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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the transition period from To
------------------------------------------------

Commission file number 1-10254
------------------------------------------------

T|SYS| LOGO
Total System Services, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)

Georgia 58-1493818
- -------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)

1600 First Avenue, Post Office Box 1755, Columbus, Georgia 31902
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)

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

- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X] No [ ]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [ ] No [ ]

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF: August 12, 2003
- ------------------------------------- -----------------------------------
Common Stock, $.10 par value 196,777,820


T|SYS| LOGO
TOTAL SYSTEM SERVICES, INC.
INDEX


Page
Number
------
Part I. Financial Information
Item 1. Financial Statements

Consolidated Balance Sheets (unaudited) - June 30, 2003 and December 31, 2002 .............................. 3

Consolidated Statements of Income (unaudited) - Three and six months ended June 30, 2003 and 2002 .......... 5

Consolidated Statements of Cash Flows (unaudited) - Six months ended June 30, 2003 and 2002 ................ 7

Notes to Unaudited Consolidated Financial Statements ....................................................... 9

Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations ........................................................................................... 19

Item 3. Quantitative and Qualitative Disclosures About Market Risk ........................................... 45

Item 4. Management's Analysis of Disclosure Controls and Procedures .......................................... 47

Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ................................................. 48

Item 6. Exhibits and Reports on Form 8-K ..................................................................... 49

Signatures ..................................................................................................... 50


- 2 -


TOTAL SYSTEM SERVICES, INC.
Part I - Financial Information
Consolidated Balance Sheets
(Unaudited)


- ---------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents (includes $5.5 million and $85.7 million on
deposit with a related party at 2003 and 2002, respectively) $ 48,175,270 109,171,206
Restricted cash (includes $8.9 million and $4.0 million on deposit with
a related party at 2003 and 2002, respectively) 8,942,822 4,035,052
Accounts receivable, net of allowance for doubtful accounts and billing
adjustments of $7.4 million and $8.0 million at 2003 and 2002,
respectively 137,679,005 121,439,387
Deferred income tax assets 10,128,318 8,785,539
Prepaid expenses and other current assets 27,139,434 22,547,590
- ---------------------------------------------------------------------------------------------------------------------------------
Total current assets 232,064,849 265,978,774
Property and equipment, less accumulated depreciation and amortization of
$125.3 million and $127.8 million at 2003 and 2002, respectively 218,950,001 120,835,260
Computer software, less accumulated amortization of $172.6 million and $149.6
million at 2003 and 2002, respectively 204,971,145 200,297,026
Contract acquisition costs 129,433,972 123,728,968
Equity investments, net 57,867,209 54,181,246
Goodwill, net 29,611,695 3,619,178
Other assets 20,048,073 14,227,058
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 892,946,944 782,867,510
============================================


- 3 -

TOTAL SYSTEM SERVICES, INC.
Consolidated Balance Sheets (continued)
(Unaudited)


- ---------------------------------------------------------------------------------------------------------------------------------
June 30, December 31,
2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 17,457,940 10,365,836
Accrued salaries and employee benefits 24,177,980 43,314,882
Current portion of long-term debt and obligations under capital leases 293,994 68,110
Billings in excess of costs on uncompleted contracts 28,472,591 -
Other current liabilities (includes $3.3 million and $2.9 million payable to
related parties at 2003 and 2002, respectively) 70,511,274 60,232,889
- ---------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 140,913,779 113,981,717
Long-term debt and obligations under capital leases, excluding current portion
(includes $20.2 million payable to a related party at 2003) 20,548,133 67,354
Other accounts payable 187,500 562,500
Deferred income tax liabilities 74,601,683 63,306,186
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities 236,251,095 177,917,757
- ---------------------------------------------------------------------------------------------------------------------------------
Minority interest in consolidated subsidiary 3,013,021 2,743,863
- ---------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock - $.10 par value. Authorized 600,000,000 shares; 197,254,087
and 197,254,087 issued at 2003 and 2002, respectively; 196,577,820 and
197,049,470 outstanding at 2003 and 2002, respectively 19,725,409 19,725,409
Additional paid-in capital 35,103,615 35,143,089
Accumulated other comprehensive income 2,675,997 1,052,897
Treasury stock (12,086,795) (3,316,703)
Retained earnings 608,264,602 549,601,198
- ---------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 653,682,828 602,205,890
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 892,946,944 782,867,510
============================================



See accompanying Notes to Unaudited Consolidated Financial Statements.

- 4 -



TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)


- -----------------------------------------------------------------------------------------------------------------------------------
Three months ended
June 30,
------------------------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------

Revenues:
Electronic payment processing services (includes $4.4 million and $4.8
million from related parties for 2003 and 2002, respectively) $ 177,305,600 153,578,171
Other services (includes $1.8 million and $1.7 million from related parties
for 2003 and 2002, respectively) 25,755,106 27,986,697
------------------------------------------
Revenues before reimbursable items 203,060,706 181,564,868
Reimbursable items (includes $2.2 million and $2.9 million from related parties
for 2003 and 2002, respectively) 54,637,703 60,040,871
------------------------------------------
Total revenues 257,698,409 241,605,739
------------------------------------------
Expenses:
Salaries and other personnel expense 83,599,736 73,588,309
Net occupancy and equipment expense 50,407,026 41,718,384
Other operating expenses (includes $2.2 million and $2.2 million to related
parties for 2003 and 2002, respectively) 24,312,057 27,984,461
Gain on disposal of equipment, net (13,860) (252)
------------------------------------------
Expenses before reimbursable items 158,304,959 143,290,902
Reimbursable items 54,637,703 60,040,871
------------------------------------------
Total expenses 212,942,662 203,331,773
------------------------------------------
Operating income 44,755,747 38,273,966
------------------------------------------
Nonoperating income (expense):
Interest income, net (includes $255,000 and $239,000 from related parties for
2003 and 2002, respectively) 1,213,082 988,823
Gain on foreign currency translation, net 1,787,791 185,648
------------------------------------------
Total nonoperating income (expense) 3,000,873 1,174,471
------------------------------------------
Income before income taxes, minority interest and equity in income
of joint ventures 47,756,620 39,448,437
Income taxes 18,107,800 14,153,870
Minority interest in consolidated subsidiary's net income (142,167) (46,744)
Equity in income of joint ventures 4,800,344 4,904,417
------------------------------------------
Net income $ 34,306,997 30,152,240
==========================================
Basic earnings per share $ 0.17 0.15
==========================================
Diluted earnings per share $ 0.17 0.15
==========================================

Weighted average common shares outstanding 196,703,341 197,003,560
Increase due to assumed issuance of shares related to stock options outstanding 504,355 687,234
------------------------------------------
Weighted average common and common equivalent shares outstanding 197,207,696 197,690,794
==========================================



See accompanying Notes to Unaudited Consolidated Financial Statements.

- 5 -


TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)


- -----------------------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
------------------------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------

Revenues:
Electronic payment processing services (includes $8.9 million and $9.0 million
from related parties for 2003 and 2002, respectively) $ 345,131,988 296,735,398
Other services (includes $3.3 million and $3.4 million from related parties
for 2003 and 2002, respectively) 50,807,759 55,645,131
------------------------------------------
Revenues before reimbursable items 395,939,747 352,380,529
Reimbursable items (includes $4.7 million and $4.9 million from related parties
for 2003 and 2002, respectively) 113,111,816 117,148,216
------------------------------------------
Total revenues 509,051,563 469,528,745
------------------------------------------
Expenses:
Salaries and other personnel expense 159,696,112 142,320,355
Net occupancy and equipment expense 102,026,826 85,948,531
Other operating expenses (includes $4.5 million and $4.4 million to related
parties for 2003 and 2002, respectively) 46,328,584 49,864,380
(Gain) loss on disposal of equipment, net (35,389) 1,593
------------------------------------------
Expenses before reimbursable items 308,016,133 278,134,859
Reimbursable items 113,111,816 117,148,216
------------------------------------------
Total expenses 421,127,949 395,283,075
------------------------------------------
Operating income 87,923,614 74,245,670
------------------------------------------
Nonoperating income (expense):
Interest income, net (includes $485,000 and $461,000 from related parties for
2003 and 2002, respectively) 1,851,373 1,357,026
Gain on foreign currency translation, net 1,161,602 (3,580)
------------------------------------------
Total nonoperating income (expense) 3,012,975 1,353,446
------------------------------------------
Income before income taxes, minority interest and equity in income
of joint ventures 90,936,589 75,599,116
Income taxes 33,622,119 27,410,613
Minority interest in consolidated subsidiary's net income (259,775) (32,818)
Equity in income of joint ventures 8,988,294 9,378,092
------------------------------------------
Net income $ 66,042,989 57,533,777
==========================================
Basic earnings per share $ 0.34 0.29
==========================================
Diluted earnings per share $ 0.33 0.29
==========================================

Weighted average common shares outstanding 196,875,450 196,983,384
Increase due to assumed issuance of shares related to stock options outstanding 367,050 752,343
------------------------------------------
Weighted average common and common equivalent shares outstanding 197,242,500 197,735,727
==========================================



See accompanying Notes to Unaudited Consolidated Financial Statements.

- 6 -


TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)


- -----------------------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
------------------------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------

Cash flows from operating activities:
Net income $ 66,042,989 57,533,777
Adjustments to reconcile net income to net cash provided by operating
activities:
Minority interest in consolidated subsidiary's net income 259,775 32,818
(Gain) loss on foreign currency translation, net (1,161,602) 3,580
Equity in income of joint ventures (8,988,294) (9,378,092)
Depreciation and amortization 45,597,579 34,760,724
Charges for bad debt and billing adjustments (97,048) 4,827,845
Charges for transaction processing 2,163,863 6,914,710
Deferred income tax expense 8,177,577 4,973,482
(Gain) loss on disposal of equipment, net (35,389) 1,593
(Increase) decrease in:
Accounts receivable (11,335,359) (11,209,208)
Prepaid expenses and other assets (2,051,339) 2,985,626
Increase (decrease) in:
Accounts payable 4,596,774 (12,239,959)
Accrued salaries and employee benefits (19,179,469) (19,579,529)
Billings in excess of costs on uncompleted contracts 28,472,591 -
Other current liabilities (1,798,404) 16,504,796
------------------------------------------
Net cash provided by operating activities 110,664,244 76,132,163
------------------------------------------

Cash flows from investing activities:
Purchase of property and equipment (107,431,941) (7,815,326)
Additions to computer software (29,032,897) (35,643,850)
Proceeds from disposal of equipment 66,043 8,180
Cash acquired in acquisition 4,442,163 2,858,384
Cash used in acquisition (36,000,000) -
Dividends received from joint ventures 5,277,523 17,855,119
Increase in contract acquisition costs (13,378,765) (27,683,763)
------------------------------------------
Net cash used in investing activities (176,057,874) (50,421,256)
------------------------------------------



- 7 -


TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Cash Flows (continued)
(Unaudited)


- -----------------------------------------------------------------------------------------------------------------------------------
Six months ended
June 30,
------------------------------------------
2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------

Cash flows from financing activities:
Purchase of common stock (9,485,289) -
Proceeds from issuance of long-term debt 20,233,983 -
Principal payments on capital lease obligations (52,168) (50,232)
Dividends paid on common stock (6,896,740) (5,875,326)
Proceeds from exercise of stock options 636,797 204,550
------------------------------------------
Net cash provided by (used in) financing activities 4,436,583 (5,721,008)
------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (38,889) (1,614,638)
------------------------------------------
Net (decrease) increase in cash and cash equivalents $ (60,995,936) 18,375,261
Cash and cash equivalents at beginning of year 109,171,206 58,658,500
------------------------------------------
Cash and cash equivalents at end of period $ 48,175,270 77,033,761
==========================================
Cash paid for interest $ 29,664 20,475
==========================================
Cash paid for income taxes (net of refunds received) $ 25,905,862 11,506,407
==========================================



Significant noncash transaction: In January 2002, the Company acquired TSYS
Total Debt Management, Inc. through the issuance of 2,175,000 shares of common
stock with a market value of $43.5 million.


See accompanying Notes to Unaudited Consolidated Financial Statements.

- 8 -


TOTAL SYSTEM SERVICES, INC.
Notes to Unaudited Consolidated Financial Statements

Note 1 - Basis of Presentation

The accompanying unaudited consolidated financial statements represent the
accounts of Total System Services, Inc.(R)(TSYS(R) and the Company); its wholly
owned subsidiaries, Columbus Depot Equipment CompanySM (CDECSM), Columbus
Productions, Inc.SM (CPI), TSYS Canada, Inc.SM (TCI), TSYS Total Debt
Management, Inc. (TDM), ProCard, Inc. (ProCard), TSYS Japan Co., Ltd. (Japan
Co.), Enhancement Services Corporation (ESC) and TSYS Technology Center, Inc.
(TTC); and its majority owned foreign subsidiary, GP Network Corporation (GP
Net). These financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all information and footnotes
necessary for a fair presentation of financial position, results of operations
and cash flows in conformity with generally accepted accounting principles. All
adjustments, consisting of normal recurring accruals, which, in the opinion of
management, are necessary for a fair presentation of financial position and
results of operations for the periods covered by this report have been included.
The accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and related
notes appearing in the Company's 2002 annual report previously filed on Form
10-K.

