Judge for the United States District Court for the Southern District
of Mississippi issued an order of final approval of that settlement pursuant to
Rule 23(e) of the Federal Rules of Civil Procedure. Payments to settle the
litigation were substantially covered by insurance.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for
Derivative Instruments and Hedging Activities." In June 2000, the FASB issued
Statement of Financial Accounting Standards No. 138 (SFAS 138), "Accounting for
Certain Derivative Instruments and Hedging Activities, an amendment of SFAS
133." SFAS 133 and SFAS 138 require that all derivative instruments be recorded
on the balance sheet at their respective fair values. The accounting for changes
in the fair value (i.e., gains or losses) of a derivative instrument depends on
whether it has been designated and qualifies as part of a hedging relationship
and, if so, the reason for holding it. If certain conditions are met, entities
may elect to designate a derivative instrument as a hedge of exposures to
changes in fair values, cash flows or foreign currencies. If the hedged exposure
is a fair value exposure, the gain or loss on the derivative instrument is
recognized in earnings in the period of change together with the offsetting loss
or gain on the hedged item attributable to the risk being hedged. If the hedged
exposure is a cash flow exposure, the effective portion of the gain or loss on
the derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. If the derivative
instrument is not designated as a hedge, the gain or loss is recognized in
earnings in the period of change.
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Recent Accounting Pronouncements (continued)
For TSYS, SFAS 133, as amended by SFAS 138, was effective January 1, 2001.
On adoption, the provisions of SFAS 133 must be applied prospectively. The
Company did not have any outstanding derivative instruments or hedging
transactions at September 30, 2001. The Company is assessing the impact of SFAS
133 and SFAS 138 on anticipated hedging instruments.
In July 2001, the FASB issued Statement No. 141 (SFAS 141), "Business
Combinations," and Statement No. 142 (SFAS 142), "Goodwill and Other Intangible
Assets." SFAS 141 requires that the purchase method of accounting be used for
all business combinations initiated after June 30, 2001 as well as all purchase
method business combinations completed after June 30, 2001. SFAS 141 also
specifies criteria that intangible assets acquired in a purchase method business
combination must meet to be recognized and reported apart from goodwill, noting
that any purchase price allocable to an assembled workforce may not be accounted
for separately. SFAS 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142. SFAS
142 will also require that intangible assets with estimable useful lives be
amortized over their respective estimated useful lives to their estimated
residual values, and reviewed for impairment in accordance with Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company has
adopted the provisions of SFAS 141 effective July 1, 2001 and expects to adopt
SFAS 142 effective January 1, 2002.
Furthermore, goodwill and intangible assets determined to have an
indefinite useful life acquired in a purchase business combination completed
after June 30, 2001 but before SFAS 142 is adopted in full will not be
amortized, but will continue to be evaluated for impairment in accordance with
the appropriate pre-SFAS 142 accounting literature. Goodwill and intangible
assets acquired in business combinations completed before July 1, 2001 will
continue to be amortized and tested for impairment in accordance with the
appropriate pre-SFAS 142 accounting requirements prior to the adoption of SFAS
142.
SFAS 141 will require, upon adoption of SFAS 142, the Company to evaluate
its existing intangible assets and goodwill that were acquired in a prior
purchase business combination and to make any necessary reclassifications in
order to conform with the new criteria in SFAS 141 for recognition apart from
goodwill. Upon adoption of SFAS 142, the Company will be required to reassess
the useful lives and residual values of all intangible assets acquired and make
any necessary amortization period adjustments by the end of the first interim
period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
SFAS 142 within the first interim period. Any impairment loss will be measured
as of the date of adoption and recognized as the cumulative effect of a change
in accounting principle in the first interim period.
