-----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, Bs9EoeHMC3d00qCmnwZ1TOhu+qav1wvfNcbPx0+J+crMyoWvuUgsueJLrpmdUwz6 /juGDc/CTaHq5amsnZfJ4Q== 0000721683-01-500006.txt : 20010322 0000721683-01-500006.hdr.sgml : 20010322 ACCESSION NUMBER: 0000721683-01-500006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010321 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: 1573956 BUSINESS ADDRESS: STREET 1: 1600 FIRST AVENUE STREET 2: P O BOX 1755 CITY: COLUMBUS STATE: GA ZIP: 31901 BUSINESS PHONE: 7066492267 MAIL ADDRESS: STREET 1: 1600 FIRST AVENUE CITY: COLUMBUS STATE: GA ZIP: 31901 10-K 1 front.txt 10-K 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 2000 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 of (I.R.S. Employer Identification No.) incorporation or organization) 1600 First 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 15, 2001, 194,761,020 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 $807,241,000 (based upon the closing per share price of such stock on said date.) Portions of the 2000 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 9, 2001 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 20 through 25, 30 and 33, Part I, Item 1, Business and 37 through 40 of Registrant's 2000 Annual Report to Shareholders Pages 30 through 33, and 37 and 38 Part I, Item 2, Properties of Registrant's 2000 Annual Report to Shareholders Pages 37 and 38 of Registrant's 2000 Part I, Item 3, Legal Annual Report to Shareholders Proceedings Page 43 of Registrant's 2000 Part II, Item 5, Market Annual Report to Shareholders for Registrant's Common Equity and Related Stockholder Matters Page 19 of Registrant's 2000 Part II, Item 6, Selected Annual Report to Shareholders Financial Data Pages 20 through 25 of Registrant's Part II, Item 7, Management's 2000 Annual Report to Shareholders Discussion and Analysis of Financial Condition and Results of Operations Pages 26 through 41, and 43 Part II, Item 8, Financial of Registrant's 2000 Annual Statements and Supplementary Report to Shareholders Data Pages 3 and 4, 7 and 24 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 19, 2001 Page 7, pages 14 through 16, and 20 Part III, Item 11, of Registrant's Proxy Statement Executive Compensation in connection with the Annual Meeting of Shareholders to be held on April 19, 2001 Pages 8 and 9, 21 and 22 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 19, 2001 Management Pages 20 and 21, 23 and 24 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 19, 2001 and pages 31 and 32 of Registrant's 2000 Annual Report to Shareholders Pages 26 through 41 of Registrant's Part IV, Item 14, Exhibits, 2000 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 5 7. Management's Discussion and Analysis 5 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 7 on Accounting and Financial Disclosure Part III 10. Directors and Executive Officers of 7 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, 8 and Reports on Form 8-K 12 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. ("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 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. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by the forward-looking statements. Many of these factors are beyond TSYS' ability to control or predict. The factors include, but are not limited to: (i) lower than anticipated internal growth rates for TSYS' existing clients; (ii) TSYS' inability to control expenses and increase market share; (iii) TSYS' inability to successfully bring new products to market, including, but not limited to, stored value and e-commerce products; (iv) the inability of TSYS to grow its business through acquisitions; (v) TSYS' inability to increase the revenues derived from international sources; (vi) adverse developments with respect to entering into contracts with new clients and retaining current clients; (vii) the merger of TSYS clients with entities that are not TSYS clients; (viii) TSYS' inability to anticipate and respond to technological changes, particularly with respect to e-commerce; (ix) adverse developments with respect to the successful conversion of clients; (x) the absence of significant changes in foreign exchange spreads between the United States and the countries TSYS transacts business in, to include Mexico, United Kingdom, Japan, Canada and the European Union; (xi) changes in consumer spending, borrowing and saving habits, including a shift from credit to debit cards; (xii) changes in laws, regulations, credit card association rules or other industry standards affecting TSYS' business which require significant product redevelopment efforts; (xiii) 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; (xiv) the costs and effects of litigation; (xv) adverse developments with respect to the credit card industry in general; and (xvi) overall market conditions. Such forward-looking statements speak only as of the date on which such statements are 1 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. 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, TSYS is now one of the world's largest electronic payments processors of consumer credit, debit, commercial, stored value and retail cards. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol "TSS," TSYS provides the electronic link between buyers and sellers with a comprehensive on-line system of data processing services servicing issuing institutions throughout the United States, Canada, Mexico, Honduras and the Caribbean, representing more than 195 million cardholder accounts on file as of December 31, 2000. TSYS will begin to offer its services to financial institutions in Europe in 2001 and currently offers merchant services to financial institutions and other organizations in Japan. TSYS also offers value added products and services, such as credit evaluation, fraud control and marketing, to support its core processing services. Synovus Financial Corp., a $14.9 billion asset, multi-financial services company, owns 80.8 percent of TSYS. TSYS has five wholly owned subsidiaries: (1) Columbus Depot Equipment Company, which sells and leases computer related equipment associated with TSYS' transaction processing services; (2) TSYS Total Solutions, Inc., which provides mail and correspondence processing services, teleservicing, data documentation capabilities, offset printing, customer service, collections and account solicitation services; (3) Columbus Productions, Inc., which provides full-service commercial printing and related services; (4) TSYS Canada, Inc., which provides programming support and assistance with the conversion of card portfolios to TS2; and (5) DotsConnect, Inc., which delivers e-payments software that allows buyers and sellers to conduct commerce electronically. TSYS also holds: (1) 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; (2) 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; and (3) a 53% equity interest in GP Network Corporation, a company which provides merchant processing services to financial institutions and retailers in Japan. The services provided by TSYS are divided into two operating segments, transaction processing services and support services. Transaction processing services, which includes the programming services provided by TSYS Canada, Inc., the electronic commerce services provided by DotsConnect, Inc. and the merchant processing services provided by GP Network Corporation, account for approximately 86% 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 and other services provided by 2 TSYS Total Solutions, Inc. and the commercial printing services provided by Columbus Productions, Inc., are aggregated into the segment referred to as support 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, TSYS Total Solutions, Transaction Special Processing and TSP, to which TSYS believes strong customer identification 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, 2000, Bank of America Corporation, Providian Financial Corporation and Sears Roebuck & Co. accounted for approximately 15%, 11% and 10%, respectively, of TSYS' total revenues. As a result, the loss of Bank of America Corporation, Providian Financial Corporation or Sears Roebuck & Co., or other major or significant customers, could have a material adverse effect on TSYS' financial condition and results of operations. Competition. TSYS encounters vigorous competition in providing card processing services from several different sources. The national market in third party card processors is presently being provided by approximately seven vendors. TSYS believes that it is the second largest third party card processor in the United States. In addition, TSYS competes with in-house processors and 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 card associations, data processing and bankcard computer service firms and other such third party vendors located throughout the United States. Based upon available market share data, TSYS estimates that at the end of 2000 it held a 25% share of the domestic consumer card processing market, an 87% share of the Visa and MasterCard domestic commercial card processing market, a 17% share of the domestic retail card processing market and a 2% share of the domestic off-line debit processing market. In addition to processing cards for United States clients, TSYS also holds an approximately 42% market share of the Mexican card processing market and an approximately 20% market share of the Canadian card processing market. TSYS' major competitor in the card processing industry is First Data Resources, Inc., a wholly owned subsidiary of First Data Corporation, which is headquartered in Omaha, Nebraska, and provides card 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 3 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 regulate the financial institutions 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. In addition, 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 December 31, 2000, TSYS had 4,542 full-time employees. See the "Financial Review" Section on pages 20 through 25 and Note 1, Note 4, Note 9, Note 11 and Note 12 of Notes to Consolidated Financial Statements on page 30, page 33, and pages 37 through 40 of TSYS' 2000 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. TSYS Total Solutions, Inc., which is included in the segment support services, occupies approximately 82,500 square feet of this building. TSYS also owns a 104,000 square foot building on an 18-acre site in Columbus which functions as a second data center. TSYS entered into an operating lease for the purpose of financing its 540,000 square foot campus-type facility on approximately 46 acres of land in downtown Columbus, Georgia. The campus facility serves as TSYS' corporate headquarters and houses administrative, client contact and programming team members. The campus facility consolidated most of TSYS' multiple Columbus locations. 4 All of the properties listed above are utilized by TSYS for card processing services with the one exception noted above with respect to the space occupied by TSYS Total Solutions, Inc. TSYS Total Solutions, Inc. and Columbus Productions, Inc., which are included in the segment support 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 30 through 33, and pages 37 and 38 of TSYS' 2000 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 pages 37 and 38 of TSYS' 2000 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 Registrants Common Equity and Related Stockholder Matters The "Quarterly Financial Data, Stock Price, Dividend Information Section" which is set forth on page 43 of TSYS' 2000 Annual Report to Shareholders is specifically incorporated herein by reference. Item 6. Selected Financial Data The "Selected Financial Data" Section which is set forth on page 19 of TSYS' 2000 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 20 through 25 of TSYS' 2000 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. 5 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The foreign currency financial statements of TSYS' foreign operations in Mexico, Canada and Japan 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 rate for each reporting period. Net exchange gains or losses resulting from the translation of assets and liabilities of TSYS' foreign operations, net of tax, are accumulated in a separate section of shareholders' equity titled accumulated other comprehensive loss. Currently, TSYS does not use financial instruments to hedge its exposure to exchange rate changes in Mexico, Canada or Japan because TSYS believes that the use of such instruments would not be cost effective. TSYS'carrying value of its investment in its Mexican joint venture was approximately $8.5 million (U.S.) at December 31, 2000, and the carrying value of the assets of its Canadian operation was approximately $354,100 (U.S.) at December 31, 2000. TSYS opened an office in the United Kingdom in 1999, which serves as the headquarters for its European operations. During 2000, TSYS purchased a building and machinery for approximately $13.0 million. TSYS signed a lease agreement in England for data center services. TSYS also signed The Royal Bank of Scotland Group plc and Allied Irish Banks plc to process their respective portfolios beginning in 2001. Currently, TSYS does not use instruments to hedge its foreign exposure in the United Kingdom. TSYS acquired a controlling interest in an established electronic payments company in Japan, GP Network Corporation, for a total of $4.8 million. The carrying value of the assets of TSYS' operation in Japan was approximately $6.9 million (U.S.) at December 31, 2000. In addition, TSYS opened a branch office in Japan ("TSYS Japan") in an effort to expand its business in the Asia Pacific region. At December 31, 2000, the carrying value of TSYS' TSYS Japan operation was approximately $72,000 (U.S.) Currently, TSYS does not use instruments to hedge its foreign exposure in Japan. TSYS is also exposed to interest rate risk associated with the lease on its campus facilities. The payments under the operating lease arrangement are tied to the London Interbank Offered Rate ("LIBOR") and TSYS has evaluated the hypothetical change in the lease obligation held at December 31, 2000 due to changes in the LIBOR. The modeling technique used measured hypothetical changes in lease obligations arising from selected hypothetical changes in the LIBOR. Market changes reflected immediate hypothetical parallel shifts in the LIBOR curve of plus or minus 50 basis points, 100 basis points and 150 basis points over a 12-month period. TSYS does not have any long-term liabilities other than an accounts payable due in 2003 that is not material to TSYS' financial position. Item 8. Financial Statements and Supplementary Data The "Quarterly Financial Data, Stock Price, Dividend Information" Section, which is set forth on page 43, and the "Consolidated Balance Sheets, Consolidated Statements of Income, 6 Consolidated Statements of Cash Flows, Consolidated Statements of Shareholders' Equity and Comprehensive Income, Notes to Consolidated Financial Statements and Report of Independent Auditors" Sections, which are set forth on pages 26 through 41 of TSYS' 2000 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 3 and 4, the "EXECUTIVE OFFICERS" Section which is set forth on page 7, and the "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" Section which is set forth on page 24 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 19, 2001 are specifically incorporated herein by reference. Item 11. Executive Compensation The "DIRECTORS' COMPENSATION" Section which is set forth on page 7, the "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises and Grants; and Change in Control Arrangements" Sections which are set forth on pages 14 through 16, and the "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" Section which is set forth on page 20 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 19, 2001 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 pages 8 and 9, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Stock by CB&T' Section which is set forth on page 21, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Synovus Stock Ownership of Directors and Management" Section which is set forth on pages 21 and 22 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 19, 2001 are specifically incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The "TRANSACTIONS WITH MANAGEMENT" Section which is set forth on page 20, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF 7 SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Stock by CB&T" Section which is set forth on page 21, 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 21, 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 23 and 24 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 19, 2001 are specifically incorporated herein by reference. See also Note 2 of Notes to Consolidated Financial Statements on pages 31 and 32 of TSYS' 2000 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 The following Consolidated Financial Statements of TSYS are specifically incorporated by reference from pages 26 through 41 of TSYS' 2000 Annual Report to Shareholders to Item 8, Part II, Financial Statements and Supplementary Data. Consolidated Balance Sheets - December 31, 2000 and 1999. Consolidated Statements of Income - Years Ended December 31, 2000, 1999 and 1998. Consolidated Statements of Cash Flows - Years Ended December 31, 2000, 1999 and 1998. Consolidated Statements of Shareholders' Equity and Comprehensive Income - Years Ended December 31, 2000, 1999 and 1998. 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: 8 Report of Independent Auditors. Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 2000, 1999 and 1998. 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, incorporated by reference to Exhibit 3.2 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March 16, 2000. 10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 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, 1999, as filed with the Commission on March 16, 2000. 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, which was renamed the Total System Services, Inc. 2000 Long-Term Incentive Plan, 9 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 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 10 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 DotsConnect, Inc. 2000 Long-Term Incentive Plan in which executive officers of TSYS participate. 10.16 Vital Processing Services, L.L.C. Restricted Unit Agreement for executive officers of TSYS. 10.17 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. 10.18 Synovus Financial Corp. 2000 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.16 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March 16, 2000. 13.1 Certain specified pages of TSYS' 2000 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 19, 2001, 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 2000 Annual Report on Form 10-K. 99.1 Annual Report on Form 11-K for the Total System Services, Inc. Employee Stock Purchase Plan for the year ended December 31, 2000 (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, 2000 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.) 11 (b) Reports on Form 8-K On October 18, 2000, TSYS filed a Form 8-K with the Commission in connection with the announcement of its earnings for the third quarter of 2000. filings\tsys\tsys0010k.doc 12 Independent Auditors' Report The Board of Directors Total System Services, Inc.: Under date of January 17, 2001, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income, cash flows, and shareholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 2000, as contained in the Total System Services, Inc. 2000 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 2000. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related 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 17, 2001 13 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 period expenses describe describe of period -------------------------------------------------------------------------------------- Year ended December 31, 1998: Allowance for doubtful accounts $ 735,959 18,000 - (43,367)(1) $ 710,592 ============= ============== ============= =============== ============== Year ended December 31, 1999: Allowance for doubtful accounts $ 710,592 665,500 - (99,396)(1) $ 1,276,696 ============= ============== ============= =============== ============== Year ended December 31, 2000: Allowance for doubtful accounts $ 1,276,696 1,575,486 - (176,560)(1) $ 2,675,622 ============= ============== ============= =============== ============== - ----------------------------------------------------------------------------------------------------------------------------------- (1) Accounts deemed to be uncollectible and written off during the year.
14 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 21, 2001 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 21, 2001 - -------------------------------------------------- James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 21, 2001 - -------------------------------------------------- Richard W. Ussery, Chairman of the Board and Principal Executive Officer /s/Philip W. Tomlinson Date: March 21, 2001 - -------------------------------------------------- Philip W. Tomlinson, President and Director /s/James B. Lipham Date: March 21, 2001 - -------------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Richard Y. Bradley Date: March 21, 2001 - -------------------------------------------------- Richard Y. Bradley, Director /s/G. Wayne Clough Date: March 21, 2001 - -------------------------------------------------- G. Wayne Clough, Director /s/Thomas G. Cousins Date: March 21, 2001 - -------------------------------------------------- Thomas G. Cousins, Director /s/Gardiner W. Garrard, Jr. Date: March 21, 2001 - -------------------------------------------------- Gardiner W. Garrard, Jr., Director /s/Sidney E. Harris Date: March 21, 2001 - -------------------------------------------------- Sidney E. Harris, Director /s/John P. Illges, III Date: March 21, 2001 - -------------------------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 21, 2001 - -------------------------------------------------- Mason H. Lampton, Director /s/Samuel A. Nunn Date: March 21, 2001 - -------------------------------------------------- Samuel A. Nunn, Director /s/H. Lynn Page Date: March 21, 2001 - -------------------------------------------------- H. Lynn Page, Director /s/W. Walter Miller, Jr. Date: March 21, 2001 - -------------------------------------------------- W. Walter Miller, Jr., Director /s/William B. Turner Date: March 21, 2001 - -------------------------------------------------- William B. Turner, Director /s/James D. Yancey Date: March 21, 2001 - -------------------------------------------------- James D. Yancey, Director /s/Rebecca K. Yarbrough Date: March 21, 2001 - -------------------------------------------------- Rebecca K. Yarbrough, Director Date: - -------------------------------------------------- Alfred W. Jones III, Director EX-10.15 2 dotsincen.txt DOTSCONNECT, INC. 2000 LONG-TERM INCENTIVE PLAN DotsConnect, Inc. 2000 Long-Term Incentive Plan TABLE OF CONTENTS ss.1 Background and Purpose................................................1 ss.2 Definitions...........................................................1 2.1 Affiliate....................................................1 2.2 Board........................................................1 2.3 Change of Control............................................1 2.4 Committee....................................................2 2.5 Company......................................................2 2.6 Disability...................................................2 2.7 Effective Date...............................................2 2.8 Employee.....................................................2 2.9 Fair Market Value............................................2 2.10 Option.......................................................3 2.11 Option Agreement.............................................3 2.12 Option Price.................................................3 2.13 Plan.........................................................3 2.14 Retirement...................................................3 2.15 Stock........................................................3 ss.3 Stock Reserved for Issuance Under Plan................................3 ss.4 Committee.............................................................4 ss.5 Eligibility...........................................................4 ss.6 Options...............................................................4 ss.7 Nontransferability....................................................5 ss.8 Securities Registration...............................................5 ss.9 Life of Plan..........................................................5 ss.10 Adjustment............................................................6 ss.11 Change of Control.....................................................7 ss.12 Amendment or Termination..............................................7 ss.13 Miscellaneous.........................................................8 DotsConnect, Inc. 2000 Long-Term Incentive Plan ss. 1 Background and Purpose The purpose of this Plan is to promote the interest of DotsConnect, Inc. through the granting of Options in order to (a) attract and retain Employees, (b) provide an additional incentive to each Employee to work to increase the value of the Company, and (c) provide each Employee with a stake in the future of the Company that is similar to that of the Company's other equity owners. ss. 2 Definitions Each term set forth in this ss. 2 shall have the meaning set forth opposite such term and any reference to the plural of a defined term shall include the singular. 2.1 Affiliate - shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations of the Securities Exchange Act of 1934. 2.2 Board - means the Board of Directors of the Company. 2.3 Change of Control - means: (a) the acquisition by any "person" ("Person"), as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company or a subsidiary or any Company employee benefit plan (including its trustee) or an "Exempt Person" as defined below), of "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the total number of shares of the Company's then outstanding securities; or (b) consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets or stock of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the total number of shares of the Company's outstanding securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than two-thirds (2/3) of, respectively, the total number of shares of the then outstanding securities of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or 1 more subsidiaries)in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the total number of shares of the Company's outstanding securities, (ii) no Person (excluding any corporation resulting from such Business Combination, or any employee benefit plan (including its trustee) of the Company or such corporation resulting from such Business Combination, or an "Exempt Person" as defined below) beneficially owns, directly or indirectly, 20% or more of, respectively, the total number of shares of the then outstanding securities of the corporation resulting from such Business Combination except to the extent that such ownership existed prior to the Business Combination and (iii) at least two-thirds (2/3) of the members of the board of directors of the Corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination. For purposes of this Section 2.3, a "Change of Control" shall not result from any transaction precipitated by the Company's insolvency, appointment of a conservator, or determination by a regulatory agency that the Company is insolvent, nor from any transaction initiated by the Company in regard to converting from a publicly traded company to a privately held company. 2.4 Committee - means the Board, or such committee as may be designated by the Board; provided, however, that with respect to Options granted to employees of Total System Services, Inc., the term "Committee" shall refer to the Compensation Committee of the Board of Directors of Total System Services, Inc. 2.5 Company - means DotsConnect, Inc. and any successor to DotsConnect, Inc. 2.6 Disability - shall have the meaning ascribed to such term in the Employee's governing long-term disability plan, or if no such plan exists, at the discretion of the Board. 2.7 Effective Date - means the effective date of this Plan, which is May 1, 2000. 2.8 Employee - means an employee of the Company or an Affiliate or a former employee of the Company or an Affiliate who has an outstanding Option. 2.9 Fair Market Value - means as of any date (a) if the Stock is not traded on a national securities exchange or quoted on a national quotation system, the price that the Committee acting in good faith determines through any reasonable valuation method to be the price at which a share of Stock might change hands between a willing buyer and a 2 willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts, or (b) if the Stock is traded on a national securities exchange or quoted on a national quotation system, (1) the closing price of the Stock on such date, (2) if there was no closing price of the Stock on such date, the closing price on the next preceding business day, or (3) if there was no closing price on the next preceding business day, the value determined by the Committee in accordance with ss. 2.9(a). 2.10 Option - means an option to purchase Stock granted in accordance with ss.6. 2.11 Option Agreement - means the document that sets forth the terms and conditions of an Option. 2.12 Option Price - means the price to purchase one share of Stock upon the exercise of an Option. 2.13 Plan - means this DotsConnect, Inc. 2000 Long-Term Incentive Plan, as amended from time to time. 2.14 Retirement - means termination of employment after (i) attainment of age sixty-five (65); or (ii) attainment of age fifty (50) with fifteen (15) years of service. 2.15 Stock - means the common stock of the Company or any successor to the Company. ss. 3 Stock Reserved for Issuance Under Plan The total number of shares of Stock reserved and available for distribution under the Plan shall be 1,500,000. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. If any shares of Stock that have been subject to option cease to be subject to option without having been exercised, or such options are otherwise terminated without having been exercised, such shares shall again be available for distribution in connection with future Options under the Plan. Notwithstanding any provision in the Plan to the contrary, the maximum number of shares of Stock that may be granted to any one Employee in any calendar year shall be 500,000. 