Item 1. Business
Business. Established in 1983 as an outgrowth of an on-line accounting and bankcard data processing system developed for Columbus Bank and Trust Company(R), TSYS is now one of the world's largest information technology processors of credit, debit, commercial and private-label cards. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol "TSS," TSYS provides a comprehensive on-line system of data processing services marketed as THE TOTAL SYSTEM(R) servicing issuing institutions throughout the United States, Puerto Rico, Canada, Mexico and the Caribbean, representing more than 117 million cardholder accounts on file as of December 31, 1998. TSYS provides card production, statement preparation, electronic commerce services, portfolio management services, account acquisition, credit evaluation, risk management and customer service to clients. Synovus Financial Corp.(R), a $10.5 billion asset, multi-financial services company, owns 80.8 percent of TSYS.
TSYS has four wholly owned subsidiaries: (1) Columbus Depot Equipment Company(sm), which sells and leases computer related equipment associated with TSYS' bankcard data processing services; (2) TSYS Total Solutions,(R) Inc., which provides mail and correspondence processing services and account solicitation services; (3) Columbus Productions, Inc.(sm), which provides full-service commercial printing and related services; and (4) TSYS Canada, Inc., which provides programming support and assistance with the conversion of card portfolios to TS2(R).
TSYS also holds a 49% equity interest in a joint venture company named Total System Services de Mexico, S.A. de C.V., which provides credit card related processing services to Mexican banks, and a 50% interest in Vital Processing Services L.L.C., a joint venture with Visa U.S.A. Inc., that offers fully integrated merchant transaction and related electronic information services to financial and nonfinancial institutions and their merchant customers.
The services provided by TSYS are divided into two operating segments, bankcard data processing services and other services. Bankcard data processing services, including the programming services provided by TSYS Canada, Inc., account for approximately 90% of TSYS' revenues. The support services provided by TSYS' other subsidiaries, including the equipment leasing services provided by Columbus Depot Equipment Company, the correspondence processing services provided by TSYS Total Solutions, Inc. and the commercial printing services provided by Columbus Productions, Inc., are aggregated into the segment referred to as other services.
Seasonality. Due to the seasonal nature of the credit card industry, TSYS' revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season.
Service Marks. TSYS owns the federally registered service marks TSYS, TS2, Total System Services, Inc., THE TOTAL SYSTEM, TOTAL ACCESS, ACE, Partnership Card Services and TSYS Total Solutions, to which TSYS believes strong customer identification
attaches. TSYS also owns other service marks. Management does not believe the loss of these marks would have a material impact on the business of TSYS.
Major Customers. A significant amount of TSYS' revenues are derived from long-term contracts with significant customers, including certain major customers. For the year ended December 31, 1998, BankAmerica Corporation accounted for 21% of TSYS' total revenues. As a result, the loss of BankAmerica Corporation, or other major or significant customers, could have a material adverse effect on TSYS' financial condition and results of operations.
Near the end of the first quarter of 1998, AT&T completed the sale of its Universal Card Services to CITIBANK, now a part of Citigroup after CITIBANK's merger with Travelers Group, Inc. CITIBANK accounted for approximately 13% of total revenues for the year ended December 31, 1998. On February 26, 1999, CITIBANK notified TSYS of its decision to terminate Universal Card Services' processing agreement with TSYS for consumer credit card accounts at the end of its original term on August 1, 2000. Consumer credit card accounts represented 11.4% of total revenues derived by TSYS from Universal Card Services for the year ended December 31, 1998. TSYS' management believes that CITIBANK will continue to be a major customer in 1999, but will not be a major customer in 2000 and that the loss of revenues from Universal Card Services for the months of August through December 2000, should not have a material adverse effect on TSYS' financial condition or results of operations for the year ending December 31, 2000.
Competition. TSYS encounters vigorous competition in providing bankcard data processing services from several different sources. The national market in third party bankcard data processors is presently being provided by approximately five vendors. TSYS believes that it is the second largest third party bankcard processor in the United States. In addition, TSYS competes against software vendors which provide their products to institutions which process in-house. TSYS is presently encountering, and in the future anticipates continuing to encounter, substantial competition from bankcard associations, data processing and bankcard computer service firms and other such third party vendors located throughout the United States.
