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, 1999
--------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------------------------------------------
Commission file number 1-10254
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Total System Services, Inc.
- --------------------------------------------------------------------------------
(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)
- --------------------------------------------------------------------------------
(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, 1999
---------------------------- ---------------------------------
Common Stock, $.10 par value 194,936,570
TOTAL SYSTEM SERVICES, INC.
INDEX
Page
Number
------------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) - June 30, 1999
and December 31, 1998 3
Consolidated Statements of Income (unaudited) - Three
months and Six months ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited) - Six
months ended June 30, 1999 and 1998 6
Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 6. (a) Exhibits 25
(b) Reports on Form 8-K 25
Signatures 26
- 2 -
TOTAL SYSTEM SERVICES, INC.
Part I - Financial Information
Consolidated Balance Sheets
(UNAUDITED)
June 30, December 31,
1999 1998
------------ --------------
Assets
Current assets:
Cash and cash equivalents (includes $30.7 million and $9.4 million
on deposit with a related party at 1999 and 1998, respectivel$) 30,999,160 9,555,760
Accounts receivable, net of allowance for doubtful accounts of
$1.0 million and $711,000 at 1999 and 1998, respectively ....... 86,719,846 84,795,727
Prepaid expenses and other current assets ........................ 29,810,942 25,370,604
------------ ------------
Total current assets ......................................... 147,529,948 119,722,091
Property and equipment, less accumulated depreciation and
amortization of $82.9 million and $77.0 million at 1999 and
1998, respectively ............................................... 96,230,980 92,619,005
Computer software, less accumulated amortization of
$61.6 million and $50.7 million at 1999 and 1998, respectively ... 85,660,518 65,861,735
Other assets ....................................................... 66,715,244 70,705,481
------------ ------------
Total assets ................................................. $ 396,136,690 348,908,312
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable ................................................. $ 12,925,227 7,403,023
Accrued salaries and employee benefits ........................... 21,649,050 24,643,449
Current portion of long-term debt and obligations under
capital leases ................................................. 40,758 130,781
Other current liabilities (includes $1.6 and $1.7 million payable
to related parties at 1999 and 1998, respectively) ............ 38,351,450 27,072,542
------------ ------------
Total current liabilities .................................... 72,966,485 59,249,795
Long-term debt and obligations under capital leases,
excluding current portion ...................................... 204,286 211,316
Deferred income taxes .............................................. 21,737,860 19,093,482
------------ ------------
Total liabilities ............................................ 94,908,631 78,554,593
------------ ------------
Shareholders' equity:
Common stock - $.10 par value. Authorized 300,000,000
shares; 195,079,087 and 194,225,045 issued at 1999 and 1998,
respectively; 194,935,127 and 194,043,785 outstanding
at 1999 and 1998, respectively ................................ 19,507,909 19,422,504
Additional paid-in capital ....................................... 5,300,318 1,882,814
Accumulated other comprehensive income ........................... (1,350,979) (1,179,337)
Retained earnings ................................................ 277,770,811 250,227,738
------------ ------------
Total shareholders' equity ................................... 301,228,059 270,353,719
------------ ------------
Total liabilities and shareholders' equity ................... $ 396,136,690 348,908,312
============ ============
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 3 -
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)
- ----------------------------------------------------------------------------------------------------------------------------------
Three months ended
June 30,
----------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
Revenues:
Bankcard data processing services (includes $8.8 million and $7.6 million from
related parties for 1999 and 1998, respectively) ........................................ $ 120,080,315 80,640,135
Other services ............................................................................ 16,912,184 10,828,963
------------ -------------
Total revenues ........................................................................ 136,992,499 91,469,098
------------ -------------
Expenses:
Salaries and other personnel expense ...................................................... 52,495,655 38,244,393
Net occupancy and equipment expense ....................................................... 36,711,298 25,383,027
Other operating expenses (includes $3.4 million and $2.7 million to related
parties for 1999 and 1998, respectively) ................................................. 23,144,255 14,166,106
------------ -------------
Total expenses ........................................................................ 112,351,208 77,793,526
------------ -------------
Equity in income of joint ventures .......................................................... 2,995,033 2,756,424
------------ -------------
Operating income....................................................................... 27,636,324 16,431,966
------------ -------------
Nonoperating income:
Gain (loss) on disposal of equipment, net ................................................. (44,498) 1,810
Interest income, net (includes $281,000 and $649,000 from a related
party for 1999 and 1998, respectively) .................................................. 404,032 824,699
------------ -------------
Total nonoperating income ............................................................. 359,534 826,509
------------ -------------
Income before income taxes ............................................................ 27,995,858 17,258,505
Income taxes ................................................................................ 9,559,997 5,608,448
------------ -------------
Net income ............................................................................ $ 18,435,861 11,650,057
============ =============
Basic earnings per share .............................................................. $ 0.09 0.06
============ =============
Diluted earnings per share ............................................................ $ 0.09 0.06
============ =============
Weighted average common shares outstanding .................................................. 194,923,269 194,015,912
Increase due to assumed issuance of shares
related to stock options outstanding .................................................... 589,190 731,389
------------ -------------
Weighted average common and common
equivalent shares outstanding ........................................................... 195,512,459 194,747,301
============ =============
Cash dividends per common share ............................................................. $ .010 .010
============ =============
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 4 -
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
--------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------
Revenues:
Bankcard data processing services (includes $16.6 million and $15.0 million
from related parties for 1999 and 1998, respectively) . $ 216,158,911 165,745,666
Other services ........................................................ 36,144,100 22,041,725
------------ --------------
Total revenues .................................................... 252,303,011 187,787,391
------------ -------------
Expenses:
Salaries and other personnel expense .................................. 100,963,735 81,454,853
Net occupancy and equipment expense ................................... 69,432,384 49,749,500
Other operating expenses (includes $6.5 million and $5.3 million
to related parties for 1999 and 1998, respectively) ................. 40,137,217 30,355,119
------------ -------------
Total expenses .................................................... 210,533,336 161,559,472
------------ -------------
Equity in income of joint ventures ...................................... 5,108,321 4,784,896
------------ -------------
46,877,996 31,012,815
------------ -------------
Nonoperating income:
Gain (loss) on disposal of equipment, net ............................. (325,114) 4,408
Interest income, net (includes $534,000 and $1.3 million from a related
party for 1999 and 1998, respectively) .............................. 773,899 1,580,942
------------ -------------
Total nonoperating income ......................................... 448,785 1,585,350
------------ -------------
Income before income taxes ........................................ 47,326,781 32,598,165
Income taxes ............................................................ 15,942,352 10,697,747
------------ -------------
Net income ........................................................ $ 31,384,429 21,900,418
============ =============
Basic earnings per share .......................................... $ 0.16 0.11
============ ==============
Diluted earnings per share ........................................ $ 0.16 0.11
============ =============
Weighted average common shares outstanding .............................. 194,902,161 194,008,082
Increase due to assumed issuance of shares
related to stock options outstanding ................................ 682,635 661,153
------------ -------------
Weighted average common and common
equivalent shares outstanding ....................................... 195,584,796 194,669,235
============ =============
Cash dividends per common share ......................................... $ 0.020 .018
============ =============
See accompanying Notes to Unaudited Consolidated Financial Statements.
