10-K 1 mainfile.txt TSYS FORM 10-K FILING SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K Annual report pursuant to section 13 or 15(d) of Securities Exchange Act of 1934 for the fiscal year ended December 31, 2003 Commission file number 1-10254 TOTAL SYSTEM SERVICES, INC. (Exact Name of Registrant as specified in its charter) Georgia 58-1493818 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification No.) 1600 First Avenue Columbus, Georgia 31901 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (706) 649-2204 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, $.10 Par Value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. YES X NO___________ ----------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). YES X NO___________ ----------- As of February 17, 2004, 196,846,029 shares of the $.10 par value common stock of Total System Services, Inc. were outstanding. The aggregate market value of the shares of $.10 par value common stock of Total System Services, Inc. held by nonaffiliates on December 31, 2003 was approximately $612,106,000 (based upon the closing price of such stock on June 30, 2003). DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Proxy Statement, including Financial Appendix, dated March 10, 2004 are incorporated in Parts I, II, III and IV of this report.
Table of Contents and Cross Reference Sheet Page No. ------------------------------------------------- Form Proxy Statement* 10-K ----------------- ----------------------------- ------- Part I Safe Harbor Statement 1 Item 1. Business F-21, F-26 - F-32, F-35, 2 F-41 and F-42, F-44 - F-47 Item 2. Properties F-13 and F-14, F-18, F-26 - F-32, 5 F-35, F-41 and F-42, F-44 - F-47 Item 3. Legal Proceedings F-41 and F-42 6 Item 4. Submission of Matters to a Vote of None Security Holders Part II Item 5. Market for Registrant's Common Equity F-50 6 and Related Stockholder Matters Item 6. Selected Financial Data F-2 6 Item 7. Management's Discussion and Analysis F-3 - F-21 7 of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures F-44 - F-47 7 About Market Risk Item 8. Financial Statements and Supplementary F-22 - F-48, F-50 8 Data Item 9. Changes In and Disagreements With None Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures 8 Part III Item 10. Directors and Executive Officers of the 3 and 4, 7 - 9, 23 9 Registrant Item 11. Executive Compensation 6, 13 - 15, 19 9 Item 12. Security Ownership of Certain Beneficial 10, 20 and 21, F-36 - F-39 9 Owners and Management and Related Stockholder Matters Item 13. Certain Relationships and Related 19 and 20, 22, F-32 - F-34 10 Transactions Item 14. Principal Accountant Fees and Services 11 and 12 10 Part IV Item 15. Exhibits, Financial Statement Schedules, F-22 - F-48 10 and Reports on Form 8-K
*TSYS' Proxy Statement, including Financial Appendix, dated March 10, 2004 in connection with its 2004 Annual Meeting of Shareholders, portions of which are incorporated by reference into this Form 10-K (the portions so incorporated being indicated by the pages referred to in this table). PART I Safe Harbor Statement Certain statements contained in this document which are not statements of historical fact constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. In addition, certain statements in future filings by Total System Services, Inc. ("TSYS") with the Securities and Exchange Commission, in press releases, and in oral and written statements made by or with the approval of TSYS which are not statements of historical fact constitute forward-looking statements within the meaning of the Act. Examples of forward-looking statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per share, the payment or non-payment of dividends, capital structure and other financial items; (ii) statements of plans and objectives of TSYS or its management or Board of Directors, including those relating to products, services or conversions; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as "believes," "anticipates," "expects," "intends," "targeted," and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying these statements. Prospective investors are cautioned that forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by the forward-looking statements. A number of important factors could cause actual results to differ materially from those contemplated by the forward-looking statements. Many of these factors are beyond TSYS' ability to control or predict. These factors include, but are not limited to: * revenues are lower than anticipated; * lower than anticipated internal growth rates for TSYS' existing clients; * TSYS' inability to control expenses and increase market share; * delays in converting Bank One to TSYS' platforms; * TSYS' inability to successfully bring new products to market, including, but not limited to, stored value and e-commerce products, loan processing products and other processing services; * the inability of TSYS to grow its business through acquisitions or successfully integrate acquisitions; * TSYS' inability to increase the revenues derived from international sources; * adverse developments with respect to entering into contracts with new clients and retaining current clients; * the merger of TSYS clients with entities that are