-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F66LFLeuLTkOMQEZ8Q7aCH6GbMvEbxnXdWphOesTx+6//Rsc1vqhYLy8blL/kS4s X7s2zsCepgWN0vz3b1YHxA== 0000721683-97-000005.txt : 19970321 0000721683-97-000005.hdr.sgml : 19970321 ACCESSION NUMBER: 0000721683-97-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970320 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOTAL SYSTEM SERVICES INC CENTRAL INDEX KEY: 0000721683 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 581493818 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10254 FILM NUMBER: 97559783 BUSINESS ADDRESS: STREET 1: 1200 SIXTH AVE STREET 2: P O BOX 1755 CITY: COLUMBUS STATE: GA ZIP: 31902 BUSINESS PHONE: 7066492267 MAIL ADDRESS: STREET 1: P O BOX 2506 CITY: COLUMBUS STATE: GA ZIP: 31902-2506 10-K 1 10K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended 1996 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________ to______________. Commission file number 1-10254 TOTAL SYSTEM SERVICES, INC. (Exact Name of Registrant as specified in its charter) Georgia 58-1493818 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1200 Sixth Avenue, Columbus, Georgia 31901 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (706) 649-2204 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered - --------------------------- ----------------------------------------- Common Stock, $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO___________ ----------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 12, 1997, 129,289,680 shares of the $.10 par value common stock of Total System Services, Inc. were outstanding, and the aggregate market value of the shares of $.10 par value common stock of Total System Services, Inc. held by non-affiliates was approximately $554,512,500 (based upon the closing per share price of such stock on said date.) Portions of the 1996 Annual Report to Shareholders of Registrant are incorporated in Parts I, II, III and IV of this report. Portions of the Proxy Statement of Registrant dated March 13, 1997 are incorporated in Part III of this report. Registrant's Documents Incorporated by Reference Part Number and Item Document Incorporated Number of Form 10-K by Reference Into Which Incorporated - ------------------------------- ----------------------- Pages 18 through 25, 30 through Part I, Item 1, Business 33, and 37 of Registrant's 1996 Annual Report to Shareholders Pages 30 through 34, and 37 of Part I, Item 2, Properties Registrant's 1996 Annual Report to Shareholders Page 37 of Registrant's 1996 Part I, Item 3, Legal Annual Report to Shareholders Proceedings Page 39 of Registrant's 1996 Part II, Item 5, Market Annual Report to Shareholders for Registrant's Common Equity and Related Stock- holder Matters Page 17 of Registrant's 1996 Part II, Item 6, Selected Annual Report to Shareholders Financial Data Pages 18 through 25 of Registrant's Part II, Item 7, Management's 1996 Annual Report to Shareholders Discussion and Analysis of Financial Condition and Results of Operations Pages 26 through 39 Part II, Item 8, Financial of Registrant's 1996 Annual Statements and Supplementary Report to Shareholders Data Pages 2 through 4, 6 and 7, and 18 Part III, Item 10, of Registrant's Proxy Directors and Executive Statement in connection with Officers of the Registrant the Annual Meeting of Shareholders to be held on April 14, 1997 Pages 7 through 10, and 13 and 14 Part III, Item 11, of Registrant's Proxy Statement Executive Compensation in connection with the Annual Meeting of Shareholders to be held on April 14, 1997 Page 5, and 15 through 17 of Part III, Item 12, Security Registrant's Proxy Ownership of Certain Statement in connection with the Beneficial Owners and Annual Meeting of Management Shareholders to be held on April 14, 1997 Pages 13 through 15, and 17 and 18 Part III, Item 13, of Registrant's Proxy Statement in Certain Relationships connection with the Annual Meeting and Related Transactions of Shareholders to be held on April 14, 1997 and pages 32 and 33 of Registrant's 1996 Annual Report to Shareholders Pages 26 through 38 of Registrant's Part IV, Item 14, Exhibits, 1996 Annual Report to Shareholders Financial Statement Schedules and Reports on Form 8-K Cross Reference Sheet Item No. Caption Page No. Part I 1. Business 2. Properties 3. Legal Proceedings 4. Submission of Matters to a Vote of Security Holders Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters 6. Selected Financial Data 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 8. Financial Statements and Supplementary Data 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Part III 10. Directors and Executive Officers of the Registrant 11. Executive Compensation 12. Security Ownership of Certain Beneficial Owners and Management 13. Certain Relationships and Related Transactions Part IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K Item 1. Business. Business. Established in 1983 as an outgrowth of an on-line accounting and bankcard data processing system developed for Columbus Bank and Trust Company(R), Total System Services, Inc.(sm) ("TSYS(R)") is now one of the world's largest credit, debit, commercial, and private-label card processing companies. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol "TSS," TSYS provides a comprehensive on-line system of data processing services marketed as THE TOTAL SYSTEM(sm), servicing issuing institutions throughout the United States, Puerto Rico, Canada and Mexico, representing more than 79 million cardholder accounts. TSYS provides card production, domestic and international clearing, statement preparation, customer service support, merchant accounting, and management support. Synovus Financial Corp.(R), an $8.6 billion asset, multi-financial services company, owns 80.7 percent of TSYS. TSYS has four wholly owned subsidiaries: (1) Columbus Depot Equipment Company(sm) ("CDEC (sm)"), which sells and leases computer related equipment associated with TSYS' bankcard data processing services and bank data processing services provided by an affiliate; (2) Mailtek, Inc.(sm) ("Mailtek"), which provides full-service direct mail production services and offers data processing, list management, laser printing, computer output microfiche, card embossing, encoding and mailing services; (3) Lincoln Marketing, Inc.(sm) ("LMI"), which provides correspondence, fulfillment, telemarketing, data processing and mailing services; and (4) Columbus Productions, Inc.(sm) ("CPI"), which provides full-service commercial printing and related services. TSYS also holds a 49% equity interest in a joint venture company named Total System Services de Mexico, S.A. de C.V.("TSM"), which provides credit card related processing services to Mexican banks, and a 50% interest in Vital Processing Services L.L.C., a joint venture with Visa U.S.A. that combines the front-end authorizations and back-end accounting and settlement processing of financial and nonfinancial institutions and their merchant customers. Service Marks. TSYS owns a family of service marks containing the name Total System, and the federally registered service marks TSYS and TS2, to which TSYS believes strong customer identification attaches. TSYS also owns service marks associated with its subsidiaries. Management does not believe the loss of such marks would have a material impact on the business of TSYS. Major Customers. A significant amount of TSYS' revenues are derived from certain major customers who are processed under long-term contracts. For the year ended December 31, 1996, AT&T Universal Card Services Corp. and NationsBank accounted for 17.6% and 11.9%, respectively, of TSYS' total revenues. As a result, the loss of one of TSYS' major customers could have a material adverse effect on TSYS' financial condition and results of operations. - ------------------------------------ Synovus Financial Corp., Synovus, Columbus Bank and Trust Company and CB&T are federally registered service marks of Synovus Financial Corp. Total System Services, Inc., "THE TOTAL SYSTEM," Columbus Depot Equipment Company, CDEC, Lincoln Marketing, Inc., Mailtek, Inc. and Columbus Productions, Inc. are service marks of Total System Services, Inc. TSYS and TS2 are federally registered service marks of Total System Services, Inc. 1 Competition. TSYS encounters vigorous competition in providing bankcard data processing services from several different sources. The national market in third party bankcard data processors is presently being provided by approximately five vendors. TSYS believes that it is the second largest third party bankcard processor in the United States. In addition, TSYS competes against software vendors which provide their products to institutions which process in-house. TSYS is presently encountering, and in the future anticipates continuing to encounter, substantial competition from bankcard associations, data processing and bankcard computer service firms and other such third party vendors located throughout the United States. TSYS' major competitor in the bankcard data processing industry is First Data Resources, Inc., a wholly owned subsidiary of First Data Corporation, which is headquartered in Omaha, Nebraska, and provides bankcard data processing services, including authorization and data entry services. The principal methods of competition between TSYS and First Data Resources are price and the type and quality of services provided. Certain other subsidiaries of First Data Corporation also compete with TSYS. In addition, there are a number of other companies which have the necessary financial resources and the technological ability to develop or acquire products and, in the future, to provide services similar to those being offered by TSYS. Regulation and Examination. TSYS is subject to being examined, and is indirectly regulated, by the Office of the Comptroller of the Currency, the Federal Reserve Board ("Board"), the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the various state financial regulatory agencies which supervise and regulate the banks, savings institutions and credit unions for which TSYS provides bankcard data processing services. Matters reviewed and examined by these federal and state financial institution regulatory agencies have included TSYS' internal controls in connection with its present performance of bankcard data processing services, and the agreements pursuant to which TSYS provides such services. On January 4, 1990, the Federal Reserve Bank of Atlanta approved Synovus' indirect retention of its ownership of TSYS through Columbus Bank and Trust Company ("CB&T") and TSYS is now subject to direct regulation by the Board. TSYS was formed with the prior written approval of, and is subject to regulation and examination by, the Department of Banking and Finance of the State of Georgia as a subsidiary of CB&T and is authorized to engage in only those activities which CB&T itself is authorized to engage in directly, which includes the bankcard and other data processing services presently being provided by TSYS. As TSYS and its subsidiaries operate as subsidiaries of CB&T, they are subject to regulation by the Federal Deposit Insurance Corporation. Employees. As of February 28, 1997, TSYS had 2,664 full-time employees and 94 part-time employees. See the "Financial Review" Section on pages 18 through 25 and Note 1, Note 4 and Note 10 of Notes to Consolidated Financial Statements on pages 30 through 32, page 33, and page 37 of TSYS' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. 2 Item 2. Properties. TSYS owns its 73,000 square foot South Center located at 1000 Fifth Avenue, Columbus, Georgia 31901, and owns its 60,000 square foot Annex Building located at 420 10th Street, Columbus, Georgia 31901. TSYS also owns a warehouse facility, various other tracts of real estate located near or adjacent to its South Center and Annex Building which are used for parking and/or future expansion needs, and leases additional office space in Columbus, Georgia, Atlanta, Georgia, and Jacksonville, Florida. The approximately 32,000 square foot Columbus Depot, located at 1200 Sixth Avenue, Columbus, Georgia 31901, which is owned by TSYS and is on the National Register of Historic Places, houses TSYS' executive offices and several corporate divisions. TSYS also owns a 252,000 square foot production center which is located on a 40.4 acre tract of land in north Columbus, Georgia. Primarily a production center, this facility houses TSYS' primary data processing computer operations, statement preparation, mail handling, microfiche production and purchasing, as well as other related operations. Additional space will be added to this facility in 1997 to house TSYS' card production services. During 1995, TSYS purchased a 110,000 square foot building on a 23-acre site in Columbus, Georgia, to accommodate current and future office space needs. On March 7, 1996, TSYS announced its plans to purchase approximately 50 acres in downtown Columbus, Georgia, on which it will begin building a campus-like complex for its corporate headquarters in 1997. All properties owned and leased by TSYS are in good repair and suitable condition for the purposes for which they are used. In addition to its real property, TSYS owns and/or leases a substantial amount of computer equipment. See Note 1, Note 2, Note 3, Note 4, Note 6 and Note 10 of Notes to Consolidated Financial Statements on pages 30 through 33, page 34, and page 37 of TSYS' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. Item 3. Legal Proceedings. See Note 10 of Notes to Consolidated Financial Statements on page 37 of TSYS' 1996 Annual Report to Shareholders which is specifically incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders. None. 3 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. The "Quarterly Financial Data, Stock Price, Dividend Information" Section which is set forth on page 39 of TSYS' 1996 Annual Report to Shareholders is specifically incorporated herein by reference. On January 3, 1994, TSYS issued 404,492 shares of its $.10 par value common stock ("TSYS Common Stock") to CB&T in exchange for all 98,360 of the issued and outstanding shares of $5.00 par value common stock of CPI, which existed as a wholly owned subsidiary of CB&T. On November 6, 1995, TSYS issued 4,156 shares of TSYS Common Stock to an individual for no monetary consideration in connection with his employment by TSYS. On January 28, 1994 and January 29, 1996, TSYS issued 46,816 and 21,978 shares, respectively, to the two former shareholders of Mailtek. These shares were issued pursuant to the Acquisition Agreement between TSYS, Mailtek and the shareholders of Mailtek pursuant to which TSYS purchased all 10,000 of the issued and outstanding shares of $.05 par value common stock of Mailtek on July 15, 1992. All of the shares of TSYS Common Stock referenced above were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933 as they were issued to a limited number of persons. Item 6. Selected Financial Data. The "Selected Financial Data" Section which is set forth on page 17 of TSYS' 1996 Annual Report to Shareholders is specifically incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The "Financial Review" Section which is set forth on pages 18 through 25 of TSYS' 1996 Annual Report to Shareholders, which includes the information encompassed within "Management's Discussion and Analysis of Financial Condition and Results of Operations," is specifically incorporated herein by reference. Item 8. Financial Statements and Supplementary Data. The "Quarterly Financial Data, Stock Price, Dividend Information" Section, which is set forth on page 39, and the "Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Shareholders' Equity, Consolidated Statements of Cash Flows, Notes to Consolidated Financial Statements and Report of Independent Auditors" Sections, which are set forth on pages 26 through 38 of TSYS' 1996 Annual Report to Shareholders are specifically incorporated herein by reference. 4 Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. None. Item 10. Directors and Executive Officers of the Registrant. The "ELECTION OF DIRECTORS - Information Concerning Number and Classification of Directors and Nominees" Section which is set forth on pages 2 and 3, the "ELECTION OF DIRECTORS - Information Concerning Directors and Nominees for Class II Directors - General Information" Section which is set forth on pages 3 and 4, the "ELECTION OF DIRECTORS - Executive Officers" Section which is set forth on pages 6 and 7, and the "SECTION 16(a) Beneficial Ownership Reporting Compliance" Section which is set forth on page 18 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 14, 1997 are specifically incorporated herein by reference. Item 11. Executive Compensation. The "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises and Grants; Compensation of Directors; Change in Control Arrangements; and Compensation Committee Interlocks and Insider Participation" Sections which are set forth on pages 7 through 10, and pages 13 and 14 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 14, 1997 are specifically incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management. The "ELECTION OF DIRECTORS - Information Concerning Directors and Nominees for Class II Directors - TSYS Common Stock Ownership of Directors and Management" Section which is set forth on page 5, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Common Stock by CB&T" Section which is set forth on page 15, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - - Synovus Common Stock Ownership of Directors and Management" Section which is set forth on pages 15 through 17 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 14, 1997 are specifically incorporated herein by reference. Item 13. Certain Relationships and Related Transactions. The "EXECUTIVE COMPENSATION - Compensation Committee Interlocks and Insider Participation" Section which is set forth on pages 13 and 14, "EXECUTIVE COMPENSATION - Transactions with Management" Section which is set forth on page 14, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Common Stock by CB&T" Section which is set forth on page 15, the "RELATIONSHIPS BETWEEN TSYS, 5 SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Interlocking Directorates of TSYS, Synovus and CB&T" Section which is set forth on page 15, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T, AND CERTAIN OF SYNOVUS' SUBSIDIARIES - - Bankcard Data Processing Services Provided to CB&T and Certain of Synovus' Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries" Section which is set forth on pages 17 and 18 of TSYS' Proxy Statement in connection with the Annual Meeting of Shareholders of TSYS to be held on April 14, 1997 are specifically incorporated herein by reference. See also Note 2 of Notes to Consolidated Financial Statements on pages 32 and 33 of TSYS' 1996 Annual Report to Shareholders which is specifically incorporated herein by reference. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) 1. Financial Statements The following Consolidated Financial Statements of TSYS are specifically incorporated by reference from pages 26 through 38 of TSYS' 1996 Annual Report to Shareholders to Item 8, Part II, Financial Statements and Supplementary Data. Consolidated Balance Sheets - December 31, 1996 and 1995. Consolidated Statements of Income - Years Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Shareholders' Equity - Years Ended December 31, 1996, 1995 and 1994. Consolidated Statements of Cash Flows - Years Ended December 31, 1996, 1995 and 1994. Notes to Consolidated Financial Statements. Report of Independent Auditors. 2. Index to Financial Statement Schedules The following report of independent auditors and consolidated financial statement schedule of Total System Services, Inc. are included: Report of Independent Auditors. Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 1996, 1995 and 1994. All other schedules are omitted because they are inapplicable 6 or the required information is included in the Notes to Consolidated Financial Statements. 3. Exhibits Exhibit Number Description 3.1 Articles of Incorporation of Total System Services, Inc. ("TSYS"), as amended, incorporated by reference to Exhibit 3.1 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1990, as filed with the Commission on March 19, 1991. 3.2 Bylaws of TSYS. 10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.1 Director Stock Purchase Plan of TSYS, incorporated by reference to Exhibit 10.1 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.2 Group "Y" Key Executive Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.2 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.3 1985 Key Employee Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.3 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.4 1990 Key Employee Restricted Stock Bonus Plan of TSYS, incorporated by reference to Exhibit 10.4 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.5 Total System Services, Inc. 1992 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.5 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.6 Excess Benefit Agreement of TSYS, incorporated by reference to Exhibit 10.6 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.7 Wage Continuation Agreement of TSYS, incorporated by 7 reference to Exhibit 10.7 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.8 Incentive Bonus Plan of Synovus Financial Corp. in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.8 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.9 Agreement in connection with use of aircraft, incorporated by reference to Exhibit 10.9 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.10 Split Dollar Insurance Agreement of TSYS, incorporated by reference to Exhibit 10.10 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as filed with the Commission on March 22, 1994. 10.11 Synovus Financial Corp. 1994 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.11 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 9, 1995. 10.12 Synovus Financial Corp. Executive Bonus Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.12 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.13 Change of Control Agreements for executive officers of TSYS, incorporated by reference to Exhibit 10.13 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.14 Stock Option Agreement of Samuel A. Nunn. 11.1 Statement re Computation of Per Share Earnings. 13.1 Certain specified pages of TSYS' 1996 Annual Report to Shareholders which are specifically incorporated herein by reference. 8 20.1 Proxy Statement for the Annual Meeting of Shareholders of TSYS to be held on April 14, 1997, certain pages of which are specifically incorporated herein by reference. 21.1 Subsidiaries of Total System Services, Inc. 23.1 Independent Auditor' Consent. 24.1 Powers of Attorney contained on the signature pages of the 1996 Annual Report on Form 10-K. 27.1 Financial Data Schedule (for SEC use only). 99.1 Annual Report on Form 11-K for the Total System Services, Inc. Employee Stock Purchase Plan for the year ended December 31, 1996 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.) 99.2 Annual Report on Form 11-K for the Total System Services, Inc. Director Stock Purchase Plan for the year ended December 31, 1996 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.) (b) Reports on Form 8-K On September 20, 1996, TSYS filed a Form 8-K with the Commission in connection with the announcement of its expectation that earnings for 1996 would exceed current analysts' estimates by approximately 10%. TSYS\TSYS96.10K 9 Report of Independent Auditors The Board of Directors Total System Services, Inc. Under date of January 22, 1997, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the Total System Services, Inc. 1996 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the Total System Services, Inc. Annual Report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in Item 14(a)2. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Atlanta, Georgia January 22, 1997 Total System Services, Inc. Schedule II Valuation and Qualifying Accounts
__________________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________________ Additions ________________________ Charged to Balance at Charged to other Balance at beginning costs and accounts-- Deductions-- end of Description of period expenses describe describe period __________________________________________________________________________________________________________________________ Year ended December 31, 1994: (16,347) Allowance for doubtful accounts $ 815,073 - - (542,958) $ 255,768 ======= ======= ======= ======== ======== Year ended December 31, 1995: Allowance for doubtful accounts $ 255,768 509,500 - (50,894) $ 714,374 ======= ======= ======= ======== ======== Year ended December 31, 1996: Allowance for doubtful accounts $ 714,374 94,500 - (104,392) $ 704,482 ======= ======= ======= ======== ======== - -------------------- Accounts deemed to be uncollectible and written off during the year. Reversal of provision for bad debt expense to adjust allowance for doubtful accounts to appropriate amounts.
SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Total System Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOTAL SYSTEM SERVICES, INC. (Registrant) March 20, 1997 By:/s/Richard W. Ussery ----------------------------------- Richard W. Ussery, Chairman and Principal Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, Richard W. Ussery and Philip W. Tomlinson, and each of them, his true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. /s/James H. Blanchard Date: March 20, 1997 - ------------------------------------------------ James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 20, 1997 - ------------------------------------------------ Richard W. Ussery, Chairman of the Board and Principal Executive Officer /s/Philip W. Tomlinson Date: March 20, 1997 - -------------------------------------------------- Philip W. Tomlinson, President and Director /s/James B. Lipham Date: March 20, 1997 - ------------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/William A. Pruett Date: March 20, 1997 - ------------------------------------------------- William A. Pruett, Executive Vice President /s/M. Troy Woods Date: March 20, 1997 - ------------------------------------------------- M. Troy Woods, Executive Vice President /s/Griffin B. Bell Date: March 20, 1997 - ------------------------------------------------- Griffin B. Bell, Director /s/Richard Y. Bradley Date: March 20, 1997 - ------------------------------------------------- Richard Y. Bradley, Director /s/Gardiner W. Garrard, Jr., Date: March 20, 1997 - ------------------------------------------------- Gardiner W. Garrard, Jr., Director /s/John P. Illges, III Date: March 20, 1997 - ------------------------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 20, 1997 - ------------------------------------------------- Mason H. Lampton, Director /s/Samuel A. Nunn Date: March 20, 1997 - ------------------------------------------------- Samuel A. Nunn, Director /s/H. Lynn Page Date: March 20, 1997 - ------------------------------------------------- H. Lynn Page, Director /s/W. Walter Miller, Jr. Date: March 20, 1997 - ------------------------------------------------- W. Walter Miller, Jr., Director /s/William B. Turner Date: March 20, 1997 - ------------------------------------------------- William B. Turner, Director /s/George C. Woodruff, Jr. Date: March 20, 1997 - ------------------------------------------------- George C. Woodruff, Jr., Director /s/James D. Yancey Date: March 20, 1997 - ------------------------------------------------- James D. Yancey, Director filings/tss\confo.sig EX-3.2 2 EXHIBIT 3.2 EXHIBIT 3.2 As Amended and Restated Effective January 24, 1997 BYLAWS OF TOTAL SYSTEM SERVICES, INC. ARTICLE I. OFFICES Section 1. Principal Office. The principal office for the transaction of the business of the corporation shall be located in Muscogee County, Georgia, at such place within said County as may be fixed from time to time by the Board of Directors. Section 2. Other Offices. Branch offices and places of business may be established at any time by the Board of Directors at any place or places where the corporation is qualified to do business, whether within or without the State of Georgia. ARTICLE II. SHAREHOLDERS' MEETINGS Section 1. Meetings, Where Held. Any meeting of the shareholders of the corporation, whether an annual meeting or a special meeting, may be held either at the principal office of the corporation or at any place in the United States within or without the State of Georgia. Section 2. Annual Meeting. The annual meeting of the shareholders of the corporation for the election of Directors and for the transaction of such other business as may properly come before the meeting shall be held on such date and at such time and place as is determined by the Board of Directors of the corporation each year. Provided, however, that if the Board of Directors shall fail to set a date for the annual meeting of shareholders in any year, that the annual meeting of the shareholders of the corporation shall be held on the second Monday in April of each year; provided, that if said day shall fall upon a legal holiday, then such annual meeting shall be held on the next day thereafter ensuing which is not a legal holiday. In addition to any other applicable requirements, for business to properly come before the meeting, notice of any nominations of persons for election to the Board of Directors or of any other business to be brought before an annual meeting of shareholders by a shareholder must be provided in writing to the Secretary of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the date of the 1 meeting and such business must constitute a proper subject to be brought before such meeting. Such shareholder's notice shall set forth (a) as to each person whom the shareholder proposes to nominate for election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the Proxy Statement in connection with such annual meeting as a nominee and to serving as a director if elected), and evidence reasonably satisfactory to the corporation that such nominee has no interests that would limit such nominee's ability to fulfill his or her duties of office; (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the corporation's books, and of such beneficial owner and (ii) the class and number of shares of the corporation that are owned beneficially and held of record by such shareholder and such beneficial owner. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2. The Chairman of the Board of Directors shall, if the facts warrant, determine and declare to the meeting that business has not been properly brought before the meeting in accordance with the provisions of this Section 2, and if the Chairman should so determine, the Chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Section 3. Special Meetings. A special meeting of the shareholders of the corporation, for any purpose or purposes whatsoever, may be called at any time by the Chairman of the Board, any Vice Chairman of the Board, if elected, the President, any Vice President, a majority of the Board of Directors, or one or more shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Such a call for a special meeting must state the purpose of the meeting. This section, as it relates to the call of a special meeting of the shareholders of the corporation by one or more shareholders holding at least 80% of the issued and outstanding shares of common stock of the corporation shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Section 4. Notice of Meetings. Unless waived, written notice of each annual meeting and of each special meeting of the shareholders of the corporation shall be given to each shareholder of record entitled to vote, either personally or by first class mail (postage prepaid) addressed to such shareholder at his last known address, not less than ten (10) days nor more than seventy (70) days prior to said meeting. Such written notice shall specify the place, day and hour of the meeting; and in the case of 2 a special meeting, it shall also specify the purpose or purposes for which the meeting is called. Section 5. Waiver of Notice. Notice of any annual or special meeting of the shareholders of the corporation may be waived by any shareholder, either before or after the meeting; and the attendance of a shareholder at a meeting, either in person or by proxy, shall of itself constitute waiver of notice and waiver of any and all objections to the place or time of the meeting, or to the manner in which it has been called or convened, except when a shareholder attends solely for the purpose of stating, at the beginning of the meeting, an objection or objections to the transaction of business at such meeting. Section 6. Quorum, Voting and Proxy. Shareholders representing a majority of the issued and outstanding shares of common stock of the corporation shall constitute a quorum at a shareholders' meeting. Each shareholder shall be entitled to one vote for each share of common stock owned. Any shareholder may be represented and vote at any shareholders' meeting by written proxy filed with the Secretary of the corporation on or before the date of such meeting; provided, however, that no proxy shall be valid for more than 11 months after the date thereof unless otherwise specified in such proxy. Section 7. No Meeting Necessary When. Any action required by law or permitted to be taken at any shareholders' meeting may be taken without a meeting if, and only if, written consent, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof. Such consent shall have the same force and effect as a unanimous vote of the shareholders and shall be filed with the Secretary and recorded in the Minute Book of the corporation. ARTICLE III. DIRECTORS Section 1. Number. The Board of Directors of the corporation shall consist of not less than 8 nor more than 60 Directors. The number of Directors may vary between said minimum and maximum, and within said limits, the shareholders holding at least 80% of the issued and outstanding shares of common stock of the corporation may, from time to time, by resolution fix the number of Directors to comprise said Board. This section, as it relates to from time to time, fixing the number of Directors of the corporation by the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Section 2. Election and Tenure. The Board of Directors of the corporation shall be divided into three classes serving staggered 3-year terms, with each class to be as nearly equal in number as possible. At the first annual meeting of the 3 shareholders of the corporation, all members of the Board of Directors shall be elected with the terms of office of Directors comprising the first class to expire at the first annual meeting of the shareholders of the corporation after their election, the terms of office of Directors comprising the second class to expire at the second annual meeting of the shareholders of the corporation after their election and the terms of office of Directors comprising the third class to expire at the third annual meeting of the shareholders of the corporation after their election, and as their terms of office expires, the Directors of each class will be elected to hold office until the third succeeding annual meeting of the shareholders of the corporation after their election. In such elections, the nominees receiving a plurality of votes shall be elected. This section, as it relates to the division of the Board of Directors into three classes serving staggered 3-year terms, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Section 3. Powers. The Board of Directors shall have authority to manage the affairs and exercise the powers, privileges and franchises of the corporation as they may deem expedient for the interests of the corporation, subject to the terms of the Articles of Incorporation, bylaws, and such policies and directions as may be prescribed from time to time by the shareholders of the corporation. Section 4. Meetings. The annual meeting of the Board of Directors shall be held without notice immediately following the annual meeting of the shareholders of the corporation, on the same date and at the same place as said annual meeting of the shareholders. The Board by resolution may provide for regular meetings, which may be held without notice as and when scheduled in such resolution. Special meetings of the Board may be called at any time by the Chairman of the Board, any Vice Chairman of the Board, if elected, the President or by any two or more Directors. Section 5. Notice and Waiver; Quorum. Notice of any special meeting of the Board of Directors shall be given to each Director personally or by mail, telegram or cablegram addressed to him at his last known address, at least one day prior to the meeting. Such notice may be waived, either before or after the meeting; and the attendance of a Director at any special meeting shall of itself constitute a waiver of notice of such meeting and of any and all objections to the place or time of the meeting, or to the manner in which it has been called or convened, except where a Director states, at the beginning of the meeting, any such objection or objections to the transaction of business. A majority of the Board of Directors shall constitute a quorum at any Directors' meeting. Section 6. No Meeting Necessary, When. Any action required by law or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if written consent, setting forth the action so taken, shall be signed by all the Directors. Such consent shall have the same force and affect as a unanimous vote of 4 the Board of Directors and shall be filed with the Secretary and recorded in the Minute Book of the corporation. Section 7. Voting. At all meetings of the Board of Directors each Director shall have one vote and, except as otherwise provided herein or provided by law, all questions shall be determined by a majority vote of the Directors present. Section 8. Removal. Any one or more Directors or the entire Board of Directors may be removed from office, with or without cause, by the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation at any shareholders' meeting with respect to which notice of such purpose has been given. This section, as it relates to the removal of Directors of the corporation by the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation, shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation. Section 9. Vacancies. Any vacancy occurring in the Board of Directors caused by an increase in the number of Directors may be filled by the shareholders of the corporation for a full classified 3-year term, or such vacancy may be filled by the Board of Directors until the next annual meeting of the shareholders. Any vacancy occurring in the Board of Directors caused by the removal of a Director shall be filled by the shareholders, or if authorized by the shareholders, by the Board of Directors, for the unexpired term of the Director so removed. Any vacancy occurring in the Board of Directors caused by a reason other than an increase in the number of Directors or removal of a Director may be filled by the Board of Directors, or the shareholders, for the unexpired term of the Director whose position is vacated. Vacancies in the Board of Directors filled by the Board of Directors may be filled by the affirmative vote of a majority of the remaining Directors, though less than a quorum, or the sole remaining Director, as the case may be. Section 10. Dividends. The Board of Directors may declare dividends payable in cash or other property out of the unreserved and unrestricted net earnings of the current fiscal year, computed to the date of declaration of the dividend, or the preceding fiscal year, or out of the unreserved and unrestricted earned surplus of the corporation, as they may deem expedient. Section 11. Committees. In the discretion of the Board of Directors, said Board from time to time may elect or appoint, from its own members, one or more committees as said Board may see fit to establish. Each such committee shall consist of three or more Directors, and each shall possess such powers and be charged with such responsibilities, subject to the limitations imposed by applicable law, as the Board by resolution may from time to time prescribe. 5 Section 12. Officers, Salaries and Bonds. The Board of Directors shall elect all officers of the corporation and fix their compensation. The fact that any officer is a Director shall not preclude him from receiving a salary or from voting upon the resolution providing the same. The Board of Directors may or may not, in their discretion, require bonds from either or all of the officers and employees of the corporation for the faithful performance of their duties and good conduct while in office. Section 13. Compensation of Directors. Directors, as such shall be entitled to receive compensation for their service as Directors and such fees and expenses, if any, for attendance at each regular or special meeting of the Board and any adjournments thereof, as may be fixed from time to time by resolution of the Board, and such fees and expenses shall be payable even though an adjournment be had because of the absence of a quorum; provided, however, that nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity and receiving compensation therefore. Members of either standing or special committees may be allowed such compensation as may be provided from time to time by resolution of the Board for serving upon and attending meetings of such committees. Section 14. Emeritus Directors. When a member of the Board of Directors of the corporation, as the case may be: (a) attains seventy (70) years of age or, (b) prior to his attainment of seventy (70) years of age, retires from his principal occupation, under the retirement policy and criteria established from time to time by the Board of Directors of the corporation (except for a member of the Board of Directors of the corporation: (1) who is, upon the attainment of age seventy (70), then serving as an executive officer, including Chairman of the Board or Chairman of the Executive Committee of the corporation or its parent or grandparent corporation; or (2) who was sixty (60) years of age on June 14, 1973), such director shall automatically, at his option, either (i) retire from the Board of Directors of the corporation, as the case may be; or (ii) be appointed as a member of the Emeritus Board of Directors of the corporation. A member of the Board of Directors of the corporation: (1) who is, upon the attainment of age seventy (70), then serving as an executive officer, including Chairman of the Board or Chairman of the Executive Committee, of the corporation or its parent or grandparent corporation; or (2) who was sixty (60) years of age on June 14, 1973, may, at his option, either: (a) continue his service as a member of the Board of Directors of the corporation, as the case may be; or (b) be appointed as a member of the Emeritus Board of Directors of the corporation. Members of the Emeritus Board of Directors of the corporation shall be appointed annually by the Chairman of the Board of Directors of the corporation at the Annual Meeting of the Board of Directors of the corporation, or from time to time thereafter. Each member of the Emeritus Board of Directors of the corporation, except in the case of his earlier death, resignation, retirement, disqualification or removal, shall serve until the next succeeding Annual Meeting of the Board of Directors of the corporation. Any individual appointed as a member of the Emeritus Board of Directors of the corporation may, but shall not be required to, attend meetings of the Board of Directors of the corporation and may participate in any discussions thereat, but such 6 individual may not vote at any meeting of the Board of Directors of the corporation or be counted in determining a quorum at any meeting of the Board of Directors of the corporation, as provided in Section 5 of Article III of the bylaws of the corporation. It shall be the duty of the members of the Emeritus Board of Directors of the corporation to serve as goodwill ambassadors of the corporation, but such individuals shall not have any responsibility or be subject to any liability imposed upon a member of the Board of Directors of the corporation or in any manner otherwise be deemed to be a member of the Board of Directors of the corporation. Each member of the Emeritus Board of Directors of the corporation shall be paid such compensation as may be set from time to time by the Chairman of the Board of Directors of the corporation and shall remain eligible to participate in any Director Stock Purchase Plan maintained by, or participated in, from time to time by the corporation according to the terms and conditions thereof. Notwithstanding the foregoing, if a member of the Board of Directors of the corporation is initially elected to the Board of Directors within six years of his attainment of seventy (70) years of age, such member may, subject to his continuing election to the Board of Directors of the corporation, serve as a director of the corporation for a period ending the later of (i) six years from the date of his initial election to the Board of Directors of the corporation; or (ii) the expiration of the term of office of such director to which he was last elected during such six year period, at which time such director shall automatically, at his option, either (i) retire from the Board of Directors of the corporation; or (ii) be appointed as a member of the Emeritus Board of Directors of the corporation." Section 15. Advisory Directors. The Board of Directors of the corporation may at its annual meeting, or from time to time thereafter, appoint any individual to serve as a member of an Advisory Board of Directors of the corporation. Any individual appointed to serve as a member of an Advisory Board of Directors of the corporation shall be entitled to attend all meetings of the Board of Directors and may participate in any discussion thereat, but such individual may not vote at any meeting of the Board of Directors or be counted in determining a quorum for such meeting. It shall be the duty of members of the Advisory Board of Directors of the corporation to advise and provide general policy advice to the Board of Directors of the corporation at such times and places and in such groups and committees as may be determined from time to time by the Board of Directors, but such individuals shall not have any responsibility or be subject to any liability imposed upon a director or in any manner otherwise deemed a director. The same compensation paid to directors for their services as directors shall be paid to members of an Advisory Board of Directors of the corporation for their services as advisory directors. Each member of the Advisory Board of Directors except in the case of his earlier death, resignation, retirement, disqualification or removal, shall serve until the next succeeding annual meeting of the Board of Directors and thereafter until his successor shall have been appointed. ARTICLE IV. OFFICERS Section 1. Selection. The Board of Directors at each annual meeting shall elect or appoint a Chairman of the Board, a President, a Secretary and a Treasurer, each to serve for the ensuing year and until his successor is elected and 7 qualified, or until his earlier resignation, removal from office, or death. The Board of Directors, at such meeting, may or may not, in the discretion of the Board, elect one or more Vice Chairmen of the Board, one or more Chairmen of the Board-Emeritus, one or more Vice Presidents, one or more Assistant Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as the Board of Directors, in its discretion, shall determine are desirable for the management of the business and affairs of the corporation. When more than one Vice President is elected, they may, in the discretion of the Board, be designated Executive Vice President, First Vice President, Second Vice President, etc., according to seniority or rank, and any person may hold two or more offices, except that the President shall not also serve as the Secretary. Section 2. Removal, Vacancies. Any officers of the corporation may be removed from office at any time by the Board of Directors, with or without cause. Any vacancy occurring in any office of the corporation may be filled by the Board of Directors. Section 3. Chairman of the Board. The Chairman of the Board of Directors, shall, whenever present, preside at all meetings of the Board of Directors and at all meetings of the shareholders. The Chairman of the Board of Directors shall confer with the President on matters of general policy affecting the business of the corporation and shall have, in his discretion, power and authority to generally supervise all the affairs of the corporation and the acts and conduct of all the officers of the corporation, and shall have such other duties as may be conferred upon him. Any Vice Chairman of the Board, if elected, shall perform the duties of the Chairman of the Board during the absence or disability of the Chairman of the Board and shall have such other duties as may be conferred upon him by the Board of Directors or the Chairman of the Board. Section 4. President. In the absence of the Chairman of the Board and if there be no Vice Chairman of the Board elected, or in his absence, the President shall preside at all meetings of the Board of Directors and at all meetings of the shareholders. The immediate supervision of the affairs of the corporation shall be vested in the President. It shall be his duty to attend constantly to the business of the corporation and maintain strict supervision over all of its affairs and interests. He shall keep the Board of Directors fully advised of the affairs and condition of the corporation, and shall manage and operate the business of the corporation pursuant to such policies as may be prescribed from time to time by the Board of Directors. The President shall, subject to approval of the Board, hire and fix the compensation of all employees and agents of the corporation, other than officers, and any person thus hired shall be removable at his pleasure. Section 5. Vice President. Any Vice President of the corporation may be designated by the Board of Directors to act for and in the place of the President in the event of sickness, disability or absence of the President or the failure of the President to act for any reason, and when so designated, such Vice President shall exercise all the 8 powers of the President in accordance with such designation. The Vice Presidents shall have such duties as may be required of, or assigned to, them by the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board, if elected, or the President. Section 6. Secretary. It shall be the duty of the Secretary to keep a record of the proceedings of all meetings of the shareholders and Board of Directors; to keep the stock records of the corporation; to notify the shareholders and Directors of meetings as provided by these bylaws; and to perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, or the President. Any Assistant Secretary, if elected, shall perform the duties of the Secretary during the absence or disability of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, the President or the Secretary. Section 7. Treasurer. The Treasurer shall keep, or cause to be kept, the financial books and records of the corporation, and shall faithfully account for its funds. He shall make such reports as may be necessary to keep the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, and the President fully informed at all times as to the financial condition of the corporation, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, or the President. Any Assistant Treasurer, if elected, shall perform the duties of the Treasurer during the absence or disability of the Treasurer, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, the President or the Treasurer. ARTICLE V. CONTRACTS, ETC. Section 1. Contracts, Deeds and Loans. All contracts, deeds, mortgages, pledges, promissory notes, transfers and other written instruments binding upon the corporation shall be executed on behalf of the corporation by the Chairman of the Board, any Vice Chairman of the Board, if elected, the President, any Executive Vice President, any Vice Presidents who report directly to such Executive Vice Presidents, or by such other officers or agents as the Board of Directors may designate from time to time. Any such instrument required to be given under the seal of the corporation may be attested by the Secretary or Assistant Secretary of the corporation. Section 2. Proxies. The Chairman of the Board, any Vice Chairman of the Board, if elected, the President, any Vice President, the Secretary or the Treasurer of the corporation shall have full power and authority, on behalf of the corporation, to attend and to act and to vote at any meetings of the shareholders, bond holders or other security holders of any corporation, trust or association in which the corporation may hold securities, and at and in connection with any such meeting shall possess and may exercise any and all of the rights and powers incident to the ownership of such securities 9 and which as owner thereof the corporation might have possessed and exercised if present, including