SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual report pursuant to section 13 or 15(d) of Securities Exchange Act of 1934
for the fiscal year ended December 31, 2003
Commission file number 1-10254
TOTAL SYSTEM SERVICES, INC.
(Exact Name of Registrant as specified in its charter)
Georgia 58-1493818
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1600 First Avenue
Columbus, Georgia 31901
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (706) 649-2204
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
Common Stock, $.10 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO___________
-----------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).
YES X NO___________
-----------
As of February 17, 2004, 196,846,029 shares of the $.10 par value
common stock of Total System Services, Inc. were outstanding. The aggregate
market value of the shares of $.10 par value common stock of Total System
Services, Inc. held by nonaffiliates on December 31, 2003 was approximately
$612,106,000 (based upon the closing price of such stock on June 30, 2003).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement, including Financial Appendix,
dated March 10, 2004 are incorporated in Parts I, II, III and IV of this report.
Table of Contents and Cross Reference Sheet
Page No.
-------------------------------------------------
Form
Proxy Statement* 10-K
- ----------------- ----------------------------- -------
Part I
Safe Harbor Statement 1
Item 1. Business F-21, F-26 - F-32, F-35, 2
F-41 and F-42, F-44 - F-47
Item 2. Properties F-13 and F-14, F-18, F-26 - F-32, 5
F-35, F-41 and F-42, F-44 - F-47
Item 3. Legal Proceedings F-41 and F-42 6
Item 4. Submission of Matters to a Vote of None
Security Holders
Part II
Item 5. Market for Registrant's Common Equity F-50 6
and Related Stockholder Matters
Item 6. Selected Financial Data F-2 6
Item 7. Management's Discussion and Analysis F-3 - F-21 7
of Financial Condition and Results
of Operations
Item 7A. Quantitative and Qualitative Disclosures F-44 - F-47 7
About Market Risk
Item 8. Financial Statements and Supplementary F-22 - F-48, F-50 8
Data
Item 9. Changes In and Disagreements With None
Accountants on Accounting and
Financial Disclosure
Item 9A. Controls and Procedures 8
Part III
Item 10. Directors and Executive Officers of the 3 and 4, 7 - 9, 23 9
Registrant
Item 11. Executive Compensation 6, 13 - 15, 19 9
Item 12. Security Ownership of Certain Beneficial 10, 20 and 21, F-36 - F-39 9
Owners and Management and
Related Stockholder Matters
Item 13. Certain Relationships and Related 19 and 20, 22, F-32 - F-34 10
Transactions
Item 14. Principal Accountant Fees and Services 11 and 12 10
Part IV
Item 15. Exhibits, Financial Statement Schedules, F-22 - F-48 10
and Reports on Form 8-K
*TSYS' Proxy Statement, including Financial Appendix, dated March 10, 2004 in
connection with its 2004 Annual Meeting of Shareholders, portions of which are
incorporated by reference into this Form 10-K (the portions so incorporated
being indicated by the pages referred to in this table).
PART I
Safe Harbor Statement
Certain statements contained in this document which are not statements
of historical fact constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act. In addition, certain statements in
future filings by Total System Services, Inc. ("TSYS") with the Securities and
Exchange Commission, in press releases, and in oral and written statements made
by or with the approval of TSYS which are not statements of historical fact
constitute forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenues, income or loss, earnings or loss per share, the payment or non-payment
of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of TSYS or its management or Board of Directors, including
those relating to products, services or conversions; (iii) statements of future
economic performance; and (iv) statements of assumptions underlying such
statements. Words such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions are intended to identify forward-looking
statements but are not the exclusive means of identifying these statements.
