-----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, TdMeLqlsf85gWw/2nJIoRSjVts+5QSmXDFnY81MG7lwDVcwiMI7TMbIkuvsp3eya YVtv1eVxJgIN45UXU/EiQA== 0000721683-99-000006.txt : 19990315 0000721683-99-000006.hdr.sgml : 19990315 ACCESSION NUMBER: 0000721683-99-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990312 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-K SEC ACT: SEC FILE NUMBER: 001-10254 FILM NUMBER: 99563814 BUSINESS ADDRESS: STREET 1: 1200 SIXTH AVENUE STREET 2: P O BOX 1755 CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7066492267 MAIL ADDRESS: STREET 1: 1200 SISTH AVENUE CITY: COLUMBUS STATE: GA ZIP: 31901 10-K 1 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended 1998 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 TOTAL SYSTEM SERVICES, INC. (Exact Name of Registrant as specified in its charter) Georgia 58-1493818 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 1200 Sixth Avenue Columbus, Georgia 31901 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (706) 649-2204 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE 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 preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO___________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 11, 1999, 194,909,527 shares of the $.10 par value common stock of Total System Services, Inc. were outstanding, and the aggregate market value of the shares of $.10 par value common stock of Total System Services, Inc. held by non-affiliates was approximately $750,067,000 (based upon the closing per share price of such stock on said date.) Portions of the 1998 Annual Report to Shareholders of Registrant are incorporated in Parts I, II, III and IV of this report. Portions of the Proxy Statement of Registrant dated March 12, 1999 are incorporated in Part III of this report. Registrant's Documents Incorporated by Reference Part Number and Item Document Incorporated Number of Form 10-K by Reference Into Which Incorporated - ------------------------ ----------------------- Pages 22 through 29, 34 through Part I, Item 1, Business 37, and 41 through 43 of Registrant's 1998 Annual Report to Shareholders Pages 34 through 37, and 41 of Part I, Item 2, Properties Registrant's 1998 Annual Report to Shareholders Page 41 of Registrant's 1998 Part I, Item 3, Legal Annual Report to Shareholders Proceedings Page 46 of Registrant's 1998 Part II, Item 5, Market Annual Report to Shareholders for Registrant's Common Equity and Related Stockholder Matters Page 21 of Registrant's 1998 Part II, Item 6, Selected Annual Report to Shareholders Financial Data Pages 22 through 29 of Registrant's Part II, Item 7, Management's 1998 Annual Report to Shareholders Discussion and Analysis of Financial Condition and Results of Operations Pages 30 through 44, and 46 Part II, Item 8, Financial of Registrant's 1998 Annual Statements and Supplementary Report to Shareholders Data Pages 2 and 3, 5, and 17 Part III, Item 10, of Registrant's Proxy Statement in Directors and Executive connection with the Annual Meeting Officers of the Registrant of Shareholders to be held on April 15, 1999 Page 5, pages 7 through 9, and 13 Part III, Item 11, of Registrant's Proxy Statement Executive Compensation in connection with the Annual Meeting of Shareholders to be held on April 15, 1999 Page 6, and pages 14 and 15 of Part III, Item 12, Security Registrant's Proxy Statement in connection Ownership of Certain with the Annual Meeting of Shareholders Beneficial Owners and to be held on April 15, 1999 Management Pages 13 and 14, 16, and 17 Part III, Item 13, of Registrant's Proxy Statement in Certain Relationships connection with the Annual Meeting and Related Transactions of Shareholders to be held on April 15, 1999 and pages 36 and 37 of Registrant's 1998 Annual Report to Shareholders Pages 30 through 44 of Registrant's Part IV, Item 14, Exhibits, 1998 Annual Report to Shareholders Financial Statement Schedules and Reports on Form 8-K Cross Reference Sheet Item No. Caption Page No. - ------- ------- -------- Part I Safe Harbor Statement 1 1. Business 2 2. Properties 4 3. Legal Proceedings 5 4. Submission of Matters to a Vote of 5 Security Holders Part II 5. Market for Registrant's Common Equity 5 and Related Stockholder Matters 6. Selected Financial Data 6 7. Management's Discussion and Analysis 6 of Financial Condition and Results of Operations 7A. Quantitative and Qualitative Disclosures About Market Risk 6 8. Financial Statements and Supplementary 6 Data 9. Changes In and Disagreements With Accountants 6 on Accounting and Financial Disclosure Part III 10. Directors and Executive Officers of 6 the Registrant 11. Executive Compensation 7 12. Security Ownership of Certain 7 Beneficial Owners and Management 13. Certain Relationships and Related 7 Transactions Part IV 14. Exhibits, Financial Statement Schedules, 7 and Reports on Form 8-K PART I Safe Harbor Statement Certain statements contained in this Annual Report on Form 10-K and the exhibits hereto 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 Total System Services, Inc.(R) ("TSYS (R)") 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 revenues, income or loss, earnings or loss per share, the payment or non-payment 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, services or conversions; (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 other relevant economies; (ii) TSYS' 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 cards 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 regulatory agencies as well as the Financial Accounting Standards Board; (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 TSYS' Year 2000 modification plans substantially as scheduled and budgeted; and (xiv) the success of TSYS at managing the risks involved in the foregoing. Such forward-looking statements speak only as of the date on which such statements are made, and TSYS undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. - ------------------------------------ Synovus Financial Corp., Synovus, Columbus Bank and Trust Company and CB&T are federally registered service marks of Synovus Financial Corp. TSYS, TS2, Total System Services, Inc., THE TOTAL SYSTEM and TSYS Total Solutions are federally registered service marks of Total System Services, Inc. 1 Item 1. Business Business. Established in 1983 as an outgrowth of an on-line accounting and bankcard data processing system developed for Columbus Bank and Trust Company(R), TSYS is now one of the world's largest information technology processors of credit, debit, commercial and private-label cards. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol "TSS," TSYS provides a comprehensive on-line system of data processing services marketed as THE TOTAL SYSTEM(R) servicing issuing institutions throughout the United States, Puerto Rico, Canada, Mexico and the Caribbean, representing more than 117 million cardholder accounts on file as of December 31, 1998. TSYS provides card production, statement preparation, electronic commerce services, portfolio management services, account acquisition, credit evaluation, risk management and customer service to clients. Synovus Financial Corp.(R), a $10.5 billion asset, multi-financial services company, owns 80.8 percent of TSYS. TSYS has four wholly owned subsidiaries: (1) Columbus Depot Equipment Company(sm), which sells and leases computer related equipment associated with TSYS' bankcard data processing services; (2) TSYS Total Solutions,(R) Inc., which provides mail and correspondence processing services and account solicitation services; (3) Columbus Productions, Inc.(sm), which provides full-service commercial printing and related services; and (4) TSYS Canada, Inc., which provides programming support and assistance with the conversion of card portfolios to TS2(R). TSYS also holds a 49% equity interest in a joint venture company named Total System Services de Mexico, S.A. de C.V., which provides credit card related processing services to Mexican banks, and a 50% interest in Vital Processing Services L.L.C., a joint venture with Visa U.S.A. Inc., that offers fully integrated merchant transaction and related electronic information services to financial and nonfinancial institutions and their merchant customers. The services provided by TSYS are divided into two operating segments, bankcard data processing services and other services. Bankcard data processing services, including the programming services provided by TSYS Canada, Inc., account for approximately 90% of TSYS' revenues. The support services provided by TSYS' other subsidiaries, including the equipment leasing services provided by Columbus Depot Equipment Company, the correspondence processing services provided by TSYS Total Solutions, Inc. and the commercial printing services provided by Columbus Productions, Inc., are aggregated into the segment referred to as other services. Seasonality. Due to the seasonal nature of the credit card industry, TSYS' revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season. Service Marks. TSYS owns the federally registered service marks TSYS, TS2, Total System Services, Inc., THE TOTAL SYSTEM, TOTAL ACCESS, ACE, Partnership Card Services and TSYS Total Solutions, to which TSYS believes strong customer identification 2 attaches. TSYS also owns other service marks. Management does not believe the loss of these marks would have a material impact on the business of TSYS. Major Customers. A significant amount of TSYS' revenues are derived from long-term contracts with significant customers, including certain major customers. For the year ended December 31, 1998, BankAmerica Corporation accounted for 21% of TSYS' total revenues. As a result, the loss of BankAmerica Corporation, or other major or significant customers, could have a material adverse effect on TSYS' financial condition and results of operations. Near the end of the first quarter of 1998, AT&T completed the sale of its Universal Card Services to CITIBANK, now a part of Citigroup after CITIBANK's merger with Travelers Group, Inc. CITIBANK accounted for approximately 13% of total revenues for the year ended December 31, 1998. On February 26, 1999, CITIBANK notified TSYS of its decision to terminate Universal Card Services' processing agreement with TSYS for consumer credit card accounts at the end of its original term on August 1, 2000. Consumer credit card accounts represented 11.4% of total revenues derived by TSYS from Universal Card Services for the year ended December 31, 1998. TSYS' management believes that CITIBANK will continue to be a major customer in 1999, but will not be a major customer in 2000 and that the loss of revenues from Universal Card Services for the months of August through December 2000, should not have a material adverse effect on TSYS' financial condition or results of operations for the year ending December 31, 2000. Competition. TSYS encounters vigorous competition in providing bankcard data processing services from several different sources. The national market in third party bankcard data processors is presently being provided by approximately five vendors. TSYS believes that it is the second largest third party bankcard processor in the United States. In addition, TSYS competes against software vendors which provide their products to institutions which process in-house. TSYS is presently encountering, and in the future anticipates continuing to encounter, substantial competition from bankcard associations, data processing and bankcard computer service firms and other such third party vendors located throughout the United States. TSYS' major competitor in the bankcard data processing industry is First Data Resources, Inc., a wholly owned subsidiary of First Data Corporation, which is headquartered in Omaha, Nebraska, and provides bankcard data processing services, including authorization and data entry services. The principal methods of competition between TSYS and First Data Resources are price, quality, features and functionality and reliability of service. Certain other subsidiaries of First Data Corporation also compete with TSYS. In addition, there are a number of other companies which have the necessary financial resources and the technological ability to develop or acquire products and, in the future, to provide services similar to those being offered by TSYS. Regulation and Examination. TSYS is subject to being examined, and is indirectly regulated, by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the various state financial regulatory agencies which supervise and 3 regulate the banks, savings institutions and credit unions for which TSYS provides bankcard data processing services. Matters reviewed and examined by these federal and state financial institution regulatory agencies have included TSYS' internal controls in connection with its present performance of bankcard data processing services, and the agreements pursuant to which TSYS provides such services. As the Federal Reserve Bank of Atlanta has approved Synovus' indirect ownership of TSYS through Columbus Bank and Trust Company, TSYS is subject to direct regulation by the Federal Reserve Board. TSYS was formed with the prior written approval of, and is subject to regulation and examination by, the Department of Banking and Finance of the State of Georgia as a subsidiary of Columbus Bank and Trust Company and is authorized to engage in only those activities which Columbus Bank and Trust Company itself is authorized to engage in directly, which includes the bankcard and other data processing services presently being provided by TSYS. As TSYS and its subsidiaries operate as subsidiaries of Columbus Bank and Trust Company, they are subject to regulation by the Federal Deposit Insurance Corporation. Employees. As of February 28, 1999, TSYS had 3,935 full-time employees. See the "Financial Review" Section on pages 22 through 29 and Note 1, Note 4, Note 9, Note 11 and Note 12 of Notes to Consolidated Financial Statements on pages 34 through 36, page 37, page 41, and pages 42 and 43 of TSYS' 1998 Annual Report to Shareholders which are specifically incorporated herein by reference. Item 2. Properties TSYS owns a 377,000 square foot production center which is located on a 40.4 acre tract of land in north Columbus, Georgia. Primarily a production center, this facility houses TSYS' primary data processing computer operations, statement preparation, mail handling, microfiche production, purchasing and card production, as well as other related operations. TSYS owns a 110,000 square foot building on a 23-acre site in Columbus, Georgia, which accommodates current and future office space needs for technical staff. TSYS also owns a 104,000 square foot building on an 18-acre site in Columbus which functions as a second data center. The approximately 32,000 square foot Columbus Depot, located in Columbus, Georgia, which is owned by TSYS and is on the National Register of Historic Places, houses TSYS' executive offices and several corporate divisions. TSYS owns its 73,000 square foot South Center located in Columbus, Georgia, and owns its 60,000 square foot Annex Building located in Columbus, Georgia, which house training and documentation, Year 2000 and client relations personnel. TSYS also owns a warehouse facility, various other tracts of real estate located near or adjacent to its South Center and Annex Building which are used for parking and/or future expansion needs, and leases additional office space in Columbus, Georgia, Atlanta, Georgia, and Jacksonville, 4 Florida. During 1997, TSYS entered into an operating lease for the purpose of financing its 540,000 square foot new campus-type facility on approximately 46 acres of land in downtown Columbus, Georgia. The campus facility will consolidate most of TSYS' multiple Columbus locations and will facilitate future growth. The campus development will be a multiyear phased project. TSYS began moving personnel into the new campus facilities in December 1998. All of the properties listed above are utilized by TSYS for bankcard data processing services. TSYS Total Solutions, Inc. and Columbus Productions, Inc., which are included in the segment other services, own a 72,000 square foot production facility and own a 32,000 square foot production facility, respectively, located in Columbus, Georgia. All properties owned and leased by TSYS are in good repair and suitable condition for the purposes for which they are used. In addition to its real property, TSYS owns and/or leases a substantial amount of computer equipment. See Note 1, Note 2, Note 3, Note 4 and Note 9 of Notes to Consolidated Financial Statements on pages 34 through 37, and page 41 of TSYS' 1998 Annual Report to Shareholders which are specifically incorporated herein by reference. Item 3. Legal Proceedings See Note 9 of Notes to Consolidated Financial Statements on page 41 of TSYS' 1998 Annual Report to Shareholders which is specifically incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The "Quarterly Financial Data, Stock Price, Dividend Information" Section which is set forth on page 46 of TSYS' 1998 Annual Report to Shareholders is specifically incorporated herein by reference. On January 1, 1999, TSYS issued 854,042 shares of its common stock to Columbus Bank and Trust Company in connection with its acquisition of the assets used by Columbus Bank and Trust Company in the provision of collection, credit evaluation and customer services to credit and issuers. 5 The shares of TSYS common stock referenced above were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933. Item 6. Selected Financial Data The "Selected Financial Data" Section which is set forth on page 21 of TSYS' 1998 Annual Report to Shareholders is specifically incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The "Financial Review" Section which is set forth on pages 22 through 29 of TSYS' 1998 Annual Report to Shareholders, which includes the information encompassed within "Management's Discussion and Analysis of Financial Condition and Results of Operations," is specifically incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk None. Item 8. Financial Statements and Supplementary Data The "Quarterly Financial Data, Stock Price, Dividend Information" Section, which is set forth on page 46, and the "Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Shareholders' Equity, Consolidated Statements of Cash Flows, Notes to Consolidated Financial Statements and Report of Independent Auditors" Sections, which are set forth on pages 30 through 44 of TSYS' 1998 Annual Report to Shareholders are specifically incorporated herein by reference. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The "ELECTION OF DIRECTORS" Section which is set forth on pages 2 and 3, the "EXECUTIVE OFFICERS" Section which is set forth on page 5, and the "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" Section which is set forth on page 17 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference. 6 Item 11. Executive Compensation The "DIRECTORS' COMPENSATION" Section which is set forth on page 5, the "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises and Grants; and Change in Control Arrangements" Sections which are set forth on pages 7 through 9, and the "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" Section which is set forth on page 13 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The "STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS" Section which is set forth on page 6, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Common Stock by CB&T" Section which is set forth on page 14, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Synovus Common Stock Ownership of Directors and Management" Section which is set forth on pages 14 and 15 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The "TRANSACTIONS WITH MANAGEMENT" Section which is set forth on page 13, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Common Stock by CB&T" Section which is set forth on page 14, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Interlocking Directorates of TSYS, Synovus and CB&T" Section which is set forth on page 14, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T, AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Bankcard Data Processing Services Provided to CB&T and Certain of Synovus' Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries" Section which is set forth on pages 16 and 17 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference. See also Note 2 of Notes to Consolidated Financial Statements on pages 36 and 37 of TSYS' 1998 Annual Report to Shareholders which is specifically incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements 7 The following Consolidated Financial Statements of TSYS are specifi- cally incorporated by reference from pages 30 through 44 of TSYS' 1998 Annual Report to Shareholders to Item 8, Part II, Financial Statements and Supplementary Data. Consolidated Balance Sheets - December 31, 1998 and 1997. Consolidated Statements of Income - Years Ended December 31, 1998, 1997 and 1996. Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1998, 1997 and 1996. Consolidated Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996. Notes to Consolidated Financial Statements. Report of Independent Auditors. 2. Index to Financial Statement Schedules The following report of independent auditors and consolidated financial statement schedule of Total System Services, Inc. are included: Report of Independent Auditors. Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 1998, 1997 and 1996. All other schedules are omitted because they are inapplicable or the required information is included in the Notes to Consolidated Financial Statements. 3. Exhibits Exhibit Number Description 3.1 Articles of Incorporation of Total System Services, Inc. ("TSYS"), as amended, incorporated by reference to Exhibit 4.1 of TSYS'Registration Statement on Form S-8 filed with the Commission on April 18, 1997 (File No. 333-25401). 3.2 Bylaws of TSYS, as amended. 10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 8 10.1 Director Stock Purchase Plan of TSYS, incorporated by reference to Exhibit 10.1 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.2 Group "Y" Key Executive Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.2 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.3 1985 Key Employee Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.3 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.4 1990 Key Employee Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.4 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.5 Total System Services, Inc. 1992 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.5 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.6 Excess Benefit Agreement of TSYS, incorporated by reference to Exhibit 10.6 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.7 Wage Continuation Agreement of TSYS, incorporated by reference to Exhibit 10.7 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.8 Incentive Bonus Plan of Synovus Financial Corp. in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.8 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.9 Agreement in connection with use of aircraft, incorporated by reference to Exhibit 10.9 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.10 Split Dollar Insurance Agreement of TSYS, incorporated by reference 9 to Exhibit 10.10 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as filed with the Commission on March 22, 1994. 10.11 Synovus Financial Corp. 1994 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.11 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 9, 1995. 10.12 Synovus Financial Corp. Executive Bonus Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.12 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.13 Change of Control Agreements for executive officers of TSYS, incorporated by reference to Exhibit 10.13 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.14 Stock Option Agreement of Samuel A. Nunn, incorporated by reference to Exhibit 10.14 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as filed with the Commission on March 20, 1997. 10.15 Lease Agreement between First Security Bank, National Association, and TSYS incorporated by reference to Exhibit 10.15 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as filed with the Commission on March 23, 1998. 13.1 Certain specified pages of TSYS' 1998 Annual Report to Shareholders which are specifically incorporated herein by reference. 20.1 Proxy Statement for the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999, certain pages of which are specifically incorporated herein by reference. 21.1 Subsidiaries of Total System Services, Inc. 23.1 Independent Auditors' Consent. 24.1 Powers of Attorney contained on the signature pages of the 1998 Annual Report on Form 10-K. 27.1 Financial Data Schedule (for SEC use only). 10 99.1 Annual Report on Form 11-K for the Total System Services, Inc. Employee Stock Purchase Plan for the year ended December 31, 1998 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.) 99.2 Annual Report on Form 11-K for the Total System Services, Inc. Director Stock Purchase Plan for the year ended December 31, 1998 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.) (b) Reports on Form 8-K On March 1, 1999, TSYS filed a Form 8-K with the Commission in connection with the announcement that Universal Card Services Corp., an affiliate of CITIBANK, notified TSYS of its decision not to renew its processing agreement with TSYS for consumer credit card accounts at the end of its original term on August 1, 2000. filings\tsys\tsys98.10k 11 Report of Independent Auditors The Board of Directors Total System Services, Inc. Under date of January 7, 1999, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, as contained in the Total System Services, Inc. 1998 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the Total System Services, Inc. Annual Report on Form 10-K for the year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG LLP Atlanta, Georgia January 7, 1999 12
TOTAL SYSTEM SERVICES, INC. Schedule II Valuation and Qualifying Accounts Additions ------------------------ Charged Balance at Charged to to other Balance at beginning costs and accounts-- Deductions-- end of of period expenses describe describe period - ----------------------------------------------------------------------------------------------------- Year ended December 31, 1996: Allowance for doubtful accounts $714,374 94,500 - (104,392) $704,482 ======== ======== ======= ======== ======== Year ended December 31, 1997: Allowance for doubtful accounts $704,482 94,000 - (62,523) $735,959 ======== ======== ======= ======== ======== Year ended December 31, 1998: Allowance for doubtful accounts $735,959 18,000 - (43,367) $710,592 ======== ======== ======= ======== ======== - --------- Accounts deemed to be uncollectible and written off during the year.
