10-K 1 mainfile.txt TSYS 10-K 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 December 31, 2001 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 incorporation (I.R.S. Employer or organization) Identification No.) 1600 First Avenue Columbus, Georgia 31901 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (706) 649-2204 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO___________ ----------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 15, 2002, 196,965,670 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 $643,461,000 (based upon the closing per share price of such stock on said date.) Portions of Registrant's Proxy Statement, including Financial Appendix, dated March 8, 2002 are incorporated in Parts I, II, III and IV 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 F-3 through F-13, F-18 and F-19, Part I, Item 1, Business F-21, and F-25 through F-27 of the Financial Appendix to Registrant's Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 Pages F-9 and F-10, F-18 through Part I, Item 2, Properties F-21, and F-25 of the Financial Appendix to Registrant's Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 Page F-25 of the Financial Appendix to Part I, Item 3, Legal Registrant's Proxy Statement in connection Proceedings with its Annual Shareholders' Meeting to be held on April 18, 2002 Page F-30 of the Financial Appendix Part II, Item 5, Market to Registrant's Proxy Statement in for Registrant's Common connection with its Annual Shareholders' Equity and Related Meeting to be held on April 18, 2002 Stockholder Matters Page F-2 of the Financial Appendix Part II, Item 6, Selected to Registrant's Proxy Statement Financial Data in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 Pages F-3 through F-13 of the Part II, Item 7, Management's Financial Appendix Discussion and Analysis of to Registrant's Proxy Statement in connection Financial Condition and with its Annual Shareholders' Meeting to be held Results of Operations on April 18, 2002 Pages F-14 through F-28, and F-30 Part II, Item 8, Financial of the Financial Statements and Supplementary Appendix to Registrant's Proxy Statement in Data connection with its Annual Shareholders' Meeting to be held on April 18, 2002 Pages 3 and 4, 7 and 8, and 28 and 29 Part III, Item 10, of Registrant's Proxy Statement in Directors and Executive connection with its Annual Officers of the Registrant Shareholders' Meeting to be held on April 18, 2002 Page 7, pages 19 through 21, and 24 and 25 Part III, Item 11, of Registrant's Proxy Statement Executive Compensation in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 Pages 8 and 9, and 25 through 27 of Part III, Item 12, Security Registrant's Proxy Statement in connection Ownership of Certain with its Annual Shareholders' Beneficial Owners and Meeting to be held on April 18, 2002 Management Pages 25 through 28 Part III, Item 13, of Registrant's Proxy Statement and Certain Relationships pages F-19 and F-20 of the Financial and Related Transactions Appendix to Registrant's Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 Pages F-14 through F-28 of the Financial Part IV, Item 14, Exhibits, Appendix to Registrant's Proxy Statement Financial Statement in connection with its Annual Shareholders' Schedules and Reports Meeting to be held on April 18, 2002 on Form 8-K Cross Reference Sheet Item No. Caption Page No. -------- ------- -------- Part I Safe Harbor Statement 1 1. Business 2 2. Properties 4 3. Legal Proceedings 5 4. Submission of Matters to a Vote of 5 Security Holders Part II 5. Market for Registrant's Common Equity 6 and Related Stockholder Matters 6. Selected Financial Data 6 7. Management's Discussion and Analysis 6 of Financial Condition and Results of Operations 7A. Quantitative and Qualitative Disclosures 6 About Market Risk 8. Financial Statements and Supplementary 7 Data 9. Changes In and Disagreements With Accountants 8 on Accounting and Financial Disclosure Part III 10. Directors and Executive Officers of 8 the Registrant 11. Executive Compensation 8 12. Security Ownership of Certain 8 Beneficial Owners and Management 13. Certain Relationships and Related 8 Transactions Part IV 14. Exhibits, Financial Statement Schedules, 9 and Reports on Form 8-K PART I Safe Harbor Statement Certain statements contained in this Annual Report on Form 10-K and the exhibits hereto which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act (the "Act"). In addition, certain statements in future filings by Total System Services, Inc. ("TSYS") with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of TSYS which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of TSYS or its management or Board of Directors, including those relating to products, services or conversions; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "targeted," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by the forward-looking statements. Many of these factors are beyond TSYS' ability to control or predict. The factors include, but are not limited to: (i) lower than anticipated internal growth rates for TSYS' existing clients; (ii) TSYS' inability to control expenses and increase market share; (iii) TSYS' inability to successfully bring new products to