e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: September 30, 2009
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from To
Commission file number 1-10254
Total System Services, Inc.
www.tsys.com
(Exact name of registrant as specified in its charter)
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Georgia
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58-1493818 |
(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
One TSYS Way, Post Office Box 1755, Columbus, Georgia 31902
(Address of principal executive offices) (Zip Code)
(706) 649-2310
(Registrants 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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
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CLASS
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OUTSTANDING AS OF: November 9, 2009 |
Common Stock, $0.10 par value
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197,184,497 shares |
TOTAL SYSTEM SERVICES, INC.
INDEX
TOTAL SYSTEM SERVICES, INC.
Part I Financial Information
Condensed Consolidated Balance Sheets
(Unaudited)
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(in thousands, except per share data) |
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September 30, 2009 |
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December 31, 2008 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
420,141 |
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211,365 |
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Restricted cash |
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26,317 |
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31,128 |
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Accounts receivable, net of allowance for doubtful accounts and billing
adjustments of $6.8 million and $8.0 million at 2009 and 2008, respectively |
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240,753 |
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246,767 |
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Deferred income tax assets |
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16,440 |
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29,615 |
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Prepaid expenses and other current assets |
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74,678 |
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88,612 |
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Current assets of discontinued operations |
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24,570 |
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Total current assets |
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778,329 |
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632,057 |
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Property and equipment, net of accumulated depreciation and amortization of $312.7
million and $286.7 million at 2009 and 2008, respectively |
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286,554 |
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291,341 |
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Computer software, net of accumulated amortization of $468.6 million and $423.7
million at 2009 and 2008, respectively |
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198,249 |
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202,038 |
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Contract acquisition costs, net |
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127,021 |
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131,568 |
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Goodwill |
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168,423 |
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165,995 |
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Equity investments |
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72,936 |
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74,012 |
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Other intangible assets, net of accumulated amortization of $16.0 million and $15.6
million at 2009 and 2008, respectively |
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15,082 |
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17,452 |
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Other assets |
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29,673 |
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28,316 |
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Long-term assets of discontinued operations |
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7,245 |
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Total assets |
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$ |
1,676,267 |
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1,550,024 |
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Liabilities |
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Current liabilities: |
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Current portion of long-term debt |
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$ |
6,919 |
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8,575 |
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Current portion of obligations under capital leases |
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5,423 |
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6,344 |
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Accrued salaries and employee benefits |
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28,529 |
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46,701 |
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Accounts payable |
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36,387 |
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32,440 |
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Other current liabilities |
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150,042 |
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130,751 |
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Current liabilities of discontinued operations |
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10,993 |
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Total current liabilities |
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227,300 |
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235,804 |
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Long-term debt, excluding current portion |
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196,156 |
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196,295 |
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Deferred income tax liabilities |
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52,757 |
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60,573 |
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Obligations under capital leases, excluding current portion |
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12,827 |
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13,576 |
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Other long-term liabilities |
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47,073 |
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40,709 |
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Long-term liabilities of discontinued operations |
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2,217 |
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Total liabilities |
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536,113 |
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549,174 |
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Equity |
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Shareholders equity: |
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Common stock $0.10 par value. Authorized 600,000 shares; 200,863 and 200,356
issued at 2009 and 2008, respectively; 197,187 and 196,704 outstanding at 2009
and 2008, respectively |
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20,086 |
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20,036 |
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Additional paid-in capital |
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137,052 |
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126,889 |
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Accumulated other comprehensive income (loss), net |
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7,975 |
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(6,627 |
) |
Treasury stock, at cost (shares of 3,676 and 3,652 at 2009 and 2008, respectively) |
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(69,950 |
) |
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(69,641 |
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Retained earnings |
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1,033,851 |
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920,292 |
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Total shareholders equity |
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1,129,014 |
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990,949 |
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Noncontrolling interests in consolidated subsidiaries |
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11,140 |
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9,901 |
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Total equity |
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1,140,154 |
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1,000,850 |
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Total liabilities and equity |
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$ |
1,676,267 |
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1,550,024 |
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See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
3
TOTAL SYSTEM SERVICES, INC.
Condensed Consolidated Statements of Income
(Unaudited)
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Three months ended September 30, |
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Nine months ended September 30, |
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(in thousands, except per share data) |
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2009 |
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2008 |
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2009 |
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2008 |
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Revenues: |
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Electronic payment processing services |
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$ |
238,448 |
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254,558 |
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706,503 |
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747,682 |
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Merchant acquiring services |
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71,834 |
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64,567 |
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207,005 |
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191,888 |
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Other services |
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48,684 |
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53,579 |
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141,625 |
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149,319 |
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Revenues before reimbursable items |
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358,966 |
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372,704 |
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1,055,133 |
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1,088,889 |
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Reimbursable items |
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73,330 |
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66,742 |
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198,089 |
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200,013 |
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Total revenues |
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432,296 |
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439,446 |
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1,253,222 |
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1,288,902 |
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Expenses: |
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Salaries and other personnel expenses |
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148,180 |
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150,262 |
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441,031 |
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439,791 |
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Net technology and facilities expenses |
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76,903 |
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75,042 |
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224,176 |
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221,875 |
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Spin-related expenses |
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1,719 |
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9,869 |
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Other operating expenses |
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46,027 |
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50,391 |
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141,177 |
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139,120 |
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Expenses before reimbursable items |
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271,110 |
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277,414 |
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806,384 |
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810,655 |
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Reimbursable items |
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73,330 |
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66,742 |
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198,089 |
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200,013 |
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Total expenses |
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344,440 |
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344,156 |
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1,004,473 |
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1,010,668 |
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Operating income |
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87,856 |
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95,290 |
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248,749 |
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278,234 |
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Nonoperating income (expenses) |
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574 |
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(82 |
) |
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(3,162 |
) |
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770 |
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Income from continuing operations before income taxes
and equity in income of equity investments |
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88,430 |
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95,208 |
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245,587 |
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279,004 |
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Income taxes |
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31,795 |
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34,091 |
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88,439 |
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100,979 |
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Income from continuing operations before equity in
income of equity investments |
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56,635 |
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61,117 |
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157,148 |
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|
178,025 |
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Equity in income of equity investments, net of tax |
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1,623 |
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|
3,062 |
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4,291 |
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6,333 |
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Income from continuing operations, net of tax |
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58,258 |
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64,179 |
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161,439 |
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184,358 |
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(Loss) income from discontinued operations, net of tax |
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(2,932 |
) |
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|
269 |
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(5,155 |
) |
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|
736 |
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Net income |
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55,326 |
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64,448 |
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156,284 |
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185,094 |
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Net income attributable to noncontrolling interests |
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|
(300 |
) |
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(374 |
) |
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(1,285 |
) |
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(1,322 |
) |
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Net income attributable to TSYS |
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$ |
55,026 |
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|
64,074 |
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|
154,999 |
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|
183,772 |
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Basic earnings per share (EPS) (Note 17)*: |
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Income from continuing operations |
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$ |
0.29 |
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|
0.32 |
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|
0.81 |
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|
0.92 |
|
(Loss) income from discontinued operations |
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(0.01 |
) |
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|
0.00 |
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(0.03 |
) |
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|
0.00 |
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Net income |
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$ |
0.28 |
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|
0.32 |
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|
0.79 |
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0.93 |
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Diluted EPS*: |
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Income from continuing operations |
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$ |
0.29 |
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|
0.32 |
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|
0.81 |
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|
0.92 |
|
(Loss) income from discontinued operations |
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(0.01 |
) |
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|
0.00 |
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(0.03 |
) |
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|
0.00 |
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Net income |
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$ |
0.28 |
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|
0.32 |
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|
0.79 |
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|
0.93 |
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Amounts attributable to TSYS common shareholders: |
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Income from continuing operations |
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$ |
57,958 |
|
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|
63,805 |
|
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|
160,154 |
|
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|
183,036 |
|
(Loss) income from discontinued operations |
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|
(2,932 |
) |
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|
269 |
|
|
|
(5,155 |
) |
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|
736 |
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Net income |
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$ |
55,026 |
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|
64,074 |
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|
154,999 |
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|
183,772 |
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* |
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Note: Basic and diluted EPS amounts for continuing operations and net income may not total due to
rounding. |
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
4
TOTAL SYSTEM SERVICES, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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Nine months ended September 30, |
|
(in thousands) |
|
2009 |
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|
2008 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net income |
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$ |
156,284 |
|
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|
185,094 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
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|
Net loss (gain) on foreign currency |
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|
2,857 |
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|
(3,233 |
) |
Equity in income of equity investments, net of tax |
|
|
(4,291 |
) |
|
|
(6,333 |
) |
Dividends received from equity investments |
|
|
4,942 |
|
|
|
6,421 |
|
Depreciation and amortization |
|
|
117,514 |
|
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|
124,852 |
|
Amortization of debt issuance costs |
|
|
115 |
|
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|
115 |
|
Share-based compensation |
|
|
13,245 |
|
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|
21,260 |
|
Excess tax benefit from share-based payment arrangements |
|
|
(6 |
) |
|
|
(82 |
) |
Provisions for bad debt expenses and billing adjustments |
|
|
3,855 |
|
|
|
2,779 |
|
Charges for transaction processing provisions |
|
|
4,993 |
|
|
|
1,415 |
|
Deferred income tax benefit |
|
|
(3,716 |
) |
|
|
(12,471 |
) |
(Gain) loss on disposal of equipment, net |
|
|
(20 |
) |
|
|
180 |
|
Loss on disposal of subsidiary |
|
|
5,701 |
|
|
|
|
|
(Increase) decrease in: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
6,095 |
|
|
|
(10,701 |
) |
Prepaid expenses, other current assets and other long-term assets |
|
|
23,770 |
|
|
|
(14,722 |
) |
Increase (decrease) in: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(331 |
) |
|
|
(1,150 |
) |
Accrued salaries and employee benefits |
|
|
(16,166 |
) |
|
|
(33,770 |
) |
Other current liabilities and other long-term liabilities |
|
|
18,215 |
|
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|
19,252 |
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
333,056 |
|
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|
278,906 |
|
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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|
|
|
|
Purchases of property and equipment, net |
|
|
(21,344 |
) |
|
|
(35,502 |
) |
Additions to licensed computer software from vendors |
|
|
(18,710 |
) |
|
|
(18,614 |
) |
Additions to internally developed computer software |
|
|
(19,367 |
) |
|
|
(14,976 |
) |
Proceeds from disposition, net of expenses paid and cash disposed |
|
|
1,991 |
|
|
|
|
|
Cash used in acquisitions |
|
|
(294 |
) |
|
|
(965 |
) |
Subsidiary repurchase of noncontrolling interest |
|
|
|
|
|
|
(343 |
) |
Additions to contract acquisition costs |
|
|
(23,711 |
) |
|
|
(34,612 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(81,435 |
) |
|
|
(105,012 |
) |
|
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|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
Dividends paid on common stock |
|
|
(41,406 |
) |
|
|
(41,358 |
) |
Repurchase of common stock |
|
|
(329 |
) |
|
|
(23,594 |
) |
Subsidiary dividends paid to noncontrolling shareholders |
|
|
(235 |
) |
|
|
(241 |
) |
Excess tax benefit from share-based payment arrangements |
|
|
6 |
|
|
|
82 |
|
Principal payments on long-term debt borrowings and capital lease obligations |
|
|
(13,178 |
) |
|
|
(11,501 |
) |
Proceeds from borrowings |
|
|
5,334 |
|
|
|
2,506 |
|
Proceeds from exercise of stock options |
|
|
2 |
|
|
|
266 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(49,806 |
) |
|
|
(73,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS: |
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(1,693 |
) |
|
|
(1,568 |
) |
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
200,122 |
|
|
|
98,486 |
|
Cash and cash equivalents at beginning of period |
|
|
220,019 |
|
|
|
210,518 |
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
420,141 |
|
|
|
309,004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
2,481 |
|
|
|
8,944 |
|
|
|
|
|
|
|
|
Income taxes paid, net |
|
$ |
59,142 |
|
|
|
99,999 |
|
|
|
|
|
|
|
|
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
5
TOTAL SYSTEM SERVICES, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of Total System
Services, Inc.® (TSYS® or the Company) include the accounts of TSYS and its wholly owned
subsidiaries as well as TSYS majority-owned foreign subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
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 accounting principles generally
accepted in the United States of America. The preparation of the consolidated financial statements
requires management of the Company to make a number of estimates and assumptions relating to the
reported amounts of assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the period. These estimates and assumptions
are developed based upon all information available. Actual results could differ from estimated
amounts. 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 condensed consolidated financial statements should be read in
conjunction with the Companys summary of significant accounting policies, consolidated financial
statements and related notes appearing in the Companys Annual Report on Form 10-K for the year
ended December 31, 2008. Results of interim periods are not necessarily indicative of results to be
expected for the year.
As a result of the sale of TSYS Total Debt Management, Inc. (TDM), as discussed in Note 2, the
Companys financial statements reflect TDM as discontinued operations. The Company segregated the
net assets, net liabilities and operating results from continuing operations on the Unaudited
Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Statements of Income for
all periods presented.
Certain reclassifications have been made to the 2008 financial statements to conform to the
presentation adopted in 2009.
Note 2 Discontinued Operations
The Company sold TDM on August 31, 2009. Final adjustments related to the sale, if any, are
expected to be included in fourth quarter results. The decision to sell the TDM business was the
result of managements decision to divest non-strategic businesses and focus resources on core
products and services. TDM was part of the North America Services segment.
In accordance with the provisions of Accounting Standards Codification (ASC) 205,
Presentation of Financial Statements (previously referred to as Statement of Financial Accounting
Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets), the
Company determined that the TDM business became a discontinued operation in the first quarter of
2009.
The following table presents the summarized results of discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Percent Change |
|
2009 |
|
2008 |
|
Percent Change |
Revenues before reimbursable items |
|
$ |
5.3 |
|
|
|
10.1 |
|
|
|
(48.0 |
)% |
|
$ |
20.2 |
|
|
|
26.3 |
|
|
|
(23.2 |
)% |
Total revenues |
|
|
43.0 |
|
|
|
60.9 |
|
|
|
(29.4 |
) |
|
|
170.5 |
|
|
|
156.3 |
|
|
|
9.1 |
|
Operating (loss) income |
|
|
0.6 |
|
|
|
0.4 |
|
|
|
47.2 |
|
|
|
(2.9 |
) |
|
|
1.1 |
|
|
nm |
|
Income taxes |
|
|
0.2 |
|
|
|
0.1 |
|
|
|
42.4 |
|
|
|
(1.0 |
) |
|
|
0.4 |
|
|
nm |
|
(Loss) income from discontinued
operations, net of tax |
|
|
0.4 |
|
|
|
0.3 |
|
|
|
43.4 |
|
|
|
(1.8 |
) |
|
|
0.7 |
|
|
nm |
|
Loss on disposition |
|
|
(5.7 |
) |
|
|
|
|
|
nm |
|
|
|
(5.7 |
) |
|
|
|
|
|
nm |
|
The Unaudited Condensed Consolidated Statements of Cash Flows include TDM through the date of
disposition.
6
The following table presents the quarterly and year-to-date summary of 2008 consolidated
financial results for TSYS with TDM classified as discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Twelve months ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
September 30, |
|
|
December 31, |
|
|
December 31, |
|
(in thousands) |
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
Revenues before reimbursable items |
|
$ |
353,130 |
|
|
|
363,055 |
|
|
|
372,703 |
|
|
|
367,866 |
|
|
$ |
1,456,754 |
|
Reimbursable items |
|
|
66,696 |
|
|
|
66,575 |
|
|
|
66,742 |
|
|
|
64,879 |
|
|
|
264,892 |
|
|
|
|
|
|
|
Total revenues |
|
|
419,826 |
|
|
|
429,630 |
|
|
|
439,445 |
|
|
|
432,745 |
|
|
|
1,721,646 |
|
Total expenses |
|
|
333,730 |
|
|
|
332,782 |
|
|
|
344,155 |
|
|
|
342,304 |
|
|
|
1,352,971 |
|
|
|
|
|
|
|
Operating income |
|
|
86,096 |
|
|
|
96,848 |
|
|
|
95,290 |
|
|
|
90,441 |
|
|
|
368,675 |
|
Nonoperating income (loss) |
|
|
1,280 |
|
|
|
(429 |
) |
|
|
(82 |
) |
|
|
5,003 |
|
|
|
5,772 |
|
|
|
|
|
|
|
Income before income taxes |
|
|
87,376 |
|
|
|
96,419 |
|
|
|
95,208 |
|
|
|
95,444 |
|
|
|
374,447 |
|
Income taxes |
|
|
32,907 |
|
|
|
33,981 |
|
|
|
34,091 |
|
|
|
30,227 |
|
|
|
131,206 |
|
|
|
|
|
|
|
Income before equity income |
|
|
54,469 |
|
|
|
62,438 |
|
|
|
61,117 |
|
|
|
65,217 |
|
|
|
243,241 |
|
Equity income |
|
|
2,162 |
|
|
|
1,109 |
|
|
|
3,062 |
|
|
|
1,064 |
|
|
|
7,397 |
|
|
|
|
|
|
|
Income from continuing
operations, net of tax |
|
|
56,631 |
|
|
|
63,547 |
|
|
|
64,179 |
|
|
|
66,281 |
|
|
|
250,638 |
|
Income from discontinued
operations, net of tax |
|
|
233 |
|
|
|
234 |
|
|
|
269 |
|
|
|
302 |
|
|
|
1,038 |
|
|
|
|
|
|
|
Net income |
|
|
56,864 |
|
|
|
63,781 |
|
|
|
64,448 |
|
|
|
66,583 |
|
|
|
251,676 |
|
Noncontrolling interests |
|
|
(250 |
) |
|
|
(697 |
) |
|
|
(374 |
) |
|
|
(255 |
) |
|
|
(1,576 |
) |
|
|
|
|
|
|
Net income attributable to TSYS
common shareholders |
|
$ |
56,614 |
|
|
|
63,084 |
|
|
|
64,074 |
|
|
|
66,328 |
|
|
$ |
250,100 |
|
|
|
|
|
|
|
Note 3 Fair Value Measurement
ASC 820, Fair Value Measurements and Disclosure, previously referred to as SFAS No. 157,
Fair Value Measurements, requires disclosure about how fair value is determined for assets and
liabilities and establishes a hierarchy for which these assets and liabilities must be grouped,
based on significant level of inputs. The three-tier fair value hierarchy, which prioritizes the
inputs used in the valuation methodologies, is as follows:
Level 1 Quoted prices for identical assets and liabilities in active markets.