- 5 -
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------------------------
Six months ended
June 30,
-----------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income ................................................. $ 31,384,429 21,900,418
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint ventures ..................... (5,108,321) (4,784,896)
Depreciation and amortization .......................... 24,467,608 17,025,003
Provision for doubtful accounts ........................ 334,000 9,000
Deferred income tax expense (benefit) .................. 2,644,378 (2,213,385)
(Gain) loss on disposal of equipment, net .............. 325,114 (4,408)
Increase in:
Accounts receivable .................................... (2,258,119) (1,156,228)
Prepaid expenses and other assets ...................... (3,893,678) (2,708,485)
Increase (decrease) in:
Accounts payable ....................................... 5,522,204 9,165,299
Accrued expenses and other current liabilities ......... 8,410,417 (4,650,978)
------------ ------------
Net cash provided by operating activities .......... 61,828,032 32,581,340
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment ......................... (8,426,335) (13,546,366)
Additions to computer software ............................. (30,060,703) (19,656,723)
Proceeds from disposal of equipment ........................ 52,954 11,844
Dividends received from joint ventures ..................... 4,664,307 5,618,616
Increase in contract acquisition costs ..................... (2,788,819) (10,979,771)
Redemption of short-term investment ........................ -- 998,228
------------ ------------
Net cash used in investing activities .............. (36,558,596) (37,554,172)
------------ ------------
Cash flows from financing activities:
Principal payments on long-term debt and
capital lease obligations ................................ (29,861) (50,581)
Dividends paid on common stock ............................. (3,889,275) (2,910,008)
Proceeds from exercise of stock options .................... 93,100 57,815
------------ ------------
Net cash used in financing activities .............. (3,826,036) (2,902,774)
------------ ------------
Net increase (decrease) in cash and cash equivalents 21,443,400 (7,875,606)
Cash and cash equivalents at beginning of period ............. 9,555,760 43,335,922
------------ ------------
Cash and cash equivalents at end of period ................... $ 30,999,160 35,460,316
============ ============
Cash paid for interest ....................................... $ 1,316 1,984
============ ============
Cash paid for income taxes (net of tax refunds received) ..... $ 8,896,843 12,446,192
============ ============
Significant noncash transaction: The Company acquired Partnership Card
Services through the issuance of 854,042 shares of common stock with a market
value of $20,070,000 (see Note 5).
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)) and its wholly owned
subsidiaries, Columbus Depot Equipment Company(SM) (CDEC(SM)), TSYS Total
Solutions(R), Inc. (TSI), Columbus Productions, Inc.(SM) (CPI) and TSYS Canada,
Inc.(SM) (TCI). 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 1998 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:
June 30, 1999 December 31, 1998
----------------- ---------------------
Contract acquisition costs, net $ 10,434,274 $ 9,900,416
Prepaid expenses 11,660,054 7,643,395
Other 7,716,614 7,826,793
----------------- ---------------------
Total $ 29,810,942 $ 25,370,604
================= =====================
Significant components of other assets are summarized as follows:
June 30, 1999 December 31, 1998
----------------- --------------------
Contract acquisition costs, net $ 33,277,789 $ 36,780,395
Investment in joint ventures, net 28,486,991 28,304,322
Other 4,950,464 5,620,764
----------------- --------------------
Total $ 66,715,244 $ 70,705,481
================= ====================
- 7 -
Notes to Unaudited Consolidated Financial Statements (continued)
Significant components of other current liabilities are summarized as
follows:
June 30, 1999 December 31, 1998
------------------ ---------------------
Customer postage deposits $ 15,526,774 $ 14,753,284
Transaction processing provisions 5,191,318 3,941,318
Other 17,633,358 8,377,940
------------------ ----------------------
Total $ 38,351,450 $ 27,072,542
================== ======================
Note 3 - Comprehensive Income
Comprehensive income for TSYS consists of net income and foreign currency
translation adjustments recorded as a component of shareholders' equity. Total
comprehensive income for the three months ended June 30, 1999 and 1998, is as
follows:
June 30, 1999 June 30, 1998
------------- -------------
Net income ................................ $ 18,435,861 $ 11,650,057
Other comprehensive income (expense):
Foreign currency translation adjustments,
net of tax ............................ (66,749) (9,278)
------------ ------------
Comprehensive income .................... $ 18,369,112 $ 11,640,779
============ ============
Total comprehensive income for the six months ended June 30, 1999 and 1998,
is as follows:
June 30, 1999 June 30, 1998
------------- -------------
Net income ................................ $ 31,384,429 $ 21,900,418
Other comprehensive income (expense):
Foreign currency translation adjustments,
net of tax ............................ (171,642) (3,789)
------------ ------------
Comprehensive income .................... $ 31,212,787 $ 21,896,629
============ ============
From January 1, 1997, through December 31, 1998, the Mexican economy was
designated as highly inflationary, and thus all currency translation adjustments
related to the Mexican joint venture for the year ended December 31, 1998 were
expensed. The Mexican economy was determined not to be highly inflationary
effective January 1, 1999.