not TSYS clients or the sale of portfolios by TSYS clients to entities that are not TSYS clients; * TSYS' inability to anticipate and respond to technological changes, particularly with respect to e-commerce; * adverse developments with respect to TSYS' sub-prime and/or retail clients; * adverse developments with respect to the successful conversion of clients; * the absence of significant changes in foreign exchange spreads between the United States and the countries in which TSYS transacts business, to include Mexico, United 1 Kingdom, Japan, Canada and the European Union; * changes in consumer spending, borrowing and saving habits, including the mix of payments between cash and cards; * changes in laws, regulations, credit card association rules or other industry standards affecting TSYS' business which require significant product redevelopment efforts; * the effect of changes in accounting policies and practices as may be adopted by the Financial Accounting Standards Board or the Securities and Exchange Commission; * the costs and effects of litigation or adverse facts and developments relating thereto; * adverse developments with respect to the credit card industry in general; * TSYS' inability to successfully manage any impact from slowing economic conditions or consumer spending; * the occurrence of catastrophic events that would impact TSYS' or its major customers' operating facilities, communications systems and technology, or that have a material negative impact on current economic conditions or levels; * successfully managing the potential both for patent protection and patent liability in the context of rapidly developing legal framework for expansive software patent protection; * decreases in card activity; * hostilities increase in the Middle East or elsewhere; * Vital's earnings are lower than anticipated; and * overall market conditions. These forward-looking statements speak only as of the date on which the statements are made, and TSYS undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of unanticipated events. Item 1. Business Business. TSYS provides electronic payment processing and related services to financial and nonfinancial institutions. Services include processing consumer, debit, commercial, stored value and retail cards, as well as student loan processing. Based in Columbus, Georgia, and traded on the New York Stock Exchange under the symbol "TSS," TSYS provides services to financial and nonfinancial institutions throughout the United States, Canada, Mexico, Honduras, the Caribbean and Europe. TSYS currently offers merchant services to financial institutions and other organizations in Japan through its majority owned subsidiary, GP Network Corporation, and in the United States through its joint venture, Vital Processing Services L.L.C. TSYS also offers value added products and services to support its core processing services. Value added products and services include: risk management tools and techniques, such as credit evaluation, fraud detection and prevention and behavior analysis tools; and revenue enhancement tools and customer retention programs, such as loyalty programs and bonus rewards. Synovus Financial Corp., a $21 billion asset, diverse financial services company, owns 81.1 percent of TSYS. 2 As of January 1, 2004, TSYS had eight wholly owned subsidiaries: (1) Columbus Depot Equipment Company, which sells and leases computer related equipment associated with TSYS' transaction processing services; (2) Columbus Productions, Inc., which provides full-service commercial printing and related services; (3) TSYS Canada, Inc., which provides programming support and assistance with the conversion of card portfolios to TS2; (4) TSYS Total Debt Management, Inc., which provides debt collection and bankruptcy management services; (5) ProCard, Inc., which provides software and Internet tools designed to assist organizations with the management of purchasing, travel and fleet card programs; (6) Enhancement Services Corporation, which provides targeted loyalty consulting and travel reward programs; (7) TSYS Technology Center, Inc., which provides programming support; and (8) TSYS Japan Co., Ltd., which primarily provides gift card processing services to Japanese clients. TSYS also holds: (1) a 49% equity interest in a joint venture company named Total System Services de Mexico, S.A. de C.V., which provides credit card related services to financial and nonfinancial Mexican institutions; (2) a 50% interest in Vital Processing Services L.L.C., a joint venture with Visa U.S.A. Inc., that offers fully integrated merchant transaction and related electronic transaction processing services to financial and nonfinancial institutions and their merchant customers; and (3) a 51.46% equity interest in GP Network Corporation, a company which provides merchant processing services to financial institutions and retailers in Japan. The services provided by TSYS are divided into two operating segments, domestic-based services, which accounted for 92% of TSYS' revenues in 2003, and international based services, which accounted for 8% of TSYS' revenues in 2003. Seasonality. Due to the somewhat seasonal nature of the credit card industry, TSYS' revenues and results of