market, including, but not limited to, stored value and e-commerce products; (iv) the inability of TSYS to grow its business through acquisitions or successfully integrate acquisitions; (v) TSYS' inability to increase the revenues derived from international sources; (vi) adverse developments with respect to entering into contracts with new clients and retaining current clients; (vii) the merger of TSYS clients with entities that are not TSYS clients or the sale of portfolios by TSYS clients to entities that are not TSYS clients; (viii) TSYS' inability to anticipate and respond to technological changes, particularly with respect to e-commerce; (ix) adverse developments with respect to the successful conversion of clients; (x) the absence of significant changes in foreign exchange spreads between the United States and the countries TSYS transacts business in, to include Mexico, United Kingdom, Japan, Canada and the European Union; (xi) changes in consumer spending, borrowing and saving habits, including a shift from credit to debit cards; (xii) changes in laws, regulations, credit card association rules or other industry standards affecting TSYS' business which require significant product redevelopment efforts; (xiii) the effect of changes in accounting policies and practices as may be adopted by the Financial Accounting Standards Board or the Securities and Exchange Commission; (xiv) the costs and effects of litigation; (xv) adverse developments with respect to the credit card industry in general; (xvi) TSYS' inability to successfully manage any impact from slowing economic conditions or consumer 1 spending; (xvii) the occurrence of catastrophic events that would impact TSYS' or its major customers' operating facilities, communications systems and technology, or that has a material negative impact on current economic conditions or levels; (xviii) successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive software patent protection;(xix) decreases in card activity; and (xx) overall market conditions. Such forward-looking statements speak only as of the date on which such statements are made, and TSYS undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made to reflect the occurrence of unanticipated events. 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, TSYS is now one of the world's largest electronic payments processors of consumer credit, debit, commercial, stored value, chip and retail cards. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol "TSS," TSYS provides the electronic link between buyers and sellers with a comprehensive on-line system of data processing services servicing issuing institutions throughout the United States, Canada, Mexico, Honduras, the Caribbean and Europe, representing more than 218 million cardholder accounts on file as of December 31, 2001. TSYS currently offers merchant services to financial institutions and other organizations in Japan. TSYS also offers value added products and services to support its core processing services. Value added products and services include: risk management tools and techniques, such as credit evaluation, fraud detection and prevention and behavior analysis tools; and revenue enhancement tools, such as loyalty programs and bonus rewards. Synovus Financial Corp., a $16.7 billion asset, multi-financial services company, owns 81.1 percent of TSYS. As of January 1, 2002, TSYS had four wholly owned subsidiaries: (1) Columbus Depot Equipment Company, which sells and leases computer related equipment associated with TSYS' transaction processing services; (2) Columbus Productions, Inc., which provides full-service commercial printing and related services; (3) TSYS Canada, Inc., which provides programming support and assistance with the conversion of card portfolios to TS2; and (4) TSYS Total Debt Management, Inc., which provides debt collection and bankruptcy management services. DotsConnect, Inc., TSYS' e-commerce subsidiary, and TSYS Total Solutions, Inc., TSYS' correspondence processing and teleservicing subsidiary, were merged into TSYS on January 1, 2002 and currently operate as divisions of TSYS. TSYS also holds: (1) a 49% equity interest in a joint venture company named Total System Services de Mexico, S.A. de C.V., which provides credit card related services to Mexican banks; (2) a 50% interest in Vital Processing Services L.L.C., a joint venture with Visa U.S.A. Inc., that offers fully integrated merchant transaction and related electronic information services to financial and nonfinancial institutions and their merchant customers; and (3) a 51.46% equity interest in GP Network Corporation, a company which provides merchant processing services to 2 financial institutions and retailers in Japan. The services provided by TSYS are divided into two operating segments, transaction processing services and support services. Transaction processing services, which includes the programming services provided by TSYS Canada, Inc., the electronic commerce services provided by DotsConnect, Inc. (a wholly owned subsidiary of TSYS during 2001) and the merchant processing services provided by GP Network Corporation, account for approximately 86% of TSYS' revenues. The support services provided