The income tax effects allocated to and the cumulative balance of each
component of other comprehensive income are as follows:
Balance at Balance at
December 31, Pretax Net-of-tax June 30,
1998 amount Tax benefit amount 1999
------------ ------------ ----------- ----------- -----------
Currency translation adjustment ($1,179,337) ($ 267,451) 95,809 ($ 171,642) ($1,350,979)
=========== =========== =========== =========== ===========
- 8 -
Notes to Unaudited Consolidated Financial Statements (continued)
Note 4 - Segment Reporting
The Company reports selected information about operating segments in
accordance with Statement of Financial Accounting Standard No. 131 (SFAS 131).
Through an online accounting and bankcard data processing system, Total System
Services, Inc. provides card processing services to card-issuing institutions in
the United States, Mexico, Puerto Rico, Canada and the Caribbean. TSYS'
subsidiaries provide support services including correspondence processing,
commercial printing and equipment leasing. Segments are identified based on the
services provided. Bankcard data 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 and six months ended June 30, 1999 and
1998. One subsidiary, whose sole business activity is to provide programming
support services to the parent company, was aggregated into bankcard data
processing services. The remaining segments were aggregated into other services.
- -------------------------------------------------------------------------------------------------------------------
Bankcard data
processing Other
Operating Segments services services Consolidated
- ------------------------------------------------------------------ ------------- ------------- --------------
At June 30, 1999
- ------------------------------------------------------------------
Identifiable assets .............................................. $ 387,844,048 40,611,591 $ 428,455,639
Intersegment eliminations ........................................ (32,242,931) (76,018) (32,318,949)
------------- ------------- -------------
Total assets ..................................................... $ 355,601,117 40,535,573 $ 396,136,690
============= ============= =============
- --------------------------------------------------------------------------------------------------------------------
At December 31, 1998
- --------------------------------------------------------------------------------------------------------------------
Identifiable assets .............................................. $ 341,926,653 32,895,850 $ 374,822,503
Intersegment eliminations ........................................ (24,955,949) (958,242) (25,914,191)
------------- ------------- -------------
Total assets ..................................................... $ 316,970,704 31,937,608 $ 348,908,312
============= ============= =============
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended
June 30, 1999
- --------------------------------------------------------------------------------------------------------------------
Total revenue .................................................... $ 121,765,072 15,782,884 $ 137,547,956
Intersegment revenue ............................................. (101,587) (453,870) (555,457)
------------- ------------- -------------
Revenue from external customers .................................. $ 121,663,485 15,329,014 $ 136,992,499
============= ============= =============
Equity in income of joint ventures ............................... $ 2,995,033 -- $ 2,995,033
============= ============= =============
Segment operating income ......................................... $ 25,132,157 2,504,167 $ 27,636,324
============= ============= =============
Income tax expense ............................................... $ 8,607,747 952,250 $ 9,559,997
============= ============= =============
Net income ....................................................... $ 16,867,214 1,568,647 $ 18,435,861
============= ============= =============
- 9 -
Notes to Unaudited Consolidated Financial Statements (continued)
- -----------------------------------------------------------------------------------------------------------------
Bankcard data
processing Other
Operating Segments services services Consolidated
- ---------------------------------------------------------------------------------- ------------- ---------------
Three Months Ended
June 30, 1998
- -----------------------------------------------------------------
Total revenue ................................................... $ 82,137,841 9,800,071 $ 91,937,912
Intersegment revenue ............................................ (128,920) (339,894) (468,814)
------------ ------------ ------------
Revenue from external customers ................................. $ 82,008,921 9,460,177 $ 91,469,098
============ ============ ============
Equity in income of joint ventures .............................. $ 2,756,424 -- $ 2,756,424
============ ============ ============
Segment operating income ........................................ $ 14,666,696 1,765,300 $ 16,431,996
============ ============ ============
Income tax expense .............................................. $ 4,954,194 654,254 $ 5,608,448
============ ============ ============
Net income ...................................................... $ 10,646,557 1,003,500 $ 11,650,057
============ ============ ============
- -----------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1999
- -----------------------------------------------------------------------------------------------------------------
Total revenue .................................................. $ 219,646,226 33,739,761 $ 253,385,987
Intersegment revenue ........................................... (229,218) (853,758) (1,082,976)
------------- ------------- -------------
Revenue from external customers ................................ $ 219,417,008 32,886,003 $ 252,303,011
============= ============= =============
Equity in income of joint ventures ............................. $ 5,108,321 -- $ 5,108,321
============= ============= =============
Segment operating income ....................................... $ 40,553,276 6,324,720 $ 46,877,996
============= ============= =============
Income tax expense ............................................. $ 13,548,739 2,393,613 $ 15,942,352
============= ============= =============
Net income ..................................................... $ 27,462,322 3,922,107 $ 31,384,429
============= ============= =============
- ------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 1998
- ------------------------------------------------------------------------------------------------------------------
Total revenue .................................................. $ 168,737,100 19,837,495 $ 188,574,595
Intersegment revenue ........................................... (267,795) (519,409) (787,204)
------------- ------------- -------------
Revenue from external customers ................................ $ 168,469,305 19,318,086 $ 187,787,391
============= ============= =============
Equity in income of joint ventures ............................. $ 4,784,896 -- $ 4,784,896
============= ============= =============
Segment operating income ....................................... $ 28,080,769 2,932,046 $ 31,012,815
============= ============= =============
Income tax expense ............................................. $ 9,614,224 1,083,523 $ 10,697,747
============= ============= =============
Net income ..................................................... $ 20,253,216 1,647,202 $ 21,900,418
============= ============= =============
The following geographic area data represent revenues for the three months
and six months ended June 30, 1999 and 1998, respectively, based on the
geographic locations of customers. Substantially all property and equipment is
located in the United States.