Level 2 Observable inputs other than quoted prices included in Level 1, such as quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, or other inputs that are observable or can
be corroborated by observable market data.
Level 3 Unobservable inputs for the asset or liability.
In February 2007, the FASB issued authoritative guidance under ASC 825, Financial
Instruments, previously referred to as SFAS No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities. ASC 825 permits the Company to choose to measure many financial
instruments and certain other items at fair value. Upon adoption of the guidance on January 1,
2008, TSYS did not elect the fair value option for any financial instrument it did not currently
report at fair value.
Goodwill and certain intangible assets not subject to amortization are assessed annually for
impairment in the second quarter of each year using fair value measurement techniques.
Specifically, goodwill impairment is determined using a two-step test. The first step of the
goodwill impairment test is used to identify potential impairment by comparing the fair value of a
reporting unit with its book value, including goodwill. If the fair value of the reporting unit
exceeds its book value, goodwill is considered not impaired and the second step of the impairment
test is unnecessary. If the book value of the reporting unit exceeds its fair value, the second
step of the goodwill impairment test is performed to measure the amount of impairment loss, if any.
The second step of the goodwill impairment test compares the implied fair value of the reporting
units goodwill with the book value of that goodwill. If the book value of the reporting units
goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an
amount equal to that excess. The fair value of the reporting unit is allocated to all of the assets
and liabilities of that unit as if the reporting unit had been acquired in a business combination
and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
7
The estimate of fair value of the Companys reporting units is determined using various
valuation techniques, including using the combination of the income approach and the market
approach. The market approach, which contains Level 2 inputs, utilizes readily available market
valuation multiples to estimate fair value. The income approach is a valuation technique that
utilizes the discounted cash flow (DCF) method, which includes Level 3 inputs. Under the DCF
method, the fair value of the asset reflects the present value of the projected earnings that will
be generated by each asset after taking into account the revenues and expenses associated with the
asset, the relative risk that the cash flows will occur, the contribution of other assets, and an
appropriate discount rate to reflect the value of the invested capital. Cash flows are estimated
for future periods based upon historical data and projections by management.
At September 30, 2009, the Company had unamortized goodwill in the amount of $168.4 million.
The Company performed its annual impairment analyses of its unamortized goodwill balance as of May
31, 2009, and this test did not indicate any impairment.
The fair value of the Companys long-term debt and obligations under capital leases is not
significantly different from its carrying value.
Note 4 Supplementary Balance Sheet Information
Cash and Cash Equivalents
The Company maintains accounts outside the United States denominated in currencies other than
the U.S. dollar. All amounts in domestic accounts are denominated in U.S. dollars.
Cash and cash equivalent balances are summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
Cash and cash equivalents in domestic accounts |
|
$ |
371,000 |
|
|
|
149,047 |
|
Cash and cash equivalents in foreign accounts |
|
|
49,141 |
|
|
|
62,318 |
|
|
|
|
|
|
|
|
Total |
|
$ |
420,141 |
|
|
|
211,365 |
|
|
|
|
|
|
|
|
At September 30, 2009 and December 31, 2008, the Company on a consolidated basis had
approximately $381.6 million and $197.7 million, respectively, of cash and cash equivalents of
which $38.5 million and $13.7 million was in Money Market accounts that had an original maturity
date of 90 days or less. The Company considers cash equivalents to be short-term, highly liquid
investments that are both readily convertible to known amounts of cash and so near their maturity
that they present insignificant risk of changes in value because of change in interest rates. The
Company purchased $67.5 million of 90-day certificates of deposit through nine of its subsidiaries
as of July 31, 2009.
Prepaid Expenses and Other Current Assets
Significant components of prepaid expenses and other current assets are summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
Prepaid expenses |
|
$ |
13,269 |
|
|
|
14,079 |
|
Supplies inventory |
|
|
9,567 |
|
|
|
9,586 |
|
Income taxes receivable |
|
|
13 |
|
|
|
23,752 |
|
Other |
|
|
51,829 |
|
|
|
41,195 |
|
|
|
|
|
|
|
|
Total |
|
$ |
74,678 |
|
|
|
88,612 |
|
|
|
|
|
|
|
|
Contract Acquisition Costs, net
Significant components of contract acquisition costs, net of accumulated amortization, are
summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
Payments for processing
rights, net of accumulated
amortization of $148.9 million
and $126.5 million at 2009 and
2008, respectively |
|
$ |
60,779 |
|
|
|
73,201 |
|
Conversion costs, net of
accumulated amortization of
$70.8 million and $56.1 million
at 2009 and 2008, respectively |
|
|
66,242 |
|
|
|
58,367 |
|
|
|
|
|
|
|
|
Total |
|
$ |
127,021 |
|
|
|
131,568 |
|
|
|
|
|
|
|
|
8
Amortization related to payments for processing rights, which is recorded as a reduction of
revenues, was $5.8 million and $7.2 million for the three months ended September 30, 2009 and 2008,
respectively. For the nine months ended September 30, 2009 and 2008, amortization related to
payments for processing rights was $19.4 million and $20.4 million, respectively.
Amortization expense related to conversion costs, which is recorded in other operating
expenses, was $5.2 million and $4.1 million for the three months ended September 30, 2009 and 2008,
respectively. For the nine months ended September 30, 2009 and 2008, amortization related to
conversion costs was $13.4 million and $10.8 million, respectively.
Other Current Liabilities
Significant components of other current liabilities are summarized as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
September 30, 2009 |
|
|
December 31, 2008 |
|
Deferred revenues |
|
$ |
34,644 |
|
|
|
22,619 |
|
Accrued expenses |
|
|
28,485 |
|
|
|
26,746 |
|
Client liabilities |
|
|
25,959 |
|
|
|
30,723 |
|
Dividends payable |
|
|
13,815 |
|
|
|
13,780 |
|
Accrued income taxes |
|
|
12,902 |
|
|
|
2,808 |
|
Transaction processing provisions |
|
|
7,483 |
|
|
|
5,417 |
|
Client postage deposits |
|
|
4,152 |
|
|
|
3,772 |
|
Other |
|
|
22,602 |
|
|
|
24,886 |
|
|
|
|
|
|
|
|
Total |
|
$ |
150,042 |
|
|
|
130,751 |
|
|
|
|
|
|
|
|
Note 5 Long-Term Debt
Refer to Note 11 of the Companys audited financial statements for the year ended December 31,
2008, which are included as Exhibit 13.1 to the Companys Annual Report on Form 10-K for the year
ended December 31, 2008, as filed with the SEC, for a discussion regarding long-term debt.
On October 31, 2008, the Companys International Services segment obtained a credit agreement
from a third party to borrow up to approximately ¥2.0 billion, or $21 million, in a Yen-denominated
three-year loan to finance activities in Japan. The rate is London Interbank Offered Rate (LIBOR)
plus 80 basis points. In 2008, the Company initially made a draw down of ¥1.5 billion, or
approximately $15.1 million. In January 2009, the Company made an additional draw down of ¥250
million, or approximately $2.8 million. In April 2009, the Company made an additional draw down of
¥250 million, or approximately $2.5 million.
Note 6 Equity and Noncontrolling Interests
In December 2007, the FASB issued authoritative guidance under ASC 810, Consolidation,
previously referred to as SFAS No. 160, Noncontrolling Interests in Consolidated Financial
Statements - an amendment of ARB No. 51. ASC 810 changes the accounting for noncontrolling
(minority) interests in consolidated financial statements, including the requirements to classify
noncontrolling interests as a component of consolidated shareholders equity, the elimination of
minority interest accounting in results of operations and changes in the accounting for both
increases and decreases in a parents controlling ownership interest.
Below is a summary of the changes in the statement of equity as a result of the adoption of
the guidance under ASC 810 through the nine months ended September 30, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSYS Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
(in thousands, except per |
|
Common Stock |
|
|
paid-in |
|
|
Income (Loss) |
|
|
Treasury |
|
|
Retained |
|
|
controlling |
|
|
Total |
|
share data) |
|
Shares |
|
|
Dollars |
|
|
Capital |
|
|
(OCI) |
|
|
Stock |
|
|
Earnings |
|
|
Interests |
|
|
Equity |
|
|
Balance,
December 31, 2008 |
|
|
200,356 |
|
|
$ |
20,036 |
|
|
|
126,889 |
|
|
|
(6,627 |
) |
|
|
(69,641 |
) |
|
|
920,292 |
|
|
|
9,901 |
|
|
$ |
1,000,850 |
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
154,999 |
|
|
|
1,285 |
|
|
|
156,284 |
|
Other comprehensive income,
net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,485 |
|
|
|
|
|
|
|
|
|
|
|
(46 |
) |
|
|
14,439 |
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSYS Shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
Comprehensive |
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
|
|
(in thousands, except per |
|
Common Stock |
|
|
paid-in |
|
|
Income (Loss) |
|
|
Treasury |
|
|
Retained |
|
|
controlling |
|
|
Total |
|
share data) |
|
Shares |
|
|
Dollars |
|
|
Capital |
|
|
(OCI) |
|
|
Stock |
|
|
Earnings |
|
|
Interests |
|
|
Equity |
|
|
Change in accumulated OCI
related to postretirement
healthcare plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,602 |
|
|
|
|
|
|
|
|
|
|
|
(46 |
) |
|
|
14,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued from
treasury shares for exercise
of stock options |
|
|
|
|
|
|
|
|
|
|
(18 |
) |
|
|
|
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
2 |
|
Common stock issued for
nonvested awards |
|
|
507 |
|
|
|
50 |
|
|
|
(50 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
13,316 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,316 |
|
Cash dividends and dividend
equivalents declared ($0.21
per share) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41,440 |
) |
|
|
|
|
|
|
(41,440 |
) |
Purchase of treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(329 |
) |
|
|
|
|
|
|
|
|
|
|
(329 |
) |
Tax shortfalls associated
with share-based payment
arrangements |
|
|
|
|
|
|
|
|
|
|
(3,085 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,085 |
) |
|
Balance,
September 30, 2009 |
|
|
200,863 |
|
|
$ |
20,086 |
|
|
|
137,052 |
|
|
|
7,975 |
|
|
|
(69,950 |
) |
|
|
1,033,851 |
|
|
|
11,140 |
|
|
$ |
1,140,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 7 Comprehensive Income
For the three months ended September 30, comprehensive income is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2009 |
|
|
Three months ended September 30, 2008 |
|
|
|
TSYS |
|
|
Noncontrolling |
|
|
|
|
|
|
TSYS |
|
|
Noncontrolling |
|
|
|
|
(in thousands) |
|
Shareholders |
|
|
Interests |
|
|
Total |
|
|
Shareholders |
|
|
Interests |
|
|
Total |
|
|
Net income |
|
$ |
55,026 |
|
|
|
300 |
|
|
$ |
55,326 |
|
|
$ |
64,074 |
|
|
|
374 |
|
|
$ |
64,448 |
|
Other comprehensive
income (OCI), net
of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation
adjustments |
|
|
(137 |
) |
|
|
296 |
|
|
|
159 |
|
|
|
(7,908 |
) |
|
|
(622 |
) |
|
|
(8,530 |
) |
Change in
accumulated OCI
related to
postretirement
healthcare plans |
|
|
50 |
|
|
|
|
|
|
|
50 |
|
|
|
66 |
|
|
|
|
|
|
|
66 |
|
|
|
|
Total |
|
$ |
54,939 |
|
|
|
596 |
|
|
$ |
55,535 |
|
|
$ |
56,232 |
|
|
|
(248 |
) |
|
$ |
55,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
For the nine months ended September 30, comprehensive income is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2009 |
|
|
Nine months ended September 30, 2008 |
|
|
|
TSYS |
|
|
Noncontrolling |
|
|
|
|
|
|
TSYS |
|
|
Noncontrolling |
|
|
|
|
(in thousands) |
|
Shareholders |
|
|
Interests |
|
|
Total |
|
|
Shareholders |
|
|
Interests |
|
|
Total |
|
|
Net income |
|
$ |
154,999 |
|
|
|
1,285 |
|
|
$ |
156,284 |
|
|
$ |
183,772 |
|
|
|
1,322 |
|
|
$ |
185,094 |
|
Other comprehensive
income (OCI), net
of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation
adjustments |
|
|
14,485 |
|
|
|
(46 |
) |
|
|
14,439 |
|
|
|
(3,178 |
) |
|
|
(348 |
) |
|
|
(3,526 |
) |
Change in
accumulated OCI
related to
postretirement
healthcare plans |
|
|
117 |
|
|
|
|
|
|
|
117 |
|
|
|
91 |
|
|
|
|
|
|
|
91 |
|
|
|
|
Total |
|
$ |
169,601 |
|
|
|
1,239 |
|
|
$ |
170,840 |
|
|
$ |
180,685 |
|
|
|
974 |
|
|
$ |
181,659 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The income tax effects allocated to and the cumulative balance of accumulated other
comprehensive income are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
|
|
Pretax |
|
|
|
|
|
|
|
|
|
|
Ending Balance |
|
(in thousands) |
|
December 31, 2008 |
|
|
Amount |
|
|
Tax Effect |
|
|
Net-of-Tax Amount |
|
|
September 30, 2009 |
|
Foreign currency translation adjustments |
|
$ |
(5,858 |
) |
|
$ |
16,809 |
|
|
|
(2,324 |
) |
|
$ |
14,485 |
|
|
$ |
8,627 |
|
Change in accumulated OCI related to
postretirement healthcare plans |
|
|
(769 |
) |
|
|
176 |
|
|
|
(59 |
) |
|
|
117 |
|
|
|
(652 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(6,627 |
) |
|
$ |
16,985 |
|
|
|
(2,383 |
) |
|
$ |
14,602 |
|
|
$ |
7,975 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consistent with its overall strategy of pursuing international investment opportunities,
TSYS adopted the permanent reinvestment exception under ASC 740, Income Taxes, previously
referred to as Accounting Principles Board Opinion No. 23 (APB 23) Accounting for Income Taxes
Special Areas, with respect to future earnings of certain foreign subsidiaries. Its decision to
permanently reinvest foreign earnings offshore means TSYS will no longer allocate taxes to foreign
currency translation adjustments associated with these foreign subsidiaries accumulated in other
comprehensive income.
Note 8 Share-Based Compensation
The Companys Annual Report on Form 10-K for the year ended December 31, 2008, as filed with
the SEC, contains a discussion of the Companys share-based compensation plans and policy.
Share-Based Compensation
TSYS share-based compensation costs are included as expenses and classified as salaries,
other personnel expenses and spin-related expenses. TSYS does not include amounts associated with
share-based compensation as costs capitalized as software development and contract acquisition
costs, as these awards are typically granted to individuals not involved in capitalizable
activities. For the three months ended September 30, 2009, share-based compensation was $4.0
million, compared to $5.1 million for the same period in 2008. Included in the $4.0 million amount
for 2009 and $5.1 million amount for 2008 is approximately $1.0 million and $1.5 million,
respectively, related to expensing the fair value of stock options. For the nine months ended
September 30, 2009, share-based compensation was $13.3 million, compared to $14.8 million for the
same period in 2008. Included in the $13.3 million amount for 2009 and $14.8 million amount for
2008 is approximately $4.4 million and $5.2 million, respectively, related to expensing the fair
value of stock options.
Nonvested Share Awards
During the first nine months of 2009, the Company issued 513,920 shares of TSYS common stock
with a market value of $6.8 million to certain key employees and non-management members of its
Board of Directors under nonvested stock bonus awards for services to be provided in the future by
such officers, directors and employees. The market value of the TSYS common stock at the date of
issuance is amortized as compensation expense over the vesting period of the awards.
During the first nine months of 2008, the Company issued 697,911 shares of TSYS common stock
with a market value of $15.3 million to certain key employees and non-management members of its
Board of Directors under nonvested stock bonus awards for services to be provided in the future by
such officers, directors and employees. The market value of the TSYS common stock at the date of
issuance is amortized as compensation expense over the vesting period of the awards.
11
As of September 30, 2009, there was approximately $14.7 million of total unrecognized
compensation cost related to nonvested share-based compensation arrangements. That cost is expected
to be recognized over a remaining weighted average period of 2.3 years.
During the first nine months of 2008, TSYS authorized a total grant of 182,816 shares of
nonvested stock to two key executives with a performance-vesting schedule (2008 performance-vesting
shares). These 2008 performance-vesting shares have seven one-year performance periods (2008-2014)
during each of which the Compensation Committee establishes an earnings per share goal and, if such
goal is attained during any performance period, 20% of the performance-vesting shares will vest, up
to a maximum of 100% of the total grant. Compensation expense for each years award is measured on
the grant date based on the quoted market price of TSYS common stock and is expensed on a
straight-line basis for the year.
During 2005, TSYS authorized a total grant of 126,087 shares of nonvested stock to two key
executives with a performance-vesting schedule (2005 performance-vesting shares). These
performance-vesting shares have seven one-year performance periods (2005-2011) during each of which
the Compensation Committee establishes an earnings per share goal and, if such goal is attained
during any performance period, 20% of the performance-vesting shares will vest, up to a maximum of
100% of the total grant. Compensation expense for each years award is measured on the grant date
based on the quoted market price of TSYS common stock and is expensed on a straight-line basis for
the year.
As of September 30, 2009, there was approximately $230,000 of total unrecognized compensation
cost related to both the 2008 grant and 2005 grant of nonvested performance-vesting share-based
compensation arrangements. That cost is expected to be recognized over the remainder of 2009.