Note 2 - Supplementary Balance Sheet Information

Cash and cash equivalent balances are summarized as follows:


June 30, 2003 December 31, 2002
-------------------------- --------------------------
Cash and cash equivalents in domestic accounts $ 10,075,569 $ 84,462,671
Cash and cash equivalents in foreign accounts 38,099,701 24,708,535
-------------------------- --------------------------
Total $ 48,175,270 $ 109,171,206
========================== ==========================



The Company maintains accounts outside the United States denominated in
U.S. dollars, Euros, British Pounds Sterling, Canadian dollars and Japanese Yen.

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


June 30, 2003 December 31, 2002
------------------------- ---------------------------
Prepaid expenses $ 10,869,937 $ 8,228,801
Other 16,269,497 14,318,789
------------------------- ---------------------------
Total $ 27,139,434 $ 22,547,590
========================= ===========================


Significant components of contract acquisition costs are summarized as
follows:


June 30, 2003 December 31, 2002
------------------------- ---------------------------
Payments for processing rights, net $ 87,645,940 $ 89,740,749
Conversion costs, net 41,788,032 33,988,219
------------------------- ---------------------------
Total $ 129,433,972 $ 123,728,968
========================= ===========================


- 9 -


Notes to Consolidated Financial Statements (continued)

Amortization related to payments for processing rights, which is recorded
as a reduction of revenues, was $3.4 million and $2.6 million for the three
months ended June 30, 2003 and 2002, respectively. Amortization related to
payments for processing rights was $6.3 million and $5.0 million for the six
months ended June 30, 2003 and 2002, respectively.

Amortization expense related to conversion costs, which is recorded in
other operating expenses, was $1.5 million and $799,000 for the three months
ended June 30, 2003 and 2002, respectively. Amortization expense related to
conversion costs, which is recorded in other operating expenses, was $2.8
million and $1.6 million for the six months ended June 30, 2003 and 2002,
respectively.

Significant components of other current liabilities are summarized as
follows:


June 30, 2003 December 31, 2002
------------------------- -----------------------------
Accrued expenses $ 21,315,447 $ 16,590,984
Customer postage deposits 12,966,514 16,054,531
Deferred revenues 11,687,886 8,554,131
Client liabilities 8,711,518 3,629,663
Transaction processing provisions 5,308,024 5,347,010
Dividends payable 3,931,556 3,448,709
Other 6,590,329 6,607,861
------------------------- -----------------------------
Total $ 70,511,274 $ 60,232,889
========================= =============================


Note 3 - Comprehensive Income

Comprehensive income for TSYS consists of net income and foreign currency
translation adjustments recorded as a component of shareholders' equity.

Comprehensive income for the three months ended June 30 is as follows:


2003 2002
-------------------------- --------------------------
Net income $ 34,306,997 $ 30,152,240
Other comprehensive income:
Foreign currency translation adjustments,
net of tax 2,784,467 4,012,931
-------------------------- --------------------------
Comprehensive income $ 37,091,464 $ 34,165,171
========================== ==========================

Comprehensive income for the six months ended June 30 is as follows:


2003 2002
-------------------------- --------------------------
Net income $ 66,042,989 $ 57,533,777
Other comprehensive income:
Foreign currency translation adjustments,
net of tax 1,623,100 3,002,496
-------------------------- --------------------------
Comprehensive income $ 67,666,089 $ 60,536,273
========================== ==========================


- 10 -



Notes to Consolidated Financial Statements (continued)

The income tax effects allocated to and the cumulative balance of
accumulated other comprehensive income are as follows:


Balance at December 31, Pretax Balance at
2002 amount Tax effect June 30, 2003
- --------------------------------------------------------------------------------------------------------------------------
Foreign currency translation
adjustments $1,052,897 2,696,025 1,072,925 $2,675,997
=======================================================================================


Note 4 - Segment Reporting and Major Customers

The Company reports selected information about operating segments in
accordance with Statement of Financial Accounting Standards No. 131 (SFAS 131).
The Company's segment information reflects the information that the chief
operating decision makers (CODMs) use to make resource allocation and strategic
decisions. The CODMs at TSYS consist of the chief executive officer, the
president and the four executive vice presidents.

Through online accounting and electronic payment processing systems, Total
System Services, Inc. provides electronic payment processing and other related
services to card-issuing institutions in the United States, Mexico, Canada,
Honduras, Europe and the Caribbean. The reportable units are segmented based
upon geographic locations. Domestic-based processing services include electronic
payment processing services and other services provided from the United States.
Domestic-based processing services segment includes the financial results of
TSYS, excluding its foreign branch offices, and the following subsidiaries:
CDEC, CPI, TDM, ProCard, ESC and TTC. International-based processing services
include electronic payment processing and other services provided outside the
United States. International-based processing services include the financial
results of TCI, GP Net, Japan Co. and TSYS' branch offices in Europe and Japan.



Domestic-based International-based
Operating Segments processing services processing services Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
At June 30, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 885,273,008 97,655,200 $ 982,928,208
Intersegment eliminations (89,975,234) (6,030) (89,981,264)
----------------------- ------------------------- ------------------------
Total assets $ 795,297,774 97,649,170 $ 892,946,944
======================= ========================= ========================
- ------------------------------------------------------------------------------- --------------------------------------------------
At December 31, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Identifiable assets $ 777,509,354 92,145,647 $ 869,655,001
Intersegment eliminations (86,787,491) - (86,787,491)
----------------------- ------------------------- ------------------------
Total assets $ 690,721,863 92,145,647 $ 782,867,510
======================= ========================= ========================
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 237,848,431 20,484,556 $ 258,332,987
Intersegment revenue (1,395) (633,183) (634,578)
-------------------------- ------------------------- --------------------
Revenue from external customers $ 237,847,036 19,851,373 $ 257,698,409
========================== ========================= ====================
Depreciation and amortization $ 20,942,023 2,553,008 $ 23,495,031
========================== ========================= ====================
Segment operating income $ 41,485,249 3,270,498 $ 44,755,747
========================== ========================= ====================
Income taxes $ 16,731,700 1,376,100 $ 18,107,800
========================== ========================= ====================


- 11 -



Notes to Consolidated Financial Statements (continued)



Domestic-based International-based
Operating Segments processing services processing services Consolidated
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
Equity in income of joint ventures $ 4,550,422 249,922 $ 4,800,344
======================= ========================= =======================
Net income $ 32,181,065 2,125,932 $ 34,306,997
======================= ========================= =======================
- -----------------------------------------------------------------------------------------------------------------------------------
Three Months Ended June 30, 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 225,483,732 16,669,193 $ 242,152,925
Intersegment revenue (155,714) (391,472) (547,186)
----------------------- ------------------------- -----------------------
Revenue from external customers $ 225,328,018 16,277,721 $ 241,605,739
======================= ========================= =======================
Depreciation and amortization $ 16,053,179 2,088,332 $ 18,141,511
======================= ========================= =======================
Segment operating income $ 36,863,704 1,410,262 $ 38,273,966
======================= ========================= =======================
Income taxes $ 13,482,758 671,112 $ 14,153,870
======================= ========================= =======================
Equity in income of joint ventures $ 4,690,640 213,777 $ 4,904,417
======================= ========================= =======================
Net income $ 29,146,925 1,005,315 $ 30,152,240
======================= ========================= =======================

- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2003
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 470,967,776 39,195,258 $ 510,163,034
Intersegment revenue (2,790) (1,108,681) (1,111,471)
---------------------- ------------------------- ------------------------
Revenue from external customers $ 470,964,986 38,086,577 $ 509,051,563
====================== ========================= ========================
Depreciation and amortization $ 40,548,084 5,049,495 $ 45,597,579
====================== ========================= ========================
Segment operating income $ 82,965,962 4,957,652 $ 87,923,614
====================== ========================= ========================
Income taxes $ 31,629,444 1,992,675 $ 33,622,119
====================== ========================= ========================
Equity in income of joint ventures $ 8,491,890 496,404 $ 8,988,294
====================== ========================= ========================
Net income $ 62,987,288 3,055,701 $ 66,042,989
====================== ========================= ========================
- ------------------------------------------------------------------------------------------------------------------------------------
Six Months Ended June 30, 2002
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenue $ 438,882,817 31,742,566 $ 470,625,383
Intersegment revenue (307,169) (789,469) (1,096,638)
---------------------- ------------------------- ------------------------
Revenue from external customers $ 438,575,648 30,953,097 $ 469,528,745
====================== ========================= ========================
Depreciation and amortization $ 30,672,404 4,088,300 $ 34,760,724
====================== ========================= ========================
Segment operating income $ 72,643,360 1,062,310 $ 74,245,670
====================== ========================= ========================
Income taxes $ 26,633,918 776,695 $ 27,410,613
====================== ========================= ========================
Equity in income of joint ventures $ 8,917,081 461,011 $ 9,378,092
====================== ========================= ========================
Net income $ 56,560,706 973,071 $ 57,533,777
====================== ========================= ========================


Revenues for domestic-based processing services include electronic payment
processing and other services provided from the United States to clients
domiciled in the United States or other countries. Revenues from
international-based processing services include electronic payment processing
and other services provided outside the United States to clients domiciled
outside the United States.

- 12 -



Notes to Consolidated Financial Statements (continued)

The following geographic area data represent revenues for the three and six
months ended June 30, 2003 and 2002, respectively, based on the domicile of
customers.


Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------- --------------------------------------------
(Dollars in millions) 2003 2002 2003 2002
- ----------------------------- ---- ------------------- --------------------- -- ---------------------- --------------
United States $ 209.0 206.7 417.6 403.3
Canada 19.1 11.0 35.1 21.1
Europe 16.9 13.8 32.4 26.0
Mexico 9.1 7.1 17.1 13.1
Japan 2.9 2.5 5.8 4.9
Other 0.7 0.5 1.1 1.1
------------------- --------------------- ---------------------- --------------
Totals $ 257.7 241.6 509.1 469.5
=================== ===================== ====================== ==============


The Company maintains property and equipment in the United States, Europe,
Canada and Japan. The following geographic area data represent net property and
equipment balances by region:


At June 30, At December 31,
(Dollars in millions) 2003 2002
-------------------------- -----------------------------
United States $ 191.0 97.0
Europe 25.8 22.1
Japan 2.0 1.6
Canada 0.2 0.1
-------------------------- -----------------------------
Totals $ 219.0 120.8
========================== =============================


Major Customers For the three months ended June 30, 2003, the Company had
two major customers which accounted for approximately 30.2%, or $77.7 million,
of total revenues. For the three months ended June 30, 2002, TSYS had two major
customers that accounted for 35.0%, or $82.0 million, of total revenues.
Revenues from major customers for the periods reported are attributable to the
domestic-based processing services segment.


Three Months Ended June 30,
---------------------------------------------------------------------------------
2003 2002
------------------------------------- -------------------------------------
Revenue % of Total % of Total
(Dollars in millions) Dollars Revenues Dollars Revenues
------------------------------------- -------------------------------------
Customer One $ 49.2 19.1 % $ 48.0 19.9 %
Customer Two 28.5 11.1 34.0 14.1
------------------------------- -------------------------------
Totals $ 77.7 30.2 % $ 82.0 35.0 %
=============================== ===============================


For the six months ended June 30, 2003, the Company had two major customers
which accounted for approximately 30.1%, or $153.0 million, of total revenues.
For the six months ended June 30, 2002, TSYS had two major customers that
accounted for 33.9%, or $159.5 million, of total revenues. Revenues from major
customers for the periods reported are attributable to the domestic-based
processing services segment.

- 13 -



Notes to Consolidated Financial Statements (continued)



Six Months Ended June 30,
---------------------------------------------------------------------------------
2003 2002
------------------------------------- -------------------------------------
Revenue % of Total % of Total
(Dollars in millions) Dollars Revenues Dollars Revenues
------------------------------------- -------------------------------------
Customer One $ 96.0 18.9 % $ 90.8 19.3 %
Customer Two 57.0 11.2 68.7 14.6
------------------------------- -------------------------------
Totals $ 153.0 30.1 % $ 159.5 33.9 %
=============================== ===============================


Note 5 - Stock-Based Compensation

The Company maintains stock-based compensation plans for purposes of
incenting and retaining employees. The Company accounts for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25 (APB
25), "Accounting for Stock Issued to Employees," and related Interpretations.
Under APB 25, TSYS does not recognize compensation expense for a stock option
grant if the exercise price is equal to or greater than the fair market value of
the common stock on the grant date. The following table illustrates the effect
on net income and earnings per share for the three months ended June 30, 2003
and 2002, respectively, if the Company had applied the fair value recognition
provisions of SFAS No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation," to stock-based employee compensation granted in the form of TSYS
and Synovus Financial Corp. (Synovus) stock options.


June 30, 2003 June 30, 2002
-------------------------- -----------------------------
Net income, as reported $ 34,306,997 $ 30,152,240
Stock-based employee compensation expense
determined under the fair value based
method for all awards, net of related
income tax effects 1,221,827 1,765,285
-------------------------- -----------------------------
Net income, as adjusted $ 33,085,170 $ 28,386,955
========================== =============================
Earnings per share:
Basic - as reported $ 0.17 $ 0.15
========================== =============================
Basic - as adjusted $ 0.17 $ 0.14
========================== =============================
Diluted - as reported $ 0.17 $ 0.15
========================== =============================
Diluted - as adjusted $ 0.17 $ 0.14
========================== =============================


The following table illustrates the effect on net income and earnings per
share for the six months ended June 30, 2003 and 2002, respectively, if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation granted in the form of TSYS and Synovus stock
options.