13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Total System Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOTAL SYSTEM SERVICES, INC. (Registrant) March 12, 1999 By:/s/Richard W. Ussery ------------------------------------------ Richard W. Ussery, Chairman and Principal Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, Richard W. Ussery and Philip W. Tomlinson, and each of them, his true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. /s/James H. Blanchard Date: March 12, 1999 - ------------------------------------- James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 12, 1999 - -------------------------------------- Richard W. Ussery, Chairman of the Board and Principal Executive Officer 14 /s/Philip W. Tomlinson Date: March 12, 1999 - --------------------------------------------- Philip W. Tomlinson, President and Director /s/James B. Lipham Date: March 12, 1999 - ---------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Griffin B. Bell Date: March 12, 1999 - ---------------------------------------------- Griffin B. Bell, Director /s/Richard Y. Bradley Date: March 12, 1999 - ---------------------------------------------- Richard Y. Bradley, Director /s/Gardiner W. Garrard, Jr. Date: March 12, 1999 - --------------------------------------------- Gardiner W. Garrard, Jr., Director /s/John P. Illges, III Date: March 12, 1999 - --------------------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 12, 1999 - --------------------------------------------- Mason H. Lampton, Director /s/Samuel A. Nunn Date: March 12, 1999 - --------------------------------------------- Samuel A. Nunn, Director /s/H. Lynn Page Date: March 12, 1999 - --------------------------------------------- H. Lynn Page, Director 15 /s/W. Walter Miller, Jr. Date: March 12, 1999 - -------------------------------------------- W. Walter Miller, Jr., Director /s/William B. Turner Date: March 12, 1999 - -------------------------------------------- William B. Turner, Director /s/James D. Yancey Date: March 12, 1999 - -------------------------------------------- James D. Yancey, Director 16 EX-3.2 2 BYLAWS As Amended and Restated Effective December 22, 1998 BYLAWS OF TOTAL SYSTEM SERVICES, INC. ARTICLE I. OFFICES Section 1. Principal Office. The principal office for the transaction of the business of the corporation shall be located in Muscogee County, Georgia, at such place within said County as may be fixed from time to time by the Board of Directors. Section 2. Other Offices. Branch offices and places of business may be established at any time by the Board of Directors at any place or places where the corporation is qualified to do business, whether within or without the State of Georgia. ARTICLE II. SHAREHOLDERS' MEETINGS Section 1. Meetings, Where Held. Any meeting of the shareholders of the corporation, whether an annual meeting or a special meeting, may be held either at the principal office of the corporation or at any place in the United States within or without the State of Georgia. Section 2. Annual Meeting. The annual meeting of the shareholders of the corporation for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time and place as is determined by the Board of Directors of the corporation each year. Provided, however, that if the Board of Directors shall fail to set a date for the annual meeting of shareholders in any year, that the annual meeting of the shareholders of the corporation shall be held on the second Monday in April of each year; provided, that if said day shall fall upon a legal holiday, then such annual meeting shall be held on the next day thereafter ensuing which is not a legal holiday. In addition to any other applicable requirements, for business to properly come before the meeting, notice of any nominations of persons for election to the Board of Directors or of any other business to be brought before an annual meeting of shareholders by a shareholder must be provided in writing to the Secretary of the corporation not later 1 than the close of business on the 45th day nor earlier than the close of business on the 90th day prior to the date of the proxy statement released to shareholders in connection with the previous year's annual meeting and such business must constitute a proper subject to be brought before such meeting. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the Proxy Statement in connection with such annual meeting as a nominee and to serving as a director if elected), and evidence reasonably satisfactory to the corporation that such nominee has no interests that would limit such nominee's ability to fulfill his or her duties of office; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation that are owned beneficially and held of record by such shareholder and such beneficial owner. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2. The Chairman of the Board of Directors shall, if the facts warrant, determine and declare to the meeting that business has not been properly brought before the meeting in accordance with the provisions of this Section 2, and if the Chairman should so determine, the Chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted." Section 3. Special Meetings. A special meeting of the shareholders of the corporation, for any purpose or purposes whatsoever, may be called at any time by the Chairman of the Board, any Vice Chairman of the Board, if elected, the President, any Vice President, a majority of the Board of Directors, or one or more shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Such a call for a special meeting must state the purpose of the meeting. This section, as it relates to the call of a special meeting of the shareholders of the corporation by one or more shareholders holding at least 80% of the issued and outstanding shares of common stock of the corporation shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Section 4. Notice of Meetings. Unless waived, written notice of each annual meeting and of each special meeting of the shareholders of the corporation shall be given to each shareholder of record entitled to vote, either personally or by first class mail 2 (postage prepaid) addressed to such shareholder at his last known address, not less than ten (10) days nor more than seventy (70) days prior to said meeting. Such written notice shall specify the place, day and hour of the meeting; and in the case of a special meeting, it shall also specify the purpose or purposes for which the meeting is called. Section 5. Waiver of Notice. Notice of any annual or special meeting of the shareholders of the corporation may be waived by any shareholder, either before or after the meeting; and the attendance of a shareholder at a meeting, either in person or by proxy, shall of itself constitute waiver of notice and waiver of any and all objections to the place or time of the meeting, or to the manner in which it has been called or convened, except when a shareholder attends solely for the purpose of stating, at the beginning of the meeting, an objection or objections to the transaction of business at such meeting. Section 6. Quorum, Voting and Proxy. Shareholders representing a majority of the issued and outstanding shares of common stock of the corporation shall constitute a quorum at a shareholders' meeting. Each shareholder shall be entitled to one vote for each share of common stock owned. Any shareholder may be represented and vote at any shareholders' meeting by written proxy filed with the Secretary of the corporation on or before the date of such meeting; provided, however, that no proxy shall be valid for more than 11 months after the date thereof unless otherwise specified in such proxy. Section 7. No Meeting Necessary When. Any action required by law or permitted to be taken at any shareholders' meeting may be taken without a meeting if, and only if, written consent, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent shall have the same force and effect as a unanimous vote of the shareholders and shall be filed with the Secretary and recorded in the Minute Book of the corporation. ARTICLE III. DIRECTORS Section 1. Number. The Board of Directors of the corporation shall consist of not less than 8 nor more than 60 Directors. The number of Directors may vary between said minimum and maximum, and within said limits, the shareholders holding at least 80% of the issued and outstanding shares of common stock of the corporation may, from time to time, by resolution fix the number of Directors to comprise said Board. This section, as it relates to from time to time, fixing the number of Directors of the corporation by the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. 3 Section 2. Election and Tenure. The Board of Directors of the corporation shall be divided into three classes serving staggered 3-year terms, with each class to be as nearly equal in number as possible. At the first annual meeting of the shareholders of the corporation, all members of the Board of Directors shall be elected with the terms of office of Directors comprising the first class to expire at the first annual meeting of the shareholders of the corporation after their election, the terms of office of Directors comprising the second class to expire at the second annual meeting of the shareholders of the corporation after their election and the terms of office of Directors comprising the third class to expire at the third annual meeting of the shareholders of the corporation after their election, and as their terms of office expires, the Directors of each class will be elected to hold office until the third succeeding annual meeting of the shareholders of the corporation after their election. In such elections, the nominees receiving a plurality of votes shall be elected. This section, as it relates to the division of the Board of Directors into three classes serving staggered 3-year terms, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Section 3. Powers. The Board of Directors shall have authority to manage the affairs and exercise the powers, privileges and franchises of the corporation as they may deem expedient for the interests of the corporation, subject to the terms of the Articles of Incorporation, bylaws, and such policies and directions as may be prescribed from time to time by the shareholders of the corporation. Section 4. Meetings. The annual meeting of the Board of Directors shall be held without notice immediately following the annual meeting of the shareholders of the corporation, on the same date and at the same place as said annual meeting of the shareholders. The Board by resolution may provide for regular meetings, which may be held without notice as and when scheduled in such resolution. Special meetings of the Board may be called at any time by the Chairman of the Board, any Vice Chairman of the Board, if elected, the President or by any two or more Directors. Section 5. Notice and Waiver; Quorum. Notice of any special meeting of the Board of Directors shall be given to each Director personally or by mail, telegram or cablegram addressed to him at his last known address, at least one day prior to the meeting. Such notice may be waived, either before or after the meeting; and the attendance of a Director at any special meeting shall of itself constitute a waiver of notice of such meeting and of any and all objections to the place or time of the meeting, or to the manner in which it has been called or convened, except where a Director states, at the beginning of the meeting, any such objection or objections to the transaction of business. A majority of the Board of Directors shall constitute a quorum at any Directors' meeting. 4 Section 6. No Meeting Necessary, When. Any action required by law or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if written consent, setting forth the action so taken, shall be signed by all the Directors. Such consent shall have the same force and affect as a unanimous vote of the Board of Directors and shall be filed with the Secretary and recorded in the Minute Book of the corporation. Section 7. Voting. At all meetings of the Board of Directors each Director shall have one vote and, except as otherwise provided herein or provided by law, all questions shall be determined by a majority vote of the Directors present. Section 8. Removal. Any one or more Directors or the entire Board of Directors may be removed from office, with or without cause, by the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation at any shareholders' meeting with respect to which notice of such purpose has been given. This section, as it relates to the removal of Directors of the corporation by the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Section 9. Vacancies. Any vacancy occurring in the Board of Directors caused by an increase in the number of Directors may be filled by the shareholders of the corporation for a full classified 3-year term, or such vacancy may be filled by the Board of Directors until the next annual meeting of the shareholders. Any vacancy occurring in the Board of Directors caused by the removal of a Director shall be filled by the shareholders, or if authorized by the shareholders, by the Board of Directors, for the unexpired term of the Director so removed. Any vacancy occurring in the Board of Directors caused by a reason other than an increase in the number of Directors or removal of a Director may be filled by the Board of Directors, or the shareholders, for the unexpired term of the Director whose position is vacated. Vacancies in the Board of Directors filled by the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors, though less than a quorum, or the sole remaining Director, as the case may be. Section 10. Dividends. The Board of Directors may declare dividends payable in cash or other property out of the unreserved and unrestricted net earnings of the current fiscal year, computed to the date of declaration of the dividend, or the preceding fiscal year, or out of the unreserved and unrestricted earned surplus of the corporation, as they may deem expedient. 5 Section 11. Committees. In the discretion of the Board of Directors, said Board from time to time may elect or appoint, from its own members, one or more committees as said Board may see fit to establish. Each such committee shall consist of three or more Directors, and each shall possess such powers and be charged with such responsibilities, subject to the limitations imposed by applicable law, as the Board by resolution may from time to time prescribe. Section 12. Officers, Salaries and Bonds. The Board of Directors shall elect all officers of the corporation and fix their compensation. The fact that any officer is a Director shall not preclude him from receiving a salary or from voting upon the resolution providing the same. The Board of Directors may or may not, in their discretion, require bonds from either or all of the officers and employees of the corporation for the faithful performance of their duties and good conduct while in office. Section 13. Compensation of Directors. Directors, as such shall be entitled to receive compensation for their service as Directors and such fees and expenses, if any, for attendance at each regular or special meeting of the Board and any adjournments thereof, as may be fixed from time to time by resolution of the Board, and such fees and expenses shall be payable even though an adjournment be had because of the absence of a quorum; provided, however, that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefore. Members of either standing or special committees may be allowed such compensation as may be provided from time to time by resolution of the Board for serving upon and attending meetings of such committees. Section 14. Emeritus Directors. When a member of the Board of Directors of the corporation, as the case may be: (a) attains seventy (70) years of age or, (b) prior to his attainment of seventy (70) years of age, retires from his principal occupation, under the retirement policy and criteria established from time to time by the Board of Directors of the corporation (except for a member of the Board of Directors of the corporation: (1) who is, upon the attainment of age seventy (70), then serving as an executive officer, including Chairman of the Board or Chairman of the Executive Committee of the corporation or its parent or grandparent corporation; or (2) who was sixty (60) years of age on June 14, 1973), such director shall automatically, at his option, either (i) retire from the Board of Directors of the corporation, as the case may be; or (ii) be appointed as a member of the Emeritus Board of Directors of the corporation. A member of the Board of Directors of the corporation: (1) who is, upon the attainment of age seventy (70), then serving as an executive officer, including Chairman of the Board or Chairman of the Executive Committee, of the corporation or its parent or grandparent corporation; or (2) who was sixty (60) years of age on June 14, 1973, may, at his option, either: (a) continue his service as a member of the Board of Directors of the corporation, as the case may be; or (b) be appointed as a member of the Emeritus Board of Directors of the corporation. Members of the Emeritus Board of Directors of the corporation shall be appointed annually 6 by the Chairman of the Board of Directors of the corporation at the Annual Meeting of the Board of Directors of the corporation, or from time to time thereafter. Each member of the Emeritus Board of Directors of the corporation, except in the case of his earlier death, resignation, retirement, disqualification or removal, shall serve until the next succeeding Annual Meeting of the Board of Directors of the corporation. Any individual appointed as a member of the Emeritus Board of Directors of the corporation may, but shall not be required to, attend meetings of the Board of Directors of the corporation and may participate in any discussions thereat, but such individual may not vote at any meeting of the Board of Directors of the corporation or be counted in determining a quorum at any meeting of the Board of Directors of the corporation, as provided in Section 5 of Article III of the bylaws of the corporation. It shall be the duty of the members of the Emeritus Board of Directors of the corporation to serve as goodwill ambassadors of the corporation, but such individuals shall not have any responsibility or be subject to any liability imposed upon a member of the Board of Directors of the corporation or in any manner otherwise be deemed to be a member of the Board of Directors of the corporation. Each member of the Emeritus Board of Directors of the corporation shall be paid such compensation as may be set from time to time by the Chairman of the Board of Directors of the corporation and shall remain eligible to participate in any Director Stock Purchase Plan maintained by, or participated in, from time to time by the corporation according to the terms and conditions thereof. Notwithstanding the foregoing, if a member of the Board of Directors of the corporation is initially elected to the Board of Directors within six years of his attainment of seventy (70) years of age, such member may, subject to his continuing election to the Board of Directors of the corporation, serve as a director of the corporation for a period ending the later of (i) six years from the date of his initial election to the Board of Directors of the corporation; or (ii) the expiration of the term of office of such director to which he was last elected during such six year period, at which time such director shall automatically, at his option, either (i) retire from the Board of Directors of the corporation; or (ii) be appointed as a member of the Emeritus Board of Directors of the corporation." Section 15. Advisory Directors. The Board of Directors of the corporation may at its annual meeting, or from time to time thereafter, appoint any individual to serve as a member of an Advisory Board of Directors of the corporation. Any individual appointed to serve as a member of an Advisory Board of Directors of the corporation shall be entitled to attend all meetings of the Board of Directors and may participate in any discussion thereat, but such individual may not vote at any meeting of the Board of Directors or be counted in determining a quorum for such meeting. It shall be the duty of members of the Advisory Board of Directors of the corporation to advise and provide general policy advice to the Board of Directors of the corporation at such times and places and in such groups and committees as may be determined from time to time by the Board of Directors, but such individuals shall not have any responsibility or be subject to any liability imposed upon a director or in any manner otherwise deemed a director. The same compensation paid to directors for their services as directors shall be paid to members of an Advisory Board of Directors of the corporation for their services as advisory directors. 7 Each member of the Advisory Board of Directors except in the case of his earlier death, resignation, retirement, disqualification or removal, shall serve until the next succeeding annual meeting of the Board of Directors and thereafter until his successor shall have been appointed. ARTICLE IV. OFFICERS Section 1. Selection. The Board of Directors at each annual meeting shall elect or appoint a Chairman of the Board, a President, a Secretary and a Treasurer, each to serve for the ensuing year and until his successor is elected and qualified, or until his earlier resignation, removal from office, or death. The Board of Directors, at such meeting, may or may not, in the discretion of the Board, elect one or more Vice Chairmen of the Board, one or more Chairmen of the Board-Emeritus, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as the Board of Directors, in its discretion, shall determine are desirable for the management of the business and affairs of the corporation. When more than one Vice President is elected, they may, in the discretion of the Board, be designated Executive Vice President, First Vice President, Second Vice President, etc., according to seniority or rank, and any person may hold two or more offices, except that the President shall not also serve as the Secretary. Section 2. Removal, Vacancies. Any officers of the corporation may be removed from office at any time by the Board of Directors, with or without cause. Any vacancy occurring in any office of the corporation may be filled by the Board of Directors. Section 3. Chairman of the Board. The Chairman of the Board of Directors, shall, whenever present, preside at all meetings of the Board of Directors and at all meetings of the shareholders. The Chairman of the Board of Directors shall confer with the President on matters of general policy affecting the business of the corporation and shall have, in his discretion, power and authority to generally supervise all the affairs of the corporation and the acts and conduct of all the officers of the corporation, and shall have such other duties as may be conferred upon him. Any Vice Chairman of the Board, if elected, shall perform the duties of the Chairman of the Board during the absence or disability of the Chairman of the Board and shall have such other duties as may be conferred upon him by the Board of Directors or the Chairman of the Board. Section 4. President. In the absence of the Chairman of the Board and if there be no Vice Chairman of the Board elected, or in his absence, the President shall preside at all meetings of the Board of Directors and at all meetings of the shareholders. The immediate supervision of the affairs of the corporation shall be vested in the President. It shall be his duty to attend constantly to the business of the corporation and maintain strict supervision over all of its affairs and interests. He shall keep the Board of Directors fully advised of the affairs and condition of the corporation, and shall manage and operate the business of the corporation pursuant to such policies as may be prescribed from time to time by the Board of Directors. The President shall, subject to approval of the Board, 8 hire and fix the compensation of all employees and agents of the corporation, other than officers, and any person thus hired shall be removable at his pleasure. Section 5. Vice President. Any Vice President of the corporation may be designated by the Board of Directors to act for and in the place of the President in the event of sickness, disability or absence of the President or the failure of the President to act for any reason, and when so designated, such Vice President shall exercise all the powers of the President in accordance with such designation. The Vice Presidents shall have such duties as may be required of, or assigned to, them by the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board, if elected, or the President. Section 6. Secretary. It shall be the duty of the Secretary to keep a record of the proceedings of all meetings of the shareholders and Board of Directors; to keep the stock records of the corporation; to notify the shareholders and Directors of meetings as provided by these bylaws; and to perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, or the President. Any Assistant Secretary, if elected, shall perform the duties of the Secretary during the absence or disability of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, the President or the Secretary. Section 7. Treasurer. The Treasurer shall keep, or cause to be kept, the financial books and records of the corporation, and shall faithfully account for its funds. He shall make such reports as may be necessary to keep the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, and the President fully informed at all times as to the financial condition of the corporation, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, or the President. Any Assistant Treasurer, if elected, shall perform the duties of the Treasurer during the absence or disability of the Treasurer, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, the President or the Treasurer. ARTICLE V. CONTRACTS, ETC. Section 1. Contracts, Deeds and Loans. All contracts, deeds, mortgages, pledges, promissory notes, transfers and other written instruments binding upon the corporation shall be executed on behalf of the corporation by the Chairman of the Board, any Vice Chairman of the Board, if elected, the President, any Executive Vice President, any Vice Presidents who report directly to such Executive Vice Presidents, or by such other officers or agents as the Board of Directors may designate from time to time. Any such instrument required to be given under the seal of the corporation may be attested by the Secretary or Assistant Secretary of the corporation. 