Performance-Based Awards
During the first quarters of 2009 and 2008, respectively, TSYS authorized performance-based
awards that have a market condition calculated on a combination of earnings per share growth and
TSYS performance compared to a three-year Total Shareholder Return versus peers. Vesting of the
awards will occur on the last day of the three-year market condition valuation period if the
participant is still employed on that date. The fair value of these awards is based on a Monte
Carlo simulation as prescribed by ASC 718, Compensation Stock Compensation, previously referred
to as SFAS No. 123 (Revised), Share-Based Payment (Revised). Although authorized by the TSYS
Board, the final amount of the awards is not known until the Compensation Committee has determined
the final terms of the awards, at which time the award is deemed granted. The March 2008 award was
authorized in 2008; however, it was not deemed granted until the Compensation Committee determined
the final terms of the award in January 2009. Likewise, the January 2009 award was authorized in
2009; however, the award will not be deemed granted until the Compensation Committee determines the
final terms of the award, which is expected to be in January 2010. The awards will be amortized
through the end of the respective three-year periods.
A summary of the awards authorized in each year is below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
|
Grant Date |
Month |
|
Primary |
|
Secondary |
|
|
|
Estimated |
|
Amortized |
|
Retirement |
|
Terms |
Authorized |
|
Measure |
|
Measure |
|
Method |
|
Valuation |
|
through |
|
Provision |
|
Determined |
|
January 2009
|
|
2009 EPS Growth
|
|
Three-year Total
Shareholder Return
(2009-2011)
|
|
Monte Carlo
simulation
|
|
$4.0 million
|
|
December 2011
|
|
Age 62 with 15
years of service,
or age 65
regardless of
service
|
|
To be determined
(January 2010) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2008
|
|
2008 EPS Growth
|
|
Three-year Total
Shareholder Return
(2008-2010)
|
|
Monte Carlo
simulation
|
|
$1.0 million
|
|
December 2010
|
|
Age 62 with 15
years of service,
or age 65
regardless of
service
|
|
January 2009 |
12
Until the awards were deemed granted, TSYS excluded the issuance of these awards in reporting
shares outstanding from the calculation of basic and diluted EPS (although related compensation
expense on these awards are included properly in net income and related EPS calculation).
In March 2009, the Company determined that it was no longer probable that the specified
performance measures associated with performance-based awards issued in 2009 would be achieved. As
a result, the performance-based awards issued during 2009 are not expected to vest, and the Company
has not recognized any share-based compensation expense related to these awards.
Stock Option Awards
During the first nine months of September 2009, the Company granted 1,047,949 stock options to
key TSYS executive officers. The average fair value of the option grant was $5.31 per option and
was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the
following weighted average assumptions: exercise price of $13.11; risk-free interest rate of 3.19%;
expected volatility of 42.00%; expected term of 8.6 years; and dividend yield of 2.14%.
During the first nine months of September 2008, the Company granted 771,892 stock options to
key TSYS executive officers. The average fair value of the option grant was $9.73 per option and
was estimated on the date of grant using the Black-Scholes-Merton option-pricing model with the
following weighted average assumptions: exercise price of $23.15; risk-free interest rate of 3.42%;
expected volatility of 36.57%; expected term of 8.7 years; and dividend yield of 1.21%.
As of September 30, 2009, there was approximately $6.0 million of total unrecognized
compensation expense cost related to TSYS stock options that is expected to be recognized over a
remaining weighted average period of 1.8 years.
Note 9 Cost of Services and Selling, General and Administrative Expenses
The Companys operating expenses consists of cost of services and selling, general and
administrative expenses. The Company presents these expenses as employment, technology and
facilities and other expenses. Overall, the Company believes its expenses consist predominantly of
cost of sales type expenses, while selling, general and administrative expenses are insignificant.
Note 10 Income Taxes
TSYS is the parent of an affiliated group that files a consolidated U.S. Federal income tax
return and most state and foreign income tax returns on a separate entity basis. In the normal
course of business, the Company is subject to examinations by these taxing authorities unless
statutory examination periods lapse. TSYS is no longer subject to U.S. Federal income tax
examinations for years before 2005 and with a few exceptions, the Company is no longer subject to
income tax examinations from state and local authorities for years before 2001 and from foreign
authorities before 2003. There are currently no Federal tax examinations in progress. However, a
number of tax examinations are in progress by the relevant foreign and state tax authorities.
Although TSYS is unable to determine the ultimate outcome of these examinations, TSYS believes that
its liability for uncertain tax positions relating to these jurisdictions for such years is
adequate.
TSYS effective tax rate was 35.6% and 35.1% for the three months ended September 30, 2009 and
September 30, 2008, respectively. TSYS effective tax rate was 35.7% and 35.7% for the nine months
ended September 30, 2009 and September 30, 2008, respectively. The rate difference caused by
discrete charges was offset by changes in the jurisdictional sources of income.
TSYS adopted the authoritative guidance under ASC 740, previously referred to as FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an Interpretation of FASB
Statement 109 (FIN 48) on January 1, 2007. This interpretation prescribed a recognition threshold
and measurement attribute for the financial statement recognition, measurement and disclosure of a
tax position taken or expected to be taken in a tax return. The amount of unrecognized tax
benefits did not change significantly during the nine months ended September 30, 2009.
TSYS recognizes potential interest and penalties related to the underpayment of income taxes
as income tax expense in the condensed consolidated statements of income. Gross accrued interest
and penalties on unrecognized tax benefits totaled $1.3 million and $1.3 million as of September
30, 2009 and December 31, 2008, respectively. The total amounts of unrecognized income tax benefits
as of September 30, 2009 and December 31, 2008 that, if recognized, would affect the effective tax
rates are $4.3 million and $4.3 million (net of the Federal benefit on state tax issues),
respectively, which include interest and penalties of $1.0 million and $1.1 million. TSYS does not
expect any material changes to its calculation of uncertain tax positions during the next twelve
months.
Note 11 Segment Reporting and Major Customers
The Company reports selected information about operating segments in accordance with ASC 280,
Segment Reporting, previously referred to as SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information. The Companys segment information reflects the information
that the chief operating decision maker (CODM) uses to make resource allocations and
strategic decisions. The CODM at TSYS consists of the chairman of the board and chief
executive officer, the president and the four senior executive vice presidents.
13
TSYS provides electronic payment processing and other services to card-issuing and merchant
acquiring institutions in the United States and internationally through online accounting and
electronic payment processing systems. During the second quarter of 2008, TSYS reorganized and
renamed its operating segments in a manner that reflects the way the CODM views the business. The
new operating segments are North America Services segment, International Services segment and
Merchant Services segment. As part of the reorganization, TSYS reclassified the segment results for
TSYS de Mexico from International Services to North America Services to reflect the change.
During the first quarter of 2009, the Company decided to sell TDM. As a result, TDM was
classified as discontinued operations for all periods. TDM was included in the North America
Services segment. Refer to Note 2 for more information.
North America Services includes electronic payment processing services and other services
provided from within the North America region. International Services includes electronic payment
processing and other services provided from outside the North America region. Merchant Services
includes electronic processing and other services provided to merchant acquiring institutions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
Operating Segments |
|
|
|
|
|
|
|
|
|
Change |
|
|
|
|
|
|
|
|
|
Change |
(in thousands) |
|
2009 |
|
2008 |
|
$ |
|
% |
|
2009 |
|
2008 |
|
$ |
|
% |
|
|
|
|
|
Revenues before reimbursable items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Services |
|
$ |
219,910 |
|
|
|
235,076 |
|
|
|
(15,166 |
) |
|
|
(6.5 |
)% |
|
$ |
666,641 |
|
|
|
703,865 |
|
|
|
(37,224 |
) |
|
|
(5.3 |
)% |
International Services |
|
|
82,566 |
|
|
|
85,119 |
|
|
|
(2,553 |
) |
|
|
(3.0 |
)% |
|
|
226,433 |
|
|
|
230,107 |
|
|
|
(3,674 |
) |
|
|
(1.6 |
)% |
Merchant Services |
|
|
63,805 |
|
|
|
58,357 |
|
|
|
5,448 |
|
|
|
9.3 |
% |
|
|
184,165 |
|
|
|
171,777 |
|
|
|
12,388 |
|
|
|
7.2 |
% |
Intersegment revenues |
|
|
(7,315 |
) |
|
|
(5,848 |
) |
|
|
(1,467 |
) |
|
|
25.1 |
% |
|
|
(22,106 |
) |
|
|
(16,860 |
) |
|
|
(5,246 |
) |
|
|
31.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues before reimbursable items
from external customers |
|
$ |
358,966 |
|
|
|
372,704 |
|
|
|
(13,738 |
) |
|
|
(3.7 |
)% |
|
$ |
1,055,133 |
|
|
|
1,088,889 |
|
|
|
(33,756 |
) |
|
|
(3.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Services |
|
$ |
261,580 |
|
|
|
284,935 |
|
|
|
(23,355 |
) |
|
|
(8.2 |
)% |
|
$ |
795,354 |
|
|
|
854,632 |
|
|
|
(59,278 |
) |
|
|
(6.9 |
)% |
International Services |
|
|
86,172 |
|
|
|
88,090 |
|
|
|
(1,918 |
) |
|
|
(2.2 |
)% |
|
|
236,406 |
|
|
|
237,816 |
|
|
|
(1,410 |
) |
|
|
(0.6 |
)% |
Merchant Services |
|
|
93,834 |
|
|
|
74,613 |
|
|
|
19,221 |
|
|
|
25.8 |
% |
|
|
249,670 |
|
|
|
220,117 |
|
|
|
29,553 |
|
|
|
13.4 |
% |
Intersegment revenues |
|
|
(9,290 |
) |
|
|
(8,192 |
) |
|
|
(1,098 |
) |
|
|
13.4 |
% |
|
|
(28,208 |
) |
|
|
(23,663 |
) |
|
|
(4,545 |
) |
|
|
19.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues from external customers |
|
$ |
432,296 |
|
|
|
439,446 |
|
|
|
(7,150 |
) |
|
|
(1.6 |
)% |
|
$ |
1,253,222 |
|
|
|
1,288,902 |
|
|
|
(35,680 |
) |
|
|
(2.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Services |
|
$ |
20,757 |
|
|
|
23,550 |
|
|
|
(2,793 |
) |
|
|
(11.9 |
)% |
|
$ |
65,810 |
|
|
|
72,992 |
|
|
|
(7,182 |
) |
|
|
(9.8 |
)% |
International Services |
|
|
10,278 |
|
|
|
9,658 |
|
|
|
620 |
|
|
|
6.4 |
% |
|
|
26,761 |
|
|
|
26,150 |
|
|
|
611 |
|
|
|
2.3 |
% |
Merchant Services |
|
|
8,159 |
|
|
|
6,783 |
|
|
|
1,376 |
|
|
|
20.3 |
% |
|
|
24,394 |
|
|
|
20,019 |
|
|
|
4,375 |
|
|
|
21.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total depreciation and amortization |
|
$ |
39,194 |
|
|
|
39,991 |
|
|
|
(797 |
) |
|
|
(2.0 |
)% |
|
$ |
116,965 |
|
|
|
119,161 |
|
|
|
(2,196 |
) |
|
|
(1.8 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Services |
|
$ |
60,703 |
|
|
|
63,168 |
|
|
|
(2,465 |
) |
|
|
(3.9 |
)% |
|
$ |
176,914 |
|
|
|
201,916 |
|
|
|
(25,002 |
) |
|
|
(12.4 |
)% |
International Services |
|
|
9,691 |
|
|
|
16,751 |
|
|
|
(7,060 |
) |
|
|
(42.1 |
)% |
|
|
24,913 |
|
|
|
35,937 |
|
|
|
(11,024 |
) |
|
|
(30.7 |
)% |
Merchant Services |
|
|
17,462 |
|
|
|
17,090 |
|
|
|
372 |
|
|
|
2.2 |
% |
|
|
46,922 |
|
|
|
50,250 |
|
|
|
(3,328 |
) |
|
|
(6.6 |
)% |
Spin-related costs |
|
|
|
|
|
|
(1,719 |
) |
|
|
1,719 |
|
|
|
(100.0 |
)% |
|
|
|
|
|
|
(9,869 |
) |
|
|
9,869 |
|
|
|
(100.0 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
$ |
87,856 |
|
|
|
95,290 |
|
|
|
(7,434 |
) |
|
|
(7.8 |
)% |
|
$ |
248,749 |
|
|
|
278,234 |
|
|
|
(29,485 |
) |
|
|
(10.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Services |
|
$ |
1,502,435 |
|
|
|
1,378,651 |
|
|
|
123,784 |
|
|
|
9.0 |
% |
|
$ |
1,502,435 |
|
|
|
1,378,651 |
|
|
|
123,784 |
|
|
|
9.0 |
% |
International Services |
|
|
363,257 |
|
|
|
360,002 |
|
|
|
3,255 |
|
|
|
0.9 |
% |
|
|
363,257 |
|
|
|
360,002 |
|
|
|
3,255 |
|
|
|
0.9 |
% |
Merchant Services |
|
|
228,944 |
|
|
|
169,388 |
|
|
|
59,556 |
|
|
|
35.2 |
% |
|
|
228,944 |
|
|
|
169,388 |
|
|
|
59,556 |
|
|
|
35.2 |
% |
Intersegment assets |
|
|
(418,369 |
) |
|
|
(321,499 |
) |
|
|
(96,870 |
) |
|
|
30.1 |
% |
|
|
(418,369 |
) |
|
|
(321,499 |
) |
|
|
(96,870 |
) |
|
|
30.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,676,267 |
|
|
|
1,586,542 |
|
|
|
89,725 |
|
|
|
5.7 |
% |
|
$ |
1,676,267 |
|
|
|
1,586,542 |
|
|
|
89,725 |
|
|
|
5.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
14
Revenues by Geographic Area
Revenues for North America Services and Merchant Services include electronic payment
processing and other services provided from the United States to clients domiciled in the United
States or other countries. Revenues for International Services include electronic payment
processing and other services provided from facilities outside the United States to clients based
predominantly outside the United States.
The following geographic data presents revenues based on the domicile of the Companys
customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
304.9 |
|
|
|
313.4 |
|
|
|
902.8 |
|
|
|
937.7 |
|
Europe* |
|
|
70.4 |
|
|
|
77.0 |
|
|
|
188.9 |
|
|
|
204.1 |
|
Canada |
|
|
36.5 |
|
|
|
31.8 |
|
|
|
100.7 |
|
|
|
94.7 |
|
Japan* |
|
|
11.5 |
|
|
|
7.2 |
|
|
|
33.6 |
|
|
|
22.8 |
|
Mexico |
|
|
2.1 |
|
|
|
3.5 |
|
|
|
6.3 |
|
|
|
11.2 |
|
Other |
|
|
6.9 |
|
|
|
6.5 |
|
|
|
20.9 |
|
|
|
18.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
432.3 |
|
|
|
439.4 |
|
|
|
1,253.2 |
|
|
|
1,288.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Revenues are impacted by movements in foreign currency exchange rates. Refer to the discussion
under Revenues in the Results of Operations. |
The following table reconciles geographic revenues to revenues by reportable segment based on
the domicile of the Companys customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
|
North America Services |
|
|
International Services |
|
|
Merchant Services |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
211.8 |
|
|
|
239.4 |
|
|
|
|
|
|
|
|
|
|
|
93.1 |
|
|
|
74.0 |
|
Europe |
|
|
0.2 |
|
|
|
0.2 |
|
|
|
70.2 |
|
|
|
76.8 |
|
|
|
|
|
|
|
|
|
Canada |
|
|
36.4 |
|
|
|
31.7 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
0.1 |
|
Japan |
|
|
|
|
|
|
|
|
|
|
11.5 |
|
|
|
7.2 |
|
|
|
|
|
|
|
|
|
Mexico |
|
|
2.1 |
|
|
|
3.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
2.5 |
|
|
|
2.5 |
|
|
|
4.2 |
|
|
|
3.8 |
|
|
|
0.2 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
253.0 |
|
|
|
277.3 |
|
|
|
85.9 |
|
|
|
87.8 |
|
|
|
93.4 |
|
|
|
74.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles geographic revenues to revenues by reportable segment
based on the domicile of the Companys customers.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
|
|
North America Services |
|
|
International Services |
|
|
Merchant Services |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
United States |
|
$ |
655.2 |
|
|
|
719.1 |
|
|
|
|
|
|
|
0.2 |
|
|
|
247.6 |
|
|
|
218.4 |
|
Europe |
|
|
0.6 |
|
|
|
0.7 |
|
|
|
188.3 |
|
|
|
203.4 |
|
|
|
|
|
|
|
|
|
Canada |
|
|
100.3 |
|
|
|
94.3 |
|
|
|
|
|
|
|
|
|
|
|
0.4 |
|
|
|
0.4 |
|
Japan |
|
|
|
|
|
|
|
|
|
|
33.6 |
|
|
|
22.8 |
|
|
|
|
|
|
|
|
|
Mexico |
|
|
6.3 |
|
|
|
11.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
7.6 |
|
|
|
7.4 |
|
|
|
12.8 |
|
|
|
10.4 |
|
|
|
0.5 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
770.0 |
|
|
|
832.7 |
|
|
|
234.7 |
|
|
|
236.8 |
|
|
|
248.5 |
|
|
|
219.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
The Company maintains property and equipment, net of accumulated depreciation and
amortization, in the following geographic areas:
|
|
|
|
|
|
|
|
|
(in millions) |
|
At September 30, 2009 |
|
|
At December 31, 2008 |
|
United States |
|
$ |
206.7 |
|
|
|
227.2 |
|
Europe |
|
|
59.8 |
|
|
|
54.1 |
|
Japan |
|
|
5.0 |
|
|
|
3.4 |
|
Other |
|
|
15.0 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
Total |
|
$ |
286.5 |
|
|
|
291.3 |
|
|
|
|
|
|
|
|
Major Customers
For the three months ended September 30, 2009, the Company had one major customer which
accounted for approximately 13.6%, or $58.6 million, of total revenues. For the three months ended
September 30, 2008, this major customer accounted for
approximately 12.4%, or $54.4 million, of
total revenues. For the nine months ended September 30, 2009, the Company had one major customer
which accounted for approximately 13.1%, or $163.6 million, of total revenues. For the nine months
ended September 30, 2008, this major customer accounted for
approximately 12.9%, or $165.6 million,
of total revenues. Revenues from major customers for the periods reported are primarily
attributable to the North America Services and Merchant Services segments.