Prospective investors are cautioned that 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 the
forward-looking statements. A number of important factors could cause actual
results to differ materially from those contemplated by the forward-looking
statements. Many of these factors are beyond TSYS' ability to control or
predict. These factors include, but are not limited to:
* revenues are lower than anticipated;
* lower than anticipated internal growth rates for TSYS' existing
clients;
* TSYS' inability to control expenses and increase market
share;
* delays in converting Bank One to TSYS' platforms;
* TSYS' inability to successfully bring new products to market,
including, but not limited to, stored value and e-commerce
products, loan processing products and other processing services;
* the inability of TSYS to grow its business through acquisitions
or successfully integrate acquisitions;
* TSYS' inability to increase the revenues derived from
international sources;
* adverse developments with respect to entering into contracts
with new clients and retaining current clients;
* 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;
* TSYS' inability to anticipate and respond to technological
changes, particularly with respect to e-commerce;
* adverse developments with respect to TSYS' sub-prime and/or retail
clients;
* adverse developments with respect to the successful
conversion of clients;
* the absence of significant changes in foreign exchange spreads
between the United States and the countries in which TSYS
transacts business, to include Mexico, United
1
Kingdom, Japan, Canada and the European Union;
* changes in consumer spending, borrowing and saving habits,
including the mix of payments between cash and cards;
* changes in laws, regulations, credit card association rules or
other industry standards affecting TSYS' business which require
significant product redevelopment efforts;
* 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;
* the costs and effects of litigation or adverse facts and
developments relating thereto;
* adverse developments with respect to the credit card industry
in general;
* TSYS' inability to successfully manage any impact from slowing
economic conditions or consumer spending;
* the occurrence of catastrophic events that would impact TSYS' or
its major customers' operating facilities, communications systems
and technology, or that have a material negative impact on current
economic conditions or levels;
* successfully managing the potential both for patent protection and
patent liability in the context of rapidly developing legal
framework for expansive software patent protection;
* decreases in card activity;
* hostilities increase in the Middle East or elsewhere;
* Vital's earnings are lower than anticipated; and
* overall market conditions.
These forward-looking statements speak only as of the date on which the
statements are made, and TSYS undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which the statement is made to reflect the occurrence of unanticipated events.
Item 1. Business
Business. TSYS provides electronic payment processing and related
services to financial and nonfinancial institutions. Services include processing
consumer, debit, commercial, stored value and retail cards, as well as student
loan processing. Based in Columbus, Georgia, and traded on the New York Stock
Exchange under the symbol "TSS," TSYS provides services to financial and
nonfinancial institutions throughout the United States, Canada, Mexico,
Honduras, the Caribbean and Europe. TSYS currently offers merchant services to
financial institutions and other organizations in Japan through its majority
owned subsidiary, GP Network Corporation, and in the United States through its
joint venture, Vital Processing Services L.L.C. TSYS also offers value added
products and services to support its core processing services. 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. Synovus Financial Corp., a $21 billion asset,
diverse financial services company, owns 81.1 percent of TSYS.
2
As of January 1, 2004, TSYS had eight wholly owned subsidiaries: (1)
Columbus Depot Equipment Company, which sells and leases computer related
equipment associated with TSYS' transaction processing services; (2) Columbus
Productions, Inc., which provides full-service commercial printing and related
services; (3) TSYS Canada, Inc., which provides programming support and
assistance with the conversion of card portfolios to TS2; (4) TSYS Total Debt
Management, Inc., which provides debt collection and bankruptcy management
services; (5) ProCard, Inc., which provides software and Internet tools designed
to assist organizations with the management of purchasing, travel and fleet card
programs; (6) Enhancement Services Corporation, which provides targeted loyalty
consulting and travel reward programs; (7) TSYS Technology Center, Inc., which
provides programming support; and (8) TSYS Japan Co., Ltd., which primarily
provides gift card processing services to Japanese clients.
TSYS also holds: (1) a 49% equity interest in a joint venture company
named Total System Services de Mexico, S.A. de C.V., which provides credit card
related services to financial and nonfinancial Mexican institutions; (2) a 50%
interest in Vital Processing Services L.L.C., a joint venture with Visa U.S.A.
Inc., that offers fully integrated merchant transaction and related electronic
transaction processing services to financial and nonfinancial institutions and
their merchant customers; and (3) a 51.46% equity interest in GP Network
Corporation, a company which provides merchant processing services to financial
institutions and retailers in Japan.
The services provided by TSYS are divided into two operating segments,
domestic-based services, which accounted for 92% of TSYS' revenues in 2003, and
international based services, which accounted for 8% of TSYS' revenues in 2003.
Seasonality. Due to the somewhat seasonal nature of the credit card
industry, TSYS' revenues and results of operations have generally increased in
the fourth quarter of each year because of increased transaction and
authorization volumes during the traditional holiday shopping season.
Intellectual Property. TSYS' intellectual property portfolio is a
component of our ability to be a leading electronic payment services provider.
We diligently protect and work to build our intellectual property rights through
patent, servicemark and trade secret laws. We also use various licensed
intellectual property to conduct our business. In addition to using our
intellectual property in our own operations, we grant licenses to certain of our
clients to use our intellectual property.