9 Section 2. Proxies. The Chairman of the Board, any Vice Chairman of the Board, if elected, the President, any Vice President, the Secretary or the Treasurer of the corporation shall have full power and authority, on behalf of the corporation, to attend and to act and to vote at any meetings of the shareholders, bond holders or other security holders of any corporation, trust or association in which the corporation may hold securities, and at and in connection with any such meeting shall possess and may exercise any and all of the rights and powers incident to the ownership of such securities and which as owner thereof the corporation might have possessed and exercised if present, including the power to execute proxies and written waivers and consents in relation thereto. In the case of conflicting representation at any such meeting, the corporation shall be represented by its highest ranking officer, in the order first above stated. Notwithstanding the foregoing, the Board of Directors may, by resolution, from time to time, confer like powers upon any other person or persons. ARTICLE VI. CHECKS AND DRAFTS Checks and drafts of the corporation shall be signed by such officer or officers or such other employees or persons as the Board of Directors may from time to time designate. ARTICLE VII. STOCK Section 1. Certificates of Stock. The certificates for shares of capital stock of the corporation shall be in such form as shall be determined by the Board of Directors. They shall be numbered consecutively and entered into the stock book of the corporation as they are issued. Each certificate shall state on its face the fact that the corporation is a Georgia corporation, the name of the person to whom the shares are issued, the number and class of shares (and series, if any) represented by the certificate and their par value, or a statement that they are without par value. In addition, when and if more than one class of shares shall be outstanding, all share certificates of whatever class shall state that the corporation will furnish to any shareholder upon request and without charge a full statement of the designations, relative rights, preferences and limitations of the shares of each class authorized to be issued by the corporation. Section 2. Signature; Transfer Agent; Registrar. Share certificates shall be signed by the President or any Vice President and by the Secretary or an Assistant Secretary of the corporation, and shall bear the seal of the corporation or a facsimile thereof. The Board of Directors may from time to time appoint transfer agents and registrars for the shares of capital stock of the corporation or any class thereof, and when any share certificate is countersigned by a transfer agent or registered by a registrar, the signature of any officer of the corporation appearing thereon may be a facsimile signature. In case any officer who signed, or whose facsimile signature was placed upon, any such certificate shall have died or ceased to be such officer before such certificate is issued, it 10 may nevertheless be issued with the same effect as if he continued to be such officer on the date of issue. Section 3. Stock Book. The corporation shall keep at its principal office, or at the office of its transfer agent, wherever located, with a copy at the principal office of the corporation, a book, to be known as the stock book of the corporation, containing in alphabetical order name of each shareholder of record, together with his address, the number of shares of each kind, class or series of stock held by him and his social security number. The stock book shall be maintained in current condition. The stock book, including the share register, or the duplicate copy thereof maintained at the principal office of the corporation, shall be available for inspection and copying by any shareholder at any meeting of the shareholders upon request, or, for a bona fide purpose which is in the best interest of the business of the corporation, at other times upon the written request of any shareholder or holder of a voting trust certificate. The stock book may be inspected and copied either by a shareholder or a holder of a voting trust certificate in person, or by their duly authorized attorney or agent. The information contained in the stock book and share register may be stored on punch cards, magnetic tape, or any other approved information storage devices related to electronic data processing equipment, provided that any such method, device, or system employed shall first be approved by the Board of Directors, and provided further that the same is capable of reproducing all informations contained therein, in legible and understandable form, for inspection by shareholders or for any other proper corporate purpose. Section 4. Transfer of Stock; Registration of Transfer. The stock of the corporation shall be transferred only by surrender of the certificate and transfer upon the stock book of the corporation. Upon surrender to the corporation, or to any transfer agent or registrar for the class of shares represented by the certificate surrendered, of a certificate properly endorsed for transfer, accompanied by such assurances as the corporation, or such transfer agent or registrar, may require as to the genuineness and effectiveness of each necessary endorsement and satisfactory evidence of compliance with all applicable laws relating to securities transfers and the collection of taxes, it shall be the duty of the corporation, or such transfer agent or registrar, to issue a new certificate, cancel the old certificate and record the transactions upon the stock book of the corporation. Section 5. Registered Shareholders. Except as otherwise required by law, the corporation shall be entitled to treat the person registered on its stock book as the owner of the shares of the capital stock of the corporation as the person exclusively entitled to receive notification, dividends or other distributions, to vote and to otherwise exercise all the rights and powers of ownership and shall not be bound to recognize any adverse claim. 11 Section 6. Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action affecting the interests of shareholders, the Board of Directors may fix, in advance, a record date. Such date shall not be more than seventy (70) nor less than ten (10) days before the date of any such meeting nor more than seventy (70) days prior to any other action. In each case, except as otherwise provided by law, only such persons as shall be shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting and any adjournment thereof, to express such consent or dissent, or to receive payment of such dividend or such allotment of rights, or otherwise be recognized as shareholders for any other related propose, notwithstanding any registration of a transfer of shares on the stock book of the corporation after any such record date so fixed. Section 7. Lost Certificates. When a person to whom a certificate of stock has been issued alleges it to have been lost, destroyed or wrongfully taken, and if the corporation, transfer agent or registrar is not on notice that such certificate has been acquired by a bona fide purchaser, a new certificate may be issued upon such owner's compliance with all of the following conditions, to-wit: (a) He shall file with the Secretary of the corporation, and the transfer agent or the registrar, his request for the issuance of a new certificate, with an affidavit setting for the time, place and circumstances of the loss; (b) He shall also file with the Secretary, and the transfer agent or the registrar, a bond with good and sufficient security acceptable to the corporation and the transfer agent or the registrar, or other agreement of indemnity acceptable to the corporation and the transfer agent or the registrar, conditioned to indemnify and save harmless the corporation and the transfer agent or the registrar from any and all damage, liability and expense of every nature whatsoever resulting from the corporation's or the transfer agent's or the registrar's issuing a new certificate in place of the one alleged to have been lost; and (c) He shall comply with such other reasonable requirements as the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, or the President of the corporation, and the transfer agent or the registrar shall deem appropriate under the circumstances. Section 8. Replacement of Mutilated Certificates. A new certificate may be issued in lieu of any certificate previously issued that may be defaced or mutilated upon surrender for cancellation of a part of the old certificate sufficient in the opinion of the Secretary and the transfer agent or the registrar to duly identify the defaced or mutilated certificate and to protect the corporation and the transfer agent or the registrar against loss or liability. Where sufficient identification is lacking, a new certificate may be issued upon compliance with the conditions set forth in Section 7 of this Article VII. 12 ARTICLE VIII. INDEMNIFICATION AND REIMBURSEMENT Subject to any express limitations imposed by applicable law, every person now or hereafter serving as a director, officer, employee or agent of the corporation and all former directors and officers, employees or agents shall be indemnified and held harmless by the corporation from and against the obligation to pay a judgement, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), and reasonable expenses (including attorneys' fees and disbursements) that may be imposed upon or incurred by him or her in connection with or resulting from any threatened, pending, or completed, action, suit, or proceeding, whether civil, criminal, administrative, investigative, formal or informal, in which he or she is, or is threatened to be made, a named defendant or respondent: (a) because he or she is or was a director, officer, employee, or agent of the corporation; (b) because he or she is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; or (c) because he or she is or was serving as an employee of the corporation who was employed to render professional services as a lawyer or an accountant to the corporation; regardless of whether such person is acting in such a capacity at the time such obligation shall have been imposed or incurred, if (i) such person acted in a manner he or she believed in good faith to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, if such person had no reasonable cause to believe his or her conduct was unlawful or (ii), with respect to an employee benefit plan, such person believed in good faith that his or her conduct was in the interests of the participants in and beneficiaries of the plan. Reasonable expenses incurred in any proceeding shall be paid by the corporation in advance of the final disposition of such proceeding if authorized by the Board of Directors in the specific case, or if authorized in accordance with procedures adopted by the Board of Directors, upon receipt of a written undertaking executed personally by or on behalf of the director, officer, employee, or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation, and a written affirmation of his or her good faith belief that he or she has met the standard of conduct required for indemnification. The foregoing rights of indemnification and advancement of expenses shall not be deemed exclusive of any other right to which those indemnified may be entitled, and the corporation may provide additional indemnity and rights to its directors, officers, employees or agents to the extent they are consistent with law. The provisions of this Article VIII shall cover proceedings whether now pending or hereafter commenced and shall be retroactive to cover acts or omissions or alleged acts or omissions which heretofore have taken place. In the event of death of any person having a right of indemnification or advancement of expenses under the provisions of this 13 Article VIII, such right shall inure to the benefit of his or her heirs, executors, administrators and personal representatives. If any part of this Article VIII should be found to be invalid or ineffective in any proceeding, the validity and effect of the remaining provisions shall not be affected. ARTICLE IX. MERGERS, CONSOLIDATIONS AND OTHER DISPOSITIONS OF ASSETS The affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation shall be required to approve any merger or consolidation of the corporation with or into any corporation, and the sale, lease, exchange or other disposition of all, or substantially all, of the assets of the corporation to or with any other corporation, person or entity, with respect to which the approval of the corporation's shareholders is required by the provisions of the corporate laws of the State of Georgia. This Article shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders holding at least 80% of the issued and outstanding shares of common stock of the corporation. ARTICLE X. CRITERIA FOR CONSIDERATION OF TENDER OR OTHER OFFERS Section 1. Factors to Consider. The Board of Directors of the corporation may, if it deems it advisable, oppose a tender or other offer for the corporation's securities, whether the offer is in cash or in the securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but is not legally obligated to, consider any pertinent issues; by way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to, consider all or any of the following: (i) whether the offer price is acceptable based on the historical and present operating results or financial condition of the corporation; (ii) whether a more favorable price could be obtained for the corporation's securities in the future; (iii) the impact which an acquisition of the corporation would have on the employees and customers of the corporation and its subsidiaries and the communities which they serve; (iv) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees and customers of the corporation and its subsidiaries and the future value of the corporation's stock; 14 (v) the value of the securities, if any, that the offeror is offering in exchange for the corporation's securities, based on an analysis of the worth of the corporation as compared to the offeror or any other entity whose securities are being offered; and (vi) any antitrust or other legal or regulatory issues that are raised by the offer. Section 2. Appropriate Actions. If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to, any or all of the following: (i) advising shareholders not to accept the offer; (ii) litigation against the offeror; (iii) filing complaints with governmental and regulatory authorities; (iv) acquiring the corporation's securities; (v) selling or otherwise issuing authorized but unissued securities of the corporation or treasury stock or granting options or rights with respect thereto; (vi) acquiring a company to create an antitrust or other regulatory problem for the offeror; and (vii) soliciting a more favorable offer from another individual or entity. ARTICLE XI. AMENDMENT Except as otherwise specifically provided herein, the bylaws of the corporation may be altered, amended or added to by a majority of the issued and outstanding shares of common stock of the corporation present and voting therefor at a shareholders' meeting or, subject to such limitations as the shareholders may from time to time prescribe, by a majority vote of all the Directors then holding office at any meeting of the Board of Directors. files\bylaws.tss 15 EX-13.1 3 ANNUAL REPORT FINANCIALS TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT Selected Financial Data The following comparisons highlight significant historical trends in TSYS' results of operations and financial condition. Total revenues and net income have grown over the last five years at compounded annual growth rates of 21.1% and 22.1%, respectively. The balance sheet data also reflect the continued strong financial position of TSYS, as evidenced by the current ratio of 2.0:1 at December 31, 1998, and increased shareholders' equity. The following financial data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and Financial Review, included elsewhere in this Annual Report.
Years Ended December 31, --------------------------------------------------------- (in thousands except per share data) 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------ Income Statement Data: Revenues: Bankcard data processing services ....... $ 350,310 324,718 277,870 218,953 166,194 Other services .......................... 45,884 36,781 33,778 30,755 21,377 - ------------------------------------------------------------------------------------------------------------ Total revenues .................. 396,194 361,499 311,648 249,708 187,571 - ------------------------------------------------------------------------------------------------------------ Expenses: Salaries and other personnel expense .... 160,855 147,438 124,259 94,946 73,051 Net occupancy and equipment expense ..... 105,658 94,685 82,118 64,549 51,283 Other operating expenses ................ 63,312 59,447 53,368 47,291 28,139 - ------------------------------------------------------------------------------------------------------------ Total operating expenses ........ 329,825 301,570 259,745 206,786 152,473 - ------------------------------------------------------------------------------------------------------------ Equity in income (loss) of joint ventures 12,974 9,347 7,094 69 (13) - ------------------------------------------------------------------------------------------------------------ Operating income ................ 79,343 69,276 58,997 42,991 35,085 - ------------------------------------------------------------------------------------------------------------ Nonoperating income: Gain (loss) on disposal of equipment, net (48) (36) 31 (123) 65 Interest income, net of expense ......... 2,492 2,315 1,416 839 264 - ------------------------------------------------------------------------------------------------------------ Total nonoperating income ....... 2,444 2,279 1,447 716 329 - ------------------------------------------------------------------------------------------------------------ Income before income taxes ...... 81,787 71,555 60,444 43,707 35,414 Income taxes .................................... 26,956 24,077 21,007 15,977 12,924 - ------------------------------------------------------------------------------------------------------------ Net income ...................... $ 54,831 47,478 39,437 27,730 22,490 ============================================================================================================ Basic earnings per share......... $ .28 .24 .20 .14 .12 ============================================================================================================ Diluted earnings per share ...... $ .28 .24 .20 .14 .12 ============================================================================================================ Cash dividends declared per share ............... $ .038 .030 .030 .030 .027 ============================================================================================================ Weighted average common shares outstanding ...... 194,020 193,956 193,931 193,895 193,889 ============================================================================================================ Weighted average common and common equivalent shares outstanding ... 194,669 194,239 194,177 194,123 194,167 ============================================================================================================
- ---------------------------------------------------------------------- December 31, -------------------------------------------- (in thousands) 1998 1997 1996 1995 1994 - ---------------------------------------------------------------------- Balance Sheet Data: Total assets .......... $ 348,908 296,858 245,759 199,000 165,042 Working capital ....... 60,472 70,899 52,274 37,687 33,421 Total long-term debt... 342 475 676 931 1,162 Shareholders' equity... 270,354 221,255 178,878 144,472 123,004
21 Financial Review This Financial Review provides a discussion of the results of operations, financial condition, liquidity and capital resources of TSYS and creates awareness of the factors that have affected its recent earnings, as well as those factors that may affect its future earnings. The accompanying Consolidated Financial Statements and related Notes and Selected Financial Data are an integral part of this Financial Review and should be read in conjunction with it. Results of Operations Revenues TSYS' revenues are derived from providing bankcard data processing and related services to banks and other institutions under long-term processing contracts. TSYS' services are provided through the Company's cardholder systems, TS2 and TS1, to financial institutions and other organizations throughout the United States, Mexico, Puerto Rico, Canada, and the Caribbean. Bankcard data processing revenues are generated primarily from charges based on the number of accounts billed, transactions and authorizations processed, credit bureau requests, credit cards embossed and mailed, and other processing services for cardholder accounts on file. Cardholder accounts on file include active and inactive issuer, private-label, and commercial card accounts. Due to the expanding use of bankcards and the increase in the number of cardholder accounts processed by TSYS, as well as increases in the scope of services offered, revenues relating to bankcard data processing services have continued to grow. Processing contracts with large 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 and activity of individual cardholder accounts processed for each customer. Due to the seasonal nature of the credit card industry, TSYS' revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season. Furthermore, growth in card portfolios of existing customers, the conversion of cardholder accounts of new customers to THE TOTAL SYSTEM, and the loss of cardholder accounts impact the results of operations from period to period. Another factor, among others, which may affect TSYS' revenues and results of operations from time to time is the sale by a customer of its business, its card portfolio or a segment of its accounts to a party which processes cardholder accounts internally or uses another third-party processor. Continuing consolidation in the financial services industry could favorably or unfavorably impact TSYS' financial condition and results of operations in the future. The average number of cardholder accounts on file increased 15.9% to 101.1 million in 1998, compared to 87.2 million in 1997, which represented a 21.1% increase over 72.0 million in 1996. At December 31, 1998, TSYS' cardholder accounts on file were approximately 117.6 million, up from 92.8 million and 79.4 million at December 31, 1997 and 1996, respectively. TSYS had approximately 62.8 million accounts being processed on TS2 at year-end 1998, compared to 19.2 million at year-end 1997 and 6.3 million at year-end 1996. The increase in cardholder accounts on file at December 31, 1998, as compared to December 31, 1997, was the result of new customers, portfolio acquisitions and the internal growth of our customers. Approximately 13.3 million accounts added during 1998 were due to new customers and portfolio acquisitions by existing customers. TSYS and Visa U.S.A. Inc. formed a joint venture, known as Vital Processing Services L.L.C. (Vital), which became operational on May 1, 1996. The joint venture offers fully integrated merchant transaction and related electronic information services to financial and nonfinancial institutions and their merchant customers. Vital is structured with its own management team and separate Board of Directors and has its corporate headquarters in Tempe, Arizona. Revenues and expenses associated with TSYS' merchant processing operations through April 1996 were included in TSYS' revenues and expenses. Effective May 1, 1996, these operations were transferred to Vital, and TSYS' share of Vital's results of operations are included in equity in the income of joint ventures. This change in classification of the Company's revenues and expenses from its merchant processing operations to an equity interest in the Vital joint venture affects the comparability of the Company's statements of income for certain periods. Since 1994, TSYS has been providing processing services for commercial cards which include purchasing cards, corporate cards and fleet cards for employees. At December 31, 1998, TSYS was processing approximately 8.6 million commercial card accounts, a 72.8% increase over the approximately 5.0 million being processed at 22 TOTAL SYSTEM SERVICES, INC(R) 1998 ANNUAL REPORT year-end 1997, representing a 58.0% increase over the 3.1 million at year-end 1996. A significant amount of the Company's revenues are derived from long-term contracts with large customers, including certain major customers. Two of the Company's customers, NationsBank and Bank of America, merged effective September 30, 1998. The new parent company of these entities is BankAmerica Corporation. During the first quarter of 1997, TSYS completed the conversion of Bank of America's cardholder accounts to TS2. In October 1997, the Company completed the conversion of NationsBank's cardholder accounts to TS2. The Company has long-term processing contracts with each of these customers, with NationsBank's ending in 2005 and Bank of America 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. BankAmerica Corporation accounted for approximately 21%, 20% and 13% of total revenues for the years ended December 31, 1998, 1997 and 1996, respectively. The loss of BankAmerica Corporation, or other major or significant customers, could have a material adverse effect on the Company's financial condition and results of operations. Near the end of the first quarter of 1998, AT&T completed the sale of its Universal Card Services (UCS) to Citibank, now a part of Citigroup after Citibank's merger with Travelers Group, Inc. Citibank accounted for approximately 13%, 15% and 17% of total revenues for the years ended December 31, 1998, 1997 and 1996, respectively. 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. Consumer credit card accounts represented 11.4% of total revenues derived by TSYS from UCS for the year ended December 31, 1998. TSYS' management believes that Citibank will continue to be a major customer in 1999, but will not be a major customer in 2000 and that the loss of revenues from UCS for the months of August through December 2000, should not have a material adverse effect on the Company's financial condition or results of operations for the year ending December 31, 2000. In May 1998, the Company announced the signing of a long-term processing agreement with Sears, Roebuck and Co. to convert and process its 65 million private-label accounts. TSYS successfully converted the first 7.2 million of these accounts to TS2 in October 1998. The conversion of the remainder of these accounts is anticipated to be completed during 1999. Revenues from other services consist primarily of revenues generated by TSYS' wholly owned subsidiaries, Columbus Depot Equipment Company (CDEC), TSYS Total Solutions, Inc. (TSI), and Columbus Productions, Inc. (CPI). CDEC provides TSYS customers with an option to lease certain equipment necessary for online communications and use of TSYS applications. TSI provides TSYS customers and others with mail and correspondence processing services and account solicitation services. CPI provides full-service commercial printing services to TSYS customers and others. Operating Expenses As a percentage of revenues, operating expenses decreased in 1998 to 83.2%, compared to 83.4% and 83.3% for 1997 and 1996, respectively. Operating expenses were $329.8 million in 1998, compared to $301.6 million in 1997, and $259.7 million in 1996. The principal increases in operating expenses resulted from the addition of personnel and equipment; the additional investment in property, equipment and software; the cost of materials associated with the services provided by all companies, particularly the supplies related to processing the increased number of accounts on THE TOTAL Bankcard Revenues Operating Income (Millions of Dollars (Millions of Dollars) 98 $350.3 98 $79.3 97 $324.7 97 $69.3 96 $277.9 96 $59.0 95 $219.0 95 $43.0 94 $166.2 94 $35.1 23 The following table sets forth certain revenue and expense items as a percentage of total revenues and the percentage increase or decrease in those items from the table of Selected Financial Data:
Percentage Change in Dollar Amounts ----------------- Percentage of Total Revenues 1998 1997 Years Ended December 31, vs vs 1998 1997 1996 1997 1996 Revenues: Bankcard data processing services ....... 88.4% 89.8 89.2 7.9 16.9 Other services .......................... 11.6 10.2 10.8 24.7 8.9 ----- ----- ----- Total revenues .................. 100.0 100.0 100.0 9.6 16.0 ----- ----- ----- Expenses: Salaries and other personnel expense .... 40.6 40.8 39.9 9.1 18.7 Net occupancy and equipment expense ..... 26.7 26.2 26.3 11.6 15.3 Other operating expenses ................ 15.9 16.4 17.1 6.5 11.4 ----- ----- ---- Total operating expenses ........ 83.2 83.4 83.3 9.4 16.1 ----- ----- ---- Equity in income of joint ventures ...... 3.2 2.6 2.2 38.8 31.8 ----- ----- ---- Operating income ................ 20.0 19.2 18.9 14.5 17.4 ----- ----- ---- Nonoperating income: Gain (loss) on disposal of equipment, net (0.0) (0.0) 0.0 nm nm Interest income, net of expense ......... 0.6 0.6 0.5 7.7 63.5 ----- ----- ---- Total nonoperating income ....... 0.6 0.6 0.5 7.2 57.5 ----- ----- ---- Income before income taxes ...... 20.6 19.8 19.4 14.3 18.4 Income taxes .................................... 6.8 6.7 6.7 12.0 14.6 ----- ----- ---- Net income ...................... 13.8% 13.1 12.7 15.5 20.4 ===== ===== ==== nm = not meaningful