the power to execute proxies and written waivers and consents in relation thereto. In the case of conflicting representation at any such meeting, the corporation shall be represented by its highest ranking officer, in the order first above stated. Notwithstanding the foregoing, the Board of Directors may, by resolution, from time to time, confer like powers upon any other person or persons. ARTICLE VI. CHECKS AND DRAFTS Checks and drafts of the corporation shall be signed by such officer or officers or such other employees or persons as the Board of Directors may from time to time designate. ARTICLE VII. STOCK Section 1. Certificates of Stock. The certificates for shares of capital stock of the corporation shall be in such form as shall be determined by the Board of Directors. They shall be numbered consecutively and entered into the stock book of the corporation as they are issued. Each certificate shall state on its face the fact that the corporation is a Georgia corporation, the name of the person to whom the shares are issued, the number and class of shares (and series, if any) represented by the certificate and their par value, or a statement that they are without par value. In addition, when and if more than one class of shares shall be outstanding, all share certificates of whatever class shall state that the corporation will furnish to any shareholder upon request and without charge a full statement of the designations, relative rights, preferences and limitations of the shares of each class authorized to be issued by the corporation. Section 2. Signature; Transfer Agent; Registrar. Share certificates shall be signed by the President or any Vice President and by the Secretary or an Assistant Secretary of the corporation, and shall bear the seal of the corporation or a facsimile thereof. The Board of Directors may from time to time appoint transfer agents and registrars for the shares of capital stock of the corporation or any class thereof, and when any share certificate is countersigned by a transfer agent or registered by a registrar, the signature of any officer of the corporation appearing thereon may be a facsimile signature. In case any officer who signed, or whose facsimile signature was placed upon, any such certificate shall have died or ceased to be such officer before such certificate is issued, it may nevertheless be issued with the same effect as if he continued to be such officer on the date of issue. Section 3. Stock Book. The corporation shall keep at its principal office, or at the office of its transfer agent, wherever located, with a copy at the principal office of the corporation, a book, to be known as the stock book of the corporation, containing in alphabetical order name of each shareholder of record, together with his address, the number of shares of each kind, class or series of stock held by him and his 10 social security number. The stock book shall be maintained in current condition. The stock book, including the share register, or the duplicate copy thereof maintained at the principal office of the corporation, shall be available for inspection and copying by any shareholder at any meeting of the shareholders upon request, or, for a bona fide purpose which is in the best interest of the business of the corporation, at other times upon the written request of any shareholder or holder of a voting trust certificate. The stock book may be inspected and copied either by a shareholder or a holder of a voting trust certificate in person, or by their duly authorized attorney or agent. The information contained in the stock book and share register may be stored on punch cards, magnetic tape, or any other approved information storage devices related to electronic data processing equipment, provided that any such method, device, or system employed shall first be approved by the Board of Directors, and provided further that the same is capable of reproducing all informations contained therein, in legible and understandable form, for inspection by shareholders or for any other proper corporate purpose. Section 4. Transfer of Stock; Registration of Transfer. The stock of the corporation shall be transferred only by surrender of the certificate and transfer upon the stock book of the corporation. Upon surrender to the corporation, or to any transfer agent or registrar for the class of shares represented by the certificate surrendered, of a certificate properly endorsed for transfer, accompanied by such assurances as the corporation, or such transfer agent or registrar, may require as to the genuineness and effectiveness of each necessary endorsement and satisfactory evidence of compliance with all applicable laws relating to securities transfers and the collection of taxes, it shall be the duty of the corporation, or such transfer agent or registrar, to issue a new certificate, cancel the old certificate and record the transactions upon the stock book of the corporation. Section 5. Registered Shareholders. Except as otherwise required by law, the corporation shall be entitled to treat the person registered on its stock book as the owner of the shares of the capital stock of the corporation as the person exclusively entitled to receive notification, dividends or other distributions, to vote and to otherwise exercise all the rights and powers of ownership and shall not be bound to recognize any adverse claim. Section 6. Record Date. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or to express consent to or dissent from any proposal without a meeting, or for the purpose of determining shareholders entitled to receive payment of any dividend or the allotment of any rights, or for the purpose of any other action affecting the interests of shareholders, the Board of Directors may fix, in advance, a record date. Such date shall not be more than seventy (70) nor less than ten (10) days before the date of any such meeting nor more than seventy (70) days prior to any other action. In each case, except as otherwise provided by law, only such persons as shall be shareholders of record on the date so fixed shall be entitled to notice of and to vote at such meeting and 11 any adjournment thereof, to express such consent or dissent, or to receive payment of such dividend or such allotment of rights, or otherwise be recognized as shareholders for any other related propose, notwithstanding any registration of a transfer of shares on the stock book of the corporation after any such record date so fixed. Section 7. Lost Certificates. When a person to whom a certificate of stock has been issued alleges it to have been lost, destroyed or wrongfully taken, and if the corporation, transfer agent or registrar is not on notice that such certificate has been acquired by a bona fide purchaser, a new certificate may be issued upon such owner's compliance with all of the following conditions, to-wit: (a) He shall file with the Secretary of the corporation, and the transfer agent or the registrar, his request for the issuance of a new certificate, with an affidavit setting for the time, place and circumstances of the loss; (b) He shall also file with the Secretary, and the transfer agent or the registrar, a bond with good and sufficient security acceptable to the corporation and the transfer agent or the registrar, or other agreement of indemnity acceptable to the corporation and the transfer agent or the registrar, conditioned to indemnify and save harmless the corporation and the transfer agent or the registrar from any and all damage, liability and expense of every nature whatsoever resulting from the corporation's or the transfer agent's or the registrar's issuing a new certificate in place of the one alleged to have been lost; and (c) He shall comply with such other reasonable requirements as the Board of Directors, the Chairman of the Board, any Vice Chairman of the Board, if elected, or the President of the corporation, and the transfer agent or the registrar shall deem appropriate under the circumstances. Section 8. Replacement of Mutilated Certificates. A new certificate may be issued in lieu of any certificate previously issued that may be defaced or mutilated upon surrender for cancellation of a part of the old certificate sufficient in the opinion of the Secretary and the transfer agent or the registrar to duly identify the defaced or mutilated certificate and to protect the corporation and the transfer agent or the registrar against loss or liability. Where sufficient identification is lacking, a new certificate may be issued upon compliance with the conditions set forth in Section 7 of this Article VII. ARTICLE VIII. INDEMNIFICATION AND REIMBURSEMENT Subject to any express limitations imposed by applicable law, every person now or hereafter serving as a director, officer, employee or agent of the corporation and all former directors and officers, employees or agents shall be indemnified and held harmless by the corporation from and against the obligation to pay a judgement, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), and reasonable expenses (including attorneys' fees and disbursements) that may be imposed upon or incurred by him or her in connection with or resulting from any threatened, pending, or completed, action, suit, or proceeding, whether civil, criminal, administrative, investigative, formal or informal, in which he or she is, or is 12 threatened to be made, a named defendant or respondent: (a) because he or she is or was a director, officer, employee, or agent of the corporation; (b) because he or she is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; or (c) because he or she is or was serving as an employee of the corporation who was employed to render professional services as a lawyer or an accountant to the corporation; regardless of whether such person is acting in such a capacity at the time such obligation shall have been imposed or incurred, if (i) such person acted in a manner he or she believed in good faith to be in or not opposed to the best interests of the corporation, and, with respect to any criminal proceeding, if such person had no reasonable cause to believe his or her conduct was unlawful or (ii), with respect to an employee benefit plan, such person believed in good faith that his or her conduct was in the interests of the participants in and beneficiaries of the plan. Reasonable expenses incurred in any proceeding shall be paid by the corporation in advance of the final disposition of such proceeding if authorized by the Board of Directors in the specific case, or if authorized in accordance with procedures adopted by the Board of Directors, upon receipt of a written undertaking executed personally by or on behalf of the director, officer, employee, or agent to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation, and a written affirmation of his or her good faith belief that he or she has met the standard of conduct required for indemnification. The foregoing rights of indemnification and advancement of expenses shall not be deemed exclusive of any other right to which those indemnified may be entitled, and the corporation may provide additional indemnity and rights to its directors, officers, employees or agents to the extent they are consistent with law. The provisions of this Article VIII shall cover proceedings whether now pending or hereafter commenced and shall be retroactive to cover acts or omissions or alleged acts or omissions which heretofore have taken place. In the event of death of any person having a right of indemnification or advancement of expenses under the provisions of this Article VIII, such right shall inure to the benefit of his or her heirs, executors, administrators and personal representatives. If any part of this Article VIII should be found to be invalid or ineffective in any proceeding, the validity and effect of the remaining provisions shall not be affected. ARTICLE IX. MERGERS, CONSOLIDATIONS AND OTHER DISPOSITIONS OF ASSETS The affirmative vote of the shareholders of the corporation holding at least 80% of the issued and outstanding shares of common stock of the corporation shall be required to approve any merger or consolidation of the corporation with or into any corporation, and the sale, lease, exchange or other disposition of all, or substantially all, of the assets of the corporation to or with any other corporation, person or entity, with respect to which the approval of the corporation's shareholders is required by the provisions of the 13 corporate laws of the State of Georgia. This Article shall not be altered, deleted or rescinded except upon the affirmative vote of the shareholders holding at least 80% of the issued and outstanding shares of common stock of the corporation. ARTICLE X. CRITERIA FOR CONSIDERATION OF TENDER OR OTHER OFFERS Section 1. Factors to Consider. The Board of Directors of the corporation may, if it deems it advisable, oppose a tender or other offer for the corporation's securities, whether the offer is in cash or in the securities of a corporation or otherwise. When considering whether to oppose an offer, the Board of Directors may, but is not legally obligated to, consider any pertinent issues; by way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to, consider all or any of the following: (i) whether the offer price is acceptable based on the historical and present operating results or financial condition of the corporation; (ii) whether a more favorable price could be obtained for the corporation's securities in the future; (iii) the impact which an acquisition of the corporation would have on the employees and customers of the corporation and its subsidiaries and the communities which they serve; (iv) the reputation and business practices of the offeror and its management and affiliates as they would affect the employees and customers of the corporation and its subsidiaries and the future value of the corporation's stock; (v) the value of the securities, if any, that the offeror is offering in exchange for the corporation's securities, based on an analysis of the worth of the corporation as compared to the offeror or any other entity whose securities are being offered; and (vi) any antitrust or other legal or regulatory issues that are raised by the offer. Section 2. Appropriate Actions. If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to, any or all of the following: (i) advising shareholders not to accept the offer; (ii) litigation against the offeror; (iii) filing complaints with governmental and regulatory authorities; (iv) acquiring the corporation's securities; (v) 14 selling or otherwise issuing authorized but unissued securities of the corporation or treasury stock or granting options or rights with respect thereto; (vi) acquiring a company to create an antitrust or other regulatory problem for the offeror; and (vii) soliciting a more favorable offer from another individual or entity. ARTICLE XI. AMENDMENT Except as otherwise specifically provided herein, the bylaws of the corporation may be altered, amended or added to by a majority of the issued and outstanding shares of common stock of the corporation present and voting therefor at a shareholders' meeting or, subject to such limitations as the shareholders may from time to time prescribe, by a majority vote of all the Directors then holding office at any meeting of the Board of Directors. files\bylaws.tss 15 EX-10.14 3 EXHIBIT 10.14 EXHIBIT 10.14 TOTAL SYSTEM SERVICES, INC. STOCK OPTION AGREEMENT January 10, 1997 THIS AGREEMENT ("Agreement"), dated as of the 10th day of January, 1997, by and between Total System Services, Inc. (the "Company"), a Georgia corporation having its principal office at 1200 6th Avenue, Columbus, Georgia, and Samuel A. Nunn (the "Option Holder"), an individual resident of the State of Georgia. W I T N E S S E T H: WHEREAS, the Board of Directors of Company recognizes the value of having Option Holder serve as a member of Company's Board of Directors and has elected to provide Option Holder with added incentive and inducement to serve on Company's Board of Directors and contribute to the success of the Company; and WHEREAS, effective January 10, 1997, the Board of Directors of the Company (a) granted to the Option Holder an option in respect of the number of shares herein below set forth, and (b) fixed and determined the option price and exercise and termination dates as set forth below. NOW THEREFORE, in consideration of the mutual promises and representations herein contained and other good and valuable consideration, it is agreed by and between the parties hereto as follows: 1. The Company hereby grants to the Option Holder a non-qualified stock option (the "Option") to purchase, on the terms and subject to the conditions hereinafter set forth, all or any part of an aggregate of 25,000 shares of the Common Stock ($1.00 par value) of the Company at the purchase price of $27.75 per share, exercisable in the amounts and at the times set forth in this Paragraph 1. The Option may be exercised as follows: (a) 8,333 shares may be exercised on or after January 10, 1998; (b) an additional 8,333 shares may be exercised on or after January 10, 1999; and (c) the remaining 8,334 shares may be exercised on or after January 10, 2000; provided that Option Holder has remained a member of Company's Board of Directors through such dates or provided that Option Holder is not a member of Company's Board of Directors as the result of his death or disability. In the event Option Holder has not remained a member of Company's Board of Directors through such dates for any reason other than Option Holder's death or disability, the Option shall expire and shall not be exercisable. Unless sooner terminated as provided in this Agreement, the Option shall terminate, and all rights of the Option Holder hereunder shall expire as follows: (a) 8,333 shares shall expire on January 10, 2008; (b) 8,333 shares shall expire on January 10, 2009; and (c) 8,334 shares shall expire on January 10, 2010. In no event may the Option be exercised after January 10, 2010. 2. The Option, or any part thereof, may, to the extent that it is exercisable, be exercised by giving written notice of exercise to the Company specifying the number of shares to be purchased, accompanied by payment in full of the purchase price, in cash, by check or such other instrument as may be acceptable to the Company. No shares of Company stock resulting from the exercise of the Option shall be issued until full payment therefor (including any applicable taxes) has been made. Shares issued to Option Holder upon exercise may be newly-issued shares or treasury shares. 3. The Option or any part thereof may be exercised during the lifetime of the Option Holder only by the Option Holder and only while the Option Holder is a member of Company's Board of Directors, except as otherwise provided in this Agreement. 4. Except as otherwise provided in this Agreement, the Option shall not be transferred, assigned, pledged or hypothecated in any way. Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose of the Option or any right or privilege confirmed hereby contrary to the provisions hereof, the Option and the rights and privileges confirmed hereby shall immediately become null and void. 5. In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Company's stock, any necessary adjustments shall be made to the number of shares and price per share of the Option in order to preserve Option Holder's rights so that Option Holder's rights after such event are substantially proportionate to Option Holder's rights existing prior to such event. 6. Any notice to be given to the Company shall be addressed to the Chairman of the Company at 1200 6th Avenue, Columbus, Georgia, 31901. 7. Nothing herein contained shall affect the rights or obligations of Company or Option Holder (as member of the Board of Directors of Company), subject to the terms of any written contractual arrangement to the contrary,. 8. This Agreement shall be binding upon and inure to the benefit of the Option Holder, his personal representatives, heirs and legatees, but neither this Agreement nor any rights hereunder shall be assignable or otherwise transferable by the Option Holder except as expressly set forth in this Agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed effective as of the date and year first written above. TOTAL SYSTEM SERVICES, INC. By: /s/Kathleen Moates Title: Assistant Secretary OPTION HOLDER /s/Samuel A. Nunn SIGNATURE /s/Samual A. Nunn PRINT NAME EX-11.1 4 EXHIBIT 11.1 TOTAL SYSTEM SERVICES, INC. Statement re Computation of Per Share Earnings The following computations set forth the calculations of primary and fully diluted earnings per share for the twelve months ended December 31, 1996, 1995 and 1994.
Twelve Months Ended Twelve Months Ended Twelve Months Ended December 31, 1996 December 31, 1995 December 31, 1994 ------------------------ -------------------------- ----------------------- Fully Fully Fully Primary Diluted Primary Diluted Primary Diluted Earnings Earnings Earnings Earnings Earnings Earnings Per Share Per Share Per Share Per Share Per Share Per Share --------- --------- --------- --------- --------- --------- Net income $ 39,437,181 $ 39,437,181 $ 27,730,102 $ 27,730,102 $ 22,490,144 $ 22,490,144 =========== =========== =========== =========== =========== =========== Weighted average number of common shares outstanding 129,287,493 129,287,493 129,263,226 129,263,226 129,259,124 129,259,124 Increase due to assumed issuance of shares related to stock options outstanding 163,605 167,903 130,086 153,588 110,548 127,718 Increase due to contingently issuable shares associated with an acquisition - - 21,978 21,978 - 75,302 ----------- ----------- ----------- ----------- ----------- ----------- Adjusted weighted average number of common and common equivalent shares outstanding 129,451,098 129,455,396 129,415,290 129,438,792 129,369,672 129,462,144 =========== =========== =========== =========== =========== =========== Net income per common and common equivalent share $ .30 $ .30 $ .21 $ .21 $ .17 $ .17 =========== =========== =========== =========== =========== ===========
EX-13.1 5 EXHIBIT 13.1 EXHIBIT 13.1 Selected Financial Data The following comparisons highlight significant historical trends in TSYS' results of operations and financial condition. Total revenues and net income have grown over the last five years at compounded annual growth rates of 22.6% and 21.0%, respectively. The balance sheet data also reflects the continued strong financial position of TSYS, as evidenced by the current ratio of 1.9:1 at December 31, 1996, and increased shareholders' equity. The following data should be read in conjunction with the Consolidated Financial Statements and related Notes thereto and Financial Review, included elsewhere in this Annual Report.
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ (in thousands except share and per share data) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues: Bankcard data processing services ........... $ 277,870 218,953 166,194 136,650 123,356 Other services .............................. 33,778 30,755 21,377 15,424 6,307 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues ...................... 311,648 249,708 187,571 152,074 129,663 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses: Salaries and other personnel expense ........ 124,259 94,946 73,051 54,517 43,136 Net occupancy and equipment expense ......... 82,118 64,549 51,283 43,421 39,793 Other operating expenses .................... 53,368 47,291 28,139 21,521 17,712 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses ............ 259,745 206,786 152,473 119,459 100,641 - ------------------------------------------------------------------------------------------------------------------------------------ Equity in income (loss) of joint ventures ... 7,094 69 (13) -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Operating income .................... 58,997 42,991 35,085 32,615 29,022 Nonoperating income (expense): Gain (loss) on disposal of equipment, net ... 31 (123) 65 335 157 Interest income (expense), net .............. 1,416 839 264 (80) (1,121) - ------------------------------------------------------------------------------------------------------------------------------------ Total nonoperating income (expense) . 1,447 716 329 255 (964) - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes .......... 60,444 43,707 35,414 32,870 28,058 Income taxes ........................................ 21,007 15,977 12,924 12,647 10,489 - ------------------------------------------------------------------------------------------------------------------------------------ Net income .......................... $ 39,437 27,730 22,490 20,223 17,569 ==================================================================================================================================== Net income per share ................ $ .31 .21 .17 .16 .14 ==================================================================================================================================== Cash dividends declared per share ................... $ .045 .045 .040 .035 .035 ==================================================================================================================================== Weighted average outstanding shares ................. 129,287,493 129,263,226 129,259,124 128,811,280 128,106,672 ====================================================================================================================================
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December 31, -------------------------------------------------------------------------------- (in thousands) 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Balance Sheet Data: Total assets ............................. $246,759 199,000 165,042 133,339 122,048 Working capital .......................... 46,218 37,687 33,421 30,594 31,850 Total long-term debt ..................... 676 931 1,162 1,707 12,282 Shareholders' equity ..................... 178,878 144,472 123,004 102,278 85,945