by TSYS' other subsidiaries, including the equipment leasing services provided by Columbus Depot Equipment Company, the correspondence processing and other services provided by TSYS Total Solutions, Inc. (a wholly owned subsidiary of TSYS during 2001) and the commercial printing services provided by Columbus Productions, Inc., are aggregated into the segment referred to as support services. Seasonality. Due to the somewhat seasonal nature of the credit card industry, TSYS' revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season. Service Marks. TSYS owns the federally registered service marks TSYS, TS2, TS1, Total System Services, Inc., THE TOTAL SYSTEM, TOTAL ACCESS, ACE, TSYS Total Debt Management, Transaction Special Processing and TSP, to which TSYS believes strong customer identification attaches. TSYS also owns other service marks. Management does not believe the loss of these marks would have a material impact on the business of TSYS. Major Customers. A significant amount of TSYS' revenues are derived from long-term contracts with significant customers, including certain major customers. For the year ended December 31, 2001, Bank of America Corporation and Providian Financial Corporation accounted for approximately 16% and 13%, respectively, of TSYS' total revenues. As a result, the loss of Bank of America Corporation or Providian Financial Corporation, or other major or significant customers, could have a material adverse effect on TSYS' financial condition and results of operations. Competition. TSYS encounters vigorous competition in providing card processing services from several different sources. Most of the national market in third party card processors is presently being provided by approximately four vendors. TSYS believes that it is the second largest third party card processor in the United States. In addition, TSYS competes with in-house processors and software vendors which provide their products to institutions which process in-house. TSYS is presently encountering, and in the future anticipates continuing to encounter, substantial competition from card associations, data processing and bankcard computer service firms and other such third party vendors located throughout the United States. Based upon available market share data, TSYS estimates that at the end of 2001 it held a 20% share of the domestic consumer card processing market, an 87% share of the Visa and MasterCard domestic commercial card processing market, a 17% share of the domestic retail card processing market and a 5% share of the domestic off-line debit processing market. In addition to processing cards for United States clients, TSYS also holds an approximately 28% share of the Mexican credit 3 card processing market, an approximately 20% share of the Canadian credit card processing market and an approximately 18% share of the United Kingdom credit card processing market. TSYS believes that it is the world's largest third party processor of international accounts. TSYS' major competitor in the card processing industry is First Data Resources, Inc., a wholly owned subsidiary of First Data Corporation, which provides card processing services, including authorization and data entry services. The principal methods of competition between TSYS and First Data Resources are price, quality, features and functionality and reliability of service. Certain other subsidiaries of First Data Corporation also compete with TSYS. In addition, there are a number of other companies which have the necessary financial resources and the technological ability to develop or acquire products and, in the future, to provide services similar to those being offered by TSYS. Regulation and Examination. TSYS is subject to being examined, and is indirectly regulated, by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the various state financial regulatory agencies which supervise and regulate the financial institutions for which TSYS provides bankcard data processing services. Matters reviewed and examined by these federal and state financial institution regulatory agencies have included TSYS' internal controls in connection with its present performance of bankcard data processing services, and the agreements pursuant to which TSYS provides such services. As the Federal Reserve Bank of Atlanta has approved Synovus' indirect ownership of TSYS through Columbus Bank and Trust Company, TSYS is subject to direct regulation by the Federal Reserve Board. TSYS was formed with the prior written approval of, and is subject to regulation and examination by, the Department of Banking and Finance of the State of Georgia as a subsidiary of Columbus Bank and Trust Company. In addition, as TSYS and its subsidiaries operate as subsidiaries of Columbus Bank and Trust Company, they are subject to regulation by the Federal Deposit Insurance Corporation. Employees. As of December 31, 2001, TSYS had 4,711 full-time employees. See the "Financial Review" Section on pages F-3 through F-13 and Note 1, Note 4, Note 9, Note 11, Note 12 and Note 13 of Notes to Consolidated Financial Statements on pages F-18 and F-19, page F-21, and pages F-25 through F-27 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 which are specifically incorporated herein by reference. Item 2. Properties TSYS owns a 377,000 square foot production center which is located on a 40.4 acre tract of land in north Columbus, Georgia. Primarily a production center, this facility houses TSYS' primary data processing computer operations, statement preparation, mail handling, microfiche production, purchasing and card production, as well as other related operations. 