June 30, 2003 June 30, 2002
-------------------------- -----------------------------
Net income, as reported $ 66,042,989 $ 57,533,777
Stock-based employee compensation expense
determined under the fair value based
method for all awards, net of related
income tax effects 2,474,644 3,241,388
-------------------------- -----------------------------
Net income, as adjusted $ 63,568,345 $ 54,292,389
========================== =============================


- 14 -



Notes to Consolidated Financial Statements (continued)


Earnings per share:
Basic - as reported $ 0.34 $ 0.29
========================== =============================
Basic - as adjusted $ 0.32 $ 0.28
========================== =============================
Diluted - as reported $ 0.33 $ 0.29
========================== =============================
Diluted - as adjusted $ 0.32 $ 0.27
========================== =============================


Note 6 - Long-Term Debt

On June 30, 2003, TSYS obtained a $45.0 million long-term line of credit
from a banking affiliate of Synovus. The line is an automatic draw down
facility. The interest rate for the line of credit is the London Interbank
Offered Rate (LIBOR) plus 150 basis points. In addition, there is a charge of 15
basis points on any funds unused. The line of credit is unsecured debt and
includes the covenants requiring the Company to maintain certain minimum
financial ratios. At June 30, 2003, TSYS had a draw of $20.2 million on the line
of credit.

Note 7 - Supplementary Cash Flow Information

Cash flows used in additions to computer software for the six months ended
June 30, 2003 and 2002 are summarized as follows:


June 30, 2003 June 30, 2002
------------------------- -----------------------------
Purchased programs $ 19,999,560 $ 19,749,510
Developed software 9,033,337 15,894,340
------------------------- -----------------------------
Total $ 29,032,897 $ 35,643,850
========================= =============================


Cash flows used in additions to contract acquisition costs for the six
months ended June 30, 2003 and 2002 are summarized as follows:


June 30, 2003 June 30, 2002
------------------------- -----------------------------
Conversion costs $ 10,378,765 $ 6,142,625
Payments for processing rights 3,000,000 21,541,138
------------------------- -----------------------------
Total $ 13,378,765 $ 27,683,763
========================= =============================


Note 8 -Recent Accounting Pronouncements

In June 2001, the FASB issued Statement No. 143 (SFAS 143), "Accounting for
Asset Retirement Obligations." SFAS 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets.

The Company also records a corresponding asset that is depreciated over the
life of the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash flows underlying
the obligation. The Company adopted SFAS 143 on January 1, 2003. The adoption of
SFAS 143 did not have a material effect on the Company's financial position,
results of operations or cash flows.

- 15 -



Notes to Consolidated Financial Statements (continued)

In April 2002, the FASB issued Statement No. 145 (SFAS 145), "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the gain
or loss as extraordinary, as the use of such extinguishments have become part of
the risk management strategy of many companies. SFAS 145 also amends SFAS No. 13
to require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. The provisions of the Statement related to
Statement No. 13 were effective for transactions occurring after May 15, 2002.
The adoption of SFAS 145 did not have a material effect on the Company's
financial position, results of operations or cash flows.

In June 2002, the FASB issued Statement No. 146 (SFAS 146),"Accounting for
Costs Associated with Exit or Disposal Activities." SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity." The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. The
adoption of SFAS 146 did not have a material effect on the Company's financial
position, results of operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. Interpretation No. 45 also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and did not have a material effect on the Company's financial
statements. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The Company has one
lease guarantee.

To assist Vital Processing Services L.L.C. (Vital) in leasing its corporate
facility, the Company and Visa U.S.A. (Visa) are guarantors, jointly and
severally, for the lease payments on Vital's Tempe facility. The lease on the
facility expires in July 2007. The total future minimum lease payments remaining
at June 30, 2003 is $5.9 million. If Vital fails to perform its obligations with
regard to the lease, TSYS and Visa will be required to perform in the same
manner and to same extent as is required by Vital.

At the November 21, 2002 Emerging Issues Task Force (EITF) meeting, the
Task Force ratified as a consensus the tentative conclusions it reached at the
October 25, 2002 EITF meeting regarding Emerging Issues Task Force 00-21 (EITF
00-21), "Accounting for Revenue Arrangements with Multiple Deliverables." EITF
00-21 addresses certain aspects of the accounting by a vendor for arrangements
under which it will perform multiple revenue-generating activities. Those
activities may involve the delivery or performance of multiple products,
services, and/or rights to use assets, and performance may occur at different
points in time or over different periods of time. The arrangements are often


- 16 -



Notes to Consolidated Financial Statements (continued)

accompanied by initial installation, initiation, or activation services and
generally involve either a fixed fee or a fixed fee coupled with a continuing
payment stream. The continuing payment stream generally corresponds to the
continuing performance and may be fixed, variable based on future performance,
or composed of a combination of fixed and variable payments. EITF 00-21
addresses how to account for those arrangements. EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. Entities may also elect to report the change in accounting as a cumulative
effect adjustment, in which case disclosure should be made in periods subsequent
to the date of initial application of the amount of recognized revenue that was
previously included in the cumulative effect adjustment. Management has
determined that based on its evaluation, the adoption of EITF 00-21 did not
impact the Company's financial position, results of operations or cash flows.

In December 2002, the FASB issued Statement No. 148 (SFAS 148), "Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS 148 amends FASB Statement No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure modifications
are required for fiscal years ending after December 15, 2002 and are included in
the notes to the consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For enterprises such as the Company with a
variable interest in a variable interest entity created before February 1, 2003,
the Interpretation is applied to the enterprise in the first fiscal year or
interim period after June 15, 2003.

In 2002, the Company renewed its operating lease agreement with a special
purpose entity (SPE) for the Company's corporate campus. On April 30, 2003, the
Company provided written notice that it intended to terminate the lease
agreement for the Company's corporate campus. On June 30, 2003, the Company
terminated the operating lease agreement and purchased the corporate campus for
$93.5 million with a combination of cash and long-term debt financing through a
banking affiliate of Synovus.

Note 9 - Acquisition

On April 28, 2003, TSYS completed the acquisition of Enhancement Services
Corporation (ESC) for $36.0 million in cash. The Company is in the process of
completing the purchase price allocation and has preliminarily allocated
approximately $26.0 million to goodwill, approximately $8.2 million to
intangibles and the remaining amount to the net assets acquired. ESC provides
targeted loyalty consulting and travel, as well as gift card and merchandise
reward programs to more than 40 national and regional financial institutions in
the United States. The Company believes the acquisition of ESC enhances TSYS'
processing services by adding distinct value differentiation for TSYS and its
clients. ESC operates as a separate subsidiary of TSYS.

- 17 -



Notes to Consolidated Financial Statements (continued)

Presented below are the pro forma consolidated results of TSYS' operations
for the three months and six months ended June 30, 2003 and 2002, respectively,
as though the acquisition of ESC had occurred at the beginning of 2002.



Three Months Ended June 30, Six Months Ended June 30,
---------------------------------------- -----------------------------------
2003 2002 2003 2002
------------------ --------------------- ------------------ ----------------
Revenues $ 261,883,927 244,115,320 517,430,763 441,913,301
Net income 34,224,148 29,789,382 66,556,234 47,626,727
Basic earnings per share .17 .15 .34 .24
Diluted Earnings per share .17 .15 .34 .24



- 18 -



TOTAL SYSTEM SERVICES, INC.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations

Financial Review

This Financial Review provides a discussion of critical accounting policies,
related party transactions, and off-balance sheet arrangements. This Financial
Review also discusses the results of operations, financial condition, liquidity
and capital resources of TSYS and outlines the factors that have affected its
recent earnings, as well as those factors that may affect its future earnings.

Critical Accounting Policies

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

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
from existing customers, an inability to attract new customers and grow
internationally, loss of one of the Company's major customers or other
significant clients, an inability to grow through acquisitions or successfully
integrate acquisitions, an inability to control expenses, technology changes,
financial services consolidation, change in regulatory mandates, a decline in
the use of cards as a payment mechanism, 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. In preparing financial statements, it is necessary for management to
make assumptions and estimates affecting the amounts reported in the
consolidated financial statements and related notes. These estimates and
assumptions are developed based upon all information available. Actual results
can differ from estimated amounts.

A summary of the Company's critical accounting policies follows:

Accounts Receivable: Accounts receivable balances are stated net of allowances
for doubtful accounts and billing adjustments of $7.4 million and $8.0 million
at June 30, 2003 and December 31, 2002, respectively. The allowance represents
5.1% and 6.2% of total accounts receivable at June 30, 2003 and December 31,
2002, respectively. TSYS' client base mainly consists of financial institutions
and other card issuers such as retailers. A substantial amount of the Company's
account receivable balances are current, and the average number of days sales
outstanding in accounts receivable at June 30, 2003 and December 31, 2002 was 51
days and 49 days, respectively. Because TSYS invoices clients for services
monthly in arrears, accounts receivable balances includes services for one month
of billings not yet invoiced.

TSYS records allowances for doubtful accounts when it is probable that the
accounts receivable balance will not be collected. 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

- 19 -



Critical Accounting Policies (continued)

history 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 an adverse and material effect on
collectibility 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 other operating expenses in the Company's
consolidated statements of income. Write-offs of uncollectible accounts are
charged against the allowance for doubtful accounts.

TSYS records allowances 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.

Revenue Recognition: The Company's electronic payment processing revenues
are derived from long-term processing contracts with financial and nonfinancial
institutions and are recognized as the services are performed. Electronic
payment processing revenues are generated primarily from charges based on the
number of accounts on file, transactions and authorizations processed,
statements mailed, and other processing services for cardholder accounts on
file. Most of these contracts have prescribed annual revenue minimums. The terms
of processing contracts generally range from three to ten years in length.

On March 3, 2003, the Company announced that Bank One selected TSYS to
upgrade its credit card processing. Under the long term software licensing and
services agreement, TSYS will provide electronic payment processing services to
Bank One's credit card accounts for at least two years starting in mid 2004
(excluding statement and card production services), and then TSYS will license a
modified version of its TS2 consumer and commercial software to Bank One under a
perpetual license with a six year payment term. The Company uses the
percentage-of-completion accounting method for its agreement with Bank One. TSYS
began recognizing revenue in March 2003.

The Company's other service revenues are derived from recovery collections work,
bankruptcy process management, legal account management, skip tracing,
commercial printing activities and customer relationship management services,
such as call center activities for card activation and balance transfer
requests. The contract terms for these services are generally shorter in nature.
Revenue is recognized on these other services either on a per unit or a fixed
price basis. The Company uses the percentage-of-completion method of accounting
for its fixed price contracts.

Contract Acquisition Costs: The Company capitalizes contract acquisition costs
related to signing or renewing long-term contracts. These costs, primarily
consisting of cash payments for rights to provide processing services and
internal conversion and software development costs, are amortized using the
straight-line method over the contract term beginning when the client's
cardholder accounts are converted and producing revenues. All costs incurred
prior to a signed agreement are expensed as incurred.

- 20 -



Critical Accounting Policies (continued)

The amortization of contract acquisition costs associated with cash
payments is recorded net of revenues in the Company's consolidated statements of
income. The amortization of contract acquisition costs associated with
conversion activity is recorded as other operating expenses in the Company's
consolidated statements of income. The Company evaluates the carrying value of
contract acquisition costs for impairment for each customer on the basis of
whether these costs are fully recoverable from expected undiscounted net
operating cash flows of the related contract. 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 estimates
of future cash flows differ from actual results.

Software Development Costs: The Company develops software that is used in
providing electronic payment processing and other services to clients. 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 available to clients for general use. 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 Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." Internal-use software development costs are capitalized once (a)
preliminary project stage is completed, (b) management authorizes and commits to
funding a computer software project, and (c) 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 seven 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.

Transaction Processing Provisions: The Company has recorded 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 providing 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.

- 21 -



Critical Accounting Policies (continued)

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

Impairment of Long-lived Assets and Intangibles: The Company reviews long-lived
assets, such as property and equipment and intangibles subject to amortization,
such as contract acquisition costs and 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
carrying amount of an asset exceeds its estimated 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 are
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 are presented separately in the appropriate asset and liability
sections of the balance sheet.

Related Party Transactions

The Company provides electronic payment processing and other services to
its parent company, Synovus Financial Corp. (Synovus), and its affiliates, and
for Vital Processing Services L.L.C. (Vital). The services are performed under
contracts that are similar to its contracts with other 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
disclosed on the face of TSYS' consolidated financial statements.

In 2000, the Board of Directors of Vital approved a plan to allow its
owners to set aside 2 million units held by the owners to make awards to key
management of Visa and TSYS. In June 2000, TSYS awarded six of its key
executives an aggregate of 800,000 Vital restricted stock units for their role
in the development, growth and success of Vital. The units were to vest over a
36-month cliff-vesting schedule. The award of 800,000 units was made in
anticipation of Vital becoming a publicly traded company.

