10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934

for the fiscal year ended December 31, 2010

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 incorporation or organization)	(I.R.S. Employer Identification No.)

One TSYS Way
Columbus, Georgia	31901
(Address of principal executive offices)	(Zip Code)

(Registrant’s telephone number, including area code) (706) 649-2310

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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

     YES þ                      NO o

     Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.

     YES o                      NO þ

     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 þ                      NO o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)

     YES þ                      NO o

     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. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ	Accelerated Filer o	Non-accelerated filer o	Smaller reporting company o
		(Do not check if a smaller reporting company)

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     YES o                      NO þ

     As of June 30, 2010, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $2,565,112,000 based on the closing sale price as reported on the New York Stock Exchange.

     As of February 23, 2011, there were 193,409,543 shares of the registrant’s common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Incorporated Documents	Form 10-K Reference Locations
Portions of the Annual Report to Shareholders for the year ended December 31, 2010 (“Annual Report”)	Parts I, II, III and IV
Portions of the 2011 Proxy Statement for the Annual Meeting of Shareholders to be held May 3, 2011 (“Proxy Statement”)	Part III

Table of Contents

	Page
Part I
Safe Harbor Statement		1
Item 1. Business		1
Item 1A. Risk Factors		5
Item 1B. Unresolved Staff Comments	None
Item 2. Properties		11
Item 3. Legal Proceedings		12
Item 4. Removed and Reserved	None
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		12
Item 6. Selected Financial Data		12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		12
Item 8. Financial Statements and Supplementary Data		14
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	None
Item 9A. Controls and Procedures		15
Item 9B. Other Information	None
Part III
Item 10. Directors, Executive Officers and Corporate Governance		15
Item 11. Executive Compensation		16
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		16
Item 13. Certain Relationships and Related Transactions, and Director Independence		17
Item 14. Principal Accountant Fees and Services		17
Part IV
Item 15. Exhibits and Financial Statement Schedules		17
EX-10.16
EX-10.37
EX-10.38
EX-13.1
EX-21.1
EX-23.1
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I

Safe Harbor Statement

     We have included or incorporated by reference in this Annual Report on Form 10-K, and from time to time our management may make, statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical facts but instead represent only our belief regarding future events, many of which by their nature are inherently uncertain and outside our control. These statements include statements other than historical information or statements of current condition and may relate to our future plans, objectives and results, among other things, and also include (without limitation) statements made in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this annual report. It is possible that our actual results may differ, possibly materially, from the anticipated results indicated in these forward-looking statements. Important factors that could cause actual results to differ from those in the forward-looking statements include, among others, those discussed under “Risk Factors” in Part I, Item 1A of this annual report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this annual report.

     Accordingly, you are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made. We undertake no obligation to update publicly or revise any forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made, whether as a result of new information, future events or otherwise except as required by applicable law. You should, however, consult further disclosures we may make in future filings of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments thereto.

Item 1. Business

     Business. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol “TSS,” we are a global payment solutions provider that provides services to financial and nonfinancial institutions. The services we provide are divided into three operating segments, North America Services, which accounted for 54.0% of our revenues in 2010, International Services, which accounted for 19.3% of our revenues in 2010, and Merchant Services, which accounted for 26.7% of our revenues in 2010.

     Seasonality. Due to the somewhat seasonal nature of the credit card industry, our 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.

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     Intellectual Property. Our intellectual property portfolio is a component of our ability to be a leading electronic payment services provider. We diligently protect and work to build our intellectual property rights through patent, servicemark and trade secret laws. We also use various licensed intellectual property to conduct our business. In addition to using our intellectual property in our own operations, we grant licenses to certain of our clients to use our intellectual property.

     Major Customer. A significant amount of our revenues is derived from long-term contracts with large clients, including our major customer during 2010, Bank of America Corporation. For the year ended December 31, 2010, Bank of America Corporation accounted for approximately 12.9% of our total revenues. As a result, the loss of Bank of America Corporation, or other large clients, could have a material adverse effect on our financial position, results of operations and cash flows. See “Major Customer” and “Operating Segments” under the “Financial Review” Section on page 16, and 16 through 19, respectively, and Note 22 on pages 56 through 58 of the Annual Report which are incorporated in this document by reference.

     Competition. We encounter vigorous competition in providing electronic payment services from several different sources. TSYS’ core business is derived from third-party processing for issuers and merchant acquirers. Most of the national market in third party processors is presently being provided by approximately three vendors. We believe that as of December 31, 2010 we are the largest third party card processor in the United States. In addition, we compete with banks and acquirers who choose to process payments in house through proprietary systems and with software vendors which provide their products to institutions which process in house. We are presently encountering, and in the future anticipate continuing to encounter, substantial competition from data processing, bankcard computer service firms and third-party software vendors within the United States and from certain international processors, in-country providers and third-party software vendors with respect to our International Services segment. In addition, payments networks such as Visa, MasterCard and Discover are increasingly offering products and services that compete with our products and services.

     Based upon available market share data that includes cards processed in house, we believe that during 2010 we provided issuer processing services for 21% of the domestic consumer credit card market, 43% of the Canadian credit card market and 16% of the Western European credit card market. We also believe that during 2010 we held an 85% share of the Visa and MasterCard domestic commercial card processing market. With respect to the Merchant Services Segment, we provide third party processing services to merchant acquirers and Independent Sales Organizations (“ISOs”) and we are a direct merchant acquirer through TSYS Merchant Solutions. We believe that we are the second largest processor of merchant accounts and process transactions for approximately 21% of all bankcard accepting merchant locations in the United States. Our direct merchant acquirer business is ranked as the 10^th largest merchant acquirer by dollar volume according to The Nilson Report dated March 2010.

     Our major competitor in the card processing industry is First Data Resources, LLC, a wholly owned subsidiary of First Data Corporation, which provides card processing services. The principal methods of competition between us and First Data Resources are price, system performance and reliability, breadth of features and functionality, disaster recovery capabilities

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and business continuity preparedness, data security, scalability and flexibility of infrastructure and servicing capability. Other affiliates of First Data Corporation also compete with us with respect to the provision of merchant services.

     Backlog of Accounts. As of December 31, 2010, we had a pipeline of approximately 13.7 million accounts, approximately 8.8 million of which are expected to be converted during 2011.

     Regulation and Examination. Government regulation affects key aspects of our business, in the U.S. as well as internationally. We are subject to examination by the Federal Financial Institutions Examination Council, an interagency body comprised of federal banking and thrift regulators and the National Credit Union Administration, and also subject to examination by the various state financial regulatory agencies which supervise and regulate the financial institutions for which we provide electronic payment processing services. Matters reviewed and examined by these federal and state financial institution regulatory agencies have included our internal controls in connection with our present performance of electronic payment processing services, and the agreements pursuant to which we provide such services. In addition, we are registered with Visa, MasterCard, American Express and the Discover Network as a service provider and are subject to their respective rules.

     Aspects of our business are also subject to privacy regulation in the United States, the European Union and elsewhere. For example, in the United States, we and our financial institution clients are respectively subject to the Federal Trade Commission’s and the federal banking agency information safeguarding requirements under the Gramm-Leach-Bliley Act. The Federal Trade Commission’s information safeguarding rules require us to develop, implement and maintain a written, comprehensive information security program containing safeguards that are appropriate for our size and complexity, the nature and scope of our activities and the sensitivity of any customer information at issue. Our financial institution clients in the United States are subject to similar requirements under the guidelines issued by the federal banking agencies. As part of their compliance with these requirements, each of our U.S. financial institution clients is expected to have a program in place for responding to unauthorized access to, or use of, customer information that could result in substantial harm or inconvenience to customers.

     As are all U.S. citizens and U.S. entities, we are subject to regulations imposed by the U.S. Treasury Office Department of Foreign Assets Control (“OFAC”) which prohibit or restrict financial and other transactions with specified countries, and designated individuals and entities such as terrorists and narcotics traffickers. We have procedures and controls in place which are designed to protect against having direct business dealings with such prohibited countries, individuals or entities. We also have procedures and controls in place which are designed to allow our processing clients to protect against having direct business dealings with such prohibited countries, individuals or entities. However, due to the complexity of the payments systems to which our clients belong, such as MasterCard and Visa, it is possible our computer systems may be used in the processing of transactions involving countries or parties subject to OFAC administered sanctions.

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     We and the rest of the financial services industry continue to experience increased legislative and regulatory scrutiny, including the enactment of additional legislative and regulatory initiatives such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Financial Reform Act”). This legislation, which provides for significant financial regulatory reform, may have a significant and negative impact on our clients, which could impact TSYS’ earnings through fee reductions, higher costs (both regulatory and implementation) and new restrictions on our operations. The Reform Act, among other things, provides for the regulation and oversight by the Federal Reserve Board of debit interchange fees that are typically paid by acquirers and charged or received by a payment card network for the purpose of compensating an issuer for its involvement in an electronic debit transaction. The regulations pertaining to interchange fees that will be adopted by the Federal Reserve Board will be effective in July 2011. Although we cannot predict the impact that the debit interchange regulations will have on us, we do not expect that they will have a significant negative impact on our business as it is predominantly credit card related. The Reform Act also created a new Consumer Financial Protection Bureau which will assume responsibility for most federal consumer protection laws in the area of financial services, including consumer credit. The creation of the bureau and its actions may make payment card transactions less attractive to card issuers, including TSYS’ clients, and thus negatively impact our business. In addition, the Reform Act created a Financial Stability Oversight Council that has the authority to determine whether nonbank financial companies such as TSYS should be supervised by the Federal Reserve Board because they are systemically important to the U.S. financial system. Any such designation would result in increased regulatory burdens on our business.

     Employees. As of December 31, 2010, we had 7,788 full-time equivalent employees.

     Available Information. Our website address is www.tsys.com. You may obtain free electronic copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all amendments to those reports in the Investor Relations section of our website under the heading “SEC Filings.” These reports are available on our website as soon as reasonably practicable after we electronically file them with the Securities and Exchange Commission.

     We have adopted a Code of Business Conduct and Ethics for our directors, officers and employees and have also adopted Corporate Governance Guidelines. Our Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters of our board committees are available in the Corporate Governance section of our website at www.tsys.com under “Investor Relations” then “Corporate Governance”.

     For more information about our business see the “Financial Overview” Section on pages 9 and 10, the “Financial Review” Section on pages 10 through 27 and Note 1, Note 2, Note 8, Note 19, Note 22, Note 24, Note 25 and Note 28 of Notes to Consolidated Financial Statements on pages 32 through 39, pages 41 and 42, pages 51 through 53, and pages 56 through 61 of the Annual Report which are incorporated in this document by reference.

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Item 1A. Risk Factors

     This section highlights specific risks that could affect our business and us. Although this section attempts to highlight key factors, please be aware that other risks may prove to be important in the future. New risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. In addition to the factors discussed elsewhere or incorporated by reference in this report, among the other factors that could cause actual results to differ materially are the following:

Consolidation among financial institutions, including the merger of TSYS clients with entities that are not TSYS clients or the sale of portfolios by TSYS clients to entities that are not TSYS clients, or the nationalization or seizure by banking regulators of TSYS clients, could materially impact our financial position and results of operation.

     Consolidation among financial institutions, particularly in the area of credit card operations, continues to be a major risk. Specifically, we face the risk that our clients may merge with entities that are not our clients, our clients may sell portfolios to entities that are not our clients and, based on current economic conditions, our clients may be seized by banking regulators or nationalized, thereby impacting our existing agreements and projected revenues with these clients. In addition, consolidation among financial institutions has led to an increasingly concentrated client base at TSYS which results in a changing client mix toward larger clients. Continued consolidations among financial institutions could increase the bargaining power of our current and future clients. Consolidation among financial institutions, the nationalization of financial institutions or the seizure by banking regulators of financial institutions and the resulting loss of any significant client by us could have a material adverse effect on our financial position and results of operations.

If we do not successfully renew or renegotiate our agreements with our clients, our business will suffer.

     A significant amount of our revenues is derived from long-term contracts with large clients, including a major customer. Consolidation among financial institutions has resulted in an increasingly concentrated client base. The financial position of these clients and their willingness to pay for our products and services are affected by general market positions, competitive pressures and operating margins within their industries. Renewal or renegotiation time presents our clients with the opportunity to consider other providers. The loss or renegotiation of our contracts with existing clients or a significant decline in the number of transactions we process for them could have a material adverse effect on our financial position and results of operation.

Economic conditions could adversely affect our business.

     A significant portion of our revenues is derived from the number of consumer credit transactions that we process which may be affected by, among other things, overall economic conditions. As a result of current economic conditions in the United States, credit card issuers have been reducing credit limits and closing accounts and are more selective with respect to whom they issue credit cards which could negatively impact the number of accounts we have on

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file for our clients, for which we receive a fee, and internal growth rates for our clients. Future reductions in consumer spending through credit card usage could have a material adverse affect on our financial position and results of operations.

Security and privacy breaches in our systems and system failures may damage client relations, our reputation and expose us to liability.

     The uninterrupted operation of our processing systems and the confidentiality of the client information that resides on our systems is critical to our business. We have security, backup and recovery systems in place, as well as business continuity plans designed to ensure our systems will not be inoperable. However, there is still a risk that a system outage or data loss may occur which would not only damage our reputation but as a result of contractual commitments could also require the payment of penalties to our clients if our systems do not meet certain operating standards. We also have what we believe to be sufficient security around our systems to prevent unauthorized access. Any failures in our security and privacy measures or any system interruption could have a material adverse effect on our financial position and results of operations. We electronically store personal information, such as credit card numbers, about consumers who are customers of our clients. If we are unable to protect, or our clients perceive that we are unable to protect, the security and privacy of our electronic transactions, our growth could be materially adversely affected. A security or privacy breach or a system failure may:

• cause our clients to lose confidence in our services;

• harm our reputation;

• expose us to financial liability; and

• increase our expenses from potential remediation costs.

     Our ability to attract and retain clients and employees could be adversely affected to the extent our reputation is damaged. While we believe we use proven applications designed for data security and integrity to process electronic transactions, there can be no assurance that our use of these applications will be sufficient to counter all current and emerging technology threats designed to breach our systems in order to gain access to confidential client information or our intellectual property or assurance that our use of these applications will be sufficient to address the security and privacy concerns of existing and potential clients.

We may incur expenses associated with the signing of a significant client to our processing system and in connection with our efforts to grow internationally or incur other costs that may hurt our financial results.

     We incur significant up-front expenses prior to converting a significant client to our processing systems. In the event we enter into a processing contract with a significant client, these expenses will directly affect our earnings results. In addition, we provide services to our clients worldwide. We are likely to incur costs in growing our business internationally, and there is no guarantee that such international expansion will be successful. We may also incur other expenses and costs, such as operating and marketing expenses. If we are unable to successfully manage these expenses as our business develops, changes and expands, our financial position and results of operations could be negatively impacted. In addition, changes in accounting policies can significantly affect how we calculate expenses and earnings.

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There may be a decline in the use of credit cards as a payment mechanism for consumers or adverse developments with respect to the credit card industry in general.

     If consumers do not continue to use credit cards as a payment mechanism for their transactions or if there is a change in the mix of payments between cash, credit cards and debit cards, it could have a material adverse effect on our financial position and results of operations. We believe future growth in the use of credit cards will be driven by the cost, ease-of-use, and quality of products and services offered to consumers and businesses. In order to consistently increase and maintain our profitability, consumers and businesses must continue to use credit cards. Moreover, if there is an adverse development in the credit card industry in general, such as new legislation or regulation that makes it more difficult for our clients to do business, our financial position and results of operations may be adversely affected.

We may not convert and deconvert client’s portfolios as scheduled.

     The timing of the conversion of card portfolios of new clients to our processing systems and the deconversion of existing clients to other systems impacts our revenues and expenses. There is no guarantee that conversions and deconversions will occur as scheduled and this may have a material adverse effect on our financial position and results of operations.

Acquisitions and integrating such acquisitions create certain risks and may affect our financial results.

     We have acquired businesses both in the United States and internationally and will continue to explore opportunities for strategic acquisitions in the future. The acquisition and integration of businesses involves a number of risks. The core risks are in the areas of valuation (negotiating a fair price for the business based on inherently limited diligence) and integration (managing the complex process of integrating the acquired company’s people, products, technology and other assets so as to realize the projected value of the acquired company and the synergies projected to be realized in connection with the acquisition). In addition, international acquisitions often involve additional or increased risks including for example:

• managing geographically separated organizations, systems and facilities;

• integrating personnel with diverse business backgrounds and organizational cultures;

• complying with foreign regulatory requirements;

• fluctuations in currency exchange rates;

• difficulty entering new foreign markets due to, among other things, customer acceptance and business knowledge of these new markets; and

• general economic and political conditions.

     The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or more of our combined businesses and the possible loss of key personnel. The diversion of management’s attention and any delays or difficulties encountered in connection with acquisitions and the integration of the two companies’ operations could have an adverse effect on our financial position and results of operations.

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Our business may be adversely affected by risks associated with foreign operations.

     We provide services to our clients worldwide. As a result, our revenues derived from international operations are subject to risk of loss from foreign currency exchange rates. Revenue and profit generated by international operations will increase or decrease compared to prior periods as a result of changes in foreign currency exchange rates. We have not entered into foreign exchange forward contracts to mitigate the risks associated with our foreign operations. In addition, we may become subject to exchange control regulations that might restrict or prohibit the conversion of our foreign currency into U.S. dollars. The occurrence of any of these factors could decrease the value of revenues we receive from international operations and adversely affect our financial position and results of operations. In addition, our revenues derived from international operations are subject to risk of loss as a result of social instability and unfavorable political or diplomatic developments which could negatively impact our financial results.

The costs and effects of litigation, investigations or similar matters, or adverse facts and developments related thereto, could materially affect our financial position and results of operations.

     We are involved in various litigation matters and from time to time may be involved in governmental or regulatory investigations or similar matters arising out of our business. Our insurance may not cover all claims that may be asserted against it, and any claims asserted against us, regardless of merit or eventual outcome, may harm our reputation. Should the ultimate judgments or settlements in any pending litigation or future litigation or investigation significantly exceed our insurance coverage, they could have a material adverse effect on our financial position and results of operations. In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all. For more information about our legal proceedings, see Item 3 of this annual report.

The ability to adapt technology to changing industry and customer needs or trends may affect our competitiveness or demand for our products, which may adversely affect our financial results.

     Changes in technology may limit the competitiveness of and demand for our services and may result in our disintermediation from the payments value chain. The electronic payments market in which we compete is subject to rapid and significant technological changes, developing industry standards and changing customer needs and preferences. Also, our customers continue to adopt new technology for business and personal uses. We must anticipate and respond to these industry and customer changes in order to remain competitive. Our inability to respond to new competitors and technological advancements could have a material adverse affect on our financial position and results of operations.

Changes in the laws, regulations, credit card association rules or other industry standards affecting our business may impose costly compliance burdens and negatively impact our business.

     There may be changes in the laws, regulations, credit card association rules or other industry standards that affect our operating environment in substantial and unpredictable ways in the U.S. as well as internationally.

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Changes to statutes, regulations or industry standards, including interpretation and implementation of statutes, regulations or standards, could increase the cost of doing business or affect the competitive balance. Regulation of the payments industry has increased significantly in recent years. Failure to comply with laws, rules and regulations or standards to which we are subject in the U.S. as well as internationally, including the card network rules and rules with respect to privacy and information security, may result in the suspension or revocation of a license or registration, the limitation, suspension or termination of service, and the imposition of fines, sanctions or other penalties, which could have a material adverse effect on our financial position and results of operations, as well as damage our reputation.

     We and the rest of the financial services industry continue to experience increased legislative and regulatory scrutiny, including the enactment of additional legislative and regulatory initiatives such as the Dodd-Frank Wall Street Reform and Consumer Protection Act. This legislation provides for significant financial regulatory reform. The Reform Act, among other things, provides for the regulation and oversight by the Federal Reserve Board of debit interchange fees that are typically paid by acquirers and charged or received by a payment card network for the purpose of compensating an issuer for its involvement in an electronic debit transaction. The Reform Act also created a new Consumer Financial Protection Bureau which will assume responsibility for most federal consumer protection laws in the area of financial services, including consumer credit. In addition, the Reform Act created a Financial Stability Oversight Council that has the authority to determine whether nonbank financial companies such as TSYS should be supervised by the Federal Reserve Board because they are systemically important to the U.S. financial system. Any such designation would result in increased regulatory burdens on our business. The overall impact of the Reform Act on TSYS is difficult to estimate, in part because regulations need to be adopted by the Federal Reserve Board with respect to interchange fees, and by the Consumer Financial Protection Bureau with respect to consumer financial products and services. These regulations may adversely affect our business or operations, directly or indirectly (if, for example, our clients’ businesses and operations are adversely affected). In addition, we are subject to tax laws in each jurisdiction where we do business. Changes in tax laws or their interpretations could decrease the value of revenues we receive, the value of tax losses and tax credits carry forwards recorded on our balance sheet and the amount of our cash flow and have a material adverse effect on our financial position and results of operations.

We are subject to the business cycles and credit risk of our merchant customers and our independent sales organizations.

     The current recessionary economic environment could affect our merchants through a higher rate of bankruptcy filings, resulting in lower revenues and earnings for us. Our merchants are liable for any charges properly reversed by the card issuer on behalf of the cardholder. Our merchants and ISOs are also liable for any fines, or penalties, that may be assessed by any card networks. In the event, however, that we are not able to collect such amounts from the merchants or ISOs, due to merchant fraud, breach of contract, insolvency, bankruptcy or any other reason, we may be liable for any such charges which could have a material adverse effect on our financial position and results of operations.

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We incur chargeback liability when our merchants refuse or cannot reimburse chargebacks resolved in favor of their customers. We cannot accurately anticipate these liabilities, which may adversely affect our financial results.

     In the event a billing dispute between a cardholder and a merchant is not resolved in favor of the merchant, the transaction is normally “charged back” to the merchant and the purchase price is credited or otherwise refunded to the cardholder. If we are unable to collect such amounts from the merchant’s account or reserve account (if applicable), or if the merchant refuses or is unable, due to closure, bankruptcy or other reasons, to reimburse us for a chargeback, we bear the loss for the amount of the refund paid to the cardholder. We may experience significant losses from chargebacks in the future. Any increase in chargebacks not paid by our merchants could have a material adverse affect on our financial position and results of operation.

Fraud by merchants or others may adversely affect our financial results.

     We have potential liability for fraudulent bankcard transactions or credits initiated by merchants or others. Examples of merchant fraud include when a merchant knowingly uses a stolen or counterfeit bankcard or card number to record a false sales transaction, processes an invalid bankcard, or intentionally fails to deliver the merchandise or services sold in an otherwise valid transaction. Criminals are using increasingly sophisticated methods to engage in illegal activities such as counterfeit and fraud. While we have systems and procedures designed to detect and reduce the impact of fraud, we cannot assure the effectiveness of these measures. It is possible that incidents of fraud could increase in the future. Failure to effectively manage risk and prevent fraud would increase our chargeback liability or other liability. Increases in chargebacks or other liability could have a material adverse effect on our financial position and results of operations.

We may not be able to successfully manage our intellectual property and may be subject to infringement claims.

     In the rapidly developing legal framework, we rely on a combination of contractual rights and copyright, trademark, patent and trade secret laws to establish and protect our proprietary technology. Despite our efforts to protect our intellectual property, third parties may infringe or misappropriate our intellectual property or may develop software or technology competitive to us. Our competitors may independently develop similar technology, duplicate our products or services or design around our intellectual property rights. We may have to litigate to enforce and protect our intellectual property rights, trade secrets and know-how or to determine their scope, validity or enforceability, which is expensive and could cause a diversion of resources and may not prove successful. The loss of intellectual property protection or the inability to secure or enforce intellectual property protection could harm our business and ability to compete.

     We may also be subject to costly litigation in the event our products and technology infringe upon another party’s proprietary rights. Third parties may have, or may eventually be issued, patents that would be infringed by our products or technology. Any of these third parties could make a claim of infringement against us with respect to our products or technology. We may also be subject to claims by third parties for breach of copyright, trademark or license usage

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rights. Any such claims and any resulting litigation could subject us to significant liability for damages. An adverse determination in any litigation of this type could require us to design around a third party’s patent or to license alternative technology from another party. In addition, litigation is time consuming and expensive to defend and could result in the diversion of the time and attention of our management and employees. Any claim from third parties may result in limitation on our ability to use the intellectual property subject to these claims.

If we lose key personnel or are unable to attract additional qualified personnel, our business could be adversely affected.

     We are dependent upon the ability and experience of a number of highly skilled technical, management and sales and marketing personnel who have substantial experience with our operations, the rapidly changing transaction processing industry and markets in which we offer our services. It is possible that the loss of the services of one or a combination of our key personnel would have an adverse effect on our operations. Our success also depends on our ability to continue to attract, manage and retain additional qualified management and technical personnel. Competition for the best people, particularly those individuals with technology experience, is intense. We cannot guarantee that we will continue to attract or retain such personnel.

Item 1B. Unresolved Staff Comments

     None.

Item 2. Properties

     As of December 31, 2010, we and our subsidiaries owned 14 facilities encompassing approximately 1,445,546 square feet and leased 47 facilities encompassing approximately 814,113 square feet. These facilities are used for operational, sales and administrative purposes.

	Owned Facilities				Leased Facilities
	Number		Square Footage		Number		Square Footage
North America Services		9		1,345,800		8		208,097
International Services		2		96,368		24		253,860
Merchant Services		3		3,378		15		352,156

     We believe that our facilities are suitable and adequate for our current business; however, we periodically review our space requirements and may acquire new space to meet the needs of our businesses or consolidate and dispose of or sublet facilities which are no longer required.

     See Note 1, Note 7, Note 19 and Note 22 of Notes to Consolidated Financial Statements on pages 32 through 39, page 41, pages 51 through 53, and pages 56 through 58 and “Operating Expenses” and “Property and Equipment” under the “Financial Review” Section on page 19, and page 21, respectively, of the Annual Report which are incorporated in this document by reference.

11

Item 3. Legal Proceedings

     See Note 19 of Notes to Consolidated Financial Statements on pages 51 through 53 of the Annual Report which is incorporated in this document by reference.

Item 4. Removed and Reserved

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities

     The “Quarterly Financial Data (Unaudited), Stock Price, Dividend Information” Section under the “Financial Review” Section on page 64, Note 17 of Notes to Consolidated Financial Statements on pages 49 and 50 and “Stock Performance Graph” on page 65 of the Annual Report are incorporated in this document by reference. The “Stock Performance Graph” is incorporated herein by reference; however, this information shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

Item 6. Selected Financial Data

     The “Selected Financial Data” Section which is set forth on page 9 of the Annual Report is incorporated in this document by reference.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The “Financial Overview” and “Financial Review” Sections which are set forth on pages 9 through 27 of the Annual Report which includes the information encompassed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are incorporated in this document by reference.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     Foreign Exchange Risk. We are exposed to foreign exchange risk because we have assets, liabilities, revenues and expenses denominated in foreign currencies. These currencies 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 our foreign operations, net of tax, are accumulated in a separate section of shareholders’ equity entitled “accumulated other comprehensive income (loss), net.” The amount of other comprehensive (loss) income, net of tax, related to foreign currency translation for the years ended December 31, 2010, 2009 and 2008 was:

(in millions)	2010			2009		2008
Comprehensive income (loss), net of tax		($7.5	)	$	12.1		($35.1	)

12

     Currently, we do not use financial instruments to hedge our exposure to exchange rate changes.

     The following table presents the carrying value of the net assets of our foreign operations in U.S. dollars at December 31, 2010:

(in millions)	December 31, 2010
Europe	$	184.5
China		70.8
Japan		14.2
Mexico		6.6
Canada		1.1
Other		36.1

     We record foreign currency translation adjustments associated with other balance sheet accounts. See “Nonoperating Income (Expense)” under the “Financial Review” Section on page 19 of the Annual Report which is incorporated in this document by reference. We maintain several cash accounts denominated in foreign currencies, primarily in Euros and British Pounds Sterling. As we translate the foreign-denominated cash balances into U.S. dollars, the translated cash balance is adjusted upward or downward depending upon the foreign currency exchange movements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation in our statements of income. As those cash accounts have increased, the upward or downward adjustments have increased. We recorded a net translation loss of approximately $162,000 for the year ended December 31, 2010 relating to the translation of foreign denominated balance sheet accounts, most of which were cash. The balance of the foreign-denominated cash accounts subject to risk of translation gains or losses at December 31, 2010 was approximately $1.7 million, the majority of which is denominated in Euros.

     We provide financing to our international operation in Europe through an intercompany loan that requires the operation to repay the financing in U.S. dollars. The functional currency of each operation is the respective local currency. As we translate the foreign currency denominated financial statements into U.S. dollars, the translated balance of the financing (liability) is adjusted upward or downward to match the U.S. dollar obligation (receivable) on our financial statements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation in other comprehensive income.

     The net asset account balance subject to foreign currency exchange rates between the local currencies and the U.S. dollar at December 31, 2010 was $1.7 million.

     The following table presents the potential effect on income before income taxes of hypothetical shifts in the foreign currency exchange rate between the local currencies and the U.S. dollar of plus or minus 100 basis points, 500 basis points and 1,000 basis points based on the net asset account balance of $1.7 million at December 31, 2010.

13

	Effect of Basis Point Change
	Increase in basis point of						Decrease in basis point of
(in thousands)	100		500		1,000		100			500			1,000
Effect on income before income taxes	$	17		87		173		(17	)		(87	)		(173	)

     The foreign currency risks associated with other currencies is not significant.

     Interest Rate Risk. We are also exposed to interest rate risk associated with the investing of available cash. We invest available cash in conservative short-term instruments and are primarily subject to changes in the short-term interest rates.

     The following table provides information about our debt obligations that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. The information is presented in U.S. dollar equivalents, which is our reporting currency. The debt obligation’s actual cash flows are denominated in U.S. dollars (US), British Pounds Sterling (GBP) and Japanese YEN (YEN), as indicated in parentheses.