3 ss. 4 Committee This Plan shall be administered by the Committee. The Committee acting in its absolute discretion shall interpret this Plan and take such action in the administration and operation of this Plan as the Committee deems appropriate under the circumstances. Any action of the Committee shall be binding on the Company, on each affected Employee and on each other person directly or indirectly affected by such action. ss. 5 Eligibility Only employees of the Company or an Affiliate shall be eligible for the grant of Options. ss. 6 Options 6.1 Committee Action. The Committee acting in its absolute discretion may grant Options to Employees from time to time. Each grant of an Option shall be evidenced by an Option Agreement. The Option Agreement shall incorporate such other terms and conditions of the grant as the Committee acting in its absolute discretion deems appropriate. 6.2 Option Price. The Option Price shall be no less than the Fair Market Value of Stock on the date the Option is granted. The Option Price shall be payable in full upon the exercise of any Option. At the discretion of the Committee, an Option Agreement can provide for the payment of the Option Price either in cash, by check acceptable to the Committee, or by surrender of Stock that has been held for at least six (6) months, or in any combination of such cash, check and Stock. The value of any Stock used as payment in the exercise of an Option shall be equal to the Fair Market Value of Stock on the date of exercise of the Option. 6.3 Exercise Period. Each Option shall be exercisable in whole or in part at such time or times as set forth in the related Option Agreement, but no Option shall be exercisable, with respect to any Stock subject to such Option, after the tenth anniversary of the date of grant of the Option. An Option Agreement may provide for the exercise of an Option after the employment of an Employee has terminated for any reason whatsoever, including retirement, death or disability. 4 ss. 7 Nontransferability An Option shall not be transferable by an Employee other than by will or by the laws of descent and distribution. During an Employee's lifetime, an Option shall be exercisable only by the Employee or, if the Option Agreement provides for exercise after the disability of the Employee and the Employee is legally incapacitated as a result of such disability, the Option shall be exercisable by the Employee's legal representative. However, the person or persons to whom an Option is transferred by will or by the laws of descent and distribution thereafter shall be treated as the Employee under this Plan. ss. 8 Securities Registration Each Option Agreement shall provide that, upon the receipt of Stock, the Employee shall, if so requested by the Company, (a) hold such Stock for investment and not with a view of resale or distribution to the public and (b) deliver to the Company a written statement satisfactory to the Company to that effect. As for Stock issued pursuant to this Plan, the Company at its expense shall take such action as it deems necessary or appropriate to register the original issuance of such Stock to an Employee under any applicable securities laws or to qualify such issuance for an exemption from the registration requirements of such laws prior to the issuance of such Stock to an Employee. However, the Company shall have no obligation whatsoever to take any such action in connection with the transfer, resale or other disposition of such Stock by an Employee. ss. 9 Life of Plan No Option shall be granted under this Plan on or after the earlier of (a) the tenth anniversary of the Effective Date, in which event this Plan shall continue in effect until all outstanding Options have been exercised in full or are no longer exercisable, or (b) the date on which all of the Stock authorized for issuance under ss. 3 has been issued or is no longer available for use under this Plan (as a result of use to satisfy a withholding obligation), in which event this Plan also shall terminate on such date. 5 ss. 10 Adjustment 10.1 Capital Structure. In the event of changes in the capitalization of the Company resulting from Stock dividends or Stock splits, the Committee shall adjust, and in the event of changes in the capitalization of the Company resulting from a merger, consolidation, acquisition, separation, reorganization or liquidation, the Committee may (in its absolute discretion) adjust the number, kind or class (or any combination thereof) of Stock subject to Options and the Option Price of such Options. Any such adjustments shall be made in an equitable manner to reflect such change. 10.2 Conversion to Options for Other Securities. In the event securities of the Company, or of a subsidiary of the Company, or of an entity formed for the purpose of causing the business of the Company to be operated in a publicly traded entity, become publicly traded, or in anticipation of such event, the Committee shall take such actions as may be necessary, if any, to cause outstanding Options to be converted into options to purchase such securities that are or will be publicly traded. Any such option into which an Option is converted shall reflect such terms (including the number, kind and class of securities subject to the option and the option price) as the Committee deems equitably comparable to the terms of the Options converted; provided, however, the Committee under no circumstances shall be obligated to cause to be granted options to purchase the same percentage of the equity interest in the Company, subsidiary or other entity as could have been purchased through exercise of the converted Options; and provided, further, that the Committee shall not be required to take any action in connection with such conversion that would result in compensation expense to the Company or to the issuer of such substituted options by reason of, or in connection with, such conversion. 10.3 Fractional Shares. If any adjustment under this ss. 10 would create a fractional share or a right to acquire a fractional share of Stock, such fractional share of Stock shall be disregarded and the number of shares that otherwise would result from such adjustment shall be the next lower number of shares, rounding all fractions downward. An adjustment made under this ss. 10 by the Committee shall be conclusive and binding on all affected persons. 6 ss. 11 Change of Control In the event of a Change of Control, all outstanding Options of persons who are employees of the Company or an Affiliate on the date of the Change of Control will vest in full. In addition, as part of the Option Agreement, the Committee in its discretion may require that an Employee surrender his or her Option in exchange for a payment by the Company in an amount equal to the amount by which the then Fair Market Value of the Stock subject to the Employee's Option exceeds the Option Price for such Stock, in which case the Option will terminate upon such surrender. ss. 12 Amendment or Termination The Board may amend this Plan from time to time to the extent that the Board deems necessary or appropriate and the Board also may suspend the granting of Options at any time and terminate this Plan at any time; provided, however, except as provided in ss. 13.6, neither the Board nor the Committee may amend or cancel an Option, without the holder's consent, if such amendment or cancellation would adversely affect the holder's right to purchase an equity interest in the Company on terms equitably comparable (as determined by the Committee in its absolute discretion) to the terms of the Option in effect prior to such amendment or cancellation to the extent the Employee is vested in the Option immediately prior to the date of such amendment or cancellation; provided the Committee under no circumstances shall be obligated to preserve the Employee's opportunity to purchase the same percentage of the equity interest in the Company as the Employee could have purchased before the date of such amendment or cancellation. Because the Plan will be submitted to Total System Services, Inc. stockholders for approval, Options granted to Employees of Total System Services, Inc. are contingent upon such stockholder approval of the Plan. If stockholder approval of this Plan is obtained, no amendment, alteration or discontinuation shall be made by the Board which, without the approval of such stockholders, would: (a) increase the total number of shares reserved for the purpose of the Plan, except as provided for in accordance with Section 10 of the Plan; (b) decrease the option price of any Stock Option to less than 100% of the Fair Market Value on the date of the granting of the option, except as provided for in accordance with Section 10 of the Plan; (c) change the Participants or class of Participants eligible to participate in the Plan; 7 (d) extend the maximum option period under Section 6.3 of the Plan; or (e) materially increase in any other way the benefits accruing to Participants. ss. 13 Miscellaneous 13.1 Option Holder Rights. No holder of an Option shall have any rights as a stockholder of the Company as a result of the grant of an Option or his or her exercise of such Option until such person is reflected on the Company's books as the holder of the applicable Stock. 13.2 No Contract of Employment. The grant of an Option shall not constitute a contract of employment and shall not confer on an Employee any rights upon his or her termination of employment in addition to those rights, if any, expressly set forth in the related Option Agreement. 13.3 Withholding. Each grant of an Option shall be made subject to the condition that the Employee consents to whatever action the Committee directs to satisfy the federal and state tax withholding requirements, if any, that the Committee in its discretion deems applicable to the exercise of such Option. 13.4 Construction. The headings in this Plan are for convenience of reference only and are not to be given substantive meaning. All references to sections (ss.) are to sections (ss.) of this Plan unless otherwise indicated. This Plan shall be construed under the laws of the State of Georgia. 13.5 Other Conditions. Each Option Agreement may require that an Employee (as a condition to the exercise of an Option) enter into any agreement or make such representations prepared by the Company, including any agreement that restricts the transfer of Stock acquired pursuant to the exercise of an Option or provides for the repurchase of such Stock by the Company under certain circumstances. 13.6 Securities Law. The Committee shall have the right to amend or cancel any grant of an Option or to withhold consent to or otherwise restrict the transfer of any Stock issued upon exercise of Options granted under this Plan as the Committee deems appropriate in order to satisfy any condition or requirement under any federal or state securities or other law, regulation or rule applicable to such grant or transfer, or obtain applicable governmental agency approval. 13.7 Loans. If approved by the Committee in its sole discretion, the Company may lend money to, or guarantee loans made by a third party to, any Employee to finance the exercise of any Option, and the exercise of an Option with the proceeds of any such loan shall be treated as an exercise for cash. If approved by the Committee in its sole discretion, the Company also may, in accordance with an Employee's instructions, transfer Stock acquired in the exercise of an Option directly to a third party in connection with any arrangement made by the Employee for financing the exercise of such Option. 8 13.8 Beneficiary Designation. Each Employee under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Employee, shall be in a form prescribed by the Company, and will be effective only when filed by the Employee in writing with the Company during the Employee's lifetime. In the absence of any such designation, benefits remaining unpaid at the Employee's death shall be paid to the Employee's estate. 13.9 Indemnification. Each person who is, or shall have been, a member of the Committee, or of the Board, shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon, or reasonably incurred by, him or her in connection with or resulting from any claim, action, suit, or proceeding to which he or she may be a party or in which he or she may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by him or her in settlement thereof, with the Company's approval, or paid by him or her in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided he or she shall give the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such persons may be entitled under the Company's Articles of Incorporation or Bylaws, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless. 13.10 Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company. IN WITNESS WHEREOF, DotsConnect, Inc. has caused its duly authorized officer to execute this Plan to evidence its adoption of this Plan. DotsConnect, Inc. By: _______________________________ Date: _______________________________ EX-10.16 3 vital.txt RESTRICTED UNIT AGREEMENT 6 RESTRICTED UNIT AGREEMENT VITAL PROCESSING SERVICES L.L.C. THIS RESTRICTED UNIT AGREEMENT ("Agreement") is entered into this 12th day of June, 2000, by and between _____________________ ("Transferee") and Total System Services, Inc. ("TSYS" or the "Company"). WHEREAS, Transferee has been significant in the creation of additional value for TSYS because of his role with Vital Processing Services L.L.C. ("Vital"); and WHEREAS, by a Transfer Instrument of even date herewith (the "Transfer Instrument"), TSYS has transferred to Transferee ________ of the Units owned by TSYS in Vital (the Units so transferred being referred to as the "Restricted Units"). NOW, THEREFORE, Transferee and TSYS hereby agree as follows: 1. Restricted Units. The provisions of the Transfer Instrument are incorporated herein by reference. In addition to the Transfer Instrument and the Limited Liability Company Agreement of Vital, this Agreement governs the Transferred Units, and such agreements and instrument are sometimes referred to collectively as the "Governing Agreements." 2. Restriction Against Transfer. The Restricted Units may not be sold, assigned, transferred, pledged or hypothecated or otherwise be disposed of or encumbered except at the time(s) and under the circumstances specifically permitted or required by the Governing Agreements. In the event of any attempt to effect any action in contravention of the next preceding sentence, then, any provision of any of the Governing Agreements to the contrary notwithstanding, such Restricted Units shall thereupon be forfeited to the Company. 3. Forfeiture Condition. Any Restricted Units which do not vest pursuant to the provisions of Section 4 below will be forfeited to the Company. 4. Vesting of Restricted Units. (a) Vesting Conditions. If Transferee remains in the continuous employ of the Company or a Subsidiary of the Company through June 12, 2003, the Restricted Units will become non-forfeitable ("vest") on June 12, 2003. In addition, if Vital is recapitalized in accordance with Section 7(g) of this Agreement and the securities received by Transferee are thereafter publicly traded on a national securities exchange, the Restricted Units will also vest on the first day such securities are publicly traded. (b) Effect of Voluntary Termination or Termination for Cause or Suicide. If Transferee's employment with the Company and its Subsidiaries is terminated: (i) by Transferee voluntarily or (ii) by the Company or a Subsidiary for Cause or (iii) by Transferee's death due to suicide before the Restricted Units vest pursuant to the provisions of paragraph 4(a) above, then the Restricted Units will be forfeited to the Company on the date of such termination, unless the Compensation Committee in its sole and exclusive discretion determines otherwise. (c) Effect of Death (Other than by Suicide) or Disability. If Transferee's employment with the Company and its Subsidiaries terminates by reason of Transferee's death (other than by suicide) or Disability, then the Restricted Units will vest on the date of such termination. (d) Effect of Retirement or Leave of Absence. If Transferee's employment with the Company and its Subsidiaries is terminated by reason of Transferee's Retirement, and the Restricted Units have previously vested, Transferee shall retain such Units. If at the time of such termination the Restricted Units have not vested, they will be forfeited to the Company, unless the Compensation Committee in its sole and exclusive discretion determines otherwise. A leave of absence which is approved in writing by the Compensation Committee with specific reference to this Agreement will not be considered a termination of Transferee's employment with the Company and its Subsidiaries for purposes of this Section 4 or any other provision of this Agreement. (e) No Forfeiture of Vested Units. Any Restricted Unit which vests pursuant to the preceding provisions of this Section 4 will not thereafter be subject to the provisions of this Agreement, but shall remain subject to the provisions of the other Governing Agreements. (f) Certain Effects of Vesting. From and after the date the Restricted Units vest, they shall be treated as Units of Vital for purposes of all of the distribution and allocation provisions of Vital's Limited Liability Company Agreement. At no time, whether or not vested, shall Units held by the Transferee have any voting or consent rights whatsoever or any other right to participate in the management of Vital. 5. Effect of Forfeiture. If any Restricted Units are forfeited to the Company pursuant to any provision of this Agreement the Transfer Instrument will be surrendered to the Company and will be deemed rescinded. All of Transferee's rights and interests in and to such Restricted Units will terminate upon such forfeiture without any payment of consideration by the Company. 6. Definitions. For purposes of this Agreement, the following capitalized terms shall be defined as set forth below: (a) "Cause" means a felony conviction of Transferee or the failure of Transferee to contest prosecution for a felony, or Transferee's willful misconduct, dishonesty, embezzlement, fraud, deceit or civil rights violations, any of which acts cause the Company or any Subsidiary liability or loss, as determined by the Compensation Committee. (b) "Compensation Committee" means the Compensation Committee of Company's Board of Directors. (c) "Disability" means total and permanent physical or mental disability or incapacity of an employee to fulfill at any time or from time to time his normal duties as an employee, as certified in writing by two competent physicians, one of which shall be selected by the Compensation Committee and the other of which shall be selected by the employee or his duly appointed guardian or legal or personal representative. (d) "Retirement" means normal or early retirement under the applicable Company or Subsidiary pension plan. (e) "Subsidiary" means any company or business organization (other than Company) in an unbroken chain of companies beginning with Company if each of the companies (other than the last company in the unbroken chain) owns 50% or more of the total combined voting power in one of the other companies in the chain. 7. General Provisions. (a) Administration, Interpretation and Construction. The terms and conditions set forth in this Agreement will be administered, interpreted and construed by the Compensation Committee, whose decisions will be final, conclusive and binding on the Company, on Transferee and on anyone claiming under or through the Company or Transferee. Without limiting the generality of the foregoing, any determination as to whether an event has occurred or failed to occur which causes the Restricted Units to be forfeited pursuant to the terms and conditions set forth in this Agreement, will be made in the good faith but absolute discretion of the Compensation Committee. By accepting the transfer of Restricted Units, Transferee irrevocably consents and agrees to the terms and conditions set forth in the Governing Agreements and to all actions, decisions and determinations to be taken or made by the Compensation Committee in good faith pursuant to the terms and conditions set forth in this Agreement. (b) Withholding. The Company will have the right to withhold from any payments to be made to Transferee (whether under this Agreement or otherwise) any taxes the Company determines it is required to withhold with respect to Transferee under the laws and regulations of any governmental authority, whether Federal, state or local and whether domestic or foreign, in connection with this Agreement, including, without limitation, taxes in connection with the transfer of Restricted Units or the vesting of the Restricted Units. Failure to submit any such withholding taxes shall be deemed to cause otherwise vested Restricted Units not to vest. (c) Rights Not Assignable or Transferable. No rights under this Agreement will be assignable or transferable other than by will or the laws of descent and distribution, either voluntarily, or, to the full extent permitted by law, involuntarily, by way of encumbrance, pledge, attachment, levy or charge of any nature except as otherwise provided in this Agreement. Transferee's rights under this Agreement will be exercisable during Transferee's lifetime only by Transferee or by Transferee's guardian or legal representative. (d) Terms and Conditions Binding. The terms and conditions set forth in the Governing Agreements will be binding upon and inure to the benefit of the Company, its successors and assigns, including any assignee of the Company and any successor to the Company by merger, consolidation or otherwise, and Transferee, Transferee's heirs, devisees and legal representatives. (e) No Employment Rights. No provision of any Governing Agreement will be deemed to confer upon Transferee any right to continue in the employ of the Company or a Subsidiary or will in any way affect the right of the Company or a Subsidiary to dismiss or otherwise terminate Transferee's employment at any time for any reason with or without cause, or will be construed to impose upon the Company or a Subsidiary any liability for any forfeiture of Restricted Units which may result under this Agreement if Transferee's employment is so terminated. (f) No Liability for Good Faith Business Acts or Omissions. Transferee recognizes and agrees that the Compensation Committee, the Board of Directors of Company, or the officers, agents or employees of the Company and its Subsidiaries, in their oversight or conduct of the business and affairs of the Company and its Subsidiaries, may in good faith cause the Company or a Subsidiary to act, or to omit to act, in a manner that may, directly or indirectly, prevent the Restricted Units from vesting. No provision of this Agreement will be interpreted or construed to impose any liability upon the Company, a Subsidiary, the Compensation Committee, Board of Directors or any officer, agent or employee of the Company or a Subsidiary, for any forfeiture of Restricted Units that may result, directly or indirectly, from any such action or omission. (g) Recapitalization. In the event that Transferee receives, with respect to Restricted Units, any securities or other property (other than cash distributions) as a result of any security dividend or split, spin-off, recapitalization, merger, consolidation, combination or exchange of securities, transaction to facilitate the business of Vital being owned or operated by a publicly traded entity, or a similar corporate change, any such securities or other property received by Transferee will likewise be subject to the terms and conditions set forth in this Agreement and will be included in the term "Restricted Units." (h) Appointment of Agent. By accepting the transfer of Restricted Units, Transferee irrevocably nominates, constitutes, and appoints the Company Transferee's agent for purposes of surrendering or transferring the Restricted Units to the Company upon any forfeiture required or authorized by this Agreement. This power is intended as a power coupled with an interest and will survive Transferee's death. In addition, it is intended as a durable power and will survive Transferee's disability. (i) Legal Representative. In the event of Transferee's death or a judicial determination of Transferee's incompetence, reference in this Agreement to Transferee shall be deemed, where appropriate, to be Transferee's heirs or devisees. (j) Titles. The titles to sections or paragraphs of this Agreement are intended solely for convenience and no provision of this Agreement is to be construed by reference to the title of any section or paragraph. (k) Complete Agreement. The Governing Agreements contain the entire agreement of the parties relating to the subject matter hereof and supersede and replace all prior agreements and understandings with respect to such subject matter. The parties hereto have made no agreements, representations or warranties relating to the subject matter of this Agreement which are not set forth in the Governing Agreements. (l) Amendment; Modification; Waiver. No provision set forth in this Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be authorized by the Compensation Committee and shall be agreed to in writing, signed by Transferee and by an officer of the Company duly authorized to do so. No waiver by either party hereto of any breach by the other party of any condition or provision set forth in this Agreement to be performed by such other party will be deemed a waiver of a subsequent breach of such condition or provision, or will be deemed a waiver of a similar or dissimilar provisions or condition at the same time or at any prior or subsequent time. (m) Governing Law. The validity, interpretation, performance and enforcement of the terms and conditions set forth in this Agreement will be governed by the laws of the State of Georgia, the state in which the Company is incorporated, without giving effect to the principles of conflicts of law of that state. WITNESS the execution hereof by the undersigned. TRANSFEREE: __________________________________________ TOTAL SYSTEM SERVICES, INC. By: _____________________________ Name: _____________________________ Title: _____________________________ TRANSFER INSTRUMENT Total System Services, Inc. hereby transfers to the individual employee thereof named below (the "Transferee") the number of Units of Vital Processing Services L.L.C. (the "Company") shown below, effective as of the date shown below. The Transferee hereby acknowledges and agrees as follows: 1. The Transferee is admitted to the Company as a Non-Voting Member. The Transferee has no voting or consent rights whatsoever or any other right to participate in the management of the Company. 2. The Transferee is bound by all of the provisions and restrictions of the Limited Liability Company Agreement of the Company, as such agreement is amended from time to time (including, without limitation, the restrictions on transfer contained therein). 3. To the extent applicable to individuals, the Transferee makes the representations set forth in Section 2.06 of the Company's Limited Liability Company Agreement. 4. The Transferee has executed and delivered a separate agreement of even date herewith that relates to the vesting of the Units transferred hereby and other matters. The Transferee will have no rights to allocations and distributions with respect to such Units (except with respect to the Transferee's capital account upon the liquidation and winding up of the Company) unless and until such Units vest under the terms of such separate agreement. WITNESS the execution hereof by the undersigned. Total System Services, Inc. Transferee: By: ___________________________ ________________________________ Name: ___________________________ Effective Date: June 12, 2000 Title: ___________________________ Number of Units: ________________ EX-13.1 4 arfinpgs.txt TSYS' 2000 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 19.2% and 25.3%, respectively. The balance sheet data also reflect the continued strong financial position of TSYS as evidenced by the current ratio of 1.4:1 at December 31, 2000, 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) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- Income Statement Data: Revenues: Bankcard data processing services $ 505,935 456,840 350,310 324,718 277,870 Other services 95,358 77,086 45,884 36,781 33,778 - -------------------------------------------------------------------------------------------------------------------- Total revenues 601,293 533,926 396,194 361,499 311,648 - -------------------------------------------------------------------------------------------------------------------- Expenses: Salaries and other personnel expense 235,670 207,618 160,855 147,438 124,259 Net occupancy and equipment expense 162,906 151,964 105,658 94,685 82,118 Other operating expenses 90,111 86,052 63,312 59,447 53,368 - -------------------------------------------------------------------------------------------------------------------- Total operating expenses 488,687 445,634 329,825 301,570 259,745 - -------------------------------------------------------------------------------------------------------------------- Equity in income of joint ventures 15,586 12,327 12,974 9,347 7,094 - -------------------------------------------------------------------------------------------------------------------- Operating income 128,192 100,619 79,343 69,276 58,997 - -------------------------------------------------------------------------------------------------------------------- Nonoperating income: Gain (loss) on disposal of property and equipment, net (1,422) 798 (48) (36) 31 Interest income, net of expense 5,037 2,159 2,492 2,315 1,416 Minority interest in subsidiary's net income (99) -- -- -- -- - -------------------------------------------------------------------------------------------------------------------- Total nonoperating income 3,516 2,957 2,444 2,279 1,447 - -------------------------------------------------------------------------------------------------------------------- Income before income taxes 131,708 103,576 81,787 71,555 60,444 Income taxes 46,065 34,983 26,956 24,077 21,007 - -------------------------------------------------------------------------------------------------------------------- Net income $ 85,643 68,593 54,831 47,478 39,437 ==================================================================================================================== Basic earnings per share $ .44 .35 .28 .24 .20 ==================================================================================================================== Diluted earnings per share $ .44 .35 .28 .24 .20 ==================================================================================================================== Cash dividends declared per share $ .048 .040 .038 .030 .030 ==================================================================================================================== Weighted average common shares outstanding 194,785 194,913 194,020 193,956 193,931 ==================================================================================================================== Weighted average common and common equivalent shares outstanding 195,265 195,479 194,669 194,239 194,177 ====================================================================================================================