SYSTEM; and certain costs associated with ongoing enhancements to TS2, as well as certain costs associated with the conversion of customers to TS2. Salaries and other personnel expense increased 9.1% in 1998 over 1997, compared to 18.7% in 1997 over 1996. A significant portion of TSYS' operating expenses relates to salaries and other personnel costs. During 1998, the average number of employees increased to 3,382, compared to 2,895 in 1997 and 2,498 in 1996. In addition to the growth in the number of employees, the increase in salaries and other personnel costs is attributable to normal salary increases and related employee benefits. Employment costs capitalized as software development and contract acquisition costs were $19.4 million, $4.4 million and $4.9 million in 1998, 1997 and 1996, respectively. Due to the importance of technology to its business, a large portion of TSYS' employees are programmers -- approximately 26.0% in 1998, compared to 31.1% and 33.1% in 1997 and 1996, respectively. There can be no assurance that TSYS will be able to continue to recruit, hire and retain sufficient numbers of technical personnel necessary to support its continued growth. The Company participates in the state of Georgia's incentive program called Intellectual Capital Partnership Program (ICAPP). ICAPP is a commitment by the state of Georgia of up to $23 million for classrooms, teachers, computer equipment and high-tech training designed to meet Georgia businesses' needs for technical analysts, computer systems personnel and mainframe programmers into the next century. At December 31, 1998, approximately 376 graduates of these classes were full-time employees of TSYS. In February 1998, TSYS announced the formation of TSYS Canada, Inc. (TCI), a wholly owned subsidiary incorporated in the state of Georgia and headquartered in Columbus. On February 1, 1998, TCI opened an office in Welland, Ontario, Canada, which currently employs 22 programmers who are providing support and assistance with the conversion of card portfolios to TS2. 24 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT Net occupancy and equipment expense increased 11.6% in 1998 over 1997, compared to 15.3% in 1997 over 1996. Computer equipment and software rentals, which represent the largest component of net occupancy and equipment expense, increased $3.1 million, or 6.2%, in 1998 compared to 1997, and $6.7 million, or 15.5%, in 1997 compared to 1996. Due to rapidly changing technology in computer equipment, TSYS' equipment needs are achieved through operating leases. The decline in the rate of increase in equipment and software rentals is due mainly to replacing leases of old technology with new leases at lower costs. During 1998, the Company made significant investments in computer software licenses related to the new East Center and to accommodate increased volumes due to the expected growth in the number of accounts associated with new customers. As a result, increased amortization of computer software costs accounts for the majority of the change in net occupancy and equipment. TSYS continues to monitor and assess its building and equipment needs as it positions itself for future growth and expansion. In 1997, construction began on a campus-type facility which will serve as the Company's corporate headquarters; house administrative, client contact and programming team members; and allow for significant growth. The Company has entered into an operating lease agreement relating to the new corporate campus. Under the agreement, the lessor has purchased the properties, is paying the construction and development costs and has leased the facilities to the Company commencing upon its completion. The lease provides for substantial residual value guarantees and includes purchase options at the original cost of the property. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property will be 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 to this facility by the end of the third quarter of 1999. With the move to the corporate campus, the Company will not renew leases on certain facilities. The Company estimates the increase in net occupancy and equipment expenses related to occupying the campus, to be approximately $5.3 million in 1999, and $7.0 million in 2000, net of the relinquished lease obligations. In addition, TSYS began an expansion of its operations center in north Columbus during 1997, which was completed in 1998. The Company moved its card production services from downtown Columbus into the new addition in December 1998. A separate building was completed on the North Center property in 1997 to serve as TSI's headquarters. In 1998, TSYS also purchased 18 acres of land containing a 104,000 square-foot building in east Columbus. The building has been prepared as an additional data center and was placed in service during the fourth quarter of 1998. Other operating expenses increased 6.5% in 1998 compared to 1997 and 11.4% in 1997 compared to 1996. The growth in other operating expenses in 1998 is primarily due to increased travel and other business development costs associated with exploring new business opportunities. Operating Income Operating income increased 14.5% to $79.3 million in 1998, compared to $69.3 million in 1997, an increase of 17.4% over 1996 operating income of $59.0 million. Equity in income of TSYS' two joint ventures contributed significantly to the increase in operating income in 1998, primarily as a result of the strong earnings growth of Vital. Excluding equity in income of joint ventures, operating income increased 10.7% to $66.4 million, compared to $59.9 million in 1997, and increased 15.5% over the amount for 1996 of $51.9 million. The increases in operating income are due to increased revenues combined with a focus on expense control. The operating income margin increased to 20.0% in 1998, compared to 19.2% and 18.9% in 1997 and 1996, respectively. Nonoperating Income Interest expense decreased in 1998 and 1997 due to the decreasing level of outstanding long-term debt. Interest income increased in 1998 and in 1997 due to increases in cash available for investment. Additionally, in the third quarter of 1996, $5.0 million was invested in a six-month certificate of deposit with a related party at a market rate of interest; the certificate of deposit was redeemed at maturity in the first quarter of 1997. 25 Income Taxes Income tax expense was $27.0 million, $24.1 million and $21.0 million in 1998, 1997 and 1996, respectively, representing effective income tax rates of 33.0%, 33.6% and 34.8%, respectively. The decline in TSYS' effective income tax rate for 1998, as compared to 1997 and 1996, is attributable to certain effective income tax planning strategies, including the identification and recognition of research and experimentation credits for ongoing development activities, foreign tax credits associated with the Mexican joint venture, and a reduction in state income taxes due to favorable tax legislation. Net Income Net income increased 15.5% to $54.8 million (basic and diluted earnings per share of $.28) in 1998 compared to 1997. In 1997, net income increased 20.4% to $47.5 million (basic and diluted earnings per share of $.24) compared to $39.4 million (basic and diluted earnings per share of $.20) in 1996. The increase in net income is attributable to increased operating revenues combined with an emphasis on expense control. Financial Condition, 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 for funding its operations and growth has been cash generated from current operations, lease financing and the occasional use of borrowed funds to supplement financing of capital expenditures. The major uses of cash generated from operations have been the addition of property and equipment and computer software; investment in contract acquisition costs; and the payment of cash dividends. During 1998, TSYS purchased and leased computer hardware and related equipment, including software, to establish the East Center data center and to accommodate future growth. Capital expenditures for property and equipment were $37.0 million in 1998, compared to $18.0 million in 1997, and $19.4 million in 1996. Expenditures for purchased computer software were $29.5 million in 1998, compared to $14.1 million in 1997 and $9.0 million in 1996. Additions to capitalized software development costs, principally enhancements to TS2, were $10.0 million in 1998, $997,000 in 1997 and $178,000 in 1996. The Company's investments in contract acquisition costs were $20.1 million in 1998, $17.6 million in 1997, and $7.9 million in 1996. These amounts include both cash payments for processing rights and other conversion related costs. The increases in 1998 and 1997 were primarily attributable to conversions and new customer activity. At December 31, 1998, TSYS' total investment in TSYS de Mexico was $7.4 million. At December 31, 1996, cumulative currency translation adjustments had decreased the Company's equity investment in TSYS de Mexico by $2.0 million and resulted in a cumulative currency translation adjustment, net of income taxes, of $1.2 million. During the years ended December 31, 1998 and 1997, due to Mexico's highly inflationary economy, TSYS expensed all currency translation adjustments. The Mexican economy was declared not to be highly inflationary effective January 1, 1999. As a result, TSYS will reflect currency translation adjustments in 1999 and future years as an adjustment to the Company's equity investment in TSYS de Mexico and in accumulated other comprehensive income. Effective January 1, 1999, TSYS acquired Partnership Card Services (PCS) from its majority shareholder, CB&T, the flagship bank of Synovus Financial Corp., in exchange for 854,042 newly issued shares of TSYS common stock. 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. PCS has become part of TSYS' wholly owned subsidiary, TSI, and is expected to contribute in excess of $15 million to TSYS' revenues in 1999. This transaction increased CB&T's ownership of TSYS to 80.8%. In April 1998, TSYS announced a three-for-two common stock split, which was effected in May 1998. At the same time, the Company increased its quarterly dividend 33.3% to $.01 from $.0075 per share. Total dividends declared on TSYS common stock were $7.3 million in 1998 and $5.8 million in 1997 and 1996, respectively. During 1996, TSYS announced its decision to build a new campus-type facility on approximately 46 acres of land in downtown Columbus, Georgia. The decision was based on a commitment by the state of Georgia to provide collegiate high-tech education and cooperation by the city of Columbus in making available a suitable building site. The campus facility will consolidate most of TSYS' multi- 26 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT ple Columbus locations and will facilitate future growth. The campus develop- ment is a multibuilding, multiyear phased project; initial construction was begun in 1997. The Company has entered into an operating lease agreement relating to the new corporate campus. Lease payments will commence in 1999 and did not affect TSYS' results of operations or financial condition in 1998. In addition, TSYS completed two construction projects in 1998, costing approximately $25 million -- the North Center expansion and the construction of an additional state-of-the-art data center -- the new East Center. 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 economies of scale through utilization of more efficient computer hardware and software, it can minimize the impact of inflation. 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 December 31, 1998, TSYS had working capital of $60.5 million, compared to $70.9 million in 1997 and $52.3 million in 1996. Management believes that outside sources for capital will be available to finance expansion projects and possible acquisitions should the Company decide to pursue such financing. 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. 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. In 1996, TSYS formed the TSYS Year 2000 Project Office to address the issues associated with its computer systems and business functions through the turn of the century. The TSYS Y2K Project Office serves as the nucleus for the overall company compliance effort. The project continues to be under the direction of a senior vice president and consists of a project team representing all areas within Total System Services, Inc. The progress of the Y2K Project Office is reported to the Board of Directors and Executive Steering Committee on a regular basis. Project Phases TSYS has organized its Y2K remediation efforts into five phases: Awareness, Assessment, Renovation, Validation and Implementation. The first phase of TSYS' Year 2000 effort is 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 is Assessment, which included performing a system wide scan of millions of lines of code to determine which lines of code were date impacted. The lines of code identified as noncompliant were earmarked for renovation. A plan for compliance was placed into action, which included methodology, milestones and a timeline for verification. TSYS also assessed the Year 2000 readiness of its 70 vendors who provide mission critical systems. Only 2.4% of the products used from these vendors were determined to be noncompliant. These noncompliant products are monitored and should be compliant by March 31, 1999. As of December 31, 1998, TSYS had completed the Assessment phase of the Year 2000 project. The third phase of the Y2K Project is 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 27 July 1998. As of December 31, 1998, TSYS had completed the Renovation phase of the Year 2000 project. 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 is 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, and Month and Quarter end dates were tested. This phase concluded during October, and results were sent to customers in November and December 1998. 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) will be repeated during the three test iterations. As of December 31, 1998, the Implementation phase of the Year 2000 Project had commenced, with all aspects expected to be completed by June 30, 1999. Clients will be allowed to test on the stand-alone testing environment until August 2, 1999. Contingency Planning Another significant aspect of the Year 2000 Project is Contingency Planning, which is a process to ensure that TSYS can continue operations in the event that information technology systems, noninformation technology systems, or business relationships with vendors are not Year 2000 compliant. In January 1999, TSYS refined its Business Resumption Contingency Plan, or Y2K Day Plan, which is based on the TSYS Disaster Recovery Plan. 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 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 processing status, 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 in case of a power failure to keep their fuel pumps operational. 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. 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. 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 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. Cost 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 1998, TSYS incurred $7 million of direct costs associated with the Year 2000 Project and has incurred $9 million since project inception. 28 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT 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. Forward-Looking Statements Certain statements contained in this Annual Report 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 revenues, 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, services or conversions; (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. Such forward-looking statements speak only as of the date on which such statements are made, and TSYS undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. 29
Consolidated Balance Sheets December 31, - --------------------------------------------------------------------------------------------------------------------------------- 1998 1997 - --------------------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents (includes $9.4 million and $40.6 million on deposit with a related party at 1998 and 1997, respectively) $ 9,555,760 43,335,922 Short-term investments -- 998,228 Accounts receivable, net of allowance for doubtful accounts of $711,000 and $736,000 at 1998 and 1997, respectively 84,795,727 69,450,919 Prepaid expenses and other current assets 25,370,604 18,620,638 - --------------------------------------------------------------------------------------------------------------------------------- Total current assets 119,722,091 132,405,707 Property and equipment, net (Note 3) 92,619,005 68,968,574 Computer software, net (Note 4) 65,861,735 43,133,137 Other assets (Notes 5 and 10) 70,705,481 52,350,519 - --------------------------------------------------------------------------------------------------------------------------------- Total assets $ 348,908,312 296,857,937 ================================================================================================================================= Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 7,403,023 6,400,365 Accrued salaries and employee benefits 24,643,449 20,551,948 Current portion of long-term debt and obligations under capital leases 130,781 132,416 Other current liabilities (includes $1.7 and $1.2 million payable to related parties at 1998 and 1997, respectively) (Note 10) 27,072,542 34,421,668 - -------------------------------------------------------------------------------------------------------------------------------- Total current liabilities 59,249,795 61,506,397 Long-term debt and obligations under capital leases, excluding current portion 211,316 342,096 Deferred income taxes (Note 7) 19,093,482 13,754,688 - --------------------------------------------------------------------------------------------------------------------------------- Total liabilities 78,554,593 75,603,181 - --------------------------------------------------------------------------------------------------------------------------------- Shareholders' equity (Notes 2 and 6): Common stock -- $.10 par value. Authorized 300,000,000 shares; 194,225,045 issued at 1998 and 194,225,283 at 1997; 194,043,785 and 193,995,337 outstanding at 1998 and 1997, respectively 19,422,504 19,422,528 Additional paid-in capital 1,882,814 459,073 Accumulated other comprehensive income (1,179,337) (1,178,182) Retained earnings 250,227,738 202,551,337 - --------------------------------------------------------------------------------------------------------------------------------- Total shareholders' equity 270,353,719 221,254,756 - --------------------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 9) Total liabilities and shareholders' equity $ 348,908,312 296,857,937 =================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 30 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT Consolidated Statements of Income
Years Ended December 31, - ---------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Revenues: Bankcard data processing services (includes $31.7 million, $29.2 million and $24.9 million from related parties for the years ended December 31, 1998, 1997 and 1996, respectively) $ 350,309,833 324,717,864 277,869,778 Other services 45,884,235 36,781,535 33,778,571 - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues (Notes 2 and 11) 396,194,068 361,499,399 311,648,349 - ---------------------------------------------------------------------------------------------------------------------------------- Expenses: Salaries and other personnel expense 160,854,929 147,438,458 124,258,754 Net occupancy and equipment expense 105,658,033 94,685,343 82,117,603 Other operating expenses (includes $10.9 million, $10.4 million and $9.7 million to related parties for the years ended December 31, 1998, 1997 and 1996, respectively) 63,312,582 59,446,283 53,368,464 - ---------------------------------------------------------------------------------------------------------------------------------- Total operating expenses (Note 2) 329,825,544 301,570,084 259,744,821 - ---------------------------------------------------------------------------------------------------------------------------------- Equity in income of joint ventures 12,974,348 9,347,183 7,093,600 - ---------------------------------------------------------------------------------------------------------------------------------- Operating income 79,342,872 69,276,498 58,997,128 - ---------------------------------------------------------------------------------------------------------------------------------- Nonoperating income (expense): Gain (loss) on disposal of equipment, net (48,470) (35,632) 31,576 Interest income, net of expense (includes $2.3 million, $2.1 million and $1.4 million from a related party for the years ended December 31, 1998, 1997 and 1996, respectively) 2,492,725 2,315,043 1,415,700 - ---------------------------------------------------------------------------------------------------------------------------------- Total nonoperating income (Note 2) 2,444,255 2,279,411 1,447,276 - ---------------------------------------------------------------------------------------------------------------------------------- Income before income taxes 81,787,127 71,555,909 60,444,404 Income taxes (Note 7) 26,955,984 24,077,437 21,007,223 - ---------------------------------------------------------------------------------------------------------------------------------- Net income $ 54,831,143 47,478,472 39,437,181 ================================================================================================================================== Basic earnings per share $ .28 .24 .20 ================================================================================================================================== Diluted earnings per share $ .28 .24 .20 ================================================================================================================================== Weighted average common shares outstanding 194,019,689 193,956,373 193,931,240 Increase due to assumed issuance of shares related to stock options outstanding 649,762 282,183 245,407 - ---------------------------------------------------------------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding 194,669,451 194,238,556 194,176,647 ==================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 31 Consolidated Statements of Cash Flows
Years Ended December 31, - ---------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 54,831,143 47,478,472 39,437,181 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of joint ventures (12,974,348) (9,347,183) (7,093,600) Depreciation and amortization 37,473,673 29,141,073 23,106,775 Provision for doubtful accounts 18,000 94,000 94,500 Deferred income tax expense (benefit) 5,338,794 (1,546,790) 1,600,583 (Gain) loss on disposal of equipment, net 48,470 35,632 (31,576) (Increase) decrease in: Accounts receivable (15,362,807) (10,500,389) (9,524,251) Prepaid expenses and other assets (5,088,094) (1,860,648) (1,815,428) Increase (decrease) in: Accounts payable 1,002,658 1,711,896 (1,122,865) Accrued expenses and other current liabilities (2,341,598) 9,911,535 13,345,580 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 62,945,891 65,117,598 57,996,899 - ---------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Purchase of property and equipment (36,998,466) (18,033,160) (19,369,373) Additions to computer software (39,502,459) (15,106,064) (9,195,856) Proceeds from disposal of equipment 86,669 74,797 657,699 Investment in joint ventures -- -- (2,482,939) Dividends received from joint ventures 5,618,616 3,252,561 -- Increase in contract acquisition costs (20,104,849) (17,557,631) (7,889,846) Purchase of short-term investments -- (998,228) (5,000,000) Redemption of short-term investments 998,228 5,000,000 -- - ---------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (89,902,261) (43,367,725) (43,280,315) - ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments on long-term debt and capital lease obligations (132,415) (201,275) (254,954) Dividends paid on common stock (6,790,492) (5,818,326) (5,817,756) Proceeds from exercise of stock options 99,115 109,593 2,560 - ---------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (6,823,792) (5,910,008) (6,070,150) - ---------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (33,780,162) 15,839,865 8,646,434 Cash and cash equivalents at beginning of year 43,335,922 27,496,057 18,849,623 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 9,555,760 43,335,922 27,496,057 - ---------------------------------------------------------------------------------------------------------------------- Cash paid for interest (net of capitalized amounts) $ 29,399 46,691 62,129 - ---------------------------------------------------------------------------------------------------------------------- Cash paid for income taxes (net of refunds received) $ 27,167,086 22,908,026 22,890,244 - ----------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements. 32 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT
Consolidated Statements of Shareholders' Equity Years Ended December 31, 1998, 1997 and 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Accumulated Additional Other Common Stock Paid-in Comprehensive Retained ------------------------ Shares Amount Capital Income Earnings Total - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1995 194,192,316 $19,419,231 -- (1,052,081) 126,104,871 $144,472,021 Comprehensive income: Net income -- -- -- -- 39,437,181 39,437,181 Other comprehensive income, net of tax: Foreign currency translation adjustments -- -- -- (126,101) -- (126,101) ----------- Other comprehensive income -- -- -- -- -- (126,101) ----------- Comprehensive income -- -- -- -- -- 39,311,080 Common stock issued in acquisitions 32,967 3,297 309,203 -- -- 312,500 Common stock issued from treasury shares for exercise of stock options -- -- 315 -- 2,245 2,560 Amortization of restricted stock awards -- -- -- -- 582,267 582,267 Cash dividends declared ($.030 per share) -- -- -- -- (5,818,014) (5,818,014) Tax benefit associated with stock awards -- -- 15,333 -- -- 15,333 - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 194,225,283 19,422,528 324,851 (1,178,182) 160,308,550 178,877,747 Comprehensive income: Net income -- -- -- -- 47,478,472 47,478,472 Other comprehensive income, net of tax: Foreign currency translation adjustments -- -- -- -- -- -- ----------- Other comprehensive income -- -- -- -- -- -- ----------- Comprehensive income -- -- -- -- -- 47,478,472 Common stock issued from treasury shares for exercise of stock options -- -- 102,434 -- 95,843 198,277 Amortization of restricted stock awards -- -- -- -- 487,242 487,242 Cash dividends declared ($.030 per share) -- -- -- -- (5,818,770) (5,818,770) Tax benefit associated with stock awards -- -- 31,788 -- -- 31,788 - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1997 194,225,283 19,422,528 459,073 (1,178,182) 202,551,337 221,254,756 Comprehensive income: Net income -- -- -- -- 54,831,143 54,831,143 Other comprehensive income, net of tax: Foreign currency translation adjustments -- -- -- (1,155) -- (1,155) ----------- Other comprehensive income -- -- -- -- -- (1,155) ----------- Comprehensive income -- -- -- -- -- 54,829,988 Common stock issued from treasury shares for exercise of stock options -- -- 91,292 -- 76,913 168,205 Amortization of restricted stock awards -- -- -- -- 44,325 44,325 Cash paid for fractional shares in lieu of stock dividend (238) (24) (4,738) -- -- (4,762) Cash dividends declared ($.038 per share) -- -- -- -- (7,275,980) (7,275,980) Tax benefit associated with stock awards -- -- 1,337,187 -- -- 1,337,187 - ---------------------------------------------------------------------------------------------------------------------------------- At December 31, 1998 194,225,045 $19,422,504 1,882,814 (1,179,337) 250,227,738 $270,353,719 ==================================================================================================================================