Major Customers. A significant amount of TSYS' revenues are derived
from long-term contracts with significant customers, including certain major
customers. For the year ended December 31, 2003, Bank of America Corporation and
Providian Financial Corporation accounted for approximately 18% and 10%,
respectively, of TSYS' total revenues. As a result, the loss of Bank of America
Corporation or Providian Financial Corporation, or other major or significant
customers, could have a material adverse effect on TSYS' financial position,
results of operations and cash flows.
Competition. TSYS encounters vigorous competition in providing card
processing
3
services from several different sources. Most of the national market
in third party payment processors is presently being provided by approximately
four vendors. TSYS believes that as of December 31, 2003 it is the second
largest third party card processor in the United States. In addition, TSYS
competes with in-house processors and software vendors which provide their
products to institutions which process in-house. TSYS is presently encountering,
and in the future anticipates continuing to encounter, substantial competition
from card associations, data processing and bankcard computer service firms and
other such third party vendors located throughout the United States. Based upon
available market share data that includes cards processed in-house, TSYS
believes that at the end of 2003 it held a 20% share of the domestic Visa and
MasterCard consumer card processing market, an 83% share of the Visa and
MasterCard domestic commercial card processing market, a 15% share of the
domestic retail card processing market and a 4% share of the domestic off-line
debit processing market. In addition to processing cards for United States
clients, TSYS also believes it holds an approximately 23% share of the Mexican
credit card processing market, an approximately 43% share of the Canadian credit
card processing market and an approximately 21% share of the United Kingdom
credit card processing market.
TSYS' major competitor in the card processing industry is First Data
Resources, Inc., a wholly owned subsidiary of First Data Corporation, which
provides card processing services, including authorization and data entry
services. The principal methods of competition between TSYS and First Data
Resources are price, system performance and reliability, breadth of features and
functionality, disaster recovery capabilities, data security, scalability and
flexibility of infrastructure and customer service. Certain other subsidiaries
of First Data Corporation also compete with TSYS. In addition, there are a
number of other companies which have the necessary financial resources and the
technological ability to develop or acquire products and, in the future, to
provide services similar to those being offered by TSYS.
Regulation and Examination. TSYS is subject to being examined, and is
indirectly regulated, by the Office of the Comptroller of the Currency, the
Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of
Thrift Supervision, the National Credit Union Administration, and the various
state financial regulatory agencies which supervise and regulate the financial
institutions for which TSYS provides electronic payment processing services.
Matters reviewed and examined by these federal and state financial institution
regulatory agencies have included TSYS' internal controls in connection with its
present performance of electronic payment processing services, and the
agreements pursuant to which TSYS provides such services.
As the Federal Reserve Bank of Atlanta has approved Synovus' indirect
ownership of TSYS through Columbus Bank and Trust Company, TSYS is subject to
direct regulation by the Federal Reserve Board. TSYS was formed with the prior
written approval of, and is subject to regulation and examination by, the
Department of Banking and Finance of the State of Georgia as a subsidiary of
Columbus Bank and Trust Company. In addition, as TSYS and its subsidiaries
operate as subsidiaries of Columbus Bank and Trust Company, they are subject to
regulation by the Federal Deposit Insurance Corporation.
4
Employees. As of February 27, 2004, TSYS had 5,185 full-time employees.
Available Information. TSYS' website address is www.tsys.com. You may
obtain free electronic copies of our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those
reports in the Investor Relations section of our website under the heading
"Financials" and then under "SEC Filings." These reports are available on our
website as soon as reasonably practicable after we electronically file them with
the SEC.
TSYS has adopted a Code of Business Conduct and Ethics for its
directors, officers and employees and has also adopted Corporate Governance
Guidelines. Our Code of Business Conduct and Ethics, Corporate Governance
Guidelines and the charters of our board committees are available in the
Corporate Governance section of our web site at www.tsys.com/finance. Copies of
these documents are also available in print upon written request to the
Corporate Secretary, Total System Services, Inc., 901 Front Avenue, Suite 301,
Columbus, Georgia 31901.
See the "Financial Overview" Section on page F-3, the "Financial
Review" Section on pages F-4 through F-21 and Note 1, Note 4, Note 9, Note 11
and Note 12 of Notes to Consolidated Financial Statements on pages F-26 through
F-32, page F-35, pages F-41 and F-42, and pages F-44 through F-47 of the
Financial Appendix to TSYS' Proxy Statement dated March 10, 2004 in connection
with its Annual Shareholders' Meeting to be held on April 15, 2004 which are
specifically incorporated herein by reference.