Because Vital is not expected to become a publicly traded company in the
foreseeable future, TSYS management, with approval from the Compensation
Committee, repurchased the Vital restricted units from the Company's six key
executives in June 2003. The purchase price for the restricted shares of $3.85
per unit was based upon an independent, third party valuation of Vital conducted
as of May 31, 2003. The Company recognized compensation expense throughout the
entire vesting period. Semiannually, the Company received an independent third
party evaluation of Vital throughout the vesting period and adjusted
compensation expense accordingly. Through December 2002, the Company recognized
$3.0 million as compensation expense. After adjusting for the revised
evaluations in 2003, TSYS recognized $80,000 as compensation expense in 2003.
With the repurchase of the units, TSYS will maintain its 50% ownership in Vital.

- 22 -



Related Party Transactions (continued)

In connection with the purchase of the campus discussed below, TSYS
obtained a $45.0 million long-term line of credit from a banking affiliate of
Synovus. The line is an automatic draw down facility. The interest rate for the
line of credit is the London Interbank Offered Rate (LIBOR) plus 150 basis
points. In addition, there is a charge of 15 basis points on any funds unused.
At June 30, 2003, TSYS had a draw of $20.2 million on the line of credit. As the
LIBOR rate changes, TSYS will be subject to interest rate risk.

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 because of potential rapid technological obsolescence.
Neither the assets nor obligations related to these leases are included on the
balance sheet. One of the Company's most significant leases was its synthetic
lease for its corporate campus.

Synthetic Lease: In 1997, the Company entered into an operating lease agreement
with a special purpose entity (SPE) for the Company's corporate campus. The
business purpose of the SPE was to provide a means of financing the Company's
corporate campus. The assets and liabilities of the SPE consisted solely of the
cost of the building and the loans from a consortium of banks. The cost of the
building and the outstanding principal balance of the debt included on the
financial statements of the SPE both approximated $93.5 million. The lease,
which was guaranteed by Synovus, provided for substantial residual value
guarantees. The amount of the Company's residual value guarantee relative to the
assets under this lease was approximately $81.4 million. In accordance with
accounting principles, no asset or obligation was recorded on the Company's
consolidated balance sheets.

The terms of this lease financing arrangement required, among other things,
that the Company maintain certain minimum financial ratios and provide certain
information to the lessor. TSYS was also subject to interest rate risk
associated with the lease on its campus facilities because of the short-term
variable rate nature of the SPE's debt.

In 2002, the Company renewed its operating lease agreement with the SPE for
the Company's corporate campus. If the synthetic lease was not restructured,
FASB Interpretation No. 46 would require TSYS to consolidate the SPE effective
with the reporting period beginning July 1, 2003. On April 30, 2003, the Company
provided written notice that it intended to terminate the lease agreement for
the Company's corporate campus. On June 30, 2003, the Company terminated the
lease agreement and purchased the corporate campus for $93.5 million with a
combination of cash and long-term debt financing through a banking affiliate of
Synovus.

Results of Operations

The following table sets forth certain revenue and expense items as a
percentage of total revenues and the percentage increases or decreases in those
items for the three months ended June 30, 2003 and 2002:

- 23 -



Results of Operations (continued)


Percentage of Percentage Change
Total Revenues in Dollar Amounts
----------------------------- ------------------------
2003 2002 2003 vs. 2002
------------- ---------- ------------------------
Revenues:
Electronic payment processing services 68.8 % 63.5 % 15.4 %
Other services 10.0 11.6 (8.0)
------------- ----------
Revenues before reimbursable items 78.8 75.1 11.8
Reimbursable items 21.2 24.9 (9.0)
------------- ----------
Total revenues 100.0 100.0 6.7
------------- ----------
Expenses:
Salaries and other personnel expense 32.4 30.5 13.6
Net occupancy and equipment expense 19.6 17.3 20.8
Other operating expenses 9.4 11.5 (13.1)
------------- ----------
Expenses before reimbursable items 61.4 59.3 10.5
Reimbursable items 21.2 24.9 (9.0)
------------- ----------
Total expenses 82.6 84.2 4.7
------------- ----------
Operating income 17.4 15.8 16.9
Nonoperating income 1.1 0.5 nm
------------- ----------
Income before income taxes, minority
interest and equity in income of joint
ventures 18.5 16.3 21.1
Income taxes 7.0 5.8 27.9
Minority interest in consolidated subsidiary's
net income (0.1) (0.0) nm
Equity in income of joint ventures 1.9 2.0 (2.1)
------------- ----------
Net income 13.3 % 12.5 % 13.8 %
============= ==========


nm = not meaningful

The following table sets forth certain revenue and expense items as a
percentage of total revenues and the percentage increases or decreases in those
items for the six months ended June 30, 2003 and 2002:


Percentage of Percentage Change
Total Revenues in Dollar Amounts
----------------------------- ------------------------
2003 2002 2003 vs. 2002
------------- ---------- ------------------------
Revenues:
Electronic payment processing services 67.8 % 63.2 % 16.3 %
Other services 10.0 11.9 (8.7)
------------- ----------
Revenues before reimbursable items 77.8 75.0 12.4
Reimbursable items 22.2 25.0 (3.4)
------------- ----------
Total revenues 100.0 100.0 8.4
------------- ----------
Expenses:
Salaries and other personnel expense 31.4 30.3 12.2
Net occupancy and equipment expense 20.0 18.3 18.7


- 24 -




Results of Operations (continued)


Percentage of Percentage Change
Total Revenues in Dollar Amounts
----------------------------- -------------------------
2003 2002 2003 vs. 2002
------------- ---------- -------------------------
Other operating expenses 9.1 10.6 (7.1)
------------- ----------
Expenses before reimbursable items 60.5 59.2 10.7
Reimbursable items 22.2 25.0 (3.4)
------------- ----------
Total expenses 82.7 84.2 6.5
------------- ----------
Operating income 17.3 15.8 18.4
Nonoperating income 0.6 0.3 nm
------------- ----------
Income before income taxes, minority
interest and equity in income of joint
ventures 17.9 16.1 20.3
Income taxes 6.6 5.8 22.7
Minority interest in consolidated subsidiary's
net income (0.1) 0.0 nm
Equity in income of joint ventures 1.8 2.0 (4.2)
------------- ----------
Net income 13.0 % 12.3 % 14.8 %
============= ==========

nm = not meaningful

Revenues

TSYS' revenues are derived from providing electronic payment processing and
related services to financial and nonfinancial institutions, generally under
long-term processing contracts. TSYS' services are provided through the
Company's cardholder systems, TS2 and TS1, to financial institutions and other
organizations throughout the United States, Mexico, Canada, Honduras, the
Caribbean and Europe. The Company currently offers merchant services to
financial institutions and other organizations in Japan through its majority
owned subsidiary, GP Net, and in the United States through its joint venture,
Vital. Total revenues increased $16.1 million and $39.5 million, or 6.7% and
8.4%, during the three and six months ended June 30, 2003, compared to the same
periods in 2002. Excluding reimbursable items, revenues increased $21.5 million
and $43.6 million, or 11.8% and 12.4%, during the three and six months ended
June 30, 2003, respectively, compared to the same periods in 2002.

Electronic Payment Processing Services

Electronic payment processing revenues are generated primarily from charges
based on the number of accounts on file, transactions and authorizations
processed, statements mailed, credit bureau reports, cards embossed and mailed,
and other processing services for cardholder accounts on file. Cardholder
accounts on file include active and inactive consumer credit, retail, debit,
stored value, student loan and commercial card accounts. Due to the number of
cardholder accounts processed by TSYS and the expanding use of cards as well as
increases in the scope of services offered to clients, revenues relating to
electronic payment processing services have continued to grow. Revenues from
electronic payment processing services increased $23.7 million and $48.4
million, or 15.4% and 16.3%, for the three and six months ended June 30, 2003,
respectively, compared to the same periods in 2002.

- 25 -



Results of Operations (continued)

Due to the seasonal nature of credit card transactions, 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 a decline in card
portfolios of existing clients, the conversion of cardholder accounts of new
clients to the Company's processing platforms, and the loss of cardholder
accounts impact the results of operations from period to period. Another factor,
among others, which may affect TSYS' revenues and results of operations from
time to time is the sale by a client of its business, its card portfolio or a
segment of its accounts to a party which processes cardholder accounts
internally or uses another third-party processor.

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,
electronic payment processing revenues and the related margins are influenced by
the client mix relative to the size of client card portfolios, as well as the
number and activity of individual cardholder accounts processed for each client.
Consolidation among financial institutions has resulted in an increasingly
concentrated client base, which results in a changing client mix toward larger
clients. Consolidation in either the financial services or retail industries, 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 condition, results of operations and cash flows in the future.

The Company provides services to its clients including processing consumer,
retail, commercial, debit and stored-value cards, as well as student loan
account processing. Consumer cards include Visa, MasterCard and American Express
credit cards. Debit/Stored value accounts include debit cards and stored value
cards. Government services/EBT accounts on file consist mainly of student loan
processing accounts. Retail cards include private label and gift cards.
Commercial cards include purchasing cards, corporate cards and fleet cards for
employees. The following table summarizes TSYS' accounts on file (AOF) by
portfolio type as of:


AOF by Type June 30, 2003 June 30, 2002
----------------------------------- ---------------------------- ------------------------
(in millions) AOF % AOF % % Change
------------- -------------- ------------ ----------- -----------------
Consumer 145.0 55.2 121.8 53.8 19.0
Retail 82.6 31.5 80.6 35.6 2.5
Commercial 20.3 7.7 18.8 8.3 8.0
Debit/Stored Value 7.9 3.0 5.0 2.2 58.0
Government services/EBT 6.7 2.6 0.5 0.1 nm
----------------------------------- ------------- -------------- ------------ -----------
Total 262.5 100.0 226.7 100.0 15.8
============= ============== ============ ===========

nm = not meaningful

Average cardholder accounts on file for the three months ended June 30,
2003 were 260.7 million, an increase of approximately 13.8% over the average of
229.1 million for the same period in 2002. Average cardholder accounts on file
for the six months ended June 30, 2003 were 256.4 million, an increase of
approximately 10.5% over the average of 232.1 million for the same period in
2002. Cardholder accounts on file at June 30, 2003 were 262.5 million, a 15.8%
increase compared to the 226.7 million accounts on file at June 30, 2002. The
change in cardholder accounts on file from June 2002 to June 2003 included the
deconversion and purging of 9.5 million accounts, the addition of

- 26 -



Results of Operations (continued)

approximately 23.8 million accounts attributable to the internal growth of
existing clients, and approximately 21.5 million accounts for new clients.

TSYS expects to continue expanding its market share in the consumer, debit,
retail and commercial card arenas. The Company's future growth is dependent upon
new clients, international expansion and continued internal growth of clients'
portfolios.

TSYS is a major third-party processor of retail cards. Traditional retail
card operations are increasing the activity of their card portfolios by
converting inactive accounts to Visa/MasterCard consumer cards. TSYS is able to
provide its extensive electronic payment processing tools and techniques, as
well as value-added functionality, to traditional retail card operations
allowing better segmentation and potentially increased profitability for
customers. TSYS does not receive as much revenue from retail cards, on a per
account basis, as it does from consumer cards because consumer cards
traditionally generate more transactions. Retail cards are generally limited to
a particular location or retail chain. Consumer cards are widely accepted at
numerous retail outlets.

In March 2003, Sears announced that it was evaluating strategic
alternatives for the company's private label and MasterCard portfolio. In July,
Sears and Citicorp announced an agreement for the proposed sale by Sears to
Citicorp of the Sears credit card and financial services businesses by the end
of 2003. Sears and Citicorp are both customers of TSYS, and TSYS considers its
relationships with both companies to be very positive.

TSYS and Sears are parties to a 10-year agreement, which was renewed in
January of 2000, under which TSYS provides transaction processing for more than
78 million Sears accounts. The TSYS/Sears processing agreement as it relates to
the Sears retail and MasterCard portfolios expires on April 30, 2010. During the
six month period ending June 30, 2003, TSYS' revenues from the TSYS/Sears
agreement represented 6.50% of TSYS' consolidated revenues. The agreement
includes provisions for termination for convenience prior to its expiration upon
the payment of a termination fee. This termination fee is not fixed, but is
reduced annually the closer the termination date is to the expiration date of
the agreement. The TSYS/Sears agreement also grants to Sears the one-time right
to market test TSYS' pricing and functionality after May 1, 2004. Potential
results of such market test, in which TSYS will be a participant, include
continuation of the processing agreement under its existing terms, continuation
of the processing agreement under mutually agreed modified terms, or termination
of the processing agreement after May 1, 2006 without a termination fee.

At this point in time, TSYS has not had any formal discussions with
Citicorp about Citicorp's future plans for the Sears portfolios. TSYS believes
that many aspects of the TSYS/Sears processing agreement are unique to its
relationship with Sears, and TSYS intends to address those issues in future
conversations and negotiations with Citicorp. The impact of the proposed
transaction between Sears and Citicorp on the financial position, results of
operations and cash flows of TSYS cannot be determined at this time.

TSYS has a dominant market share position in the domestic Visa and
MasterCard commercial card processing arena. Future growth in this area is
dependent upon increased card activity with more purchasing by businesses being
transacted electronically and additional firms realizing the benefits of
converting their paper-based purchasing systems to electronic transactions using
commercial cards.