33 See accompanying Notes to Consolidated Financial Statements. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 Basis of Presentation and Summary of Significant Accounting Policies Business: Total System Services, Inc. (TSYS or the Company) is an 80.8% owned subsidiary of Columbus Bank and Trust Company (CB&T) which is a wholly owned subsidiary of Synovus Financial Corp. (Synovus). Synovus' stock is traded on the NYSE under the symbol "SNV." TSYS provides bankcard data processing and related services to banks and other card-issuing institutions. TSYS' services are provided to financial institutions and other organizations throughout the United States, Mexico, Puerto Rico, Canada and the Caribbean. Principles of Consolidation and Basis of Presentation: The accompanying consolidated financial statements of Total System Services, Inc. include the accounts of TSYS and its wholly owned subsidiaries, Columbus Depot Equipment Company, TSYS Total Solutions, Inc., Columbus Productions, Inc. and TSYS Canada, Inc. Significant intercompany accounts and transactions have been eliminated in consolidation. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Investments in Joint Ventures: TSYS' 49% investment in Total System Services de Mexico, S.A. de C.V. (TSYS de Mexico), a bankcard data processing operation located in Mexico, is accounted for using the equity method of accounting, as is TSYS' 50% investment in Vital Processing Services L.L.C. (Vital), a merchant processing operation headquartered in Tempe, Arizona. Property and Equipment: Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over 2-40 years, computer equipment over 2-5 years, and furniture and other equipment over 3-15 years. Computer Software: The Company capitalizes software development costs incurred from the time technological feasibility of the software product or enhancement is established until the software is ready for use in providing processing services to customers. Research and development costs and computer software maintenance costs are expensed as incurred. Software development costs related to the core TS2 are amortized using the greater of (1) the straight-line method over the estimated useful life of 10 years or (2) the ratio of current revenues to current and anticipated revenues. All other software development costs and costs of purchased computer software are amortized using the greater of (1) the straight-line method over the estimated useful life not to exceed five years or (2) the ratio of current revenues to current and anticipated revenues. The carrying value of computer software costs is reviewed for impairment by the Company, and impairments are recognized when the expected undiscounted future operating cash flows derived from such intangible assets are less than their carrying value. If such review indicates impairment, the Company uses fair value in determining the amount that should be written off. Revenue Recognition: The Company's bankcard data processing revenues are derived from long-term processing contracts with banks and other institutions and are recognized as revenues at the time the services are performed. The Company's service contracts generally contain original terms ranging from three to ten years. Contract Acquisition Costs: The Company capitalizes certain contract acquisition costs related to signing or renewing long-term contracts. These costs, which primarily consist of cash payments for rights to provide processing services, incremental internal conversion and software development costs, and third-party software development costs, are amortized using the straight-line method over the contract term beginning when the cus- 34 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT tomer's cardholder accounts are converted to the Company's processing system. The Company evaluates the carrying value of contract acquisition costs for impairment on the basis of whether these costs are fully recoverable from expected undiscounted future operating cash flows of the related contract. If such review indicates impairment, the Company uses fair value in determining the amount that should be written off. All costs incurred prior to contract execution are expensed as incurred. Goodwill: Goodwill results from the excess of cost over the fair value of net assets of businesses acquired and is being amortized using the straight-line method over periods of five to 15 years. The Company reviews goodwill for impairment on the basis of whether the goodwill is fully recoverable from expected undiscounted operating cash flows of the related business units. If such review indicates impairment, the Company uses fair value in determining the amount that should be written off. Income Taxes: Income tax expense reflected in TSYS' consolidated financial statements is computed based on the taxable income of TSYS as a separate entity. A consolidated federal income tax return is filed for Synovus and its majority owned subsidiaries, including TSYS. The Company accounts for income taxes in accordance with the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Cash Flow Reporting: Investments with a maturity of three months or less when purchased are considered to be cash equivalents. Earnings per Share: Basic earnings per share (EPS) is calculated as income available to common stockholders divided by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated to reflect the potential dilution that would occur if stock options or other contracts to issue common stock were exercised and resulted in additional common stock that would share in the earnings of the Company. Fair Values of Financial Instruments: The Company uses financial instruments in the normal course of its business. The carrying values of cash equivalents, accounts receivable, accounts payable, accrued salaries and employee benefits, and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The investments in joint ventures are accounted for by the equity method and pertain to privately held companies for which a fair value is not readily available. The Company believes the fair values of its investments in joint ventures exceed their respective carrying values. Foreign Currency Translation: Foreign currency financial statements of the Company's Mexican joint venture and the Company's wholly owned Canadian subsidiary are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses, and net income which are translated at the average exchange rates for each reporting period. Through December 31, 1996, net exchange gains or losses resulting from the translation of assets and liabilities of the Company's Mexican operations, net of tax, were accumulated in a separate section of shareholders' equity titled Cumulative Currency Translation Adjustments. 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 years ended December 31, 1998 and 1997, were expensed. Comprehensive Income: Statement of Financial Accounting Standards No. 130 (SFAS 130) "Reporting Comprehensive Income" requires companies to display, with the same prominence as other financial statements, 35 the components of comprehensive income. TSYS displays the items of other comprehensive income in its consolidated statement of shareholders' equity. Reclassifications: Certain reclassifications have been made to the 1997 and 1996 Financial statements to conform to the presentation adopted in 1998. NOTE 2 Relationship with Affiliated Companies At December 31, 1998, CB&T owned 156,601,938 shares (approximately 80.7%) of TSYS common stock. On January 1, 1999, TSYS issued 854,042 newly issued shares to CB&T in exchange for its business unit, Partnership Card Services (PCS). The transaction increased CB&T's ownership to approximately 80.8% of TSYS common stock. TSYS has entered into agreements with CB&T and certain of its affiliates, pursuant to which TSYS performs bankcard data processing services. Such bankcard data processing service revenues were $4,225,439, $2,609,762 and $1,809,847 during the years ended December 31, 1998, 1997 and 1996, respectively. Miscellaneous data processing services performed by TSYS for certain Synovus nonbanking affiliates generated revenues of $175,801, $148,036 and $128,411 during the years ended December 31, 1998, 1997 and 1996, respectively; these revenues are included in bankcard data processing services. Bankcard data processing revenues related to TSYS de Mexico, the Company's Mexican joint venture, were $17,362,650, $18,365,224 and $18,201,357 for the years ended December 31, 1998, 1997 and 1996, respectively. Merchant processing revenues, included in bankcard data processing revenues, related to Vital, the Company's joint venture with Visa, were $9,873,293, $8,115,010 and $4,755,406 for the years ended December 31, 1998, 1997 and 1996. Revenues from other services provided by TSYS to Synovus and its affiliates were $1,539,009, $1,110,899 and $920,703 during the years ended December 31, 1998, 1997 and 1996, respectively. TSYS maintains an unsecured credit agreement with CB&T. The credit agreement has a maximum available principal balance of $5.0 million, with interest at prime. TSYS did not use the credit facility during 1998 or 1997. In 1998, 1997 and 1996, TSYS received interest income of $2,342,416, $2,075,315 and $1,392,543, respectively from CB&T. In 1997, TSYS paid CB&T interest expense of $123,420 on a short-term construction loan, all of which was capitalized. During 1998, 1997 and 1996, Synovus Technologies, Inc.(STI) paid TSYS $248,187, $224,154 and $303,554, respectively, for data links, network services and other miscellaneous items. TSYS leases a portion of its facilities from STI and CB&T, and leases portions of the buildings it owns to CB&T. TSYS made lease payments for office facilities to STI of $220,000 in 1998, and $240,000 in 1997 and 1996. Lease payments made to CB&T amounted to $72,515 in 1998 and $53,790 in 1997 and in 1996. Lease payments received from CB&T amounted to $18,411 in 1998, and $11,628 in each of 1997 and 1996. TSYS has entered into a management agreement with Synovus pursuant to which TSYS pays for management, legal and tax services provided by Synovus. Such management fees amounted to $1,283,494, $1,216,089 and $1,079,706 for the years ended December 31, 1998, 1997 and 1996, respectively. TSYS maintains an agreement with Synovus Service Corp. (SSC), to provide human resource, payroll, security, maintenance and other administrative services to TSYS and other affiliated companies. TSYS paid SSC $9,892,790, $9,232,001 and $8,583,648 for these services in 1998, 1997 and 1996, respectively. TSYS received $26,169 in 1998 and 1997 and $107,449 in 1996 in rent from SSC. TSYS also received $199,492 in 1998 for data processing provided to SSC. TSYS made lease payments to SSC for $27,690 in 1998, $31,274, in 1997, and $34,472 in 1996. TSYS maintains deposit accounts with CB&T, the majority of which are interest-earning and on which TSYS receives market rates of interest. Included in cash and cash equivalents are deposit balances with CB&T of $9.4 million and $40.6 million at December 31, 1998 and 1997, respectively. In 1996, TSYS also had a $5.0 million certificate of deposit with CB&T. In the first quarter of 1997, the certificate of deposit was redeemed at maturity for face value. Certain officers of TSYS and other TSYS employees participate in the Synovus Incentive Plans. These officers were granted restricted stock awards and nonqualified 36 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT options to acquire Synovus common stock in 1998, 1997 and 1996 as follows:
- -------------------------------------------------------------------------------- Number of Shares 1998 1997 1996 - -------------------------------------------------------------------------------- Restricted stock awards -- -- 79,537 Stock options 849,431 545,875 512,766
The restricted stock awards were valued at the price paid for the Synovus shares at the date of grant of $764,422, which is being amortized as compensation expense over the five-year vesting period. The stock options were granted with an exercise price equal to the fair market value of Synovus common stock at the date of grant. The options vest and become exercisable over two to three years and expire eight to ten years from date of grant. The Company believes the terms and conditions of transactions between TSYS, CB&T, Synovus and other affiliated companies are comparable to those which could have been obtained in transactions with unaffiliated parties. NOTE 3 Property and Equipment
Property and equipment balances at December 31 are as follows: - ------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------ Land $ 2,784,807 2,784,807 Buildings and improvements 69,956,718 49,344,128 Computer equipment 49,738,864 42,284,153 Furniture and other equipment 46,883,429 37,861,608 Construction in progress 239,939 1,807,994 - ------------------------------------------------------------ 169,603,757 134,082,690 Less accumulated depreciation and amortization 76,984,752 65,114,116 - ------------------------------------------------------------ Property and equipment, net $ 92,619,005 68,968,574 ============================================================
Depreciation and amortization of property and equipment was $13,212,897, $11,935,776 and $10,478,116 for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 4 Computer Software
Computer software at December 31 is summarized as follows: - ------------------------------------------------------------------- 1998 1997 - ------------------------------------------------------------------- Purchased computer software $68,636,125 39,466,299 TS2 33,048,872 33,048,872 Other capitalized software development costs 14,853,415 4,832,892 - ------------------------------------------------------------------- 116,538,412 77,348,063 Less accumulated amortization 50,676,677 34,214,926 - ------------------------------------------------------------------- Computer software, net $65,861,735 43,133,137 ===================================================================
Capitalized software development costs for the years ended December 31, 1998, 1997 and 1996, were $10,020,523, $996,600 and $177,732, respectively. Amortization expense related to purchased computer software costs was $12,057,582, $7,212,571 and $4,146,670 for the years ended December 31, 1998, 1997 and 1996, respectively. Amortization of capitalized software development costs was $4,716,278, $4,455,148 and $4,483,193 for the years ended December 31, 1998, 1997 and 1996, respectively. NOTE 5 Investment in Joint Venture Effective May 1, 1996, the Company acquired a 50% equity interest in Vital, a joint venture with Visa U.S.A., which combined the front-end authorization and back-end accounting and settlement processing of merchants. The condensed financial information for Vital as of December 31, 1998 and 1997, and for the years ended December 31, 1998, 1997 and 1996, is as follows:
- ------------------------------------------------------------ 1998 1997 - ------------------------------------------------------------ Balance Sheet Data: Current assets $43,672,554 36,351,275 Total assets 61,168,324 47,808,873 Liabilities (all current) 19,553,332 19,918,736
- ------------------------------------------------------------------- 1998 1997 1996 - ------------------------------------------------------------------- Statement of Income Data: Revenues $124,953,705 109,664,816 65,148,693 Operating income 19,410,668 13,033,726 8,835,467 Net income* 20,726,039 13,978,454 9,018,908
*Vital is a limited liability company and is taxed in a manner similar to a partnership; therefore, net income related to Vital does not include income tax expense. NOTE 6 Shareholders' Equity Stock Split: In May 1998, the Company effected a three-for-two common stock split. All share and shareholders' equity amounts included herein have been restated to reflect the split for all periods presented. Treasury Stock: At December 31, 1998, 181,260 shares were held as treasury shares at a cost of $300,788. At December 31, 1997, 229,946 shares were held as treasury shares at a cost of $377,701. 37 Long-Term Incentive Plan: Total System Services, Inc. maintains a Long-Term Incentive Plan (LTI Plan) to attract, retain, motivate and reward employees who make a significant contribution to the Company's long-term success, and to enable such employees to acquire and maintain an equity interest in the Company. The LTI Plan is administered by the Compensation Committee of the Company's Board of Directors and enables the Company to grant stock options, stock appreciation rights, restricted stock and performance awards; 2.4 million shares of common stock were reserved for distribution under the LTI Plan. Options granted under the LTI Plan may be incentive stock options or non-qualified stock options as determined by the Committee at the time of grant. Incentive stock options are granted at a price not less than 100% of the fair market value of the stock on the grant date, and non-qualified options are granted at a price to be determined by the Committee. Option vesting terms are established by the Committee at the time of grant, and presently range from one to five years. The expiration date of options granted under the LTI Plan is determined at the time of grant and may not exceed ten years from the date of the grant. At December 31, 1998, there were options outstanding under the LTI Plan to purchase 1,640,600 shares of the Company's common stock, of which 317,600 shares were exercisable. There were no shares available for grant at December 31, 1998, under the LTI Plan. Additionally, options (not issued under the LTI Plan) to purchase 37,500 shares of the Company's common stock were outstanding at December 31, 1998, of which 12,500 were exercisable. A summary of the status of the Company's options granted as of December 31, 1998, 1997 and 1996, and changes during the years ended on those dates is presented below:
- ------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Price Options Exercise Price Options Exercise Price - --------------------------------------------------------------------------------------------------------------- Options: Outstanding at beginning of year 1,727,025 $ 11.86 283,500 $ 2.00 286,800 $ 2.00 Granted-- -- -- 1,507,500 13.30 -- -- Exercised (47,275) 2.00 (63,975) 2.00 (1,650) 2.00 Forfeited/canceled (1,650) 2.00 -- -- (1,650) 2.00 - -------------------------------------------------------------------------------------------------------- Outstanding at end of year 1,678,100 $ 12.15 1,727,025 $ 11.86 283,500 $ 2.00 - -------------------------------------------------------------------------------------------------------- Options exercis- able at year-end 330,100 $ 7.60 219,525 $ 2.00 -- $ -- - -------------------------------------------------------------------------------------------------------- Weighted average fair value of options granted during the year $ -- $ 5.31 $ -- - --------------------------------------------------------------------------------------------------------
The following table summarizes information about stock options outstanding at December 31, 1998:
Weighted Average Weighted Weighted Number Remaining Average Number Average Outstanding at Contractual Exercise Exercisable at Exercise December 31, 1998 Life Price December 31, 1998 Price - ------------------------------------------------------------------------------------------ 170,600 3.50 $ 2.00 170,600 $ 2.00 37,500 10.03 18.50 12,500 18.50 1,470,000 8.84 13.17 147,000 13.17 - ------------------------------------------------------------------------------------------ 1,678,100 8.32 $12.15 330,100 $ 7.60 - ------------------------------------------------------------------------------------------
38 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT The Company applies APB Opinion No. 25 and related interpretations in accounting for its plans. Had compensation cost for the Company's stock-based compensation plans been determined consistent with statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the unaudited pro forma amounts indicated at right. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: dividend yield of 0.0%; expected volatility of 41.6%; risk-free interest rate of 5.87%; and expected lives of 3.95 years for all options.
Years Ended December 31, 1998 1997 - -------------------------------------------------------------------------------- Net income applicable to common stockholders As reported $54,831,143 47,478,472 Pro forma 53,156,712 47,150,775 Basic earnings per share: As reported .28 .24 Pro forma .27 .24 Diluted earnings per share: As reported .28 .24 Pro forma .27 .24
NOTE 7 Income Taxes The provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The components of income tax expense included in the Consolidated Statements of Income were as follows:
- ----------------------------------------------------------------------------------------------- Years Ended December 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------------- Current income tax expense: Federal $20,669,630 24,267,412 17,710,103 State 947,560 1,356,815 1,696,537 - ----------------------------------------------------------------------------------------------- Total current income tax expense 21,617,190 25,624,227 19,406,640 - ----------------------------------------------------------------------------------------------- Deferred income tax expense (benefit): Federal 5,042,194 (1,460,857) 1,470,806 State 296,600 (85,933) 129,777 - ----------------------------------------------------------------------------------------------- Total deferred income tax expense (benefit): 5,338,794 (1,546,790) 1,600,583 - ----------------------------------------------------------------------------------------------- Total income tax expense $26,955,984 24,077,437 21,007,223 ===============================================================================================
Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 35% to income before income taxes as a result of the following:
- ----------------------------------------------------------------------------------------- Years Ended December 31, 1998 1997 1996 - ----------------------------------------------------------------------------------------- Computed "expected" income tax expense $ 28,625,494 25,044,568 21,155,541 Increase (decrease) in income tax expense resulting from: State income tax expense, net of federal income tax benefit 808,704 826,073 1,187,104 Foreign tax credits (1,473,788) (1,335,483) (1,170,111) Other, net (1,004,426) (457,721) (165,311) - ----------------------------------------------------------------------------------------- Total income tax expense $ 26,955,984 24,077,437 21,007,223 =========================================================================================
39 The tax effects of the significant components of deferred income tax assets and liabilities are presented in the following table:
- -------------------------------------------------------------------------------- At December 31, 1998 1997 - -------------------------------------------------------------------------------- Deferred income tax assets: Primarily reserves not deductible until paid $ 6,016,675 3,900,198 - -------------------------------------------------------------------------------- Deferred income tax liabilities: Computer software development costs (20,029,964) (13,694,728) Excess tax over financial statement depreciation (1,961,901) (1,778,442) Other, net (3,118,292) (2,181,716) - -------------------------------------------------------------------------------- Gross deferred income tax liability (25,110,157) (17,654,886) - -------------------------------------------------------------------------------- Net deferred income tax liability $(19,093,482) (13,754,688) ================================================================================
NOTE 8 Employee Benefit Plans The Company provides benefits to its employees by allowing employees to participate in certain defined contribution plans. These employee benefit plans are described as follows: Profit Sharing Plan: The Company's employees are eligible to participate in the Synovus Financial Corp./Total System Services, Inc. (Synovus/TSYS) Profit Sharing Plan. The Company's contributions to the plan are contingent upon achievement of certain financial goals. The terms of the plan limit the Company's contribution to 9% of participant compensation, as defined, not to exceed the maximum allowable deduction under Internal Revenue Service guidelines. TSYS' annual contributions to the plan charged to expense are as follows: - -------------------------------------------------------------------------------- 1998 $8,365,937 1997 6,828,175 1996 5,270,884 Money Purchase Plan: The Company's employees are eligible to participate in the Synovus/TSYS Money Purchase Pension Plan, a defined contribution pension plan. The terms of the plan provide for the Company to make annual contributions to the plan equal to 7% of participant compensation, as defined. The Company's contributions to the plan charged to expense are as follows: - -------------------------------------------------------------------------------- 1998 $6,438,388 1997 5,294,540 1996 3,925,699 401(k) Plan: The Company's employees are eligible to participate in the Synovus/TSYS 401(k) Plan. The terms of the plan allow employees to contribute up to 10% of pretax compensation with a discretionary company contribution up to a maximum of 5% of participant compensation, as defined, based upon the Company's attainment of certain financial goals. The Company's contributions to the plan charged to expense are as follows: - -------------------------------------------------------------------------------- 1998 $1,142,828 1997 21,861 1996 3,976,544 Stock Purchase Plan: The Company maintains stock purchase plans for directors and employees, whereby TSYS makes contributions equal to one-half of employee and director voluntary contributions. The funds are used to purchase presently issued and outstanding shares of TSYS common stock for the benefit of participants. TSYS' contributions to these plans charged to expense are as follows: - -------------------------------------------------------------------------------- 1998 $ 1,862,698 1997 1,588,618 1996 1,226,340 Postretirement Medical Benefits Plan: TSYS provides certain medical benefits to qualified retirees through a postretirement medical benefits plan. The benefit expense and accrued benefit cost associated with the plan are not significant to the Company's consolidated financial statements. 40 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT NOTE 9 Commitments and Contingencies Lease Commitments: TSYS is obligated under noncancelable operating leases for computer equipment and facilities. Management expects that, as these leases expire, they will be renewed or replaced by similar leases. In 1997, the Company entered into an operating lease agreement for the Company's new corporate campus. Under the agreement, which is guaranteed by Synovus Financial Corp., the lessor is paying for the construction and development costs and has leased the facilities to the Company commencing upon its completion for a term of three years. The lease provides for substantial residual value guarantees and includes purchase options at original cost of the property. The amount of the residual value guarantees relative to the assets under this lease is projected to be $87.0 million. The terms of this lease financing arrangement include, among other things, that the Company maintain certain minimum financial ratios and requires the Company to provide certain information to the lessor. The future minimum lease payments under noncancelable operating leases with remaining terms greater than one year for the next five years and thereafter in the aggregate as of December 31, 1998, are as follows: - -------------------------------------------------------------------------------- 1999 $ 74,427,637 2000 73,436,025 2001 38,824,296 2002 11,894,449 2003 and thereafter 1,718,669 - -------------------------------------------------------------------------------- $200,301,076 ================================================================================ Total rental expense under all operating leases in 1998, 1997 and 1996 was $55,926,412, $52,765,480 and $45,990,637, respectively. Contractual Commitments: In the normal course of its business, the Company maintains processing contracts with its customers. These processing contracts contain commitments, including, but not limited to, minimum standards and time frames against which the Company's performance is measured. In the event the Company does not meet its contractual commitments with its customers, the Company may incur penalties and/or certain customers may have the right to terminate their contracts with the Company. The Company does not believe that it will fail to meet its contractual commitments to an extent that will result in a material adverse effect on its financial condition or results of operations. Contingencies: The Company is subject to lawsuits, claims and other complaints arising out of the ordinary conduct of its business. In the opinion of management, based in part upon the advice of legal counsel, all matters are adequately covered by insurance, or if not covered, are without merit or are of such kind or involve such amounts as would not have a material adverse effect on the financial condition or results of operations of the Company if disposed of unfavorably. Year 2000: The Company has provided a discussion of its Year 2000 compliance efforts in the accompanying Financial Review. The Company's failure to successfully complete its Year 2000 compliance efforts would result in an interruption in normal business activities and operations. Such failure would materially and adversely affect the Company's operations, liquidity and financial position. Because of the uncertainty inherent in the Year 2000 readiness of suppliers and customers, the Company is unable to determine at this time whether the consequences of suppliers' and/or customers' Year 2000 failures would have a material and adverse impact on the Company's operations, liquidity or financial position. NOTE 10 Supplementary Balance Sheet Information Significant components of prepaid expenses and other current assets are summarized as follows:
- -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Contract acquisition costs, net $ 9,900,416 6,073,724 Prepaid expenses 7,643,395 4,268,003 Other 7,826,793 8,278,911 - -------------------------------------------------------------------------------- Total $25,370,604 18,620,638 ================================================================================
Significant components of other noncurrent assets are summarized as follows:
- -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Contract acquisition costs, net $36,780,395 27,274,037 Investments in joint ventures, net 28,304,322 21,338,446 Other 5,620,764 3,738,036 - -------------------------------------------------------------------------------- Total $70,705,481 52,350,519 ================================================================================
Significant components of other current liabilities are summarized as follows:
- -------------------------------------------------------------------------------- 1998 1997 - -------------------------------------------------------------------------------- Customer postage deposits $14,753,284 13,579,370 Transaction processing provisions 3,941,318 4,051,285 Other 8,377,940 16,791,013 - -------------------------------------------------------------------------------- $27,072,542 34,421,668 ================================================================================
41 NOTE 11 Segment Reporting In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131 (SFAS 131) "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected financial information about operating segments in interim financial reports issued to shareholders. It also establishes standards for related disclosures about products and services, geographic areas and major customers. 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, Canada and Puerto Rico. 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 90% of financial activity in all of the quantitative thresholds required to be measured under SFAS 131. 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.