Item 2. Properties
TSYS owns a 540,000 square foot campus-type facility on approximately
46 acres of land in downtown Columbus, Georgia. The campus facility serves as
TSYS' corporate headquarters and houses administrative, client contact and
programming team members.
TSYS owns a 377,000 square foot production center and a 72,000 square
foot production center which are located on a 40.4 acre tract of land in north
Columbus, Georgia. Primarily production centers, these facilities house TSYS'
primary data processing computer operations, statement preparation, mail
handling, microfiche production, purchasing and card production, as well as
other related operations.
TSYS owns a 110,000 square foot building on a 23-acre site in Columbus,
Georgia, which accommodates current and future office space needs, 82,500 square
feet of which houses TSYS' Business Process Management Division. TSYS also owns
a 104,000 square foot building on an 18-acre site in Columbus which functions as
a second data center.
Columbus Productions, Inc. owns a 61,000 square foot production
facility, located in Columbus, Georgia.
TSYS owns a 40,000 square foot building in York, England, 23,000 square
feet of which are occupied by TSYS, which houses client service and
administrative personnel for TSYS
5
Europe. TSYS is in the process of building a 47,000 square foot data center on
three acres of land in Knaresborough, England which will be utilized by TSYS
Europe. TSYS Europe is included in the segment international-based services.
All of the properties listed above are utilized by TSYS for
domestic-based services with the two exceptions noted immediately above with
respect to the space occupied by TSYS Europe. All properties owned and leased by
TSYS are in good repair and suitable condition for the purposes for which they
are used.
See Note 1, Note 3, Note 9 and Note 11 of Notes to Consolidated
Financial Statements on pages F-26 through F-32, page F-35, pages F-41 and F-42
and pages F-44 through 47 and "Operating Expenses" and "Property and Equipment"
under the "Financial Review" Section on pages F-13 and F-14, and F-18,
respectively, of the Financial Appendix to TSYS' Proxy Statement which are
specifically incorporated herein by reference.
Item 3. Legal Proceedings
See Note 9 of Notes to Consolidated Financial Statements on pages F-41
and F-42 of the Financial Appendix to TSYS' Proxy Statement which is
specifically incorporated herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The "Quarterly Financial Data, Stock Price, Dividend Information"
Section which is set forth on page F-50 of the Financial Appendix to TSYS' Proxy
Statement is specifically incorporated herein by reference.
Item 6. Selected Financial Data
The "Selected Financial Data" Section which is set forth on page F-2 of
the Financial Appendix to TSYS' Proxy Statement is specifically incorporated
herein by reference.
6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The "Financial Overview" and "Financial Review" Sections which are set
forth on pages F-3 through F-21 of the Financial Appendix to TSYS' Proxy
Statement which includes the information encompassed within "Management's
Discussion and Analysis of Financial Condition and Results of Operations," are
specifically incorporated herein by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk. TSYS is exposed to foreign exchange risk because
it has revenues and expenses denominated in foreign currencies including 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
rate for each reporting period. Net exchange gains or losses resulting from the
translation of assets and liabilities of TSYS' foreign operations, net of tax,
are accumulated in a separate section of shareholders' equity titled accumulated
other comprehensive loss. The amount of other comprehensive income for the years
ended December 31, 2003 and 2002 was $7,261,407 and $4,508,235, respectively.
The amount of other comprehensive loss for the year ended December 31, 2001 was
$1,841,657. Currently, TSYS does not use financial instruments to hedge its
exposure to exchange rate changes.
The carrying value of the assets of its foreign operations in Europe,
Mexico, Canada and Japan was approximately (in U.S. dollars) $122.1 million,
$4.0 million, $172,000 and $10.5 million, respectively, at December 31, 2003.
Interest Rate Risk. TSYS is also exposed to interest rate risk associated
with the investing of available cash and any outstanding balance on the
long-term line of credit it has with a banking affiliate of Synovus. TSYS
invests available cash in conservative short-term instruments and is primarily
subject to changes in the prime rate.
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 covenants requiring the Company to maintain certain minimum financial
ratios. At December 31, 2003, TSYS did not have an outstanding balance on the
line of credit and was in compliance with all covenants. As the LIBOR rate
changes, TSYS will be subject to interest rate risk.