17 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT Financial Review This Financial Review provides a discussion of the results of operations, financial condition, liquidity and capital resources of TSYS and creates awareness of the factors that have affected its recent earnings, as well as those factors that may affect its future earnings. The accompanying Consolidated Financial Statements and related Notes, and Selected Financial Data are an integral part of this Financial Review and should be read in conjunction with it. Results of Operations Revenues TSYS' revenues are derived principally from providing bankcard data processing and related services to banks and other institutions under long-term processing contracts. TSYS' services are provided as THE TOTAL SYSTEM to financial institutions and other organizations across the United States and in Mexico, Puerto Rico and Canada. Bankcard data processing revenues are generated primarily from charges based on the number of accounts billed, transactions and authorizations processed, credit bureau requests, credit cards embossed and mailed, and other processing services for cardholder accounts on file. Due to the expanding use of bankcards and the increase in the number of cardholder accounts processed by TSYS, revenues relating to bankcard data processing services have continued to grow. Processing contracts with certain large customers generally provide for discounts on certain services based on increases in the number of cardholder accounts processed. As a result, bankcard data processing revenues are influenced by the customer mix relative to the size of customer bankcard portfolios, as well as the number of individual cardholder accounts processed for each customer. Due to the somewhat seasonal nature of the credit card industry, TSYS' revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season. Furthermore, the conversion of cardholder accounts for new customers to THE TOTAL SYSTEM, as well as the deconversion of cardholder accounts of existing customers, also impacts the results of operations from period to period. Another factor, among others, which may affect TSYS' revenues and results of operations from time to time is the sale by a customer of its card portfolio or a segment of its accounts to a party which processes cardholder accounts internally or uses another processor. The financial services industry continues to consolidate which could favorably or unfavorably impact TSYS' financial condition or results of operations. The average number of cardholder accounts on file increased 35.7% to 72.0 million in 1996, compared to 53.1 million in 1995, which represented a 35.2% increase over 39.5 million in 1994. At December 31, 1996, TSYS' cardholder accounts on file were approximately 79.4 million, up from 63.3 million and 44.1 million at December 31, 1995 and 1994, respectively. During 1996, the majority of the growth in cardholder accounts is primarily a result of portfolio growth of existing customers. In addition, approximately 6.5 million cardholder accounts of new customers were added to THE TOTAL SYSTEM. On August 16, 1995, TSYS and Visa U.S.A. Inc. ("Visa") announced an agreement in principle to merge their merchant and point-of-sale processing operations. On May 1, 1996, the joint venture, known as Vital Processing Services L.L.C. ("Vital"), became operational and began offering fully integrated merchant transaction and related electronic information services to financial and nonfinancial institutions and their merchant customers. Vital is structured with its own management team and separate Board of Directors and has its corporate headquarters in Tempe, Arizona, with other locations in Columbus, Georgia, and Atlanta, Georgia. TSYS and Visa are equal owners in the joint venture. Revenues and expenses associated with TSYS' merchant operations through April 1996 are included in TSYS' revenues and expenses. However, since Vital became operational May 1, 1996, TSYS' share of its results of operations are included in equity in the income of joint ventures. The change in classification of the Company's revenues and expenses from its merchant operations to an equity interest in the Vital joint venture affects the comparability of prior periods presented in the Company's statements of income. Since 1994, TSYS has been servicing commercial cards which include purchasing cards, corporate cards and company business cards for employees. At December 31, 1996, TSYS was processing approximately 3.1 million commercial card accounts, a 42.5% increase over the approximately 2.0 million being processed at year-end 1995, representing a 53.8% increase over the 1.3 million at year-end 1994. Commercial card revenue is included in revenues from bankcard processing. A significant amount of the Company's revenues are derived from certain major customers who are processed under long-term contracts. For the years ended December 31, 1996, 1995 and 1994, two customers accounted for approximately 29%, 34% and 36% of total revenues, respectively. As a result, the loss of one of the Company's major customers could have a material adverse effect on the Company's financial condition and results of operations. During 1996, TSYS successfully converted approximately 4.5 million cardholder accounts for Bank of America. TSYS' conversion schedule for 1997 anticipates converting all of Bank of America's remaining accounts. In addition, Bankcard Revenues (Millions of Dollars) 96......................$277.9 95......................$219.0 94......................$166.2 93......................$136.7 92......................$123.4 Operating Income (Millions of Dollars) 96.....................$59.0 95.....................$43.0 94.....................$35.1 93.....................$32.6 92.....................$29.0 19 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT The following table sets forth certain revenue and expense items as a percentage of total revenues and the percentage increase or decrease in those items from the table of Selected Financial Data:
Percentage Change in Dollar Amounts ----------------------- Percentage of Total Revenues 1996 1995 Years Ended December 31, vs vs 1996 1995 1994 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues: Bankcard data processing services ...................... 89.2% 87.7 88.6 26.9 31.7 Other services ......................................... 10.8 12.3 11.4 9.8 43.9 - ----------------------------------------------------------------------------------------------------- Total revenues ................................. 100.0 100.0 100.0 24.8 33.1 - ----------------------------------------------------------------------------------------------------- Expenses: Salaries and other personnel expense ................... 39.9 38.0 38.9 30.9 30.0 Net occupancy and equipment expense .................... 26.3 25.8 27.3 27.2 25.9 Other operating expenses ............................... 17.1 19.0 15.0 12.9 68.1 - ----------------------------------------------------------------------------------------------------- Total operating expenses ....................... 83.3 82.8 81.2 25.6 35.6 - ----------------------------------------------------------------------------------------------------- Equity in income (loss) of joint ventures .............. 2.2 0.0 (0.0) nm nm - ----------------------------------------------------------------------------------------------------- Operating income ............................... 18.9 17.2 18.8 37.2 22.5 - ----------------------------------------------------------------------------------------------------- Nonoperating income (expense): Gain (loss) on disposal of equipment, net .............. 0.0 (0.0) 0.0 nm nm Interest income (expense), net ......................... 0.5 0.3 0.1 68.6 nm - ----------------------------------------------------------------------------------------------------- Total nonoperating income ...................... 0.5 0.3 0.1 101.9 118.2 - ----------------------------------------------------------------------------------------------------- Income before income taxes ..................... 19.4 17.5 18.9 38.3 23.4 Income taxes ................................................... 6.7 6.4 6.9 31.5 23.6 - ----------------------------------------------------------------------------------------------------- Net income ..................................... 12.7% 11.1 12.0 42.2 23.3 =====================================================================================================
nm = not meaningful during the second quarter of 1996, TSYS and Bank of America amended their processing agreement to, among other things, eliminate the financial penalties and termination rights associated with prior conversion delays. Management believes all of Bank of America's cardholder accounts will be successfully converted to TS2. Revenues from other services consist primarily of revenues generated by TSYS' wholly owned subsidiaries, Columbus Depot Equipment Company ("CDEC"), Mailtek, Inc. ("Mailtek"), Lincoln Marketing, Inc. ("LMI"), and Columbus Productions, Inc. ("CPI"). CDEC provides TSYS customers with an option to lease certain equipment nec- 20 essary for on-line communications and use of TSYS applications; Mailtek and LMI provide TSYS customers and others with mail and correspondence processing services and account solicitation services, and CPI provides full-service commercial printing services to TSYS customers and others. Operating Expenses As a percentage of revenues, operating expenses increased in 1996 to 83.3%, compared to 82.8% and 81.2% for 1995 and 1994, respectively. The principal increases in operating expenses resulted from the addition of personnel and equipment; the cost of materials associated with the services provided by all companies, particularly the supplies related to processing the increased number of accounts on THE TOTAL SYSTEM; certain transaction processing provisions; and certain costs associated with the conversion of customers to TS2 and the start-up of TSYS de Mexico. A significant portion of TSYS' operating expenses relates to salaries and other personnel costs. During 1996, the average number of employees increased to 2,498, compared to 2,087 in 1995 and 1,874 in 1994. In addition to the growth in number of employees, the increase in salaries and other personnel costs is attributable to normal salary increases and related employee benefits. Employment costs related to internally developed software and contract acquisition costs capitalized in 1996 were $4.9 million, compared to $8.4 million and $14.5 million in 1995 and 1994, respectively, the majority of which related to the development of TS2. These decreases in capitalization are a major component of the increases in employment expense, particularly in comparing 1995 to 1994. Since the completion of core TS2, employment expenses capitalized relate primarily to enhancements to TS2 and costs associated with the conversion to TS2 of customers under long-term contracts. Due to the importance of technology to our business, a large portion of TSYS' employees are programmers - approximately 33.1% in 1996, compared to 35.7% and 31.6% in 1995 and 1994, respectively. To expand our programmer base, the state of Georgia has offered an incentive program called Intellectual Capital Partnership Program ("ICAPP"). ICAPP is a commitment of up to $23 million for classrooms, teachers, computer equipment and high-tech training designed to meet TSYS' growth needs for technical analysts, computer systems personnel and mainframe programmers into the next century. Net occupancy and equipment expense increased 27.2% in 1996 over 1995, compared to 25.9% in 1995 over 1994. Equipment and software rentals, which represents the largest component of net occupancy and equipment expense, increased $11.1 million, or 34.1% in 1996, compared to 1995, and $8.5 million, or 35.1% in 1995 compared to 1994. Substantial new, technologically advanced equipment was leased in order to meet growth needs in 1996 and anticipated future growth, including mainframe computers and significant additional direct access storage devices. Purchasing and leasing mainframe computers, laser printers and direct access storage drives are part of TSYS' strategy of supporting infrastructure growth. Due to the rapidly 21 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT changing technology in computer equipment, leasing provides a way for TSYS to acquire new equipment while minimizing some of the risks associated with investing in state-of-the-art computer equipment. TSYS continues to monitor and assess its building and equipment needs as it positions itself for future growth and expansion. During 1996, TSYS made a strategic decision to remain in Columbus, Georgia, and build a new campus-type facility on approximately 50 acres of land north of downtown Columbus. The new facility will consolidate most of TSYS' multiple Columbus locations and will facilitate future growth. In addition, TSYS began developing plans to expand its operations center in north Columbus during 1997. This expansion, while not finalized, will include additional space for the card production services now located in downtown Columbus. The expansion is also expected to include additional space for statement printing and data processing functions. A separate building will be constructed on the North Center property in 1997 to serve as LMI's headquarters. In 1995, a new, 110,000 square-foot building was purchased to accommodate current office space needs and provide space for future growth in technical staff. Other operating expenses increased 12.9% in 1996 compared to 1995 and 68.1% in 1995 compared to 1994. Management fees were paid to an affiliate for human resources, maintenance, security, communications, corporate education, travel and administration. These fees were paid for only the second half of 1995 but were paid for a full year in 1996 and therefore increased 171.7% in 1996 over 1995. However, if the fee paid in 1996 is compared to an annualized fee for 1995, the increase would be 35.9% and is a significant factor in the increase in other operating expenses. Of the remaining components in other operating expenses, the fluctuations varied. For example, certain direct business expenses such as supplies and telecommunications grew collectively 5.2% or $1.0 million. Partially offsetting this growth is a reduction in certain professional fees and local taxes. Factors contributing to the increase in other operating expenses in 1995 included the volume of supplies related to the processing of accounts due to the growth in number of accounts serviced, coupled with an increase in the cost of supplies, especially paper. In the second half of 1995, management fees totaling $3.2 million were paid to an affiliate for various services; these management fees are included in other operating expenses in the second half of 1995 and would have been reflected as salaries and other personnel expenses in the first half of 1995 and in 1994. Other operating expenses also increased in 1995 as a result of certain provisions made for contractual or negotiated processing commitments. These provisions were deemed necessary in view of the increased risks associated with the significant growth in the number of accounts being processed. Operating Income Operating income increased 37.2% to $59.0 million in 1996, compared to $43.0 million in 1995, an increase of 22.5% over 1994. Equity in income of TSYS' two joint 22 ventures contributed significantly to the increase in 1996 over 1995 as Vital became operational during 1996 and the Mexican joint venture had its first full year of operations in 1996. Excluding the equity income, operating income increased 20.9% to $51.9 million in 1996, primarily due to increased revenues combined with a focus on expense control. The operating income margin increased to 18.9% in 1996, compared to 17.2% and 18.8% in 1995 and 1994, respectively. Nonoperating Income (Expense) Interest income (expense), net, includes interest expense of $62,872, $156,692 and $151,584 and interest income of $1,478,572, $996,373 and $415,565 for 1996, 1995 and 1994, respectively. Interest expense decreased in 1996 due to the decreasing level of outstanding debt. Interest expense increased only 3.4% in 1995, as compared to 1994, due to new debt obtained in early 1995 and repaid in November 1995. Although the Company has not yet finalized the design or the financing of its new real estate development projects, financing costs will likely increase in 1997. Interest income increased 48.4% in 1996, as compared to 1995, and increased 139.8% in 1995, compared to 1994. The changes are the result of both fluctuations in cash available for investment and short-term interest rates. Additionally, in the third quarter of 1996, $5.0 million was invested in a six-month certificate of deposit at a higher rate of interest. Income Taxes Income tax expense was $21.0 million, $16.0 million and $12.9 million in 1996, 1995 and 1994, respectively, representing effective tax rates of 34.8%, 36.6% and 36.5%. The decline in TSYS' effective tax rate for 1996, as compared to 1995 and 1994, is attributable to certain effective income tax planning strategies, including the identification and recognition of research and experimentation credits for ongoing development activities and a reduction in state income taxes. Net Income Net income increased 42.2% to $39.4 million ($.31 per share) in 1996, compared to a 23.3% increase to $27.7 million ($.21 per share) for 1995, up from $22.5 million ($.17 per share) in 1994. Financial Condition, Liquidity and Capital Resources The Consolidated Statements of Cash Flows detail the Company's cash flows from operating, investing and financing activities. TSYS' primary method for funding liquidity requirements for TSYS has been cash generated from current operations and the occasional use of borrowed funds to supplement financing of capital expenditures. The major uses of cash generated from operations have been the addition of property and equipment; computer software developed internally and purchased; investment in joint ventures, contract acquisitions and short-term investments; and the payment of cash dividends. 23 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT During 1996, TSYS purchased and leased computer hardware and related equipment including software. Capital expenditures for property and equipment were $19.4 million in 1996, compared to $17.0 million in 1995, and $8.7 million in 1994. Expenditures for purchased computer software were $9.0 million in 1996, compared to $5.5 million in 1995 and $3.1 million in 1994. Additions to internally developed computer software, principally TS2 and enhancements to TS2, were less than $200,000 in 1996, $2.6 million in 1995, and $10.6 million in 1994. Costs to develop the core TS2 bankcard processing and support software were capitalized, and amortization began in October 1994 over a useful life of ten years. Amortization of TS2 resulted in amortization expense of $3.3 million in 1996 and 1995 and $826,000 in 1994. Costs associated with the development of additional features of TS2 continue to be capitalized upon establishing technological feasibility and are amortized when they become available for general customer use. Costs associated with the conversion of customers under long-term contracts to TS2 are capitalized as contract acquisition costs and are amortized over the life of the processing contracts. Capitalized conversion costs, included in contract acquisition costs, at December 31, 1996, 1995 and 1994, amounted to $8.4 million, $5.4 million and $2.5 million, respectively. Amortization of specific capitalized conversion costs commenced in April 1996 and totaled $204,000 in 1996. In late 1994, TSYS invested in a Mexican joint venture, TSYS de Mexico, which began generating revenues in June 1995 from its new facility in Toluca near Mexico City. TSYS de Mexico is now providing credit card related processing for 20 banks in Mexico. TSYS de Mexico performs card and statement production services, while subcontracting bankcard processing to TSYS. TSYS' total capital investment in TSYS de Mexico is $6.2 million, representing an equity interest of 49%. At December 31, 1996, currency translation adjustments decreased the Company's equity investment in TSYS de Mexico by $1.9 million and resulted in a cumulative currency translation adjustment, net of income taxes, of $1.2 million. Effective in 1997, Mexico's highly inflationary economy will require any foreign currency fluctuations above the valuation at December 31, 1996, to be reflected in TSYS' results of operations. TSYS de Mexico continues to perform as expected, although current production volumes are showing signs of decreasing. The Mexican economy continues to stabilize relative to 1995; however, there remains uncertainty in the Mexican economy which management continues to monitor. The joint venture between TSYS and Visa U.S.A., known as Vital Processing Services L.L.C., became operational May 1, 1996, merging the companies' merchant and point-of-sale processing operations. TSYS contributed cash of $2.5 million, as well as $1.4 million in equipment and other assets, to the joint venture. TSYS and Visa are equal owners in the joint venture. 24 In each quarter of 1996, the Board of Directors declared a dividend on TSYS' common stock of $.011 per share. Total dividends declared in 1996 and 1995 were $5.8 million, compared to $5.2 million in 1994. In 1996, a stock dividend was distributed, effecting a two-for-one stock split. (See Note 7 to Consolidated Financial Statements.) During 1996, TSYS reevaluated its business insurance risks and determined it was more cost effective to accept the financial impact for normal risks associated with its business as a processor of significant transaction levels and utilize insurance to protect TSYS from catastrophic events. As a result, TSYS increased its coverage for errors and omissions and raised its deductible amount. During 1996, TSYS announced its decision to remain in Columbus, Georgia, and build a new campus-type facility on approximately 50 acres of land north of downtown Columbus. The decision was based on a commitment by the state of Georgia to provide collegiate high-tech education and cooperation by the city of Columbus in making available a suitable building site. The campus facility will consolidate most of TSYS' multiple Columbus locations and will facilitate future growth. The campus development will be a multi-building, multi-year phased project with initial construction scheduled to begin by mid 1997. Preliminary cost estimates for the first phase are expected to be $75-100 million over a two to three year period. In addition, the proposed expansion of the Company's operations center is expected to cost $20-25 million. Financing for these projects is expected to be through the internal generation of funds and the use of funds from external sources, possibly through the issuance of industrial revenue bonds. 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 the economies of scale through utilization of more efficient computer hardware and software, it can minimize the impact of inflation. Management expects that TSYS will continue to be able to fund a significant portion of its capital expenditure needs through internally generated cash in the future, as evidenced by TSYS' current ratio of 1.9:1. At December 31, 1996, TSYS had working capital of $46.2 million, compared to $37.7 million in 1995 and $33.4 million in 1994. Management believes that outside sources for capital will be available to finance expansion projects and possible acquisitions should the Company decide to pursue such financing. 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 securities. However, there can be no assurance that funds will be available on terms acceptable to TSYS. The Company did not require any short-term borrowings during 1996, 1995 or 1994. 25 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT Consolidated Balance Sheets
December 31, - ----------------------------------------------------------------------------------------------------------------------------------- 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents (includes $25.1 million and $16.7 million on deposit with a related party in 1996 and 1995, respectively) 27,496,057 18,849,623 Short-term investments with a related party 5,000,000 -- Accounts receivable, net of allowance for doubtful accounts of $704,000 and $714,000 in 1996 and 1995, respectively 59,202,399 49,614,779 Prepaid expenses and other current assets 6,624,482 9,362,500 - ------------------------------------------------------------------------------------------------------------------------------------ Total current assets 98,322,938 77,826,902 Property and equipment, net (Note 3) 62,955,926 54,572,903 Computer software, net (Note 4) 39,720,484 39,215,561 Other assets (Notes 5 and 11) 45,759,735 27,384,435 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets $ 246,759,083 198,999,801 ==================================================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 4,695,970 5,811,334 Accrued salaries and related liabilities 6,422,199 4,523,723 Accrued employee benefits 14,590,362 10,412,551 Current portion of long-term debt and obligations under capital leases (Note 6) 201,274 243,786 Other current liabilities 26,195,540 19,148,536 - ------------------------------------------------------------------------------------------------------------------------------------ Total current liabilities 52,105,345 40,139,930 Long-term debt and obligations under capital leases, excluding current portion (Note 6) 474,513 686,955 Deferred income taxes (Note 8) 15,301,478 13,700,895 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 67,881,336 54,527,780 - ------------------------------------------------------------------------------------------------------------------------------------ Shareholders' equity (Notes 2 and 7): Common stock $.10 par value. Authorized 300,000,000 shares; 129,483,522 and 129,461,544 issued in 1996 and 1995, respectively; 129,289,680 and 129,266,744 outstanding in 1996 and 1995, respectively 12,948,352 12,946,154 Additional paid-in capital 5,353,972 4,445,755 Treasury stock, at cost (473,544) (475,789) Cumulative currency translation adjustments (1,178,182) (1,052,081) Retained earnings 162,227,149 128,607,982 - ------------------------------------------------------------------------------------------------------------------------------------ Total shareholders' equity 178,877,747 144,472,021 - ------------------------------------------------------------------------------------------------------------------------------------ Commitments and contingencies (Note 10) Total liabilities and shareholders' equity $ 246,759,083 198,999,801 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 26 Consolidated Statements of Income
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues: Bankcard data processing services (includes $24.9 million, $10.2 million and $1.6 million from related parties for the years ended December 31, 1996, 1995, and 1994, respectively) $277,869,778 218,953,101 166,194,263 Other services 33,778,571 30,754,596 21,376,564 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues (Notes 2 and 12) 311,648,349 249,707,697 187,570,827 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses: Salaries and other personnel expense 124,258,754 94,946,370 73,050,930 Net occupancy and equipment expense 82,117,603 64,548,541 51,282,584 Other operating expenses 53,368,464 47,291,267 28,138,822 - ------------------------------------------------------------------------------------------------------------------------------------ Total operating expenses (Note 2) 259,744,821 206,786,178 152,472,336 - ------------------------------------------------------------------------------------------------------------------------------------ Equity in income (loss) of joint ventures (Note 5) 7,093,600 68,666 (12,612) - ------------------------------------------------------------------------------------------------------------------------------------ Operating income 58,997,128 42,990,185 35,085,879 - ------------------------------------------------------------------------------------------------------------------------------------ Nonoperating income (expense): Gain (loss) on disposal of equipment, net 31,576 (122,790) 64,539 Interest income (expense), net (includes $1.4 million, $759,000 and $324,000 from a related party for the years ended December 31, 1996, 1995 and 1994) 1,415,700 839,681 263,981 - ------------------------------------------------------------------------------------------------------------------------------------ Total nonoperating income (Note 2) 1,447,276 716,891 328,520 - ------------------------------------------------------------------------------------------------------------------------------------ Income before income taxes 60,444,404 43,707,076 35,414,399 Income taxes (Note 8) 21,007,223 15,976,974 12,924,255 - ------------------------------------------------------------------------------------------------------------------------------------ Net income $ 39,437,181 27,730,102 22,490,144 ==================================================================================================================================== Net income per share $ .31 .21 .17 ==================================================================================================================================== Weighted average shares outstanding 129,287,493 129,263,226 129,259,124 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 27 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1996, 1995 and 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Cumulative Additional Currency Common Stock Paid-in Treasury Translation Retained Shares Amount Capital Stock Adjustment Earnings Total - ----------------------------------------------------------------------------------------------------------------------------------- At December 31, 1993 129,006,080 $12,900,608 478,248 (475,789) -- 89,375,104 $102,278,171 Common stock issued in acquisitions 451,308 45,130 2,742,879 -- -- -- 2,788,009 Amortization of restricted stock awards (Note 7) -- -- 618,019 -- -- -- 618,019 Cash dividends declared ($.040 per share) -- -- -- -- -- (5,170,505) (5,170,505) Net income -- -- -- -- -- 22,490,144 22,490,144 - ----------------------------------------------------------------------------------------------------------------------------------- At December 31, 1994 129,457,388 12,945,738 3,839,146 (475,789) -- 106,694,743 123,003,838 Common stock issued under restricted stock awards (Note 7) 4,156 416 (416) -- -- -- -- Amortization of restricted stock awards (Note 7) -- -- 607,025 -- -- -- 607,025 Increase in cumulative currency translation adjustments -- -- -- -- (1,052,081) -- (1,052,081) Cash dividends declared ($.045 per share) -- -- -- -- -- (5,816,863) (5,816,863) Net income -- -- -- -- -- 27,730,102 27,730,102 - ----------------------------------------------------------------------------------------------------------------------------------- At December 31, 1995 129,461,544 12,946,154 4,445,755 (475,789) (1,052,081) 128,607,982 144,472,021 Common stock issued in acquisitions 21,978 2,198 310,302 -- -- -- 312,500 Common stock issued through exercise of stock option -- -- 315 2,245 -- -- 2,560 Amortization of restricted stock awards (Note 7) -- -- 582,267 -- -- -- 582,267 Increase in cumulative currency translation adjustments -- -- -- -- (126,101) -- (126,101) Cash dividends declared ($.045 per share) -- -- -- -- -- (5,818,014) (5,818,014) Tax benefits associated with stock awards -- -- 15,333 -- -- -- 15,333 Net income -- -- -- -- -- 39,437,181 39,437,181 - ----------------------------------------------------------------------------------------------------------------------------------- At December 31, 1996 129,483,522 $12,948,352 5,353,972 (473,544) (1,178,182) 162,227,149 $178,877,747 ===================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. Consolidated Statements of Cash Flows
