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 June 30, 1997
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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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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
incorporation or organization) Identification No.)
1200 Sixth 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 August 13, 1997
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Common Stock, $.10 par value 129,312,380
TOTAL SYSTEM SERVICES, INC.
INDEX
Page
Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1997 and
December 31, 1996 ............................. 3
Consolidated Statements of Income - Three months and
Six months ended June 30, 1997 and 1996 ....... 4
Consolidated Statements of Cash Flows - Six months
ended June 30, 1997 and 1996 .................. 6
Notes to Consolidated Financial Statements ......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ........... 9
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ... 15
Item 6
(a) Exhibits .......................................... 16
(b) Reports on Form 8-K ............................... 16
Signatures ................................................................. 17
TOTAL SYSTEM SERVICES, INC.
Part I - Financial Information
Consolidated Balance Sheets
(Unaudited)
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June 30, December 31,
1997 1996
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Assets
Current assets:
Cash and cash equivalents (includes $27.3 million and $25.1 million
on deposit with a related party at 1997 and 1996, respectively) ... $ 29,890,350 27,496,057
Short-term investments with a related party ............................ -- 5,000,000
Accounts receivable, net of allowance for doubtful accounts
of $710,000 and $704,000 at 1997 and 1996, respectively ........... 62,907,434 59,202,399
Prepaid expenses and other current assets .............................. 14,319,067 6,624,482
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Total current assets ........................................... 107,116,851 98,322,938
Property and equipment, less accumulated depreciation and
amortization of $64.4 million and $58.4 million at 1997 and
1996, respectively .................................................... 65,912,330 62,955,926
Computer software, less accumulated amortization of
$29.9 million and $24.7 million at 1997 and 1996, respectively ........ 43,446,624 39,720,484
Other assets ............................................................. 49,119,589 45,759,735
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Total assets .................................................. $ 265,595,394 246,759,083
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ....................................................... $ 7,959,381 4,695,970
Accrued salaries and related liabilities ............................ 5,395,417 6,422,199
Accrued employee benefits .............................................. 10,127,644 14,590,362
Current portion of long-term debt and obligations under
capital leases ........................................................ 1,125,801 201,274
Other current liabilities (includes $1.5 million payable to
related parties at 1997 and 1996) ..................................... 31,755,723 26,195,540
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Total current liabilities ..................................... 56,363,966 52,105,345
Long-term debt and obligations under capital leases,
excluding current portion .............................................. 423,931 474,513
Deferred income taxes .................................................... 13,968,170 15,301,478
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Total liabilities ............................................. 70,756,067 67,881,336
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Shareholders' equity:
Common stock - $.10 par value. Authorized 300,000,000 shares;
129,484,480 and 129,483,522 issued at 1997 and 1996, respectively;
129,300,680 and 129,289,680 outstanding at 1997 and 1996, respectively 12,948,352 12,948,352
Additional paid-in capital ............................................. 5,740,637 5,353,972
Treasury stock, at cost ................................................ (447,763) (473,544)
Cumulative currency translation adjustments ............................ (1,178,182) (1,178,182)
Retained earnings ...................................................... 177,776,283 162,227,149
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Total shareholders' equity .................................... 194,839,327 178,877,747
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Total liabilities and shareholders' equity .................... $ 265,595,394 246,759,083
============= =============
See accompanying notes to consolidated financial statements.