Note 12 Supplementary Cash Flow Information
Contract Acquisition Costs
Cash used for contract acquisition costs are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Payments for processing rights |
|
$ |
4,722 |
|
|
|
15,664 |
|
Conversion costs |
|
|
18,989 |
|
|
|
18,948 |
|
|
|
|
|
|
|
|
Total |
|
$ |
23,711 |
|
|
|
34,612 |
|
|
|
|
|
|
|
|
Nonvested Awards
During the first nine months of 2009 and 2008, the Company issued shares of common stock to
certain key employees and non-management members of its Board of Directors under nonvested stock
bonus awards for services to be provided by such key employees and directors in the future. Refer
to Note 8 for more information.
Equipment and Software Acquired Under Capital Lease Obligations
The Company acquired equipment and software under capital lease obligations in the amount of
$4.3 million during 2009 related to storage and other peripheral hardware. The Company acquired
software under capital lease obligations in the amount of $8.2 million during 2008 related to a
software enterprise license agreement and to storage and other peripheral hardware.
Note 13 Legal Proceedings
The Company is subject to various legal proceedings and claims and is also subject to
information requests, inquiries and investigations arising out of the ordinary conduct of its
business. In the opinion of management, based in part upon the advice of legal counsel, all matters
are believed to be adequately covered by insurance, or if not covered, are believed to be without
merit or are of such kind or involve such amounts that would not have a material adverse effect on
the financial position, results of operations or cash flows of the Company if disposed of
unfavorably. The Company establishes reserves for litigation and similar matters when those matters
present loss contingencies that TSYS determines to be both probable and reasonably estimable in
accordance with ASC 450, Contingencies, previously referred to as SFAS No. 5, Accounting for
Contingencies.
Note 14 Guarantees and Indemnifications
The Company has entered into processing and licensing agreements with its clients that include
intellectual property indemnification clauses. The Company generally agrees to indemnify its
clients, subject to certain exceptions, against legal claims that TSYS services or systems
infringe on certain third party patents, copyrights or other proprietary rights. In the event of
such a claim,
16
the Company is generally obligated to hold the client harmless and pay for related losses,
liabilities, costs and expenses, including, without limitation, court costs and reasonable
attorneys fees. The Company has not made any indemnification payments pursuant to these
indemnification clauses. In addition, the Company has indemnification obligations to Synovus
Financial Corp. pursuant to the disaffiliation and related agreements entered into by the parties
in connection with the spin-off.
The Company has not recorded a liability for guarantees or indemnities in the accompanying
condensed consolidated balance sheets, since neither a range nor a maximum amount of potential
future payments under such guarantees and indemnities is determinable.
Note 15 Business Combinations
Infonox on the Web
The Company acquired Infonox on the Web (Infonox) on November 4, 2008 for approximately
$50.5 million, with contingent payments over the next three years of up to $25 million based on
performance. Infonox provides payment products on self-service and full-service transaction touch
points in the gaming, banking and retail markets. The company delivers, manages, operates and
supports services for several large publicly traded companies. The acquisition added new payment
technology and acceptance capabilities. Infonox is based in Sunnyvale, California, with an office
in Pune, India.
The final purchase price allocation is presented below:
|
|
|
|
|
(in thousands) |
|
|
|
|
Cash and cash equivalents |
|
$ |
899 |
|
Intangible assets |
|
|
21,500 |
|
Goodwill |
|
|
29,142 |
|
Other assets |
|
|
3,222 |
|
|
|
|
|
Total assets acquired |
|
|
54,763 |
|
Liabilities assumed |
|
|
4,190 |
|
|
|
|
|
Net assets acquired |
|
$ |
50,573 |
|
|
|
|
|
Revenues associated with Infonox are included in merchant acquiring services and are included
in Merchant Services for segment reporting purposes.
Note 16 Collaborative Arrangement
In January 2009, TSYS adopted the authoritative guidance under ASC 808, Collaborative
Arrangements, previously referred to as the FASB Emerging Issue Task Force (EITF) No. 07-1,
Accounting for Collaborative Arrangements. The guidance under ASC 808 is effective for reporting
periods beginning after December 15, 2008, and it requires restatement of prior periods for all
collaborative arrangements existing as of the effective date. Prior to the adoption of ASC 808,
TSYS used the equity method of accounting for the joint ownership of an aircraft enterprise.
In December 2007, TSYS acquired for approximately $12.1 million a 45% ownership interest in an
enterprise jointly owned with two other entities which operates aircraft for the owners internal
use. The arrangement allows each entity access to the aircraft and each entity pays for its usage
of the aircraft. Each quarter, the net operating results of the enterprise are shared among the
owners based on their respective ownership percentage.
TSYS records its usage of the aircraft and its share of net operating results of the
enterprise in Net Technology and Facilities Expenses and Other Operating Expenses. The amounts of
expense the Company recorded that is attributable to the collaborative arrangement for the three
and nine months ended September 30, 2008 is approximately $227,000 and $1.0 million, respectively.
The following table illustrates the effect of the retrospective application on TSYS Expenses
and Equity income for its collaborative arrangements existing as of the effective date:
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2008 |
|
|
Nine months ended September 30, 2008 |
|
|
|
As |
|
|
|
|
|
|
|
|
|
|
As |
|
|
|
|
|
|
|
|
|
Previously |
|
|
Effect of Adoption |
|
|
Currently |
|
|
Previously |
|
|
Effect of Adoption |
|
|
Currently |
|
(in thousands) |
|
Reported |
|
|
of ASC 808 |
|
|
Reported |
|
|
Reported |
|
|
of ASC 808 |
|
|
Reported |
|
|
|
|
Technology and facilities
expense |
|
$ |
|
|
|
|
176 |
|
|
$ |
176 |
|
|
$ |
|
|
|
|
529 |
|
|
$ |
529 |
|
Other operating expenses |
|
|
|
|
|
|
227 |
|
|
|
227 |
|
|
|
|
|
|
|
1,007 |
|
|
|
1,007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
$ |
|
|
|
|
403 |
|
|
$ |
403 |
|
|
$ |
|
|
|
|
1,536 |
|
|
$ |
1,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit |
|
$ |
|
|
|
|
(403 |
) |
|
$ |
(403 |
) |
|
$ |
|
|
|
|
(1,536 |
) |
|
$ |
(1,536 |
) |
Equity in income of equity
investments, net of tax |
|
$ |
(403 |
) |
|
|
403 |
|
|
|
|
|
|
$ |
(1,536 |
) |
|
|
1,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
(403 |
) |
|
|
|
|
|
$ |
(403 |
) |
|
$ |
(1,536 |
) |
|
|
|
|
|
$ |
(1,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
17 Earnings Per Share
In June 2008, the FASB issued authoritative guidance under ASC 260, Earnings Per Share,
previously referred to as FASB Staff Position EITF 03-6-1, Determining Whether Instruments Granted
in Share-Based Payment Transactions are Participating Securities. The guidance under ASC 260 holds
that unvested share-based payment awards that contain nonforfeitable rights to dividends or
dividend equivalents are participating securities as defined in ASC 260, previously referred to
as EITF 03-6, Participating Securities and the Two-Class Method under FASB Statement No. 128,
Earnings per Share, and therefore should be included in computing EPS using the two-class
method. The impact on 2008 EPS (as recast to show retroactive adoption of ASC 260) caused quarterly
basic and diluted EPS to be lower by $0.01, and year to date basic EPS to be lower by $0.01.
The two-class method is an earnings allocation method for computing EPS when an entitys
capital structure includes two or more classes of common stock or common stock and participating
securities. It determines EPS based on dividends declared on common stock and participating
securities and participation rights of participating securities in any undistributed earnings. The
guidance under ASC 260 was effective for reporting periods beginning after December 15, 2008, and
it requires restatement of prior periods.
The following table illustrates basic and diluted EPS under the guidance of ASC 260:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Three months ended |
|
Nine months ended |
|
Nine months ended |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
September 30, 2009 |
|
September 30, 2008 |
(in thousands, except |
|
Common |
|
Participating |
|
Common |
|
Participating |
|
Common |
|
Participating |
|
Common |
|
Participating |
per share data) |
|
Stock |
|
Securities |
|
Stock |
|
Securities |
|
Stock |
|
Securities |
|
Stock |
|
Securities |
|
|
|
Basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
55,026 |
|
|
|
|
|
|
|
64,074 |
|
|
|
|
|
|
$ |
154,999 |
|
|
|
|
|
|
|
183,772 |
|
|
|
|
|
Less income allocated
to nonvested awards |
|
|
(407 |
) |
|
|
407 |
|
|
|
(543 |
) |
|
|
543 |
|
|
|
(1,225 |
) |
|
|
1,225 |
|
|
|
(1,546 |
) |
|
|
1,546 |
|
|
|
|
Net income allocated
to common stock for EPS
calculation (a) |
|
$ |
54,619 |
|
|
|
407 |
|
|
|
63,531 |
|
|
|
543 |
|
|
$ |
153,774 |
|
|
|
1,225 |
|
|
|
182,226 |
|
|
|
1,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding (b) |
|
|
195,721 |
|
|
|
1,465 |
|
|
|
196,000 |
|
|
|
1,680 |
|
|
|
195,552 |
|
|
|
1,564 |
|
|
|
196,342 |
|
|
|
1,670 |
|
|
|
|
Basic earnings per
share (a)/(b) |
|
$ |
0.28 |
|
|
|
0.28 |
|
|
|
0.32 |
|
|
|
0.32 |
|
|
$ |
0.79 |
|
|
|
0.78 |
|
|
|
0.93 |
|
|
|
0.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
55,026 |
|
|
|
|
|
|
|
64,074 |
|
|
|
|
|
|
$ |
154,999 |
|
|
|
|
|
|
|
183,772 |
|
|
|
|
|
Less income allocated
to nonvested awards |
|
|
(407 |
) |
|
|
407 |
|
|
|
(543 |
) |
|
|
543 |
|
|
|
(1,225 |
) |
|
|
1,225 |
|
|
|
(1,546 |
) |
|
|
1,546 |
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Three months ended |
|
Nine months ended |
|
Nine months ended |
|
|
September 30, 2009 |
|
September 30, 2008 |
|
September 30, 2009 |
|
September 30, 2008 |
(in thousands, except |
|
Common |
|
Participating |
|
Common |
|
Participating |
|
Common |
|
Participating |
|
Common |
|
Participating |
per share data) |
|
Stock |
|
Securities |
|
Stock |
|
Securities |
|
Stock |
|
Securities |
|
Stock |
|
Securities |
|
|
|
Net income allocated
to common stock for EPS
calculation (c) |
|
$ |
54,619 |
|
|
|
407 |
|
|
|
63,531 |
|
|
|
543 |
|
|
$ |
153,774 |
|
|
|
1,225 |
|
|
|
182,226 |
|
|
|
1,546 |
|
|
|
|
Average common shares
outstanding |
|
|
195,721 |
|
|
|
1,465 |
|
|
|
196,000 |
|
|
|
1,680 |
|
|
|
195,552 |
|
|
|
1,564 |
|
|
|
196,342 |
|
|
|
1,670 |
|
Increase due to assumed
issuance of shares related
to common equivalent shares
outstanding |
|
|
63 |
|
|
|
|
|
|
|
22 |
|
|
|
|
|
|
|
63 |
|
|
|
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average common and
common equivalent shares
outstanding (d) |
|
|
195,784 |
|
|
|
1,465 |
|
|
|
196,022 |
|
|
|
1,680 |
|
|
|
195,615 |
|
|
|
1,564 |
|
|
|
196,413 |
|
|
|
1,670 |
|
|
|
|
Diluted earnings per
share (c)/(d) |
|
$ |
0.28 |
|
|
|
0.28 |
|
|
|
0.32 |
|
|
|
0.32 |
|
|
$ |
0.79 |
|
|
|
0.78 |
|
|
|
0.93 |
|
|
|
0.93 |
|
|
|
|
The diluted earnings per share calculation excludes stock options and nonvested awards
that are convertible into 7.0 million common shares for the three and nine months ended September
30, 2009 and excludes 5.9 million common shares for the three and nine months ended September 30,
2008 because their inclusion would have been anti-dilutive.
Note
18 Recent Accounting Pronouncements
The Companys Annual Report on Form 10-K for the year ended December 31, 2008, as filed with
the SEC, contains a discussion of recent accounting pronouncements and the expected impact on the
Companys financial statements.
Accounting Standards Update 2009-14, Certain Revenue Arrangements that Include Software Elements
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-14, Certain Revenue
Arrangements that Include Software Elements, an update to ASC 985-605, Software-Revenue
Recognition, and formerly known as EITF 09-3, Revenue Arrangements that Include Software
Elements. ASU 2009-14 amends ASC Subtopic 985-605 to exclude from its scope tangible products that
contain both software and non-software components that function together to deliver a products
essential functionality. ASU 2009-14 will be effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2009-14 on
its financial position, results of operations and cash flows, but has yet to complete its
assessment.
Accounting Standards Update 2009-13, Multiple Deliverable Revenue Arrangements
In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements, an
update to ASC Topic 605, Revenue Recognition, and formerly known as EITF 08-1, Revenue
Arrangements with Multiple Deliverables. ASU 2009-13 amends ASC 650-25 to eliminate the
requirement that all undelivered elements have vendor-specific objective evidence (VSOE) or
third-party evidence (TPE) before an entity can recognize the portion of an overall arrangement fee
that is attributable to items that already have been delivered. The overall arrangement fee will be
allocated to each element (both delivered and undelivered items) based on their relative selling
prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the
entitys estimated selling price. ASU 2009-13 will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU
2009-13 on its financial position, results of operations and cash flows, but has yet to complete
its assessment.
Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic 820)
Measuring Liabilities at Fair Value
In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value. ASU 2009-05 amends ASC Topic 820, Fair Value
Measurements. The update addresses practice difficulties caused by tension between fair-value
measurements based on the price that would be paid to transfer a liability to a new obligor and
contractual or legal requirements that prevent such transfers from taking place. ASU 2009-05 is
effective for interim and annual
19
periods beginning after August 27, 2009, and applies to all fair value measurements of
liabilities required by GAAP. No new fair-value requirements are required by the standard. The
Company does not expect the impact of adopting ASU 2009-05 on its financial position, results of
operations and cash flows to be material.
Accounting Standards Codification 105, Generally Accepted Accounting Principles
In June 2009, the FASB issued an update to ASC 105, previously referred to as SFAS No. 168,
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principlesa replacement of FASB Statement No. 162. The FASB Accounting Standards Codification
(Codification) will become the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date
of the update to ASC 105, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. Following the update to ASC 105, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates. The FASB will not consider
Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will
serve only to update the Codification, provide background information about the guidance, and
provide the bases for conclusions on the change(s) in the Codification. The update to ASC 105 is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. The Company does not expect the impact of adopting the update to ASC 105 on its financial
position, results of operations and cash flows to be material.
Accounting Standards Codification 810, Consolidation
In June 2009, the FASB issued an update to ASC 810, previously referred to as SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), which requires an enterprise to perform an analysis
to determine whether the enterprises variable interest or interests give it a controlling
financial interest in a variable interest entity. The update to ASC 810 is effective as of the
beginning of each reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company does not expect the impact of adopting the update to ASC
810 on its financial position, results of operations and cash flows to be material.
Accounting Standards Codification 855, Subsequent Events
In May 2009, the FASB issued an update to ASC 855, previously referred to as SFAS No. 165,
Subsequent Events, which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are issued or are available
to be issued. In particular, this Statement sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements; the circumstances under which
an entity should recognize events or transactions occurring after the balance sheet date in its
financial statements; and the disclosures that an entity should make about events or transactions
that occurred after the balance sheet date. The update to ASC 855 is effective for interim or
annual financial periods ending after June 15, 2009. The impact of adopting the update to ASC 855
was not material to the Companys financial position, results of operations and cash flows.
Accounting Standards Codification 323, Investments Equity Method and Joint Ventures
In November 2008, the FASB issued an update to ASC 323, previously referred to as EITF No. 08-6,
Equity Method Investment Accounting Considerations. The guidance in the update to ASC 323 applies
to all investments accounted for under the equity method and clarifies the accounting for certain
transactions and impairment considerations involving those investments. The update to ASC 323 is
effective in fiscal years beginning on or after December 15, 2008, and interim periods within those
fiscal years. The Company does not expect the impact of adopting the update to ASC 323 on its
financial position, results of operations and cash flows to be material.
Note
19 Subsequent Events
Management
performed an evaluation of the Companys activity through November 9, 2009, the
date these unaudited financial statements were issued, and has concluded that there are no
significant subsequent events requiring disclosure.
20
TOTAL SYSTEM SERVICES, INC.
Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
Financial Overview
Total System Services, Inc.s (TSYS or the Companys) revenues are derived from providing
electronic payment processing and related services to financial and nonfinancial institutions,
generally under long-term processing contracts. TSYS Total Debt Management, Inc. (TDM) was reported
under the North America Services operating segment prior to the Company reflecting it in
discontinued operations.
For a detailed discussion regarding the Companys Operations, see Item 7: Managements
Discussion and Analysis of Financial Condition and Results of Operations in the Companys Annual
Report on Form 10-K for the year ended December 31, 2008.