In connection with SFAS 142's transitional goodwill impairment evaluation,
the Statement will require the Company to perform an assessment of whether there
is an indication that goodwill [and equity-method goodwill] is impaired as of
the date of adoption. To accomplish this, the Company must identify its
reporting units and determine the carrying value of each reporting unit
- 26 -
Recent Accounting Pronouncements (continued)
by assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company will then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and the Company must perform the second step of the transitional
impairment test. In the second step, the Company must compare the implied fair
value of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with SFAS 141, to its carrying amount, both of which would be measured as of the
date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of earnings. And finally, any
unamortized negative goodwill [and equity-method negative goodwill], existing at
the date SFAS 142 is adopted, must be written off as the cumulative effect of a
change in accounting principle.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $3.6 million which will be subject to the transition
provisions of SFAS 141 and SFAS 142. Amortization expense related to goodwill
was $528,000 and $642,000 for the year ended December 31, 2000 and the nine
months ended September 30, 2001, respectively. Because of the extensive effort
needed to comply with adopting SFAS 142, it is not practicable to reasonably
estimate the impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether it will be required to
recognize any transitional impairment losses as the cumulative effect of a
change in accounting principle.
In August 2001, the FASB issued Statement No. 143 (SFAS 143), "Accounting
for Asset Retirement Obligations." SFAS 143 addresses financial accounting and
reporting for obligations associated with the retirement of tangible long-lived
assets and the associated asset retirement costs. SFAS 143 applies to all
entities. SFAS 143 applies to legal obligations associated with the retirement
of long-lived assets that result from the acquisition, construction, development
and (or) the normal operation of a long-lived asset, except for certain
obligation of leases.
SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002. Management does not anticipate the adoption of
SFAS 143 will have a material effect on its financial condition or results of
operations.
In October 2001, the FASB issued Statement No. 144 (SFAS 144), "Accounting
for the Impairment or Disposal of Long-Lived Assets." SFAS 144 addresses
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 supersedes FASB Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
and the accounting and reporting provisions of APB Opinion No. 30, "Reporting
the Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions", for the disposal of a segment of a business (as previously
defined in that Opinion). This Statement also amends
- 27 -
Recent Accounting Pronouncements (continued)
Accounting Research Bulletin No. 51, "Consolidated Financial Statements," to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary.
SFAS 144 improves financial reporting by requiring that one accounting
model be used for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and by broadening the presentation
of discontinued operations to include more disposal transactions.
SFAS 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The provisions are to be applied prospectively. Management does not
anticipate the adoption of SFAS 144 will have a material effect on its financial
condition or results of operations.
Forward-Looking Statements
Certain statements contained in this filing which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the Act). These forward-looking
statements include, among others, statements regarding TSYS' expected expansion
of its position in the consumer card, retail card and commercial card arenas,
expected growth in net income for 2001 over 2000, the expected increase in net
income for 2002 and 2003, TSYS' expected expenditures on and timeframes for
completing its double byte project and the assumptions underlying such
statements. In addition, certain statements in future filings by TSYS with the
Securities and Exchange Commission, in press releases, and in oral and written
statements made by or with the approval of TSYS which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Act. Examples of forward-looking statements include, but are not limited to: (i)
projections of revenue, income or loss, earnings or loss per share, the payment
or nonpayment of dividends, capital structure and other financial items; (ii)
statements of plans and objectives of TSYS or its management or Board of
Directors, including those relating to products or services; (iii) statements of
future economic performance; and (iv) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.
Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. A number of important factors
could cause actual results to differ materially from those contemplated by the
forward-looking statements in this filing. Many of these factors are beyond
TSYS' ability to control or predict. The factors include, but are not limited
to: (i) lower than anticipated internal growth rates for TSYS' existing
customers; (ii) TSYS' inability to control expenses and increase market share;
(iii) TSYS' inability to successfully bring new products to market, including,
but not limited to stored value and e-commerce products; (iv) the inability of
TSYS to grow its business through acquisitions; (v) TSYS' inability to increase
the revenues derived from international sources; (vi) adverse developments with
respect to entering into contracts with new clients and retaining current
clients; (vii) the merger of TSYS clients with entities that are not TSYS
clients;
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Forward-Looking Statements (continued)
(viii) TSYS' inability to anticipate and respond to technological changes,
particularly with respect to e-commerce; (ix) adverse developments with respect
to the successful conversion of clients; (x) the absence of significant changes
in foreign exchange spreads between the United States and the countries TSYS
transacts business in, to include Mexico, United Kingdom, Japan, Canada and the
European Union; (xi) changes in consumer spending, borrowing and saving habits,
including a shift from credit to debit cards; (xii) changes in laws,
regulations, credit card association rules or other industry standards affecting
TSYS' business which require significant product redevelopment efforts; (xiii)
the effect of changes in accounting policies and practices as may be adopted by
the Financial Accounting Standards Board or the Securities and Exchange
Commission; (xiv) the costs and effects of litigation; (xv) adverse developments
with respect to the credit card industry in general; (xvi) TSYS' inability to
successfully manage any impact from slowing economic conditions or consumer
spending; (xvii) the occurrence of catastrophic events that would impact TSYS'
or its major customers' operating facilities, communications systems and
technology, or that has a material negative impact on current economic
conditions or levels; (xviii) successfully managing the potential both for
patent protection and patent liability in the context of rapidly developing
legal framework for expansive software patent protection; and (xix) overall
market conditions.