- 27 -



Results of Operations (continued)

In April 2002, the Company announced that it had entered into a five-year
agreement with Accenture valued in excess of $120 million to provide processing
services for the U.S. Department of Education. TSYS began processing all student
loan originations for the Department of Education on April 26, 2002, and was
processing 6.6 million student loan accounts at June 30, 2003. The agreement
also involves converting all existing student loan accounts to TSYS' new
stand-alone platform during several phases. The conversion phases are scheduled
to be completed in the third quarter of 2003, and TSYS estimates it will be
processing a total of approximately 12 million student loan accounts after
completion of these conversions.

TSYS processes debit and stored value cards. At June 30, 2003, TSYS was
processing 7.9 million debit and stored value accounts, a 58.0% increase, or 2.9
million accounts, compared to 5.0 million at June 30, 2002. The majority of the
increase relates to one client adding approximately 1.7 million stored value
accounts.

TSYS provides processing services to its clients worldwide. TSYS plans to
continue to expand its service offerings to other countries in the future. The
following table summarizes TSYS' AOF by area based on the domicile of processing
clients as of:



AOF by Area June 30, 2003 June 30, 2002
---------------------------------- ----------------------------------------------------------
(in millions) AOF % AOF % % Change
---------------------------------------------------------------------------
Domestic 217.3 82.8 197.8 87.8 9.8
Foreign 45.2 17.2 28.9 12.2 56.5
---------------------------------- ----------------------------------------------------------
Total 262.5 100.0 226.7 100.0 15.8
==========================================================


The Company's electronic payment processing service revenues are also
impacted by the use of optional value added products and services of TSYS'
processing systems. Value added products and services are optional features each
client can choose to subscribe to in order to potentially increase the financial
performance of its portfolio. Value added products and services include: risk
management tools and techniques, such as credit evaluation, fraud detection and
prevention, and behavior analysis tools; and revenue enhancement tools and
customer retention programs, such as loyalty programs and bonus rewards. These
revenues can increase or decrease over time as clients subscribe or unsubsribe
for these services. For the three months ended June 30, 2003 and 2002, value
added products and services represented 13.9% and 12.9%, or $35.9 million and
$31.2 million, of total revenues, respectively. Revenues from value added
products and services, which includes some reimbursable items paid to
third-party vendors, increased 15.0%, or $4.7 million, for the three months
ended June 30, 2003, compared to the same period in 2002.

For the six months ended June 30, 2003 and 2002, value added products and
services represented 14.0% and 12.2%, or $71.3 million and $57.2 million, of
total revenues, respectively. Revenues from value added products and services,
which includes some reimbursable items paid to third-party vendors, increased
24.7%, or $14.2 million, for the six months ended June 30, 2003, compared to the
same period in 2002.

On March 3, 2003, the Company announced that Bank One selected TSYS to
upgrade its credit card processing. Under the long term software licensing and
services agreement, TSYS will provide electronic payment processing services to
Bank One's credit card accounts for at least two years starting

- 28 -



Results of Operations (continued)

in mid 2004 (excluding statement and card production services), and then TSYS
will license a modified version of its TS2 consumer and commercial software to
Bank One under a perpetual license with a six year payment term. The Company
uses the percentage-of-completion accounting method for its agreement with Bank
One and recognizes revenues in proportion to costs incurred. The impact upon
2003 earnings will be slightly positive. The 2004 earnings per share (EPS)
contribution from the Bank One agreement is expected to range from $0.03 to
$0.04. Beginning in 2005 and continuing thereafter through the payment term of
the license, the EPS contribution of the Bank One agreement is expected to
exceed $0.04 on an annual basis.

Other Services

Revenues from other services consist primarily of revenues generated by
TSYS' wholly owned subsidiaries. Revenues from other services decreased $2.2
million, or 8.0%, in the second quarter of 2003, compared to the second quarter
of 2002. Revenues from other services decreased $4.8 million, or 8.7%, for the
first six months of 2003, compared to the same period in 2002. The decline in
other services revenues related to a decline in call center and business process
management revenues related to decreased business from a client in the subprime
credit business and the loss of business of a major airline client.

On April 28, 2003, TSYS completed the acquisition of Enhancement Services
Corporation (ESC) for $36.0 million in cash. ESC provides targeted loyalty
consulting and travel, as well as gift card and merchandise reward programs to
more than 40 national and regional financial institutions in the United States.
The Company believes the acquisition of ESC enhances TSYS processing services by
adding distinct value differentiation for TSYS and its clients. For the second
quarter of 2003, TSYS' revenues include $3.0 million related to ESC's revenues
and are included in other services.

Major Customers

A significant amount of the Company's revenues is derived from long-term
contracts with large clients, including certain major customers. For the three
months ended June 30, 2003, the Company had two major customers. The two major
customers for the quarter ended June 30, 2003 accounted for approximately 30.2%,
or $77.7 million, of total revenues. For the three months ended June 30, 2002,
TSYS had two major customers that accounted for 35.0%, or $82.0 million, of
total revenues. The loss of one of the Company's major customers, or other
significant clients, could have a material adverse effect on the Company's
financial position, results of operations and cash flows.

For the six months ended June 30, 2003, the Company had two major
customers. The two major customers for the six months ended June 30, 2003
accounted for approximately 30.1%, or $153.0 million, of total revenues. For the
six months ended June 30, 2002, TSYS had two major customers that accounted for
33.9%, or $159.5 million, of total revenues. The loss of one of the Company's
major customers, or other significant clients, could have a material adverse
effect on the Company's financial position, results of operations and cash
flows.

Reimbursable Items

Reimbursable items decreased $5.4 million and $4.0 million, or 9.0% and
3.4%, for the three and six months ended June 30, 2003, respectively, as
compared to the same periods last year. The majority of reimbursable items
relates to the Company's domestic-based clients and is primarily costs
associated with postage. The decrease in 2003 is related to services provided to
a major client that mailed less statements in 2003 compared to 2002, and
therefore required less postage.

- 29 -



Results of Operations (continued)

Operating Expenses

Total expenses increased 4.7% and 6.5% for the three and six months ended
June 30, 2003, respectively, compared to the same periods in 2002. Excluding
reimbursable items, total expenses increased 10.5% and 10.7% for the three and
six months ended June 30, 2003, compared to the same periods in 2002. The
increases in operating expenses are attributable to changes in each of the
expense categories as described below.

Salaries and other personnel expenses increased $10.0 million and $17.4
million, or 13.6% and 12.2%, for the three and six months ended June 30, 2003,
respectively, compared to the same periods in 2002. The change in employment
expenses is associated with the growth in the number of employees, normal salary
increases and related benefits, as well as lower levels of employment costs
categorized as software development and contract acquisition costs. The average
number of employees in the second quarter of 2003 increased to 5,421, which
increased 2.1% compared to 5,311 in the same period in 2002. The average number
of employees for the first six months of 2003 increased to 5,304, which
approximates the 5,298 in the same period in 2002. During the second quarter,
TSYS added approximately 220 employees associated with the ESC acquisition and
the creation of a wholly-owned subsidiary named TSYS Technology Center, Inc.
(TTC) in Boise, Idaho. Initially employing 77 team members, the TTC team members
will support technology efforts throughout TSYS, including government services,
customer care, programming, and systems development. At July 31, 2003, TSYS had
5,516 full-time and 216 part-time employees.

Net occupancy and equipment expense increased $8.7 million and $16.1
million, or 20.8% and 18.7%, for the three and six months ended June 30, 2003,
respectively, over the same periods in 2002. Due to rapidly changing technology
in computer equipment, TSYS' equipment needs are achieved to a large extent
through operating leases. Computer equipment and software rentals, which
represent the largest component of net occupancy and equipment expense,
increased approximately $4.6 million and $6.2 million for the first three and
six months ended June 30, 2003, respectively, compared to the same periods of
2002. Depreciation and amortization increased $4.0 million and $8.8 million
during the three and six months ended June 30, 2003, respectively, compared to
the same periods in 2002. The increase in depreciation and amortization is the
result of the amortization of additional software acquired in 2002, as well as,
the amortization of developed software placed in service after June 30, 2002.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For enterprises such as the Company with a
variable interest in a variable interest entity created before February 1, 2003,
the Interpretation is applied to the enterprise no later than the end of the
first annual reporting period beginning after June 15, 2003. The Interpretation
requires certain disclosures in financial statements issued after January 31,
2003.

In 2002, the Company renewed its operating lease agreement with a special
purpose entity (SPE) for the Company's corporate campus. If the synthetic lease
was not restructured, Interpretation No. 46 would require TSYS to consolidate
the SPE effective with the reporting period beginning July 1, 2003.

- 30 -



Results of Operations (continued)

On April 30, 2003, the Company provided written notice that it intended to
terminate the lease agreement for the Company's corporate campus. On June 30,
2003, the Company terminated the lease arrangement and purchased the corporate
campus with a combination of cash and long-term debt financing through a banking
affiliate of Synovus. As a result of the purchase, net occupancy and equipment
expense is not expected to increase because the increase of approximately $2.6
million annually for depreciation of the building and related equipment will be
offset by the decrease in annual rent expense related to the lease. The interest
expense associated with the line of credit is discussed below in nonoperating
income.

Other operating expenses for the first three and six months of 2003
decreased $3.7 million and $3.5 million, or 13.1% and 7.1%, respectively, as
compared to the same periods in 2002. Other operating expenses include, among
other things, charges for processing errors, contractual commitments and bad
debt expense. As described in the Critical Accounting Policies section,
management's evaluation of the adequacy of its transaction processing reserves
and allowance for doubtful accounts is based on a formal analysis which assesses
the probability of losses related to contractual contingencies, processing
errors and uncollectible accounts. Increases and decreases in transaction
processing provisions and charges for bad debt expense are reflected in other
operating expenses. Charges for transaction processing and contractual
commitments for the three months ended June 30, 2003 and 2002 were $194,000 and
$6.3 million, respectively. Charges for transaction processing and contractual
commitments for the six months ended June 30, 2003 and 2002 were $2.2 million
and $6.9 million, respectively.

Operating Income

Operating income increased 16.9% and 18.4% for the three and six months
ended June 30, 2003, respectively, over the same periods in 2002. The increase
in operating income was the result of the Company's commitment to contain the
growth in operating expenses below the growth rate in revenues. The Company's
operating profit margin for the second quarter of 2003 was 17.4%, compared to
15.8% for the same period last year. Excluding reimbursable items, the Company's
operating profit margin for the three months ended June 30, 2003 was 22.0%,
compared to 21.1% for the three months ended June 30, 2002. The Company's focus
on expense control was the main reason for the improved margin.

The Company's operating profit margin for the first six months of 2003 was
17.3%, compared to 15.8% for the same period last year. Excluding reimbursable
items, the Company's operating profit margin for the six months ended June 30,
2003 was 22.2%, compared to 21.1% for the six months ended June 30, 2002. The
Company's focus on expense control was the main reason for the improved margin.

Nonoperating Income

Interest income, net, includes interest income of $1.2 million and $17,000
of interest expense for the three months of 2003. During the three months ended
June 30, 2002, interest income, net, included interest income of $996,000 and
$7,000 of interest expense.

Interest income, net, includes interest income of $1.9 million and $30,000
of interest expense for the six months ended June 30, 2003. During the six
months ended June 30, 2002, interest income, net, included interest income of
$1.4 million and $20,000 of interest expense.

- 31 -



Results of Operations (continued)

On June 30, 2003, the Company terminated the operating lease agreement and
purchased the corporate campus for $93.5 million with a combination of $73.3
million in cash and long-term line of credit through a banking affiliate of
Synovus. The line is an automatic draw down facility. The interest rate for the
line of credit is the London Interbank Offered Rate (LIBOR) plus 150 basis
points. In addition, there is a charge of 15 basis points on any funds unused.
The line of credit is unsecured debt and includes the covenants requiring the
Company to maintain certain minimum financial ratios. At June 30, 2003, TSYS had
$20.2 million outstanding on the line of credit. Interest income, net will be
negatively impacted as a result of purchasing the campus.

In July 2002, the Company restructured $12.6 million of its permanent
financing of its UK operation as an intercompany loan. The financing requires
the unit to repay the financing in US dollars. The functional currency of the
European operations is the British Pound Sterling (BPS). As the Company
translates the European financial statements into US dollars, the translated
balance of the financing (liability) is adjusted upwards or downwards to match
the US-dollar obligation (receivable) on the Company's financial statement. The
upwards or downwards adjustment is recorded as a gain or loss on foreign
currency translation. As a result of the restructuring, the Company recorded a
foreign currency translation gain on the Company's financing with its European
operations during the second quarter of 2003 of $258,000, compared to $212,000
for the same period last year. For the six months ended June 30, 2003, the
Company recorded a gain of $85,000, compared to $1,300 for the same period last
year. The balance of the financing at June 30, 2003 was approximately $1.3
million.

