UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-10254
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Total System Services, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1493818
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1200 Sixth Avenue, Post Office Box 1755, Columbus, Georgia 31902
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(Address of principal executive offices) (Zip Code)
(706) 649-2310
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF May 13, 1998
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Common Stock, $.10 par value 194,009,062
<PAGE>
TOTAL SYSTEM SERVICES, INC.
INDEX
Page
Number
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Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - Three months
ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows - Three months
ended March 31, 1998 and 1997 . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . 8
Part II. Other Information
Item 6. (a) Exhibits . . . . . . . . . . . . . . . . . . . . . . 15
(b) Reports on Form 8-K . . . . . . . . . . . . . . . . . 15
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
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<PAGE>
TOTAL SYSTEM SERVICES, INC.
Part I - Financial Information
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<S> <C> <C>
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March 31, December 31,
1998 1997
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Assets
Current assets:
Cash and cash equivalents (includes $52.3 million and $40.6 million
on deposit with a related party at 1998 and 1997, respectively) . $ 53,055,663 43,335,922
Short-term investments with a related party ....................... -- 998,228
Accounts receivable, net of allowance for doubtful accounts of
$728,000 and $736,000 at 1998 and 1997, respectively ............ 63,743,807 69,450,919
Prepaid expenses and other current assets ......................... 16,508,339 18,620,638
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Total current assets .......................................... 133,307,809 132,405,707
Property and equipment, less accumulated depreciation and
amortization of $68.2 million and $65.1 million at 1998 and
1997, respectively ................................................ 69,250,536 68,968,574
Computer software, less accumulated amortization of
$37.4 million and $34.2 million at 1998 and 1997, respectively .... 47,103,191 43,133,137
Other assets ........................................................ 56,181,563 52,350,519
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Total assets .................................................. $ 305,843,099 296,857,937
============= =============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable .................................................. $ 11,219,808 6,400,365
Accrued salaries and related liabilities .......................... 5,513,456 6,680,979
Accrued employee benefits ......................................... 6,481,564 13,870,969
Current portion of long-term debt and obligations under
capital leases .................................................. 126,356 132,416
Other current liabilities (includes $1.3 and $1.2 million payable
to related parties at 1998 and 1997, respectively) ............. 39,908,270 34,421,668
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Total current liabilities ..................................... 63,249,454 61,506,397
Long-term debt and obligations under capital leases,
excluding current portion ....................................... 319,714 342,096
Deferred income taxes ............................................... 11,832,367 13,754,688
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Total liabilities ............................................. 75,401,535 75,603,181
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Shareholders' equity:
Common stock - $.10 par value. Authorized 300,000,000
shares; 194,225,283 issued at 1998 and 1997,
respectively; 194,007,412 and 193,995,337 outstanding
at 1998 and 1997, respectively ................................. 19,422,528 19,422,528
Unamortized stock awards .......................................... (6,457) (44,325)
Treasury stock, at cost ........................................... (358,277) (377,701)
Accumulated other comprehensive income ............................ (1,172,693) (1,178,182)
Retained earnings ................................................. 212,556,463 203,432,436
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Total shareholders' equity .................................... 230,441,564 221,254,756
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Total liabilities and shareholders' equity .................... $ 305,843,099 296,857,937
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<S> <C> <C>
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Three months ended
March 31,
--------------------------
1998 1997
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Revenues
Bankcard data processing services (includes $7.4 million and
$6.5 million from related parties for 1998 and 1997, respectively) $ 85,105,531 74,506,301
Other services ..................................................... 11,212,762 8,630,173
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Total revenues ................................................. 96,318,293 83,136,474
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Expenses
Salaries and other personnel expense ............................... 43,210,460 36,938,014
Net occupancy and equipment expense ................................ 24,366,473 22,840,306