TSYS' major competitor in the bankcard data processing industry is First Data Resources, Inc., a wholly owned subsidiary of First Data Corporation, which is headquartered in Omaha, Nebraska, and provides bankcard data processing services, including authorization and data entry services. The principal methods of competition between TSYS and First Data Resources are price, quality, features and functionality and reliability of service. Certain other subsidiaries of First Data Corporation also compete with TSYS. In addition, there are a number of other companies which have the necessary financial resources and the technological ability to develop or acquire products and, in the future, to provide services similar to those being offered by TSYS.
Regulation and Examination. TSYS is subject to being examined, and is indirectly regulated, by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the various state financial regulatory agencies which supervise and
regulate the banks, savings institutions and credit unions for which TSYS provides bankcard data processing services. Matters reviewed and examined by these federal and state financial institution regulatory agencies have included TSYS' internal controls in connection with its present performance of bankcard data processing services, and the agreements pursuant to which TSYS provides such services.
As the Federal Reserve Bank of Atlanta has approved Synovus' indirect ownership of TSYS through Columbus Bank and Trust Company, TSYS is subject to direct regulation by the Federal Reserve Board. TSYS was formed with the prior written approval of, and is subject to regulation and examination by, the Department of Banking and Finance of the State of Georgia as a subsidiary of Columbus Bank and Trust Company and is authorized to engage in only those activities which Columbus Bank and Trust Company itself is authorized to engage in directly, which includes the bankcard and other data processing services presently being provided by TSYS. As TSYS and its subsidiaries operate as subsidiaries of Columbus Bank and Trust Company, they are subject to regulation by the Federal Deposit Insurance Corporation.
Employees. As of February 28, 1999, TSYS had 3,935 full-time employees.
See the "Financial Review" Section on pages 22 through 29 and Note 1, Note 4, Note 9, Note 11 and Note 12 of Notes to Consolidated Financial Statements on pages 34 through 36, page 37, page 41, and pages 42 and 43 of TSYS' 1998 Annual Report to Shareholders which are specifically incorporated herein by reference.
Item 2.
Item 2. Properties
TSYS owns a 377,000 square foot production center which is located on a 40.4 acre tract of land in north Columbus, Georgia. Primarily a production center, this facility houses TSYS' primary data processing computer operations, statement preparation, mail handling, microfiche production, purchasing and card production, as well as other related operations.
TSYS owns a 110,000 square foot building on a 23-acre site in Columbus, Georgia, which accommodates current and future office space needs for technical staff. TSYS also owns a 104,000 square foot building on an 18-acre site in Columbus which functions as a second data center.
The approximately 32,000 square foot Columbus Depot, located in Columbus, Georgia, which is owned by TSYS and is on the National Register of Historic Places, houses TSYS' executive offices and several corporate divisions.
TSYS owns its 73,000 square foot South Center located in Columbus, Georgia, and owns its 60,000 square foot Annex Building located in Columbus, Georgia, which house training and documentation, Year 2000 and client relations personnel. TSYS also owns a warehouse facility, various other tracts of real estate located near or adjacent to its South Center and Annex Building which are used for parking and/or future expansion needs, and leases additional office space in Columbus, Georgia, Atlanta, Georgia, and Jacksonville,
Florida.
During 1997, TSYS entered into an operating lease for the purpose of financing its 540,000 square foot new campus-type facility on approximately 46 acres of land in downtown Columbus, Georgia. The campus facility will consolidate most of TSYS' multiple Columbus locations and will facilitate future growth. The campus development will be a multiyear phased project. TSYS began moving personnel into the new campus facilities in December 1998.
All of the properties listed above are utilized by TSYS for bankcard data processing services.
TSYS Total Solutions, Inc. and Columbus Productions, Inc., which are included in the segment other services, own a 72,000 square foot production facility and own a 32,000 square foot production facility, respectively, located in Columbus, Georgia.
All properties owned and leased by TSYS are in good repair and suitable condition for the purposes for which they are used. In addition to its real property, TSYS owns and/or leases a substantial amount of computer equipment.
See Note 1, Note 2, Note 3, Note 4 and Note 9 of Notes to Consolidated Financial Statements on pages 34 through 37, and page 41 of TSYS' 1998 Annual Report to Shareholders which are specifically incorporated herein by reference.
Item 3.