- -------------------------------------------------------------------------------- December 31, ------------------------------------------------------- (in thousands) 2000 1999 1998 1997 1996 - -------------------------------------------------------------------------------- Balance Sheet Data: Total assets $604,393 466,772 354,925 300,758 250,315 Working capital 63,655 76,414 60,472 70,899 52,274 Total long-term debt -- 204 342 475 676 Shareholders' equity 409,014 334,292 270,354 221,255 178,878
TSYS ANNUAL REPORT 2000 19 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 presented on page 19:
- -------------------------------------------------------------------------------------------------------------------- Percentage Change in Dollar Amounts ------------------ Percentage of Total Revenues 2000 1999 Years Ended December 31, vs vs ---------------------------- 2000 1999 1998 1999 1998 - -------------------------------------------------------------------------------------------------------------------- Revenues: Bankcard data processing services 84.1% 85.6 88.4 10.7 30.4 Other services 15.9 14.4 11.6 23.7 68.0 - --------------------------------------------------------------------------------------------- Total revenues 100.0 100.0 100.0 12.6 34.8 - --------------------------------------------------------------------------------------------- Expenses: Salaries and other personnel expense 39.2 38.9 40.6 13.5 29.1 Net occupancy and equipment expense 27.1 28.5 26.7 7.2 43.8 Other operating expenses 15.0 16.1 15.9 4.7 35.9 - --------------------------------------------------------------------------------------------- Total operating expenses 81.3 83.5 83.2 9.7 35.1 - --------------------------------------------------------------------------------------------- Equity in income of joint ventures 2.6 2.3 3.2 26.4 (5.0) - --------------------------------------------------------------------------------------------- Operating income 21.3 18.8 20.0 27.4 26.8 - --------------------------------------------------------------------------------------------- Nonoperating income: Gain (loss) on disposal of property and equipment, net (0.2) 0.2 (0.0) nm nm Interest income, net of expense 0.8 0.4 0.6 133.3 (13.4) Minority interest in subsidiary's net income (0.0) -- -- nm -- - --------------------------------------------------------------------------------------------- Total nonoperating income 0.6 0.6 0.6 18.9 21.0 - --------------------------------------------------------------------------------------------- Income before income taxes 21.9 19.4 20.6 27.2 26.6 Income taxes 7.7 6.6 6.8 31.7 29.8 - --------------------------------------------------------------------------------------------- Net income 14.2% 12.8 13.8 24.9 25.1 =============================================================================================
nm = not meaningful Financial Review This Financial Review provides a discussion of the results of operations, financial condition, liquidity and capital resources of TSYS and outlines 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, generally 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, Canada, Honduras and the Caribbean. TSYS will begin offering its services to financial institutions in Europe in 2001. The Company currently offers merchant services to financial institutions and other organizations in Japan. Bankcard data processing revenues are generated primarily from charges based on the number of accounts billed, transactions and authorizations processed, statements mailed, 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 consumer credit, retail, debit, stored value and commercial card accounts. Due to the number of cardholder accounts processed by TSYS and the expanding use of cards, as well as increases in the scope of services offered to clients, revenues relating to bankcard data processing services have continued to grow. Processing contracts with large clients, representing a significant portion of the Company's total revenues, generally provide for discounts on certain services based on the size and activity of clients' portfolios. Therefore, bankcard data processing revenues and the related margins are influenced by the client mix relative to the size of client card portfolios, as well as the number and activity of individual cardholder accounts processed for each client. Due to the somewhat 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 clients, the conversion of cardholder accounts of new clients to the Company's processing platforms, 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 client 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. Consolidation in the financial services industry could favorably or unfavorably impact TSYS' financial condition and results of operations in the future. The Company's revenues are also impacted by the use of value added products and services of TSYS' processing systems by clients. Value added products and services are optional features each client can choose to subscribe to in order to increase the financial performance of its portfolio. For the years ended December 31, 20 2000, 1999 and 1998, value added products and services represented 12.4%, 11.5% and 10.9% of total revenues, respectively. Revenues from these products and services were up 22.2%, or $13.6 million, for 2000, compared to 1999, and were up 43.9%, or $18.9 million, for 1999 compared to 1998. The average number of cardholder accounts on file increased 7.9% to 194.6 million in 2000, compared to 180.4 million in 1999, which represented a 78.4% increase over 101.1 million in 1998. At December 31, 2000, TSYS' cardholder accounts on file were approximately 195.2 million, compared to 206.2 million and 117.6 million at December 31, 1999 and 1998, respectively. The change in cardholder accounts on file at December 31, 2000, as compared to December 31, 1999, included the deconversion of 36.9 million accounts of Universal Card Services (UCS) and others, the purging of inactive accounts, the addition of approximately 24.8 million accounts attributable to the internal growth of existing clients, and approximately 1.1 million accounts added for new clients. The Company provides card processing services to its clients including debit, commercial, retail, stored value and consumer cards. Commercial cards include purchasing cards, corporate cards and fleet cards for employees. Retail cards include private label and gift cards. Consumer cards include Visa and MasterCard bank and debit cards as well as stored value cards. The following table summarizes TSYS' accounts on file by portfolio type:
Percent Percent Accounts on Change Change File by Type 2000 vs 1999 vs (in millions) 2000 1999 1998 1999 1998 - ------------------------------------------------------------------------- Consumer 90.7 106.7 94.9 (15.0) 12.4 Retail 90.1 88.7 14.1 1.5 527.8 Commercial 14.4 10.8 8.6 33.2 26.0 - -------------------------------------------------- Total 195.2 206.2 117.6 (5.3) 75.4 ==============================
Based upon its available market share data, the Company estimated it has a 25% market share of the domestic consumer card processing arena; an 87% share of the Visa and MasterCard domestic commercial card processing market; a 17% share of the domestic retail card processing market; and a 2% market share of the U.S. off-line debit processing market at the end of 2000. TSYS competes with other third-party bankcard processors, as well as "in-house" processors. The Company believes its areas for continued growth will be realized as in-house processors discover the overall cost benefits of outsourcing the processing of their owned portfolios to third-party processors. At December 31, 2000, TSYS was processing approximately 90.7 million consumer card accounts, a 15.0% decrease from the approximately 106.7 million being processed at year-end 1999, which was a 12.4% increase over the 94.9 million at year-end 1998. Future growth in consumer card revenue is dependent upon increased card activity--primarily debit cards--and continued internal growth in clients' portfolios. In 1999, as a result of the completion of the conversions of the account portfolios for Sears and Nordstrom, TSYS became a leading third-party processor of retail accounts. At December 31, 2000, TSYS was processing approximately 90.1 million retail card accounts, a 1.5% increase over the approximately 88.7 million being processed at year-end 1999, which represented a 527.8% increase over the 14.1 million at year-end 1998. The 1.4 million increase in retail accounts in 2000 was net of seven million inactive Sears accounts converted to a MasterCard portfolio. Traditional retail card operations are beginning to increase the activity of their portfolios by converting inactive accounts to Visa/MasterCard bankcards. TSYS is able to provide its extensive bankcard processing tools and techniques, as well as value-added functionality, to traditional retail card operations allowing better segmentation and potentially increased profitability for clients. In November 2000, TSYS announced a multiyear agreement with Target Stores to process the retailer's new consumer Visa Card. Since 1994, TSYS has provided processing services for commercial cards. At December 31, 2000, TSYS was processing approximately 14.4 million commercial card accounts, a 33.2% increase over the approximately 10.8 million being processed at year-end 1999, which was a 26.0% increase over the 8.6 million at year-end 1998. In 1998, TSYS added the U.S. General Services Administration's contracts for commercial card services. Future growth in commercial card revenue will mainly result from increased card activity as more business purchasing is transacted electronically and as additional firms realize the benefits of converting their paper-based purchasing systems to electronic transactions. TSYS provides processing services to its clients worldwide. TSYS plans to continue to expand its service offerings to other countries in the future. In 2000, the Company announced the signing of The Royal Bank of Scotland Group plc (Royal Bank) and Allied Irish Banks plc (AIB) to multiyear processing agreements. The portfolios of both clients, approximately seven million accounts, are expected to be fully converted by the third quarter of 2001. The following table summarizes TSYS accounts on file by region:
Percent Percent Accounts on File Change Change by Region 2000 vs 1999 vs (in millions) 2000 1999 1998 1999 1998 - ------------------------------------------------------------------------- Domestic 178.4 190.4 113.8 (6.3) 67.3 International 16.8 15.8 3.8 6.1 316.0 - -------------------------------------------------- Total 195.2 206.2 117.6 (5.3) 75.4 ==============================
A significant amount of the Company's revenues is derived from long-term contracts with large clients, including certain major customers. Two of the Company's clients, NationsBank and Bank of America, merged effective September 30, 1998. The new parent company of these entities is Bank of America Corporation. In September 1999, TSYS announced a new ten-year agreement with the combined entity to continue processing its credit card portfolio until 2009. The combination of NationsBank and Bank of America under a single processing agreement with TSYS reduced TSYS' revenues in 1999 and will reduce the Company's revenues in future years because together NationsBank and Bank of America will be entitled to receive greater volume-based discounts than either would be entitled to receive standing alone. Bank of America accounted for approximately 15%, 16% and 21% of total revenues for the years ended December 31, 2000, 1999 and 1998, respectively. The loss of Bank of America, or any other major or significant clients, 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 UCS to CITIBANK, a part of Citigroup. CITIBANK accounted for approximately 13% of total revenues for each of the years ended December 31, 1999 and 1998. 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. Although it remains a client, CITIBANK was not a major customer of the Company for the year ended December 31, 2000. The Company has a long-term processing relationship with Providian Financial Corporation (Providian), considered one of the largest bankcard providers in the nation. In August 1998, the Company and Providian agreed to an extension of their processing agreement until 2004. Providian accounted for approximately TSYS ANNUAL REPORT 2000 21 11% of total revenues for the year ended December 31, 2000. Providian was not a major customer in 1999 and 1998. 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 retail accounts. TSYS successfully converted the first 7.2 million of these accounts to TS2 in October 1998 and completed the conversion in May 1999. In January 2000, the Company announced a one-year extension of its long-term retail processing agreement with Sears until 2010. Sears accounted for approximately 10% of total revenues for the year ended December 31, 2000. Sears was not a major customer in 1999 and 1998. In March 2000, the Company announced its intention to launch a new, wholly owned subsidiary, DotsConnect, Inc. (DotsConnect), to focus exclusively on the electronic payments (e-payments) market. DotsConnect delivers premier e-payments software that allows buyers and sellers to conduct commerce electronically. DotsConnect is headquartered in Columbus, Georgia, with an additional office in Atlanta, Georgia. DotsConnect commenced operations on May 1, 2000, with approximately 30 team members comprising the initial DotsConnect team. In August 2000, the Company announced that it had entered the Asian card market by purchasing a controlling equity interest in GP Network Corporation (GP Net), an established electronics payment company for more than 100,000 merchants in Japan. TSYS also announced the opening of a branch office in Japan to facilitate its marketing of processing services for card-issuing financial institutions and retailers. GP Net's revenues are included in bankcard processing revenues. 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 clients with an option to lease certain equipment necessary for online communications and for the use of TSYS applications. TSI provides TSYS clients and others with mail and correspondence processing services, teleservicing, data documentation capabilities, offset printing, client service, collections and account solicitation services. CPI provides full-service commercial printing services to TSYS clients and others. Effective January 1, 1999, TSYS acquired Partnership Card Services (PCS) from its majority shareholder, Columbus Bank and Trust Company (CB&T), the flagship bank of Synovus Financial Corp. (Synovus). The business of PCS has become part of TSYS' wholly owned subsidiary, TSI. Revenues from other services increased $18.3 million, or 23.7%, in 2000, compared to 1999, which increased $31.2 million, or 68.0%, compared to 1998. The majority of revenues from other services are generated by TSI. [Omitted Bankcard Revenues Graph is represented by the following table.] BANKCARD REVENUES (Millions of Dollars) 96 $277.9 97 324.7 98 350.3 99 456.8 00 505.9 Operating Expenses As a percentage of revenues, operating expenses decreased in 2000 to 81.3%, compared to 83.5% and 83.2% for 1999 and 1998, respectively. The principal decreases in operating expenses as a percentage of revenue in 2000 as compared to 1999 resulted from a concerted emphasis on expense control, the focus on improved processes and reduction in contract acquisition costs. Operating expenses were $488.7 million in 2000, compared to $445.6 million in 1999 and $329.8 million in 1998. Salaries and other personnel expense increased 13.5% in 2000 over 1999, which is a reduced rate when compared to an increase of 29.1% in 1999 over 1998. A significant portion of TSYS' operating expenses relates to salaries and other personnel costs. During 2000, the average number of employees increased to 4,606, compared to 4,106 in 1999 and 3,382 in 1998. The change in total employment costs consists of increases of $37.2 million, $61.7 million and $32.8 million in 2000, 1999 and 1998, respectively. The increase in total employment costs is associated with the growth in the number of employees, normal salary increases and related employee benefits. These increases were reduced by $9.1 million, $14.9 million and $19.4 million in 2000, 1999 and 1998, respectively, invested in software development costs and contract acquisition costs. Due to the importance of technology to its business, a significant portion of TSYS' employees are programmers - approximately 20.2% in 2000, compared to 22.7% and 26.0% in 1999 and 1998, respectively. The decrease in the percentage of programmers is primarily the result of the increased number of nonprogramming personnel through the Company's wholly owned subsidiary, TSI. 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 for classrooms, teachers, computer equipment and high-tech training designed to meet Georgia businesses' needs for technical analysts, computer systems personnel and mainframe programmers. As of December 31, 2000, approximately 648 graduates of ICAPP had become full-time employees of TSYS. The Company considers ICAPP to be a very successful program and plans to continue to utilize ICAPP in the future to fulfill entry-level programming and other technical positions. Although TSYS has not experienced any difficulty in recruiting programming personnel, 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. Net occupancy and equipment expense increased 7.2% in 2000 over 1999, compared to 43.8% in 1999 over 1998. Computer equipment and software rentals, which represent the largest component of net occupancy and equipment expense, remained the same in 2000 compared to 1999, and increased $27.5 million, or 51.5%, in 1999 compared to 1998. Due to rapidly changing technology in computer equipment and software, TSYS' equipment and software needs are fulfilled primarily through operating leases. In anticipation of the deconversion of a significant client in 2000, TSYS made a concerted effort to improve processing productivity and implemented significant cost controls. During 1999 and the last half of 1998, the Company made significant investments in computer software licenses related to the new data center located in east Columbus to accommodate increased volumes and expected growth in the number of accounts associated with new and existing clients. As additional software licenses are acquired, net occupancy and equipment expense may increase as a result of the amortization of these new licenses. TSYS continues to monitor and assess its building and equipment needs as it positions itself for future growth and expansion. The Company has entered into an operating lease agreement relating to its corporate campus. Under the agreement, the lessor purchased the properties, paid the construction and development costs and leased the facilities to the Company. 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 are the obligations of the Company. The Company began moving personnel into the campus facility in December 1998, and had completed the move of a substantial number of its personnel by the end of the third quarter of 1999. With the move to the corporate campus, the Company did not renew leases on certain facilities. The increase in net occupancy and equipment expenses related to occu- 22 pying the campus was $9.6 million in 2000 and $6.4 million in 1999, 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 was prepared as an additional data center (East Center) and placed in service during the fourth quarter of 1998. In 1999, TSYS opened an office in London which currently serves as the headquarters for TSYS' European operations. During the second quarter of 2000, TSYS announced its intention to open a European data center in the United Kingdom. TSYS signed an agreement with InTechnology plc for data center services in Europe. In December 2000, TSYS purchased a 40,000 square-foot building and equipment in York, England for approximately $13.0 million. The building will house client service personnel for TSYS Europe. The Company has leased back 17,000 of the 40,000 square-foot building to the previous owner. Other operating expenses increased 4.7% in 2000 compared to 1999 and 35.9% in 1999 compared to 1998. The decrease in the growth rate of other operating expenses in 2000 is primarily due to a decline in the amortization of contract acquisition costs which were $7.5 million, $12.3 million and $6.9 million in 2000, 1999 and 1998, respectively. Equity in Income of Joint Ventures TSYS' share of income from its equity in joint ventures was $15.6 million, $12.3 million and $13.0 million for 2000, 1999 and 1998, respectively. The increase in 2000 is primarily the result of Vital's improved operating results in 2000 and an increase in operating results in 2000 from Total System Services de Mexico, S.A. de C.V. (TSYS de Mexico). There remains uncertainty in the Mexican economy which management continues to monitor. The Company is restructuring its Mexican joint venture agreement whereby TSYS will process for the member banks directly instead of processing through the joint venture. The joint venture will continue to print statements and provide card-issuing services to the joint venture clients. The new restructured arrangement is expected to take place during the first quarter of 2001. The net effect of the restructuring will be minimal and should result in a decrease in equity in income of joint ventures while bankcard processing revenues should increase. Operating Income Operating income increased 27.4% to $128.2 million in 2000, compared to $100.6 million in 1999, an increase of 26.8% over 1998 operating income of $79.3 million. Excluding equity in income of joint ventures, operating income increased 27.5% to $112.6 million, compared to $88.3 million in 1999, an increase of 33.0% over the amount for 1998 of $66.4 million. The operating income margin increased to 21.3% in 2000, compared to 18.8% and 20.0% in 1999 and 1998, respectively. The increase in the operating margin was the result of revenues increasing at a faster rate than operating expenses in 2000. Nonoperating Income Nonoperating income increased in 2000 over 1999 primarily due to the amount of interest the Company earned on its cash investments. Interest income for 2000 was $5.1 million, a 131.7% increase compared to $2.2 million in 1999, which was a 13.0% decrease compared to $2.5 million in 1998. The variation in interest income is primarily attributable to the fluctuations in the cash available for investment. Income Taxes Income tax expense was $46.1 million, $35.0 million and $27.0 million in 2000, 1999 and 1998, respectively, representing effective income tax rates of 35.0%, 33.8% and 33.0%, respectively. The Company expects its tax rates in the future to increase slightly primarily as a result of federal and state tax credits being relatively fixed in amount while pretax income is expected to grow. Net Income Net income increased 24.9% to $85.6 million (basic and diluted earnings per share of $.44) in 2000, compared to 1999. In 1999, net income increased 25.1% to $68.6 million (basic and diluted earnings per share of $.35), compared to $54.8 million (basic and diluted earnings per share of $.28) in 1998. Projected Outlook 2001 TSYS expects an increase in net income for 2001 over 2000 of approximately 20%. This anticipated increase in net income is based in part upon the following assumptions: a 10-12% internal growth rate for existing Visa and MasterCard consumer card clients; an approximately 50% increase in international revenues on an annualized basis; an aggressive focus on expense control and productivity improvement; the successful implementation and market acceptance of new product offerings, including stored value and e-commerce; and an increase in the total cardholder base to approximately 220 million accounts. TSYS expects the second half of 2001 to be more robust than the first half of 2001 due, in part, to the scheduled conversions of Royal Bank's and AIB's portfolios. There are some events that will dilute the first half's earnings, including: . Infrastructure costs of global expansion. TSYS will incur personnel and equipment costs associated with establishing its international processing center in England, as well as initiating a branch office in Japan. . The CITIBANK deconversion of the UCS portfolio to its in-house processing system in August 2000. On a comparative basis, revenues for the first half of 2001 will not include revenues from the UCS portfolio when compared to the first half of 2000 which does include those revenues. Extended Financial Outlook 2002-2003 With the continued expansion of our businesses both domestically and internationally, market acceptance of our stored value products and e-commerce enabling systems, and aggressive expense management, we expect to increase our annual net income by 20-25% in each of the years 2002 and 2003. TSYS' strategic plan has identified growth strategies that are expected to enable the Company to achieve the following 2003 financial goals: 300 million cardholder accounts on file and $1 billion in total revenue; 20% of total revenue derived from international sources; 23% operating margin; and 20-25% annual increase in net income. Financial Condition, Liquidity and Capital Resources The Consolidated Statements of Cash Flows show the Company's cash flows from operating, investing and financing activities. TSYS' primary methods for funding its operations and growth have been cash flows generated from operations, lease financing and the occasional use of borrowed funds to supplement financing of capital expenditures. TSYS' net cash provided by operating activities in 2000 was $166.3 million, compared to $134.5 million in 1999 and $62.9 million in 1998. The major uses of cash flows provided by operations have been the internal development and purchase of computer software; the addition of property and equipment, primarily computer equipment; investments in contract acquisition costs associated with obtaining and serving new clients; and the payment of cash dividends. TSYS ANNUAL REPORT 2000 23 Capital expenditures for property and equipment were $31.8 million in 2000, compared to $19.8 million in 1999 and $37.0 million in 1998. Expenditures for purchased computer software were $66.8 million in 2000, compared to $42.3 million in 1999 and $29.5 million in 1998. Additions to capitalized software development costs, including enhancements to and development of TS2 processing systems, were $5.9 million in 2000, $11.9 million in 1999 and $10.0 million in 1998. 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. The Company's investments in contract acquisition costs were $41.7 million in 2000, $15.8 million in 1999 and $20.1 million in 1998. These amounts include cash payments for processing rights and other direct salary related costs incurred in connection with contracts. In the fourth quarter of 1999, the Company made a payment representing a contract acquisition cost of $10.0 million to a prospective client. Under the terms of the arrangement, the prospective client agreed to repay the $10.0 million in the event a processing agreement was not executed by July 1, 2000. Subsequently, the prospective client announced its intention to exit the credit card business and completed the sale of its accounts in 2000. In June 2000, the parent of the prospective client repaid the $10.0 million advance by obtaining a five-year loan from CB&T. TSYS has agreed to guarantee the loan. At December 31, 2000, TSYS' carrying value in its investment in TSYS de Mexico was $8.5 million. TSYS reflects currency translation adjustments for its Mexican joint venture as an adjustment to the Company's equity investment in TSYS de Mexico and in accumulated other comprehensive income. The Company had a currency translation adjustment of $312,000 and $425,000 related to TSYS de Mexico in 2000 and 1999, respectively. On January 1, 1999, TSYS acquired PCS from its majority shareholder, CB&T, the flagship bank of Synovus, 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 client service to card-issuing financial institutions, including CB&T. PCS has become part of TSYS' wholly owned subsidiary, TSI. This transaction increased CB&T's ownership of TSYS to 80.8% in 1999. In October 1999, the Company announced a plan to purchase up to 1.5 million shares of its common stock from time to time and at various prices over the next two years. During 2000, the Company purchased 130,400 shares for $2.1 million, bringing the total amount purchased to 207,500 shares for $3.4 million under this plan. Total dividends declared on TSYS common stock were $9.3 million in 2000, $7.8 million in 1999 and $7.3 million in 1998. In April 2000, the Company increased its quarterly dividend by 25.0% to $.0125 per share from $.01 per share. In April 1998, the Company increased its quarterly dividend by 33.3% to $.01 per share from $.0075 per share. In 1997, the Company entered into an operating lease agreement relating to the new corporate campus. Under the agreement, the lessor purchased the land, paid for construction and development costs and leased the property to the Company. The lease provides for a substantial residual value guarantee, up to $81.4 million, and includes purchase options at the original cost of the property. Real estate taxes, insurance, maintenance and operating expenses applicable to the leased property are obligations of the Company. In July 2000, TSYS broke ground on a 32,000 square foot childcare facility which will be located on the northeast corner of the campus. The facility is expected to cost approximately $5.0 million and is scheduled to open during the third quarter of 2001. 