Item 1B.
Unresolved Staff Comments
None.
As of December 31, 2010, we and our subsidiaries owned 14 facilities encompassing approximately 1,445,546 square feet and leased 47 facilities encompassing approximately 814,113 square feet. These facilities are used for operational, sales and administrative purposes.
We believe that our facilities are suitable and adequate for our current business; however, we periodically review our space requirements and may acquire new space to meet the needs of our businesses or consolidate and dispose of or sublet facilities which are no longer required.
See Note 1, Note 7, Note 19 and Note 22 of Notes to Consolidated Financial Statements on pages 32 through 39, page 41, pages 51 through 53, and pages 56 through 58 and “Operating Expenses” and “Property and Equipment” under the “Financial Review” Section on page 19, and page 21, respectively, of the Annual Report which are incorporated in this document by reference.
See Note 19 of Notes to Consolidated Financial Statements on pages 51 through 53 of the Annual Report which is incorporated in this document by reference.
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
The “Quarterly Financial Data (Unaudited), Stock Price, Dividend Information” Section under the “Financial Review” Section on page 64, Note 17 of Notes to Consolidated Financial Statements on pages 49 and 50 and “Stock Performance Graph” on page 65 of the Annual Report are incorporated in this document by reference. The “Stock Performance Graph” is incorporated herein by reference; however, this information shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.
The “Selected Financial Data” Section which is set forth on page 9 of the Annual Report is incorporated in this document by reference.
Item 7.
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 9 through 27 of the Annual Report which includes the information encompassed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are incorporated in this document by reference.
Item 7A.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk. We are exposed to foreign exchange risk because we have assets, liabilities, revenues and expenses denominated in foreign currencies. 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 our foreign operations, net of tax, are accumulated in a separate section of shareholders’ equity entitled “accumulated other comprehensive income (loss), net.” The amount of other comprehensive (loss) income, net of tax, related to foreign currency translation for the years ended December 31, 2010, 2009 and 2008 was:
Currently, we do not use financial instruments to hedge our exposure to exchange rate changes.
The following table presents the carrying value of the net assets of our foreign operations in U.S. dollars at December 31, 2010:
We record foreign currency translation adjustments associated with other balance sheet accounts. See “Nonoperating Income (Expense)” under the “Financial Review” Section on page 19 of the Annual Report which is incorporated in this document by reference. We maintain several cash accounts denominated in foreign currencies, primarily in Euros and British Pounds Sterling. As we translate the foreign-denominated cash balances into U.S. dollars, the translated cash balance is adjusted upward or downward depending upon the foreign currency exchange movements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation in our statements of income. As those cash accounts have increased, the upward or downward adjustments have increased. We recorded a net translation loss of approximately $162,000 for the year ended December 31, 2010 relating to the translation of foreign denominated balance sheet accounts, most of which were cash. The balance of the foreign-denominated cash accounts subject to risk of translation gains or losses at December 31, 2010 was approximately $1.7 million, the majority of which is denominated in Euros.
We provide financing to our international operation in Europe through an intercompany loan that requires the operation to repay the financing in U.S. dollars. The functional currency of each operation is the respective local currency. As we translate the foreign currency denominated financial statements into U.S. dollars, the translated balance of the financing (liability) is adjusted upward or downward to match the U.S. dollar obligation (receivable) on our financial statements. The upward or downward adjustment is recorded as a gain or loss on foreign currency translation in other comprehensive income.
The net asset account balance subject to foreign currency exchange rates between the local currencies and the U.S. dollar at December 31, 2010 was $1.7 million.
The following table presents the potential effect on income before income taxes of hypothetical shifts in the foreign currency exchange rate between the local currencies and the U.S. dollar of plus or minus 100 basis points, 500 basis points and 1,000 basis points based on the net asset account balance of $1.7 million at December 31, 2010.
The foreign currency risks associated with other currencies is not significant.
Interest Rate Risk. We are also exposed to interest rate risk associated with the investing of available cash. We invest available cash in conservative short-term instruments and are primarily subject to changes in the short-term interest rates.
The following table provides information about our debt obligations that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted average interest rates by expected maturity dates. The information is presented in U.S. dollar equivalents, which is our reporting currency. The debt obligation’s actual cash flows are denominated in U.S. dollars (US), British Pounds Sterling (GBP) and Japanese YEN (YEN), as indicated in parentheses.
Item 8.
Item 8.