At December 31, 2010	Expected maturity date
Liabilities	2011			2012			2013			2014		2015		TOTAL
(US$ Equivalent in millions)
Long-term Debt:
Fixed Rate (US)	$	14.9			13.3			13.4			—		—	$	41.6
Average interest rate		1.80	%		1.50	%		1.50	%						1.61	%
Variable Rate (US)	$	—			168.0			—			—		—	$	168.0
Average interest rate					0.90	%									0.90	%
Variable Rate (GBP)	$	0.8			—			—			—		—	$	0.8
Average interest rate		2.74	%												2.74	%
Variable Rate (YEN)	$	23.9			—			—			—		—	$	23.9
Average interest rate		0.98	%												0.98	%

Item 8. Financial Statements and Supplementary Data

     The “Quarterly Financial Data (Unaudited), Stock Price, Dividend Information” Section, which is set forth on page 64, and the “Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Cash Flows, Consolidated Statements of Equity and Comprehensive Income, Notes to Consolidated Financial Statements, Report of Independent Registered Public Accounting Firm and Management’s Report on Internal Control Over Financial Reporting”, which are set forth on pages 28 through 63 of the Annual Report are incorporated in this document by reference.

14

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

     None.

Item 9A. Controls and Procedures

     Evaluation of Disclosure Controls and Procedures. We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this annual report as required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on this evaluation, the chief executive officer and chief financial officer concluded that as of December 31, 2010, TSYS’ disclosure controls and procedures were designed and effective to ensure that the information required to be disclosed by TSYS in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were also designed and effective to ensure that the information required to be disclosed in the reports that TSYS files or submits under the Exchange Act is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.

     Management’s Report on Internal Control Over Financial Reporting and Report of Independent Registered Public Accounting Firm. “Management’s Report on Internal Control Over Financial Reporting,” which is set forth on page 63 of the Annual Report, and “Report of Independent Registered Public Accounting Firm,” which is set forth on page 62 of the Annual Report, are incorporated in this document by reference.

     Changes in Internal Control Over Financial Reporting. No change in our internal control over financial reporting occurred during the fourth fiscal quarter covered by this annual report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

     None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

     Information included under the following captions in our Proxy Statement is incorporated in this document by reference:

• “PROPOSALS TO BE VOTED ON” — “PROPOSAL 1: ELECTION OF DIRECTORS,”

• “EXECUTIVE OFFICERS,”

15

• “SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” and

• “CORPORATE GOVERNANCE AND BOARD MATTERS” — “Committees of the Board.”

     We have a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including our principal executive officer, our principal financial officer and our chief accounting officer. You can find our Code of Business Conduct and Ethics in the Corporate Governance section of our website at www.tsys.com under “Investor Relations” then “Corporate Governance”. We will post any amendments to the Code of Business Conduct and Ethics and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE in the Corporate Governance section of our website.

Item 11. Executive Compensation

     Information included under the following captions in our Proxy Statement is incorporated in this document by reference:

• “DIRECTOR COMPENSATION”;

• “EXECUTIVE COMPENSATION” — “Compensation Discussion and Analysis,” “Compensation Committee Report”, “Risk Assessment of Compensation Programs” and “Compensation Tables and Narratives”; and

• “CORPORATE GOVERNANCE AND BOARD MATTERS” — “Committees of the Board” — “Compensation Committee Interlocks and Insider Participation”.

     The information included under the heading “Compensation Committee Report” in our Proxy Statement is incorporated herein by reference; however, this information shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     Information pertaining to equity compensation plans is contained in Note 15 of Notes to Consolidated Financial Statements on page 46 of the Annual Report and is incorporated in this document by reference.

     Information included under the following captions in our Proxy Statement is incorporated in this document by reference:

• “STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS,” and

• “PRINCIPAL SHAREHOLDERS.”

16

Item 13. Certain Relationships and Related Transactions, and Director Independence

     Information included under the following captions in our Proxy Statement is incorporated in this document by reference:

• “CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” and

• “CORPORATE GOVERNANCE AND BOARD MATTERS” — “Independence.”

Item 14. Principal Accountant Fees and Services

     Information included under the following captions in our Proxy Statement is incorporated in this document by reference:

• “AUDIT COMMITTEE REPORT” — “KPMG LLP Fees and Services” (excluding the information under the main caption “AUDIT COMMITTEE REPORT”); and “Policy on Audit Committee Pre-Approval.”

PART IV

Item 15. Exhibits and Financial Statement Schedules

     (a) 1. Financial Statements

          The following consolidated financial statements of TSYS are incorporated in this document by reference from pages 28 through 63 of the Annual Report.

Consolidated Balance Sheets — December 31, 2010 and 2009.

Consolidated Statements of Income — Years Ended December 31, 2010, 2009 and 2008.

Consolidated Statements of Cash Flows — Years Ended December 31, 2010, 2009 and 2008.

Consolidated Statements of Equity and Comprehensive Income — Years Ended December 31, 2010, 2009 and 2008.

Notes to Consolidated Financial Statements.

Report of Independent Registered Public Accounting Firm.

Management’s Report on Internal Control Over Financial Reporting.

     2. Financial Statement Schedules

          The following report of independent registered public accounting firm and consolidated financial statement schedule of TSYS are included:

17

Report of Independent Registered Public Accounting Firm.

Schedule II — Valuation and Qualifying Accounts — Years Ended December 31, 2010, 2009 and 2008.

          All other schedules are omitted because they are inapplicable or the required information is included in the consolidated financial statements and notes thereto.

     3. Exhibits

          The following exhibits are filed herewith or are incorporated to other documents previously filed with the SEC. Exhibits 10.6 through 10.39 pertain to executive compensation plans and arrangements. With the exception of those portions of the Annual Report and Proxy Statement that are expressly incorporated by reference in this Form 10-K, such documents are not to be deemed filed as part of this Form 10-K.

Exhibit
Number	Description
3.1	Articles of Incorporation of TSYS, as amended, incorporated by reference to Exhibit 3.1 of TSYS’ Current Report on Form 8-K dated April 30, 2009.
3.2	Bylaws of TSYS, as amended, incorporated by reference to Exhibit 3.1 of TSYS’ Current Report on Form 8-K dated July 28, 2009.
10.1	Credit Agreement of TSYS with Bank of America N.A., as Administrative Agent, the Royal Bank of Scotland plc, as Syndication Agent, and the other lenders named therein, incorporated by reference to Exhibit 10.1 of TSYS’ Current Report on Form 8-K dated December 27, 2007.
10.2	Indemnification and Insurance Matters Agreement by and among Synovus Financial Corp. and TSYS, dated as of November 30, 2007, incorporated by reference to Exhibit 10.3 of TSYS’ Current Report on Form 8-K dated November 30, 2007.
10.3	Investment Agreement (excluding exhibits and schedules) dated March 1, 2010 by and between First National Bank of Omaha and TSYS, incorporated by reference to Exhibit 10.1 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the SEC on May 7, 2010.

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Exhibit
Number	Description
10.4	Assignment of Investment Agreement dated April 1, 2010 between TSYS and Columbus Depot Equipment Company, a wholly owned subsidiary of TSYS, incorporated by reference to Exhibit 10.2 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the SEC on May 7, 2010.
10.5	Amended and Restated Limited Liability Company Agreement of FNMS Holding, LLC (excluding exhibits and schedules) dated April 1, 2010 by and between Columbus Depot Equipment Company, First National Bank of Omaha, FN Merchant Partners, Inc. and FNMS Holding, LLC, incorporated by reference to Exhibit 10.3 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the SEC on May 7, 2010.

EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS

10.6	Director Stock Purchase 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, 2009, as filed with the SEC on March 1, 2010.
10.7	Total System Services, Inc. 2002 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.2 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the SEC on March 19, 2002.
10.8	Amended and Restated Total System Services, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.1 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, as filed with the SEC on August 9, 2010.
10.9	Total System Services, Inc. 1992 Long-Term Incentive Plan, which was renamed the Total System Services, Inc. 2000 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.5 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the SEC on March 18, 1993.
10.10	Amended and Restated Total System Services, Inc. Directors’ Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, as filed with the SEC on August 7, 2008.
10.11	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 SEC on March 18, 1993.

19

Exhibit
Number	Description
10.12	Agreement in Connection With Personal Use of Company Aircraft, incorporated by reference to Exhibit 10.15 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC on February 27, 2009.
10.13	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 SEC on March 22, 1994.
10.14	Change of Control Agreement for executive officers of TSYS, incorporated by reference to Exhibit 10.17 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as filed with the SEC on February 29, 2008.
10.15	Split Dollar Insurance Agreement and related Executive Benefit Substitution Agreement, incorporated by reference to Exhibit 10.19 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the SEC on March 19, 2002.
10.16	Summary of Board of Directors Compensation.
10.17	Form of Non-Employee Director Restricted Stock Award Agreement for the Total System Services, Inc. 2002 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.1 of TSYS’ Current Report on Form 8-K dated February 1, 2005, as filed with the SEC on February 3, 2005.
10.18	Form of Stock Option Agreement for stock option awards under the Total System Services, Inc. 2002 Long-Term Incentive Plan for grants made subsequent to January 17, 2006, incorporated by reference to Exhibit 10.1 of TSYS’ Current Report on Form 8-K dated January 17, 2006.
10.19	Form of Restricted Stock Award Agreement for restricted stock awards under the Total System Services, Inc. 2002 Long-Term Incentive Plan for grants made subsequent to January 17, 2006, incorporated by reference to Exhibit 10.2 of TSYS’ Current Report on Form 8-K dated January 17, 2006.
10.20	Total System Services, Inc. 2007 Omnibus Plan, incorporated by reference to Exhibit 10.1 of TSYS’ Current Report on Form 8-K dated April 24, 2007, as filed with the SEC on April 25, 2007.

20

Exhibit
Number	Description
10.21	Form of Restricted Stock Award Agreement for restricted stock awards under the Total System Services, Inc. 2007 Omnibus Plan, incorporated by reference to Exhibit 10.3 of TSYS’ Current Report on Form 8-K dated April 24, 2007, as filed with the SEC on April 25, 2007.
10.22	Form of Performance-Based Restricted Stock Award Agreement for performance-based restricted stock awards under the Total System Services, Inc. 2007 Omnibus Plan, incorporated by reference to Exhibit 10.4 of TSYS’ Current Report on Form 8-K dated April 24, 2007.
10.23	Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.30 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2007, as filed with the SEC on February 29, 2008.
10.24	Form of Performance-Based Restricted Stock Award Agreement for performance-based restricted stock awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.3 of TSYS’ Current Report on Form 8-K dated January 2, 2008.
10.25	Form of Restricted Stock Unit Agreement for restricted stock unit awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.4 of TSYS’ Current Report on Form 8-K dated January 2, 2008.
10.26	Form of Revised Stock Option Agreement for stock option awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.2 of TSYS’ Current Report on Form 8-K dated February 5, 2008.
10.27	Form of Retention Restricted Stock Award Agreement for retention restricted stock awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.3 of TSYS’ Current Report on Form 8-K dated February 5, 2008.
10.28	Form of Performance-Based Retention Restricted Stock Award Agreement for performance-based restricted stock awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.4 of TSYS’ Current Report on Form 8-K dated February 5, 2008.

21

Exhibit
Number	Description
10.29	Form of Revised Restricted Stock Award Agreement for restricted stock awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.5 of TSYS’ Current Report on Form 8-K dated February 5, 2008.
10.30	Form of Amended and Revised Stock Option Agreement for stock option awards under the Total System Services, Inc. 2007 Omnibus Plan, incorporated by reference to Exhibit 10.1 of TSYS’ Current Report on Form 8-K dated March 28, 2008.
10.31	Form of Performance Share Agreement for 2009 performance share awards under the Total System Services, Inc. 2007 and 2008 Omnibus Plans, incorporated by reference to Exhibit 10.38 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC on February 27, 2009.
10.32	Form of Amended and Revised Stock Option Agreement for 2008 stock option awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.3 of TSYS’ Current Report on Form 8-K dated March 28, 2008.
10.33	Form of Amended and Revised Stock Option Agreement for 2009 stock option awards under the Total System Services, Inc. 2007 and 2008 Omnibus Plans, incorporated by reference to Exhibit 10.40 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2008, as filed with the SEC on February 27, 2009.
10.34	Form of Stock Option Agreement for 2010 stock option awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.4 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the SEC on May 7, 2010.
10.35	Form of Performance Share Agreement for 2010 performance share awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.5 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the SEC on May 7, 2010.
10.36	Form of Performance-Based Special Stock Option Agreement for performance-based stock option awards under the Total System Services, Inc. 2008 Omnibus Plan, incorporated by reference to Exhibit 10.6 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the SEC on May 7, 2010.

22

Exhibit
Number	Description
10.37	Form of Non-Employee Director Fully Vested Stock Option Agreement for the Total System Services, Inc. 2007 Omnibus Plan.
10.38	Form of Non-Employee Director Fully Vested Share Award Agreement for the Total System Services, Inc. 2007 Omnibus Plan.
10.39	Form of Indemnification Agreement for directors and executive officers of TSYS, incorporated by reference to Exhibit 10.1 of TSYS’ Current Report on Form 8-K dated July 25, 2007.
13.1	Certain specified pages of TSYS’ 2010 Annual Report to Shareholders which are incorporated herein by reference.
21.1	Subsidiaries of Total System Services, Inc.
23.1	Consent of Independent Registered Public Accounting Firm.
24.1	Powers of Attorney contained on the signature pages of this 2010 Annual Report on Form 10-K and incorporated herein by reference.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Annual Report on Form 11-K for the Total System Services, Inc. Employee Stock Purchase Plan for the year ended December 31, 2010 (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, 2010 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.)

     We agree to furnish the SEC, upon request, a copy of each instrument with respect to issues of long-term debt. The principal amount of any individual instrument, which has not been previously filed, does not exceed ten percent of the total assets of TSYS and our subsidiaries on a consolidated basis.

23

Report of Independent Registered Public Accounting Firm

The Board of Directors
Total System Services, Inc.:

Under date of February 25, 2011, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, cash flows, and equity and comprehensive income for each of the years in the three-year period ended December 31, 2010, as contained in the 2010 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended December 31, 2010. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Our report refers to changes in the manner in which the Company accounts for noncontrolling interests as of January 1, 2009 (note 1) and earnings per share as of January 1, 2009 (notes 1 and 27).

/s/ KPMG LLP

Atlanta, Georgia
February 25, 2011

TOTAL SYSTEM SERVICES, INC.
Schedule II
Valuation and Qualifying Accounts
(in thousands)

			Additions
			Changes in
	Balance at		allowances, charges to						Balance at
	beginning		expenses and changes						end
	of period		to other accounts			Deductions			of period
Year ended December 31, 2008:
Provision for doubtful accounts	$	4,957		(1,590	)(1)		(677	) (3)	$	2,690
Provision for billing adjustments	$	4,780		1,331	(1)		(798)	(3)	$	5,313
Transaction processing accruals - - processing errors	$	8,525		3,151	(2)		(6,259	) (3)	$	5,417
Year ended December 31, 2009:
Provision for doubtful accounts	$	2,690		980	(1)		(2,054)	(3)	$	1,616
Provision for billing adjustments	$	5,313		5,011	(1)		(5,623)	(3)	$	4,701
Transaction processing accruals - - processing errors	$	5,417		4,056	(2)		(3,989)	(3)	$	5,484
Year ended December 31, 2010:
Provision for doubtful accounts	$	1,616		500	(1)		(134)	(3)	$	1,982
Provision for billing adjustments	$	4,701		(1,297	) (1)		(844)	(3)	$	2,560
Transaction processing accruals - - processing errors	$	5,484		3,891	(2)		(4,235)	(3)	$	5,140

(1)	Amount reflected includes charges to (recoveries of) bad debt expense which are classified in selling, general and administrative expenses and the charges for billing adjustment which are recorded against revenues.
(2)	Amount reflected is the change in transaction processing accruals reflected in cost of services expenses.
(3)	Accounts deemed to be uncollectible and written off during the year as it relates to bad debts. Amounts that relate to billing adjustments and transaction processing accruals reflect actual billing adjustments and processing errors charged against the allowances.

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)
February 25, 2011	By:	/s/ Philip W. Tomlinson
		Philip W. Tomlinson,
		Principal Executive Officer and Chairman of the Board

POWER OF ATTORNEY

     KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip W. Tomlinson and M. Troy Woods 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/ Philip W. Tomlinson	Date: February 25, 2011
Philip W. Tomlinson,
Principal Executive Officer
and Chairman of the Board
/s/ M. Troy Woods	Date: February 25, 2011
M. Troy Woods,
President and Director

/s/ James B. Lipham	Date: February 25, 2011
James B. Lipham,
Senior Executive Vice President
and Principal Financial Officer
/s/ Dorenda K. Weaver	Date: February 25, 2011
Dorenda K. Weaver,
Chief Accounting Officer
/s/ Richard E. Anthony	Date: February 25, 2011
Richard E. Anthony,
Director
/s/ James H. Blanchard	Date: February 25, 2011
James H. Blanchard,
Director and Chairman of the
Executive Committee
/s/ Richard Y. Bradley	Date: February 25, 2011
Richard Y. Bradley,
Director
/s/ Kriss Cloninger III	Date: February 25, 2011
Kriss Cloninger III,
Director
/s/ Walter W. Driver, Jr.	Date: February 25, 2011
Walter W. Driver, Jr.,
Director
/s/ Gardiner W. Garrard, Jr.	Date: February 25, 2011
Gardiner W. Garrard, Jr.,
Director
/s/ Sidney E. Harris	Date: February 25, 2011
Sidney E. Harris,
Director

/s/ Mason H. Lampton	Date: February 25, 2011
Mason H. Lampton,
Director
/s/ H. Lynn Page	Date: February 25, 2011
H. Lynn Page,
Director
/s/ W. Walter Miller, Jr.	Date: February 25, 2011
W. Walter Miller, Jr.,
Director
/s/ John T. Turner	Date: February 25, 2011
John T. Turner,
Director
/s/ Richard W. Ussery	Date: February 25, 2011
Richard W. Ussery,
Director
/s/ James D. Yancey	Date: February 25, 2011
James D. Yancey,
Director
/s/ Rebecca K. Yarbrough	Date: February 25, 2011
Rebecca K. Yarbrough,
Director

EX-10.16

Exhibit 10.16

TOTAL SYSTEM SERVICES, INC.

Board of Directors Compensation for Non-Employee Directors

Cash Compensation

Annual Board Retainer	$	40,000
Annual Committee Member Retainers
Audit Committee	$	15,000
Compensation Committee	$	10,000
Corporate Governance and Nominating Committee	$	7,500
Executive Committee	$	10,000
Annual Committee Chair Retainers*
Audit Committee	$	15,000
Compensation Committee	$	10,000
Corporate Governance and Nominating Committee	$	7,500
Executive Committee	$	15,000
Annual Lead Director Retainer	$	5,000

* Note: The committee chair receives both an annual committee member retainer and an annual committee chair retainer.

Equity Compensation

An annual equity award with a fixed value of $20,000, with 50% awarded in the form of fully vested stock options and 50% in the form of fully vested shares

Director Stock Purchase Plan

Annual maximum company cash contribution per director participant	$	3,000
to company-sponsored open market stock purchase plan, with company’s contribution equal to 15% of director participant’s cash contribution, subject to annual maximum contribution limit by director of $20,000. Employee directors may participate in this plan.

EX-10.37

Exhibit 10.37

TOTAL SYSTEM SERVICES, INC.
NONEMPLOYEE DIRECTOR FULLY VESTED STOCK OPTION AGREEMENT

     THIS NONEMPLOYEE DIRECTOR FULLY VESTED STOCK OPTION AGREEMENT (“Agreement”) is made effective as of ____________, ____ by and between Total System Services, Inc., (the “Company”), a Georgia corporation having its principal office at One TSYS Way, Columbus, Georgia, and _____________, a Nonemployee Director of the Company (“Option Holder”).

W I T N E S S E T H:

     WHEREAS, effective _____________, ____ pursuant to the terms of the Total System Services, Inc. 2007 Omnibus Plan (the “Plan”), the Option Holder has been awarded a Nonqualified Fully Vested Stock Option in respect of the number of shares hereinbelow set forth.

     NOW THEREFORE, in accordance with the provisions of the Plan and this Agreement, it is agreed by and between the parties hereto as follows:

     1. The terms, provisions and definitions of the Plan are incorporated by reference and made a part hereof. All capitalized terms in this Agreement shall have the same meanings given to such terms in the Plan except where otherwise noted.

     2. Subject to and in accordance with the provisions of the Plan, the Company hereby grants to the Option Holder a Nonqualified Fully Vested Stock Option (“Option”) to purchase, on the terms and subject to the conditions hereinafter set forth, _____ shares of the common stock ($0.10 par value) of the Company at the purchase price of $_____ per share, which Option shall become non-forfeitable and immediately exercisable at the close of business on ____________, ___(the “Vesting Date”).

     In the event of Option Holder’s death or total and permanent disability, Option Holder (or the legal representative of Option Holder’s estate or legatee under Option Holder’s will) shall be able to exercise the Option in full for the remainder of the Option’s term.

     In the event the Option Holder’s service as a Nonemployee Director of the Company ceases for any reason, the Option may be exercised in full for the lesser of one year following the cessation of the Option Holder’s service as a Nonemployee Director of the Company or the remainder of the Option’s term.

     Unless sooner terminated as provided in the Plan, the Option shall terminate, and all rights of the Option Holder hereunder shall expire on _____________, ___. In no event may the Option be exercised after ________________, ___.

     3. The Option or any part thereof, may, to the extent that it is exercisable, be exercised in the manner provided in the Plan. Payment of the aggregate Option Price for the number of shares purchased and any applicable taxes shall be made in the manner provided in the Plan.

     4. The Option or any part thereof may be exercised during the lifetime of the Option Holder only by the Option Holder, except as otherwise provided in the Plan or this Agreement.

     5. Unless otherwise designated by the Board of Directors or the Compensation Committee, the Option shall not be transferred, assigned, pledged or hypothecated in any way. Upon any attempt to

transfer, assign, pledge, hypothecate or otherwise dispose of a nontransferable Option or any right or privilege confirmed hereby contrary to the provisions hereof, the Option and the rights and privileges confirmed hereby shall immediately become null and void.

     6. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Company’s Stock, any necessary adjustment shall be made in accordance with the provisions of Article 4.4 of the Plan.

     7. Any notice to be given to the Company shall be addressed to the Chairman of the Board of the Company at One TSYS Way, Columbus, Georgia 31901.

     8. This Agreement shall be binding upon and inure to the benefit of the Option Holder, his personal representatives, heirs or legatees, but neither this Agreement nor any rights hereunder shall be assignable or otherwise transferable by the Option Holder except as expressly set forth in this Agreement or in the Plan.

     The Company has issued the Option subject to the foregoing terms and conditions and the provisions of the Plan. By signing below, the Option Holder hereby agrees to the foregoing terms and conditions of this award.

     IN WITNESS WHEREOF, the Option Holder has set the Option Holder’s hand and seal, effective as of ________, ___.

__________________________(L.S.)

Signature

EX-10.38

Exhibit 10.38

NONEMPLOYEE DIRECTOR
FULLY VESTED SHARE AWARD AGREEMENT

          THIS NONEMPLOYEE DIRECTOR FULLY VESTED SHARE AWARD AGREEMENT (“Agreement”) is made effective as of ______________, ____ by and between Total System Services, Inc., a Georgia corporation (the “Corporation”), and ____________________________ (“Director”).

WHEREAS, Director has been awarded _______ fully paid and non-assessable shares of the common stock of the Corporation, par value $0.10 per share (“Fully Vested Shares”), pursuant to the terms and conditions of the Corporation’s 2007 Omnibus Plan (“Plan”) and this Agreement; and

WHEREAS, the Fully Vested Shares will initially be held in an account at The Bank of New York Mellon or one of its subsidiaries (“BNY Mellon”) for Director.

NOW, THEREFORE, in accordance with the provisions of the Plan and this Agreement, Director hereby agrees to the following terms and conditions:

1.

Transfer of Fully Vested Shares

The Corporation hereby transfers the Fully Vested Shares to Director subject to the terms and conditions set forth in the Plan and in this Agreement. Effective upon the date of such transfer, Director will be the holder of record of the Fully Vested Shares and will have all rights of a shareholder with respect to such shares (including the right to vote such shares at any meeting at which the holders of the Corporation’s common stock may vote, the right to receive all dividends declared and paid upon such shares and the right to exercise any rights or warrants issued in respect of any such shares), subject only to the terms and conditions set forth in the Plan and in this Agreement. The Fully Vested Shares will initially be held in an account for Director at BNY Mellon.

2.	Vesting
	The Fully Vested Shares will become non-forfeitable (i.e., “vest”) at the close of business on _________________, ____ (the “Vesting Date”).

3. General Provisions

(a) 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. Director’s rights under this Agreement will be exercisable during Director’s lifetime only by Director or by Director’s guardian or legal representative.

(b) Terms and Conditions Binding. The terms and conditions set forth in the Plan and in this Agreement will be binding upon and inure to the benefit of the Corporation, its successors and assigns, including any assignee of the Corporation and any successor to the Corporation by merger, consolidation or otherwise, and Director, Director’s heirs, devisees and legal representatives.

(c) Legal Representative. In the event of Director’s death or a judicial determination of Director’s incompetence, reference in this Agreement to Director shall be deemed, where appropriate, to Director’s heirs or devises.

(d) 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.

(e) Plan Governs. The Fully Vested Shares are being transferred to Director pursuant to and subject to the Plan, a copy of which is available upon request to the Corporate Secretary of the Corporation. The provisions of the Plan are incorporated herein by this reference, and all capitalized terms in this Agreement shall have the same meanings given to such terms in the Plan. The terms and conditions set forth in this Agreement will be administered, interpreted and construed in accordance with the Plan, and any such term or condition which cannot be so administered, interpreted or construed will to that extent be disregarded.

(f) Complete Agreement. This instrument contains the entire agreement of the parties relating to the subject matter of this Agreement and supersedes and replaces 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 herein or incorporated by reference.

(g) Amendment; Modification; Waiver. No provision set forth in this Agreement may be amended, modified or waived unless such amendment, modification or waiver shall be agreed to in writing, signed by Director and by an officer of the Corporation 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 provision or condition at the same time or at any prior or subsequent time.

(h) 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 Corporation is incorporated, without giving effect to the principles of conflicts of law of that state.

          The Corporation has issued the Fully Vested Shares in accordance with the foregoing terms and conditions and in accordance with the provisions of the Plan. By signing below, Director hereby agrees to the foregoing terms and conditions of the Fully Vested Shares.

          IN WITNESS WHEREOF, Director has set Director’s hand and seal, effective as of the date and year set forth above.

__________________________(L.S.)

Signature

2

EX-13.1

Exhibit 13.1

Selected Financial Data

The following financial data should be read in conjunction with the Consolidated Financial Statements and Notes thereto and Financial Review sections of the Annual Report. The historical trends in TSYS’ results of operations and financial position over the last five years are presented below.

	Years Ended December 31,
(in thousands, except per share data)	2010			2009			2008			2007			2006
Income Statement Data:
Total revenues	$	1,717,577			1,677,483			1,711,534			1,651,981			1,690,605
Operating income	$	309,429			344,026			371,122			351,437			353,616
Income from continuing operations, net of tax	$	208,866			225,720			253,085			239,315			250,057
(Loss) income from discontinued operations, net of tax		(3,245	)		(6,544	)		(1,409	)		104			(142	)
Net income		205,621			219,176			251,676			239,419			249,915
Net income attributable to noncontrolling interests		(11,674	)		(3,963	)		(1,576	)		(1,976	)		(752	)
Net income attributable to TSYS common shareholders	$	193,947			215,213			250,100			237,443			249,163
Basic earnings per share (EPS)* attributable to TSYS common shareholders:
Income from continuing operations	$	1.00			1.12			1.27			1.20			1.26
(Loss) income from discontinued operations		(0.02	)		(0.03	)		(0.01	)		0.00			(0.00	)
Net income	$	0.99			1.09			1.26			1.20			1.26
Diluted EPS* attributable to TSYS common shareholders:
Income from continuing operations	$	1.00			1.12			1.27			1.20			1.26
(Loss) income from discontinued operations		(0.02	)		(0.03	)		(0.01	)		0.00			(0.00	)
Net income	$	0.99			1.09			1.26			1.20			1.26
Cash dividends declared per share	$	0.28			0.28			0.28			3.31			0.27

	At December 31,
(in thousands)	2010		2009		2008		2007		2006
Balance Sheet Data:
Total assets	$	1,952,261		1,710,954		1,550,024		1,479,081		1,634,241
Obligations under long-term debt and capital leases, excluding current portion		225,276		205,123		209,871		3,687		3,625

* Note: Basic and diluted EPS amounts for continuing operations and net income do not total due to rounding.

Financial Overview

Total System Services, Inc.’s (TSYS’ or the Company’s) revenues are derived from providing global payment provider services to financial and nonfinancial institutions, generally under long-term processing contracts. The Company’s services are provided through the Company’s three operating segments: North America Services, International Services and Merchant Services.

Through the Company’s North America Services and International Services segments, TSYS processes information through its cardholder systems to financial institutions throughout the United States and internationally. The Company’s North America Services segment provides these services to clients in the United States, Canada, Mexico and the Caribbean. The Company’s International Services segment provides services to clients in Europe, India, Middle East, Africa, Asia Pacific and Brazil. The Company’s Merchant Services segment provides merchant services to merchant acquirers and merchants in the United States.

On March 1, 2010, TSYS announced the signing of an Investment Agreement with First National Bank of Omaha (FNBO) to form a new joint venture company, First National Merchant Solutions, LLC (FNMS), of which TSYS would own 51%. FNMS offers transaction processing, merchant support and underwriting, and value-added services, as well as Visa- and MasterCard-branded

9   

prepaid cards for businesses of any size. FNMS is included within the Merchant Services segment. The effective date of the acquisition was April 1, 2010. On January 4, 2011, TSYS announced it had acquired, effective January 1, 2011, the remaining 49-percent interest in FNMS, from FNBO. The company is being rebranded as TSYS Merchant Solutions (TMS).

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 or declines in card and merchant portfolios of existing clients, the conversion of cardholder and merchant accounts of new clients to the Company’s processing platforms, the receipt of fees for early contract termination and the loss of cardholder and merchant accounts either through purges or deconversions impact the results of operations from period to period.

Another factor which may affect TSYS’ revenues and results of operations from time to time is consolidation in the financial services or retail industries either through the sale by a client of its business, its card portfolio or a segment of its accounts to a party which processes cardholder or merchant accounts internally or uses another third-party processor. A change in the economic environment in the retail sector, or a change in the mix of payments between cash and cards could favorably or unfavorably impact TSYS’ financial position, results of operations and cash flows in the future.

TSYS’ reported financial results will also be impacted by significant shifts in currency conversion rates. TSYS does not view foreign currency as an economic event for the Company but as a financial reporting issue. Because changes in foreign currency exchange rates distort the operating growth rates, TSYS discloses the impact of foreign currency translation on its financial performance.