Other operating expenses (includes $2.6 million and $2.3 million
to related parties for 1998 and 1997, respectively) .............. 16,189,013 12,533,200
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Total expenses ................................................. 83,765,946 72,311,520
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Equity in income of joint ventures ................................... 2,028,472 1,769,451
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Operating income .................................................... 14,580,819 12,594,405
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Nonoperating income:
Gain on disposal of equipment, net ................................. 2,598 14,747
Interest income, net (includes $658,000 and $421,000 from a related
party for 1998 and 1997, respectively) ........................... 756,243 436,693
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Total nonoperating income ...................................... 758,841 451,440
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Income before income taxes ..................................... 15,339,660 13,045,845
Income taxes ......................................................... 5,089,299 4,529,138
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Net income ..................................................... $ 10,250,361 8,516,707
============ ============
Basic earnings per share ....................................... $ .05 .04
============ ============
Diluted earnings per share ..................................... $ .05 .04
============ ============
Weighted average common shares outstanding ........................... 194,000,165 193,934,520
Increase due to assumed issuance of shares
related to stock options outstanding ............................. 577,111 256,806
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Weighted average common and common
equivalent shares outstanding .................................... 194,577,276 194,191,326
============ ============
Cash dividends per common share ...................................... $ .0075 .0075
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
TOTAL SYSTEM SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<S> <C> <C>
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Three months ended
March 31,
--------------------------------
1998 1997
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Cash flows from operating activities:
Net income ................................................. $ 10,250,361 8,516,707
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint ventures ..................... (2,028,472) (1,769,451)
Depreciation and amortization .......................... 7,842,451 6,984,491
Provision for doubtful accounts ........................ 4,500 10,500
Deferred income tax benefit ............................ (1,922,321) (641,121)
Gain on disposal of equipment, net ..................... (2,598) (14,747)
(Increase) decrease in:
Accounts receivable .................................... 5,702,612 4,081,320
Prepaid expenses and other assets ...................... 2,924,792 742,281
Increase (decrease) in:
Accounts payable ....................................... 4,819,443 2,419,855
Accrued expenses and other current liabilities ......... (2,746,433) (4,213,432)
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Net cash provided by operating activities .......... 24,844,335 16,116,403
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Cash flows from investing activities:
Purchase of property and equipment ......................... (3,541,717) (3,989,745)
Additions to computer software ............................. (7,149,431) (6,472,290)
Proceeds from disposal of equipment ........................ 6,695 17,450
Dividends received from joint ventures ..................... 1,477,969 1,752,561
Increase in contract acquisition costs ..................... (5,457,093) (14,613,942)
Redemption of short-term investment ........................ 998,228 5,000,000
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Net cash used in investing activities .............. (13,665,349) (18,305,966)
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Cash flows from financing activities:
Principal payments on long-term debt and
capital lease obligations ................................ (28,442) (45,799)
Dividends paid on common stock ............................. (1,454,953) (1,454,509)
Proceeds from exercise of stock options .................... 24,150 --
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Net cash used in financing activities .............. (1,459,245) (1,500,308)
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Net increase (decrease) in cash and cash equivalents 9,719,741 (3,689,871)
Cash and cash equivalents at beginning of period ............. 43,335,922 27,496,057
------------ ------------
Cash and cash equivalents at end of period ................... $ 53,055,663 23,806,186
============ ============
Cash paid for interest ....................................... $ 1,197 8,291
============ ============
Cash paid for income taxes (net of tax refunds received) ..... $ 581,814 (268,213)
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE>
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TOTAL SYSTEM SERVICES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements represent the
accounts of Total System Services, Inc (R)(TSYS (R)) and its wholly owned
subsidiaries, Columbus Depot Equipment CompanySM (CDECSM), TSYS Total Solutions,
Inc.SM (TSI), Columbus Productions, Inc.SM (CPI) and TSYS Canada, Inc.SM (TCI).