operations have generally increased in the fourth quarter of each year because of increased transaction and authorization volumes during the traditional holiday shopping season. Intellectual Property. TSYS' intellectual property portfolio is a component of our ability to be a leading electronic payment services provider. We diligently protect and work to build our intellectual property rights through patent, servicemark and trade secret laws. We also use various licensed intellectual property to conduct our business. In addition to using our intellectual property in our own operations, we grant licenses to certain of our clients to use our intellectual property. Major Customers. A significant amount of TSYS' revenues are derived from long-term contracts with significant customers, including certain major customers. For the year ended December 31, 2003, Bank of America Corporation and Providian Financial Corporation accounted for approximately 18% and 10%, respectively, of TSYS' total revenues. As a result, the loss of Bank of America Corporation or Providian Financial Corporation, or other major or significant customers, could have a material adverse effect on TSYS' financial position, results of operations and cash flows. Competition. TSYS encounters vigorous competition in providing card processing 3 services from several different sources. Most of the national market in third party payment processors is presently being provided by approximately four vendors. TSYS believes that as of December 31, 2003 it is the second largest third party card processor in the United States. In addition, TSYS competes with in-house processors and software vendors which provide their products to institutions which process in-house. TSYS is presently encountering, and in the future anticipates continuing to encounter, substantial competition from card associations, data processing and bankcard computer service firms and other such third party vendors located throughout the United States. Based upon available market share data that includes cards processed in-house, TSYS believes that at the end of 2003 it held a 20% share of the domestic Visa and MasterCard consumer card processing market, an 83% share of the Visa and MasterCard domestic commercial card processing market, a 15% share of the domestic retail card processing market and a 4% share of the domestic off-line debit processing market. In addition to processing cards for United States clients, TSYS also believes it holds an approximately 23% share of the Mexican credit card processing market, an approximately 43% share of the Canadian credit card processing market and an approximately 21% share of the United Kingdom credit card processing market. TSYS' major competitor in the card processing industry is First Data Resources, Inc., a wholly owned subsidiary of First Data Corporation, which provides card processing services, including authorization and data entry services. The principal methods of competition between TSYS and First Data Resources are price, system performance and reliability, breadth of features and functionality, disaster recovery capabilities, data security, scalability and flexibility of infrastructure and customer service. Certain other subsidiaries of First Data Corporation also compete with TSYS. In addition, there are a number of other companies which have the necessary financial resources and the technological ability to develop or acquire products and, in the future, to provide services similar to those being offered by TSYS. Regulation and Examination. TSYS is subject to being examined, and is indirectly regulated, by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, the National Credit Union Administration, and the various state financial regulatory agencies which supervise and regulate the financial institutions for which TSYS provides electronic payment processing services. Matters reviewed and examined by these federal and state financial institution regulatory agencies have included TSYS' internal controls in connection with its present performance of electronic payment processing services, and the agreements pursuant to which TSYS provides such services. As the Federal Reserve Bank of Atlanta has approved Synovus' indirect ownership of TSYS through Columbus Bank and Trust Company, TSYS is subject to direct regulation by the Federal Reserve Board. TSYS was formed with the prior written approval of, and is subject to regulation and examination by, the Department of Banking and Finance of the State of Georgia as a subsidiary of Columbus Bank and Trust Company. In addition, as TSYS and its subsidiaries operate as subsidiaries of Columbus Bank and Trust Company, they are subject to regulation by the Federal Deposit Insurance Corporation. 