Exhibit 99.1
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 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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TOTAL SYSTEM SERVICES, INC. EMPLOYEE STOCK PURCHASE PLAN
TOTAL SYSTEM SERVICES, INC.
1600 FIRST AVENUE
COLUMBUS, GEORGIA 31901
(706) 649-2204
TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Financial Statements
December 31, 2003, 2002, and 2001
(With Independent Auditors' Report Thereon)
Independent Auditors' Report
The Plan Administrator
Total System Services, Inc. Employee
Stock Purchase Plan:
We have audited the accompanying statements of financial condition of the Total
System Services, Inc. Employee Stock Purchase Plan as of December 31, 2003 and
2002, and the related statements of operations and changes in plan equity for
each of the years in the three-year period ended December 31, 2003. These
financial statements are the responsibility of the Plan's administrator. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of the Total System Services,
Inc. Employee Stock Purchase Plan as of December 31, 2003 and 2002, and the
results of its operations and changes in its plan equity for each of the years
in the three-year period ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
/s/KPMG LLP
March 12, 2004
TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Financial Condition
December 31, 2003 and 2002
Assets 2003 2002
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Common stock of Total System Services, Inc. at market value -
1,748,194 shares (cost $31,386,554) in 2003 and
1,790,666 shares (cost $29,840,943) in 2002 (note 2) $ 54,421,275 24,173,986
Dividends receivable 31,149 30,500
Contributions receivable 534,764 487,962
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$ 54,987,188 24,692,448
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Plan Equity
Plan equity (5,489 and 5,385 participants at
December 31, 2003 and 2002, respectively) $ 54,987,188 24,692,448
=================== ===================
See accompanying notes to financial statements.
2
TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Statements of Operations and Changes in Plan Equity
Years ended December 31, 2003, 2002, and 2001
2003 2002 2001
------------------ ------------------ ------------------
Dividend income $ 123,777 108,225 93,195
Realized gain on distributions to participants
(note 4) 4,026,165 1,913,128 4,686,645
Unrealized (depreciation) appreciation in common
stock of Total System Services, Inc. (note 3) 28,701,678 (13,716,848) (6,065,826)
Contributions (notes 1 and 2):
Participants 8,147,986 7,575,583 6,650,650
Participating employers:
Total System Services, Inc. 3,336,669 3,116,193 2,518,911
Columbus Depot Equipment Company 162 154 149
TSYS Total Solutions, Inc. -- -- 264,872
Columbus Productions, Inc. 45,584 49,355 57,972
TSYS Canada, Inc. 31,850 25,363 18,592
TSYS Total Debt Management, Inc. 56,446 62,385 --
ProCard, Inc. 95,316 27,653 --
DotsConnect, Inc. -- -- 56,101
Vital Processing Services, L.L.C. 481,998 511,160 423,270
Enhancement Services Corporation 15,092 -- --
TSYS Tech. Center 11,092 -- --
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Total employer contributions 4,074,209 3,792,263 3,339,867
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Increase (decrease) in Plan equity
before withdrawals 45,073,815 (327,649) 8,704,531
Withdrawals by participants - common stock of
Total System Services, Inc. at market value
(631,575 shares in 2003, 441,103 shares in 2002,
and 418,335 shares in 2001) (notes 2 and 4) (14,779,075) (9,310,243) (10,849,350)
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Increase (decrease) in Plan equity
for the year 30,294,740 (9,637,892) (2,144,819)
Plan equity at beginning of year 24,692,448 34,330,340 36,475,159
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Plan equity at end of year $ 54,987,188 24,692,448 34,330,340
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See accompanying notes to financial statements.
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TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 2003, 2002, and 2001
(1) Description of the Plan
The Total System Services, Inc. Employee Stock Purchase Plan (the Plan)
was implemented as of October 1, 1984. The Plan is designed to enable
participating Total System Services, Inc. (TSYS) and subsidiaries'
employees to purchase shares of common stock of TSYS at prevailing market
prices from contributions made by them and TSYS and subsidiaries (the
Participating Employers).
TSYS serves as the Plan administrator. Prior to August 1, 2002, the Plan
agent was State Street Bank and Trust Company. Effective August 1, 2002,
the Plan agent is Mellon Investor Services, LLC, hereafter referred to as
"Agent."
Prior to July 1, 2002, all employees who work twenty hours per week or
more were eligible to participate in the Plan after completing three
months of continuous employment prior to the beginning of a calendar
quarter. Effective July 1, 2002, the Plan was amended to allow employees
who work 20 hours per week or more to become eligible to participate in
the plan on the first payroll date after completing three months of
continuous employment. Effective December 31, 2002, employees of TSYS or
TSYS affiliates who are employed in a country other than the United
States and are eligible to participate in a compensatory stock plan
sponsored by TSYS or TSYS affiliates similar to the Plan that has been
established pursuant to the laws of that country are not eligible to
participate in the Plan. Participants contribute to the Plan through
payroll deductions as a percentage of compensation. The minimum
contribution was 0.5%, and the maximum contribution ranges from 3% to 7%,
based on years of service. Effective July 1, 2002, the minimum allowable
contribution is 1% of compensation. Contributions to the Plan are to be
made by the Participating Employers in an amount equal to one-half of
each participant's contribution. Participants are immediately vested in
their contributions and Participating Employers' matching contributions.