The statements have been prepared in accordance with the instructions to Form
10-Q and do not include all information and footnotes necessary for fair
presentation of financial position, results of operations and cash flows in
conformity with generally accepted accounting principles. All adjustments,
consisting of normal recurring accruals, which, in the opinion of management,
are necessary for a fair statement of financial position and results of
operations for the periods covered by this report have been included. The
accompanying unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and related
notes appearing in the Company's 1997 annual report previously filed on Form
10-K.
On April 16, 1998, TSYS declared a three-for-two stock split, which was
effected on May 8, 1998. All shareholder equity, share and per share amounts in
the accompanying consolidated financial statements have been retroactively
restated to give effect to the split.
Note 2 - Supplementary Balance Sheet Information
A significant component of other assets included in the consolidated
balance sheets at March 31, 1998, and December 31, 1997, is net contract
acquisition costs of $32,295,493 and $27,274,037, respectively. Also included in
other assets are net investments in joint ventures of $21,751,174 and
$21,338,446 at March 31, 1998, and December 31, 1997, respectively. Included in
other current liabilities at March 31, 1998, and at December 31, 1997, are
reserves of $4,051,285 to cover transaction processing provisions. Also included
in other current liabilities are customer postage deposits of $12,273,537 and
$13,579,370 at March 31, 1998, and December 31, 1997, respectively.
Note 3 - Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for the way public business enterprises are to report information
about operating segments in annual financial statements and requires those
enterprises to report selected financial information about operating segments in
interim financial reports
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<PAGE>
Notes to Consolidated Financial Statements (continued)
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. SFAS No. 131
is effective for financial statements for periods beginning after December 15,
1997. SFAS No. 131 need not be applied to interim financial statements in the
initial year of its application, but comparative information for interim periods
in the initial year of application shall be reported in financial statements for
interim periods in the second year of application. TSYS does not expect that
SFAS No. 131 will significantly impact disclosures.
Note 4 - Other Comprehensive Income
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and displaying
comprehensive income and its components in a full set of general purpose
financial statements. SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income to
be reported in an annual financial statement that is displayed in equal
prominence with other financial statements. For interim period financial
statements, enterprises are required to disclose a total for comprehensive
income in those financial statements. The term "comprehensive income" is used in
SFAS No. 130 to describe the total of all components of comprehensive income
including net income. "Other comprehensive income" refers to revenues, expenses,
gains and losses that are included in comprehensive income but excluded from
earnings under current accounting standards. Currently, "other comprehensive
income" for TSYS consists solely of items previously recorded as a component of
shareholders' equity under SFAS No. 52, "Foreign Currency Translation." TSYS has
adopted the interim period disclosure requirements of SFAS No. 130 effective
March 31, 1998, and will adopt the annual financial statement reporting and
disclosure requirements of SFAS No. 130 effective December 31, 1998.
Total comprehensive income for the three months ended March 31, 1998, was
$10,255,850 compared to $8,516,707 for the three months ended March 31, 1997.
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<PAGE>
TOTAL SYSTEM SERVICES, INC.
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
The following table sets forth certain revenue and expense items as a
percentage of total revenues and the percentage increases or decreases in those
items for the three months ended March 31:
Percentage of Percentage Change
Total Revenues in Dollar Amounts
--------------- -----------------
1998 1997 1998 vs 1997
------ ------ -----------------
Revenues:
Bankcard data processing services .. 88.4% 89.6% 14.2%
Other services ..................... 11.6 10.4 29.9
----- -----
Total revenues ....................... 100.0 100.0 15.9
----- -----
Expenses:
Salaries and other personnel expense 44.9 44.4 17.0
Net occupancy and equipment expense 25.3 27.5 6.7
Other operating expenses ........... 16.8 15.1 29.2
----- -----
Total operating expenses ....... 87.0 87.0 15.8
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Equity in income of joint ventures ... 2.1 2.1 14.6
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Operating income ................. 15.1 15.1 15.8
Nonoperating income .................. 0.8 0.6 68.1
----- -----
Income before income taxes ..... 15.9 15.7 17.6
Income taxes ......................... 5.3 5.5 12.3
----- -----
Net income ........................... 10.6% 10.2% 20.4%
===== =====
Total revenues increased $13.2 million, or 15.9% during the three months
ended March 31, 1998, compared to the same period in 1997.
