-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EkI2ApY6Ka8+V86DctzY02QcL1iOAHk1c7hJNwVWyT/Q8W1t+cen6+oFNRCN21vl jae8iNbVKVIrAX/UNs8tFA== 0000721683-97-000014.txt : 19970515 0000721683-97-000014.hdr.sgml : 19970515 ACCESSION NUMBER: 0000721683-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOTAL SYSTEM SERVICES INC CENTRAL INDEX KEY: 0000721683 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 581493818 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10254 FILM NUMBER: 97603727 BUSINESS ADDRESS: STREET 1: 1200 SIXTH AVE STREET 2: P O BOX 1755 CITY: COLUMBUS STATE: GA ZIP: 31902 BUSINESS PHONE: 7066492267 MAIL ADDRESS: STREET 1: P O BOX 2506 CITY: COLUMBUS STATE: GA ZIP: 31902-2506 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 --------------------------------------------- Commission file number 1-10254 ______________________________________________ Total System Services, Inc. ___________________________________________________________________________ (Exact name of registrant as specified in its charter Georgia 58-1493818 ___________________________________________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1200 Sixth Avenue, Post Office Box 1755, Columbus, Georgia 31902 - --------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (706) 649-2310 - --------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceeding 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 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 May 13, 1997 - ----- --------------------------------------------- Common Stock, $.10 par value 129,289,680 TOTAL SYSTEM SERVICES, INC. INDEX Page Number ------ Part I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets - March 31, 1997 and December 31, 1996 3 Consolidated Statements of Income - Quarters ended March 31, 1997 and 1996 4 Consolidated Statements of Cash Flows - Quarters ended March 31, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 6. (a) Exhibits 11 (b) Reports on Form 8-K 11 Signatures 12 - 2 - TOTAL SYSTEM SERVICES, INC. Part I - Financial Information Consolidated Balance Sheets (Unaudited)
March 31, December 31, 1997 1996 --------- ------------ Assets Current assets: Cash and cash equivalents (includes $21.2 million and $25.1 million on deposit with a related party at 1997 and 1996, respectively) $ 23,806,186 27,496,057 Short-term investments with a related party -- 5,000,000 Accounts receivable, net of allowance for doubtful accounts of $704,000 at 1997 and 1996 55,110,579 59,202,399 Prepaid expenses and other current assets 13,751,138 6,624,482 ----------- ----------- Total current assets 92,667,903 98,322,938 Property and equipment, less accumulated depreciation and amortization of $61.3 million and $58.4 million at 1997 and 1996, respectively 63,902,284 62,955,926 Computer software, less accumulated amortization of $27.4 million and $24.7 million at 1997 and 1996, respectively 43,461,418 39,720,484 Other assets 50,423,334 45,759,735 ----------- ----------- Total assets $ 250,454,939 246,759,083 =========== =========== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 7,115,825 4,695,970 Accrued salaries and related liabilities 4,366,465 6,422,199 Accrued employee benefits 5,900,305 14,590,362 Current portion of long-term debt and obligations under capital leases 183,918 201,274 Other current liabilities (includes $1.4 million and $1.5 million payable to related parties at 1997 and 1996, respectively) 31,592,216 26,195,540 ----------- ----------- Total current liabilities 49,158,729 52,105,345 Long-term debt and obligations under capital leases, excluding current portion 446,070 474,513 Deferred income taxes 14,660,357 15,301,478 ----------- ----------- Total liabilities 64,265,156 67,881,336 ----------- ----------- Shareholders' equity: Common stock - $.10 par value. Authorized 300,000,000 shares; issued 129,483,522 at 1997 and 1996, respectively; 129,289,680 outstanding at 1997 and 1996, respectively 12,948,352 12,948,352 Additional paid-in capital 5,603,810 5,353,972 Treasury stock, at cost (473,544) (473,544) Cumulative currency translation adjustments (1,178,182) (1,178,182) Retained earnings 169,289,347 162,227,149 ----------- ----------- Total shareholders' equity 186,189,783 178,877,747 ----------- ----------- Total liabilities and shareholders' equity $ 250,454,939 246,759,083 =========== ===========
See accompanying notes to consolidated financial statements. - 3 - TOTAL SYSTEM SERVICES, INC. Consolidated Statements of Income (Unaudited)