The Company also records foreign currency translation adjustments
associated with other balance sheet accounts. The Company maintains several cash
accounts denominated in foreign currencies, specifically in Euros and BPS. As
the Company translates the foreign-denominated cash balances into US dollars,
the translated cash balance is adjusted upwards or downwards depending upon the
foreign currency exchange movements. The upwards or downwards adjustment is
recorded as a gain or loss on foreign currency translation. As those cash
accounts have increased, the upwards or downwards adjustments have increased.
The majority of the translation gain of $1.2 million for the first six months of
June 30, 2003 relates to the translation of cash accounts. The balance of the
foreign-denominated cash accounts subject to risk of translation gains or losses
at June 30, 2003 was approximately $29.4 million, the majority of which is
denominated in BPS.

Income Taxes

TSYS' effective income tax rate for the three months ended June 30, 2003
was 34.6%, compared to 32.0% for the same period in 2002. The increase in the
effective income tax rate for the three months ended June 30, 2003, as compared
to the same period in 2002, is the result of the recognition of certain tax
credits in 2002. TSYS' effective income tax rate for the six months ended June
30, 2003 was 33.7%, compared to 32.3% for the same period in 2002. The
calculation of the effective tax rate includes minority interest in consolidated
subsidiary's net income and equity earnings of joint ventures in pretax income.
The Company expects its effective income tax rate for 2003 to be approximately
33-34%.

Equity in Income of Joint Ventures

TSYS' share of income from its equity in joint ventures was $4.8 million
and $4.9 million for the three months ended June 30, 2003 and 2002,
respectively. For the first six months of 2003 and 2002, TSYS' share of income
from its equity in joint ventures was $9.0 million and $9.4 million,
respectively.

- 32 -



Results of Operations (continued)

The decrease for the quarter is attributable mainly to the decrease in Vital's
operating results as a result of pricing compression as discussed below.

Vital Processing Services L.L.C. (Vital)

Vital, a limited liability company, is a merchant processing joint venture
of TSYS and Visa U.S.A. ("VISA"). The Company is a leader in providing
integrated end-to-end electronic transaction processing services primarily to
large financial institutions and other merchant acquirers. Vital processes all
payment forms including credit, debit, electronic benefit transfer and check
truncation for merchants of all sizes across a wide array of retail market
segments. The Company's unbundled products and services 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 service. Vital's
products and services are marketed to merchant acquirers through a direct sales
force, which concentrates on developing long-term relationships with existing
and prospective clients.

The Company considers Vital to be an integral part of its overall
processing operations and an important part of its overall market strategy.
Prior to forming the joint venture, TSYS performed back-end merchant processing
services for its clients. The revenues and expenses associated with merchant
processing were included in operating profits. In the ordinary course of
business, TSYS, which still owns the merchant processing software, provides
back-end processing services to Vital. For the three months ended June 30, 2003
and 2002, TSYS generated $5.3 million and $5.9 million of revenue from Vital,
respectively. For the six months ended June 30, 2003 and 2002, TSYS generated
$11.0 million and $11.0 million of revenue from Vital, respectively.

During the three months ended June 30, 2003, the Company's equity in income
of joint ventures related to Vital was $4.6 million, a 3.0% decrease, or
$140,000, compared to $4.7 million for the same period last year. During the six
months ended June 30, 2003, the Company's equity in income of joint ventures
related to Vital was $8.5 million, a 4.8% decrease, or $390,000, compared to
$8.9 million for the same period last year.

In 2000, the Board of Directors of Vital approved a plan to allow its
owners to set aside 2 million units held by the owners to make awards to key
management of Visa and TSYS. In June 2000, TSYS awarded six of its key
executives an aggregate of 800,000 Vital restricted stock units for their role
in the development, growth and success of Vital. The units were to vest over a
36-month cliff-vesting schedule. The award of 800,000 units was made in
anticipation of Vital becoming a publicly traded company.

Because Vital is not expected to become a publicly traded company in the
foreseeable future, TSYS management, with approval from the Compensation
Committee, repurchased the Vital restricted units from the Company's six key
executives in June 2003. The purchase price for the restricted shares of $3.85
per unit was based upon an independent, third party valuation of Vital conducted
as of May 31, 2003. The Company recognized compensation expense throughout the
entire vesting period. Semiannually, the Company received an independent third
party evaluation of Vital throughout the vesting period and adjusted
compensation expense accordingly. Through December 2002, the Company recognized
$3.0 million as compensation expense. After adjusting for the revised
evaluations in 2003,

- 33 -



Results of Operations (continued)

TSYS recognized $80,000 as compensation expense in 2003. With the repurchase of
the units, TSYS will maintain its 50% ownership in Vital.

The following is a summary of Vital's consolidated statements of income for
the three and six months ended June 30, 2003 and 2002:


Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------ -------------------------------------
2003 2002 2003 2002
----------------- -------------- -------------- ----------------
Revenues $ 63,021 63,528 125,640 123,204
Operating income 8,708 9,554 17,207 18,278
Net income 8,847 9,727 17,483 18,614


Vital provides products and services through its merchant services
offerings. Vital's revenues are primarily generated from charges based on: the
number of transactions processed; the number of merchant accounts on its
systems; the number of reports provided (electronic and paper) to acquirers and
merchants; and the sale and service of point of sale terminal equipment.
Revenues generated by these activities depend upon a number of factors, such as
demand for and price of Vital's services, the technological competitiveness of
its product offerings, Vital's reputation for providing timely and reliable
service, competition within the industry, and general economic conditions.

Processing contracts with large clients, representing a significant portion
of Vital's total revenues, generally provide for discounts on certain services
based on the volume of transactions processed by the client. Transaction volumes
are influenced by both the number and type of merchants. The growth or loss of
merchants impacts the results of operations from period to period. Vital's
operating results may also be significantly impacted by a customer selling all
or a portion of its merchant acquiring business. Consolidation among financial
institutions has resulted in an increasingly concentrated client base, which
results in revenues being concentrated in a smaller number of clients.

Vital's revenues decreased $507,000, or 0.8%, and increased $2.4 million,
or 2.0%, for the three and six months ended June 30, 2003, respectively,
compared to the same periods in 2002. The decrease in the second quarter of
2003, as compared to the same period in 2002, was primarily the result of price
concessions related to the renewal of contracts partially offset by an increase
in the number of transactions processed. The increase in 2003 over 2002 for the
six month periods was primarily the result of increases in the number of
transactions processed (net of price reductions to certain customers) and
revenues associated with Vital's terminal deployment business.

Vital's major expense items include salaries and other personnel expense
and equipment expense. Salaries and other personnel expense, a significant
portion of Vital's operating expenses, consists of the cost of personnel who
develop and maintain processing applications, operate computer networks and
provide customer support; wages and related expenses paid to sales personnel;
non-revenue producing customer support functions and administrative employees
and management.

Other expenses consist primarily of the cost of network telecommunications
capability; transaction processing systems including depreciation and
amortization, maintenance and other system costs; third party service providers
including TSYS and VISA; and terminal equipment cost of sales.

- 34 -



Results of Operations (continued)

Vital's cost of services increased $860,000 and $3.7 million, or 2.5% and
5.6% for the three months and six months ended June 30, 2003, compared to the
same periods in 2002. The increase was primarily a result of increases in: the
cost of fees charged by debit network providers; the cost of telecommunication
and other third party service providers as a result of increased transaction
volumes and terminal equipment cost of sales as a result of increased terminal
sales.

Vital has agreements with both TSYS and VISA to provide key services
related to its business. Vital is dependent on both TSYS and VISA to perform on
their obligations under these agreements. Vital's results of operations could be
significantly impacted by material changes in the terms and conditions of the
agreements with TSYS and VISA, changes in performance standards and the
financial condition of both TSYS and VISA.

Vital, as a limited liability company, is treated similar to a partnership
for income tax purposes. As a result, no provision for current or deferred
income taxes has been made in Vital's financial statements. Vital's taxable
income or loss is reportable on the tax returns of its owners based on their
proportionate interest in Vital.

TSYS de Mexico

The Company has a joint venture with a number of Mexican banks and records
its 49% ownership in the joint venture using the equity method of accounting.
The operation, Total System Services de Mexico, S.A. de C.V. (TSYS de Mexico),
prints statements and provides card-issuing support services to the joint
venture clients.

During the three months ended June 30, 2003, the Company's equity in income
of joint ventures related to TSYS de Mexico was $250,000, a 16.9% increase, or
$36,000, compared to $214,000 for the same period last year. During the six
months ended June 30, 2003, the Company's equity in income of joint ventures
related to TSYS de Mexico was $496,000, a 7.7% increase, or $35,000, compared to
$461,000 for the same period last year.

TSYS' electronic payment processing revenues from clients based in Mexico
was $9.1 million for the second quarter ended June 30, 2003, a 28.5% increase
over the $7.1 million for the second quarter ended June 30, 2002. TSYS'
electronic payment processing revenues from clients based in Mexico was $17.1
million for the first six months ended June 30, 2003, a 30.4% increase over the
$13.1 million for the same period in 2002. The increase in revenues is primarily
attributable to increased account on file growth of approximately 25.1%.

The Company was notified by its largest client in Mexico that it intends to
utilize its internal global platform and did not renew its processing agreement
with TSYS when it expired in the first quarter of 2003. However, the client has
indicated that the deconversion may be delayed until the third quarter of 2003.
This client in Mexico represents approximately 56% of TSYS' revenues from
Mexico. As a result, management expects that electronic payment processing
revenues for 2003 from Mexico will decrease when compared to electronic payment
processing revenues from Mexico for 2002.

TSYS pays TSYS de Mexico a processing support fee for certain client
relationship and network services that TSYS de Mexico has assumed from TSYS.
TSYS paid TSYS de Mexico a processing support fee of $184,000 and $231,000 for
the three months ended June 30, 2003 and 2002, respectively.


- 35 -



Results of Operations (continued)


TSYS paid TSYS de Mexico a processing support fee of $380,000 and $454,000 for
the six months ended June 30, 2003 and 2002, respectively.

Net Income

Net income for the three months ended June 30, 2003 increased 13.8% to
$34.3 million, or basic and diluted earnings per share of $0.17, compared to
$30.2 million, or basic and diluted earnings per share of $0.15, for the same
period in 2002. The Company's net profit margin for the second quarter of 2003
was 13.3%, compared to 12.5% for the same period last year. Excluding
reimbursable items, the Company's net profit margin for the second quarter of
2003 was 16.9%, compared to 16.6% for the three months ended June 30, 2002.

Net income for the six months ended June 30, 2003 increased 14.8% to $66.0
million, or basic earnings per share of $0.34, compared to $57.5 million, or
basic earnings per share of $0.29, for the same period in 2002. For the first
six months of 2003, diluted earnings per share was $0.33 compared to $0.29
diluted earnings per share for the same period last year. The Company's net
profit margin for the six months ended June 30, 2003 was 13.0%, compared to
12.3% for the same period last year. Excluding reimbursable items, the Company's
net profit margin for the six months ended June 30, 2003 was 16.7%, compared to
16.3% for the same period in 2002.

Projected Outlook for 2003

TSYS expects its 2003 net income to exceed its 2002 net income by 12-15%.
The assumptions underlying 2003's net income forecast are an increase in
revenues (excluding reimbursables) between 9-10%, an internal growth rate of
accounts on file of existing clients of approximately 11% and a continued focus
on expense management.

Liquidity and Capital Resources

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

Cash Flows From Operating Activities

TSYS' main source of funds is derived from operating activities,
specifically net income. During the six months ended June 30, 2003, the Company
generated $110.7 million in cash from operating activities compared to $76.1
million for the same period last year.

On March 3, 2003, the Company announced that Bank One selected TSYS to
upgrade its credit card processing. As part of that agreement, the Company
received a $30 million payment from Bank One, which is included in Billings in
Excess of Costs on Uncompleted Contracts on the balance sheet, and is
recognizing this payment in accordance with percentage-of-completion accounting.

Cash Flows From Investing Activities

The major uses of cash generated from operations have been the addition of
property and equipment, the internal development and purchase of computer
software, investments in contract acquisition costs associated with obtaining
and servicing new or existing clients, and business


- 36 -



Liquidity and Capital Resources (continued)

acquisitions. The Company used $176.1 million in cash for investing activities
for the six months ended June 30, 2003, compared to $50.4 million for the same
period in 2002.

Property and Equipment

Capital expenditures for property and equipment during the three month
period ended June 30, 2003 were $102.4 million, compared to $5.0 million during
the same period last year. For the first six months of 2003, capital
expenditures for property and equipment were $107.4 million, compared to $7.8
million during the same period last year. The increase in capital expenditures
in 2003 is due to the purchase of the corporate campus as discussed below.

In 2002, the Company renewed its operating lease agreement with a special
purpose entity (SPE) for the Company's corporate campus. If the synthetic lease
was not restructured, Interpretation No. 46 would require TSYS to consolidate
the SPE effective with the reporting period beginning July 1, 2003. On April 30,
2003, the Company provided written notice that it intended to terminate the
lease agreement for the Company's corporate campus. On June 30, 2003, the
Company terminated the lease arrangement and purchased the corporate campus for
$93.5 million through a combination of cash and long-term debt financing through
a banking affiliate of Synovus. As a result of the purchase, net occupancy and
equipment expense is not expected to increase because the increase of
approximately $2.6 million annually for depreciation of the building and related
equipment will be offset by the decrease in annual rent expense related to the
lease.