Operating Segments Bankcard data Other 1998 processing services services Consolidated - ------------------------------------------------------------------------------------- Total revenue $ 356,744,792 41,330,147 $ 398,074,939 Intersegment revenue (502,069) (1,378,802) (1,880,871) - ------------------------------------------------------------------------------------- Revenue from external customers $ 356,242,723 39,951,345 $ 396,194,068 ===================================================================================== Equity in income of joint ventures $ 12,974,348 -- $ 12,974,348 ===================================================================================== Segment operating income $ 72,722,361 6,620,511 $ 79,342,872 ===================================================================================== Income tax expense $ 24,488,076 2,467,908 $ 26,955,984 ===================================================================================== Net income $ 50,980,990 3,850,153 $ 54,831,143 ===================================================================================== 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 ===================================================================================== 1997 - ------------------------------------------------------------------------------------- Total revenue $ 330,137,416 31,988,727 $ 362,126,143 Intersegment revenue (76,038) (550,706) (626,744) - ------------------------------------------------------------------------------------- Revenue from external customers $ 330,061,378 31,438,021 $ 361,499,399 ===================================================================================== Equity in income of joint ventures $ 9,347,183 -- $ 9,347,183 ===================================================================================== Segment operating income $ 64,495,841 4,780,657 $ 69,276,498 ===================================================================================== Income tax expense $ 22,186,324 1,891,113 $ 24,077,437 ===================================================================================== Net income $ 44,584,665 2,893,807 $ 47,478,472 ===================================================================================== Identifiable assets $ 289,094,906 32,158,029 $ 321,252,935 Intersegment eliminations (24,333,886) (61,112) (24,394,998) - ------------------------------------------------------------------------------------- Total assets $ 264,761,020 32,096,917 $ 296,857,937 ===================================================================================== 1996 - ------------------------------------------------------------------------------------- Total revenue $ 282,015,979 31,290,422 $ 313,306,401 Intersegment revenue -- (1,658,052) (1,658,052) - ------------------------------------------------------------------------------------- Revenue from external customers $ 282,015,979 29,632,370 $ 311,648,349 ===================================================================================== Equity in income of joint ventures $ 7,093,600 -- $ 7,093,600 ===================================================================================== Segment operating income $ 55,292,545 3,704,583 $ 58,997,128 ===================================================================================== Income tax expense $ 19,554,800 1,452,423 $ 21,007,223 ===================================================================================== Net income $ 37,350,372 2,086,809 $ 39,437,181 ===================================================================================== Identifiable assets $ 239,420,361 22,558,593 $ 261,978,954 Intersegment eliminations (16,156,203) (63,668) (16,219,871) - ------------------------------------------------------------------------------------- Total assets $ 223,264,158 22,494,925 $ 245,759,083 =====================================================================================
42 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT Geographic Area Data: The following geographic area data represent revenues based on the geographic locations of customers. Substantially all property and equipment is located in the United States.
1998 1997 1996 - ------------------------------------------------------------- United States $376,303,345 341,901,236 292,713,236 Mexico 17,362,650 18,365,222 18,201,357 Canada 1,838,322 659,783 146,387 Puerto Rico 689,751 573,158 587,369 - ------------------------------------------------------------- Totals $396,194,068 361,499,399 311,648,349 =============================================================
Major Customers: For the years ended December 31, 1998, 1997 and 1996, two major customers accounted for approximately 34%, 35% and 30% of total revenues, respectively. One of these customers provided 21%, or $82,340,913, of total revenues in 1998; 20%, or $70,331,894, in 1997; and 13%, or $39,741,651, in 1996. The other major customer accounted for 13%, or $53,104,002, of total revenues in 1998; 15%, or $54,980,179, in 1997; and 17%, or $54,925,058, in 1996. Revenues from major customers for the years reported are attributable to all reporting segments. NOTE 12 Subsequent Event Effective January 1, 1999, TSYS acquired Partnership Card Services from its majority shareholder, 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 $20,070,000. 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. 43 Report of Independent Auditors 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 The Board of Directors Total System Services, Inc.: We have audited the accompanying consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Total System Services, Inc. and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/KPMG LLP January 7, 1999 44 TOTAL SYSTEM SERVICES, INC.(R) 1998 ANNUAL REPORT Report of Financial Responsibility To the Shareholders of Total System Services, Inc.: The management of Total System Services, Inc. is responsible for the integrity and objectivity of the consolidated financial statements and other financial information presented in this report. These statements have been prepared in accordance with generally accepted accounting principles and necessarily include amounts based on judgements and estimates by management. TSYS maintains internal accounting control policies and related procedures designed to provide reasonable assurance that assets are safeguarded, that transactions are executed in accordance with management's authorization and properly recorded, and that accounting records may be relied upon for the preparation of reliable published annual and interim financial statements and other financial information. The design, monitoring and revision of internal accounting control systems involve, among other things, management's judgement with respect to the relative cost and expected benefits of specific control measures. The Company also maintains an internal auditing function which evaluates and reports on the adequacy and effectiveness of internal accounting controls and policies and procedures. The Company's consolidated financial statements have been audited by independent auditors who have expressed their opinion with respect to the fairness of these statements. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with TSYS' management, internal auditors and independent auditors to review matters relating to the quality of financial reporting and internal accounting controls. Both the internal auditors and the independent auditors have unrestricted access to the Committee. /s/Richard W. Ussery Richard W. Ussery Chairman of the Board and Chief Executive Officer /s/Dorenda K. Weaver Dorenda K. Weaver Senior Vice President and Controller /s/James B. Lipham James B. Lipham Executive Vice President and Chief Financial Officer /s/Ronald L. Barnes Ronald L. Barnes Senior Vice President and General Auditor 45 Quarterly Financial Data, Stock Price, Dividend Information TSYS' common stock trades on the New York Stock Exchange (NYSE) under the symbol "TSS." Price and volume information appears under the abbreviation "TotlSysSvc" in NYSE daily stock quotation listings. As of February 11, 1999, there were 10,196 holders of record of TSYS common stock, some of whom are holders in nominee name for the benefit of different shareholders. The fourth quarter dividend of $.01 per share was declared on December 14, 1998, and was paid January 2, 1999, to shareholders of record on December 22, 1998. Total dividends declared in 1998 and in 1997 amounted to $7.3 million and $5.8 million, respectively. It is the present intention of the Board of Directors of TSYS to continue to pay cash dividends on its common stock. Presented here is a summary of the unaudited quarterly financial data for the years ended December 31, 1998 and 1997. Revenues Net Income (Millions of Dollars) (Millions of Dollars) 1998 1997 1998 1997 QTR 4 $109.0 $ 96.5 QTR 4 $17.8 $15.8 QTR 3 99.4 92.1 QTR 3 15.2 13.2 QTR 2 91.5 89.7 QTR 2 11.7 9.9 QTR 1 96.3 83.1 QTR 1 10.3 8.5
First Second Third Fourth (in thousands except per share data) Quarter Quarter Quarter Quarter - ----------------------------------------------------------------------------------------------- 1998 Revenues ................... $96,318 91,469 99,402 109,005 Operating income ........ 14,580 16,433 22,139 26,191 Net income ...................... 10,250 11,650 15,172 17,759 Basic earnings per share ........ .05 .06 .08 .09 Diluted earnings per share ...... .05 .06 .08 .09 Cash dividends declared per share .008 .010 .010 .010 Stock prices: High .................... 21 7/16 23 15/16 21 7/16 24 3/16 Low ..................... 15 18 7/16 14 13/16 14 7/16 - ----------------------------------------------------------------------------------------------- 1997 Revenues ................... $83,137 89,736 92,135 96,491 Operating income ........ 12,594 15,071 18,913 22,698 Net income ...................... 8,517 9,941 13,225 15,795 Basic earnings per share ........ .04 .05 .07 .08 Diluted earnings per share ...... .04 .05 .07 .08 Cash dividends declared per share .008 .007 .008 .007 Stock prices: High .................... 23 1/16 23 1/16 16 5/8 19 5/8 Low ..................... 17 3/16 15 14 9/16 12 3/16 - -----------------------------------------------------------------------------------------------
46 EX-20.1 4 PROXY STATEMENT SCHEDULE 14A INFORMATION Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934 (Amendment No. ) Filed by the Registrant [X] Filed by a Party other than the Registrant [ ] Check the appropriate box: [ ] Preliminary Proxy Statement [ ] Confidential, for use of the Commission Only (as permitted by Rule 14a-6(e)(2)) [X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12 Total System Services, Inc. - -------------------------------------------------------------------------------- (Name of Registrant as Specified In Its Charter) - -------------------------------------------------------------------------------- (Name of Person(s) Filing Proxy Statement if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [X] No fee required. [ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)and 0-11. 1) Title of each class of securities to which transaction applies: ___________________________________________________________________ 2) Aggregate number of securities to which transaction applies: ___________________________________________________________________ 3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): ___________________________________________________________________ 4) Proposed maximum aggregate value of transaction: __________________________________________________________________ 5) Total fee paid: __________________________________________________________________ [ ] Fee paid previously with preliminary materials. [ ] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. 1) Amount Previously Paid: __________________________________________________________________ 2) Form, Schedule or Registration Statement No.: __________________________________________________________________ 3) Filing Party: __________________________________________________________________ 4) Date Filed: __________________________________________________________________ TSYS(R) TOTAL SYSTEM SERVICES, INC.(R) Richard W. Ussery March 12, 1999 Chairman of the Board Dear Shareholder: You are cordially invited to attend our Annual Meeting of Shareholders at 10:00 a.m. on Thursday, April 15, 1999, at The Columbus Museum, 1251 Wynnton Road, Columbus, Georgia. Enclosed with this Proxy Statement are your proxy card and the 1998 Annual Report. We hope that you will be able to be with us and let us give you a review of 1998. Whether you own a few or many shares of stock and whether or not you plan to attend in person, it is important that your shares be voted on matters that come before the meeting. To make sure your shares are represented, we urge you to complete and mail the enclosed proxy card promptly. Thank you for helping us make 1998 a good year. We look forward to your continued support in 1999 and another good year. Sincerely yours, /s/Richard W. Ussery RICHARD W. USSERY Total System Services, Inc. Post Office Box 2506 Columbus, Georgia 31902-2506 TSYS(R) TOTAL SYSTEM SERVICES, INC.(R) NOTICE OF THE 1999 ANNUAL MEETING OF SHAREHOLDERS The Annual Meeting of the Shareholders of Total System Services, Inc.(R) will be held at 10:00 a.m. on Thursday, April 15, 1999, at The Columbus Museum, 1251 Wynnton Road, Columbus, Georgia for the following purposes: (1) The election of four directors for a term of three years; and (2) The transaction of any other business as may properly come before the Annual Meeting. Information relating to the above matters is set forth in the accompanying Proxy Statement. Only shareholders of record at the close of business on February 11, 1999 will be entitled to notice of and to vote at the Annual Meeting. /s/G. Sanders Griffith, III G. SANDERS GRIFFITH, III Secretary Columbus, Georgia March 12, 1999 WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE. TABLE OF CONTENTS Voting Information.............................................................1 Election of Directors..........................................................2 Meetings and Committees of the Board...........................................4 Directors' Compensation........................................................5 Executive Officers.............................................................5 Stock Ownership of Directors and Executive Officers............................6 Executive Compensation.........................................................7 Stock Performance Graph.......................................................10 Compensation Committee Report on Executive Compensation.......................10 Compensation Committee Interlocks and Insider Participation....................................................13 Transactions With Management..................................................13 Relationships Between Synovus, CB&T and Certain of Synovus' Subsidiaries.........................................14 Section 16(a) Beneficial Ownership Reporting Compliance.......................17 Independent Auditors..........................................................17 General Information: Financial Information....................................................18 Shareholder Proposals for the 2000 Proxy Statement.......................18 Director Nominees or Other Business for Presentation at the Annual Meeting...............................................18 Solicitation of Proxies..................................................18 VOTING INFORMATION PURPOSE This Proxy Statement and the accompanying proxy card are being mailed to TSYS shareholders beginning March 12, 1999. The TSYS Board of Directors is soliciting proxies to be used at the 1999 Annual Meeting of TSYS Shareholders which will be held on April 15, 1999, at 10:00 a.m., at The Columbus Museum, 1251 Wynnton Road, Columbus, Georgia. Proxies are solicited to give all shareholders of record an opportunity to vote on matters to be presented at the Annual Meeting. In the following pages of this Proxy Statement, you will find information on matters to be voted upon at the Annual Meeting of Shareholders or any adjournment of that meeting. WHO CAN VOTE All shareholders of record of TSYS Common Stock as of the close of business on February 11, 1999 are entitled to vote. Shares can be voted at the meeting only if the shareholder is present or represented by a valid proxy. SHARES OUTSTANDING A majority of the outstanding shares of TSYS Common Stock must be present, either in person or represented by proxy, in order to conduct the Annual Meeting of TSYS Shareholders. On February 11, 1999, 194,909,527 shares of TSYS Common Stock were outstanding. COLUMBUS BANK AND TRUST COMPANY Columbus Bank and Trust Company(R)("CB&T") owned individually 157,455,980 shares, or 80.8%, of the outstanding shares of TSYS Common Stock on February 11, 1999. CB&T(R) is a wholly owned banking subsidiary of Synovus Financial Corp.(R), a multi-financial services company having 270,805,035 shares of voting common stock outstanding on February 11, 1999. PROXY CARD If you sign the proxy card but do not specify how you want your shares to be voted, your shares will be voted by the individuals named on the card (your "proxies") in favor of the election of all listed nominees. Your proxies will vote at their discretion on any other matter that may properly come before the meeting and is not listed on the proxy card. VOTING OF SHARES Each share of TSYS Common Stock represented at the Annual Meeting is entitled to one vote on each matter properly brought before the meeting. All shares entitled to vote and represented by properly executed proxies received before the polls are closed at the Annual Meeting, and not revoked or superseded, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxies. TSYS DIVIDEND REINVESTMENT AND DIRECT STOCK PURCHASE PLAN If you participate in this Plan, your proxy card represents shares held in the Plan, as well as shares you hold directly in certificate form registered in the same name. REQUIRED VOTES--ELECTION OF DIRECTOR NOMINEES Directors are elected by a plurality of the votes, which means the nominees for the four director positions who receive the largest number of properly executed votes will be elected as directors. Each share of Common Stock is entitled to one vote for each of the four director nominees. Cumulative voting is not permitted. Shares that are represented by proxies which are marked "withhold authority" for the election of one or more director nominees will not be counted in determining the number of votes cast for those persons. TABULATION OF VOTES Under certain circumstances, brokers are prohibited from exercising discretionary authority for beneficial owners who have not returned proxies to the brokers (so-called "broker non-votes"). In such cases, and in cases where the shareholder abstains from voting on a matter, those shares will be counted for the purpose of determining if a quorum is present but will not be included in the vote totals with respect to those matters and, therefore, will have no effect on the vote. HOW YOU CAN VOTE Vote your choices by marking the appropriate boxes on the enclosed proxy card. Sign and return the proxy card promptly in the enclosed self-addressed envelope. YOUR VOTE IS IMPORTANT. PLEASE RETURN YOUR MARKED PROXY CARD PROMPTLY SO YOUR SHARES CAN BE REPRESENTED, EVEN IF YOU PLAN TO ATTEND THE MEETING IN PERSON. REVOCATION OF PROXY If you vote by proxy, you may revoke that proxy at any time before it is voted at the meeting. You can revoke your proxy by delivering to TSYS a proxy card bearing a later date or by attending the meeting in person and casting a ballot. ELECTION OF DIRECTORS NUMBER The Board of Directors of TSYS consists of 12 members. As 18 board seats have been authorized by TSYS' shareholders, TSYS has six directorships which remain vacant. These vacant directorships could be filled in the future at the discretion of TSYS' Board of Directors. This discretionary power gives TSYS' Board of Directors the flexibility of appointing new directors in the periods between TSYS' Annual Meetings should suitable candidates come to its attention. The Board is divided into three classes whose terms are staggered so that the term of one class expires at each Annual Meeting of Shareholders. The terms of office of the Class I directors expire at the 1999 Annual Meeting, the terms of office of the Class II directors expire at the 2000 Annual Meeting and the terms of office of the Class III directors expire at the 2001 Annual Meeting. Four director nominees have been nominated for election as Class I directors at this meeting. Proxies cannot be voted at the 1999 Annual Meeting for a greater number of persons than the number of nominees named. NOMINEES The following nominees have been selected by the Board for submission to the shareholders: Samuel A. Nunn, H. Lynn Page, Philip W. Tomlinson and Richard W. Ussery, each to serve a three year term expiring at the Annual Meeting in the year 2002. The Board believes that each director nominee will be able to stand for election. If any nominee becomes unable to stand for election, proxies in favor of that nominee will be voted in favor of the remaining nominees and in favor of any substitute nominee named by the Board. If you do not wish your shares voted for one or more of the nominees, you may so indicate on the proxy card. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE NOMINEES. BOARD OF DIRECTORS Following is the principal occupation, age and certain other information for each director nominee and other directors serving unexpired terms. - --------------------------------------------------------------------------------
TSYS Year Director First Classifi- Elected Principal Occupation Name Age cation Director and Other Information - ------------------------ ----- --------- --------- ------------------------------------------- James H. Blanchard 57 II 1982 Chairman of the Board and Chief Executive Officer, Synovus Financial Corp.; Chairman of the Executive Committee, Total System Services, Inc.; Director, BellSouth Corporation Richard Y. Bradley 60 II 1991 Partner, Bradley & Hatcher (Law Firm); Director, Synovus Financial Corp. Gardiner W. Garrard, Jr. 58 II 1982 President, The Jordan Company (Real Estate Development); Director, Synovus Financial Corp. John P. Illges, III 64 II 1982 Senior Vice President and Financial Consultant, The Robinson-Humphrey Company, Inc. (Stockbroker); Director, Synovus Financial Corp. Mason H. Lampton 51 III 1986 Chairman of the Board and President, The Hardaway Company (Construction Company); Director, Synovus Financial Corp. W. Walter Miller, Jr. 50 II 1993 Senior Vice President, Total System Services, Inc. Samuel A. Nunn 60 I 1997 Senior Partner, King & Spalding (Law Firm); Director, The Coca-Cola Company, General Electric Company, National Service Industries, Inc., Scientific-Atlanta, Inc. and Texaco Inc. H. Lynn Page 58 I 1982 Director, Synovus Financial Corp., Columbus Bank and Trust Company and Total System Services, Inc. Philip W. Tomlinson 52 I 1982 President, Total System Services, Inc. William B. Turner 76 III 1982 Chairman of the Executive Committee, Columbus Bank and Trust Company and Synovus Financial Corp.; Advisory Director, W.C. Bradley Co. (Metal Manufacturer and Real Estate) Richard W. Ussery 51 I 1982 Chairman of the Board and Chief Executive Officer, Total System Services, Inc. James D. Yancey 57 III 1982 President and Chief Operating Officer, Synovus Financial Corp.; Chairman of the Board, Columbus Bank and Trust Company; Director, Shoney's, Inc. - ------- James H. Blanchard was elected Chairman of the Executive Committee of TSYS in February 1992. From 1982 until 1992, Mr. Blanchard served as Chairman of the Board of TSYS. Richard Y. Bradley formed Bradley & Hatcher in September 1995. From 1991 until 1995, Mr. Bradley served as President of Bickerstaff Clay Products Company, Inc. Mr. Miller's spouse is the niece of William B. Turner. Mr. Nunn joined the law firm of King & Spalding in January 1997. From 1972 until 1997, Mr. Nunn represented the State of Georgia in the United States Senate. Philip W. Tomlinson was elected President of TSYS in February 1992. From 1982 until 1992, Mr. Tomlinson served as Executive Vice President of TSYS. Richard W. Ussery was elected Chairman of the Board of TSYS in February 1992. From 1982 until 1992, Mr. Ussery served as President of TSYS.