Quarters ended March 31, ------------------------ 1997 1996 --------- -------- Revenues: Bankcard data processing services (includes $6.5 million and $5.0 million from related parties for 1997 and 1996, respectively) $ 74,506,301 62,749,742 Other services 8,630,173 8,352,237 ----------- ----------- Total revenues 83,136,474 71,101,979 ----------- ----------- Expenses: Salaries and other personnel expense 36,938,014 29,093,087 Net occupancy and equipment expense 22,840,306 18,945,948 Other operating expenses (includes $2.3 million and $2.4 million to related parties for 1997 and 1996, respectively) 12,533,200 15,193,649 ----------- ----------- Total operating expenses 72,311,520 63,232,684 ----------- ----------- Equity in income of joint ventures 1,769,451 710,433 ----------- ----------- Operating income 12,594,405 8,579,728 ----------- ----------- Nonoperating income: Gain on disposal of equipment, net 14,747 142,204 Interest income, net (includes $421,000 and $268,000 from a related party for 1997 and 1996, respectively) 436,693 281,724 ----------- ----------- Total nonoperating income 451,440 423,928 ----------- ----------- Income before income taxes 13,045,845 9,003,656 Income taxes 4,529,138 3,034,442 ----------- ----------- Net income $ 8,516,707 5,969,214 =========== =========== Net income per share $ .07 .05 =========== =========== Weighted average shares outstanding 129,289,680 129,281,960 =========== =========== Cash dividends per common share $ .011 .011 =========== ===========
See accompanying notes to consolidated financial statements. - 4 - TOTAL SYSTEM SERVICES, INC. Consolidated Statements of Cash Flows (Unaudited)
Quarters ended March 31, ---------------------- 1997 1996 ---------- --------- Cash flows from operating activities: Net income $ 8,516,707 5,969,214 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of joint ventures (1,769,451) (710,433) Depreciation and amortization 6,984,491 5,492,362 Provision for doubtful accounts 10,500 25,000 Deferred income tax expense (benefit) (641,121) 482,865 Gain on disposal of equipment, net (14,747) (142,204) (Increase) decrease in: Accounts receivable 4,081,320 864,409 Prepaid expenses and other assets 742,281 (576,323) Increase (decrease) in: Accounts payable 2,419,855 1,495,455 Accrued expenses and other current liabilities (4,213,432) (1,866,832) ----------- ----------- Net cash provided by operating activities 16,116,403 11,033,513 ----------- ----------- Cash flows from investing activities: Purchase of property and equipment (3,989,745) (6,197,985) Additions to computer software (6,472,290) (1,612,242) Proceeds from disposal of equipment 17,450 237,257 Dividends received from joint ventures 1,752,561 -- Additions to contract acquisition costs (14,613,942) (1,189,027) Redemption of short-term investment 5,000,000 -- ----------- ----------- Net cash used in investing activities (18,305,966) (8,761,997) ----------- ----------- Cash flows from financing activities: Principal payments on long-term debt and capital lease obligations (45,799) (53,941) Dividends paid on common stock (1,454,509) (1,454,251) ----------- ----------- Net cash used in financing activities (1,500,308) (1,508,192) ----------- ----------- Net increase (decrease) in cash and cash equivalents (3,689,871) 763,324 Cash and cash equivalents at beginning of period 27,496,057 18,849,623 ----------- ----------- Cash and cash equivalents at end of period $ 23,806,186 19,612,947 =========== =========== Cash paid for interest $ 8,291 7,349 =========== =========== Cash paid (refunded) for income taxes $ (268,213) (190,382) =========== ===========
See accompanying notes to consolidated financial statements. - 5 - 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. [service mark] (TSYS [registered 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. Note 2 - Supplementary Balance Sheet Information A significant component of other assets included in the consolidated balance sheets at March 31, 1997, and December 31, 1996, is contract acquisition costs, net, of $30,832,000 and $21,077,140, respectively. Also included in other assets are investments in joint ventures of $15,364,766 and $15,347,876 at March 31, 1997, and December 31, 1996, respectively. Included in other current liabilities at March 31, 1997, and December 31, 1996, are reserves of $4,076,011 and $3,576,011, respectively, to cover transaction processing provisions. - 6 - 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 quarters ended March 31: Percentage of Percentage Change Total Revenues in Dollar Amounts -------------- ----------------- 1997 1996 1997 vs 1996 ---- ---- ------------ Revenues: Bankcard data processing services 89.6% 88.3% 18.7% Other services 10.4 11.7 3.3 ----- ----- Total revenues 100.0 100.0 16.9 ----- ----- Expenses: Salaries and other personnel expense 44.4 40.9 27.0 Net occupancy and equipment expense 27.5 26.6 20.6 Other operating expenses 15.1 21.4 (17.5) ----- ----- Total operating expenses 87.0 88.9 14.4 ----- ----- Equity in income of joint ventures 2.1 1.0 nm ----- ----- Operating income 15.1 12.1 46.8 Nonoperating income 0.6 0.6 6.5 ----- ----- Income before income taxes 15.7 12.7 44.9 Income taxes 5.5 4.3 49.3 ----- ----- Net income 10.2% 8.4% 42.7% ===== ===== nm - not meaningful Total revenues increased $12.0 million, or 16.9%, during the three months ended March 31, 1997, compared to the same period in 1996. Revenues from bankcard data processing services increased $11.8 million, or 18.7% in the three months ended March 31, 1997, compared to the same period 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 - 7 - Results of Operations (continued) customers. During the first quarter of 1997, TSYS converted approximately 3.5 million new cardholder accounts to TS2. Net internal growth of existing customers accounted for approximately 1.6 million additional 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 March 31, 1997, were 81.0 million, an increase of approximately 26% over the average of 64.3 million for the same period in 1996. Cardholder accounts on file at March 31, 1997, were 84.5 million, a 29.9% increase over the 65.1 million accounts on file at March 31, 1996. During the first quarter of 1997, TSYS successfully completed the conversions of all of Bank of America's 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 income statement, 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 income statements. 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 ended March 31, 1997 and 1996, two customers accounted for approximately 27% and 32% of total revenues, respectively. 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 14.4% for the three months ended March 31, 1997, compared to the same period in 1996. Increases in expenses are primarily reflected in salaries and personnel expense and in occupancy and equipment expense. Employment expenses increased 27.0% for the three months ended March 31, 1997, compared to the same period in 1996. The average number of employees in the first quarter of 1997 increased to 2,711, a 16.3% increase over the 2,332 in the same period in - 8 - Results of Operations (continued) 1996. In March 1997, the first class in the Intellectual Capital Partnership Program completed the accelerated applied computer science course that is designed to help educate sufficient numbers of professionals to accommodate a need in the mainframe computing industry. All 80 members of this class became full-time employees of TSYS. In addition to the growth in number of employees, the increase in employment expenses is attributable to normal salary increases and related employee benefits. Nonemployee compensation, primarily temporary help and contract programmers, increased $448,000, or 23.8%, for the three months ended March 31, 1997, compared to the same period in 1996; nonemployee compensation is included in employment expenses. At April 30, 1997, TSYS had 2,785 full-time and 70 part-time employees. Net occupancy and equipment expense was up 20.6% for the first quarter of 1997, over the same period in 1996. Equipment and software rentals, the largest components of occupancy and equipment expense, increased $2.3 million, or 23.5%, in the first quarter of 1997, compared to 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 first quarter of 1996 to accomodate increased volumes due to growth in the number of accounts being processed. Other operating expenses decreased 17.5% for the three months ended March 31, 1997, compared to the same period in 1996. Management fees totaling $2.3 million were paid to affiliated companies for various services in the three months ended March 31, 1997, compared to $2.4 million for the same period in 1996. Factors contributing to the decrease in other expenses in the first quarter of 1997 were a significant reduction in the use of outside professional services as well as a decrease in provisions for processing commitments, compared to the first quarter of 1996. TSYS' share of income from its equity in joint ventures was $1.8 million and $710,000 for the first quarter of 1997 and 1996, respectively. TSYS has a 49% and 50% interest, respectively, in Total System Services de Mexico, S.A. de C.V. and Vital Processing Services L.L.C. Vital became operational May 1, 1996. 