A significant amount of the Company’s revenues is derived from long-term contracts with large clients, including a certain major customer. 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, revenues and the related margins are influenced by the client mix relative to the size of client portfolios, as well as the number and activity of individual cardholder or merchant accounts processed for each client. Consolidation among financial institutions has resulted in an increasingly concentrated client base, which results in a change in client mix toward larger clients.

Economic Conditions

General economic conditions in the U.S. and other areas of the world dramatically weakened in the second half of 2008 and most of 2009 but showed improvement during 2010. Many of TSYS’ businesses rely in part on the number of consumer credit transactions which have been reduced by a weakened U.S. and world economy and difficult credit markets.

General reduction in consumer credit card spending negatively impacted the Company’s revenues during 2009. Also as a result of the current economic conditions in the U.S., credit card issuers have been reducing credit limits and closing accounts and are more selective with respect to whom they issue credit cards. In 2010, improving economic conditions have led card issuers to increase card solicitations. Continued improvement of economic conditions in the U.S. could positively impact future revenues and profits of the Company.

Regulation

Government regulation affects key areas of TSYS’ business, in the U.S. as well as internationally. As a result of the financial crisis, TSYS, along with the rest of the financial services industry, continues to experience increased legislative and regulatory scrutiny, including the enactment of additional legislative and regulatory initiatives such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (Financial Reform Act). This legislation, which provides for sweeping financial regulatory reform, may have a significant and negative impact on the Company’s clients, which could impact TSYS’ earnings through fee reductions, higher costs (both regulatory and implementation) and new restrictions on our operations. The Financial Reform Act may also impact the competitive dynamics of the financial services industry in the U.S. by more adversely impacting large financial institutions, some of which are TSYS clients, and by adversely impacting the competitive position of U.S. financial institutions in comparison to foreign competitors in certain businesses.

The Financial Reform Act mandates that the Federal Reserve Board limit debit card interchange fees. Under the Financial Reform Act, which includes the Durbin Amendment to the Electronic Funds Transfer Act, the Federal Reserve must adopt rules within nine months of enactment of this legislation regarding the interchange fees that may be charged with respect to electronic debit transactions. Those rules will take effect in July 2011.

Although this legislative action by the U.S. Congress has been anticipated for some time, it remains impossible to predict the impact, if any, that the law and the regulations to be promulgated thereunder may have on the Company’s operations or its financial condition in the future. However, as TSYS’ business is predominately credit card related, the Durbin Amendment is not expected to have a significant negative impact upon TSYS’ business.

Financial Review

This Financial Review provides a discussion of critical accounting policies and estimates, related party transactions and off-balance sheet arrangements. This Financial Review also discusses the results of operations, financial position, liquidity and capital

    10

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 are an integral part of this Financial Review and should be read in conjunction with it.

Critical Accounting Policies and Estimates

TSYS’ financial position, results of operations and cash flows are impacted by the accounting policies the Company has adopted. In order to gain a full understanding of the Company’s financial statements, one must have a clear understanding of the accounting policies employed.

Refer to Note 1 in the consolidated financial statements for more information on the Company’s basis of presentation and a summary of significant accounting policies.

Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations are listed in the Company’s forward-looking statements. Negative developments in these or other risk factors could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

Management believes that the following accounting policies are the most critical to fully understand and evaluate the Company’s results. Within each critical policy, the Company makes estimates that require management’s subjective or complex judgments about the effects of matters that are inherently uncertain.

A summary of the Company’s critical accounting estimates applicable to all three reportable operating segments follows:

Allowance for Doubtful Accounts and Billing Adjustments

The Company estimates the allowances for doubtful accounts. When estimating the allowances for doubtful accounts, the Company takes into consideration such factors as its day-to-day knowledge of the financial position of specific clients, the industry and size of its clients, the overall composition of its accounts receivable aging, prior experience with specific customers of accounts receivable write-offs and prior history of allowances in proportion to the overall receivable balance. This analysis includes an ongoing and continuous communication with its largest clients and those clients with past due balances. A financial decline of any one of the Company’s large clients could have a material adverse effect on collectibility of receivables and thus the adequacy of the allowance for doubtful accounts. If the actual collectibility of clients’ accounts is not consistent with the Company’s estimates, bad debt expense, which is recorded in selling, general and administrative expenses, may be materially different than was initially recorded. The Company’s experience and extensive data accumulated historically indicates that these estimates have proven reliable over time.

The Company estimates allowances for billing adjustments for potential billing discrepancies. When estimating the allowance for billing adjustments, the Company considers its overall history of billing adjustments, as well as its history with specific clients and known disputes. If the actual adjustments to clients’ billing is not consistent with the Company’s estimates, billing adjustments, which is recorded as a reduction of revenues in the Company’s consolidated statements of income, may be materially different than was initially recorded. The Company’s experience and extensive data accumulated historically indicates that these estimates have proven reliable over time.

Contract Acquisition Costs

In evaluating for recoverability, expected undiscounted net operating cash flows are estimated by management. The Company evaluates the carrying value of contract acquisition costs associated with each customer for impairment on the basis of whether these costs are fully recoverable from either contractual minimum fees (conversion costs) or from expected undiscounted net operating cash flows of the related contract (cash incentives paid). The determination of expected undiscounted net operating cash flows requires management to make estimates. If the actual cash flows are not consistent with the Company’s estimates, a material impairment charge may result and net income may be materially different than was initially recorded.

These costs may become impaired with the loss of a contract, the financial decline of a client, termination of conversion efforts after a contract is signed or diminished prospects for current clients. Note 9 in the consolidated financial statements contains a discussion of contract acquisition costs. The net carrying value of contract acquisition costs on the Company’s Consolidated Balance Sheet as of December 31, 2010 was $166.3 million.

Software Development Costs

In evaluating for recoverability, expected undiscounted net operating cash flows are estimated by management. The Company evaluates the unamortized capitalized costs of software development as compared to the net realizable value of the software product, which is determined by expected undiscounted net operating cash flows. The amount by which the unamortized software development costs exceed the net realizable value is written off in the period that such determination is made. If the actual cash flows are not consistent with the Company’s estimates, a material write-off may result and net income may be materially different than was initially recorded. Note 8 in the consolidated financial statements contains a discussion of internally developed software costs. The net carrying value of internally developed software on the Company’s Consolidated Balance Sheet as of December 31, 2010 was $81.2 million.

11   

Acquisitions — Purchase Price Allocation

TSYS adopted revised generally accepted accounting principles (GAAP) relating to business combinations as of January 1, 2009. The revised guidance retains the purchase method of accounting for acquisitions and requires a number of changes to the previous guidance, including changes in the way assets and liabilities are recognized in purchase accounting. Other changes include requiring the recognition of assets acquired and liabilities assumed arising from contingencies, requiring the capitalization of in-process research and development at fair value, and requiring the expensing of acquisition-related costs as incurred.

TSYS’ purchase price allocation methodology requires the Company to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. TSYS estimates the fair value of assets and liabilities based upon appraised market values, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Management determines the fair value of fixed assets and identifiable intangible assets such as developed technology or customer relationships, and any other significant assets or liabilities. TSYS adjusts the purchase price allocation, as necessary, up to one year after the acquisition closing date as TSYS obtains more information regarding asset valuations and liabilities assumed. Unanticipated events or circumstances may occur which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies, and result in an impairment or a new allocation of purchase price.

Given its history of acquisitions, TSYS may allocate part of the purchase price of future acquisitions to contingent consideration as required by GAAP for business combinations. The fair value calculation of contingent consideration will involve a number of assumptions that are subjective in nature and which may differ significantly from actual results. TSYS may experience volatility in its earnings to some degree in future reporting periods as a result of these fair value measurements.

Goodwill

In evaluating for impairment, discounted net cash flows for future periods are estimated by management. In accordance with the provisions of ASC 350, “Intangibles — Goodwill and Other,” goodwill is required to be tested for impairment at least annually. The combination of the income approach utilizing the discounted cash flow (DCF) method and the market approach, utilizing readily available market valuation multiples, is used to estimate the fair value. Under the DCF method, the fair value of the asset reflects the present value of the projected earnings that will be generated by each asset after taking into account the revenues and expenses associated with the asset, the relative risk that the cash flows will occur, the contribution of other assets, and an appropriate discount rate to reflect the value of invested capital. Cash flows are estimated for future periods based on historical data and projections provided by management. If the actual cash flows are not consistent with the Company’s estimates, a material impairment charge may result and net income may be materially different than was initially recorded. Note 10 in the consolidated financial statements contains a discussion of goodwill. The net carrying value of goodwill on the Company’s Consolidated Balance Sheet as of December 31, 2010 was $320.4 million.

Long-lived Assets and Intangibles

In evaluating for recoverability, expected undiscounted net operating cash flows are estimated by management. The Company reviews long-lived assets, such as property and equipment and intangibles subject to amortization, including contract acquisition costs and certain computer software, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the actual cash flows are not consistent with the Company’s estimates, a material impairment charge may result and net income may be materially different than was initially recorded.

Revenue Recognition

The Company estimates revenue for service billings not yet invoiced. Since TSYS invoices clients for processing services monthly in arrears, the Company estimates revenues for one month of service billings not yet invoiced. If actual client revenue billing is not consistent with the Company’s estimates, processing revenues may be materially different than was initially recorded. The Company’s experience and extensive data accumulated historically indicates that these estimates have proven reliable over time.

Reserve for Merchant Losses

The Company has potential liability for losses resulting from disputes between a cardholder and a merchant that arise as a result of, among other things, the cardholder’s dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer by the card-issuing bank and charged to the merchant. If the merchant is unable to fund the refund, TMS must do so. TMS also bears the risk of reject losses arising from the fact that TMS collects fees from its merchants on the first day after the monthly billing period. If the merchant has gone out of business during such period, TMS may be unable to collect such fees. TMS maintains cash deposits or requires the pledge of a letter of credit from certain merchants, generally those with higher average transaction size where the card is not present when the charge is made or the product or service is delivered

    12

after the charge is made, in order to offset potential contingent liabilities such as chargebacks and reject losses that would arise if the merchant went out of business. Most chargeback and reject losses are charged to cost of services as they are incurred. However, the Company also maintains a reserve against losses, including major fraud losses, which are both less predictable and involve larger amounts. The loss reserve was established using historical loss rates, applied to recent bankcard processing volume. TSYS only assumed liabilities as of April 1, 2010 on a go forward basis and thus, has no material merchant loss reserve recorded.

Transaction Processing Provisions

The Company records estimates to accrue for contract contingencies (performance penalties) and processing errors. A significant number of the Company’s contracts with large clients contain service level agreements which can result in TSYS incurring performance penalties if contractually required service levels are not met. When estimating these accruals, the Company takes into consideration such factors as the prior history of performance penalties and processing errors incurred, actual contractual penalties inherent in the Company’s contracts, progress towards milestones and known processing errors not covered by insurance. If the actual performance penalties incurred are not consistent with the Company’s estimates, performance penalties and processing errors, which is recorded in cost of services, may be materially different than was initially recorded. The Company’s experience and extensive data accumulated historically indicates that these estimates have proven reliable over time.

Income Taxes

In calculating its effective tax rate, the Company makes decisions regarding certain tax positions, including the timing and amount of deductions and allocations of income among various tax jurisdictions. The Company has various tax filing positions, including the timing and amount of deductions and credits, the establishment of reserves for audit matters and the allocation of income among various tax jurisdictions.

The Company makes estimates as to the amount of deferred tax assets and liabilities and records valuation allowances to reduce its deferred tax assets to reflect the amount that is more likely than not to be realized. The Company considers projected future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance. Actual results may differ from the Company’s estimates. If the Company realizes a deferred tax asset or the Company was unable to realize a net deferred tax asset, an adjustment to the deferred tax asset would increase or decrease earnings, respectively, in the period the difference is recognized.

Related Party Transactions

The Company provides electronic payment processing and other services to the Company’s equity investments, Total System Services de México, S.A. de C.V. (TSYS de México) and China UnionPay Data Co., Ltd. (CUP Data).

The related party services are performed under contracts that are similar to its contracts with unrelated third party customers. The Company believes the terms and conditions of transactions between the Company and these related parties are comparable to those which could have been obtained in transactions with unaffiliated parties. The Company’s margins with respect to related party transactions are comparable to margins recognized in transactions with unrelated third parties. The amounts related to these transactions are immaterial. No significant changes have been made to the method of establishing terms with the affiliated companies during the periods presented.

Refer to Note 4 in the consolidated financial statements for more information on transactions with affiliated companies.

Off-Balance Sheet Arrangements

OPERATING LEASES:  As a method of funding its operations, TSYS employs noncancelable operating leases for computer equipment, software and facilities. These leases allow the Company to provide the latest technology while avoiding the risk of ownership. Neither the assets nor obligations related to these leases are included on the balance sheet. Refer to Notes 1 and 19 in the consolidated financial statements for further information on operating lease commitments.

CONTRACTUAL OBLIGATIONS:  The total liability for uncertain tax positions under ASC 740, “Income Taxes,” at December 31, 2010 is $4.5 million. Refer to Note 20 in the consolidated financial statements for more information on income taxes. The Company is not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, the Company does not expect any significant changes related to these obligations within the next year.

Recent Accounting Pronouncements

In December 2010, the Task Force issued Accounting Standards Update (ASU) No. 2010-29, “Business Combinations: Disclosure of Supplementary Pro Forma Information for Business Combinations (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus that when a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. This ASU also expands the supplemental pro forma disclosures to include a description of the nature and the amount of material, nonrecurring pro forma adjustments directly

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attributable to the business combination included in the reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date Is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company has determined the impact of adopting ASU 2010-29 on its financial position, results of operations and cash flows to be immaterial.

In December 2010, the Task Force issued ASU No. 2010-28, “Intangibles — Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus that modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. ASU 2010-28 is effective for public entities for fiscal years and interim periods within those years, beginning after December 15, 2010. The Company has determined the impact of adopting ASU 2010-28 on its financial position, results of operations and cash flows to be immaterial.

In August 2010, the Task Force issued ASU No. 2010-22, “Accounting for Various Topics — Technical Corrections to SEC Paragraphs.” This ASU is based upon external comments received from the staff of the SEC and the issuance of Staff Accounting Bulletin No. 112, which amends or rescinds portions of certain SAB topics. ASU 2010-22 is effective immediately. The Company has determined the impact of adopting ASU 2010-22 on its financial position, results of operations and cash flows to be immaterial.

In August 2010, the Task Force issued ASU No. 2010-21, “Accounting for Technical Amendments to Various SEC Rules and Schedules.” This ASU amends various SEC paragraphs pursuant to the issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies. ASU 2010-21 is effective immediately. The Company has determined the impact of adopting ASU 2010-21 on its financial position, results of operations and cash flows to be immaterial.

In April 2010, the Task Force issued ASU No. 2010-17, “Revenue Recognition (Topic 605): Milestone Method of Revenue Recognition (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. ASU 2010-17 will be effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those fiscal years, beginning on or after June 15, 2010, with early adoption permitted. The Company has determined the impact of adopting ASU 2010-17 on its financial position, results of operations and cash flows to be immaterial.

In April 2010, the Task Force issued ASU No. 2010-13, “Compensation — Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades (A consensus of the FASB Emerging Issues Task Force).” The Task Force reached a consensus that an employee share-based payment with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trade should be considered an equity classified award assuming all other criteria for equity classification are met. ASU 2010-13 will be effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010, with early adoption permitted. The Company has determined the impact of adopting ASU 2010-13 on its financial position, results of operations and cash flows to be immaterial.

In February 2010, the Financial Accounting Standards Board (FASB) issued ASU 2010-08, “Technical Corrections to Various Topics,” which eliminates inconsistencies and outdated provisions and provides clarifications within current Accounting Standards Codification. ASU 2010-08 is effective for the first reporting period (including interim periods) beginning after issuance. The Company does not expect the impact of adopting ASU 2010-08 on its financial position, results of operations and cash flows to be material.

In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements,” which adds new requirements for disclosures about transfers into and out of Levels 1 and 2 and separate disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. ASU 2010-06 is effective for the first reporting period (including interim periods) beginning after December 15, 2010. The Company does not expect the impact of adopting ASU 2010-06 on its financial position, results of operations and cash flows to be material.

In October 2009, the FASB issued ASU 2009-14, “Certain Revenue Arrangements that Include Software Elements,” an update to ASC 985-605, “Software-Revenue Recognition,” and formerly known as EITF 09-3, “Revenue Arrangements that Include Software Elements.” ASU 2009-14 amends ASC Subtopic 985-605 to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product’s essential functionality. ASU 2009-14 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has determined the impact of adopting ASU 2009-14 on its financial position, results of operations and cash flows to be immaterial.

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In October 2009, the FASB issued ASU 2009-13, “Multiple Deliverable Revenue Arrangements,” an update to ASC Topic 605, “Revenue Recognition,” and formerly known as EITF 08-1, “Revenue Arrangements with Multiple Deliverables.” ASU 2009-13 amends ASC 650-25 to eliminate the requirement that all undelivered elements have vendor-specific objective evidence (VSOE) or third-party evidence (TPE) before an entity can recognize the portion of an overall arrangement fee that is attributable to items that already have been delivered. The overall arrangement fee will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity’s estimated selling price. ASU 2009-13 will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company has determined the impact of adopting ASU 2009-13 on its financial position, results of operations and cash flows to be immaterial.

Results of Operations

Revenues

The Company generates revenues by providing transaction processing and other payment-related services. The Company’s pricing for transactions and services is complex. Each category of revenue has numerous fee components depending on the types of transactions processed or services provided. TSYS reviews its pricing and implements pricing changes on an ongoing basis. In addition, standard pricing varies among its regional businesses, and such pricing can be customized further for customers through tiered pricing of various thresholds for volume activity. TSYS’ revenues are based upon transactional information accumulated by its systems or reported by its customers. The Company’s revenues are impacted by currency translation of foreign operations, as well as doing business in the current economic environment. Of the total revenue increase of 2.4% for the year ended December 31, 2010, the Company estimates revenues decreased by a net 1.7% due to foreign currency exposure and pricing, and increased 4.1% for volume changes.

TSYS’ revenues are generated primarily from charges based on the number of accounts on file (AOF), transactions and authorizations processed, statements mailed, cards embossed and mailed, and other processing services for cardholder AOF. Cardholder AOF include active and inactive consumer credit, retail, debit, stored value, government services and commercial card accounts.

TSYS’ payment processing revenues are influenced by several factors, including volumes related to AOF and transactions. TSYS estimates that approximately 49% of total payment processing revenues is AOF and transaction volume driven, and are driven primarily from processing services. The remaining 51% of payment processing revenues are not AOF and transaction volume driven, and are derived from production and optional services TSYS considers to be value added products and services, custom programming and licensing arrangements.

Whether or not an account on file is active can impact TSYS’ revenues differently. Active accounts are accounts that have had monetary activity either during the current month or in the past 90 days based on contractual definition. Inactive accounts are accounts that have not had a monetary transaction (such as a purchase or payment) in the past 90 days. The more active an account is, the more revenue is generated for TSYS (items such as transaction and authorizations processed and statements billed).

Occasionally, a client will purge inactive accounts from its portfolio. An inactive account typically will only generate an AOF charge. A processing client will periodically review its cardholder portfolio based upon activity and usage. Each client, based upon criteria individually set by the client, will flag an account to be “purged” from TSYS’ system and deactivated.

A deconversion involves a client migrating all of its accounts to an in-house solution or another processor. Account deconversions include active and inactive accounts and can impact the Company’s revenues significantly more than an account purge.

A sale of a portfolio typically involves a client selling a portion of its accounts to another party. A sale of a portfolio and a deconversion impact the Company’s financial statements in a similar fashion, although a sale usually has a smaller financial impact due to the number of accounts typically involved.

15   

A summary of the consolidated financial highlights for the years ended December 31, 2010, 2009 and 2008 is provided below:

	Years Ended December 31,						Percent Change
(in millions, except per share data)	2010		2009		2008		2010 vs. 2009			2009 vs. 2008
Total revenues	$	1,717.6		1,677.5		1,711.5		2.4	%		(2.0	)%
Operating income		309.4		344.0		371.1		(10.1	)		(7.3	)
Net income attributable to TSYS common shareholders		193.9		215.2		250.1		(9.9	)		(13.9	)
Basic EPS(1) attributable to TSYS common shareholders:
Income from continuing operations		1.00		1.12		1.27		(10.7	)		(11.6	)
Net income		0.99		1.09		1.26		(9.5	)		(13.7	)
Diluted EPS(1)attributable to TSYS common shareholders:
Income from continuing operations		1.00		1.12		1.27		(10.8	)		(11.6	)
Net income		0.99		1.09		1.26		(9.6	)		(13.7	)
Cash flows from operating activities		389.2		423.1		352.8		(8.0	)		19.9
Other:
AOF		342.9		344.8		352.5		(0.5	)		(2.2	)
Cardholder transactions processed		7,670.4		7,272.9		7,694.1		5.5			(5.5	)

(1) Basic and diluted EPS is computed based on the two-class method in accordance with the guidance under Accounting Standards Codification (ASC) 260. Refer to Note 27 in the consolidated financial statements for more information on earnings per share.

Total revenues increased 2.4%, or $40.1 million, for the year ended December 31, 2010, compared to the year ended December 31, 2009, which decreased 2.0%, or $34.0 million, compared to the year ended December 31, 2008. The increase in revenues for 2010 and the decrease in revenues in 2009 include an increase of $1.0 million and a decrease of $46.8 million, respectively, related to the effects of currency translation of the Company’s foreign-based subsidiaries and branches.

Excluding reimbursable items, revenues increased 2.5%, or $35.1 million, for the year ended December 31, 2010, compared to the year ended December 31, 2009, which decreased 2.7%, or $39.3 million, compared to the year ended December 31, 2008. The Company expanded its product and service offerings through an acquisition in 2010. The impact of that acquisition on consolidated total revenues was $97.7 million in 2010.

Major Customer

A significant amount of the Company’s revenues is derived from long-term contracts with large clients, including a major customer. TSYS derives revenues from providing various processing and other services to these clients, including processing of consumer and commercial accounts, as well as revenues for reimbursable items. Revenues from the major customer for the periods reported are primarily attributable to the North America Services segment and Merchant Services segment. The loss of the Company’s major customer could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

In June 2009, Bank of America announced that it formed a new joint venture to provide merchant services. TSYS provides accounting, settlement, authorization and other services to Bank of America, which services accounted for approximately 6.0%, 5.3% and 4.3% of TSYS’ total revenues for 2010, 2009 and 2008, respectively.

TSYS provides a number of additional services to Bank of America, including commercial card processing, small business card processing and card production services. Approximately 46%, 40% and 29% of the total revenues derived from providing merchant services to Bank of America are attributable to reimbursable items for 2010, 2009 and 2008, respectively, which are provided at no margin.

In November 2010, TSYS and Bank of America agreed to a new agreement, during which TSYS expects merchant services revenues from Bank of America to decline as Bank of America transitions its services to its new joint venture.

The loss of Bank of America as a merchant services client is not expected to have a material adverse effect on TSYS’ financial position, results of operations or cash flows.

Refer to Note 22 in the consolidated financial statements for more information on the major customer.

The Company works to maintain a large and diverse customer base across various industries. However, in addition to its major customer, the Company has other large clients representing a significant portion of its total revenues. The loss of any one of the Company’s large clients could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

Operating Segments

TSYS’ services are provided through three operating segments: North America Services, International Services and Merchant Services.

A summary of each segment’s results follows:

North America Services

The North America Services segment provides issuer account solutions for financial institutions and other organizations primarily

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based in North America. Growth in revenues and operating profit in this segment is derived from retaining and growing the core business and improving the overall cost structure. Growing the core business comes primarily from an increase in account usage, growth from existing clients (also referred to as organic growth) and sales to new clients and the related account conversions.

This segment has many long-term customer contracts with card issuers providing account processing and output services for printing and embossing items. These contracts generally require advance notice prior to the end of the contract if a client chooses not to renew. Additionally, some contracts may allow for early termination upon the occurrence of certain events such as a change in control. The termination fees paid upon the occurrence of such events are designed primarily to cover balance sheet exposure related to items such as capitalized conversion costs or client incentives associated with the contract and, in some cases, may cover a portion of lost future revenue and profit. Although these contracts may be terminated upon certain occurrences, the contracts provide the segment with a steady revenue stream since a vast majority of the contracts are honored through the contracted expiration date.

This segment provides services throughout the period of each account’s use, starting from a card-issuing client processing an application for a card. Services may include processing the card application, initiating service for the cardholder, processing each card transaction for the issuing retailer or financial institution and accumulating the account’s transactions. The segment’s fraud management services monitor the unauthorized use of accounts which have been reported to be lost, stolen, or which exceed credit limits. The segment’s fraud detection systems help identify fraudulent transactions by monitoring each account holder’s purchasing patterns and flagging unusual purchases. Other services provided include customized communications to cardholders, information verification associated with granting credit, debt collection, and customer service.

This segment has two major customers. Below is a summary of the North America Services segment:

	Years Ended December 31,									Percent Change
(in millions)	2010			2009			2008			2010 vs. 2009			2009 vs. 2008
Total revenues	$	956.5			1,048.9			1,136.9			(8.8	)%		(7.7	)%
External revenues		927.6			1,016.3			1,107.2			(8.7	)		(8.2	)
Reimbursable items		147.5			168.3			198.5			(12.3	)		(15.2	)
Operating income*		245.0			285.4			325.6			(14.2	)		(12.3	)
Operating margin*		25.6	%		27.2	%		28.6	%
Key indicators:
AOF		296.7			305.2			319.0			(2.8	)		(4.3	)
Transactions		6,410.6			6,136.9			6,658.2			4.5			(7.8	)

* Note: Segment operating results do not include expenses associated with Corporate Administration. Refer to Note 22 for more information on operating segments.

The $88.7 million decrease in segment external total revenues in 2010 as compared to 2009 is attributable to $20.0 million decrease in reimbursable items due to lost business, $97.1 million related to client deconversions and price compression. This decrease was partially offset by $28.4 million in new business and internal growth. The $90.8 million decrease in segment external total revenues for 2009 as compared to 2008 is the result of client deconverions and portfolio sales.

International Services

The International Services segment provides issuer card solutions to financial institutions and other organizations primarily based outside the North America region. Growth in revenues and operating profit in this segment is derived from retaining and growing the core business and improving the overall cost structure. Growing the core business comes primarily from an increase in account usage, growth from existing clients and sales to new clients and the related account conversions.

This segment has many long-term customer contracts with card issuers providing account processing and output services for printing and embossing items. These contracts generally require advance notice prior to the end of the contract if a client chooses not to renew. Additionally, some contracts may allow for early termination upon the occurrence of certain events such as a change in control. The termination fees paid upon the occurrence of such events are designed primarily to cover balance sheet exposure related to items such as capitalized conversion costs or client incentives associated with the contract and, in some cases, may cover a portion of lost future revenue and profit. Although these contracts may be terminated upon certain occurrences, the contracts provide the segment with a steady revenue stream since a vast majority of the contracts are honored through the contracted expiration date.

This segment has one major customer.

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Below is a summary of the International Services segment:

	Years Ended December 31,									Percent Change
(in millions)	2010			2009			2008			2010 vs. 2009			2009 vs. 2008
Total revenues	$	335.0			337.8			318.5			(0.8	)%		6.0	%
External revenue		332.2			335.5			316.9			(1.0	)		5.9
Reimbursable items		13.1			15.1			11.2			(13.0	)		34.8
Operating income*		42.7			57.7			55.6			(26.0	)		3.7
Operating margin*		12.7	%		17.1	%		17.5	%
Key indicators:
AOF		46.3			39.5			33.5			17.1			18.0
Transactions		1,259.9			1,136.0			1,035.8			10.9			9.7

* Note: Segment operating results do not include expenses associated with Corporate Administration. Refer to Note 22 for more information on operating segments.

The decrease in segment external total revenues for 2010, as compared to 2009, is driven by $19.8 million of lost business and price compression, partially offset by $26.2 million of new business and organic growth and $1.1 million increase related to the impact of foreign currency translation. The segment revenues for 2009 also included a deconversion fee received from a client for the discontinuance of an account portfolio.

The $18.6 million increase in segment external total revenues for 2009, as compared to 2008, is the result of an increase from internal growth of existing clients, deconversion fee of approximately $10.8 million, approximately $26.3 million in new business, and a decrease of $46.8 million impact related to foreign currency translation.

During the fourth quarter of 2008, the U.S. dollar strengthened against the British Pound. As a result, foreign denominated financial statements were translated into fewer U.S. dollars, which impact the comparison to prior periods when the U.S. dollar was weaker. For 2011, TSYS does not expect any significant movements from the rates that existed at December 31, 2010.

Merchant Services

The Merchant Services segment provides merchant services and related services to clients based primarily in the United States. Merchant services revenues are derived from providing processing services, acquiring solutions, related systems and integrated support services to merchant acquirers and merchants. Revenues from merchant services include processing all payment forms including credit, debit, prepaid, electronic benefit transfer and electronic check for merchants of all sizes across a wide array of market verticals. Merchant services include authorization and capture of transactions; clearing and settlement of transactions; information reporting services related to transactions; merchant billing services; and point-of-sale equipment sales and service.

With the acquisition of TMS, the Company has expanded its service offerings to include merchant support and underwriting, and business and value-added services, as well as Visa- and MasterCard-branded prepaid cards for businesses of any size. Ranked as the 10th-largest merchant acquirer in North America by dollar volume (The Nilson Report, March 2010), TMS has a 57-year history in the acquiring industry with more than 300,000 merchant outlets in its diverse portfolio.

This segment has one major customer.

Below is a summary of the Merchant Services segment:

	Years Ended December 31,									Percent Change
(in millions)	2010			2009			2008			2010 vs. 2009			2009 vs. 2008
Total revenues	$	458.9			327.1			288.7			40.3	%		13.3	%
External revenue		457.8			325.6			287.5			40.6			13.3
Reimbursable items		121.7			94.8			64.3			28.4			47.4
Operating income*		102.4			71.4			74.7			43.4			(4.4	)
Operating margin*		22.3	%		21.8	%		25.9	%
Key indicator:
Dollar sales volume	$	49,142			nm			nm			nm			nm
Point-of-sale transactions		5,315.4			5,194.4			5,057.9			2.3			2.7

* Note: Segment operating results do not include expenses associated with Corporate Administration. Refer to Note 22 for more information on operating segments.

nm = not meaningful

The $132.2 million increase in segment external total revenues for 2010, as compared to 2009, is the result of $17.9 million of organic growth and $91.8 million net increase for acquisitions, and was partially offset by price compression and deconversions. The $38.1 million increase in segment external total revenues for 2009, as compared to 2008, is the result of $30.5 million increase in reimbursable items related to the increase in Visa access fees, $5.4 million from acquisitions, and internal growth.