Years Ended December 31, - ------------------------------------------------------------------------------------------------------------------------------------ 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 39,437,181 27,730,102 22,490,144 Adjustments to reconcile net income to net cash provided by operating activities: Equity in (income) loss of joint ventures (7,093,600) (68,666) 12,612 Depreciation and amortization 23,106,775 20,285,123 16,389,812 Provision for doubtful accounts 94,500 458,606 (559,305) Deferred income tax expense 1,600,583 963,384 2,823,772 (Gain) loss on disposal of equipment, net (31,576) 122,790 (64,539) (Increase) in: Accounts receivable (9,682,120) (13,970,497) (2,630,810) Prepaid expenses and other assets (1,600,679) (94,883) (2,589,668) Increase (decrease) in: Accounts payable (1,115,364) 314,885 2,214,514 Accrued expenses and other liabilities 13,338,079 12,137,363 5,772,622 - ------------------------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 58,053,779 47,878,207 43,859,154 - ------------------------------------------------------------------------------------------------------------------------------------ Cash flows from investing activities: Purchases of property and equipment (19,426,253) (16,977,970) (8,736,909) Additions to computer software (9,195,856) (8,129,742) (13,763,844) Proceeds from disposal of equipment 657,699 864,699 111,295 Purchases of businesses, net of cash and cash equivalents acquired -- -- 463,347 Investment in joint ventures (2,482,939) (3,455,865) (2,735,088) Additions to contract acquisition costs (7,889,846) (9,954,881) (7,119,144) Purchase of short-term investment (5,000,000) -- -- - ----------------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (43,337,195) (37,653,759) (31,780,343) - ----------------------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from long-term debt -- 1,965,775 -- Principal payments on long-term debt and capital lease obligations (254,954) (2,208,457) (1,342,144) Dividends paid on common stock (5,817,756) (5,816,817) (4,843,399) Proceeds from exercise of stock option 2,560 -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Net cash used in financing activities (6,070,150) (6,059,499) (6,185,543) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in cash and cash equivalents 8,646,434 4,164,949 5,893,268 Cash and cash equivalents at beginning of period 18,849,623 14,684,674 8,791,406 - ------------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 27,496,057 18,849,623 14,684,674 ==================================================================================================================================== Cash paid for interest $ 62,129 157,130 159,356 ==================================================================================================================================== Cash paid for income taxes $ 22,890,244 16,244,194 9,094,595 ====================================================================================================================================
See accompanying Notes to Consolidated Financial Statements. 29 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT Notes To Consolidated Financial Statements NOTE 1 Basis of Presentation and Summary of Significant Accounting Policies Business: Total System Services, Inc. ("TSYS" or "the Company") is an 80.7% owned subsidiary of Columbus Bank and Trust Company (CB&T) which is a wholly owned subsidiary of Synovus Financial Corp. (Synovus). Synovus' stock is traded on the NYSE under the symbol "SNV." TSYS provides bankcard data processing and related services to banks and other institutions. Principles of Consolidation and Basis of Presentation: The accompanying consolidated financial statements of Total System Services, Inc. include the accounts of TSYS and its wholly owned subsidiaries, Columbus Depot Equipment Company ("CDEC"), Mailtek, Inc. ("Mailtek"), Lincoln Marketing, Inc. ("LMI"), and Columbus Productions, Inc. ("CPI"). Significant intercompany accounts and transactions have been eliminated in consolidation. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. Investment in Joint Ventures: TSYS' 49% investment in Total System Services de Mexico, S.A. de C.V. ("TSYS de Mexico"), a bankcard data processing operation located in Mexico, is accounted for using the equity method of accounting, as is TSYS' 50% investment in Vital Processing Services L.L.C. ("Vital"), a merchant processing operation headquartered in Tempe, Arizona. Property and Equipment: Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation expense is computed using the straight-line method over the estimated useful lives of the assets. Computer Software: The Company capitalizes software development costs incurred from the time technological feasibility of the software product or enhancement is established until the software is ready for use in providing processing services to customers. Research and development costs and computer software maintenance costs which relate to software development are expensed as incurred. Software development costs related to the core of TS2 are amortized using the greater of (1) the straight-line method over the estimated useful life of 10 years or (2) the ratio of current revenues to current and anticipated revenues. All other software development costs and costs of purchased computer software are amortized using the greater of (1) the straight-line method over the estimated useful lives of three to five years or (2) the ratio of current revenues to current and anticipated revenues. The carrying value of computer software costs is reviewed for impairment by the Company, and impairments are recognized when the expected undiscounted future operating cash flows derived from such intangible assets are less than their carrying value. If such review indicates a potential impairment, the Company uses fair value in determining the amount that should be written off. Revenue Recognition: The Company's bankcard data processing revenues are derived from long-term processing contracts with banks and other institutions and are recognized as revenues at the time the services are performed. The Company's service contracts generally contain terms ranging from three to ten years. 30 Contract Acquisition Costs: The Company capitalizes certain contract acquisition costs related to signing or renewing long-term contracts. These costs, which primarily consist of cash payments for rights to provide processing services, incremental internal conversion and software development costs, and third-party software development costs, are amortized using the straight-line method over the contract term beginning when the customer's cardholder accounts are converted to the Company's processing system. The Company evaluates the carrying value of contract acquisition costs for impairment on the basis of whether these costs are fully recoverable from expected undiscounted operating cash flows of the related contract. If such review indicates a potential impairment, the Company uses fair value in determining the amount that should be written off. All costs incurred prior to contract execution are expensed as incurred. Goodwill: Goodwill results from the excess of cost over the fair value of net assets of businesses acquired and is being amortized using the straight-line method over periods of five to 15 years. The Company reviews goodwill for impairment on the basis of whether the goodwill is fully recoverable from expected undiscounted operating cash flows of the related business units. If such review indicates a potential impairment, the Company uses fair value in determining the amount that should be written off. Income Taxes: Income tax expense reflected in TSYS' consolidated financial statements is computed based on the taxable income of TSYS as a separate entity. A consolidated federal income tax return is filed for Synovus and its majority owned subsidiaries, including TSYS. The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109 ("Statement 109"). Under the asset and liability method of Statement 109, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Cash Flow Reporting: Cash equivalents are considered to be investments with a maturity of three months or less when purchased. Net Income per Share: Net income per share is based on the weighted average number of shares of common stock outstanding during each period, including shares issued under restricted stock awards. The dilutive impact of contingently issuable shares and outstanding options to acquire common stock is not significant to the computation of net income per share. Fair Values of Financial Instruments: The Company uses financial instruments in the normal course of its business. The carrying values of cash equivalents, accounts receivable, accounts payable, and employee benefits and other current liabilities approximate fair value due to the short-term maturities of these assets and liabilities. The investment in joint ventures is accounted for by the equity method and pertains to privately held companies for which a fair value is not readily available. The Company believes the fair values of its investment in joint ventures exceed the carrying value. 31 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT Foreign Currency Translation: Foreign currency financial statements of the Company's Mexican joint venture are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses, and net income which are translated at average exchange rates during each reporting period. Net exchange gains or losses resulting from the translation of assets and liabilities are accumulated in a separate section of shareholders' equity titled Cumulative Currency Translation Adjustments. Reclassifications: Certain reclassifications have been made to the 1995 and 1994 financial statements to conform to the presentation adopted in 1996. NOTE 2 Relationship with Affiliated Companies At December 31, 1996, CB&T owned 104,401,292 shares (approximately 80.7%) of TSYS common stock. TSYS has entered into agreements with CB&T and certain of its affiliates, pursuant to which TSYS performs bankcard data processing services. Such bankcard data processing service revenues were $1,809,847, $1,805,280 and $1,495,391 during the years ended December 31, 1996, 1995 and 1994, respectively. Miscellaneous data processing services performed by TSYS for certain Synovus nonbanking affiliates generated revenues of $128,411, $113,568 and $107,166 during the years ended December 31, 1996, 1995 and 1994, respectively; these revenues are included in bankcard data processing services. Bankcard data processing revenues related to TSYS de Mexico, the Company's Mexican joint venture, were $18,201,357 and $8,281,777 for the years ended December 31, 1996 and 1995, respectively. Bankcard data processing revenues related to Vital, the Company's joint venture with Visa, were $4,755,406 for the year ended December 31, 1996. Revenues from other services provided by TSYS to Synovus and its affiliates were $920,703, $718,281 and $614,333 during the years ended December 31, 1996, 1995 and 1994, respectively. TSYS maintains an unsecured credit agreement with CB&T. The credit agreement has a maximum available principal balance of $5.0 million, with interest at prime. TSYS did not use the credit facility during 1996 or 1995. In 1996, 1995 and 1994, TSYS received interest income from CB&T amounting to $1,392,543, $837,356 and $384,070, respectively. Also, in 1995 and 1994, TSYS paid CB&T interest expense of $78,318 and $60,193, respectively. During 1996, 1995 and 1994, Synovus Data Corp. paid TSYS $303,554, $701,159 and $732,136, respectively, for data links, network services and other miscellaneous items. TSYS leases a portion of its facilities from Synovus Data Corp. and CB&T, and leases portions of the buildings it owns to CB&T. TSYS made lease payments for office facilities to Synovus Data Corp. of $240,000 in 1996 and $214,650 in 1995 and 1994. Lease payments made to CB&T amounted to $53,790 in 1996, $54,313 in 1995 and $71,720 in 1994. Lease payments received from CB&T amounted to $11,628 in 1996, $20,203 in 1995, and $30,716 in 1994. TSYS has entered into a management agreement with Synovus pursuant to which TSYS pays for management, legal and tax services provided by Synovus. Such management fees amounted to $1,079,706, $1,039,693 and $915,215 for the years ended December 31, 1996, 1995 and 1994, respectively. Synovus paid TSYS management fees of $361,093 and $409,438 in 1995 and 1994, respectively, for payroll processing support services. In July 1995, Synovus formed a separate company, Synovus Service Corp. ("SSC"), to provide human resource, payroll, security, maintenance and other administrative services to TSYS and other affiliated companies. TSYS paid SSC $8,583,648 and $3,158,695 for these services in 1996 and 1995, respectively. TSYS received $107,449 and $198,578 32 in rent from SSC in 1996 and 1995, respectively. TSYS made lease payments to SSC for $34,472 in 1996. TSYS maintains deposit accounts with CB&T, the majority of which are interest-earning and on which TSYS receives market rates of interest. Included in cash and cash equivalents are deposit balances with CB&T of $25,136,569 and $16,742,926 at December 31, 1996 and 1995, respectively. TSYS also has a $5.0 million certificate of deposit with CB&T, which is included in short-term investments. Certain officers of TSYS participate in the Synovus 1994 Long-Term Incentive Plan. These officers were granted restricted stock awards and nonqualified options for Synovus common stock in 1996, 1995 and 1994 as follows: - -------------------------------------------------------------------------------- Number of Shares 1996 1995 1994 - -------------------------------------------------------------------------------- Restricted stock awards ................. 35,349 25,683 18,326 Stock options ........................... 227,896 191,055 54,977 The restricted stock awards were valued at the price paid for the Synovus shares which was $764,422, $389,526 and $210,743 in 1996, 1995 and 1994, respectively, and are being amortized as compensation expense over the five-year vesting period. The stock options were granted with an exercise price equal to the fair market value of Synovus common stock at the date of grant. The options vest and are exercisable over three years and expire eight years from date of grant. The Company believes the terms and conditions of transactions between TSYS, CB&T, Synovus, SSC and other affiliated companies are comparable to those which could have been obtained in transactions with unaffiliated parties. NOTE 3 Property and Equipment Property and equipment balances at December 31 are as follows: - ------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------- Land .......................................... $ 2,482,820 2,482,820 Buildings ..................................... 43,387,052 38,071,521 Computer equipment ............................ 42,024,097 38,122,588 Furniture and other equipment ................. 33,424,802 30,840,053 Construction in progress ...................... 78,361 -- - ------------------------------------------------------------------------------- 121,397,132 109,516,982 Less accumulated depreciation and amortization ...................... 58,441,206 54,944,079 - ------------------------------------------------------------------------------- Property and equipment, net ................... $ 62,955,926 54,572,903 =============================================================================== Depreciation and amortization of property and equipment was $10,478,116, $9,768,665 and $9,802,873 for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE 4 Computer Software Computer software at December 31 is summarized as follows: - ------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------- TS2 ........................................... $33,048,872 33,048,872 Other internally developed software including TS2 enhancements ............................ 5,523,804 5,346,071 Purchased computer software.................... 25,864,700 17,137,936 - ------------------------------------------------------------------------------- 64,437,376 55,532,879 Less accumulated amortization ................ 24,716,892 16,317,318 - ------------------------------------------------------------------------------- Computer software, net........................ $39,720,484 39,215,561 =============================================================================== Capitalized software development costs for the years ended December 31, 1996, 1995 and 1994, were $177,732, $2,617,445 and $10,623,828, respectively. Amortization expense related to purchased computer software costs was $4,146,670, $3,350,507 and $2,300,386 for the years ended December 31, 1996, 1995 and 1994, respectively. Amortization of developed software was $4,483,193, $4,007,037 and $1,369,062 for the years ended December 31, 1996, 1995 and 1994, respectively. NOTE 5 Investment in Joint Ventures In 1994, the Company acquired a 49% equity interest in Total System de Mexico, a joint venture which processes 33 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT cardholder and merchant accounts for 20 banks in Mexico. Effective May 1, 1996, Vital began operations. Vital, a 50/50 joint venture with Visa U.S.A., combined the front-end authorization and back-end accounting and settlement processing of merchants. The unaudited condensed financial statement information for the combined joint ventures as of December 31, 1996, and for the year then ended is as follows: - -------------------------------------------------------------------------------- Balance Sheet Data: Current assets ................................... $ 29,292,567 Total assets ..................................... 41,312,690 Liabilities (all current) ....................... 10,187,539 Statement of Income Data: Revenues .......................................... 95,625,643 Operating income ................................. 15,201,419 Income before income taxes........................ 16,162,670 Net income* ....................................... 14,292,665 Equity in income of joint ventures ................ 7,093,600 *Vital is a limited liability company and is taxed in a manner similar to a partnership; therefore, net income related to Vital does not include income tax expense. The Company had contributed cash and other assets totaling approximately $10.1 million to the two joint ventures as of December 31, 1996. NOTE 6 Long-Term Debt and Obligations Under Capital Leases Long-term debt and obligations under capital leases at December 31 consist of the following: - ------------------------------------------------------------------------------- 1996 1995 - ------------------------------------------------------------------------------- Capital lease obligations, with interest rates ranging from 7.85% to 13.48%, payable monthly through 1999, secured by equipment with a carrying value of $299,398 ................ $ 359,269 582,949 Note payable with an interest rate of 9.23%, maturing in 2003 ................... 316,518 347,792 - ------------------------------------------------------------------------------- Total long-term debt and obligations under capital leases ......................... 675,787 930,741 Less current portion ........................... 201,274 243,786 - ------------------------------------------------------------------------------- Noncurrent portion of long- term debt and obligations under capital leases ......................... $ 474,513 686,955 =============================================================================== NOTE 7 Shareholders' Equity Stock Split: In April 1996, a two-for-one common stock split was effected in the form of a 100% stock dividend. All share and shareholders' equity amounts included herein have been restated to reflect the split for all periods presented. Prior to the split, TSYS' charter was amended to increase authorized shares from 100 million to 300 million. Restricted Stock Awards: The Company has issued its common stock to certain executive officers under restricted stock awards. The market value of the common stock at the date of issuance is included as a reduction of additional paid-in capital in the Company's consolidated balance sheets and is amortized as compensation expense over the vesting period of the awards. Compensation expense relating to these awards was $456,619, $529,982 and $618,019 for the years ended December 31, 1996, 1995 and 1994, respectively, and unamortized compensation at December 31, 1996, was $531,566. Common stock issued under restricted stock awards is considered outstanding for purposes of the computation of net income per share. The amounts and terms of common stock issued under restricted awards are summarized as follows: - -------------------------------------------------------------------------------- Number Market Value at Vesting Date of Issuance of Shares Date of Issuance Period - -------------------------------------------------------------------------------- July 21, 1992 435,200 $1,332,800 60 months February 24, 1992 524,000 1,801,250 72 months November 6, 1995 4,156 46,495 36 months 34 Long-Term Incentive Plan: In 1992, the Total System Services, Inc. Long-Term Incentive Plan ("LTI Plan") was adopted to enable Total System Services, Inc. and subsidiaries to attract, retain, motivate and reward employees who make a significant contribution to the Company's long-term success, and to enable such employees to acquire and maintain an equity interest in the Company. The LTI Plan is administered by the Compensation Committee of the Company's Board of Directors and enables the Company to grant stock options, stock appreciation rights, restricted stock and performance awards. As of December 31, 1996, 446,544 shares of the Company's common stock remained available for distribution under the terms of the LTI Plan. During 1994, the Company awarded compensatory options to acquire 199,300 shares of common stock to certain key employees. All options granted were nonqualified compensatory stock options with an exercise price of $3 per share and are exercisable beginning in June 1997 and expiring in June 2002. The Company is recording compensation expense of $375,781 for the difference between the exercise price and the fair market value of the Company's common stock at the date of grant over the period from the date of grant through June 1997, the vesting date. As of December 31, 1996, options to acquire 189,000 shares remained outstanding after cancellations with none of these options exercisable. NOTE 8 Income Taxes The provision for income taxes includes income taxes currently payable and those deferred because of temporary differences between the financial statement and tax bases of assets and liabilities. The components of income tax expense included in the Consolidated Statements of Income are as follows: - -------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Current income tax expense: Federal ............. $17,710,103 13,522,207 9,550,558 State ............... 1,696,537 1,491,383 549,925 - -------------------------------------------------------------------------------- Total current income tax expense ......... 19,406,640 15,013,590 10,100,483 - -------------------------------------------------------------------------------- Deferred income tax expense: Federal ............. 1,470,806 885,272 2,247,759 State ............... 129,777 78,112 576,013 - -------------------------------------------------------------------------------- Total deferred income tax expense ......... 1,600,583 963,384 2,823,772 - -------------------------------------------------------------------------------- Total income tax expense ............. $21,007,223 15,976,974 12,924,255 ================================================================================ Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate of 35% to income before income taxes as a result of the following: - -------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 1994 - -------------------------------------------------------------------------------- Computed "expected" income tax expense ................. $ 21,155,541 15,273,444 12,395,040 Increase (decrease) in income tax expense resulting from: State income tax expense, net of federal income tax benefit ..... 1,187,104 1,020,172 731,860 Other, net ...... (1,335,422) (316,642) (202,645) - ------------------------------------------------------------------------------- Total income tax expense ................. $ 21,007,223 15,976,974 12,924,255 =============================================================================== 35 TOTAL SYSTEM SERVICES, INC.(sm) 1996 ANNUAL REPORT The tax effects of the significant components of deferred income tax assets and liabilities are presented in the following table: - -------------------------------------------------------------------------------- Years Ended December 31, 1996 1995 - -------------------------------------------------------------------------------- Deferred income tax assets: Primarily accruals not deductible until paid ............ $ 4,556,046 5,314,057 - -------------------------------------------------------------------------------- Deferred income tax liabilities: Computer software development costs ................ (16,617,264) (17,927,787) Other, net ....................... (3,240,260) (1,087,165) - -------------------------------------------------------------------------------- Total deferred income tax liability .................... (19,857,524) (19,014,952) - -------------------------------------------------------------------------------- Net deferred income tax liability .................... $(15,301,478) (13,700,895) ================================================================================ NOTE 9 Employee Benefit Plans The Company provides certain benefits to its employees by allowing employees to participate in certain defined contribution plans. These employee benefit plans are described as follows: Profit Sharing Plan: The Company's employees are eligible to participate in the Synovus Financial Corp./Total System Services, Inc. ("Synovus/TSYS") Profit Sharing Plan. The Company's contributions to the plan are contingent upon achievement of certain financial goals. The terms of the plan limit the Company's contribution to 9% (15% in 1994) of participant compensation, as defined, not to exceed the maximum allowable deduction under Internal Revenue Service guidelines. TSYS' annual contributions to the plan charged to expense are as follows: - -------------------------------------------------------------------------------- 1996 ..................... $5,270,884 1995 ..................... 4,429,998 1994 ..................... 