- 10 -
Notes to Unaudited Consolidated Financial Statements (continued)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ----------- ------------ -------------
United States $127,506,523 86,676,206 $236,937,311 177,911,391
Mexico ...... 3,926,675 4,304,967 7,962,571 8,845,923
Canada* ..... 5,357,563 321,168 6,989,137 706,485
Puerto Rico . 201,738 166,757 413,992 323,592
============ ============ ============ ============
Totals .. $136,992,499 91,469,098 $252,303,011 187,787,391
============ ============ ============ ============
*These revenues include those generated by the Caribbean accounts belonging to
the Bank of Nova Scotia.
For the three months ended June 30, 1999 and 1998, two major customers
accounted for approximately 28% and 35% of total revenues, respectively. One of
these customers provided 16%, or $21,542,828, of total revenues for the three
months ended June 30, 1999, and 21%, or $18,796,722, for the three months ended
June 30, 1998. The other major customer accounted for 12%, or $16,962,098, of
total revenues for the three months ended June 30, 1999, and 14%, or
$12,847,287, of total revenues for the three months ended June 30, 1998.
Revenues from major customers for the periods reported are attributable to both
reporting segments.
For the six months ended June 30, 1999 and 1998, two major customers
accounted for approximately 30% and 32% of total revenues, respectively. One of
these customers provided 17%, or $43,171,198, of total revenues for the six
months ended June 30, 1999, and 20%, or $36,828,518, for the six months ended
June 30, 1998. The other major customer accounted for 13%, or $33,524,329, of
total revenues for the six months ended June 30, 1999, and 12%, or $22,433,606,
of total revenues for the six months ended June 30, 1998.
Note 5 - Acquisition
Effective January 1, 1999, TSYS acquired Partnership Card Services (PCS)
from its majority shareholder, Columbus Bank and Trust Company (CB&T), the
flagship bank of Synovus Financial Corp., in exchange for 854,042 newly issued
shares of TSYS common stock with a market value of approximately $20.1 million.
Prior to its acquisition by TSYS, PCS operated as a division of CB&T, providing
services such as credit, collection and customer service to card-issuing
financial institutions, including CB&T. The business of PCS has become part of
TSYS' wholly owned subsidiary, TSYS Total Solutions, Inc.
Because the acquisition of PCS was a transaction between entities under
common control, the Company has reflected the acquisition at historical cost in
a manner similar to a pooling of interests and has reflected the results of
operations of PCS in the Company's financial statements beginning January 1,
1999.
- 11 -
Notes to Unaudited Consolidated Financial Statements (continued)
Presented below are the pro forma consolidated results of TSYS' operations
for the three months and six months ended June 30, 1998, as though the
acquisition of PCS had occurred at the beginning of that period, compared to
TSYS' actual consolidated results of operations for the three months and six
months ended June 30, 1999.
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- --------------------------
1999 1998 1999 1998
------------- ------------ ------------- -----------
Revenues ........... $ 136,992,499 94,453,562 $ 252,303,011 193,426,164
============= ============ ============= ============
Net Income ......... $ 18,435,861 12,139,914 $ 31,384,429 22,709,260
============= ============ ============= ============
Earnings per share -
basic and diluted .. $ .09 .06 $ .16 .12
============= ============ ============= ============
Note 6 - 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 alleges, among other things, that the defendants
failed to report properly the credit standing of each member of the putative
class. The named plaintiff has 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 improperly reported to credit bureaus or credit agencies incorrectly. The
amended complaint alleges negligence, violation of the Fair Credit Reporting
Act, breach of the duty of good faith and fair dealing, and seeks declaratory
relief, injunctive relief and the imposition of punitive damages. The Company
intends to vigorously contest this lawsuit which seeks unspecified damages. This
litigation has just commenced, and discovery is still in its initial phase;
thus, the Company is not in a position to determine the possible exposure, if
any, to the Company.
- 12 -
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
--------------- -----------------
1999 1998 1999 vs 1998
----- ----- -----------------
Revenues:
Bankcard data processing services ... 87.7 % 88.2% 48.9 %
Other services ...................... 12.3 11.8 56.2
----- -----
Total revenues ................... 100.0 100.0 49.8
----- -----
Expenses:
Salaries and other personnel expense 38.3 41.8 37.3
Net occupancy and equipment expense . 26.8 27.8 44.6
Other operating expenses ............ 16.9 15.4 63.4
----- -----
Total operating expenses ......... 82.0 85.0 44.4
----- -----
Equity in income of joint ventures 2.2 3.0 8.7
----- -----
Operating income ............... 20.2 18.0 68.2
Nonoperating income .................. 0.3 0.9 (56.5)
----- -----
Income before income taxes ..... 20.5 18.9 62.2
Income taxes ......................... 7.0 6.2 70.5
----- -----
Net income ..................... 13.5 % 12.7 % 58.2 %
===== =====
- 13 -
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
------------- ------------------
1999 1998 1999 vs 1998
----- ----- ------------------
Revenues:
Bankcard data processing services .... 85.7 % 88.3 % 30.4 %
Other services ....................... 14.3 11.7 64.0
----- -----
Total revenues .................. 100.0 100.0 34.4
----- -----
Expenses:
Salaries and other personnel expense . 40.0 43.4 24.0
Net occupancy and equipment expense .. 27.5 26.5 39.6
Other operating expenses ............. 15.9 16.1 32.2
----- -----
Total operating expenses ......... 83.4 86.0 30.3
----- -----
Equity in income of joint ventures 2.0 2.5 6.8
----- -----
Operating income ................ 18.6 16.5 51.2
Nonoperating income .................... 0.1 0.9 (71.7)
----- -----
Income before income taxes ...... 18.7 17.4 45.2
Income taxes ........................... 6.3 5.7 49.0
----- -----
Net income ...................... 12.4 % 11.7 % 43.3 %
===== =====
Total revenues increased $45.5 million, or 49.8%, and $64.5 million, or
34.4%, during the three months and six months ended June 30, 1999, respectively,
compared to the same periods in 1998.