Revenues from bankcard data processing services increased $10.6 million or
14.2% in the three months ended March 31, 1998, compared to the same period in
1997. Increased revenues from bankcard data processing are attributable to the
conversion of
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<PAGE>
Results of Operations (continued)
cardholder accounts of new customers and growth in the card portfolios of
existing customers. Revenues during the first quarter of 1998 were also affected
by two significant items. These items included an increase in revenues due to a
termination fee received from a customer which was offset by a decrease in
revenues resulting from a pricing adjustment with another customer. The net
effect of these items was a $1.5 million increase in revenues. Increases in the
volume of authorizations and transactions associated with the additional
cardholder accounts, as well as growth in new services offered, also contributed
to the increased revenues.
Average cardholder accounts on file for the three months ended March 31,
1998, were 93.7 million, which was an increase of approximately 15.7% over the
average of 81.0 million for the same period in 1997, and which approximated
accounts on file at December 31, 1997. Cardholder accounts on file at March 31,
1998, were 92.6 million, a 9.5% increase over the 84.5 million accounts on file
at March 31, 1997. The increase in cardholder accounts on file from March 1997
to March 1998 included net internal growth of existing customers of 6.6 million
additional cardholder accounts and approximately 1.5 million new accounts.
During the first three months of 1998, TSYS converted approximately 2.1
million existing cardholder accounts to TS2(R), bringing the total number of
accounts on TS2 at March 31, 1998, to more than 21.8 million, compared to 10.1
million at March 31, 1997.
A significant amount of the Company's revenues is derived from long-term
contracts with large customers, including certain major customers. For the three
months ended March 31, 1998, two of these customers accounted for approximately
20% of total revenues, compared to 27% for the same period in 1997. Near the end
of the first quarter, AT&T, a major customer of the Company, completed the sale
of its Universal Card Services (UCS) to Citibank. TSYS and AT&T-UCS (now
Citibank) have a processing contract with a term until August 2000, and, at the
customer's instruction, TSYS is proceeding with converting these accounts to TS2
during 1998. The long-term effect of the sale of AT&T's credit card business on
TSYS' financial condition and results of operations cannot be determined at this
time. In April 1998, two of the Company's customers, NationsBank and Bank of
America, announced their intent to merge. As a result, if the merger is
completed, the percentage of revenues derived from major customers will
increase. The loss of either one of the Company's major customers, or other
significant customers, could have a material adverse effect on the Company's
financial condition and results of operations.
Total operating expenses increased 15.8% for the three months ended March
31, 1998, compared to the same period in 1997. The increase in operating
expenses is primarily attributable to increases in salaries and personnel
expense and in other operating expenses.
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<PAGE>
Results of Operations (continued)
Employment expenses increased 17.0% for the three months ended March 31,
1998, compared to the same period in 1997. The average number of employees in
the first quarter of 1998 increased to 3,190, a 17.7% increase over the 2,711 in
the same period in 1997. The rate of increase for employment expenses is lower
than the increase in the number of employees primarily because new employees
have not yet met the eligibility requirements for the majority of benefit plans
offered to tenured employees. At April 30, 1998, TSYS had 3,203 full-time and
116 part-time employees.
In February, TSYS announced the formation of TSYS Canada, Inc. (TCI), a
wholly owned subsidiary headquartered in Columbus, Georgia, to support new
customers, such as Royal Bank of Canada and Canadian Tire Acceptance Limited. On
February 1, 1998, TCI opened an office in Welland, Ontario, Canada. TCI
currently employs 15 programmers who are providing TSYS Canadian clients with
support and assistance with the conversion of their various portfolios to TS2.