Concentration of credit risk. TSYS works to maintain a large and diverse
customer base across various industries to minimize the credit risk of any one
customer to TSYS' accounts receivable amounts. In addition, TSYS performs
ongoing credit evaluations of its customers' and suppliers' financial condition.
7
Concentration of client base. A significant amount of TSYS' revenues is
derived from long-term contracts with large clients, including certain major
customers. Processing contracts with large clients, representing a significant
portion of TSYS' 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.
TSYS does have two major customers that account for a large portion of
its revenues, which subjects it to credit risk. See Note 11 of Notes to
Consolidated Financial Statements on pages F-44 through F-47 of the Financial
Appendix to TSYS' Proxy Statement which is specifically incorporated herein by
reference for a description of major customers. In addition to its two major
customers, TSYS has other large clients representing a significant portion of
its total revenues. The loss of any one of TSYS' large clients could have a
material adverse effect on its financial position, results of operations and
cash flows.
Item 8. Financial Statements and Supplementary Data
The "Quarterly Financial Data, Stock Price, Dividend Information"
Section, which is set forth on page F-50, and the "Consolidated Balance Sheets,
Consolidated Statements of Income, Consolidated Statements of Cash Flows,
Consolidated Statements of Shareholders' Equity and Comprehensive Income, Notes
to Consolidated Financial Statements and Report of Independent Auditors"
Sections, which are set forth on pages F-22 through F-48 of the Financial
Appendix to TSYS' Proxy Statement are specifically incorporated herein by
reference.
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
We have evaluated the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
annual report as required by Rule 13a-15 of the Securities Exchange Act of 1934,
as amended. This evaluation was carried out under the supervision and with the
participation of our management, including our chief executive officer and chief
financial officer. Based on this evaluation, the chief executive officer and
chief financial officer have concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
relating to TSYS (including its consolidated subsidiaries) required to be
included in our periodic SEC filings. No change in TSYS' internal control over
financial reporting occurred during the period covered by this report that
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
8
PART III
Item 10. Directors and Executive Officers of the Registrant
Information pertaining to directors and executive officers of TSYS, the
Audit Committee of the Board of Directors of TSYS and compliance with Section
16(a) of the Securities Exchange Act of 1934 is contained in the "PROPOSALS TO
BE VOTED ON - PROPOSAL 1: ELECTION OF DIRECTORS" Section which is set forth on
pages 7 and 8, the "EXECUTIVE OFFICERS" Section which is set forth on page 9,
the "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" Section which is
set forth on page 23, and the "CORPORATE GOVERNANCE AND BOARD MATTERS -
Committees of the Board" Section which is set forth on pages 3 and 4 of TSYS'
Proxy Statement and is specifically incorporated herein by reference.
TSYS has a Code of Business Conduct and Ethics that applies to all
directors, officers and employees, including our principal executive officer,
our principal financial officer and our controller. You can find our Code of
Business Conduct and Ethics in the Corporate Governance section of our website
at www.tsys.com/finance. We will post any amendments to the Code of Business
Conduct and Ethics and any waivers that are required to be disclosed by the
rules of either the SEC or the NYSE in the Corporate Governance section of our
website.
Item 11. Executive Compensation
Information pertaining to executive compensation is contained in the
"DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES" Section which is set
forth on page 6, the "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock
Option Exercises and Grants; and Change in Control Arrangements" Sections which
are set forth on pages 13 through 15, and the "COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION" Section which is set forth on page 19 of TSYS' Proxy
Statement and is specifically incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
Information pertaining to equity compensation plans is contained in
Note 6 of Notes to Consolidated Financial Statements on pages F-36 through F-39
of the Financial Appendix to TSYS' Proxy Statement and is specifically
incorporated herein by reference.
Information pertaining to security ownership of certain beneficial
owners and management is contained in the "STOCK OWNERSHIP OF DIRECTORS AND
EXECUTIVE OFFICERS" Section which is set forth on page 10, the "RELATIONSHIPS
BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial
Ownership of TSYS Stock by CB&T" Section which is set forth on page 20, and the
"RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES
- - Synovus Stock Ownership of Directors and Management" Section which is set
forth on page 21
9
of TSYS' Proxy Statement and is specifically incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information pertaining to certain relationships and related
transactions is contained in the "TRANSACTIONS WITH MANAGEMENT" Section which is
set forth on pages 19 and 20, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND
CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Stock by CB&T"
Section which is set forth on page 20, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS,
CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Interlocking Directorates of TSYS,
Synovus and CB&T" Section which is set forth on page 20, and the "RELATIONSHIPS
BETWEEN TSYS, SYNOVUS, CB&T, AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Electronic
Payment Processing Services Provided to CB&T and Certain of Synovus'
Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of
Synovus' Subsidiaries" Section which is set forth on page 22 of TSYS' Proxy
Statement and is specifically incorporated herein by reference.