Revenues from bankcard data processing services increased $39.4 million, or
48.9%, in the three months ended June 30, 1999, compared to the same period in
1998. During the six months ended June 30, 1999, revenues from bankcard data
processing services increased $50.4 million, or 30.4%, compared to the same
period in 1998. 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 THE TOTAL SYSTEM(R).
Increases in the volumes of authorizations and transactions associated with the
additional cardholder accounts also contributed to the increased revenues.
Processing contracts with large
- 14 -
Results of Operations (continued)
customers, representing a significant portion of the Company's total revenues,
generally provide for discounts on certain services based on increases in the
level of cardholder accounts processed. 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 of individual
cardholder accounts processed for each customer.
Average cardholder accounts on file for the three months ended June 30,
1999, were 189.9 million, which was an increase of approximately 102.2% over the
average of 93.9 million for the same period in 1998. For the first six months of
1999, average cardholder accounts were 160.5 million, a 70.5% increase over the
94.1 million average cardholder accounts on file for the same period last year.
Cardholder accounts on file at June 30, 1999, were 192.0 million, a 98.5%
increase over the 96.8 million accounts on file at June 30, 1998. The increase
in cardholder accounts on file from June 1998 to June 1999 included net internal
growth of existing customers of 14.6 million additional cardholder accounts and
approximately 80.6 million accounts of new customers.
During the first six months of 1999, TSYS converted approximately 68.5
million new cardholder accounts to TS2(R). These 68.5 million accounts combined
with the internal growth of existing customers on TS2 bring the total number of
accounts on TS2 at June 30, 1999, to approximately 133.6 million, compared to
41.9 million at June 30, 1998. Of the 68.5 million accounts converted to TS2
during the first six months of 1999, approximately 57.7 million accounts were
related to Sears private-label card accounts. The accounts converted for Sears
in 1999, combined with the 7.5 million converted in the fourth quarter of 1998,
bring the total accounts for Sears to 65 million. During the first quarter of
1999, TSYS also converted approximately 10.8 million accounts to TS2 for
Canadian Tire Acceptance Limited (CTAL) and Royal Bank of Canada.
During the second quarter of 1999, TSYS received a one-time termination fee
of $6.9 million from a client which terminated its processing agreement with
TSYS as a result of its merger with a financial institution that processes
in-house. The payment is in lieu of processing fees which would have been paid
throughout the remaining life of the processing contract. Revenues decreased
during the second quarter of 1998 due to the loss of two customers who
deconverted near the end of the first quarter of 1998.
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 and six months ended June 30, 1999, two major customers accounted for
approximately 28% and 30% of total revenues, respectively, compared to 35% and
32% for the three months and six months ended June 30, 1998. The loss of either
one of the Company's major customers, or other major or significant customers,
could have a material adverse effect on the Company's financial condition and
results of operations.
- 15 -
Results of Operations (continued)
Near the end of the first quarter of 1998, AT&T, a major customer of the
Company, completed the sale of its Universal Card Services (UCS) to CITIBANK,
now a part of Citigroup after CITIBANK's merger with Travelers Group, Inc. On
February 26, 1999, CITIBANK notified TSYS of its decision to terminate UCS'
processing agreement with TSYS for consumer credit card accounts at the end of
its original term on August 1, 2000. TSYS' management believes that CITIBANK
will continue to be a major customer in 1999, but will not be a major customer
in 2000. TSYS' management further believes that the loss of revenues from UCS
for the months of August through December 2000, combined with decreased expenses
from the reduction in hardware and software and the redeployment of personnel,
should not have a material adverse effect on the Company's financial condition
or results of operations for the year ending December 31, 2000.
Effective September 30, 1998, NationsBank and Bank of America merged. The
Company has long-term processing contracts with each of these customers, with
NationsBank's ending in 2005 and Bank of America's in 2007, and is in the
process of assessing implications of the merger on the existing contracts with
each customer. The combination of NationsBank and Bank of America under a single
processing agreement with TSYS will reduce TSYS' revenues in 1999 and future
years because together NationsBank and Bank of America will be entitled to
receive greater discounts than either would have been entitled to receive
standing alone. Presently, negotiations to combine NationsBank and Bank of
America in a single processing agreement continue.
Revenues from other services increased $6.1 million in the second quarter
of 1999, compared to the second quarter of 1998. Revenues from other services
for the first six months of 1999 increased $14.1 million, compared to the same
period last year. Revenues from other services consist primarily of revenues
generated by TSYS' wholly owned subsidiaries. Effective January 1, 1999, TSYS
acquired Partnership Card Services from CB&T. PCS has become part of TSYS'
wholly owned subsidiary, TSYS Total Solutions, Inc. PCS' revenues for the second
quarter of 1999 were approximately $5.2 million. For the first six months of
1999, PCS' revenues were approximately $11.4 million, including a $1.4 million
early termination fee resulting from the loss of a portfolio by a customer.
Total operating expenses increased 44.4% and 30.3% for the three months and
six months ended June 30, 1999, respectively, compared to the same period in
1998. The increases in operating expenses are attributable to increases in all
expense categories as described below.