4 Employees. As of February 27, 2004, TSYS had 5,185 full-time employees. Available Information. TSYS' website address is www.tsys.com. You may obtain free electronic copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports in the Investor Relations section of our website under the heading "Financials" and then under "SEC Filings." These reports are available on our website as soon as reasonably practicable after we electronically file them with the SEC. TSYS has adopted a Code of Business Conduct and Ethics for its directors, officers and employees and has also adopted Corporate Governance Guidelines. Our Code of Business Conduct and Ethics, Corporate Governance Guidelines and the charters of our board committees are available in the Corporate Governance section of our web site at www.tsys.com/finance. Copies of these documents are also available in print upon written request to the Corporate Secretary, Total System Services, Inc., 901 Front Avenue, Suite 301, Columbus, Georgia 31901. See the "Financial Overview" Section on page F-3, the "Financial Review" Section on pages F-4 through F-21 and Note 1, Note 4, Note 9, Note 11 and Note 12 of Notes to Consolidated Financial Statements on pages F-26 through F-32, page F-35, pages F-41 and F-42, and pages F-44 through F-47 of the Financial Appendix to TSYS' Proxy Statement dated March 10, 2004 in connection with its Annual Shareholders' Meeting to be held on April 15, 2004 which are specifically incorporated herein by reference. Item 2. Properties TSYS owns a 540,000 square foot campus-type facility on approximately 46 acres of land in downtown Columbus, Georgia. The campus facility serves as TSYS' corporate headquarters and houses administrative, client contact and programming team members. TSYS owns a 377,000 square foot production center and a 72,000 square foot production center which are located on a 40.4 acre tract of land in north Columbus, Georgia. Primarily production centers, these facilities house TSYS' primary data processing computer operations, statement preparation, mail handling, microfiche production, purchasing and card production, as well as other related operations. TSYS owns a 110,000 square foot building on a 23-acre site in Columbus, Georgia, which accommodates current and future office space needs, 82,500 square feet of which houses TSYS' Business Process Management Division. TSYS also owns a 104,000 square foot building on an 18-acre site in Columbus which functions as a second data center. Columbus Productions, Inc. owns a 61,000 square foot production facility, located in Columbus, Georgia. TSYS owns a 40,000 square foot building in York, England, 23,000 square feet of which are occupied by TSYS, which houses client service and administrative personnel for TSYS 5 Europe. TSYS is in the process of building a 47,000 square foot data center on three acres of land in Knaresborough, England which will be utilized by TSYS Europe. TSYS Europe is included in the segment international-based services. All of the properties listed above are utilized by TSYS for domestic-based services with the two exceptions noted immediately above with respect to the space occupied by TSYS Europe. All properties owned and leased by TSYS are in good repair and suitable condition for the purposes for which they are used. See Note 1, Note 3, Note 9 and Note 11 of Notes to Consolidated Financial Statements on pages F-26 through F-32, page F-35, pages F-41 and F-42 and pages F-44 through 47 and "Operating Expenses" and "Property and Equipment" under the "Financial Review" Section on pages F-13 and F-14, and F-18, respectively, of the Financial Appendix to TSYS' Proxy Statement which are specifically incorporated herein by reference. Item 3. Legal Proceedings See Note 9 of Notes to Consolidated Financial Statements on pages F-41 and F-42 of the Financial Appendix to TSYS' Proxy Statement which is specifically incorporated herein by reference. Item 4. Submission of Matters to a Vote of Security Holders None. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters The "Quarterly Financial Data, Stock Price, Dividend Information" Section which is set forth on page F-50 of the Financial Appendix to TSYS' Proxy Statement is specifically incorporated herein by reference. Item 6. Selected Financial Data The "Selected Financial Data" Section which is set forth on page F-2 of the Financial Appendix to TSYS' Proxy Statement is specifically incorporated herein by reference. 6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The "Financial Overview" and "Financial Review" Sections which are set forth on pages F-3 through F-21 of the Financial Appendix to TSYS' Proxy Statement which includes the information encompassed within "Management's Discussion and Analysis of Financial Condition and Results of Operations," are specifically incorporated herein by reference. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk. TSYS is exposed to foreign exchange risk because it has revenues and expenses denominated in foreign currencies including Euro, British Pound, Mexican Peso, Canadian Dollar and Japanese Yen. These currencies are translated into U.S. dollars at current exchange rates, except for revenues, costs and expenses, and net income, which are translated at the average exchange rate for each reporting period. Net exchange gains or losses resulting from the translation of assets and liabilities of TSYS' foreign operations, net of tax, are accumulated in a separate section of shareholders' equity titled accumulated other comprehensive loss. The amount of other comprehensive income for the years ended December 31, 2003 and 2002 was $7,261,407 and $4,508,235, respectively. The amount of other comprehensive loss for