The Plan provides, among other things, that all expenses of the Plan and
its administration shall be paid by TSYS with the exception of brokers'
fees, commissions, postage, and transaction costs which are included in
the cost of each participant's investment in common stock of TSYS.
The Plan provides that each participant may withdraw at any time all or
some of his or her account balance. The participant may elect to receive
the proceeds in the form of shares of common stock of TSYS or in a
lump-sum cash distribution. Prior to January 23, 2002, participants who
had previously withdrawn shares from their Plan account remained eligible
to participate, but with certain exceptions were precluded from receiving
matching contributions from the Plan sponsor for a specified period of
time. Effective January 23, 2002, the Plan was amended to allow employees
to make unlimited withdrawals without their employer matching
contributions being suspended.
TSYS expects to maintain the Plan indefinitely, but reserves the right to
terminate or amend the Plan at any time, provided, however, that no
termination or amendment shall affect or diminish any participant's right
to the benefit of contributions made by him/her or TSYS prior to the date
of such amendment or termination.
(2) Summary of Accounting Policies
The investment in common stock of TSYS is stated at market value. The
2003 and 2002 market values are based on the closing price at year-end.
The December 31, 2003 and 2002 market values were $31.13 and $13.50 per
share, respectively.
4 (Continued)
TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 2003, 2002, and 2001
The realized gain on distributions to participants is determined by
computing the difference between the average cost per share of common
stock and the market value per share at the date of the distribution to
the participants.
Contributions to and withdrawals from the Plan are accounted for on the
accrual basis. Common stock contributions are recorded at fair value.
During the years ended December 31, 2002 and 2001, TSYS contributed one
share of stock to each new employee, upon reaching three months of
employment with TSYS. Such contributions were made to the employees'
accounts with the Plan, and resulted in an increase of employer
contributions of approximately $1,827 and $28,587 for the years ended
December 31, 2002 and 2001, respectively. Effective January 23, 2002, the
Plan was amended to eliminate this gift stock program.
Dividend income is accrued on the record date.
The Plan's investments include common stock of TSYS which is exposed to
market and credit risks. Due to the level of risk associated with
investment securities, it is at least reasonably possible that changes in
the values of investment securities will occur in the near term and that
such changes could materially affect the amounts reported in the Plan's
financial statements.
The Plan is not qualified under Sections 401(a) or 501(a) of the Internal
Revenue Code of 1986, as amended. The Plan does not provide for income
taxes because any income is taxable to the participants. Participants in
the Plan must treat as compensation income their pro rata share of
contributions made to the Plan by their employer. Cash dividends paid on
common stock of TSYS purchased under the Plan will be taxed to the
participants on a pro rata basis for Federal and state income tax
purposes during the year any such dividend is received by the participant
or the Plan. Upon disposition of the common stock of TSYS purchased under
the Plan, participants must treat any gain or loss as long-term or
short-term capital gain or loss depending upon when such disposition
occurs.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, and changes therein, and disclosure of
contingent assets and liabilities. Actual results could differ from those
estimates.
Management of the Plan believes that the carrying amount of receivables
is a reasonable approximation of the fair value due to the short-term
nature of these instruments.
5 (Continued)
TOTAL SYSTEM SERVICES, INC.
EMPLOYEE STOCK PURCHASE PLAN
Notes to Financial Statements
December 31, 2003, 2002, and 2001
(3) Unrealized (Depreciation) Appreciation in Common Stock of TSYS
Changes in unrealized (depreciation) appreciation in common stock of TSYS
are as follows:
2003 2002 2001
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Unrealized appreciation (depreciation
at end of year $23,034,721 (5,666,957) 8,049,891
Unrealized (depreciation) appreciation
at beginning of year (5,666,957) 8,049,891 14,115,717
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Unrealized appreciation
(depreciation) for the year $28,701,678 (13,716,848) (6,065,826)
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(4) Realized Gain on Withdrawal Distributions to Participants
The gain realized on withdrawal distributions to participants is
summarized as follows:
2003 2002 2001
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Market value at dates of distribution or
redemption of shares of common
stock of TSYS $14,779,075 9,310,243 10,849,350
Less cost (computed on an average
cost basis) of shares of common
stock of TSYS distributed or
redeemed 10,752,910 7,397,115 6,162,705
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Total realized gain $ 4,026,165 1,913,128 4,686,645
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