On July 30, 2003, the Company announced the groundbreaking for a new TSYS
data center in Knaresborough, England. The 47,000 square-foot facility will
replace the current center in Harrogate, England. It will be built on three
acres and includes 15,000 square feet of office space. The new data center is
estimated to cost approximately $30 million and should be completed by the end
of the fourth quarter of 2004.

Computer Software

The Company added $13.5 million to computer software during the three month
period ended June 30, 2003, compared to $19.8 million during the same period
last year. For the first six months of 2003, the Company added $29.0 million to
computer software, compared to $35.6 million during the same period last year.
The additions for both periods include purchased computer software and developed
computer software as further described below.

Purchased Computer Software

Expenditures for purchased computer software were $8.5 million for the
three months ended June 30, 2003, compared to $14.0 million for the same period
in 2002. For the first six months of 2003, the Company had expenditures for
purchased computer software of $20.0 million compared to $19.7 million for the
same period in 2002. These additions relate to site licenses for mainframe
processing systems.

Software Development Costs

Additions to capitalized software development costs, including enhancements
to and development of TS2 processing systems, were $5.1 million for the three
month period ending June 30, 2003, compared to $5.8 million for the same period
in 2002. For the first six months of 2003, additions to capitalized software
development costs were $9.0 million compared to $15.9 million for the same


- 37 -



Liquidity and Capital Resources (continued)


period in 2002. The decline in the amount capitalized as software development
costs in 2003, as compared to 2002, is the result of several projects being
completed in 2002.

The following is a summary of the additions to software development costs
by project for the three and six months ended June 30, 2003 and 2002:


Three Months Ended June 30, Six Months Ended June 30,
------------------------------ -------------------------
Software Development Projects 2003 2002 2003 2002
------------ ----------- ----------- ---------
(in millions)
----------------------------------------------
TSYS ProphIT $ 3.5 2.2 6.8 6.0
Integrated Payments 0.3 0.4 0.4 2.8
Double Byte 0.1 1.7 0.5 3.9
TSYS Total Commerce - 1.2 - 2.2
Other Capitalized Software Development Costs 1.2 0.3 1.3 1.0
---------------------------------------------- ------------ ----------- --------- --------
Total $ 5.1 5.8 9.0 15.9
============ =========== ========= ========


The Company continues to develop TSYS ProphITSM, a Web-based process
management system that provides direct access to account information and other
system interfaces to help streamline an organization's business processes. TSYS
ProphIT is currently being offered to TSYS' processing clients with expected
general release of the core platform in the fourth quarter of 2003. Continued
development of TSYS ProphIT provides increased and enhanced functionality to the
core platform, to include additional customer service functions. The Company
anticipates future integration of TSYS ProphIT into its other platforms
beginning in 2004. The Company capitalized approximately $3.5 million for the
three months ended June 30, 2003 on TSYS ProphIT, bringing the total capitalized
in 2003 to $6.8 million. The Company has invested a total of $22.1 million since
the project began.

The Company is developing its Integrated Payments Platform supporting the
online and offline debit and stored value markets, giving clients access to all
national and regional networks, EBT programs, ATM driving and switching services
for online debit processing. The Company capitalized approximately $298,000 for
the three months ended June 30, 2003 on these additional systems, bringing the
total capitalized in 2003 to $425,000. The Company has invested a total of $7.4
million since the project began. The Company expects to complete the system in
phases. Phase 1 is expected to be completed during the third quarter of 2003.

Due to the complexity of the differences between the English language and
Asian languages, computer systems require two bytes to store an Asian character
compared to one byte in the English language. With the opening of a branch
office in Japan to facilitate its marketing of card processing services, TSYS
began modifying its current TS2 system to be able to accommodate language and
currency differences with Asia, commonly referred to as the "double byte
project." During the three months ended June 30, 2003, the Company capitalized
$135,000, bringing the total capitalized in 2003 to $532,000. The Company has
invested a total of $10.1 million since the project began. The Company
- 38 -



Liquidity and Capital Resources (continued)

has substantially completed the core double-byte architecture and is currently
in the testing phase with the double-byte project.

The Company developed a new commercial card system, TSYS Total Commerce,
which was built upon the architectural design of TS2. The new system provides
enhanced reporting for multi-languages/currencies, and global commercial card
processing for multinational corporations on a single platform. The Company has
invested a total of $36.9 million. The Company placed the new system in service
in late 2002.

Acquisition

On April 28, 2003, TSYS announced the acquisition of ESC for $36.0 million
in cash. The Company is in the process of completing the purchase price
allocation and has preliminarily allocated approximately $26.0 million to
goodwill, approximately $8.2 million to intangibles and the remaining amount to
the net assets acquired. ESC provides targeted loyalty consulting and travel, as
well as gift card and merchandise reward programs to more than 40 national and
regional financial institutions in the United States. The Company believes the
acquisition of ESC enhances TSYS processing services by adding distinct value
differentiation for TSYS and its clients.

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 $4.6 million for the three months ended June 30,
2003, and $18.5 million for the three months ended June 30, 2002. The Company
did not pay any cash payments for processing rights during the three months
ended June 30, 2003. Cash payments for processing rights were $15.0 million for
the three months ended June 30, 2002. During the second quarter of 2002, the
Company paid $14.0 million in cash for processing rights as part of its
agreement with one client. Conversion cost additions were $4.6 million and $3.5
million for the three months ended June 30, 2003 and 2002, respectively.

The Company's investments in contract acquisition costs were $13.4 million
for the six months ended June 30, 2003, and $27.7 million for the six months
ended June 30, 2002. Cash payments for processing rights were $3.0 million and
$21.5 million for the six months ended June 30, 2003 and 2002, respectively.
Conversion cost additions were $10.4 million and $6.2 million for the six months
ended June 30, 2003 and 2002, respectively.

Cash Flows From Financing Activities

The major uses of cash for financing activities has been the payment of
dividends and the purchase of stock under the stock repurchase plan. The main
source of cash from financing activities has been the occasional use of borrowed
funds. Net cash provided from investing activities for the six months ended June
30, 2003 was $4.4 million mainly as a result of proceeds from the issuance of
long-term debt. The Company used $5.7 million in cash for financing activities
for the six months ended June 30, 2002 primarily for the payment of cash
dividends.

Stock Repurchase Plan

On April 15, 2003, TSYS announced that its board had approved a stock
repurchase plan to purchase up to 2 million shares, which represents slightly
more than five percent of the shares of TSYS

- 39 -


Liquidity and Capital Resources (continued)

stock held by shareholders other than Synovus. The shares may be purchased from
time to time over the next two years at prices considered attractive to
management. Repurchased shares will be used for general corporate purposes.
Through June 30, 2003, the Company has purchased 512,900 shares at an average
cost of $18.49 per share.

Line of Credit

In connection with the purchase of the campus, TSYS obtained a $45.0
million long-term line of credit from a banking affiliate of Synovus. The line
is an automatic draw down facility. The interest rate for the line of credit is
the London Interbank Offered Rate (LIBOR) plus 150 basis points. In addition,
there is a charge of 15 basis points on any funds unused. The line of credit is
unsecured debt and includes the covenants requiring the Company to maintain
certain minimum financial ratios. At June 30, 2003, TSYS had $20.2 million
outstanding on the line of credit.

Dividends

The Company has paid a dividend for 55 consecutive quarters. Dividends on
common stock of $3.5 million were paid during the three months ended June 30,
2003, bringing the total paid in 2003 to $6.9 million. On April 17, 2003, the
Company announced a 14.3% increase in its quarterly dividend from $0.0175 to
$0.0200 per share. On April 18, 2002, the Company announced a 16.7% increase in
its quarterly dividend from $0.0150 to $0.0175 per share.

Significant Noncash Transaction

Effective January 1, 2002, TSYS acquired TDM from Synovus in exchange for
2,175,000 newly issued shares of TSYS common stock with a market value of $43.5
million. TDM now operates as a wholly owned subsidiary of TSYS. This transaction
increased Synovus' ownership of TSYS to 81.1% in 2002.

On October 15, 2002 the board of directors of TSYS approved the purchase of
ProCard, Inc. (ProCard) from Synovus for $30.0 million in cash. On November 1,
2002, TSYS completed the acquisition. ProCard is a leading provider of software
and Internet tools designed to assist organizations with the management of
purchasing, travel and fleet card programs. ProCard's software solutions have
been integrated into TSYS' processing solutions and offer TSYS the opportunity
to further expand its services to ProCard's clients.

Because the acquisitions of TDM and ProCard were transactions between
entities under common control, the Company is reflecting the acquisitions at
historical cost in accordance with SFAS 141. In accordance with the provisions
of SFAS 141, TSYS restated its financial statements for the periods that Synovus
controlled both ProCard and TSYS for the ProCard acquisition only.

Foreign Exchange

TSYS operates internationally and is subject to potentially adverse
movements in foreign currency exchange rates. Since December 2000, TSYS has not
entered into foreign exchange forward contracts to reduce its exposure to
foreign currency rate changes.

- 40 -



Liquidity and Capital Resources (continued)

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
available on terms acceptable to TSYS. Management expects that TSYS will
continue to be able to fund a significant portion of its capital expenditure
needs through internally generated cash in the future, as evidenced by TSYS'
current ratio of 1.6:1. At June 30, 2003, TSYS had working capital of $91.2
million compared to $152.0 million at December 31, 2002.

Recent Accounting Pronouncements

In June 2001, the FASB issued Statement No. 143 (SFAS 143), "Accounting for
Asset Retirement Obligations." SFAS 143 requires the Company to record the fair
value of an asset retirement obligation as a liability in the period in which it
incurs a legal obligation associated with the retirement of tangible long-lived
assets that result from the acquisition, construction, development, and/or
normal use of the assets.

The Company also records a corresponding asset that is depreciated over the
life of the asset. Subsequent to the initial measurement of the asset retirement
obligation, the obligation will be adjusted at the end of each period to reflect
the passage of time and changes in the estimated future cash flows underlying
the obligation. The Company adopted SFAS 143 on January 1, 2003. The adoption of
SFAS 143 did not have a material effect on the Company's financial position,
results of operations or cash flows.

In April 2002, the FASB issued Statement No. 145 (SFAS 145), "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS 145 amends existing guidance on reporting gains and
losses on the extinguishment of debt to prohibit the classification of the gain
or loss as extraordinary, as the use of such extinguishments have become part of
the risk management strategy of many companies. SFAS 145 also amends SFAS No. 13
to require sale-leaseback accounting for certain lease modifications that have
economic effects similar to sale-leaseback transactions. The provisions of the
Statement related to the rescission of Statement No. 4 are applied in fiscal
years beginning after May 15, 2002. The provisions of the Statement related to
Statement No. 13 were effective for transactions occurring after May 15, 2002.
The adoption of SFAS 145 did not have a material effect on the Company's
financial position, results of operations or cash flows.

In June 2002, the FASB issued Statement No. 146 (SFAS 146),"Accounting for
Costs Associated with Exit or Disposal Activities." SFAS 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity." The
provisions of this Statement are effective for exit or disposal activities that
are initiated after December
- 41 -



Recent Accounting Pronouncements (continued)

31, 2002, with early application encouraged. The adoption of SFAS 146 did not
have a material effect on the Company's financial position, results of
operations or cash flows.

In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness to Others, an interpretation of FASB Statements No.
5, 57 and 107 and a rescission of FASB Interpretation No. 34." This
Interpretation elaborates on the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations under guarantees
issued. Interpretation No. 45 also clarifies that a guarantor is required to
recognize, at inception of a guarantee, a liability for the fair value of the
obligation undertaken. The initial recognition and measurement provisions of the
Interpretation are applicable to guarantees issued or modified after December
31, 2002 and did not have a material effect on the Company's financial
statements. The disclosure requirements are effective for financial statements
of interim or annual periods ending after December 15, 2002. The Company has one
lease guarantee.

To assist Vital Processing Services L.L.C. (Vital) in leasing its corporate
facility, the Company and Visa U.S.A. (Visa) are guarantors, jointly and
severally, for the lease payments on Vital's Tempe facility. The lease on the
facility expires in July 2007. The total future minimum lease payments remaining
at June 30, 2003 is $5.9 million. If Vital fails to perform its obligations with
regard to the lease, TSYS and Visa will be required to perform in the same
manner and to same extent as is required by Vital.

At the November 21, 2002 Emerging Issues Task Force (EITF) meeting, the
Task Force ratified as a consensus the tentative conclusions it reached at the
October 25, 2002 EITF meeting regarding Emerging Issues Task Force 00-21 (EITF
00-21), "Accounting for Revenue Arrangements with Multiple Deliverables." EITF
00-21 addresses certain aspects of the accounting by a vendor for arrangements
under which it will perform multiple revenue-generating activities. Those
activities may involve the delivery or performance of multiple products,
services, and/or rights to use assets, and performance may occur at different
points in time or over different periods of time. The arrangements are often
accompanied by initial installation, initiation, or activation services and
generally involve either a fixed fee or a fixed fee coupled with a continuing
payment stream. The continuing payment stream generally corresponds to the
continuing performance and may be fixed, variable based on future performance,
or composed of a combination of fixed and variable payments. EITF 00-21
addresses how to account for those arrangements. EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. Entities may also elect to report the change in accounting as a cumulative
effect adjustment, in which case disclosure should be made in periods subsequent
to the date of initial application of the amount of recognized revenue that was
previously included in the cumulative effect adjustment. Management has
determined that based on its evaluation, the adoption of EITF 00-21 did not
impact the Company's financial position, results of operations or cash flows.