A summary of the financial highlights for 2009, as compared to 2008, is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions, except per share data and employees) |
|
2009 |
|
2008 |
|
Percent Change |
|
2009 |
|
2008 |
|
Percent Change |
Revenues before reimbursable items |
|
$ |
359.0 |
|
|
|
372.7 |
|
|
|
(3.7 |
)% |
|
$ |
1,055.1 |
|
|
|
1,088.9 |
|
|
|
(3.1 |
)% |
Total revenues |
|
|
432.3 |
|
|
|
439.4 |
|
|
|
(1.6 |
) |
|
|
1,253.2 |
|
|
|
1,288.9 |
|
|
|
(2.8 |
) |
Operating income |
|
|
87.9 |
|
|
|
95.3 |
|
|
|
(7.8 |
) |
|
|
248.7 |
|
|
|
278.2 |
|
|
|
(10.6 |
) |
Net income attributable to TSYS |
|
|
55.0 |
|
|
|
64.1 |
|
|
|
(14.1 |
) |
|
|
155.0 |
|
|
|
183.8 |
|
|
|
(15.7 |
) |
|
Basic earnings per share (EPS)(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
0.29 |
|
|
|
0.32 |
|
|
|
(9.0 |
) |
|
|
0.81 |
|
|
|
0.92 |
|
|
|
(12.1 |
) |
Net income |
|
|
0.28 |
|
|
|
0.32 |
|
|
|
(13.9 |
) |
|
|
0.79 |
|
|
|
0.93 |
|
|
|
(15.3 |
) |
Diluted EPS(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations |
|
|
0.29 |
|
|
|
0.32 |
|
|
|
(8.9 |
) |
|
|
0.81 |
|
|
|
0.92 |
|
|
|
(12.1 |
) |
Net income |
|
|
0.28 |
|
|
|
0.32 |
|
|
|
(13.9 |
) |
|
|
0.79 |
|
|
|
0.93 |
|
|
|
(15.3 |
) |
Cash flows from operating activities |
|
|
114.0 |
|
|
|
104.4 |
|
|
|
9.2 |
|
|
|
333.1 |
|
|
|
278.9 |
|
|
|
19.4 |
|
Other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average accounts on file |
|
|
351.7 |
|
|
|
365.5 |
|
|
|
(3.8 |
) |
|
|
349.8 |
|
|
|
369.1 |
|
|
|
(5.2 |
) |
Cardholder transactions processed |
|
|
1,855.5 |
|
|
|
1,965.1 |
|
|
|
(5.6 |
) |
|
|
5,377.9 |
|
|
|
5,723.3 |
|
|
|
(6.0 |
) |
Average full-time equivalent employees (FTE) |
|
|
7,893 |
|
|
|
7,761 |
|
|
|
1.7 |
|
|
|
7,991 |
|
|
|
7,519 |
|
|
|
6.3 |
|
|
|
|
(1) |
|
Basic and diluted EPS is computed based on the two-class method in accordance with the
guidance under ASC 260. The impact on 2008 EPS (as recast to show retroactive adoption of ASC 260)
caused quarterly basic and diluted EPS to be lower by $0.01, and year to date basic EPS to be lower
by $0.01. |
Significant highlights for 2009 include:
Corporate
|
|
|
Sold TDM, a wholly owned subsidiary involved in the late stage collection and bankruptcy
business. |
North America
|
|
|
Renewed a longstanding relationship with Navy Federal Credit Union to continue offering
credit card processing products to members, as a major component of Navy Federals consumer
and credit card lending operation. |
|
|
|
Signed an agreement with Unicard Mexico, a wholly owned subsidiary of Unibanco Brasil,
one of the worlds top 20 banks and TSYS first TS2 card issuing client in Mexico. |
International
|
|
|
Announced that TSYS has signed a multi-year contract with Banco Carrefour S.A., to
process its hybrid and private label card business in Brazil. The agreement includes an
initial launch of a new MasterCard hybrid card in the third quarter 2009 which will be
followed by the conversion of the existing six million private label cards in early 2010.
TSYS will process the cards on its TS Prime multi-client payments processing platform. |
|
|
|
Reached an agreement with Travel Bank, Inc., a financial services company that is a part
of the JTB Group, to process Japans first Visa branded Prepaid card in July 2009. Consumers
can use the cards to make payments at Visa merchants when traveling overseas or to withdraw
cash from Visa ATMs. |
21
|
|
|
Began offering merchant payment services to PaySquare in the Benelux, which is TSYS
first acquirer-processing client to go live in Europe. |
|
|
|
Announced China UnionPay Data Services Co., Ltd. (CUP Data) (TSYS joint venture with
China UnionPay) signed two processing agreements. One agreement was with China Postal
Savings Bank, Chinas fifth largest bank. The other agreement was with Bank of East Asia,
Hong Kongs largest local independent bank and the first foreign bank to launch a card
program in China. |
|
|
|
Introduced its market-leading CentreSuite product to Europe. The commercial card
management tool was first launched in North America in 2002 and is now employed by more than
140,000 businesses. |
Merchant
|
|
|
Signed a client agreement during the third quarter to use TSYS processing services to
connect associations and electronic transfer networks to complete ATM cash withdrawals,
credit card cash advances and point-of-sale (POS) debit card transactions initiated by the
patrons of clients casino customers. The client provides cash access services in over 1100
casinos to millions of gaming patrons worldwide. |
|
|
|
Responded to Bank of Americas announcement on June 29, 2009 that Bank of America and
other parties are forming a new joint venture that will provide merchant processing
services. TSYS provides accounting, settlement, authorization and other services to Bank of
America pursuant to a contract that will expire in April 2010. Bank of America has
indicated to TSYS that it is in the process of formulating its plans with respect to changes
in its merchant processing relationship with TSYS but has not yet communicated to TSYS the
timing or extent of the deconversion from TSYS systems. |
|
|
|
Announced availability of two new all-in-one POS solutions to help small- and mid-sized
retailers integrate store operations with the point of purchase. Offered as a complete
business-in-a-box, each solution includes quality hardware components and award winning
Microsoft software to help retailers manage every aspect of their business. |
|
|
|
Agreed to partner with mPay Gateway(TM) and Nova Libra to provide point-of-sale payment
solutions that meet the needs of healthcare providers and their patients, as well as
pharmacies and drug stores. |
Economic Conditions
General economic conditions in the U.S. and other areas of the world weakened in the second
half of 2008 with a dramatic acceleration in the fourth quarter which generally continued through
the first nine months of 2009. Many of TSYS businesses rely in part on the number of consumer
transactions which have been challenged by a weakened U.S. and world economy and difficult credit
markets.
General reduction in consumer spending did negatively impact the Companys revenues through
the first nine months of 2009. In addition, the Companys revenues and operating profit during 2009
as compared to 2008 were adversely impacted by shifts from credit card transactions to personal
identification number (PIN) debit card transactions. Also as a result of the current economic
conditions in the U.S., credit card issuers have been reducing credit limits and closing accounts
and are more selective with regard to whom they issue credit cards. This reduction in the number of
accounts and account activity adversely impacted the results for the North America Services segment
during the three and nine months ended September 30, 2009 as compared to the same periods last
year. A continuation of the economic slowdown could adversely impact future revenues and profits of
the Company.
Financial Review
This Financial Review provides a discussion of critical accounting policies and estimates,
related party transactions and off-balance sheet arrangements. This Financial Review also discusses
the results of operations, financial position, liquidity and capital 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 and Estimates
There have been no material changes to the Companys critical accounting policies, estimates
and assumptions or the judgments affecting the application of those estimates and assumptions in
2009. For a detailed discussion regarding the Companys critical accounting policies and estimates,
see Item 7: Managements Discussion and Analysis of Financial Condition and Results of
22
Operations, and for a detailed discussion regarding the Companys risk factors, see Item
1A: Risk Factors in the Companys Annual Report on Form 10-K for the year ended December 31, 2008.
Related Party Transactions
The Company believes the terms and conditions of transactions between the Company and its
equity investments, Total System Services de México, S.A. de. C.V. (TSYS de México) and CUP Data,
are comparable to those which could have been obtained in transactions with unaffiliated parties.
The Companys margins with respect to related party transactions are comparable to margins
recognized in transactions with unrelated third parties.
Off-Balance Sheet Arrangements
Operating Leases: As a method of funding its operations, TSYS employs noncancelable operating
leases for computer equipment, software and facilities. These leases allow the Company to provide
the latest technology while avoiding the risk of ownership. Neither the assets nor obligations
related to these leases are included on the balance sheet.
Contractual Obligations: The total liability (with state amounts tax effected) for uncertain tax
positions under ASC 740 at September 30, 2009 is $4.3 million. Refer to Note 10 in the Notes to
Unaudited Condensed Consolidated Financial Statements for more information on income taxes. The
Company is not able to reasonably estimate the amount by which the liability will increase or
decrease over time; however, at this time the Company does not expect a significant payment related
to these obligations within the next year.
As indicated in the Companys Annual Report on Form 10-K for the year ended December 31, 2008,
total contractual cash obligations at December 31, 2008 were estimated at $458.0 million. These
contractual cash obligations include lease payments and software arrangements.
Results of Operations
The following table sets forth certain income statement captions as a percentage of total
revenues and the percentage increases or decreases in those items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
|
|
|
|
|
|
|
Percent Change |
|
|
% of Total Revenues |
|
in Dollar Amounts |
|
% of Total Revenues |
|
in Dollar Amounts |
|
|
2009 |
|
2008 |
|
2009 vs. 2008 |
|
2009 |
|
2008 |
|
2009 vs. 2008 |
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electronic payment processing services |
|
|
55.2 |
% |
|
|
57.9 |
% |
|
|
(6.3 |
)% |
|
|
56.4 |
% |
|
|
58.0 |
% |
|
|
(5.5 |
)% |
Merchant acquiring services |
|
|
16.6 |
|
|
|
14.7 |
|
|
|
11.3 |
|
|
|
16.5 |
|
|
|
14.9 |
|
|
|
7.9 |
|
Other services |
|
|
11.2 |
|
|
|
12.2 |
|
|
|
(9.1 |
) |
|
|
11.3 |
|
|
|
11.6 |
|
|
|
(5.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues before reimbursable items |
|
|
83.0 |
|
|
|
84.8 |
|
|
|
(3.7 |
) |
|
|
84.2 |
|
|
|
84.5 |
|
|
|
(3.1 |
) |
Reimbursable items |
|
|
17.0 |
|
|
|
15.2 |
|
|
|
9.9 |
|
|
|
15.8 |
|
|
|
15.5 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
(1.6 |
) |
|
|
100.0 |
|
|
|
100.0 |
|
|
|
(2.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and other personnel expenses |
|
|
34.3 |
|
|
|
34.2 |
|
|
|
(1.4 |
) |
|
|
35.2 |
|
|
|
34.1 |
|
|
|
0.3 |
|
Net technology and facilities expenses |
|
|
17.8 |
|
|
|
17.1 |
|
|
|
2.5 |
|
|
|
17.9 |
|
|
|
17.2 |
|
|
|
1.0 |
|
Spin-related expenses |
|
|
|
|
|
|
0.3 |
|
|
|
(100.0 |
) |
|
|
|
|
|
|
0.8 |
|
|
|
(100.0 |
) |
Other operating expenses |
|
|
10.6 |
|
|
|
11.5 |
|
|
|
(8.7 |
) |
|
|
11.3 |
|
|
|
10.8 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses before reimbursable items |
|
|
62.7 |
|
|
|
63.1 |
|
|
|
(2.3 |
) |
|
|
64.4 |
|
|
|
62.9 |
|
|
|
(0.5 |
) |
Reimbursable items |
|
|
17.0 |
|
|
|
15.2 |
|
|
|
9.9 |
|
|
|
15.8 |
|
|
|
15.5 |
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
79.7 |
|
|
|
78.3 |
|
|
|
0.1 |
|
|
|
80.2 |
|
|
|
78.4 |
|
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
20.3 |
|
|
|
21.7 |
|
|
|
(7.8 |
) |
|
|
19.8 |
|
|
|
21.6 |
|
|
|
(10.6 |
) |
Nonoperating expenses |
|
|
0.1 |
|
|
|
0.0 |
|
|
nm |
|
|
|
(0.2 |
) |
|
|
0.1 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before income taxes and equity in
income of equity investments |
|
|
20.4 |
|
|
|
21.7 |
|
|
|
(7.1 |
) |
|
|
19.6 |
|
|
|
21.7 |
|
|
|
(12.0 |
) |
Income taxes |
|
|
7.3 |
|
|
|
7.8 |
|
|
|
(6.7 |
) |
|
|
7.1 |
|
|
|
7.9 |
|
|
|
(12.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
before equity in income of equity
investments |
|
|
13.1 |
|
|
|
13.9 |
|
|
|
(7.3 |
) |
|
|
12.5 |
|
|
|
13.8 |
|
|
|
(11.7 |
) |
Equity in income of equity investments |
|
|
0.4 |
|
|
|
0.7 |
|
|
|
(47.0 |
) |
|
|
0.4 |
|
|
|
0.5 |
|
|
|
(32.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations,
net of tax |
|
|
13.5 |
|
|
|
14.6 |
|
|
|
(9.2 |
) |
|
|
12.9 |
|
|
|
14.3 |
|
|
|
(12.4 |
) |
(Loss) income from discontinued
operations, net of tax |
|
|
(0.7 |
) |
|
|
0.1 |
|
|
nm |
|
|
|
(0.4 |
) |
|
|
0.1 |
|
|
nm |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
12.8 |
|
|
|
14.7 |
|
|
|
(14.2 |
) |
|
|
12.5 |
|
|
|
14.4 |
|
|
|
(15.6 |
) |
Net income attributable to the
noncontrolling interests |
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
19.8 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to TSYS |
|
|
12.7 |
% |
|
|
14.6 |
% |
|
|
(14.1 |
)% |
|
|
12.4 |
% |
|
|
14.3 |
% |
|
|
(15.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23
Revenues
The Company generates revenues from the fees that it charges customers for providing
transaction processing and other payment-related services. The Companys pricing for transactions
and services is complex. Each category of revenue has numerous fee components depending on the
types of transactions or services provided. TSYS reviews its pricing and implements pricing changes
on an ongoing basis. In addition, standard pricing varies among its regional businesses, and such
pricing can be customized further for customers through tiered pricing of various thresholds for
volume activity. TSYS revenues are based upon transactional information accumulated by its systems
or reported by its customers. The Companys revenue growth was moderated by the currency
translation impact of foreign operations, as well as by doing business in a competitive landscape.
Of the total revenue changes of 1.6% for the third quarter of 2009, the Company estimates revenues
decreased by a net 2.8% due to foreign currency exposure and pricing, and increased 1.1% for volume
changes. Of the total revenue changes of 2.8% for the first nine months of 2009, the Company
estimates revenues decreased by a net 4.6% due to foreign currency exposure and pricing, and
increased 1.9% for volume changes.
Total revenues decreased $7.2 million and $35.7 million, or 1.6% and 2.8%, during the three
and nine months ended September 30, 2009, respectively, compared to the same periods in 2008. The
decrease in revenues for the three and nine months ended September 30, 2009 includes a decrease of
$10.3 million and $50.7 million, respectively, related to the effects of currency translation of
its foreign-based subsidiaries and branches. Excluding reimbursable items, revenues decreased $13.7
million and $33.8 million, or 3.7% and 3.1%, during the three and nine months ended September 30,
2009, respectively, compared to the same periods in 2008.
International Revenues
TSYS provides services to its clients worldwide and plans to continue to expand its service
offerings internationally in the future.
Total revenues from clients domiciled outside the United States are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2009 |
|
|
2008 |
|
|
Percent Change |
|
|
2009 |
|
|
2008 |
|
|
Percent Change |
|
Europe |
|
$ |
70.4 |
|
|
|
77.0 |
|
|
|
(8.6 |
) |
|
$ |
188.9 |
|
|
|
204.1 |
|
|
|
(7.5 |
) |
Canada |
|
|
36.5 |
|
|
|
31.8 |
|
|
|
14.7 |
|
|
|
100.7 |
|
|
|
94.7 |
|
|
|
6.2 |
|
Japan |
|
|
11.5 |
|
|
|
7.2 |
|
|
|
60.0 |
|
|
|
33.6 |
|
|
|
22.8 |
|
|
|
47.9 |
|
Mexico |
|
|
2.1 |
|
|
|
3.5 |
|
|
|
(39.0 |
) |
|
|
6.3 |
|
|
|
11.2 |
|
|
|
(43.4 |
) |
Other |
|
|
6.9 |
|
|
|
6.5 |
|
|
|
5.9 |
|
|
|
20.9 |
|
|
|
18.4 |
|
|
|
13.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
127.4 |
|
|
|
126.0 |
|
|
|
1.1 |
|
|
$ |
350.4 |
|
|
|
351.2 |
|
|
|
(0.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
The Company has two equity investments located in Mexico and China that are
accounted for under the equity method of accounting, and therefore, TSYS does not include
the revenues of its equity investments in consolidated revenues. |
Revenues from clients in certain countries decreased as a result of pricing compression and
portfolio deconversions.
TSYS expects to continue to grow its international revenues in the future through
acquisitions, business expansion, new client signings and internal growth.
Value Added Products and Services
The Companys revenues are impacted by client use of TSYS processing systems optional value
added products and services. Value added products and services are optional features to which each
client may choose to subscribe 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; revenue enhancement
tools and customer retention programs; and data warehouse services. These revenues can increase or
decrease from period to period as clients subscribe to or cancel these services. Value added
products and services are included primarily in electronic payment processing services revenue. For
the three months ended September 30, 2009 and 2008, value added products and services represented
11.4% and 12.8%, respectively, of total revenues. For the nine months ended September 30, 2009 and
2008, value added products and services represented 11.7% and 12.6%, respectively, of total
revenues.
24
Major Customers
A significant amount of the Companys revenues is derived from long-term contracts with large
clients, including its major customers. TSYS derives revenues from providing various processing,
merchant acquiring and other services to these clients, including processing of consumer and
commercial accounts, as well as revenues for reimbursable items. Refer to Note 11 in the Notes to
Unaudited Condensed Consolidated Financial Statements for more information regarding major
customers. The loss of these clients, or any significant client, could have a material adverse
effect on the Companys financial position, results of operations and cash flows.
On June 29, 2009, Bank of America announced that it and other parties are forming a new joint
venture that will provide merchant processing services. TSYS provides accounting, settlement,
authorization and other services to Bank of America pursuant to a contract that will expire in
April 2010, which services accounted for approximately 4.0% of TSYS total revenues for 2008 and
approximately 5.7% of TSYS total revenues for the third quarter of 2009.
Bank of America has indicated to TSYS that it is in the process of formulating its plans with
respect to changes in its merchant processing relationship with TSYS, but has not yet communicated
to TSYS the timing or extent of the deconversion from TSYS systems. TSYS provides a number of
additional services to Bank of America, including commercial card processing, small business card
processing and card production services.
Approximately 29% and 46% of the total revenues derived from providing merchant processing
services to Bank of America are attributable to reimbursable items for 2008 and the third quarter
of 2009, respectively.