4 TSYS owns a 110,000 square foot building on a 23-acre site in Columbus, Georgia, which accommodates current and future office space needs. TSYS Total Solutions, Inc., which is included in the segment support services, occupies approximately 82,500 square feet of this building. TSYS also owns a 104,000 square foot building on an 18-acre site in Columbus which functions as a second data center. TSYS entered into an operating lease for the purpose of financing its 540,000 square foot campus-type facility on approximately 46 acres of land in downtown Columbus, Georgia. The campus facility serves as TSYS' corporate headquarters and houses administrative, client contact and programming team members. The campus facility consolidated most of TSYS' multiple Columbus locations. TSYS owns a 40,000 square foot building in York, England, 23,000 square feet of which are occupied by TSYS, which houses client service and administrative personnel for TSYS Europe. All of the properties listed above are utilized by TSYS for card processing services with the one exception noted above with respect to the space occupied by TSYS Total Solutions, Inc. TSYS Total Solutions, Inc. and Columbus Productions, Inc., which are included in the segment support services, own a 72,000 square foot production facility and own a 61,000 square foot production facility, respectively, located in Columbus, Georgia. All properties owned and leased by TSYS are in good repair and suitable condition for the purposes for which they are used. In addition to its real property, TSYS owns and/or leases a substantial amount of computer equipment. See Note 1, Note 3, Note 4 and Note 9 of Notes to Consolidated Financial Statements on pages F-18 through F-21, and page F-25 and "Operating Expenses" under the Financial Review Section" on pages F-9 and F-10 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 which are specifically incorporated herein by reference. Item 3. Legal Proceedings See Note 9 of Notes to Consolidated Financial Statements on page F-25 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 which is specifically incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders None. 5 PART II Item 5. Market for Registrants Common Equity and Related Stockholder Matters The "Quarterly Financial Data, Stock Price, Dividend Information Section" which is set forth on page F-30 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 is specifically incorporated herein by reference. On January 1, 2002, TSYS issued 2,175,000 shares of its common stock to Synovus Financial Corp. in connection with its acquisition of TSYS Total Debt Management, Inc. from Synovus. TSYS Total Debt Management, Inc. provides third-party collection services. The shares of TSYS stock referenced above were issued pursuant to the exemption from registration set forth in Section 4(2) of the Securities Act of 1933. Item 6. Selected Financial Data The "Selected Financial Data" Section which is set forth on page F-2 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 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 F-3 through F-13 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002, which includes the information encompassed within "Management's Discussion and Analysis of Financial Condition and Results of Operations," is specifically incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk. TSYS is exposed to foreign exchange risk because it has revenues and expenses denominated in foreign currencies including Euro, British Pound, Mexican Peso, Canadian Dollar and Japanese Yen. These currencies are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses, and net income, which are translated at the average exchange rate for each reporting period. Net exchange gains or losses resulting from the translation of assets and liabilities of TSYS' foreign operations, net of tax, are accumulated in a separate section of shareholders' equity titled accumulated other comprehensive loss. The amount of other comprehensive loss for the years ended December 31, 2001, 2000 and 1999 was $1,841,657, $159,973 and $274,371, respectively. Currently, TSYS does not use financial instruments to hedge its exposure to exchange rate changes. 