the year ended December 31, 2001 was $1,841,657. Currently, TSYS does not use financial instruments to hedge its exposure to exchange rate changes. The carrying value of the assets of its foreign operations in Europe, Mexico, Canada and Japan was approximately (in U.S. dollars) $122.1 million, $4.0 million, $172,000 and $10.5 million, respectively, at December 31, 2003. Interest Rate Risk. TSYS is also exposed to interest rate risk associated with the investing of available cash and any outstanding balance on the long-term line of credit it has with a banking affiliate of Synovus. TSYS invests available cash in conservative short-term instruments and is primarily subject to changes in the prime rate. On June 30, 2003, TSYS obtained a $45.0 million long-term line of credit from a banking affiliate of Synovus. The line is an automatic draw-down facility. The interest rate for the line of credit is the London Interbank Offered Rate (LIBOR) plus 150 basis points. In addition, there is a charge of 15 basis points on any funds unused. The line of credit is unsecured debt and includes covenants requiring the Company to maintain certain minimum financial ratios. At December 31, 2003, TSYS did not have an outstanding balance on the line of credit and was in compliance with all covenants. As the LIBOR rate changes, TSYS will be subject to interest rate risk. Concentration of credit risk. TSYS works to maintain a large and diverse customer base across various industries to minimize the credit risk of any one customer to TSYS' accounts receivable amounts. In addition, TSYS performs ongoing credit evaluations of its customers' and suppliers' financial condition. 7 Concentration of client base. A significant amount of TSYS' revenues is derived from long-term contracts with large clients, including certain major customers. Processing contracts with large clients, representing a significant portion of TSYS' total revenues, generally provide for discounts on certain services based on the size and activity of clients' portfolios. Therefore, electronic payment processing revenues and the related margins are influenced by the client mix relative to the size of client card portfolios, as well as the number and activity of individual cardholder accounts processed for each client. Consolidation among financial institutions has resulted in an increasingly concentrated client base, which results in a changing client mix toward larger clients. TSYS does have two major customers that account for a large portion of its revenues, which subjects it to credit risk. See Note 11 of Notes to Consolidated Financial Statements on pages F-44 through F-47 of the Financial Appendix to TSYS' Proxy Statement which is specifically incorporated herein by reference for a description of major customers. In addition to its two major customers, TSYS has other large clients representing a significant portion of its total revenues. The loss of any one of TSYS' large clients could have a material adverse effect on its financial position, results of operations and cash flows. Item 8. Financial Statements and Supplementary Data The "Quarterly Financial Data, Stock Price, Dividend Information" Section, which is set forth on page F-50, and the "Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Cash Flows, Consolidated Statements of Shareholders' Equity and Comprehensive Income, Notes to Consolidated Financial Statements and Report of Independent Auditors" Sections, which are set forth on pages F-22 through F-48 of the Financial Appendix to TSYS' Proxy Statement are specifically incorporated herein by reference. Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this annual report as required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended. This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on this evaluation, the chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to TSYS (including its consolidated subsidiaries) required to be included in our periodic SEC filings. No change in TSYS' internal control over financial reporting occurred during the period covered by this report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 8 PART III Item 10. Directors and Executive Officers of the Registrant Information pertaining to directors and executive officers of TSYS, the Audit Committee of the Board of Directors of TSYS and compliance with Section 16(a) of the Securities Exchange Act of 1934 is contained in the "PROPOSALS TO BE VOTED ON - PROPOSAL 1: ELECTION OF DIRECTORS" Section which is set forth on pages 7 and 8, the "EXECUTIVE OFFICERS" Section which is set forth on page 9, the "SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE" Section which is set forth on page 23, and the "CORPORATE GOVERNANCE AND BOARD MATTERS - Committees of the Board" Section which is set forth on pages 3 and 4 of TSYS' Proxy Statement and is specifically incorporated herein by reference. TSYS has a Code of Business Conduct and Ethics that applies to all directors, officers and employees, including our principal executive officer, our principal financial officer and our controller. You can find our Code of Business Conduct and Ethics in the Corporate Governance section of our website at www.tsys.com/finance. We will post any