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)
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Three months ended
June 30,
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1997 1996
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Revenues:
Bankcard data processing services (includes $7.6 million and $6.1 million
from related parties for 1997 and 1996, respectively) ................. $ 80,910,810 65,971,311
Other services ............................................................ 8,825,997 8,518,076
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Total revenues ........................................................ 89,736,807 74,489,387
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Expenses:
Salaries and other personnel expense ...................................... 37,833,800 31,386,559
Net occupancy and equipment expense ....................................... 24,856,038 20,165,536
Other operating expenses (includes $2.7 million and $1.9 million to related
parties for 1997 and 1996, respectively) .............................. 14,141,205 12,947,404
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Total operating expenses ............................................. 76,831,043 64,499,499
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Equity in income of joint ventures ........................................... 2,164,957 1,663,393
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Operating income ..................................................... 15,070,721 11,653,281
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Nonoperating income:
Gain (loss) on disposal of equipment, net ................................. (25,677) 97,148
Interest income, net (includes $381,000 and $287,000 from a related party
for 1997 and 1996, respectively) ........................................ 490,599 289,573
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Total nonoperating income ............................................ 464,922 386,721
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Income before income taxes ........................................... 15,535,643 12,040,002
Income taxes ................................................................. 5,594,198 4,139,885
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Net income ........................................................... $ 9,941,445 7,900,117
============= =============
Net income per share ................................................ $ .08 .06
============= =============
Weighted average shares outstanding .......................................... 129,289,801 129,288,722
============= =============
Cash dividends per common share .............................................. $ .012 .012
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See accompanying notes to consolidated financial statements.
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)
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Six months ended
June 30,
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1997 1996
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Revenues:
Bankcard data processing services (includes $14.3 million and $11.1 million
from related parties for 1997 and 1996, respectively) ..................$ 155,417,111 128,721,053
Other services .............................................................. 17,456,170 16,870,313
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Total revenues .......................................................... 172,873,281 145,591,366
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Expenses:
Salaries and other personnel expense ........................................ 74,771,814 60,479,646
Net occupancy and equipment expense ......................................... 47,696,344 39,111,484
Other operating expenses (includes $5.0 million and $4.3 million to related
parties for 1997 and 1996, respectively) ................................ 26,674,405 28,141,053
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Total operating expenses ............................................... 149,142,563 127,732,183
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Equity in income of joint ventures ............................................. 3,934,408 2,373,826
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Operating income ....................................................... 27,665,126 20,233,009
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Nonoperating income:
Gain (loss) on disposal of equipment, net ................................... (10,930) 239,352
Interest income, net (includes $802,000 and $555,000 from a related party
for 1997 and 1996, respectively) .......................................... 927,292 571,297
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Total nonoperating income .............................................. 916,362 810,649
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Income before income taxes ............................................. 28,581,488 21,043,658
Income taxes ................................................................... 10,123,336 7,174,327
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Net income ............................................................. $ 18,458,152 13,869,331
============= =============
Net income per share .................................................. $ .14 .11
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Weighted average shares outstanding ............................................ 129,289,741 129,285,341
============= =============
Cash dividends per common share ................................................ $ .023 .023
============= =============
See accompanying notes to consolidated financial statements
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
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Six months ended
June 30,
--------------------------
1997 1996
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Cash flows from operating activities:
Net income ...................................... $18,458,152 13,869,331
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint ventures .......... (3,934,408) (2,373,826)
Depreciation and amortization ............... 14,498,177 11,321,549
Provision for doubtful accounts ............. 34,000 60,000
Deferred income tax benefit ................. (1,333,308) (480,900)
(Gain) loss on disposal of equipment, net ... 10,930 (239,352)
(Increase) decrease in:
Accounts receivable .......................... (3,739,035) (234,064)
Prepaid expenses and other assets ............ 1,707,885 (2,252,677)
Increase (decrease) in:
Accounts payable ............................. 3,263,411 2,957,590
Accrued expenses and other current liabilities 1,223,113 4,772,399
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Net cash provided by operating activities 30,188,917 27,400,050
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Cash flows from investing activities:
Purchase of property and equipment .............. (9,163,208) (11,614,333)
Additions to computer software .................. (9,451,271) (3,432,247)
Proceeds from disposal of equipment ............. 30,267 352,771
Investment in joint ventures .................... -- (2,081,379)
Dividends received from joint ventures .......... 3,252,561 --
Additions to contract acquisition costs ......... (15,460,901) (2,944,080)
Redemption of short-term investment ............. 5,000,000 --
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Net cash used in investing activities ... (25,792,552) (19,719,268)
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Cash flows from financing activities:
Proceeds from issuance of short-term debt ....... 959,741 --
Principal payments on long-term debt and
capital lease obligations ..................... (85,795) (109,349)
Proceeds from exercise of stock options ......... 33,000 --
Dividends paid on common stock .................. (2,909,018) (2,908,749)
----------- -----------
Net cash used in financing activities ... (2,002,072) (3,018,098)
----------- -----------
Net increase in cash and cash equivalents 2,394,293 4,662,684
Cash and cash equivalents at beginning of period ... 27,496,057 18,849,623
----------- -----------
Cash and cash equivalents at end of period .........$ 29,890,350 23,512,307
=========== ===========
Cash paid for interest (net of capitalized amounts)$ 10,300 12,884
=========== ===========
Cash paid (refunded) for income taxes ..............$ 9,056,290 7,447,716
=========== ===========
See accompanying notes to consolidated financial statements.