MEETINGS AND COMMITTEES OF THE BOARD BOARD OF DIRECTORS The business affairs of TSYS are managed under the direction of the Board of Directors in accordance with the Georgia Business Corporation Code, as implemented by TSYS' Articles of Incorporation and bylaws. Members of the Board are kept informed through reports routinely presented at Board and committee meetings by the Chief Executive Officer and other officers, and through other means. BOARD AND COMMITTEE MEETINGS The Board of Directors held six meetings in 1998. All directors attended at least 80% of Board and committee meetings during 1998 except Messrs. Tomlinson and Page, who each attended 67% of the meetings. COMMITTEES OF THE BOARD TSYS' Board of Directors has three principal standing committees -- an Executive Committee, an Audit Committee and a Compensation Committee. There is no Nominating Committee of TSYS' Board of Directors. The following table shows the membership of the various committees. - --------------------------------------------------------------------------------
Executive Audit Compensation - ---------- ----- ------------- James H. Blanchard, Chair Gardiner W. Garrard, Jr., Chair Mason H. Lampton, Chair James D. Yancey Mason H. Lampton John P. Illges, III Richard Y. Bradley John P. Illges, III Gardiner W. Garrard, Jr. Philip W. Tomlinson William B. Turner Richard W. Ussery
Executive Committee. During the intervals between meetings of TSYS' Board of Directors, TSYS' Executive Committee possesses and may exercise any and all of the powers of TSYS' Board of Directors in the management and direction of the business and affairs of TSYS with respect to which specific direction has not been previously given by TSYS' Board of Directors. During 1998, TSYS' Executive Committee held three meetings. Audit Committee. The primary functions to be engaged in by TSYS' Audit Committee include: (i) annually recommending to TSYS' Board the independent certified public accountants to be engaged by TSYS for the next fiscal year; (ii) reviewing the plan and results of the annual audit by TSYS' independent auditors; (iii) reviewing and approving the range of management advisory services provided by TSYS' independent auditors; (iv) reviewing TSYS' internal audit function and the adequacy of the internal accounting control systems of TSYS; (v) reviewing the results of regulatory examinations of TSYS; (vi) periodically reviewing the financial statements of TSYS; and (vii) considering such other matters with regard to the internal and independent audit of TSYS as, in its discretion, it deems to be necessary or desirable, periodically reporting to TSYS' Board as to the exercise of its duties and responsibilities and, where appropriate, recommending matters in connection with the audit function with respect to which TSYS' Board should consider taking action. During 1998, TSYS' Audit Committee held four meetings. Compensation Committee. The primary functions to be engaged in by TSYS' Compensation Committee include: (i) evaluating the remuneration of senior management and board members of TSYS and its subsidiaries and the compensation and fringe benefit plans in which officers, employees and directors of TSYS are eligible to participate; and (ii) recommending to TSYS' Board whether or not it should modify, alter, amend, terminate or approve such remuneration, compensation or fringe benefit plans. During 1998, TSYS' Compensation Committee held four meetings. DIRECTORS' COMPENSATION COMPENSATION During 1998, TSYS' directors received a $12,000 retainer, a fee of $800 for regular and special meetings of TSYS' Board of Directors they personally attended and a fee of $500 for meetings of the committees of TSYS' Board of Directors they personally attended. In addition, directors of TSYS received an $800 fee for each board meeting from which their absence was excused and an $800 fee for one meeting without regard to the reason for their absence. DIRECTOR STOCK PURCHASE PLAN TSYS' Director Stock Purchase Plan is a non-tax-qualified, contributory stock purchase plan pursuant to which qualifying TSYS directors can purchase, with the assistance of contributions from TSYS, presently issued and outstanding shares of TSYS Common Stock. Under the terms of the Director Stock Purchase Plan, qualifying directors can elect to contribute up to $1,000 per calendar quarter to make purchases of TSYS Common Stock, and TSYS contributes an additional amount equal to 50% of the directors' cash contributions. Participants in the Director Stock Purchase Plan are fully vested in, and may request the issuance to them of, all shares of TSYS Common Stock purchased for their benefit under the Plan. EXECUTIVE OFFICERS The following table sets forth the name, age and position with TSYS of each executive officer of TSYS. - --------------------------------------------------------------------------------
Name Age Position with TSYS - ------------------------- --- ------------------------------------ James H. Blanchard 57 Chairman of the Executive Committee Richard W. Ussery 51 Chairman of the Board and Chief Executive Officer Philip W. Tomlinson 52 President William A. Pruett 45 Executive Vice President James B. Lipham 50 Executive Vice President and Chief Financial Officer M. Troy Woods 47 Executive Vice President G. Sanders Griffith, III 45 General Counsel and Secretary
All of the executive officers of TSYS are members of TSYS' Board of Directors, except William A. Pruett, James B. Lipham, M. Troy Woods and G. Sanders Griffith, III. William A. Pruett was elected as Executive Vice President of TSYS in February 1993. From 1976 until 1993, Mr. Pruett served in various capacities with CB&T and/or TSYS, including Senior Vice President. James B. Lipham was elected as Executive Vice President and Chief Financial Officer of TSYS in July 1995. From 1984 until 1995, Mr. Lipham served in various financial capacities with Synovus and/or TSYS, including Senior Vice President and Treasurer. M. Troy Woods was elected as Executive Vice President of TSYS in July 1995. From 1987 until 1995, Mr. Woods served in various capacities with TSYS, including Senior Vice President. G. Sanders Griffith, III has served as General Counsel of TSYS since 1988 and was elected as Secretary of TSYS in June 1995. Mr. Griffith currently serves as Senior Executive Vice President, General Counsel and Secretary of Synovus and has held various positions with Synovus since 1988. STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth ownership of shares of TSYS Common Stock by each director, by each executive officer named in the Summary Compensation Table on page 7 and by all directors and executive officers as a group as of December 31, 1998. - --------------------------------------------------------------------------------
Shares of TSYS Shares of TSYS Percentage of Common Stock Common Stock Total Outstanding Beneficially Beneficially Shares Shares of Owned with Owned with of TSYS TSYS Common Sole Voting Shared Voting Common Stock Stock and Investment and Investment Beneficially Beneficially Power as of Power as of Owned as of Owned as of Name 12/31/98 12/31/98 12/31/98 12/31/98 -------------------------- ------------------- -------------------- ---------------- ------------- James H. Blanchard 781,200 360,480 1,141,680 * Richard Y. Bradley 21,329 5,000 26,329 * Gardiner W. Garrard, Jr. 9,717 --- 9,717 * John P. Illges, III 102,435 81,750 184,185 * Mason H. Lampton 26,547 118,684 145,231 * James B. Lipham 80,832 1,200 110,232 * W. Walter Miller, Jr. 85,725 12,704 105,629 * Samuel A. Nunn 1,933 750 27,683 * H. Lynn Page 523,541 151,221 674,762 * William A. Pruett 217,684 --- 238,684 * Philip W. Tomlinson 596,808 59,796 698,604 * William B. Turner 157,528 576,000 733,528 * Richard W. Ussery 553,426 74,775 670,201 * M. Troy Woods 68,691 --- 98,691 * James D. Yancey 790,064 24,000 814,064 * Directors and Executive Officers as a group (16 persons) 4,020,148 1,483,094 5,698,642 2.93 * Less than one percent of the outstanding shares of TSYS Common Stock. - -------- The totals shown for the following directors and executive officers of TSYS include the number of shares of TSYS Common Stock that each individual has the right to acquire within 60 days through the exercise of stock options: Person Number of Shares James B. Lipham 28,200 W. Walter Miller, Jr. 7,200 Samuel A. Nunn 25,000 William A. Pruett 21,000 Philip W. Tomlinson 42,000 Richard W. Ussery 42,000 M. Troy Woods 30,000 Includes 28,800 shares of TSYS Common Stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares. Includes 55,575 shares of TSYS Common Stock held by a charitable foundation of which Mr. Page is a trustee.
For a detailed discussion of the beneficial ownership of Synovus Common Stock by TSYS' named executive officers and directors and by all directors and executive officers of TSYS as a group, see "Synovus Common Stock Ownership of Directors and Management" on pages 14 and 15. EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The following table summarizes the cash and noncash compensation for each of the last three fiscal years for the chief executive officer of TSYS and for the other four most highly compensated executive officers of TSYS. - --------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Awards -------------------------------------------------------- ------------------------------ Other Restricted Securities All Annual Stock Underlying Other Name and Compen- Award(s) Options/ Compen- Principal Position Year Salary Bonus sation SARs sation - ----------------------- ------ -------------- ----------- ------------ -------------- ------------- ------------ Richard W. Ussery 1998 $444,200 $276,250 -0- $ -0- 106,422 $116,712 Chairman of the Board 1997 414,225 257,806 -0- -0- 540,491 141,895 and Chief Executive 1996 391,725 491,363 -0- 316,187 65,780 137,152 Officer Philip W. Tomlinson 1998 383,400 219,000 -0- -0- 75,750 97,145 President 1997 354,550 202,650 -0- -0- 505,715 115,674 1996 335,350 386,000 -0- 223,784 46,557 115,728 William A. Pruett 1998 224,750 134,850 -0- -0- 27,950 60,931 Executive Vice 1997 210,150 131,090 -0- -0- 241,518 73,417 President 1996 200,900 246,080 -0- 84,880 17,661 67,486 M. Troy Woods 1998 220,000 110,000 -0- -0- 26,718 55,190 Executive Vice 1997 194,375 102,187 -0- -0- 240,123 60,975 President 1996 179,375 184,375 -0- 75,792 15,770 53,175 James B. Lipham 1998 182,500 91,250 -0- -0- 22,182 46,034 Executive Vice President 1997 162,500 86,250 -0- -0- 234,980 51,716 and Chief Financial 1996 147,500 152,500 -0- 63,938 13,302 43,755 - -------------------- Mr. Blanchard received no cash compensation from TSYS during 1998, other than director fees. Amount consists of base salary and director fees for Messrs. Ussery and Tomlinson. Bonus amount for 1998 includes a special recognition award of $5,000 for Messrs. Pruett, Woods and Lipham. Perquisites and other personal benefits are excluded because the aggregate amount does not exceed the lesser of $50,000 or 10% of annual salary and bonus for the named executives. Amount consists of market value of award on date of grant. As of December 31, 1998, Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham held 34,544, 24,449, 9,322, 4,731 and 3,991 restricted shares, respectively, with a value of $842,010, $595,945, $227,224, $115,318 and $ 97,281, respectively. On July 1, 1996, restricted stock was awarded in the amount of 32,891, 23,279, 8,832, 7,884 and 6,651 shares of Synovus Common Stock to Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively, with the following vesting schedule: 20% on July 1, 1997; 20% on July 1, 1998; 20% on July 1, 1999; 20% on July 1, 2000; and 20% on July 1, 2001. The 1998 amount consists of contributions or other allocations to defined contribution plans of $27,200 for each executive; allocations pursuant to defined contribution excess benefit agreements of $88,877, $69,300, $33,293, $27,572 and $18,487 for each of Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively; premiums paid for group term life insurance coverage of $510, $510, $438, $418 and $347 for each of Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively; and the economic benefit of life insurance coverage related to split-dollar life insurance policies of $107 and $116 for Messrs. Ussery and Tomlinson, respectively.
STOCK OPTION EXERCISES AND GRANTS The following tables provide certain information regarding stock options granted and exercised in the last fiscal year and the number and value of unexercised options at the end of the fiscal year. - --------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR Individual Grants --------------------------------------------------------- % of Total Potential Options/ Realized Value at SARs Exercise Assumed Annual Rates of Options/ Granted to or Stock Price Appreciation SARs Employees Base For Option Term Granted in Fiscal Price Expiration -------------------------- Name (#) Year ($/Share) Date 5%($) 10%($) - ------------------- ----------- ------------- -------- -------------- --------- ------------- Richard W. Ussery 106,272 12.51% $20.83 01/12/08 $1,057,406 $2,531,399 150 .018 22.00 06/01/06 1,575 3,774 Philip W. Tomlinson 75,600 8.90 20.83 01/12/08 752,220 1,800,792 150 .018 22.00 06/01/06 1,575 3,774 William A. Pruett 27,800 3.27 20.83 01/12/08 276,610 662,196 150 .018 22.00 06/01/06 1,575 3,774 M. Troy Woods 26,568 3.13 20.83 01/12/08 264,352 632,850 150 .018 22.00 06/01/06 1,575 3,774 James B. Lipham 22,032 2.59 20.83 01/12/08 219,218 524,802 150 .018 22.00 06/01/06 1,575 3,774 - --------------- The dollar gains under these columns result from calculations using the identified growth rates and are not intended to forecast future price appreciation of Synovus Common Stock. Options to purchase Synovus Common Stock granted on January 13, 1998 at fair market value to executives as part of the Synovus 1996 Long-Term Incentive Plan. Options become exercisable on January 13, 2000 and are transferable to family members. Options to purchase Synovus Common Stock granted on June 2, 1998 at fair market value to executives as part of the Synovus 1996 Long-Term Incentive Plan. Options become exercisable upon the earlier of: (a) June 2, 2001; or (b) the date the per share fair market value of Synovus Common Stock meets or exceeds $44.
- --------------------------------------------------------------------------------
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Value Options/SARs at FY-End (#) Options/SARs at FY-End ($) Acquired on Realized -------------------------- ----------------------------- Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable - ------------------- ------------ ----------- -------------------------- ----------------------------- Richard W. Ussery -0- -0- 233,060 / 226,913 $3,903,365/ $1,099,686 -0- -0- 42,000 / 378,000 433,860/ 3,904,740 Philip W. Tomlinson 33,020 $611,342 131,923 / 161,465 2,125,678/ 782,399 -0- -0- 42,000 / 378,000 433,860/ 3,904,740 William A. Pruett -0- -0- 63,247 / 59,468 1,060,706/ 287,923 -0- -0- 21,000 / 189,000 216,930/ 1,952,370 M. Troy Woods -0- -0- 35,805 / 56,841 563,429/ 275,190 -0- -0- 30,000 / 189,000 410,430/ 1,952,370 James B. Lipham -0- -0- 32,103 / 47,162 508,781/ 228,267 -0- -0- 28,200 / 189,000 371,730/ 1,952,370 - ---------- Market value of underlying securities at exercise or year-end, minus the exercise or base price. Options pertain to shares of Synovus Common Stock. Options pertain to shares of TSYS Common Stock.
CHANGE IN CONTROL ARRANGEMENTS Long-Term Incentive Plans. Under the terms of the TSYS Long-Term Incentive Plan, which was adopted in 1992, and Synovus' Long-Term Incentive Plans, which were adopted in 1992, 1994 and 1996, all awards become automatically vested in the event of a change of control. Awards under the Plans may include stock options, restricted stock, stock appreciation and performance awards. Messrs. Ussery, Tomlinson, Pruett, Lipham and Woods each have restricted stock and stock options under the Synovus/TSYS Long-Term Incentive Plans. Change of Control Agreements. TSYS has entered into Change of Control Agreements with Messrs. Ussery, Tomlinson, Pruett, Lipham and Woods, and certain other officers. In the event of a Change of Control, as defined below, an executive would receive the following: * For Messrs. Ussery and Tomlinson, three times their current base salary and bonus (bonus is defined as the average bonus over the past three years measured as a percentage multiplied by the executive's current base salary). Messrs. Pruett, Lipham and Woods would receive two times their base salary and bonus, as defined above. * Three years of medical, life, disability and other welfare benefits (two years for Messrs. Pruett, Lipham and Woods). * A pro rata bonus through the date of termination for the separation year. * A cash amount in lieu of a long-term incentive award for the year of separation equal to 1.5 times the normal market grant, if the executive received a long-term incentive award in the year of separation, or 2.5 times the market grant if not. In order to receive these benefits, an executive must be actually or constructively terminated within one year following a Change of Control or the executive may voluntarily or involuntarily terminate employment during the thirteenth month following a Change of Control. With respect to Synovus, a Change of Control under these agreements is defined as (1) the acquisition of 20% or more of the "beneficial ownership" of Synovus' outstanding voting stock, with certain exceptions for Turner family members, (2) the persons serving as directors of Synovus as of January 1, 1996, and their replacements or additions, ceasing to comprise at least two-thirds of the Board members, (3) a merger, consolidation, reorganization or sale of Synovus' assets unless the new owners of Synovus own more than two-thirds of the new company, no person owns more than 20% of the new company, and two-thirds of the company's new Board members are prior Board members of Synovus, or (4) a triggering event occurs as defined in the Synovus Rights Agreement. With respect to TSYS, a Change of Control is generally defined the same as a Change of Control of Synovus, except that (1) a spin-off of TSYS stock to Synovus shareholders, and (2) any transaction in which Synovus continues to own more than 50% of the outstanding stock of TSYS are specifically excluded from the Change of Control definition. In the event an executive is impacted by the Internal Revenue Service excise tax that applies to certain Change of Control arrangements, the executive would receive additional payments so that he or she would be in the same position as if the excise tax did not apply. The Change of Control Agreements do not provide for any retirement benefits or perquisites. STOCK PERFORMANCE GRAPH The following graph compares the yearly percentage change in cumulative shareholder return on TSYS Common Stock with the cumulative total return of the Standard & Poor's 500 Index and the Standard & Poor's Computer Software & Services Index for the last five fiscal years (assuming a $100 investment on December 31, 1993 and reinvestment of all dividends). [Omitted Stock Performance Graph is represented by the following table.]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG TSYS, S&P 500 AND S&P COMPUTER SOFTWARE & SERVICES INDEX 1993 1994 1995 1996 1997 1998 TSYS $100 $131 $235 $415 $382 $546 S&P 500 $100 $101 $139 $171 $229 $294 S&P CS&S $100 $118 $166 $258 $360 $652
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee ("Committee") of TSYS is responsible for evaluating the compensation of senior management of TSYS and its subsidiaries and TSYS Board members, as well as the compensation and other benefit plans in which officers, employees and directors of TSYS and its subsidiaries participate. The Committee has designed its compensation program to attract and retain highly motivated and well-trained executives in order to create superior shareholder value for TSYS shareholders. Elements of Executive Compensation. The four elements of executive compensation at TSYS are: * Base Salary * Annual Bonus * Long-Term Incentives * Other Benefits The Committee believes that a substantial portion (though not a majority) of an executive's compensation should be at risk based upon performance, both in the short-term (through the annual bonus and the Synovus/TSYS Profit Sharing Plan and the Synovus/TSYS 401(k) Savings Plan) and long-term (through long-term incentives such as stock options and restricted stock awards). The remainder of each executive's compensation is primarily based upon the competitive practices of companies similar in size to TSYS ("similar companies"), with certain adjustments as described below. The companies used for comparison under this approach are not the same companies included in the peer group index appearing in the Stock Performance Graph above. Each element of executive compensation is discussed in detail below. Base Salary. Base salary is an executive's annual rate of pay without regard to any other elements of compensation. The Committee believes the base salary of TSYS executives should reflect the outstanding stock performance of TSYS over the past 10 years, which resulted in significant value for TSYS shareholders. The Committee had difficulty, however, in obtaining appropriate market data for determining the compensation of TSYS executives. Positions for which market data could be obtained were targeted at the median level after the Committee added a premium to size-based market data to reflect pay at companies with similar strong stock performance. Positions for which market data could not be obtained were determined based upon internal equity considerations. Based solely upon these comparisons, the Committee increased Mr. Ussery's base salary in 1998. The Committee also increased the base salaries of TSYS' other executive officers in 1998 based solely upon these comparisons and internal equity considerations, as described above. Annual Bonus. The Committee awards annual bonuses to TSYS executives under two different plans, the Synovus Executive Bonus Plan (which was approved by TSYS shareholders) and the Synovus Incentive Bonus Plan. The Committee selects the participants in each Plan from year to year. For 1998, the Committee selected Mr. Ussery to participate in the Executive Bonus Plan while Messrs. Tomlinson, Pruett, Woods and Lipham were selected to participate in the Incentive Bonus Plan. Under the terms of the Plans, bonus amounts are paid as a percentage of base pay based on the achievement of performance goals that are established each year by the Committee. The performance goals may be chosen by the Committee from among the following measurements: * Number of cardholder, merchant and/or other customer accounts processed and/or converted by TSYS; * Successful negotiation or renewal of contracts with new and/or existing customers by TSYS; * Productivity and expense control; * Stock price; * Return on capital compared to cost of capital; * Net income; * Operating income; * Earnings per share and/or earnings per share growth; * Return on equity; * Return on assets; * Non-performing assets and/or loans as a percentage of total assets and/or loans; * Non-interest expense as a percentage of total expense; * Loan charge-offs as a percentage of loans; and * Asset growth. The Committee established a payout matrix based on attainment of net income goals during 1998 for Mr. Ussery and TSYS' other executive officers. The maximum percentage payouts under the Plans for 1998 were 65% for Mr. Ussery, 60% for Messrs. Tomlinson and Pruett and 50% for Messrs. Woods and Lipham. TSYS' financial performance and each executive's individual performance can reduce the bonus awards determined by the attainment of the goals, although this was not the case for any of TSYS' executive officers. Because the maximum net income target for 1998 under the Plans was exceeded and the overall financial results of TSYS were favorable, Mr. Ussery and TSYS' other executive officers were awarded the maximum bonus amount for which each executive was eligible under the Plans' payout matrix. Long-Term Incentives. The Committee has awarded both stock options and restricted stock awards to executives. Because of the relatively low number of publicly traded shares of TSYS, the Committee has awarded Synovus stock options and restricted stock awards to TSYS executives, linking their interests to those of Synovus and TSYS shareholders. Restricted stock awards are designed to focus executives on the long-term performance of Synovus and TSYS. Stock options provide executives with the opportunity to buy and maintain an equity interest in Synovus and TSYS and to share in their capital appreciation. The Committee has established a payout matrix for long-term grants that uses total shareholder return measured by Synovus' performance (stock price increases plus dividends) and how Synovus' total shareholder return compares to the return of a peer group of companies. For the long- term incentive awards made in 1998, total shareholder return and peer comparisons were measured during the 1995 to 1997 performance period. Under the payout matrix, the Committee awarded Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham stock options of 106,422, 75,750, 27,950, 26,718 and 22,182, respectively. Benefits. Executives receive other benefits that serve a different purpose than the elements of compensation discussed above. In general, these benefits either provide retirement income or protection against catastrophic events such as illness, disability and death. Executives generally receive the same benefits offered to the employee population, with the only exceptions designed to promote tax efficiency or to replace other benefits lost due to regulatory limits. The Synovus/TSYS Profit Sharing Plan and the Synovus/TSYS 401(k) Savings Plan, including an excess benefit plan which replaces benefits lost due to regulatory limits (collectively the "Plan"), is the largest component of TSYS' benefits package for executives. The Plan is directly related to the performance of TSYS because the contributions to the Plan, up to a maximum of 14% of an executive's compensation, depends upon TSYS' profitability. For 1998, Mr. Ussery and TSYS' other executive officers received a Plan contribution of 10.97% of their compensation, based upon the Plan's profitability formula. The remaining benefits provided to executives are primarily based upon the competitive practices of similar companies. The Internal Revenue Code limits the deductibility for federal income tax purposes of annual compensation paid by a publicly held corporation to its chief executive officer and four other highest paid executives for amounts in excess of $1 million, unless certain conditions are met. Because the Committee seeks to maximize shareholder value, the Committee has taken steps to ensure that any compensation paid to its executives in excess of $1 million is deductible. For 1998, Mr. Ussery would have been affected by this provision, but for the steps taken by the Committee. The Committee reserves the ability to make awards which do not qualify for full deductibility under the Internal Revenue Code, however, if the Committee determines that the benefits of doing so outweigh full deductibility. The Committee believes that its executive compensation program serves the best interests of the shareholders of TSYS. As described above, a substantial portion of the compensation of TSYS' executives is directly related to TSYS' performance. The Committee believes that the performance of TSYS to date validates its compensation philosophy. Mason H. Lampton John P. Illges, III COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mason H. Lampton and John P. Illges, III served as members of TSYS' Compensation Committee during 1998. No member of the Committee is a current or former officer or employee of TSYS or its subsidiaries. TRANSACTIONS WITH MANAGEMENT Gardiner W. Garrard, Jr. is President of The Jordan Company. TSYS leases from The Jordan Company approximately 10,000 square feet of office space in Columbus, Georgia for $5,900 per month, which lease expires on September 30, 1999. The lease was made on substantially the same terms as those prevailing at the time for leases of comparable property between unrelated third parties. Gardiner W. Garrard, Jr., a director of TSYS, CB&T and Synovus, is an officer, director and shareholder of The Jordan Company. Richard M. Olnick, the brother-in-law of Gardiner W. Garrard, Jr. and a director of CB&T, is an officer, director and shareholder of The Jordan Company. TSYS leases various properties in Columbus, Georgia from W.C. Bradley Co. for office space and storage. The rent paid for the space in 1998, which is approximately 71,915 square feet, is approximately $714,225. The lease agreements were made on substantially the same terms as those prevailing at the time for comparable leases for similar facilities with an unrelated third party in Columbus, Georgia. TSYS has entered into an agreement with CB&T with respect to the use of aircraft owned or leased by CB&T and W.C.B. Air L.L.C. CB&T and W.C.B. Air are parties to a Joint Ownership Agreement pursuant to which they jointly own or lease aircraft. W.C. Bradley Co. owns all of the limited liability company interests of W.C.B. Air. CB&T and W.C.B. Air have each agreed to pay fixed fees for each hour they fly the aircraft owned and/or leased pursuant to the Joint Ownership Agreeement. TSYS paid CB&T $1,328,693 for its use of the aircraft during 1998, which was used by CB&T to satisfy its commitments under the Joint Ownership Agreement. The charges payable by TSYS to CB&T in connection with its use of this aircraft approximate charges available to unrelated third parties in the State of Georgia for use of comparable aircraft for commercial purposes. William B. Turner, a director of TSYS and Chairman of the Executive Committee of CB&T and Synovus, is an advisory director and shareholder of W.C. Bradley Co. James H. Blanchard, Chairman of the Executive Committee of TSYS, Chairman of the Board of Synovus and a director of CB&T, is a director of W.C. Bradley Co. W. Walter Miller, Jr., a director of W.C. Bradley Co., is Senior Vice President and a director of TSYS. Elizabeth C. Ogie, the niece of William B. Turner and the sister-in-law of W. Walter Miller, Jr., is a director of W.C Bradley Co. and a director of CB&T and Synovus. Stephen T. Butler, the nephew of William B. Turner and an officer and director of W.C. Bradley Co., is a director of CB&T. W.B. Turner, Jr. and John T. Turner, the sons of William B. Turner, are officers and directors of W.C. Bradley Co. and are also directors of CB&T. King & Spalding, a law firm located in Atlanta, Georgia, performed legal services on behalf of TSYS during 1998. Samuel A. Nunn, a director of TSYS, is a Senior Partner of King & Spalding. For a description of certain transactions between TSYS and its affiliated companies, upon whose Boards of Directors certain of TSYS' directors also serve, see "Bankcard Data Processing Services Provided to CB&T and Certain of Synovus' Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries" on pages 16 and 17. RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES BENEFICIAL OWNERSHIP OF TSYS COMMON STOCK BY CB&T The following table sets forth the number of shares of TSYS Common Stock beneficially owned by CB&T, the only known beneficial owner of more than 5% of the issued and outstanding shares of TSYS Common Stock, as of December 31, 1998. - --------------------------------------------------------------------------------
Percentage of Shares of Outstanding Shares of TSYS Common Stock TSYS Common Stock Name and Address of Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/98 as of 12/31/98 - ------------------------ ------------------------ ----------------------------- Columbus Bank and Trust Company 156,601,938 80.7% 1148 Broadway, Columbus, Georgia 31901 - ------------ CB&T individually owns these shares. As of December 31, 1998, Synovus Trust Company, a wholly owned trust company subsidiary of CB&T, held in various fiduciary capacities a total of 1,374,779 shares (.71%) of TSYS Common Stock. Of this total, Synovus Trust Company held 1,052,480 shares as to which it possessed sole voting power, 997,259 shares as to which it possessed sole investment power, 315,149 shares as to which it possessed shared voting power and 322,299 shares as to which it possessed shared investment power. The other banking and trust subsidiaries of Synovus held 750 shares as to which they possessed sole voting and investment power and no shares as to which they possessed shared voting or investment power. In addition, as of December 31, 1998, Synovus Trust Company held in various agency capacities an additional 2,204,208 shares of TSYS Common Stock as to which it possessed no voting or investment power. Synovus and its subsidiaries disclaim beneficial ownership of all shares of TSYS Common Stock which are held by Synovus Trust Company in various fiduciary and agency capacities.