See also Note 2 of Notes to Consolidated Financial Statements on pages
F-32 through F-34 of the Financial Appendix to TSYS' Proxy Statement which is
specifically incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
Information pertaining to principal accountant fees and services is
contained in the "AUDIT COMMITTEE REPORT - KPMG LLP Fees and Services" Section
which is set forth on pages 11 and 12 (excluding the information under the main
caption "AUDIT COMMITTEE REPORT") and the "AUDIT COMMITTEE REPORT - Policy on
Audit Committee Pre-Approval" Section which is set forth on page 12 of TSYS'
Proxy Statement and is specifically incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of TSYS are
specifically incorporated by reference from pages F-22 through F-48 of the
Financial Appendix to TSYS' Proxy Statement to Item 8, Part II, Financial
Statements and Supplementary Data.
Consolidated Balance Sheets - December 31, 2003 and 2002.
Consolidated Statements of Income - Years Ended December 31,
2003, 2002 and 2001.
Consolidated Statements of Cash Flows - Years Ended December
31, 2003, 2002
10
and 2001.
Consolidated Statements of Shareholders' Equity and
Comprehensive Income - Years Ended December 31, 2003, 2002 and
2001.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Index to Financial Statement Schedules
The following report of independent auditors and consolidated
financial statement schedule of Total System Services, Inc. are included:
Report of Independent Auditors.
Schedule II - Valuation and Qualifying Accounts - Years Ended
December 31, 2003, 2002 and 2001.
All other schedules are omitted because they are inapplicable
or the required information is included in the Notes to Consolidated Financial
Statements.
3. Exhibits
Exhibit
Number Description
-------- -----------
3.1 Articles of Incorporation of Total System Services, Inc.
("TSYS"), as amended, incorporated by reference to Exhibit
4.1 of TSYS' Registration Statement on Form S-8 filed with
the Commission on April 18, 1997 (File No. 333-25401).
3.2 Bylaws of TSYS, as amended, incorporated by reference to
Exhibit 3.2 of TSYS' Annual Report on Form 10-K for the
fiscal year ended December 31, 2002, as filed with the
Commission on March 19, 2003.
10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.1 Director Stock Purchase Plan of TSYS, incorporated by
reference to Exhibit 10.1 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1999, as filed
with the Commission on March 16, 2000.
10.2 Total System Services, Inc. 2002 Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.2 of TSYS' Annual
Report on Form 10-K for the fiscal year ended December 31,
2001, as filed with the Commission on March 19, 2002.
11
10.3 Synovus Financial Corp. 2002 Long-Term Incentive Plan in
which executive officers of TSYS participate, incorporated
by reference to Exhibit 10.3 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 2001, as filed
with the Commission on March 19, 2002.
10.4 Synovus Financial Corp./Total System Services, Inc. Deferred
Compensation Plan, incorporated by reference to Exhibit 10.4
of TSYS' Annual Report on Form 10-K for the fiscal year
ended December 31, 2001, as filed with the Commission on
March 19, 2002.
10.5 Total System Services, Inc. 1992 Long-Term Incentive Plan,
which was renamed the Total System Services, Inc. 2000
Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.5 of TSYS' Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, as filed with the
Commission on March 18, 1993.
10.6 Total System Services, Inc. Directors' Deferred Compensation
Plan, incorporated by reference to Exhibit 10.6 of TSYS'
Annual Report on Form 10-K for the fiscal year ended
December 31, 2001, as filed with the Commission on March 19,
2002.
10.7 Wage Continuation Agreement of TSYS, incorporated by
reference to Exhibit 10.7 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1992, as filed
with the Commission on March 18, 1993.
10.8 Incentive Bonus Plan of Synovus Financial Corp. in which
executive officers of TSYS participate, incorporated by
reference to Exhibit 10.8 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1992, as filed
with the Commission on March 18, 1993.
10.9 Agreement in Connection With Personal Use of Company
Aircraft.