TOTAL SYSTEM SERVICES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements represent the
accounts of Total System Services, Inc.[registered service mark]
(TSYS[registered service mark]) and its wholly owned subsidiaries, Columbus
Depot Equipment Company [service mark](CDEC [service mark]), Mailtek,
Inc.[service mark] (Mailtek), Lincoln Marketing, Inc.[service mark] (LMI) and
Columbus Productions, Inc.[service mark] (CPI). The statements have been
prepared in accordance with the instructions to Form 10-Q and do not include all
information and footnotes necessary for 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 1996 annual
report previously filed on Form 10-K.
Certain reclassifications have been made to the 1996 financial statements
to conform to the presentation adopted in 1997.
Note 2 - Supplementary Balance Sheet Information
A significant component of other assets included in the consolidated
balance sheets at June 30, 1997, and December 31, 1996, is contract acquisition
costs, net, of $27,902,882 and $21,077,140, respectively. Also included in other
assets are investments in joint ventures of $16,029,724 and $15,347,876 at June
30, 1997, and December 31, 1996, respectively. Included in other current
liabilities at June 30, 1997, and December 31, 1996, are reserves of $4,301,285
and $3,576,011, respectively, to cover transaction processing provisions.
Note 3 - Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." SFAS No. 128 requires companies that have publicly held common stock or
common stock equivalents to present both basic and diluted earnings per share
("EPS") on the face of the income statement. Basic EPS is calculated as income
available to common stockholders divided by the weighted average number of
common shares outstanding during the period. Diluted EPS is calculated to
reflect the potential dilution that would occur if stock options or other
contracts to issue common stock were exercised and resulted in additional common
stock that would share in the earnings of the Company.
Notes to Consolidated Financial Statements (continued)
This statement is effective for financial statements issued for interim and
annual periods ending after December 15, 1997. TSYS does not believe the
adoption of SFAS No. 128 will have a significant impact on the Company's
reported EPS.
In February 1997, the FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure." SFAS No. 129 is effective for financial statements for
periods ending after December 15, 1997. TSYS does not expect that SFAS No. 129
will require significant revision of prior disclosures since SFAS No. 129 lists
required disclosures that had been included in a number of previously existing
separate statements or opinions.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS No. 130 requires companies to display, with the same prominence as
other financial statements, the components of comprehensive income. SFAS No. 130
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. TSYS' financial statements will include the
disclosure of comprehensive income in accordance with the provisions of SFAS No.
130 beginning in the first quarter of 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected financial information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. TSYS does not expect that SFAS No. 131 will require
significant revision of prior disclosures.