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Merchant Services segment’s results are driven by the authorization and capture transactions processed at the point-of-sale and clearing and settlement transactions at the end of the day. This segment’s authorization and capture transactions are primarily through dial-up or Internet connectivity. With the acquisition of TMS, dollar sales volume also drives the Merchant Services segment’s results.

Operating Expenses

The changes in cost of services, and selling, general and administrative expenses for the years ended December 31, 2010 and 2009 include an increase of $1.6 million and a decrease of $39.6 million, respectively, related to the effects of currency translation of the Company’s foreign based subsidiaries and branches. The impact of acquisitions on consolidated total expenses was $83.1 million in 2010, including $4.1 million of professional and legal fees associated with the acquisition of TMS.

In February 2010, the Company reduced its overall workforce by approximately 5%, primarily from the U.S., through a targeted workforce reduction and attrition. Some positions were eliminated and some employees were terminated with severance.

Federal legislation was recently enacted which makes extensive changes to the current system of health care insurance and benefits. The Company has reviewed the legislation and, based upon information available, expects the impact of the legislation on 2011 to be approximately $2.2 million.

Spin Related Expenses

Spin related expenses consist of expenses associated with the separation from Synovus Financial Corp. (Synovus). As the spin-off was finalized and completed, TSYS incurred expenses for the incremental fair value associated with converting Synovus stock options held by TSYS employees to TSYS options. During the year ended December 31, 2008, the Company incurred approximately $11.1 million of spin related expenses. Refer to Note 25 in the consolidated financial statements for more information on the spin-off.

Nonoperating Income (Expense)

Nonoperating income (expense) consists of interest income, interest expense and gains and losses on currency translations. Nonoperating income increased in 2010 as compared to 2009, and decreased in 2009 as compared to 2008.

Interest income for 2010 was $638,000, a 65.7% decrease compared to $1.9 million in 2009, which was a 78.5% decrease compared to $8.6 million in 2008. The variation in interest income is primarily attributable to changes in short-term interest rates in 2010 and 2009 and the amount of cash available for investments.

Interest expense for 2010 was $2.9 million, a decrease of $1.2 million compared to $4.1 million in 2009, which was a decrease of $7.2 million compared to $11.3 million in 2008. The decrease in interest expense in 2010 compared to 2009 is attributable to the changes in interest rates. The decrease in interest expense in 2009 compared to 2008 relates to changes in interest rates.

For the years ended December 31, 2010, 2009 and 2008, the Company recorded a translation loss of approximately $162,000 and $2.6 million and a translation gain of $10.5 million, respectively, related to intercompany loans and foreign denominated cash and accounts receivable balances.

Income Taxes

Income tax expense was $106.1 million, $121.9 million and $131.2 million in 2010, 2009 and 2008, respectively, representing effective income tax rates of 34.9%, 35.4% and 34.4%, respectively. The calculation of the effective tax rate excludes noncontrolling interest in consolidated subsidiaries’ net income and includes equity in income of equity investments in pretax income.

During 2010, the Company generated foreign net operating loss benefits in excess of its utilization capacity based on both the Company’s current operations and with consideration of future tax planning strategies. Additionally, the Company reassessed its need for federal and state valuation allowances based upon these same considerations. Accordingly, the Company experienced a net increase in its valuation allowance for deferred income tax assets of $2.6 million.

TSYS has adopted the permanent reinvestment exception under ASC 740, “Income Taxes,” with respect to future earnings of certain foreign subsidiaries. As a result, TSYS now considers foreign earnings related to these foreign operations to be permanently reinvested.

In 2010, TSYS reassessed its contingencies for foreign, federal and state exposures, which resulted in a net decrease in tax contingency amounts of approximately $0.5 million.

Equity in Income of Equity Investments

TSYS’ share of income from its equity in equity investments was $7.1 million, $7.0 million and $7.4 million for 2010, 2009 and 2008, respectively. Refer to Note 11 in the consolidated financial statements for more information on equity investments.

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Loss from Discontinued Operations, net of tax

Loss from discontinued operations, net of tax contains the operating results of TSYS Total Debt Management Inc. (TDM) and TSYS POS Systems and Services, LLC (TPOS) and the loss on the sale of both subsidiaries. Final adjustments related to the sales, if any, are expected to be included in the financial results of 2011. Refer to Note 2 in the consolidated financial statements for more information on discontinued operations.

Net Income

Net income decreased 6.2% to $205.6 million in 2010, compared to 2009. In 2009, net income decreased 12.9% to $219.2 million, compared to $251.7 million in 2008.

Net income attributable to TSYS common shareholders decreased 9.9% to $193.9 million (basic and diluted EPS of $0.99) in 2010, compared to 2009. In 2009, net income attributable to TSYS common shareholders decreased 13.9% to $215.2 million (basic and diluted EPS of $1.09), compared to $250.1 million (basic and diluted EPS of $1.26) in 2008.

Non-GAAP Financial Measures

Management evaluates the Company’s operating performance based upon operating and net profit margins excluding reimbursable items, a non-generally accepted accounting principles (non-GAAP) measure. TSYS also uses these non-GAAP financial measures to evaluate and assess TSYS’ financial performance against budget. TSYS believes that these non-GAAP financial measures are important to enable investors to understand and evaluate its ongoing operating results.

TSYS believes that these non-GAAP financial measures are representative measures of comparative financial performance that reflect the economic substance of TSYS’ current and ongoing business operations. Although non-GAAP financial measures are often used to measure TSYS’ operating results and assess its financial performance, they are not necessarily comparable to similarly titled captions of other companies due to potential inconsistencies in the method of calculation.

TSYS believes that its use of these non-GAAP financial measures provides investors with the same key financial performance indicators that are utilized by management to assess TSYS’ operating results, evaluate the business and make operational decisions on a prospective, going-forward basis. Hence, management provides disclosure of non-GAAP financial measures in order to allow shareholders and potential investors an opportunity to see TSYS as viewed by management, assess TSYS with some of the same tools that management utilizes internally and compare such information with prior periods.

Profit Margins and Reimbursable Items

Management believes that operating and net profit margins excluding reimbursable items are more useful because reimbursable items do not impact profitability as the Company receives reimbursement for expenses incurred on behalf of its clients. TSYS believes that the presentation of GAAP financial measures alone would not provide its shareholders and potential investors with the ability to appropriately analyze its ongoing operational results, and therefore expected future results. TSYS therefore believes that inclusion of these non-GAAP financial measures provides investors with more information to help them better understand its financial statements just as management utilizes these non-GAAP financial measures to better understand the business, measure performance and allocate its resources.

Below is the reconciliation between reported margins and adjusted margins excluding reimbursable items for the years ended December 31, 2010, 2009 and 2008:

	Years Ended December 31,
(in thousands)	2010			2009			2008
Operating income	$	309,429			344,026			371,122
Net income	$	205,621			219,176			251,676
Total revenues	$	1,717,577			1,677,483			1,711,534
Less reimbursable items		275,141			270,178			264,892
Revenues before reimbursable items	$	1,442,436			1,407,305			1,446,642
Operating margin (as reported)		18.0	%		20.5	%		21.7	%
Net profit margin (as reported)		12.0	%		13.1	%		14.7	%
Adjusted operating margin		21.5	%		24.4	%		25.7	%
Adjusted net profit margin		14.3	%		15.6	%		17.4	%

Projected Outlook for 2011

As compared to 2010, TSYS expects its 2011 income from continuing operations available to TSYS common shareholders to increase by 7%-9%, its EPS from continuing operations to increase by 9%-11%, its revenues before reimbursable items to increase by 3%-5% and its total revenues to increase by 2%-4%, based on the following assumptions: (1) there will be no significant movements in LIBOR and TSYS will not make any significant draws on the remaining balance of its revolving credit facility; (2) there will be no significant movement in foreign currency exchange rates related to TSYS’ business during 2011; (3) TSYS will not incur significant expenses associated with the conversion of new large clients or

    20

acquisitions, or any significant impairment of goodwill or other intangibles; (4) there will be no deconversions of large clients during the year; and (5) the economy will not worsen during 2011.

Financial Position, Liquidity and Capital Resources

The Consolidated Statements of Cash Flows detail the Company’s cash flows from operating, investing and financing activities. TSYS’ primary methods for funding its operations and growth have been cash generated from current operations, the use of leases and the occasional use of borrowed funds to supplement financing of capital expenditures.

Cash Flows from Operating Activities

	Years Ended December 31,
(in thousands)	2010		2009		2008
Net income	$	205,621		219,176		251,676
Depreciation and amortization		163,111		156,471		164,643
Loss on disposal of subsidiary		1,591		5,713		—
Other noncash items and charges, net		7,745		21,346		6,452
Dividends from equity investments		6,572		4,942		6,421
Net change in current and other assets and current and other liabilities		4,520		15,489		(76,357	)
Net cash provided by operating activities	$	389,160		423,137		352,835

TSYS’ main source of funds is derived from operating activities, specifically net income. The decrease in 2010, as compared to 2009, in net cash provided by operating activities was primarily the result of decreased earnings and the net change in current and other assets and current and other liabilities. The increase in 2009, as compared to 2008, in net cash provided by operating activities was primarily the result of the net change in current and other assets and current and other liabilities.

Net change in current and other assets and current and other liabilities include accounts receivable, prepaid expenses, other current assets and other assets, accounts payable, accrued salaries and employee benefits and other liabilities. The change in accounts receivable between the years is the result of timing of collections compared to billings. The change in accounts payable and other liabilities between years is the result of the timing of payments and funding of performance-based incentives.

Cash Flows from Investing Activities

	Years Ended December 31,
(in thousands)	2010			2009			2008
Purchases of property and equipment, net	$	(46,547	)		(34,017	)		(47,969	)
Additions to licensed computer software from vendors		(69,826	)		(20,059	)		(31,499	)
Additions to internally developed computer software		(25,466	)		(31,445	)		(21,777	)
Proceeds from disposition, net of expenses paid and cash disposed		4,265			1,979			—
Cash used in acquisitions and equity investments, net of cash acquired		(148,531	)		(294	)		(50,017	)
Additions to contract acquisition costs		(75,669	)		(35,596	)		(41,456	)
Other		68			—			(343	)
Net cash used in investing activities	$	(361,706	)		(119,432	)		(193,061	)

The major uses of cash for investing activities in 2010 were for the purchase of TMS, the purchase of property and equipment and additions to licensed computer software from vendors. The major uses of cash for investing activities in 2009 was for additions to contract acquisition costs, equipment, licensed computer software from vendors and internally developed software. The major uses of cash for investing activities in 2008 was for the purchase of Infonox, the purchase of property and equipment and additions to licensed computer software from vendors.

Property and Equipment

Capital expenditures for property and equipment were $46.5 million in 2010, compared to $34.0 million in 2009 and $48.0 million in 2008. The majority of capital expenditures in 2010, 2009 and 2008 related to investments in new computer processing hardware.

Licensed Computer Software from Vendors

Expenditures for licensed computer software from vendors were $69.8 million in 2010, compared to $20.1 million in 2009 and $31.5 million in 2008.

21   

Internally Developed Computer Software Costs

Additions to capitalized software development costs, including enhancements to and development of processing systems, were $25.5 million in 2010, $31.4 million in 2009 and $21.8 million in 2008.

The Company remains committed to developing and enhancing its processing solutions to expand its service offerings. In addition to developing solutions, the Company has expanded its service offerings through strategic acquisitions, such as TMS and Infonox.

Cash Used in Acquisitions

In 2010, TSYS acquired TMS for an aggregate consideration of approximately $150.5 million. The Company has allocated approximately $155.5 million to goodwill. Refer to Note 24 in the consolidated financial statements for more information on TMS.

In 2008, TSYS acquired Infonox for an aggregate consideration of approximately $50.6 million, with contingent payments over the next three years of up to $25.0 million based on performance. The Company has allocated approximately $29.1 million to goodwill. Refer to Note 24 in the consolidated financial statements for more information on Infonox.

Contract Acquisition Costs

TSYS makes cash payments for processing rights, third-party development costs and other direct salary-related costs in connection with converting new customers to the Company’s processing systems. The Company’s investments in contract acquisition costs were $75.7 million in 2010, $35.6 million in 2009 and $41.5 million in 2008. The Company made cash payments for processing rights of $45.4 million, $9.3 million and $20.1 million in 2010, 2009 and 2008, respectively. Conversion cost additions were $30.3 million, $26.3 million and $21.4 million in 2010, 2009 and 2008, respectively.

Cash Flows from Financing Activities

	Years Ended December 31,
(in thousands)	2010			2009			2008
Proceeds from borrowings of long-term debt	$	39,757			5,334			18,575
Principal payments on long-term debt borrowings and capital lease obligations		(11,741	)		(18,869	)		(67,631	)
Dividends paid on common stock		(55,087	)		(55,208	)		(55,449	)
Repurchase of common stock		(46,228	)		(328	)		(35,698	)
Other		654			8			358
Subsidiary dividends per share		(9,031	)		(235	)		(241	)
Net cash used in financing activities	$	(81,676	)		(69,298	)		(140,086	)

The major uses of cash for financing activities have been the payment of dividends, principal payment on capital lease and software obligations and the purchase of stock under the stock repurchase plan as described below. The main source of cash from financing activities has been the use of borrowed funds. Net cash used in financing activities for the year ended December 31, 2010 was $81.7 million primarily as a result of payments of cash dividends and repurchase of common stock. The Company used $69.3 million in cash for financing activities for the year ended December 31, 2009 primarily for payments on long-term debt and capital lease obligations and the payments of cash dividends. Net cash used in financing activities for the year ended December 31, 2008 was $140.1 million primarily as a result of payments of cash dividends, repurchase of common stock and principal payments on long-term debt and capital lease obligations. Refer to Note 13 in the consolidated financial statements for more information on the long-term debt financing. Refer to Note 25 in the consolidated financial statements for more information on the spin-off.

Stock Repurchase Plan

On April 20, 2010, TSYS announced a stock repurchase plan to purchase up to 10 million shares of TSYS stock. The shares may be purchased from time to time over the next two years at prices considered attractive to the Company. Through December 31, 2010, the Company purchased 3.1 million shares for approximately $45.1 million, at an average price of $14.60. As of December 31, 2010, the Company had approximately 6.9 million shares remaining that could be repurchased under the stock repurchase plan.

    22

On April 20, 2006, TSYS announced that its board had approved a stock repurchase plan to purchase up to 2 million shares, which represented slightly more than five percent of the shares of TSYS stock held by shareholders other than Synovus, which plan was extended by the TSYS Board until April 2010 and the number of shares was increased to 10 million. The shares may be purchased from time to time over a two year period and will depend on various factors including price, market conditions, acquisitions and the general financial position of TSYS. Repurchased shares will be used for general corporate purposes.

During 2008, TSYS purchased 2.0 million shares of TSYS common stock through open market transactions for an aggregate purchase price of $35.7 million, or an average per share price of $18.13. The plan expired in April 2010.

Financing

In December 2010, TSYS obtained a $39.8 million note payable from a third-party vendor related to financing the purchase of distributed systems software.

In April 2009, the Company repaid its International Services’ loan of £1.3 million, or approximately $1.8 million, which it obtained in May 2008.

On October 31, 2008, the Company repaid its International Services’ loan of £33.0 million, or approximately $54.1 million, which it obtained in August 2007.

On October 30, 2008, the Company’s International Services segment obtained a credit agreement from a third-party to borrow up to approximately ¥2.0 billion, or $21 million, in a Yen-denominated three-year loan to finance activities in Japan. The rate is the London Interbank Offered Rate (LIBOR) plus 80 basis points. The Company initially made a draw of ¥1.5 billion, or approximately $15.1 million. In January 2009, the Company made an additional draw down of ¥250 million, or approximately $2.8 million. In April 2009, the Company made an additional draw down of ¥250 million, or approximately $2.5 million.

In December 2007, TSYS entered into a credit agreement with Bank of America N.A., Royal Bank of Scotland plc, and other lenders which provides for a $252.0 million five year unsecured revolving credit facility and a $168.0 million unsecured term loan. The proceeds from the credit facility will be used for working capital and other corporate purposes, including to finance the repurchase by TSYS of its capital stock. As of December 31, 2010, the Company has not drawn on the $252.0 million credit facility.

Refer to Note 13 in the consolidated financial statements for further information on TSYS’ long-term debt and financing arrangements.

Dividends

Dividends on common stock of $55.1 million were paid in 2010, compared to $55.2 million and $55.4 million in 2009 and 2008, respectively. The Company paid an annual dividend of $0.28 per share in 2010, 2009 and 2008, respectively.

Significant Noncash Transactions

During 2010, 2009 and 2008, the Company issued 197,000, 514,000 and 698,000 shares of common stock, respectively, to certain key employees and non-management members of its Board of Directors under nonvested shares for services to be provided in the future by such individuals. The market value of the common stock at the date of issuance is amortized as compensation expense over the vesting period of the awards.

Refer to Notes 16 and 23 in the consolidated financial statements for more information on share-based compensation and significant noncash transactions.

Additional Cash Flow Information

Off-Balance Sheet Financing

TSYS uses various operating leases in its normal course of business. These “off-balance sheet” arrangements obligate TSYS to make payments for computer equipment, software and facilities. These computer and software lease commitments may be replaced with new lease commitments due to new technology. Management expects that, as these leases expire, they will be evaluated and renewed or replaced by similar leases based on need.

The following table summarizes future contractual cash obligations, including lease payments and software arrangements, as of December 31, 2010, for the next five years and thereafter:

	Contractual Cash Obligations
	Payments Due By Period
			1 Year		2 - 3		4 - 5		After
(in millions)	Total		or Less		Years		Years		5 Years
Operating leases	$	334		98		158		67		11
Debt obligations		234		39		195		—		—
Redeemable noncontrolling interests(1)		146		—		—		146		—
Capital lease obligations		44		13		20		11		—
Total contractual cash obligations	$	758		150		373		224		11

(1) Fair value at December 31, 2010 of redemption value of put option.

23   

Income Taxes

The total liability for uncertain tax positions under ASC 740, “Income Taxes,” at December 31, 2010 is $4.5 million. Refer to Note 20 in the consolidated financial statements for more information on income taxes. The Company is not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, the Company does not expect any significant changes related to these obligations within the next year.

Redeemable Noncontrolling Interest

With the acquisition of TMS, the Company is a party to put and call arrangements with respect to the membership units that represent the remaining noncontrolling interest of FNMS Holding. The call and put arrangements may be exercised at the discretion of TSYS or FNBO on April 1, 2015, 2016 and 2017, upon the dilution of FNBO’s equity ownership in FNMS Holding below a designated threshold and in connection with certain acquisitions by TSYS or FNMS Holding in excess of designated value thresholds.

The fair value of the noncontrolling interest in TMS, owned by a private company at December 31, 2010, was estimated by applying the income and market approaches. In particular, a discounted cash flow method, a guideline companies method, and a recent equity transaction were employed. This fair value measurement is based on significant inputs that are both observable (Level 2) and non-observable (Level 3) in the market as defined in ASC 820. Key assumptions include (a) cash flow projections based on market participant data and developed by Company management, (b) a discount rate of approximately 13 percent, (c) a terminal value based on a long-term sustainable growth rate of approximately 3 percent, (d) an effective tax rate of approximately 36 percent, (e) financial multiples of companies deemed to be similar to TMS, and (f) adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in TMS.

Refer to Note 24 of the Notes in the consolidated financial statements for more information on the acquisition of TMS.

Foreign Exchange

TSYS operates internationally and is subject to potentially adverse movements in foreign currency exchange rates. TSYS has not entered into foreign exchange forward contracts to reduce its exposure to foreign currency rate changes. The Company continues to analyze potential hedging instruments to safeguard it from significant currency translation risks.

Impact of Inflation

Although the impact of inflation on its operations cannot be precisely determined, the Company believes that by controlling its operating expenses and by taking advantage of more efficient computer hardware and software, it can minimize the impact of inflation.

Working Capital

TSYS may seek additional external sources of capital in the future. The form of any such financing will vary depending upon prevailing market and other conditions and may include short-term or long-term borrowings from financial institutions or the issuance of additional equity and/or debt securities such as industrial revenue bonds. However, there can be no assurance that funds will be available on terms acceptable to TSYS. Management expects that TSYS will continue to be able to fund a significant portion of its capital expenditure needs through internally generated cash in the future, as evidenced by TSYS’ current ratio of 3.2:1. At December 31, 2010, TSYS had working capital of $494.5 million, compared to $590.1 million in 2009 and $396.2 million in 2008.

Legal Proceedings

General

The Company is subject to various legal proceedings and claims and is also subject to information requests, inquiries and investigations arising out of the ordinary conduct of its business. The Company establishes reserves for litigation and similar matters when those matters present loss contingencies that TSYS determines to be both probable and reasonably estimable in accordance with ASC 450, “Contingencies.” In the opinion of management, based on current knowledge and in part upon the advice of legal counsel, all matters are believed to be adequately covered by insurance, or if not covered, are believed to be without merit or are of such kind or involve such amounts that would not have a material adverse effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably.

Infonox Matter

On September 22, 2010, Safwan Shah filed a lawsuit in the Superior Court of California, Santa Clara County, against Total System Services, Inc., TSYS Acquiring Solutions, L.L.C. and Infonox, a TSYS Company (Case No. 1-10-CV-183173). The claims arise out of TSYS’ purchase of Infonox on the Web (“Infonox”) in November 2008. The Agreement and Plan of Merger in connection with the transaction provided that certain “remaining shareholders” of Infonox could receive “contingent merger consideration” if Infonox reached certain revenue targets during the three years following the closing of the transaction. Plaintiff, a former shareholder of Infonox, alleges that the defendants have wrongfully refused to pay

    24

$25 million in “contingent merger consideration” as provided for in the Agreement and Plan of Merger. Plaintiff brings the claim in his individual capacity and also as a representative of other former Infonox shareholders. Plaintiff’s claims allege fraud, fraudulent inducement, negligent misrepresentation, breach of contract, and breach of duty of good faith and fair dealing. In January 2011, Plaintiff and TSYS entered into an Arbitration Agreement, pursuant to which Shah agreed to stay the lawsuit pending in the Superior Court of California, Santa Clara County and to arbitrate the claims he has asserted in the lawsuit. The arbitration is currently scheduled for July 2011. Defendants believe that the allegations are without merit and plan to vigorously defend themselves against the allegations. Based on information that is presently available to it, TSYS’ management is unable to predict the outcome of the case and cannot currently reasonably determine the probability of a material adverse result or reasonably estimate a range of potential exposure, if any. Although the ultimate outcome of this case cannot be ascertained at this time, based upon current knowledge, TSYS’ management does not believe the eventual outcome of this case will have a material adverse effect on TSYS’ financial position, results of operations or cash flows. However, it is possible that the ultimate outcome of this case may be material to TSYS’ results of operations for any particular period.

Electronic Payment Systems Matter

In February 2007, TSYS Acquiring Solutions, L.L.C., a wholly owned subsidiary of TSYS (“TSYS Acquiring”), filed a demand for arbitration for payment of past due processing fees pursuant to a contract with Electronic Payment Systems LLC (“EPS”), an acquiring independent sales organization. EPS counterclaimed and alleged certain monetary damages. In April 2008, EPS amended its counterclaims, adding a claim for a declaration that the arbitrator award EPS ownership, control and access to the 1-800 number that connects EPS’ merchants to TSYS Acquiring as EPS’ processor. On January 20, 2009, the arbitrator denied all TSYS Acquiring’s claims, awarded EPS approximately $3.3 million in damages and fees and awarded EPS immediate ownership, control and access over the 1-800 number.

On January 26, 2009, TSYS Acquiring filed an action (the “First Action”) in the United States District Court for the District of Arizona (Civil Action No. CV09-00155-PHX-JAT) seeking to vacate the arbitration award. However, on October 22, 2009, the court granted summary judgment in favor of EPS. On May 4, 2010, after the court denied post-judgment motions filed by TSYS Acquiring, the court confirmed the monetary judgment and TSYS Acquiring paid the monetary judgment to EPS. TSYS Acquiring had been using seven 1-800 numbers to connect EPS’ merchants and the court interpreted the arbitrator’s award to include all seven numbers.

On May 14, 2010, TSYS Acquiring filed a second action (the “Second Action”) in the United States District Court for the District of Arizona (Civil Action No. CV10-01060-PHX-DGC) seeking a declaratory judgment that TSYS did not need to give EPS ownership and control of the seven 1-800 numbers. EPS filed a motion for summary judgment on the request for declaratory relief. EPS also filed a counterclaim arguing that TSYS Acquiring should be required to pay EPS for its continued use of the 1-800 number and seeking punitive damages based on various consumer protection statutes. On November 9, 2010, the court granted EPS’ motion for summary judgment. The EPS counterclaims that were not previously dismissed in the Second Action remain pending.

On December 3, 2010, EPS filed a motion to compel in the First Action seeking to require TSYS Acquiring to provide EPS with immediate ownership, control and access over the seven 1-800 numbers used by EPS merchants.

On January 24, 2011, TSYS Acquiring filed a petition with the Federal Communications Commission (“FCC”) seeking a ruling that the enforcement of the arbitration award regarding the 1-800 numbers would violate the FCC’s rules regarding the allocation and transfer of 1-800 numbers.

On February 15, 2011, the court in the First Action issued an order (the “Order”) requiring TSYS Acquiring to comply with the arbitration award by moving all non-EPS merchants off of 1-800 numbers used by EPS merchants, and to then transfer to EPS the seven toll free numbers at issue. The Order requires compliance within 90 days. In addition, the court rejected TSYS Acquiring’s arguments that the award cannot be enforced because it violates FCC regulations.

On February 24, 2011, the FCC released a Declaratory Ruling granting TSYS Acquiring’s petition by affirming that the FCC has exclusive jurisdiction over the transfer of toll free numbers, and noting that several aspects of the arbitrator’s ruling and the affirmation of that ruling by the United States District Court for the District of Arizona conflicted with the FCC’s rules and related tariffs governing the transfer of toll free numbers. Because of this, the Declaratory Ruling proceeded to direct those third parties charged with the administration of the seven toll free numbers for TSYS Acquiring, as well as the Toll Free Number Administrator charged with administering the database of toll free numbers, to reject any requests seeking a transfer of those numbers from TSYS Acquiring to another party, absent a specific directive from the FCC.

In light of the FCC’s Declaratory Ruling that the toll free numbers may not be transferred by an order of the court or the arbitrator, TSYS Acquiring intends to continue to vigorously defend itself against enforcement of the Order in the United States District

25   

Court for the District of Arizona, and if necessary, the Ninth Circuit Court of Appeals.

If the Order is not vacated or modified in response to the FCC’s recent Declaratory Ruling, it would require TSYS Acquiring to move over 750,000 merchants that use one of the seven numbers that EPS seeks to possess to other toll free numbers. TSYS Acquiring cannot estimate the cost of such compliance, but TSYS Acquiring believes the cost of such compliance would be substantial. Further, if TSYS Acquiring is unable to comply with the order within 90 days, the court could impose sanctions which could be substantial. Based upon current knowledge, TSYS’ management does not believe that the eventual outcome of this case will have a material adverse effect on TSYS’ financial position, results of operations or cash flows. However, it is possible that the ultimate outcome of this case may be material to TSYS’ results of operations for any particular period.

Forward-Looking Statements

Certain statements contained in this filing which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the Act). These forward-looking statements include, among others (i) TSYS’ expectation that the Durbin Amendment will not have a significant negative impact on TSYS’ business; (ii) TSYS’ expectation that the loss of Bank of America as a merchant services client will not have a material adverse effect on TSYS; (iii) TSYS’ expectation that it will be able to fund a significant portion of its capital expenditure needs through internally generated cash in the future; (iv) the Board’s intention to continue to pay cash dividends on TSYS stock; (v) TSYS’ belief with respect to contractual commitments, lawsuits, claims and other complaints; (vi) the expected financial impact of recent accounting pronouncements; (vii) TSYS’ expectation with respect to certain tax matters; (viii) TSYS’ earnings guidance for 2011 total revenues, revenues before reimbursable items, income from continuing operations and EPS from continuing operations, and the assumptions underlying such statements including, with respect to TSYS’ earnings guidance for 2011: (a) the economy will not worsen during 2011; (b) there will be no deconversions of large clients during the year; (c) there will be no significant movements in foreign currency exchange rates related to TSYS’ business during 2011; (d) TSYS will not incur significant expenses associated with the conversion of new large clients or acquisitions, or any significant impairment of goodwill or other intangibles; and (e) there will be no significant movements in LIBOR, and no significant draws on the remaining balance of TSYS’ revolving credit facility. In addition, certain statements in future filings by TSYS with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of TSYS which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of TSYS or its management or Board of Directors, including those relating to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,” “targeted,” “estimates,” “projects,” “plans,” “may,” “could,” “should,” “would,” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying these statements.

These statements are based upon the current beliefs and expectations of TSYS’ management and are subject to significant risks and uncertainties. Actual results may differ materially from those contemplated by the forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by our forward-looking statements. Many of these factors are beyond TSYS’ ability to control or predict. These factors include, but are not limited to:

•  movements in LIBOR are greater than expected and draws on the revolving credit facility are greater than expected;

•  TSYS incurs expenses associated with the signing of a significant client;

•  internal growth rates for TSYS’ existing clients are lower than anticipated whether as a result of unemployment rates, card delinquencies and charge off rates or otherwise;

•  TSYS does not convert and deconvert clients’ portfolios as scheduled;

•  adverse developments with respect to foreign currency exchange rates;

•  adverse developments with respect to entering into contracts with new clients and retaining current clients;

•  continued consolidation and turmoil in the financial services industry throughout 2011, including the merger of TSYS clients with entities that are not TSYS processing clients, the sale of portfolios by TSYS clients to entities that are not TSYS clients and the nationalization or seizure by banking regulators of TSYS clients;

•  the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act on TSYS and our clients;

•  changes occur in laws, rules, regulations, credit card association rules or other industry standards affecting TSYS and our clients that may result in costly new compliance burdens on TSYS and our clients and lead to a decrease in the volume and/or number of transactions processed;

    26

•  adverse developments with respect to the credit card industry in general, including a decline in the use of credit cards as a payment mechanism;

•  TSYS is unable to successfully manage any impact from slowing economic conditions or consumer spending;

•  the impact of potential and completed acquisitions, including the costs associated therewith and their being more difficult to integrate than anticipated;

•  the costs and effects of litigation, investigations or similar matters or adverse facts and developments relating thereto, including the pending litigation discussed in this filing;

•  the impact of the application of and/or changes in accounting principles;

•  TSYS’ inability to timely, successfully and cost-effectively improve and implement processing systems to provide new products, increased functionality and increased efficiencies;

•  TSYS’ inability to anticipate and respond to technological changes, particularly with respect to e-commerce;

•  successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive patent protection;

•  the material breach of security of any of our systems;

•  overall market conditions;

•  the impact on TSYS’ business, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts;

•  other risk factors described in the “Risk Factors” and other sections of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and other filings with the Securities and Exchange Commission; and

•  TSYS’ ability to manage the foregoing and other risks.