10.10 Split Dollar Insurance Agreement of TSYS, incorporated by
reference to Exhibit 10.10 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1993, as filed
with the Commission on March 22, 1994.
12
10.11 Synovus Financial Corp. 1994 Long-Term Incentive Plan in
which executive officers of TSYS participate, incorporated
by reference to Exhibit 10.11 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1994, as filed
with the Commission on March 9, 1995.
10.12 Synovus Financial Corp. Executive Bonus Plan in which
executive officers of TSYS participate, incorporated by
reference to Exhibit 10.12 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1995, as filed
with the Commission on March 19, 1996.
10.13 Change of Control Agreements for executive officers of
TSYS, incorporated by reference to Exhibit 10.13 of TSYS'
Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as filed with the Commission on March 19,
1996.
10.14 Stock Option Agreement of Samuel A. Nunn, incorporated by
reference to Exhibit 10.14 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1996, as filed
with the Commission on March 20, 1997.
10.15 Synovus Financial Corp. Deferred Stock Option Plan in which
executive officers of TSYS participate, incorporated by
reference to Exhibit 10.15 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 2001, as filed
with the Commission on March 19, 2002.
10.16 Synovus Financial Corp. 2000 Long-Term Incentive Plan in
which executive officers of TSYS participate, incorporated
by reference to Exhibit 10.16 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 1999, as filed
with the Commission on March 16, 2000.
10.17 Split Dollar Insurance Agreement and related Executive
Benefit Substitution Agreement of Synovus Financial Corp. in
which executive officers of TSYS participate, incorporated
by reference to Exhibit 10.19 of TSYS' Annual Report on Form
10-K for the fiscal year ended December 31, 2001, as filed
with the Commission on March 19, 2002.
20.1 Proxy Statement, including Financial Appendix, for the
Annual Meeting of Shareholders of TSYS to be held on April
15, 2004, certain pages of which are specifically
incorporated herein by reference.
13
21.1 Subsidiaries of Total System Services, Inc.
23.1 Independent Auditors' Consent.
24.1 Powers of Attorney contained on the signature pages of the
2003 Annual Report on Form 10-K.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
99.1 Annual Report on Form 11-K for the Total System Services,
Inc. Employee Stock Purchase Plan for the year ended
December 31, 2003 (to be filed as an amendment hereto within
120 days of the end of the period covered by this report.)
99.2 Annual Report on Form 11-K for the Total System Services,
Inc. Director Stock Purchase Plan for the year ended
December 31, 2003 (to be filed as an amendment hereto within
120 days of the end of the period covered by this report.)
(b) Reports on Form 8-K
On October 14, 2003, TSYS filed a Form 8-K with the Commission
in connection with the announcement of its earnings for the third quarter of
2003.
On December 9, 2003, TSYS filed a Form 8-K with the Commission
in connection with the election of Philip W. Tomlinson as Chief Executive
Officer of TSYS.
14
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Total System Services, Inc.:
Under date of January 15, 2004, we reported on the consolidated balance sheets
of Total System Services, Inc. and subsidiaries as of December 31, 2003 and 2002
and the related consolidated statements of income, cash flows, and shareholders'
equity and comprehensive income for each of the years in the three-year period
ended December 31, 2003, as contained in the Total System Services, Inc. 2003
Annual Report to Shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the Total System Services, Inc.
Annual Report on Form 10-K for the year 2003. In connection with our audits of
the aforementioned consolidated financial statements, we also audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/KPMG LLP
KPMG LLP
Atlanta, Georgia
January 15, 2004
TOTAL SYSTEM SERVICES, INC.