TSYS will operate under the current contract until Bank of America informs TSYS of the changes
to the merchant processing relationships. TSYS expects that the merchant processing business
associated with Bank of America will contribute approximately $0.02 per share to TSYS projected
earnings per share in 2009. The potential loss of Bank of America as a merchant processing client
is not expected to have a material adverse effect on TSYS financial position, results of
operations or cash flows.
Revenues from major customers for the periods reported are primarily attributable to the North
America Services segment and Merchant Services segment.
Accounts on File (AOF) Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
Percent |
(in millions) |
|
2009 |
|
2008 |
|
Change |
At September 30, |
|
|
342.1 |
|
|
|
355.5 |
|
|
|
(3.8 |
) |
Quarter-to-date (QTD) Average |
|
|
351.7 |
|
|
|
365.5 |
|
|
|
(3.8 |
) |
Year-to-date (YTD) Average |
|
|
349.8 |
|
|
|
369.1 |
|
|
|
(5.2 |
) |
AOF by Portfolio Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
|
|
2009 |
|
2008 |
|
Percent |
(in millions) |
|
AOF |
|
% |
|
AOF |
|
% |
|
Change |
Consumer |
|
|
189.2 |
|
|
|
55.3 |
|
|
|
211.1 |
|
|
|
59.4 |
|
|
|
(10.4 |
) |
Retail |
|
|
39.2 |
|
|
|
11.4 |
|
|
|
51.1 |
|
|
|
14.4 |
|
|
|
(23.4 |
) |
Stored value |
|
|
37.8 |
|
|
|
11.1 |
|
|
|
26.1 |
|
|
|
7.3 |
|
|
|
45.0 |
|
Commercial |
|
|
46.0 |
|
|
|
13.4 |
|
|
|
41.8 |
|
|
|
11.7 |
|
|
|
10.1 |
|
Government services |
|
|
24.6 |
|
|
|
7.2 |
|
|
|
20.5 |
|
|
|
5.8 |
|
|
|
19.9 |
|
Debit |
|
|
5.3 |
|
|
|
1.6 |
|
|
|
4.9 |
|
|
|
1.4 |
|
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
342.1 |
|
|
|
100.0 |
|
|
|
355.5 |
|
|
|
100.0 |
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
AOF by Geographic Area
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, |
|
|
|
|
2009 |
|
2008 |
|
Percent |
(in millions) |
|
AOF |
|
% |
|
AOF |
|
% |
|
Change |
U.S. |
|
|
253.2 |
|
|
|
74.0 |
|
|
|
272.6 |
|
|
|
76.7 |
|
|
|
(7.1 |
) |
Outside U.S. |
|
|
88.9 |
|
|
|
26.0 |
|
|
|
82.9 |
|
|
|
23.3 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
342.1 |
|
|
|
100.0 |
|
|
|
355.5 |
|
|
|
100.0 |
|
|
|
(3.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note: |
|
The accounts on file distinction between U.S. and outside U.S. is based on the geographic
domicile of the Companys processing clients. |
Activity in AOF
|
|
|
|
|
|
|
|
|
|
|
September 2008 to |
|
September 2007 to |
(in millions) |
|
September 2009 |
|
September 2008 |
Beginning balance |
|
|
355.5 |
|
|
|
357.1 |
|
Internal growth of existing clients |
|
|
29.6 |
|
|
|
38.7 |
|
New clients |
|
|
25.7 |
|
|
|
27.8 |
|
Purges/Sales |
|
|
(31.3 |
) |
|
|
(33.1 |
) |
Deconversions |
|
|
(37.4 |
) |
|
|
(35.0 |
) |
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
342.1 |
|
|
|
355.5 |
|
|
|
|
|
|
|
|
|
|
Electronic Payment Processing Services
Electronic payment processing services revenues are generated primarily from charges based on
the number of accounts on file, transactions and authorizations processed, statements mailed, cards
embossed and mailed, and other processing services for cardholder accounts on file. Cardholder
accounts on file include active and inactive consumer credit, retail, debit, stored value,
government services and commercial card accounts. Revenues from electronic payment processing
services decreased $16.1 million and $41.2 million, or 6.3% and 5.5%, for the three and nine months
ended September 30, 2009, respectively, compared to the same periods in 2008. The decrease for the
three and nine months is attributable to negative foreign currency translation, the loss of clients
through portfolio deconversions, as well as overall economic conditions causing existing clients to
be selective in the services being utilized, which decrease was partially offset by new clients.
TSYS electronic payment processing revenues are influenced by several factors, including
volumes related to AOF and transactions. TSYS estimates that approximately 49% of total electronic
payment processing revenues is AOF and transaction volume driven, and are driven primarily from
processing services. The remaining 51% of electronic payment processing revenues are not AOF and
transaction volume driven, and are derived from production and optional services TSYS considers to
be value added products and services, custom programming and licensing arrangements.
Active accounts are accounts that have had monetary activity either during the current month
or in the past 90 days based on contractual definition. Inactive accounts are accounts that have
not had a monetary transaction (such as a purchase or payment) in the past 90 days. The more
active an account is, the more revenue is generated for TSYS (items such as transaction and
authorizations processed and statements billed).
Occasionally, a client will purge inactive accounts from its portfolio. An inactive account
typically will only generate an AOF charge. A processing client will periodically review its
cardholder portfolio based upon activity and usage. Each client, based upon criteria individually
set by the client, will flag an account to be purged from TSYS system and deactivated.
A deconversion involves a client migrating all of its accounts to an in-house solution or
another processor. Account deconversions include active and inactive accounts and can impact the
Companys revenues significantly more than an account purge.
A sale of a portfolio typically involves a client selling a portion of its accounts to another
party. A sale of a portfolio and a deconversion impact the Companys financial statements in a
similar fashion, although a sale usually has a smaller financial impact due to the number of
accounts typically involved.
26
Merchant Acquiring Services
Merchant acquiring services revenues are derived from providing processing services, acquiring
solutions, related systems and integrated support services to financial institutions and other
merchant acquirers. Revenues from merchant acquiring services include processing all payment forms,
including credit, debit, prepaid, electronic benefit transfer and electronic check for merchants of
all sizes across a wide array of retail market segments. Merchant acquiring services include
authorization and capture of transactions; clearing and settlement of transactions; information
reporting services related to transactions; merchant billing services; and point-of-sale equipment
sales and service. Merchant acquiring services revenues also include revenues derived from
Infonox, a Silicon Valley-based technology firm acquired in November 2008. Infonox extends TSYS
payment capabilities and brings innovative, cutting-edge technology to the payments marketplace by
enhancements with mobile, virtual terminal, ATM, BillPay and self-service kiosk solutions, among
others.
Revenues from merchant acquiring services are generated mainly by TSYS wholly owned
subsidiary, TSYS Acquiring Solutions, L.L.C. (TSYS Acquiring), and majority-owned subsidiary, GP
Network Corporation. Merchant acquiring services revenues for the three and nine months ended
September 30, 2009 were $71.8 million and $207.0 million, respectively, compared to $64.6 million
and $191.9 million for the same periods last year. Approximately $3.6 million of the change in
merchant acquiring revenues in the third quarter of 2009 compared to the third quarter of 2008 was
the result of new business and $1.8 million was the result of an acquisition. Approximately $6.3
million of the change in merchant acquiring revenues in the first nine months of 2009 compared to
the same period last year was the result of new business and $5.7 million was the result of an
acquisition.
TSYS Acquirings results are driven by the authorization and capture transactions processed at
the point-of-sale and clearing and settlement transactions. TSYS Acquirings authorization and
capture transactions are primarily through dial-up or Internet connectivity.
TSYS Acquiring also expanded its offerings during 2008 to include the Infonox solution set, a
host of new point-of-sale terminals and software applications, including solutions for the health
care industry, PCI scanning and assessment services. These offerings complement the existing
enhanced Dynamic Currency Conversion and multi-currency processing services, Spanish language
telephone processing, improved Internet-based research and portfolio reporting capabilities and new
Merchant Boarding and Maintenance capabilities.
Other Services
Revenues from other services consist primarily of revenues generated by TSYS wholly owned
subsidiaries not included in electronic payment processing services or merchant acquiring services,
as well as TSYS business process management services. Revenues from other services decreased $4.9
million, or 9.1%, and $7.7 million, or 5.2%, for the three and nine months ended September 30,
2009, respectively, compared to the same periods in 2008. Approximately $2.7 million of the change
in other services revenues in the third quarter of 2009 compared to the third quarter of 2008 was
the result of currency translation. Approximately $4.4 million of the change in other services
revenues for the first nine months of 2009 compared to the same period last year was the result of
call center business being taken in-house by a client.
Reimbursable Items
As a result of ASC 605, Revenue Recognition, previously referred to as the FASBs Emerging
Issues Task Force (EITF) No. 01-14, Income Statement Characterization of Reimbursements Received
for Out-of-Pocket Expenses Incurred, the Company has included reimbursements received for
out-of-pocket expenses as revenues and expenses. Reimbursable items increased $6.6 million, or
9.9%, and decreased $1.9 million, or 1.0%, for the three and nine months ended September 30, 2009,
respectively, compared to the same periods last year, due to negative currency translation and less
postage as a result of client portfolio deconversions.
The majority of reimbursable items relates to the Companys domestic-based clients and
consists primarily of costs associated with postage. The Companys reimbursable items are impacted
by changes in postal rates and changes in the volumes of all mailing activities by its clients. On
May 11, 2009, the U.S. Postal Service increased the price of a first-class stamp $0.02 to $0.44.
On May 12, 2008, the U.S. Postal Service increased the price of a first-class stamp $0.01 to $0.42.
Operating Expenses
Total expenses increased 0.1% and decreased 0.6% for the three and nine months ended September
30, 2009 compared to the same periods in 2008. The fluctuation in expense includes a decrease of
$8.7 million and $42.8 million for the three and nine months ended September 30, 2009,
respectively, related to the effects of currency translation of its foreign-based subsidiaries,
branches and divisions. Excluding reimbursable items, total expenses decreased 2.3% and 0.5% for
the three and nine months ended September 30,
2009 compared to the same periods in 2008. The fluctuation in operating expenses is
attributable to changes in each of the expense categories as described below.
27
Salaries and Other Personnel Expenses
Salaries and other personnel expenses decreased $2.1 million, or 1.4%, and increased $1.2
million, or 0.3%, for the three and nine months ended September 30, 2009, respectively, compared to
the same periods in 2008. Salaries and other personnel expenses decreased for the three months
ended September 30, 2009 primarily due to a decrease in contractor expenses and lower share-based
compensation expense. The change in salaries and other personnel expenses is associated with the
normal salary increases and related benefits, offset by the higher level of employment costs
capitalized as software development and contract acquisition costs. Salaries and other personnel
expenses include the accrual for performance-based incentive benefits, which includes bonuses,
profit sharing and employer 401(k) expenses. For the three months ended September 30, 2009 and
2008, the Company accrued approximately $457,000 and $1.2 million, respectively, for
performance-based incentives. For the nine months ended September 30, 2009 and 2008, the Company
accrued approximately $42,000 and $5.8 million, respectively, for performance-based incentives.
Prior to the spin-off by Synovus Financial Corp. (Synovus) to its shareholders of all the
shares of TSYS held by Synovus, Synovus provided certain administrative services, such as human
resources, legal, security and tax preparation and compliance, to TSYS in exchange for a management
fee, which is included in other operating expenses, to cover TSYS pro rata share of services. With
the spin-off, TSYS began recruiting employees and assumed these functions during 2008. During the
2008 transition period, TSYS continued to utilize Synovus administrative services until these
functions were operational within TSYS in exchange for an adjusted management fee based on
utilization. As TSYS assumed these functions, salaries and other personnel expenses increased,
while other operating expenses decreased. TSYS headcount increased by approximately 60 people as
these administrative services transitioned to TSYS.
Capitalized salaries and personnel expenses increased $2.6 million and $3.9 million for the
three and nine months ended September 30, 2009, respectively, as compared to the same periods in
2008, as a result of increased client conversion and implementation activity in the International
Services segment.
The Companys salaries and other personnel expenses is greatly influenced by the number of
employees. Below is a summary of the Companys employee data:
Employee Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent |
(FTE) |
|
2009 |
|
2008 |
|
Change |
At September 30, |
|
|
7,720 |
|
|
|
7,772 |
|
|
|
(0.7 |
)% |
QTD Average |
|
|
7,893 |
|
|
|
7,761 |
|
|
|
1.7 |
|
YTD Average |
|
|
7,991 |
|
|
|
7,519 |
|
|
|
6.3 |
|
At September 30, 2009, as compared to 2008, the majority of the increase in the number of
employees is a result of the expansion of TSYS international business, offset by the decrease in
number of employees associated with discontinued operations.
Share-based compensation expenses include the impact of expensing the fair value of stock
options, as well as expenses associated with nonvested shares. For the three months ended September
30, 2009, share-based compensation was $4.0 million, compared to $5.1 million for the same period
in 2008. For the nine months ended September 30, 2009, share-based compensation was $13.3 million,
compared to $14.8 million for the same period in 2008.
Net Technology and Facilities Expenses
Net technology and facilities expenses increased $1.9 million, or 2.5%, and $2.3 million, or
1.0%, for the three and nine months ended September 30, 2009, respectively, over the same periods
in 2008.
Repairs and maintenance increased for the three and nine months ended September 30, 2009, as
compared to the same periods in 2008, as a result of support for additional software licenses and
equipment.
Spin-Related Expenses
Spin-related expenses consist of expenses associated with the separation from Synovus. In
July 2007, Synovus Board of Directors appointed a special committee of independent directors to
make a recommendation with respect to whether to distribute Synovus ownership interest in TSYS to
Synovus shareholders. As a result, the TSYS Board of Directors formed a special committee of
28
independent TSYS directors to consider the terms of any proposed spin-off by Synovus of its
ownership interest in TSYS, including the size of the pre-spin cash dividend. TSYS incurred
expenses associated with advisory and legal services in connection with the spin assessment. As the
spin-off was finalized and completed, TSYS also incurred expenses for the incremental fair value
associated with converting Synovus stock options held by TSYS employees to TSYS options.
Other Operating Expenses
Other operating expenses include, among other things, amortization of conversion costs, costs
associated with delivering merchant services, and professional advisory fees. Other operating
expenses also include charges for service level quality expenses, contractual commitments and bad
debt expense. As described in the Critical Accounting Policies section set forth in Item 7:
Managements Discussion and Analysis of Financial Condition and Results of Operations in the
Companys Annual Report on Form 10-K for the year ended December 31, 2008, managements 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.
Other operating expenses for the three and nine months ended September 30, 2009 decreased $4.4
million, or 8.7%, and increased $2.1 million, or 1.5%, respectively, as compared to the same
periods in 2008. The decrease in other operating expenses for the three months is primarily the
result of the use of less professional advisory services, less supplies and stationery and
decreased service level quality expenses.
Operating Income
Operating income decreased 7.8% and 10.6% for the three and nine months ended September 30,
2009, respectively, over the same periods in 2008. The Companys operating profit margin for the
three and nine months ended September 30, 2009 was 20.3% and 19.8%, respectively, compared to 21.7%
and 21.6% for the same periods last year. TSYS operating margin decreased for the three and nine
months ended September 30, 2009, as compared to the same periods in 2008, as the result of the loss
of revenues associated with deconverted portfolios.
Nonoperating Income (Expense)
Interest income for the three months ended September 30, 2009 was $0.4 million, a decrease of
$2.2 million, compared to $2.6 million for the same period in 2008. Interest income for the nine
months ended September 30, 2009 was $1.6 million, a decrease of $5.2 million, compared to $6.8
million for the same period in 2008. The decrease in interest income is primarily attributable to
the decline in interest rates.
Interest expense for the three months ended September 30, 2009 was $0.9 million, a decrease of
$1.8 million compared to $2.7 million for the same period in 2008. Interest expense for the nine
months ended September 30, 2009 was $3.1 million, a decrease of $5.9 million compared to $9.0
million for the same period in 2008. The decrease in interest expense in 2009 compared to 2008
relates to the decline in interest rates.
For the three months ended September 30, 2009 and 2008, the Company recorded a translation
gain of approximately $1.1 million and $1.1 million, respectively, related to intercompany loans
and foreign-denominated balance sheet accounts. For the nine months ended September 30, 2009 and
2008, the Company recorded a translation loss of approximately $2.9 million and a translation gain
of approximately $3.2 million, respectively, related to intercompany loans and foreign-denominated
balance sheet accounts.
Occasionally, the Company will provide financing to its subsidiaries in the form of an
intercompany loan, which is required to be repaid in U.S. dollars. For its subsidiaries whose
functional currency is something other than the U.S. dollar, the translated balance of the
financing (liability) is adjusted upward or downward to match the U.S. dollar obligation
(receivable) on the Companys financial statements. The upward or downward adjustment is recorded
as a gain or loss on foreign currency translation.
The Company records foreign currency translation adjustments on foreign-denominated balance
sheet accounts. The Company maintains several cash accounts denominated in foreign currencies,
primarily in Euros and British Pounds Sterling. As the Company translates the foreign-denominated
cash balances into U.S. dollars, the translated cash balance is adjusted upward or downward
depending upon the foreign currency exchange movements. The upward or downward adjustment is
recorded as a gain or loss on foreign currency translation in the Companys statements of income.
As those cash accounts have increased, the upward or downward adjustments have increased. The
Company recorded a net translation gain of approximately $1.1 million and a net translation loss of
$2.9 million for the three and nine months ended September 30, 2009, respectively, related to the
translation of foreign-denominated balance sheet accounts, most of which were cash.
29
The balance of the Companys foreign-denominated cash accounts subject to risk of translation
gains or losses at September 30, 2009 was approximately $14.6 million, the majority of which is
denominated in Euros.
Income Taxes
TSYS effective income tax rate for the three months ended September 30, 2009 was 35.6%,
compared to 35.1% for the same period in 2008. TSYS effective income tax rate for the nine months
ended September 30, 2009 was 35.7%, compared to 35.7% for the same period in 2008. The calculation
of the effective tax rate is income taxes plus income taxes associated with equity income divided
by TSYS pretax income adjusted for minority interests in consolidated subsidiaries net income and
pre-tax equity earnings of its equity investments. Refer to Note 10 in the Notes to Unaudited
Condensed Consolidated Financial Statements for more information on income taxes.