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 East Center. In September 1999, Synovus completed the acquisition of the debt collection and bankruptcy management business offered by Wallace & de Mayo. The services provided by Wallace & de Mayo include recovery collections work, bankruptcy process management, legal account management and skip tracing. These services are being marketed under the name TSYS Total Debt Management, Inc. through the Company and its wholly owned subsidiary, TSI, for which Synovus paid TSYS a management fee of $505,000 for 2000. In May 2000, Synovus completed the acquisition of ProCard, Inc., a provider of software and Internet tools designed to assist organizations with the management of purchasing, travel and fleet card programs. Synovus' acquisition of ProCard offers TSYS the opportunity to further expand its services to ProCard's clients. ProCard's software solutions will be integrated into TSYS' processing solutions. The Company is assisting in managing ProCard, for which the Company was paid a management fee of $177,000 by Synovus in 2000. In the third quarter of 2000, TSYS signed a ten-year contract with Royal Bank. In conjunction with the requirements of its contract, TSYS paid $37.8 million in contract acquisition costs to Royal Bank. In anticipation of the signing of a contract, TSYS entered into a forward exchange contract in June 2000 which provided for $20 million to be converted into British Pounds Sterling at a rate of 1.5187 any time between July 3, 2000 and September 29, 2000. In July 2000, TSYS exercised the forward exchange contract. TSYS accounted for the forward exchange contract as a hedge under Financial Accounting Standards No. 52, "Foreign Currency Translation" (SFAS 52). In December 2000, TSYS purchased a facility in England for approximately $13.0 million, which included building and equipment. In anticipation of the signing of a contract, TSYS entered into a forward exchange contract in October 2000 which provided for the purchase of (pound)10 million at a rate of 1.4315 any time between November 15, 2000 and December 15, 2000. In December 2000, TSYS exercised the forward exchange contract. TSYS also accounted for the forward exchange contract as a hedge under SFAS 52. At present, the Company does not have a material currency translation risk. The Company has determined that once it begins processing services for its new European clients, the Company may explore potential hedging instruments to safeguard it from significant currency translation risks. Due to the complexity of the differences between the English language and Asian languages, computer systems require two bytes to store an Asian character compared to one byte in the English language. With its entrance into the Asian card processing market, TSYS will begin modifying its current TS2 processing system to be able to accommodate language and currency differences with Asia, commonly referred to as the "double byte project." TSYS is in the planning stages of this project. Management expects to spend $10-15 million on the project. 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 1.4:1. At December 31, 2000, TSYS had working capital of $63.7 million, compared to $76.4 million in 1999 and $60.5 million in 1998. 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 and/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. If these programs were not made Year 2000 (Y2K) compliant, they would not be able to correctly 24 process date information for the year 2000 and beyond. Remediation efforts went beyond the Company's internal computer systems and required coordination with clients, vendors, government entities and other third parties to assure that their systems and related interfaces were compliant. Failure to achieve timely remediation of the Company's critical programs and computer systems for Year 2000 would have had a material adverse effect on the Company's financial condition and results of operations. TSYS experienced a smooth transition in passing the century date changeover. TSYS did not experience any significant internal or external issues concerning Y2K, and all TSYS companies, systems, facilities and clients processed, and have continued to process, without incident. TSYS continued to monitor Y2K issues by overseeing critical tasks during the year 2000. The TSYS Year 2000 Command Center and Command Posts remained staffed during the first quarter of 2000, but on a smaller scale than during 1999. The total cost for the Year 2000 Project amounted to approximately $17 million of direct costs since project inception. This amount consists primarily of the costs associated with personnel dedicated to the Year 2000 Project and hardware/software costs related to testing. During 2000, TSYS incurred $1.0 million of direct costs associated with the Year 2000 Project. Euro Conversion Readiness Disclosure The Company has announced the signing of Royal Bank and AIB as processing clients beginning in 2001. The United Kingdom is not a "participating country" with respect to January 1, 1999, "Euro" currency conversion, and it currently is not known when or if the United Kingdom will elect to convert to the Euro. However, Ireland is a participating country. Nonetheless, as of October 2000, TSYS' TS2 processing system is capable of processing Euro-denominated transactions and is now in the client acceptance testing mode. TSYS' costs in connection with the Euro conversion were not material. 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). These forward-looking statements include, among others, statements regarding TSYS' expected growth in net income for 2001 over 2000, the expected increase in net income for 2002 and 2003, TSYS' expected expenditures on its double byte project and the assumptions underlying such statements. 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. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by the forward-looking statements in this Annual Report. Many of these factors are beyond TSYS' ability to control or predict. The factors include, but are not limited to: (i) lower than anticipated internal growth rates for TSYS' existing clients; (ii) TSYS' inability to control expenses and increase market share; (iii) TSYS' inability to successfully bring new products to market, including, but not limited to, stored value and e-commerce products; (iv) the inability of TSYS to grow its business through acquisitions; (v) TSYS' inability to increase the revenues derived from international sources; (vi) adverse developments with respect to entering into contracts with new clients and retaining current clients; (vii) the merger of TSYS clients with entities that are not TSYS clients; (viii) TSYS' inability to anticipate and respond to technological changes, particularly with respect to e-commerce; (ix) adverse developments with respect to the successful conversion of clients; (x) the absence of significant changes in foreign exchange spreads between the United States and the countries TSYS transacts business in, to include Mexico, United Kingdom, Japan, Canada and the European Union; (xi) changes in consumer spending, borrowing and saving habits, including a shift from credit to debit cards; (xii) changes in laws, regulations, credit card association rules or other industry standards affecting TSYS' business which require significant product redevelopment efforts; (xiii) 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; (xiv) the costs and effects of litigation; (xv) adverse developments with respect to the credit card industry in general; and (xvi) overall market conditions. 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. Legal Proceedings On November 10, 1998, a class action complaint was filed against NationsBank of Delaware, N.A., in the United States District Court for the Southern District of Mississippi. On March 23, 1999, the named plaintiff amended the complaint and named the Company and certain credit bureaus as defendants in the case. The named plaintiff alleges, among other things, that the defendants failed to report properly the credit standing of each member of the putative class. The named plaintiff has defined the class as all persons and entities within the United States who obtained credit cards from NationsBank and whose accounts were purchased by or transferred to U.S. BankCard and whose accounts were reported to credit bureaus or credit agencies incorrectly in August 1998. The amended complaint alleges negligence, violation of the Fair Credit Reporting Act, breach of the duty of good faith and fair dealing, and seeks declaratory relief, injunctive relief and the imposition of punitive damages. The parties have reached a settlement of this litigation, which settlement is subject to court approval under Rule 23(e) of the Federal Rules of Civil Procedure. Payments by TSYS to settle the litigation are not expected to be material to TSYS' financial condition or results of operations, and management expects the settlement to be substantially covered by insurance. TSYS ANNUAL REPORT 2000 25 CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------------------------------------------------ December 31, 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current assets: Cash and cash equivalents (includes $74.6 million and $54.3 million on deposit with a related party at 2000 and 1999, respectively) $ 80,071,895 54,903,107 Accounts receivable, net of allowance for doubtful accounts of $2.7 million and $1.3 million at 2000 and 1999, respectively 100,691,083 99,601,498 Prepaid expenses and other current assets (Note 10) 30,192,248 25,171,328 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 210,955,226 179,675,933 Property and equipment, net (Note 3) 110,971,777 96,254,657 Computer software, net (Note 4) 145,454,042 98,824,792 Deferred income tax assets (Note 7) 11,104,254 9,422,203 Other assets (Notes 5 and 10) 125,907,383 82,594,156 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 604,392,682 466,771,741 ==================================================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 43,935,426 15,267,979 Accrued salaries and employee benefits 45,202,518 36,421,238 Current portion of long-term debt and obligations under capital leases __ 44,520 Other current liabilities (includes $2.4 and $1.9 million payable to related parties at 2000 and 1999, respectively) (Note 10) 58,162,646 51,528,099 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 147,300,590 103,261,836 Long-term debt and obligations under capital leases, excluding current portion -- 159,766 Deferred income tax liabilities (Note 7) 34,841,622 29,058,083 Other long-term liabilities 10,652,600 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 192,794,812 132,479,685 - ------------------------------------------------------------------------------------------------------------------------------------ Minority interest in consolidated subsidiary (Note 12) 2,583,682 -- - ------------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity (Notes 2 and 6): Common stock-- $.10 par value. Authorized 300,000,000 shares; 195,079,087 issued at 2000 and 1999, respectively; 194,738,870 and 194,861,620 outstanding at 2000 and 1999, respectively 19,507,909 19,507,909 Additional paid-in capital 6,998,100 6,442,300 Accumulated other comprehensive loss (1,613,681) (1,453,708) Treasury stock (3,594,683) (1,529,176) Retained earnings 387,716,543 311,324,731 - ------------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 409,014,188 334,292,056 - ------------------------------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Note 9) Total liabilities and shareholders' equity $ 604,392,682 466,771,741 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 26 CONSOLIDTED STATEMENTS OF INCOME
- ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues: Bankcard data processing services (includes $42.9 million, $37.1 million and $31.7 million from related parties for the years ended December 31, 2000, 1999 and 1998, respectively) $ 505,934,776 456,839,589 350,309,833 Other services (includes $6.6 million, $5.5 million and $1.5 million from related parties for the years ended December 31, 2000, 1999 and 1998, respectively) 95,357,966 77,086,422 45,884,235 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues (Notes 2 and 11) 601,292,742 533,926,011 396,194,068 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses: Salaries and other personnel expense 235,670,223 207,618,319 160,854,929 Net occupancy and equipment expense 162,905,729 151,964,229 105,658,033 Other operating expenses (includes $11.0 million, $13.1 million and $10.9 million to related parties for the years ended December 31, 2000, 1999 and 1998, respectively) 90,111,097 86,051,059 63,312,582 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses (Note 2) 488,687,049 445,633,607 329,825,544 - ------------------------------------------------------------------------------------------------------------------------------------ Equity in income of joint ventures (Note 5) 15,586,309 12,326,609 12,974,348 - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 128,192,002 100,619,013 79,342,872 - ------------------------------------------------------------------------------------------------------------------------------------ Nonoperating income (expense): Gain (loss) on disposal of property and equipment, net (1,421,955) 797,916 (48,470) Interest income, net of expense (includes $4.8 million, $1.9 million and $2.3 million from a related party for the years ended December 31, 2000, 1999 and 1998, respectively) 5,036,645 2,159,074 2,492,725 Minority interest in subsidiary's net income (98,750) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Total nonoperating income (Note 2) 3,515,940 2,956,990 2,444,255 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 131,707,942 103,576,003 81,787,127 Income taxes (Note 7) 46,064,561 34,983,027 26,955,984 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 85,643,381 68,592,976 54,831,143 ==================================================================================================================================== Basic earnings per share $ .44 .35 .28 ==================================================================================================================================== Diluted earnings per share $ .44 .35 .28 ==================================================================================================================================== Weighted average common shares outstanding 194,784,981 194,912,983 194,019,689 Increase due to assumed issuance of shares related to stock options outstanding 480,371 565,610 649,762 - ------------------------------------------------------------------------------------------------------------------------------------ Weighted average common and common equivalent shares outstanding 195,265,352 195,478,593 194,669,451 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. TSYS ANNUAL REPORT 2000 27 CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 85,643,381 68,592,976 54,831,143 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest in subsidiary's net income 98,750 -- -- Equity in income of joint ventures (15,586,309) (12,326,609) (12,974,348) Depreciation and amortization 51,600,551 50,182,601 37,473,673 Provision for doubtful accounts 1,575,486 665,500 18,000 Deferred income tax expense (benefit) 4,101,488 542,398 5,338,794 (Gain) loss on disposal of property and equipment, net 1,421,955 (797,916) 48,470 (Increase) decrease in: Accounts receivable (1,499,484) (15,471,271) (15,362,807) Prepaid expenses and other assets (13,496,376) (1,953,576) (5,088,094) Increase (decrease) in: Accounts payable 28,196,771 7,864,956 1,002,658 Accrued expenses and other current liabilities 13,596,042 37,228,296 (2,341,598) Other long-term liabilities 10,652,600 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 166,304,855 134,527,355 62,945,891 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchase of property and equipment (31,785,383) (19,772,202) (36,998,466) Additions to computer software (72,685,206) (54,188,928) (39,502,459) Proceeds from disposal of equipment 79,473 4,540,483 86,669 Cash acquired in acquisition of subsidiary 623,364 -- -- Dividends received from joint ventures 5,369,192 5,104,905 5,618,616 Increase in contract acquisition costs (41,713,092) (15,812,318) (20,104,849) Refund of contract acquisition costs 10,000,000 -- -- Redemption of short-term investments -- -- 998,228 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (130,111,652) (80,128,060) (89,902,261) - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from financing activities: Purchase of common stock (2,077,301) (1,290,748) -- Principal payments on long-term debt and capital lease obligations (204,286) (70,619) (132,415) Dividends paid on common stock (8,766,916) (7,787,981) (6,790,492) Proceeds from exercise of stock options 24,088 97,400 99,115 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in financing activities (11,024,415) (9,051,948) (6,823,792) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 25,168,788 45,347,347 (33,780,162) Cash and cash equivalents at beginning of year 54,903,107 9,555,760 43,335,922 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 80,071,895 54,903,107 9,555,760 ==================================================================================================================================== Cash paid for interest (net of capitalized amounts) $ 54,051 23,934 29,399 ==================================================================================================================================== Cash paid for income taxes (net of refunds received) $ 42,708,816 24,647,585 27,167,086 ====================================================================================================================================
Significant noncash transaction: The Company acquired Partnership Card Services through the issuance of 854,042 shares of common stock with a market value of $20,070,000 (Notes 2 and 12). See accompanying Notes to Consolidated Financial Statements. 28 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND COMPREHENSIVE INCOME
- ------------------------------------------------------------------------------------------------------------------------------------ Years Ended December 31, 2000, 1999 and 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Common Stock Additional Other Total ----------------------- Paid-in Comprehensive Treasury Retained Shareholders' Shares Amount Capital Loss Stock Earnings Equity - ------------------------------------------------------------------------------------------------------------------------------------ At December 31, 1997 194,225,283 $19,422,528 459,073 (1,178,182) (377,701) 202,929,038 $221,254,756 Comprehensive income: Net income -- -- -- -- -- 54,831,143 54,831,143 Other comprehensive loss, net of tax: Foreign currency translation adjustments -- -- -- (1,155) -- -- (1,155) - ------------------------------------------------------------------------------------------------------------------------------------ Other comprehensive loss -- -- -- -- -- -- (1,155) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income -- -- -- -- -- -- 54,829,988 Common stock issued from treasury shares for exercise of stock options (Note 6) -- -- 91,292 -- 76,913 -- 168,205 Amortization of restricted stock awards -- -- -- -- -- 44,325 44,325 Cash paid for fractional shares in lieu of stock dividend (238) (24) (4,738) -- -- -- (4,762) Cash dividends declared ($.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) (300,788) 250,528,526 270,353,719 Comprehensive income: Net income -- -- -- -- -- 68,592,976 68,592,976 Other comprehensive loss, net of tax: Foreign currency translation adjustments -- -- -- (274,371) -- -- (274,371) - ------------------------------------------------------------------------------------------------------------------------------------ Other comprehensive loss -- -- -- -- -- -- (274,371) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income -- -- -- -- -- -- 68,318,605 Common stock issued in an acquisition (Notes 2 and 12) 854,042 85,405 3,342,220 -- -- -- 3,427,625 Common stock issued from treasury shares for exercise of stock options (Note 6) -- -- 79,903 -- 62,360 -- 142,263 Purchase of treasury shares -- -- -- -- (1,290,748) -- (1,290,748) Cash dividends declared ($.040 per share) -- -- -- -- -- (7,796,771) (7,796,771) Tax benefit associated with stock awards -- -- 1,137,363 -- -- -- 1,137,363 - ------------------------------------------------------------------------------------------------------------------------------------ At December 31, 1999 195,079,087 19,507,909 6,442,300 (1,453,708) (1,529,176) 311,324,731 334,292,056 Comprehensive income: Net income -- -- -- -- -- 85,643,381 85,643,381 Other comprehensive loss, net of tax: Foreign currency translation adjustments -- -- -- (159,973) -- -- (159,973) - ------------------------------------------------------------------------------------------------------------------------------------ Other comprehensive loss -- -- -- -- -- -- (159,973) - ------------------------------------------------------------------------------------------------------------------------------------ Comprehensive income -- -- -- -- -- -- 85,483,408 Common stock issued from treasury shares for exercise of stock options (Note 6) -- -- 15,300 -- 11,794 -- 27,094 Purchase of treasury shares -- -- -- -- (2,077,301) -- (2,077,301) Cash dividends declared ($.048 per share) -- -- -- -- -- (9,251,569) (9,251,569) Tax benefit associated with stock awards -- -- 540,500 -- -- -- 540,500 - ------------------------------------------------------------------------------------------------------------------------------------ At December 31, 2000 195,079,087 $19,507,909 6,998,100 (1,613,681) (3,594,683) 387,716,543 $409,014,188 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. TSYS ANNUAL REPORT 2000 29 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 currently 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 throughout the United States, Mexico, Canada, Honduras 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. (TSI), Columbus Productions, Inc., TSYS Canada, Inc. and DotsConnect, Inc., as well as its majority owned foreign subsidiary, GP Network Corporation (GP Net). 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 5-40 years, computer equipment over 2-4 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 licensing to or providing processing services to clients. Research and development costs and computer software maintenance costs are expensed as incurred. Software development costs related to the TS2 processing system 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 (3-5 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 net 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 bankcard data processing service contracts generally contain original terms ranging from three to ten years. The Company's other service revenues are recognized as those services are performed. Contract Acquisition Costs: The Company capitalizes 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 client'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 net 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 net 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. 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 30 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 Equivalents: For purposes of the statements of cash flows, 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. Treasury Stock: The Company uses the cost method when it purchases its own common stock as treasury shares, and displays treasury stock as a reduction of shareholders' equity. Foreign Currency Translation: The Company maintains several different foreign operations. Foreign currency financial statements of the Company's Mexican joint venture, the Company's wholly owned subsidiary with an operation in Canada, the Company's majority owned foreign subsidiary, GP Net, as well as the Company's branch in Japan, 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. Net gains or losses resulting from the currency translation of assets and liabilities of the Company's foreign operations, net of tax, are accumulated in a separate section of shareholders' equity titled accumulated other comprehensive loss. 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 those years were expensed. The Mexican economy was removed from highly inflationary status effective January 1, 1999; thus, net exchange gains or losses resulting from the translation of assets and liabilities of the Company's Mexican joint venture, net of tax, are accumulated in a separate section of shareholders' equity titled accumulated other comprehensive loss. Comprehensive Income: Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income," requires companies to display, with the same prominence as other financial statements, the components of comprehensive income. TSYS displays the items of other comprehensive income in its consolidated statements of shareholders' equity and comprehensive income. Reclassifications: Certain reclassifications have been made to the 1999 and 1998 financial statements to conform to the presentation adopted in 2000. Derivative Instruments and Hedging Activities: In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities." In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138 (SFAS 138), "Accounting for Certain Derivative Instruments and Hedging Activities, an amendment of SFAS 133." SFAS 133 and SFAS 138 require that all derivative instruments be recorded on the balance sheet at their respective fair values. SFAS 133 and SFAS 138 are effective for all fiscal quarters of all fiscal years beginning after June 30, 2000; the Company adopted SFAS 133 and SFAS 138 on January 1, 2001. The Company did not have any outstanding derivative instruments or hedging transactions at December 31, 2000. The Company is assessing the impact of SFAS 133 and SFAS 138 on anticipated hedging instruments. NOTE 2 Relationships with Affiliated Companies At December 31, 2000, CB&T owned 157,455,980 shares (80.9%) 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 $12,281,914, $8,049,915 and $4,225,439 during the years ended December 31, 2000, 1999 and 1998, respectively. Miscellaneous data processing services performed by TSYS for certain Synovus nonbanking affiliates generated revenues of $256,126, $221,844 and $175,801 during the years ended December 31, 2000, 1999 and 1998, 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 $15,710,029, $15,954,155 and $17,362,650 for the years ended December 31, 2000, 1999 and 1998, respectively. Merchant processing revenues, included in bankcard data processing revenues, related to Vital, TSYS ANNUAL REPORT 2000 31 the Company's joint venture with Visa, were $14,109,721, $12,898,723 and $9,873,293 for the years ended December 31, 2000, 1999 and 1998, respectively. During 2000, TSYS provided web hosting and electronic commerce processing services to CB&T for which the Company was paid $545,507. Revenues from other services provided by TSYS to Synovus and its affiliates were $6,593,783, $5,483,784 and $1,539,009 during the years ended December 31, 2000, 1999 and 1998, 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 2000 or 1999. In 2000, 1999 and 1998, TSYS received interest income of $4,772,461, $1,865,621 and $2,342,416, respectively, from CB&T. During 2000, 1999 and 1998, Synovus Technologies, Inc.(STI) paid TSYS $143,222, $168,305 and $273,087, respectively, for data links, network services, computer processing 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 facilities to STI of $220,000 in 1998. Lease payments made to CB&T amounted to $36,308 in 1999 and $72,515 in 1998. Lease payments received from CB&T amounted to $39,405 in 2000, $9,851 in 1999 and $18,411 in 1998. TSYS also leased furnishings from Synovus Leasing Co. for $20,807 in 2000. Synovus Trust Company (STC) serves as trustee of various employee benefit plans of TSYS. During 2000, 1999 and 1998, STC trustee's fees were $391,414, $317,081 and $258,184, respectively. 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 $1,703,840 in 2000, $1,524,780 in 1999 and $1,283,494 in 1998. Synovus has entered into a management agreement with TSYS pursuant to which Synovus pays for management services provided to TSYS Total Debt Management and ProCard by TSYS. Such management fees amounted to $681,511 in 2000. TSYS maintains an agreement with Synovus Service Corp. (SSC) to provide human resource, payroll, security, maintenance and other administrative services to TSYS and its subsidiaries. TSYS paid SSC $8,070,260, $10,639,179 and $9,892,790 for these services in 2000, 1999 and 1998, respectively. TSYS received $197,597 in 2000 and $51,594 in 1999 and $26,169 in 1998 in rent from SSC. TSYS also received $63,806, $382,840 and $199,492 in 2000, 1999 and 1998, respectively, for data processing services provided to SSC. TSYS made lease payments to SSC for $27,690 in 1998. Effective January 1, 1999, TSYS acquired Partnership Card Services (PCS) from its majority shareholder, CB&T, the flagship bank of Synovus, in exchange for 854,042 newly issued shares of TSYS common stock with a market value of approximately $20.1 million. Prior to the acquisition by TSYS, PCS operated as a division of CB&T, providing services such as credit, collection and client service to card-issuing financial institutions, including CB&T. The business of PCS has become part of TSYS' wholly owned subsidiary, TSI. Due to the addition of PCS, TSYS paid CB&T $345,893 in 1999 for marketing rights. TSYS also paid STI $1,688,676 and $765,741 in 2000 and 1999, respectively, for fees associated with lockbox services. 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 $74.6 million and $54.3 million at December 31, 2000 and 1999, respectively. Certain officers of TSYS and other TSYS employees participate in the Synovus Incentive Plans. Nonqualified options to acquire Synovus common stock were granted in 2000, 1999 and 1998 as follows: - -------------------------------------------------------------------------------- Number of shares 2000 1999 1998 - -------------------------------------------------------------------------------- Stock options 323,122 980,883 956,192 - -------------------------------------------------------------------------------- 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. In 1996, certain officers were also granted restricted stock awards 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 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:
- -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Land $ 6,092,433 6,092,433 Buildings and improvements 80,344,434 66,758,819 Computer equipment 65,840,658 57,105,222 Furniture and other equipment 52,013,579 48,643,289 Construction in progress 1,488,817 644,345 - -------------------------------------------------------------------------------- 205,779,921 179,244,108 Less accumulated depreciation and amortization 94,808,144 82,989,451 - -------------------------------------------------------------------------------- Property and equipment, net $110,971,777 96,254,657 ================================================================================
Depreciation and amortization of property and equipment was $16,553,156, $15,637,169 and $13,212,897 for the years ended December 31, 2000, 1999 and 1998, respectively. 32 NOTE 4 Computer Software Computer software at December 31 is summarized as follows:
- -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Purchased computer software $177,629,217 111,331,549 TS2 33,048,872 33,048,872 Other capitalized software development costs 32,467,800 26,786,646 - -------------------------------------------------------------------------------- 243,145,889 171,167,067 Less accumulated amortization 97,691,847 72,342,275 - -------------------------------------------------------------------------------- Computer software, net $145,454,042 98,824,792 ================================================================================
Amortization expense related to purchased computer software costs was $20,604,861, $16,153,985 and $12,057,582 for the years ended December 31, 2000, 1999 and 1998, respectively. Amortization of TS2 and other capitalized software development costs was $5,101,047, $5,472,776 and $4,716,278 for the years ended December 31, 2000, 1999 and 1998, respectively. During 2000, the Company ceased development of two software projects. The projects were evaluated to determine their utilization in a new design plan that included expanded international functionality. Based on its review, the Company expensed $6.1 million of costs as employment and other expenses that were originally capitalized on those projects. NOTE 5 Investment in Joint Venture TSYS holds a 50% equity interest in Vital, a joint venture with Visa U.S.A., which combines the front-end authorization and back-end accounting and settlement processing for merchants. The condensed financial information for this joint venture as of December 31, 2000 and 1999, and for the years ended December 31, 2000, 1999 and 1998, is summarized as follows:
- -------------------------------------------------------------------------------- 2000 1999 - -------------------------------------------------------------------------------- Balance Sheet Data: Current assets $ 72,628,000 63,066,000 Total assets 111,459,000 86,337,000 Current liabilities 34,619,000 30,412,000 Total liabilities 38,230,000 30,412,000
- -------------------------------------------------------------------------------- 2000 1999 1998 - -------------------------------------------------------------------------------- Statement of Income Data: Revenues $176,539,000 151,581,000 127,222,000 Operating income 28,503,000 19,234,000 19,526,000 Net income* 25,655,000 20,065,000 20,725,000
*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. Vital is an LLC company with 100 million units of ownership. In 2000, the Vital Board of Directors approved a plan to allow its owners to set aside 2,000,000 restricted units to make awards to key management of Visa and TSYS. These units are similar to restricted stock with a three-year vesting schedule. During the three years, there will be no voting rights or dividend distributions to these restricted units. The vesting accelerates at a change of control or an initial public offering of Vital. TSYS awarded six of its key executives an aggregate of 800,000 restricted stock units for their role in the development, growth and success of Vital. The Company is recognizing compensation expense by amortizing the fair value of the units on a straight-line basis. NOTE 6 Shareholders' Equity Treasury Stock: In October 1999, the Company announced a plan to purchase up to 1.5 million shares of its common stock from time to time and at various prices over the next two years. During the year ended December 31, 2000, the Company had purchased 130,400 shares for $2.1 million under this plan, bringing the total number of shares purchased to 207,500 shares for $3.4 million. The following table summarizes shares held as treasury stock and treasury stock costs:
- ------------------------------------------------------------------------------------ Number of Treasury Treasury Shares Shares Cost - ------------------------------------------------------------------------------------ December 31, 2000 340,217 $3,594,683 December 31, 1999 217,467 1,529,176 December 31, 1998 181,260 300,788 - ------------------------------------------------------------------------------------
During 2000, 1999 and 1998, certain employees of the Company exercised options for 7,650, 41,100 and 48,925 shares of common stock, respectively, that were issued from treasury shares. 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 nonqualified 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 nonqualified 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 TSYS ANNUAL REPORT 2000 33 may not exceed ten years from the date of the grant. During 2000, TSYS granted to a key employee an option to acquire 55,000 shares of TSYS common stock. Of the 55,000 shares, 15,450 shares were granted under the LTI plan. The remaining 39,550 shares were granted outside the LTI plan by the Board of Directors. At December 31, 2000, there were options outstanding under the LTI Plan to purchase 1,607,300 shares of the Company's common stock, of which 576,600 shares were exercisable. There were no shares available for grant at December 31, 2000, under the LTI Plan. Additionally, options (not issued under the LTI Plan) to purchase 77,050 shares of the Company's common stock were outstanding at December 31, 2000, of which 37,500 were exercisable. A summary of the status of the Company's options granted as of December 31, 2000, 1999 and 1998, and changes during the years ended on those dates is presented below:
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 ---------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Price Options Exercise Price Options Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Options: Outstanding at beginning of year 1,637,000 $ 12.41 1,678,100 $ 12.15 1,727,025 $ 11.86 Granted 55,000 15.44 -- -- -- -- Exercised (7,650) 2.00 (41,100) 2.00 (48,925) 2.00 Forfeited/canceled -- -- -- -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at end of year 1,684,350 $ 12.55 1,637,000 $ 12.41 1,678,100 $ 12.15 ==================================================================================================================================== Options exercis- able at year-end 614,100 $ 11.33 448,500 $ 10.24 330,100 $ 7.60 ==================================================================================================================================== Weighted average fair value of options granted during the year $ 5.78 $ -- $ -- ====================================================================================================================================
The following table summarizes information about stock options outstanding at December 31,2000:
Number Weighted Number Outstanding at Average Remaining Weighted Average Exercisable at Weighted Average December 31, 2000 Contractual Life in Years Exercise Price December 31, 2000 Exercise Price - ----------------------------------------------------------------------------------------------------------- 121,850 1.50 $ 2.00 121,850 $ 2.00 37,500 8.03 18.50 37,500 18.50 1,470,000 6.84 13.17 441,000 13.17 55,000 9.20 15.44 13,750 15.44 - ----------------------------------------------------------------------------------------------------------- 1,684,350 6.47 $ 12.55 614,100 $ 11.33 ===========================================================================================================
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 for 2000: dividend yield of 0.0%; expected volatility of 38.8%; risk-free interest rate of 5.05%; and expected lives of 4.0 years for all options. Synovus has various stock option plans under which the Compensation Committee of its Board of Directors has authority to grant stock options to key Synovus employees, including TSYS. The general terms of the existing stock option plans include vesting periods ranging from two to three years and exercise periods ranging from five to ten years. Such stock options are granted at exercise prices which equal the fair market value of a share of common stock on the grant date. During 1999 and 1998, Synovus granted options to purchase 150 shares of stock to each employee, including TSYS and its subsidiaries. The exercise price per share is equal to the fair market value at the grant date of $19.19 and $22.00 for the 1999 and 1998 grants, respectively. The options are exercisable after the price of Synovus' stock doubles or after three years, whichever comes first. 34 A summary of the status of Synovus' stock option plans related to TSYS' employees as of December 31, 2000, 1999 and 1998 and changes during the years then ended is presented below:
- ------------------------------------------------------------------------------------------------------------------------------------ 2000 1999 1998 -------------------------------------------------------------------------------------- Weighted Weighted Weighted Average Average Average Options Exercise Price Options Exercise Price Options Exercise Price - ------------------------------------------------------------------------------------------------------------------------------------ Options: Outstanding at beginning of year 3,389,511 $ 17.06 2,573,541 $ 14.98 1,744,086 $ 10.97 Granted 323,122 18.06 980,883 21.11 956,192 21.31 Exercised (183,869) 11.41 (146,343) 7.56 (106,242) 6.24 Forfeited/canceled (49,363) 18.35 (18,570) 17.61 (20,495) 14.54 - ------------------------------------------------------------------------------------------------------------------------------------ Outstanding at end of year 3,479,401 $ 17.43 3,389,511 $ 17.06 2,573,541 $ 14.98 ==================================================================================================================================== Options exercis- able at year-end 1,530,576 $ 13.23 1,102,180 $ 10.76 678,888 $ 7.61 ==================================================================================================================================== Weighted average fair value of options granted during the year $ 6.42 $ 5.41 $ 4.96 ====================================================================================================================================
The following table summarizes information about Synovus' stock options outstanding at December 31, 2000:
Number Weighted Number Outstanding at Average Remaining Weighted Average Exercisable at Weighted Average December 31, 2000 Contractual Life in Years Exercise Price December 31, 2000 Exercise Price - ----------------------------------------------------------------------------------------------------------- 328,961 3.68 $ 6.54 328,961 $ 6.54 943,343 5.04 13.49 943,343 13.49 1,885,000 6.29 21.20 258,272 20.83 322,097 7.81 18.06 -- -- - ----------------------------------------------------------------------------------------------------------- 3,479,401 5.84 $ 17.43 1,530,576 $ 13.23 ===========================================================================================================
The per share weighted average fair value of stock options granted during 2000, 1999 and 1998 was $6.42, $5.41 and $3.68, respectively. The fair value for these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of 6.4%, 5.3% and 5.4%; expected volatility of 36%, 36% and 32%; expected life of 6.3 years, 4.3 years and 4 years; and dividend yield of 2.3%, 1.7% and 1.3%. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its plans. Had compensation cost for the Company's stock-based compensation plans (including the Synovus plans) been determined consistent with Statement of Financial Accounting Standards No. 123 (SFAS 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 below:
- -------------------------------------------------------------------------------- Years Ended December 31, 2000 1999 1998 - -------------------------------------------------------------------------------- Net income applicable to common stockholders As reported $85,643,381 68,592,976 54,831,143 Pro forma 81,812,463 64,417,825 50,580,406 Basic earnings per share: As reported .44 .35 .28 Pro forma .42 .33 .26 Diluted earnings per share: As reported .44 .35 .28 Pro forma .42 .33 .26
Subsidiary Options: On May 1, 2000, TSYS formed DotsConnect as a wholly owned subsidiary for the purpose of providing e-payment services to buyers and sellers via the Internet. TSYS contributed $5 million and a nominal amount of fixed assets in return for 20 million shares of common stock. DotsConnect established the DotsConnect, Inc. 2000 Long-term Incentive Plan (the "2000 Plan"). The purpose of the 2000 Plan is to attract and retain employees, to provide additional incentive for each participant to work to increase the value of DotsConnect and to enable such employees to acquire and maintain an equity interest in DotsConnect. Any employee of DotsConnect or its affiliates (including TSYS) is eligible to be selected to participate in the 2000 Plan. The aggregate number of shares of DotsConnect stock which may be granted to participants pursuant to awards granted under the 2000 Plan may not exceed 1,500,000. The 2000 Plan will be administered by the Board of Directors of DotsConnect. The Compensation Committee of the Board of Directors of TSYS will administer the options granted to employees of TSYS. The options under the 2000 Plan may take the form of qualified incentive stock options, nonqualified stock options or a combination thereof. The option price of both nonqualified and qualified incentive stock options must be equal to 100% of the fair market value of a share of DotsConnect stock on the date the option is granted. Options shall expire at such times as determined at the time of grant; however, no option shall be exercisable later than the tenth anniversary of its grant. DotsConnect awarded 1,496,500 options under the 2000 Plan. Of those granted in 2000, 475,000 options were awarded to six of TSYS' key executives. The Company is accounting for the stock options under the provisions of SFAS 123. The 2000 Plan is a noncompensatory plan . As a result, no compensation expense was recorded in 2000. TSYS ANNUAL REPORT 2000 35 Accumulated Other Comprehensive Loss: Comprehensive income for TSYS consists of net income and foreign currency translation adjustments recorded as a component of shareholders' equity. The income tax effects allocated to and the cumulative balance of each component of other comprehensive income are as follows:
- ------------------------------------------------------------------------------------------------------------------ Balance at Balance at December 31, 1999 Pretax amount Tax benefit December 31, 2000 - ------------------------------------------------------------------------------------------------------------------ Currency translation adjustments $ (1,453,708) (248,739) 88,766 $(1,613,681) - ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------ Balance at Balance at December 31, 1998 Pretax amount Tax benefit December 31, 1999 - ------------------------------------------------------------------------------------------------------------------ Currency translation adjustments $ (1,179,337) (433,795) 159,424 $(1,453,708) - ------------------------------------------------------------------------------------------------------------------
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 carrying amounts 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, 2000 1999 1998 - ----------------------------------------------------------------------------------------- Current income tax expense: Federal $41,649,857 32,816,025 20,669,630 State 313,216 1,624,604 947,560 - ----------------------------------------------------------------------------------------- Total current income tax expense 41,963,073 34,440,629 21,617,190 - ----------------------------------------------------------------------------------------- Deferred income tax expense (benefit): Federal 3,873,627 512,265 5,042,194 State 227,861 30,133 296,600 - ----------------------------------------------------------------------------------------- Total deferred income tax expense (benefit): 4,101,488 542,398 5,338,794 - ----------------------------------------------------------------------------------------- Total income tax expense $46,064,561 34,983,027 26,955,984 =========================================================================================
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, 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Computed "expected" income tax expense $ 46,097,780 36,251,600 28,625,494 Increase(decrease) in income tax expense resulting from: State income tax expense, net of federal income tax benefit 351,700 1,075,579 808,704 Foreign tax credits (1,005,000) (969,000) (1,473,788) Other, net 620,081 (1,375,152) (1,004,426) - ------------------------------------------------------------------------------------------------------------------- Total income tax expense $ 46,064,561 34,983,027 26,955,984 - -------------------------------------------------------------------------------------------------------------------
The tax effects of the significant components of deferred income tax assets and liabilities are presented in the following table:
- ------------------------------------------------------------------------------------------ As of December 31, 2000 1999 - ------------------------------------------------------------------------------------------ Deferred income tax assets: Primarily accruals not deductible until paid $ 8,675,956 8,200,673 State tax credits 3,828,298 2,621,530 - ------------------------------------------------------------------------------------------ Gross deferred income tax assets 12,504,254 10,822,203 Less valuation allowance (1,400,000) (1,400,000) - ------------------------------------------------------------------------------------------ Net deferred income tax assets 11,104,254 9,422,203 - ------------------------------------------------------------------------------------------ Deferred income tax liabilities: Computer software development costs (17,662,312) (18,310,745) Excess tax over financial statement depreciation (11,442,535) (6,306,942) Other, net (5,736,775) (4,440,396) - ------------------------------------------------------------------------------------------ Gross deferred income tax liability (34,841,622) (29,058,083) - ------------------------------------------------------------------------------------------ Net deferred income tax liability $(23,737,368) (19,635,880) ==========================================================================================
As of December 31, 2000 and 1999, TSYS had state income tax credit carryforwards of $3,828,298 and $2,621,530, respectively. The credits will begin to expire in the year 2008. In assessing the realizability of deferred income tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. At December 31, 2000 and 1999, based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that it is more likely than not that TSYS will realize the benefits of these deductible differences, net of existing valuation allowances. The valuation allowance for deferred tax assets was $1,400,000 at December 31, 2000 and 1999. 36 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 7% (9% in 1999 and 1998) 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: - ---------------------------------------- 2000 $ 10,024,695 1999 10,992,344 1998 8,365,937 - ---------------------------------------- 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: - ---------------------------------------- 2000 $ 9,511,049 1999 8,413,213 1998 6,438,388 - ---------------------------------------- 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 15% of pretax compensation with a discretionary company contribution up to a maximum of 7% (5% in 1999 and 1998) 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: - ---------------------------------------- 2000 $ 6,774,850 1999 5,443,934 1998 1,142,828 - ---------------------------------------- Stock Purchase Plan: The Company maintains stock purchase plans for employees and directors, 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: - ---------------------------------------- 2000 $ 2,722,035 1999 2,352,505 1998 1,862,698 - ---------------------------------------- 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. 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 paid for the construction and development costs and has leased the facilities to the Company for a term of three years which began in November 1999. The lease provides for substantial residual value guarantees and includes purchase options at the original cost of the property. The amount of the residual value guarantees relative to the assets under this lease is projected to be $81.4 million. The terms of this lease financing arrangement require, among other things, that the Company maintain certain minimum financial ratios and 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 and in the aggregate as of December 31, 2000, are as follows: - ---------------------------------------- 2001 $ 101,641,776 2002 105,629,526 2003 56,644,488 2004 20,430,816 2005 and thereafter 33,689,615 - ---------------------------------------- $ 318,036,221 ======================================== All computer equipment lease commitments come with a renewal option or an option to terminate the lease. Prior to lease expiration, TSYS decides which option to choose. These lease commitments may also be replaced with new lease commitments due to new technology. Total rental expense under all operating leases in 2000, 1999 and 1998 was $89,824,836, $85,928,317 and $55,926,412, respectively. TSYS ANNUAL REPORT 2000 37 Loan Guarantee: In the fourth quarter of 1999, the Company made a payment representing a contract acquisition cost of $10.0 million to a prospective client. Under the terms of the arrangement, the prospective client agreed to repay the $10.0 million in the event a processing agreement was not executed by July 1, 2000. Subsequently, the prospective client announced its intention to exit the credit card business through a sale of its accounts in 2000. The parent of the prospective client repaid the $10.0 million advance in June 2000 by obtaining a five-year loan from CB&T. TSYS has agreed to guarantee the loan. Contractual Commitments: In the normal course of its business, the Company maintains processing contracts with its clients. 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 clients, the Company may incur penalties and/or certain clients 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 that would not have a material adverse effect on the financial condition or results of operations of the Company if disposed of unfavorably. In November 1998, a class action complaint was filed against NationsBank of Delaware, N.A., in the United States District Court for the Southern District of Mississippi. On March 23, 1999, the named plaintiff amended the complaint and named the Company and certain credit bureaus as defendants in the case. The named plaintiff alleges, among other things, that the defendants failed to report properly the credit standing of each member of the putative class. The named plaintiff has defined the class as all persons and entities within the United States who obtained credit cards from NationsBank and whose accounts were purchased by or transferred to U.S. BankCard and whose accounts were reported to credit bureaus or credit agencies incorrectly in August 1998. The amended complaint alleges negligence, violation of the Fair Credit Reporting Act, breach of the duty of good faith and fair dealing, and seeks declaratory relief, injunctive relief and the imposition of punitive damages. The parties have reached a settlement of this litigation, which settlement is subject to court approval under Rule 23(e) of the Federal Rules of Civil Procedure. Payments by TSYS to settle the litigation are not expected to be material to TSYS' financial condition or results of operations, and management expects the settlement to be substantially covered by insurance. NOTE 10 Supplementary Balance Sheet Information Significant components of prepaid expenses and other current assets are summarized as follows:
- ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- Contract acquisition costs, net $ 9,644,657 7,861,069 Prepaid expenses 12,377,875 9,709,740 Other 8,169,716 7,600,519 - ------------------------------------------------------------------------------- Total $30,192,248 25,171,328 ===============================================================================
Significant components of other noncurrent assets are summarized as follows:
- ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- Contract acquisition costs, net $ 65,434,739 43,001,304 Equity investments, net 45,631,679 35,951,632 Other 14,840,965 3,641,220 - ------------------------------------------------------------------------------- Total $125,907,383 82,594,156 ===============================================================================
Significant components of other current liabilities are summarized as follows:
- ------------------------------------------------------------------------------- 2000 1999 - ------------------------------------------------------------------------------- Customer postage deposits $18,751,617 14,913,211 Transaction processing provisions 11,886,312 9,295,862 Other 27,524,717 27,319,026 - ------------------------------------------------------------------------------- Total $58,162,646 51,528,099 ===============================================================================
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, Honduras and the Caribbean. TSYS' subsidiaries provide support services including correspondence processing, commercial printing and equipment leasing. Segments are identified based on the services provided. Transaction processing services account for approximately 86% of financial activity in all of the quantitative thresholds required to be measured under SFAS 131. Three subsidiaries were aggregated into transaction processing services. One of these subsidiaries provides programming support services solely to the parent company. Another subsidiary provides electronic commerce activities previously performed by TSYS for its clients. The other transaction processing subsidiary serves as a payment gateway for more than 100,000 merchants in Japan. The remaining segments were aggregated into support services. 38
- ------------------------------------------------------------------------------------- Transaction Support Operating Segments Processing Services Services Consolidated - ------------------------------------------------------------------------------------- 2000 Total revenue $ 517,388,440 87,530,763 $ 604,919,203 Intersegment revenue (1,087,134) (2,539,327) (3,626,461) - ------------------------------------------------------------------------------------- Revenue from external customers $ 516,301,306 84,991,436 $ 601,292,742 ===================================================================================== Equity in income of joint ventures $ 15,586,309 -- $ 15,586,309 ===================================================================================== Segment operating income $ 115,936,333 12,255,669 $ 128,192,002 ===================================================================================== Income tax expense $ 41,359,177 4,705,384 $ 46,064,561 ===================================================================================== Net income $ 77,993,912 7,649,469 $ 85,643,381 ===================================================================================== Identifiable assets $ 590,065,183 57,738,614 $ 647,803,797 Intersegment eliminations (43,264,302) (146,813) (43,411,115) - ------------------------------------------------------------------------------------- Total assets $ 546,800,881 57,591,801 $ 604,392,682 ===================================================================================== 1999 Total revenue $ 465,243,321 71,319,006 $ 536,562,327 Intersegment revenue (779,800) (1,856,516) (2,636,316) - ------------------------------------------------------------------------------------- Revenue from external customers $ 464,463,521 69,462,490 $ 533,926,011 ===================================================================================== Equity in income of joint ventures $ 12,326,609 -- $ 12,326,609 ===================================================================================== Segment operating income $ 88,697,914 11,921,099 $ 100,619,013 ===================================================================================== Income tax expense $ 30,473,569 4,509,458 $ 34,983,027 ===================================================================================== Net income $ 61,159,112 7,433,864 $ 68,592,976 ===================================================================================== Identifiable assets $ 454,926,573 47,704,132 $ 502,630,705 Intersegment eliminations (35,704,897) (154,067) (35,858,964) - ------------------------------------------------------------------------------------- Total assets $ 419,221,676 47,550,065 $ 466,771,741 ===================================================================================== 1998 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 $ 347,943,328 32,895,850 $ 380,839,178 Intersegment eliminations (24,955,949) (958,242) (25,914,191) - ------------------------------------------------------------------------------------- Total assets $ 322,987,379 31,937,608 $ 354,924,987 =====================================================================================
Geographic Area Data: The following geographic data represent revenues based on the geographic locations of customers. The Company maintains property and equipment in Europe and Japan; however, substantially all property and equipment is located in the United States.