amendments to the Code of Business Conduct and Ethics and any waivers that are required to be disclosed by the rules of either the SEC or the NYSE in the Corporate Governance section of our website. Item 11. Executive Compensation Information pertaining to executive compensation is contained in the "DIRECTOR COMPENSATION AND STOCK OWNERSHIP GUIDELINES" Section which is set forth on page 6, the "EXECUTIVE COMPENSATION - Summary Compensation Table; Stock Option Exercises and Grants; and Change in Control Arrangements" Sections which are set forth on pages 13 through 15, and the "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" Section which is set forth on page 19 of TSYS' Proxy Statement and is specifically incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information pertaining to equity compensation plans is contained in Note 6 of Notes to Consolidated Financial Statements on pages F-36 through F-39 of the Financial Appendix to TSYS' Proxy Statement and is specifically incorporated herein by reference. Information pertaining to security ownership of certain beneficial owners and management is contained in the "STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS" Section which is set forth on page 10, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Stock by CB&T" Section which is set forth on page 20, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Synovus Stock Ownership of Directors and Management" Section which is set forth on page 21 9 of TSYS' Proxy Statement and is specifically incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information pertaining to certain relationships and related transactions is contained in the "TRANSACTIONS WITH MANAGEMENT" Section which is set forth on pages 19 and 20, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Beneficial Ownership of TSYS Stock by CB&T" Section which is set forth on page 20, the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Interlocking Directorates of TSYS, Synovus and CB&T" Section which is set forth on page 20, and the "RELATIONSHIPS BETWEEN TSYS, SYNOVUS, CB&T, AND CERTAIN OF SYNOVUS' SUBSIDIARIES - Electronic Payment Processing Services Provided to CB&T and Certain of Synovus' Subsidiaries; Other Agreements Between TSYS, Synovus, CB&T and Certain of Synovus' Subsidiaries" Section which is set forth on page 22 of TSYS' Proxy Statement and is specifically incorporated herein by reference. See also Note 2 of Notes to Consolidated Financial Statements on pages F-32 through F-34 of the Financial Appendix to TSYS' Proxy Statement which is specifically incorporated herein by reference. Item 14. Principal Accountant Fees and Services Information pertaining to principal accountant fees and services is contained in the "AUDIT COMMITTEE REPORT - KPMG LLP Fees and Services" Section which is set forth on pages 11 and 12 (excluding the information under the main caption "AUDIT COMMITTEE REPORT") and the "AUDIT COMMITTEE REPORT - Policy on Audit Committee Pre-Approval" Section which is set forth on page 12 of TSYS' Proxy Statement and is specifically incorporated herein by reference. PART IV Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements The following Consolidated Financial Statements of TSYS are specifically incorporated by reference from pages F-22 through F-48 of the Financial Appendix to TSYS' Proxy Statement to Item 8, Part II, Financial Statements and Supplementary Data. Consolidated Balance Sheets - December 31, 2003 and 2002. Consolidated Statements of Income - Years Ended December 31, 2003, 2002 and 2001. Consolidated Statements of Cash Flows - Years Ended December 31, 2003, 2002 10 and 2001. Consolidated Statements of Shareholders' Equity and Comprehensive Income - Years Ended December 31, 2003, 2002 and 2001. Notes to Consolidated Financial Statements. Report of Independent Auditors. 2. Index to Financial Statement Schedules The following report of independent auditors and consolidated financial statement schedule of Total System Services, Inc. are included: Report of Independent Auditors. Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 2003, 2002 and 2001. All other schedules are omitted because they are inapplicable or the required information is included in the Notes to Consolidated Financial Statements. 3. Exhibits Exhibit Number Description -------- ----------- 3.1 Articles of Incorporation of Total System Services, Inc. ("TSYS"), as amended, incorporated by reference to Exhibit 4.1 of TSYS' Registration Statement on Form S-8 filed with the Commission on April 18, 1997 (File No. 333-25401). 3.2 Bylaws of TSYS, as amended, incorporated by reference to Exhibit 3.2 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2002, as filed with the Commission on March 19, 2003. 10. EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS 10.1 Director Stock Purchase Plan of TSYS, incorporated by reference to Exhibit 10.1 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March 16, 2000. 10.2 Total System Services, Inc. 2002 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.2 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Commission on March 19, 2002. 11 10.3 Synovus Financial Corp. 2002 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.3 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Commission on March 19, 2002. 