In the normal course of business, TSYS is subject to examinations from various tax
authorities. These examinations may alter the timing or amount of taxable income or deductions or
the allocation of income among tax jurisdictions.
TSYS continually monitors and evaluates the potential impact of current events and
circumstances on the estimates and assumptions used in the analysis of its income tax positions,
and, accordingly, TSYS effective tax rate may fluctuate in the future.
Equity in Income of Equity Investments
The Company has two equity investments located in Mexico and China that are accounted for
under the equity method of accounting. TSYS share of income from its equity in equity investments
was $1.6 million and $3.1 million for the three months ended September 30, 2009 and 2008,
respectively. TSYS share of income from its equity in equity investments was $4.3 million and $6.3
million for the nine months ended September 30, 2009 and 2008, respectively.
Loss from Discontinued Operations, net of tax
Loss from discontinued operations, net of tax for the three months ended September 30, 2009,
increased $3.2 million compared to the same period in 2008. Loss from discontinued operations, net
of tax for the nine months ended September 30, 2009, increased $5.9 million compared to the same
period in 2008, mainly as the result of a one-time expense related to resolution of a client issue
at TDM.
Loss from Disposition, net
Loss from disposition, net for the three and nine months ended September 30, 2009, was $3.3
million, net of tax. Final adjustments related to the sale, if any, are expected to be included in
fourth quarter results.
Net Income Attributable to TSYS
Net income attributable to TSYS for the three months ended September 30, 2009 decreased 14.1%,
or $9.1 million, to $55.0 million, or basic and diluted earnings per share of $0.28, compared to
$64.1 million, or basic and diluted earnings per share of $0.32, for the same period in 2008. Net
income attributable to TSYS for the nine months ended September 30, 2009 decreased 15.7%, or $28.8
million, to $155.0 million, or basic and diluted earnings per share of $0.79, compared to $183.8
million, or basic and diluted earnings per share of $0.93, for the same period in 2008.
Net Profit Margin
The Companys net profit margin for the three months ended September 30, 2009 was 12.7%,
compared to 14.6% for the same period last year. The Companys net profit margin for the nine
months ended September 30, 2009 was 12.4%, compared to 14.3% for the same period last year. TSYS
profit margin is impacted by the consolidation of majority-owned subsidiaries. The Company
recognizes only its share of net profits from these entities, while consolidating all their
revenues, which has the impact of lowering overall net profit margins. TSYS net profit margin
decreased for the quarter as the result of the loss of revenues associated with deconverted
portfolios.
Operating Segments
North America Services
The North America Services segment provides electronic payment processing and related services
to clients based primarily in North America. This segment has two major customers.
30
Below is a summary of the North America Services segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Percent Change |
|
2009 |
|
2008 |
|
Percent Change |
Total revenues |
|
$ |
261.6 |
|
|
|
284.9 |
|
|
|
(8.2 |
)% |
|
$ |
795.4 |
|
|
|
854.6 |
|
|
|
(6.9 |
)% |
Operating income |
|
|
60.7 |
|
|
|
63.2 |
|
|
|
(3.9 |
) |
|
|
176.9 |
|
|
|
201.9 |
|
|
|
(12.4 |
) |
Operating margin |
|
|
23.2 |
% |
|
|
22.2 |
% |
|
|
|
|
|
|
22.2 |
% |
|
|
23.6 |
% |
|
|
|
|
Key indicators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOF |
|
|
302.2 |
|
|
|
322.6 |
|
|
|
(6.3 |
) |
|
|
302.2 |
|
|
|
322.6 |
|
|
|
(6.3 |
) |
Transactions |
|
|
1,555.8 |
|
|
|
1,693.1 |
|
|
|
(8.1 |
) |
|
|
4,559.1 |
|
|
|
4,969.4 |
|
|
|
(8.3 |
) |
The decline in total segment revenues for the three and nine months ended September 30, 2009,
as compared to the same periods in 2008, is the result of a decrease in revenues associated with
client portfolio deconversions, as well as overall economic conditions causing existing clients to
be selective in the services being utilized.
International Services
The International Services segment provides electronic payment processing and related services
to clients based primarily outside the North America region. This segment has one major customer.
Below is a summary of the International Services segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Percent Change |
|
2009 |
|
2008 |
|
Percent Change |
Total revenues |
|
$ |
86.2 |
|
|
|
88.1 |
|
|
|
(2.2 |
)% |
|
$ |
236.4 |
|
|
|
237.8 |
|
|
|
(0.6 |
)% |
Operating income |
|
|
9.7 |
|
|
|
16.8 |
|
|
|
(42.1 |
) |
|
|
24.9 |
|
|
|
35.9 |
|
|
|
(30.7 |
) |
Operating margin |
|
|
11.3 |
% |
|
|
19.1 |
% |
|
|
|
|
|
|
10.5 |
% |
|
|
15.1 |
% |
|
|
|
|
Key indicators: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AOF |
|
|
39.9 |
|
|
|
32.9 |
|
|
|
21.3 |
|
|
|
39.9 |
|
|
|
32.9 |
|
|
|
21.3 |
|
Transactions |
|
|
299.7 |
|
|
|
272.1 |
|
|
|
10.2 |
|
|
|
881.7 |
|
|
|
754.0 |
|
|
|
8.6 |
|
The decrease in total segment revenues for the three and nine months ended September 30, 2009,
as compared to the same periods in 2008, is the result of increased revenues associated with new
clients as a result of portfolio conversions, offset by negative foreign currency translation and
overall economic conditions causing existing clients to be selective in the services being
utilized.
Merchant Services
The Merchant Services segment provides merchant processing and related services to clients
based primarily in the United States. This segment has one major customer.
Below is a summary of the Merchant Services segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2009 |
|
2008 |
|
Percent Change |
|
2009 |
|
2008 |
|
Percent Change |
Total revenues |
|
$ |
93.8 |
|
|
|
74.6 |
|
|
|
25.8 |
% |
|
$ |
249.7 |
|
|
|
220.1 |
|
|
|
13.4 |
% |
Operating income |
|
|
17.5 |
|
|
|
17.1 |
|
|
|
2.2 |
|
|
|
46.9 |
|
|
|
50.3 |
|
|
|
(6.6 |
) |
Operating margin |
|
|
18.7 |
% |
|
|
22.9 |
% |
|
|
|
|
|
|
18.8 |
% |
|
|
22.9 |
% |
|
|
|
|
Key indicator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Point-of-sale
transactions |
|
|
1,338.5 |
|
|
|
1,289.2 |
|
|
|
3.8 |
|
|
|
3,876.3 |
|
|
|
3,814.4 |
|
|
|
1.6 |
|
The increase in total segment revenues is the result of the acquisition of Infonox, a new
client and an increase in processing volumes.
31
Refer to the discussion of Bank of America under Major Customers.
Non-GAAP Financial Measures
The non-generally accepted accounting principles (GAAP) financial measure of reimbursable
items presented by TSYS is utilized by management to better understand and assess TSYS operating
results and financial performance. Management evaluates the Companys operating performance based
upon operating and net profit margins excluding reimbursable items, a non-GAAP measure. TSYS also
uses this non-GAAP financial measure to evaluate and assess TSYS financial performance against
budget. TSYS believes that this non-GAAP financial measure is important to enable investors to
understand and evaluate its ongoing operating results.
TSYS believes that this non-GAAP financial measure is a representative measure of comparative
financial performance that reflect the economic substance of TSYS current and ongoing business
operations. Although non-GAAP financial measures are often used to measure TSYS operating results
and assess its financial performance, they are not necessarily comparable to similarly titled
captions of other companies due to potential inconsistencies in the method of calculation.
TSYS believes that its use of this non-GAAP financial measure provides investors with the same
key financial performance indicators that are utilized by management to assess TSYS operating
results, to evaluate the business and to make operational decisions on a prospective, going-forward
basis. Hence, management provides disclosure of non-GAAP financial measures in order to allow
shareholders and potential investors an opportunity to see TSYS as viewed by management, assess
TSYS with some of the same tools that management utilizes internally and compare such information
with prior periods.
Profit Margins and Reimbursable Items
Management believes that operating and net profit margins excluding reimbursable items are
more useful because reimbursable items do not impact profitability as the Company receives
reimbursement for expenses incurred on behalf of its clients. TSYS believes that the presentation
of GAAP financial measures alone would not provide its shareholders and investors with the ability
to appropriately analyze its ongoing operational results, and therefore expected future results.
TSYS therefore believes that inclusion of this non-GAAP financial measure provides investors with
more information to help them better understand its financial statements just as management
utilizes these non-GAAP financial measures to better understand the business, manage its budget and
allocate its resources.
Below is the reconciliation between reported margins and adjusted margins excluding
reimbursable items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Operating income |
|
$ |
87,856 |
|
|
|
95,290 |
|
|
$ |
248,749 |
|
|
|
278,234 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to TSYS |
|
$ |
55,026 |
|
|
|
64,074 |
|
|
$ |
154,999 |
|
|
|
183,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
432,296 |
|
|
|
439,446 |
|
|
$ |
1,253,222 |
|
|
|
1,288,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating margin (as reported) |
|
|
20.3 |
% |
|
|
21.7 |
% |
|
|
19.8 |
% |
|
|
21.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit margin (as reported) |
|
|
12.7 |
% |
|
|
14.6 |
% |
|
|
12.4 |
% |
|
|
14.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues before reimbursable items |
|
$ |
358,966 |
|
|
|
372,704 |
|
|
$ |
1,055,133 |
|
|
|
1,088,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating margin |
|
|
24.5 |
% |
|
|
25.6 |
% |
|
|
23.6 |
% |
|
|
25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net profit margin |
|
|
15.3 |
% |
|
|
17.2 |
% |
|
|
14.7 |
% |
|
|
16.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Outlook for 2009
TSYS expects its 2009 revenues to decline by 5%-3% as compared to 2008 and expects its 2009
net income to decline by 13%-11% as compared to 2008, based on the following assumptions: (1) there
will be no significant movements in LIBOR and TSYS will not make any significant draws on the
remaining balance of the revolving credit facility; (2) anticipated levels in employment,
technology and other expenses will be accomplished; (3) there will be no significant movement in
foreign currency exchange rates related to TSYS business subsequent to September 30, 2009; (4)
TSYS will not incur significant expenses associated with the conversion of new large clients or
acquisitions, other than those already identified, or any significant impairment of goodwill or
other intangibles; and (5) there will be no significant portfolio deconversions other than as
previously announced.
Financial Position, Liquidity and Capital Resources
The Condensed Consolidated Statements of Cash Flows detail the Companys 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 use of
leases. TSYS has occasionally used borrowed funds to supplement financing of capital
expenditures, acquisitions and, most recently, the spin-off.
32
Cash Flows From Operating Activities
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
156,284 |
|
|
|
185,094 |
|
Depreciation and amortization |
|
|
117,514 |
|
|
|
124,852 |
|
Loss on disposal of subsidiary |
|
|
5,701 |
|
|
|
¾ |
|
Dividends from equity investments |
|
|
4,942 |
|
|
|
6,421 |
|
Other noncash items and charges, net |
|
|
17,033 |
|
|
|
3,631 |
|
Net change in current and long-term assets and current and long-term liabilities |
|
|
31,582 |
|
|
|
(41,092 |
) |
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
333,056 |
|
|
|
278,906 |
|
|
|
|
|
|
|
|
TSYS main source of funds is derived from operating activities, specifically net income. The
increase in 2009 in net cash provided by operating activities was primarily the result of the net
change in current and long-term assets and current and long-term liabilities.
Net change in current and long-term assets and current and long-term liabilities include
accounts receivable, prepaid expenses, other current assets and other assets, accounts payable,
accrued salaries and employee benefits, other current liabilities and other liabilities. The change
in accounts receivable at September 30, 2009, as compared to December 31, 2008, is the result of
timing of collections compared to billings. The change in accounts payable and other liabilities
for the same period is the result of the timing of payments, funding of performance-based
incentives and payments of vendor invoices.
Cash Flows From Investing Activities
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Purchases of property and equipment, net |
|
$ |
(21,344 |
) |
|
|
(35,502 |
) |
Additions to licensed computer software from vendors |
|
|
(18,710 |
) |
|
|
(18,614 |
) |
Additions to internally developed computer software |
|
|
(19,367 |
) |
|
|
(14,976 |
) |
Proceeds from disposition, net of expenses paid and cash disposed |
|
|
1,991 |
|
|
|
¾ |
|
Cash used in acquisitions |
|
|
(294 |
) |
|
|
(965 |
) |
Subsidiary repurchase of noncontrolling interest |
|
|
¾ |
|
|
|
(343 |
) |
Additions to contract acquisition costs |
|
|
(23,711 |
) |
|
|
(34,612 |
) |
|
|
|
|
|
|
|
Net cash used in investing activities |
|
$ |
(81,435 |
) |
|
|
(105,012 |
) |
|
|
|
|
|
|
|
The major uses of cash for investing activities have been the addition of property and
equipment, primarily computer equipment, the purchase of licensed computer software and internal
development of computer software, investments in contract acquisition costs associated with
obtaining and servicing new or existing clients, and business acquisitions. The major uses of cash
for investing activities in 2009 was for additions to contract acquisition costs, equipment,
licensed computer software from vendors and internally developed computer software. The major uses
of cash for investing activities in 2008 was for additions of equipment and contract acquisition
costs.
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 Companys processing
systems. The Companys investments in contract acquisition costs were $6.6 million for the three
months ended September 30, 2009, bringing the total for 2009 to $23.7 million compared to $34.6
million for the nine months ended September 30, 2008.
The Company had cash payments for processing rights of approximately $2.0 million and $4.7
million during the three and nine months ended September 30, 2009, respectively, compared to $3.3
million and $15.7 million for the three and nine months last year, respectively.
33
Conversion cost additions were $19.0 million and $18.9 million for the nine months ended
September 30, 2009 and 2008, respectively. The increase in the amount of conversion cost additions
for 2009, as compared to 2008, is the result of the timing of conversion activity in 2009 versus
2008.
Cash Flows From Financing Activities
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
(in thousands) |
|
2009 |
|
|
2008 |
|
Dividends paid on common stock |
|
$ |
(41,406 |
) |
|
|
(41,358 |
) |
Proceeds from borrowings of long-term debt |
|
|
5,334 |
|
|
|
2,506 |
|
Repurchase of common stock |
|
|
(329 |
) |
|
|
(23,594 |
) |
Principal payments on long-term debt borrowings and capital lease obligations |
|
|
(13,178 |
) |
|
|
(11,501 |
) |
Other |
|
|
(227 |
) |
|
|
107 |
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
$ |
(49,806 |
) |
|
|
(73,840 |
) |
|
|
|
|
|
|
|
The major use of cash from financing activities has been the payment of dividends and
repurchase of common stock. The main source of cash from financing activities has been the
occasional use of borrowed funds and the exercise of stock options. The major use of cash from
financing activities in 2009 was for the payment of dividends. The major uses of cash from
financing activities in 2008 was for the payment of dividends and the repurchase of common stock.
Borrowings
On October 31, 2008, the Companys International Services segment obtained a credit agreement
from a third party to borrow up to approximately ¥2.0 billion, or $21 million, in a Yen-denominated
three-year loan to finance activities in Japan. The rate is LIBOR plus 80 basis points. The
Company initially made a draw down of ¥1.5 billion, or approximately $15.1 million. In January
2009, the Company made an additional draw down of ¥250 million, or approximately $2.8 million. In
April 2009, the Company made an additional draw down of ¥250 million, or approximately $2.5
million.
Stock Repurchase Plan
On April 20, 2006, TSYS announced that its Board had approved a stock repurchase plan to
purchase up to 2 million shares, which at the time represented slightly more than five percent of
the shares of TSYS stock held by shareholders other than Synovus. The shares were to be purchased
from time to time over a two-year period and would depend on various factors, including price,
market conditions, acquisitions and the general financial position of TSYS. Repurchased shares are
to be used for general corporate purposes.
With the completion of the spin-off, the TSYS Board of Directors extended to April 2010 TSYS
current share repurchase program that was set to expire in April 2008 and increased the number of
shares that may be repurchased under the plan from 2 million to 10 million.
The Company has approximately 6,928,000 shares remaining that could be repurchased under the
stock repurchase plan.
Dividends
Dividends on common stock of $13.8 million were paid during the three months ended September
30, 2009, bringing the total for 2009 to $41.4 million compared to $41.4 million paid during the
nine months ended September 30, 2008.
Significant Noncash Transactions
Refer to Note 12 of the Notes to Unaudited Condensed Consolidated Financial Statements for
more information about supplementary cash flow information.
Foreign Exchange
TSYS operates internationally and is subject to 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. TSYS continues to analyze potential hedging
instruments to safeguard it from significant foreign currency translation risks.
34
Impact of Inflation
Although the impact of inflation on its operations cannot be precisely determined, the Company
believes that by controlling its operating expenses, and by taking advantage of more efficient
computer hardware and software, it can minimize the impact of inflation.
Working Capital
TSYS may seek additional external sources of capital in the future. The form of any such
financing will vary depending upon prevailing market and other conditions and may include
short-term or long-term borrowings from financial institutions or the issuance of additional equity
and/or debt securities such as industrial revenue bonds. However, there can be no assurance that
funds will be available on terms acceptable to TSYS. Management expects that TSYS will continue to
be able to fund a significant portion of its capital expenditure needs through internally generated
cash in the future, as evidenced by TSYS current ratio of 3.4:1. At September 30, 2009, TSYS had
working capital of $551.0 million compared to $396.3 million at December 31, 2008.
Legal Proceedings
The Company is subject to various legal proceedings and claims and is also subject to
information requests, inquiries and investigations arising out of the ordinary conduct of its
business. In the opinion of management, based in part upon the advice of legal counsel, all matters
are believed to be adequately covered by insurance, or if not covered, are believed to be without
merit or are of such kind or involve such amounts that would not have a material adverse effect on
the financial position, results of operations or cash flows of the Company if disposed of
unfavorably. The Company establishes reserves for litigation and similar matters when those matters
present loss contingencies that TSYS determines to be both probable and reasonably estimable in
accordance with ASC 450.