- ------------------------------------------------------------ 2000 1999 1998 - ------------------------------------------------------------ United States $545,940,339 493,231,610 376,303,345 Canada* 33,293,034 22,531,042 1,838,322 Mexico 15,710,029 15,954,155 17,362,650 Japan 4,941,556 -- -- Other 1,407,784 2,209,204 689,751 - ------------------------------------------------------------ $601,292,742 533,926,011 396,194,068 ============================================================
*These revenues include those generated from the Caribbean accounts owned by the Bank of Nova Scotia. TSYS ANNUAL REPORT 2000 39 Major Customers:
- ---------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Percent Percent Percent of Total of Total of Total Revenue Dollars Revenues Dollars Revenues Dollars Revenues - ---------------------------------------------------------------------------------------------------------------------------------- (dollars in millions) One $ 93.0 15.5 % $ 86.9 16.3 % $ 82.3 20.8 % Two 66.7 11.1 na na na na Three 61.3 10.2 na na na na Four na na 69.4 13.0 53.1 13.4 - ---------------------------------------------------------------------------------------------------------------------------------- Totals $221.0 36.8 % $ 156.3 29.3 % $135.4 34.2 % ==================================================================================================================================
na = not applicable. Client represented less than 10% of total revenues. For the year ended December 31, 2000, the Company had three major customers which accounted for approximately 37% of total revenues. For the years ended December 31, 1999 and 1998, the Company had two major customers accounting for approximately 29% and 34% of total revenues, respectively. Revenues from major customers for the years reported are attributable to all reporting segments. NOTE 12 Acquisitions During August 2000, TSYS announced that it had purchased an equity position in an established electronic payments company in Japan. The Company paid $4.7 million to acquire 51% of GP Net. The Company recorded $2.0 million as goodwill. In November 2000, the Company acquired an additional 2% ownership in GP Net from another partner for $95,310. Because it acquired controlling interest, the Company is consolidating GP Net's financial statements. TSYS began consolidating GP Net's financial results as of September 1, 2000. Effective January 1, 1999, TSYS acquired PCS from its majority shareholder, CB&T, in exchange for 854,042 newly issued shares of TSYS common stock with a market value of approximately $20.1 million. Prior to the acquisition by TSYS, PCS operated as a division of CB&T, providing services such as credit, collection and customer service to card-issuing financial institutions, including CB&T. The business of PCS became part of TSYS' wholly owned subsidiary, TSI. Because the acquisition of PCS was a transaction between entities under common control, the Company has reflected the acquisition at historical cost in a manner similar to a pooling of interests and has reflected the results of operations of PCS in the Company's financial statements beginning January 1, 1999. 40 REPORT OF INDEPENDENT AUDITORS KPMG 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, 2000 and 1999, and the related consolidated statements of income, cash flows and shareholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/KPMG LLP January 17, 2001 TSYS ANNUAL REPORT 2000 41 REPORT OF FINANCIAL RESPONSIBILITY 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 /s/James B. Lipham Richard W. Ussery James B. Lipham Chairman of the Board & Chief Executive Officer Executive Vice President & Chief Financial Officer /s/Dorenda K. Weaver /s/Ronald L. Barnes Dorenda K. Weaver Ronald L. Barnes Group Executive & Controller Group Executive & General Auditor 42 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 15, 2001, there were 11,313 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 $.0125 per share was declared on December 11, 2000, and was paid January 2, 2001, to shareholders of record on December 21, 2000. Total dividends declared in 2000 and in 1999 amounted to $9.3 million and $7.8 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, 2000 and 1999. [Omitted Revenues Graph is represented by the following table.] REVENUES (Millions of Dollars) 2000 1999 QTR 1 $145.9 $115.3 QTR 2 150.5 137.0 QTR 3 149.0 137.8 QTR 4 156.0 143.8 [Omitted Net Income Graph is represented by the following table.] NET INCOME (Millions of Dollars) 2000 1999 QTR 1 $20.7 $12.9 QTR 2 24.3 18.4 QTR 3 19.1 16.9 QTR 4 21.6 20.3
- ------------------------------------------------------------------------------------------------ First Second Third Fourth (in thousands except per share data) Quarter Quarter Quarter Quarter - ------------------------------------------------------------------------------------------------ 2000 Revenues......................... $ 145,859 150,490 148,959 155,985 Operating income ................ 30,525 36,276 28,667 32,724 Net income ...................... 20,657 24,331 19,066 21,589 Basic earnings per share ........ .11 .12 .10 .11 Diluted earnings per share ...... .11 .12 .10 .11 Cash dividends declared per share .01 .013 .01 .013 Stock prices: High ............................ 18 9/16 20 5/8 18 3/4 22 3/4 Low ............................. 15 15 3/4 16 14 7/8 - ------------------------------------------------------------------------------------------------ 1999 Revenues......................... $ 115,311 136,992 137,827 143,796 Operating income ................ 19,242 27,636 23,881 29,860 Net income ...................... 12,949 18,436 16,934 20,274 Basic earnings per share ........ .07 .09 .09 .10 Diluted earnings per share ...... .07 .09 .09 .10 Cash dividends declared per share .01 .01 .01 .01 Stock prices: High ............................ 26 1/4 20 7/8 19 5/8 19 Low ............................. 18 1/4 17 9/16 14 1/8 15 - -------------------------------------------------------------------------------------------------
TSYS ANNUAL REPORT 2000 43 EX-20.1 5 proxy.txt PROXY STATEMENT TSYS(SM) Richard W. Ussery March 9, 2001 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 19, 2001, at the TSYS Riverfront Campus Auditorium, 1600 First Avenue, Columbus, Georgia. Enclosed with this Proxy Statement are your proxy card and the 2000 Annual Report. We hope that you will be able to be with us and let us give you a review of 2000. 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 vote promptly. Thank you for helping us make 2000 a good year. We look forward to your continued support in 2001 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 TOTAL SYSTEM SERVICES, INC.(R) NOTICE OF THE 2001 ANNUAL MEETING OF SHAREHOLDERS TIME............... 10:00 a.m. E.T. Thursday, April 19, 2001 PLACE.............. TSYS Riverfront Campus Auditorium 1600 First Avenue Columbus, Georgia 31901 ITEMS OF BUSINESS.. (1) To elect seven directors to serve until the Annual Meeting of Shareholders in 2004. (2) To reapprove the Synovus Financial Corp. Executive Bonus Plan (TSYS is an 80.8% owned subsidiary of Synovus). (3) To approve the DotsConnect, Inc. 2000 Long-Term Incentive Plan (DotsConnect is a wholly owned subsidiary of TSYS). (4) To transact such other business as may properly come before the meeting and any adjournment thereof. WHO MAY VOTE....... You can vote if you were a shareholder of record on February 15, 2001. ANNUAL REPORT...... A copy of the Annual Report is enclosed. PROXY VOTING....... Your vote is important. Please vote in one of these ways: 1) Use the toll-free telephone number shown on the proxy card; 2) Visit the web site listed on your proxy card; or 3) Mark, sign, date and promptly return the enclosed proxy card in the postage-paid envelope provided. /s/G. Sanders Griffith, III G. SANDERS GRIFFITH, III Secretary Columbus, Georgia March 9, 2001 YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE VOTE YOUR SHARES PROMPTLY. TABLE OF CONTENTS Voting Information.............................................................1 Election of Directors..........................................................3 Board of Directors.............................................................5 Audit Committee Report.........................................................6 Directors' Compensation........................................................7 Executive Officers.............................................................7 Stock Ownership of Directors and Executive Officers............................8 Directors' Proposal to Reapprove the Synovus Financial Corp. Executive Bonus Plan......................................................9 Directors' Proposal to Approve the DotsConnect, Inc. 2000 Long-Term Incentive Plan.................................................11 Executive Compensation........................................................14 Stock Performance Graph.......................................................17 Compensation Committee Report on Executive Compensation.......................18 Compensation Committee Interlocks and Insider Participation....................................................20 Transactions With Management..................................................20 Relationships Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries.........................................21 Section 16(a) Beneficial Ownership Reporting Compliance.......................24 Independent Auditors..........................................................24 General Information: Financial Information....................................................25 Shareholder Proposals for the 2002 Proxy Statement.......................25 Director Nominees or Other Business for Presentation at the Annual Meeting...............................................25 Solicitation of Proxies..................................................25 Householding.............................................................25 Appendix A: Audit Committee Charter.................................................A-1 PROXY STATEMENT VOTING INFORMATION PURPOSE This Proxy Statement and the accompanying proxy card are being mailed to TSYS shareholders beginning March 9, 2001. The TSYS Board of Directors is soliciting proxies to be used at the 2001 Annual Meeting of TSYS Shareholders which will be held on April 19, 2001, at 10:00 a.m., at the TSYS Riverfront Campus Auditorium, 1600 First Avenue, 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 You are entitled to vote if you were a shareholder of record of TSYS stock as of the close of business on February 15, 2001. Your shares can be voted at the meeting only if you are present or represented by a valid proxy. SHARES OUTSTANDING A majority of the outstanding shares of TSYS stock must be present, either in person or represented by proxy, in order to conduct the Annual Meeting of TSYS Shareholders. On February 15, 2001, 194,761,020 shares of TSYS 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 stock on February 15, 2001. CB&T(R) is a wholly owned banking subsidiary of Synovus Financial Corp.(R), a multifinancial services company. PROXY CARD The Board has designated two individuals to serve as proxies to vote the shares represented by proxies at the Annual Meeting of Shareholders. 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 designated proxies in favor of the election of all of the director nominees and in accordance with the directors' recommendations on the other proposals listed on the proxy card. The designated proxies will vote in their discretion on any other matter that may properly come before the meeting. At the date the Proxy Statement went to press, we did not anticipate that any other matters would be raised at the Annual Meeting. VOTING OF SHARES Each share of TSYS 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 in person or 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 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 seven nominees who receive the largest number of properly executed votes will be elected as directors. Each share of TSYS 1 stock is entitled to one vote for each of seven 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. REQUIRED VOTES - OTHER MATTERS The affirmative vote of a majority of the shares present (in person or by proxy and entitled to vote at the Annual Meeting) is needed to approve the Synovus Executive Bonus Plan and the DotsConnect, Inc. 2000 Long-Term Incentive Plan. 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 You may vote by proxy or in person at the meeting. To vote by proxy, you may select one of the following options: Vote By Telephone: You can vote your shares by telephone by calling the toll-free telephone number (at no cost to you) shown on your proxy card. Telephone voting is available 24 hours a day, seven days a week. Easy-to-follow voice prompts allow you to vote your shares and confirm that your instructions have been properly recorded. Our telephone voting procedures are designed to authenticate the shareholder by using individual control numbers. If you vote by telephone, you do NOT need to return your proxy card. Vote By Internet: You can also choose to vote on the Internet. The web site for Internet voting is shown on your proxy card. Internet voting is available 24 hours a day, seven days a week. You will be given the opportunity to confirm that your instructions have been properly recorded, and you can consent to view future proxy statements and annual reports on the Internet instead of receiving them in the mail. If you vote on the Internet, you do NOT need to return your proxy card. Vote By Mail: If you choose to vote by mail, simply mark your proxy card, date and sign it, and return it in the postage-paid envelope provided. REVOCATION OF PROXY If you vote by proxy, you may revoke that proxy at any time before it is voted at the meeting. You may do this by (a) signing another proxy card with a later date and returning it to us prior to the meeting, (b) voting again by telephone or on the Internet prior to the meeting, or (c) attending the meeting in person and casting a ballot. 2 ELECTION OF DIRECTORS THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ALL NOMINEES. NUMBER The Board of Directors of TSYS consists of 17 members. As 18 board seats have been authorized by TSYS' shareholders, TSYS has one directorship which remains vacant. This vacant directorship 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 2002 Annual Meeting, the terms of office of the Class II directors expire at the 2003 Annual Meeting and the terms of office of the Class III directors expire at the 2001 Annual Meeting. Proxies cannot be voted at the 2001 Annual Meeting for a greater number of persons than the number of nominees named. NOMINEES The following nominees have been selected by the Corporate Governance Committee and approved by the Board for submission to the shareholders: Thomas G. Cousins, Sidney E. Harris, Alfred W. Jones III, Mason H. Lampton, William B. Turner, James D. Yancey and Rebecca K. Yarbrough, each to serve a three year term expiring at the Annual Meeting in the year 2004. 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 upon the recommendation of the Corporate Governance Committee. If you do not wish your shares voted for one or more of the nominees, you may so indicate on the proxy. MEMBERS OF THE 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 (1) 59 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 62 II 1991 Partner, Bradley & Hatcher (Law Firm); Director, Synovus Financial Corp. G. Wayne Clough 59 I 2000 President, Georgia Institute of Technology Thomas G. Cousins 69 III 1999 Chairman of the Board and Chief Executive Officer, Cousins Properties Incorporated (Real Estate Development) Gardiner W. Garrard, Jr. 60 II 1982 President, The Jordan Company (Real Estate Development); Director, Synovus Financial Corp. Sidney E. Harris (2) 51 III 1999 Dean, J. Mack Robinson College of Business, Georgia State University; Director, The ServiceMaster Company and Transamerica Investors, Inc. 3 John P. Illges, III 66 II 1982 Senior Vice President and Financial Consultant, The Robinson-Humphrey Company, Inc. (Stockbroker); Director, Synovus Financial Corp. Alfred W. Jones III (3) 43 III 2001 Chairman of the Board and Chief Executive Officer, Sea Island Company (Real Estate Development and Management); Director, Synovus Financial Corp. Mason H. Lampton 53 III 1986 Chairman of the Board and President, The Hardaway Company and Chairman of the Board, Standard Concrete Products (Construction Companies); Director, Synovus Financial Corp. W. Walter Miller, Jr. (4) 52 II 1993 Group Executive, Total System Services, Inc. Samuel A. Nunn (5) 62 I 1997 Senior Partner, King & Spalding (Law Firm); Director, The Coca-Cola Company, Dell Computer Corporation, General Electric Company, National Service Industries, Inc., Scientific-Atlanta, Inc., Internet Security Systems Group, Inc., Texaco Inc. and Community Health Systems, Inc. H. Lynn Page 60 I 1982 Director, Synovus Financial Corp., Columbus Bank and Trust Company and Total System Services, Inc. Philip W. Tomlinson (6) 54 I 1982 President, Total System Services, Inc. William B. Turner (4) 78 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 (7) 53 I 1982 Chairman of the Board and Chief Executive Officer, Total System Services, Inc. James D. Yancey 59 III 1982 President and Chief Operating Officer, Synovus Financial Corp.; Chairman of the Board, Columbus Bank and Trust Company; Director, Shoney's, Inc. Rebecca K. Yarbrough 63 III 1999 Private Investor - - --------- (1) 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. (2) Sidney E. Harris was named dean of the J. Mack Robinson College of Business at Georgia State University in July 1997. From 1991 until 1997, Mr. Harris served as dean and professor of the Drucker School of Management at the Claremont Graduate University. (3) Alfred W. Jones III was elected as a director of TSYS on February 20, 2001 by TSYS' Board of Directors to fill a vacant Board seat. (4) W. Walter Miller, Jr.'s spouse is the niece of William B. Turner. (5) Samuel A. 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. (6) Philip W. Tomlinson was elected President of TSYS in February 1992. From 1982 until 1992, Mr. Tomlinson served as Executive Vice President of TSYS. (7) 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.
4 BOARD OF DIRECTORS CORPORATE GOVERNANCE PHILOSOPHY 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. The role of the Board of Directors is to effectively govern the affairs of TSYS for the benefit of its shareholders and other constituencies. The Board strives to ensure the success and continuity of business through the election of qualified management. It is also responsible for ensuring that TSYS' activities are conducted in a responsible and ethical manner. The Corporate Governance Committee conducts an annual review of corporate governance procedures. A majority of TSYS' directors are independent, nonemployee directors. SUBMISSION OF DIRECTOR CANDIDATES Shareholders who wish to suggest qualified candidates for consideration as directors of TSYS by the Corporate Governance Committee should write to: Corporate Secretary, Total System Services, Inc., 901 Front Avenue, Suite 301, Columbus, Georgia 31901, stating in detail the qualifications of such persons. BOARD AND COMMITTEE MEETINGS The Board of Directors held five meetings in 2000. All directors attended at least 75% of Board and committee meetings held during their tenure during 2000. The average attendance by directors at the aggregate number of Board and committee meetings they were scheduled to attend was 93%. COMMITTEES OF THE BOARD TSYS' Board of Directors has four principal standing committees -- an Executive Committee, an Audit Committee, a Corporate Governance Committee and a Compensation Committee. The following table shows the membership of the various committees.
- - -------------------------------------------------------------------------------- Executive Audit Corporate Governance Compensation - - ---------- ----- -------------------- ------------- James H. Blanchard, Chair John P. Illges, III, Chair Richard Y. Bradley, Chair Gardiner W. Garrard, Jr., Chair Richard Y. Bradley Sidney E. Harris Thomas G. Cousins G. Wayne Clough Gardiner W. Garrard, Jr. H. Lynn Page Samuel A. Nunn Mason H. Lampton John P. Illges, III Rebecca K. Yarbrough Philip W. Tomlinson William B. Turner Richard W. Ussery James D. Yancey
Executive Committee. TSYS' Executive Committee held four meetings in 2000. 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. Audit Committee. TSYS' Audit Committee held four meetings in 2000. Its Report begins on page 6. The primary functions to be engaged in by TSYS' Audit Committee include: . Monitoring the quality and integrity of TSYS' financial reporting process and systems of internal controls regarding finance, accounting, regulatory and legal compliance; . Monitoring the independence and performance of TSYS' independent auditors and internal auditing activities; and . Providing an avenue of communication among the independent auditors, management, internal audit and the Board of Directors. 5 Corporate Governance Committee. TSYS' Corporate Governance Committee held two meetings in 2000. The primary functions to be engaged in by TSYS' Corporate Governance Committee include: . Making recommendations to the Board regarding the governance of TSYS as reflected in TSYS' Articles of Incorporation and bylaws; . Making recommendations to the Board regarding Board administration, including developing criteria for selecting and retaining Board members, seeking qualified candidates for the Board and recommending assignment of Board members to appropriate Board committees; . Making recommendations to the Board regarding a policy and program regarding director compensation and annual assessment of Board performance; . Establishing procedures for the Chief Executive Officer's annual performance review; and . Establishing procedures for annual reviews of succession planning and management development. Compensation Committee. TSYS' Compensation Committee held five meetings in 2000. Its Report on Executive Compensation begins on page 18. The primary functions to be engaged in by TSYS' Compensation Committee include: . The design and oversight of TSYS' executive compensation program; . The design and oversight of all compensation and benefit programs in which employees, officers and directors of TSYS are eligible to participate; and . Performing an annual evaluation of the Chief Executive Officer. AUDIT COMMITTEE REPORT The Audit Committee of the Board of Directors is comprised of three directors who the Board and Audit Committee believe are independent as defined in the New York Stock Exchange's listing standards. In accordance with its written charter adopted by the Board of Directors, which is attached as Appendix A to this Proxy Statement, the Audit Committee assists the Board with fulfilling its oversight responsibility regarding the quality and integrity of TSYS' financial reporting process. In discharging its oversight responsibilities regarding the audit process, the Audit Committee: . Reviewed and discussed with management TSYS' audited financial statements as of and for the year ended December 31, 2000; . Discussed with KPMG LLP, TSYS' independent auditors, the matters required to be discussed by Statement on Auditing Standards No. 61 (Communication with Audit Committees); and . Received from KPMG LLP the written disclosures and the letter required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with KPMG LLP their independence. Based upon the review and discussions referred to in the preceding paragraph, the Audit Committee recommended to the Board of Directors that the audited financial statements referred to above be included in TSYS' Annual Report on Form 10-K for the year ended December 31, 2000, to be filed with the Securities and Exchange Commission. This Audit Committee Report shall not be deemed incorporated by reference in any document previously or subsequently filed with the Securities and Exchange Commission that incorporates by reference all or any portion of this Proxy Statement, except to the extent TSYS specifically requests that the Report be specifically incorporated by reference. The Audit Committee John P. Illges, III Sidney E. Harris H. Lynn Page 6 DIRECTORS' COMPENSATION COMPENSATION During 2000, directors received the following compensation: Annual retainer $20,000 Attendance fee for each Board meeting $ 1,800 Attendance fee for each Executive Committee meeting, including the chairman $ 1,800 Attendance fee for each committee meeting chaired, other than executive $ 1,200 Attendance fee for committee meetings, other than executive $ 750 DIRECTOR STOCK PURCHASE PLAN TSYS' Director Stock Purchase Plan is a nontax-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 stock. Under the terms of the Director Stock Purchase Plan, qualifying directors can elect to contribute up to $5,000 per calendar quarter to make purchases of TSYS 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 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 59 Chairman of the Executive Committee Richard W. Ussery 53 Chairman of the Board and Chief Executive Officer Philip W. Tomlinson 54 President William A. Pruett 47 Executive Vice President James B. Lipham 52 Executive Vice President and Chief Financial Officer M. Troy Woods 49 Executive Vice President Kenneth L. Tye 48 Executive Vice President and Chief Information Officer G. Sanders Griffith, III 47 General Counsel and Secretary
Messrs. Blanchard, Ussery and Tomlinson are directors of TSYS. 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. Kenneth L. Tye was elected as Executive Vice President and Chief Information Officer of TSYS in August 1999. From 1971 until 1999, Mr. Tye served in various capacities with CB&T and/or 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. 7 STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth ownership of shares of TSYS stock by each director, by each executive officer named in the Summary Compensation Table on page 14 and by all directors and executive officers as a group as of December 31, 2000.