10.4 Synovus Financial Corp./Total System Services, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.4 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Commission on March 19, 2002. 10.5 Total System Services, Inc. 1992 Long-Term Incentive Plan, which was renamed the Total System Services, Inc. 2000 Long-Term Incentive Plan, incorporated by reference to Exhibit 10.5 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.6 Total System Services, Inc. Directors' Deferred Compensation Plan, incorporated by reference to Exhibit 10.6 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Commission on March 19, 2002. 10.7 Wage Continuation Agreement of TSYS, incorporated by reference to Exhibit 10.7 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.8 Incentive Bonus Plan of Synovus Financial Corp. in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.8 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1992, as filed with the Commission on March 18, 1993. 10.9 Agreement in Connection With Personal Use of Company Aircraft. 10.10 Split Dollar Insurance Agreement of TSYS, incorporated by reference to Exhibit 10.10 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1993, as filed with the Commission on March 22, 1994. 12 10.11 Synovus Financial Corp. 1994 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.11 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1994, as filed with the Commission on March 9, 1995. 10.12 Synovus Financial Corp. Executive Bonus Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.12 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.13 Change of Control Agreements for executive officers of TSYS, incorporated by reference to Exhibit 10.13 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1995, as filed with the Commission on March 19, 1996. 10.14 Stock Option Agreement of Samuel A. Nunn, incorporated by reference to Exhibit 10.14 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1996, as filed with the Commission on March 20, 1997. 10.15 Synovus Financial Corp. Deferred Stock Option Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.15 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Commission on March 19, 2002. 10.16 Synovus Financial Corp. 2000 Long-Term Incentive Plan in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.16 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 1999, as filed with the Commission on March 16, 2000. 10.17 Split Dollar Insurance Agreement and related Executive Benefit Substitution Agreement of Synovus Financial Corp. in which executive officers of TSYS participate, incorporated by reference to Exhibit 10.19 of TSYS' Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as filed with the Commission on March 19, 2002. 20.1 Proxy Statement, including Financial Appendix, for the Annual Meeting of Shareholders of TSYS to be held on April 15, 2004, certain pages of which are specifically incorporated herein by reference. 13 21.1 Subsidiaries of Total System Services, Inc. 23.1 Independent Auditors' Consent. 24.1 Powers of Attorney contained on the signature pages of the 2003 Annual Report on Form 10-K. 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.1 Annual Report on Form 11-K for the Total System Services, Inc. Employee Stock Purchase Plan for the year ended December 31, 2003 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.) 99.2 Annual Report on Form 11-K for the Total System Services, Inc. Director Stock Purchase Plan for the year ended December 31, 2003 (to be filed as an amendment hereto within 120 days of the end of the period covered by this report.) (b) Reports on Form 8-K On October 14, 2003, TSYS filed a Form 8-K with the Commission in connection with the announcement of its earnings for the third quarter of 2003. On December 9, 2003, TSYS filed a Form 8-K with the Commission in connection with the election of Philip W. Tomlinson as Chief Executive Officer of TSYS. 14 REPORT OF INDEPENDENT AUDITORS The Board of Directors Total System Services, Inc.: Under date of January 15, 2004, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 2003 and 2002 and the related consolidated statements of income, cash flows, and shareholders' equity and comprehensive income for each of the years in the three-year period ended December 31, 2003, as contained in the Total System Services, Inc. 2003 Annual Report to Shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the Total System Services, Inc. Annual Report on Form 10-K for the year 2003. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/KPMG LLP KPMG LLP Atlanta, Georgia January 15, 2004 TOTAL SYSTEM SERVICES, INC. Schedule II Valuation and Qualifying Accounts