Item 3. Legal Proceedings
See Note 9 of Notes to Consolidated Financial Statements on page 41 of TSYS' 1998 Annual Report to Shareholders which is specifically incorporated herein by reference.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The "Quarterly Financial Data, Stock Price, Dividend Information" Section which is set forth on page 46 of TSYS' 1998 Annual Report to Shareholders is specifically incorporated herein by reference.
On January 1, 1999, TSYS issued 854,042 shares of its common stock to Columbus Bank and Trust Company in connection with its acquisition of the assets used by Columbus Bank and Trust Company in the provision of collection, credit evaluation and customer services to credit and issuers.
The shares of TSYS common stock referenced above were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933.
Item 6.
Item 6. Selected Financial Data
The "Selected Financial Data" Section which is set forth on page 21 of TSYS' 1998 Annual Report to Shareholders is specifically incorporated herein by reference.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The "Financial Review" Section which is set forth on pages 22 through 29 of TSYS' 1998 Annual Report to Shareholders, which includes the information encompassed within "Management's Discussion and Analysis of Financial Condition and Results of Operations," is specifically incorporated herein by reference.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
None.
Item 8.
Item 8. Financial Statements and Supplementary Data
The "Quarterly Financial Data, Stock Price, Dividend Information" Section, which is set forth on page 46, and the "Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Shareholders' Equity, Consolidated Statements of Cash Flows, Notes to Consolidated Financial Statements and Report of Independent Auditors" Sections, which are set forth on pages 30 through 44 of TSYS' 1998 Annual Report to Shareholders are specifically incorporated herein by reference.
Item 9.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The "ELECTION OF DIRECTORS" Section which is set forth on pages 2 and 3, the "EXECUTIVE OFFICERS" Section which is set forth on page 5, and the "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" Section which is set forth on page 17 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference.
Item 11.
Item 11. Executive Compensation
The "DIRECTORS' COMPENSATION" Section which is set forth on page 5, the "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises and Grants; and Change in Control Arrangements" Sections which are set forth on pages 7 through 9, and the "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" Section which is set forth on page 13 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The "STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS" Section which is set forth on page 6, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Common Stock by CB&T" Section which is set forth on page 14, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Synovus Common Stock Ownership of Directors and Management" Section which is set forth on pages 14 and 15 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
The "TRANSACTIONS WITH MANAGEMENT" Section which is set forth on page 13, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Common Stock by CB&T" Section which is set forth on page 14, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Interlocking Directorates of TSYS, Synovus and CB&T" Section which is set forth on page 14, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T, AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Bankcard Data Processing Services Provided to CB&T and Certain of Synovus' Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries" Section which is set forth on pages 16 and 17 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999 are specifically incorporated herein by reference.
See also Note 2 of Notes to Consolidated Financial Statements on pages 36 and 37 of TSYS' 1998 Annual Report to Shareholders which is specifically incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements
The following Consolidated Financial Statements of TSYS are specifi- cally incorporated by reference from pages 30 through 44 of TSYS' 1998 Annual Report to Shareholders to Item 8, Part II, Financial Statements and Supplementary Data.
Consolidated Balance Sheets - December 31, 1998 and 1997.
Consolidated Statements of Income - Years Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
Report of Independent Auditors.
2. Index to Financial Statement Schedules
The following report of independent auditors and consolidated financial statement schedule of Total System Services, Inc. are included:
Report of Independent Auditors.
Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 1998, 1997 and 1996.
All other schedules are omitted because they are inapplicable or the required information is included in the Notes to Consolidated Financial Statements.
3. Exhibits
Exhibit Number Description
3.1 Articles of Incorporation of Total System Services, Inc. ("TSYS"), as amended, incorporated by reference to Exhibit 4.1 of TSYS'Registration Statement on Form S-8 filed with the Commission on April 18, 1997 (File No. 333-25401).
3.2 Bylaws of TSYS, as amended.
10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.1 Director Stock Purchase Plan of TSYS, incorporated by reference to Exhibit 10.1 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.2 Group "Y" Key Executive Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.2 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.3 1985 Key Employee Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.3 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.4 1990 Key Employee Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.4 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.5 Total System Services, Inc. 1992 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.5 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.6 Excess Benefit Agreement of TSYS, incorporated by reference to Exhibit 10.6 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.7 Wage Continuation Agreement of TSYS, incorporated by reference to Exhibit 10.7 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.8 Incentive Bonus Plan of Synovus Financial Corp. in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.8 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.9 Agreement in connection with use of aircraft, incorporated by reference to Exhibit 10.9 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993.