- - -------------------------------------------------------------------------------- Shares of Shares of TSYS Stock TSYS Stock Percentage of Beneficially Beneficially Total Outstanding Owned with Owned with Shares of Shares of Sole Voting Shared Voting TSYS Stock TSYS Stock and Investment and Investment Beneficially Beneficially Power as of Power as of Owned as of Owned as of Name 12/31/00 12/31/00 12/31/00(1) 12/31/00 -------------------------- ------------------- -------------------- ---------------- ------------- James H. Blanchard 784,812 360,480 1,145,292 * Richard Y. Bradley 23,025 5,000 28,025 * G. Wayne Clough 358 --- 358 * Thomas G. Cousins 29,157 --- 29,157 * Gardiner W. Garrard, Jr. 15,227 --- 15,227 * Sidney E. Harris 1,368 --- 1,368 * John P. Illges, III 105,169 81,750 186,919 * Alfred W. Jones III --- --- --- --- Mason H. Lampton 40,985 104,234(2) 145,219 * James B. Lipham 47,153 600 117,953 * W. Walter Miller, Jr. 88,064 12,831 108,095 * Samuel A. Nunn 1,999 --- 39,499 * H. Lynn Page 323,285 328,808 652,093 * William A. Pruett 160,095 --- 223,095 * Philip W. Tomlinson 593,433 59,796 779,229 * William B. Turner 163,309 576,000 739,309 * Richard W. Ussery 556,098 66,000 748,098 * M. Troy Woods 66,421 2,808 141,229 * James D. Yancey 778,039 24,000 802,039 * Rebecca K. Yarbrough 272,579 520,812(3) 793,391 * Directors and Executive Officers as a group (22 persons) 4,175,504 2,143,119 6,704,595 3.4 * Less than one percent of the outstanding shares of TSYS stock. - - -------- (1) The totals shown for the following directors and executive officers of TSYS include the number of shares of TSYS 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 70,200 W. Walter Miller, Jr. 7,200 Samuel A. Nunn 37,500 William A. Pruett 63,000 Philip W. Tomlinson 126,000 Richard W. Ussery 126,000 M. Troy Woods 72,000 In addition, the other executive officers of TSYS have rights to acquire an aggregate of 9,000 shares of TSYS stock within 60 days through the exercise of stock options. (2) Includes 28,800 shares of TSYS stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares. 8 (3) Includes 72,000 shares of TSYS stock held in a trust for which Mrs. Yarbrough is not the trustee. Mrs. Yarbrough disclaims beneficial ownership of such shares.
For a detailed discussion of the beneficial ownership of Synovus stock by TSYS' named executive officers and directors and by all directors and executive officers of TSYS as a group, see "Synovus Stock Ownership of Directors and Management" on page 21. DIRECTORS' PROPOSAL TO REAPPROVE THE SYNOVUS FINANCIAL CORP. EXECUTIVE BONUS PLAN THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL. TSYS' executive compensation program includes short-term incentive bonus awards under the Synovus Financial Corp. Executive Bonus Plan (the "Plan"). The purposes of the Plan are to reward selected executive officers for superior corporate performance and to attract and retain top quality executive officers. Subject to reapproval by TSYS' shareholders, compensation paid pursuant to the Plan to TSYS' officers is intended, to the extent reasonable, to continue to qualify for tax deductibility under Section 162(m) of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder, as may be amended from time to time ("Section 162(m)"). The Plan was originally approved by TSYS shareholders in 1996. Because Section 162(m) requires shareholder approval every five years, the Plan is being submitted to shareholders for reapproval. Eligibility and Participation. The Chief Executive Officer and the four highest compensated officers of Synovus and any publicly-traded subsidiary of Synovus (including TSYS) are eligible to participate in the Plan. Approximately 10 employees are eligible to participate in the Plan. The Committee, as described below, has discretion to select participants from among eligible employees from year to year. Description of Awards Under the Plan. Pursuant to the Plan, Synovus may award incentive bonus opportunities to participants. Each fiscal year, the Committee shall establish, in writing, the performance goals applicable to such and/or any succeeding fiscal year. The performance measures which shall be used to determine the amount of the incentive bonus award for each such performance period shall be chosen from among the following for Synovus, any of its business segments and/or any of its business units, unless and until the Committee proposes a change in such measures for shareholder vote or applicable tax and/or securities laws change to permit the Committee discretion to alter such performance measures without obtaining shareholder approval: (i) number of cardholder, merchant and/or other customer accounts processed and/or converted by TSYS; (ii) successful negotiation or renewal of contracts with new and/or existing customers by TSYS; (iii) productivity and expense control; (iv) stock price; (v) return on capital compared to cost of capital; (vi) net income; (vii) operating income; (viii) earnings per share and/or earnings per share growth; (ix) return on equity; (x) return on assets; (xi) nonperforming assets and/or loans as a percentage of total assets and/or loans; (xii) noninterest expense as a percentage of total expense; (xiii) loan charge-offs as a percentage of total loans; and (xiv) asset growth. Awards shall be determined based on the achievement of such preestablished performance goals and shall be awarded based on a percentage of a participant's base salary. The Committee shall have no discretion to increase the amount of any award under the Plan but will retain the ability to eliminate or decrease an award otherwise payable to a participant. The Committee shall certify, in writing, that the performance goals have been met before any payments to participants may be made. Payment of the incentive bonus award earned, if any, shall be made in cash, as soon as practicable after Committee approval or deferred until retirement (if so elected by the participant prior to the beginning of the year in which the bonus is to be earned). 9 Termination of Employment. Any participant not employed by Synovus or a publicly-traded subsidiary of Synovus on December 31 of any fiscal year will not be entitled to an award unless otherwise determined by the Committee. Maximum Amount Payable to Any Participant. The maximum amount payable for each performance period under the Plan to any participant is one hundred fifty percent (150%) of such participant's base salary; provided, however, that no participant may receive an award for any performance period in excess of $1.5 million. Amendment of the Plan. The Board of Directors of Synovus may amend the Plan at any time, including amendments that increase the costs of the Plan and allocate benefits differently between persons and groups in the table below; provided, however, that no amendment shall be made without shareholder approval that increases the maximum amount payable to any participant in excess of the limits set forth above. Duration of the Plan. The Plan shall remain in effect from the date it is approved by TSYS' shareholders until the date it is terminated by the Board of Directors of Synovus. The Board of Directors of Synovus may terminate the Plan at any time. Administration. The Plan will be administered by the Compensation Committee of the Synovus Board of Directors (the "Committee") with the approval, as to matters involving TSYS employees, of the Compensation Committee of the Board of Directors of TSYS. The Synovus and TSYS Compensation Committees will be comprised of two or more Synovus and TSYS "outside" directors within the meaning of Section 162(m). Estimate of Benefits. For the fiscal year 2000, only Mr. Ussery participated in the Plan, while Messrs. Tomlinson, Pruett, Woods and Lipham participated in the Synovus Incentive Bonus Plan. Because the amounts that will be paid pursuant to the Plan are not currently determinable, the following chart sets forth the amounts that would have been awarded for fiscal year 2000 if the Chief Executive Officer and the four other highest compensated officers of TSYS participated in the Plan. New Plan Benefits Synovus Financial Corp. Executive Bonus Plan
Name and Position Dollar Value($) - - ----------------------------------------------------- --------------- Richard W. Ussery Chairman of the Board and Chief Executive Officer $ 436,800 Philip W. Tomlinson President 357,000 William A. Pruett Executive Vice President 216,720 M. Troy Woods Executive Vice President 216,720 James B. Lipham Executive Vice President and Chief Financial Officer 186,900 Executive Group 1,414,140 Non-Executive Director Group -0- Non-Executive Officer Employee Group -0-
10 DIRECTORS' PROPOSAL TO APPROVE THE DOTSCONNECT, INC. 2000 LONG-TERM INCENTIVE PLAN THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THIS PROPOSAL. TSYS' compensation program includes stock options under the DotsConnect, Inc. 2000 Long-Term Incentive Plan (the "2000 Plan"). The purpose of the 2000 Plan is to attract and retain employees, to provide an additional incentive for each participant to work to increase the value of DotsConnect, Inc. and to enable such employees to acquire and maintain an equity interest in DotsConnect, a wholly owned subsidiary of TSYS. Subject to approval by TSYS' shareholders, compensation paid to TSYS' employees pursuant to the 2000 Plan is intended, to the extent reasonable, to qualify for tax deductibility under Section 162(m) of the Internal Revenue Code of 1986. Eligibility and Participation. Any employee of DotsConnect or its affiliates (including TSYS) is eligible to be selected to participate in the 2000 Plan. Approximately 58 employees currently participate in the 2000 Plan. The Committee, as described below, has discretion to select participants from among eligible employees. Shares Subject to the Plan. The aggregate number of shares of DotsConnect stock which may be granted to participants pursuant to awards granted under the 2000 Plan may not exceed one million five hundred thousand (1,500,000). Stock Options. The Committee may grant options under the 2000 Plan in the form of qualified incentive stock options, nonqualified stock options or a combination thereof. Subject to the limits described herein, the Committee shall have discretion in determining the number of shares subject to options granted to each participant. The option price of both nonqualified and qualified incentive stock options must be equal to one hundred percent (100%) of the fair market value of a share of DotsConnect stock on the date the option is granted. Options shall expire at such times as the Committee determines at the time of grant; provided, however, that no option shall be exercisable later than the tenth anniversary of its grant. Options granted under the 2000 Plan shall be exercisable at such times and subject to such restrictions and conditions as the Committee shall approve. The option exercise price shall be payable in cash or by check acceptable by the Committee. If approved by the Committee, payment of the exercise price may also be made by a surrender of stock that has been held for six months. Options may only be transferred under the laws of descent and distribution and shall be exercisable only by the participant during his lifetime. Maximum Amount Payable to Any Participant. The maximum number of shares which may be awarded in any calendar year to any one participant is five hundred thousand (500,000). Adjustments in Connection With Certain Events. The 2000 Plan provides that the Committee shall make a substitution or adjustment in the number of shares reserved for issuance under the 2000 Plan in the number, kind or class, and option price of shares subject to outstanding options as it deems appropriate and equitable in connection with a change in capitalization affecting DotsConnect's stock. Duration of the 2000 Plan. The 2000 Plan shall remain in effect from the date it is adopted by DotsConnect's Board of Directors until the date terminated by the DotsConnect Board; provided, however, that no award shall be granted on or after the tenth anniversary of the 2000 Plan's effective date. 11 Administration. The 2000 Plan will be administered by the Board of Directors of DotsConnect or a committee designated by the Board of Directors; provided, however, that with respect to options granted to employees of TSYS, the term "Committee" shall refer to the Compensation Committee of the Board of Directors of TSYS, which will be comprised of no fewer than two members who must be "outside directors" within the meaning of Section 162(m). The Committee shall have authority to determine individuals to whom options will be granted; determine the terms and conditions upon which options shall be granted; determine the time after which options shall be exercisable; and make all other determinations, perform all other acts, exercise all other powers, and establish any other procedures it deems necessary, appropriate or advisable in administering the 2000 Plan and maintaining compliance with applicable law. Amendment of the 2000 Plan. DotsConnect's Board of Directors may amend, alter or discontinue the 2000 Plan at any time except that no such amendment, suspension or discontinuation of the 2000 Plan may adversely affect an existing award under the 2000 Plan without the affected participant's consent. In addition, if stockholder approval of the 2000 Plan is obtained, no amendment, alteration or discontinuation shall be made, without the approval of shareholders, which would: (i) increase the total number of shares reserved under the 2000 Plan; (ii) decrease the option price of any option to less than one hundred percent (100%) of the fair market value of a share on the date of grant; (iii) change the participants or class of participants eligible to participate in the 2000 Plan; or (iv) materially increase the benefits accruing to participants. Change in Control. In the event of a change in control of DotsConnect as defined in the 2000 Plan, the vesting of any outstanding awards granted under the 2000 Plan shall be accelerated, and all such awards shall be fully exercisable. In addition, as part of the option agreement, the Committee may require that an employee surrender his or her option in exchange for payment by DotsConnect in an amount equal to the amount by which the then fair market value of the stock subject to the option exceeds the exercise price of the option, in which case the option will terminate upon such surrender. Federal Income Tax Consequences of the 2000 Plan. The income tax consequences under current federal tax law to participants and to DotsConnect and its affiliates of incentive compensation awarded under the 2000 Plan are generally as described below. Local and state tax authorities, however, may also tax incentive compensation awarded under the 2000 Plan. Consequences to Participants. The tax consequences to participants of the individual types of awards which may be granted under the 2000 Plan are described below. Qualified Incentive Stock Options. With respect to options which qualify as incentive stock options, a participant will not recognize ordinary income for federal income tax purposes at the time options are granted or exercised. If the participant disposes of shares acquired by exercise of an incentive stock option before the expiration of two years from the date the options are granted, or within one year after the issuance of shares upon exercise of the incentive stock option, the participant will recognize in the year of disposition: (a) ordinary income, to the extent that the lesser of either (1) the fair market value of the shares on the date of option exercise or (2) the amount realized on disposition exceeds the option price; and (b) capital gain (or loss), to the extent that the amount realized on disposition differs from the fair market value of the shares on the date of option exercise. If the shares are sold after expiration of these holding periods, the participant will realize capital gain or loss (assuming the shares are held as capital assets) equal to the difference between the amount realized on disposition and the option price. Nonqualified Stock Options. With respect to options which do not qualify as incentive stock options, the participant will recognize no income upon grant of the option and, upon exercise, will recognize ordinary income to the extent of the difference between the amount paid by the participant for the shares and the fair market value of the shares on the date of option 12 exercise. Upon a subsequent disposition of the shares received under the option, the participant will recognize capital gain or loss, as the case may be, to the extent of the difference between the fair market value of the shares at the time of exercise and the amount realized on the disposition (assuming the shares are held as capital assets). Consequences to DotsConnect and Its Affiliates. In general, DotsConnect and its affiliates will receive an income tax deduction at the same time and in the same amount as the amount which is taxable to the employee as compensation, except as provided below. To the extent a participant realizes capital gains, as described above, DotsConnect and its affiliates will not be entitled to any deduction for federal income tax purposes. Under Section 162(m), compensation paid by a public company in excess of $1 million for any taxable year to "covered employees" generally is not deductible by the company or its affiliates for federal income tax purposes unless it is related to the performance of the company, is paid pursuant to a plan approved by shareholders of the company and meets certain other requirements. Generally, "covered employees" is defined under Section 162(m) as any individual who is the chief executive officer or is among the four other highest paid executive officers named in the summary compensation table in the company's proxy statement, other than the chief executive officer, as of the last day of the taxable year. It is anticipated that awards will qualify as performance based for purposes of Section 162(m). However, the Committee reserves the ability to make awards which do not qualify for full deductibility under Section 162(m) if the Committee determines that the benefits of so doing outweigh full deductibility. NEW PLAN BENEFITS The second column in the following table shows all grants of options of DotsConnect stock to TSYS employees and officers under the 2000 Plan for fiscal year 2000. All of such options were granted contingent upon approval of the 2000 Plan by TSYS' shareholders.
Number of Shares Subject to Options Granted Name and Position 2000 Plan ------------------------------------ ---------------------------- Richard W. Ussery Chairman of the Board and Chief Executive Officer 100,000 Philip W. Tomlinson President 100,000 William A. Pruett Executive Vice President 50,000 M. Troy Woods Executive Vice President 100,000 James B. Lipham Executive Vice President and Chief Financial Officer 50,000 Executive Group 475,000 Non-Executive Director Group -0- Non-Executive Officer Employee Group -0-
13 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(1) Year Salary(2) Bonus(3) sation(4) (5) SARs (6) sation (7) - - ----------------------- ------ -------------- ----------- ------------ -------------- ------------- ------------ Richard W. Ussery 2000 $513,200 $436,800 $7,500 $325,000 149,050 $145,084 Chairman of the Board 1999 464,000 292,500 -0- -0- 90,170 138,894 and Chief Executive 1998 444,200 276,250 -0- -0- 106,422 116,712 Officer Philip W. Tomlinson 2000 458,200 357,000 -0- 650,000 135,543 121,101 President 1999 404,000 234,000 -0- -0- 64,937 116,561 1998 383,400 219,000 -0- -0- 75,750 97,145 William A. Pruett 2000 258,000 217,720 -0- 325,000 63,115 73,551 Executive Vice 1999 240,500 145,300 -0- -0- 24,189 72,110 President 1998 224,750 134,850 -0- -0- 27,950 60,931 M. Troy Woods 2000 258,000 217,720 -0- 325,000 113,115 73,606 Executive Vice 1999 240,500 145,300 -0- -0- 24,189 67,381 President 1998 220,000 110,000 -0- -0- 26,718 55,190 James B. Lipham 2000 222,500 187,900 -0- 650,000 61,196 62,713 Executive Vice President 1999 202,500 122,500 -0- -0- 20,098 56,504 and Chief Financial 1998 182,500 91,250 -0- -0- 22,182 46,034 Officer - - -------------------- (1) Mr. Blanchard received no cash compensation from TSYS during 2000, other than director compensation. (2) Amount consists of base salary and director fees for Messrs. Ussery and Tomlinson. (3) Bonus amount for 2000 includes a special recognition award of $1,000 for Messrs. Pruett, Woods and Lipham. (4) Amount for 2000 includes matching contributions under the Director Stock Purchase Plan. 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. (5) Grants for 2000 pertain to shares of Vital Processing Services, LLC, a 50% owned subsidiary of TSYS. Dividends are not paid on the restricted shares. As of December 31, 2000, Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham held 6,579, 4,656, 1,767, 1,577 and 1,331 Synovus restricted shares, respectively, with a value of $177,222, $125,421, $47,599, $42,480 and $35,854, respectively. As of December 31, 2000, Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham held 100,000, 200,000, 100,000, 100,000 and 200,000 Vital restricted shares, respectively, with a value of $325,000, $650,000, $325,000, $325,000 and $650,000, respectively. (6) Grants for 2000 include options to purchase 100,000, 100,000, 50,000, 100,000 and 50,000 shares of DotsConnect, Inc., a subsidiary of TSYS, for each of Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively. (7) The 2000 amount consists of contributions or other allocations to defined contribution plans of $30,000 for each executive; allocations pursuant to defined contribution excess benefit agreements of $114,462, $90,465, $43,160, $43,160 and $32,375 for each of Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively; premiums paid for group term life insurance coverage of $450, $450, $391, $446 and $338 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 $172 and $186 for Messrs. Ussery and Tomlinson, respectively.
14 STOCK OPTION EXERCISES AND GRANTS The following tables provide certain information regarding stock options granted and exercised in the last fiscal year and the number and value of unexercised options at the end of the fiscal year.
- - ------------------------------------------------------------------------------ OPTION/SAR GRANTS IN LAST FISCAL YEAR Individual Grants --------------------------------------------------------- % of Total Potential Options/ Realized Value at SARs Exercise Assumed Annual Rates of Options/ Granted to or Stock Price Appreciation SARs Employees Base For Option Term(1) Granted in Fiscal Price Expiration -------------------------- Name (#) Year ($/Share) Date 5%($) 10%($) - - ------------------- ----------- ------------- -------- -------------- --------- ------------- Richard W. Ussery 49,050(2) 15.12% $18.06 01/19/10 $422,811 $1,012,883 100,000(3) 6.74 .44 06/11/10 28,000 70,000 Philip W. Tomlinson 35,543(2) 10.96 18.06 01/19/10 306,381 733,963 100,000(3) 6.74 .44 06/11/10 28,000 70,000 William A. Pruett 13,115(2) 4.04 18.06 01/19/10 113,051 270,825 50,000(3) 3.37 .44 06/11/10 14,000 35,000 M. Troy Woods 13,115(2) 4.04 18.06 01/19/10 113,051 270,825 100,000(3) 6.74 .44 06/11/10 28,000 70,000 James B. Lipham 11,196(2) 3.45 18.06 01/19/10 96,510 231,197 50,000(3) 3.37 .44 06/11/10 14,000 35,000 - - --------------- (1) The dollar gains under these columns result from calculations using the identified growth rates and are not intended to forecast future price appreciation of Synovus or DotsConnect stock. (2) Options to purchase Synovus stock granted on January 20, 2000 at fair market value. Options become exercisable on January 20, 2002 and are transferable to family members. (3) Options to purchase DotsConnect stock granted on June 12, 2000 at fair market value with the following vesting schedule: 25% on June 12, 2001; 25% on June 12, 2002; and 50% on June 12, 2003.
- - -------------------------------------------------------------------------------- AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Value Options/SARs at FY-End (#) Options/SARs at FY-End ($)(1) Acquired on Realized -------------------------- ----------------------------- Name Exercise (#) ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable - - ------------------- ------------ ----------- -------------------------- ----------------------------- Richard W. Ussery -0- $ -0- 446,823 / 139,370(2) $5,896,244 / $ 802,929 -0- -0- 126,000 / 294,000(3) 1,159,830 / 2,706,270 -0- -0- 0 / 100,000(4) 0 / 0 Philip W. Tomlinson -0- -0- 293,238 / 100,630(2) 3,659,144 / 580,545 -0- -0- 126,000 / 294,000(3) 1,159,830 / 2,706,270 -0- -0- 0 / 100,000(4) 0 0 William A. Pruett -0- -0- 116,065 / 37,454(2) 1,520,472 / 215,958 -0- -0- 63,000 / 147,000(3) 579,915 / 1,353,135 -0- -0- 0 / 50,000(4) 0 / 0 M. Troy Woods -0- -0- 80,346 / 37,454(2) 829,908 / 215,958 -0- -0- 72,000 / 147,000(3) 763,290 / 1,353,135 -0- -0- 0 / 100,000(4) 0 / 0 James B. Lipham -0- -0- 79,115 / 31,444(2) 939,424 / 182,308 -0- -0- 70,200 / 147,000(3) 726,615 / 1,353,135 -0- -0- 0 / 50,000(4) 0 / 0 - - ---------- (1) Market value of underlying securities at exercise or year-end, minus the exercise or base price. (2) Options pertain to shares of Synovus stock. (3) Options pertain to shares of TSYS stock. (4) Options pertain to shares of DotsConnect stock.