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 June 30:
Percentage of Percentage Change
Total Revenues in Dollar Amounts
1997 1996 1997 vs 1996
Revenues:
Bankcard data processing services .. 90.2% 88.6% 22.6%
Other services ..................... 9.8 11.4 3.6
----- -----
Total revenues ................. 100.0 100.0 20.5
----- -----
Expenses:
Salaries and other personnel expense 42.2 42.1 20.5
Net occupancy and equipment expense 27.7 27.1 23.3
Other operating expenses ........... 15.7 17.4 9.2
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Total operating expenses ....... 85.6 86.6 19.1
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Equity in income of joint ventures ... 2.4 2.2 30.2
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Operating income ................. 16.8 15.6 29.3
Nonoperating income .................. 0.5 0.6 20.2
----- -----
Income before income taxes ..... 17.3 16.2 29.0
Income taxes ......................... 6.2 5.6 35.1
----- -----
Net income ........................... 11.1% 10.6% 25.8%
===== =====
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 six months ended June 30:
Percentage of Percentage Change
Total Revenues in Dollar Amounts
1997 1996 1997 vs 1996
Revenues:
Bankcard data processing services .. 89.9% 88.4% 20.7%
Other services ..................... 10.1 11.6 3.5
----- -----
Total revenues ................. 100.0 100.0 18.7
----- -----
Expenses:
Salaries and other personnel expense 43.3 41.5 23.6
Net occupancy and equipment expense 27.6 26.9 21.9
Other operating expenses ........... 15.4 19.3 (5.2)
----- -----
Total operating expenses ....... 86.3 87.7 16.8
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Equity in income of joint ventures ... 2.3 1.6 65.7
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Operating income ................. 16.0 13.9 36.7
Nonoperating income .................. 0.5 0.6 13.0
----- -----
Income before income taxes ..... 16.5 14.5 35.8
Income taxes ......................... 5.8 5.0 41.1
----- -----
Net income ........................... 10.7% 9.5% 33.1%
===== =====
Total revenues increased $15.2 million, or 20.5%, and $27.3 million, or
18.7%, during the three months and six months ended June 30, 1997, respectively,
compared to the same periods in 1996.
Revenues from bankcard data processing services increased $14.9 million or
22.6%, and $26.7 million, or 20.7%, in the three and six months ended June 30,
1997, respectively, compared to the same periods in 1996. Increased revenues
from bankcard data processing are attributable to the conversion of cardholder
accounts of new customers and growth in the card portfolios of existing
customers. During the first six months of 1997, TSYS converted approximately 4.2
million new cardholder accounts to TS2[registered service mark], bringing the
total number of accounts on TS2 to more than 11.0 million. Internal growth of
existing customers accounted for approximately 4.8 million additional
Results of Operations (continued)
cardholder accounts. Increases in the volume of authorizations and transactions
associated with the additional cardholder accounts, as well as growth in new
services offered, also contributed to the increased revenues.
Average cardholder accounts on file for the three months ended June 30,
1997, were 87.2 million, an increase of approximately 25.4% over the average of
69.5 million for the same period in 1996. For the first six months of 1997,
average cardholder accounts were 84.8 million, a 25.3% increase over the 67.7
million cardholder accounts for the same period last year. Cardholder accounts
on file at June 30, 1997, were 88.5 million, a 21.0% increase over the 73.2
million accounts on file at June 30, 1996.
During the first quarter of 1997, TSYS successfully completed the
conversion of Bank of America's remaining cardholder accounts to TS2. Near the
end of the first quarter of 1997, TSYS announced an extension of its long-term
processing contract with NationsBank, a major customer, to the year 2005.
The joint venture between TSYS and Visa U.S.A., known as Vital Processing
Services L.L.C. ("Vital"), became operational on May 1, 1996. Vital merged TSYS'
back-office merchant processing and Visa's Merchant Bank Services' point-of-sale
processing operations. On TSYS' consolidated statements of income, the results
of operations of the joint venture subsequent to April 30, 1996, are included in
equity in the income of joint ventures. The change in classification of the
Company's revenues and expenses from its merchant operations to an equity
interest in the Vital joint venture, effective May 1, 1996, affects the
comparability between periods presented in the Company's consolidated statements
of income.
A significant amount of the Company's revenues is derived from certain
major customers who are processed under long-term contracts. For the three
months and six months ended June 30, 1997, two customers accounted for
approximately 26% and 27% of total revenues, respectively, compared to 29% and
30% for the same periods in 1996. As a result, the loss of one of the Company's
major customers could have a material adverse effect on the Company's financial
condition and results of operations.