These forward-looking statements speak only as of the date on which they are made and TSYS does not intend to update any forward-looking statement as a result of new information, future developments or otherwise.

Subsequent Event

On January 4, 2011, TSYS announced that it acquired the remaining 49-percent interest in First National Merchant Solutions, LLC, from First National Bank of Omaha for a net of $169.6 million. The transaction closed January 1, 2011. The company is being rebranded as TSYS Merchant Solutions. Management believed that total ownership of the joint venture was important to TSYS’ diversification strategy and believed the timing was right for all parties involved.

27   

Consolidated Balance Sheets

	December 31,
(in thousands, except per share data)	2010			2009
Assets
Current assets:
Cash and cash equivalents (Note 5)	$	394,795			450,254
Restricted cash		434			46,190
Accounts receivable, net of allowance for doubtful accounts and billing adjustments of $4.5 million and $6.3 million at 2010 and 2009, respectively		238,283			231,162
Deferred income tax assets (Note 20)		11,090			11,302
Prepaid expenses and other current assets (Note 6)		77,211			68,527
Current assets of discontinued operations		—			3,461
Total current assets		721,813			810,896
Property and equipment, net of accumulated depreciation and amortization (Notes 7 and 22)		300,102			289,069
Computer software, net of accumulated amortization (Note 8)		246,424			196,764
Contract acquisition costs, net of accumulated amortization (Note 9)		166,251			128,038
Goodwill (Note 10)		320,399			165,896
Equity investments (Note 11)		77,127			75,495
Other intangible assets, net of accumulated amortization (Note 12)		83,118			14,132
Other assets		37,027			27,940
Long-term assets of discontinued operations		—			2,724
Total assets	$	1,952,261			1,710,954
Liabilities
Current liabilities:
Accrued salaries and employee benefits	$	27,414			32,231
Accounts payable (Note 4)		36,068			21,487
Current portion of long-term debt (Note 13)		39,557			6,988
Current portion of obligations under capital leases (Note 13)		13,191			6,289
Other current liabilities (Note 14)		111,040			152,742
Current liabilities of discontinued operations		—			1,042
Total current liabilities		227,270			220,779
Long-term debt, excluding current portion (Note 13)		194,703			192,367
Deferred income tax liabilities (Note 20)		42,547			47,162
Obligations under capital leases, excluding current portion (Note 13)		30,573			12,756
Other long-term liabilities		53,363			48,443
Total liabilities		548,456			521,507
Redeemable noncontrolling interest		146,000			—
Equity
Shareholders’ equity (Notes 15, 16, 17 and 18):
Common stock — $0.10 par value. Authorized 600,000 shares; 201,326 and 200,860 issued at 2010 and 2009, respectively; 194,528 and 197,180 outstanding at 2010 and 2009, respectively		20,133			20,086
Additional paid-in capital		119,722			139,742
Accumulated other comprehensive income (loss), net		(2,585	)		5,673
Treasury stock (shares of 6,798 and 3,680 at 2010 and 2009, respectively)		(115,449	)		(69,950	)
Retained earnings		1,219,303			1,080,250
Total shareholders’ equity		1,241,124			1,175,801
Noncontrolling interests in consolidated subsidiaries		16,681			13,646
Total equity		1,257,805			1,189,447
Commitments and contingencies (Note 19)
Total liabilities and equity	$	1,952,261			1,710,954

See accompanying Notes to Consolidated Financial Statements

    28

Consolidated Statements of Income

	Years Ended December 31,
(in thousands, except per share data)	2010			2009			2008
Total revenues (Notes 4 and 22)	$	1,717,577			1,677,483			1,711,534
Cost of services		1,201,012			1,149,883			1,152,648
Selling, general and administrative expenses		207,136			183,574			176,624
Spin-related expenses (Note 25)		—			—			11,140
Operating income		309,429			344,026			371,122
Nonoperating income (expenses)		(1,617	)		(3,441	)		5,772
Income from continuing operations before income taxes and equity in income of equity investments		307,812			340,585			376,894
Income taxes (Note 20)		106,088			121,850			131,206
Income from continuing operations before equity in income of equity investments		201,724			218,735			245,688
Equity in income of equity investments, net of tax (Note 11)		7,142			6,985			7,397
Income from continuing operations, net of tax		208,866			225,720			253,085
(Loss) income from discontinued operations, net of tax		(3,245	)		(6,544	)		(1,409	)
Net income		205,621			219,176			251,676
Net income attributable to noncontrolling interests		(11,674	)		(3,963	)		(1,576	)
Net income attributable to TSYS common shareholders	$	193,947			215,213			250,100
Basic earnings per share (EPS)* attributable to TSYS common shareholders (Note 27):
Income from continuing operations	$	1.00			1.12			1.27
Loss from discontinued operations		(0.02	)		(0.03	)		(0.01	)
Net income	$	0.99			1.09			1.26
Diluted EPS* attributable to TSYS common shareholders:
Income from continuing operations	$	1.00			1.12			1.27
Loss from discontinued operations		(0.02	)		(0.03	)		(0.01	)
Net income	$	0.99			1.09			1.26
Amounts attributable to TSYS common shareholders:
Income from continuing operations	$	197,192			221,757			251,509
Loss from discontinued operations		(3,245	)		(6,544	)		(1,409	)
Net income	$	193,947			215,213			250,100

* Note: Basic and diluted EPS amounts for continuing operations and net income may not total due to rounding.

See accompanying Notes to Consolidated Financial Statements

29   

Consolidated Statements of Cash Flows

	Years Ended December 31,
(in thousands)	2010			2009			2008
Cash flows from operating activities:
Net income	$	205,621			219,176			251,676
Adjustments to reconcile net income to net cash provided by operating activities:
Net loss (gain) on foreign currency translation		162			2,607			(10,481	)
Equity in income of equity investments, net of tax		(7,142	)		(6,985	)		(7,397	)
Dividends received from equity investments		6,572			4,942			6,421
Share-based compensation		15,832			16,128			24,733
Excess tax benefit from share-based payment arrangements		(111	)		(6	)		(90	)
Depreciation and amortization		163,111			156,471			164,643
Amortization of debt issuance costs		154			154			154
Provisions for (recoveries of ) bad debt expenses and billing adjustments		(798	)		6,381			618
Charges for transaction processing provisions		3,891			6,556			3,172
Deferred income tax benefit		(4,388	)		(3,864	)		(4,439	)
Loss on disposal of equipment, net		145			375			182
Loss on disposal of subsidiary		1,591			5,713			—
Changes in operating assets and liabilities:
Accounts receivable		(7,138	)		10,807			(15,490	)
Prepaid expenses, other current assets and other assets		(1,495	)		27,893			(48,024	)
Accounts payable		13,916			(11,883	)		4,550
Accrued salaries and employee benefits		(21,965	)		(11,697	)		(25,267	)
Other current liabilities and other liabilities		21,202			369			7,874
Net cash provided by operating activities		389,160			423,137			352,835
Cash flows from investing activities:
Purchases of property and equipment, net		(46,547	)		(34,017	)		(47,969	)
Additions to licensed computer software from vendors		(69,826	)		(20,059	)		(31,499	)
Additions to internally developed computer software		(25,466	)		(31,445	)		(21,777	)
Proceeds from disposition, net of expenses paid and cash disposed		4,265			1,979			—
Cash used in acquisitions and equity investments, net of cash acquired		(148,531	)		(294	)		(50,017	)
Dividends received from equity investments as return of capital		68			—			—
Subsidiary repurchase of minority interest		—			—			(343	)
Additions to contract acquisition costs		(75,669	)		(35,596	)		(41,456	)
Net cash used in investing activities		(361,706	)		(119,432	)		(193,061	)
Cash flows from financing activities:
Proceeds from borrowings of long-term debt		39,757			5,334			18,575
Excess tax benefit from share-based payment arrangements		111			6			90
Principal payments on long-term debt borrowings and capital lease obligations		(11,741	)		(18,869	)		(67,631	)
Dividends paid on common stock		(55,087	)		(55,208	)		(55,449	)
Subsidiary dividends paid to noncontrolling shareholders		(9,031	)		(235	)		(241	)
Proceeds from exercise of stock options		543			2			268
Repurchases of common stock		(46,228	)		(328	)		(35,698	)
Net cash used in financing activities		(81,676	)		(69,298	)		(140,086	)
Cash and cash equivalents:
Effect of exchange rate changes on cash and cash equivalents		(938	)		(4,470	)		(10,188	)
Net increase (decrease) in cash and cash equivalents		(55,160	)		229,937			9,500
Cash and cash equivalents at beginning of year		449,955			220,018			210,518
Cash and cash equivalents at end of year	$	394,795			449,955			220,018
Supplemental cash flow information:
Cash paid for interest	$	2,191			3,368			11,299
Cash paid for income taxes, net of refunds	$	122,173			104,004			151,165
Significant noncash transactions (Note 23)

See accompanying Notes to Consolidated Financial Statements

    30

Consolidated Statements of Equity and Comprehensive Income

				TSYS Shareholders
											Accumulated
	Redeemable							Additional			Other
	Noncontrolling			Common Stock				Paid-In			Comprehensive			Treasury			Retained			Noncontrolling			Total
(in thousands, except per share data)	Interests			Shares		Dollars		Capital			Income (Loss)			Stock			Earnings			Interests			Equity
Balance as of December 31, 2007	$	—			199,660	$	19,966	$	104,762		$	28,322		$	(34,138	)	$	725,561		$	8,580		$	853,053
Comprehensive income:
Net income		—			—		—		—			—			—			250,100			1,576			251,676
Other comprehensive (loss) income, net of tax (Note 18):
Foreign currency translation		—			—		—		—			(35,060	)		—			—			(14	)		(35,074	)
Change in accumulated OCI related to postretirement healthcare plans		—			—		—		—			111			—			—			—			111
Other comprehensive (loss) income																								(34,963	)
Comprehensive income																								216,713
Common stock issued from treasury shares for exercise of stock options (Note 17)		—			—		—		30			—			195			—			—			225
Common stock issued for exercise of stock options (Note 16)		—			2		1		42			—			—			—			—			43
Common stock issued for nonvested awards (Note 16)		—			692		69		(69	)		—			—			—			—			—
Share-based compensation (Note 16)		—			—		—		24,584			—			—			—			—			24,584
Cash dividends declared ($0.28 per share)		—			—		—		—			—			—			(55,369	)		—			(55,369	)
Purchase of treasury shares (Note 17)		—			—		—		—			—			(35,698	)		—			—			(35,698	)
Subsidiary dividends paid to noncontrolling interests																					(241	)		(241	)
Pre-spin tax benefits adjustment		—			—		—		(1,820	)		—			—			—			—			(1,820	)
Tax shortfalls associated with share based payment arrangements		—			—		—		(640	)		—			—			—			—			(640	)
Balance as of December 31, 2008		—			200,354		20,036		126,889			(6,627	)		(69,641	)		920,292			9,901			1,000,850
Comprehensive income:
Net income		—			—		—		—			—			—			215,213			3,963			219,176
Other comprehensive (loss) income, net of tax (Note 18):
Foreign currency translation		—			—		—		—			12,145			—			—			17			12,162
Change in accumulated OCI related to postretirement healthcare plans		—			—		—		—			155			—			—			—			155
Other comprehensive income																								12,317
Comprehensive income																								231,493
Common stock issued from treasury shares for exercise of stock options (Note 17)		—			—		—		(17	)		—			19			—			—			2
Common stock issued for nonvested awards (Note 16)		—			506		50		(50	)		—			—			—			—			—
Share-based compensation (Note 16)		—			—		—		16,225			—			—			—			—			16,225
Cash dividends declared ($0.28 per share)		—			—		—		—			—			—			(55,255	)		—			(55,255	)
Purchase of treasury shares (Note 17)		—			—		—		—			—			(328	)		—			—			(328	)
Subsidiary dividends paid to noncontrolling interests																					(235	)		(235	)
Tax shortfalls associated with share based payment arrangements		—			—		—		(3,305	)		—			—			—			—			(3,305	)
Balance as of December 31, 2009		—			200,860		20,086		139,742			5,673			(69,950	)		1,080,250			13,646			1,189,447
Fair value of non-controlling interest in TMS		145,659			—		—		(34,659	)		—			—			—			—			(34,659	)
Comprehensive income:
Net income		9,122			—		—		—			—			—			193,947			2,552			196,499
Other comprehensive (loss) income, net of tax (Note 18):
Foreign currency translation		—			—		—		—			(7,529	)		—			—			733			(6,796	)
Change in accumulated OCI related to postretirement healthcare plans		—			—		—		—			(729	)		—			—			—			(729	)
Other comprehensive income																								(7,525	)
Comprehensive income																								188,974
Common stock issued from treasury shares for exercise of stock options (Note 17)		—			—		—		(186	)		—			729			—			—			543
Common stock issued for nonvested awards (Note 16)		—			466		47		(47	)		—			—			—			—			—
Share-based compensation (Note 16)		—			—		—		15,796			—			—			—			—			15,796
Cash dividends declared ($0.28 per share)		—			—		—		—			—			—			(54,894	)		—			(54,894	)
Purchase of treasury shares (Note 17)		—			—		—		—			—			(46,228	)		—			—			(46,228	)
Subsidiary dividends paid to noncontrolling interests		(8,781	)		—		—		—			—			—			—			(250	)		(250	)
Tax shortfalls associated with share based payment arrangements		—			—		—		(924	)		—			—			—			—			(924	)
Balance as of December 31, 2010	$	146,000			201,326	$	20,133	$	119,722		$	(2,585	)	$	(115,449	)	$	1,219,303		$	16,681		$	1,257,805

See accompanying Notes to Consolidated Financial Statements

31   

Notes to Consolidated Financial Statements

NOTE 1   Basis of Presentation and Summary of Significant Accounting Policies

BUSINESS:  Total System Services, Inc.’s (TSYS’ or the Company’s) revenues are derived from providing global payment provider services to financial and nonfinancial institutions, generally under long-term processing contracts. The Company’s services are provided through the Company’s three operating segments: North America Services, International Services and Merchant Services.

Through the Company’s North America Services and International Services segments, TSYS processes information through its cardholder systems to financial institutions throughout the United States and internationally. The Company’s North America Services segment provides these services to clients in the United States, Canada, Mexico and the Caribbean. The Company’s International Services segment provides services to clients in Europe, India, Middle East, Africa, Asia Pacific and Brazil. The Company’s Merchant Services segment provides merchant services to merchant acquirers and merchants in the United States.

On March 1, 2010, TSYS announced the signing of an Investment Agreement with First National Bank of Omaha (FNBO) to form a new joint venture company, First National Merchant Solutions, LLC (FNMS). FNMS offers transaction processing, merchant support and underwriting, and business and value-added services, as well as Visa- and MasterCard-branded prepaid cards for businesses of any size. FNMS is included within the Merchant Services segment. The effective date of the acquisition was April 1, 2010. On January 4, 2011, TSYS announced it had acquired the remaining 49-percent interest in FNMS, effective January 1, 2011, from FNBO. The company will be rebranded as TSYS Merchant Solutions (TMS).

As a result of the sale of certain assets and liabilities of TSYS POS Systems and Services, LLC (TPOS) in 2010 and the sale of TSYS Total Debt Management, Inc. (TDM) in 2009, as discussed in Note 2, the Company’s financial statements reflect TPOS and TDM as discontinued operations. The Company segregated the net assets, net liabilities and operating results from continuing operations in the Consolidated Balance Sheets and Consolidated Statements of Income for all periods presented.

ACQUISITIONS — PURCHASE PRICE ALLOCATION:  TSYS adopted revised generally accepted accounting principles (GAAP) relating to business combinations as of January 1, 2009. The revised guidance retains the purchase method of accounting for acquisitions and requires a number of changes to the previous guidance, including changes in the way assets and liabilities are recognized in purchase accounting. Other changes include requiring the recognition of assets acquired and liabilities assumed arising from contingencies, requiring the capitalization of in-process research and development at fair value, and requiring the expensing of acquisition-related costs as incurred.

TSYS’ purchase price allocation methodology requires the Company to make assumptions and to apply judgment to estimate the fair value of acquired assets and liabilities. TSYS estimates the fair value of assets and liabilities based upon appraised market values, the carrying value of the acquired assets and widely accepted valuation techniques, including discounted cash flows and market multiple analyses. Management determines the fair value of fixed assets and identifiable intangible assets such as developed technology or customer relationships, and any other significant assets or liabilities. TSYS adjusts the purchase price allocation, as necessary, up to one year after the acquisition closing date as TSYS obtains more information regarding asset valuations and liabilities assumed. Unanticipated events or circumstances may occur which could affect the accuracy of the Company’s fair value estimates, including assumptions regarding industry economic factors and business strategies, and result in an impairment or a new allocation of purchase price.

Given its history of acquisitions, TSYS may allocate part of the purchase price of future acquisitions to contingent consideration as required by GAAP for business combinations. The fair value calculation of contingent consideration will involve a number of assumptions that are subjective in nature and which may differ significantly from actual results. TSYS may experience volatility in its earnings to some degree in future reporting periods as a result of these fair value measurements.

PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:  The accompanying consolidated financial statements of Total System Services, Inc. include the accounts of TSYS and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. In addition, the Company evaluates its relationships with other entities to identify whether they are variable interest entities as defined in accordance with the provisions of Accounting Standards Codification (ASC) 810, “Consolidation,” and to assess whether it is the primary beneficiary of such entities. If the determination is made that the Company is the primary beneficiary, then that entity is included in the consolidated financial statements in accordance with ASC 810.

RISKS AND UNCERTAINTIES AND USE OF ESTIMATES:  Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, lower than anticipated growth

    32

from existing clients, an inability to attract new clients and grow internationally, loss of a major customer or other significant client, loss of a major supplier, an inability to grow through acquisitions or successfully integrate acquisitions, an inability to control expenses, technology changes, the impact of the application of and/or changes in accounting principles, financial services consolidation, changes in regulatory requirements, a decline in the use of cards as a payment mechanism, disruption of the Company’s international operations, breach of the Company’s security systems, a decline in the financial stability of the Company’s clients and uncertain economic conditions. Negative developments in these or other risk factors could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

The Company has prepared the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. The preparation of the consolidated financial statements requires management of the Company to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. These estimates and assumptions are developed based upon all information available. Actual results could differ from estimated amounts.

CASH EQUIVALENTS:  Investments with a maturity of three months or less when purchased are considered to be cash equivalents.

RESTRICTED CASH:  Restricted cash balances relate to cash balances collected on behalf of customers and held in escrow. TSYS records a corresponding liability for the obligation to the customer which is reflected in other current liabilities in the accompanying consolidated balance sheets. In 2010, TSYS began shifting the responsibility for funds management for its clients to the client’s issuer bank. Therefore, client funds are no longer maintained in a TSYS bank account.

ACCOUNTS RECEIVABLE:  Accounts receivable balances are stated net of allowances for doubtful accounts and billing adjustments of $4.5 million and $6.3 million at December 31, 2010 and December 31, 2009, respectively.

TSYS records an allowance for doubtful accounts when it is probable that the accounts receivable balance will not be collected. When estimating the allowance for doubtful accounts, the Company takes into consideration such factors as its day-to-day knowledge of the financial position of specific clients, the industry and size of its clients, the overall composition of its accounts receivable aging, prior history with specific customers of accounts receivable write-offs and prior experience of allowances in proportion to the overall receivable balance. This analysis includes an ongoing and continuous communication with its largest clients and those clients with past due balances. A financial decline of any one of the Company’s large clients could have a material adverse effect on collectability of receivables and thus the adequacy of the allowance for doubtful accounts.

Increases in the allowance for doubtful accounts are recorded as charges to bad debt expense and are reflected in selling, general and administrative expenses in the Company’s consolidated statements of income. Write-offs of uncollectible accounts are charged against the allowance for doubtful accounts.

TSYS records an allowance for billing adjustments for actual and potential billing discrepancies. When estimating the allowance for billing adjustments, the Company considers its overall history of billing adjustments, as well as its history with specific clients and known disputes. Increases in the allowance for billing adjustments are recorded as a reduction of revenues in the Company’s consolidated statements of income and actual adjustments to invoices are charged against the allowance for billing adjustments.

PROPERTY AND EQUIPMENT:  Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. Buildings and improvements are depreciated over estimated useful lives of 5-40 years, computer and other equipment over estimated useful lives of 2-5 years, and furniture and other equipment over estimated useful lives of 3-15 years. The Company evaluates impairment losses on long-lived assets used in operations in accordance with the provisions of ASC 205, “Presentation of Financial Statements.”

All ordinary repairs and maintenance costs are expensed as incurred. Maintenance costs that extend the asset life are capitalized and amortized over the remaining estimated life of the asset.

LICENSED COMPUTER SOFTWARE:  The Company licenses software that is used in providing services to clients. Licensed software is obtained through perpetual licenses and site licenses and through agreements based on processing capacity (called “MIPS agreements”). Perpetual and site licenses are amortized using the straight-line method over their estimated useful lives which range from three to ten years. Software licensed under MIPS agreements is amortized using a units-of-production basis over the estimated useful life of the software, generally not to exceed ten years. At each balance sheet date, the Company evaluates impairment losses on long-lived assets used in operations in accordance with ASC 205.

ACQUISITION TECHNOLOGY INTANGIBLES:  These identifiable intangible assets are software technology assets resulting from acquisitions. These assets are amortized using the straight-line method over periods not exceeding their estimated useful

33   

lives, which range from five to nine years. The provisions of ASC 350, “Intangibles — Goodwill and Other,” require that intangible assets with estimated useful lives be amortized over their respective estimated useful lives to their residual values, and reviewed for impairment in accordance with ASC 205. Acquisition technology intangibles net book values are included in computer software, net in the accompanying balance sheets. Amortization expenses are charged to cost of services in the Company’s consolidated statements of income.

SOFTWARE DEVELOPMENT COSTS:  In accordance with the provisions of ASC 985, “Software,” software development costs are capitalized once technological feasibility of the software product has been established. Costs incurred prior to establishing technological feasibility are expensed as incurred. Technological feasibility is established when the Company has completed a detailed program design and has determined that a product can be produced to meet its design specifications, including functions, features and technical performance requirements. Capitalization of costs ceases when the product is generally available to clients. At each balance sheet date, the Company evaluates the unamortized capitalized costs of software development as compared to the net realizable value of the software product which is determined by future undiscounted net cash flows. The amount by which the unamortized software development costs exceed the net realizable value is written off in the period that such determination is made. Software development costs are amortized using the greater of (1) the straight-line method over its estimated useful life, which ranges from three to ten years or (2) the ratio of current revenues to total anticipated revenue over its useful life.

The Company also develops software that is used internally. These software development costs are capitalized based upon the provisions of ASC 350. Internal-use software development costs are capitalized once (1) the preliminary project stage is completed, (2) management authorizes and commits to funding a computer software project, and (3) it is probable that the project will be completed and the software will be used to perform the function intended. Costs incurred prior to meeting the qualifications are expensed as incurred. Capitalization of costs ceases when the project is substantially complete and ready for its intended use. Internal-use software development costs are amortized using an estimated useful life of three to five years. Software development costs may become impaired in situations where development efforts are abandoned due to the viability of the planned project becoming doubtful or due to technological obsolescence of the planned software product.

CONTRACT ACQUISITION COSTS:  The Company capitalizes contract acquisition costs related to signing or renewing long-term contracts. The Company capitalizes internal conversion costs in accordance with the provisions of Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” and ASC 605, “Revenue Recognition.” The capitalization of costs related to cash payments for rights to provide processing services is capitalized in accordance with the provisions of ASC 605. All costs incurred prior to a signed agreement are expensed as incurred.

Contract acquisition costs are amortized using the straight-line method over the expected customer relationship (contract term) beginning when the client’s cardholder accounts are converted and producing revenues. The amortization of contract acquisition costs associated with cash payments is included as a reduction of revenues in the Company’s consolidated statements of income. The amortization of contract acquisition costs associated with conversion activity is recorded as cost of services in the Company’s consolidated statements of income.

The Company evaluates the carrying value of contract acquisition costs associated with each customer for impairment on the basis of whether these costs are fully recoverable from either contractual minimum fees (contractual costs) or from expected undiscounted net operating cash flows of the related contract (cash incentives paid). The determination of expected undiscounted net operating cash flows requires management to make estimates. These costs may become impaired with the loss of a contract, the financial decline of a client, termination of conversion efforts after a contract is signed, diminished prospects for current clients or if the Company’s actual results differ from its estimates of future cash flows. The amount of the impairment is written off in the period that such a determination is made.

EQUITY INVESTMENTS:  TSYS’ 49% investment in Total System Services de México, S.A. de C.V. (TSYS de México), an electronic payment processing support operation located in Toluca, Mexico, is accounted for using the equity method of accounting, as is TSYS’ 44.56% investment in China UnionPay Data Co., Ltd. (CUP Data) headquartered in Shanghai, China. TSYS’ equity investments are recorded initially at cost and subsequently adjusted for equity in earnings, cash contributions and distributions, and foreign currency translation adjustments.

GOODWILL:  Goodwill results from the excess of cost over the fair value of net assets of businesses acquired.

Goodwill and intangible assets with indefinite useful lives are tested for impairment at least annually in accordance with the provisions of ASC 350. ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 205.

The portion of the difference between the cost of an investment and the amount of underlying equity in net assets of an equity method investee that is recognized as goodwill in accordance with the provisions of ASC 323, “Investments — Equity Method and Joint Ventures,” shall not be amortized. However, equity

    34

method goodwill shall not be reviewed for impairment in accordance with ASC 350, but instead should continue to be reviewed for impairment in accordance with paragraph 19(h) of ASC 323. Equity method goodwill, which is not reported as goodwill in the Company’s consolidated balance sheet, but is reported as a component of the equity investment, was $48.1 million at December 31, 2010.

At December 31, 2010, the Company had goodwill in the amount of $320.4 million. The Company performed its annual impairment analyses of its goodwill balance, and these tests did not indicate any impairment for the periods ended December 31, 2010, 2009 and 2008, respectively.

OTHER INTANGIBLE ASSETS:  Identifiable intangible assets relate primarily to customer relationships, covenants-not-to-compete, trade names and trade associations resulting from acquisitions. These identifiable intangible assets are amortized using the straight-line method over periods not exceeding the estimated useful lives, which range from three to ten years. ASC 350 requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with ASC 205. Amortization expenses are charged to selling, general and administrative expenses in the Company’s consolidated statements of income.

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 their fair value due to the short-term maturities of these assets and liabilities. The fair value of the Company’s long-term debt and obligations under capital leases is not significantly different from its carrying value.

Investments in equity investments are accounted for using the equity method of accounting and pertain to privately held companies for which fair value is not readily available. The Company believes the fair values of its investments in equity investments exceed their respective carrying values.

IMPAIRMENT OF LONG-LIVED ASSETS:  In accordance with ASC 205, the Company reviews long-lived assets, such as property and equipment and intangibles subject to amortization, including contract acquisition costs and certain computer software, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If upon a triggering event the Company determines that the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and would no longer be depreciated. The assets and liabilities of a disposed group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet.

TRANSACTION PROCESSING PROVISIONS:  The Company has recorded an accrual for contract contingencies (performance penalties) and processing errors. A significant number of the Company’s contracts with large clients contain service level agreements which can result in TSYS incurring performance penalties if contractually required service levels are not met. When providing for these accruals, the Company takes into consideration such factors as the prior history of performance penalties and processing errors incurred, actual contractual penalties inherent in the Company’s contracts, progress towards milestones and known processing errors not covered by insurance.

These accruals are included in other current liabilities in the accompanying consolidated balance sheets. Increases and decreases in transaction processing provisions are charged to cost of services in the Company’s consolidated statements of income, and payments or credits for performance penalties and processing errors are charged against the accrual.

REDEEMABLE NONCONTROLLING INTEREST:  In connection with the 2010 acquisition of TMS, the Company is party to call and put arrangements with respect to the membership units that represent the remaining noncontrolling interest of FNMS Holding. The call arrangement is exercisable by TSYS and the put arrangement is exercisable by FNBO. The put arrangement is outside the control of the Company by requiring the Company to purchase FNBO’s entire equity interest in FNMS Holding at a put price at fair market value. The put arrangement is recorded on the balance sheet and is classified as redeemable noncontrolling interest outside of permanent equity.

The call and put arrangements for FNMS Holding, representing 49% of its total outstanding equity interests, may be exercised at the discretion of TSYS or FNBO on April 1, 2015, 2016 and 2017, upon the dilution of FNBO’s equity ownership in FNMS Holding below a designated threshold and in connection with certain acquisitions by TSYS or FNMS Holding in excess of designated value thresholds.

The put option is not currently redeemable, but a redemption is considered probable. As such, the Company has adopted the accounting policy to accrete changes in the redemption value over the period from the date of issuance to the earliest redemption date, which the Company believes to be imminent as of December 31, 2010. The redemption value at December 31, 2010 to a market participant is estimated to be approximately

35   

$146.0 million. The Company did reflect this as an adjustment to additional paid-in capital during 2010 to the extent that the fair value amount exceeded the cumulative balance recorded under ASC 810 at December 31, 2010. Refer to Note 28 for more information on subsequent event.

NONCONTROLLING INTEREST:  In December 2007, the Financial Accounting Standards Board (FASB) issued authoritative guidance under ASC 810, “Consolidation.” ASC 810 changes the accounting for noncontrolling (minority) interests in consolidated financial statements, including the requirements to classify noncontrolling interests as a component of consolidated shareholders’ equity, the elimination of “minority interest” accounting in results of operations and changes in the accounting for both increases and decreases in a parent’s controlling ownership interest.