Additions ------------------------- Changes in allowances, charges to Balance at expenses and changes Balance at beginning to other accounts -- Deductions-- end of period describe describe of period ---------------------------------------------------------------------------------- Year ended December 31, 2001: Provision for doubtful accounts and billing adjustments $ 5,844,478 569,433 (1,043,071)(3) $ 5,370,840 ----------- ------------------------- ------------- -------------- $ 5,844,478 569,433 (1,043,071) $ 5,370,840 ============ ========================= ============= ============== Transaction processing accruals $ 8,717,456 1,438,241 (2,864,256)(3) $ 7,291,441 ------------ ------------------------- ------------- -------------- $ 8,717,456 1,438,241 (2,864,256) $ 7,291,441 ============ ========================= ============= ============== Year ended December 31, 2002: Provision for doubtful accounts and billing adjustments $ 5,370,840 3,262,830 (616,632)(3) $ 8,017,038 ----------- ------------------------- ------------- -------------- $ 5,370,840 3,262,830 (616,632) $ 8,017,038 ============ ========================= ============= ============== Transaction processing accruals $ 7,291,441 6,532,268 (8,476,699)(3) $ 5,347,010 ------------ ------------------------- ------------- -------------- $ 7,291,441 6,532,268 (8,476,699) $ 5,347,010 ============ ========================= ============= ============== Year ended December 31, 2003: Provision for doubtful accounts and billing adjustments $ 8,017,038 2,690,373 (897,327)(3) $ 9,810,084 ----------- ------------------------- ------------- -------------- $ 8,017,038 2,690,373 (897,327) $ 9,810,084 ============ ========================= ============= ============== Transaction processing accruals $ 5,347,010 3,449,943 (3,706,444)(3) $ 5,090,509 ------------ ------------------------- ------------- -------------- $ 5,347,010 3,449,943 (3,706,444) $ 5,090,509 ============ ========================= ============= ============== ------------------------------------------------------------------------------------------------------------------------------------ Amount reflected includes charges to bad debt expense which are classified in other operating expenses and the charges for billing adjustments which are recorded against revenues. Amount reflected is the change in transaction processing accruals reflected in other operating expenses. Accounts deemed to be uncollectible and written off during the year as it relates to bad debts. Amounts that relate to billing adjustments and transaction processing accruals reflect actual billing adjustments and processing errors charged against the allowances.
SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, Total System Services, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TOTAL SYSTEM SERVICES, INC. (Registrant) March 9, 2004 By: /s/Philip W. Tomlinson ------------------------------- Philip W. Tomlinson, Principal Executive Officer POWER OF ATTORNEY ----------------- KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Blanchard, Richard W. Ussery and Philip W. Tomlinson, and each of them, his true and lawful attorney(s)-in-fact and agent(s), with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments to this report and to file the same, with all exhibits and schedules thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney(s)-in-fact and agent(s) full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, this report has been signed by the following persons in the capacities and on the dates indicated. /s/James H. Blanchard Date: March 9, 2004 ----------------------------------------------- James H. Blanchard, Director and Chairman of the Executive Committee /s/Richard W. Ussery Date: March 9, 2004 ----------------------------------------------- Richard W. Ussery, Chairman of the Board /s/Philip W. Tomlinson Date: March 9, 2004 ----------------------------------------------- Philip W. Tomlinson, Principal Executive Officer and Director /s/M. Troy Woods Date: March 9, 2004 ----------------------------------------------- M. Troy Woods, President and Director /s/James B. Lipham Date: March 9, 2004 ----------------------------------------------- James B. Lipham, Executive Vice President, Treasurer, Principal Accounting and Financial Officer /s/Richard Y. Bradley Date: March 9, 2004 ----------------------------------------------- Richard Y. Bradley, Director /s/G. Wayne Clough Date: March 9, 2004 ----------------------------------------------- G. Wayne Clough, Director /s/Walter W. Driver, Jr. Date: March 9, 2004 ----------------------------------------------- Walter W. Driver, Jr., Director /s/Gardiner W. Garrard, Jr. Date: March 9, 2004 ----------------------------------------------- Gardiner W. Garrard, Jr., Director Date: March _, 2004 ----------------------------------------------- Sidney E. Harris, Director /s/John P. Illges, III Date: March 9, 2004 ----------------------------------------------- John P. Illges, III, Director /s/Alfred W. Jones, III Date: March 9, 2004 ----------------------------------------------- Alfred W. Jones III, Director /s/Mason H. Lampton Date: March 9, 2004 ----------------------------------------------- Mason H. Lampton, Director /s/H. Lynn Page Date: March 9, 2004 ----------------------------------------------- H. Lynn Page, Director Date: March _, 2004 ----------------------------------------------- W. Walter Miller, Jr., Director Date: March _, 2004 ----------------------------------------------- John T. Turner, Director /s/James D. Yancey Date: March 9, 2004 ----------------------------------------------- James D. Yancey, Director Date: March _, 2004 ----------------------------------------------- Rebecca K. Yarbrough, Director filings/tss\con13.doc