Total operating expenses increased 19.1% and 16.8% for the three and six
months ended June 30, 1997, respectively, compared to the same periods in 1996.
The increase in operating expenses is attributable to increases in salaries and
personnel expense and in net occupancy and equipment expense.
Employment expenses increased 20.5% and 23.6% for the three and six months
ended June 30, 1997, respectively, compared to the same periods in 1996. The
average number of employees in the second quarter of 1997 increased to 2,836, a
14.0% increase over the 2,488 in the same period in 1996. For the first six
months of 1997, the
Results of Operations (continued)
average number of employees was 2,773, a 15.2% increase over the 2,408 for the
same period last year. In addition to the growth in number of employees, the
increase in employment expenses is attributable to normal salary increases and
related employee benefits. At July 31, 1997, TSYS had 2,877 full-time and 141
part-time employees.
In March 1997, the first class in the Intellectual Capital Partnership
Program ("ICAPP") completed the accelerated applied computer science course that
is designed to help educate sufficient numbers of professionals to accommodate a
need for programmers in the mainframe computing industry. A second class
completed the six-month ICAPP course in June 1997. Approximately 140 graduates
of these two classes are now full-time employees of TSYS. Currently, a new ICAPP
class is beginning each quarter. Additionally, a similar course for
non-programmers, called Business Technical Program, has been instituted to train
business analysts, project analysts and other technical personnel.
Net occupancy and equipment expense was up 23.3% and 21.9% for the three
and six months ended June 30, 1997, respectively, over the same periods in 1996.
Equipment and software rentals, the largest components of occupancy and
equipment expense, net, increased $2.6 million, or 24.7%, in the second quarter
of 1997, compared to the same period in 1996. For the first six months of 1997,
equipment and software rentals increased $4.9 million, or 24.2%, over the same
period in 1996. Due to rapidly changing technology in computer equipment, TSYS
fills a substantial portion of its equipment needs through operating leases.
Computer upgrades and other additional equipment were leased subsequent to the
second quarter of 1996 to accommodate increased volumes due to growth in the
number of accounts being processed. Repairs and maintenance, another component
of net occupancy and equipment expense, increased $600,000 and $1.2 million for
the three and six months ended June 30, 1997, respectively, compared to the same
periods in 1996. These increases can be attributed to the expiration of
warranties on major computer equipment.
Other operating expenses increased 9.2% and decreased 5.2% for the three
months and six months ended June 30, 1997, respectively, compared to the same
periods in 1996. The growth in expenses for the second quarter of 1997 are
primarily due to increased travel and other business development costs
associated with exploring new business opportunities. The decrease in other
operating expenses for the first six months of 1997 is the result of a
significant reduction in the use of outside professional services, as well as a
decrease in provisions for processing commitments.
TSYS' share of income from its equity in joint ventures was $2.2 million
and $1.7 million for the second quarters of 1997 and 1996, respectively. For the
six months ended June 30, 1997 and 1996, the Company's equity in income of its
joint ventures was $3.9
Results of Operations (continued)
million and $2.4 million, respectively. TSYS has a 49% and 50% interest,
respectively, in Total System Services de Mexico, S.A. de C.V. ("TSYS de
Mexico") and Vital Processing Services L.L.C. Vital became operational May 1,
1996. With respect to TSYS de Mexico, the Mexican economy continues to stabilize
relative to 1996; however, there remains uncertainty in the Mexican economy
which management continues to monitor.
Interest income, net, includes interest expense of $35,317 and $14,284 and
interest income of $525,916 and $303,857 for the second quarters of 1997 and
1996, respectively. For the six months ended June 30, 1997 and 1996,
respectively, interest expense was $50,913 and $29,657, and interest income was
$978,205 and $600,954. Although the Company has not yet finalized the financing
of its new real estate development projects, financing costs will likely
increase in the second half of 1997 over comparable periods in 1996. The
increase in interest income is the result of fluctuations in cash available for
investment and short-term interest rates. Additionally, in the third quarter of
1996, $5.0 million was invested in a six-month certificate of deposit at a
higher rate of interest; the certificate of deposit was redeemed at maturity in
March 1997.