Noncontrolling interest in earnings of subsidiaries represents the minority shareholders’ share of the net income or loss of GP Network Corporation (GP Net) and TSYS Managed Services EMEA Ltd. (TSYS Managed Services). The noncontrolling interest in the consolidated balance sheet reflects the original investment by these shareholders in GP Net and TSYS Managed Services, their proportional share of the earnings or losses and their proportional share of net gains or losses resulting from the currency translation of assets and liabilities of GP Net and TSYS Managed Services. TSYS has adopted the accounting policy to recognize gains or losses on equity transactions of a subsidiary as a capital transaction.

RESERVE FOR MERCHANT LOSSES:  The Company has potential liability for losses resulting from disputes between a cardholder and a merchant that arise as a result of, among other things, the cardholder’s dissatisfaction with merchandise quality or merchant services. Such disputes may not be resolved in the merchant’s favor. In these cases, the transaction is “charged back” to the merchant, which means the purchase price is refunded to the customer by the card-issuing bank and charged to the merchant. If the merchant is unable to fund the refund, TSYS must do so. TSYS also bears the risk of reject losses arising from the fact that TSYS collects fees from its merchants on the first day after the monthly billing period. If the merchant has gone out of business during such period, TSYS may be unable to collect such fees. TSYS maintains cash deposits or requires the pledge of a letter of credit from certain merchants, generally those with higher average transaction size where the card is not present when the charge is made or the product or service is delivered after the charge is made, in order to offset potential contingent liabilities such as chargebacks and reject losses that would arise if the merchant went out of business. Most chargeback and reject losses are charged to cost of services as they are incurred. However, the Company also maintains a reserve against losses, including major fraud losses, which are both less predictable and involve larger amounts. The loss reserve was established using historical loss rates, applied to recent bankcard processing volume. TSYS only assumed liabilities as of April 1, 2010 with the acquisition of TMS on a go forward basis and thus, has no material merchant loss reserve recorded.

FOREIGN CURRENCY TRANSLATION:  The Company maintains several different foreign operations whose functional currency is their local currency. Foreign currency financial statements of the Company’s Mexican and Chinese equity investments, the Company’s wholly owned subsidiaries and the Company’s majority owned subsidiaries, as well as the Company’s division and branches in the United Kingdom and China, 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 when applicable, are accumulated in a separate section of shareholders’ equity titled accumulated other comprehensive income (loss). Gains and losses on transactions denominated in currencies other than the functional currencies are included in determining net income for the period in which exchange rates change.

COMPREHENSIVE INCOME:  The provisions of ASC 220, “Comprehensive Income,” require companies to display, with the same prominence as other financial statements, the components of comprehensive income (loss). TSYS displays the items of other comprehensive income (loss) in its consolidated statements of equity and comprehensive income.

TREASURY STOCK:  The Company uses the cost method when it purchases its own common stock as treasury shares or issues treasury stock upon option exercises and displays treasury stock as a reduction of shareholders’ equity.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES:  In June 1998 and June 2000, the FASB issued authoritative guidance under ASC 815, “Derivatives and Hedging.” ASC 815 requires that all derivative instruments be recorded on the balance sheet at their respective fair values. The Company did not have any outstanding derivative instruments or hedging transactions at December 31, 2010.

REVENUE RECOGNITION:  The Company’s North America and International Services revenues are derived from long-term processing contracts with financial and nonfinancial institutions and are generally recognized as the services are performed. Payment processing services revenues are generated primarily from charges based on the number of accounts on file, transactions and authorizations processed, statements mailed, cards embossed and mailed and other processing services for cardholder accounts on file. Most of these contracts have prescribed

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annual revenue minimums. Processing contracts generally range from three to ten years in length and provide for penalties for early termination.

The Company’s merchant services revenues are derived from long-term processing contracts with large financial institutions and other merchant acquirers which generally range from three to eight years and provide for penalties for early termination. Merchant services revenues are generated primarily from processing all payment forms including credit, debit, electronic benefits transfer and check truncation for merchants of all sizes across a wide array of retail market segments. The products and services offered include authorization and capture of electronic transactions, clearing and settlement of electronic transactions, information reporting services related to electronic transactions, merchant billing services, and point-of-sale terminal sales and services. Revenue is recognized for merchant services as those services are performed, primarily on a per unit basis. Revenues on point-of-sale terminal equipment are recognized upon the transfer of ownership and shipment of product.

The Company recognizes revenues in accordance with the provisions of SAB No. 104. SAB No. 104 sets forth guidance as to when revenue is realized or realizable and earned when all of the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been performed; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.

The Company evaluates its contractual arrangements that provide services to clients through a bundled sales arrangement in accordance with the provisions of ASC 605. ASC 605 addresses the determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting.

A deliverable in multiple element arrangements indicates any performance obligation on the part of the seller and includes any combination of obligations to perform different services, grant licenses or other rights. Revenue is allocated to the separate units of accounting in a multiple element arrangement based on relative fair values, provided the delivered element has standalone value to the customer, the fair value of any undelivered items can be readily determined, and delivery of any undelivered items is probable and substantially within the Company’s control. Evidence of fair value must be objective and reliable. An item has value to the customer on a standalone basis if it is sold separately by any vendor or the customer could resell the deliverable on a standalone basis.

In regards to taxes assessed by a governmental authority imposed directly on a revenue producing transaction, the Company reports its revenues on a net basis.

REIMBURSABLE ITEMS:  Reimbursable items consist of out-of-pocket expenses which are reimbursed by the Company’s clients. These expenses consist primarily of postage, access fees and third party software. The Company accounts for reimbursable items in accordance with the provisions of ASC 605.

SHARE-BASED COMPENSATION:  In December 2004, the FASB issued authoritative guidance under ASC 718, “Compensation — Stock Compensation.” ASC 718 establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award.

ASC 718 is effective for all awards granted on or after January 1, 2006, and to awards modified, repurchased or cancelled after that date. ASC 718 requires the Company to recognize compensation costs for the nonvested portion of outstanding share-based compensation granted in the form of stock options based on the grant-date fair value of those awards calculated under the provisions of ASC 718, for pro forma disclosures. Share-based compensation expenses include the impact of expensing the fair value of stock options, as well as expenses associated with nonvested shares. TSYS adopted the provisions of ASC 718 effective January 1, 2006 using the modified-prospective-transition method.

ASC 718 requires companies to estimate forfeitures when recognizing compensation cost. The estimate of forfeitures will be adjusted by a company as actual forfeitures differ from its estimates, resulting in compensation cost only for those awards that actually vest. The effect of the change in estimated forfeitures is recognized as compensation costs in the period the change in estimate occured. In estimating its forfeiture rate, the Company stratified its data based upon historical experience to determine separate forfeiture rates for the different award grants. The Company currently estimates a forfeiture rate for existing stock option grants to TSYS non-executive employees, and a forfeiture rate for other TSYS share-based awards. Currently, TSYS estimates a forfeiture rate in the range of 0% to 10.0%.

The Company has issued its common stock to directors and to certain employees under nonvested awards. The market value of the common stock at the date of issuance is recorded as a reduction of shareholders’ equity in the Company’s consolidated balance sheet and is amortized as compensation expense over the vesting period of the awards. For nonvested award grants that have pro rata vesting, the Company recognizes compensation

37   

expense using the straight-line method over the vesting period of the award.

LEASES:  The Company is obligated under noncancelable leases for computer equipment and facilities. As these leases expire, they will be evaluated and renewed or replaced by similar leases based on need. A lease is an agreement conveying the right to use property, plant, or equipment (land and/or depreciable assets) usually for a stated period of time. For purposes of applying the accounting and reporting standards, leases are classified from the standpoint of the lessee as capital or operating leases. The provisions of ASC 840, “Leases,” establish standards of financial accounting and reporting for leases by lessees and lessors. If at inception a lease meets one or more of the following four criteria, the lease shall be classified as a capital lease by the lessee: (a) the lease transfers ownership of the property to the lessee by the end of the lease term; (b) the lease contains a bargain purchase option; (c) the lease term is equal to 75 percent or more of the estimated economic life of the leased property; and (d) the present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property. If the lease does not meet one or more of the criteria, it shall be classified as an operating lease.

Rental payments on operating leases are charged to expense over the lease term. If rental payments are not made on a straight-line basis, rental expense nevertheless shall be recognized on a straight-line basis unless another systematic and rational basis is more representative of the time pattern in which use benefit is derived from the leased property, in which case that basis shall be used.

Certain of the Company’s operating leases are for office space. The Company will make various alterations (leasehold improvements) to the office space and capitalize these costs as part of property and equipment. Leasehold improvements are amortized on a straight-line basis over the useful life of the improvement or the term of the lease, whichever is shorter.

ADVERTISING:  Advertising costs, consisting mainly of advertising in trade publications, are expensed as incurred or the first time the advertising takes place. Advertising expense for 2010, 2009 and 2008 was $690,000, $327,000 and $1.2 million, respectively.

INCOME TAXES:  Income taxes reflected in TSYS’ consolidated financial statements are computed based on the taxable income of TSYS and its affiliated subsidiaries. A consolidated U.S. federal income tax return is filed for TSYS and its majority owned U.S. subsidiaries through the year ended December 31, 2010. Income tax returns are also filed in foreign jurisdictions where TSYS has a foreign affiliate.

The Company accounts for income taxes in accordance with the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred 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. Reserves against the carrying value of a deferred tax asset are established when necessary to reflect the decreased likelihood of realization of a deferred asset in the future. 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.

Income tax provisions require the use of management judgments, which are subject to challenge by various taxing authorities. Contingency reserves are periodically established where the amount of the contingency can be reasonably determined and is likely to occur. Reductions in contingency reserves are recognized when tax disputes are settled or examination periods lapse.

Significant estimates used in accounting for income taxes relate to the determination of taxable income, the determination of temporary differences between book and tax bases, as well as estimates on the realizability of tax credits and net operating losses.

TSYS recognizes potential interest and penalties related to the underpayment of income taxes as income tax expense in the consolidated statements of income.

TSYS adopted the authoritative guidance under ASC 740, “Income Taxes,” on January 1, 2007. This interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken in a tax return.

EARNINGS PER SHARE:  In June 2008, the FASB issued authoritative guidance under ASC 260, “Earnings Per Share.” The guidance under ASC 260 holds that unvested share-based payment awards that contain nonforfeitable rights to dividends or dividend equivalents are “participating securities” as defined in ASC 260, and therefore should be included in computing earnings per share (EPS) using the two-class method.

The two-class method is an earnings allocation method for computing EPS when an entity’s capital structure includes two or more classes of common stock or common stock and participating securities. It determines EPS based on dividends declared on common stock and participating securities and participation rights of participating securities in any undistributed earnings. The guidance under ASC 260 was effective for reporting periods beginning after December 15, 2008.

Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS is calculated to reflect the potential dilution

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that would occur if stock options or other contracts to issue common stock were exercised. Diluted EPS is calculated by dividing net income by weighted average common and common equivalent shares outstanding. Common equivalent shares are calculated using the treasury stock method.

RECLASSIFICATIONS:  Certain reclassifications have been made to the 2009 and 2008 financial statements to conform to the presentation adopted in 2010.

NOTE 2   Discontinued Operations

The Company sold certain assets and liabilities of TPOS on September 30, 2010. The sale of certain assets and liabilities of TPOS was the result of management’s decision during the third quarter of 2010 to divest non-strategic businesses and focus resources on core products and services. The Company had a pre-tax goodwill impairment of $2.2 million (approximately $1.5 million after-tax) related to TPOS, which was included in discontinued operations as part of the sale. This transaction resulted in the assumed lease of its Sacramento, California, facility and the closure of its Columbus, Georgia-based distribution center.

TSYS will continue to use the buyer in a referral arrangement for customers who approach TSYS Acquiring Solutions for terminal services, and will also subcontract existing relationships to the buyer for a period no longer than two years. However, TSYS will not have significant continuing involvement after the sale to the buyer.

TPOS was not a significant component of the Merchant Services segment, nor TSYS’ consolidated results.

The Company sold TDM on August 31, 2009. The sale of the TDM business was the result of management’s decision to divest non-strategic businesses and focus resources on core products and services. TDM was part of the North America Services segment.

In accordance with the provisions of ASC 205, the Company determined the TPOS business became a discontinued operation in the third quarter of 2010 and the TDM business became a discontinued operation in the first quarter of 2009.

The following table presents the summarized results of discontinued operations for the years ended December 31, 2010, 2009 and 2008:

(in thousands)	2010			2009			2008
Total revenues	$	7,430			181,060			227,074
Operating (loss) income	$	(1,840	)		(4,890	)		(898	)
Income taxes	$	(621	)		(1,626	)		588
Loss from discontinued operations, net of tax	$	(1,243	)		(3,219	)		(1,409	)
Loss on disposition, net of tax	$	(2,002	)		(3,325	)		—

The Consolidated Statements of Cash Flows include TPOS and TDM through the respective dates of disposition.

NOTE 3   Fair Value Measurement

ASC 820, “Fair Value Measurements and Disclosure,” requires disclosure about how fair value is determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant level of inputs. The three-tier fair value hierarchy, which prioritizes the inputs used in the valuation methodologies, is as follows:

Level 1 — Quoted prices for identical assets and liabilities in active markets.

Level 2 — Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs for the asset or liability.

In February 2007, the FASB issued authoritative guidance under ASC 825, “Financial Instruments.” ASC 825 permits the Company to choose to measure many financial instruments and certain other items at fair value. Upon adoption of the guidance on January 1, 2008, TSYS did not elect the fair value option for any financial instrument it did not currently report at fair value.

Goodwill is assessed annually for impairment in the second quarter of each year using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step test. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its book value, including goodwill. If the fair value of the reporting unit exceeds its book value, goodwill is considered not impaired and the second step of the impairment test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to

39   

measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the book value of that goodwill. If the book value of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The fair value of the reporting unit is allocated to all of the assets and liabilities of that unit as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.

The estimate of fair value of the Company’s reporting units is determined using various valuation techniques, including using the combination of the income approach and the market approach. The market approach, which contains Level 2 inputs, utilizes readily available market valuation multiples to estimate fair value. The income approach is a valuation technique that utilizes the discounted cash flow (DCF) method, which includes Level 3 inputs. Under the DCF method, the fair value of the asset reflects the present value of the projected earnings that will be generated by each asset after taking into account the revenues and expenses associated with the asset, the relative risk that the cash flows will occur, the contribution of other assets, and an appropriate discount rate to reflect the value of the invested capital. Cash flows are estimated for future periods based upon historical data and projections by management.

At December 31, 2010, the Company had unamortized goodwill in the amount of $320.4 million. The Company performed its annual impairment analyses of its unamortized goodwill balance as of May 31, 2010, and these tests did not indicate any impairment. The fair value of the reporting units substantially exceeds the carrying value.

The fair value of the Company’s long-term debt and obligations under capital leases is not significantly different from its carrying value.

NOTE 4   Relationships with Affiliated Companies

The Company provides electronic payment processing and other services to the Company’s equity investments, TSYS de México and CUP Data.

The foregoing related party services are performed under contracts that are similar to its contracts with unrelated third party customers. The Company believes the terms and conditions of transactions between the Company and these related parties are comparable to those which could have been obtained in transactions with unaffiliated parties.

Through its related party transactions, TSYS generates accounts receivable and liability accounts with TSYS de México and CUP Data. At December 31, 2010, the Company had an accounts payable balance of $12,500 associated with related parties.

The table below details revenues derived from affiliated companies for the years ended December 31, 2010, 2009 and 2008:

(in thousands)	2010		2009		2008
Total revenues:
TSYS de México	$	51		51		54
CUP Data		—		75		44
Total revenues	$	51		126		98

The Company and TSYS de México are parties to an agreement where TSYS de México provides processing support to the Company. Processing support fees paid to TSYS de México was $149,000, $147,000 and $141,000 for the years ended December 31, 2010, 2009 and 2008, respectively.

NOTE 5   Cash and Cash Equivalents

Cash and cash equivalent balances at December 31 are summarized as follows:

(in thousands)	2010		2009
Cash and cash equivalents in domestic accounts	$	347,734		403,720
Cash and cash equivalents in foreign accounts		47,061		46,534
Total	$	394,795		450,254

The Company maintains operating accounts outside the United States denominated in currencies other than the U.S. dollar. All amounts in domestic accounts are denominated in U.S. dollars.

At December 31, 2010 and 2009, the Company had $29.9 million and $32.2 million, respectively, of cash and cash equivalents in Money Market accounts that had an original maturity date of 90 days or less. The Company considers cash equivalents to be short-term, highly liquid investments that are both readily convertible to known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of change in interest rates.

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NOTE 6   Prepaid Expenses and Other Current Assets

Significant components of prepaid expenses and other current assets at December 31 are summarized as follows:

(in thousands)	2010		2009
Prepaid expenses	$	15,421		14,071
Supplies inventory		7,138		7,668
Income taxes receivable		12,977		72
Other		41,675		46,716
Total	$	77,211		68,527

NOTE 7   Property and Equipment, net

Property and equipment balances at December 31 are as follows:

(in thousands)	2010		2009
Computer and other equipment	$	230,773		229,522
Buildings and improvements		227,881		224,973
Furniture and other equipment		125,627		112,538
Land		16,729		16,882
Other		16,461		12,926
Total property and equipment		617,471		596,841
Less accumulated depreciation and amortization		317,369		307,772
Property and equipment, net	$	300,102		289,069

Depreciation and amortization expense related to property and equipment was $50.1 million, $50.6 million and $47.8 million for the years ended December 31, 2010, 2009 and 2008, respectively. Depreciation expense includes amounts for equipment acquired under capital lease. The increase in depreciation expense for 2009 as compared to 2008 is primarily due to the Company’s infrastructure requirements in order to support the Company’s South America client base. This includes equipment not yet placed in service as well as building improvements.

NOTE 8   Computer Software, net

Computer software at December 31 is summarized as follows:

(in thousands)	2010		2009
Licensed computer software	$	403,115		381,657
Software development costs		265,029		240,541
Acquisition technology intangibles		75,891		55,975
Total computer software		744,035		678,173
Less accumulated amortization:
Licensed computer software		275,145		290,872
Software development costs		183,853		161,579
Acquisition technology intangibles		38,613		28,958
Total accumulated amortization		497,611		481,409
Computer software, net	$	246,424		196,764

TSYS acquired 51 percent ownership in TMS in April 2010. The Company allocated approximately $20.3 million to acquisition technology intangibles. Refer to Note 24 for more information on TMS.

TSYS acquired Infonox on the Web (Infonox) in November 2008. The Company has allocated approximately $14.5 million to acquisition technology intangibles. Refer to Note 24 for more information on Infonox.

Amortization expense related to licensed computer software costs was $33.4 million, $31.4 million and $38.4 million for the years ended December 31, 2010, 2009 and 2008, respectively. Amortization expense includes amounts for computer software acquired under capital lease. Amortization of software development costs was $23.1 million, $20.0 million and $19.8 million for the years ended December 31, 2010, 2009 and 2008, respectively. Amortization expense related to acquisition technology intangibles was $9.9 million for 2010, $6.9 million for 2009 and $5.9 million for 2008.

The weighted average useful life for each component of computer software, and in total, at December 31, 2010, is as follows:

	Weighted
	Average
	Amortization
At December 31, 2010	Period (Yrs)
Licensed computer software		6.9
Software development costs		6.1
Acquisition technology intangibles		6.9
Total		6.6

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Estimated future amortization expense of licensed computer software, software development costs and acquisition technology intangibles as of December 31, 2010 for the next five years is:

	Licensed		Software		Acquisition
	Computer		Development		Technology
(in thousands)	Software		Costs		Intangibles
2011	$	37,443		25,536		10,187
2012		34,502		21,308		9,479
2013		27,070		15,338		7,552
2014		17,733		11,702		5,873
2015		11,140		7,291		2,828

NOTE 9   Contract Acquisition Costs, net

Significant components of contract acquisition costs at December 31 are summarized as follows:

(in thousands)	2010		2009
Payments for processing rights, net	$	85,730		59,085
Conversion costs, net		80,521		68,953
Total	$	166,251		128,038

Amortization related to payments for processing rights, which is recorded as a reduction of revenues, was $17.7 million, $25.5 million and $28.5 million for 2010, 2009 and 2008, respectively.

Amortization expense related to conversion costs was $17.5 million, $17.8 million and $14.4 million for 2010, 2009 and 2008, respectively.

The weighted average useful life for each component of contract acquisition costs, and in total, at December 31, 2010 is as follows:

	Weighted
	Average
	Amortization
At December 31, 2010	Period (Yrs)
Payments for processing rights		8.7
Conversion costs		6.6
Total		7.8

Estimated future amortization expense on payments for processing rights and conversion costs as of December 31, 2010 for the next five years is:

	Payments for		Conversion
(in thousands)	Processing Rights		Costs
2011	$	15,528		20,479
2012		16,568		18,151
2013		16,966		14,908
2014		14,580		12,717
2015		9,990		10,463

NOTE 10  Goodwill

On April 1, 2010, TSYS acquired 51 percent ownership of TMS for approximately $150.5 million. The Company has allocated approximately $155.5 million to goodwill. Refer to Note 24 for more information on TMS.

With the sale of certain assets and liabilities of TPOS, the Company incurred a pre-tax goodwill impairment of $2.2 million (approximately $1.5 million after-tax), which is included in loss on discontinued operations, net of tax. TPOS was not a significant component to the Merchant Services segment.

In November 2008, TSYS acquired Infonox for an aggregate consideration of approximately $50.5 million, with contingent payments over the next three years of up to $25.0 million based on performance. The Company did not make any contingent payments in 2010. The Company has allocated approximately $29.1 million to goodwill. Refer to Note 24 for more information on Infonox.

The gross amount and accumulated impairment loss of goodwill at December 31, 2010 and 2009 is as follows:

	2010
	North America		International		Merchant
	Services		Services		Services			Consolidated
Gross amount	$	70,614		33,188		218,822		$	322,624
Accumulated impairment losses		—		—		(2,225	)		(2,225	)
Goodwill, net	$	70,614		33,188		216,597		$	320,399

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	2009
	North America		International		Merchant
	Services		Services		Services		Consolidated
Gross amount	$	70,614		34,181		63,326	$	168,121
Accumulated impairment losses		—		—		—		—
Goodwill, net	$	70,614		34,181		63,326	$	168,121

In 2010, the Company sold certain assets and liabilities of TPOS, for which the Company had a pre-tax goodwill impairment of $2.2 million and is included in discontinued operations as part of the sale.

The changes in the carrying amount of goodwill at December 31, 2010 and 2009 are as follows:

	North America		International			Merchant
(in thousands)	Services		Services			Services		Consolidated
Balance as of December 31, 2008	$	70,614		32,802			60,354	$	163,770
Infonox purchase price allocation adjustment		—		—			747		747
Currency translation adjustments		—		1,379			—		1,379
Balance as of December 31, 2009		70,614		34,181			61,101		165,896
TMS purchase price allocation		—		—			155,496		155,496
Currency translation adjustments		—		(993	)		—		(993	)
Balance as of December 31, 2010	$	70,614		33,188			216,597	$	320,399

NOTE 11   Equity Investments

The Company has an equity investment with Promocíón y Operación, S.A. de C.V. and records its 49% ownership using the equity method of accounting. The operation, TSYS de México, prints statements and provides card-issuing support services to the equity investment clients and others.

The Company has an equity investment with China UnionPay Co., Ltd. and records its 44.56% ownership using the equity method of accounting. CUP is sanctioned by the People’s Bank of China, China’s central bank, and has become one of the world’s largest and fastest-growing payments networks. CUP Data currently provides transaction processing, disaster recovery and other services for banks and bankcard issuers in China.

TSYS’ equity investments are recorded initially at cost and subsequently adjusted for equity in earnings, cash contributions and distributions, and foreign currency translation adjustments.

TSYS’ equity in income of equity investments (net of tax) for the years ended December 31, 2010, 2009 and 2008 was $7.1 million, $7.0 million and $7.4 million, respectively.

A summary of TSYS’ equity investments at December 31 is as follows:

(in thousands)	2010		2009
CUP Data	$	70,479		68,022
TSYS de México		6,648		7,473
Total	$	77,127		75,495

NOTE 12   Other Intangible Assets, net

In April 2010, TSYS acquired 51 percent ownership in TMS. The Company allocated approximately $80.5 million to other intangible assets as part of the purchase price allocation to customer relationships, trade name and trade association. Refer to Note 24 for more information on TMS.

In November 2008, TSYS acquired Infonox. The Company has allocated approximately $7.0 million to other intangible assets as part of the purchase price allocation to customer relationships, convenants-not-to-compete and trade name. Refer to Note 24 for more information on Infonox.

Significant components of other intangible assets at December 31 are summarized as follows:

	2010
			Accumulated
(in thousands)	Gross		Amortization			Net
Customer relationships	$	93,727		(22,859	)	$	70,868
Covenants-not-to-compete		1,000		(1,000	)		—
Trade name		6,031		(3,031	)		3,000
Trade association		10,000		(750	)		9,250
Total	$	110,758		(27,640	)	$	83,118

43   

	2009
			Accumulated
(in thousands)	Gross		Amortization			Net
Customer relationships	$	27,796		(14,151	)	$	13,645
Covenants-not-to-compete		1,000		(775	)		225
Trade name		2,084		(1,822	)		262
Total	$	30,880		(16,748	)	$	14,132

Amortization related to other intangible assets, which is recorded in selling, general and administrative expenses, was $11.2 million, $3.4 million and $2.9 million for 2010, 2009 and 2008, respectively.

The weighted average useful life for each component of other intangible assets, and in total, at December 31, 2010 is as follows:

	Weighted
	Average
	Amortization
At December 31, 2010	Period (Yrs)
Customer relationships		8.1
Covenant-not-to-compete		2.8
Trade name		3.0
Trade association		10.0
Total		8.0

Estimated future amortization expense on other intangible assets as of December 31, 2010 for the next five years is:

(in thousands)
2011	$	13,301
2012		13,301
2013		11,051
2014		10,468
2015		9,788

NOTE 13   Long-term Debt and Capital Lease Obligations

In December 2010, the Company obtained a $39.8 million note payable from a third-party vendor related to financing the purchase of distributed systems software.

On December 21, 2007, the Company entered into a Credit Agreement with Bank of America N.A., as Administrative Agent, The Royal Bank of Scotland plc, as Syndication Agent, and the other lenders. The Credit Agreement provides for a $168 million unsecured five year term loan to the Company and a $252 million five year unsecured revolving credit facility. The principal balance of loans outstanding under the credit facility bears interest at a rate of the London Interbank Offered Rate (LIBOR) plus an applicable margin of 0.60%. The applicable margin could vary within a range from 0.27% to 0.725% depending on changes in the Company’s corporate credit rating which is currently a “BBB” investment grade rating from Standard and Poors. Interest is paid on the last date of each interest period; however, if the period exceeds three months, interest is paid every three months after the beginning of such interest period. In addition, the Company is to pay each lender a fee in respect of the amount of such lender’s commitment under the revolving credit facility (regardless of usage), ranging from 0.08% to 0.15% (currently 0.10%) depending on the Company’s corporate credit rating.

The Company is not required to make any scheduled principal payments other than payment of the entire outstanding balance on December 21, 2012. The Company may prepay the revolving credit facility and the term loan in whole or in part at any time without premium or penalty, subject to reimbursement of the lenders’ customary breakage and redeployment costs in the case of prepayment of LIBOR borrowings. The Credit Agreement includes covenants requiring the Company to maintain certain minimum financial ratios. The Company did not use the revolving credit facility in 2010, 2009 or 2008.

The proceeds will be used for working capital and other corporate purposes, including financing the repurchase by TSYS of its capital stock.

In April 2009, the Company repaid its International Services’ loan of £1.3 million, or approximately $1.8 million, which it obtained in May 2008.

On October 30, 2008, the Company’s International Services segment obtained a credit agreement from a third-party to borrow up to approximately ¥2.0 billion, or $21 million, in a Yen-denominated three-year loan to finance activities in Japan. The rate is LIBOR plus 80 basis points. The Company initially made a draw of ¥1.5 billion, or approximately $15.1 million. In January 2009, the Company made an additional draw down of ¥250 million, or approximately $2.8 million. In April 2009, the Company made an additional draw down of ¥250 million, or approximately $2.5 million.

In connection with the formation of TSYS Managed Services, TSYS and Merchants agreed to provide long-term financing to TSYS Managed Services. At the end of December 2010, the balance of the financing arrangement with Merchants was approximately £504,000, or approximately $775,000.

In addition, 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 2010, 2009 or 2008.

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Long-term debt at December 31 consists of:

(in thousands)	2010		2009
LIBOR + 0.60%, unsecured term loan, due December 21, 2012, with principal to be paid at maturity	$	168,000		168,000
1.50% note payable, due December 31, 2013, with monthly interest and principal payments		39,758		—
LIBOR + 0.80%, unsecured term loan, due November 2, 2011, with principal paid at maturity		23,937		21,773
3.95% note payable, due March 1, 2011, with monthly interest and principal payments		1,790		8,778
LIBOR + 2.00%, unsecured term loan, due November 16, 2011, with quarterly interest payments and principal to be paid at maturity		775		804
Total debt		234,260		199,355
Less current portion		39,557		6,988
Noncurrent portion of long-term debt	$	194,703		192,367

Required annual principal payments on long-term debt for the five years subsequent to December 31, 2010 are summarized as follows:

(in thousands)
2011	$	39,557
2012		181,251
2013		13,452
2014		—
2015		—

Capital lease obligations at December 31 consists of:

(in thousands)	2010		2009
Capital lease obligations	$	43,764		19,045
Less current portion		13,191		6,289
Noncurrent portion of capital leases	$	30,573		12,756

The future minimum lease payments under capital leases at December 31, 2010 are summarized as follows:

(in thousands)
2011	$	13,947
2012		11,047
2013		10,105
2014		9,555
2015		813
Total minimum lease payments		45,467
Less amount representing interest		1,703
	$	43,764

NOTE 14   Other Current Liabilities

Significant components of other current liabilities at December 31 are summarized as follows:

(in thousands)	2010		2009
Client liabilities	$	21,296		45,824
Accrued expenses		29,999		32,909
Deferred revenues		34,184		31,244
Dividends payable		13,634		13,828
Transaction processing provisions		5,221		5,484
Client postage deposits		3,708		3,736
Accrued income taxes		2,920		252
Other		78		19,465
Total	$	111,040		152,742

45   

NOTE 15   Equity

DIVIDENDS:  Dividends on common stock of $55.1 million were paid in 2010, compared to $55.2 million and $55.4 million in 2009 and 2008, respectively.