Net occupancy and equipment expense was up 6.7% for the three months ended
March 31, 1998, over the same period in 1997. Equipment and software rentals,
the largest components of net occupancy and equipment expense, increased
$416,000, or 3.5%, in the first quarter of 1998, compared to the same period in
1997. Due to rapidly changing technology in computer equipment, TSYS' equipment
needs are achieved substantially through operating leases. Computer upgrades and
other additional equipment were leased subsequent to the first quarter of 1997
to accommodate increased volumes due to growth in the number of accounts being
processed. Repairs and maintenance, another component of net occupancy and
equipment expense, increased $308,000 for the three months ended March 31, 1998,
compared to the same period in 1997. The increase can be attributed to repairs
and maintenance expense on major computer equipment whose warranties had
expired.
Other operating expenses increased 29.2% for the three months ended March
31, 1998, compared to the same period in 1997. The growth in expenses for the
first quarter of 1998 is primarily due to increased travel, legal,
telecommunication and other business development costs associated with exploring
new business opportunities.
TSYS' share of income from its equity in joint ventures was $2.0 million
and $1.8 million for the first quarters of 1998 and 1997, respectively. The
increase is associated with improved operating results from both of the
Company's joint ventures. Total System Services de Mexico, S.A. de C.V. (TSYS de
Mexico) improved due to a higher level of activity in production related
services, while Vital Processing Services, L.L.C. (Vital) continued to grow
operating results in line with expectations. With respect to TSYS de Mexico, the
Mexican economy continues to improve; however, there remains uncertainty in the
Mexican economy which management continues to monitor.
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<PAGE>
Results of Operations (continued)
Interest income, net, includes interest expense of $7,712 and $15,596 and
interest income of $763,955 and $452,289 for the first quarters of 1998 and
1997, respectively. The increase in interest income in 1998 as compared to 1997
is primarily the result of higher levels of cash available for investment.
Operating income increased 15.8% for the three months ended March 31, 1998,
over the same period in 1997. The increase is primarily due to growth in
revenues combined with lower expenses attributable to improved expense control.
TSYS' effective income tax rate for the first quarter of 1998 was 33.2%,
compared to 34.7% for the same period in 1997. The decrease in TSYS' effective
income tax rate is primarily due to certain effective income tax planning
strategies, including the identification and recognition of research and
experimentation credits for ongoing development activities, foreign tax credits
associated with the Mexican joint venture, and a reduction in state income taxes
due to favorable tax legislation.
Liquidity and Capital Resources
The Consolidated Statements of Cash Flows detail the Company's cash flows
from operating, investing and financing activities. TSYS' primary method of
funding its operations and growth has been cash generated from current
operations and the occasional use of borrowed funds to supplement financing of
capital expenditures. TSYS' net cash provided by operating activities in the
first quarter of 1998 increased to $24.9 million from $16.1 million in the same
period of 1997. The major uses of cash generated from operations have been the
addition of property and equipment; internal development and purchase of
computer software; investment in contract acquisition costs; and the payment of
cash dividends.
During the first quarter of 1998, TSYS purchased property and equipment of
$3.5 million. Computer software increased during the first quarter by $7.1
million; additions primarily consisted of purchased software. Also, in the first
quarter of 1998, $5.5 million was invested in contract acquisition costs.
Dividends on common stock of $1.5 million were paid in the first quarter of
1998. At the Annual Shareholders Meeting in April 1998, the Company, in addition
to announcing a three-for-two stock split, also increased the quarterly dividend
33.3% to $.01 per share.
In 1997, construction was begun on a campus-type facility which will serve
as the Company's corporate headquarters. The Company entered into an operating
lease agreement relating to the new corporate campus. Under the agreement, the
lessor has purchased the land, is paying for construction and development costs
and has leased the property to the Company commencing upon its completion, which
is expected to be in
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<PAGE>
Liquidity and Capital Resources (continued)
1999. The lease provides for substantial residual value guarantee, up to
$87 million, and includes purchase options at the original cost of the property.