6 The carrying value of the assets of its foreign operations in Europe, Mexico, Canada and Japan was approximately (in U.S. dollars) $75,100,000, $4,000,000, $166,000 and $5,500,000, respectively, at December 31, 2001. Interest Rate Risk. TSYS is also exposed to interest rate risk associated with the investing of available cash and the lease on its campus facilities. TSYS invests available cash in conservative short-term instruments and is primarily subject to changes in the prime rate. The payments under the operating lease arrangement of the campus facilities are tied to the London Interbank Offered Rate ("LIBOR"). TSYS locks into interest rates for six-month intervals. The extent that rates change in a six-month period represents TSYS' exposure. The following represents the potential effect on operating income of hypothetical shifts in the LIBOR of plus or minus 50 basis points, 100 basis points and 150 points over a 12-month period. ------------------------------------------------ Effect of a Basis Point Change of : ------------------------------------------------ --------------- --------------- ---------------- +/- 50 +/- 100 +/- 150 --------------- --------------- ---------------- Effect on operating income $ 143,000 287,000 430,000 --------------- --------------- ---------------- The lease is scheduled to expire in November 2002. However, TSYS has the option to either renew the lease subject to prevailing market rates or to purchase the property at the original cost of the property. As a result, TSYS could have an interest rate risk in the future associated with a future obligation with respect to the corporate campus. Concentration of Credit Risk. TSYS works to maintain a large and diverse customer base across various industries to minimize the credit risk of any one customer to TSYS' accounts receivable amounts. In addition, TSYS performs ongoing credit evaluations of its customers' and suppliers' financial condition. TSYS does, however, have two major customers that account for a large portion of its revenues, which subject it to credit risk. See Note 11 of Notes to Consolidated Financial Statements on pages F-26 and F-27 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 which is specifically incorporated herein by reference for description of major customers. In late 2001, one of TSYS' major customers made several announcements regarding concerns about its financial status, related changes in management and the sale of a portion of its portfolio. As a result of the announcements, TSYS management is actively monitoring the client's status through frequent interaction. Item 8. Financial Statements and Supplementary Data The "Quarterly Financial Data, Stock Price, Dividend Information" Section, which is set forth on page F-30, and the "Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Cash Flows, Consolidated Statements of Shareholders' Equity and Comprehensive Income, Notes to Consolidated Financial Statements and Report of Independent 7 Auditors" Sections, which are set forth on pages F-14 through F-28 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 are specifically incorporated herein by reference. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. PART III Item 10. Directors and Executive Officers of the Registrant The "ELECTION OF DIRECTORS" Section which is set forth on pages 3 and 4, the "EXECUTIVE OFFICERS" Section which is set forth on pages 7 and 8, and the "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" Section which is set forth on pages 28 and 29 of TSYS' Proxy Statement in connection with its Annual Meeting of Shareholders to be held on April 18, 2002 are specifically incorporated herein by reference. Item 11. Executive Compensation The "DIRECTORS' COMPENSATION" Section which is set forth on page 7, the "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises and Grants; and Change in Control Arrangements" Sections which are set forth on pages 19 through 21, and the "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" Section which is set forth on pages 24 and 25 of TSYS' Proxy Statement in connection with its Annual Meeting of Shareholders to be held on April 18, 2002 are specifically incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The "STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS" Section which is set forth on pages 8 and 9, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Stock by CB&T' Section which is set forth on pages 25 and 26, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Synovus Stock Ownership of Directors and Management" Section which is set forth on pages 26 and 27 of TSYS' Proxy Statement in connection with its Annual Meeting of Shareholders to be held on April 18, 2002 are specifically incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The "TRANSACTIONS WITH MANAGEMENT" Section which is set forth on page 25, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Stock by CB&T" Section which 8 is set forth on pages 25 and 26, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Interlocking Directorates of TSYS, Synovus and CB&T" Section which is set forth on page 26, 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 27 and 28 of TSYS' Proxy Statement in connection with its Annual Meeting of Shareholders to be held on April 18, 2002 are specifically incorporated herein by reference. See also Note 2 of Notes to Consolidated Financial Statements on pages F-19 and F-20 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 which is specifically incorporated herein by reference. PART IV 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 F-14 through F-28 of the Financial Appendix to TSYS' Proxy Statement in connection with its Annual Shareholders' Meeting to be held on April 18, 2002 to Item 8, Part II, Financial Statements and Supplementary Data. Consolidated Balance Sheets - December 31, 2001 and 2000. Consolidated Statements of Income - Years Ended December 31, 2001, 2000 and 1999. Consolidated Statements of Cash Flows - Years Ended December 31, 2001, 2000 and 1999. Consolidated Statements of Shareholders' Equity and Comprehensive Income - Years Ended December 31, 2001, 2000 and 1999. 