4,947,261 Money Purchase Plan: In 1995, the Company's employees became eligible to participate in the Synovus/TSYS Money Purchase Pension Plan, a defined contribution pension plan. The terms of the plan provide for the Company to make annual contributions to the Plan equal to 7% of participant compensation, as defined. The Company's contributions to the plan charged to expense are as follows: - -------------------------------------------------------------------------------- 1996 ............................ $ 3,925,699 1995 ............................ 3,417,057 401(k) Plan: Also in 1995, the Company's employees became eligible to participate in the Synovus/TSYS 401(k) Plan. The terms of the plan allow employees to contribute up to 10% of pretax compensation with a discretionary company contribution up to a maximum of 5% of participant compensation, as defined, based upon the Company's attainment of certain financial goals. The Company's contributions to the plan charged to expense are as follows: - -------------------------------------------------------------------------------- 1996 ........................... $ 3,976,544 1995 ........................... 1,601,939 Stock Purchase Plan: The Company maintains stock purchase plans for directors and employees, whereby TSYS makes contributions equal to one-half of employee and director voluntary contributions. The funds are used to purchase presently issued and outstanding shares of TSYS common stock for the benefit of participants. TSYS' contributions to these plans charged to expense are as follows: - -------------------------------------------------------------------------------- 1996 ........................... $ 1,226,340 1995 ........................... 962,829 1994 ........................... 692,208 Pension Plan: The Company terminated its defined benefit pension plan during 1995. No significant gain or loss resulted from the Company's termination of the plan. Total pension expense for 1994 was $623,788. 36 Postretirement Medical Benefits Plan: TSYS provides certain medical benefits to qualified retirees through a postretirement medical benefits plan. The benefit expense and accrued benefit cost associated with the plan are not material to the Company's consolidated financial statements. NOTE 10 Commitments and Contingencies Lease Commitments: TSYS is obligated under noncancelable operating leases for computer equipment and facilities. Management expects that, as these leases expire, they will be renewed or replaced by similar leases. The future minimum lease payments under noncancelable operating leases with remaining terms greater than one year for the next five years and in the aggregate as of December 31, 1996, are as follows: - -------------------------------------------------------------------------------- 1997 ................. $26,377,431 1998 ................. 20,496,750 1999 ................. 15,219,022 2000 ................. 9,246,338 2001 ................. 1,027,191 - ------------------------------------------------------------------------------- $72,366,732 =============================================================================== Total rental expense under all operating leases in 1996, 1995 and 1994 was $45,990,637, $34,862,784 and $26,408,605, respectively. Contractual Commitments: In the normal course of its business, the Company maintains processing contracts with its customers. These processing contracts contain commitments, including, but not limited to, minimum standards and time frames against which the Company's performance is measured. In the event the Company does not meet its contractual commitments with its customers, the Company may incur penalties and/or certain customers may have the right to terminate their contracts with the Company. The Company does not believe that it will fail to meet its contractual commitments to an extent that will result in a material adverse effect on its financial condition or results of operations. Contingencies: The Company is subject to lawsuits, claims and other complaints 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 adequately covered by insurance or, if not covered, are without merit or are of such kind or involve such amounts as would not have a material effect on the financial condition or results of operations of the Company if disposed of unfavorably. NOTE 11 Supplementary Balance Sheet Information Significant components of other assets are summarized as follows: - -------------------------------------------------------------------------------- 1996 1995 - -------------------------------------------------------------------------------- Contract acquisition costs, net .............. $19,645,910 17,628,448 Investment in joint ventures, net .............. 15,347,876 4,506,686 NOTE 12 Major Customers For the years ended December 31, 1996, 1995 and 1994, two customers accounted for approximately 29%, 34%, and 36% of total revenues, respectively. 37 TOTAL SYSTEM SERVICES, INC.(SM) 1996 ANNUAL REPORT Report of Independent Auditors KPMG Peat Marwick LLP 303 Peachtree Street, N.E. Suite 2000 Atlanta, GA 30308 The Board of Directors and Shareholders Total System Services, Inc.: We have audited the accompanying consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Total System Services, Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/KPMG Peat Marwick LLP January 22, 1997 38 Quarterly Financial Data, Stock Price, Dividend Information TSYS' common stock trades on the New York Stock Exchange ("NYSE") under the symbol "TSS." Price and volume information appears under the abbreviation "TotlSysSvc" in NYSE daily stock quotation listings. As of December 20, 1996, there were 6,484 holders of record of TSYS common stock, some of whom are holders in nominee name for the benefit of different shareholders. The fourth quarter dividend was declared on December 9, 1996, and was paid January 2, 1997, to shareholders of record on December 20, 1996. Total dividends declared in 1996 and 1995 amounted to $5.8 million. It is the present intention of the Board of Directors of TSYS to continue to pay cash dividends on its common stock. Presented here is a summary of the unaudited quarterly financial data for the years ended December 31, 1996 and 1995. Revenues Net Income (Millions of Dollars) (Millions of Dollars) 1996 1995 1996 1995 Quarter 4 $85.9 $71.1 Quarter 4 $14.2 $ 9.5 Quarter 3 $80.2 $66.1 Quarter 3 $11.3 $ 7.4 Quarter 2 $74.5 $59.1 Quarter 2 $ 7.9 $ 6.0 Quarter 1 $71.1 $53.4 Quarter 1 $ 6.0 $ 4.8
First Second Third Fourth (in thousands except per share data) Quarter Quarter Quarter Quarter - -------------------------------------------------------------------------------------- 1996 Revenues ...................... $71,102 74,489 80,179 85,878 Operating income ................. 8,579 11,654 17,269 21,495 Net income ....................... 5,969 7,900 11,347 14,221 Net income per share ............. .05 .06 .09 .11 Cash dividends declared per share. .011 .011 .012 .011 Stock prices: High............................ 21 27 3/8 26 1/4 29 3/4 Low ............................ 11 1/2 20 20 1/2 25 3/8 - -------------------------------------------------------------------------------------- 1995 Revenues ...................... $53,380 59,134 66,108 71,086 Operating income ................. 7,562 9,558 11,075 14,796 Net income ....................... 4,784 6,013 7,390 9,543 Net income per share ............. .04 .05 .06 .07 Cash dividends declared per share. .011 .011 .012 .011 Stock prices: High............................ 9 1/8 8 5/8 12 1/8 15 7/8 Low............................. 8 1/8 6 3/4 7 3/8 10 5/8 - --------------------------------------------------------------------------------------
39 EX-20.1 6 EXHIBIT 20.1 EXHIBIT 20.1 TSYS(R) Richard W. Ussery March 13, 1997 Chairman of the Board Dear Shareholder: The Annual Meeting of the Shareholders of Total System Services, Inc. will be held on April 14, 1997, in the Dining Gallery of the Columbus, Georgia Convention & Trade Center, beginning at 10:00 o'clock A.M., E.T., for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and Proxy Statement. We hope that you will be able to be with us and let us give you a review of 1996. Whether you own a few or many shares of stock and whether or not you plan to attend in person, it is important that your shares be voted on matters that come before the meeting. To make sure your shares are represented, we urge you to complete and mail the enclosed Proxy Card promptly. Thank you for helping us make 1996 a good year. We look forward to your continued support in 1997 and another good year. Sincerely yours, /s/Richard W. Ussery RICHARD W. USSERY Total System Services, Inc. Post Office Box 2506 Columbus, Georgia 31902-2506 TSYS(R) NOTICE OF ANNUAL MEETING OF SHAREHOLDERS To Be Held April 14, 1997 NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of Total System Services, Inc.(SM) ("TSYS(R)") will be held in the Dining Gallery of the Columbus, Georgia Convention & Trade Center, on April 14, 1997, at 10:00 o'clock A.M., E.T., for: (1) The election of five nominees as Class II directors of TSYS to serve until the 2000 Annual Meeting of Shareholders; and (2) The transaction of such other business as may properly come before the Annual Meeting. Information relating to the above matters is set forth in the accompanying Proxy Statement. Only shareholders of record at the close of business on February 12, 1997 will be entitled to notice of and to vote at the Annual Meeting. /s/G. Sanders Griffith, III G. SANDERS GRIFFITH, III Secretary Columbus, Georgia March 13, 1997 WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE ANNUAL MEETING IN PERSON, PLEASE VOTE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE WHICH DOES NOT REQUIRE ANY POSTAGE IF MAILED IN THE UNITED STATES. TSYS(R) PROXY STATEMENT ANNUAL MEETING OF SHAREHOLDERS To Be Held April 14, 1997 I. INTRODUCTION A. Purposes of Solicitation - Terms of Proxies. The Annual Meeting of the Shareholders ("Annual Meeting") of Total System Services, Inc. ("TSYS") will be held on April 14, 1997 for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders and in this Proxy Statement. The enclosed Proxy Card ("Proxy") is solicited BY AND ON BEHALF OF TSYS' BOARD OF DIRECTORS in connection with such Annual Meeting or any adjournment thereof. The costs of the solicitation of Proxies by TSYS' Board of Directors will be paid by TSYS. Forms of Proxies and Proxy Statements will also be distributed through brokers, banks, nominees, custodians and other like parties to the beneficial owners of shares of the $.10 par value common stock of TSYS ("TSYS Common Stock"), and TSYS will reimburse such parties for their reasonable out-of-pocket expenses therefor. TSYS' mailing address is Post Office Box 2506, Columbus, Georgia 31902-2506. The shares represented by the Proxy in the accompanying form, which when properly executed, returned to TSYS' Board of Directors and not revoked, will be voted in accordance with the instructions specified in such Proxy. If a choice is not specified in the Proxy, the shares represented by such Proxy will be voted "FOR" the election of the five nominees for Class II directors named herein. Each Proxy granted may be revoked in writing at any time before the authority granted thereby is exercised. Attendance at the Annual Meeting will constitute a revocation of the Proxy for such Meeting if the maker thereof elects to vote in person. This Proxy Statement and the enclosed Proxy are being first mailed to shareholders on or about March 10, 1997. B. TSYS Securities Entitled to Vote and Record Date. TSYS' outstanding voting securities are TSYS Common Stock, each share of which entitles the holder thereof to one vote on any matter coming before a meeting of TSYS' shareholders. Only shareholders of record at the close of business on February 12, 1997 are entitled to vote at the Annual Meeting or any adjournment thereof. As of that date, there were 129,289,680 shares of TSYS Common Stock outstanding and entitled to vote. TSYS owned 193,842 shares of TSYS Common Stock on February 12, 1997 as treasury shares, which are not considered to be outstanding and are not entitled to be voted at the Annual Meeting. C. Shareholder Proposals. From time to time, TSYS' shareholders may present proposals which may be proper subjects for inclusion in TSYS' Proxy Statement for consideration at TSYS' Annual Meeting. To be considered for inclusion, shareholder proposals must be submitted on a timely basis. Proposals for TSYS' 1998 Annual Meeting, which has been tentatively scheduled for April 13, 1998, must be received by TSYS no later than November 13, 1997, and any such proposals, as well as any questions related thereto, should be directed to Secretary, Total System Services, Inc., 901 Front Avenue, Suite 301, Columbus, Georgia 31901. 1 D. Director Nominees or Other Business for Presentation at the Annual Meeting. Shareholders who wish to present director nominations or other business at the Annual Meeting are required to notify the Secretary of their intent at least 60 days but not more than 120 days before the meeting and the notice must provide information as required in the bylaws. A copy of these bylaw requirements will be provided upon request in writing to Secretary, Total System Services, Inc., 901 Front Avenue, Suite 301, Columbus, Georgia 31901. This requirement does not affect the deadline for submitting shareholder proposals for inclusion in the Proxy Statement nor does it preclude discussion by any shareholder of any business properly brought before the Annual Meeting. E. Columbus Bank and Trust Company. Columbus Bank and Trust Company(R) (CB&T") owned individually 104,401,292 shares, or 80.7%, of the outstanding shares of TSYS Common Stock on February 12, 1997. CB&T(R) is a wholly owned banking subsidiary of Synovus Financial Corp.(R) ("Synovus"), a multi-financial services company having 116,369,039 shares of $1.00 par value voting common stock ("Synovus Common Stock") outstanding on February 12, 1997. II. ELECTION OF DIRECTORS A. Information Concerning Number and Classification of Directors and Nominees. (1) Number and Classification of Directors. In accordance with the vote of shareholders taken at TSYS' 1988 Annual Meeting, the number of members of TSYS' Board of Directors was fixed at 18. TSYS' Board of Directors is currently comprised of 14 members. TSYS has four directorships which remain vacant, one of which positions was vacated by a Class III director. These vacant directorships could be filled in the future at the discretion of TSYS' Board of Directors. This discretionary power gives TSYS' Board of Directors the flexibility of appointing new directors in the periods between TSYS' Annual Meetings should suitable candidates come to its attention. Any person appointed by TSYS' Board of Directors to fill the vacant Class III directorship would serve the remainder of the Class III term, which expires at the 1998 Annual Meeting. Any person so appointed by TSYS' Board of Directors to the remaining vacant directorships would not be appointed to serve a classified, three-year term but would only serve as a director until the next succeeding Annual Meeting. At such Annual Meeting, such appointee would stand before TSYS' shareholders for election to a classified term of office as a director. Proxies cannot be voted at the 1997 Annual Meeting for a greater number of persons than the number of nominees named. Pursuant to TSYS' Articles of Incorporation and bylaws, the members who comprise TSYS' Board of Directors are divided into three classes of directors: Class I, Class II and Class III directors, with each of such Classes of directors to be as nearly equal in number as possible. Each Class of directors serves a staggered 3-year term. At TSYS' 1995 Annual Meeting, Class III directors were elected to serve 3-year terms to expire at TSYS' 1998 Annual Meeting, and at TSYS' 1996 Annual Meeting, Class I directors were elected to serve 3-year terms to expire at TSYS' 1999 Annual Meeting. The terms of office of the Class II directors expire at TSYS' 1997 Annual Meeting. (2) Nominees for Class II Directors and Vote Required. TSYS' Board of Directors has selected five nominees which it proposes for election to TSYS' Board as Class II directors. The five nominees for Class II directors of TSYS will be elected to serve 3-year terms that will expire at TSYS' 2000 Annual Meeting. The five nominees for Class II directors of TSYS are: James H. Blanchard, Richard Y. Bradley, Gardiner W. Garrard, Jr., John P. Illges, III and W. Walter Miller, Jr. Under TSYS' bylaws and Georgia law, a majority of the issued and outstanding shares of TSYS Common Stock entitled to vote must be represented at the 1997 Annual Meeting in order to 2 constitute a quorum and all shares represented at the Meeting, including shares abstaining and withholding authority, are counted for purposes of determining whether a quorum exists. The nominees for election as directors at the Annual Meeting who receive the greatest number of votes (a plurality), a quorum being present, shall become directors at the conclusion of the tabulation of votes. Thus, once a quorum has been established, abstentions and broker non-votes have no effect upon the election of directors. The shares represented by Proxies executed for TSYS' 1997 Annual Meeting in such manner as not to withhold authority to vote for the election of any nominee for election as a Class II director on TSYS' Board of Directors shall be voted "FOR" the election of the five nominees for Class II directors on TSYS' Board named herein. If any nominee for Class II director of TSYS becomes unavailable for any reason before TSYS' 1997 Annual Meeting, the shares represented by executed Proxies may be voted for such substitute nominee as may be determined by the holders of such Proxies. It is not anticipated that any nominee will be unavailable for election. TSYS' BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH OF THE FIVE NOMINEES FOR ELECTION AS CLASS II DIRECTORS ON TSYS' BOARD SET FORTH HEREIN. B. Information Concerning Directors and Nominees for Class II Directors. (1) General Information. The following sets forth the name, age, principal occupation and employment (which, except as noted, has been for the past five years) of each of the nominees for election as Class II directors of TSYS and the remaining directors presently serving on TSYS' Board of Directors, his director classification, his length of service as a director of TSYS, any family relationships with other directors or executive officers of TSYS, and any Board of Directors of which he is a member with respect to any company with a class of securities registered with the Securities and Exchange Commission ("SEC") pursuant to Section 12 of the Securities Exchange Act of 1934, as amended ("Exchange Act"), including Synovus, or any company which is subject to the requirements of Section 15(d) of that Act, or any company registered with the SEC as an investment company under the Investment Company Act of 1940 ("Public Company").
TSYS Year Director First Principal Occupation Classifi- Elected and Other Directorships Name Age cation Director of Public Companies - ------------------------ ------- ---------- ----------- ------------------------------------------------------- Griffin B. Bell 78 I 1987 Senior Partner, King & Spalding (Law Firm) James H. Blanchard 55 II 1982 Chairman of the Board and Chief Executive Officer, Synovus Financial Corp.; Chairman of the Executive Committee, Total System Services, Inc.; Director, BellSouth Corporation Richard Y. Bradley 58 II 1991 Partner, Bradley & Hatcher (Law Firm); Director, Synovus Financial Corp. Gardiner W. Garrard, Jr. 56 II 1982 President, The Jordan Company (Real Estate Development); Director, Synovus Financial Corp. John P. Illges, III 62 II 1982 Senior Vice President and Financial Consultant, The Robinson-Humphrey Company, Inc. (Stockbroker); Director, Synovus Financial Corp. Mason H. Lampton 49 III 1986 President, The Hardaway Company (Construction Company); Director, Synovus Financial Corp. W. Walter Miller, Jr. 48 II 1993 Senior Vice President, Total System Services, Inc. 3 TSYS Year Director First Principal Occupation Classifi- Elected and Other Directorships Name Age cation Director of Public Companies - ------------------------ ------- ---------- ----------- ------------------------------------------------------- Samuel A. Nunn 58 I 1997 Senior Partner, King & Spalding (Law Firm); Director, The Coca-Cola Company, General Electric Company, National Service Industries and Scientific-Atlanta, Inc. H. Lynn Page 56 I 1982 Vice Chairman of the Board (Retired) and Director, Synovus Financial Corp., Columbus Bank and Trust Company and Total System Services, Inc. Philip W. Tomlinson 50 I 1982 President, Total System Services, Inc. William B. Turner 74 III 1982 Chairman of the Executive Committee, Columbus Bank and Trust Company and Synovus Financial Corp.; Advisory Director, W.C. Bradley Co. (Metal Manufacturer and Real Estate) Richard W. Ussery 49 I 1982 Chairman of the Board and Chief Executive Officer, Total System Services, Inc. George C. Woodruff, Jr. 68 III 1982 Real Estate and Personal Investments; Director, Synovus Financial Corp. and United Cities Gas Company James D. Yancey 55 III 1982 Vice Chairman of the Board, Synovus Financial Corp. and Columbus Bank and Trust Company - ------------------- James H. Blanchard was elected Chairman of the Executive Committee of TSYS in February, 1992. From 1982 until 1992, Mr. Blanchard served as Chairman of the Board of TSYS. Richard Y. Bradley formed Bradley & Hatcher in September, 1995. From 1991 until 1995, Mr. Bradley served as President of Bickerstaff Clay Products Company, Inc. Mr. Miller's spouse is the niece of William B. Turner. Samuel A. Nunn was elected as a director of TSYS in January, 1997 by TSYS' Board of Directors to fill the unexpired term of a vacant Class I board seat. Mr. Nunn joined the law firm of King & Spalding in January, 1997. From 1972 until 1997, Mr. Nunn represented the State of Georgia in the United States Senate. Philip W. Tomlinson was elected President of TSYS in February, 1992. From 1982 until 1992, Mr. Tomlinson served as Executive Vice President of TSYS. Richard W. Ussery was elected Chairman of the Board of TSYS in February, 1992. From 1982 until 1992, Mr. Ussery served as President of TSYS.
4 (2) TSYS Common Stock Ownership of Directors and Management. The following table sets forth, as of December 31, 1996, the number of shares of TSYS Common Stock beneficially owned by each of TSYS' directors and TSYS' five most highly compensated executive officers. Information relating to beneficial ownership of TSYS Common Stock is based upon information furnished by each person or entity using "beneficial ownership" concepts set forth in the rules of the SEC under Section 13(d) of the Exchange Act.
Shares of TSYS Shares of TSYS Shares of TSYS Percentage of Common Stock Common Stock Common Stock Total Outstanding Beneficially Beneficially Beneficially Shares Shares of Owned with Owned with Owned with of TSYS TSYS Common Sole Voting Shared Voting Sole Voting but Common Stock Stock and Investment and Investment no Investment Beneficially Beneficially Power as of Power as of Power as of Owned as of Owned as of Name 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 -------------------------- ------------------- -------------------- ------------------- ---------------- ------------- Griffin B. Bell 55,112 8,000 --- 63,112 .05% James H. Blanchard 520,800 240,902 --- 761,702 .59 Richard Y. Bradley 13,770 --- --- 13,770 .01 Gardiner W. Garrard, Jr. 6,022 --- --- 6,022 .005 John P. Illges, III 122,294 --- --- 122,294 .09 Mason H. Lampton 17,521 68,440 --- 85,961 .07 James B. Lipham 40,202 800 20,480 61,482 .05 W. Walter Miller, Jr. 35,742 8,251 20,480 64,473 .05 Samuel A. Nunn --- --- --- --- --- H. Lynn Page 421,589 63,764 --- 485,353 .38 William A. Pruett 117,932 --- 25,600 143,532 .11 Philip W. Tomlinson 415,448 39,864 84,000 539,312 .42 William B. Turner 101,886 384,000 --- 485,886 .38 Richard W. Ussery 411,486 49,100 94,000 554,586 .43 George C. Woodruff, Jr. 76,092 --- --- 76,092 .06 M. Troy Woods 24,209 --- 21,440 45,649 .04 James D. Yancey 533,510 16,000 --- 549,510 .43 - -------- Includes 19,200 shares of TSYS Common Stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares.
The following table sets forth information, as of December 31, 1996, with respect to the beneficial ownership of TSYS Common Stock by all directors and executive officers of TSYS as a group.
Percentage of Shares of Outstanding Shares of TSYS Common Stock TSYS Common Stock Name of Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/96 as of 12/31/96 - ----------------------- ----------------------- ----------------------------- All directors and executive officers of TSYS 4,071,684 3.15% as a group (includes 18 persons)
For a detailed discussion of the beneficial ownership of Synovus Common Stock by TSYS' named executive officers and directors and by all directors and executive officers of TSYS as a group, see Section IV(C) hereof captioned "Synovus Common Stock Ownership of Directors and Management." 5 C. Board Committees and Attendance. The business and affairs of TSYS are under the direction of TSYS' Board of Directors. During 1996, TSYS' Board of Directors held five regular meetings and two special meetings. During 1996, each of TSYS' incumbent directors attended at least 75% of the meetings of TSYS' Board of Directors and the committees thereof on which he sat, except Messrs. Bell and Tomlinson, who attended 71% and 57%, respectively. TSYS' Board of Directors has three principal standing committees -- an Executive Committee, an Audit Committee and a Compensation Committee. There is no Nominating Committee of TSYS' Board of Directors. Executive Committee. The members of TSYS' Executive Committee are: James H. Blanchard, Chairman, Richard W. Ussery, Philip W. Tomlinson, William B. Turner, James D. Yancey, Gardiner W. Garrard, Jr. and Richard Y. Bradley. During the intervals between meetings of TSYS' Board of Directors, TSYS' Executive Committee possesses and may exercise any and all of the powers of TSYS' Board of Directors in the management and direction of the business and affairs of TSYS with respect to which specific direction has not been previously given by TSYS' Board of Directors. During 1996, TSYS' Executive Committee did not meet. Audit Committee. The members of TSYS' Audit Committee are: Gardiner W. Garrard, Jr., Chairman, Mason H. Lampton and John P. Illges, III. The primary functions to be engaged in by TSYS' Audit Committee include: (i) annually recommending to TSYS' Board the independent certified public accountants ("Independent Auditors") to be engaged by TSYS for the next fiscal year; (ii) reviewing the plan and results of the annual audit by TSYS' Independent Auditors; (iii) reviewing and approving the range of management advisory services provided by TSYS' Independent Auditors; (iv) reviewing TSYS' internal audit function and the adequacy of the internal accounting control systems of TSYS; (v) reviewing the results of regulatory examinations of TSYS; (vi) periodically reviewing the financial statements of TSYS; and (vii) considering such other matters with regard to the internal and independent audit of TSYS as, in its discretion, it deems to be necessary or desirable, periodically reporting to TSYS' Board as to the exercise of its duties and responsibilities and, where appropriate, recommending matters in connection with the audit function with respect to which TSYS' Board should consider taking action. During 1996, TSYS' Audit Committee held five meetings. Compensation Committee. The members of the Compensation Committee of TSYS' Board of Directors are: Gardiner W. Garrard, Jr., Chairman, and Mason H. Lampton. The primary functions to be engaged in by TSYS' Compensation Committee include: (i) evaluating the remuneration of senior management and board members of TSYS and its subsidiaries and the compensation and fringe benefit plans in which officers, employees and directors of TSYS are eligible to participate; and (ii) recommending to TSYS' Board whether or not it should modify, alter, amend, terminate or approve such remuneration, compensation or fringe benefit plans. During 1996, TSYS' Compensation Committee held five meetings. D. Executive Officers. The following table sets forth the name, age and position with TSYS of each executive officer of TSYS.