EQUITY COMPENSATION PLANS:  The following table summarizes TSYS’ equity compensation plans by category:

	(a)			(b)		(c)
	Number of securities to be			Weighted-average		Number of securities remaining
	issued upon exercise of			exercise price of		available for future issuance
	outstanding options,			outstanding		under equity compensation plans
(in thousands, except per share data)	warrants			options, warrants		(excluding securities reflected
Plan Category	and rights			and rights		in column (a))
Equity compensation plans approved by security holders		8,810	(1)	$	23.40		20,163	(2)
Equity compensation plans not approved by security holders		—			—		—
Total		8,810		$	23.40		20,163

(1)	Does not include an aggregate of 389,519 shares of nonvested awards which will vest over the remaining years through 2012.
(2)	Includes 20,162,500 shares available for future grants under the Total System Services, Inc. 2002 Long-Term Incentive Plan, 2007 Omnibus Plan and 2008 Omnibus Plan.

NOTE 16   Share-Based Compensation

General Description of Share-Based Compensation Plans

TSYS has various long-term incentive plans under which the Compensation Committee of the Board of Directors has the authority to grant share-based compensation to TSYS employees.

Employee stock options granted during or after 2006 (other than performance-based stock options) generally become exercisable at the end of the three-year period and expire ten years from the date of grant. Vesting for stock options granted during or after 2006 (other than performance-based stock options) accelerates upon retirement for plan participants who have reached age 62 and who also have no less than fifteen years of service at the date of their election to retire. For stock options granted in 2006, share-based compensation expense is fully recognized for plan participants upon meeting the retirement eligibility requirements of age and service.

Stock options granted prior to 2006 generally become exercisable at the end of a two to three-year period and expire ten years from the date of grant. Vesting for stock options granted prior to 2006 accelerates upon retirement for plan participants who have reached age 50 and who also have no less than fifteen years of service at the date of their election to retire. Following adoption of ASC 718, share-based compensation expense is recognized in income over the remaining nominal vesting period with consideration for retirement eligibility.

The performance-based stock options awarded to TSYS executives effective April 30, 2010 become exercisable only upon satisfaction of certain performance conditions. Share-based compensation expense is recognized in income based upon the Company’s estimate of the probability of achieving the specified EPS goal. The Company historically issues new shares or uses treasury shares to satisfy share option exercises.

Long-Term Incentive Plans

TSYS maintains the Total System Services, Inc. 2008 Omnibus Plan, Total System Services, Inc. 2007 Omnibus Plan, Total System Services, Inc. 2002 Long-Term Incentive Plan and Total System Services, Inc. 2000 Long-Term Incentive Plan to advance the interests of TSYS and its shareholders through awards that give employees and directors a personal stake in TSYS’ growth, development and financial success. Awards under these plans are designed to motivate employees and directors to devote their best interests to the business of TSYS. Awards will also help TSYS attract and retain the services of employees and directors who are in a position to make significant contributions to TSYS’ success.

The plans are administered by the Compensation Committee of the Company’s Board of Directors and enable the Company to grant nonqualified and incentive stock options, stock appreciation rights, restricted stock and restricted stock units, performance units or performance shares, cash-based awards, and other stock-based awards.

All stock options must have a maximum life of no more than ten years from the date of grant. The exercise price will not be less than 100% of the fair market value of TSYS’ common stock at the time of grant. Any shares related to awards which terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares, are settled in cash in lieu of shares, or are exchanged with the Committee’s permission, prior to the issuance of shares, for

    46

awards not involving shares, shall be available again for grant under the various plans. The aggregate number of shares of TSYS stock which may be granted to participants pursuant to awards granted under the various plans may not exceed the following: Total System Services, Inc. 2008 Omnibus Plan −17 million shares; Total System Services, Inc. 2007 Omnibus Plan −5 million shares; Total System Services, Inc. 2002 Long-Term Incentive Plan −9.4 million shares; and Total System Services, Inc. 2000 Long-Term Incentive Plan −2.4 million shares. Effective February 1, 2010, no additional awards may be made from the Total System Services, Inc. 2000 Long-Term Incentive Plan.

Share-Based Compensation

TSYS’ share-based compensation costs are included as expenses and classified as cost of services and selling, general and administrative. TSYS does not include amounts associated with share-based compensation as costs capitalized as software development and contract acquisition costs as these awards are typically granted to individuals not involved in capitalizable activities. For the year ended December 31, 2010, share-based compensation was $15.8 million compared to $16.2 million and $17.8 million (excluding $6.8 million included in spin-related expenses) for the same periods in 2009 and 2008, respectively.

Nonvested Awards:  The Company granted shares of TSYS common stock to certain key employees and non-management members of its Board of Directors under nonvested stock bonus awards for services to be provided in the future by such officers, directors and employees. The following table summarizes the number of shares granted each year:

	2010		2009		2008
Number of shares		197,186		513,920		697,911
Market value	$	3.1 million	$	6.8 million	$	15.3 million

A summary of the status of TSYS’ nonvested shares as of December 31, 2010, 2009 and 2008, respectively, and the changes during the periods are presented below:

	2010					2009					2008
				Weighted										Weighted
				Average										Average
Nonvested shares				Grant-Date					Grant-Date					Grant-Date
(in thousands, except per share data)	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Outstanding at beginning of year		1,084		$	18.60		1,014		$	23.46		591		$	26.15
Granted		197			15.55		514			13.28		698			21.89
Vested		(416	)		20.63		(414	)		23.77		(258	)		25.24
Forfeited/canceled		(44	)		17.32		(30	)		20.34		(17	)		25.19
Outstanding at end of year		821		$	16.91		1,084		$	18.60		1,014		$	23.46

As of December 31, 2010, there was approximately $8.0 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a remaining weighted average period of 1.8 years.

In March 2010, TSYS authorized a total grant of 279,831 performance shares to certain key executives with a performance based vesting schedule (2010 performance shares). These 2010 performance shares have a 2010-2012 performance period for which the Compensation Committee established two performance goals: compound growth in revenues before reimbursables and income from continuing operations using the 2010 annual operating plan as the base. The Compensation Committee will certify the attainment level of such goals following the end of 2012, and the number of performance shares that will vest, up to a maximum of 200% of the total grant. Compensation expense for the award is measured on the grant date based on the quoted market price of TSYS common stock. The Company will estimate the probability of achieving the goals through the performance period and will expense the award on a straight-line basis.

As of December 31, 2010, there was approximately $2.9 million of total unrecognized compensation cost related to the 2010 performance shares compensation arrangement. That cost is expected to be recognized until the end of 2012.

During 2008 and 2005, respectively, TSYS authorized a grant of non-vested awards to two key executives with separate performance vesting schedules. These grants have separate one-year performance periods that vest over five to seven years during each of which the Compensation Committee establishes an earnings per share goal and, if such goal is attained during any performance period, 20% of the performance-based shares will vest, up to a maximum of 100% of the total grant. Compensation expense for each year’s award is measured on the grant date based on the quoted market price of TSYS common stock and is expensed on a straight-line basis for the year.

47   

A summary of the awards authorized in each year is below:

	Total Number of		Potential Number of
Year of Initial Award	Shares Awarded		Performance-Based Shares to be Vested
2010		279,831		279,831	(2013	)
2008		182,816		109,688	(2011-2014	)

A summary of the status of TSYS’ performance-based nonvested shares as of December 31, 2010, 2009 and 2008, respectively, and changes during those periods are presented below:

	2010					2009					2008
				Weighted					Weighted					Weighted
Performance-based				Average					Average					Average
Nonvested shares				Grant Date					Grant-Date					Grant-Date
(in thousands, except per share data)	Shares			Fair Value		Shares			Fair Value		Shares			Fair Value
Outstanding at beginning of year		62		$	13.69		62		$	23.32		25		$	32.27
Granted		316			15.65		62			13.69		62			23.32
Vested		(62	)		13.69		(62	)		23.32		(25	)		32.27
Forfeited/canceled		—			—		—			—		—			—
Outstanding at end of year		316		$	15.65		62		$	13.69		62		$	23.32

Stock Option Awards

During 2010, 2009 and 2008, the Company granted stock options to key TSYS executive officers. The average fair value of the options granted for both years was estimated on the date of grant using the Black-Scholes-Merton option-pricing model. The following table summarizes the weighted average assumptions, and the fair value of the options:

	2010			2009			2008
Number of options granted		2,176,963			1,047,949			771,892
Weighted average exercise price	$	16.01		$	13.11		$	23.15
Risk-free interest rate		2.65	%		3.19	%		3.42	%
Expected volatility		30.00	%		42.00	%		36.57	%
Expected term (years)		4.89			8.6			8.7
Dividend yield		1.79	%		2.14	%		1.21	%
Weighted average fair value	$	4.11		$	5.31		$	9.73

In April 2010, the Company granted 1.4 million stock options to key TSYS executive officers that are performance- and/or market conditions-based. These stock options will vest and become exercisable only if the stock price is at least a specified percentage above the grant date stock price on April 30, 2013 or TSYS reaches a specified EPS goal by December 31, 2012. Given the market conditions component, TSYS evaluated the impact using the Monte Carlo simulation to value these awards and ultimately determined that the impact was minimal. The average fair value of the option grants was $3.48 per option and was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions: exercise price of $16.19; risk-free interest rate of 2.07%; expected volatility of 30.0%; expected term of 4.0 years; and dividend yield of 1.79%.

In March 2010, the Company also granted 736,000 stock options to key TSYS executive officers. The average fair value of the option grant was $5.33 per option and was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions: exercise price of $15.66; risk-free interest rate of 3.77%; expected volatility of 30.0%; expected term of 8.6 years; and dividend yield of 1.79%. The grant will vest over a period of 3 years.

The expected term of years for the 2008 grant was determined under the “simplified” method as prescribed by the SEC’s SAB No. 107.

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A summary of TSYS’ stock option activity as of December 31, 2010, 2009 and 2008, and changes during the years ended on those dates is presented below:

	2010					2009					2008
				Weighted					Weighted					Weighted
(in thousands,				Average					Average					Average
except per share data)	Options			Exercise Price		Options			Exercise Price		Options			Exercise Price
Options:
Outstanding at beginning of year		6,955		$	25.54		6,185		$	27.59		5,439		$	28.20
Granted		2,177			15.89		1,048			13.11		771			23.15
Exercised		(41	)		13.11		(1	)		1.83		(14	)		18.62
Forfeited/canceled		(281	)		19.83		(277	)		24.36		(11	)		28.40
Outstanding at end of year		8,810		$	23.40		6,955		$	25.54		6,185		$	27.59
Options exercisable at year-end		5,712		$	27.48		5,357		$	28.15		5,250		$	28.14
Weighted average fair value of options granted during the year				$	4.11				$	5.31				$	9.73

	Outstanding			Exercisable
Average remaining contractual life (in years)		3.9			2.5
Aggregate intrinsic value (in thousands)	$	(53,967	)	$	(58,343	)

	Options Exercised		Intrinsic Value
2010		41,403		$90,400
2009		1,205		$14,300
2008		14,399		$64,000

For awards granted before January 1, 2006 that were not fully vested on January 1, 2006, the Company will record the tax benefits from the exercise of stock options as increases to the “Additional paid-in capital” line item of the Consolidated Balance Sheets. If the Company does recognize tax benefits, the Company will record these tax benefits from share-based compensation costs as cash inflows in the financing section and cash outflows in the operating section in the Statement of Cash Flows. The Company has elected to use the short-cut method to calculate its historical pool of windfall tax benefits.

As of December 31, 2010, there was approximately $8.8 million of total unrecognized compensation cost related to TSYS stock options that is expected to be recognized over a remaining weighted average period of 2.0 years.

NOTE 17   Treasury Stock

The following table summarizes shares held as treasury stock and their related carrying value:

	Number of
	Treasury		Treasury
(in thousands)	Shares		Shares Cost
December 31, 2010		6,798	$	115,449
December 31, 2009		3,680		69,950
December 31, 2008		3,652		69,641

Stock Repurchase Plan

On April 20, 2010, TSYS announced a stock repurchase plan to purchase up to 10 million shares of TSYS stock. The shares may be purchased from time to time over the next two years at prices considered attractive to the Company. Through December 31, 2010, the Company purchased 3.1 million shares for approximately $45.1 million, at an average price of $14.60.

49   

On April 20, 2006, TSYS announced that its board had approved a stock repurchase plan to purchase up to 2 million shares, which represented slightly more than five percent of the shares of TSYS stock held by shareholders other than Synovus. The shares may be purchased from time to time over a two year period and will depend on various factors including price, market conditions, acquisitions and the general financial position of TSYS. Repurchased shares will be used for general corporate purposes.

With the completion of the spin-off, the TSYS Board of Directors extended to April 2010 TSYS’ current share repurchase program that was set to expire in April 2008 and increased the number of shares that may be repurchased under the plan from 2 million to 10 million.

During 2008, TSYS purchased approximately 2.0 million shares of TSYS common stock through privately negotiated and open market transactions for an aggregate purchase price of $35.7 million, or an average per share price of $18.13. The Company had approximately 6,928,000 shares remaining that could be repurchased under the stock repurchase plan. The plan expired in April 2010.

The following table sets forth information regarding the Company’s purchases of its common stock on a monthly basis during the three months ended December 31, 2010:

							Maximum
							Number of
					Total Number of		Shares That
					Cumulative Shares Purchased		May Yet Be
	Total Number				as Part of Publicly		Purchased
	of Shares		Average Price		Announced Plans		Under the Plans
(in thousands, except per share data)	Purchased		Paid per Share		or Programs		or Programs
October 2010		—	$	—		3,093		6,907
November 2010		—		—		3,093		6,907
December 2010		—		—		3,093		6,907
Total		—	$	—

Shares Issued for Options Exercised

During 2010, 2009 and 2008, employees of the Company exercised options for shares of TSYS common stock that were issued from treasury or newly issued shares. The table below summarizes these stock option exercises by year:

	2010		2009		2008
Issued from treasury		41,403		1,205		12,198
Newly issued		—		—		2,201

Treasury Shares

In 2008, the Compensation Committee approved “share withholding for taxes” for all employee nonvested awards, and also for employee stock options under specified circumstances. The dollar amount of the income tax liability from each exercise is converted into TSYS shares. The shares are added to the treasury account and TSYS remits funds to the Internal Revenue Service to settle the tax liability. During 2010 and 2009, the Company acquired 66,553 shares for approximately $1.1 million and 29,221 shares for approximately $329,000, respectively, as a result of share withholding for taxes.

NOTE 18   Other Comprehensive Income (Loss)

In June 1997, the FASB issued authoritative guidance under ASC 220. ASC 220 established certain standards for reporting and presenting comprehensive income in the general-purpose financial statements. The purpose of ASC 220 was to report all items that met the definition of “comprehensive income” in a prominent financial statement for the same period in which they were recognized. Comprehensive income includes all changes in owners’ equity that resulted from transactions of the business entity with nonowners.

Comprehensive income is the sum of net income and other items that must bypass the income statement because they have not been realized, including items such as an unrealized holding gain or loss from available for sale securities and foreign currency translation gains or losses. These items are not part of net income, yet are important enough to be included in comprehensive income, giving the user a more comprehensive picture of the organization as a whole. Items included in comprehensive income, but not net income, are reported under the accumulated other comprehensive income section of shareholders’ equity.

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In September 2006, the FASB issued authoritative guidance under ASC 715, “Compensation — Retirement Benefits.” ASC 715 requires an employer to recognize the overfunded or underfunded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in the funded status in the year in which the changes occur through comprehensive income.

Comprehensive income (loss) for TSYS consists of net income, cumulative foreign currency translation adjustments and the recognition of an overfunded or underfunded status of a defined benefit postretirement plan recorded as a component of shareholders’ equity. The income tax effects allocated to and the cumulative balance of each component of accumulated other comprehensive income (loss) are as follows:

	Beginning			Pretax			Tax			Net-of-Tax			Ending
(in thousands)	Balance			amount			effect			Amount			Balance
December 31, 2007	$	20,641			9,532			1,851			7,681		$	28,322
Foreign currency translation adjustments	$	29,202			(43,315	)		(8,255	)		(35,060	)	$	(5,858	)
Change in accumulated OCI related to postretirement healthcare plans		(880	)		194			83			111			(769	)
December 31, 2008	$	28,322			(43,121	)		(8,172	)		(34,949	)	$	(6,627	)
Foreign currency translation adjustments	$	(5,858	)		14,140			1,995			12,145		$	6,287
Change in accumulated OCI related to postretirement healthcare plans		(769	)		235			80			155			(614	)
December 31, 2009	$	(6,627	)		14,375			2,075			12,300		$	5,673
Foreign currency translation adjustments	$	6,287			(8,609	)		(1,080	)		(7,529	)	$	(1,242	)
Change in accumulated OCI related to postretirement healthcare plans		(614	)		(1,138	)		(409	)		(729	)		(1,343	)
December 31, 2010	$	5,673			(9,747	)		(1,489	)		(8,258	)	$	(2,585	)

Consistent with its overall strategy of pursuing international investment opportunities, TSYS adopted the permanent reinvestment exception under ASC 740, “Income Taxes,” with respect to future earnings of certain foreign subsidiaries. Its decision to permanently reinvest foreign earnings offshore means TSYS will no longer allocate taxes to foreign currency translation adjustments associated with these foreign subsidiaries accumulated in other comprehensive income.

NOTE 19   Commitments and Contingencies

LEASE COMMITMENTS:  TSYS is obligated under noncancelable operating leases for computer equipment and facilities.

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, 2010, are as follows:

(in thousands)
2011	$	85,987
2012		83,765
2013		73,969
2014		40,259
2015		26,983
Thereafter		10,796
Total future minimum lease payments	$	321,759

The majority of computer equipment lease commitments come with a renewal option or an option to terminate the lease. These lease commitments may be replaced with new leases which allow the Company to continually update its computer equipment. Total rental expense under all operating leases in 2010, 2009 and 2008 was $102.1 million, $105.4 million and $101.4 million, respectively. Total rental expense under sublease arrangements in 2010, 2009 and 2008 was $675,000, $720,000 and $702,000, respectively. The rental income under sublease arrangements in 2010, 2009 and 2008 was $809,000, $863,000 and $842,000, respectively.

CONTRACTUAL COMMITMENTS:  In the normal course of its business, the Company maintains long-term 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 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

51   

material adverse effect on its financial position, results of operations or cash flows.

CONTINGENCIES:  

Legal Proceedings-General

The Company is subject to various legal proceedings and claims and is also subject to information requests, inquiries and investigations arising out of the ordinary conduct of its business. The Company establishes reserves for litigation and similar matters when those matters present loss contingencies that TSYS determines to be both probable and reasonably estimable in accordance with ASC 450, “Contingencies.” In the opinion of management, based on current knowledge and in part upon the advice of legal counsel, all matters are believed to be adequately covered by insurance, or if not covered, are believed to be without merit or are of such kind or involve such amounts that would not have a material adverse effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably.

Infonox Matter

On September 22, 2010, Safwan Shah filed a lawsuit in the Superior Court of California, Santa Clara County, against Total System Services, Inc., TSYS Acquiring Solutions, L.L.C. and Infonox, a TSYS Company (Case No. 1-10-CV-183173). The claims arise out of TSYS’ purchase of Infonox on the Web (“Infonox”) in November 2008. The Agreement and Plan of Merger in connection with the transaction provided that certain “remaining shareholders” of Infonox could receive “contingent merger consideration” if Infonox reached certain revenue targets during the three years following the closing of the transaction. Plaintiff, a former shareholder of Infonox, alleges that the defendants have wrongfully refused to pay $25 million in “contingent merger consideration” as provided for in the Agreement and Plan of Merger. Plaintiff brings the claim in his individual capacity and also as a representative of other former Infonox shareholders. Plaintiff’s claims allege fraud, fraudulent inducement, negligent misrepresentation, breach of contract, and breach of duty of good faith and fair dealing. In January 2011, Plaintiff and TSYS entered into an Arbitration Agreement, pursuant to which Shah agreed to stay the lawsuit pending in the Superior Court of California, Santa Clara County and to arbitrate the claims he has asserted in the lawsuit. The arbitration is currently scheduled for July 2011. Defendants believe that the allegations are without merit and plan to vigorously defend themselves against the allegations. Based on information that is presently available to it, TSYS’ management is unable to predict the outcome of the case and cannot currently reasonably determine the probability of a material adverse result or reasonably estimate a range of potential exposure, if any. Although the ultimate outcome of this case cannot be ascertained at this time, based upon current knowledge, TSYS’ management does not believe the eventual outcome of this case will have a material adverse effect on TSYS’ financial position, results of operations or cash flows. However, it is possible that the ultimate outcome of this case may be material to TSYS’ results of operations for any particular period.

Electronic Payment Systems Matter

In February 2007, TSYS Acquiring Solutions, L.L.C., a wholly owned subsidiary of TSYS (“TSYS Acquiring”), filed a demand for arbitration for payment of past due processing fees pursuant to a contract with Electronic Payment Systems LLC (“EPS”), an acquiring independent sales organization. EPS counterclaimed and alleged certain monetary damages. In April 2008, EPS amended its counterclaims, adding a claim for a declaration that the arbitrator award EPS ownership, control and access to the 1-800 number that connects EPS’ merchants to TSYS Acquiring as EPS’ processor. On January 20, 2009, the arbitrator denied all TSYS Acquiring’s claims, awarded EPS approximately $3.3 million in damages and fees and awarded EPS immediate ownership, control and access over the 1-800 number.

On January 26, 2009, TSYS Acquiring filed an action (the “First Action”) in the United States District Court for the District of Arizona (Civil Action No. CV09-00155-PHX-JAT) seeking to vacate the arbitration award. However, on October 22, 2009, the court granted summary judgment in favor of EPS. On May 4, 2010, after the court denied post-judgment motions filed by TSYS Acquiring, the court confirmed the monetary judgment and TSYS Acquiring paid the monetary judgment to EPS. TSYS Acquiring had been using seven 1-800 numbers to connect EPS’ merchants and the court interpreted the arbitrator’s award to include all seven numbers.

On May 14, 2010, TSYS Acquiring filed a second action (the “Second Action”) in the United States District Court for the District of Arizona (Civil Action No. CV10-01060-PHX-DGC) seeking a declaratory judgment that TSYS did not need to give EPS ownership and control of the seven 1-800 numbers. EPS filed a motion for summary judgment on the request for declaratory relief. EPS also filed a counterclaim arguing that TSYS Acquiring should be required to pay EPS for its continued use of the 1-800 number and seeking punitive damages based on various consumer protection statutes. On November 9, 2010, the court granted EPS’ motion for summary judgment. The EPS counterclaims that were not previously dismissed in the Second Action remain pending.

On December 3, 2010, EPS filed a motion to compel in the First Action seeking to require TSYS Acquiring to provide EPS with immediate ownership, control and access over the seven 1-800 numbers used by EPS merchants.

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On January 24, 2011, TSYS Acquiring filed a petition with the Federal Communications Commission (“FCC”) seeking a ruling that the enforcement of the arbitration award regarding the 1-800 numbers would violate the FCC’s rules regarding the allocation and transfer of 1-800 numbers.

On February 15, 2011, the court in the First Action issued an order (the “Order”) requiring TSYS Acquiring to comply with the arbitration award by moving all non-EPS merchants off of 1-800 numbers used by EPS merchants, and to then transfer to EPS the seven toll free numbers at issue. The Order requires compliance within 90 days. In addition, the court rejected TSYS Acquiring’s arguments that the award cannot be enforced because it violates FCC regulations.

On February 24, 2011, the FCC released a Declaratory Ruling granting TSYS Acquiring’s petition by affirming that the FCC has exclusive jurisdiction over the transfer of toll free numbers, and noting that several aspects of the arbitrator’s ruling and the affirmation of that ruling by the United States District Court for the District of Arizona conflicted with the FCC’s rules and related tariffs governing the transfer of toll free numbers. Because of this, the Declaratory Ruling proceeded to direct those third parties charged with the administration of the seven toll free numbers for TSYS Acquiring, as well as the Toll Free Number Administrator charged with administering the database of toll free numbers, to reject any requests seeking a transfer of those numbers from TSYS Acquiring to another party, absent a specific directive from the FCC.

In light of the FCC’s Declaratory Ruling that the toll free numbers may not be transferred by an order of the court or the arbitrator, TSYS Acquiring intends to continue to vigorously defend itself against enforcement of the Order in the United States District Court for the District of Arizona, and if necessary, the Ninth Circuit Court of Appeals.

If the Order is not vacated or modified in response to the FCCs recent Declaratory Ruling, it would require TSYS Acquiring to move over 750,000 merchants that use one of the seven numbers that EPS seeks to possess to other toll free numbers. TSYS Acquiring cannot estimate the cost of such compliance, but TSYS Acquiring believes the cost of such compliance would be substantial. Further, if TSYS Acquiring is unable to comply with the order within 90 days, the court could impose sanctions which could be substantial. Based upon current knowledge, TSYS’ management does not believe that the eventual outcome of this case will have a material adverse effect on TSYS’ financial position, results of operations or cash flows. However, it is possible that the ultimate outcome of this case may be material to TSYS’ results of operations for any particular period.

GUARANTEES AND INDEMNIFICATIONS:  The Company has entered into processing and licensing agreements with its clients that include intellectual property indemnification clauses. Under these clauses, the Company generally agrees to indemnify its clients, subject to certain exceptions, against legal claims that TSYS’ services or systems infringe on certain third party patents, copyrights or other proprietary rights. In the event of such a claim, the Company is generally obligated to hold the client harmless and pay for related losses, liabilities, costs and expenses, including, without limitation, court costs and reasonable attorney’s fees. The Company has not made any indemnification payments pursuant to these indemnification clauses.

The Company has not recorded a liability for guarantees or indemnities in the accompanying consolidated balance sheet since the maximum amount of potential future payments under such guarantees and indemnities is not determinable.

NOTE 20   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,
(in thousands)	2010			2009			2008
Current income tax expense (benefit):
Federal		$98,802			115,301			125,743
State		4,221			4,311			4,678
Foreign		8,682			6,185			5,075
Total current income tax expense		111,705			125,797			135,496
Deferred income tax expense (benefit):
Federal		(2,970	)		(4,210	)		(3,469	)
State		(643	)		947			(390	)
Foreign		(2,004	)		(684	)		(431	)
Total deferred income tax benefit		(5,617	)		(3,947	)		(4,290	)
Total income tax expense		$106,088			121,850			131,206

53   

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, noncontrolling interest and equity in income of equity investments as a result of the following:

	Years Ended December 31,
(in thousands)	2010			2009			2008
Computed “expected” income tax expense		$107,734			119,205			131,057
Increase (decrease) in income tax expense resulting from:
International earnings not taxable in the U.S.		(9,014	)		(891	)		(4,935	)
State income tax expense (benefit), net of federal income tax effect		2,326			3,418			2,787
Increase (decrease) in valuation allowance		2,564			(6,159	)		5,006
Tax credits		(2,824	)		(4,299	)		(4,131	)
Federal income tax expense resulting from ASC 740 Election		—			9,844			—
Permanent differences and other, net		5,302			732			1,422
Total income tax expense		$106,088			121,850			131,206

Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of the net deferred tax liability at December 31, 2010 and 2009 relate to the following:

	At December 31,
(in thousands)	2010			2009
Deferred income tax assets:
Net operating loss and income tax credit carryforwards	$	19,884			18,653
Allowances for doubtful accounts and billing adjustments		1,304			2,114
Deferred revenue		16,244			14,857
Other, net		33,980			29,610
Total deferred income tax assets		71,412			65,234
Less valuation allowance for deferred income tax assets		(15,434	)		(12,870	)
Net deferred income tax assets		55,978			52,364
Deferred income tax liabilities:
Excess tax over financial statement depreciation		(35,878	)		(36,223	)
Computer software development costs		(38,797	)		(39,150	)
Purchase accounting adjustments		(1,438	)		(1,672	)
Foreign currency translation		(3,771	)		(4,851	)
Other, net		(4,848	)		(6,328	)
Total deferred income tax liabilities		(84,732	)		(88,224	)
Net deferred income tax liabilities	$	(28,754	)		(35,860	)
Total net deferred tax assets (liabilities):
Current	$	11,090			11,302
Noncurrent		(39,844	)		(47,162	)
Net deferred income tax liability	$	(28,754	)		(35,860	)

As of December 31, 2010, TSYS had recognized deferred tax assets from net operating losses, capital losses and federal and state income tax credit carryforwards of $15.3 million, $2.1 million and $2.5 million, respectively. As of December 31, 2009, TSYS had recognized deferred tax assets from net operating losses, capital losses and federal and state income tax credit carryforwards of $13.2 million, $2.4 million and $3.1 million, respectively. The credits will begin to expire in the year 2011. The net operating losses will begin to expire in the year 2011.

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.

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Management believes 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 $15.4 million and $12.9 million at December 31, 2010 and 2009, respectively. The increase in the valuation allowance for deferred income tax assets was $2.6 million for 2010. The decrease in the valuation allowance for deferred income tax assets was $6.1 million for 2009. The increase relates to foreign losses, which, more likely than not, will not be realized in later years.

No provision for U.S. federal and state incomes taxes has been made in our consolidated financial statements for those non-U.S. subsidiaries whose earnings are considered to be reinvested. A distribution of these non-U.S. earnings in the form of dividends, or otherwise, would subject the Company to both U.S. federal and state income taxes, as adjusted for non-U.S. tax credits, and withholding taxes payable to the various non-U.S. countries. Determination of the amount of any unrecognized deferred income tax liability on these undistributed earnings is not practicable.

TSYS is the parent of an affiliated group that files a consolidated U.S. federal income tax return and most state and foreign income tax returns on a separate entity basis. In the normal course of business, the Company is subject to examinations by these taxing authorities unless statutory examination periods lapse. TSYS is no longer subject to U.S. federal income tax examinations for years before 2007 and with few exceptions, the Company is no longer subject to income tax examinations from state and local or foreign tax authorities for years before 2003. There are currently no federal or foreign tax examinations in progress. However, a number of tax examinations are in progress by the relevant state tax authorities. Although TSYS is unable to determine the ultimate outcome of these examinations, TSYS believes that its liability for uncertain tax positions relating to these jurisdictions for such years is adequate.