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 $15,596 and $15,373 and interest income of $452,289 and $297,097 for the first quarters of 1997 and 1996, respectively. Although the Company has not yet finalized the financing of its new real estate development projects, financing costs will likely increase in 1997. The increase in interest income is the result of fluctuations in cash available for investment and short-term - 9 - Results of Operations (continued) 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. TSYS' effective income tax rate for the first quarter of 1997 was 34.7%, compared to 33.7% for the same period in 1996. The increase in TSYS' effective tax rate is primarily due to increases in the Company's effective state income tax rates. Liquidity and Capital Resources During the first quarter of 1997, TSYS purchased property and equipment of $4.0 million. Computer software increased during the first quarter by $6.5 million; additions primarily consisted of purchased software. Dividends on common stock of $1.5 million were paid in the first quarter of 1997. Also, in the first quarter of 1997, $14.6 million was invested in contract acquisition costs. TSYS formally unveiled the design plan for its proposed corporate campus at a press conference following a preview of the design at its annual shareholder 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. Construction of the first phase is scheduled to begin July 1, 1997, or at such time as the land is available. Also, TSYS plans to expand 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. Preliminary cost estimates for these construction projects, while not finalized, are expected to be $50-100 million. In addition, a building will be constructed on the north Columbus site to serve as LMI's headquarters. Financing for these projects is expected to be through the internal generation of funds and the use of funds from external sources, possibly through the issuance of industrial revenue bonds. 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 securities and/or 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 March 31, 1997, TSYS had working capital of $43.5 million compared to $46.2 million at December 31, 1996. - 10 - 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 since year-end 1996 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. - 11 - 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: May 13, 1997 by: /s/ Richard W. Ussery --------------------------- Richard W. Ussery Chairman of the Board and Chief Executive Officer Date: May 13, 1997 by: /s/ James B. Lipham --------------------------- James B. Lipham Chief Financial Officer - 12 - EX-11 2 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS TOTAL SYSTEM SERVICES, INC. Statement re Computation of Per Share Earnings The following computations set forth the calculations of primary and fully diluted earnings per share for the quarters ended March 31, 1997 and 1996: Quarter ended Quarter ended March 31, 1997 March 31, 1996 -------------------- -------------------- Fully Fully Primary Diluted Primary Diluted Earnings Earnings Earnings Earnings Per Share Per Share Per Share Per Share ---------- ---------- ---------- ---------- Net income $ 8,516,707 $ 8,516,707 $ 5,969,214 $ 5,969,214 =========== =========== =========== ========== Weighted average number of common shares outstanding 129,289,680 129,289,680 129,281,960 129,281,960 Net increase due to assumed issuance of shares related to stock options outstanding computed using the treasury stock method 171,204 171,204 152,178 162,616 ----------- ----------- ----------- ----------- Adjusted weighted average number of common and common equivalent shares outstanding 129,460,884 129,460,884 129,434,138 129,444,576 =========== =========== =========== =========== Net income per common and common equivalent share outstanding $ .07 $ .07 $ .05 $ .05 =========== =========== =========== ===========
EX-27 3 ARTICLE 5 FINANCIAL DATA SCHEDULE FOR 1ST QTR 10-Q
5 0000721683 TOTAL SYSTEM SERVICES, INC. 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 23,806,186 0 55,814,268 703,689 0 92,667,903 125,249,859 61,347,575 250,454,939 49,158,729 0 0 0 12,948,352 173,241,431 250,454,939 83,136,474 83,136,474 0 72,311,520 0 0 0 13,045,845 4,529,138 0 0 0 0 8,516,707 .07 0
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