Name Age Position with TSYS - ---------------------------- --- ------------------------------------ James H. Blanchard 55 Chairman of the Executive Committee Richard W. Ussery 49 Chairman of the Board and Chief Executive Officer Philip W. Tomlinson 50 President William A. Pruett 43 Executive Vice President James B. Lipham 48 Executive Vice President and Chief Financial Officer M. Troy Woods 45 Executive Vice President G. Sanders Griffith, III 43 General Counsel and Secretary
6 All of the executive officers of TSYS are members of TSYS' Board of Directors, except William A. Pruett, James B. Lipham, M. Troy Woods and G. Sanders Griffith, III. William A. Pruett was elected as Executive Vice President of TSYS in February, 1993. From 1976 until 1993, Mr. Pruett served in various capacities with CB&T and/or TSYS, including Senior Vice President. James B. Lipham was elected as Executive Vice President and Chief Financial Officer of TSYS in July, 1995. From 1984 until 1995, Mr. Lipham served in various financial capacities with Synovus and/or TSYS, including Senior Vice President and Treasurer. M. Troy Woods was elected as Executive Vice President of TSYS in July, 1995. From 1987 until 1995, Mr. Woods served in various capacities with TSYS, including Senior Vice President. G. Sanders Griffith, III has served as General Counsel of TSYS since 1988 and was elected as Secretary of TSYS in June, 1995. Mr. Griffith currently serves as Senior Executive Vice President, General Counsel and Secretary of Synovus and has held various positions with Synovus since 1988. All of the executive officers of TSYS serve at the pleasure of TSYS' Board of Directors. There are no family relationships between any of TSYS' executive officers, and there are no arrangements or understandings between any such executive officer or any other person pursuant to which any such officer was elected. III. EXECUTIVE COMPENSATION (1) Summary Compensation Table. The following table summarizes the cash and noncash compensation for each of the last three fiscal years for the chief executive officer of TSYS and for the other four most highly compensated executive officers of TSYS.
SUMMARY COMPENSATION TABLE Long-Term Annual Compensation Compensation Awards -------------------------------------------------------- ------------------------------ Other Restricted Securities All Annual Stock Underlying Other Name and Compen- Award(s) Options/ Compen- Principal Position Year Salary Bonus sation SARs sation - ----------------------- ------ -------------- ----------- ------------ -------------- ------------- ------------ Richard W. Ussery 1996 $391,725 $491,363 -0- $316,187 43,853 $137,152 Chairman of the Board 1995 331,400 204,750 -0- 222,015 38,987 102,439 and Chief Executive 1994 255,000 162,105 -0- 79,505 20,741 47,400 Officer Philip W. Tomlinson 1996 335,350 386,000 -0- 223,784 31,038 115,728 President 1995 283,900 160,500 -0- 157,133 27,594 87,508 1994 221,350 129,830 -0- 56,252 14,675 42,602 William A. Pruett 1996 200,900 246,080 -0- 84,880 11,774 67,486 Executive Vice 1995 173,000 103,800 -0- 59,604 10,467 50,628 President 1994 138,500 88,100 -0- 22,494 5,868 29,428 M. Troy Woods 1996 179,375 184,375 -0- 75,792 10,513 53,175 Executive Vice 1995 150,000 59,375 -0- -0- 5,400 35,356 President 1994 -- -- -- -- -- -- James B. Lipham 1996 147,500 152,500 -0- 63,938 8,868 43,755 Executive Vice President 1995 122,500 48,125 -0- -0- 5,400 30,302 and Chief Financial 1994 95,000 23,750 -0- -0- 4,800 22,774 Officer - -------------------- Mr. Blanchard received no cash compensation from TSYS during 1996, other than director fees. Amount consists of base salary and director fees for Messrs. Ussery and Tomlinson. Bonus amount for 1996 includes a special recognition award of $5,000 for Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham. 7 Perquisites and other personal benefits are excluded because the aggregate amount does not exceed the lesser of $50,000 or 10% of annual salary and bonus for the named executives. Amount consists of value of award, net of consideration paid by the executive. As of December 31, 1996, Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham held 123,164, 104,640, 33,491, 24,944 and 23,436 restricted shares, respectively, with a value of $3,463,144, $2,920,560, $941,499, $688,766 and $645,362, respectively. On July 1, 1996, restricted stock was awarded in the amount of 14,618, 10,346, 3,925, 3,504 and 2,956 shares of Synovus Common Stock to Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively, with the following vesting schedule: 20% on July 1, 1997; 20% on July 1, 1998; 20% on July 1, 1999; 20% on July 1, 2000; and 20% on July 1, 2001. On September 5, 1995, restricted stock was awarded in the amount of 12,996, 9,198 and 3,489 shares of Synovus Common Stock to Messrs. Ussery, Tomlinson and Pruett, respectively, with the following vesting schedule: 20% on September 5, 1996; 20% on September 5, 1997; 20% on September 5, 1998; 20% on September 5, 1999; and 20% on September 5, 2000. On June 28, 1994, restricted stock was awarded in the amount of 6,914, 4,892 and 1,956 shares of Synovus Common Stock to Messrs. Ussery, Tomlinson and Pruett, respectively, with the following vesting schedule: 20% on June 28, 1995; 20% on June 28, 1996; 20% on June 28, 1997; 20% on June 28, 1998; and 20% on June 28, 1999. Dividends are paid on all restricted shares. The 1996 amount consists of contributions or other allocations to defined contribution plans of $30,000 for each executive; allocations pursuant to defined contribution excess benefit agreements of $96,168, $74,424, $36,922, $22,671 and $13,352 for each of Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively; premiums paid for group term life insurance coverage of $720, $720, $564, $504 and $403 for each of Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham, respectively; the economic benefit of life insurance coverage related to split-dollar life insurance policies of $92 and $99 for Messrs. Ussery and Tomlinson, respectively; and the dollar value of the benefit of premiums paid for split-dollar life insurance policies (unrelated to term life insurance coverage) projected on an actuarial basis of $10,172 and $10,485 for Messrs. Ussery and Tomlinson, respectively. Disclosure is not required for 1994.
(2) Stock Option Exercises and Grants. The following tables provide certain information regarding options to purchase Synovus Common Stock granted and exercised in the last fiscal year and the number and value of unexercised options at the end of the fiscal year.
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR Individual Grants - ------------------------------------------------------------------------------ % of Total Potential Options/ Realized Value at SARs Exercise Assumed Annual Rates of Options/ Granted to or Stock Price Appreciation SARs Employees Base For Option Term Granted in Fiscal Price Expiration -------------------------- Name (#) Year ($/Share) Date 5%($) 10%($) - ------------------- ----------- ------------- -------- -------------- --------- ---------------- Richard W. Ussery 43,853 3.44% $21.63 06/30/04 $453,001 $1,084,923 Philip W. Tomlinson 31,038 2.43% 21.63 06/30/04 320,623 767,880 William A. Pruett 11,774 0.92% 21.63 06/30/04 121,625 291,289 M. Troy Woods 10,513 0.82% 21.63 06/30/04 108,599 260,092 James B. Lipham 8,868 0.69% 21.63 06/30/04 91,606 219,394 - --------------- Options granted on July 1, 1996 at fair market value to executives in tandem with restricted stock awards as part of the Synovus 1994 Long-Term Incentive Plan. Options become exercisable on July 1, 1998. The dollar gains under these columns result from calculations using the identified growth rates and are not intended to forecast future price appreciation of Synovus Common Stock.
8
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES Number of Securities Value of Underlying Unexercised Unexercised In-the-Money Shares Value Options/SARs at FY-End (#) Options/SARs at FY-End ($) Acquired on Realized -------------------------- ----------------------------- Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable - ------------------- ------------ ----------- -------------------------- ----------------------------- Richard W. Ussery -0- -0- 20,741 / 82,840 $427,783 / $1,121,262 Philip W. Tomlinson -0- -0- 14,675 / 58,632 302,672 / 793,600 William A. Pruett -0- -0- 5,868 / 22,241 121,028 / 301,036 M. Troy Woods -0- -0- 0 / 15,913 0 / 201,891 -0- -0- 0 / 6,000 0 / 143,250 James B. Lipham -0- -0- 0 / 14,268 0 / 184,627 -0- -0- 0 / 4,800 0 / 114,600 - ---------- Market value of underlying securities at exercise or year-end, minus the exercise or base price. Options pertain to shares of TSYS Common Stock.
(3) Compensation of Directors. Compensation. During 1996, TSYS' directors received a $12,000 retainer, a fee of $800 for regular and special meetings of TSYS' Board of Directors they personally attended and a fee of $500 for meetings of the committees of TSYS' Board of Directors they personally attended. In addition, directors of TSYS are entitled to receive an $800 fee for one regular meeting and a fee of $800 for one special meeting of TSYS' Board of Directors, despite the fact they are unable to personally attend such meetings. Director Stock Purchase Plan. TSYS' Director Stock Purchase Plan ("DSPP") is a non-tax-qualified, contributory stock purchase plan pursuant to which qualifying TSYS directors can purchase, with the assistance of contributions from TSYS, presently issued and outstanding shares of TSYS Common Stock. Under the terms of the DSPP, qualifying directors can elect to contribute up to $1,000 per calendar quarter to make purchases of TSYS Common Stock, and TSYS contributes an additional amount equal to 50% of the directors' cash contributions. Participants in the DSPP are fully vested in, and may request the issuance to them of, all shares of TSYS Common Stock purchased for their benefit thereunder. (4) Change in Control Arrangements. Messrs. Ussery, Tomlinson, Pruett, Lipham and Woods each hold shares of restricted stock of, and options to purchase stock of, Synovus and/or TSYS which were issued pursuant to the 1992 Total System Services, Inc. Long-Term Incentive Plan and the Synovus Financial Corp. 1994 Long-Term Incentive Plan. Under the terms of the 1992 Total System Services, Inc. Long-Term Incentive Plan and the Synovus Financial Corp. 1994 Long-Term Incentive Plan, in the event of a change in control of TSYS or Synovus, the vesting of any stock options, stock appreciation and other similar rights, restricted stock and performance awards will be accelerated so that all awards not previously exercisable and vested will become fully exercisable and vested. Effective January 1, 1996, TSYS entered into Change of Control Agreements ("Agreements") with Messrs. Ussery, Tomlinson, Pruett, Woods and Lipham and certain other executive officers. The Change of Control Agreements provide severance pay and continuation of certain benefits in the event of a Change of Control of Synovus or TSYS. In order to receive benefits under the Agreements, the executive's employment must be terminated involuntarily, without cause, whether actual or "constructive" within one year following a Change of Control or the executive may voluntarily or involuntarily terminate employment during the thirteenth month following a 9 Change of Control. With respect to Synovus, a "Change of Control" generally is deemed to occur in any of the following circumstances: (1) the acquisition by any person of 20% or more of the "beneficial ownership" of Synovus' outstanding voting stock, with certain exceptions for Turner family members; (2) the persons serving as directors of Synovus as of January 1, 1996 and those replacements or additions subsequently approved by a two-thirds (2/3) vote of the Board ceasing to comprise at least two-thirds (2/3) of the Board; (3) a merger, consolidation, reorganization or sale of Synovus' assets unless (a) the previous beneficial owners of Synovus own more than two-thirds (2/3) of the new company, (b) no person owns more than 20% of the new company, and (c) two-thirds (2/3) of the new company's Board were members of the incumbent Board which approved the business combination; or (4) a "triggering event" as defined in the Synovus Rights Agreement. With respect to TSYS, a Change of Control is generally defined in the same manner as a Change of Control of Synovus, except that (1) a spin-off of TSYS stock to Synovus shareholders and (2) any transaction in which Synovus continues to own more than 50% of the outstanding voting stock of TSYS are specifically excluded from the definition of Change of Control. Under the Agreements with Messrs. Ussery and Tomlinson, severance pay would equal three times current base salary and bonus, with bonus being defined as the average of the previous three years measured as a percentage of base salary multiplied by current base salary. Under the Agreements with Messrs. Pruett, Lipham and Woods, severance pay would equal two times current base salary and bonus, as previously defined. Medical, life, disability and other welfare benefits will be provided at the expense of TSYS for three years for Messrs. Ussery and Tomlinson (two years for Messrs. Pruett, Lipham and Woods) with the level of coverage being determined by the amount elected by the executive during the open enrollment period immediately preceding the Change of Control. Executives would also receive a short-year bonus for the year of separation based on the greater of a half year's maximum bonus or pro rata maximum bonus to the date of termination and a cash amount in lieu of a long-term incentive award for the year of separation. If the executive has already received a long-term incentive award in the separation year, the amount would equal 1.5 times the market grant and if the executive has not, the amount would equal 2.5 times market grant. Executives who are impacted by the Internal Revenue Service excise tax that applies to certain change of control agreements would receive additional gross up payments so that they are in the same position as if there were no excise tax. The Agreements do not provide for retirement benefits or perquisites. Notwithstanding anything to the contrary set forth in any of TSYS' previous filings under the Securities Act of 1933, as amended, or the Exchange Act that might incorporate future filings, including this Proxy Statement, in whole or in part, the following Performance Graph and Compensation Committee Report on Executive Compensation shall not be incorporated by reference into any such filings. 10 (5) Stock Performance Graph. The following graph compares the yearly percentage change in cumulative shareholder return on TSYS Common Stock with the cumulative total return of the Standard & Poor's 500 Index and the Standard & Poor's Computer Software & Services Index for the last five fiscal years (assuming a $100 investment on December 31, 1991 and reinvestment of all dividends). [Omitted Stock Performance Graph is represented by the following table.]
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG TSYS, S&P 500 AND S&P COMPUTER SOFTWARE & SERVICES INDEX 1991 1992 1993 1994 1995 1996 TSYS $100 $114 $210 $276 $494 $872 S&P 500 $100 $108 $118 $120 $165 $203 S&P CS&S $100 $119 $131 $174 $242 $360
(6) Compensation Committee Report on Executive Compensation. The Compensation Committee (the "Committee") of the Board of Directors of TSYS is responsible for evaluating the remuneration of senior management and board members of TSYS and its subsidiaries and the compensation and fringe benefit plans in which officers, employees and directors of TSYS and its subsidiaries are eligible to participate. Because TSYS' mission is to exceed the expectations of its customers through the delivery of superior service and continuous quality improvement that rewards its employees and enhances the value of its shareholders' investment, the Committee's executive compensation policies and practices are designed to attract, retain and reward its executives for their performance in accomplishing TSYS' mission. Elements of Executive Compensation. The four elements of executive compensation at TSYS are: o Base Salary o Annual Bonus o Long-Term Incentives o Other Benefits The Committee believes that a substantial portion, though not a majority, of an executive's compensation should be "at-risk" based upon TSYS' short-term performance (through the annual bonus and the Synovus/TSYS Profit Sharing Plan and the Synovus/TSYS 401(k) Savings Plan) and long-term performance (through long-term incentives including stock options and restricted stock 11 awards). The remainder of each executive's compensation is primarily based upon the competitive practices of companies similar in size to TSYS ("similar companies") with certain adjustments as described below. The companies used for comparison are not the same companies included in the peer group index appearing in the Stock Performance Graph above. A description of each element of executive compensation and the factors and criteria used by the Committee in determining these elements is discussed below: Base Salary. Base salary is an executive's annual rate of pay without regard to any other elements of compensation. The Committee believes that the base salary of TSYS executives should reflect the fact that TSYS has had outstanding stock performance over the previous 10 years, resulting in significant market value added for its shareholders. The Committee has had considerable difficulty, however, in obtaining data that reflected the appropriate market for the compensation of TSYS executives. Positions for which market matches could be found were targeted at the median level. The Committee added a premium, however, to the size-based market data designed to reflect pay at companies with similar strong stock performance and market value added. Positions for which such market data could not be obtained were slotted using internal equity considerations. Based solely upon these comparisons, the Committee increased Mr. Ussery's base salary in 1996. The Committee also increased the base salaries of TSYS' other executive officers in 1996 based upon these comparisons and internal equity considerations, as described above. Annual Bonus. Annual bonuses are awarded to the executive officers of TSYS pursuant to the terms of the Synovus Executive Bonus Plan and the Synovus Incentive Bonus Plan (collectively, the "plans"). The Committee has the discretion from year-to-year to select participants in the Synovus Executive Bonus Plan, which was approved by the shareholders of TSYS in 1996. For 1996, the Committee selected Mr. Ussery to participate in the Synovus Executive Bonus Plan, while the Committee selected Messrs. Tomlinson, Pruett, Woods and Lipham to participate in the Synovus Incentive Bonus Plan. Under the terms of the plans, bonus amounts are paid as a percentage of base pay based on the achievement of previously established performance goals. The performance measures for such goals may be chosen by the Committee from among the following for Synovus, any of its business segments and/or any of its business units: (i) number of cardholder, merchant and/or other customer accounts processed and/or converted by TSYS; (ii) successful negotiation or renewal of contracts with new and/or existing customers by TSYS; (iii) productivity and expense control; (iv) stock price; (v) return on capital compared to cost of capital; (vi) net income; (vii) operating income; (viii) earnings per share and/or earnings per share growth; (ix) return on equity; (x) return on assets; (xi) nonperforming assets and/or loans as a percentage of total assets and/or loans; (xii) noninterest expense as a percentage of total expense; (xiii) loan charge-offs as a percentage of total loans; and (xiv) asset growth. For Mr. Ussery and TSYS' other executive officers, the Committee established a payout matrix based upon the attainment of net income targets during 1996. TSYS' financial performance and individual performance, separate from the financial performance goals established at the beginning of the year, can reduce bonus awards determined by the attainment of the established goals, although this was not the case for any of TSYS' executive officers. The maximum percentage payouts under the plans for 1996 were 65% for Mr. Ussery, 60% for Messrs. Tomlinson and Pruett and 50% for Messrs. Woods and Lipham. The Committee also established a special provision that would double the bonus otherwise payable to TSYS' executive officers. This provision was based upon the attainment of a "stretch" net income goal and the attainment of a selected number of cardholder accounts. Because the two goals under this special provision were exceeded and the overall financial results of TSYS were favorable, Mr. Ussery and TSYS' other executive officers were awarded the maximum bonus amount for which each executive was eligible. Long-Term Incentives. The two types of long-term incentives awarded to executives to date are stock options and restricted stock awards. Because of the relatively low number of previously traded shares of TSYS, the Committee has decided to award stock options and restricted stock awards of Synovus stock to TSYS executives, thereby linking their interests to the interests of TSYS and Synovus shareholders. Restricted stock awards are designed to focus executives on the long-term performance of TSYS and Synovus. Stock options provide executives with the opportunity to buy and maintain an equity interest in TSYS and Synovus and to share in the appreciation 12 of the value of TSYS and Synovus Common Stock. In 1994, the Committee established a payout matrix for future long-term incentive grants that uses total shareholder return as measured by Synovus' performance (stock price increases plus dividends) and how Synovus' total shareholder return compares to the return of a peer group of companies. For the long-term incentive awards made in 1996, total shareholder return and peer comparisons were measured during the 1993-1995 performance period. Applying the results of the 1993-1995 performance period to the payout matrix, the Committee granted Mr. Ussery and TSYS' other executive officers restricted stock awards and stock options in 1996. Benefits. Benefits offered to executives serve a different purpose than the other elements of total compensation. In general, these benefits provide either retirement income or protection against catastrophic events such as illness, disability and death. Executives generally receive the same benefits offered to the general employee population, with the only exceptions designed to promote tax efficiency or to replace other benefits lost due to regulatory limits. The Synovus/TSYS Profit Sharing Plan and the Synovus/TSYS 401(k) Savings Plan, including excess benefit arrangements designed to replace benefits lost due to regulatory limits (collectively the "Plan"), is the largest component of TSYS' benefits package for executives. The Plan is directly related to corporate performance because the amount of employer contributions to the Plan (to a maximum of 14% of an executive's compensation) is a function of TSYS' profitability. For 1996, Mr. Ussery and TSYS' other executive officers received a Plan contribution of 14% of their compensation based upon the profitability formula under the Plan. The remaining benefits provided to executives are primarily based upon the competitive practices of similar companies. In 1993, the Internal Revenue Code of 1986, as amended (the "Code"), was amended to limit the deductibility for federal income tax purposes of annual compensation paid by a publicly held corporation to its chief executive officer and four other highest paid executives for amounts greater than $1 million unless certain conditions are met. Because the Committee seeks to maximize shareholder value, the Committee has taken steps to ensure the deductibility of compensation in excess of $1 million. For 1996, Mr. Ussery would have been affected by this provision but for the steps taken by the Committee. However, the Committee reserves the ability to make awards which do not qualify for full deductibility under Section 162(m) of the Code if the Committee determines that the benefits of so doing outweigh full deductibility. The Committee believes that the executive compensation policies serve the best interests of the shareholders and of TSYS. A substantial portion of the compensation of TSYS' executives is directly related to and commensurate with TSYS' performance. The Committee believes that the performance of TSYS to date validates the Committee's compensation philosophy. Gardiner W. Garrard, Jr. Mason H. Lampton (7) Compensation Committee Interlocks and Insider Participation. William B. Turner, Gardiner W. Garrard, Jr., George C. Woodruff, Jr. and Mason H. Lampton served as members of TSYS' Compensation Committee during 1996. No member of the Committee is a current or former officer or employee of TSYS or its subsidiaries. During 1996, Mr. Turner was Chairman of the Executive Committee of W.C. Bradley Co. James H. Blanchard, Chairman of the Executive Committee of TSYS, serves on the Board of Directors of W.C. Bradley Co. TSYS leases various properties in Columbus, Georgia, from W.C. Bradley Co. for office space and storage. The rent paid for the space in 1996, which is approximately 71,915 square feet, is approximately $688,403. The lease agreements were made on substantially the same terms as those prevailing at the time for comparable leases for similar facilities with an unrelated third party in Columbus, Georgia. TSYS has entered into an agreement with CB&T with respect to the use of aircraft owned or leased by B&C Company, a Georgia general partnership in which CB&T and W.C. Bradley Co. are equal partners. CB&T and W.C. Bradley Co. have each agreed to remit to B&C Company fixed fees 13 for each hour they fly the aircraft owned and/or leased by B&C Company. TSYS paid CB&T $600,953 for its use of the B&C Company aircraft during 1996, which $600,953 was remitted to B&C Company by CB&T. The charges payable by TSYS to CB&T in connection with its use of this aircraft approximate charges made available to unrelated third parties in the State of Georgia for use of comparable aircraft for commercial purposes. William B. Turner, a director of TSYS and Chairman of the Executive Committee of CB&T and Synovus, was an officer, director and shareholder of W.C. Bradley Co. during 1996. James H. Blanchard, Chairman of the Executive Committee of TSYS, Chairman of the Board of Synovus and a director of CB&T, is a director of W.C. Bradley Co. W. Walter Miller, Jr., a director of W.C. Bradley Co., is Senior Vice President and a director of TSYS. Elizabeth C. Ogie, the niece of William B. Turner and the sister-in-law of W. Walter Miller, Jr., is a director of W.C Bradley Co. and a director of CB&T and Synovus. Stephen T. Butler, the nephew of William B. Turner and an officer and director of W.C. Bradley Co., is a director of CB&T. Samuel M. Wellborn, III, Chairman of the Board of CB&T, is a director of W.C. Bradley Co. W.B. Turner, Jr. and John T. Turner, the sons of William B. Turner, are officers and directors of W.C. Bradley Co. and are also directors of CB&T. Gardiner W. Garrard, Jr. is President of The Jordan Company. TSYS leases from The Jordan Company approximately 10,000 square feet of office space in Columbus, Georgia for $5,900 per month, which lease expires on September 30, 1999. The lease was made on substantially the same terms as those prevailing at the time for leases of comparable property between unrelated third parties. During 1996, The Jordan Company received payments from a third party lessor of $116,440 in connection with its representation of TSYS as leasing agent in securing office space in Atlanta, Georgia. The payments were made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties. Gardiner W. Garrard, Jr., a director of TSYS, CB&T and Synovus, is an officer, director and shareholder of The Jordan Company. Richard M. Olnick, the brother-in-law of Gardiner W. Garrard, Jr. and a director of CB&T, is an officer, director and shareholder of The Jordan Company. (8) Transactions with Management. During 1996, TSYS paid to Communicorp, Inc. an aggregate of $504,389. These payments were made in the ordinary course of business on substantially the same terms as those prevailing at the time for comparable transactions with unrelated third parties and were primarily for various printing and business communication services provided by Communicorp, Inc. to TSYS. Communicorp, Inc. is a wholly owned subsidiary of AFLAC Incorporated. Daniel P. Amos, a director of CB&T and Synovus, is Chief Executive Officer and a director of AFLAC Incorporated. King & Spalding, a law firm located in Atlanta, Georgia, performed legal services on behalf of TSYS during 1996. Griffin B. Bell and Samuel A. Nunn, directors of TSYS, are Senior Partners of King & Spalding. Bradley & Hatcher, a law firm located in Columbus, Georgia, was retained by TSYS in 1996 to perform legal services on its behalf. Richard Y. Bradley, a director of Synovus, CB&T and TSYS, is a partner of Bradley and Hatcher. For information about transactions with companies that are affiliates of William B. Turner and Gardiner W. Garrard, Jr., directors of TSYS, see Section III (7) hereof captioned "Compensation Committee Interlocks and Insider Participation." For a description of certain transactions between TSYS and its affiliated companies, upon whose Boards of Directors certain of TSYS' directors also serve, see Section IV(D) hereof captioned "Bankcard Data Processing Services Provided to CB&T and Certain of Synovus' Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries." 14 IV. RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES A. Beneficial Ownership of TSYS Common Stock by CB&T. The following table sets forth, as of December 31, 1996, the number of shares of TSYS Common Stock beneficially owned by CB&T, the only known beneficial owner of more than 5% of the issued and outstanding shares of TSYS Common Stock.