10.10 Split Dollar Insurance Agreement of TSYS, incorporated by reference
to Exhibit 10.10 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as filed with the Commission on March 22, 1994.
10.11 Synovus Financial Corp. 1994 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.11 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 9, 1995.
10.12 Synovus Financial Corp. Executive Bonus Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.12 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996.
10.13 Change of Control Agreements for executive officers of TSYS, incorporated by reference to Exhibit 10.13 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996.
10.14 Stock Option Agreement of Samuel A. Nunn, incorporated by reference to Exhibit 10.14 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as filed with the Commission on March 20, 1997.
10.15 Lease Agreement between First Security Bank, National Association, and TSYS incorporated by reference to Exhibit 10.15 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as filed with the Commission on March 23, 1998.
13.1 Certain specified pages of TSYS' 1998 Annual Report to Shareholders which are specifically incorporated herein by reference.
20.1 Proxy Statement for the Annual Meeting of Shareholders of TSYS to be held on April 15, 1999, certain pages of which are specifically incorporated herein by reference.
21.1 Subsidiaries of Total System Services, Inc.
23.1 Independent Auditors' Consent.
24.1 Powers of Attorney contained on the signature pages of the 1998 Annual Report on Form 10-K.
27.1 Financial Data Schedule (for SEC use only).
99.1 Annual Report on Form 11-K for the Total System Services, Inc. Employee Stock Purchase Plan for the year ended December 31, 1998 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.)
99.2 Annual Report on Form 11-K for the Total System Services, Inc. Director Stock Purchase Plan for the year ended December 31, 1998 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.)
(b) Reports on Form 8-K
On March 1, 1999, TSYS filed a Form 8-K with the Commission in connection with the announcement that Universal Card Services Corp., an affiliate of CITIBANK, notified TSYS of its decision not to renew its processing agreement with TSYS for consumer credit card accounts at the end of its original term on August 1, 2000.
filings\tsys\tsys98.10k
Report of Independent Auditors
The Board of Directors Total System Services, Inc.
Under date of January 7, 1999, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998, as contained in the Total System Services, Inc. 1998 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the Total System Services, Inc. Annual Report on Form 10-K for the year 1998. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/KPMG LLP
Atlanta, Georgia January 7, 1999
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Total System Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOTAL SYSTEM SERVICES, INC.
(Registrant)
March 12, 1999 By:/s/Richard W. Ussery ------------------------------------------ Richard W. Ussery, Chairman and Principal Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, Richard W. Ussery and Philip W. Tomlinson, and each of them, his true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated.
/s/James H. Blanchard Date: March 12, 1999 - ------------------------------------- James H. Blanchard, Director and Chairman of the Executive Committee
/s/Richard W. Ussery Date: March 12, 1999 - -------------------------------------- Richard W. Ussery, Chairman of the Board and Principal Executive Officer
/s/Philip W. Tomlinson Date: March 12, 1999 - --------------------------------------------- Philip W. Tomlinson, President and Director
/s/James B. Lipham Date: March 12, 1999 - ---------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer
/s/Griffin B. Bell Date: March 12, 1999 - ---------------------------------------------- Griffin B. Bell, Director
/s/Richard Y. Bradley Date: March 12, 1999 - ---------------------------------------------- Richard Y. Bradley, Director
/s/Gardiner W. Garrard, Jr. Date: March 12, 1999 - --------------------------------------------- Gardiner W. Garrard, Jr., Director
/s/John P. Illges, III Date: March 12, 1999 - --------------------------------------------- John P. Illges, III, Director
/s/Mason H. Lampton Date: March 12, 1999 - --------------------------------------------- Mason H. Lampton, Director
/s/Samuel A. Nunn Date: March 12, 1999 - --------------------------------------------- Samuel A. Nunn, Director
/s/H. Lynn Page Date: March 12, 1999 - --------------------------------------------- H. Lynn Page, Director
/s/W. Walter Miller, Jr. Date: March 12, 1999 - -------------------------------------------- W. Walter Miller, Jr., Director
/s/William B. Turner Date: March 12, 1999 - -------------------------------------------- William B. Turner, Director
/s/James D. Yancey Date: March 12, 1999 - -------------------------------------------- James D. Yancey, Director