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: 9 Report of Independent Auditors. Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 2001, 2000 and 1999. All other schedules are omitted because they are inapplicable or the required information is included in the Notes to Consolidated Financial Statements. 3. Exhibits Exhibit Number Description ----- ----------- 3.1 Articles of Incorporation of Total System Services, Inc. ("TSYS"), as amended, incorporated by reference to Exhibit 4.1 of TSYS' Registration Statement on Form S-8 filed with the Commission on April 18, 1997 (File No. 333-25401). 3.2 Bylaws of TSYS, as amended, incorporated by reference to Exhibit 3.2 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March 16, 2000. 10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.1 Director Stock Purchase Plan of TSYS, incorporated by reference to Exhibit 10.1 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March 16, 2000. 10.2 Total System Services, Inc. 2002 Long-Term Incentive Plan. 10.3 Synovus Financial Corp. 2002 Long-Term Incentive Plan in which executive officers of TSYS participate. 10.4 Synovus Financial Corp./Total System Services, Inc. Deferred Compensation Plan. 10.5 Total System Services, Inc. 1992 Long-Term Incentive Plan, which was renamed the Total System Services, Inc. 2000 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.5 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.6 Total System Services, Inc. Directors' Deferred Compensation 10 Plan. 10.7 Wage Continuation Agreement of TSYS, incorporated by reference to Exhibit 10.7 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.8 Incentive Bonus Plan of Synovus Financial Corp. in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.8 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.9 Agreement in connection with use of aircraft, incorporated by reference to Exhibit 10.9 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.10 Split Dollar Insurance Agreement of TSYS, incorporated by reference to Exhibit 10.10 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as filed with the Commission on March 22, 1994. 10.11 Synovus Financial Corp. 1994 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.11 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 9, 1995. 10.12 Synovus Financial Corp. Executive Bonus Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.12 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.13 Change of Control Agreements for executive officers of TSYS, incorporated by reference to Exhibit 10.13 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.14 Stock Option Agreement of Samuel A. Nunn, incorporated by reference to Exhibit 10.14 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as filed with the Commission on March 20, 1997. 11 10.15 Synovus Financial Corp. Deferred Stock Option Plan in which executive officers of TSYS participate. 10.16 Vital Processing Services, L.L.C. Restricted Unit Agreement for executive officers of TSYS, incorporated by reference to Exhibit 10.16 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2000, as filed with the Commission on March 21, 2001. 10.17 Lease Agreement between First Security Bank, National Association, and TSYS incorporated by reference to Exhibit 10.15 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1997, as filed with the Commission on March 23, 1998. 10.18 Synovus Financial Corp. 2000 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.16 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March 16, 2000. 10.19 Split Dollar Insurance Agreement and related Executive Benefit Substitution Agreement of Synovus Financial Corp. in which executive officers of TSYS participate. 20.1 Proxy Statement, including Financial Appendix, for the Annual Meeting of Shareholders of TSYS to be held on April 18, 2002, certain pages of which are specifically incorporated herein by reference. 21.1 Subsidiaries of Total System Services, Inc. 23.1 Independent Auditors' Consent. 24.1 Powers of Attorney contained on the signature pages of the 2001 Annual Report on Form 10-K. 99.1 Annual Report on Form 11-K for the Total System Services, Inc. Employee Stock Purchase Plan for the year ended December 31, 2001 (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, 2001 (to be filed as an amendment hereto within 120 days of the 12 end of the period covered by this report.) (b) Reports on Form 8-K On October 16, 2001, TSYS filed a Form 8-K with the Commission in connection with the announcement of its earnings for the third quarter of 2001. On October 22, 2001, TSYS filed a Form 8-K with the Commission in connection with the announcement of a 10-year extension to its long-term credit card processing agreement with Providian Financial Corporation. filings\tsys\new10k.doc 13 Independent Auditors' Report The Board of Directors Total System Services, Inc.: Under date of January 15, 2002, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 2001 and 2000, and the related consolidated statements of income, cash flows, and shareholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 2001, as contained in the Total System Services, Inc. 2001 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 2001. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG LLP KPMG LLP Atlanta, Georgia January 15, 2002 14 TOTAL SYSTEM SERVICES, INC. Schedule II Valuation and Qualifying Accounts