In December 2002, the FASB issued Statement No. 148 (SFAS 148), "Accounting
for Stock-Based Compensation - Transition and Disclosure, an amendment of FASB
Statement No. 123." SFAS 148 amends FASB Statement No. 123 (SFAS 123),
"Accounting for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value method of accounting for
stock-based employee compensation. In addition, this Statement amends the
disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements. Certain of

- 42 -




Recent Accounting Pronouncements (continued)

the disclosure modifications are required for fiscal years ending after December
15, 2002 and are included in the notes to the consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an interpretation of ARB No. 51." This
Interpretation addresses the consolidation by business enterprises of variable
interest entities as defined in the Interpretation. The Interpretation applies
immediately to variable interests in variable interest entities created after
January 31, 2003, and to variable interests in variable interest entities
obtained after January 31, 2003. For enterprises such as the Company with a
variable interest in a variable interest entity created before February 1, 2003,
the Interpretation is applied to the enterprise in the first fiscal year or
interim period after June 15, 2003.

In 2002, the Company renewed its operating lease agreement with a special
purpose entity (SPE) for the Company's corporate campus. On April 30, 2003, the
Company provided written notice that it intended to terminate the lease
agreement for the Company's corporate campus. On June 30, 2003, the Company
terminated the operating lease agreement and purchased the corporate campus for
$93.5 million with a combination of cash and long-term debt financing through a
banking affiliate of Synovus.

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, statements regarding the expected expansion of
its position in the consumer card, debit card, retail card and commercial card
arenas, TSYS' belief with respect to the uniqueness of the TSYS/Sears processing
relationship; the projected impact of TSYS' agreement with Bank One for 2004 and
2005 and thereafter through the payment term of the license, the expected growth
in net income for the year 2003, the expected completion dates for new
processing systems and the assumptions underlying such statements, including,
with respect to TSYS' expected increase in net income for 2003; an increase in
revenues (excluding reimbursables) between 9-10%; an internal growth rate of
accounts of existing clients of approximately 11%; and continued focus on
expense management. In addition, certain statements in future filings by TSYS
with the Securities and Exchange Commission, in press releases, and in oral and
written statements made by or with the approval of TSYS which are not statements
of historical fact constitute forward-looking statements within the meaning of
the Act. Examples of forward-looking statements include, but are not limited to:
(i) projections of revenue, income or loss, earnings or loss per share, the
payment or nonpayment of dividends, capital structure and other financial items;
(ii) statements of plans and objectives of TSYS or its management or Board of
Directors, including those relating to products or services; (iii) statements of
future economic performance; and (iv) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying such statements.

Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. A number of important factors
could cause actual results to differ materially from those contemplated by the
forward-looking statements in this filing. Many of these factors are beyond
TSYS' ability to control or predict. The factors include, but are not limited
to: (i) delays in converting Bank One to TSYS' platforms; (ii) TSYS is unable to
modify
- 43 -



Forward-Looking Statements (continued)

its software to meet Bank One's specifications; (iii) TSYS' software is unable
to operate in Bank One's operating environment; (iv) revenues are lower than
anticipated; (v) adverse developments with respect to TSYS' sub-prime or retail
clients; (vi) lower than anticipated internal growth rates for TSYS' existing
clients; (vii) TSYS' inability to control expenses and increase market share;
(viii) TSYS' inability to successfully bring new products to market, including,
but not limited to stored value products, e-commerce products, loan processing
products and other processing services; (ix) the inability of TSYS to grow its
business through acquisitions or successfully integrate acquisitions; (x) TSYS'
inability to increase the revenues derived from international sources; (xi)
adverse developments with respect to entering into contracts with new clients
and retaining current clients; (xii) 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; (xiii) TSYS' inability to anticipate and respond to
technological changes, particularly with respect to e-commerce; (xiv) adverse
developments with respect to the successful conversion of clients; (xv) the
absence of significant changes in foreign exchange spreads between the United
States and the countries TSYS transacts business in, to include Mexico, United
Kingdom, Japan, Canada and the European Union; (xvi) changes in consumer
spending, borrowing and saving habits, including a shift from credit to debit
cards; (xvii) changes in laws, regulations, credit card association rules or
other industry standards affecting TSYS' business which require significant
product redevelopment efforts; (xviii) the effect of changes in accounting
policies and practices as may be adopted by the Financial Accounting Standards
Board or the Securities and Exchange Commission; (xix) the costs and effects of
litigation; (xx) adverse developments with respect to the credit card industry
in general; (xxi) TSYS' inability to successfully manage any impact from slowing
economic conditions or consumer spending; (xxii) the occurrence of catastrophic
events that would impact TSYS' or its major customers' operating facilities,
communications systems and technology, or that has a material negative impact on
current economic conditions or levels of consumer spending; (xxiii) successfully
managing the potential both for patent protection and patent liability in the
context of rapidly developing legal framework for expansive software patent
protection; (xxiv) hostilities increase in the Middle East or elsewhere; (xxv)
Vital's earnings are lower than anticipated; and (xxvi) overall market
conditions.

Such forward-looking statements speak only as of the date on which such
statements are made, and TSYS undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made to reflect the occurrence of unanticipated events.

- 44 -



TOTAL SYSTEM SERVICES, INC.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk

Foreign Currency Exchange Risk

TSYS is exposed to foreign exchange risk because it has assets,
liabilities, revenues and expenses denominated in foreign currencies including
the Euro, British Pound, Mexican Peso, Canadian Dollar and Japanese Yen. 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 rates for each reporting period. Net exchange gains or losses
resulting from the translation of assets and liabilities of TSYS' foreign
operations, net of tax, are accumulated in a separate section of shareholders'
equity titled accumulated other comprehensive income or loss. The amount of
other comprehensive income for the three months ended June 30, 2003 was $2.8
million, compared to $4.0 million for the three months ended June 30, 2002. The
amount of other comprehensive income for the six months ended June 30, 2003 was
$1.6 million, compared to $3.0 million for the six months ended June 30, 2002.
Currently, TSYS does not use financial instruments to hedge its exposure to
exchange rate changes.

The carrying value of the net assets of its foreign operations in Europe,
Mexico, Canada and Japan was approximately (in U.S. dollars) $78.6 million, $3.3
million, $184,000 and $10.3 million, respectively, at June 30, 2003.

The following represents the potential effect on income before income taxes
of hypothetical shifts in the foreign currency exchange rate between the British
Pound Sterling and the U.S. dollar of plus or minus 100 basis points, 500 basis
points and 1,000 points based on the intercompany loan balance of $1.3 million
at June 30, 2003.


--------------------------------------------------------------------------------
Effect of Basis Point Change
--------------------------------------------------------------------------------
Increase in basis point of Decrease in basis point of
-------------- ------------- -------------- ----------- ------------ -----------
100 500 1,000 100 500 1,000
-------------- ------------- -------------- ----------- ------------ -----------
Effect on income before income taxes $ (13,000) (65,000) (130,000) 13,000 65,000 130,000
-------------- ------------- -------------- ----------- ------------ -----------


The Company also records foreign currency translation adjustments
associated with other balance sheet accounts. The Company maintains several cash
accounts denominated in foreign currencies, specifically in Euros and BPS. As
the Company translates the foreign-denominated cash balances into US dollars,
the translated cash balance is adjusted upwards or downwards depending upon the
foreign currency exchange movements. The upwards or downwards adjustment is
recorded as a gain or loss on foreign currency translation. As those cash
accounts have increased, the upwards or downwards adjustment have increased. The
majority of the translation gain of $1.2 million for the first six months of
June 30, 2003 relates to the translation of cash accounts. The balance of the
foreign-denominated cash accounts subject to risk of translation gains or losses
at June 30, 2003 was approximately $29.4 million, the majority of which is
denominated in BPS.

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TOTAL SYSTEM SERVICES, INC.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk (continued)

The following represents the potential effect on income before income taxes
of hypothetical shifts in the foreign currency exchange rate between the British
Pound Sterling and the U.S. dollar of plus or minus 100 basis points, 500 basis
points and 1,000 points based on the foreign-denominated cash account balance at
June 30, 2003.


---------------------------------------------------------------------------------------------
Effect of Basis Point Change
---------------------------------------------------------------------------------------------
Increase in basis point of Decrease in basis point of
--------------- ----------------- ---------------- ------------ -------------- --------------
100 500 1,000 100 500 1,000
--------------- ----------------- ---------------- ------------ -------------- --------------
Effect on income before income
taxes $ (294,000) (1,468,000) (2,935,000) 294,000 1,468,000 2,935,000
--------------- ----------------- ---------------- ------------ -------------- --------------


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

Interest Rate Risk

TSYS is also exposed to interest rate risk associated with the investing of
available cash and the long-term debt for the financing on its campus
facilities. TSYS invests available cash in conservative short-term instruments
and is primarily subject to changes in the short-term interest rates.

In connection with the purchase of the campus, TSYS obtained a $45.0
million long-term line of credit from a banking affiliate of Synovus. The line
is an automatic draw down facility. The interest rate for the line of credit is
the London Interbank Offered Rate (LIBOR) plus 150 basis points. In addition,
there is a charge of 15 basis points on any funds unused. At June 30, 2003, TSYS
had a draw of $20.2 million on the line of credit. As the LIBOR rate changes,
TSYS will be subject to interest rate risk.

The following represents the potential impact for twelve months on income
before income taxes of hypothetical shifts in the LIBOR rate of plus or minus
100 basis points, 500 basis points and 1,000 points based on the $20.2 million
long-term debt balance at June 30, 2003.


---------------------------------------------------------------------------------------------
Effect of Basis Point Change
---------------------------------------------------------------------------------------------
Increase in basis point of Decrease in basis point of
--------------- ----------------- ---------------- ------------ -------------- --------------
100 500 1,000 100 500 1,000
--------------- ----------------- ---------------- ------------ -------------- --------------
Effect on income before income
taxes $ (202,000) (1,012,000) (2,023,000) 202,000 1,012,000 2,023,000
--------------- ----------------- ---------------- ------------ -------------- --------------



Concentration of Credit Risk

TSYS works to maintain a large and diverse client base across various
industries to minimize the credit risk of any one client to TSYS' accounts
receivable amounts. In addition, TSYS performs ongoing credit evaluations of its
certain clients' and certain suppliers' financial condition. TSYS does, however,
have two major customers that account for a large portion of its revenues, which
subject it to credit risk.

- 46 -



TOTAL SYSTEM SERVICES, INC.
Item 4 - Management's Analysis 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
quarterly report as requested by Rule 13a-15 of the Securities and Exchange Act
of 1934, as amended. This evaluation was carried out under the supervision and
with the participation of our management, including our principal executive
officer and principal financial officer. Based on this evaluation, these
officers have concluded that the design and operation of our disclosure controls
and procedures are effective. There have been no changes in TSYS' internal
control over financial reporting which could materially affect, or are
reasonably likely to materially affect, external control over financial
reporting.

- 47 -


TOTAL SYSTEM SERVICES, INC.
Part II - Other Information

Item 4 - Submission of Matters to a Vote of Security Holders

The annual shareholders' meeting of Total System Services, Inc. was held
April 17, 2003. There was one proposal voted on at the meeting.

Proposal I voted on at the meeting was the election of five directors.
Following is a tabulation of votes for each nominee:


VOTES WITHHELD AUTHORITY
NOMINEE FOR TO VOTE
------------------------------------ --------------------------- -----------------------------
James H. Blanchard 186,463,994 764,380
Richard Y. Bradley 187,088,349 140,025
Walter W. Driver, Jr. 183,153,231 4,075,143
Gardiner W. Garrard 186,971,654 256,720
John P. Illges, III 187,016,406 211,968
W. Walter Miller, Jr. 187,087,194 141,180


- 48 -


TOTAL SYSTEM SERVICES, INC.
Part II - Other Information

Item 6 - Exhibits and Reports on Form 8-K

a) Exhibits
Exhibit Number Description
--------------------- ----------------------------------

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

b) Forms 8-K since the previous Form 10-Q filing.

1. The report dated July 15, 2003 included the following
event:

On July 15, 2003, Total System Services, Inc. ("Registrant")
issued a press release and held an investor call and webcast
to disclose financial results for the second quarter ended
June 30, 2003.

2. The report dated July 25, 2003 included the following
event:

On July 25, 2003, Total System Services, Inc. ("Registrant")
provided additional details about its current agreement with
Sears after Sears and Citicorp announced an agreement for
the proposed sale by Sears to Citicorp of the Sears credit
card and financial services businesses.


- 49 -


TOTAL SYSTEM SERVICES, INC.
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



TOTAL SYSTEM SERVICES, INC.

Date: August 12, 2003 by: /s/ Richard W. Ussery
-------------------------------
Richard W. Ussery
Chairman of the Board
and Chief Executive Officer

Date: August 12, 2003 by: /s/ James B. Lipham
-------------------------------
James B. Lipham
Chief Financial Officer



- 50 -


TOTAL SYSTEM SERVICES, INC.
Exhibit Index



Exhibit Number Description
-------------------- --------------------------------------------------
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


- 51 -