Financial Statements and Supplementary Data
The “Quarterly Financial Data (Unaudited), Stock Price, Dividend Information” Section, which is set forth on page 64, and the “Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Cash Flows, Consolidated Statements of Equity and Comprehensive Income, Notes to Consolidated Financial Statements, Report of Independent Registered Public Accounting Firm and Management’s Report on Internal Control Over Financial Reporting”, which are set forth on pages 28 through 63 of the Annual Report are incorporated in this document by reference.
Item 9.
Item 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A.
Controls and Procedures
Evaluation of Disclosure 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 (“Exchange Act”). This evaluation was carried out under the supervision and with the participation of our management, including our chief executive officer and chief financial officer. Based on this evaluation, the chief executive officer and chief financial officer concluded that as of December 31, 2010, TSYS’ disclosure controls and procedures were designed and effective to ensure that the information required to be disclosed by TSYS in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and were also designed and effective to ensure that the information required to be disclosed in the reports that TSYS files or submits under the Exchange Act is accumulated and communicated to management, as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting and Report of Independent Registered Public Accounting Firm. “Management’s Report on Internal Control Over Financial Reporting,” which is set forth on page 63 of the Annual Report, and “Report of Independent Registered Public Accounting Firm,” which is set forth on page 62 of the Annual Report, are incorporated in this document by reference.
Changes in Internal Control Over Financial Reporting. No change in our internal control over financial reporting occurred during the fourth fiscal quarter covered by this annual report that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance
Information included under the following captions in our Proxy Statement is incorporated in this document by reference:
•
“PROPOSALS TO BE VOTED ON” - “PROPOSAL 1: ELECTION OF DIRECTORS,”
•
“EXECUTIVE OFFICERS,”
•
“SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE,” and
•
“CORPORATE GOVERNANCE AND BOARD MATTERS” - “Committees of the Board.”
We have 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 chief accounting officer. You can find our Code of Business Conduct and Ethics in the Corporate Governance section of our website at www.tsys.com under “Investor Relations” then “Corporate Governance”. 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.
Information included under the following captions in our Proxy Statement is incorporated in this document by reference:
•
“DIRECTOR COMPENSATION”;
•
“EXECUTIVE COMPENSATION” - “Compensation Discussion and Analysis,” “Compensation Committee Report”, “Risk Assessment of Compensation Programs” and “Compensation Tables and Narratives”; and
•
“CORPORATE GOVERNANCE AND BOARD MATTERS” - “Committees of the Board” - “Compensation Committee Interlocks and Insider Participation”.
The information included under the heading “Compensation Committee Report” in our Proxy Statement is incorporated herein by reference; however, this information shall not be deemed to be “soliciting material” or to be “filed” with the Commission or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information pertaining to equity compensation plans is contained in Note 15 of Notes to Consolidated Financial Statements on page 46 of the Annual Report and is incorporated in this document by reference.
Information included under the following captions in our Proxy Statement is incorporated in this document by reference:
•
“STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS,” and
•
“PRINCIPAL SHAREHOLDERS.”
Item 13.
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Information included under the following captions in our Proxy Statement is incorporated in this document by reference:
•
“CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,” and
•
“CORPORATE GOVERNANCE AND BOARD MATTERS” - “Independence.”
Item 14.
Item 14.
Principal Accountant Fees and Services
Information included under the following captions in our Proxy Statement is incorporated in this document by reference:
•
“AUDIT COMMITTEE REPORT” - “KPMG LLP Fees and Services” (excluding the information under the main caption “AUDIT COMMITTEE REPORT”); and “Policy on Audit Committee Pre-Approval.”
PART IV
Item 15.
Item 15.
Exhibits and Financial Statement Schedules
(a) 1. Financial Statements
The following consolidated financial statements of TSYS are incorporated in this document by reference from pages 28 through 63 of the Annual Report.
Consolidated Balance Sheets - December 31, 2010 and 2009.
Consolidated Statements of Income - Years Ended December 31, 2010, 2009 and 2008.
Consolidated Statements of Cash Flows - Years Ended December 31, 2010, 2009 and 2008.
Consolidated Statements of Equity and Comprehensive Income - Years Ended December 31, 2010, 2009 and 2008.
Notes to Consolidated Financial Statements.
Report of Independent Registered Public Accounting Firm.
Management’s Report on Internal Control Over Financial Reporting.
2. Financial Statement Schedules
The following report of independent registered public accounting firm and consolidated financial statement schedule of TSYS are included:
Report of Independent Registered Public Accounting Firm.
Schedule II - Valuation and Qualifying Accounts - Years Ended December 31, 2010, 2009 and 2008.
All other schedules are omitted because they are inapplicable or the required information is included in the consolidated financial statements and notes thereto.