Additions ---------- Changes in allowances, charges to Balance at expenses and changes Balance at beginning to other accounts -- Deductions-- end of period describe describe of period -------------------------------------------------------------------- Year ended December 31, 1999: Provision for doubtful accounts and billing adjustments $ 1,860,592 3,553,157 (987,053) $ 4,426,696 -------------------------------------------------------------------- $ 1,860,592 3,553,157 (987,053) $ 4,426,696 ==================================================================== Transaction processing accruals $ 4,541,318 6,910,080 (5,305,536) $ 6,145,862 -------------------------------------------------------------------- $ 4,541,318 6,910,080 (5,305,536) $ 6,145,862 ==================================================================== Year ended December 31, 2000: Provision for doubtful accounts and billing adjustments $ 4,426,696 1,825,486 (407,704) $ 5,844,478 -------------------------------------------------------------------- $ 4,426,696 1,825,486 (407,704) $ 5,844,478 ==================================================================== Transaction processing accruals $ 6,145,862 5,726,889 (3,155,295) $ 8,717,456 -------------------------------------------------------------------- $ 6,145,862 5,726,889 (3,155,295) $ 8,717,456 ==================================================================== Year ended December 31, 2001: Provision for doubtful accounts and billing adjustments $ 5,844,478 569,433 (1,043,071) $ 5,370,840 -------------------------------------------------------------------- $ 5,844,478 569,433 (1,043,071) $ 5,370,840 ==================================================================== Transaction processing accruals $ 8,717,456 1,438,241 (4,829,143) $ 5,326,554 -------------------------------------------------------------------- $ 8,717,456 1,438,241 (4,829,143) $ 5,326,554 ==================================================================== ------------------------------------------------------------------------------------------------------------------------------------ Amount reflected includes charges to bad debt expense which are classified in other operating expenses and the charges for billing adjustments which are recorded against revenues. Amount reflected is the change in transaction processing accruals reflected in other operating expenses. Accounts deemed to be uncollectible and written off during the year as it relates to bad debts. Amounts that relate to billing adjustments and transaction processing accruals reflect actual billing adjustments and processing errors charged against the allowances.
15 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 18, 2002 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 18, 2002 --------------------------------------------------- James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 18, 2002 --------------------------------------------------- Richard W. Ussery, Chairman of the Board and Principal Executive Officer /s/Philip W. Tomlinson Date: March 18, 2002 --------------------------------------------------- Philip W. Tomlinson, President and Director /s/James B. Lipham Date: March 18, 2002 --------------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Richard Y. Bradley Date: March 18, 2002 --------------------------------------------------- Richard Y. Bradley, Director Date: March __, 2002 --------------------------------------------------- G. Wayne Clough, Director /s/Gardiner W. Garrard, Jr. Date: March 18, 2002 --------------------------------------------------- Gardiner W. Garrard, Jr., Director Date: March __, 2002 --------------------------------------------------- Sidney E. Harris, Director /s/John P. Illges, III Date: March 18, 2002 --------------------------------------------------- John P. Illges, III, Director Date: March __, 2002 --------------------------------------------------- Alfred W. Jones III, Director /s/Mason H. Lampton Date: March 18, 2002 --------------------------------------------------- Mason H. Lampton, Director Date: March __, 2002 --------------------------------------------------- Samuel A. Nunn, Director /s/H. Lynn Page Date: March 18, 2002 --------------------------------------------------- H. Lynn Page, Director Date: March __, 2002 --------------------------------------------------- W. Walter Miller, Jr., Director /s/William B. Turner Date: March 18, 2002 --------------------------------------------------- William B. Turner, Director /s/James D. Yancey Date: March 18, 2002 --------------------------------------------------- James D. Yancey, Director Date: March __, 2002 --------------------------------------------------- Rebecca K. Yarbrough, Director