Real estate taxes, insurance, maintenance and operating expenses applicable to
the leased property are obligations of the Company. The Company expects net
occupancy and equipment expense to increase in 1999 as a result of the lease.
In addition, TSYS began a $5 million expansion of its operations center in
north Columbus during 1997. This expansion will include additional space for the
card production services now located in downtown Columbus and will include
additional space for statement printing function.
The core system of TS2 was designed to be Year 2000 compliant, and the
Company is continuing its ongoing project to ensure that all of the Company's
processing systems are Year 2000 compliant. Many computer programs were written
with a two digit date field, and, if these programs are not made Year 2000
compliant, they will be unable to correctly process date information on or after
the year 2000. While these issues impact all of the Company's data processing
systems to some extent, they are most significant in connection with certain
mainframe computer programs. Moreover, remediation efforts go beyond the
Company's internal computer systems and require coordination with clients,
vendors, government entities and other third parties to assure that their
systems and related interfaces are compliant. Failure to achieve timely
remediation of the Company's critical programs and computer systems for Year
2000 would have a material adverse effect on the Company's financial condition
and results of operations.
The Company's Year 2000 plans call for all mission critical systems to be
renovated by the end of the second quarter of 1998. Testing with clients and
other third parties will begin in the third quarter of 1998. Completion of all
third party interface testing is dependent upon those third parties completing
their own internal remediation. TSYS has made an assessment of non-compliant
suppliers and vendors and will schedule and coordinate testing of incoming and
outgoing interfaces with third-party vendors. The Company could be adversely
affected to the extent third parties with which it interfaces have not properly
addressed their Year 2000 issues.
TSYS is utilizing existing internal resources to complete the Year 2000
project. The Company incurred $1.4 million of direct costs related to the Year
2000 remediation project during the first quarter of 1998. The Company expects
to incur an additional $6.6 million of direct costs during the remainder of 1998
and approximately $6.0 million in 1999. Based upon progress to date, TSYS does
not expect the cost of the Year 2000 project to significantly impact its
financial condition and results of operations.
The costs of the project and the dates on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which
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<PAGE>
Liquidity and Capital Resources (continued)
were derived utilizing numerous assumptions about future events, including the
continued availability of necessary technical resources. However, there are no
guarantees that these estimates will be achieved and actual results could differ
materially from those anticipated.
TSYS may seek external sources of capital in the future. The form of any
such financing will vary depending upon prevailing market and other conditions
and may include short-term or long-term borrowings from financial institutions,
or the issuance of additional equity and/or debt securities such as industrial
revenue bonds. However, there can be no assurance that funds will be available
on terms acceptable to TSYS. Management expects that TSYS will continue to be
able to fund a significant portion of its capital expenditure needs through
internally generated cash in the future, as evidenced by TSYS' current ratio of
2.1:1. At March 31, 1998, TSYS had working capital of $70.1 million compared to
$70.9 million at December 31, 1997.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 establishes standards for the
way public business enterprises are to report information about operating
segments in annual financial statements and requires those enterprises to report
selected financial information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 need not be applied to interim financial
statements in the initial year of its application, but comparative information
for interim periods in the initial year of application shall be reported in
financial statements for interim periods in the second year of application. TSYS
does not expect that SFAS No. 131 will significantly impact disclosures.
Forward-Looking Statements
Certain statements contained in this filing which are not statements of
historical fact constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act (the Act). In addition, certain
statements in future filings by TSYS with the Securities and Exchange
Commission, in press releases, and in oral and written statements made by or
with the approval of TSYS which are not statements of historical fact constitute
forward-looking statements within the meaning of the Act. Examples of
forward-looking statements include, but are not limited to: (i) projections of
revenue, income or loss, earnings or loss per share, the payment or nonpayment
of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of TSYS or its management or Board of Directors, including
those relating to products or services;
- 13 -
<PAGE>
Forward-Looking Statements (continued)
(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.