TSYS adopted the provisions of ASC 740 on January 1, 2007 which prescribes a recognition threshold and measurement attribute for the financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken in a tax return. During the year ended December 31, 2010, TSYS decreased its liability for prior year uncertain income tax positions as a discrete item by a net amount of approximately $0.7 million (net of the federal tax effect). This decrease resulted from recalculating state liabilities and expiring federal and state audit period statutes and other new information impacting the potential resolution of material uncertain tax positions. The Company is not able to reasonably estimate the amount by which the liability will increase or decrease over time; however, at this time, the Company does not expect any significant changes related to these obligations within the next twelve months.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows⁽¹⁾:

	Year Ended
	December 31,
(in millions)	2010
Beginning balance	$	5.0
Current activity:
Additions based on tax positions related to current year		0.1
Additions for tax positions of prior years		0.5
Reductions for tax positions of prior years		(1.1	)
Settlements		—
Net, current activity		(0.5	)
Ending balance	$	4.5

(1) Unrecognized state tax benefits are not adjusted for the federal tax impact.

TSYS recognizes potential interest and penalties related to the underpayment of income taxes as income tax expense in the consolidated statements of income. Gross accrued interest and penalties on unrecognized tax benefits totaled $1.1 million and $0.7 million as of December 31, 2010 and December 31, 2009, respectively. The total amounts of unrecognized income tax benefits as of December 31, 2010 and December 31, 2009 that, if recognized, would affect the effective tax rates are $4.2 million and $4.2 million (net of the federal benefit on state tax issues), respectively, which includes interest and penalties of $1.0 million and $0.6 million, respectively.

NOTE 21   Employee Benefit Plans

The Company provides benefits to its employees by offering employees participation in certain defined contribution plans. The employee benefit plans through which TSYS provided benefits to its employees during 2010 are described as follows:

TSYS RETIREMENT SAVINGS PLAN:  In 2010, all qualified plans maintained by TSYS were combined into a single plan, the Retirement Savings Plan, which is designed to reward all team members of TSYS U.S.- based companies with a uniform employer contribution. The terms of the plan provide for the Company to match 100% of the employee contribution up to 4% of eligible compensation. The Company can make discretionary contributions up to another 4% based upon business conditions.

MONEY PURCHASE PLAN:  During 2009 and 2008, the Company’s employees were eligible to participate in the Total System Services, Inc. (TSYS) Money Purchase Pension Plan, a defined contribution pension plan. The terms of the plan provide for

55   

the Company to make annual contributions to the plan equal to 7% of participant compensation, as defined.

PROFIT SHARING PLAN:  During 2009 and 2008, the Company’s employees were eligible to participate in the 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% of participant compensation, as defined, not to exceed the maximum allowable deduction under Internal Revenue Service guidelines.

401(K) PLAN:  During 2009 and 2008, the Company’s employees were eligible to participate in the TSYS 401(k) Plan. The terms of the plan allow employees to contribute eligible pretax compensation with a discretionary company contribution up to a maximum of 7% of participant compensation, as defined, based upon the Company’s attainment of certain financial goals.

The Company’s contributions to the plans charged to expense for the years ended December 31 are as follows:

(in thousands)	2010		2009		2008
TSYS Retirement Savings Plan	$	15,430		—		—
Money Purchase Plan		—		19,307		19,185
Profit Sharing Plan		—		—		4,473
401(k) Plan		—		306		625

STOCK PURCHASE PLAN:  The Company maintains stock purchase plans for employees and directors. Prior to July 2009, the Company made contributions equal to one-half of employee and director voluntary contributions. Beginning in July 2009, the Company changed its contribution to 15% 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. The Company’s contributions to these plans charged to expense for the years ended December 31 are as follows:

(in thousands)
2010	$	1,260
2009		3,764
2008		5,864

POSTRETIREMENT MEDICAL BENEFITS PLAN:  TSYS provides certain medical benefits to qualified retirees through a postretirement medical benefits plan, which is immaterial to the Company’s consolidated financial statements. The measurement of the benefit expense and accrual of benefit costs associated with the plan do not reflect the effects of the 2003 Medicare Act. Additionally, the benefit expense and accrued benefit cost associated with the plan, as well as any potential impact of the effects of the 2003 Medicare Act, are not significant to the Company’s consolidated financial statements.

NOTE 22   Segment Reporting, including Geographic Area Data and Major Customers

In June 1997, the FASB issued guidance in accordance with ASC 280, “Segment Reporting.” ASC 280 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 area data and major customers.

TSYS provides global payment processing and other services to card-issuing and merchant acquiring institutions in the United States and internationally through online accounting and electronic payment processing systems. During 2010, TSYS reorganized its operating segments in a manner that reflects the way the chief operating decision maker (CODM) views the business. The change involved accumulating corporate administration expenses, such as finance, legal, human resources, mergers and acquisitions and investor relations, that existed in all operating segments and categorizing them, and spin-related costs, as Corporate Administration.

In September 2010, the Company sold certain assets and liabilities of TPOS. As a result, TPOS was classified as discontinued operations for all periods. TPOS was included in the Merchant Services segment.

In April 2010, TSYS acquired 51% of TMS. Refer to Note 24 for more information on the acquisition of TMS. Since the acquisition, TSYS has included the financial results of TMS in the Merchant Services segment.

North America Services includes electronic payment processing services and other services provided from within the North America region. International Services includes electronic payment processing and other services provided from outside the North America region. Merchant Services includes electronic processing and other services provided to merchant acquiring institutions.

The Company believes the terms and conditions of transactions between the segments are comparable to those which could have been obtained in transactions with unaffiliated parties.

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										2010 vs. 2009						2009 vs. 2008
(in thousands)										Change						Change
Operating Segments	2010			2009			2008			$			%			$			%
Revenues before reimbursable items
North America Services	$	809,012			880,668			938,442			(71,656	)		(8.1	)%	$	(57,774	)		(6.2	)%
International Services		321,846			322,697			307,361			(851	)		(0.3	)%		15,336			5.0	%
Merchant Services		337,178			232,262			224,356			104,916			45.2	%		7,906			3.5	%
Intersegment revenues		(25,600	)		(28,322	)		(23,516	)		2,722			9.6	%		(4,806	)		(20.4	)%
Revenues before reimbursable items from external customers	$	1,442,436			1,407,305			1,446,643			35,131			2.5	%	$	(39,338	)		(2.7	)%
Total revenues
North America Services	$	956,546			1,048,932			1,136,901			(92,386	)		(8.8	)%	$	(87,969	)		(7.7	)%
International Services		334,954			337,757			318,534			(2,803	)		(0.8	)%		19,223			6.0	%
Merchant Services		458,921			327,055			288,680			131,866			40.3	%		38,375			13.3	%
Intersegment revenues		(32,844	)		(36,261	)		(32,581	)		3,417			9.4	%		(3,680	)		(11.3	)%
Revenues from external customers	$	1,717,577			1,677,483			1,711,534			40,094			2.4	%	$	(34,051	)		(2.0	)%
Depreciation and amortization
North America Services	$	78,834			84,577			95,350			(5,743	)		(6.8	)%	$	(10,773	)		(11.3	)%
International Services		40,792			34,791			33,271			6,001			17.2	%		1,520			4.6	%
Merchant Services		40,298			32,590			27,371			7,708			23.7	%		5,219			19.1	%
Corporate Administration		3,003			3,690			1,874			(687	)		(18.6	)%		1,816			96.9	%
Total depreciation and amortization	$	162,927			155,648			157,866			7,279			4.7	%	$	(2,218	)		(1.4	)%
Segment operating income
North America Services	$	244,989			285,409			325,595			(40,420	)		(14.2	)%	$	(40,186	)		(12.3	)%
International Services		42,689			57,654			55,595			(14,965	)		(26.0	)%		2,059			3.7	%
Merchant Services		102,444			71,437			74,719			31,007			43.4	%		(3,282	)		(4.4	)%
Corporate Administration		(80,693	)		(70,474	)		(84,787	)		(10,219	)		(14.5	)%		14,313			(16.9	)%
Operating income	$	309,429			344,026			371,122			(34,597	)		(10.1	)%	$	(27,096	)		(7.3	)%
Total assets
North America Services	$	1,632,882			1,535,129			1,434,070			97,753			6.4	%	$	101,059			7.0	%
International Services		408,880			379,606			324,313			29,274			7.7	%		55,293			17.0	%
Merchant Services		460,750			215,855			212,779			244,895			113.5	%		3,076			1.4	%
Intersegment assets		(550,251	)		(419,636	)		(421,138	)		(130,615	)		(31.1	)%		1,502			0.4	%
Total assets	$	1,952,261			1,710,954			1,550,024			241,307			14.1	%	$	160,930			10.4	%

GEOGRAPHIC AREA DATA:  The Company maintains property and equipment, net of accumulated depreciation and amortization, in the following geographic areas:

	At
	December 31,
(in millions)	2010		2009
United States	$	203.8		203.5
Europe		58.3		60.7
Japan		11.3		6.4
Other		26.7		18.5
Totals	$	300.1		289.1

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The following geographic area data represents revenues for the years ended December 31 based on the domicile of the Company’s customers:

(in millions)	2010		%		2009		%		2008		%
United States	$	1,208.2		70.3	$	1,183.8		70.6	$	1,243.0		72.6
Europe		249.7		14.5		269.4		16.1		269.1		15.7
Canada		161.9		9.4		139.7		8.3		127.1		7.4
Japan		61.3		3.6		48.9		2.9		33.9		2.0
Mexico		7.9		0.5		8.1		0.5		13.4		0.8
Other		28.6		1.7		27.6		1.6		25.0		1.5
Totals	$	1,717.6		100.0	$	1,677.5		100.0	$	1.711.5		100.0

GEOGRAPHIC AREA REVENUE BY OPERATING SEGMENT:  The following table reconciles segment revenue to revenues by geography for the years ended December 31:

	North America Services						International Services						Merchant Services
(in millions)	2010		2009		2008		2010		2009		2008		2010		2009		2008
United States	$	863.9		862.0		957.0	$	0.5		0.1		0.2	$	343.8		321.7		285.8
Europe		0.8		0.9		0.9		248.9		268.5		268.2		—		—		—
Canada		161.4		139.1		126.5		—		—		—		0.5		0.6		0.6
Japan		—		—		—		61.3		48.9		33.9		—		—		—
Mexico		7.9		8.1		13.4		—		—		—		—		—		—
Other		9.4		9.7		9.0		18.1		17.1		15.2		1.1		0.8		0.8
Totals	$	1,043.4		1,019.8		1,106.8	$	328.8		334.6		317.5	$	345.4		323.1		287.2

MAJOR CUSTOMER:  For the years ended December 31, 2010, 2009 and 2008, the Company had one major customer which accounted for approximately $221.0 million, or 12.9%, $217.7 million, or 12.0%, and $220.3 million, or 11.4%, respectively, of total revenues. Revenues from the major customer for the years ended December 31, 2010, 2009 and 2008, respectively, are primarily attributable to the North America Services segment and the Merchant Services segment.

NOTE 23   Supplemental Cash Flow Information

Nonvested Share Awards

The Company issued shares of TSYS common stock to certain key employees and non-management members of its Board of Directors under nonvested stock bonus awards for services to be provided in the future by such officers, directors and employees. Refer to Note 16 for more information on nonvested share awards.

Equipment and Software Acquired Under Capital Lease Obligations

The Company acquired computer equipment and software under capital lease in the amount of $14.9 million, $6.7 million and $18.1 million in 2010, 2009 and 2008, respectively.

NOTE 24   Acquisitions

TSYS Merchant Solutions

On March 1, 2010, TSYS announced the signing of an Investment Agreement with FNBO to form a new joint venture company, FNMS.

FNMS offers transaction processing, merchant support and underwriting, and business and value-added services, as well as Visa- and MasterCard-branded prepaid cards for businesses of any size.

Under the terms of the Investment Agreement, TSYS acquired 51 percent ownership of FNMS Holding, LLC (“FNMS Holding”), which owns 100 percent of FNMS, for approximately $150.5 million, while FNBO owns the remaining 49 percent. The transaction closed on April 1, 2010.

The goodwill amount of $155.5 million arising from the acquisition consists largely of economies of scale expected to be realized from combining the operations of TSYS and TMS. TMS is included within the Merchant Services segment, and as such, all of the

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goodwill was assigned to that segment. The goodwill recognized is expected to be deductible for income tax purposes.

The following table summarizes the consideration paid for TMS and the amounts of the assets acquired and liabilities assumed recognized on April 1, 2010 (the acquisition date), as well as the fair value at the acquisition date of the noncontrolling interest in TMS. TSYS assumed no liabilities in connection with the acquisition.

(in thousands)
Consideration:
Cash	$	150,450
Equity instruments		—
Contingent consideration arrangement		—
Fair value of total consideration transferred		150,450
Fair value of TSYS’ equity interest in TMS held before the business combination		—
	$	150,450
Acquisition-related costs (included in selling, general, and administrative expenses in TSYS’ income statement for the twelve months ended December 31, 2010)	$	4,130
Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	1,919
Property and equipment		1,788
Software		243
Identifiable intangible assets		100,800
Other assets		1,204
Financial liabilities		—
Liability arising from a contingency		—
Total identifiable net assets		105,954
Noncontrolling interest in TMS		(111,000	)
Goodwill		155,496
	$	150,450

The Investment Agreement includes a contingent right of TSYS to receive a return of consideration paid (“contingently returnable consideration”) if certain specified major customer contracts are terminated or modified prior to the first anniversary of the closing. Contingently returnable consideration is recognized as an asset and measured at fair value. Based upon the probability of outcomes, TSYS determined the fair value of the contingently returnable consideration would approximate zero. The maximum amount of contingently returnable consideration is not significant.

The fair value of the acquired identifiable intangible assets of $100.8 million was estimated using the income approach (discounted cash flow and relief from royalty methods) and cost approach. At the time of the acquisition, TSYS had identified certain intangible assets that are expected to generate future earnings for the Company: customer-related intangible assets (such as customer lists), contract-based intangible assets (such as referral agreements), technology, and trademarks. The useful lives of the identified intangible assets were primarily determined by forecasted cash flows, which include estimates for certain assumptions such as revenues, expenses, attrition rates, and royalty rates. The useful lives of these identified assets ranged from 3 to 10 years and are being amortized on a straight-line basis based upon their estimated pattern of economic benefit.

This fair value measurement is based on significant inputs that are not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. Key assumptions include (a) cash flow projections based on market participant and internal data, (b) a discount rate range of 4 percent to 14 percent, (c) a royalty rate range of 1.5 percent to 7 percent, (d) an attrition rate range of 10 percent to 30 percent, and (e) an effective tax rate of approximately 36 percent.

The fair value of the noncontrolling interest in TMS, owned by a private company, was estimated by applying the income and market approaches. In particular, a discounted cash flow method, a guideline companies method, and a recent equity transaction were employed. This fair value measurement is based on significant inputs that are both observable (Level 2) and non-observable (Level 3) in the market as defined in ASC 820. Key assumptions include (a) cash flow projections based on market participant data and developed by Company management, (b) a discount rate range of 12 percent to 14 percent, (c) a terminal value based on long-term sustainable growth rates ranging between 3 percent and 5 percent, (d) an effective tax rate of approximately 36 percent, (e) financial multiples of companies deemed to be similar to TMS, and (f) adjustments because of the lack of control or lack of marketability that market participants would consider when estimating the fair value of the noncontrolling interest in TMS.

Since the acquisition of TMS, TSYS has included approximately $97.7 million in revenues associated with TMS for the year ended December 31, 2010, respectively. For the year ended December 31, 2010, TSYS has included approximately $5.6 million in income netted against acquisition related costs associated with TMS.

The amounts of TMS revenue and earnings included in TSYS’ consolidated income statement for the year ended December 31, 2010, and the pro forma revenue and earnings of the combined

59   

entity had the acquisition date been January 1, 2010, or January 1, 2009, are:

			Net Income		Basic EPS		Diluted EPS
			Attributable		Attributable		Attributable
			to TSYS		to TSYS		to TSYS
			Common		Common		Common
(in thousands)	Revenue		Shareholders		Shareholders		Shareholders
Actual from 1/1/2010-12/31/2010	$	1,717,577	$	193,947	$	0.99	$	0.99
Actual from 1/1/2009-12/31/2009		1,677,483		215,213		1.09		1.09
Supplemental pro forma for 1/1/2010-12/31/2010		1,746,617		198,149		1.01		1.01
Supplemental pro forma for 1/1/2009-12/31/2009		1,794,195		221,171		1.12		1.12

On January 4, 2011, TSYS announced that, on January 1, 2011, it acquired the remaining 49 percent of FNMS and is rebranding it as TMS.

Infonox on the Web

The Company acquired Infonox on November 4, 2008 for approximately $50.6 million, with contingent payments over the next three years of up to $25 million based on performance. Infonox provides payment products on self-service and full-service transaction touch points in the gaming, banking and retail markets. The company delivers, manages, operates and supports services for several large publicly traded companies. The acquisition added new payment technology and acceptance capabilities. Infonox is based in Sunnyvale, California, with an office in Pune, India.

The final purchase price allocation is presented below:

(in thousands)
Cash and cash equivalents	$	899
Intangible assets		21,500
Goodwill		29,142
Other assets		3,222
Total assets acquired		54,763
Other liabilities		4,190
Total liabilities assumed		4,190
Net assets acquired	$	50,573

Revenues associated with Infonox are included in merchant services and are included in Merchant Services for segment reporting purposes.

NOTE 25   Synovus Spin-off of TSYS

In July 2007, Synovus Financial Corp’s (Synovus’) Board of Directors appointed a special committee of independent directors to make a recommendation with respect to whether to distribute Synovus’ ownership interest in TSYS to Synovus’ shareholders. As a result, the TSYS Board of Directors formed a special committee of independent TSYS directors to consider the terms of any proposed spin-off by Synovus of its ownership interest in TSYS, including the size of the pre-spin cash dividend.

On October 25, 2007, the Company entered into an agreement and plan of distribution with Synovus, under which Synovus planned to distribute all of its shares of TSYS common stock in a spin-off to Synovus shareholders. Under the terms and conditions of the agreement, TSYS would become a fully independent company, allowing for broader diversification of the Company’s shareholder base, more liquidity of the Company’s shares and additional investment in strategic growth opportunities and potential acquisitions.

In accordance with the agreement and plan of distribution by and among TSYS, Synovus and CB&T, on November 30, 2007, TSYS entered into a Transition Services Agreement, an Employee Matters Agreement, an Indemnification and Insurance Matters Agreement, a Master Confidential Disclosure Agreement and an Assignment and Assumption Agreement with Synovus. On November 30, 2007, TSYS also entered into a Tax Sharing Agreement with CB&T and Synovus. On November 30, 2007, TSYS, Synovus and CB&T also entered into an amendment to the Distribution Agreement which clarified that the effective time of the spin-off transaction would be prior to the close of business on December 31, 2007.

Prior to the spin-off transaction and in accordance with the agreement and plan of distribution, TSYS agreed to pay a one-time aggregate cash dividend of $600 million to all TSYS shareholders, including Synovus. The per share amount of the $600 million special cash dividend was determined to be $3.0309 per share, based on the number of TSYS shares outstanding as of the close of business on December 17, 2007, the record date. TSYS funded the dividend with a combination of cash on hand and the use of a revolving credit facility. Refer to Note 13 for more information on the revolving credit facility.

Synovus distributed 0.483921 of a share of TSYS common stock on December 31, 2007 for each share of Synovus common stock outstanding on December 18, 2007, the record date.

The spin-off was completed on December 31, 2007. TSYS incurred expenses in 2008 associated with advisory and legal services in connection with the spin-off assessment. TSYS also incurred expenses in 2008 for the incremental fair value

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associated with converting Synovus stock options held by TSYS employees to TSYS options.

NOTE 26   Collaborative Arrangement

In January 2009, TSYS adopted the authoritative guidance under ASC 808, “Collaborative.” The guidance under ASC 808 is effective for reporting periods beginning after December 15, 2008, and it requires restatement of prior periods for all collaborative arrangements existing as of the effective date.

TSYS has a 45% ownership interest in an enterprise jointly owned with two other entities which operates aircraft for the owners’ internal use. The arrangement allows each entity access to the aircraft and each entity pays for its usage of the aircraft. Each quarter, the net operating results of the enterprise are shared among the owners based on their respective ownership percentage.

TSYS records its usage of the aircraft and its share of net operating results of the enterprise in selling, general and administrative expenses.

NOTE 27   Earnings Per Share

The following table illustrates basic and diluted EPS under the guidance of ASC 260:

	December 31, 2010					December 31, 2009					December 31, 2008
	Common			Participating		Common			Participating		Common			Participating
(in thousands, except per share data)	Stock			Securities		Stock			Securities		Stock			Securities
Basic EPS:
Net income	$	193,947					215,213					250,100
Less income allocated to nonvested awards		(959	)		959		(1,644	)		1,644		(2,069	)		2,069
Net income allocated to common stock for EPS calculation(a)	$	192,988			959		213,569			1,644		248,031			2,069
Average common shares outstanding(b)		195,378			975		195,623			1,511		196,106			1,640
Basic EPS(a)/(b)	$	0.99			0.98		1.09			1.09		1.26			1.26
Diluted EPS:
Net income	$	193,947					215,213					250,100
Less income allocated to nonvested awards		(959	)		959		(1,644	)		1,644		(2,069	)		2,069
Net income allocated to common stock for EPS calculation(c)	$	192,988			959		213,569			1,644		248,031			2,069
Average common shares outstanding		195,378			975		195,623			1,511		196,106			1,640
Increase due to assumed issuance of shares related to common equivalent shares outstanding		193					63					20
Average common and common equivalent shares outstanding(d)		195,571			975		195,686			1,511		196,126			1,640
Diluted EPS(c)/(d)	$	0.99			0.98		1.09			1.09		1.26			1.26

The diluted EPS calculation excludes stock options and nonvested awards that are convertible into 9.0 million common shares for the year ended December 31, 2010, and excludes 7.0 million and 5.6 million common shares for the years ended December 31, 2009 and 2008, respectively, because their inclusion would have been anti-dilutive.

NOTE 28   Subsequent Event

On January 4, 2011, TSYS announced it had acquired the remaining 49-percent interest in FNMS, effective January 1, 2011, from FNBO. The company is being rebranded as TMS.

The Company acquired the remaining 49-percent for a net consideration of approximately $174.1 million. The Company acquired the remaining 49-percent for a net consideration of approximately $174.1 million. In connection with the acquisition, TSYS is relinquishing its right to certain trademarks associated with the TMS acquisition on April 1, 2010.

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Report of Independent Registered Public Accounting Firm

The Board of Directors

Total System Services, Inc.:

We have audited the accompanying consolidated balance sheets of Total System Services, Inc. and subsidiaries (the Company) as of December 31, 2010 and 2009, and the related consolidated statements of income, cash flows, and equity and comprehensive income for each of the years in the three-year period ended December 31, 2010. We also have audited Company’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Company management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on these consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audit of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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 as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, Total System Services, Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

As discussed in the notes to the consolidated financial statements, the Company changed the manner in which it accounts for noncontrolling interests as of January 1, 2009 (note 1) and earnings per share as of January 1, 2009 (notes 1 and 27).

Atlanta, Georgia

February 25, 2011

    62

Management’s Report on Internal Control Over Financial Reporting

The management of Total System Services, Inc. (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. The Company maintains accounting and internal control systems which are intended to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition, transactions are executed in accordance with management’s authorization and accounting records are reliable for preparing financial statements in accordance with accounting principles generally accepted in the United States.

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, risk.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control — Integrated Framework.

Based on our assessment management believes that, as of December 31, 2010, the Company’s internal control over financial reporting is effective based on those criteria.

KPMG LLP, the independent registered public accounting firm who audited the Company’s consolidated financial statements, has issued an attestation report on the effectiveness of internal control over financial reporting as of December 31, 2010 that appears on the proceeding page.

Philip W. Tomlinson Chairman of the Board & Chief Executive Officer	James B. Lipham Senior Executive Vice President & Chief Financial Officer

63   

Quarterly Financial Data (Unaudited), 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 23, 2011, there were 28,847 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 $0.07 per share was declared on November 16, 2010, and was paid January 3, 2011, to shareholders of record on December 16, 2010. Total dividends declared in 2010 and in 2009 amounted to $54.9 million and $55.3 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, 2010 and 2009.

		First		Second		Third		Fourth
(in thousands, except per share data)		Quarter		Quarter		Quarter		Quarter
2010	Revenues	$	413,464		430,886		433,236		439,991
	Operating income		79,713		79,828		78,914		70,974
	Net income attributable to TSYS common shareholders		51,328		49,702		45,743		47,173
	Basic earnings per share attributable to TSYS common shareholders		0.26		0.25		0.23		0.24
	Diluted earnings per share attributable to TSYS common shareholders		0.26		0.25		0.23		0.24
	Cash dividends declared		0.07		0.07		0.07		0.07
	Stock prices:
	High		17.75		16.99		15.74		16.10
	Low		14.11		13.52		13.41		14.97
	Close		15.66		13.60		15.24		15.38
2009	Revenues	$	406,795		409,242		428,917		432,529
	Operating income		78,771		83,054		88,294		93,908
	Net income attributable to TSYS common shareholders		46,526		53,447		55,026		60,214
	Basic earnings per share attributable to TSYS common shareholders		0.24		0.27		0.28		0.31
	Diluted earnings per share attributable to TSYS common shareholders		0.24		0.27		0.28		0.31
	Cash dividends declared		0.07		0.07		0.07		0.07
	Stock prices:
	High		15.07		14.79		16.43		17.71
	Low		11.33		12.20		12.61		14.76
	Close		13.81		13.39		16.11		17.27

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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 Systems Software Index for the last five fiscal years (assuming a $100 investment on December 31, 2005 and reinvestment of all dividends).

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG TSYS, THE S&P 500 INDEX
AND THE S&P SYSTEMS SOFTWARE INDEX

	2005		2006		2007		2008		2009		2010
TSYS	$	100	$	135	$	162	$	82	$	103	$	94
S&P 500	$	100	$	116	$	122	$	77	$	97	$	112
S&P SS	$	100	$	118	$	142	$	88	$	134	$	140

65   

EX-21.1

Exhibit 21.1

SUBSIDIARIES OF TOTAL SYSTEM SERVICES, INC.

Ownership										Place of
Percentage			Name							Incorporation
	100	%	Columbus Depot Equipment Company							Georgia
				99	%	TSYS Holding, LLC (1)				Delaware
							100	%	TSYS Merchant Solutions, LLC	Delaware
	100	%	TSYS Canada, Inc.							Georgia
	100	%	TSYS Managed Services Canada, Inc.							Ontario
	100	%	TSYS U.S. Holdings, Inc.							Georgia
	100	%	Columbus Productions, Inc.							Georgia
	100	%	TSYS Japan Co., Ltd.							Japan
				53	%	GP Network Corporation				Japan
	100	%	TSYS Servicos de Transacoes Eletronicas Ltda (2)							Brazil
	100	%	Total System Services Holding Europe LP (3)							England
				100	%	Total System Services Processing Europe Limited				England
				100	%	TSYS Europe (Netherlands) B.V.				Netherlands
				100	%	TSYS Europe (Spain) S.L.				Spain
				100	%	TSYS Europe (Deutschland) GmBH				Germany
				100	%	TSYS Europe (Italia) S.r.l				Italy
				100	%	TSYS Bermuda Limited				Bermuda
				100	%	TSYS Card Tech Limited				England
				100	%	TSYS Card Tech Services Limited				Cyprus
							100	%	TSYS Card Tech Services (Malaysia) Limited	Malaysia
							100	%	TSYS Card Tech Services India Private Limited (4)	India
							100	%	TSYS — Russ L.L.C.	Russia
				55	%	TSYS Managed Services EMEA Limited				England
							100	%	TSYS Managed Services EMEA B.V.	Netherlands
							100	%	TSYS Managed Services EMEA (Netherlands) B.V.	Netherlands
	100	%	TSYS Acquiring Solutions, L.L.C.							Delaware
				100	%	Infonox on the Web				California
							100	%	Infonox Software Private Limited (5)	India
	49	%	Total System Services de Mexico, S.A. de C.V.							Mexico
	49	%	TSYS Servicios Corporativos							Mexico
	44.56	%	China Unionpay Data Services Company Limited							China

(1)	1% is owned by TSYS U.S. Holdings, Inc.
(2)	Less than .1% is owned by Columbus Depot Equipment Company.
(3)	1% is owned by Columbus Depot Equipment Company.
(4)	Less than .1% is owned by TSYS Card Tech Services (Malaysia) Limited.
(5)	Less than .1% is owned by TSYS Acquiring Solutions, L.L.C.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Total System Services, Inc.:

We consent to the incorporation by reference in the registration statements (No. 2-92497, No. 33-17376, No. 333-25401, No. 333-41775, No. 333-104142, No. 333-142791, and No. 333-148449) on Form S-8 and the registration statement (No. 333-155605) on Form S-3 of Total System Services, Inc. (the Company) of our attestation report dated February 25, 2011, with respect to the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, cash flows, and equity and comprehensive income for each of the years in the three-year period ended December 31, 2010, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of December 31, 2010, which report appears in or is referenced in the December 31, 2010 annual report on Form 10-K of Total System Services, Inc. Our report on the consolidated financial statements, dated February 25, 2011, refers to changes in the manner in which the Company accounts for noncontrolling interests as of January 1, 2009 (note 1) and earnings per share as of January 1, 2009 (notes 1 and 27).

/s/ KPMG LLP

Atlanta, Georgia
February 25, 2011

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Philip W. Tomlinson, certify that:

1. I have reviewed this annual report on Form 10-K of Total System Services, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2011	/s/ Philip W. Tomlinson
	Philip W. Tomlinson
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

          I, James B. Lipham, certify that:

1.	I have reviewed this annual report on Form 10-K of Total System Services, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2011	/s/ James B. Lipham James B. Lipham
	Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF PERIODIC REPORT

     Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, Philip W. Tomlinson, the Chief Executive Officer of Total System Services, Inc. (the “Company”), and James B. Lipham, the Chief Financial Officer of the Company, hereby certify that, to the best of his knowledge:

(1) The Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “Report”) fully complies with the requirements of section 13(a) or section 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

February 25, 2011	/s/ Philip W. Tomlinson
	Philip W. Tomlinson
	Chief Executive Officer
February 25, 2011	/s/ James B. Lipham
	James B. Lipham
	Chief Financial Officer

This certification “accompanies” the Form 10-K to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-K, irrespective of any general incorporation language contained in such filing.)