CB&T, by virtue of its individual ownership of 156,601,938 shares, or 80.7%, of the outstanding shares of TSYS Common Stock on December 31, 1998 is able to, and intends to, elect a majority of TSYS' Board of Directors. CB&T presently controls TSYS. INTERLOCKING DIRECTORATES OF TSYS, SYNOVUS AND CB&T Seven of the twelve members of and nominees to serve on TSYS' Board of Directors also serve as members of the Boards of Directors of Synovus and CB&T. They are James H. Blanchard, Richard Y. Bradley, Gardiner W. Garrard, Jr., John P. Illges, III, H. Lynn Page, William B. Turner and James D. Yancey. Mason H. Lampton serves as an Advisory Director of CB&T and as a director of Synovus. SYNOVUS COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table sets forth the number of shares of Synovus Common Stock beneficially owned by TSYS' directors, by each executive officer named in the Summary Compensation Table on page 7 and by all directors and executive officers as a group as of December 31, 1998. - --------------------------------------------------------------------------------
Shares of Shares of Shares of Synovus Synovus Synovus Percentage Common Stock Common Stock Common Stock of Beneficially Beneficially Beneficially Total Outstanding Owned with Owned with Owned with Shares of Shares of Sole Voting Shared Sole Voting Synovus Synovus and Voting and but no Common Stock Common Stock Investment Investment Investment Beneficially Beneficially Power as of Power as of Power as of Owned as of Owned as of Name 12/31/98 12/31/98 12/31/98 12/31/98 12/31/98 - -------------------- -------------- ------------ --------------- ------------ ------------ James H. Blanchard 1,565,234 --- 292,607 2,455,553 * Richard Y. Bradley 20,357 131,495 --- 151,852 * Gardiner W. Garrard, Jr. 203,665 1,363,262 --- 1,566,927 * John P. Illges, III 296,403 512,455 --- 808,858 * Mason H. Lampton 79,268 290,951 --- 370,219 * James B. Lipham 3,375 --- 3,990 39,468 * W. Walter Miller, Jr. 30,043 63,379 --- 103,750 * Samuel A. Nunn --- --- --- --- --- H. Lynn Page 840,821 11,515 --- 852,336 * William A. Pruett 11,765 --- 9,317 84,329 * Philip W. Tomlinson 30,849 --- 24,447 187,219 * William B. Turner 72,294 30,382,576 --- 30,454,870 11.27 Richard W. Ussery 64,928 3,923 34,539 336,450 * M. Troy Woods 2,102 --- 4,731 42,638 * James D. Yancey 999,693 61,677 40,999 1,416,479 * Directors and Executive Officers as a group (16 persons) 4,304,939 32,821,233 491,043 39,203,045 14.42 * Less than one percent of the outstanding shares of Synovus Common Stock. - ------------------- The totals shown for the following directors and executive officers of TSYS include the number of shares of Synovus Common Stock that each individual has the right to acquire within 60 days through the exercise of stock options: Person Number of Shares James H. Blanchard 597,712 James B. Lipham 32,103 W. Walter Miller, Jr. 10,328 William A. Pruett 63,247 Philip W. Tomlinson 131,923 Richard W. Ussery 233,060 M. Troy Woods 35,805 James D. Yancey 314,110 Includes 62,667 shares of Synovus Common Stock held by a charitable foundation of which Mr. Illges is a trustee. Includes 264,687 shares of Synovus Common Stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares.
BANKCARD DATA PROCESSING SERVICES PROVIDED TO CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES; OTHER AGREEMENTS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES During 1998, TSYS provided bankcard data processing services to CB&T and certain of Synovus' other banking subsidiaries. The bankcard data processing agreement between TSYS and CB&T can be terminated by CB&T upon 60 days prior written notice to TSYS or terminated by TSYS upon 180 days prior written notice to CB&T. During 1998, TSYS derived $4,225,439 in revenues from CB&T and certain of Synovus' other banking subsidiaries from the performance of bankcard data processing services and $175,801 in revenues from Synovus and its subsidiaries for the performance of other data processing services. TSYS' charges to CB&T and Synovus' other subsidiaries for bankcard and other data processing services are comparable to, and are determined on the same basis as, charges by TSYS to similarly situated unrelated third parties. Synovus Service Corp., a wholly owned subsidiary of Synovus, provides various services to Synovus' subsidiary companies, including TSYS. TSYS and Synovus Service Corp. are parties to Lease Agreements pursuant to which Synovus Service Corp. leased from TSYS office space for lease payments aggregating $26,169 during 1998 and TSYS leased from Synovus Service Corp. office space for lease payments aggregating $27,690 during 1998. Synovus Service Corp. also paid TSYS $199,492 during 1998 for data processing services. The terms of these transactions are comparable to those which could have been obtained in transactions with unaffiliated third parties. TSYS and Synovus and TSYS and Synovus Service Corp. are parties to Management Agreements (having one year, automatically renewable, unless terminated, terms), pursuant to which Synovus and Synovus Service Corp. provide certain management services to TSYS. During 1998, these services included human resource services, maintenance services, security services, communications services, corporate education services, travel services, investor relations services, corporate governance services, legal services, regulatory and statutory compliance services, executive management services performed on behalf of TSYS by certain of Synovus' officers and financial services. As compensation for management services provided during 1998, TSYS paid Synovus and Synovus Service Corp. management fees of $1,283,494 and $9,892,790, respectively. Management fees are subject to future adjustments based upon charges at the time by unrelated third parties for comparable services. During 1998, Synovus Trust Company served as Trustee of various employee benefit plans of TSYS. During 1998, TSYS paid Synovus Trust Company trustee's fees under these plans of $258,184. During 1998, Columbus Depot Equipment Company, a wholly owned subsidiary of TSYS, and CB&T and 6 of Synovus' other subsidiaries were parties to Lease Agreements pursuant to which CB&T and 6 of Synovus' other subsidiaries leased from Columbus Depot Equipment Company computer related equipment for bankcard and bank data processing services for lease payments aggregating $90,569. During 1998, Columbus Depot Equipment Company sold CB&T and certain of Synovus' other subsidiaries computer related equipment for bankcard and bank data processing services, and monitored such equipment, for payments aggregating $1,355. The terms, conditions, rental rates and/or sales prices provided for in these Agreements are comparable to corresponding terms, conditions and rates provided for in leases and sales of similar equipment offered by unrelated third parties. During 1998, Synovus Technologies, Inc., a wholly owned subsidiary of Synovus, paid TSYS $248,187 for data links, network services and other miscellaneous items related to the data processing services which Synovus Technologies, Inc. provides to its customers, which amount was reimbursed to Synovus Technologies, Inc. by its customers. During 1998, Synovus Technologies, Inc. paid TSYS $24,900, primarily for computer processing services. During 1998, TSYS and Synovus Technologies, Inc. were parties to a Lease Agreement pursuant to which TSYS leased from Synovus Technologies, Inc. portions of its office building for lease payments aggregating $220,000. The charges for processing and other services, and the terms of the Lease Agreement, are comparable to those between unrelated third parties. In January, 1999, TSYS acquired the assets used by CB&T in the provision of collection, credit evaluation and customer service services to credit card issuers in exchange for newly issued shares of TSYS Common Stock valued at $20,070,000. The terms of the Asset Purchase and Exchange Agreement executed in connection with the transaction are comparable to those between unrelated third parties. During 1998, TSYS and CB&T were parties to Lease Agreements pursuant to which CB&T leased from TSYS portions of its maintenance and warehouse facilities for lease payments aggregating $18,411. During 1998, TSYS and CB&T were also parties to a Lease Agreement pursuant to which TSYS leased office space from CB&T for lease payments of $4,483 per month. The terms, conditions and rental rates provided for in these Lease Agreements are comparable to corresponding terms, conditions and rates provided for in leases of similar facilities offered by unrelated third parties in the Columbus, Georgia area. During 1998, Synovus, CB&T and other Synovus subsidiaries paid to Columbus Productions, Inc. and TSYS Total Solutions, Inc., wholly owned subsidiaries of TSYS, an aggregate of $1,447,565 for printing and correspondence services. The charges for these services are comparable to those between unrelated third parties. During 1998, TSYS and its subsidiaries were paid $2,342,416 of interest by CB&T in connection with deposit accounts with, and commercial paper purchased from, CB&T. The interest rates paid are comparable to those provided for between unrelated third parties. The Board of Directors of TSYS has resolved that transactions with officers, directors, key employees and their affiliates shall be approved by a majority of its independent and disinterested directors, if otherwise permitted by applicable law, and will be on terms no less favorable than could be obtained from unrelated third parties. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires TSYS' officers and directors, and persons who own more than ten percent of TSYS Common Stock, to file reports of ownership and changes in ownership on Forms 3,4 and 5 with the Securities and Exchange Commission and the New York Stock Exchange. Officers, directors and greater than ten percent shareholders are required by Securities and Exchange Commission regulations to furnish TSYS with copies of all Section 16(a) forms they file. To TSYS' knowledge, based solely on its review of the copies of such forms received by it, and written representations from certain reporting persons that no Forms 5 were required for those persons, TSYS believes that during the fiscal year ended December 31, 1998, all Section 16(a) filing requirements applicable to its officers, directors, and greater than ten percent beneficial owners were complied with, except that Mr. Page reported one transaction late on a Form 5 and Mr. Tomlinson reported one transaction late on a Form 4 and one transaction late on a Form 5. INDEPENDENT AUDITORS On March 5, 1999, TSYS' Board of Directors appointed KPMG LLP as the independent auditors to audit the financial statements of TSYS and its subsidiaries for the fiscal year ending December 31, 1999. The Board of Directors knows of no direct or material indirect financial interest by KPMG in TSYS or of any connection between KPMG and TSYS in the capacity of promoter, underwriter, voting trustee, director, officer, shareholder or employee. Representatives of KPMG will be present at TSYS' 1999 Annual Meeting with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. GENERAL INFORMATION FINANCIAL INFORMATION Detailed financial information for TSYS and its subsidiaries for its 1998 fiscal year is included in TSYS' 1998 Annual Report that is being mailed to TSYS' shareholders together with this Proxy Statement. SHAREHOLDER PROPOSALS FOR THE 2000 PROXY STATEMENT Any shareholder satisfying the Securities and Exchange Commission requirements and wishing to submit a proposal to be included in the Proxy Statement for the 2000 Annual Meeting of Shareholders should submit the proposal in writing to the Secretary, Total System Services, Inc., 901 Front Avenue, Suite 301, Columbus, Georgia 31901. TSYS must receive a proposal by November 15, 1999 in order to consider it for inclusion in the Proxy Statement for the 2000 Annual Meeting of Shareholders. DIRECTOR NOMINEES OR OTHER BUSINESS FOR PRESENTATION AT THE ANNUAL MEETING Shareholders who wish to present director nominations or other business at the Annual Meeting are required to notify the Secretary of their intent at least 45 days but not more than 90 days before March 12, 2000 and the notice must provide information as required in the bylaws. A copy of these bylaw requirements will be provided upon request in writing to the Secretary, Total System Services, Inc., 901 Front Avenue, Suite 301, Columbus, Georgia 31901. This requirement does not apply to the deadline for submitting shareholder proposals for inclusion in the Proxy Statement (see "Shareholder Proposals for the 2000 Proxy Statement" above), nor does it apply to questions a shareholder may wish to ask at the meeting. SOLICITATION OF PROXIES The cost of soliciting proxies will be paid by TSYS. This solicitation is being made by mail, but may also be made by telephone or in person by TSYS officers and employees. TSYS will reimburse brokerage firms, nominees, custodians, and fiduciaries for their out-of-pocket expenses for forwarding proxy materials to beneficial owners. The above Notice of Annual Meeting and Proxy Statement are sent by order of the TSYS Board of Directors. /s/Richard W. Ussery Richard W. Ussery Chairman of the Board Total System Services, Inc. March 12, 1999 EX-21.1 5 SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF TOTAL SYSTEM SERVICES, INC.
Columbus Depot Equipment Company 100% A Georgia corporation TSYS Total Solutions, Inc. 100% A Georgia corporation Columbus Productions, Inc. 100% A Georgia corporation TSYS Canada, Inc. 100% A Georgia corporation
EX-23.1 6 INDEPENDENT AUDITOR'S CONSENT Independent Auditors' Consent We consent to the incorporation by reference in the Registration Statements (No. 2-92497, No. 33-17376, No. 333-25401, and No. 333-41775) on Form S-8 and the Registration Statement (No. 333-50351) on Form S-3 of Total System Services, Inc. of our reports dated January 7, 1999, relating to the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, and the related financial statement schedule, which reports appear in or are incorporated by reference in Total System Services, Inc. Annual Report on Form 10-K for the year 1998. /s/KPMG LLP Atlanta, Georgia March 12, 1999 EX-24.1 7 POWERS OF ATTORNEY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Total System Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOTAL SYSTEM SERVICES, INC. (Registrant) March 12, 1999 By:/s/Richard W. Ussery ----------------------------------------- Richard W. Ussery, Chairman and Principal Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, Richard W. Ussery and Philip W. Tomlinson, and each of them, his true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)- in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. /s/James H. Blanchard Date: March 12, 1999 - ------------------------------------------------- James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 12, 1999 - ------------------------------------------------ Richard W. Ussery, Chairman of the Board and Principal Executive Officer /s/Philip W. Tomlinson Date: March 12, 1999 - ------------------------------------------------- Philip W. Tomlinson, President and Director /s/James B. Lipham Date: March 12, 1999 - ------------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Griffin B. Bell Date: March 12, 1999 - ------------------------------------------------- Griffin B. Bell, Director /s/Richard Y. Bradley Date: March 12, 1999 - ------------------------------------------------- Richard Y. Bradley, Director /s/Gardiner W. Garrard, Jr. Date: March 12, 1999 - -------------------------------------------------- Gardiner W. Garrard, Jr., Director /s/John P. Illges, III Date: March 12, 1999 - -------------------------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 12, 1999 - ----------------------------------------------------- Mason H. Lampton, Director /s/Samuel A. Nunn Date: March 12, 1999 - --------------------------------------------------- Samuel A. Nunn, Director /s/H. Lynn Page Date: March 12, 1999 - ----------------------------------------------------- H. Lynn Page, Director /s/W. Walter Miller, Jr. Date: March 12, 1999 - ----------------------------------------------------- W. Walter Miller, Jr., Director /s/William B. Turner Date: March 12, 1999 - --------------------------------------------------- William B. Turner, Director /s/James D. Yancey Date: March 12, 1999 - -------------------------------------------------- James D. Yancey, Director filings/tss\con13.sig EX-27.1 8 FINANCIAL DATA SCHEDULE
5 0000721683 TOTAL SYSTEM SERVICES, INC. 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 9,555,760 0 85,506,319 710,592 0 119,722,091 169,603,757 76,984,752 348,908,312 59,249,795 0 0 0 19,422,504 250,931,215 348,908,312 396,194,068 396,194,068 0 329,825,544 0 0 0 81,787,127 26,955,984 54,831,143 0 0 0 54,831,143 .28 .28 On April 16, 1998, TSYS announced a three-for-two stock split that was issued on May 8, 1998, to shareholders of record as of April 27, 1998. Financial data schedules have not been restated for prior periods for this recapitalization.
-----END PRIVACY-ENHANCED MESSAGE-----