Forward-looking statements involve risks and uncertainties which may cause
actual results to differ materially from those in such statements. Factors that
could cause actual results to differ from those discussed in the forward-looking
statements include, but are not limited to: (i) the strength of the U.S. economy
in general and relevant foreign economies; (ii) the Company's performance under
current and future contracts; (iii) inflation, interest rate and foreign
exchange rate fluctuations; (iv) timely and successful implementation of
processing systems to provide new products, improved functionality and increased
efficiencies; (v) changes in consumer spending, borrowing and saving habits;
(vi) technological changes; (vii) acquisitions; (viii) the ability to increase
market share and control expenses; (ix) changes in laws, regulations, credit
card association rules or other industry standards affecting TSYS' business
which require significant product redevelopment efforts; (x) the effect of
changes in accounting policies and practices as may be adopted by the Financial
Accounting Standards Board; (xi) changes in TSYS' organization, compensation and
benefit plans; (xii) the costs and effects of litigation and of unexpected or
adverse outcomes in such litigation; (xiii) failure to successfully implement
the Company's Year 2000 modification plans substantially as scheduled and
budgeted; and (xiv) the success of TSYS at managing the risks involved in the
foregoing.
Such forward-looking statements speak only as of the date on which
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.
- 14 -
<PAGE>
TOTAL SYSTEM SERVICES, INC.
Part II - Other Information
Item 6 - Exhibits and Reports on Form 8-K
a) Exhibits
(27) - Financial Data Schedule (For SEC use only)
b) Forms 8-K filed since December 31, 1997
1. The report dated March 9, 1998, included the following important event:
On March 9, 1998, Total System Services, Inc. ("Registrant") announced that
it was engaged in negotiations with Sears, Roebuck and Co. to support Sears'
private-label credit card accounts.
2. The report dated April 16, 1998, included the following important event:
On April 16, 1998, Total System Services, Inc. ("Registrant") announced a
three-for-two stock split and a 33.3% increase in the quarterly dividend of
Registrant's common stock.
- 15 -
<PAGE>
TOTAL SYSTEM SERVICES, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOTAL SYSTEM SERVICES, INC.
Date: May 13, 1998 by: /s/ Richard W. Ussery
----------------------------
Richard W. Ussery
Chairman of the Board
and Chief Executive
Officer
Date: May 13, 1998 by: /s/ James B. Lipham
-----------------------------
James B. Lipham
Chief Financial Officer
- 16 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000721683
<NAME> TOTAL SYSTEM SERVICES, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 53,055,663
<SECURITIES> 0
<RECEIVABLES> 64,471,718
<ALLOWANCES> 727,911
<INVENTORY> 0
<CURRENT-ASSETS> 133,307,809
<PP&E> 137,434,115
<DEPRECIATION> 68,183,579
<TOTAL-ASSETS> 305,843,099
<CURRENT-LIABILITIES> 63,249,454
<BONDS> 0
0
0
<COMMON> 19,422,528<F1>
<OTHER-SE> 211,019,036<F1>
<TOTAL-LIABILITY-AND-EQUITY> 305,843,099
<SALES> 96,318,293
<TOTAL-REVENUES> 96,318,293
<CGS> 0
<TOTAL-COSTS> 83,765,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,339,660
<INCOME-TAX> 5,089,299
<INCOME-CONTINUING> 10,250,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,250,361
<EPS-PRIMARY> .05<F1>
<EPS-DILUTED> .05<F1>
<FN>
<F1>On April 16, 1998, TSYS announced a three-for-two stock split to be
issued on May 8, 1998, to shareholders of record as of April 27, 1998.
Financial data schedules have not been restated for prior periods for this
recapitalization.
</FN>
</TABLE>