Operating income increased 29.3% and 36.7% for the three and six months
ended June 30, 1997, respectively, over the same periods in 1996. These
increases are primarily due to growth in revenues combined with lower expenses
attributable to improved expense control.
TSYS' effective income tax rate for the second quarter of 1997 was 36.0%,
compared to 34.4% for the same period in 1996. For the six months ended June 30,
1997, the effective tax rate was 35.4%, compared to 34.1% for the same period in
1996. The increase in TSYS' effective tax rate is primarily due to uncertainties
in the Company's income tax environment.
Liquidity and Capital Resources
During the second quarter of 1997, TSYS purchased property and equipment of
$5.2 million for total purchases of $9.2 million for the first six months of
1997. Computer software increased during the second quarter by $3.0 million,
bringing the total additions for 1997 to $9.5 million; additions primarily
consisted of purchased software. Dividends on common stock of $1.5 million were
paid in the second quarter of 1997, bringing the total dividends paid to $2.9
million. Also, in the second quarter of 1997, $850,000 was invested in contract
acquisition costs for a total of $15.5 million invested in 1997.
Liquidity and Capital Resources (continued)
TSYS formally unveiled the design plan for its proposed corporate campus at
a press conference following a preview of the design at its annual shareholders'
meeting on April 14, 1997. The campus will serve as the Company's corporate
headquarters and will house administrative, client contact and programming team
members and will allow for significant growth. Development is scheduled to begin
in the third quarter of 1997. Also, TSYS plans to begin expansion of its
operations center in 1997. This expansion will include space for the card
production services now located in downtown Columbus, as well as additional
space for statement printing and data processing functions. In addition, a
building will be constructed on the north Columbus site to serve as LMI's
headquarters. Preliminary cost estimates for these construction projects, while
not finalized, are expected to be approximately $100 million. Financing for
these projects is expected to be through external sources as well as through the
internal generation of funds.
TS2 was designed to be year 2000 compliant, and the Company is continuing
its ongoing project to ensure that its other processing systems are year 2000
compliant. The modification phase of the project is expected to be completed in
the fourth quarter of 1998, with the testing phase to be performed in 1999. TSYS
will primarily utilize existing internal resources, mainly employees, to
complete the task, and the cost is not expected to be material to TSYS' results
of operations.
TSYS may seek 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
1.9:1. At June 30, 1997, TSYS had working capital of $50.8 million compared to
$46.2 million at December 31, 1996.
TOTAL SYSTEM SERVICES, INC.
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
The annual shareholders' meeting of Total System Services, Inc. was held
April 14, 1997. Voted on at the meeting was the election of Class II directors.
Following is a tabulation of votes for each nominee:
WITHHELD
AUTHORITY
NOMINEE VOTES FOR TO VOTE
James H. Blanchard ..... 125,250,852 24,009
Richard Y. Bradley ..... 125,216,001 58,860
Gardiner W. Garrard, Jr 125,249,691 25,170
John P. Illges, III .... 125,221,389 53,472
W. Walter Miller, Jr ... 125,249,258 25,603
TOTAL SYSTEM SERVICES, INC.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
(11) - Statement re Computation of Per Share Earnings
(27) - Financial Data Schedule (For SEC use only)
b) Forms 8-K filed during the quarter ended June 30, 1997
1. The report dated April 20, 1997, included the following important event:
On April 2, 1997, Total System Services, Inc. ("Registrant") announced
an extension to the long-term contract with Charlotte, North
Carolina-based NationsBank to continue processing its credit card
portfolio until 2005.
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: August 13, 1997 by: /s/ Richard W. Ussery
-----------------------
Richard W. Ussery
Chairman of the Board
and Chief Executive
Officer
Date: August 13, 1997 by: /s/ James B. Lipham
-----------------------
James B. Lipham
Chief Financial Officer