Schedule II
Valuation and Qualifying Accounts
Additions
-------------------------
Changes in
allowances, charges to
Balance at expenses and changes Balance at
beginning to other accounts -- Deductions-- end
of period describe describe of period
----------------------------------------------------------------------------------
Year ended December 31, 2001:
Provision for doubtful accounts
and billing adjustments $ 5,844,478 569,433(1,043,071)(3) $ 5,370,840
----------- ------------------------- ------------- --------------
$ 5,844,478 569,433 (1,043,071) $ 5,370,840
============ ========================= ============= ==============
Transaction processing accruals $ 8,717,456 1,438,241(2,864,256)(3) $ 7,291,441
------------ ------------------------- ------------- --------------
$ 8,717,456 1,438,241 (2,864,256) $ 7,291,441
============ ========================= ============= ==============
Year ended December 31, 2002:
Provision for doubtful accounts
and billing adjustments $ 5,370,840 3,262,830(616,632)(3) $ 8,017,038
----------- ------------------------- ------------- --------------
$ 5,370,840 3,262,830 (616,632) $ 8,017,038
============ ========================= ============= ==============
Transaction processing accruals $ 7,291,441 6,532,268(8,476,699)(3) $ 5,347,010
------------ ------------------------- ------------- --------------
$ 7,291,441 6,532,268 (8,476,699) $ 5,347,010
============ ========================= ============= ==============
Year ended December 31, 2003:
Provision for doubtful accounts
and billing adjustments $ 8,017,038 2,690,373(897,327)(3) $ 9,810,084
----------- ------------------------- ------------- --------------
$ 8,017,038 2,690,373 (897,327) $ 9,810,084
============ ========================= ============= ==============
Transaction processing accruals $ 5,347,010 3,449,943(3,706,444)(3) $ 5,090,509
------------ ------------------------- ------------- --------------
$ 5,347,010 3,449,943 (3,706,444) $ 5,090,509
============ ========================= ============= ==============
- ------------------------------------------------------------------------------------------------------------------------------------
Amount reflected includes charges to bad debt expense which are classified in other operating expenses and the charges
for billing adjustments which are recorded against revenues.
Amount reflected is the change in transaction processing accruals reflected in other operating expenses.
Accounts deemed to be uncollectible and written off during the year as it relates to bad debts. Amounts that relate to
billing adjustments and transaction processing accruals reflect actual billing adjustments and processing errors
charged against the allowances.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Total System Services, Inc. has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TOTAL SYSTEM SERVICES, INC.
(Registrant)
March 9, 2004 By: /s/Philip W. Tomlinson
-------------------------------
Philip W. Tomlinson,
Principal Executive Officer
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints James H. Blanchard, Richard W. Ussery and
Philip W. Tomlinson, and each of them, his true and lawful attorney(s)-in-fact
and agent(s), with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any or all
amendments to this report and to file the same, with all exhibits and schedules
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, this report has been signed by the following
persons in the capacities and on the dates indicated.
/s/James H. Blanchard Date: March 9, 2004
- -----------------------------------------------
James H. Blanchard,
Director and Chairman of the
Executive Committee
/s/Richard W. Ussery Date: March 9, 2004
- -----------------------------------------------
Richard W. Ussery,
Chairman of the Board
/s/Philip W. Tomlinson Date: March 9, 2004
- -----------------------------------------------
Philip W. Tomlinson,
Principal Executive Officer
and Director
/s/M. Troy Woods Date: March 9, 2004
- -----------------------------------------------
M. Troy Woods,
President and Director
/s/James B. Lipham Date: March 9, 2004
- -----------------------------------------------
James B. Lipham,
Executive Vice President, Treasurer, Principal
Accounting and Financial Officer
/s/Richard Y. Bradley Date: March 9, 2004
- -----------------------------------------------
Richard Y. Bradley,
Director
/s/G. Wayne Clough Date: March 9, 2004
- -----------------------------------------------
G. Wayne Clough,
Director
/s/Walter W. Driver, Jr. Date: March 9, 2004
- -----------------------------------------------
Walter W. Driver, Jr.,
Director
/s/Gardiner W. Garrard, Jr. Date: March 9, 2004
- -----------------------------------------------
Gardiner W. Garrard, Jr.,
Director
Date: March _, 2004
- -----------------------------------------------
Sidney E. Harris,
Director
/s/John P. Illges, III Date: March 9, 2004
- -----------------------------------------------
John P. Illges, III,
Director
/s/Alfred W. Jones, III Date: March 9, 2004
- -----------------------------------------------
Alfred W. Jones III,
Director
/s/Mason H. Lampton Date: March 9, 2004
- -----------------------------------------------
Mason H. Lampton,
Director
/s/H. Lynn Page Date: March 9, 2004
- -----------------------------------------------
H. Lynn Page,
Director
Date: March _, 2004
- -----------------------------------------------
W. Walter Miller, Jr.,
Director
Date: March _, 2004
- -----------------------------------------------
John T. Turner,
Director
/s/James D. Yancey Date: March 9, 2004
- -----------------------------------------------
James D. Yancey,
Director
Date: March _, 2004
- -----------------------------------------------
Rebecca K. Yarbrough,
Director
filings/tss\con13.doc