Employment expenses increased $14.2 million, or 37.3%, for the three months
ended June 30, 1999, compared to the same period in 1998. For the first six
months of 1999, employment expenses increased $19.5 million, or 24.0%, compared
to the same period in 1998. The change in employment expenses consists of
increases of $19.8 million and $29.6 million for the three months and six months
ending June 30, 1999, respectively, associated with the growth in the number of
employees, normal salary increases and related benefits. This change was offset
by $5.6 million and $10.1 million for the three months and six months ending
June 30,
- 16 -
Results of Operations (continued)
1999 and 1998, respectively, invested in software development costs and contract
acquisition costs. The majority of the software development costs were related
to the development of a commercial card system for TS2 which began in May 1998
and is expected to be substantially completed early in 2000. The average number
of employees in the second quarter of 1999 increased to 3,921, an 18.9% increase
over the 3,297 in the same period of 1998. For the first six months of 1999, the
average number of employees was 3,803, a 17.4% increase over the first six
months of 1998. At July 31, 1999, TSYS had 3,930 full-time and 231 part-time
employees. Effective January 1, 1999, TSYS acquired PCS from its majority
shareholder, CB&T. As a result of the acquisition, approximately 330 employees
were added to TSYS Total Solutions, Inc. Employment expenses related to these
employees in the three months and six months ended June 30, 1999, were $2.6
million and $5.2 million, respectively.
Net occupancy and equipment expense increased 44.6% and 39.6% for the three
months and six months ended June 30, 1999, respectively, over the same periods
in 1998. Computer equipment and software rentals, which represent the largest
component of net occupancy and equipment expense, increased 53.8% to $19,820,338
in the second quarter of 1999, compared to $12,887,974 in the same period of
1998. During the first six months of 1999, equipment and software rentals
increased 44.0% to $36,441,819 compared to $25,312,684 in the same period in
1998. Due to rapidly changing technology in computer equipment, TSYS' equipment
needs are achieved primarily through operating leases. During 1998 and the first
half of 1999, the Company made significant investments in computer software
licenses and hardware related to the new East Center data center and to
accommodate increased volumes due to the expected growth in the number of
accounts associated with new customers.
Other operating expenses increased 63.4% and 32.2% for the three months and
six months ended June 30, 1999, respectively, compared to the same periods in
1998. The growth in other operating expenses for 1999 is primarily due to
increased business development costs associated with exploring new business
opportunities, both domestically and internationally, and increased amortization
of conversion costs. The conversions of Sears, Royal Bank and CTAL, begun in
March 1999 and completed early in the second quarter, contributed to the
increase in amortization of conversion costs. Other operating expenses of PCS in
the three and six months ending June 30, 1999, represent another factor
contributing to this increase as the financial statements for the same periods
in 1998 do not include PCS' numbers.
TSYS' share of income from its equity in joint ventures was $3.0 million
and $2.8 million for the second quarters of 1999 and 1998, respectively. For the
six months ended June 30, 1999 and 1998, the Company's equity in income of its
joint ventures was $5.1 million and $4.8 million, respectively. The increase is
due to favorable operating results of Vital Processing Services, L.L.C. (Vital)
which were partially offset by a decline in operating results from Total System
Services de Mexico, S.A. de C.V. (TSYS de Mexico). There remains uncertainty in
the Mexican economy which management continues to monitor. Any significant
adverse development in the operations of TSYS de Mexico or in the Mexican
economy could have a material adverse effect on the Company's financial
condition and results of operations.
- 17 -
Results of Operations (continued)
Interest income, net, includes interest expense of $7,263 and $7,375 and
interest income of $411,296 and $832,074 for the second quarters of 1999 and
1998, respectively. For the six months ended June 30, 1999 and 1998,
respectively, interest expense was $14,071 and $15,088, and interest income was
$787,970 and $1,596,030. The decrease in interest income in 1999 as compared to
1998 was primarily the result of lower levels of cash available for investment.
Operating income increased 68.2% and 51.2% for the three months and six
months ended June 30, 1999, respectively, over the same periods in 1998. The
increase is primarily due to growth in revenues combined with improved expense
control and the operating results of PCS. During the second quarter of 1999, PCS
contributed $876,800 in operating income. For the six months ended June 30,
1999, PCS' operating income was approximately $3.1 million, which includes a
$1.4 million early termination fee recognized in the first quarter of 1999.
Excluding PCS, TSYS' operating income would have increased 62.8% to $26.8
million during the second quarter of 1999, compared to $16.4 million for the
same period last year. For the six months ending June 30, 1999, operating
income, excluding PCS, would have increased 41.1% to $43.8 million, compared to
$31.0 million for the six months ended June 30, 1998.
Net income for the three months ended June 30, 1999, increased 58.2% to
$18.4 million, or basic and diluted earnings per share of $.09, compared to
$11.7 million, or basic and diluted earnings per share of $.06, for the same
period in 1998. Excluding a one-time termination fee from a client, discussed
above, net income for the three months ended June 30, 1999, would have increased
18.8% to $13.8 million, or basic and diluted earnings per share of $.07. Net
income for the first six months of 1999 increased 43.3% to $31.4 million, up
from $21.9 million for the same period last year. Basic and diluted earnings per
share for the first six months of 1999 increased to $.16, up from $.11 for the
same period of 1998.
TSYS' effective income tax rate for the second quarter of 1999 was 34.1%,
compared to 32.5% for the same period in 1998. For the six months ended June 30,
1999, the effective tax rate was 33.7%, compared to 32.8% for the same period in
1998. Growth in pretax income at rates greater than the growth in federal and
state tax credits is the cause for the increase in the Company's effective tax
rate.