Recent Accounting Pronouncements
The Companys Annual Report on Form 10-K for the year ended December 31, 2008, as filed with
the SEC, contains a discussion of recent accounting pronouncements and the expected impact on the
Companys financial statements.
Accounting Standards Update 2009-14, Certain Revenue Arrangements that Include Software Elements
In October 2009, the FASB issued Accounting Standards Update (ASU) 2009-14, Certain Revenue
Arrangements that Include Software Elements, an update to ASC 985-605, Software-Revenue
Recognition, and formerly known as EITF 09-3, Revenue Arrangements that Include Software
Elements. ASU 2009-14 amends ASC Subtopic 985-605 to exclude from its scope tangible products that
contain both software and non-software components that function together to deliver a products
essential functionality. ASU 2009-14 will be effective prospectively for revenue arrangements
entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early
adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2009-14 on
its financial position, results of operations and cash flows, but has yet to complete its
assessment.
Accounting Standards Update 2009-13, Multiple Deliverable Revenue Arrangements
In October 2009, the FASB issued ASU 2009-13, Multiple Deliverable Revenue Arrangements, an
update to ASC Topic 605, Revenue Recognition, and formerly known as EITF 08-1, Revenue
Arrangements with Multiple Deliverables. ASU 2009-13 amends ASC 650-25 to eliminate the
requirement that all undelivered elements have vendor-specific objective evidence (VSOE) or
third-party evidence (TPE) before an entity can recognize the portion of an overall arrangement fee
that is attributable to items that already have been delivered. The overall arrangement fee will be
allocated to each element (both delivered and undelivered items) based on their relative selling
prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the
entitys estimated selling price. ASU 2009-13 will be effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or after June 15,
2010. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU
2009-13 on its financial position, results of operations and cash flows, but has yet to complete
its assessment.
Accounting Standards Update 2009-05, Fair Value Measurements and Disclosures (Topic 820)
Measuring Liabilities at Fair Value
In August 2009, the FASB issued ASU 2009-05, Fair Value Measurements and Disclosures (Topic
820) Measuring Liabilities at Fair Value. ASU 2009-05 amends ASC Topic 820, Fair Value
Measurements. The update addresses practice difficulties caused by tension between fair-value
measurements based on the price that would be paid to transfer a liability to a new obligor and
contractual or legal requirements that prevent such transfers from taking place. ASU 2009-05 is
effective for interim and annual periods beginning after August 27, 2009, and applies to all fair
value measurements of liabilities required by GAAP. No new fair-
35
value requirements are required by the standard. The Company does not expect the impact of
adopting ASU 2009-05 on its financial position, results of operations and cash flows to be
material.
Accounting Standards Codification 105, Generally Accepted Accounting Principles
In June 2009, the FASB issued an update to ASC 105, previously referred to as SFAS No. 168,
The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting
Principlesa replacement of FASB Statement No. 162. The FASB Accounting Standards Codification
(Codification) will become the source of authoritative U.S. generally accepted accounting
principles (GAAP) recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date
of the update to ASC 105, the Codification will supersede all then-existing non-SEC accounting and
reporting standards. All other nongrandfathered non-SEC accounting literature not included in the
Codification will become nonauthoritative. Following the update to ASC 105, the FASB will not
issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force
Abstracts. Instead, it will issue Accounting Standards Updates. The FASB will not consider
Accounting Standards Updates as authoritative in their own right. Accounting Standards Updates will
serve only to update the Codification, provide background information about the guidance, and
provide the bases for conclusions on the change(s) in the Codification. The update to ASC 105 is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. The Company does not expect the impact of adopting the update to ASC 105 on its financial
position, results of operations and cash flows to be material.
Accounting Standards Codification 810, Consolidation
In June 2009, the FASB issued an update to ASC 810, previously referred to as SFAS No. 167,
Amendments to FASB Interpretation No. 46(R), which requires an enterprise to perform an analysis
to determine whether the enterprises variable interest or interests give it a controlling
financial interest in a variable interest entity. The update to ASC 810 is effective as of the
beginning of each reporting entitys first annual reporting period that begins after November 15,
2009, for interim periods within that first annual reporting period, and for interim and annual
reporting periods thereafter. The Company does not expect the impact of adopting the update to ASC
810 on its financial position, results of operations and cash flows to be material.
Accounting Standards Codification 855, Subsequent Events
In May 2009, the FASB issued an update to ASC 855, previously referred to as SFAS No. 165,
Subsequent Events, which establishes general standards of accounting for and disclosure of events
that occur after the balance sheet date but before financial statements are issued or are available
to be issued. In particular, this Statement sets forth the period after the balance sheet date
during which management of a reporting entity should evaluate events or transactions that may occur
for potential recognition or disclosure in the financial statements; the circumstances under which
an entity should recognize events or transactions occurring after the balance sheet date in its
financial statements; and the disclosures that an entity should make about events or transactions
that occurred after the balance sheet date. The update to ASC 855 is effective for interim or
annual financial periods ending after June 15, 2009. The impact of adopting the update to ASC 855
was not material to the Companys financial position, results of operations and cash flows.
Accounting Standards Codification 323, Investments Equity Method and Joint Ventures
In November 2008, the FASB issued an update to ASC 323, previously referred to as EITF No.
08-6, Equity Method Investment Accounting Considerations. The guidance in the update to ASC 323
applies to all investments accounted for under the equity method and clarifies the accounting for
certain transactions and impairment considerations involving those investments. The update to ASC
323 is effective in fiscal years beginning on or after December 15, 2008, and interim periods
within those fiscal years. The Company does not expect the impact of adopting the update to ASC 323
on its financial position, results of operations and cash flows to be material.
Forward-Looking Statements
Certain statements contained in this filing which are not statements of historical fact
constitute forward-looking statements within the meaning of the Private Securities Litigation
Reform Act (the Act). These forward-looking statements include, among others: (i) TSYS plans to
continue to expand its service offerings internationally and expectation that international
revenues will continue to grow; (ii) the expected contribution of Bank of Americas merchant
processing business to TSYS projected earnings per share for 2009; (iii) TSYS expectation that
the loss of Bank of Americas merchant processing business will not have a material adverse affect
on TSYS; (iv) TSYS expectation that it will be able to fund a significant portion of its capital
expenditure needs through internally generated cash in the future; (v) TSYS expected decline in
revenues and net income for 2009; (vi) TSYS belief with respect to
36
lawsuits, claims and other complaints; and (vii) TSYS expectation with respect to certain tax
matters; and the assumptions underlying such statements, including, with respect to TSYS expected
decline in net income for 2009: (a) there will be no significant movements in LIBOR and TSYS will
not make any significant draws on its revolving credit facility; (b) there will be no significant
movement in foreign currency exchange rates related to TSYS business subsequent to September 30,
2009; (c) anticipated levels in employment, technology and other expenses will be accomplished; (d)
TSYS will not incur significant expenses associated with the conversion of new large clients and/or
acquisitions, other than as previously identified, or any significant impairment of goodwill or
other intangibles; and (e) there will be no significant portfolio deconversions during the year
other than as previously identified. In addition, certain statements in future filings by TSYS with
the Securities and Exchange Commission, in press releases, and in oral and written statements made
by or with the approval of TSYS which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of forward-looking statements
include, but are not limited to: (i) projections of revenue, income or loss, earnings or loss per
share, the payment or nonpayment of dividends, capital structure and other financial items; (ii)
statements of plans and objectives of TSYS or its management or Board of Directors, including those
relating to products or services; (iii) statements of future economic performance; and (iv)
statements of assumptions underlying such statements. Words such as believes, anticipates,
expects, intends, targeted, estimates, projects, plans, may, could, should,
would, and similar expressions are intended to identify forward-looking statements but are not
the exclusive means of identifying these statements.
These statements are based upon the current beliefs and expectations of TSYS management and
are subject to significant risks and uncertainties. Actual results may differ materially from those
contemplated by the forward-looking statements. A number of important factors could cause actual
results to differ materially from those contemplated by our forward-looking statements. Many of
these factors are beyond TSYS ability to control or predict. These factors include, but are not
limited to:
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expenses associated with the spin-off are higher than expected; |
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|
movements in LIBOR are greater than expected and draws on the revolving credit facility
are greater than expected; |
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|
TSYS incurs expenses associated with the signing of a significant client; |
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internal growth rates for TSYS existing clients are lower than anticipated whether as a
result of unemployment rates, card delinquencies and charge off rates or otherwise; |
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TSYS does not convert and deconvert clients portfolios as scheduled; |
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adverse developments with respect to foreign currency exchange rates; |
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adverse developments with respect to entering into contracts with new clients and
retaining current clients; |
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continued consolidation and turmoil in the financial services industry, including the
merger of TSYS clients with entities that are not TSYS processing clients, the sale of
portfolios by TSYS clients to entities that are not TSYS processing clients and the seizure
by federal banking regulators of TSYS clients; |
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|
TSYS is unable to control expenses and increase market share, both domestically and
internationally; |
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adverse developments with respect to the credit card industry in general, including a
decline in the use of cards as a payment mechanism; |
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TSYS is unable to successfully manage any impact from slowing economic conditions or
consumer spending; |
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the impact of potential and completed acquisitions, including the costs associated
therewith and their being more difficult to integrate than anticipated; |
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the costs and effects of litigation, investigations or similar matters or adverse facts
and developments relating thereto; |
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the impact of the application of and/or changes in accounting principles; |
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TSYS inability to timely, successfully and cost-effectively improve and implement
processing systems to provide new products, increased functionality and increased
efficiencies; |
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TSYS inability to anticipate and respond to technological changes, particularly with
respect to e-commerce; |
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changes occur in laws, regulations, credit card associations rules or other industry
standards affecting TSYS business which require significant product redevelopment efforts
or reduce the market for or value of our products; |
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successfully managing the potential both for patent protection and patent liability in
the context of rapidly developing legal framework for expansive patent protection; |
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the material breach of security of any of our systems; |
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overall market conditions; |
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the loss of a major supplier; |
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the impact on TSYS business, as well as on the risks set forth above, of various
domestic or international military or terrorist activities or conflicts; |
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other risk factors described in the Risk Factors and other sections of TSYS Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 and other filings with the
Securities and Exchange Commission; and |
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TSYS ability to manage the foregoing and other risks. |
These forward-looking statements speak only as of the date on which they are made and TSYS
does not intend to update any forward-looking statement as a result of new information, future
developments or otherwise.
37
TOTAL SYSTEM SERVICES, INC.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk
The Company is exposed to foreign exchange risk because it has assets, liabilities, revenues
and expenses denominated in foreign currencies other than the U.S. dollar. 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 foreign
operations, net of tax, are accumulated in a separate section of shareholders equity entitled
accumulated other comprehensive income, net. The following represents the amount of other
comprehensive gain (loss):
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Three months ended September 30, |
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Nine months ended September 30, |
(in millions) |
|
2009 |
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2008 |
|
2009 |
|
2008 |
Other comprehensive gain (loss)
|
|
$ |
(0.1 |
) |
|
|
(7.9 |
) |
|
$ |
14.5 |
|
|
|
(3.1 |
) |
Currently, the Company does not use financial instruments to hedge exposure to exchange rate
changes.
The following table presents the carrying value of the net assets of TSYS foreign operations
in U.S. dollars at September 30, 2009:
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(in millions) |
|
September 30, 2009 |
Europe |
|
$ |
175.5 |
|
China |
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66.6 |
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Mexico |
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6.8 |
|
Canada |
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1.0 |
|
Japan |
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0.1 |
|
Other |
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22.1 |
|
TSYS records foreign currency translation adjustments associated with other balance sheet
accounts. The Company maintains several cash accounts denominated in foreign currencies, primarily
in Euros and British Pounds Sterling. As TSYS translates the foreign-denominated cash balances into
U.S. dollars, the translated cash balance is adjusted upward or downward depending upon the foreign
currency exchange movements. The upward or downward adjustment is recorded as a gain or loss on
foreign currency translation in the statements of income. As those cash accounts have increased,
the upward or downward adjustments have increased. TSYS recorded a translation gain of
approximately $1.1 million and a translation loss of approximately $2.9 million for the three and
nine months ended September 30, 2009, respectively, relating to the translation of cash and other
balance sheet accounts. The balance of the Companys foreign-denominated cash accounts subject to
risk of translation gains or losses at September 30, 2009 was approximately $14.6 million, the
majority of which was denominated in Euros.
The Company provides financing to its international operation in Europe through an
intercompany loan that requires the operation to repay the financing in U.S. dollars. The
functional currency of the operation is the respective local currency. As it translates the foreign
currency denominated financial statements into U.S. dollars, the translated balance of the
financing (liability) is adjusted upward or downward to match the U.S. dollar obligation
(receivable) on its financial statements. The upward or downward adjustment is recorded as a gain
or loss on foreign currency translation.
The net asset account balance subject to foreign currency exchange rates between the local
currencies and the U.S. dollar at September 30, 2009 was $14.6 million.
The following table presents the potential effect on income before income taxes of
hypothetical shifts in the foreign currency exchange rate between the local currencies and the U.S.
dollar of plus-or-minus 100 basis points, 500 basis points and 1,000 basis points based on the net
asset account balance of $14.6 million at September 30, 2009.
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|
Effect of Basis Point Change |
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Increase in basis point of |
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|
Decrease in basis point of |
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(in thousands) |
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100 |
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500 |
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1,000 |
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100 |
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500 |
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1,000 |
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Effect on income before income taxes |
|
$ |
146 |
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|
732 |
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1,464 |
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(146 |
) |
|
|
(732 |
) |
|
|
(1,464 |
) |
38
TOTAL SYSTEM SERVICES, INC.
Item 3 Quantitative and Qualitative Disclosures About Market Risk (continued)
Interest Rate Risk
TSYS is also exposed to interest rate risk associated with the investing of available cash and
the use of debt. TSYS invests available cash in conservative short-term instruments and is
primarily subject to changes in the short-term interest rates.
On December 21, 2007, the Company entered into a Credit Agreement with Bank of America N.A.,
as Administrative Agent, The Royal Bank of Scotland plc, as Syndication Agent, and other lenders.
The Credit Agreement provides for a $168 million unsecured five-year term loan to the Company and a
$252 million five-year unsecured revolving credit facility. The principal balance of loans
outstanding under the credit facility bears interest at a rate of London Interbank Offered Rate
(LIBOR) plus an applicable margin of 0.60%. Interest is paid on the last date of each interest
period; however, if the period exceeds three months, interest is paid every three months after the
beginning of such interest period.
On October 31, 2008, the Companys International Services segment obtained a credit agreement
from a third party to borrow up to approximately ¥2.0 billion, or $21 million, in a Yen-denominated
three year loan to finance activities in Japan. The rate is LIBOR plus 80 basis points. The
Company initially made a draw down of ¥1.5 billion, or approximately $15.1 million. In January
2009, the Company made an additional draw down of ¥250 million, or approximately $2.8 million. In
April 2009, the Company made an additional draw down of ¥250 million, or approximately $2.5
million.
In connection with the formation of TSYS Managed Services EMEA Ltd. (TSYS Managed Services),
both TSYS and Merchants agreed to provide long-term financing arrangements to TSYS Managed Services
to fund future growth and expansion. At the end of September 2009, the balance of the loan from
Merchants was approximately £2.0 million, or approximately $3.2 million, payable in total in five
years, at an interest rate of LIBOR plus 2%, with interest payable quarterly.
In April 2009, TSYS Managed Services repaid its short-term note of £1.3 million, or
approximately $1.8 million, that it acquired in June 2008.
39
TOTAL SYSTEM SERVICES, INC.
Item 4 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 required by Rule 13a-15
of the Securities Exchange Act of 1934, as amended (Exchange Act). This evaluation was carried
out under the supervision and with the participation of our management, including our chief
executive officer and chief financial officer. Based on this evaluation, the chief executive
officer and chief financial officer concluded that as of September 30, 2009, TSYS disclosure
controls and procedures were designed and effective to ensure that the information required to be
disclosed by TSYS in reports that it files under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms and were
also designed and effective to ensure that the information required to be disclosed in the reports
that TSYS files or submits under the Exchange Act is accumulated and communicated to management, as
appropriate to allow timely decisions regarding required disclosure. 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.
40
TOTAL SYSTEM SERVICES, INC.
Part II Other Information
Item 1A Risk Factors
In addition to the other information set forth in this report, one should carefully consider
the factors discussed in Part I, Item 1A. Risk Factors in the Companys Annual Report on Form
10-K for the year ended December 31, 2008, which could materially affect the Companys financial
position, results of operations or cash flows. The risks described in the Companys Annual Report
on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not
currently known to the Company or that the Company currently deems to be immaterial also may
materially adversely affect the Companys financial position, results of operations or cash flows.
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds
No purchases of TSYS stock were made pursuant to TSYS stock repurchase plan or otherwise
during the three months ended September 30, 2009. In addition, during the same period, no shares
of TSYS stock were delivered to it in payment of the exercise price of stock options or withheld to
cover taxes on vesting for non-vested shares granted.
Item 6 Exhibits
a) Exhibits
|
|
|
Exhibit |
|
|
Number |
|
Description |
3.2
|
|
Bylaws of TSYS, as amended,
incorporated by reference to Exhibit 3.1 of TSYS Current Report on Form 8-K dated July 28, 2009 |
|
|
|
10.1
|
|
Summary of Board of Directors Compensation |
|
|
|
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 |
41
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.
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TOTAL SYSTEM SERVICES, INC. |
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Date: November 9, 2009
|
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by:
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|
/s/ Philip W. Tomlinson |
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|
|
Philip W. Tomlinson
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Chairman of the Board and |
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Chief Executive Officer |
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Date: November 9, 2009
|
|
by:
|
|
/s/ James B. Lipham |
|
|
|
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|
|
James B. Lipham
|
|
|
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|
|
Senior Executive Vice President |
|
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|
and Chief Financial Officer |
|
|
42
TOTAL SYSTEM SERVICES, INC.
Exhibit Index
|
|
|
Exhibit Number |
|
Description |
3.2
|
|
Bylaws of TSYS, as amended,
incorporated by reference to Exhibit 3.1 of TSYS Current Report on Form 8-K dated July 28, 2009 |
|
|
|
10.1
|
|
Summary of Board of Directors Compensation |
|
|
|
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 |
43