Percentage of Shares of Outstanding Shares of TSYS Common Stock TSYS Common Stock Name and Address Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/96 as of 12/31/96 - ------------------------ ------------------------ ----------------------------- Columbus Bank and Trust Company 104,401,292 80.7% 1148 Broadway, Columbus, Georgia 31901 - ------------ CB&T individually owns these shares. As of December 31, 1996, Synovus Trust Company, a wholly owned trust company subsidiary of CB&T ("Synovus Trust"), held in various fiduciary capacities a total of 743,852 shares (.57%) of TSYS Common Stock. Of this total, Synovus Trust held 569,414 shares as to which it possessed sole voting power, 580,570 shares as to which it possessed sole investment power and 163,282 shares as to which it possessed shared voting and investment power. In addition, as of December 31, 1996, Synovus Trust held in various agency capacities an additional 1,291,408 shares of TSYS Common Stock as to which it possessed no voting or investment power. Synovus and its subsidiaries disclaim beneficial ownership of all shares of TSYS Common Stock which are held by Synovus Trust in various fiduciary and agency capacities.
CB&T, by virtue of its individual ownership of 104,401,292 shares, or 80.7%, of the outstanding shares of TSYS Common Stock on December 31, 1996 is able to, and intends to, elect a majority of TSYS' Board of Directors. CB&T presently controls TSYS. B. Interlocking Directorates of TSYS, Synovus and CB&T. Eight of the fourteen members of and nominees to serve on TSYS' Board of Directors also serve as members of the Boards of Directors of Synovus and CB&T. They are James H. Blanchard, Richard Y. Bradley, Gardiner W. Garrard, Jr., John P. Illges, III, H. Lynn Page, William B. Turner, George C. Woodruff, Jr., and James D. Yancey. Mason H. Lampton serves as an Advisory Director of CB&T and as a director of Synovus. C. Synovus Common Stock Ownership of Directors and Management. The following table sets forth, as of December 31, 1996, the number of shares of Synovus Common Stock beneficially owned by TSYS' directors and TSYS' five most highly compensated executive officers. 15
Shares of Shares of Shares of Synovus Synovus Synovus Percentage Common Stock Common Stock Common Stock of Beneficially Beneficially Beneficially Total Outstanding Owned with Owned with Owned with Shares of Shares of Sole Voting Shared Sole Voting Synovus Synovus and Voting and but no Common Stock Common Stock Investment Investment Investment Beneficially Beneficially Power as of Power as of Power as of Owned as of Owned as of Name 12/31/96 12/31/96 12/31/96 12/31/96 12/31/96 - ----------------------- ------------- ------------ -------------- ------------ ------------ Griffin B. Bell 18,857 10,000 --- 28,857 .02% James H. Blanchard 720,749 4,460 164,598 889,807 .76 Richard Y. Bradley 8,133 56,221 --- 64,354 .06 Gardiner W. Garrard, Jr. 88,481 635,938 --- 724,419 .62 John P. Illges, III 247,356 116,445 --- 363,801 .31 Mason H. Lampton 77,462 128,693 --- 206,155 .18 James B. Lipham 1,080 --- 2,956 4,036 .003 W. Walter Miller, Jr. 17,668 28,334 --- 46,002 .04 Samuel A. Nunn --- --- --- --- --- H. Lynn Page 373,688 5,118 --- 378,806 .33 William A. Pruett 7,347 --- 7,891 15,238 .01 Philip W. Tomlinson 18,611 --- 20,640 39,251 .03 William B. Turner 41,649 13,503,372 --- 13,545,021 11.64 Richard W. Ussery 36,229 1,744 29,164 67,137 .06 George C. Woodruff, Jr. 56,605 30,000 --- 86,605 .07 M. Troy Woods --- --- 3,504 3,504 .003 James D. Yancey 453,585 27,412 34,615 515,612 .44 - ------------------- Includes 38,151 shares of Synovus Common Stock with respect to which Mr. Blanchard has options to acquire. Includes 27,852 shares of Synovus Common Stock held by a charitable foundation of which Mr. Illges is a trustee. Includes 117,639 shares of Synovus Common Stock held in a trust for which Mr. Lampton is not the trustee. Mr. Lampton disclaims beneficial ownership of such shares. Includes 4,500 shares of Synovus Common Stock with respect to which Mr. Miller has options to acquire. Includes 5,868 shares of Synovus Common Stock with respect to which Mr. Pruett has options to acquire. Includes 14,675 shares of Synovus Common Stock with respect to which Mr. Tomlinson has options to acquire. Includes 1,141,425 shares held by a charitable foundation of which Mr. Turner is a trustee. Includes 20,741 shares of Synovus Common Stock with respect to which Mr. Ussery has options to acquire. Includes 30,000 shares held by a charitable foundation of which Mr. Woodruff is a trustee. Includes 24,588 shares of Synovus Common Stock with respect to which Mr. Yancey has options to acquire.
16 The following table sets forth information, as of December 31, 1996, with respect to the beneficial ownership of Synovus Common Stock by all directors and executive officers of TSYS as a group.
Percentage of Shares of Outstanding Shares of Synovus Common Stock Synovus Common Stock Name of Beneficially Owned Beneficially Owned Beneficial Owner as of 12/31/96 as of 12/31/96 - ------------------------ ----------------------- ----------------------------- All directors and executive officers of TSYS as a 17,095,947 14.69% group (includes 18 persons)
D. Bankcard Data Processing Services Provided to CB&T and Certain of Synovus' Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries. During 1996, TSYS provided bankcard data processing services to CB&T and 29 of Synovus' other banking subsidiaries. The bankcard data processing agreement between TSYS and CB&T can be terminated by CB&T upon 60 days prior written notice to TSYS or terminated by TSYS upon 180 days prior written notice to CB&T. During 1996, TSYS derived $1,809,847 in revenues from CB&T and 29 of Synovus' other banking subsidiaries from the performance of bankcard data processing services and $128,411 in revenues from Synovus and its subsidiaries from the performance of other data processing services. TSYS' charges to CB&T and Synovus' other subsidiaries for bankcard and other data processing services are comparable to, and are determined on the same basis as, charges by TSYS to similarly situated unrelated third parties. Synovus Service Corp. ("SSC"), a wholly owned subsidiary of Synovus, provides various services to Synovus' subsidiary companies, including TSYS. TSYS and SSC are parties to Lease Agreements pursuant to which SSC leased from TSYS office space for lease payments aggregating $107,449 during 1996, and TSYS leased from SSC office space for lease payments aggregating $34,472 during 1996. The terms of these transactions are comparable to those which could have been obtained in transactions with unaffiliated third parties. TSYS and Synovus and TSYS and SSC are parties to Management Agreements (having one year, automatically renewable, unless terminated, terms), pursuant to which Synovus and SSC provide certain management services to TSYS. During 1996, these services included human resource services, maintenance services, security services, communications services, corporate education services, travel services, investor relations services, corporate governance services, legal services, regulatory and statutory compliance services, executive management services performed on behalf of TSYS by certain of Synovus' officers and financial services. As compensation for management services provided during 1996, TSYS paid Synovus and SSC management fees of $1,079,706 and $8,583,648, respectively. Management fees are subject to future adjustments based upon charges at the time by unrelated third parties for comparable services. During 1996, Synovus Trust Company served as Trustee of various employee benefit plans of TSYS. During 1996, TSYS paid Synovus Trust Company trustee's fees under these plans of $151,525. During 1996, Columbus Depot Equipment Company ("CDEC"), a wholly owned subsidiary of TSYS, and CB&T and 25 of Synovus' other subsidiaries were parties to Lease Agreements pursuant to which CB&T and 25 of Synovus' other subsidiaries leased from CDEC computer related equipment for bankcard and bank data processing services for lease payments aggregating $152,262. During 1996, CDEC sold CB&T and certain of Synovus' other subsidiaries computer related equipment for bankcard and bank data processing services for payments aggregating $23,073. In addition, CDEC was paid $15,375 by CB&T and certain of Synovus' other subsidiaries for monitoring such equipment. The terms, conditions, rental rates and/or sales prices provided for in these Agreements are comparable to corresponding terms, conditions and rates provided for in leases and sales of similar equipment offered by unrelated third parties. During 1996, Synovus Data Corp., a wholly owned subsidiary of Synovus, paid TSYS $303,554 for data links, network services and other miscellaneous items related to the data processing services which Synovus Data Corp. provides to its customers, which amount was reimbursed to 17 Synovus Data Corp. by its customers. During 1996, Synovus Data Corp. paid TSYS $31,825, primarily for computer processing services. During 1996, TSYS and Synovus Data Corp. were parties to a Lease Agreement pursuant to which TSYS leased from Synovus Data Corp. portions of its office building for lease payments aggregating $240,000. The charges for processing and other services, and the terms of the Lease Agreement, are comparable to those between unrelated third parties. During 1996, TSYS and CB&T were parties to Lease Agreements pursuant to which CB&T leased from TSYS portions of its maintenance and warehouse facilities for lease payments aggregating $11,628. During 1996, TSYS and CB&T were also parties to a Lease Agreement pursuant to which TSYS leased office space from CB&T for lease payments of $4,483 per month. The terms, conditions and rental rates provided for in these Lease Agreements are comparable to corresponding terms, conditions and rates provided for in leases of similar facilities offered by unrelated third parties in the Columbus, Georgia area. During 1996, Synovus, CB&T and other Synovus subsidiaries paid to Columbus Productions, Inc. and Lincoln Marketing, Inc., wholly owned subsidiaries of TSYS, an aggregate of $753,065 for printing and correspondence services. The charges for these services are comparable to those between unrelated third parties. During 1996, TSYS purchased 35,349 shares of Synovus Common Stock from Synovus for $764,422 and simultaneously granted the shares to certain executive officers of TSYS as restricted stock awards. The per share purchase price of such shares was equal to the fair market value of a share of Synovus Common Stock on the date of purchase. During 1996, TSYS and its subsidiaries were paid $1,392,543 of interest by CB&T in connection with deposit accounts with, and commercial paper purchased from, CB&T. These interest rates are comparable to those provided for between unrelated third parties. The Board of Directors of TSYS has resolved that transactions with officers, directors, key employees and their affiliates shall be approved by a majority of its independent and disinterested directors, if otherwise permitted by applicable law, and will be on terms no less favorable than could be obtained from unrelated third parties. V. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires TSYS' officers and directors, and persons who own more than ten percent of TSYS Common Stock, to file reports of ownership and changes in ownership on Forms 3,4 and 5 with the SEC and the New York Stock Exchange. Officers, directors and greater than ten percent shareholders are required by SEC regulations to furnish TSYS with copies of all Section 16(a) forms they file. To TSYS' knowledge, based solely on its review of the copies of such forms received by it, and written representations from certain reporting persons that no Forms 5 were required for those persons, TSYS believes that during the fiscal year ended December 31, 1996, all Section 16(a) filing requirements applicable to its officers, directors, and greater than ten percent beneficial owners were complied with, except that Mr. Woodruff reported six transactions late on a Form 5, Mr. Turner reported seven transactions late on a Form 5, and Mr. Page reported one transaction late on a Form 5. VI. INDEPENDENT AUDITORS On February 28, 1997, TSYS' Board of Directors appointed KPMG Peat Marwick LLP as the independent auditors to audit the financial statements of TSYS and its subsidiaries for the fiscal year ending December 31, 1997. The Board of Directors knows of no direct or material indirect financial interest by KPMG Peat Marwick LLP in TSYS or of any connection between KPMG Peat Marwick LLP and TSYS in the capacity of promoter, underwriter, voting trustee, director, officer, shareholder or employee. Representatives of KPMG Peat Marwick LLP will be present at TSYS' 1997 Annual Meeting with the opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions. 18 VII. FINANCIAL INFORMATION WITH REFERENCE TO TSYS CONTAINED IN TSYS' 1996 ANNUAL REPORT Detailed financial information for TSYS and its subsidiaries for its 1996 fiscal year is included in TSYS' 1996 Annual Report that is being mailed to TSYS' shareholders together with this Proxy Statement. VIII. OTHER MATTERS At the time of preparation of this Proxy Statement, TSYS' Board of Directors has not been informed of any matters to be presented by or on behalf of TSYS' Board of Directors or its management for action at TSYS' 1997 Annual Meeting which are not referred to herein. If any other matters come before the Annual Meeting or any adjournment thereof, it is the intention of the persons named in the accompanying Proxy to vote thereon in accordance with their best judgment. TSYS' shareholders are urged to vote, date and sign the enclosed Proxy Card solicited on behalf of TSYS' Board of Directors and return it at once in the envelope which is enclosed for that purpose. This should be done whether or not the TSYS shareholder plans to attend TSYS' 1997 Annual Meeting. By Order of the Board of Directors /s/Richard W. Ussery Richard W. Ussery Chairman of the Board, Total System Services, Inc. Columbus, Georgia March 13, 1997 19 EX-21.1 7 EXHIBIT 21.1 EXHIBIT 21.1 SUBSIDIARIES OF TOTAL SYSTEM SERVICES, INC.
Columbus Depot Equipment Company 100% A Georgia corporation Mailtek, Inc. 100% A Georgia corporation Lincoln Marketing, Inc. 100% A Georgia corporation Columbus Productions, Inc. 100% A Georgia corporation
TSYS\subsid.doc EX-23.1 8 EXHIBIT 23.1 EXHIBIT 23.1 Independent Auditors' Consent The Board of Directors Total System Services, Inc. We consent to the incorporation by reference in the Registration Statements (No. 2-92497 and No. 33-1736) on Form S-8 and (No. 33-52258) on Form S-3 of Total System Services, Inc. of our reports dated January 22, 1997, relating to the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, and the related financial statement schedule, which reports appear in the 1996 Annual Report on Form 10-K of Total System Services, Inc. and 1996 Annual Report to Shareholders and is incorporated by reference in the 1996 Annual Report on Form 10-K of Total System Services, Inc. /s/KPMG Peat Marwick LLP KPMG PEAT MARWICK LLP Atlanta, Georgia March 17, 1997 EX-24.1 9 EXHIBIT 24.1 EXHIBIT 24.1 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Total System Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOTAL SYSTEM SERVICES, INC. (Registrant) March 20, 1997 By:/s/Richard W. Ussery ----------------------------------- Richard W. Ussery, Chairman and Principal Executive Officer POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, Richard W. Ussery and Philip W. Tomlinson, and each of them, his true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. /s/James H. Blanchard Date: March 20, 1997 - ------------------------------------------------ James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 20, 1997 - ------------------------------------------------ Richard W. Ussery, Chairman of the Board and Principal Executive Officer /s/Philip W. Tomlinson Date: March 20, 1997 - -------------------------------------------------- Philip W. Tomlinson, President and Director /s/James B. Lipham Date: March 20, 1997 - ------------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/William A. Pruett Date: March 20, 1997 - ------------------------------------------------- William A. Pruett, Executive Vice President /s/M. Troy Woods Date: March 20, 1997 - ------------------------------------------------- M. Troy Woods, Executive Vice President /s/Griffin B. Bell Date: March 20, 1997 - ------------------------------------------------- Griffin B. Bell, Director /s/Richard Y. Bradley Date: March 20, 1997 - ------------------------------------------------- Richard Y. Bradley, Director /s/Gardiner W. Garrard, Jr., Date: March 20, 1997 - ------------------------------------------------- Gardiner W. Garrard, Jr., Director /s/John P. Illges, III Date: March 20, 1997 - ------------------------------------------------- John P. Illges, III, Director /s/Mason H. Lampton Date: March 20, 1997 - ------------------------------------------------- Mason H. Lampton, Director /s/Samuel A. Nunn Date: March 20, 1997 - ------------------------------------------------- Samuel A. Nunn, Director /s/H. Lynn Page Date: March 20, 1997 - ------------------------------------------------- H. Lynn Page, Director /s/W. Walter Miller, Jr. Date: March 20, 1997 - ------------------------------------------------- W. Walter Miller, Jr., Director /s/William B. Turner Date: March 20, 1997 - ------------------------------------------------- William B. Turner, Director /s/George C. Woodruff, Jr. Date: March 20, 1997 - ------------------------------------------------- George C. Woodruff, Jr., Director /s/James D. Yancey Date: March 20, 1997 - ------------------------------------------------- James D. Yancey, Director filings/tss\confo.sig EX-27.1 10 EXHIBIT 27.1
5 0000721683 TOTAL SYSTEM SERVICES, INC. YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 27,496,057 0 59,906,399 704,000 0 98,322,938 121,397,132 58,441,206 246,759,083 52,105,345 0 0 0 12,948,352 165,929,395 246,759,083 311,648,349 311,648,349 0 259,744,821 0 0 0 60,444,404 21,007,223 39,437,181 0 0 0 39,437,181 .31 0 On March 29, 1996, TSYS announced a two-for-one stock split to be issued on April 22, 1996, to shareholders of record as of April 11, 1996. Financial data schedules have not been restated for prior periods for this recapitalization.
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