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. TSYS' net cash provided by operating activities in the
first six months of 1999 was $61.8 million, compared to $32.6 million in the
same period of 1998. The major uses of cash generated from operations have been
the internal development and purchase of computer software, the addition of
property and equipment, investment in contract acquisition costs, and the
payment of cash dividends.
- 18 -
Liquidity and Capital Resources (continued)
During the second quarter of 1999, TSYS purchased property and equipment of
$4.2 million for total purchases of $8.4 million for the first six months of
1999. Additions to computer software during the second quarter were $19.9
million, bringing the total additions for 1999 to $30.1 million. Of the $19.9
million computer software additions made during the second quarter, $16.0
million was for purchased software and $3.9 million for internally developed
software, bringing the totals for the first six months of 1999 to $22.8 million
for purchased software and $7.3 million for internally developed software. Also,
in the second quarter of 1999, $885,500 was invested in contract acquisition
costs for a total of $2.8 million invested in 1999. Dividends on common stock of
$1.9 million were paid in the second quarter of 1999, bringing the total amount
of dividends paid year to date to $3.9 million.
In 1997, construction was begun on a campus-type facility which will serve
as the Company's corporate headquarters. The Company entered into an operating
lease agreement relating to the new corporate campus. Under the agreement, the
lessor has purchased the land, is paying for construction and development costs
and has leased the property to the Company commencing upon its completion. The
lease provides for a substantial residual value guarantee, up to $87 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. The Company began moving personnel into
the new campus facility in December 1998 and should complete the move of a
substantial number of its personnel into the new facility by the end of the
third quarter of 1999. With the move to the campus, the Company will not renew
leases on certain facilities. The Company expects the increase in occupancy and
equipment expense related to occupying the campus to be approximately $5.3
million in 1999, net of the relinquished lease obligations.
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.
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 2.0:1. At June 30, 1999, TSYS had working capital of $74.6
million compared to $60.5 million at December 31, 1998.
- 19 -
Year 2000 Readiness Disclosure
Many computer programs were written with a two-digit date field, and, if
these programs are not made Year 2000 compliant, they will be unable to
correctly process date information for the year 2000 and after. While these
issues impact all of the Company's data processing systems to some extent, they
are most significant in connection with certain mainframe computer programs.
Moreover, remediation efforts go beyond the Company's internal computer systems
and require coordination with customers, vendors, government entities and other
third parties to assure that their systems and related interfaces are compliant.
Failure to achieve timely remediation of the Company's critical programs and
computer systems for Year 2000 would have a material adverse effect on the
Company's financial condition and results of operations.
TSYS has organized its Y2K remediation efforts into five phases: Awareness,
Assessment, Renovation, Validation and Implementation. The first phase of TSYS'
Year 2000 effort was Awareness, which included promoting the efforts and
progress of the TSYS Y2K Project Office through numerous mediums to reach the
widest possible audience. As of December 31, 1998, TSYS had completed the
Awareness phase of the Year 2000 project.
The second phase of TSYS' Year 2000 Project was Assessment which included
performing a system wide scan of millions of lines of code to determine which
lines of code were date impacted. As of December 31, 1998, TSYS had completed
the Assessment phase of the Year 2000 project. The lines of code identified as
noncompliant were earmarked for renovation. A plan for compliance, which
included methodology, milestones and a timeline for verification, was placed
into action. TSYS also assessed the Year 2000 readiness of its 70 vendors who
provide mission critical systems. As of July 1999, 202 of 203 products have been
verified in TSYS' test region. A work-around solution has been developed by TSYS
for the remaining product as work continues with the vendor.
The third phase of the Y2K Project was Renovation which included
implementing code changes to all noncompliant systems. During 1998, two major
renovation milestones were met. The first milestone, 100% of all critical code
converted, was achieved in April 1998. The second, 100% of all noncritical code
renovated, was completed in July 1998. As units were renovated they were
returned to production, and, as of December 31, 1998, the Company was fully
operating on Y2K compliant systems. During the Renovation phase, TSYS
established a stand-alone testing environment in which code changes could be
verified.
The fourth phase of the Year 2000 Project was Validation which included
setting up a test environment, testing core system functionality and providing
test results to clients. It was during this phase that Turn of The Century,
Monthly Cycling, Leap Year and Millennium Year, Month and Quarter End dates were
tested. This phase concluded during October 1998, and results were sent to
customers in November and December 1998.
- 20 -
Year 2000 Readiness Disclosure (continued)
The final phase of the Y2K Project is Implementation which allows clients
the opportunity to test their specific code within a Y2K environment. During
this phase, four test cycles (Turn of the Century, Monthly Cycling, Leap Year
and Millennium Year, Month and Quarter End) were repeated during the three test
iterations. The Implementation phase of the Year 2000 Project began in October
1998. As of June 30, 1999, two client test iterations were completed, the third
test iteration is well underway, and the TSYS contingency plan was developed,
validated and completed. Clients will be allowed to test in the stand-alone
testing environment during the third iteration until August 2, 1999.
A significant aspect of the Year 2000 Project is Contingency Planning which
is the process to ensure that TSYS can continue operations in the event that
information technology systems, noninformation technology systems, or vendors
are not Year 2000 compliant. In June 1999, TSYS completed its Business
Resumption Contingency Plan, or Y2K Day Plan, which is based on the TSYS
Disaster Recovery Plan. The plan was developed as an intranet database which,
when printed, consists of over 2,600 pages. This plan sets forth processes and
procedures to follow in case the Company experiences a problem with processing
Year 2000 data or if mission-critical service providers suffer disruption. The
plan was validated by a walk through and a role play during June 1999. An
abbreviated version of the plan was shared with clients in July 1999. A client
forum to discuss the Y2K Day Plan is scheduled for August 1999. The plan
includes the following:
TSYS programming staff will be on site to immediately remediate any coding
issues encountered. The Year 2000 Communication Center will act as the nerve
center during the century changeover, monitoring the processing status of over
88 business areas through 12 command posts, conveying management decisions, and
deploying resources where required.