3. Exhibits
The following exhibits are filed herewith or are incorporated to other documents previously filed with the SEC. Exhibits 10.6 through 10.39 pertain to executive compensation plans and arrangements. With the exception of those portions of the Annual Report and Proxy Statement that are expressly incorporated by reference in this Form 10-K, such documents are not to be deemed filed as part of this Form 10-K.
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.6
Director Stock Purchase Plan of TSYS, incorporated by reference to Exhibit 10.4 of TSYS’ Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as filed with the SEC on March 1, 2010.
10.7
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 SEC on March 19, 2002.
10.8
Amended and Restated Total System Services, Inc. Deferred Compensation Plan, incorporated by reference to Exhibit 10.1 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, as filed with the SEC on August 9, 2010.
10.9
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 SEC on March 18, 1993.
10.10
Amended and Restated Total System Services, Inc. Directors’ Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 of TSYS’ Quarterly Report on Form 10-Q for the quarter ended June 30, 2008, as filed with the SEC on August 7, 2008.
10.11
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 SEC on March 18, 1993.
We agree to furnish the SEC, upon request, a copy of each instrument with respect to issues of long-term debt. The principal amount of any individual instrument, which has not been previously filed, does not exceed ten percent of the total assets of TSYS and our subsidiaries on a consolidated basis.
Report of Independent Registered Public Accounting Firm
The Board of Directors
Total System Services, Inc.:
Under date of February 25, 2011, we reported on the consolidated balance sheets of Total System Services, Inc. and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of income, cash flows, and equity and comprehensive income for each of the years in the three-year period ended December 31, 2010, as contained in the 2010 annual report to shareholders. These consolidated financial statements and our report thereon are incorporated by reference in the annual report on Form 10-K for the year ended December 31, 2010. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related consolidated 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. Our report refers to changes in the manner in which the Company accounts for noncontrolling interests as of January 1, 2009 (note 1) and earnings per share as of January 1, 2009 (notes 1 and 27).
/s/ KPMG LLP
Atlanta, Georgia
February 25, 2011
Schedule II
Schedule - Valuation and Qualifying Accounts
TOTAL SYSTEM SERVICES, INC.
Schedule II
Valuation and Qualifying Accounts
(in thousands)
(1)
Amount reflected includes charges to (recoveries of) bad debt expense which are classified in selling, general and administrative expenses and the charges for billing adjustment which are recorded against revenues.
(2)
Amount reflected is the change in transaction processing accruals reflected in cost of services expenses.
(3)
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)
February 25, 2011 By: /s/ Philip W. Tomlinson
Philip W. Tomlinson,
Principal Executive Officer and
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Philip W. Tomlinson and M. Troy Woods 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/ Philip W. Tomlinson
Date: February 25, 2011
Philip W. Tomlinson,
Principal Executive Officer
and Chairman of the Board
/s/ M. Troy Woods
Date: February 25, 2011
M. Troy Woods,
President and Director
/s/ James B. Lipham
Date: February 25, 2011
James B. Lipham,
Senior Executive Vice President
and Principal Financial Officer
/s/ Dorenda K. Weaver
Date: February 25, 2011
Dorenda K. Weaver,
Chief Accounting Officer
/s/ Richard E. Anthony
Date: February 25, 2011
Richard E. Anthony,
Director
/s/ James H. Blanchard
Date: February 25, 2011
James H. Blanchard,
Director and Chairman of the
Executive Committee
/s/ Richard Y. Bradley
Date: February 25, 2011
Richard Y. Bradley,
Director
/s/ Kriss Cloninger III
Date: February 25, 2011
Kriss Cloninger III,
Director
/s/ Walter W. Driver, Jr.
Date: February 25, 2011
Walter W. Driver, Jr.,
Director
/s/ Gardiner W. Garrard, Jr.
Date: February 25, 2011
Gardiner W. Garrard, Jr.,
Director
/s/ Sidney E. Harris
Date: February 25, 2011
Sidney E. Harris,
Director
/s/ Mason H. Lampton
Date: February 25, 2011
Mason H. Lampton,
Director
/s/ H. Lynn Page
Date: February 25, 2011
H. Lynn Page,
Director
/s/ W. Walter Miller, Jr.
Date: February 25, 2011
W. Walter Miller, Jr.,
Director
/s/ John T. Turner
Date: February 25, 2011
John T. Turner,
Director
/s/ Richard W. Ussery
Date: February 25, 2011
Richard W. Ussery,
Director
/s/ James D. Yancey
Date: February 25, 2011
James D. Yancey,
Director
/s/ Rebecca K. Yarbrough
Date: February 25, 2011
Rebecca K. Yarbrough,
Director