Such forward-looking statements speak only as of the date on which such
statements are made, and TSYS undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.
- 29 -
TOTAL SYSTEM SERVICES, INC.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Exchange Risk
The foreign currency financial statements of TSYS' foreign operations in
Mexico, Canada, United Kingdom and Japan are translated into U.S. dollars at
current exchange rates, except for revenues, costs and expenses, and net income
which are translated at the average exchange rate for each reporting period. Net
exchange gains or losses resulting from the translation of assets and
liabilities of TSYS' foreign operations, net of tax, are accumulated in a
separate section of shareholders' equity titled accumulated other comprehensive
loss. Currently, TSYS does not use financial instruments to hedge its exposure
to exchange rate changes in Mexico, Canada, United Kingdom or Japan because TSYS
believes that the use of such instruments would not be cost effective. TSYS'
carrying value of its investment in its Mexican joint venture was approximately
$3.8 million (U.S.) at September 30, 2001, and the carrying value of the assets
of its Canadian operation was approximately $287,000 (U.S.) at September 30,
2001.
TSYS opened a branch office in Japan ("TSYS Japan") in an effort to expand
its business in the Asia Pacific region. At September 30, 2001, the carrying
value of the assets of TSYS Japan's operations was approximately $334,000 (U.S.)
TSYS acquired a controlling interest in an established electronic payments
company in Japan, GP Network Corporation (GP Net), for a total of $4.8 million.
The carrying value of the assets of GP Net was approximately $6.1 million (U.S.)
at September 30, 2001.
TSYS opened an office in the United Kingdom in 1999, which serves as the
headquarters for its European operations. During 2000, TSYS purchased a building
and machinery for approximately $13.0 million. TSYS also signed The Royal Bank
of Scotland Group plc and Allied Irish Banks plc to process their respective
portfolios beginning in 2001. Currently, TSYS does not use instruments to hedge
its foreign exposure in the United Kingdom. The carrying value of the assets of
TSYS' operation in Europe was approximately $82.6 million (U.S.) at September
30, 2001.
TSYS is also exposed to interest rate risk associated with the lease on its
campus facilities. The payments under the operating lease arrangement are tied
to the London Interbank Offered Rate ("LIBOR"), and TSYS evaluates the
hypothetical change in the lease obligation held at September 30, 2001 due to
changes in the LIBOR.
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TOTAL SYSTEM SERVICES, INC.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
a) Forms 8-K filed since the previous Form 10-Q filing.
1. The report dated October 16, 2001 included the following important event:
On October 16, 2001, Total System Services, Inc. ("Registrant") issued
a press release with respect to its third quarter 2001 earnings.
2. The report dated October 22, 2001 included the following important event:
On October 22, 2001, Total System Services, Inc. ("Registrant") issued
a press release announcing a 10-year extension to its long-term credit
card processing agreement with Providian Financial Corporation.
- 31 -
TOTAL SYSTEM SERVICES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL SYSTEM SERVICES, INC.
Date: November 13, 2001 by: /s/ Richard W. Ussery
-----------------------------
Richard W. Ussery
Chairman of the Board
and Chief Executive
Officer
Date: November 13, 2001 by: /s/ James B. Lipham
----------------------------
James B. Lipham
Chief Financial Officer
- 32 -