15 CHANGE IN CONTROL ARRANGEMENTS Long-Term Incentive Plans. Under the terms of the TSYS 2000 Long-Term Incentive Plan, the DotsConnect 2000 Long-Term Incentive Plan and Synovus' 1992, 1994 and 2000 Long-Term Incentive Plans, all awards become automatically vested in the event of a Change of Control, as defined below. Awards under the Plans may include stock options, restricted stock, stock appreciation and performance awards. Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham each have restricted stock and stock options under the Synovus/TSYS/DotsConnect Long-Term Incentive Plans. Change of Control Agreements. TSYS has entered into Change of Control Agreements with Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, and certain other officers. In the event of a Change of Control, 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, Woods and Lipham would receive two times their current base salary and bonus, as defined above. . Three years of medical, life, disability and other welfare benefits (two years for Messrs. Pruett, Woods and Lipham). . 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: (i) the acquisition of 20% or more of the "beneficial ownership" of Synovus' outstanding voting stock, with certain exceptions for Turner family members; (ii) 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; (iii) a merger, consolidation, reorganization or sale of Synovus' assets unless the prior 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 new company's Board members are prior Board members of Synovus; or (iv) 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 (a) a spin-off of TSYS stock to Synovus shareholders, and (b) 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. 16 STOCK PERFORMANCE GRAPH The following graph compares the yearly percentage change in cumulative shareholder return on TSYS 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, 1995 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
1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ----- TSYS $100 $177 $163 $232 $162 $222 S&P 500 $100 $123 $164 $211 $255 $232 S&P CS&S $100 $155 $217 $392 $726 $343
17 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee ("Committee") of TSYS is responsible for the design and oversight of the TSYS executive compensation program, 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 computer systems/data processing companies ("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 primary consideration used by the Committee is a market comparison of comparable positions within similar companies based upon the executive's level of responsibility and experience. The Committee has had difficulty, however, in obtaining appropriate market data for certain of TSYS' executives. Market data for most positions is based upon the 50th percentile of the computer systems/data processing market, adjusted to reflect the size of TSYS. If market data could not be obtained for a particular position, the Committee targeted the median level of general industry data with a premium added to reflect the technology component of TSYS' business. Based solely upon this market data, the Committee increased Mr. Ussery's base salary in 2000. The Committee also increased the base salaries of TSYS' other executive officers in 2000 based solely upon this market data, as described above. Annual Bonus. The Committee may award annual bonuses to TSYS executives under two different plans, the Synovus Executive Bonus Plan (which was approved by TSYS shareholders in 1996 and is being submitted for reapproval in 2001) and the Synovus Incentive Bonus Plan. The Committee selects the participants in each Plan from year to year. For 2000, Mr. Ussery was selected to participate in the Synovus Executive Bonus Plan and 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; 18 . 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 2000 for Mr. Ussery and TSYS' other executive officers. The maximum percentage payouts under the Plans for 2000 were 65% for Mr. Ussery and 60% for Messrs. Tomlinson, Pruett, Woods and Lipham. The Committee also established a "super bonus" payout matrix that increased the bonus amount otherwise payable if certain stock price and net income goals were attained. 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. Based upon TSYS' net income and stock price, Mr. Ussery and TSYS' other executive officers were awarded the bonus amounts set forth in the Summary Compensation table. 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 2000, total shareholder return and peer comparisons were measured during the 1997 to 1999 performance period. Under the payout matrix, the Committee awarded Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham stock options of 49,050, 35,543, 13,115, 13,115 and 11,196, respectively. On June 12, 2000, the Committee made two long-term incentive grants in subsidiaries of TSYS to TSYS executives. The Committee made these awards to link the interests of TSYS executives to the ownership interest of TSYS in those subsidiaries. With respect to DotsConnect, Inc., the Committee awarded Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham stock options of 100,000, 100,000, 50,000, 100,000 and 50,000 shares, respectively, pursuant to the terms of the DotsConnect, Inc. 2000 Long-Term Incentive Plan. With respect to Vital Processing Services, LLC, the Committee awarded Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham restricted units of 100,000, 200,000, 100,000, 100,000 and 200,000, respectively. Other 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, depend upon TSYS' profitability. For 2000, Mr. Ussery and TSYS' other executive officers received a Plan contribution of 11.45% 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. 19 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 2000, 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. The Compensation Committee Gardiner W. Garrard, Jr. Mason H. Lampton G. Wayne Clough COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Gardiner W. Garrard, Jr., Mason H. Lampton and G. Wayne Clough served as members of TSYS' Compensation Committee during 2000. No member of the Committee is a current or former officer or employee of TSYS or its subsidiaries. TRANSACTIONS WITH MANAGEMENT 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 Agreement. TSYS paid CB&T $1,274,764 for its use of the aircraft during 2000, 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 Group Executive 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 2000. Samuel A. Nunn, a director of TSYS, is a senior partner of King & Spalding. Bradley & Hatcher, a law firm located in Columbus, Georgia, performed legal services on behalf of TSYS during 2000. Richard Y. Bradley, a director of TSYS, CB&T and Synovus, is a partner of Bradley & Hatcher. 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 page 23. 20 RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES BENEFICIAL OWNERSHIP OF TSYS STOCK BY CB&T The following table sets forth the number of shares of TSYS stock beneficially owned by CB&T, the only known beneficial owner of more than 5% of the issued and outstanding shares of TSYS stock, as of December 31, 2000.
- - -------------------------------------------------------------------------------- Percentage of Shares of Outstanding Shares of TSYS Stock TSYS Stock Name and Address of Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/00 as of 12/31/00 - - ------------------------ ------------------------ ----------------------------- Columbus Bank and Trust Company 157,455,980(1)(2) 80.9% 1148 Broadway Columbus, Georgia 31901 - - ------------ (1) CB&T individually owns these shares. (2) As of December 31, 2000, Synovus Trust Company, a wholly owned trust company subsidiary of CB&T, held in various fiduciary capacities a total of 1,625,550 shares (.83%) of TSYS stock. Of this total, Synovus Trust Company held 1,310,464 shares as to which it possessed sole voting power, 1,269,825 shares as to which it possessed sole investment power, 268,665 shares as to which it possessed shared voting power and 275,535 shares as to which it possessed shared investment power. In addition, as of December 31, 2000, Synovus Trust Company held in various agency capacities an additional 2,108,339 shares of TSYS stock as to which it possessed no voting or investment power. Synovus and its subsidiaries disclaim beneficial ownership of all shares of TSYS stock which are held by Synovus Trust Company in various fiduciary and agency capacities.
CB&T, by virtue of its individual ownership of 157,455,980 shares, or 80.9%, of the outstanding shares of TSYS stock on December 31, 2000 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 seventeen 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. Alfred W. Jones III serves as a director of Synovus and Mason H. Lampton serves as an Advisory Director of CB&T and as a director of Synovus. SYNOVUS STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT The following table sets forth the number of shares of Synovus stock beneficially owned by TSYS' directors, by each executive officer named in the Summary Compensation Table on page 14 and by all directors and executive officers as a group as of December 31, 2000. 21
- - --------------------------------------------------------------------------------------------------- Shares of Shares of Shares of Synovus Stock Synovus Stock Synovus Stock Percentage Beneficially Beneficially Beneficially of Owned with Owned with Owned with Total Outstanding Sole Voting Shared Sole Voting Shares of Shares of and Voting and but no Synovus Stock Synovus Stock Investment Investment Investment Beneficially Beneficially Power as of Power as of Power as of Owned as of Owned as of Name 12/31/00 12/31/00 12/31/00 12/31/00(1) 12/31/00 - - -------------------- -------------- ------------ --------------- ------------ ------------ James H. Blanchard 1,387,547 211,360 162,127 3,056,389 1.0 Richard Y. Bradley 21,617 84,887 --- 106,504 * G. Wayne Clough --- --- --- --- --- Thomas G. Cousins --- --- --- --- --- Gardiner W. Garrard, Jr. 204,147 1,263,616 --- 1,467,763 * Sidney E. Harris --- --- --- --- --- John P. Illges, III 282,727 504,096 --- 786,823 * Alfred W. Jones III 4,135 --- --- 4,135 * Mason H. Lampton 79,996 302,451(2) --- 382,447 * James B. Lipham 6,131 --- 1,330 106,524 * W. Walter Miller, Jr. 30,744 99,174 --- 158,081 * Samuel A. Nunn --- --- --- --- --- H. Lynn Page 797,886 11,515 --- 809,401 * William A. Pruett 9,315 --- 1,767 151,186 * Philip W. Tomlinson 50,642 --- 4,654 413,321 * William B. Turner 73,246 30,209,047(3) --- 30,282,293 10.6 Richard W. Ussery 86,310 4,293 6,579 634,025 * M. Troy Woods 2,241 --- 1,577 108,203 * James D. Yancey 1,022,406 61,677 7,810 1,868,999 * Rebecca K. Yarbrough 45,542 19,804 --- 65,346 * Directors and Executive Officers as a group (22 persons) 4,207,886 32,771,976 246,174 40,817,291 14.2 * Less than one percent of the outstanding shares of Synovus stock. - - ------------------- (1) The totals shown for the following directors and executive officers of TSYS include the number of shares of Synovus 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 1,295,355 James B. Lipham 99,063 W. Walter Miller, Jr. 28,163 William A. Pruett 140,104 Philip W. Tomlinson 358,025 Richard W. Ussery 536,843 M. Troy Woods 104,385 James D. Yancey 777,106 In addition, the other executive officers of TSYS have rights to acquire an aggregate of 415,851 shares of Synovus stock within 60 days through the exercise of stock options. (2) Includes 276,187 shares of Synovus stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares. (3) Includes 27,621,025 shares of Synovus stock beneficially owned by TB&C Bancshares, Inc., of which Mr. Turner is an officer, director and shareholder.
22 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 2000, 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 2000, TSYS derived $12,281,914 in revenues from CB&T and certain of Synovus' other banking subsidiaries for the performance of bankcard data processing services and $256,126 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., formerly a wholly owned subsidiary of Synovus, provided various services to Synovus' subsidiary companies during 2000, including TSYS. TSYS and Synovus Service Corp. were parties to a Lease Agreement pursuant to which Synovus Service Corp. leased from TSYS office space for lease payments aggregating $197,597 during 2000. Synovus Service Corp. also paid TSYS $63,806 during 2000 for data processing services. The terms of these transactions are comparable to those which could have been obtained in transactions with unaffiliated third parties. During 2000, TSYS and Synovus and TSYS and Synovus Service Corp. were parties to Management Agreements pursuant to which Synovus and Synovus Service Corp. provided certain management services to TSYS. During 2000, 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 2000, TSYS paid Synovus and Synovus Service Corp. management fees of $1,703,840 and $8,070,260, respectively. In addition, Synovus and TSYS are parties to Management Agreements pursuant to which TSYS provided management services to Synovus in connection with TSYS' assistance in managing the businesses of ProCard, Inc. and TSYS Total Debt Management, Inc., both of which are wholly owned subsidiaries of Synovus. As compensation for management services provided during 2000, Synovus paid TSYS management fees of $504,967 in connection with TSYS Total Debt Management, Inc. and $176,544 in connection with ProCard, Inc. Management fees are subject to future adjustments based upon charges at the time by unrelated third parties for comparable services. During 2000, Synovus Trust Company served as Trustee of various employee benefit plans of TSYS. During 2000, TSYS paid Synovus Trust Company trustee's fees under these plans of $391,414. During 2000, Columbus Depot Equipment Company, a wholly owned subsidiary of TSYS, and CB&T and nine of Synovus' other subsidiaries were parties to Lease Agreements pursuant to which CB&T and nine of Synovus' other subsidiaries leased from Columbus Depot Equipment Company computer related equipment for bankcard and bank data processing services for lease payments aggregating $64,004. The terms, conditions and rental rates provided for in these Agreements are comparable to corresponding terms, conditions and rates provided for in leases of similar equipment offered by unrelated third parties. During 2000, Synovus Technologies, Inc., formerly a wholly owned subsidiary of Synovus, paid TSYS $118,322 for data links, network services and other miscellaneous items related to the data processing services which Synovus Technologies provided to its customers, which amount was reimbursed to Synovus Technologies by its customers. During 2000, Synovus Technologies paid TSYS $24,900, primarily for computer processing services. During 2000 TSYS paid Synovus Technologies $1,688,676 for lockbox services. The charges for processing and other services are comparable to those between unrelated third parties. During 2000, pointpathbank, N.A., a wholly owned subsidiary of Synovus, paid DotsConnect, Inc. $514,640 in connection with Web hosting services and CB&T paid DotsConnect $30,867 23 in connection with online customer support services. The charges paid for these services are comparable to those between unrelated third parties. During 2000, 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 $6,529,779 for printing, correspondence and facilities management services. The charges for these services are comparable to those between unrelated third parties. During 2000, CB&T leased office space from TSYS for lease payments of $39,405. During 2000, TSYS and its subsidiaries were paid $4,772,461 of interest by CB&T in connection with deposit accounts with, and commercial paper purchased from, CB&T. The lease payments and 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 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, 2000, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners were complied with, except that Mrs. Yarbrough reported two transactions late on a Form 4. INDEPENDENT AUDITORS APPOINTMENT OF INDEPENDENT AUDITORS On March 7, 2001, 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, 2001. 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' 2001 Annual Meeting with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. FEES The following table sets forth the aggregate fees billed to TSYS in the indentified categories for the fiscal year ended December 31, 2000 by KPMG.
Financial Information Systems Design and All other Audit Fees Implementation Fees Fees - - ---------- --------------------- --------- $215,000 $ 0 $697,279
The Audit Committee has considered whether the provision of services to TSYS, other than audit services, is compatible with maintaining KPMG's independence. 24 GENERAL INFORMATION FINANCIAL INFORMATION Detailed financial information for TSYS and its subsidiaries for its 2000 fiscal year is included in TSYS' 2000 Annual Report that is being mailed to TSYS' shareholders together with this Proxy Statement. SHAREHOLDER PROPOSALS FOR THE 2002 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 2002 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 9, 2001 in order to consider it for inclusion in the Proxy Statement for the 2002 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 between December 10, 2001 and January 24, 2002 and the notice must provide information as required in the bylaws, or the persons appointed as proxies may exercise their discretionary voting authority with respect to the proposal. 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 2002 Proxy Statement" above), nor does it apply to questions a shareholder may wish to ask at the meeting. SOLICITATION OF PROXIES TSYS will pay the cost of soliciting proxies. Proxies may be solicited on behalf of TSYS by directors, officers or employees by mail, in person or by telephone, facsimile or other electronic means. TSYS will reimburse brokerage firms, nominees, custodians and fiduciaries for their out-of-pocket expenses for forwarding proxy materials to beneficial owners. HOUSEHOLDING The Securities and Exchange Commission recently adopted amendments to its proxy rules which permit companies and intermediaries, such as brokers and banks, to satisfy delivery requirements for proxy statements with respect to two or more shareholders sharing the same address by delivering a single proxy statement to those shareholders. This method of delivery, often referred to as householding, should reduce the amount of duplicate information that shareholders receive and lower printing and mailing costs for companies. TSYS is not householding proxy materials for its shareholders of record in connection with its 2001 Annual Meeting. However, we have been notified that certain intermediaries will household proxy materials. If you hold your shares of TSYS stock through a broker or bank that has determined to household proxy materials: . Only one annual report and proxy statement will be delivered to multiple shareholders sharing an address unless you notify your broker or bank to the contrary; . You can contact TSYS by calling (706) 649-5220 or by writing Investor Relations Manager, Total System Services, Inc., P.O. Box 120, Columbus, Georgia 31902 to request a separate copy of the annual report and proxy statement for the 2001 Annual Meeting and for future meetings or you can contact your bank or broker to make a similar request; and . You can request delivery of a single copy of annual reports or proxy statements from your bank or broker if you share the same address as another TSYS shareholder and your bank or broker has determined to household proxy materials. 25 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 March 9, 2001 26 APPENDIX A TOTAL SYSTEM SERVICES, INC. Charter of the Audit Committee of the Board of Directors I. Audit Committee Purpose The Audit Committee is appointed by the Board of Directors to assist it in fulfilling its oversight responsibilities. The Audit Committee's primary duties and responsibilities are to: . Monitor the quality and integrity of the Company's financial reporting process and systems of internal controls regarding finance, accounting, regulatory and legal compliance. . Monitor the independence and performance of the Company's independent auditors and internal auditing activities. . Provide an avenue of communication among the independent auditors, management, internal audit, and the Board of Directors. The primary responsibility of the Audit Committee is to oversee the Company's financial reporting process on behalf of the Board and report the results of their activities to the Board. Management is responsible for preparing the Company's financial statements and the independent auditors are responsible for auditing those financial statements. The Committee will recommend actions to the Board of Directors as the Committee deems appropriate. The Committee will undertake such additional activities within the scope of its primary functions as the Committee deems appropriate. The Audit Committee has the authority to conduct any investigation appropriate to fulfilling its responsibilities, and it has direct access to the independent auditors as well as anyone in the organization. The Audit Committee has the ability to retain, at the Company's expense, special legal, accounting, or other consultants or experts it deems necessary in the performance of its duties. II. Audit Committee Composition Audit Committee members shall meet the requirements of the New York Stock Exchange. The Audit Committee shall be comprised of three or more directors as determined by the Board of Directors, each of whom shall be independent directors, free from any relationship that would interfere with the exercise of his or her independent judgment. All members of the Committee shall have a basic understanding of finance and accounting and be able to read and understand fundamental financial statements, and at least one member of the Committee shall have accounting or related financial management expertise. III. Audit Committee Responsibilities and Duties Review Procedures 1. The Audit Committee shall review and reassess the adequacy of this Charter at least annually, submit the Charter to the Board of Directors for approval and include a copy of the Charter as an appendix to the Company's proxy statement at least every three years, in accordance with SEC regulations. 2. The Audit Committee shall review the Company's annual audited financial statements prior to filing or distribution and discuss with management and the independent auditors any significant issues regarding accounting principles, practices, and judgments. A-1 3. The Audit Committee shall review significant findings prepared by the independent auditors and internal audit, together with management's responses. Independent Auditors 4. The independent auditors are ultimately accountable to the Audit Committee and the Board of Directors. The Audit Committee and the Board of Directors are responsible for selection, evaluation and replacement of the independent auditors. The Audit Committee shall review the independence and performance of the auditors and annually recommend to the Board of Directors the appointment of the independent auditors or approve any discharge of auditors when circumstances warrant. 5. The Audit Committee is responsible for ensuring that the outside auditors submit on a periodic basis to the Audit Committee a formal written statement delineating all relationships between the auditors and the Company and is responsible for actively engaging in a dialogue with the outside auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the outside auditors. The Audit Committee is responsible for recommending that the Board of Directors take appropriate action in response to the outside auditors' report to satisfy itself of the outside auditors' independence. 6. The Audit Committee shall approve the fees and other significant compensation to be paid to the independent auditors. 7. The Audit Committee shall review the independent auditors' audit plan, including discussion of the scope, staffing, reliance upon management, and internal audit and general audit approach. 8. Prior to the Company filing its Annual Report on Form 10-K with the SEC, the Audit Committee shall discuss the results of the audit with the independent auditors, and shall discuss certain matters required to be communicated by independent auditors to audit committees in accordance with AICPA Statement of Auditing Standards No. 61. Internal Audit 9. The Audit Committee shall review the budget, plan, organizational structure, and staffing of internal audit. 10. The Audit Committee shall review significant reports prepared by internal audit together with management's response and follow-up to these reports. Other Audit Committee Responsibilities 11. The Audit Committee shall review the appointment, performance and replacement of the senior internal audit executive. 12. The Audit Committee shall annually prepare a report to shareholders as required by the Securities and Exchange Commission. The report should be included in the Company's annual proxy statement. A-2 EX-21.1 6 subsids.txt SUBSIDIARIES EXHIBIT 21.1 SUBSIDIARIES OF TOTAL SYSTEM SERVICES, INC.
Name Ownership Percentage - ----- -------------------- 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 DotsConnect, Inc. A Georgia corporation 100% Vital Processing Services L.L.C. A Delaware limited liability company 50% Total System Services de Mexico A Mexican corporation 49% GP Network Corporation A Japanese corporation 53%
EX-23.1 7 auditorsconsent.txt INDEPENDENT AUDITORS' CONSENT Independent Auditors' Consent We consent to 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 17, 2001, relating to the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 2000, and 1999, and the related consolidated statements of income, cash flows, and shareholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 2000 and the related financial statement schedule, which reports appear in or are incorporated by reference in the Total System Services, Inc. Annual Report on Form 10-K for the year 2000. /s/KPMG LLP Atlanta, Georgia March 21, 2001 EX-24.1 8 sigs.txt 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 21, 2001 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 21, 2001 - -------------------------------------------------- James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 21, 2001 - -------------------------------------------------- Richard W. Ussery, Chairman of the Board and Principal Executive Officer /s/Philip W. Tomlinson Date: March 21, 2001 - -------------------------------------------------- Philip W. Tomlinson, President and Director /s/James B. Lipham Date: March 21, 2001 - -------------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Richard Y. Bradley Date: March 21, 2001 - -------------------------------------------------- Richard Y. Bradley, Director /s/G. Wayne Clough Date: March 21, 2001 - -------------------------------------------------- G. Wayne Clough, Director /s/Thomas G. Cousins Date: March 21, 2001 - -------------------------------------------------- Thomas G. Cousins, Director /s/Gardiner W. Garrard, Jr. Date: March 21, 2001 - -------------------------------------------------- Gardiner W. Garrard, Jr., Director /s/Sidney E. Harris Date: March 21, 2001 - -------------------------------------------------- Sidney E. Harris, Director /s/John P. Illges, III Date: March 21, 2001 - -------------------------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 21, 2001 - -------------------------------------------------- Mason H. Lampton, Director /s/Samuel A. Nunn Date: March 21, 2001 - -------------------------------------------------- Samuel A. Nunn, Director /s/H. Lynn Page Date: March 21, 2001 - -------------------------------------------------- H. Lynn Page, Director /s/W. Walter Miller, Jr. Date: March 21, 2001 - -------------------------------------------------- W. Walter Miller, Jr., Director /s/William B. Turner Date: March 21, 2001 - -------------------------------------------------- William B. Turner, Director /s/James D. Yancey Date: March 21, 2001 - -------------------------------------------------- James D. Yancey, Director /s/Rebecca K. Yarbrough Date: March 21, 2001 - -------------------------------------------------- Rebecca K. Yarbrough, Director Date: - -------------------------------------------------- Alfred W. Jones III, Director filings/tss\con13.sig -----END PRIVACY-ENHANCED MESSAGE-----