If a power loss is experienced for any reason at our Data Centers which
house mainframe and associated hardware, all our critical systems would be
powered through battery backup and diesel generators without experiencing any
downtime. This process, referred to as our Uninterrupted Power Supply system,
has enough fuel for 72 hours. The Company has contracts with two separate fuel
distributors to ensure that our operations could continue indefinitely. The fuel
companies have backup generators to keep their fuel pumps operational in case of
a power failure.
TSYS has service agreements with IBM's Global Services to provide, through
its business unit, Business Recovery Services, hot-site assistance and equipment
for data center and network recovery in case of a natural or man-made disaster.
Also, TSYS has contracts with other companies to receive immediate service
and/or top priority in an emergency situation. Additionally, vendor technicians
for key equipment will be on site for the period of December 31, 1999, through
January 3, 2000.
- 21 -
2000 Readiness Disclosure (continued)
Management believes that the most likely Y2K risks relate to third parties
with which it has material relationships. A failure or disruption of (i) the
Company's mission-critical computer systems caused by third-party
hardware/software, (ii) third-party service/network/gateway providers, or (iii)
significant clients for an extended period, could adversely affect the financial
condition and results of operations of the Company. TSYS' Year 2000 Project
Office has reviewed compliance and tested with the Company's top 11 customers
defined either by number of accounts on file and/or by revenues generated and
found them to be Y2K ready. Management believes its internal review indicates
that the Company's mission-critical systems are Y2K ready; however, failure of a
mission critical third-party provider could have a material adverse effect on
the Company's business, operations and financial results. However, based on
currently available information, while management anticipates there could be
isolated and intermittent disruptions of various services and interfaces at its
business sites related to third parties with which it has material Year 2000
relationships, there is no expectation of extensive or protracted systemic
failures that would have a material adverse effect on the financial condition or
results of operations of the Company.
TSYS currently estimates the total cost for the Year 2000 Project will
amount to approximately $18 million of direct costs. This amount consists
primarily of the costs associated with personnel dedicated to the Year 2000
Project. During the second quarter of 1999, TSYS incurred $1.8 million of direct
costs associated with the Year 2000 Project and has incurred $12.7 million since
project inception.
Safe Harbor For Year 2000 Forward-Looking Statements
All forward-looking statements regarding Y2K readiness, including
estimates, forecasts and expectations, are inherently uncertain as they are
based on various expectations and assumptions concerning future events and are
subject to numerous risks and uncertainties which could cause actual events or
results to differ materially from those projected. Important factors upon which
the Company's Y2K forward-looking statements are premised include: (a) retention
of employees and contractors working on Y2K projects; (b) customers' remediation
of their internal systems to be Y2K ready and their cooperation in timely
testing; (c) no material disruption of telecommunication, data transmission
networks, payment networks, government services, utilities or other
infrastructure services and no unexpected failure of third-party products; (d)
no unexpected failures by third-parties providing services to the Company; (e)
no undiscovered subversion of systems or program code affecting the Company's
systems; and (f) no undiscovered material flaws in the Company's test processes.
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 alleges, among other things, that the defendants
failed to report properly the credit standing of each member of the putative
class. The named plaintiff has defined the class as all persons and entities
within the United States who
- 22 -
Legal Proceedings (continued)
obtained credit cards from NationsBank, and whose accounts were purchased by or
transferred to U.S. BankCard, and whose accounts were improperly reported to
credit bureaus or credit agencies incorrectly. The amended complaint alleges
negligence, violation of the Fair Credit Reporting Act, breach of the duty of
good faith and fair dealing, and seeks declaratory relief, injunctive relief and
the imposition of punitive damages. The Company intends to vigorously contest
this lawsuit which seeks unspecified damages. This litigation has just
commenced, and discovery is still in its initial phase; thus, the Company is not
in a position to determine the possible exposure, if any, to the Company.
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). 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.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (i) the strength of the U.S. economy
in general and relevant foreign economies; (ii) the Company's performance under
- - and retention of - current and future processing agreements with customers;
(iii) inflation, interest rate and foreign exchange rate fluctuations; (iv)
timely and successful implementation of processing systems to provide new
products, improved functionality and increased efficiencies; (v) changes in
consumer spending, borrowing and saving habits, including a shift from credit to
debit cards; (vi) technological changes; (vii) acquisitions; (viii) the ability
to increase market share and control expenses; (ix) changes in laws,
regulations, credit card association rules or other industry standards affecting
TSYS' business which require significant product redevelopment efforts; (x) 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;
(xi) changes in TSYS' organization, compensation and benefit plans; (xii) the
costs and effects of litigation and of unexpected or adverse outcomes in such
litigation; (xiii) failure to successfully implement the Company's Year 2000
modification plans substantially as scheduled and budgeted; and (xiv) the
success of TSYS at managing the risks involved in the foregoing.
- 23 -
Forward-Looking Statements (continued)
Such forward-looking statements speak only as of the date on which
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.
- 24 -
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 15, 1999. Voted on at the meeting was the election of Class I directors.
Following is a tabulation of votes for each nominee:
WITHHELD
AUTHORITY
NOMINEE VOTES FOR TO VOTE
Samuel A. Nunn 187,714,246 237,419
H. Lynn Page 187,748,123 203,542
Philip W. Tomlinson 187,748,453 203,212
Richard W. Ussery 187,748,458 203,207
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
(27) - Financial Data Schedule (For SEC use only)
b) There were no Forms 8-K filed during the quarter ended
June 30, 1999.
- 25 -
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, 1999 by: /s/ Richard W. Ussery
-----------------------
Richard W. Ussery
Chairman of the Board
and Chief Executive
Officer
Date: August 13, 1999 by: /s/ James B. Lipham
------------------------
James B. Lipham
Chief Financial Officer
- 26 -